<PAGE>
As filed with the Securities and Exchange Commission on June 25, 1999
Registration 333-77477
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
Amendment No. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
PRIMUS KNOWLEDGE SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Washington 7372 91-1350484
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
1601 Fifth Avenue
Seattle, Washington 98101
(206) 292-1000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Michael A. Brochu
President, Chief Executive Officer and Chairman of the Board
Primus Knowledge Solutions, Inc.
1601 Fifth Avenue
Seattle, Washington 98101
(206) 292-1000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
<TABLE>
<S> <C>
Gregory Gorder Alan K. Austin
Daniel F. Vaughn Steven V. Bernard
Perkins Coie LLP Wilson Sonsini Goodrich & Rosati
1201 Third Avenue, 40th Floor Professional Corporation
Seattle, Washington 98101-3099 650 Page Mill Road
(206) 583-8888 Palo Alto, California 94304-1050
(650) 493-9300
</TABLE>
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
-------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
-------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell securities, and we are not soliciting offers to buy these +
+securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 7, 1999
[PRIMUS LOGO]
4,150,000 Shares
Common Stock
Primus Knowledge Solutions, Inc. is offering 4,000,000 shares, and the
selling shareholders are offering 150,000 shares. This is Primus's initial
public offering, and no public market currently exists for its shares. Our
common stock has been approved for quotation on the Nasdaq National Market
under the symbol "PKSI." We anticipate that the initial public offering price
will be between $10.00 and $12.00 per share.
--------------
Investing in the common stock involves risks.
See "Risk Factors" beginning on page 5.
--------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price........................................... $ $
Underwriting Discounts and Commissions.......................... $ $
Proceeds to Primus.............................................. $ $
Proceeds to Selling Shareholders................................ $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
Primus has granted the underwriters a 30-day option to purchase up to an
additional 622,500 shares of common stock to cover over-allotments. BancBoston
Robertson Stephens Inc. expects to deliver the shares of common stock to
purchasers on , 1999.
--------------
BancBoston Robertson Stephens
Hambrecht & Quist
U.S. Bancorp Piper Jaffray
FAC/Equities
The date of this prospectus is , 1999
<PAGE>
[ARTWORK APPEARS HERE]
FRONT COVER
[THE COMPANY'S LOGO ACCOMPANIED BY THE FOLLOWING TEXT:
Competitive Differentiation with Customer Support
The growth of electronic commerce has made customer support a primary customer-
contact point and source of customer loyalty. As products and services have
become more standardized, customer support and problem resolution have become
key competitive differentiators.]
[THE SOLUTIONPUBLISHER, SOLUTIONEXPLORER AND SOLUTIONBUILDER LOGOS AND A GRAPHIC
REPRESENTATION OF THE PRIMUS KNOWLEDGE MANAGEMENT SOLUTION ACCOMPANIED BY THE
FOLLOWING TEXT:
SolutionPublisher allows an organization's customers to use the web for problem
resolution at any time of the day or night.
SolutionExplorer's Web-based approach allows field service personnel and
business partners to access and contribute to the knowledge base.
Customer support professionals use SolutionBuilder to find existing solutions
and author new solutions while working with a customer.
Capture, Solve, Reuse and Share for Better Support
Our SolutionSeries products allow customer-support personnel to capture problem-
resolution information in the workflow. Our associative problem-solving
technology enables our users to efficiently locate relevant solutions or create
new solutions to add to the knowledge base. These new solutions are immediately
available for reuse by other customer-support personnel and accessible
throughout the extended enterprise via the Web.]
<PAGE>
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
Until , 1999, all dealers that buy, sell or trade our common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This requirement is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary...................................................... 3
Risk Factors............................................................ 5
Use of Proceeds......................................................... 13
Dividend Policy......................................................... 13
Capitalization.......................................................... 14
Dilution................................................................ 15
Selected Consolidated Financial Data.................................... 16
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 17
Business................................................................ 28
Management.............................................................. 44
Certain Transactions.................................................... 53
Principal and Selling Shareholders...................................... 54
Description of Capital Stock............................................ 57
Shares Eligible for Future Sale......................................... 60
Underwriting............................................................ 62
Legal Matters........................................................... 64
Experts................................................................. 64
Additional Information.................................................. 64
Index to Consolidated Financial Statements.............................. F-1
</TABLE>
----------------
"Primus," "SolutionBuilder," "SolutionPublisher" and "Solution X" are
registered trademarks of Primus. "SolutionExplorer," "SolutionSeries,"
"SolutionAdmin," "Solution Reports" and "Primus Knowledge Solutions" are
trademarks of Primus. "Primus" is also a service mark of Primus. This
prospectus also contains trademarks and service marks of other companies, which
are the property of their respective owners.
Except where we state otherwise, we present information in this prospectus
assuming (1) the conversion of all outstanding shares of preferred stock into
an aggregate of 4,966,660 shares of common stock upon the closing of this
offering, (2) the exercise of warrants to purchase 55,999 shares of preferred
stock and subsequent conversion into 18,666 shares of common stock, (3) the
exercise of warrants to purchase 47,723 shares of common stock and (4) no
exercise of the underwriters' over-allotment option.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information that we present more fully in the rest of
this prospectus. The summary is not complete and does not contain all the
information you should consider before buying shares in this offering. You
should read the entire prospectus carefully.
Primus Knowledge Solutions, Inc.
We are a leading provider of Web-based problem-resolution software for
customer support and self-service. Our applications enable businesses to
capture problem-resolution information, solve customer problems, reuse
solutions stored in the knowledge base and share captured knowledge throughout
the extended enterprise. Our SolutionSeries family of software products
enhances an organization's problem-resolution capabilities by using our
associative problem-solving technology and leveraging the Internet to extend
customer support to remote employees, business partners and end-user customers.
We believe our software allows organizations to improve customer satisfaction
levels and decrease support costs by:
. reducing the overall time needed to resolve problems
. improving first-call resolution rates
. increasing call deflections to the Web
. reducing escalation of problems to senior analysts
. increasing solution reuse
. reducing training time
We believe that our SolutionSeries products enable our users to realize a
substantial economic return on their investment by:
. Enhancing problem resolution
Our products are based on a methodology which, as opposed to alternative
methodologies such as enhanced text retrieval, decision trees and case-
based reasoning, improves the relevance of solutions retrieved, supports
and enhances diverse problem-solving approaches and cost-effectively
captures knowledge in the workflow.
. Leveraging Internet technology to extend problem-resolution solutions
Our Web-architected applications can be deployed throughout the extended
enterprise more quickly and cost effectively than traditional client/server
products. Our products also enable our users to provide their customers
enhanced around-the-clock Web-based self-service, reducing the overall cost
of customer support. According to International Data Corporation, the cost
of providing Web-based software support averages $0.45 per incident as
compared to $30.00 for traditional phone support.
. Providing solutions for large global organizations and their partners
Our software has been deployed by one of our users to over 500 support
engineers globally and is being used by that company to provide Web-based
customer self-service support to over 130,000 registered end-users.
. Leveraging investment in existing customer-support systems
Our products integrate with most leading customer-relationship-management
systems, increasing customer-support personnel productivity and customer
satisfaction by reducing the need to re-gather existing customer
information before proceeding to problem resolution.
We market and sell our products primarily through a direct sales force. Our
customers include: 3Com, 3M, Amdahl, Compaq, EDS, EMC, Ericsson, Fujitsu,
Lucent, MCI/SHL Systemhouse, Microsoft, Motorola, Nortel Networks, Novell, NTT,
SGI, Softbank, Starbucks, Williams and Xerox.
Our objective is to establish and maintain a leadership position in providing
Web-based problem-resolution software applications for our users and their
customers. Our strategy to achieve this objective is to continue to leverage
the Internet, enhance our product suite, target additional vertical markets,
build additional strategic relationships and extend our solutions to functional
areas outside of customer support.
3
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered by Primus.................. 4,000,000 shares
Common stock offered by the selling
shareholders................................... 150,000 shares
Common stock to be outstanding after this
offering....................................... 13,501,796 shares
Use of proceeds................................. For general corporate purposes, including debt
repayment and working capital. See "Use of
Proceeds."
Nasdaq National Market symbol................... PKSI
</TABLE>
Common stock to be outstanding after this offering is based on shares
outstanding on March 31, 1999. It excludes 2,915,427 shares issuable on
exercise of outstanding stock options granted under our 1993, 1994 and 1995
stock plans at a weighted-average exercise price of $4.12 per share,
24,641 shares of common stock available for future grants under the 1995 stock
plan, 1,166,667 shares available for future grant under our 1999 stock
incentive compensation plan, 600,000 shares available for future issuance under
our 1999 employee stock purchase plan and 34,166 shares issuable on exercise of
warrants at a weighted-average exercise price of $5.85 per share. Between March
31, 1999 and May 31, 1999, we issued 10,276 shares of common stock on exercises
of outstanding options, we agreed to issue 18,400 additional shares to
employees of Primus KK and we granted options to purchase 10,000 shares at a
weighted-average exercise price of $10.50 per share.
Summary Consolidated Financial Data
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended March 31,
-------------------------- ----------------
1996 1997 1998 1998 1999
------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Total revenues................. $ 2,422 $ 5,189 $ 8,610 $ 1,365 $ 3,911
Loss from operations........... (5,992) (5,945) (10,506) (1,614) (1,844)
Net loss....................... (5,878) (5,985) (10,603) (1,626) (1,863)
Loss Per Share:
Basic and Diluted............ (1.58) (1.62) (2.82) (0.44) (0.48)
Pro Forma Basic and Diluted.. -- -- (1.32) -- (.20)
Shares used in Computation of
Loss Per Share
Basic and Diluted............ 3,857 3,884 3,957 3,903 4,313
Pro Forma Basic and Diluted.. -- -- 8,020 -- 9,280
</TABLE>
The following table summarizes:
. actual consolidated balance sheet data
. pro forma consolidated balance sheet data, giving effect to conversion of
all outstanding shares of preferred stock into 4,966,660 shares of common
stock and proceeds of $272,000 from the exercise of warrants to purchase
66,389 shares of common stock at a weighted-average exercise price of
$4.10 per share, for which we have received binding commitments from the
warrant holders to exercise the warrants in conjunction with the closing
of this offering.
. pro forma consolidated balance sheet data as adjusted to give effect to
our sale of 4,000,000 shares of common stock offered by us through this
prospectus at the assumed initial public offering price of $11.00 per
share and after deducting anticipated underwriting discounts and
commissions and estimated offering expenses and the retirement of long-
term debt of $1.6 million.
See "Capitalization."
<TABLE>
<CAPTION>
March 31, 1999
-------------------------------
Pro Forma
Actual Pro Forma as Adjusted
-------- --------- -----------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents..................... $ 2,423 $ 2,695 $41,042
Working capital (deficit)..................... (1,099) (827) 38,136
Total assets.................................. 11,546 11,818 50,165
Long-term obligations, net of current ........ 1,054 1,054 47
Redeemable convertible preferred stock........ 23,373 -- --
Total shareholders' equity (deficit).......... (23,318) 327 40,297
</TABLE>
Our headquarters are located at 1601 Fifth Avenue, Suite 1900, Seattle,
Washington 98101, and our telephone number is (206) 292-1000. Our Web site is
www.primus.com. We were incorporated in Washington in 1986.
4
<PAGE>
RISK FACTORS
We have incurred operating losses, and we may not be profitable in the future.
We have incurred net losses in each quarter since inception and we expect to
continue to incur net losses for the foreseeable future. As of March 31, 1999,
we had an accumulated deficit of $33.4 million. We expect to continue to devote
substantial resources to expand our product development, sales and marketing
and client service groups. As a result, we will need to generate significant
revenues to achieve and maintain profitability. We may not be profitable in any
future period. See "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Quarterly fluctuations in our operating results may adversely affect our stock
price.
Our license revenues have fluctuated substantially from quarter to quarter in
the past and are likely to continue to fluctuate substantially in the future.
Many of the factors causing the fluctuations are listed in "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Quarterly Results of Operations." In addition, the fiscal or quarterly budget
cycles of our users can cause our revenues to fluctuate from quarter to quarter
and applicable accounting policies may cause us to report new license
agreements as deferred revenue until implementation begins. As a result, we
believe that period-to-period comparisons of our operating results are not
meaningful, and you should not rely on such comparisons to predict our future
performance. We will continue to base our decisions regarding our operating
expenses on anticipated revenue trends. To the extent these expenses are not
followed by increased revenues, our operating results will suffer. Fluctuations
in our operating results, particularly compared to the expectations of market
analysts or investors, could cause severe volatility in the price of our common
stock.
Our quarterly operating results depend on a small number of large orders.
We derive a significant portion of our product license revenue in each
quarter from a small number of relatively large orders. Our operating results
for a particular fiscal quarter could be materially adversely affected if we
are unable to complete one or more substantial license sales or implementations
planned for that quarter. During the last nine quarters, four or fewer
customers accounted for more than half of that quarter's total revenues. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Factors outside our control may cause the timing of our license revenues to
vary from quarter-to-quarter, possibly adversely affecting our operating
results.
Under applicable accounting rules, we may experience further variability in
our license revenues from quarter to quarter due to factors outside our
control, including
. variability in the mix of new and existing customers
. whether we are providing implementation services
. whether implementation is delayed or takes longer than expected
Where we are implementing the software, we will account for the agreement as
an item of deferred revenue and will recognize the revenue over the period of
implementation. Most of our new customers begin implementation within 30 to 60
days of signing a license agreement. Once commenced, implementation of our
products typically ranges from 60 to 90 days. We can't, however, guarantee that
customers will begin implementation or that we will always be able to implement
our software within those time periods. Thus, all of our deferred license
revenue may not be recognized within the originally expected time period. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
5
<PAGE>
Seasonality may adversely affect our quarterly operating results.
We expect to experience seasonality in our license revenue. To date, we
believe that seasonality has been masked by other factors, such as large orders
and the timing of personnel changes in our sales staff. Our customers' purchase
decisions are often affected by fiscal budgetary factors and by efforts of our
direct sales force to meet or exceed sales quotas. As a result, we expect new
business in the last quarter of a year to be greater than new business in the
first quarter of the following year. One effect of our revenue recognition
policy, however, is that revenue recognized in a quarter will typically not
reflect all of the new license agreements signed and shipped in that quarter.
Because revenue recognized in a given quarter may be primarily associated with
new business in prior quarters, revenue in the first quarter may be higher than
revenue recognized in the previous fourth quarter. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
The limited sales history of our products makes it difficult to evaluate our
business and prospects.
We released our first SolutionSeries product in April 1995. As of March 31,
1999, approximately 40 companies licensed our SolutionSeries products.
Accordingly, the basis upon which you can evaluate our prospects in general,
and market acceptance of our products in particular, is limited. The market for
problem-resolution software will have to grow significantly, and we will have
to achieve broad market acceptance of our products, for our business to
succeed.
Moreover, we released our Web-based products, SolutionPublisher and
SolutionExplorer, in August 1996 and November 1997, respectively. The limited
sales history of our Web-based products further limits your ability to evaluate
our business and prospects. Additionally, part of our strategy is to extend our
solutions to other functional areas where knowledge captured by our products
may be useful, such as product development, sales and marketing and field
service. Whether there will be significant demand for our products in these
areas is untested and uncertain.
We rely on sales of only one product family.
Product-license revenues and related services from our SolutionSeries
products accounted for substantially all of our total revenues during fiscal
1998, and we expect revenues from our SolutionSeries products to continue to
account for substantially all of our future revenues. As a result, factors
adversely affecting the demand for our SolutionSeries products, such as
competition, pricing or technological change, could materially adversely affect
our business, financial condition and operating results. Our future financial
performance will substantially depend on our ability to sell current versions
of the SolutionSeries products and our ability to develop and sell enhanced
versions of SolutionSeries products.
Our future success depends in part on broad market acceptance of the Web as a
delivery vehicle for problem resolution.
Part of our strategy is to continue to increase our focus on developing and
marketing Web-based products. Our Web-based products, SolutionExplorer and
SolutionPublisher, accounted for approximately 33% of our software license
revenue in 1998 and 51% in the first quarter of 1999. Broad market acceptance
of the Web as a delivery vehicle for problem solutions to an enterprise's
customers, resellers, channel partners and field representatives through Web
self-service is critical to the success of our business. Thus, our future
success substantially depends on continued growth in the use of the Internet
and the continued development of the Internet as a viable commercial
6
<PAGE>
communication medium. We cannot be certain that commercial Internet usage will
continue to grow as it has in the past. If use of the Internet as a commercial
communication medium does not continue to grow or evolves in a way that we
cannot address, our business, financial condition and operating results would
be materially and adversely affected.
Factors outside our control may make our products less useful.
The effectiveness of our SolutionSeries products depends in part on
widespread adoption and use of our software by customer-support personnel in
the extended enterprise and the quality of the solutions they generate. The
problem-resolution database is developed by customer-support personnel that
create solutions in the workflow and, sometimes, by importing a user's legacy
solutions. If customer-support personnel do not adopt and use our products,
necessary solutions will not be added to the database, and the database will be
inadequate. Some of our users have found that customer- support personnel
productivity initially drops while customer-support personnel become accustomed
to using our software. If an enterprise deploying our software has not
adequately planned for and communicated its expectations regarding that initial
productivity decline, customer-support personnel may resist adoption of our
software. In addition, if less-than-adequate solutions are created and left
uncorrected by a user's quality-assurance processes or if the legacy solutions
are inadequate, the database will similarly be inadequate, and the value of our
SolutionSeries products to our users will be impaired. Thus, successful
deployment and broad acceptance of our SolutionSeries products will depend in
part on whether our users effectively roll-out and use our software products
and the quality of the users' existing database of solutions, each of which are
outside our control. See "Business--Products."
The high level of competition in our market may result in pricing pressures,
reduced margins or the failure of our products to achieve market acceptance.
The market for our products is new and rapidly evolving, and is expected to
become increasingly competitive as current competitors expand their product
offerings and new companies enter the market. We face competition in the
problem-resolution software market primarily from:
. other problem-resolution software vendors
. e-commerce customer-management software vendors
. our potential users' internal information technology departments, which
may choose to rely upon their own proprietary problem-resolution systems
or develop new proprietary systems
As the market for problem-resolution software matures, it is possible that
new and larger companies will enter the market, existing competitors will form
alliances or current and potential competitors could acquire, be acquired by or
establish cooperative relationships with third parties. The resulting
organizations could have greater technical, marketing and other resources and
improve their products to address the needs of our existing and potential
users, thereby increasing their market share. Increased competition could
result in pricing pressures, reduced margins or the failure of our products to
achieve or maintain market acceptance. See "Business--Competition."
The loss of access to, or a problem with, Versant's database could adversely
affect our business.
We incorporate into our products a database licensed from Versant. We are
currently working to integrate our products with other databases; however we do
not believe that the integrations will be completed for at least three to six
months. Because our products currently rely on Versant's database, we depend on
Versant's ability to support the database in a timely and effective manner.
Until we finish integration of our products with other databases, losing access
to Versant's database would have a material adverse effect on our ability to
license our product to new users. See "Business--Products."
7
<PAGE>
Failure to sufficiently expand our sales and marketing infrastructure would
adversely affect our sales.
To date, we have licensed our products primarily through our direct sales
force. Our vice president of sales began working for us in January 1999, and we
are currently seeking to hire a vice president of marketing. Our future revenue
growth will depend in large part on our ability to recruit, train and manage
additional sales and marketing personnel and to expand our indirect
distribution channels. We have experienced and continue to experience
difficulty in recruiting qualified sales and marketing personnel and in
establishing third-party relationships. We may not be able to successfully
expand our direct sales force or other distribution channels and any such
expansion may not result in increased revenues. Our business, financial
condition and operating results will be materially adversely affected if we
fail to expand our sales and marketing resources. See "Business--Sales and
Marketing."
Our failure to retain skilled technical personnel in a tight labor market may
adversely affect our product development, sales and customer satisfaction.
Qualified technical personnel are in great demand throughout the software
industry. The demand for qualified technical personnel is particularly acute in
the Pacific Northwest, due to the large number of software companies and the
low unemployment in the region. Our success depends in large part upon our
continued ability to attract and retain highly skilled technical employees,
particularly software architects and engineers. Our failure to attract and
retain the highly-trained technical personnel that are integral to our direct
sales, product-development and customer-support teams may limit the rate at
which we can generate sales and develop new products or product enhancements.
This could have a material adverse effect on our business, financial condition
and operating results.
Failure to properly integrate our management team would adversely affect our
business.
In the last year we added three new members to our senior management team,
none of whom worked together prior to joining Primus. Our success depends on
the performance of our senior management and their ability to work together.
Failure to properly integrate them would harm our business. Much of our success
also depends on Michael A. Brochu, our president and chief executive officer.
The loss of Mr. Brochu's services would harm our business. See "Management."
Our inability to expand sufficiently our implementation and consulting
capabilities would limit our ability to grow.
If sales of new licenses increased rapidly or if we were to sign a license
agreement for a particularly large or complex implementation, our client
services personnel may be unable to meet the demand for implementation
services. In that case, if we were unable to retain or hire highly trained
consulting personnel or establish relationships with third-party systems-
integrators and consultants to implement our products, we would be unable to
meet customer demands for implementation and educational services related to
our products. A failure to do so could have a material adverse effect on our
business, operating results and financial condition. See "Business--Strategy."
Our international operations are subject to additional risks.
Revenues from customers outside the United States represented approximately
$1.4 million in fiscal 1998, or 17% of our total 1998 revenues. A key component
to our business strategy is to expand our sales and support operations
internationally. Our international operations will continue to be subject to a
number of risks. These risks include:
8
<PAGE>
. costs of customizing products for foreign countries
. laws and business practices favoring local competition
. compliance with multiple, conflicting and changing laws and regulations
. longer sales cycles
. greater difficulty or delay in accounts receivable collection
. import and export restrictions and tariffs
. difficulties in staffing and managing foreign operations
. political and economic instability
Our international operations also face foreign-currency-related risks. To
date, substantially all of our revenues have been denominated in U.S. dollars,
but we believe that in the future, an increasing portion of our revenues will
be denominated in foreign currencies, including the Euro, which was introduced
in January 1999. The Euro is an untested currency and may be subject to
economic risks that are not currently contemplated. Fluctuations in the value
of the Euro or other foreign currencies may have a material adverse effect on
our business, operating results and financial condition.
We currently customize our products for the Japanese market. In the future,
we may develop additional localized versions of our products. Localization of
our products could create additional costs and cause delays in new product
introductions.
Our failure to adapt to technology trends and evolving industry standards would
hinder our competitiveness.
Our market is susceptible to rapid changes due to technology innovation,
evolving industry standards, and frequent new service and product
introductions. New services and products based on new technologies or new
industry standards expose us to risks of technical or product obsolescence. We
will need to use leading technologies effectively, continue to develop our
technical expertise and enhance our existing products on a timely basis to
compete successfully in this industry. We cannot be certain that we will be
successful in using new technologies effectively, developing new products or
enhancing existing products on a timely basis or that any new technologies or
enhancements used by us or offered to our customers will achieve market
acceptance.
Our inability to continue integration of our products with other third-party
software could adversely affect market acceptance of our products.
Our ability to compete successfully also depends on the continued
compatibility and interoperability of our products with products and systems
sold by various third parties, specifically including customer-relationship-
management software sold by Clarify, ONYX Software, Remedy, Siebel Systems and
Vantive. Currently, these vendors have open applications program interfaces,
which facilitate our ability to integrate with their systems. If any one of
them should close their programs' interface or if they should acquire one of
our competitors, our ability to provide a close integration of our products
could become more difficult and could delay or prevent our products'
integration with future systems.
Our efforts to protect our proprietary rights may be inadequate.
Our success depends in part on our ability to protect our proprietary rights.
To protect our proprietary rights, we rely primarily on a combination of
copyright, trade secret and trademark laws,
9
<PAGE>
confidentiality agreements with employees and third parties, and protective
contractual provisions such as those contained in license agreements with
consultants, vendors and customers. We have not signed such agreements in every
case. Despite our efforts to protect our proprietary rights, unauthorized
parties may copy aspects of our products and obtain and use information that we
regard as proprietary. Other parties may breach confidentiality agreements and
other protective contracts we have entered into. We may not become aware of, or
have adequate remedies in the event of, such breach.
We pursue the registration of some of our trademarks and service marks in the
United States and in certain other countries, but we have not secured
registration of all our marks. A significant portion of our marks include the
word "Primus." Other companies use "Primus" in their marks alone or in
combination with other words, and we cannot prevent all third-party uses of the
word "Primus." We license certain trademark rights to third parties. Such
licensees may not abide by compliance and quality control guidelines with
respect to such trademark rights and may take actions that would adversely
affect our trademarks.
Other companies may claim that we infringe their intellectual property or
proprietary rights.
If any of our products violate third party proprietary rights, we may be
required to reengineer our products or seek to obtain licenses from third
parties, and such efforts may not be successful. We do not conduct
comprehensive patent searches to determine whether the technology used in our
products infringes patents held by third parties. Product development is
inherently uncertain in a rapidly evolving technological environment in which
there may be numerous patent applications pending, many of which are
confidential when filed, with regard to similar technologies. In addition,
other companies have filed trademark applications for marks similar to the
names of our products. Although we believe that our products do not infringe
the proprietary rights of any third parties, third parties could assert
infringement claims against us in the future. The defense of any such claims
would require us to incur substantial costs and would divert management's
attention and resources to defend against any claims relating to proprietary
rights, which could materially and adversely affect our financial condition and
operations. Parties making such claims could secure a judgment awarding them
substantial damages, as well as injunctive or equitable relief that could
effectively block our ability to sell our services. Any such outcome could have
a material adverse effect on our business, financial condition and operating
results.
Control by insider shareholders of a large percentage of our voting stock may
permit them to influence Primus in a way that adversely affects our stock
price.
Following the closing of this offering, our officers, directors and
affiliated entities together will beneficially own approximately 36.7% of the
outstanding shares of our common stock (35.1% if the underwriters' over-
allotment option is exercised in full). As a result, these shareholders will be
able to influence all matters requiring shareholder approval and, thereby, our
management and affairs. Some matters that typically require shareholder
approval include:
. election of directors
. certain amendments to our articles of incorporation
. merger or consolidation
. sale of all or substantially all our assets
This concentration of ownership may delay, deter or prevent acts that would
result in a change of control, which in turn could reduce the market price of
our common stock. See "Principal and Selling Shareholders."
10
<PAGE>
Management has broad discretion in using the net proceeds from this offering.
We have not identified specific uses for the net proceeds from this offering,
and we will have broad discretion in how we use them. See "Use of Proceeds."
Our articles of incorporation and bylaws and Washington law contain provisions
that could discourage a takeover.
Certain provisions of our articles of incorporation and our bylaws and
Washington law could make it more difficult for a third party to obtain control
of Primus, which could reduce the market price of our stock. See "Description
of Capital Stock."
Future sales of our common stock may depress our stock price.
After this offering, we will have outstanding 13,501,796 shares of common
stock. Sales of a substantial number of shares of common stock in the public
market following this offering could materially adversely affect the market
price of our common stock. All the shares sold in this offering will be freely
tradable. The remaining shares of common stock outstanding after this offering
will be available for sale in the public market as follows:
<TABLE>
<CAPTION>
Number of
Date of Availability for Sale Shares
----------------------------- ---------
<S> <C>
Upon effectiveness of this offering......................... 224,829
90 days after effectiveness of this offering................ 18,150
180 days after effectiveness of this offering............... 8,863,297
At various times thereafter upon the expiration of one-year
holding periods............................................. 245,520
---------
Total.......................................................... 9,351,796
=========
</TABLE>
See "Shares Eligible for Future Sale" and "Underwriting."
Year 2000 remediation may involve significant time and expense and may reduce
our future sales.
Many currently installed computer systems are not capable of distinguishing
21st century dates from 20th century dates or have been programmed with default
dates ending in "99," the common two-digit reference for 1999. As a result, as
we transition from the 20th century to the 21st century, computer systems and
software used by many companies and organizations in a wide variety of
industries, including technology, transportation, utilities, finance and
telecommunications, will produce erroneous results or fail unless they have
been modified or upgraded to process date information correctly. Although we
believe the current versions of our software products are Year 2000 compliant,
we may face claims based on Year 2000 issues arising from the integration of
multiple products within an overall system. We may also experience reduced
sales of our products as potential customers reduce their budgets or delay new
purchases for customer-support software due to increased expenditures on their
own Year 2000 compliance efforts. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Year 2000 Compliance."
Changes in accounting standards could affect the calculation of our future
operating results.
In October 1997, the American Institute of Certified Public Accountants
issued its Statement of Position 97-2, "Software Revenue Recognition," and
later amended its position by its Statement of
11
<PAGE>
Position 98-4. We adopted Statement of Position 97-2 effective January 1, 1998.
Based on our interpretation of the AICPA's position, we believe our current
revenue recognition policies and practices are consistent with Statement of
Position 97-2 and Statement of Position 98-4. The AICPA has also issued
Statement of Position 98-9, which is effective for transactions we enter into
beginning January 1, 2000. However, full implementation guidelines for these
standards have not yet been issued. Once available, such implementation
guidelines could lead to unanticipated changes in our current revenue
accounting practices which could materially adversely affect our business,
financial condition and operating results. Additionally, the accounting
standard setters, including the Securities and Exchange Commission and the
Financial Accounting Standards Board, are reviewing the accounting standards
related to stock-based compensation. Any changes to this standard or any other
accounting standards could materially adversely affect our business, financial
condition and operating results. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
You should not unduly rely on forward-looking statements.
This prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipate," "believes," "expects,"
"future" and "intends," and similar expressions to identify forward-looking
statements. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this prospectus. Our actual
results could differ materially from those anticipated in these forward-looking
statements for many reasons, including the risks described above and elsewhere
in this prospectus.
12
<PAGE>
USE OF PROCEEDS
We expect to receive approximately $40.0 million in net proceeds from the
sale by us of the 4,000,000 shares of common stock in this offering, at the
assumed initial public offering price of $11.00 per share (approximately $46.3
million if the underwriters' over-allotment option is exercised in full).
We intend to use the net proceeds of this offering primarily for additional
working capital and other general corporate purposes, including repayment of a
term loan facility. We plan to repay the outstanding balance on our term loan
with Imperial Bank. As of March 31, 1999, we had borrowed $1.6 million under
this facility, which bears interest at Imperial Bank's prime rate plus 1%,
which equaled 8.75% at March 31, 1999. We may also use a portion of the net
proceeds to acquire additional businesses, products and technologies or to
establish joint ventures that we believe will complement our current or future
business. However, we have no specific oral or written plans, agreements or
commitments to do so, and are not currently negotiating any such acquisition or
joint venture. The amounts that we actually expend for working capital and
other general corporate purposes will vary significantly depending on a number
of factors, including future revenue growth, if any, the amount of cash we
generate from operations and the progress of our product development efforts.
As a result, we will retain broad discretion in allocating the net proceeds of
this offering. Pending the uses described above, we will invest the net
proceeds in short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never paid cash dividends on our common stock. We currently intend to
retain any future earnings to fund the development and growth of our business.
Therefore, we do not currently anticipate paying any cash dividends in the
foreseeable future. In addition, the terms of our current credit facilities
prohibit us from paying dividends without our lender's consent.
13
<PAGE>
CAPITALIZATION
The following table sets forth:
. our actual capitalization as of March 31, 1999
. our pro forma capitalization, after giving effect to the conversion of
all outstanding preferred stock into 4,966,660 shares of common stock and
proceeds of $272,000 from the exercise of warrants to purchase 66,389
shares of common stock at a weighted-average exercise price of $4.10 per
share for which we have received binding commitments from the warrant
holders to exercise the warrants in conjunction with the closing of this
offering.
. our pro forma capitalization, as adjusted to give effect to the sale by
us of 4,000,000 shares of common stock at the assumed initial public
offering price of $11.00 per share (less anticipated underwriting
discounts and commissions and estimated expenses we expect to pay in
connection with this offering) and the repayment of the $1.6 million
balance outstanding on our bank term loan
You should read this table in conjunction with our consolidated financial
statements and the notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
March 31, 1999
-----------------------------------------------------
Pro Forma
Actual Pro Forma as Adjusted
--------------- --------------- -------------------
(In thousands, except share and per share data)
<S> <C> <C> <C>
Long-term obligations, net
of current portion....... $ 1,054 $ 1,054 $ 47
--------------- --------------- ---------------
Redeemable convertible
preferred stock;
12,810,568 shares
designated: 12,810,568
shares issued and
outstanding, actual; no
shares issued and
outstanding, pro forma
and pro forma as
adjusted................. 23,373 -- --
Shareholders' equity
(deficit):
Preferred stock, $.001
par value per share;
15,000,000 shares
authorized; 500,000
issued and outstanding,
actual; no shares
issued and outstanding
pro forma or pro forma
as adjusted............ 1 -- --
Common stock, $.025 par
value per share;
50,000,000 shares
authorized; 4,468,747
shares issued and
outstanding, actual;
9,501,796 shares issued
and outstanding, pro
forma; 13,501,796
shares issued and
outstanding, pro forma
as adjusted(1)......... 112 238 338
Additional paid-in
capital................ 9,975 33,495 73,365
Accumulated deficit..... (33,401) (33,401) (33,401)
Accumulated other
comprehensive loss..... (5) (5) (5)
--------------- --------------- ---------------
Total shareholders'
equity (deficit)..... (23,318) 327 40,297
--------------- --------------- ---------------
Total
capitalization..... $ 1,109 $ 1,381 $ 40,344
=============== =============== ===============
</TABLE>
- -------
(1) Common stock excludes:
. 235,214 shares of common stock issuable on exercise of options
outstanding, of which 225,962 are exercisable, under our 1993 stock plan
at a weighted average exercise price of $1.98 per share
. 8,332 shares of common stock issuable on exercise of stock options
outstanding and exercisable under our 1994 nonemployee director stock
option plan at a weighted average exercise price of $2.25 per share
. 2,671,881 shares of common stock issuable on exercise of options
outstanding, of which 1,055,510 shares are exercisable, under our 1995
stock plan at a weighted-average exercise price of $4.31 per share and
24,641 shares of common stock reserved for future issuance under our 1995
plan. An additional 500,000 shares were reserved under the plan in April
1999.
. 1,166,667 shares of common stock reserved for issuance under our 1999
stock plan
. 600,000 shares available for issuance under our 1999 employee stock
purchase plan
. 34,166 shares issuable on exercise of warrants outstanding at a weighted-
average exercise price of $5.85 per share
14
<PAGE>
DILUTION
If you invest in our common stock, your interest will be diluted to the
extent of the difference between the public offering price per share of our
common stock and the pro forma as adjusted net tangible book value per share of
our common stock after this offering. We calculate net tangible book value per
share by dividing the net tangible book value (total assets less intangible
assets and total liabilities) by the number of outstanding shares of common
stock on an as-if-converted basis, as adjusted assuming the cash exercise of
the warrants referred to below.
Our pro forma net tangible book value at March 31, 1999, after giving effect
to (1) the conversion of all outstanding preferred stock into 4,966,660 shares
of common stock upon the closing of this offering and (2) proceeds of $272,000
from the exercise of warrants to purchase 66,389 shares of common stock at a
weighted-average exercise price of $4.10 per share, was $327,000, or $0.03 per
share of common stock. After giving effect to the sale of the 4,000,000 shares
of common stock at the assumed initial public offering price of $11.00 per
share (less anticipated underwriting discounts and commissions and estimated
expenses we expect to pay in connection with this offering), our pro forma as
adjusted net tangible book value at March 31, 1999 would have been $40.3
million, or $2.98 per share. This represents an immediate increase in the pro
forma net tangible book value of $2.95 per share to existing shareholders and
an immediate dilution of $8.02 per share to new investors, or approximately 73%
of the assumed initial public offering price of $11.00 per share.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................. $11.00
Pro forma net tangible book value per share at March 31, 1999.... $0.03
Increase per share attributable to new investors................. 2.95
-----
Pro forma as adjusted net tangible book value per share after
this offering................................................... 2.98
------
Dilution per share to new investors.............................. $ 8.02
======
</TABLE>
The following table shows, as of March 31, 1999 on the pro forma basis
described above, the number of shares of common stock purchased from us, the
total consideration paid to us and the average price paid per share by existing
shareholders and by new investors purchasing common stock in this offering:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders...... 9,501,796 70% $34,020,000 44% $ 3.58
New investors.............. 4,000,000 30 44,000,000 56 $11.00
---------- --- ----------- ---
Total.................... 13,501,796 100% $78,020,000 100%
========== === =========== ===
</TABLE>
At March 31, 1999, we had outstanding options to purchase shares of common
stock as follows:
<TABLE>
<CAPTION>
Number of Weighted-Average
Options Exercise Price
--------- ----------------
<S> <C> <C>
1993 stock plan................................... 235,214 $1.98
1994 stock plan................................... 8,332 2.25
1995 stock plan................................... 2,671,881 4.31
---------
Total........................................... 2,915,427 4.12
=========
</TABLE>
We also have available 1,166,667 shares for grant under our 1999 stock plan
and 600,000 shares for issuance under our 1999 employee stock purchase plan. To
the extent the option holders exercise outstanding options, or any options we
grant in the future, there will be further dilution to new investors. Both of
these plans have provisions to automatically add shares to the plan in certain
circumstances. In April 1999, we reserved an additional 500,000 shares under
our 1995 plan.
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data and other operating
information are derived from our consolidated financial statements. The
statement of operation and balance sheet data presented below were derived from
our audited consolidated financial statements. The information for years 1996
through 1998 have been audited by Ernst & Young LLP, independent auditors. In
our opinion, our unaudited financial statements for the three-month periods
ended March 31, 1998 and 1999 and at March 31, 1999 have been prepared on a
basis consistent with our audited financial statements and contain all
adjustments which include only normal recurring adjustments, necessary for a
fair presentation of our financial position and operating results for those
periods. When you read this selected consolidated financial data, it is
important that you also read the historical consolidated financial statements
and related notes included in this prospectus, as well as the section of this
prospectus related to "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Historical results are not necessarily
indicative of future results.
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended March 31,
-------------------------------------------- ----------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- ------- -------- ------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
License............... $ 14 $ 427 $ 1,459 $ 3,558 $ 6,034 $ 948 $ 2,901
Service............... -- 193 963 1,631 2,576 417 1,010
------- ------- ------- ------- -------- ------- -------
Total revenues....... 14 620 2,422 5,189 8,610 1,365 3,911
Cost of revenues:
License............... -- 43 137 97 375 20 145
Service............... -- 332 1,090 2,306 2,434 518 790
------- ------- ------- ------- -------- ------- -------
Total cost of
revenues............ -- 375 1,227 2,403 2,809 538 935
------- ------- ------- ------- -------- ------- -------
Gross profit............ 14 245 1,195 2,786 5,801 827 2,976
Operating expenses:
Sales and marketing... 917 2,118 3,499 4,613 9,750 1,268 2,876
Research and
development.......... 674 1,545 2,459 2,538 3,286 713 1,065
General and
administrative....... 712 1,111 1,229 1,580 3,271 460 879
------- ------- ------- ------- -------- ------- -------
Total operating
expenses............ 2,303 4,774 7,187 8,731 16,307 2,441 4,820
------- ------- ------- ------- -------- ------- -------
Loss from operations.... (2,289) (4,529) (5,992) (5,945) (10,506) (1,614) (1,844)
Interest income
(expense), net......... -- (53) 114 (40) (52) (12) 8
------- ------- ------- ------- -------- ------- -------
Loss before income
taxes.................. (2,289) (4,582) (5,878) (5,985) (10,558) (1,626) (1,836)
Income tax provision.... -- -- -- -- (45) -- (27)
------- ------- ------- ------- -------- ------- -------
Net loss................ $(2,289) $(4,582) $(5,878) $(5,985) $(10,603) $(1,626) $(1,863)
======= ======= ======= ======= ======== ======= =======
Loss Per Share:
Basic and Diluted..... (1.57) (1.49) (1.58) (1.62) (2,82) (0.44) (0.48)
Pro Forma Basic and
Diluted(1)........... -- -- -- -- (1.32) -- (0.20)
Shares used in
Computation of Loss Per
Share
Basic and Diluted..... 1,458 3,068 3,857 3,884 3,957 3,903 4,313
Pro Forma Basic and
Diluted(2)........... -- -- -- -- 8,020 -- 9,280
</TABLE>
<TABLE>
<CAPTION>
December 31, March 31, 1999
-------------------------------------------- ------------------
Pro
1994 1995 1996 1997 1998 Actual Forma(2)
------- ------ ------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............ $ 6 $ 227 $ 2,014 $ 711 $ 2,583 $ 2,423 $2,695
Working capital
(deficit).............. (1,154) (923) 2,043 (1,957) (816) (1,099) (827)
Total assets............ 454 1,737 5,877 5,274 13,687 11,546 11,818
Long-term obligations,
net of current......... 85 240 738 386 1,073 1,054 1,054
Redeemable convertible
preferred stock........ -- -- 8,128 10,399 23,157 23,373 --
Total shareholders'
equity (deficit)....... (914) (223) (5,291) (11,487) (22,247) (23,318) 327
</TABLE>
- -------
(1) See notes 1 and 12 of notes to consolidated financial statements for an
explanation of the method used to calculate pro forma basic and diluted
loss per share.
(2) Adjusted to reflect the conversion of all outstanding preferred stock into
4,966,660 shares of common stock and proceeds of $272,000 from the exercise
of warrants to purchase 66,389 shares of common stock at a weighted-average
exercise price of $4.10. We have received binding commitments from the
warrant holders to exercise the warrants in conjunction with the closing of
this offering.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This section of this prospectus includes a number of forward-looking
statements that reflect our current views with respect to future events and
financial performance. We use words such as "anticipate," "believes,"
"expects," "future" and "intends," and similar expressions to identify forward-
looking statements. You should not unduly rely on these forward-looking
statements, which apply only as of the date of this prospectus. These forward-
looking statements are subject to certain risks and uncertainties that could
cause actual results to differ materially from historical results or our
predictions. For a description of these risks, see "Risk Factors."
Overview
Our predecessor, Symbologic Corporation, incorporated in October 1986 and
initially focused on a software development tool for creation of systems to
gather organizational expertise. In 1993, we licensed that product line to
another company and founded the Customer Support Consortium, a consortium of
leading software and hardware companies focused on advancing customer-support
strategies, models and standards. From 1993 to 1995, we directed our attention
to customer-support products and began developing our SolutionSeries products.
In 1995, we changed our name to Primus and released SolutionBuilder, our first
SolutionSeries product. We launched our first Web-based products,
SolutionPublisher and SolutionExplorer, in 1996 and the end of 1997,
respectively. In 1997, we also divested our interest in the Customer Support
Consortium in conjunction with its transition to an independent nonprofit
entity. The divestiture consisted of the transfer of cash, accounts receivable
and capital equipment with an aggregate book value of $282,000 to the nonprofit
entity and the assumption by it of a $282,000 obligation related to the
fulfillment of Customer Support Consortium membership requirements. We recorded
no gain or loss as a result of the divestiture.
Our revenues, which consist of software license revenues and related client
services revenues, totaled $2.4 million, $5.2 million and $8.6 million in 1996,
1997 and 1998, respectively. For the foreseeable future, we expect
substantially all of our revenues will continue to be derived from our
SolutionSeries product family and related services. Our customers generally
license a full suite of our products. We have not experienced a decline in
revenues with respect to any one product as a result of product upgrades
provided under our support and maintenance agreements. We market our software
and services through our direct sales organization in the United States and the
United Kingdom. In Japan, Primus KK, a Japanese joint venture in which we hold
a 14.3% minority interest, distributes our products. Our international sales
constituted 17% of our 1998 revenues and 36% of our revenues for the first
quarter of 1999. We believe that international revenues, as a percentage of our
total revenues, will vary substantially on a quarterly basis for the forseeable
future.
We price our software licenses based on the number of servers, users and/or
concurrent users. From time to time, we grant discounts to customers with large
installations or who license several SolutionSeries products concurrently.
Our service revenues consist of consulting, training and maintenance and
support fees. We provide consulting and training services relating to our
products on a time-and-materials basis under installation services agreements
with our customers. We provide maintenance and support services to our
customers under renewable one-year maintenance and support agreements, which we
price as a percentage of our license fees.
Before 1998, we recognized software license revenue in accordance with the
American Institute of Certified Public Accountants Statement of Position 91-1.
Beginning in 1998, we have recognized
17
<PAGE>
software license revenue in accordance with AICPA Statement of Position 97-2,
"Software Revenue Recognition," and related amendment and interpretations
contained in the AICPA's Statement of Position 98-4. We typically recognize
software license revenues over the software implementation period if:
. we have signed a noncancelable license agreement with a customer
. we have shipped the software
. the fee is fixed and determinable
. there is sufficient vendor-specific objective evidence to support
allocation of the total fee to all elements of multiple-element
arrangements
. the fee is collectible
We currently recognize license revenue over the implementation period if
implementation services are included in the original license arrangement. As a
result, even where we have a signed license agreement for the purchase of our
software and have shipped the software, license revenue recognition depends on
whether we have begun implementation. At the current stage of our development,
due to the relatively recent introduction of our product line, our desire to
ensure customer satisfaction while we seek to build market share, the limited
number of installations of our products to date and the limited number of
third-party vendors that currently provide implementation services to our
users, we have concluded that the implementation services are, as a practical
matter, essential to the software in initial software arrangements where we
provide implementation services. As such we recognize revenue for these
arrangements following the percentage-of-completion method over the
implementation period. Once our recently introduced product line has a greater
number of completed installations and we have established a network of third
party vendors providing implementation services we will reassess our revenue
recognition policy to determine if our policy should be changed to begin
recognizing revenue from initial license arrangements upon shipping the
software. On the other hand, for license agreements under which we have no
implementation responsibility, we generally recognize revenue from the
agreement upon shipping the software, which we typically accomplish shortly
after signing a license agreement.
For new users, we typically agree to implement our software. Conversely,
examples of situations under which we have no implementation responsibility
would include a license agreement to add users for an existing customer or a
license agreement with a new customer who is using an outside implementation
service provider or is relying on its own internal implementation services.
Most of our new customers begin implementation within 30 to 60 days of signing
a license agreement. Once commenced, implementation of our products typically
ranges from 60 to 90 days. We can't, however, guarantee that customers will
begin implementation or that we will always be able to implement our software
within those time periods.
We enter into reseller arrangements that typically provide for sublicense
fees payable to us based on a percentage of our list price. We recognize
sublicense fees as they are reported by the reseller when it relicenses our
products to users of our products.
We believe our current revenue-recognition policies and practices are
consistent with applicable AICPA accounting pronouncements; however, the AICPA
has not issued full interpretation guidelines for its latest standards yet. We
might find it necessary to change our current revenue accounting practices once
the AICPA issues its interpretation guidance. Any changes in revenue-
recognition policies could result in substantial changes in the timing of our
future revenues and earnings. The AICPA recently issued its Statement of
Position 98-9, which provides certain
18
<PAGE>
amendments to its Statement of Position 97-2 and is effective for transactions
entered into beginning January 1, 2000. We do not expect implementation of this
latest AICPA pronouncement to materially impact our revenue recognition
practices.
Since 1992, we have invested heavily in product development and in building
our sales, marketing and client services organizations. From November 1997
through February 1999, we made a strategic investment in building our executive
management team to help us execute our long-term growth strategy. We have
incurred quarterly net losses since inception, and as of March 31, 1999, had an
accumulated deficit of $33.4 million. We anticipate that our operating expenses
will continue to increase substantially for the foreseeable future as we
continue to expand our product development, sales and marketing and client-
services staff.
Results of Operations
The following table presents certain financial data as a percentage of total
revenues for the periods indicated:
<TABLE>
<CAPTION>
Three Months
Year Ended December Ended March
31, 31,
------------------------ --------------
1996 1997 1998 1998 1999
------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
License........................... 60.2 % 68.6 % 70.1 % 69.5 % 74.2%
Service........................... 39.8 31.4 29.9 30.5 25.8
------ ------ ------ ------ -----
Total revenues................... 100.0 100.0 100.0 100.0 100.0
------ ------ ------ ------ -----
Cost of revenues:
License........................... 5.7 1.9 4.4 1.5 3.7
Service........................... 45.0 44.4 28.2 37.9 20.2
------ ------ ------ ------ -----
Total cost of revenues........... 50.7 46.3 32.6 39.4 23.9
------ ------ ------ ------ -----
Gross margin....................... 49.3 53.7 67.4 60.6 76.1
Operating expenses:
Sales and marketing............... 144.5 88.9 113.2 92.9 73.5
Research and development.......... 101.5 48.9 38.2 52.2 27.2
General and administrative........ 50.7 30.5 38.0 33.7 22.5
------ ------ ------ ------ -----
Total operating expenses......... 296.7 168.3 189.4 178.8 123.2
------ ------ ------ ------ -----
Loss from operations............... (247.4) (114.6) (122.0) (118.2) (47.1)
Interest income, net............... 4.7 (0.8) (0.6) (0.9) 0.2
------ ------ ------ ------ -----
Loss before income taxes........... (242.7) (115.4) (122.6) (119.1) (46.9)
Income tax provision .............. -- -- (0.5) -- (0.7)
------ ------ ------ ------ -----
Net loss........................... (242.7)% (115.4)% (123.1)% (119.1)% (47.6)%
====== ====== ====== ====== =====
</TABLE>
Revenues
We derive our revenues from the sale of software products and related
services including support and maintenance contracts. Revenues were $1.4
million and $3.9 million for the three months ended March 31, 1998 and 1999,
respectively, representing an increase in the first quarter of 1999 of $2.5
million or 187% over the comparable quarter of the prior year. Revenues were
$2.4 million, $5.2 million and $8.6 million in 1996, 1997 and 1998,
respectively, representing increases of $2.8 million or 114% from 1996 to 1997
and $3.4 million or 66% from 1997 to 1998.
19
<PAGE>
During 1996 and 1997, no single customer accounted for 10% or more of total
revenues. Purchases by one customer, 3Com, represented 12% of our 1998
revenues.
License Revenue. License revenues were $948,000 and $2.9 million for the
three months ended March 31, 1998 and 1999, respectively, representing an
increase in the first quarter of 1999 of $2.0 million or 206% over the
comparable quarter of the prior year. The increase was due to increased
international sales and increases in both the size and productivity of the
sales force. International license revenues were $121,000 and $1.2 million for
the three months ended March 31, 1998 and 1999, respectively. Sales personnel
totaled 16 and 47 as of March 31, 1998 and 1999, respectively. License revenues
were $1.5 million, $3.6 million and $6.0 million in 1996, 1997 and 1998,
respectively, representing increases of $2.1 million, or 144%, from 1996 to
1997 and $2.5 million, or 70%, from 1997 to 1998. The increase from 1996 to
1997 was primarily a result of the introduction of SolutionPublisher and
SolutionExplorer in August 1996 and November 1997, respectively. The increase
in license revenue from these products was $653,000 during this period. The
remaining license revenue increase was primarily a result of increased
SolutionBuilder sales. The increase from 1997 to 1998 primarily resulted from
introduction of SolutionExplorer in November 1997, the increased size of our
sales force and increased international sales, as a result of the opening of
our U.K. sales office and sales through our Japanese distributor. The increase
in international license revenues was $1.1 million. Sales personnel increased
by 24 during this period.
Service Revenue. Service revenues were $417,000 and $1.0 million for the
three months ended March 31, 1998 and 1999, respectively, representing an
increase in the first quarter of 1999 of $593,000, or 142%, over the comparable
quarter of the prior year. Maintenance and support contract revenues and
consulting fees increased $426,000 and $167,000, respectively, in the first
quarter of 1999 over the comparable quarter of the prior year. Service revenues
were $963,000, $1.6 million and $2.6 million in 1996, 1997 and 1998,
respectively, representing increases of $668,000, or 69%, from 1996 to 1997 and
$945,000, or 58%, from 1997 to 1998. Service revenues in 1996 consisted of
maintenance and support contract revenues and consulting fees of $51,000 and
$912,000 respectively. The increase in service revenue from 1996 to 1997 was a
result of a $371,000 increase in maintenance and support contract revenues and
a $297,000 increase in consulting revenues attributable to customer
implementations. The increase in service revenue from 1997 to 1998 was a result
of a $1.1 million increase in maintenance and support contract revenues offset
by a $127,000 decrease in consulting revenues. From 1996 through March 31,
1999, three customers did not renew their one-year maintenance and support
contracts. We expect the proportion of service revenues to total revenues to
fluctuate in the future, depending in part on use of third-party consulting and
implementation service providers.
Cost of Revenues
Cost of License Revenue. Cost of license revenue includes royalties and fees
paid to third parties under license arrangements and costs related to media and
duplication for our products and manuals. Cost of license revenues were $20,000
and $145,000 for the three months ended March 31, 1998 and 1999, respectively,
and $137,000, $97,000 and $375,000 in 1996, 1997 and 1998, respectively. The
cost of licenses increased $125,000, or 625%, from the three months ended
March 31, 1998 to the three months ended March 31, 1999, and decreased $40,000,
or 29%, from 1996 to 1997, and increased $278,000, or 287%, from 1997 to 1998.
Cost of licenses as a percentage of license revenues were 2.1% and 5.0% for the
three months ended March 31, 1998 and 1999, respectively, and 9.4%, 2.7% and
6.2% for 1996, 1997 and 1998, respectively. We anticipate that our cost of
license revenue will continue to increase in absolute dollars. Our cost of
license revenue as a
20
<PAGE>
percent of license revenue has varied in the past due to the volume of product
sales and the type of the royalty agreements in place at the time.
Cost of Service Revenue. Cost of service revenue includes personnel and
other costs related to professional services and customer support. Cost of
service revenue were $518,000 and $790,000 for the three months ended March
31, 1998 and 1999, respectively, and $1.1 million, $2.3 million and $2.4
million in 1996, 1997 and 1998, respectively. Cost of service revenue
increased $272,000, or 53% from the three months ended March 31, 1998 to the
three months ended March 31, 1999, and $1.2 million, or 112%, from 1996 to
1997, and $128,000, or 5.6%, from 1997 to 1998. The increases in cost of
service revenue from 1996 to the first quarter of 1999 was a result of hiring
and training a consulting organization to successfully implement our
SolutionSeries products. Professional services and customer support personnel
totaled 12 and 32 as of March 31, 1998 and 1999, respectively, and 13, 14 and
25 at December 31, 1996, 1997 and 1998, respectively. Cost of service revenue
as a percentage of service revenues were 124% and 78% for the three months
ended March 31, 1998 and 1999, respectively, and 113%, 141% and 94% for 1996,
1997 and 1998, respectively. The decrease in cost of service revenues as a
percentage of services revenues from the first quarter of 1998 to the first
quarter of 1999 was primarily due to higher utilization rates as a result of
higher levels of consulting-services activity and increased experience of the
customer-support personnel.
Operating Expenses
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, bonuses and commissions earned by sales and marketing personnel,
travel and costs associated with marketing programs, such as trade shows,
public relations and new product launches. Sales and marketing expenses were
$1.3 million and $2.9 million for the three months ended March 31, 1998 and
1999, respectively, and $3.5 million, $4.6 million and $9.8 million in 1996,
1997 and 1998, respectively. Sales and marketing expenses increased $1.6
million, or 127%, for the three months ended March 31, 1998 as compared to the
three months ended March 31, 1999, and $1.1 million, or 32%, from 1996 to
1997, and $5.1 million, or 111%, from 1997 to 1998. The increase from 1996 to
the first quarter of 1999 resulted primarily from the hiring of sales
management, sales representatives, sales engineers and marketing personnel, as
well as higher commissions paid as a result of revenue growth. Sales and
marketing employees totaled 30 and 58 as of March 31, 1998 and 1999,
respectively, and 23, 24 and 52 at December 31, 1996, 1997 and 1998,
respectively. The launch of our U.K. office in August 1998 contributed to the
increase of sales and marketing headcount that year. Total sales and marketing
headcount at our U.K. office was 7 as of December 31, 1998. Sales and
marketing expenses as a percentage of total revenues were 93% and 74% for the
three months ended March 31, 1998 and 1999, respectively, and 144%, 89% and
113% for 1996, 1997 and 1998, respectively. The increase in sales and
marketing expense as a percentage of total revenues from 1997 to 1998 was due
to headcount growth, attributable in part to the launch of our U.K. office. We
believe that a significant increase in our sales and marketing efforts is
essential for us to maintain market position and further increase market
acceptance of our products. Accordingly, we anticipate that we will continue
to invest significantly in sales and marketing for the foreseeable future, and
the dollar amount of sales and marketing expenses will increase in future
periods.
Research and Development. Research and development expenses consist
primarily of salaries and benefits for software developers, product managers
and quality assurance personnel and payments to outside contractors. Research
and development expenses were $713,000 and $1.1 million for the three months
ended March 31, 1998 and 1999, respectively, and $2.5 million, $2.5 million
and $3.3 million in 1996, 1997 and 1998, respectively. Research and
development expenses increased $352,000, or 49%, from the three months ended
March 31, 1998 to the three
21
<PAGE>
months ended March 31, 1999, $79,000, or 3%, from 1996 to 1997 and $748,000, or
30%, from 1997 to 1998. The increases from 1997 to the three months ended March
31, 1999 were primarily due to increased hiring of software developers and
quality-assurance staff to support development of our new products and
enhancements to our existing products and to an increase in compensation levels
for development and quality-assurance personnel. Research and development
personnel totaled 28 and 38 as of March 31, 1998 and 1999, respectively, and 24
and 31 for 1997 and 1998, respectively. Research and development expenses as a
percentage of total revenues were 52% and 27% for the three months ended March
31, 1998 and 1999, respectively, and 102%, 49% and 38% for 1996, 1997 and 1998,
respectively. We believe that a significant increase in our research and
development investment is essential for us to maintain our market position, to
continue to expand our product line and to develop additional applications for
our associative-based technology. Accordingly, we anticipate that we will
continue to invest significantly in product research and development for the
foreseeable future, and research and development expenses are likely to
increase in future periods. In the development of our new products and
enhancements of existing products, the technological feasibility of our
software is not established until substantially all product development is
complete. Accordingly, software development costs eligible for capitalization
were insignificant, and all costs related to internal research and development
have been expensed as incurred.
General and Administrative. General and administrative expenses consist
primarily of salaries, benefits and related costs for executive, finance,
administrative and information services personnel. General and administrative
expenses were $460,000 and $879,000 for the three months ended March 31, 1998
and 1999, respectively, and $1.2 million, $1.6 million and $3.3 million in
1996, 1997 and 1998, respectively. General and administrative expenses
increased $419,000, or 91%, from the three months ended March 31, 1998 to the
three months ended March 31, 1999, and $351,000, or 29%, from 1996 to 1997, and
$1.7 million, or 107%, from 1997 to 1998. The increase from 1996 to the first
quarter of 1999 was primarily the result of our hiring additional executive,
finance, and administrative personnel to support the growth of our business
during these periods. The increase in general and administrative expenses from
1997 to 1998 also reflects an increase in reserve accounts, such as in the
allowance for doubtful accounts related to our increase in revenues. General
and administrative expenses as a percentage of total revenues were 34% and 23%
for the three months ended March 31, 1998 and 1999, respectively, and 51%, 31%
and 38% for 1996, 1997 and 1998, respectively. The increase in general and
administrative expenses as a percentage of total revenues from 1997 to 1998 was
primarily due to growth in administrative headcount as we added to our
executive team. General and administrative employees totaled 14 and 19 as of
March 31, 1998 and 1999, respectively, and 10, 13 and 17 at December 31, 1996,
1997 and 1998, respectively. We believe that our general and administrative
expenses will continue to increase as a result of the continued expansion of
our administrative staff and the expenses associated with becoming a public
company, including, but not limited to, annual and other public-reporting
costs, directors' and officers' liability insurance, investor-relations
programs and professional-services fees.
Income Taxes. As of December 31, 1998, we had net operating loss
carryforwards for federal and state income tax reporting purposes of
approximately $24.8 million and research and development tax credit
carryforwards of $418,000, which begin to expire in 2001, if not utilized. The
Internal Revenue Code contains provisions that limit the use in any future
period of net operating loss and credit carryforwards upon the occurrence of
certain events, including significant change in ownership interests. We had
deferred tax assets, including our net operating loss carryforwards and tax
credits, totaling approximately $10.8 million as of December 31, 1998. We have
recorded a valuation allowance for the entire deferred tax asset as a result of
uncertainties regarding the realization of the asset balance. See note 6 of the
notes to our consolidated financial statements.
22
<PAGE>
Quarterly Results of Operations
The following table presents our unaudited quarterly results of operations
for 1997, 1998 and the three months ended March 31, 1999. You should read the
following table in conjunction with our consolidated financial statements and
the notes related thereto. We have prepared this unaudited information on a
basis consistent with the audited consolidated financial statements. This table
includes all adjustments, consisting only of normal recurring adjustments, that
we consider necessary for a fair presentation of our financial position and
operating results for the quarters presented. You should not draw any
conclusions about our future results from our quarterly results of operations.
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------------------------------------
Dec.
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, 31, March 31,
1997 1997 1997 1997 1998 1998 1998 1998 1999
--------- -------- --------- -------- --------- -------- --------- ------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
License................ $ 295 $ 899 $ 927 $ 1,437 $ 948 $ 1,231 $ 1,419 $ 2,436 $ 2,901
Service................ 293 474 388 476 417 592 790 777 1,010
------- ------- -------- ------- ------- ------- ------- ------- -------
Total revenues......... 588 1,373 1,315 1,913 1,365 1,823 2,209 3,213 3,911
------- ------- -------- ------- ------- ------- ------- ------- -------
Cost of revenues:
License................ 8 23 25 41 20 36 58 261 145
Service................ 583 649 581 493 518 483 710 723 790
------- ------- -------- ------- ------- ------- ------- ------- -------
Total cost of
revenues.............. 591 672 606 534 538 519 768 984 935
------- ------- -------- ------- ------- ------- ------- ------- -------
Gross profit............ (3) 701 709 1,379 827 1,304 1,441 2,229 2,976
Operating expenses:
Sales and marketing.... 991 1,147 896 1,579 1,268 2,056 3,069 3,357 2,876
Research and
development........... 697 676 583 582 713 934 885 754 1,065
General and
administrative........ 313 334 319 614 460 569 709 1,533 879
------- ------- -------- ------- ------- ------- ------- ------- -------
Total operating
expenses.............. 2,001 2,157 1,798 2,775 2,441 3,559 4,663 5,644 4,820
------- ------- -------- ------- ------- ------- ------- ------- -------
Loss from operations.... (2,004) (1,456) (1,089) (1,396) (1,614) (2,255) (3,222) (3,415) (1,844)
Interest income
(expense), net......... (6) (7) (20) (7) (12) (41) (26) 27 8
------- ------- -------- ------- ------- ------- ------- ------- -------
Loss before income
taxes.................. (2,010) (1,463) (1,109) (1,403) (1,626) (2,296) (3,248) (3,388) (1,836)
Income tax provision ... -- -- -- -- -- -- -- (45) (27)
------- ------- -------- ------- ------- ------- ------- ------- -------
Net loss................ $(2,010) $(1,463) $(1,109) $(1,403) $(1,626) $(2,296) $(3,248) $(3,433) $(1,863)
======= ======= ======== ======= ======= ======= ======= ======= =======
</TABLE>
The following table sets forth unaudited quarterly results of operations as a
percentage of total revenues for 1997, 1998 and the three months ended March
31, 1999.
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31, March 31,
1997 1997 1997 1997 1998 1998 1998 1998 1999
--------- -------- --------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
License................ 50.2 % 65.5 % 70.5 % 75.1 % 69.5 % 67.5 % 64.2 % 75.8 % 74.2 %
Service................ 49.8 34.5 29.5 24.9 30.5 32.5 35.8 24.2 25.8
------ ------ ----- ----- ------ ------ ------ ------ ------
Total revenues......... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
------ ------ ----- ----- ------ ------ ------ ------ ------
Cost of revenues:
License................ 1.4 1.7 1.9 2.1 1.5 2.0 2.6 8.1 3.7
Service................ 99.1 47.3 44.2 25.8 37.9 26.5 32.2 22.5 20.2
------ ------ ----- ----- ------ ------ ------ ------ ------
Total cost of
revenues.............. 100.5 48.9 46.1 27.9 39.4 28.5 34.8 30.6 23.9
------ ------ ----- ----- ------ ------ ------ ------ ------
Gross margin............ (0.5)% 51.1 53.9 72.1 60.6 71.5 65.2 69.4 76.1
Operating expenses:
Sales and marketing.... 168.5 83.5 68.1 82.5 92.9 112.8 138.9 104.5 73.5
Research and
development........... 118.5 49.2 44.3 30.4 52.2 51.2 40.1 23.5 27.2
General and
administrative........ 53.2 24.3 24.3 32.1 33.7 31.2 32.1 47.7 22.5
------ ------ ----- ----- ------ ------ ------ ------ ------
Total operating
expenses.............. 340.3 157.1 136.7 145.1 178.8 195.2 211.1 175.7 123.2
------ ------ ----- ----- ------ ------ ------ ------ ------
Loss from operations.... (340.8) (106.0) (82.8) (73.0) (118.2) (123.7) (145.9) (106.3) (47.1)
Interest income
(expense), net......... (1.0) (0.5) (1.5) (0.4) (0.9) (2.2) (1.2) 0.8 0.2
------ ------ ----- ----- ------ ------ ------ ------ ------
Loss before income
taxes.................. (341.8) (106.6) (84.3) (73.3) (119.1) (125.9) (147.1) (105.5) (46.9)
Income tax provision ... -- -- -- -- -- -- -- (1.4) (0.7)
------ ------ ----- ----- ------ ------ ------ ------ ------
Net loss................ (341.8)% (106.6)% (84.3)% (73.3)% (119.1)% (125.9)% (147.1)% (106.9)% (47.6)%
====== ====== ===== ===== ====== ====== ====== ====== ======
</TABLE>
23
<PAGE>
The trends discussed above in the annual and quarterly comparisons of
operating results generally apply to the comparison of operating results for
the nine quarters in the 27-month period ended March 31, 1999. Cost of licenses
as a percentage of license revenue for the fourth quarter of 1998 were
significantly higher than other periods due to an expense related to the resale
of a third party's products. The expense totaled $128,000. General and
administrative expenses for the fourth quarter of 1998 were significantly
higher than prior periods primarily due to year-end compensation accruals and
increases in reserve accounts, such as our allowance for doubtful accounts
related to our increase in revenues. Our quarterly operating results have
varied widely in the past, and we expect that they will continue to fluctuate
in the future as a result of a number of factors, many of which are outside our
control. We expect to experience seasonality with respect to software license
revenues. To date, we believe that seasonality has been masked by other
factors, such as the impact of large transactions and personnel changes.
We believe that our period-to-period operating results are not meaningful,
and you should not rely on them as indicative of our future performance. You
should also evaluate our prospects in light of the risks, expenses and
difficulties commonly encountered by comparable early-stage companies in new
and rapidly emerging markets. We can't assure you that we will successfully
address the risks and challenges that face us. In addition, although we have
experienced significant revenue growth recently, we can't assure you that our
revenue will continue to grow or that we will become or remain profitable in
the future. Our future operating results will depend on many factors,
including:
. demand for our products and services
. product and price competition
. variability in the mix of our license and service revenues
. variability in the mix of our direct versus indirect license revenues
. variability in the mix of services that we perform versus those performed
for our customers by others
. success in expanding our direct sales force and indirect distribution
channels
. our ability to develop and market new and enhanced products on a timely
basis
. timing of our new product introductions and product enhancements or those
of our competitors
. continued purchases by our existing customers, including additional
license and maintenance revenues
. international sales and strategic acquisitions
. the loss of any key employees and timing of our new hires
Liquidity and Capital Resources
Since our inception, we have primarily financed our operations through the
private sale of our equity securities, resulting in net proceeds of $33.2
million through March 31, 1999. To a lesser extent, we have financed our
operations through equipment financing and traditional lending arrangements.
As of March 31, 1999, we had cash and cash equivalents of $2.4 million, a
decrease from $2.6 million of cash and cash equivalents held as of December 31,
1998. Our working capital deficit at March 31, 1999 was $1.1 million, compared
to working capital deficit of $816,000 at December 31, 1998. The increase in
the working capital deficit is attributable primarily to a $1.4 million
decrease in cash and securities available-for-sale and accounts receivable,
offset by a
24
<PAGE>
$1.3 million decrease in current liabilities during the first quarter of 1999.
As of March 31, 1999, working capital excluding deferred revenue was $5.6
million compared to $6.8 million at December 31, 1998. As of March 31, 1999,
accounts receivable of $4.8 million included $2.1 million due from one
customer, Origin. We have not experienced any delays or problems with the
collection of Origin's account.
As of March 31, 1999, we had $1.6 million outstanding under a senior term-
loan facility with Imperial Bank that bears interest at a rate equal to the
bank's prime rate plus 1%, which equaled 8.75% as of March 31, 1999. In April
1999, we entered into a $5.0 million working-capital revolving line of credit
with Imperial Bank that is secured by our accounts receivable and bears
interest at the bank's prime rate plus .75%, which was 8.5% as of March 31,
1999. This facility allows us to borrow up to the lesser of 80% of our eligible
accounts receivable or $5 million. The facility will expire in April 2000. In
April 1999, we also obtained a $1.0 million capital-equipment line of credit
with Imperial Bank that bears interest at a rate equal to the bank's prime rate
plus 1.0%, which equaled 8.75% as of March 31, 1999. All of our lending
facilities require us to maintain certain financial covenants, including
requirements that we maintain certain financial ratios. We were in compliance
with or received waivers of all of these financial covenants at March 31, 1999.
Our operating activities resulted in net cash outflows of $674,000 and $2.2
million for the three months ended March 31, 1998 and March 31, 1999,
respectively. The increase in operating cash outflows from the three months
ended March 31, 1998 to the three months ended March 31, 1999 was due primarily
to a decrease in deferred revenues and accounts payable. Operating activities
resulted in net cash outflows of $6.4 million in 1996, $3.1 million in 1997,
and $7.5 million in 1998. The decrease in operating cash outflows from 1996 to
1997 was attributable primarily to an increase in deferred revenues. The
increase in operating cash outflows from 1997 to 1998 resulted from further
operating losses and growth in accounts receivable, partially offset by further
increases in deferred revenues.
Investing activities provided cash of $412,000 and $921,000 for the three
months ended March 31, 1998 and March 31, 1999, respectively. In addition,
investing activities used cash of $1.2 million in 1996, $490,000 in 1997 and
$3.3 million in 1998 primarily for the purchase of capital equipment and short-
term securities.
Financing activities provided cash of $36,000 and $1.2 million for the three
months ended March 31, 1998 and March 31, 1999, respectively. Financing
activities provided cash of $9.4 million in 1996, $2.3 million in 1997 and
$12.7 million in 1998 primarily through the issuance of preferred stock and
proceeds from the exercise of stock options, partially offset by payments on
capital equipment lease obligations.
In the quarter ending June 30, 1999, the Company issued 18,400 shares of
common stock and 10,000 fully vested options to acquire shares of common stock
at an exercise price of $10.50 per share to employees of Primus KK. The
aggregate fair value of the stock and stock options of $239,800 was expensed by
us in the quarter ending June 30, 1999.
We currently anticipate that we will continue to experience significant
growth in our operating expenses for the foreseeable future as we
. enter new markets for our products and services
. increase research and development spending
. increase sales and marketing activities
25
<PAGE>
. develop new distribution channels
. improve our operational and financial systems
. broaden our professional service capabilities
Such operating expenses will consume a material amount of our cash resources,
including a portion of the net proceeds from this offering. We believe that the
net proceeds from this offering, together with our existing cash and cash
equivalents, and available bank borrowings, will be sufficient to meet our
anticipated cash needs for working capital and capital expenditures for at
least the next twelve months. Thereafter, we may require additional funds to
support our working capital requirements or for other purposes and may seek to
raise such additional funds through public or private equity financing or from
other sources. We may not be able to obtain adequate or favorable financing at
that time. Any financing we obtain may dilute your ownership interest in
Primus.
Qualitative and Quantitative Disclosures About Market Risk
We develop products in the United States and sell them in North America, Asia
and Europe. As a result, our financial results could be affected by factors
such as changes in foreign currency exchange rates or weak economic conditions
in foreign markets. Since our sales are currently priced in U.S. dollars and
translated to local currency amounts, a strengthening of the dollar could make
our products less competitive in foreign markets. Interest income and expense
are sensitive to changes in the general level of U.S. interest rates,
particularly since our investments are in short-term instruments and our long-
term debt and available line of credit require interest payments of variable
rates. However, based on the nature and current levels of our investments and
debt, we have concluded that there is no material market risk exposure.
Year 2000 Compliance
Many currently installed computer systems are not capable of distinguishing
21st century dates from 20th century dates or have been programmed with default
dates ending in "99," the common two-digit reference for 1999. As a result, as
we transition from the 20th century to the 21st century, computer systems and
software used by many companies and organizations in a wide variety of
industries will produce erroneous results or fail unless they have been
modified or upgraded to process date information correctly. Significant
uncertainty exists in the software industry and other industries concerning the
scope and magnitude of problems associated with the century change. We
recognize the need to ensure our operations will not be adversely affected by
Year 2000 software failures.
In September 1998, we established a Year 2000 compliance task force, composed
of high-level representatives from the product development, information systems
and legal departments. The task force is responsible for formulating and
implementing our Year 2000 readiness and has applied a phased approach to
analyzing our operations and relationships as they relate to the Year 2000
problem.
We have completed our initial assessment of the potential overall impact of
the impending century change on our business, financial condition and operating
results. Based on our current assessment, we believe the current versions of
our software products are Year 2000 compliant. By Year 2000 compliant, we mean
that our software products, when used with accurate date data and in accordance
with their associated documentation, are capable of properly processing date
data from, into and between the 20th and 21st centuries, including the years
1999, 2000 and leap years,
26
<PAGE>
provided that all other products (e.g., hardware, software and firmware) used
with our products properly exchange date data with them. However, our products
are generally integrated into enterprise systems involving sophisticated
hardware and complex software products that we cannot adequately evaluate for
Year 2000 compliance. We may face claims based on Year 2000 problems in other
companies' products, or issues arising from the integration of multiple
products within an overall system. Although we have not been a party to any
litigation or arbitration proceeding involving our products or services related
to Year 2000 compliance issues, we may in the future be required to defend our
products or services in such proceedings, or to negotiate resolutions of claims
based on Year 2000 issues. The costs of defending and resolving Year 2000-
related disputes, regardless of the merits of such disputes, and any liability
we have for Year 2000-related damages, including consequential damages, could
materially adversely affect our business, financial condition and operating
results. In addition, we believe that the purchasing patterns of customers and
potential customers may be affected by Year 2000 issues as companies expend
significant resources to correct or upgrade their current software systems for
Year 2000 compliance and as they delay purchase of new systems that may not be
Year 2000 compliant. These expenditures may result in reduced funds available
to purchase software products such as those we offer. To the extent Year 2000
issues cause a significant delay in, or cancellation of, decisions to purchase
our products or services, our business, financial condition and operating
results would be materially adversely affected.
We have reviewed our internal management information and other critical
business systems to identify any Year 2000 problems. We also have communicated
with the external vendors that supply us with material software and information
systems and with our significant suppliers to determine their Year 2000
readiness. In the course of these investigations, we have not encountered any
material Year 2000 problems with these third-party products.
In September 1998, we had a firm of independent consultants undertake an
assessment of our Year 2000 readiness, at a cost of $6,000. To date, apart from
that assessment, we have not incurred any material costs directly associated
with our Year 2000 compliance efforts, except for compensation expense
associated with our salaried employees who have devoted some of their time to
our Year 2000 assessment and remediation efforts. We do not expect the total
cost of Year 2000 problems to be material to our business, financial condition
and operating results. However, during the months prior to the century change,
we will continue to evaluate new versions of our software products, new
software and information systems provided to us by third parties and any new
infrastructure systems that we acquire to determine whether they are Year 2000
compliant. Despite our current assessment, we may not identify and correct all
significant Year 2000 problems on a timely basis. Year 2000 compliance efforts
may involve significant time and expense and unremediated problems could
materially adversely affect our business, financial condition and operating
results. We currently have no contingency plans to address the risks associated
with unremediated Year 2000 problems.
27
<PAGE>
BUSINESS
Overview
We are a leading provider of Web-based problem-resolution software for
customer support and self-service. Our applications enable businesses to
capture problem-resolution information, solve customer problems, reuse
solutions stored in the knowledge base and share captured knowledge with our
customers, their field personnel, business partners and end users (i.e. an
extended enterprise). Our SolutionSeries family of software products enhances
an organization's problem-resolution capabilities by using our associative
problem-solving technology, as described below under "--Industry Background",
and leveraging the Internet to extend customer support to remote employees,
business partners and end-user customers.
Industry Background
During the last several years, many businesses have found that providing
responsive and accurate answers to their customers' questions and problems has
become an important business function. As products and services have become
more standardized, customer support and problem resolution have become
increasingly important competitive differentiators. Furthermore, the growth of
Internet-based electronic commerce has facilitated the purchasing and ordering
process and enabled an efficient but less personal relationship between
merchant and customer. As a result, customer support has often become the
primary point of customer contact and can significantly influence customer
loyalty.
Customer support is increasingly challenging
While recognizing the importance of quality customer support, most
organizations have been challenged by increasing product and distribution-
channel complexity and by rising customer expectations.
Product complexity Products and services are increasingly complex
in today's marketplace, driven primarily by:
. Proliferation of technology-based
products and services
. Increasing integration of products and
components from several manufacturers
. High rates of innovation and product
change
Each of these factors threatens an enterprise's
ability to provide quality customer service and
manage costs, since they can contribute to
longer time needed to resolve problems and
lower first-call resolution rates.
As product innovation continues to shorten
product lifecycles, as well as open new markets
for technology-based products, these challenges
will be heightened. Customers will need more
product education and support. Historically,
businesses have responded to the increased
demand by adding headcount to their customer
support organizations.
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<PAGE>
However, current shortages of qualified
customer-support personnel, high turnover in
customer-support departments and the increasing
cost of training customer-support personnel
have made adding headcount less effective.
Distribution-channel As traditional wholesale-retail-consumer
complexity business models expand to include resellers,
systems integrators, outsourcers and channel
partners, enterprises are facing difficult
challenges in enabling their business partners
to provide high-quality, consistent customer
support. Without access to a collaborative
system that allows them to share important
problem-resolution information, partners in the
extended business enterprise may provide
inconsistent solutions or redirect their
customers' problems to the enterprise.
Increasing customer Many companies have found that their customers
expectations increasingly want to be able to resolve
customer problems in a fast, convenient manner
at any time of the day or night. Customers also
expect to be able to use their choice of
medium: telephone, fax, email or the Internet.
The Aberdeen Group estimates that, by 2002,
companies will receive over 50% of all general
customer support contacts and inquiries over
the Web and through email messages and other
Web-based forms. These increasing demands have
led some companies to hire more customer-
support personnel to provide around-the-clock
customer support. Others have sought to meet
this challenge by investing in technology to
increase their customer-support capabilities.
Traditional customer-support responses have been inadequate
Many businesses have provided customer-support and problem resolution through
a call center. Software systems designed to support customer call centers
traditionally include call-routing, call-tracking and customer-relationship-
management systems. These systems are effective at directing customer calls on
a timely basis to the appropriate customer-support personnel together with the
related customer information. They do not, however, help support analysts
become more effective problem solvers or enable them to capture and share
valuable knowledge gained from understanding and solving the customer's
problems.
To better address the need for improved problem-resolution capabilities,
businesses have considered a variety of alternatives including increasing
staffing, developing their own problem-resolution systems and buying problem-
resolution solutions from third-party software vendors. Increased hiring is an
expensive alternative that provides little leverage and a limited solution to
efficiently address the significant demands of very large organizations (i.e.
scalability). Development of custom solutions can detract the business from its
core competencies and prove costly to develop and maintain. Software vendors
focused on providing problem-resolution systems have developed various
approaches to enable businesses to manage problem-resolution information.
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<PAGE>
Traditionally, third-party systems have incorporated enhanced text-retrieval,
decision-tree or case-based-reasoning technology.
Enhanced text-retrieval Enhanced text-retrieval systems use key-word
systems searches to locate words, phrases and concepts
within documents and files. These systems then
retrieve and rank the findings according to the
frequency with which the search terms occur.
Text-retrieval systems are of limited use in
real-time problem solving, since they generally
require the user to know the exact words used
by the systems developer to label a particular
concept. We believe that they return too much
irrelevant information and do little or nothing
to enable the capture of new solutions to
customer problems.
Case-based-reasoning and
decision tree systems
Case-based-reasoning and decision tree systems
typically require a customer-support analyst to
follow a fixed question-and-answer sequence to
arrive at a pre-engineered solution. These
systems work best in reasonably stable
environments in which problems can be
anticipated and their solutions pre-engineered.
For organizations with quickly changing
product-support requirements, these systems can
be costly and time consuming to develop.
Furthermore, since the solution to a problem is
not captured in the product's workflow, it can
be expensive and time consuming to maintain the
database. For instance, for each "new" solution
an analyst uncovers, a complete description
needs to be submitted to a knowledge engineer,
who then must redesign the cases or the
decision trees and enter this into the
database. In the meantime, many problems have
to be re-solved from the start, since the
system does not automatically capture the
solution. Finally, we believe that, since these
approaches are rigid by nature, the
methodologies generally take a long time to
resolve complex problems that require several
levels of questioning, do not provide guidance
toward solving subsequent problems if no
solution is found the first time and do not
effectively leverage the experience of more
senior personnel.
Associative problem solving: a better problem-solving methodology
We believe that, over the past few years, problem-resolution systems based on
associative problem-solving technology have gained increasing acceptance by
addressing the shortcomings associated with text-retrieval, decision-tree and
case-based-reasoning systems. Associative problem-solving technology uses
natural-language statements to describe the support problem, including symptoms
of the problem, facts about the environment in which the problem arose and
recent changes to that environment. These systems treat natural-language
statements as concepts and search for relevant solutions using algorithms that
leverage the associations that exist among each of the many concepts in the
knowledge database. As a result, these systems enable users to locate, evaluate
and return solutions with a high degree of relevance.
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<PAGE>
The combination of natural-language support and the associative search
methodology helps these systems to support multiple approaches to problem
solving. For example, a more senior analyst, who may know many of the potential
solutions based on his or her experience, will be able to leverage that
experience to find the relevant solution quickly by describing only the most
relevant facts and symptoms. A less experienced junior analyst, on the other
hand, can learn how to better solve customer problems through use of the system
by seeing which problem-description elements provide key clues to the solution.
Non-technical users benefit from the natural-language interface, which allows
them to describe their problems without needing to know the technical jargon
that a software engineer may have used to describe the problem in the knowledge
database. Associative problem-solving systems are therefore well suited to
provide self-service customer support through the Internet.
Associative problem-solving systems also enhance a customer-support
organization's ability to capture solutions without the costly and time-
consuming task of off-line development and maintenance of the knowledge
database. For example, when information returned in response to the problem
description does not solve the customer's problem, associative problem-solving
systems enable the customer-support personnel to create and capture new
solutions in their workflow. By enabling customer-support organizations to
capture solutions on a real-time basis, the need for off-line knowledge
engineering is minimized and the number of solutions that get created more than
once is reduced.
The Internet provides an opportunity to improve support levels and reduce
support costs
Internet technology has allowed many organizations to re-engineer their call
centers into customer-contact centers. Customer-contact centers are now being
designed to allow for multiple channels of customer contact, including
telephone, fax, email and the Web. Integrating the support capabilities of the
customer-contact center with a business's Web site presents an opportunity to
increase customer-service levels and reduce costs.
By incorporating problem-resolution technology in its Web-site architecture,
an enterprise can provide its customers with around-the-clock access to
customer support, thereby improving customer-satisfaction levels. An enterprise
can also reduce the overall cost of customer support and increase the
scalability of its customer-support operations by inducing more customers to
first seek support from the enterprise's Web site, rather than the more costly
customer-call center. To date, many companies have handled the growing number
of support inquiries over the Web by posting static responses to a frequently
asked questions on their Web sites or through automating responses to incoming
inquiries with pre-scripted email responses. Both of these approaches are
limited in their ability to effectively handle unique incoming customer
inquiries.
Finally, businesses can also use Internet technologies to deploy Web-based
problem-resolution applications. In contrast to client-server applications,
software applications that can be deployed over the Web (i.e. Web-based
applications) can be more rapidly and cost-effectively deployed to the extended
enterprise over the Internet. In addition, Web-based applications can be more
rapidly and cost-effectively deployed through limited-access private networks
(i.e. intranets) and limited-access public networks (i.e. extranets). This
enables remote employees and business partners to leverage and add to pre-
existing organizational knowledge and thereby increase an organization's
effectiveness in resolving customer issues.
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We believe that with customer support playing a critical role in overall
customer-satisfaction a significant opportunity exists for software that:
. enhances problem resolution through associative problem-solving
technology
. leverages the Internet and corporate intranets and extranets to capture
and share organizational knowledge with customers, business partners and
remote employees
. provides scalability to meet the demands of the extended enterprise and
Web-based customer self-service
. integrates with existing information technology infrastructure
Furthermore, we think that successful problem-resolution software will give
employees outside of the customer support department access to useful
information gained in the customer-support process. For example, employees in
other functional areas, such as product development, field service, and sales
and marketing, can use this information to identify problems with existing
products, target areas for new product development and understand changes in
customer needs and preferences.
Primus Solution
We provide Web-based problem-resolution application software for customer-
support and self-service over the Internet. Our applications enable businesses
to capture problem-resolution knowledge, solve customer problems, reuse
solutions and share captured knowledge throughout the extended enterprise. Our
SolutionSeries family of software products enhances an organization's problem-
resolution capabilities, since it is based on our associative problem-solving
technology and leverages the Internet to offer customer support to the extended
enterprise and its end-users customers. Our software:
Provides substantial
economic return on
investment We believe, based in part on the studies
described below under "--Customers," that our
SolutionSeries products provide our users with
applications that enable them to realize
significant and measurable cost reductions and
to improve their customer-satisfaction levels
by:
. reducing the overall time needed to
resolve problems
. improving first-call resolution rates
. reducing escalation of problems to senior
analysts
. reducing analyst training times
. increasing call deflections to the Web
. increasing solution reuse
Enhances problem resolution
through associative problem-
solving technology
We developed our SolutionSeries products using
our proprietary associative problem-solving
search technology to:
. improve the relevance of solutions
retrieved, decreasing the costs of
analyst support and customer-support call
time
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<PAGE>
. support and enhance diverse problem-
solving approaches, enabling effective
problem resolution by a full range of
users, from senior analyst to non-
technical end-user
. effectively provide self-service customer
support through the Internet
. cost-effectively capture knowledge in the
workflow, reducing development and
maintenance costs of supporting the
enterprise knowledge base and minimizing
the number of solutions that are created
more than once
Leverages Internet
technology to extend
problem-resolution solutions Our Web-based SolutionSeries products were
designed and built to support an enterprise's
service and support strategies for the Internet
and corporate intranets and extranets. Because
they are Web-architected, our products can be
deployed to an organization's internal support
staff and the extended enterprise more quickly
and efficiently than traditional client/server
products. Our software also enables our users
to provide enhanced around-the-clock customer
self-service over the Internet. In addition to
improving customer convenience, Web-based self-
service can significantly lower support costs
by handling more customer support questions
through the scalable Web support site, rather
than the enterprise's call center. According to
International Data Corporation, the cost of
providing Web-based software support averages
$0.45 per incident as compared to $30.00 per
incident for traditional phone support.
Provides scalable solutions
for global organizations and
their partners
Our SolutionSeries product family is designed
to scale so that it can serve the extended
service and support communities of global
enterprises, including field personnel,
business partners, as well as customers and
personnel in functional areas other than
customer support, such as sales, marketing and
product development. One of our users has
deployed our solution to over 500 support
engineers globally and currently is using our
Web-based products to provide self-service
support to over 130,000 registered end-users.
Leverages investment in
existing customer-support
systems
Our SolutionSeries products integrate with most
leading customer-relationship-management
systems, including those from Clarify, ONYX
Software, Remedy, Siebel Systems and Vantive.
The resulting integrated systems are designed
to
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<PAGE>
provide a unified view of customer and problem-
resolution information, increasing analyst
productivity and customer satisfaction by
reducing the need to re-gather existing
customer information before proceeding to
problem resolution. In addition, SolutionSeries
users can access existing customer-support data
and documents either by importing the data into
the SolutionSeries database or by accessing the
data through our products' integration with
leading text-retrieval systems.
Strategy
Our objective is to establish and maintain a leadership position in providing
Web-based problem-resolution software applications for the extended enterprise
and its end-user customers. Our strategy to achieve this objective is to:
Leverage the Internet We intend to continue to leverage the Internet
to enable our users to capture, manage and
share knowledge with their extended enterprise
and customers. We believe that businesses will
increasingly adopt the Web as the means of
providing fast and efficient customer support
for the extended enterprise.
Enhance our product suite We plan to enhance the capabilities of our
SolutionSeries product family by developing,
acquiring and licensing additional products and
technologies. We intend to focus on
applications and technologies that further
enable Web-based customer self-service.
Target additional vertical Initially, we have focused our sales and
markets marketing efforts on serving the customer-
support and problem-resolution needs of
technology-based industries, such as software,
hardware and telecommunications. We intend to
broaden the reach of our problem-resolution
products to customer-service and support
organizations in other industries with
characteristics similar to technology-based
industries. We believe that the critical market
characteristics indicating a need for our
products include:
. a dynamic, rapidly changing business
environment
. complex products or services
. competitive differentiation based on
service and support
We currently plan to pursue the financial-
services, consumer electronics and
pharmaceutical industries.
Build additional strategic
relationships
We currently have strategic marketing
relationships with several call-tracking and
customer-relationship-management
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<PAGE>
software vendors, including Clarify, ONYX
Software, Remedy, Siebel Systems and Vantive.
We intend to strengthen and expand our current
relationships and build new ones with leading
systems consultants and integrators. We believe
that strategic relationships will provide us
with distribution opportunities, as well as
leverage our implementation resources.
Concurrently, we intend to expand our indirect
distribution channels to complement our direct
sales force.
Extend our solutions to
other functional areas
Our products currently provide information and
reports that are used in functional areas other
than customer support. We intend to continue to
enhance the features of our solutions to
provide benefits to functional business areas
in which the product feedback and customer
knowledge created in customer support is
valuable and actionable, such as product
development and sales and marketing.
Products
The SolutionSeries product family consists of the SolutionBuilder
application, which we first released in April 1995, and our more recently
introduced Web-based applications, SolutionExplorer and SolutionPublisher. We
generally license our SolutionSeries applications based on the number of users
and servers. In 1998, the typical order sizes for our products ranged from
$50,000 to $500,000, with some over $1 million. Our users generally license the
full suite of SolutionSeries products.
Our SolutionSeries products enable businesses to capture problem-resolution
information, solve customer problems, reuse solutions and share problem-
resolution knowledge throughout the extended enterprise.
Capture problem-resolution
information
Our SolutionSeries products enable users to
efficiently capture relevant information about
customer problems as the information becomes
available. Typically, a customer-support
analyst will capture facts and the symptoms of
the customer's problem using our
SolutionBuilder product while on the phone with
the customer. Field personnel and business
partners that provide customer support can also
capture problem-resolution information through
our Web-based applications. Because our system
captures problem-resolution information in the
workflow, there is no need to re-enter
information after solving the problem. Our
products' features help to reduce information-
input and call-processing times and facilitate
ease of use. Our SolutionSeries software:
. Captures customer information in natural
language through a notepad-style data-
input screen
. Features easy-to-use Windows and browser
interfaces
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<PAGE>
. Facilitates classifying potentially
relevant information
. Escalates unresolved customer problems
within the customer-support hierarchy
without losing previously captured
information
. Integrates with customer-relationship-
management software
Solve customer problems The associative problem-solving technology of
our SolutionSeries products helps our users
find relevant solutions to their customers'
problems or, if no solution exists, creates a
new solution to solve the problem. Our
SolutionSeries software:
. Combines the natural language information
captured from the analyst with additional
search algorithms that leverage
associations among data objects in the
knowledge base
. Stores problem-resolution information
with problem-description information to
locate, evaluate and return solutions
with a high degree of relevance
. Integrates to legacy problem-resolution
databases
. Displays potential solutions ranked
according to relevancy
. Uses retrieved information to lead the
analyst to a new solution, if none of the
existing solutions solve the customer's
problem
Reuse solutions Our software is designed to enable a customer-
support organization to immediately reuse
solutions created in the ordinary workflow of
problem resolution. This process helps the
organization to improve first-call resolution
rates, reduce overall problem-resolution times
and avoid the cost and delay of off-line
knowledge engineering.
. Once a new solution is discovered, the
data upon which the solution was built is
automatically captured with the new
solution
. Our software enables the new solution to
be added to the problem-resolution
database, either immediately upon its
being marked as a working solution by the
support analyst or after the
organization's customary quality-
assurance review process
Share problem-resolution
knowledge throughout the
extended enterprise Our software enables immediate and broad
dissemination of information and solutions
captured in the customer-support workflow to
the extended enterprise:
. Our Web-based products enable immediate
access to newly developed solutions for
all authorized members
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<PAGE>
of an enterprise's extended customer-
support organization, including remote
users such as field support, external
business partners and customers
. Various security and administration
options in our software allow the system
administrators to customize users' access
levels to specific portions of the
problem-resolution knowledge base to
improve access speeds, enhance the
relevance of retrieved solutions and
regulate access to solutions data
. Functional areas outside of customer
support can benefit from information
gathered through use of our
SolutionSeries software; for example, our
software can provide reports and other
analytical tools to facilitate faster
feedback to product development and
engineering personnel for enhancements,
patches and fixes
Our SolutionSeries product line consists of three user-facing products:
SolutionBuilder, SolutionExplorer and SolutionPublisher. The following table
describes these products:
<TABLE>
<CAPTION>
Initial
Product Release Targeted User Description
<C> <C> <C> <S>
SolutionBuilder April 1995 . Customer-support . Desktop application for
professionals capturing, solving, reusing
and sharing problem-
resolution information;
facilitates quality-assurance
review of new solutions
- --------------------------------------------------------------------------------------------
SolutionExplorer November 1997 . Extended enterprise . Web-based application for
customer-support capturing, solving, reusing
personnel, such as field and sharing problem-
service and business resolution information
partners remotely
- --------------------------------------------------------------------------------------------
SolutionPublisher August 1996 . End-user customers and . Web-based application for
the extended-support providing customers with
community direct access to the problem-
resolution knowledge base
through the Internet, thus
enabling customer self-
service
. If self-service proves
ineffective in resolving the
problem, SolutionPublisher
captures and escalates the
relevant information
regarding the problem for
resolution by customer-
support personnel
</TABLE>
Our other SolutionSeries products include:
SolutionSeries WebPack. We introduced our SolutionSeries WebPack product in
March 1999. SolutionSeries WebPack bundles SolutionExplorer and
SolutionPublisher with implementation services to enable new users of our
products to provide Web-based customer-self-service support solutions with an
accelerated deployment cycle, which we believe may be as little as five days.
SolutionSeries Server. Our SolutionSeries Server product provides search
functionality, manages the problem-solution database interactions and controls
system administration. Our SolutionSeries Server includes our SolutionAdmin,
SolutionReports and SolutionX data-transfer utility modules, which provide
user-authority management, security services, report generation and data
exchange.
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<PAGE>
The following diagram illustrates integration of our SolutionSeries products:
[Diagram illustrating the integration of the SolutionSeries products]
Our typical license agreement provides for a perpetual, nontransferable
license to use our software by the licensee.
Product Architecture
Our products use a multi-tiered architecture to meet the problem-resolution
needs of today's fast-paced and dynamic enterprises. We use industry-standard
platforms, components and communications interfaces to provide problem-
resolution software that is designed to be reliable, maintainable and scalable,
and provide high performance on an around-the-clock basis. Our flexible
architecture adapts to a range of needs, from a single desktop to enterprise
systems that support thousands of users.
Our SolutionServer software runs on either Windows NT or Sun Solaris systems
in single- or multi-processor configurations. Our client software runs in a
fully customizable interface on both Web-based applications, using Microsoft or
Netscape browsers, and tailorable desktop applications for the professional
user.
The core tier of our applications is the database server. We currently use
the Versant object-oriented database and plan to release implementations using
Microsoft SQL Server 7.0 and Oracle 8 and 8i databases. Our next tier is the
application search server that contains the search logic and knowledge domain
model. Our application server tier has multiple interfaces to either the
performance tuned SolutionBuilder communications interface or to the Internet
server application logic and session management. Our Internet server uses a
communications protocol that enables it to interface seamlessly with most
Internet clients, including Microsoft and Netscape clients.
Customer Support and Professional Services
We believe that high-quality customer support and professional services are
requirements for continued growth and increased sales of our products. We have
made significant investments to increase the size of our support and services
organization in the past and plan to continue to do so in the future. As of
March 31, 1999, our customer support and professional services organization
consisted of 32 employees.
Consulting. Our consulting teams work closely with our customers prior to
product implementation to review a customer's business objectives and
information technology infrastructure
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<PAGE>
in order to assist the customer in determining Primus solutions that will best
suit the customer's needs. Thereafter, our consultants install, integrate and
implement our software in the user's customer-support environment.
Training. We provide training classes in conjunction with our products,
including end-user training and advanced technical training regarding the
implementation and administration of our products. Classes are offered at
customer sites and at our Seattle office. We also provide training classes for
third-party partners, such as service providers and systems integrators.
Customer Support. We typically provide technical support 12 hours a day, five
days a week in North America. We offer similar services in the United Kingdom
and Japan. On-call support for priority matters is also available 24 hours a
day, 7 days a week. We offer support via telephone, fax, email and Web-based
self-service.
Customers
Our products solve issues and problems associated with complex products and
services. As a result, we have traditionally targeted:
. enterprises in dynamic, technology-related industries that offer external
customer support
. outsourcers that provide customer-support services to technology-related
businesses
. organizations with significant information-technology infrastructure that
provide internal support to their employees
The following table lists our customers as of April 30, 1999:
<TABLE>
<S> <C> <C>
3Com Lucent QAD
3M MAPICS RCN
Amdahl Marcam Security Dynamics
Barr Systems MCI/SHL Systemhouse SGI
Best Software Microsoft Simplex
Compaq Mosaix Softbank
EDS Motorola Starbucks
EMC Network Associates Sterling Commerce
Entex Nortel Networks Vanguard Cellular
Ericsson Novell Williams
Fujitsu NTT Wind River Systems
Iomega Origin Xerox
</TABLE>
The following case studies, which are based solely on information supplied by
the respective companies and which we believe to be accurate in all material
respects, illustrate how selected SolutionSeries customers are benefiting from
our products:
3Com Corporation
3Com develops and delivers information access products and network systems to
more than 200 million customers worldwide. Its customer base includes large,
medium and small enterprises; carriers and network service providers; personal-
computer original equipment manufacturers; and consumers.
3Com initially purchased SolutionSeries software in July 1997 for its call
center operation to enhance employee productivity and customer resolution
rates. In August 1998, 3Com acquired additional licenses for its call center
and SolutionPublisher licenses to enable the company to offer its customers
another avenue to obtain technical support via the Web.
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<PAGE>
In October 1998, 3Com launched the 3Com Knowledgebase Web service, an
interactive trouble-shooting tool containing a vast repository of technical
solutions input by expert 3Com technical engineers around the world. This
service, which utilizes the SolutionSeries products, has more than 132,000
registered end-users worldwide and, as of February 1999, was adding
approximately 9,000 new end-users a week, with repeat usage growing at 40% per
month. 3Com believes that its Knowledgebase Web service is not only assisting
3Com customers in solving their network challenges more quickly and easily, but
it is also providing actionable feedback to 3Com design, manufacturing and
technical-support personnel to enhance product quality and support processes.
QAD, Inc.
QAD is a leading provider of enterprise and extended supply-chain management
software and services to multinational corporations. QAD acquired
SolutionSeries software to help it manage increasing product complexity, rising
employee training costs, and the need to ensure a high level of customer
satisfaction. QAD selected SolutionSeries software because of its ability to
capture knowledge in the workflow, provide fast and flexible search results,
integrate with its own MFG/PRO software and document management systems and
facilitate management oversight to improve call center productivity.
Once it had implemented the SolutionSeries software, QAD experienced a
reduction in call resolution times of more than 58%, a decrease of
approximately 50% in the amount of time required to train new employees, and an
increase in customer satisfaction of approximately 8%. In addition, by using
the SolutionPublisher application, QAD was able to deflect approximately 10% of
its incoming calls to its Web site.
Compaq Computer Corporation
Compaq Services Operations Management, a customer-support outsourcing
division of Compaq Computer Corporation, is an industry leader in implementing
and supporting high performance computer systems.
Compaq Services purchased SolutionSeries software to lower their service
delivery costs and to maintain a comprehensive knowledge base of their
customers' information systems issues and requirements. Compaq Services uses
the knowledge base to analyze causes of recurring problems and to identify new
services to help customers reduce their information systems costs.
Over an eight-month period, customer support staff at Compaq Services who
used the SolutionSeries applications were able to close incident tickets an
average of five minutes (or 20%) faster than staff who did not use the
SolutionSeries applications. Similarly, call center support staff who used the
SolutionSeries applications were able to resolve 15% more incidents over the
eight-month period than their counterparts who did not use the SolutionSeries
applications. This represents a reduction in the number of incidents that would
have otherwise been escalated to more sophisticated and more costly support
staff.
Novell Corporation
Novell launched the era of computer networking and today, with products like
NetWare 5 and Novell Directory Services, continues to extend its leadership in
Internet solutions based on open standards. Novell's global channel,
consulting, developer, education and technical support programs are among the
most extensive in the network computing industry.
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Novell purchased SolutionSeries software to reduce support costs by capturing
and re-using the knowledge of its internal and extended support community.
Because Novell's partners provide a substantial portion of the call center
support available to Novell end users, Novell decided to use Primus's Web-based
applications to distribute product information among its partners and internal
engineers over the Internet.
Novell recognized the opportunities of knowledge sharing within its customer
service model and acquired Primus's SolutionExplorer product to enable members
of its extensive Novell Certified Engineer network to share product knowledge
with Novell and with other members of the network.
Sales and Marketing
We market and sell our products primarily through a direct sales force. We
have sales offices in Seattle, Atlanta, Boston, Dallas, Reston and San
Francisco and in the United Kingdom. The field sales force is complemented by
direct telesales based at our headquarters in Seattle, Washington. To date,
significantly all of our efforts have been targeted at customer-service and
support organizations in the information technology and telecommunications
industries, as well as internal helpdesk organizations for companies with large
information-technology departments. These efforts are directed at key
executives and personnel responsible for the organizations' customer service
and support strategies and operations. Technical sales support is provided by
sales engineers located in several of the field offices. We currently plan to
add a significant number of sales representatives and sales engineers in other
domestic and international locations.
Our marketing department is focused on creating awareness of our products and
services and generating interest in our solution. We conduct comprehensive
marketing and branding programs, which may include direct mail, public
relations, Web-based lead generation, telemarketing lead generation,
advertising, trade shows, seminars, and ongoing customer communications
programs. Many of our marketing activities are done in collaboration with our
consulting and software partners. Our marketing department also coordinates our
participation in industry tradeshows and forums, secures speaking engagements
for our executives and establishes and maintains close relationships with
recognized industry analysts. As of March 31, 1999, our sales and marketing
staff consisted of 58 employees.
Our products are marketed and distributed in Japan by Primus KK, a joint
venture owned by Trans Cosmos Inc. and Primus. Our distribution arrangements
provide Trans Cosmos with exclusive worldwide distribution rights to the Kanji
version of our SolutionBuilder product and Primus KK with exclusive
distribution rights in Japan, and nonexclusive distribution rights in Korea, to
the English and Japanese versions of our SolutionExplorer and SolutionPublisher
products. The rights regarding our SolutionBuilder product expire in September
2000. The other rights are renewable for one-year terms. The agreements are
terminable by either party upon breach.
Product Development
We have been a leader in developing innovative problem-resolution approaches
and were one of the first companies to use associative problem-solving
technology in a customer-support context. Our product development is focused on
enhancing our users' ability to implement global, Web-centric customer contact
centers using our products. We believe that a technically skilled, highly
productive software development organization will continue to be a key
component of our success. As of March 31, 1999, our product development team
consisted of 38 full-time employees.
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<PAGE>
Our current development efforts include enhancing our software development
kits and opening our application program interfaces to enable additional
development work by third-party developers and clients on software that
integrates with our products and extends their reach in problem resolution in
enterprise environments. In addition, we are broadening the databases on which
our SolutionServer product is implemented to include Microsoft's SQL Server 7.0
and the Oracle 8 and 8i database.
Competition
The market for our products is new and rapidly evolving, and is expected to
become increasingly competitive as current competitors expand their product
offerings and new companies enter the market. Our primary source of direct
competition comes from other problem-resolution software vendors, e-commerce
customer-management software vendors and our potential customers' internal
information technology departments, which choose to rely upon their own
proprietary problem resolution systems or develop new proprietary systems.
Competitors providing problem-resolution systems include companies such as
Advantagekbs, Inference, Molloy, ServiceSoft and ServiceWare. In addition,
companies providing e-commerce customer-management solutions that may compete
with us include Broadvision, Silknet and Smart Technologies.
The principal competitive factors in our industry include:
. vendor and product reputation . the availability of products on
the Internet and multiple
operating platforms
. customer referenceability . product ease-of-use
. measurable economic return . the quality of customer support
services, documentation and
training
. product quality, performance and . the quality and effectiveness of
price application deployment services
. product functionality and . the effectiveness of sales and
features marketing efforts
. product scalability
. product integration with other
enterprise applications
As the market for problem-resolution software matures, it is possible that
new and larger companies will enter the market, existing competitors will form
alliances, or current and potential competitors could acquire, be acquired by
or establish cooperative relationships with third parties. The resulting
organizations could have greater technical, marketing and other resources,
improve their products to address the needs of our existing and potential
users, thereby increasing their market share. Increased competition could
result in pricing pressures, reduced margins or failure of our products to
achieve or maintain market acceptance.
Although we believe that our products and services currently compete
favorably with respect to such factors and that we hold a leadership position
compared to our competitors in the problem-resolution market, we can't provide
any assurance that we can maintain our competitive position against current and
potential competitors, especially those with significantly greater financial,
marketing, service, support, technical and other resources.
Proprietary Information
Our success depends in part on our ability to protect our proprietary rights.
To protect our proprietary rights, we rely primarily on a combination of
copyright, trade secret and trademark laws, confidentiality agreements with
employees and third parties, and protective contractual provisions
42
<PAGE>
such as those contained in license agreements with consultants, vendors and
customers. We pursue the registration of certain of our trademarks and service
marks in the United States and in certain other countries, but we have not
secured registration of all our marks. We are a party to a license agreement
with Versant. Under the terms of the agreement, Versant granted us a license to
use Versant's database as part of our SolutionSeries products. Versant also
agreed to provide us with support and maintenance services. We pay Versant a
royalty on licenses of our products with the Versant database. We can terminate
the agreement on 120 days' prior written notice to Versant. Versant can
terminate the agreement on two years' prior written notice to us. Either party
may terminate following a material breach by the other, if the breach has not
been cured within 120 days of notice of breach.
Employees
As of March 31, 1999, we had 147 employees, including 17 U.K.-based
employees. These included 58 in sales and marketing, 32 in client services and
support, 38 in product development and 19 in general and administration. None
of our employees is represented by a labor union. We have not experienced any
work stoppages, and we believe our relationship with our employees is good. In
addition, we regularly supplement our workforce with consultants.
Competition for qualified personnel in our industry is intense. We believe
that our future success will depend in part on our continued ability to hire,
assimilate and retain qualified personnel.
Facilities
Our principal administrative, engineering, manufacturing, marketing and sales
facilities total approximately 28,346 square feet in an office tower in
Seattle, Washington. Our principal lease expires on October 30, 2000. We also
lease other domestic sales and services offices in offices in Atlanta, Boston,
Dallas, Reston and San Francisco. We maintain international offices in the
United Kingdom. We believe that our existing facilities are adequate to meet
current requirements and that additional or substitute space will be available
as needed to accommodate any expansion of operations.
Legal Proceedings
Primus is not a party to any material legal proceedings.
43
<PAGE>
MANAGEMENT
Executive Officers and Directors
Our executive officers and directors as of May 31, 1999 are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Michael A. Brochu....... 45 President, Chief Executive Officer and Chairman of the Board
Elizabeth J. Huebner.... 41 Chief Financial Officer, Vice President of Finance, Secretary
and Treasurer
Kim M. Nelson........... 44 Vice President of Sales
Patricia L. Cox......... 38 Vice President of Client Services
Edward L. Walter........ 49 Vice President of Product Development and Technology
Antonio M. Audino(1).... 40 Director
Promod Haque(2)......... 51 Director
Fredric W.
Harman(1)(2)........... 38 Director
Yasuki Matsumoto(1)..... 45 Director
</TABLE>
- --------
(1) Member of compensation committee.
(2) Member of the audit committee.
Michael A. Brochu has served as our President and Chief Executive Officer
since November 1997. Mr. Brochu was President and Chief Operating Officer of
Sierra On-Line, Inc., an interactive software publisher, from June 1994 until
October 1997. He was Senior Vice President of CUC International Inc. from
August 1996 to November 1997 after CUC's acquisition of Sierra On-Line. Mr.
Brochu is also a member of the board of directors of Primus KK and Integrated
Systems, a publicly traded developer of software for embedded microprocessors,
and is chairman of the board of directors of OnHealth Network Company, a
publicly-traded Internet content provider of public-health information. Mr.
Brochu received his B.B.A. in accounting and finance from the University of
Texas at El Paso.
Elizabeth J. Huebner has served as our Vice President of Finance and Chief
Financial Officer since June 1998 and was named Secretary and Treasurer in
April 1999. From March 1996 to July 1998, Ms. Huebner was the Chief Financial
Officer of Fluke Corporation, a manufacturer of electronic test tools. From
March 1992 until March 1996, Ms. Huebner was the Vice President of Finance for
the Western region of AT&T Wireless. Ms. Huebner received her B.S. in
accounting from the University of Utah.
Kim M. Nelson has served as our Vice President of Sales since January 1999.
From June 1993 to December 1998, Mr. Nelson held several positions at Oracle
Corporation, including Area Vice President of Sales, Vice President of Field
Operations, and Vice President of Sales for Oracle Business Online. Mr. Nelson
received his B.S. in business from the University of Colorado.
Patricia L. Cox has served as our Vice President of Client Services since
March 1998. From January 1997 to March 1998, Ms. Cox was a Regional Services
Manager for Lawson Software. From April 1993 to December 1996, Ms. Cox was a
Regional Consulting Manager for Platinum Software Corporation. Ms. Cox received
her B.S. in computer information systems from Bentley College.
Edward L. Walter has served as our Vice President of Product Development and
Technology since February 1999. Mr. Walter founded Simplications, LLC, a
developer of seminars on interactive product creations in June 1998 and served
as its managing partner until February 1998. From October 1995 to May 1998, Mr.
Walter was the Vice President of Engineering of Lexant, a software company.
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<PAGE>
From March 1991 to October 1994, he was the Vice President of Engineering of
Aldus Corporation, a software company. Mr. Walter currently serves as associate
professor for the Institute of Design at the Illinois Institute of Technology.
Mr. Walter holds a B.S. in psychology from Duke University.
Antonio M. Audino has served as one of our directors since April 1995. Since
September 1996, Mr. Audino has been a managing director of Voyager Capital, a
venture capital firm. In 1994, Mr. Audino founded Ally Ventures. He also
founded and currently serves as Chairman of Centris, L.L.C. From 1987 to 1994,
Mr. Audino held various management positions at Microsoft Corporation. Mr.
Audino holds a B.S. in accounting and a B.A. in philosophy from Creighton
University. Mr. Audino is a member of the board of Captura Software and GoAhead
Software, each a privately held software company.
Promod Haque has served as one of our directors since February 1996. Mr.
Haque became a partner of Norwest Venture Capital in November 1989. Mr. Haque
holds a Ph.D. in electrical engineering and an M.B.A. from Northwestern
University and a B.S. in electrical engineering from the University of Delhi,
in India. Mr. Haque is a member of the board of directors of Information
Advantage, Extreme Networks and Transaction Systems Architects, as well as
several private companies.
Fredric W. Harman has served as one of our directors since February 1996.
Since 1994, Mr. Harman has served as a managing member of the general partner
of venture capital funds affiliated with Oak Investment Partners. From 1991 to
1994, he served as a general partner of Morgan Stanley Venture Capital. Mr.
Harman holds a B.S. and M.S. in electrical engineering from Stanford University
and an M.B.A. from the Harvard School of Business. Mr. Harman is a director of
ILOG, S.A. and Inktomi and several privately held companies.
Yasuki Matsumoto has served as one of our directors since October 1994. Since
March 1997, Mr. Matsumoto has been the President and Chief Executive Officer of
EnCompass Group, Inc., an information technology venture capital investment
firm. In 1991, Mr. Matsumoto formed DBC Technologies, which marketed high
technology products in the Far East. Mr. Matsumoto holds an M.S. in computer
engineering from Portland State University. Mr. Matsumoto serves on the boards
of several privately held software companies.
Our bylaws provide for the division of our board of directors into three
classes as nearly equal in size as possible with staggered three-year terms at
our shareholders meeting in 2000. The classification of our board could make it
more difficult for a third party to acquire, or could discourage a third party
from acquiring, control of us.
Committees of the Board of Directors
Our compensation committee currently consists of Messrs. Audino, Harman and
Matsumoto. The compensation committee:
. reviews and approves the compensation and benefits for our executive
officers
. makes recommendations to the board of directors regarding such matters
Our audit committee currently consists of Messrs. Haque and Harman. The audit
committee:
. makes recommendations to the board of directors regarding the selection
of independent auditors
. reviews the results and scope of the audit and other services provided by
our independent auditors
45
<PAGE>
. reviews and evaluates our audit and control functions
Director Compensation
Our board of directors and shareholders adopted our 1999 stock incentive
compensation plan in April 1999. A total of 1,166,667 shares of our common
stock are currently available for issuance under this plan. Members of our
board of directors are eligible to participate in the 1999 plan. See
"Management--Executive Compensation."
Director and Officer Indemnification and Liability
Our articles of incorporation limit the liability of directors to the fullest
extent permitted by the Washington Business Corporation Act as it currently
exists or as it may be amended in the future. Consequently, subject to the
Washington Business Corporation Act, no director shall be personally liable to
us or our shareholders for monetary damages resulting from his or her conduct
as one of our directors, except liability for:
. acts or omissions involving intentional misconduct or knowing violations
of law
. unlawful distributions
. transactions from which the director personally receives a benefit in
money, property or services to which the director is not legally entitled
Our articles of incorporation also provide that we will indemnify any
individual made a party to a proceeding because that individual is or was a
director of Primus and will advance or reimburse reasonable expenses incurred
by the individual in advance of the final disposition of the proceeding to the
full extent permitted by applicable law. Any repeal of or modification to our
articles of incorporation may not adversely affect any right of a director of
Primus who is or was a director at the time of such repeal or modification. To
the extent the provisions of our articles of incorporation provide for
indemnification of directors for liabilities arising under the Securities Act
of 1933, those provisions are, in the opinion of the Securities and Exchange
Commission, against public policy as expressed in the Securities Act and they
are therefore unenforceable.
Our bylaws provide that we will indemnify our directors and officers and may
indemnify our employees and agents to the full extent permitted by law. In
addition, we intend to purchase and maintain a liability insurance policy,
pursuant to which our directors and officers may be indemnified against
liability they may incur for serving in their capacities as directors and
officers of Primus.
We believe that the limitation of liability provision in our articles of
incorporation, the indemnification provisions in our bylaws and the liability
insurance policy will facilitate our ability to continue to attract and retain
qualified individuals to serve as our directors and officers.
Compensation Committee Interlocks and Insider Participation
During the year ended December 31, 1998, Messrs. Brochu, Audino, Haque and
Harman served on the compensation committee of our board of directors, as did
Kenneth L. Block, a former director of Primus. None of our executive officers
serve as a member of the board of directors or compensation committee of any
entity that has one or more executive officers serving as members of our board
of directors or its compensation committee.
Mr. Haque is a partner at Norwest Venture Capital Management, the general
partner of Norwest Equity Partners V, L.L.P. Between February 12, 1996 and July
22, 1998, Norwest Equity Partners
46
<PAGE>
purchased 2,845,528 shares of our Series A preferred stock for $3.5 million and
800,000 shares of our Series D preferred stock for $2.0 million. In connection
with a bridge loan financing in June 1998, we granted Norwest Equity Partners a
warrant for 23,500 shares of Series D preferred stock at an aggregate exercise
price of $59,000. The bridge loan converted into Series D preferred stock in
July 1998. The shares of preferred stock and warrants held by Norwest will
convert immediately prior to closing this offering into 1,441,166 shares of
common stock.
Mr. Harman is a managing member of Oak Associates VI, L.L.C. and Oak VI
Affiliates, L.L.C., the general partners of Oak Investment Partners VI, L.P.
and Oak VI Affiliates Fund, L.P., respectively. On February 12, 1996 and July
22, 1998, respectively, Oak Investment Partners purchased 3,177,886 shares of
our Series A preferred stock for $3.9 million and 687,773 shares of our Series
D preferred stock for $1.7 million. On February 12, 1996 and July 22, 1998,
respectively, Oak VI Affiliates Fund, purchased 74,146 shares of our Series A
preferred stock for $91,000 and 16,047 shares of our Series D preferred stock
for $40,000. In connection with a bridge loan financing in June 1998, we
granted the Oak funds warrants for 26,499 shares of Series D preferred stock at
an aggregate exercise price of $66,000. The bridge loan converted into Series D
preferred stock in July 1998. The shares of preferred stock and warrants held
by affiliates of Mr. Harman will convert immediately prior to closing this
offering into 1,576,773 shares of common stock.
In March 1999, Messrs. Brochu and Audino purchased 1,000 and 5,556 shares,
respectively, of our common stock at a price per share of $9.00. Block Capital
LLC, an entity controlled by Mr. Block, purchased 16,667 shares of our common
stock at a price per share of $9.00.
Norwest Equity Partners and the Oak funds are parties to a registration
rights agreement with us. Pursuant to the terms of that agreement, the holders
of our preferred stock have certain registration rights that obligate us, under
certain circumstances, to effect a registration under the Securities Act of
shares of common stock. See "Description of Capital Stock--Registration
Rights."
47
<PAGE>
Executive Compensation
The following table sets forth information concerning the compensation
received for services rendered to us in all capacities, for our chief executive
officer, two of our former executive officers whose compensation exceeded
$100,000 in 1998 and our four other executive officers whose compensation is
expected to exceed $100,000 in 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
-------------------------- ------------
Security
Name and Principal Fiscal Underlying All Other
Position Year Salary Bonus Options (#) Compensation($)
- ------------------ ------ -------- ------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Michael A. Brochu....... 1999 $ 56,250(1) $ -- 78,666 $ --
President and Chief 1998 199,995 45,833 -- --
Executive Officer
Elizabeth J. Huebner.... 1999 34,375(2) -- 36,666 --
Chief Financial Officer 1998 46,655(3) -- 106,666 --
and Vice President
of Finance
Kim M. Nelson........... 1999 31,249(4) -- 143,332 --
Vice President of Sales
Patricia L. Cox......... 1999 31,248(5) -- 33,333 --
Vice President of Client 1998 85,456(6) -- 100,000 --
Services
Edward L. Walter........ 1999 19,519(7) -- 143,332 --
Vice President of
Product Development and
Technology
Steven L. Sperry........ 1998 142,006(8) 25,000 -- 75,000(9)
Former Chairman of the
Board
David Hanafee........... 1999 -- 7,500(10) -- 30,000(11)
Former Vice President of 1998 118,606 20,870 -- 103,236(12)
Sales
</TABLE>
- --------
(1) Represents salary earned as of March 31, 1999 and is based on an
annualized salary of $225,000. Mr. Brochu is also eligible to receive a
performance-based bonus in 1999.
(2) Represents salary earned as of March 31, 1999 and is based on an
annualized salary of $137,500. Ms. Huebner is also eligible to receive a
performance-based bonus in 1999.
(3) Ms. Huebner joined Primus in June 1998.
(4) Mr. Nelson joined Primus in January 1999. Represents salary earned as of
March 31, 1999 and is based on an annualized salary of $125,000. Mr.
Nelson is also eligible to receive a performance-based bonus in 1999.
(5) Based on an annualized salary of $125,000. Ms. Cox is also eligible to
receive a performance-based bonus in 1999.
(6) Ms. Cox joined Primus in March 1998.
(7) Mr. Walter joined Primus in February 1999. Represents salary earned as of
March 31, 1999 and is based on an annualized salary of $125,000.
Mr. Walter is also eligible to receive a performance-based bonus in 1999.
(8) Mr. Sperry resigned from his position as chairman of our board of
directors on November 6, 1998.
(9) Represents severance payments received by Mr. Sperry upon his resignation.
(10) Mr. Hanafee resigned from his position as our vice president of sales on
December 31, 1998.
(11) Represents severance payments received by Mr. Hanafee upon his
resignation.
(12) Represents commission payments.
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<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth certain information regarding stock options we
granted during fiscal 1998.
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------
Potential Realizable
Value at Assumed
Number of Percentage of Annual Rates of Stock
Securities Total Options Price Appreciation
Underlying Granted to Exercise for Option Term(3)
Options Employees in Price Expiration ---------------------
Name Granted(#) Fiscal Year(1) ($/Sh)(2) Date 5%($) 10%($)
- ---- ---------- -------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael A. Brochu....... -- -- -- -- -- --
Elizabeth J. Huebner.... 106,666 16.77% $ 4.50 6/19/08 $1,431,227 $2,563,308
Kim M. Nelson........... -- -- -- -- -- --
Patricia L. Cox......... 100,000 15.72 3.00 4/08/08 1,491,784 2,553,117
Edward L. Walter........ -- -- -- -- -- --
Steven L. Sperry........ -- -- -- -- -- --
David Hanafee........... -- -- -- -- -- --
</TABLE>
- --------
(1) Based on a total of 635,953 option shares granted to employees during
fiscal 1998.
(2) Options were granted at an exercise price equal to the fair market value of
our common stock at the time of the grant.
(3) The potential realizable value is calculated based on the term of the
option at the time of grant (ten years) and the assumed initial public
offering price of $11.00. The assumed rates of appreciation are prescribed
by the Securities and Exchange Commission for illustrative purposes only
and are not intended to forecast or predict future stock prices. The
potential realizable value at 5% and 10% appreciation is calculated by
assuming that the initial public offering price appreciates at the
indicated rate for the entire term of the option and that the option is
exercised at the exercise price and sold on the last day of its term at its
appreciated price.
Aggregate Option Exercises in Fiscal 1998 and Year-End Option Values
None of Messrs. Brochu, Nelson or Walter exercised any options during fiscal
1998, nor did any of Mesdames Huebner or Cox. The following table sets forth
certain information regarding unexercised stock options held by our current and
former executive officers as of December 31, 1998.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Value Realized Options at Fiscal In-the-Money Options at
Acquired (Market Price at Year-End Fiscal Year-End($)(1)
on Exercise Less ------------------------- -------------------------
Name Exercise Exercise Price) Exercisable Unexercisable Exercisable Unexercisable
---- -------- ---------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael A. Brochu....... -- $ -- 159,249 428,750 $1,273,992 $3,430,000
Elizabeth J. Huebner.... -- -- -- 106,666 -- 693,329
Kim M. Nelson........... -- -- -- -- -- --
Patricia L. Cox......... -- -- -- 100,000 -- 800,000
Edward L. Walter........ -- -- -- -- -- --
Steven L. Sperry........ 165,000 349,800 825,947 -- 6,707,576 --
David Hanafee........... -- -- 29,164 -- 233,312 --
</TABLE>
- --------
(1) Calculated on the basis of an assumed initial public offering price of
$11.00 per share.
Change of Control Agreements
Primus has entered into an agreement with each of Michael A. Brochu, Kim M.
Nelson, Edward L. Walter, Elizabeth J. Huebner and Patricia L. Cox, that
provides for certain compensation
49
<PAGE>
arrangements upon and following a change of control of the company. The
agreements expire one year following a change of control. A change of control
occurs under the agreements when:
. Primus completes a merger, consolidation or share exchange after which
its prior shareholders own less than a majority of the surviving
corporation
.Primus sells substantially all of its assets not in the ordinary course of
business
.one person or entity acquires a majority of Primus's outstanding shares
Immediately upon a change of control, 50% of the unvested options of each
executive become exercisable. Our 1995 and 1999 stock incentive compensation
plans also provide for vesting of all unvested options in certain circumstances
involving a merger, sale or liquidation of Primus.
If one of our executives is terminated by us without cause or terminates his
or her employment due to a substantial change in his or her position or
responsibilities during the year following a change of control, then he or she
will be entitled to his or her accrued annual base salary, bonus and
commissions through the date of termination plus severance pay equal to one-
half of annual base salary. Further, all of his or her outstanding options will
become immediately exercisable. To the extent the employee regularly receives
commissions as part of his or her compensation, we will also pay commissions to
the terminated employee for sales to his or her former accounts that occur
during the six months following termination.
Separation Agreement
On November 6, 1998, we entered into a separation agreement with Mr. Sperry
in connection with his resignation as one of our officers and a member of our
board of directors. Under this agreement, we paid Mr. Sperry a lump sum
separation payment of $75,000.
Employment Arrangement
In connection with hiring Ms. Huebner, we agreed to grant her, during the
first three years of her employment, options to purchase 200,000 shares of
common stock at an exercise price equal to the fair market value on the date of
grant. As of March 31, 1999 we had granted all but 56,668 options.
Employee Benefit Plans
1999 Stock Incentive Compensation Plan
Our board of directors and shareholders have adopted our 1999 incentive
compensation plan. The purpose of this plan is to enhance long-term shareholder
value by offering opportunities to selected persons to participate in our
growth and success, and to encourage them to remain in the service of Primus
and its subsidiaries and to acquire and maintain ownership in our company. Upon
effectiveness of this offering, the 1999 incentive compensation plan will
replace our current stock option plans for purposes of all future stock
incentive awards. The 1999 incentive compensation plan provides for awards of
stock options, shares of common stock or units denominated in common stock, all
of which may be subject to restrictions. The board has reserved a total of
1,166,667 shares of common stock under the plan, plus an automatic annual
increase, to be added on the first day of our fiscal year beginning in 2001,
equal to the lesser of 666,666 shares and 5% of the average common shares
outstanding as used to calculate fully diluted earnings per share as reported
in our annual report to shareholders for the preceding year. Shares formerly
available for issuance under our 1995 option plan will become available under
the 1999 incentive compensation plan, as will shares that become available when
options granted under our 1993 and 1995 plans expire or are otherwise cancelled
without exercise.
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Stock Option Grants. The board of directors or a committee appointed by the
board will serve as the plan administrator of the 1999 incentive compensation
plan. The plan administrator will have the authority to select individuals to
receive options under the 1999 incentive compensation plan and to specify the
terms and conditions of each option granted (incentive or nonqualified), the
exercise price (which, for incentive stock options, must be at least equal to
the fair market value of the common stock on the date of grant), the vesting
provisions and the option term. For purposes of the 1999 incentive compensation
plan, fair market value means the average of the high and low per share sales
price as reported on the Nasdaq National Market on the date of grant. Unless
the plan administrator decides otherwise, and to the extent required for
incentive stock options by the Internal Revenue Code of 1986, as amended, an
option granted under the 1999 incentive compensation plan will expire 10 years
from the date of grant.
Stock Awards. The plan administrator is authorized under the 1999 incentive
compensation plan to award shares of common stock or awards denominated in
units of common stock on such terms and conditions and subject to restrictions
established by the plan administrator in its sole discretion. The terms,
conditions and restrictions may be based, without limitation, on the manner in
which shares subject to stock awards held while restricted and the
circumstances under which a holder's service with us is terminated. Holders of
restricted stock are shareholders of Primus and have, subject to certain
restrictions, all the rights of shareholders with respect to their shares.
Adjustments. The plan administrator will make proportional adjustments to the
number of shares issuable under the 1999 incentive compensation plan and to
outstanding awards in the event of stock splits or other capital adjustments.
Corporate transactions. In the event of certain corporate transactions, such
as a merger or sale of Primus, each outstanding option will be assumed or
replaced with a comparable award by Primus' successor corporation or parent
thereof. If the successor will not assume or replace the options, they will
automatically accelerate and become 100% vested and exercisable immediately
before the corporate transaction. To the extent that options accelerate due to
a corporate transaction, the restrictions on restricted stock awards also will
lapse.
1999 Employee Stock Purchase Plan
Our board of directors and shareholders have adopted our 1999 employee stock
purchase plan. We will implement the stock purchase plan upon the effectiveness
of this offering to encourage employees to remain employed by Primus or its
subsidiaries. We intend for this plan to qualify under Section 423 of the
Internal Revenue Code.
This plan permits eligible employees of Primus and its subsidiaries to
purchase common stock through payroll deductions of up to 10% of their
compensation. Under this plan, no employee may purchase common stock worth more
than $25,000 in any calendar year, valued as of the first day of each offering
period. Further, no employee may purchase more than 500 shares in any six-month
purchase period.
We will implement the stock purchase plan with twenty-four-month offering
periods, each of which will consist of four six-month purchase periods, except
that the first offering period will begin on the effectiveness of this offering
and end on December 31, 1999. Subsequent offering periods will begin on each
January 1 and July 1. The price of the common stock purchased under this plan
will be the lesser of 85% of the fair market value on the first day of an
offering period and 85% of the fair market value on the last day of a purchase
period, except that the purchase price for the first offering period will be
equal to the lesser of 100% of the initial public offering price of the common
stock and
51
<PAGE>
85% of the fair market value on the last day of each purchase period. Under the
circumstances specified in the plan, we may change the purchase date during an
offering period and terminate the plan at the end of any purchase period to
avoid our incurring adverse accounting charges. This plan terminates ten years
after the date of adoption by our board of directors, but the board may
terminate it at any earlier time. We have not yet issued any shares of common
stock under this plan.
Employees generally will be eligible to participate in the plan if they are
customarily employed by Primus for more than 20 hours per week and more than
five months in a calendar year, and are not (and would not become as a result
of being granted an option under the plan) 5% shareholders of Primus or its
subsidiaries.
We authorized the issuance under this plan of a total of 600,000 shares of
common stock, plus an automatic annual increase, to be added on the first day
of our fiscal year beginning in 2000, equal to the lesser of 200,000 shares and
1.7% of the average common shares outstanding as used to calculate fully
diluted earnings per share as reported in Primus's annual report to
shareholders for the preceding year, or a lesser amount determined by our board
of directors. Any shares from increases in previous years that are not actually
issued will be added to the aggregate number of shares available for issuance
in future periods.
In the event of a merger, consolidation or acquisition by another corporation
of all or substantially all of our assets, each outstanding option to purchase
shares under the stock purchase plan will be assumed or an equivalent option
substituted by the successor corporation. If the successor corporation refuses
to assume or substitute for the option, the offering period during which a
participant may purchase stock will be shortened to a specified date before the
proposed transaction. Similarly, in the event of a proposed liquidation or
dissolution of Primus, the offering period during which a participant may
purchase stock will be shortened to a specified date before the date of the
proposed liquidation or dissolution.
1995 Stock Incentive Compensation Plan
Our board of directors and shareholders approved a stock incentive
compensation plan in 1995. In April 1999, we increased the shares available for
issuance under the 1995 plan by 500,000 shares. The 1995 plan provides for
grants of incentive stock options, non-qualified stock options, stock awards
and stock appreciation rights. We will not grant further options under our 1995
plan after effectiveness of this offering. As of March 31, 1999, options to
purchase 2,671,881 shares of our common stock were outstanding under the 1995
plan and 24,641 shares remained available for grant.
Non-Employee Director Stock Option Plan
Our board of directors and shareholders approved a non-employee director plan
in 1994. Our board discontinued further grants under our 1994 plan upon
adoption of our 1995 plan. As of March 31, 1999, options to purchase 8,332
shares of our common stock were outstanding under the 1994 plan.
Employee Stock Option and Restricted Stock Award Plan
Our board of directors and shareholders approved an employee stock option and
restricted stock award plan in 1993. Our board discontinued further grants
under the 1993 plan upon adoption of our 1995 plan. As of March 31, 1999,
options to purchase 235,214 shares of our common stock were outstanding under
our 1993 plan.
52
<PAGE>
CERTAIN TRANSACTIONS
In November 1995 we entered into a joint venture agreement with Trans Cosmos,
to establish Primus KK, a Japanese company. We hold a 14.3% interest in Primus
KK and have one of the six board seats.
In November 1995, we issued 60,606 shares of common stock to Yuriko
Matsumoto, the wife of Mr. Matsumoto, at a per share price of $1.65. In
September 1996, Trans Cosmos USA, Inc. purchased 313,008 shares and EnCompass
Group purchased 500,000 shares of our Series A preferred stock for a total of
$1.0 million. Mr. Matsumoto is the president and chief executive officer of
EnCompass Group, Inc., a wholly owned subsidiary of Trans Cosmos. In July 1998,
EnCompass Group purchased 108,204 shares of our Series D preferred stock for
$271,000 and Trans Cosmos purchased 600,000 shares of our Series D preferred
stock for $1.5 million. In September 1996 and March 1997, Trans Cosmos USA, an
affiliate of Trans Cosmos, bought 500,000 shares of our Series B preferred
stock and 1,000,000 shares of our Series C preferred stock, respectively, for
an aggregate price of $3.0 million. In connection with a bridge loan financing
in June 1998, we granted EnCompass Group warrants for 6,000 shares of Series D
preferred stock at an aggregate exercise price of $15,000. The bridge loan
converted into Series D preferred stock in July 1998. The shares of preferred
stock and warrants held by affiliates of Mr. Matsumoto will convert immediately
prior to closing this offering into 1,071,401 shares of common stock.
In September 1997, we entered into an exclusive, worldwide distribution
agreement with Trans Cosmos for Kanji versions of our SolutionBuilder product.
Trans Cosmos bought $1.6 million of SolutionBuilder licenses and $367,000 of
related upgrade rights. Trans Cosmos pays us 10% of the technical support and
maintenance fees paid by end-users of our SolutionBuilder product.
Trans Cosmos's distribution rights terminate on the earlier of September 26,
2000 or upon Trans Cosmos's sale of all of its SolutionBuilder licenses. If we
terminate the agreement prior to this time, we must pay an early termination
fee to compensate Trans Cosmos for prepaid license and upgrade fees that Trans
Cosmos has not sold on to its customers.
In September 1997, we granted Primus KK a first right of refusal with respect
to distribution of Asian-language versions of our products. In March 1999, we
entered into a one-year software marketing and distribution agreement with
Primus KK. The agreement provides Primus KK with exclusive distribution rights
in Japan, and nonexclusive distribution rights in Korea, to English and
Japanese versions of our SolutionExplorer and SolutionPublisher products.
Primus KK pays us a royalty of 40% on software license fees, and a royalty of
50% on maintenance fees, for those products. Unless either party terminates,
the agreement automatically renews for additional one-year periods. The
agreement contains a provision for termination upon material breach. In
addition, Primus KK is obligated to meet performance goals, including the
generation of $818,000 net revenue, marketing and staffing goals.
In February 1998, we entered into a service agreement with EnCompass
Globalization, Inc., an affiliate of Trans Cosmos, under which EnCompass
Globalization agreed to provide us with localization, translation and testing
services for Japanese versions of our SolutionSeries products. EnCompass
Globalization provides its services on a time and materials basis. The term of
the main agreement is not fixed, but contemplates EnCompass Globalization's
performance of specific projects under mutually agreed project descriptions. To
date, only one project description has been agreed on, under which EnCompass
Globalization provided us with software translation and testing services, at
hourly rates of $55.00 and $65.00, respectively. We paid EnCompass
Globalization a total of $242,000.
In April 1999, we agreed to issue an aggregate of 18,400 shares to an
employee of Primus KK and granted fully vested options to purchase an aggregate
of 10,000 shares of common stock to Primus KK employees.
53
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of our common stock as of May 31, 1999 by:
. each person or group that we know owns more than 5% of our common stock
. our chief executive officer, two of our former executive officers whose
compensation exceeded $100,000 in 1998 and our four other executive
officers whose compensation is expected to exceed $100,000 in 1999
. each selling shareholder
. each of our directors
. all of our directors and executive officers as a group
Beneficial ownership is determined in accordance with rules of the Securities
and Exchange Commission and includes shares over which the indicated beneficial
owner exercises voting and/or investment power. Shares of our common stock
subject to options currently exercisable or exercisable within 60 days of
May 31, 1999 are deemed outstanding for computing the percentage ownership of
the person holding the options but are not deemed outstanding for computing the
percentage ownership of any other person. Except as otherwise indicated, we
believe the beneficial owners of the common stock listed below, based on
information furnished by them, have sole voting and investment power with
respect to the number of shares listed opposite their names.
<TABLE>
<CAPTION>
Percentage of
Shares
Outstanding
Number of Shares -----------------
Beneficially Owned Number of Shares Prior to After
Name and Address Prior to Offering Being Offered Offering Offering
---------------- ------------------ ---------------- -------- --------
<S> <C> <C> <C> <C>
Entities affiliated with
Trans Cosmos, Inc.(1)
777-108th Avenue, N.E.,
Suite 2300
Bellevue, WA 98004...... 1,810,291 -- 19.0% 13.4%
Entities affiliated with
Oak Investment Partners
VI,
Limited Partnership(2)
Suite 1300
525 University Avenue
Palo Alto, CA 94301..... 1,576,773 -- 16.6% 11.7%
Norwest Equity Partners,
V, L.L.P.(3)
Suite 250
245 Lytton Avenue
Palo Alto, CA 94301..... 1,441,166 -- 15.2% 10.7%
Snowdon, L.P.(4)
1119 St. Paul Street
Baltimore, MD 21117..... 862,659 -- 9.1% 6.4%
Steven L. Sperry(5)
2305 East Harrison
Seattle, WA 98112....... 828,448 100,000 8.1% 5.1%
J.Z. Knight
14507 Yelm Highway
Southeast
Yelm, WA 98597.......... 582,036 -- 6.1% 4.3%
Michael A. Brochu(6)..... 225,584 -- 2.3% 1.6%
Patricia L. Cox(7)....... 33,333 -- * *
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Shares
Outstanding
Number of Shares -----------------
Beneficially Owned Number of Shares Prior to After
Name and Address Prior to Offering Being Offered Offering Offering
---------------- ------------------ ---------------- -------- --------
<S> <C> <C> <C> <C>
Kim M. Nelson........... -- -- -- --
David M. Hadley......... 268,675 50,000 2.8% 1.6%
David Hanafee........... 29,167 -- * *
Elizabeth J.
Huebner(7)............. 28,888 -- * *
Edward L. Walter........ -- -- -- --
Antonio M. Audino(8).... 97,221 -- 1.0% *
Promod Haque(9)......... 1,449,499 -- 15.2% 10.7%
Fredric W. Harman(10)... 1,585,106 -- 16.6% 11.7%
Yasuki Matsumoto(11).... 1,171,004 -- 12.3% 8.7%
Directors and executive
officers as a group (9
persons).............. 4,590,635 -- 46.7% 33.2%
</TABLE>
- --------
* less than one percent
(1) Represents the following: (a) 200,000 shares issuable upon conversion of
preferred stock held by Trans Cosmos; (b) 493,225 shares issuable upon
conversion of the preferred stock held by Trans Cosmos USA, a wholly-owned
subsidiary of Trans Cosmos; (c) 2,000 shares issuable on exercise of
warrants and 241,068 shares issuable upon conversion of the preferred
stock held by EnCompass Group, a wholly-owned subsidiary of Trans Cosmos;
(d) 16,667 shares of common stock owned by TCI Club, Inc., an affiliate of
Trans Cosmos, Inc. and (e) 857,331 shares of common stock and shares
issuable upon conversion of preferred stock held by U.S. Information
Technology Financing, L.P., an affiliate of EnCompass Group.
(2) Represents the following: (a) 8,632 shares issuable on exercise of
warrants and 1,532,191 shares issuable upon conversion of the preferred
stock held by Oak Investment Partners VI, Limited Partnership; and (b) 201
shares issuable on exercise of warrants and 35,749 shares issuable upon
conversion of the preferred stock held by Oak VI Affiliates Fund, L.P. Oak
Associates VI, L.L.C. and Oak VI Affiliates, L.L.C. are general partners
of Oak Investment Partners VI and Oak VI Affiliates, respectively, and
thus are each deemed to beneficially own the respective shares.
(3) Represents the following: (a) 7,833 shares issuable on exercise of
warrants and 1,433,333 shares issuable upon conversion of preferred stock
held by Norwest Equity Partners.
(4) Represents shares issuable upon conversion of preferred stock. Snowdon
L.P. is a limited partnership, the managing general partner of which is
Nevis Capital Management, Inc. Nevis Capital Management, Inc. is owned and
controlled by Jon Baker and David Wilmerding.
(5) Represents 169,167 shares held directly by Mr. Sperry and 659,281 shares
subject to options held by Mr. Sperry that are exercisable currently or
within 60 days of May 31, 1999.
(6) Represents 1,000 shares held directly by Mr. Brochu and 224,584 shares
subject to options that are exercisable currently or within 60 days of May
31, 1999. Excludes 20,416 shares subject to options, that are exercisable
currently or within 60 days of May 31, 1999, held by Delialah D. Brochu,
Mr. Brochu's former spouse.
(7) Represents shares subject to options that are exercisable currently or
within 60 days of May 31, 1999.
55
<PAGE>
(8) Includes 9,999 shares subject to options that are exercisable currently or
within 60 days of May 31, 1999.
(9) Represents the following: (a) 8,333 shares subject to options that are
exercisable currently or within 60 days of May 31, 1999; and (b) 1,441,166
shares issuable upon exercise of warrants and conversion of preferred
stock held by Norwest Equity Partners, V. L.L.P. Mr. Haque is a partner in
Norwest Venture Partners, an affiliate of Norwest Equity Partners V.
L.L.P. Mr. Haque disclaims beneficial ownership of the shares held by
Norwest Equity Partners, V, L.L.P. except to the extent of his pecuniary
interest arising from his interest in Norwest Venture Capital.
(10) Represents the following: (a) 8,333 shares subject to options that are
exercisable currently or within 60 days of May 31, 1999; and (b) 1,576,773
shares issuable upon exercise of warrants and conversion of preferred
stock held by Oak Investment Partners VI and Oak VI Affiliates Fund, L.P.
Mr. Harman is Managing Member of Oak Associates VI, L.L.C., the general
partner of Oak Investment Partners VI, and Managing Member of Oak VI
Affiliates, L.L.C., the general partner of Oak VI Affiliates Fund, L.P.
Mr. Harman disclaims beneficial ownership of the shares held by Oak
Investment Partners VI and Oak VI affiliates, except to the extent of his
pecuniary interest arising from his interest in Oak Associates VI, L.L.C.
(11) Represents the following: (a) 243,068 shares issuable upon exercise of
warrants and conversion of preferred stock held by EnCompass Group; (b)
857,331 shares of common stock, including shares issuable upon conversion
of preferred stock held by U.S. Information Technology Financing, L.P.;
(c) 9,999 shares subject to options that are exercisable currently or
within 60 days of May 31, 1999; and (d) 60,606 shares held by his wife,
Yuriko Matsumoto. Mr. Matsumoto disclaims beneficial ownership of the
shares beneficially held by U.S. Information Technology Financing, L.P.,
EnCompass Group and Yuriko Matsumoto.
56
<PAGE>
DESCRIPTION OF CAPITAL STOCK
We are authorized to issue up to 50,000,000 shares of common stock, $.025 par
value per share, and 15,000,000 shares of preferred stock, $.001 par value per
share. The following summary of certain provisions of the common stock and
preferred stock is not complete and may not contain all the information you
should consider before investing in the common stock. You should read carefully
our articles of incorporation, which are included as an exhibit to the
Registration Statement, of which this prospectus is a part.
Common Stock
As of March 31, 1999, assuming conversion of all outstanding shares of
preferred stock and exercise of warrants that expire on closing of this
offering, there were 9,501,796 shares of common stock outstanding held of
record by 188 shareholders. Following this offering, there will be 13,501,796
shares of common stock outstanding (assuming no exercise of the underwriters'
over-allotment option and no exercise of options or warrants outstanding as of
March 31, 1999 other than the warrants that expire upon the effectiveness of
this registration statement). The holders of common stock are entitled to one
vote per share on all matters to be voted on by the shareholders. Subject to
preferences of any outstanding shares of preferred stock, the holders of common
stock are entitled to receive ratably any dividends the board of directors
declares out of funds legally available for the payment of dividends. If Primus
is liquidated, dissolved or wound up, the holders of common stock are entitled
to share pro rata all assets remaining after payment of liabilities and
liquidation preferences of any outstanding shares of preferred stock. Holders
of common stock have no preemptive rights or rights to convert their common
stock into any other securities. There are no redemption or sinking fund
provisions applicable to the common stock. All outstanding shares of common
stock are fully paid and nonassessable, and the shares of common stock to be
issued following this offering will be fully paid and nonassessable.
Preferred Stock
Upon the closing of this offering, each outstanding share of Series A
convertible preferred stock will convert into 0.41 shares of common stock. Each
outstanding share of Series B preferred stock, Series C preferred stock and
Series D preferred stock will convert into 0.333 shares of Common Stock.
Thereafter, pursuant to our articles of incorporation, the board of directors
will have the authority, without further action by the shareholders, to issue
up to 15,000,000 shares of preferred stock in one or more series. The board
also has the authority to fix the designations, powers, preferences, privileges
and relative, participating, optional or special rights and the qualifications,
limitations or restrictions of any preferred stock issues, including dividend
rights, conversion rights, voting rights, terms of redemption and liquidation
preferences, any or all of which may be greater than the rights of the common
stock. The board of directors, without shareholder approval, can issue
preferred stock with voting, conversion or other rights that could adversely
affect the voting power and other rights of the holders of common stock.
Preferred stock could thus be issued quickly with terms that could delay or
prevent a change in control of Primus or make removal of management more
difficult. Additionally, the issuance of preferred stock may decrease the
market price of the common stock and may adversely affect the voting and other
rights of the holders of common stock. We have no plans to issue any preferred
stock.
Registration Rights
After this offering, the holders of 4,985,326 shares of common stock will be
entitled to certain rights with respect to the registration of such shares
under the Securities Act, pursuant to a
57
<PAGE>
registration rights agreement. Under the terms of the registration rights
agreement, if we propose to register any of our securities under the Securities
Act, either for our own account or for the account of other security holders
exercising registration rights, such holders are entitled to notice of the
registration and to include shares of common stock in the registration at our
expense. Additionally, such holders are entitled to certain demand registration
rights pursuant to which they may require us to file a registration statement
under the Securities Act at our expense with respect to their shares of common
stock. Further, such holders may require us to file additional registration
statements on Form S-3 at our expense. All of these registration rights are
subject to certain conditions and limitations, among them the right of the
underwriters of an offering to limit the number of shares included in such
registration and our right to decline to effect such a registration before the
earlier of February 2000 and six months after the closing of this offering.
Antitakeover Effects of Certain Provisions of Articles of Incorporation, Bylaws
and Washington Law
As noted above, our board of directors, without shareholder approval, has the
authority under our articles of incorporation to issue preferred stock with
rights superior to the rights of the holders of common stock. As a result,
preferred stock could be issued quickly and easily, could adversely affect the
rights of holders of common stock and could be issued with terms calculated to
delay or prevent a change in control of Primus or make removal of management
more difficult.
Election and Removal of Directors. Effective with the first annual meeting of
shareholders following this offering, our articles of incorporation provide for
the division of our board of directors into three classes, as nearly as equal
in number as possible, with the directors in each class serving for a three-
year term, and one class being elected each year by our shareholders. Directors
may be removed only for cause. Because this system of electing and removing
directors generally makes it more difficult for shareholders to replace a
majority of the board of directors, it may tend to discourage a third party
from making a tender offer or otherwise attempting to gain control of Primus
and may maintain the incumbency of the board of directors.
Approval for Certain Business Combinations. Our articles of incorporation
require that certain business combinations (including a merger, share exchange
and the sale, lease, exchange, mortgage, pledge, transfer or other disposition
or encumbrance of a substantial part of our assets other than in the usual and
regular course of business) be approved by the holders of not less than two-
thirds of the outstanding shares, unless such business combination has been
approved by a majority of the board of directors, in which case the affirmative
vote required shall be a majority of the outstanding shares.
Shareholder Meetings. Under our articles of incorporation and bylaws, our
shareholders may call a special meeting only upon the request of holders of at
least 25% of the outstanding shares. Additionally, the board of directors, the
chairman of the board and the president may call special meetings of
shareholders.
Requirements for Advance Notification of Shareholder Nominations and
Proposals. Our bylaws establish advance notice procedures with respect to
shareholder proposals and the nomination of candidates for election as
directors, other than nominations made by or at the direction of the board of
directors or a committee thereof.
Washington law imposes restrictions on certain transactions between a
corporation and certain significant shareholders. Chapter 23B.19 of the
Washington Business Corporation Act prohibits a
58
<PAGE>
"target corporation," with certain exceptions, from engaging in certain
significant business transactions with an "acquiring person," which is defined
as a person or group of persons that beneficially owns 10% or more of the
voting securities of the target corporation, for a period of five years after
such acquisition, unless the transaction or acquisition of shares is approved
by a majority of the members of the target corporation's board of directors
prior to the time of acquisition. Such prohibited transactions include, among
other things,
. a merger or consolidation with, disposition of assets to, or issuance or
redemption of stock to or from, the acquiring person
. termination of 5% or more of the employees of the target corporation as a
result of the acquiring person's acquisition of 10% or more of the shares
. allowing the acquiring person to receive any disproportionate benefit as
a shareholder
After the five-year period, a "significant business transaction" may occur,
as long as it complies with certain "fair price" provisions of the statute. A
corporation may not "opt out" of this statute. This provision may have the
effect of delaying, deterring or preventing a change in control of Primus.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is ChaseMellon
Shareholder Services, L.L.C.
59
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common stock
and a significant public market for the common stock may not develop or be
sustained after this offering. Future sales of substantial amounts of common
stock in the public market, including shares issued upon exercise of
outstanding options and warrants, could harm market prices and could impair our
ability to raise capital through the sale of our equity securities.
<TABLE>
<CAPTION>
Approximate
shares
Days after the eligible
date for future
of this prospectus sale Comment
- ------------------ ----------- ------------------------------------------------
<S> <C> <C>
Upon
effectiveness.... 224,829 Freely tradeable shares and shares eligible for
sale under Rule 144(k) that are not subject to
180-day lockup.
90 days........... 18,150 Shares eligible for sale under Rule 144, 144(k)
or 701 that are not subject to 180-day lockup.
180 days.......... 8,863,297 Lockup released; shares eligible for sale under
Rule 144, 144(k) or 701.
Over 180 days..... 245,520 Restricted securities held for one year or less.
</TABLE>
After this offering, we will have outstanding 13,501,796 shares of common
stock (14,124,296 shares if the underwriters' over-allotment option is
exercised in full). Of these shares, the 4,150,000 shares that we expect to
sell in this offering (including the 150,000 shares sold by the selling
shareholders) (4,772,500 shares if the underwriters' over-allotment option is
exercised in full) will be freely tradeable without restriction under the
Securities Act, except for shares purchased by our "affiliates" as that term is
defined in Rule 144 under the Securities Act.
The remaining 9,351,796 shares of common stock that will be outstanding after
this offering will be restricted shares. We issued and sold the restricted
shares in private transactions in reliance on exemptions from registration
under the Securities Act. Restricted shares may be sold in the public market
only if they are registered or if they qualify for an exemption from
registration under Rule 144 or Rule 701 under the Securities Act, as summarized
below.
An aggregate of 9,092,150 restricted shares are subject to lock-up agreements
or other contractual restrictions providing that the shareholder will not
offer, sell, contract to sell or otherwise dispose of the shares for 180 days
after the date of this prospectus. We also have entered into an agreement with
the underwriters that we will not offer, sell or otherwise dispose of common
stock for a period of 180 days from the date of this prospectus.
Ninety days after the date of this prospectus, 18,150 shares that are not
subject to lock-up agreements will be eligible for sale in the public market
under Rules 144 and 701. When the lock-up agreements expire, an additional
8,863,297 restricted shares will be eligible for immediate sale (of which
6,099,897 shares will be subject to certain volume, manner of sale and other
limitations under Rule 144). The remaining 245,520 restricted shares will be
eligible for sale pursuant to Rule 144 on the expiration of various one-year
holding periods over six months after the lock-up period expires.
Following the expiration of the lock-up periods, shares issued upon exercise
of options that we granted before the date of this prospectus will be available
for sale in the public market under Rule 701. Rule 701 permits resales of these
shares in reliance upon Rule 144 under the Securities Act but without
compliance with certain restrictions, including the holding-period requirement,
imposed under Rule 144.
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<PAGE>
In general under Rule 144 as currently in effect, beginning 90 days after the
date of this prospectus, a person who has beneficially owned restricted shares
for at least one year including the holding period of any prior owner except an
affiliate of Primus would be entitled to sell in any three-month period up to
the greater of
. 1% of the then-outstanding shares of common stock (approximately 135,000
shares immediately after this offering) and
. the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 in connection with the
sale.
Sales under Rule 144 are also subject to certain manner of sale and notice
requirements and to the availability of current public information about us.
Under Rule 144(k), a person who has not been an affiliate of ours at any time
during the three months before a sale, and who has beneficially owned the
restricted shares for at least two years is entitled to sell them without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144.
Within 90 days, after the effectiveness of this offering, we will file a
registration statement on Form S-8 to register shares of common stock subject
to outstanding options or reserved for issuance under our stock plans.
Approximately 4,602,094 shares will be registered on the Form S-8. Common stock
issued upon exercise of outstanding vested options is available for immediate
resale in the open market after the filing of a registration statement on
Form S-8, except where the Rule 144 limitations, the lock-up agreements and the
vesting restrictions we imposed apply.
Also, six months following this offering, the holders of 4,985,326 shares of
outstanding common stock will be entitled to require us to register their
shares for sale in the public market. See "Description of Capital Stock--
Registration Rights."
61
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Hambrecht & Quist LLC, U.S. Bancorp Piper
Jaffray Inc. and FAC/Equities, a division of First Albany Corporation, have
severally agreed with us and the selling shareholders, subject to the terms and
conditions set forth in the underwriting agreement, to purchase from us and the
selling shareholders the number of shares of common stock set forth opposite
their respective names below. The underwriters are committed to purchase and
pay for all such shares if any are purchased.
<TABLE>
<CAPTION>
Number
Underwriter of shares
----------- ---------
<S> <C>
BancBoston Robertson Stephens Inc................................
Hambrecht & Quist LLC............................................
U.S. Bancorp Piper Jaffray Inc...................................
First Albany Corporation ........................................
---------
Total.......................................................... 4,150,000
=========
</TABLE>
The representatives have advised us and the selling shareholders that the
underwriters propose to offer the shares of common stock to the public at the
public offering price set forth on the cover page of this prospectus and to
certain dealers at such price less a concession of not in excess of $ per
share, of which $ may be reallowed to other dealers. After the initial
public offering, the public offering price, concession and reallowance to
dealers may be reduced by the representatives. No such reduction shall change
the amount of proceeds to be received by us and the selling shareholders as set
forth on the cover page of this prospectus. The common stock is offered by the
underwriters as stated herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part.
The underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
Over-allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to 622,500 additional shares of common stock at the same price per
share as we will receive for the 4,000,000 shares that the underwriters have
agreed to purchase. To the extent that the underwriters exercise this option,
each of the underwriters will have a firm commitment, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares that the number of shares of common stock to be purchased by it shown in
the above table represents as a percentage of the 4,150,000 shares offered
hereby. If purchased, such additional shares will be sold by the underwriters
on the same terms as those on which the 4,150,000 shares are being sold. We
will be obligated, pursuant to the option, to sell shares to the extent the
option is exercised. The underwriters may exercise such option only to cover
over-allotments made in connection with the sale of the shares of common stock
offered hereby. If such option is exercised in full, the total public offering
price of the 4,622,500 shares we sell to the underwriters, underwriting
discounts and commissions on such shares and total proceeds to us from the sale
of such shares will be $ , $ and $ , respectively.
62
<PAGE>
Indemnity. The underwriting agreement contains covenants of indemnity among
the underwriters, the selling shareholders and us against certain civil
liabilities, including liabilities under the Securities Act and liabilities
arising from breaches of representations and warranties contained in the
underwriting agreement.
Lock-up Agreements. Under the terms of lock-up agreements, each of our
officers and directors and certain of our shareholders have agreed with the
representatives, for a period of 180 days after the date of this prospectus,
subject to certain exceptions, not to offer to sell, contract to sell, or
otherwise sell, dispose of, loan, pledge or grant any rights with respect to,
any shares of common stock, or any securities convertible into or exchangeable
for shares of common stock, now owned directly by such holders or with respect
to which they have the power of disposition, without the prior written consent
of BancBoston Robertson Stephens. However, BancBoston Robertson Stephens may,
in its sole discretion and at any time without notice, release all or any
portion of the securities subject to the lock-up agreements. There are no
agreements between the representatives and any of our shareholders providing
consent by the representatives to the sale of shares prior to the expiration of
the period 180 days after the date of this prospectus.
Future Sales. In addition, we have agreed that during the 180 days after the
date of this prospectus, we will not, subject to certain exceptions, without
the prior written consent of BancBoston Robertson Stephens:
. Consent to the disposition of any shares held by shareholders prior to
the expiration of the period of 180 days after the date of this
prospectus; or
. Issue, sell, contract to sell or otherwise dispose of any shares of
common stock or any securities convertible into, exercisable for or
exchangeable for shares of common stock, other than the sale of shares in
this offering, the issuance of common stock upon the exercise of
outstanding options or warrants or our issuance of options or shares
under our 1999 stock incentive compensation plan and our 1999 employee
stock purchase plan.
Listing. The common stock has been approved for listing on the Nasdaq
National Market under the symbol "PKSI."
No Prior Public Market. Prior to this offering, there has been no public
market for our common stock. Consequently, the initial public offering price
for the common stock offered hereby will be determined through negotiations
between us and the representatives. Among the factors to be considered in such
negotiations are prevailing market conditions, certain of our financial
information, market valuations of other companies that we and the
representatives believe to be comparable to us, estimates of our business
potential, the present state of our development and other factors deemed
relevant.
Stabilization. The representatives have advised us that, pursuant to
Regulation M under the Securities Exchange Act, certain persons participating
in this offering may engage in transactions, including stabilizing bids,
syndicate covering transactions or the imposition of penalty bids, that may
have the effect of stabilizing or maintaining the market price of the common
stock at a level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of the common stock on behalf of
the underwriters for the purpose of fixing or maintaining the price of the
common stock. A "syndicate covering transaction" is the bid for or the purchase
of the common stock on behalf of the underwriters to reduce a short position
incurred by the underwriters in connection with this offering. A "penalty bid"
is an arrangement permitting the
63
<PAGE>
representatives to reclaim the selling concession otherwise accruing to an
underwriter or syndicate member in connection with this offering if the common
stock originally sold by such underwriter or syndicate member is purchased by
the representatives in a syndicate covering transaction and has therefore not
been effectively placed by such underwriter or syndicate member. The
representatives have advised us that such transactions may be effected on the
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
Directed Share Program. At our request, the underwriters have reserved up to
207,500 shares of common stock to be issued by us and offered hereby for sale,
at the initial public offering price, to our directors, officers, employees,
business associates and other related persons. The number of shares of common
stock available for sale to the general public will be reduced to the extent
such individuals purchase such reserved shares. Any reserved shares which are
not so purchased will be offered by the underwriters to the general public on
the same basis as the other shares offered hereby.
LEGAL MATTERS
Certain legal matters will be passed on for Primus by Perkins Coie LLP,
Seattle, Washington. As of March 31, 1999, an investment partnership comprised
of certain members of Perkins Coie beneficially owned 4,833 shares of our
common stock. Certain legal matters will be passed on for the underwriters by
Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule included in this prospectus and Registration
Statement for the years ended December 31, 1996, 1997 and 1998, as set forth in
their reports, which are included in this prospectus and Registration
Statement. Our consolidated financial statements are included herein in
reliance on their reports, given on their authority as experts in accounting
and auditing.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-1. This prospectus, which forms a part of the Registration
Statement, does not contain all the information included in the Registration
Statement. Certain information is omitted and you should refer to the
Registration Statement and its exhibits. With respect to references made in
this prospectus to any contract or other document of Primus, such references
are not necessarily complete and you should refer to the exhibits attached to
the Registration Statement for copies of the actual contract or document. You
may review a copy of the Registration Statement, including exhibits and
schedule filed therewith, at the Securities and Exchange Commission's public
reference facilities in Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Securities and
Exchange Commission located at 7 World Trade Center, Suite 1300, New York, New
York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. You may also obtain copies of such materials from the
Public Reference Section of the Securities and Exchange Commission, Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Securities and Exchange Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements
and other information regarding registrants, such as Primus, that file
electronically with the Securities and Exchange Commission.
64
<PAGE>
PRIMUS KNOWLEDGE SOLUTIONS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........................... F-2
Consolidated Balance Sheets................................................. F-3
Consolidated Statements of Operations....................................... F-4
Consolidated Statements of Shareholders' Equity (Deficit)................... F-5
Consolidated Statements of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements.................................. F-7
</TABLE>
F-1
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Shareholders
Primus Knowledge Solutions, Inc.
We have audited the accompanying consolidated balance sheets of Primus
Knowledge Solutions, Inc. as of December 31, 1997 and 1998, and the related
consolidated statements of operations, shareholders' deficit, and cash flows
for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Primus
Knowledge Solutions, Inc. at December 31, 1997 and 1998, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Seattle, Washington
March 12, 1999,
except for Note 14, as to which the date is
May 3, 1999.
F-2
<PAGE>
PRIMUS KNOWLEDGE SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Pro Forma
Shareholders'
December 31 Equity at
------------------ March 31, March 31,
1997 1998 1999 1999
-------- -------- ----------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...... $ 711 $ 2,583 $ 2,423
Securities available-for-sale.. 610 2,833 1,773
Accounts receivable, (including
amounts due from related
parties of $1,065 at March 31,
1999), net of reserves of $70,
$371, and $371 at December 31,
1997 and 1998 and at March 31,
1999, respectively............ 2,555 4,999 4,777
Prepaid royalties.............. 73 166 65
Other current assets........... 70 307 300
-------- -------- --------
Total current assets...... 4,019 10,888 9,338
Property and equipment, net...... 1,208 1,914 1,922
Accounts receivable, long term... -- 600 --
Deposits and other assets........ 47 285 286
-------- -------- --------
Total assets.............. $ 5,274 $ 13,687 $ 11,546
======== ======== ========
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Line of credit................. $ 500 $ -- $ --
Accounts payable and accrued
liabilities................... 757 2,239 2,059
Compensation-related accruals.. 646 1,388 1,028
Long-term debt, current
portion....................... 417 444 616
Obligations under capital
leases, current............... 86 28 25
Deferred revenue, including
related-party amounts of
$1,969, $1,395, and $1,395 at
December 31, 1997 and 1998 and
March 31, 1999, respectively.. 3,570 7,605 6,709
-------- -------- --------
Total current
liabilities.............. 5,976 11,704 10,437
Obligations under capital leases,
net of current.................. -- 54 47
Long-term debt, net of current... 386 1,019 1,007
Redeemable convertible preferred
stock: Issued and outstanding
shares--7,910,568, 12,810,568
and 12,810,568 at December 31,
1997 and 1998, and March 31,
1999, respectively (none
pro forma), liquidation value of
$22,750......................... 10,399 23,157 23,373
Commitments (Note 10)
Shareholders' equity (deficit):
Preferred stock, $.001 par
value:
Authorized shares--
15,000,000...................
Convertible, issued and
outstanding shares--500,000
at December 31, 1997 and
1998 and March 31, 1999,
liquidation value of $1,000
(none pro forma)............. 1 1 1 $ --
Common stock, $.025 par
value:
Authorized shares--
50,000,000.................
Issued and outstanding
shares--3,894,277,
4,283,141 and 4,468,747 at
December 31, 1997 and
1998, and March 31, 1999,
respectively (9,435,407
pro forma)................. 97 107 112 236
Additional paid-in capital..... 9,350 9,184 9,975 33,225
Accumulated deficit............ (20,935) (31,538) (33,401) (33,401)
Accumulated other comprehensive
loss.......................... -- (1) (5) (5)
-------- -------- -------- --------
Total shareholders' equity
(deficit)................ (11,487) (22,247) (23,318) $ 55
-------- -------- -------- ========
Total liabilities and
shareholders' equity..... $ 5,274 $ 13,687 $ 11,546
======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
PRIMUS KNOWLEDGE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
---------------------------------- ----------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
License (including
amounts from related
parties of $30 and
$575 in 1997 and
1998,
respectively.)....... $ 1,459 $ 3,558 $ 6,034 $ 948 $ 2,901
Services.............. 963 1,631 2,576 417 1,010
---------- ---------- ---------- ---------- ----------
2,422 5,189 8,610 1,365 3,911
Cost of revenues:
License............... 137 97 375 20 145
Services.............. 1,090 2,306 2,434 518 790
---------- ---------- ---------- ---------- ----------
1,227 2,403 2,809 538 935
---------- ---------- ---------- ---------- ----------
Gross profit............ 1,195 2,786 5,801 827 2,976
Operating expenses:
Sales and marketing... 3,499 4,613 9,750 1,268 2,876
Research and
development.......... 2,459 2,538 3,286 713 1,065
General and
administrative....... 1,229 1,580 3,271 460 879
---------- ---------- ---------- ---------- ----------
Total operating
expenses............... 7,187 8,731 16,307 2,441 4,820
---------- ---------- ---------- ---------- ----------
Loss from operations.... (5,992) (5,945) (10,506) (1,614) (1,844)
Interest income......... 223 103 187 29 58
Interest expense........ (109) (143) (239) (41) (50)
---------- ---------- ---------- ---------- ----------
Loss before income
taxes.................. (5,878) (5,985) (10,558) (1,626) (1,836)
Income tax provision.... -- -- 45 -- 27
---------- ---------- ---------- ---------- ----------
Net loss................ (5,878) (5,985) (10,603) (1,626) (1,863)
Preferred stock
accretion.............. (208) (301) (545) (80) (215)
---------- ---------- ---------- ---------- ----------
Loss available to common
shareholders........... $ (6,086) $ (6,286) $ (11,148) $ (1,706) $ (2,078)
========== ========== ========== ========== ==========
Loss per share:
Basic and diluted..... $ (1.58) $ (1.62) $ (2.82) $ (0.44) $ (0.48)
Pro forma basic and
diluted.............. -- -- $ (1.32) -- $ (0.20)
Shares used in the
calculation of loss per
share:
Basic and diluted..... 3,857,448 3,883,514 3,957,310 3,903,007 4,313,329
Pro forma basic and
diluted.............. -- -- 8,020,050 -- 9,279,996
</TABLE>
See accompanying notes.
F-4
<PAGE>
PRIMUS KNOWLEDGE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Accumulated Total
Preferred Stock Common Stock Additional Other Shareholders'
----------------- -------------------- Paid-in Comprehen- Accumulated Equity
Shares Par Value Shares Par Value Capital sive Income Deficit (Deficit)
------- --------- --------- --------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1996................... -- $-- 3,848,414 $ 96 $8,754 $ -- $ (9,072) $ (222)
Issuance of Series B
convertible preferred
stock, net of issuance
costs of $19........... 500,000 1 -- -- 980 -- -- 981
Exercise of stock
warrants............... -- -- 340 -- 1 -- -- 1
Exercise of stock
options................ -- -- 19,263 -- 24 -- -- 24
Stock options and
warrants issued in
exchange for services.. -- -- -- -- 20 -- -- 20
Repurchase of common
stock.................. -- -- (4,458) -- (9) -- -- (9)
Preferred stock
accretion.............. -- -- -- -- (208) -- -- (208)
Net loss................ -- -- -- -- -- -- (5,878) (5,878)
------- --- --------- ---- ------ ---- -------- --------
Balance at December 31,
1996................... 500,000 1 3,863,559 96 9,562 -- (14,950) (5,291)
Exercise of stock
options................ -- -- 30,718 1 80 -- -- 81
Stock options and
warrants issued in
exchange for services.. -- -- -- -- 9 -- -- 9
Preferred stock
accretion.............. -- -- -- -- (301) -- -- (301)
Net loss................ -- -- -- -- -- -- (5,985) (5,985)
------- --- --------- ---- ------ ---- -------- --------
Balance at December 31,
1997................... 500,000 1 3,894,277 97 9,350 -- (20,935) (11,487)
Exercise of stock
options and warrants... -- -- 467,753 12 821 -- -- 833
Repurchase of common
stock.................. -- -- (78,889) (2) (471) -- -- (473)
Stock options and
warrants issued in
exchange for services.. -- -- -- -- 29 -- -- 29
Preferred stock
accretion.............. -- -- -- -- (545) -- -- (545)
Comprehensive loss:
Foreign currency
translation loss...... -- -- -- -- -- (1) --
Net loss............... -- -- -- -- -- -- (10,603)
Total comprehensive
loss................... -- -- -- -- -- -- -- (10,604)
------- --- --------- ---- ------ ---- -------- --------
Balance at December 31,
1998................... 500,000 1 4,283,141 107 9,184 (1) (31,538) (22,247)
Exercise of stock
options (unaudited).... -- -- 105,378 3 833 -- -- 836
Repurchase of common
stock (unaudited)...... -- -- (12,500) -- (103) -- -- (103)
Sale of common stock
(unaudited)............ -- -- 92,728 2 276 -- -- 278
Preferred stock
accretion (unaudited).. -- -- -- -- (215) -- -- (215)
Comprehensive loss
(unaudited):
Foreign currency
translation loss
(unaudited)........... -- -- -- -- -- (4) --
Net loss (unaudited)... -- -- -- -- -- -- (1,863)
Total comprehensive loss
(unaudited)............ -- -- -- -- -- -- -- (1,867)
------- --- --------- ---- ------ ---- -------- --------
Balance at March 31,
1999 (unaudited)....... 500,000 $ 1 4,468,747 $112 $9,975 $ (5) $(33,401) $(23,318)
======= === ========= ==== ====== ==== ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE>
PRIMUS KNOWLEDGE SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended March 31,
-------------------------- ----------------
1996 1997 1998 1998 1999
------- ------- -------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities
Net loss....................... $(5,878) $(5,985) $(10,603) $(1,626) $(1,863)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Option and warrant
compensation expense........ 20 9 29 -- --
Depreciation and
amortization................ 317 403 434 115 132
Equity in loss of joint
venture..................... -- 50 -- -- --
Changes in assets and
liabilities:
Accounts receivable........ (1,337) (975) (3,044) 837 822
Prepaid royalties.......... (97) 238 (93) (255) 101
Other current assets....... (30) 72 (237) (72) 7
Deposits and other assets.. -- 2 (238) -- (1)
Accounts payable and
accrued liabilities....... 178 234 1,482 410 (180)
Compensation-related
accruals.................. (49) 355 742 (176) (360)
Deferred revenue........... 432 2,498 4,035 93 (896)
------- ------- -------- ------- -------
Net cash used in
operating activities.... (6,444) (3,099) (7,493) (674) (2,238)
Investing activities
Purchases of securities
available-for-sale............ (2,307) (1,311) (2,833) -- (1,773)
Proceeds from maturity of
securities available-for-
sale.......................... 2,007 1,000 610 610 2,833
Equipment purchases............ (907) (179) (1,059) (198) (139)
------- ------- -------- ------- -------
Net cash provided by
(used in) investing
activities.............. (1,207) (490) (3,282) 412 921
Financing activities
Proceeds from issuance of long-
term debt..................... 1,827 201 1,715 1,318 222
Repayments on long-term debt... (1,143) (306) (1,055) (1,383) (62)
Proceeds from (payments on)
line of credit................ -- 500 (500) 94 --
Principal payments on capital
lease obligations............. (164) (160) (85) (36) (10)
Proceeds from issuance of
common stock, net............. 15 82 833 43 1,114
Proceeds from issuance of
preferred stock, net.......... 8,902 1,969 12,213 -- --
Repurchase of common stock..... -- -- (473) -- (103)
Proceeds from exercise of stock
warrants...................... 1 -- -- -- --
------- ------- -------- ------- -------
Net cash provided by financing
activities...................... 9,438 2,286 12,648 36 1,161
Translation adjustment........... -- (1) -- (4)
------- ------- -------- ------- -------
Increase (decrease) in cash and
cash equivalents................ 1,787 (1,303) 1,872 (226) (160)
Cash and cash equivalents at
beginning of year............... 227 2,014 711 711 2,583
------- ------- -------- ------- -------
Cash and cash equivalents at end
of year......................... $ 2,014 $ 711 $ 2,583 $ 485 $ 2,423
======= ======= ======== ======= =======
Supplemental disclosure of cash
flow information
Interest paid.................. $ 109 $ 143 $ 179 $ 34 $ 35
======= ======= ======== ======= =======
</TABLE>
See accompanying notes.
F-6
<PAGE>
PRIMUS KNOWLEDGE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of and for the three months ended March 31, 1998 and 1999 is
unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES AND LIQUIDITY
Description of Business
Primus Knowledge Solutions, Inc. (Primus or the Company) is a leading
provider of Web-based problem-resolution software for customer support and
self-service, which enables businesses to capture problem-resolution
information, solve customer problems, reuse solutions stored in the knowledge
base and share captured knowledge throughout the extended enterprise.
The Company's primary market is comprised largely of technology companies.
Sales are primarily generated through a domestic and European field sales
organization. Products sold domestically and internationally are developed by
the Company at its Seattle headquarters.
The Company is subject to certain business risks that could affect future
operations and financial performance. These risks include changing computing
environments, rapid technological change, development of new products, limited
protection of proprietary technology, and competitive pricing.
Liquidity
The Company continues to incur losses from operating results and had a
shareholders' deficit of $22.2 million at December 31, 1998. The Company had
shareholders' equity of approximately $910,000 at December 31, 1998 on a pro
forma basis, assuming conversion of preferred stock to common stock. As a
result of its significant research and development, customer support, and
selling and marketing efforts, the Company has required substantial working
capital to fund its operations. To date, the Company has financed its
operations principally through its equity offerings. Management believes that
under its current business plans, its current working capital, cash flows from
operating activities and funds available from borrowing arrangements are
sufficient to fund its operations and capital requirements through at least
December 31, 1999. Any substantial inability to achieve the current business
plan could have a material adverse impact on the Company's financial position,
liquidity, or results of operations and may require the Company to reduce
expenditures to enable it to continue operations through December 1999.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned foreign subsidiary, Primus UK. All significant intercompany
balances and transactions have been eliminated.
Interim Financial Information
The financial information at March 31, 1999 and for the three months ended
March 31, 1999 and 1998 is unaudited, but includes all adjustments (consisting
only of normal recurring adjustments) that Primus considers necessary for a
fair presentation of the financial position at such date and the operating
results and cash flows for those periods. Operating results for the three
months ended March 31, 1999 are not necessarily indicative of the results that
may be expected for the entire year.
Investment in Primus KK
In December 1995, Primus invested $50,000 for a 50% interest in Primus KK, a
Japanese distributor, with Trans Cosmos Inc., a Japanese company (TCI), a
significant shareholder of the
F-7
<PAGE>
PRIMUS KNOWLEDGE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of and for the three months ended March 31, 1998 and 1999 is
unaudited)
1. Significant Accounting Policies and Liquidity--(continued)
Company. Primus accounted for its investment using the equity method and, wrote
down its investment to zero in March 1997 as a result of recognizing the
Company's portion of the investee's losses to date. In September 1997, Primus
and TCI renegotiated their agreement, reducing Primus' ownership to 14.3%. The
investment is accounted for using the cost method.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect amounts reported in the financial statements. Changes in these
estimates and assumptions may have a material impact on the financial
statements. The Company has used estimates in determining certain provisions,
including uncollectible trade accounts receivable, useful lives for fixed
assets and intangibles, and tax liabilities.
Revenue Recognition
Statement of Position 97-2, "Software Revenue Recognition" ("SOP 97-2"), was
issued in October 1997 by the American Institute of Certified Public
Accountants and was later amended by Statement of Position 98-4 ("SOP 98-4").
The Company adopted SOP 97-2 effective January 1, 1998. The Company believes
its current revenue recognition policies and practices are consistent with SOP
97-2 and SOP 98-4. However, full implementation guidelines for these standards
have not yet been issued. Once available, such implementation guidance could
lead to unanticipated changes in current revenue accounting practices, and such
changes could materially adversely affect the timing of the Company's future
revenues and earnings. Additionally, the AICPA recently issued SOP 98-9, which
provides certain amendments to SOP 97-2, which is effective for transactions
entered into beginning January 1, 2000. This pronouncement is not expected to
materially impact the Company's revenue recognition practices.
The Company generates revenues through two sources: (1) software license
revenues and (2) service revenues. Software license revenues are generated from
licensing the rights to use the Company's products directly to end-users and
indirectly through resellers. Service revenues are generated from sales of
maintenance services, consulting services, and training services performed for
customers that license the Company's products.
Revenues from software license agreements are recognized over the software
implementation period (if sold with initial implementation services) or upon
delivery of software (if sold without implementation services) if persuasive
evidence of an arrangement exists, collection is probable, the fee is fixed or
determinable, and vendor-specific objective evidence exists to allocate the
total fee to elements of the arrangement. At the current stage of the Company's
development, due to the relatively recent introduction of the Company's product
line, in an attempt to ensure customer satisfaction while building market
share, the limited number of installations of the Company's products to date
and the limited number of third-party vendors that currently provide
implementation services to the Company's users, the Company has concluded that
the implementation services are, as a practical matter, essential to the
software in initial software arrangements where we provide implementation
services. As such the Company recognizes revenue for these arrangements
following
F-8
<PAGE>
PRIMUS KNOWLEDGE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of and for the three months ended March 31, 1998 and 1999 is
unaudited)
1. Significant Accounting Policies and Liquidity--(continued)
the percentage-of-completion method over the implementation period. Percentage-
of-completion is measured by the percentage of implementation hours incurred to
date to estimated total implementation hours. This method is used because
management considers expended hours to be the best measure of progress on these
engagements.
Vendor-specific objective evidence is typically based on the price charged
when an element is sold separately, or, in the case of an element not yet sold
separately, the price established by authorized management, if it is probable
that the price, once established, will not change before market introduction.
Elements included in multiple element arrangements could consist of software
products, upgrades, enhancements, customer support services, or consulting
services. If an acceptance period is required, revenues are recognized upon the
earlier of customer acceptance or the expiration of the acceptance period. The
Company enters into reseller arrangements that typically provide for sublicense
fees based on a percentage of list price. Sublicense fees are recognized when
reported by the reseller upon relicensing of the Company's product to end
users. The Company's agreements with its customers and resellers do not contain
product return rights.
Revenues from maintenance services are recognized ratably over the term of
the contract, typically one year. Consulting revenues are primarily related to
implementation services performed on a time-and-material basis under separate
service arrangements. Revenues from consulting and training services are
recognized as services are performed. In cases where license fee payments are
contingent on the acceptance of services, the Company defers recognition of
revenues from both the license and the service elements until the acceptance
criteria are met.
Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The Company's
cash equivalents consist of money market funds and commercial paper.
Securities Available-for-Sale
Securities available-for-sale consist primarily of investment-grade corporate
obligations, all of which mature within 12 months from purchase.
Investments classified as available-for-sale are stated at amortized cost,
which approximates fair market value, and mature within one year. Interest
earned on securities available-for-sale is included in interest income. The
cost of debt securities in this category is adjusted for amortization of
premiums and accretion of discounts to maturity. Such amortization and
accretion are included in interest income. Realized gains and losses and
declines in value judged to be other than temporary on securities available-
for-sale are also included in interest income. The cost of securities sold is
calculated using the specific identification method.
Concentration of Credit Risk and Major Customers
Financial instruments that potentially subject the Company to a concentration
of credit risk consist principally of accounts receivable. The Company's
customer base is dispersed across different
F-9
<PAGE>
PRIMUS KNOWLEDGE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Information as of and for the three months ended March 31, 1998 and 1999 is
unaudited)
1. Significant Accounting Policies and Liquidity--(continued)
geographic areas throughout North America, Europe, and Japan. During 1996 and
1997, no single customer accounted for 10% or more of total revenues. One
customer's purchases represented 12% of 1998 revenues. The Company does not
require collateral or other security to support credit sales, but provides an
allowance for bad debts based on historical experience and specifically
identified risks.
Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation.
Depreciation and amortization is provided on a straight-line basis over the
estimated useful lives of the assets (three to seven years) or over the lease
term if it is shorter for leasehold improvements.
Fair Value of Financial Instruments
At December 31, 1998, the recorded amounts of cash and cash equivalents,
accounts receivable and payable, prepaid royalties, and accrued liabilities
reflected in the financial statements approximate fair value due to the short-
term nature of the instruments.
The fair value of the Company's long-term debt and obligations under capital
leases approximates the carrying value of these obligations.
Development Costs
Costs incurred in the research and development of new software products and
enhancements to existing software products are expensed as incurred until
technological feasibility has been established. The Company believes its
current process for developing software is essentially completed concurrently
with the establishment of technological feasibility; accordingly, software
costs incurred after the establishment of technological feasibility have not
been material and, therefore, have been expensed.
Federal Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
utilizes the liability method of accounting for income taxes. A deferred tax
asset or liability is recorded for all temporary differences between financial
and tax reporting. Valuation allowances are established when necessary to
reduce deferred tax assets to amounts expected to be realized.
Foreign Currency Translation
The functional currency of the Company's foreign subsidiary is the local
currency in the country in which the subsidiary is located. Assets and
liabilities denominated in foreign currencies are translated to U.S. dollars at
the exchange rate in effect on the balance sheet date. Revenues and expenses
are translated at the average rates of exchange prevailing during the year. The
translation adjustment resulting from this process is shown within accumulated
other comprehensive income (loss) as a component of shareholders' deficit.
Gains and losses on foreign currency transactions are
F-10
<PAGE>
PRIMUS KNOWLEDGE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(Information as of and for the three months ended March 31, 1998 and 1999 is
unaudited)
1. Significant Accounting Policies and Liquidity--(continued)
included in the consolidated statement of operations as incurred. To date,
gains and losses on foreign currency transactions have not been significant.
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB No. 25), and related
interpretations, in accounting for its employee stock options rather than the
alternative fair value accounting allowed by Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123).
APB No. 25 provides that the compensation expense relative to the Company's
employee stock options is measured based on the intrinsic value of the stock
option. SFAS No. 123 requires companies that continue to follow APB No. 25 to
provide a pro forma disclosure of the impact of applying the fair value method
of SFAS No. 123 (refer to Note 8).
Supplemental Disclosure on Noncash Investing and Financial Information
During 1998, the Company acquired 78,889 shares of common stock, that had
been issued for more than six months, valued at $473,332 in exchange for
amounts due in the exercise of 230,214 common stock options.
During 1998, the Company acquired $81,400 of equipment through a capital
lease.
During 1996, the Company issued 12,208 shares of common stock in a cashless
exercise of common stock options. Compensation expense of $9,797 was recorded
in connection with the net issuance.
Advertising
Advertising costs are expensed as incurred. Advertising expense was $76,000,
$218,000, and $394,000 during the years ended December 31, 1996, 1997, and
1998, respectively.
Loss Per Share and Pro Forma Loss Per Share
Basic and diluted net loss per share is computed by dividing loss available
to common shareholders by the average number of common shares outstanding for
the period. Other common stock equivalents, including stock options, warrants,
and convertible preferred stock, are excluded from the calculation because
their effect is antidilutive.
Upon the completion of the Company's proposed initial public offering, all
preferred stock will automatically convert into common stock. Accordingly, pro
forma basic and diluted loss per share is computed using the weighted average
number of shares of common stock outstanding and the weighted average preferred
stock outstanding as if such shares were converted to common stock at the time
of issuance.
F-11
<PAGE>
PRIMUS KNOWLEDGE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(Information as of and for the three months ended March 31, 1998 and 1999 is
unaudited)
1. Significant Accounting Policies and Liquidity--(continued)
Other Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
(SFAS 130), which establishes standards for reporting and display of
comprehensive income and its components in the financial statements. The
Company adopted SFAS 130 in 1998. The only item of other comprehensive income
(loss) which the Company currently reports is foreign currency translation
adjustments. The comprehensive loss for the periods ended March 31, 1998 and
1999 was $1,626,000 and $1,867,000, respectively.
Business Segments
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131), which establishes standards for
reporting information about operating segments in annual financial statements.
As the Company operates only in one segment, the adoption of SFAS 131 did not
impact the Company's disclosures.
Reclassifications
Certain prior year balances have been reclassified to conform to the current
year presentation.
2. Marketable Securities
The following tables summarize the Company's marketable securities by type of
securities. All securities mature within 12 months of the purchase date. The
fair value of the securities approximates their cost.
<TABLE>
<CAPTION>
December 31,
-------------
1997 1998
----- -------
<S> <C> <C>
(In
thousands)
Commercial paper and short-term obligations................ $ -- $ 2,432
Corporate notes and bonds.................................. 610 401
----- -------
$ 610 $ 2,833
===== =======
</TABLE>
The gross realized gains and losses on sales of available-for-sale securities
were not material for the years ended December 31, 1998 and 1997.
3. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
----------------
1997 1998
------- -------
<S> <C> <C>
(In thousands)
Computer and computer equipment.......................... $ 1,751 $ 2,625
Furniture, fixtures, and equipment....................... 450 715
------- -------
2,201 3,340
Less accumulated depreciation............................ (993) (1,426)
------- -------
$ 1,208 $ 1,914
======= =======
</TABLE>
F-12
<PAGE>
PRIMUS KNOWLEDGE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(Information as of and for the three months ended March 31, 1998 and 1999 is
unaudited)
3. Property and Equipment--(continued)
Property and equipment includes assets under financing agreements with an
original cost of $692,000. Accumulated amortization on these assets
approximated $606,000 and $481,000 at December 31, 1998 and 1997, respectively.
Amortization expense related to these assets is included in depreciation
expense.
4. License Agreements
The Company has entered into various agreements that allow the Company to
incorporate licensed technology into its products. The Company incurs royalty
fees under these agreements that are based on a predetermined fee per license
sold. Royalty costs incurred under these agreements are recognized as products
are licensed and are included in cost of revenues. These amounts totaled
$118,000, $287,000, and $166,000 for the years ended December 31, 1996, 1997,
and 1998, respectively.
5. Borrowings
In March 1998, the Company entered into a financing arrangement with a bank,
which provided up to $3,000,000 under a line of credit to support working
capital and up to $2,000,000 under a term loan to purchase capital equipment.
The Company had no amounts outstanding at December 31, 1998 under the line of
credit, which expired in March 1999. The Company had $1,463,000 outstanding
under the term loan at December 31, 1998. The term loan bears interest at prime
plus 1.00% (8.75% at December 31, 1998), matures March 2002, and is secured by
all assets of the Company. The debt agreements contain certain financial
covenants, which the Company was in compliance with or received waivers for at
December 31, 1998. The agreement also included the issuance of stock warrants
(see Note 8). The financing arrangement was renewed in April 1999 (see Note
14).
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
(In thousands)
--------------
<S> <C>
Year ending December 31:
1999...................................................... $ 444
2000...................................................... 542
2001...................................................... 378
2002...................................................... 99
------
$1,463
======
</TABLE>
6. Federal Income Tax
At December 31, 1998, the Company had net operating loss and research and
development tax credit carryforwards (before potential limitations resulting
from changes in ownership) of approximately $24.8 million and $418,000,
respectively, which begin to expire in 2001, if not utilized. The tax
provisions for the year ended December 31, 1998 and the three months ended
March 31, 1999 consist entirely of foreign tax expense.
F-13
<PAGE>
PRIMUS KNOWLEDGE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(Information as of and for the three months ended March 31, 1998 and 1999 is
unaudited)
6. Federal Income Tax--(continued)
Significant components of the net deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
December 31,
----------------
1997 1998
------ --------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards......................... $5,917 $ 8,418
Research and development tax credits..................... 256 418
Deferred revenue......................................... 952 1,590
Accrued expenses not currently deductible................ 172 482
Stock options............................................ 220 220
------ --------
Total deferred tax assets.................................. 7,517 11,128
Deferred tax liability accrual to cash adjustments......... (349) (283)
------ --------
Net deferred tax assets.................................... 7,168 10,845
Valuation allowance........................................ (7,168) (10,845)
------ --------
$ -- $ --
====== ========
</TABLE>
The effective rate differs from the U.S. federal statutory rate as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1996 1997 1998
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Income tax (benefit) at U.S. statutory rate of
34%........................................... $(1,999) $(2,035) $(3,590)
Losses producing no current tax benefit........ 1,999 2,035 3,590
Foreign taxes.................................. -- -- 45
------- ------- -------
Income tax provision........................... $ -- $ -- $ 45
======= ======= =======
</TABLE>
The Tax Reform Act of 1986 limits the use of net operating loss and tax
credit carryforwards in certain situations where changes occur in the stock
ownership of a company. The Company may have experienced such ownership changes
as a result of the various stock offerings and the utilization of the
carryforwards could be limited.
Due to the Company's history of net operating losses, the Company has
established a valuation allowance equal to its net deferred tax assets on the
basis that realization of such assets is not assured. The valuation allowance
increased $2,070,000, $2,197,000 and $3,677,000 during 1996, 1997, and 1998,
respectively.
7. Redeemable Convertible Preferred Stock
In February 1996, Primus completed a private offering of 6,910,568 shares of
Series A redeemable and convertible preferred stock (Series A) for $7,920,000,
net of offering costs of $580,000. In March 1997, Primus completed a private
offering of 1,000,000 shares of Series C preferred stock (Series C) for
$1,969,000, net of offering costs of $31,000. In July 1998, Primus completed a
private offering of 4,900,000 shares of Series D redeemable and convertible
preferred stock (Series D) for $12,213,000, net of offering costs of $37,000.
F-14
<PAGE>
PRIMUS KNOWLEDGE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(Information as of and for the three months ended March 31, 1998 and 1999 is
unaudited)
7. Redeemable Convertible Preferred Stock--(continued)
Holders of Series A, C, and D have preferential rights to dividends when and
if declared by the Board of Directors. The holders are entitled to the number
of votes equal to the number of shares of common stock into which the preferred
stock could be converted. In the event of liquidation, the holders of Series A,
C, and D have preferential right to liquidation payments of $1.23, $2.00, and
$2.50 per share, respectively, plus any accrued but unpaid dividends. The
preferred stock is convertible into common stock as provided by the Articles of
Incorporation (Articles) (all preferred stock is currently convertible into
0.333 shares of common stock, except Series A, which is convertible into .410
shares of common stock), at the option of the holder, or automatically upon the
vote or written consent of the holders of a majority of the shares of
applicable Series then outstanding, or upon the closing of an initial public
offering of the Company's common stock from which the net proceeds are at least
$10 million and at a price per share of at least $10.50, $15.00, and $30.00
with regard to Series A, C, and D, respectively.
The holders of a majority of the outstanding Series A, C, and D shares may
request redemption on or after January 31, 2003 at $1.48, $2.40, and $3.00 per
share, respectively, subject to adjustment, plus any declared but unpaid
dividends thereon. The redemption amount is payable in equal quarterly
installments over three years.
Following is a summary of terms and conditions for each series of redeemable
convertible preferred stock as of December 31, 1998 (in thousands, except share
data):
<TABLE>
<CAPTION>
Aggregate Aggregate
Shares Net Redemption Liquidation
Designated Outstanding Proceeds Value Value
---------- ----------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Issued and outstanding:
Series A, par value
$0.001................ 6,910,568 6,910,568 $ 7,920 $10,228 $ 8,500
Series C, par value
$0.001................ 1,000,000 1,000,000 1,969 2,400 2,000
Series D, par value
$0.001................ 4,900,000 4,900,000 12,213 14,700 12,250
---------- ---------- ------- ------- -------
12,810,568 12,810,568 $22,102 $27,328 $22,750
========== ========== ======= ======= =======
</TABLE>
The difference between the original net proceeds and the redemption value of
the preferred stock is being accreted against earnings over the period ending
on the January 31, 2003 redemption date.
In addition, the Company has granted registration rights and rights of first
offer to the Series A, C, and D holders, and is precluded from carrying out
certain actions without the approval of the majority of the Series A, C, and D
holders voting as a group.
8. Shareholders' Equity
Convertible Preferred Stock
In September 1996, Primus completed a private offering of 500,000 shares of
Series B convertible preferred stock (Series B) for $981,000, net of offering
costs of $19,000. Holders of
F-15
<PAGE>
PRIMUS KNOWLEDGE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(Information as of and for the three months ended March 31, 1998 and 1999 is
unaudited)
8. Shareholders' Equity--(continued)
Series B have preferential rights to dividends when and if declared by the
Board of Directors. The holders are entitled to the number of votes equal to
the number of shares of common stock into which the preferred stock could be
converted. In the event of liquidation, the holders of Series B have
preferential rights to liquidation payments of $2.00 per share, plus any
accrued but unpaid dividends. The preferred stock is convertible into common
stock as provided by the Articles of Incorporation (Articles) (currently
convertible into 0.333 shares of common stock), at the option of the holder, or
automatically upon the vote or written consent of the holders of a majority of
the shares of applicable Series then outstanding, or upon the closing of an
initial public offering of the Company's common stock from which the net
proceeds are at least $10 million and at a price per share of at least $10.50.
The Company has granted rights of first offer to the Series B holders.
The approval of holders of a majority of shares of each of the Series A,
Series B, Series C and Series D Preferred Stock is required before the Company
can carry out any action required to be presented to holders of Common Stock.
The approval of holders of a majority of shares of each of the Series A,
Series C and Series D Preferred Stock affected by a proposed action is required
before the Company can (i) authorize or issue any security senior to, or on a
parity with the affected series; (ii) change any of the terms of the affected
series; (iii) proceed with any sale, merger or similar act of the Company
(other than a merger where the Company is the survivor and in which no senior
security is issued); (iv) declare any dividend or distribution with respect to
the affected series; (v) amend the Articles of Incorporation in any way that
would have a material adverse effect on the holders of the affected series
(including any increase in authorized shares of the affected series); and (vi)
proceed with any voluntary dissolution, liquidation or winding up.
The approval of holders of a majority of shares of the Series B Preferred
Stock is required before the Company can: (i) so long as at least 250,000
shares of Series B Preferred Stock are outstanding; (a) authorize or issue any
security senior to Series B, with respect to dividends or liquidation, or (b)
change any of the Series B terms (including any increase in authorized shares
of Series B Preferred Stock); and (ii) voting with the Series A Preferred Stock
as a single class; (a) proceed with any sale, merger or similar act of the
Company (other than a merger where the Company is the survivor and in which no
senior security is issued); (b) declare any dividend or distribution with
respect to the Common Stock or Series A or Series B Preferred Stock; (c)
proceed with any voluntary dissolution, liquidation or winding up; or (d)
redeem any stock, other than pursuant to the terms of the Series A Preferred
Stock, or the terms of any repurchase agreements with employees or consultants.
Stock Options
The Company's stock option plans include the Employee Stock Option and
Restricted Stock Purchase Plan, the Nonemployee Director Stock Option Plan, and
the 1995 Stock Incentive Option Plan (the Plans). The Plans provide for the
granting of incentive stock options to employees and nonqualified stock options
to employees, directors, and consultants. Options granted under the Plans
F-16
<PAGE>
PRIMUS KNOWLEDGE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(Information as of and for the three months ended March 31, 1998 and 1999 is
unaudited)
8. Shareholders' Equity--(continued)
typically vest at variable rates, up to four years, determined by the Board of
Directors, and remain exercisable for a period not to exceed ten years. During
1998, the shareholders increased the number of shares available under the plans
by 666,667.
A summary of the Company's stock option activity and related weighted-average
exercise prices for the years ended December 31 follow:
<TABLE>
<CAPTION>
Outstanding Options
--------------------
Shares Weighted-
Available Number Average
for of Exercise
Grant Shares Prices
---------- --------- ---------
<S> <C> <C> <C>
Balance at January 1, 1996................ 833,333 1,751,838 $1.7843
Options granted......................... (482,448) 482,448 3.0000
Options canceled........................ 23,540 (192,598) 2.4563
Options exercised....................... -- (19,263) 0.9569
---------- --------- -------
Balance at December 31, 1996
(exercisable--1,286,914)................. 374,425 2,022,425 2.0182
Additional shares authorized............ 1,333,333 --
Options granted......................... (1,742,005) 1,742,005 3.0000
Options canceled........................ 251,168 (939,672) 1.9263
Options exercised....................... -- (30,718) 2.6570
---------- --------- -------
Balance at December 31, 1997
(exercisable--1,504,136)................. 216,921 2,794,040 2.6592
Additional shares authorized............ 666,667 --
Options granted......................... (635,953) 635,953 3.8536
Options canceled........................ 377,163 (420,760) 3.1601
Options exercised....................... -- (451,086) 1.7347
---------- --------- -------
Balance at December 31, 1998
(exercisable--1,413,005)................. 624,798 2,558,147 3.0363
Options granted......................... (637,420) 637,420 7.8036
Options canceled........................ 37,263 (174,762) 2.5151
Options exercised....................... -- (105,378) 2.6738
---------- --------- -------
Balance at March 31, 1999
(exercisable--1,289,804)................. 24,641 2,915,427 $4.1229
========== ========= =======
</TABLE>
F-17
<PAGE>
PRIMUS KNOWLEDGE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(Information as of and for the three months ended March 31, 1998 and 1999 is
unaudited)
8. Shareholders' Equity--(continued)
Information regarding the weighted-average remaining contractual life and
weighted average exercise price of options outstanding and options exercisable
at December 31, 1998 for selected exercise price ranges is as follows:
<TABLE>
<CAPTION>
Outstanding Exercisable
------------------------------- ----------------------------
Weighted- Weighted-
Range of Average Average
Exercise Number of Contractual Number of Exercise
Prices Options Life (Years) Options Price
-------- --------- ------------ --------- ---------
<S> <C> <C> <C> <C>
$0.03 49,999 5.49 49,999 $0.03
0.80 1,000 4.90 1,000 0.80
1.65 17,295 5.29 17,295 1.65
2.25 277,638 6.12 276,283 2.25
3.00 1,966,814 8.76 1,068,428 3.00
4.50 174,083 9.48 -- --
6.00 71,318 9.78 -- --
--------- ---------
$0.03--$6.00 2,558,147 8.46 1,413,005 $2.73
========= =========
</TABLE>
The Company recognized $4,452, $1,969, and $706 during 1996, 1997, and 1998,
respectively, of consulting expense equal to the estimated fair value of
options granted to consultants.
Pro forma information regarding net loss is required by SFAS 123 and has been
determined as if the Company had accounted for its employee stock options under
the fair market value method of SFAS 123. The fair value of these options was
estimated at the date of grant using a minimum value option pricing model using
the multiple-option approach with the following weighted-average assumptions:
risk-free interest rates range from 4.45% to 5.61% in 1998, 5.71% to 6.75% in
1997; and 6.09% to 6.46% in 1996; an expected life of the options of five
years, and a dividend yield rate of 0% for all years.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1996 1997 1998
------- ------- -------
(In thousands,
Except Per Share Data)
<S> <C> <C> <C>
Loss available to common shareholders:
As reported..................................... $ 6,086 $ 6,286 $11,148
SFAS No. 123 pro forma net loss................. $ 6,292 $ 6,938 $11,403
Basic and diluted loss per share:
As reported..................................... $ 1.58 $ 1.62 $ 2.82
SFAS No. 123 pro forma.......................... $ 1.63 $ 1.79 $ 2.88
Weighted-average fair value of options
granted during the year.......................... $0.7965 $0.7353 $0.8595
</TABLE>
F-18
<PAGE>
PRIMUS KNOWLEDGE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(Information as of and for the three months ended March 31, 1998 and 1999 is
unaudited)
Under SFAS 123, compensation expense representing the fair value of the
option grant is recognized over the vesting period. The initial impact on pro
forma net loss may not be representative of compensation expense in future
years, when the effect of amortization of multiple awards would be reflected in
pro forma earnings.
Stock Warrants
In March of 1999, the Company issued warrants to acquire 5,000 shares of
common stock at an exercise price of $9.00 per share to a consultant. The value
of the warrants will be recognized over the related service period with final
valuation at the completion of the service period.
In 1998, the Company issued warrants to acquire 22,500 shares of common stock
at an exercise price of $6.00 per share to a bank in conjunction with the
financing arrangement. The fair value of the warrants was immaterial. The
warrants expire in the year 2005. In 1998, the Company also issued warrants to
acquire 55,999 shares of Series D preferred stock at exercise prices of $2.50
per share as part of the Series D financing. The Company recorded expense of
$28,000 related to the preferred stock warrants. The warrants expire in 2003 or
upon closing of an initial public offering.
In 1997, the Company issued warrants to acquire 21,667 shares of common stock
at an exercise price of $3.00 per share to consultants. The warrants expire in
the years 2005 and 2007 with regard to 8,333 and 6,667 warrants, respectively,
or upon the closing of an initial public offering, and in 2006 with regard to
6,667 warrants. The fair value of the warrants was immaterial.
In February 1996, the Company issued warrants to acquire 25,000 shares of
common stock at an exercise price of $3.00 per share in exchange for a loan
guarantee of which 16,667 have been subsequently exercised. In addition, the
Company issued warrants to acquire 8,000 shares of common stock at an exercise
price of $3.00 per share in exchange for consulting services. The fair value of
all of the warrants was immaterial. The warrants expire upon the closing of an
initial public offering of the Company's common stock. In years preceding 1996,
the Company issued warrants to acquire shares of common stock at prices of
$2.25 and $3.00 per share, of which 16,390 remain outstanding at December 31,
1998.
The Company valued all warrants using the Black-Scholes pricing model with
the following weighted-average assumptions: risk-free interest rates of 4.45%
to 5.61% in 1998, 5.71% to 6.75% in 1997, and 6.09% to 6.40% in 1996, an
expected life of three years, a dividend yield rate of 0% for all years, and
volatility of .6 for all years.
As of March 31, 1999, outstanding warrants were as follows:
Number
----------------------- Exercise
Common Preferred Price
------ --------- --------
14,840 -- $2.25
39,550 -- 3.00
22,500 -- 6.00
5,000 -- 9.00
-- 55,999 2.50
------ ------
81,890 55,999
====== ======
F-19
<PAGE>
PRIMUS KNOWLEDGE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(Information as of and for the three months ended March 31, 1998 and 1999 is
unaudited)
Common Stock Reserved
Common stock reserved for future issuance at December 31, 1998 is as follows:
<TABLE>
<S> <C>
Common stock warrants.......................... 76,890
Preferred stock warrants....................... 18,666
Common stock options........................... 3,182,945
Series A preferred stock....................... 2,833,333
Series B preferred stock....................... 166,666
Series C preferred stock....................... 333,333
Series D preferred stock....................... 1,633,333
---------
8,245,166
=========
</TABLE>
9. Employee Benefit Plan
The Company maintains a deferred contribution retirement plan for eligible
employees under the provisions of Internal Revenue Code Section 401(k).
Participants may defer up to 15% of their annual compensation on a pretax
basis, subject to maximum limits on contributions. Contributions by the Company
are at the discretion of the Board of Directors. No discretionary contributions
have been made by the Company to date.
10. Commitments
The Company leases office space under an operating lease expiring in October
2000. The Company also leases office equipment under capital leases.
Future minimum rental payments under noncancelable capital and operating
leases with initial terms in excess of one year are as follows as of December
31, 1998:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
(In thousands)
-----------------
<S> <C> <C>
1999................................................... $ 34 $ 687
2000................................................... 34 473
2001................................................... 25 --
---- ------
93 $1,160
======
Less amounts representing interest..................... (11)
----
Present value of minimum payments...................... 82
Less current portion................................... 28
----
Total long-term obligations............................ $ 54
====
</TABLE>
Rent expense for the years ended December 31, 1996, 1997, and 1998 was
$365,000, $520,000, and $662,000, respectively.
F-20
<PAGE>
PRIMUS KNOWLEDGE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(Information as of and for the three months ended March 31, 1998 and 1999 is
unaudited)
11. Related-Party Transactions
TCI, a significant shareholder, became a reseller of the SolutionBuilder
product in Japan during 1997. The agreement provided for the sale to TCI of the
SolutionBuilder product and support services aggregating $2 million, of which
$1,395,427 has been deferred as of December 31, 1998. Revenue recognized in
1997 and 1998 and the three months ended March 31, 1999 was $30,000, $575,000,
and $0, respectively. The revenue is recognized as TCI and its distributor,
Primus KK, sell product to end-users.
12. Earnings Per Share
The following represents the calculations for earnings per share:
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net loss (A)............ $ (5,878) $ (5,985) $ (10,603) $ (1,626) $ (1,863)
Preferred stock
accretion.............. (208) (301) (545) (80) (215)
--------- --------- --------- --------- ---------
Loss available to common
shareholders (B)....... $ (6,086) $ (6,286) $ (11,148) $ (1,706) $ (2,078)
========= ========= ========= ========= =========
Weighted-average number
of common shares (C)... 3,857,448 3,883,514 3,957,310 3,903,007 4,313,329
========= ========= =========
Pro forma adjustment for
convertible preferred
stock.................. 4,062,740 4,966,667
--------- ---------
Pro forma weighted-
average shares (D)..... 8,020,050 9,279,996
========= =========
Loss per share:
Basic and diluted
(B)/(C).............. $(1.58) $(1.62) $(2.82) $(0.44) $(0.48)
Pro forma basic and
diluted (A)/(D)...... (1.32) (0.20)
</TABLE>
Outstanding warrant and stock options to purchase shares of common stock were
excluded from the computation of diluted earnings per share because their
effect was antidilutive (see Note 8 for additional stock option information) as
follows:
<TABLE>
<CAPTION>
December 31, March 31,
----------------------------- -------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Options.................. 2,022,425 2,794,040 2,558,147 2,966,471 2,915,427
Warrants................. 49,390 71,057 95,556 76,890 100,556
</TABLE>
F-21
<PAGE>
PRIMUS KNOWLEDGE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(Information as of and for the three months ended March 31, 1998 and 1999 is
unaudited)
13. International Operations
Information regarding revenues by geographic regions is as follows:
<TABLE>
<CAPTION>
Three Months
Year Ended December Ended
31, March 31,
-------------------- -------------
1996 1997 1998 1998 1999
------ ------ ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C>
North America........................... $2,422 $5,158 $7,180 $1,214 $2,490
International........................... -- 31 1,430 151 1,421
------ ------ ------ ------ ------
Total revenues........................ $2,422 $5,189 $8,610 $1,365 $3,911
====== ====== ====== ====== ======
</TABLE>
Information regarding long lived assets by geographic region is as follows:
<TABLE>
<CAPTION>
Three Months
Year Ended Ended
December 31, March 31,
------------- ------------
1997 1998 1999
------ ------ ------------
(in thousands)
<S> <C> <C> <C>
North America................................... $1,208 $1,827 $1,818
International................................... -- 87 104
------ ------ ------
Total long lived assets....................... $1,208 $1,914 $1,922
====== ====== ======
</TABLE>
14. Subsequent Events
Initial Public Offering
In April 1999, the Board of Directors authorized management to file a
Registration Statement with the Securities and Exchange Commission to permit
the Company to offer its common stock to the public. If the offering is
consummated under terms presently anticipated, each outstanding share of Series
A redeemable convertible preferred stock will convert into 0.410 shares of
common stock, and all other preferred stock will convert into 0.333 shares of
common stock. Unaudited pro forma shareholders' equity reflects the assumed
conversion of the preferred stock into common stock and the assumed conversion
of redeemable convertible preferred stock warrants into common stock warrants
as of March 31, 1999.
Employee Stock Purchase and Incentive Plans
In April 1999, the Board increased the shares reserved under the 1995 Stock
Incentive Compensation Plan by 500,000 and adopted the 1999 Stock Incentive
Compensation Plan and the Employee Stock Purchase Plan. These actions were
subsequently approved by the Company's shareholders. A total of 1,166,667
shares of common is reserved under the Stock Incentive Compensation Plan, plus
annual increases as defined in the plan document. The Employee Stock Purchase
Plan authorizes the issuance of 600,000 shares of common stock, plus annual
increases as defined by the plan document.
F-22
<PAGE>
PRIMUS KNOWLEDGE SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
(Information as of and for the three months ended March 31, 1998 and 1999 is
unaudited)
Reverse Stock Split and Capitalization Change
In April 1999, the Board of Directors authorized a 1-for-3 reverse stock
split of the Company's common stock. The reverse split was subsequently
approved by the Company's shareholders and became effective on May 3, 1999. The
related common stock and per-share data in the accompanying financial
statements has been retroactively stated to reflect the reverse stock split.
Bank Financing
In April 1999, the Company renewed its financing arrangement with the bank,
which provides a $5 million line of credit and a $1 million term loan. The line
of credit matures in April 2000, and bears interest at rates of Prime plus
0.75%. The term loan is available for advances for 1 year during which time
interest only is payable at prime plus 1% after which principal and interest
payments are due in equal monthly payments over 3 years beginning April 2000.
The arrangement is secured by all assets of the Company. The agreement includes
certain financial covenants including those requiring the Company to maintain
minimum levels of working capital, liquidity and minimum levels of
profitability. In connection with the arrangement the Company issued warrants
to purchase 23,333 shares of common stock at an exercise price of $10.50. The
fair value of the warrants of $108,700 will be expensed over the term of the
loan. The warrants were valued using the Black-Scholes pricing model with the
following assumptions: risk-free interest rate of 5.3%, expected life of three
years, volatility of .6 and no expected dividends.
Issuance of Stock and Stock Options
In the quarter ending June 30, 1999, the Company issued 18,400 shares of
common stock and 10,000 fully vested options to acquire shares of common stock
at an exercise price of $10.50 per share to employees of Primus KK. The
aggregate fair value of the stock and stock options of $239,800 was expensed by
the Company in the quarter ending June 30, 1999.
F-23
<PAGE>
BACK COVER
[SAMPLE SOLUTIONBUILDER, SOLUTIONEXPLORER, AND SOLUTIONPUBLISHER SCREENS
ACCOMPANIED BY THE LOGOS FOR EACH PRODUCT.]
<PAGE>
[PRIMUS LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 15. Recent Sales of Unregistered Securities
Since April 1, 1996, the registrant has issued and sold unregistered
securities as follows. The numbers below reflect a 1-for-3 reverse stock split
of the registrant's common stock effected in May 1999.
1. On May 8, 1996, the registrant issued a warrant to purchase 3,833 shares of
common stock, with an exercise price of $3.00 per share, to a member of the
registrant's board of directors for consulting services.
2. On September 27, 1996, the registrant issued 500,000 shares of Series B
preferred stock, which are convertible into 166,667 shares of common stock,
to an affiliate of a current shareholder for an aggregate consideration of
$1,000,000.
3. On March 27, 1997 and March 31, 1997, the registrant issued an aggregate of
1,000,000 shares of Series C preferred stock, which are convertible into
333,333 shares of common stock, to one current shareholder for an aggregate
consideration of $2,000,000.
4. On September 30, 1997, the registrant issued a warrant to purchase 8,333
shares of common stock, with an exercise price of $3.00 per share, to a
consultant in exchange for services.
5. On November 4, 1997, the registrant issued a warrant to purchase 6,667
shares of common stock, with an exercise price of $3.00 per share, to a
consultant in exchange for services.
6. On March 20, 1998, the registrant issued a warrant for the purchase of
22,500 shares of common stock, with an exercise price of $6.00 per share,
to a bank in connection with a debt financing.
7. On June 29, 1998, the registrant issued warrants for the purchase of an
aggregate of 56,000 shares of Series D preferred stock, convertible into an
aggregate of 18,667 shares of common stock, with an aggregate exercise
price of $140,000, to four current shareholders in connection with a bridge
loan.
8. On July 22, 1998, the registrant issued an aggregate of 4,900,000 shares of
Series D preferred stock, which are convertible into 1,633,333 shares of
common stock, to five current shareholders and two accredited investors for
an aggregate consideration of $12,250,000.
9. On March 18, 1999, the registrant issued 1,333 shares of common stock,
valued at $6.00 per share, to an accredited investor in conjunction with a
donation for a charitable auction.
10. On March 31, 1999, the registrant issued 91,389 shares of common stock to
five current shareholders and five new accredited investors for $9.00 per
share or an aggregate price of $822,498.
11. From April 1, 1996 through April 1, 1999, the registrant granted stock
options to purchase an aggregate of 3,329,244 shares of common stock with
exercise prices ranging from $3.00 to $9.00 per share, under the
registrant's three stock option plans. Of these options, options for
1,728,324 shares have been cancelled without being exercised, options for
606,428 shares have been exercised and options to purchase 2,611,443 shares
remained outstanding as of April 1, 1999.
12. In April 1999, we agreed to issue 18,400 shares of common stock to a Primus
KK employee.
The sales and issuances of these securities were exempt from registration
under the Securities Act pursuant to Rule 701 promulgated thereunder on the
basis that these options were offered and sold either pursuant to a written
compensatory benefit plan or pursuant to written contracts relating to
consideration, as provided by Rule 701, or pursuant to Section 4(2) of the
Securities Act on the basis that the transactions did not involve a public
offering.
II-1
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
1.1+ Form of Underwriting Agreement.
3.1+ Form of Fourth Amended and Restated Articles of Incorporation of the
registrant.
3.2+ Form of Second Amended and Restated Bylaws of the registrant.
5.1+ Opinion of Perkins Coie LLP as to the legality of the shares.
10.1+ Registration Rights Agreement, as amended July 22, 1998, by and
among the registrant, TransCosmos USA Inc., TransCosmos Inc.,
Encompass Group, Inc., Oak Investment Partners VI L.P., Oak VI
Affiliates LLC, Northwest Equity Partners V, Piper Jaffray, Inc.,
and Snowden L.P.
10.2+ Separation Agreement, dated as of November 6, 1998, by and between
the registrant and Steven L. Sperry.
10.3+ Joint Venture Agreement, dated November 16, 1995, by and between the
registrant and Trans Cosmos, Inc.
10.4+ First Amendment to Joint Venture Agreement, dated September 26,
1997, by and among the registrant, Trans Cosmos, Inc., and Best
Career Company.
10.5++ Exclusive Distribution License Agreement, dated September 26, 1997,
by and between the registrant and Trans Cosmos Inc.
10.6+ First Right of Refusal, dated September 26, 1997, by and between the
registrant and Primus KK.
10.7++ Software Marketing and Distribution Agreement, dated March 31, 1998,
by and between the registrant and Primus Knowledge Solutions KK.
10.8**+ Amended and Restated Value Added Reseller License Agreement, dated
December 31, 1997, by and between the registrant and Versant Object
Technology Corporation.
10.9**+ Software License Agreement dated June 27, 1997, by and between the
registrant and 3Com Corporation.
10.10**+ Amendment No. 1 to Software License Agreement, dated June 25, 1997,
by and between the registrant and 3Com Corporation.
10.11+ Amendment No. 2 to Software License Agreement, dated September 26,
1997, by and between the registrant and 3Com Corporation.
10.12**+ Third Amendment to Software License Agreement and Second Amendment
to Support and Maintenance Agreement, dated August 27, 1998, by and
between the registrant and 3Com Corporation.
10.13**+ Support and Maintenance Agreement, dated June 27, 1997, by and
between the registrant and 3Com Corporation.
10.14+ Amendment No. 1 to Support and Maintenance Agreement, dated June 25,
1997, by and between the registrant and 3Com Corporation.
10.15+ Form of Change of Control Agreement, to be entered into by the
registrant, Michael A. Brochu, Elizabeth J. Huebner, Kim M. Nelson,
Patricia L. Cox and Edward L. Walter.
10.16+ Employment Agreement, dated June 19, 1998, by and between the
registrant and Elizabeth J. Huebner.
10.17+ Employee Stock Option and Restricted Stock Award Plan, as adopted by
registrant's board of directors on November 29, 1993.
10.18+ Non-Employee Director Stock Option Plan, as adopted by registrant's
board of directors on November 1, 1994.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
10.19+ 1995 Stock Incentive Compensation Plan, as amended and restated on
March 12, 1996 and amended on February 10, 1998.
10.20+ 1999 Stock Incentive Compensation Plan.
10.21+ 1999 Employee Stock Purchase Plan.
10.22+ Office Lease Agreement, dated July 25, 1995, by and between the
registrant and Westlake Center Associates Limited Partnership.
10.23+ Lease Amendment 1, dated February 1, 1999, by and between the
registrant and Westlake Center Associates Limited Partnership.
10.24++ Services Agreement, dated February 13, 1998, by and between the
registrant and Encompass Globalization, Inc.
21.1+ Subsidiaries of the registrant.
23.1++ Consent of Ernst & Young LLP.
23.2+ Consent of Perkins Coie LLP (contained in the opinion filed as
Exhibit 5.1).
23.3+ Consent of International Data Corporation.
23.4+ Consent of The Aberdeen Group.
24.1+ Power of Attorney.
27.1+ Financial Data Schedule.
99.1+ Report of Ernst & Young LLP, Independent Auditors, on Financial
Statement Schedule.
</TABLE>
- --------
** Registrant has sought confidential treatment pursuant to Rule 406 for
portions of the referenced exhibit.
+ Previously filed.
++ Filed herewith.
(b) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts
All other schedules are omitted because they are inapplicable or the
requested information is shown in the consolidated financial statements of the
registrant or related notes thereto.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 3 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Seattle, State of Washington, on the 25th day of June, 1999.
Primus Knowledge Solutions, Inc.
/s/ Michael A. Brochu
___________________________________
Michael A. Brochu, President
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 3 Registration Statement has been signed by the following persons
in the capacities indicated below on the 25th day of June, 1999.
<TABLE>
<S> <C>
/s/ Michael A. Brochu President, Chief Executive Officer and
________________________________________ Chairman of the Board (Principal Executive
Michael A. Brochu Officer)
/s/ Elizabeth J. Huebner Vice President, Chief Financial Officer,
________________________________________ Secretary and Treasurer (Principal
Elizabeth J. Huebner Financial and Accounting Officer)
* Antonio M. Audino Director
________________________________________
Antonio M. Audino
* Promod Haque Director
________________________________________
Promod Haque
* Fredric W. Harman Director
________________________________________
Fredric W. Harman
* Yasuki Matsumoto Director
________________________________________
Yasuki Matsumoto
</TABLE>
*By /s/ Elizabeth J. Huebner
-------------------------------
Elizabeth J. Huebner
Attorney-in-Fact
II-4
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
PRIMUS KNOWLEDGE SOLUTIONS, INC.
March 31, 1999
(In thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- --------- -------- ------------ ---------
Additions
-------------------
Balance Charged Charged to
of to Costs Other Balance
Beginning and Accounts-- Deduction -- at End
Description of Period Expenses Describe Describe(1) of Period
----------- --------- -------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1996
Deducted from asset
accounts:
Allowance for doubtful
accounts............. $-- $70 $-- $-- $ 70
Year ended December 31,
1997
Deducted from asset
accounts:
Allowance for doubtful
accounts............. $ 70 -- -- -- $ 70
Year ended December 31,
1998
Deducted from asset
accounts:
Allowance for doubtful
accounts............. $ 70 $301 -- -- $371
Three months ended March
31, 1999
Deducted from asset
accounts:
Allowance for doubtful
accounts............. $371 -- -- -- $371
</TABLE>
- --------
(1) Uncollectible accounts written off, net of recoveries.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
1.1+ Form of Underwriting Agreement.
3.1+ Form of Fourth Amended and Restated Articles of Incorporation of the
registrant.
3.2+ Form of Second Amended and Restated Bylaws of the registrant.
5.1+ Opinion of Perkins Coie LLP as to the legality of the shares.
10.1+ Registration Rights Agreement, as amended July 22, 1998, by and
among the registrant, TransCosmos USA Inc., TransCosmos Inc.,
Encompass Group, Inc., Oak Investment Partners VI L.P., Oak VI
Affiliates LLC, Northwest Equity Partners V, Piper Jaffray, Inc.,
and Snowden L.P.
10.2+ Separation Agreement, dated as of November 6, 1998, by and between
the registrant and Steven L. Sperry.
10.3+ Joint Venture Agreement, dated November 16, 1995, by and between the
registrant and Trans Cosmos, Inc.
10.4+ First Amendment to Joint Venture Agreement, dated September 26,
1997, by and among the registrant, Trans Cosmos, Inc., and Best
Career Company.
10.5++ Exclusive Distribution License Agreement, dated September 26, 1997,
by and between the registrant and Trans Cosmos Inc.
10.6+ First Right of Refusal, dated September 26, 1997, by and between the
registrant and Primus K.K.
10.7++ Software Marketing and Distribution Agreement, dated March 31, 1998,
by and between the registrant and Primus Knowledge Solutions K.K.
10.8**+ Amended and Restated Value Added Reseller License Agreement, dated
December 31, 1997, by and between the registrant and Versant Object
Technology Corporation.
10.9**+ Software License Agreement dated June 27, 1997, by and between the
registrant and 3Com Corporation.
10.10**+ Amendment No. 1 to Software License Agreement, dated June 25, 1997,
by and between the registrant and 3Com Corporation.
10.11+ Amendment No. 2 to Software License Agreement, dated September 26,
1997, by and between the registrant and 3Com Corporation.
10.12**+ Third Amendment to Software License Agreement and Second Amendment
to Support and Maintenance Agreement, dated August 27, 1998, by and
between the registrant and 3Com Corporation.
10.13**+ Support and Maintenance Agreement, dated June 27, 1997, by and
between the registrant and 3Com Corporation.
10.14+ Amendment No. 1 to Support and Maintenance Agreement, dated June 25,
1997, by and between the registrant and 3Com Corporation.
10.15+ Form of Change of Control Agreement, to be entered into by the
registrant, Michael A. Brochu, Elizabeth J. Huebner, Kim M. Nelson,
Patricia L. Cox and Edward L. Walter.
10.16+ Employment Agreement, dated June 19, 1998, by and between the
registrant and Elizabeth J. Huebner.
10.17+ Employee Stock Option and Restricted Stock Award Plan, as adopted by
registrant's board of directors on November 29, 1993.
10.18+ Non-Employee Director Stock Option Plan, as adopted by registrant's
board of directors on November 1, 1994.
10.19+ 1995 Stock Incentive Compensation Plan, as amended and restated on
March 12, 1996 and amended on February 10, 1998.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
10.20+ 1999 Stock Incentive Compensation Plan.
10.21+ 1999 Employee Stock Purchase Plan.
10.22+ Office Lease Agreement, dated July 25, 1995, by and between the
registrant and Westlake Center Associates Limited Partnership.
10.23+ Lease Amendment 1, dated February 1, 1999, by and between the
registrant and Westlake Center Associates Limited Partnership.
10.24++ Services Agreement, dated February 13, 1998, by and between the
registrant and Encompass Globalization, Inc.
21.1+ Subsidiaries of the registrant.
23.1++ Consent of Ernst & Young LLP.
23.2+ Consent of Perkins Coie LLP (contained in the opinion filed as
Exhibit 5.1)
23.3+ Consent of International Data Corporation
23.4+ Consent of The Aberdeen Group
24.1+ Power of Attorney (contained on signature page).
27.1+ Financial Data Schedule.
99.1+ Report of Ernst & Young LLP, Independent Auditors, on Financial
Statement Schedule.
</TABLE>
- --------
** Registrant has sought confidential treatment pursuant to Rule 406 for
portions of the referenced exhibit.
+ Previously filed
++ Filed Herewith
<PAGE>
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
page 1
<PAGE>
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
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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).
Confidential
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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
Confidential
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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 Software within those parts of the Exclusive
Territory in or to which Distributor is marketing or distributing the Software.
Distributor shall be solely responsible for compliance with any foreign exchange
controls affecting the Exclusive Territory applicable to its activities. All and
any regulatory and other approvals which are obtained for the Software by
Distributor shall be obtained on behalf of Primus and for Primus' sole benefit.
Except for approval of the Japan Fair Trade Commission, Distributor has
represented to Primus that no regulatory approvals which have not already been
obtained by Primus and/or Distributor are presently required for licensing of
the Software in Japan. Distributor shall comply, and shall ensure that its sub-
distributors comply, with all then applicable US export control laws and
regulations in connection with their distribution of the Software and
Documentation, and the disclosure of any technical information related thereto.
At Primus' request, Distributor shall provide Primus with any "letter of
assurance" required to be obtained by Primus under the export laws and
regulations of the USA.
3.9 Primus' Intellectual Property Rights.
------------------------------------
3.9.1 Intellectual Property Rights Registration. Distributor shall, at
-----------------------------------------
Primus' reasonable expense, provide Primus with all assistance reasonably
required by Primus to register Primus throughout the Exclusive Territory as the
owner of Primus' intellectual property rights with respect to the Software,
including without limitation the Trademarks.
3.9.2 Primus' Ownership. Distributor shall not represent to any customer
-----------------
that it has any ownership interest in the Software, the Trademarks or Primus'
Confidential Information. Distributor acknowledges that no action by it or on
its behalf shall create in Distributor's favor any right, title or interest in
or to the Software, the Trademarks, and/or Primus' Confidential Information, or
in any registrations, filings, renewal or enforcement rights of Primus
pertaining thereto.
3.9.3 Notice of Third Party Infringement. Distributor shall promptly
----------------------------------
advise Primus of any suspected or actual infringements of Primus' intellectual
property rights of which Distributor becomes aware. Distributor shall cooperate
with and assist Primus, at Primus' reasonable expense, in any action
Confidential
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undertaken by Primus against any suspected infringement by third parties, unless
such action is undertaken by Primus against Distributor.
3.9.4 Notice by Primus. Distributor shall not use, deal with, license or
----------------
otherwise dispose of the Software for a period not to exceed three (3) months
commencing on the giving of notice to Distributor by Primus that Distributor
should cease use or distribution of the Software due to an infringement claim.
The Distribution Term shall be extended by a period equal to any period that
Distributor is prohibited from distributing the Software under this section
3.9.4
3.9.5 Early Termination. If any claim of infringement of any third party
-----------------
intellectual property right materially adversely impairs Distributor's ability
to market the Software, and such impairment is continuing for more than three
(3) months, then Distributor, after consultation with Primus, may terminate the
Distribution Term. Primus shall pay Distributor the Early Termination Amount
upon such termination.
3.10 U.S. Foreign Corrupt Practices Act. Distributor shall comply with the
----------------------------------
requirements of the U.S. Foreign Corrupt Practices Act ("FCPA"), and shall not
take nor omit to take, directly or indirectly, any action that might cause
Primus to be in violation of the FCPA.
3.11 Marketing Practices. Distributor shall: (a) conduct its business in a
-------------------
manner that reflects favorably at all times on the Software and the good name,
goodwill and reputation of Primus; (b) avoid deceptive, misleading or unethical
practices that are or might be detrimental to Primus, the Software, or the
public, including without limitation disparagement of Primus or the Software;
and (c) make no false or misleading representations or statements with regard to
Primus or the Software. If Distributor does not comply with the provisions of
this Section 3.11, no breach of this Agreement giving rise to damages shall
occur unless (x) Primus shall have notified Distributor in writing of the nature
of the non-compliance, and (y) 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.
Section 4. Primus' Obligations
4.1 Primus Promotional Support. Throughout the Distribution Term, Primus shall
--------------------------
provide Distributor with reasonable quantities of promotional literature, up to
a maximum expense to Primus of Twenty Five Thousand US Dollars (US $25,000), and
advice in English concerning the Software.
4.2 Training. During the Distribution Term, Primus shall provide Distributor
--------
with such training as Primus and Distributor mutually determine is necessary, at
Primus' head office or at such other location as Primus and Distributor shall
mutually determine. Distributor shall pay Primus training fees at Primus' then
current list prices (which prices shall not exceed One Thousand Eight Hundred US
Dollars (US $1,800) per labor day, based on a class size of up to twelve (12)
persons). Distributor shall reimburse Primus for the travel and living expenses
outside King County, Washington, reasonably incurred by Primus' personnel who
provide the training; provided that Distributor shall have given its prior
written approval to such expenses.
4.3 Upgrades. Throughout the Distribution Term, Primus shall provide
--------
Distributor with Upgrades if and when they are available. Distributor shall pay
Primus Upgrade fees as set forth in Schedule 3(a). Distributor shall not
entitle any Authorized End-User to any Upgrades until the Upgrade is generally
available for commercial release.
4.4 Level Two Support; Fixes and Workarounds. Throughout the Distribution
----------------------------------------
Term, with Distributor's reasonable assistance to overcome any language
difficulties, Primus shall provide level two support of Software licensed to
Authorized Evaluators and Authorized End-Users that have executed and are in
compliance with a current support and maintenance agreement with respect to the
Software, by answering questions regarding the use and operation of the Software
and any technical problems encountered that have reasonably been escalated to
Primus by Distributor. Primus shall make such
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support available between 8.30am and 5.30pm PST/PDT, and otherwise at times
which are mutually convenient for Primus and Distributor, taking into account
the urgency of the situation. Primus shall provide such support in a good,
professional and workmanlike manner, consistent with industry standards. In the
event that the Software requires modification in order to remedy any Error (as
defined below), Primus shall provide Distributor with a Fix (as defined below)
or a Workaround (as defined below) as soon as reasonably practicable. "Error"
means any failure of the Software to conform in any material aspects to its
published Documentation. "Fix" means a change, either a modification or
addition, to the Software or its published Documentation that overcomes an Error
when made or added to the Software. "Workaround" means a set of procedures that
an Authorized Evaluator or Authorized End-User may follow to circumvent or
mitigate the impact of an Error. Distributor shall pay Primus the level 2
support fees specified in Schedule 3(b).
4.5 Governmental Compliance. Primus shall obtain and maintain all required
-----------------------
licenses, permits, certificates and authorizations, including without limitation
export licenses, needed for the manufacture of the Software in the USA, and the
export of the Software from the USA to Distributor (but not the re-export of the
Software by Distributor). Primus shall provide the US export class number of
the Software to Distributor within thirty (30) days of the date of this
Agreement.
4.6 Source Code Escrow.
------------------
4.6.1 Deposit. Primus shall, at all times, maintain the source code for the
Software in escrow. Licensee shall be named as a FLEXSAFE beneficiary in
accordance with Article 2 of the FLEXSAFE Escrow Agreement that Primus has
entered into with Data Securities International, a copy of which is attached
hereto as Schedule 7. Primus shall deposit all source code for the Software and
all Upgrades into the escrow account.
4.6.2 Release. If (a) (i) Primus ceases to provide Fixes or Workarounds (as
defined in Section 3.3.2) for the versions of the Software then in use by
Distributor's sub-licensees ("Relevant Versions"), (ii) such Fixes or
Workarounds are not provided by any other Entity, and (iii) Distributor is
obligated to provide such Fixes or Workarounds to Authorized End-Users, or (b)
(i) the Software does not comply with applicable specifications in the
Documentation with the result that Distributor's ability to market and
distribute the Software is materially adversely impaired, (ii) such non-
compliance is continuing for a period in excess of two (2) months following the
provision by Distributor to Primus of explicit written notice detailing the
scope and nature of the non-compliance, and the precise circumstances in which
the non-compliance occurred, and (iii) Distributor has used its commercially
reasonable best efforts to replicate the circumstances surrounding the non-
compliance and provided Primus with such other information and materials to fix
the non-compliance as Primus has reasonably requested, then Primus shall grant
Distributor a perpetual, non-exclusive, non-transferable license, without right
to sub-license, to copy, distribute, modify and use Primus' source code for the
Relevant Versions at Distributor's corporate headquarters, solely to operate and
maintain the Software for use and licensing in accordance with the provisions of
this Agreement. Distributor shall treat the source code with at least the same
degree of care and security as it treats its own commercially valuable source
code. PRIMUS' ONLY WARANTY WITH RESPECT TO THE SOURCE CODE SHALL BE THAT IT IS
AN ACCURATE COPY OF PRIMUS' SOURCE CODE FOR THE CURRENT VERSION OF THE SOFTWARE
AFFECTED AND INCLUDES NOTES AND RELATED DOCUMENTATION ONLY TO THE EXTENT IN
PRIMUS' POSSESSION OR CONTROL, AND PRIMUS EXPRESSLY DISCLAIMS ALL AND ANY
IMPLIED WARRANTIES RELATING TO THE SOURCE CODE.
Section 5. Other Obligations Of The Parties
5.1 Software Piracy. Throughout the Term, Primus and Distributor shall
---------------
mutually determine policies to be followed by each of them to minimize
unauthorized reproduction and/or distribution of the Software within the
Exclusive Territory.
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5.2 Tax Structuring. During the Term, Primus and Distributor shall consult and
---------------
work together to determine the most mutually tax-efficient structure for
distribution of the Software within the Exclusive Territory, and for payment of
license fees to Primus.
5.3 No Authority. Neither of the parties shall have any authority to bind or
------------
act for, or assume any obligation or responsibility on behalf of, the other
party, except as such authority may be specifically and expressly delegated in
this Agreement. Without limiting the generality of the foregoing, Distributor
shall have no authority to enter into any Software License Agreement, evaluation
agreement or sub-distribution agreement on Primus' behalf. The parties hereto
do not intend, and this Agreement shall not be deemed to create a partnership,
joint venture, franchise, employment or other relationship between them.
Section 6. Delivery of the Software
6.1 Delivery of the Software. All and any items of the Software purchased by
------------------------
Distributor under this Agreement shall be delivered to Distributor DAF a port of
entry in Japan, as notified in writing by Distributor to Primus. The trade term
"DAF" shall be interpreted in accordance with "Incoterms 1990", as promulgated
by the International Chamber of Commerce.
6.2 Condition of the Software. Subject to Primus' warranties under Section
-------------------------
10.3, Distributor shall ensure that it meets its obligations under the Software
License Agreement to replace any defective media on which the Software is
stored.
6.3 Customs and Taxes. Distributor shall be responsible for clearing all and
-----------------
any Software purchased by Distributor under this Agreement through customs other
than US customs, and shall pay any and all taxes or duties imposed by any
governmental authority on importation of the Software into, or licensing of the
Software within, any jurisdiction other than the USA.
6.4 Responsibility for US Export Taxes. In the event that export of the
----------------------------------
Software from the US gives rise to any obligation to pay US export duties,
Primus shall be responsible for payment of such duties.
Section 7. Payment
7.1 Initial License Fees. Upon payment of the initial license fee specified in
--------------------
Schedule 4, and subject to the provisions of Section 2, Distributor shall
acquire rights to distribute the Software on that number of Authorized
Workstations specified in Schedule 4.
7.2 Support and Upgrade Fees. Distributor shall pay Primus the support and
------------------------
maintenance fees described in Schedule 3, on or before the dates specified in
Schedule 3.
7.3 Payment Terms. Distributor shall pay Primus license and support and
-------------
maintenance fees in United States currency in readily available funds within
sixty (60) days of the date Primus invoices Distributor, unless another payment
date is specified in this Agreement, in which case Distributor shall pay Primus
on or before the specified date.
7.4 Withholding Taxes. Upon request by Primus, Distributor shall promptly
-----------------
furnish Primus with copies of tax receipts and other documents evidencing the
withholding and payment of any local taxes applicable to Primus, so that Primus
may file for a US foreign tax credit. Distributor shall cooperate with Primus
in taking all such steps and filing all such documents as Primus reasonably
requests to minimize such withholding.
Section 8. Trademark Matters
8.1 License to Use Trademarks. Primus hereby grants Distributor a non-
-------------------------
exclusive license, with right to sub-license to its sub-distributors appointed
pursuant to Section 2.2.4, to use the Trademarks in the Exclusive Territory
during the Distribution Term, solely in connection with the promotion,
marketing, licensing, distribution, installation, support and maintenance of the
Software. Such license shall
Confidential
page 10
<PAGE>
terminate automatically upon termination of the Distribution Term. Nothing in
this Agreement shall prejudice the rights of Primus KK to use the trademark
"Primus."
8.2 Use of Trademarks; Approval of Promotional Materials. Distributor shall not
----------------------------------------------------
remove, obscure or alter any notice of copyright, patent, trade secret,
trademark or other proprietary right appearing in or on any Software and/or
Documentation and shall ensure that each copy of all or any portion of the
Software and/or Documentation made by Distributor includes such notices.
Distributor shall clearly indicate the ownership of the Trademarks by Primus
whenever it uses the Trademarks. Before distributing or publishing any
advertising, descriptive, promotional or purchasing materials pertaining to the
Software or otherwise containing references to such Trademarks, Distributor
shall affirmatively provide Primus with an opportunity to inspect and approve
such materials. Distributor shall comply with the trademark usage guidelines
and procedures established by Primus from time to time. Distributor may
appropriately use its own trademarks and trade names in connection with
distributing the Software, subject to Primus' prior written approval. Any
goodwill arising out of use of the Trademarks by Distributor or any sub-
distributor shall inure solely to the benefit of Primus.
8.3 No Infringement. Distributor shall not at any time, whether during the
---------------
Term or after termination of this Agreement, adopt, use or register any
identical or similar mark or symbol or combination thereof which infringes any
of the Trademarks. If Distributor has already done or attempted to do so,
directly or indirectly, Distributor shall immediately assign all rights to such
mark or symbol to Primus. In no event shall Distributor use the name "Primus"
or any of the Trademarks (whether or not registered) except as expressly
permitted under this Agreement.
Section 9. Protection of Confidential Information
Neither Distributor nor Primus shall, with respect to any Confidential
Information of the other of which one of them is a Recipient, at any time,
without the express prior written consent of Discloser, disclose or otherwise
make known or available to any Entity other than Discloser, or use for
Recipient's own account, any of Discloser's Confidential Information. Recipient
shall utilize all reasonable procedures to safeguard Discloser's Confidential
Information, including limiting the release of Discloser's Confidential
Information to Recipient's employees on a "need-to-know" basis.
Section 10. Warranties
10.1 Distributor's Warranties. Distributor represents and warrants to Primus
------------------------
as follows:
10.1.1 Organization and Authority. Distributor is duly organized, validly
--------------------------
existing and in good standing under the laws of Japan, has all requisite power
and authority to carry on its business and the performance of its obligations
hereunder, and is duly qualified to do business in any of those jurisdictions
where failure to qualify could have an adverse effect on its ability to perform
its obligations hereunder. The execution and delivery of this Agreement by
Distributor and the performance of the obligations contemplated hereby have been
duly and validly authorized by all necessary legal action on its part, and this
Agreement is legal, valid and binding against Distributor in accordance with its
terms.
10.1.2 No Default. The execution, delivery and performance of this
----------
Agreement by Distributor does not and shall not conflict with any obligation of
Distributor under any agreement or instrument to which Distributor is a party or
by which it is bound.
10.1.3 Adequate Resources. Distributor has sufficient resources and
------------------
experience to properly perform its obligations under this Agreement, and shall
commit such resources to its obligations throughout the Term. None of
Distributor's executive officers or board members have any actual knowledge of
any existing or forthcoming event that may materially adversely affect
Distributor's ability or willingness to comply with its obligations under this
Agreement.
10.2 Primus' Warranties. Primus represents and warrants to Distributor as
------------------
follows:
Confidential
page 11
<PAGE>
10.2.1 Organization and Authority. Primus is a corporation duly
--------------------------
organized, validly existing and in good standing under the laws of the State of
Washington, USA, has all requisite power and authority to carry on its business
and the performance of its obligations hereunder, and is duly qualified to do
business in any of those jurisdictions in the United States of America where
failure to qualify could have an adverse effect on its ability to perform its
obligations hereunder. The execution and delivery of this Agreement by Primus
and the performance of the obligations of Primus contemplated hereby have been
duly and validly authorized by all necessary legal action on its part, and this
Agreement is legal, valid and binding against Primus in accordance with its
terms.
10.2.2 No Default. The execution, delivery and performance of this
----------
Agreement by Primus does not and shall not conflict with any obligation of
Primus under any agreement or instrument to which Primus is a party or by which
it is bound.
10.3 Primus' Software Warranties. Primus' warranties with respect to the
---------------------------
Software are set forth in Schedule 5, together with remedies and qualifications
relating to such warranties.
Section 11. Term
11.1 Term. The term of this Agreement shall continue indefinitely unless
----
otherwise agreed in writing by the parties, and such writing addresses which
terms of this Agreement shall survive termination, including, without
limitation, terms regarding the protection of confidential information,
indemnification and dispute resolution. Expiration of the Term or of the
Distribution Term shall not, in and of themselves, cause the termination of
Software License Agreements with Authorized End-Users.
11.2 Distribution Term. Unless sooner terminated pursuant to Section 11.2.1
-----------------
below, the Distribution Term shall expire on the earlier of (a) the third
anniversary of the date of this Agreement, or (b) the licensing to Authorized
End-Users of all of the Authorized Workstations specified in Schedule 4(a).
11.2.1 Earlier Termination. Provided that Primus shall have paid
Distributor the Early Termination Amount, and conditioned upon Primus'
compliance with its obligations under Section 11.4.2 below, Primus may, in its
sole and absolute discretion, immediately terminate the Distribution Term if at
any time: (a) Distributor has engaged in the development and/or distribution of
any product which competes with the Software; (b) Distributor has challenged the
validity and/or exclusivity of any of Primus' intellectual property rights
(including without limitation the Trademarks and/or Primus' Confidential
Information); (c) Distributor has failed to make a payment when due under
Section 7 above, and has not cured such failure within five (5) business days
following receipt of written notice from Primus of the same; (d) any proceedings
are commenced by, for or against Distributor under any bankruptcy, insolvency or
debtor relief law and are not dismissed within thirty (30) days; or (e)
Distributor has otherwise failed to perform its obligations under this Agreement
and has not cured such failure within thirty (30) days of notification by Primus
of such failure; provided, however, that the termination shall not be effective
until Primus shall have paid Distributor the Early Termination Amount.
11.3 Local Termination Liabilities. If Primus may incur any liability in any
-----------------------------
part of the Exclusive Territory by reason of early termination of this Agreement
or the Distribution Term, Primus may, at its sole and absolute discretion, elect
by notice in writing to Distributor (the "Primus Election") to render
Distributor's rights non-exclusive instead of terminating this Agreement or the
Distribution Term with respect to that part of the Exclusive Territory;
provided, however, that if Primus elects to render such rights non-exclusive,
Distributor shall, by written election to Primus within twenty (20) days of
delivery of the Primus Election, elect either (a) to retain its licensing and
sub-licensing rights under this Agreement on a non-exclusive basis, or (b) to
accept the Early Termination Amount in full and final settlement of any claim
Distributor may have with respect to any liability in any part of the Exclusive
Territory arising under local laws by reason of early termination of this
Agreement or the Distribution Term, in which event the Distribution Term shall
terminate upon payment to Distributor of the Early Termination Amount.
Notwithstanding the foregoing, Primus shall have no liability for early
termination
Page 12 Confidential
<PAGE>
of the Distribution Term or of this Agreement in accordance with the
provisions of this Agreement and, except with respect to Primus' obligations
under Section 11.4.2, Distributor waives, and shall ensure that all sub-
distributors waive, any and all rights, claims and causes of action against
Primus arising out of any such termination.
11.4 Post-Termination Obligations.
----------------------------
11.4.1 Distributorship. Upon termination of this Agreement or the
---------------
Distribution Term, Distributor shall immediately: (a) pay Primus any amounts
owing under any open invoices, or any amounts otherwise then owing under this
Agreement; (b) return to Primus all copies of Confidential Information of Primus
then in the possession, custody or control of Distributor; and (c) in good
faith, and as requested by Primus, continue reasonable efforts on behalf of
Primus and at Primus' reasonable expense to prosecute and secure those
regulatory approvals, or other governmental consents or approvals, the
applications or filings for which were first made or undertaken during the Term
by Primus, by Distributor (on behalf of Primus and at Primus' request), or by
the agent or designee of either.
11.4.2 Authorized Evaluators and Authorized End-Users.
----------------------------------------------
(a) Obligations on Termination. Upon termination of this Agreement or the
Distribution Term, Distributor shall assign to Primus or Primus' designee, and
Primus or Primus' designee shall assume, all agreements with Authorized End-
Users and Authorized Evaluators. Distributor shall also immediately pay to
Primus or Primus' designee the amount representing the unused portion of all
support and maintenance fees that have been prepaid by Authorized End-Users,
less support and maintenance fees for the unused portion that Distributor has
already paid to Primus. Unused portions of support and maintenance fees shall be
determined by multiplying the total fees for the relevant term (the "Relevant
Term") by a fraction, the numerator of which is the number of days of the
Relevant Term remaining, and the denominator of which is the total number of
days of the Relevant Term.
(b) Obligations Following Termination. Following termination of the
Distribution Term, Primus or its designee shall provide ongoing technical
support and New Software to Authorized End-Users which are and continue to be
current with their support and support and maintenance fees.
11.4.3 Ongoing Installation Programs. Upon termination of this Agreement
-----------------------------
or the Distribution Term, Distributor shall complete all and any installation
and training programs which, prior to termination, it agreed to provide to
Authorized Evaluators and/or Authorized End-Users. Distributor shall retain all
installation and training fees payable for all such programs.
Section 12. Indemnification
12.1 Mutual Indemnification -- Expiration of Distribution Term.
---------------------------------------------------------
12.1.1 Primus' Obligations. Primus shall defend, indemnify and hold
Distributor harmless from and against any loss, liability, damages or expense
(including attorneys' and other experts' fees) arising out of any non-compliance
with all and any of the agreements with Authorized End-Users that were assigned
to Primus or Primus' designee on termination of the Distribution Term, to the
extent that such non-compliance (a) is on the part of Primus and/or such
designee(but not to the extent the non-compliance results from any non-
performance by Distributor or any sub-distributor of Distributor's obligations),
and (b) occurred after termination of the Distribution Term.
12.1.2 Distributor's Obligations. Distributor shall defend, indemnify and
hold Primus harmless from and against any loss, liability, damages or expense
(including attorneys' and other experts' fees) arising out of any non-compliance
with all and any of the agreements with Authorized End-Users that were assigned
to Primus or Primus' designee on termination of the Distribution Term, to the
extent that such non-compliance (a) is on the part of Distributor and/or any of
Distributor's sub-distributor's (but not to the extent the non-compliance
results from any non-performance by Primus of Primus' obligations), and (b)
occurred before termination of the Distribution Term, or arises out of an
ongoing installation program described in Section 11.3.3.
Page 13 Confidential
<PAGE>
12.2 Primus's Indemnification of Distributor. Primus shall defend, indemnify
---------------------------------------
and hold Trans Cosmos Inc. harmless from and against any loss liability damages
or expense (including attorneys' and other experts' fees) arising out of or in
connection with any breach of any warranty contained in any Software License
Agreement with Authorized End-Users. Primus shall also defend and indemnify
Distributor as set forth in Section 4 of Schedule 5.
Section 13. Dispute Resolution and Other Provisions; Schedules
13.1 Dispute Resolution and Other Provisions. Dispute resolution and other
---------------------------------------
provisions are contained in Schedule 6.
13.2 Schedules. Each of the Schedules listed below shall be incorporated into
---------
and shall for all purposes be deemed a part of this Agreement:
<TABLE>
<S> <C>
Schedule 1 Description of the Software
Schedule 2(a) Primus Software License Agreement (Authorized End-Users)
Schedule 2(b) Primus Support and Maintenance Agreement (Authorized End-Users)
Schedule 3(a) Upgrade Fees
Schedule 3(b) Level 2 Support Fees
Schedule 4(a) Distribution License Fees
Schedule 4(b) Authorized Evaluators
Schedule 5 Primus' Software Warranties
Schedule 6 Dispute Resolution And Other Provisions
Schedule 7 FLEXSAFE Escrow Agreement
</TABLE>
13.3 Counterparts. This Agreement may be executed in counterparts, which taken
------------
together shall constitute one single agreement between the parties.
Page 14 Confidential
<PAGE>
EXECUTED as of the date first entered above.
PRIMUS COMMUNICATIONS TRANS COSMOS INC
CORPORATION
/s/ Steven L. Sperry /s/ Yasuki Matsumoto
By: ------------------------- By: ----------------------------
Steven L. Sperry Yasuki Matsumoto
----------------------------
Its: President and Chief Executive Officer Its: Director
----------------------------
Address for Notices: Address for Notices:
- ------------------- --------------------
Primus Communications Corporation Trans Cosmos Inc.
Attn: President 3-3-3 Akasaka
1601 Fifth Avenue, Suite 1900 Minato-ku
Seattle, WA 98101 Tokyo 107
USA Japan
Fax: (206) 292-1825 Fax: 03-3586-2880
with a copy to: with a copy to:
Primus Communications Corporation Foster Pepper & Shefelman
Attn: Corporate Attorney Attn: Diane Istvan
1601 Fifth Avenue, Suite 1900 1111 Third Avenue, Suite 3400
Seattle, WA 98101 Seattle, WA 98101
USA USA
Fax: (206) 292-1825 Fax: (206) 447-9700
Page 15 Confidential
<PAGE>
PRIMUS COMMUNICATIONS CORPORATION
EXCLUSIVE DISTRIBUTION LICENSE AGREEMENT
SCHEDULE 1
Description of the Software
---------------------------
Product Name Product Language
------------ -----------------
SolutionBuilderJ Kanji
Page 16 Confidential
<PAGE>
PRIMUS COMMUNICATIONS CORPORATION
EXCLUSIVE DISTRIBUTION LICENSE AGREEMENT
SCHEDULE 2(a)
Primus Software License Agreement (Authorized End-User)
-------------------------------------------------------
See Attached.
SCHEDULE 2(b)
Primus Support and Maintenance Agreement (Authorized End-User)
--------------------------------------------------------------
See Attached.
Page 17 Confidential
<PAGE>
[TRANS COSMOS, INC. / SUB-DISTRIBUTOR]
PRIMUS COMMUNICATIONS CORPORATION
[END-USER]
SOFTWARE LICENSE AGREEMENT
Distributor Contract ID: SLA
This software license agreement ("Agreement") is made by and between [TRANS
COSMOS, INC. and/or its sub-licensee], a ___ corporation ("Distributor"),
Primus Communications Corporation, a Washington, USA corporation, and the
licensee identified at the end of this Agreement ("Licensee") and is dated as of
the date set forth below Distributor's signature at the end of this Agreement.
Recitals
- --------
A. Primus has developed Software which allow users to capture, retrieve and
electronically publish solutions to product support problems. Distributor is an
authorized distributor or sub-distributor of Primus with respect to the
Software. The Software consists of Primus' SolutionBuilder(R) software, a
client/server application that helps analysts solve problems by capturing their
work during the solution process and making their results available for use by
other analysts.
B. Licensee seeks to license the Software listed in Exhibit A for use in its
operations and Distributor and Primus are willing to license the Software to
Licensee for such use upon the terms and conditions contained in this Agreement.
As more fully set forth in this Agreement, Licensee may install such Software on
its servers, and allow access to such servers and Software to employees,
contractors, representatives and customers of Licensee.
Therefore, for good and valuable consideration, the receipt and sufficiency of
which the parties acknowledge, Distributor, Primus and Licensee agree as
follows:
Section 1. Definitions.
- ---------- ------------
1.1 "Authorized Server" means the computers of Licensee designated in Exhibit A
-----------------
as Authorized Servers on which the Server Software may be used at the Licensed
Site(s) as the same may be changed from time to time as provided in Section
2.2.2.
1.2 "Authorized User" means (i) any employee or contractor of Licensee, and/or
---------------
(ii) any end-user customer of Licensee (and their employees) who is authorized
by Licensee to use the Software as provided in Sections 2.1 and 2.2.1.
1.3 "Authorized Workstation" means a computer workstation or terminal of an
----------------------
Authorized User with respect to which Licensee has paid a license fee for use of
the Client Software. The initial number of Authorized Workstations is set forth
in Exhibit A.
1.4 "Client Software" means that portion of the Software that is designated in
---------------
the Documentation for use on an Authorized Workstation.
1.5 "Confidential Information" means any information disclosed by either party
------------------------
that is marked with "confidential," "proprietary" or a similar legend.
Confidential Information may be in tangible form, verbal disclosure that is
identified as confidential, or electronic form on any media. Confidential
Information does not include information that is or becomes generally available
to the public other than by breach of this Agreement or which is or becomes
known to the receiving party other than by disclosure by the other party.
1.6 "Distribution Term" means the term set forth in Section 7.2.
-----------------
1.7 "Distributor's Licensors" means Primus, Primus' licensors whose software is
-----------------------
embedded in the Software and Trans Cosmos, Inc., a Japanese corporation ("TCI"),
where TCI is not the Distributor under this Agreement.
1.8 "Documentation" means the Software user manuals, training manuals and other
-------------
documentation, including additional, updated or revised documentation, if any,
supplied to Licensee by Distributor.
1.9 "Initial Software" means the first versions of the Software delivered to
----------------
Licensee pursuant to this Agreement, together with any modifications thereof
delivered to remedy any non-compliance with the warranties under Sections 6.1.1
and 6.1.2.
1.10 "License" means the license granted under Section 2.
-------
1.11 "License Term" means the term of the License as set forth in Section 2.7.1
------------
1.12 "Licensed Site(s)" means the location(s) of the Authorized Server(s)
-----------------
specified in Exhibit A. Licensed Sites may be changed from time to time as
provided in Section 2.2.2.
1.13 "New Software" means any versions of the Software delivered to Licensee by
------------
Distributor pursuant to the Support and Maintenance Agreement. New Software
does not include Initial Software.
1.14 "Server Software" means that portion of the Software that is designated in
---------------
the Documentation for use on an Authorized Server.
1.15 "Software" means the object code version of Primus' computer programs
--------
(including any third party products licensed by Primus and embedded in Primus'
computer programs) more fully described on Exhibit A, including any
modifications or future releases of such software that Distributor may provide
to Licensee under this Agreement or under the Support and Maintenance Agreement.
1.16 "Support and Maintenance Agreement" means the Support and Maintenance
---------------------------------
Agreement between Distributor and Licensee, executed contemporaneously with this
Agreement.
1.17 "Trademarks" means the trademarks Primus(TM), SolutionBuilder(R) and any
----------
and all other trademarks and/or service marks that Distributor and/or
Distributor's Licensors may use and that Distributor approves in writing for use
by Licensee in connection with the Software.
Section 2. Rights To Use Software.
- ---------- ----------------------
2.1 Grant of License. Subject to the provisions of this Agreement, Distributor
----------------
grants to Licensee a non-exclusive, non-transferable license, without right to
sub-license, and solely to support products marketed, distributed or supported
by Licensee in its ordinary course of business, to: (i) during the Distribution
Term, reproduce, distribute and install the Client Software on the then current
number of Authorized Workstations, and reproduce, distribute and install the
Server Software at Licensed Sites on the then current number of Authorized
Servers; (ii) during the License Term, use and allow Authorized Users to use the
Server Software on Licensee's Authorized Server(s); (iii) during the License
Term, use and allow Authorized Users to use the Client Software on Authorized
Workstations of Licensee or the Authorized Users; (iv) during the License Term,
reproduce, use and allow Authorized Users to use the Documentation in
conjunction with their use of the Software; and (v) during the License Term, use
the Trademarks solely in copies of the Software and Documentation made and
distributed in accordance with this Agreement.
2.2 Reservation. All rights to the Software, Documentation, Trademarks and
-----------
trade secrets of Distributor and/or Distributor's Licensors not expressly
granted to Licensee in this Agreement are reserved by Distributor and
Distributor's Licensors. Without limiting the generality of the foregoing,
Licensee shall use the Software only for the purposes specified in Section 2.1
and in accordance with the following:
2.2.1 Authorized Users. No contractor or customer of Licensee shall qualify
as an Authorized User unless it first agrees in writing with Licensee or
Distributor (i) to use the Client Software only in conjunction with Licensee's
Authorized Servers and only in accordance with Licensee's obligations under this
Section 2, and (ii) to ensure that its employees do the same. Licensee shall
ensure that all Authorized Users comply with Sections 2 and 5.7 of this
Agreement.
2.2.2 Location and Relocation of Authorized Servers. Only locations under the
direct custody and control of Licensee in countries previously approved in
writing by Distributor shall qualify as Licensed Sites. If Licensee wants to
move the Server Software from an Authorized Server to a different computer of
Licensee or wants to move an Authorized Server with the Server Software to a
different Licensed Site, Licensee must give prior written notice to Distributor
of such desired change and the model and serial number of the new Authorized
Server and the address of the new Licensed Site, as applicable.
Page 1 of 6
<PAGE>
2.2.3 Back-up Copies. Licensee may reproduce the Software as necessary for
bona fide back-up or archival purposes.
2.2.4 Modifications. Licensee assumes full responsibility for any changes,
modifications or improvements to the Software made by any person other than
Distributor or Distributor's authorized agent. Distributor recommends that
Licensee consult with Distributor prior to making any modifications. Licensee
hereby releases Distributor from all liability and waives all rights, claims and
remedies against Distributor and/or Distributor's Licensors, for any and all
loss and damages of any kind or nature, to the extent that they arise out of any
such changes, modifications or improvements.
2.2.5 No Conveyance of Ownership; Trade Secrets. This Agreement does not
convey to Licensee ownership of the Software or Documentation or any media
delivered to Licensee on which the Software is stored, but only the right to use
the Software and Documentation as provided in this Agreement. Licensee
acknowledges that the Software, the Documentation and the Confidential
Information, and all technical data and information associated therewith
constitute trade secrets and are the valuable property of Distributor and/or
Distributor's Licensors and that the Software and Documentation are protected by
copyright and trademark rights.
2.2.6 Trademarks. Licensee shall not remove, obscure or alter any notice of
copyright, patent, trade secret, trademark or other proprietary right appearing
in or on any Software and/or Documentation and shall ensure that each copy of
all or any portion of the Software and/or Documentation made by Licensee
includes such notices. Licensee shall clearly indicate the ownership of the
Trademarks by Distributor and/or Distributor's Licensors whenever it uses the
Trademarks.
2.2.7 Reverse Engineering. Licensee shall not decompile, or create or
attempt to create, by reverse engineering or otherwise, the source code from the
object code supplied hereunder or use it to create a derivative work. In no
event shall Licensee modify or use the Software to create a standalone software
program. Without limiting the generality of the foregoing, Licensee shall not
use Software as a basis to create or develop any standalone software program
that incorporates any portion of the Software or makes direct function calls to
or operation of which is otherwise dependent upon any portion of the Software,
unless independently developed by Licensee without access or reference to the
Software.
Section 3. Delivery Of Software.
- ---------- --------------------
Upon payment to Distributor of the license fees specified in Exhibit A, or
delivery of a valid purchase order with respect to such fees, Distributor shall
deliver to Licensee one reproducible master of the Software, and two
reproducible masters of the Documentation, F.O.B. Distributor's premises in
________, Japan.
Section 4. Compensation; Additional Purchases.
- ---------- ----------------------------------
4.1 Payment of License Fee. Licensee shall pay Distributor the Software
----------------------
license fees in the amounts and on the dates specified in Exhibit A. Unless
Licensee's accounting policies permit Licensee to pay such fees in the absence
of a purchase order, Licensee shall issue an appropriate purchase order with
respect to such fees immediately following execution of this Agreement by
Licensee. Payment is due as specified in Exhibit A, irrespective of whether
Licensee has issued a purchase order. Distributor may impose a finance charge
of 1% per month on amounts unpaid by Licensee on their due date.
4.2 Additional Purchases; Increase in Authorized Workstations. In the event
---------------------------------------------------------
that Licensee wishes to increase the number of Authorized Workstations, Licensee
shall submit a purchase order to Distributor for the quantity of additional
Authorized Workstations desired at the rates and in the minimum blocks for
increasing licensed usage specified in Exhibit A. If no rate or minimum is
specified, Distributor and Licensee shall work together to determine a mutually
satisfactory rate and minimum purchase amount (if any), and shall execute an
additional Exhibit to this Agreement reflecting such terms. Upon Distributor's
notification of acceptance of Licensee's purchase order, Licensee may install
the Client Software on such additional Authorized Workstations.
4.3 Sales Taxes, Etc. Licensee shall be responsible for any applicable sales,
----------------
use, or any value added or similar taxes payable with respect to the licensing
of the Software to Licensee, or arising out of or in connection with this
Agreement, other than taxes imposed in Japan based upon Distributor's income.
If Licensee has tax-exempt status, Licensee shall provide written evidence of
such status with its purchase orders.
4.4 Accounting. Licensee shall keep current, complete and accurate records
----------
regarding the location, model name, and serial number of all Authorized Servers
on which the Server Software is installed and the number of installations of the
Client Software made by Licensee and any Authorized User. Licensee shall
provide such information to Distributor within 5 days of Distributor's written
request. Upon 5 days prior written notice, Distributor, Distributor's Licensors
and/or their representatives may inspect, audit, and copy such records of
Licensee and access the Server Software at any of Licensee's relevant locations
and/or Licensed Sites, at any time during Licensee's regular business hours.
Unless an audit discloses a material discrepancy in Licensee's favor, such audit
rights may be exercised no more than once during any 12 month period. In the
event of any understatement of the license fees due, Licensee shall promptly pay
such fees based upon Distributor's then current list price, and Distributor will
extend this License to correct any such deficiency. Distributor's acceptance of
any payment shall be without prejudice to any other rights or remedies of
Distributor and/or Distributor's Licensors under this Agreement or applicable
law. Upon written request by Distributor, Licensee shall transmit a current,
complete and correct copy of the log file for each copy of the Server Software
to Distributor; provided, however, that Distributor may not request a copy of
the log file more frequently than once a quarter, unless review of a log file
has indicated additional fees are due to Distributor.
Section 5. Additional Rights And Obligations.
- ---------- ---------------------------------
5.1 Increase in Authorized Servers. In the event that Licensee wishes to
------------------------------
increase the number of Authorized Servers, Licensee shall provide Distributor
with written notice of (i) the quantity of additional Authorized Servers
desired, (ii) the model and serial number on which the Server Software is to be
installed and (iii) the location of the Licensed Site. Upon written acceptance
by Distributor, Licensee may install the Server Software on such additional
Authorized Servers. Distributor and Licensee shall amend Exhibit A accordingly.
5.2 Data Protection. Licensee shall maintain current back-up copies of all of
---------------
Licensee's data used in connection with the Software.
5.3 Reference. Licensee authorizes Distributor and Distributor's Licensors to
---------
disclose that Licensee is a customer and agrees to be a reference account for
Distributor and for Distributor's Licensors with respect to the Software.
5.4 Third Party Rights. The Software incorporates material which is licensed
------------------
by Primus from third parties and which is used by agreement between Primus and
such third parties. Licensee acknowledges and agrees that any third party
licensor of such material is a direct and intended third party beneficiary of
this Agreement who may enforce this Agreement directly against Licensee.
5.5 Confidential Information. Neither Distributor nor Licensee shall, with
------------------------
respect to any Confidential Information which one of them (a "Recipient")
receives from the other (a "Discloser"), at any time, without the express prior
written consent of Discloser, disclose or otherwise make known or available to
any person or entity other than Discloser, or use for Recipient's own account,
any of Discloser's Confidential Information. Recipient shall use all reasonable
procedures to safeguard Discloser's Confidential Information.
5.6 Compliance With Law. Licensee shall comply with all applicable laws and
-------------------
regulations in its use of the Software and Documentation. Without limiting the
generality of the foregoing, Licensee shall not export or re-export, directly or
indirectly, any Software in violation of any US export control laws and
regulation and shall promptly provide Distributor and/or Primus with any "letter
of assurance" required by Distributor and/or Primus pursuant to such laws and
regulations.
5.7 Protection Against Unauthorized Use. Licensee shall promptly notify
-----------------------------------
Distributor and Distributor's Licensors of any unauthorized use of any Software
of which Licensee becomes aware. In the event of any unauthorized use by any
Authorized User (or by any employee or contractor of Licensee or of any
Authorized User), Licensee shall use its commercially reasonable best efforts to
immediately terminate and prevent further occurrences of such unauthorized use.
In the event that Licensee commences any legal proceeding in connection with
such unauthorized use, Distributor and/or Distributor's Licensors may, at their
option and
Page 2 of 6
<PAGE>
expense, participate in any such proceeding. In such event, Licensee,
Distributor and Distributor's Licensors shall each provide the other with such
authority, information and assistance related to such proceeding as may be
reasonably necessary to safeguard the interests of Distributor and/or
Distributor's Licensors, and Licensee's rights under this Agreement.
5.8 Miscellaneous Provisions. Dispute resolution and other provisions are
------------------------
contained in Schedule 1 to this Agreement.
Section 6. Distributor's Warranties; Remedies.
- ---------- ----------------------------------
6.1 Warranties.
----------
6.1.1 Media. Distributor warrants to Licensee that the media on which the
Software is delivered by Distributor to Licensee will be free from defects in
materials and workmanship for a period of ninety (90) days beginning on the date
of shipment by Distributor.
6.1.2 Performance. Distributor warrants to Licensee that the Software as
delivered by Distributor to Licensee shall perform in all material respects in
accordance with the applicable specifications set forth in the Documentation for
a period of ninety (90) days beginning on the date of shipment by Distributor.
6.1.3 Infringement. Distributor warrants to Licensee that use in accordance
with this Agreement of the Software as delivered by Distributor to Licensee does
not infringe any valid copyright, patent or trademark existing under the laws of
the United States and/or Japan.
6.1.4 Authority. Distributor warrants to Licensee that Distributor has all
requisite corporate authority to execute and deliver this Agreement, and that
the execution, delivery and performance of this Agreement by Distributor does
not conflict with any obligation of Distributor under any agreement or
instrument to which Distributor is a party or by which it is bound.
6.1.5 Bugs and Abatement. Without limiting the foregoing, Distributor does
not warrant that the Software is free from all bugs, errors, or omissions. The
warranties in this Section 6.1 shall automatically abate to the extent that the
Software has been damaged, abused, modified, or combined with other software by
persons other than Distributor's authorized employees or representatives, or
other than at Distributor's express direction.
6.2 Performance Remedy. If any Software fails to comply with the warranties
------------------
set forth in Sections 6.1.1 and 6.1.2 and Licensee provides written notice of
the non-compliance to Distributor within the warranty period, then Distributor
will either repair or, at its option, replace any non-complying media or
Software. If Distributor is unable to correct the noncompliance within sixty
(60) days of receipt of such written notice from Licensee, Distributor shall
(i), with respect to non-compliant Initial Software, promptly refund all of the
License fees paid for such Software, and (ii), with respect to non-compliant New
Software, promptly refund all of the most recent annual Support and Maintenance
Agreement fee attributable to the development of New Software, together with a
pro-rated amount of the annual fee reflecting the unused portion of the annual
term, in each case (i) and (ii) in full and final satisfaction of all and any of
Licensee's claims arising out of media or Software failure, and immediately
terminate the License or Support and Maintenance Agreement, as the case may be.
6.3 Infringement Remedy. Distributor shall defend and indemnify Licensee
-------------------
against any proceeding based upon any failure to satisfy the warranty set forth
in Section 6.1.3, provided that (a) Licensee shall notify Distributor and
Distributor's Licensors in writing of any claim of infringement promptly after
it has been made, (b) Distributor and Distributor's Licensors shall have
exclusive control over the defense and settlement of the proceeding, (c)
Licensee shall provide such assistance in defense of the proceeding as
Distributor and Distributor's Licensors may reasonably request, at Distributor's
and Distributor's Licensors' reasonable expense, and (d) Licensee shall comply
with any settlement or court order made in connection with the proceeding. In
the event that use of the Software becomes, or in Distributor's and/or
Distributor's Licensors' reasonable opinion is likely to become, the subject of
a claim of infringement of any intellectual property right of any third party,
Distributor and Distributor's Licensors shall have the right to : (i) procure
the continuing right of Licensee to use the Software; (ii) replace or modify the
Software in a functionally equivalent manner so that it no longer infringes; or
(iii) terminate the License and refund to Licensee an amount equal to the
depreciated License fee paid by Licensee (calculated on a straight line basis
over a five (5) year life).
6.4 Warranties Repeated For Replacements and New Software. The warranties and
-----------------------------------------------------
other provisions of this Section 6 shall be automatically repeated for any
modifications of the Software delivered to remedy any non-compliance with the
warranties under Sections 6.1 and for any New Software, in each case upon
shipment of the same to Licensee by Distributor.
6.5 Disclaimer Of Implied Warranties. Distributor and Distributor's Licensors
--------------------------------
make no representation or warranty in connection with the Initial Software and
New Software, except as set forth in Section 6.1. EXCEPT AS SPECIFICALLY SET
FORTH IN THIS SECTION 6, DISTRIBUTOR AND DISTRIBUTOR'S LICENSORS DISCLAIM AND
LICENSEE WAIVES AND RELEASES ALL RIGHTS AND REMEDIES OF LICENSEE, AND ALL
WARRANTIES, OBLIGATIONS, AND LIABILITIES OF DISTRIBUTOR AND/OR DISTRIBUTOR'S
LICENSORS, EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE, WITH RESPECT TO ANY
BUG, ERROR, OMISSION, DEFECT, DEFICIENCY, OR NONCONFORMITY IN ANY SOFTWARE OR
OTHER ITEMS FURNISHED UNDER THIS AGREEMENT OR THE SUPPORT AND MAINTENANCE
AGREEMENT, INCLUDING BUT NOT LIMITED TO ANY: (A) IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE; (B) IMPLIED WARRANTY
ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING, OR USAGE OF TRADE; OR (C)
CLAIM OF INFRINGEMENT.
Section 7 Term and Termination.
- --------- --------------------
7.1 License Term. The License Term shall commence upon the date of this
------------
Agreement and shall continue in perpetuity unless the Agreement is terminated in
accordance with Section 7.3.
7.2 Distribution Term. If no Distribution Term is specified in Exhibit A, the
-----------------
Distribution Term shall be the same as the License Term. The Distribution Term,
if specified in Exhibit A, shall commence upon the date of this Agreement for
Software identified in Exhibit A as being subject to the Distribution Term and,
subject to earlier termination of this Agreement in accordance with Section 7.3,
shall expire as specified in Exhibit A. Expiration of the Distribution Term
shall not in and of itself automatically terminate the right of Licensee and/or
Authorized Users to continue to use the Software and Documentation pursuant to
Section 2 above.
7.3 Termination On Breach. In the event of a material breach or default under
---------------------
this Agreement by either party, the non-breaching party may terminate this
Agreement by giving the breaching party written notice of the breach or default
and the non-breaching party's intention to terminate. The Agreement shall
automatically terminate thirty (30) days after delivery of such notice, unless
the breaching party cures the breach or default before the expiration of the
thirty (30) day period.
7.4 Post Termination Obligations. Following termination of this Agreement,
----------------------------
howsoever arising, Licensee shall destroy all copies of the Server Software
within five (5) days of such termination, and all copies of the Client Software
and the Documentation within twenty (20) days of such termination, and
immediately thereafter provide Distributor and Primus with a written
certification signed by an authorized representative of Licensee certifying that
all copies of the Software have been destroyed and all use of the Software has
been discontinued. The provisions of Section 5.5 (Confidential Information)
shall survive termination of this Agreement.
Section 8. Schedules And Exhibits.
- ---------- ----------------------
Each of the exhibits and schedules listed below shall be incorporated into and
shall for all purposes be deemed a part of this Agreement:
Exhibit A - Product and Fee Schedule
Schedule 1 - Dispute Resolution and Other Provisions
Page 3 of 6
<PAGE>
IN WITNESS WHEREOF, Distributor and Licensee, each acting with proper authority
have executed this Agreement as indicated below.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
[TRANS COSMOS, INC. / SUB-DISTRIBUTOR] LICENSEE: [CUSTOMER]
- --------------------------------------------------------------------------------------------
<S> <C>
- --------------------------------------------------------------------------------------------
_____________(voice); __________(fax) ___________(voice); ________(fax)
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
By: By:
- --------------------------------------------------------------------------------------------
Name: Name (Print):
- --------------------------------------------------------------------------------------------
Title: Title:
- --------------------------------------------------------------------------------------------
Date: Date:
- --------------------------------------------------------------------------------------------
</TABLE>
Page 4 of 6
<PAGE>
SOFTWARE LICENSE AGREEMENT
EXHIBIT A
PRODUCT AND FEE SCHEDULE
INITIAL ORDER
- -------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
PRODUCT LANGUAGE VERSION # AUTHORIZED PRICE PER SEAT DISTRIBUTION FEE (US $) PAYMENT DATE(S)
WORKSTATIONS TERM
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SolutionBuilder(R)
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Total Initial Order N/A N/A N/A
Fees (US $)
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
AUTHORIZED SERVERS
- ------------------
<TABLE>
<CAPTION>
MODEL # SERIAL # LICENSED SITE (Street/City/State/Phone)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
OPTION TERMS FOR INCREASING LICENSED USAGE OF SOFTWARE
- ------------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
PRODUCT LANGUAGE VERSION # AUTHORIZED WORKSTATIONS MINIMUM PURCHASE PRICE PER SEAT OPTION EXPIRATION
SUBJECT TO OPTION (US $) DATE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SolutionBuilder(R)
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
All pricing effective until [insert date]
This Exhibit is hereby approved and accepted:
[TRANS COSMOS INC./ SUB-DISTRIBUTOR] [CUSTOMER]
By: By:
----------------------------- ----------------------------
----------------------------- ----------------------------
Its: Its:
------------------------- ------------------------
Dated: Dated:
-------------------------- -------------------------
Page 5 of 6
<PAGE>
SOFTWARE LICENSE AGREEMENT
SCHEDULE 1
DISPUTE RESOLUTION AND OTHER PROVISIONS
1. Dispute Resolution.
------------------
1.1 Governing Law. This Agreement shall be governed by and interpreted in
accordance with the internal laws of the State of Washington, and, where such
laws are preempted by the laws of the United States, by the internal laws of the
United States, in each case without regard to (a) conflicts of laws principles
and renvoi and (b) the applicability, if any, of the United Nations Convention
on Contracts for the International Sale of Goods.
1.2 Mediation. In the event of any controversy or claim arising out of or
relating to this Agreement or the breach or interpretation thereof, the parties
shall, upon five days notice from either one to the other, submit themselves and
the subject-matter of the dispute to mediation before an independent mediator to
be appointed by the head office of the American Arbitration Association. Costs
of mediation shall be borne equally between the parties.
1.3 Arbitration. In the event that the parties remain in dispute following the
mediation, the controversy or claim shall be determined by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association by a single, disinterested arbitrator appointed in accordance with
such Rules. The determination of the arbitrator shall be final, conclusive and
binding. Judgment upon the award rendered may be entered in any court of any
state or country having jurisdiction.
1.4 Conduct. Each party shall ensure that any mediation and arbitration are
conducted as speedily as is reasonably possible, and that all and any
information disclosed during or in connection with the arbitration is treated by
each party with the strictest confidence.
1.5 Interim and Permanent Relief. Upon the application of either party to this
Agreement, and whether or not an arbitration or mediation has yet been
initiated, all courts having jurisdiction over one or more of the parties are
authorized to: (i) issue and enforce in any lawful manner such temporary
restraining orders, preliminary injunctions and other interim measures of relief
as may be necessary to prevent harm to a party's interests or as otherwise may
be appropriate pending the conclusion of arbitration proceedings pursuant to
this Agreement; and (ii) enter and enforce in any lawful manner such judgments
for permanent equitable relief as may be necessary to prevent harm to a party's
interests or as otherwise may be appropriate following the issuance of arbitral
awards pursuant to this Agreement.
1.6 Venue. Any mediation or arbitration conducted under or in connection with
this Agreement shall take place in Seattle, Washington at a time and location to
be determined by the mediator or arbitrator, as the case may be.
1.7 Legal Expenses. If any proceeding is brought by either party to enforce or
interpret any term or provision of this Agreement, the substantially prevailing
party in such proceeding shall be entitled to recover, in addition to all other
relief arising out of this Agreement, such party's reasonable attorneys' and
other experts' (including without limitation accountants) fees and expenses.
2. Excused Performance; Force Majeure. If the performance of this Agreement is
----------------------------------
adversely restricted by reason of any circumstances beyond the reasonable
control and without the fault or negligence of the party affected, then the
party affected, upon giving prompt written notice to the other party, shall be
excused from such performance on a day-to-day basis to the extent of such
restriction (and the other party shall likewise be excused from performance of
its obligations on a day-to-day basis to the extent such party's obligations
relate to the performance so restricted); provided, however, that the party so
affected shall use all commercially reasonable efforts to avoid or remove such
causes of non-performance and both parties shall proceed whenever such causes
are removed or cease.
3. Exclusion of Certain Claims. IN NO EVENT SHALL DISTRIBUTOR OR DISTRIBUTORS'
---------------------------
LICENSORS BE LIABLE (WHETHER IN TORT OR CONTRACT, UNDER STATUTE OR OTHERWISE)
FOR ANY INDIRECT, SPECIAL, CONSEQUENTIAL OR INCIDENTAL DAMAGES, INCLUDING
WITHOUT LIMITATION DAMAGES FOR LOSS OF PROFITS, BUSINESS INTERRUPTION, LOSS OF
INFORMATION AND THE LIKE, ARISING OUT OF ITS PERFORMANCE OR NONPERFORMANCE OF
THIS AGREEMENT OR THE USE, INABILITY TO USE OR RESULTS OF USE OF THE SOFTWARE,
EVEN IF DISTRIBUTOR AND/OR DISTRIBUTORS' LICENSORS HAVE BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
4. Limitation of Liability. Except for Distributor's obligations under Section
-----------------------
6.3, Distributor's liability and that of Distributor's Licensors (whether in
tort or contract, under statute or otherwise) with regard to this Agreement or
any Software or other items furnished in connection with this Agreement shall in
no event exceed the license fees paid by Licensee to Distributor under this
Agreement.
5. Equitable Relief. Each of Licensee and Distributor acknowledges that
----------------
damages will be an inadequate remedy if the other violates the terms of this
Agreement pertaining to protection of intellectual property rights, or otherwise
fails to perform its obligations hereunder. Accordingly, subject to Section 1
of this Schedule, Licensee, Distributor and Primus shall have the right, in
addition to any other rights each of them may have, to obtain in any court of
competent jurisdiction, temporary, preliminary and permanent injunctive relief
to restrain any breach, threatened breach, or otherwise to specifically enforce
any of the obligations in this Agreement.
6. Waiver. No waiver of or with respect to any provision of this Agreement,
------
nor consent by a party to the breach of or departure from any provision of this
Agreement, shall in any event be binding on or effective against such party
unless it be in writing and signed by such party, and then such waiver shall be
effective only in the specific instance and for the purpose for which given.
7. Captions and Headings. The captions and headings are inserted in this
---------------------
Agreement for convenience only, and shall not be deemed to limit or describe the
scope or intent of any provision of this Agreement.
8. Severability; Invalidity. If any provision of this Agreement is held to be
------------------------
invalid, such invalidity shall not render invalid the remainder of this
Agreement or the remainder of which such invalid provision is a part. If any
provision of this Agreement is so broad as to be held unenforceable, such
provision shall be interpreted to be only so broad as is enforceable.
9. Assignment. Licensee shall not assign any of its rights this Agreement
----------
without the prior written consent of Distributor, which shall not be
unreasonably withheld. Subject to the foregoing restriction on assignment by
Licensee, this Agreement shall be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and assigns.
10. Notices. Any notice or other communication under this Agreement given by
-------
either party to the other party shall be deemed to be properly given if given in
writing and delivered (i) by facsimile transmission (receipt confirmed) or (ii)
delivered, if in Japan, by nationally recognized overnight courier, and if
outside Japan, by internationally recognized overnight courier (e.g., DHL),
properly addressed and prepaid, to the recipient at the address identified in
its signature block to this Agreement and, in the case of Primus, to Primus
Communications Corporation, Attn: Corporate Attorney, 1601, Fifth Avenue, Ste.
1900, Seattle, WA 98101, U.S.A. Any party may from time to time change its
address by giving the other parties notice of the change in accordance with this
Section.
11. Entire Agreement; Amendments. This Agreement constitutes and embodies the
----------------------------
entire agreement and understanding between the parties with respect to the
subject matter hereof and supersedes all prior or contemporaneous written,
electronic or oral communications, agreements or understandings between the
parties with respect thereto. This Agreement may not be modified or amended
except by a written instrument executed by the parties. In the event of any
conflict between the provisions of this Agreement and any Support and
Maintenance or Services Agreement between the parties, or the terms of any form
of purchase order or invoice, the provisions of this Agreement shall prevail.
Page 6 of 6
<PAGE>
[TRANS COSMOS, INC. / SUB-DISTRIBUTOR]
PRIMUS(TM) COMMUNICATIONS CORPORATION
[CUSTOMER]
SUPPORT AND MAINTENANCE AGREEMENT
Distributor Contract ID: SMA__________
This agreement ("Agreement") is made by and between [TRANS COSMOS, INC. and/or
its sub-licensee], a _____ corporation ("Distributor"), Primus Communications
Corporation, a Washington, USA corporation, and the licensee identified at the
end of this Agreement ("Licensee") and is dated as of the date set forth below
Distributor's signature at the end of this Agreement.
Recitals.
- ---------
A. Licensee has licensed the Licensed Program(s) (as defined below) from
Distributor under a separate license agreement (the "License Agreement") and
desires to obtain support and maintenance for such programs. Distributor is an
authorized distributor or sub-distributor of Primus with respect to the
Software.
B. Distributor desires to provide such support and maintenance services for
such Licensed Program(s) upon the terms and conditions set forth in this
agreement.
Therefore, for good and valuable consideration, the receipt and sufficiency of
which the parties acknowledge, Distributor, Primus and Licensee agree as
follows:
Section 1. Definitions.
- ------------------------
1.1 "Distributor's Licensors" means Primus, Primus' licensors whose software is
-----------------------
embedded in the Software and Trans Cosmos, Inc., a Japanese corporation ("TCI"),
where TCI is not the Distributor under this Agreement.
1.2 "Error" means any failure of a Licensed Program(s) to conform in any
-----
material aspects to its published Documentation (as defined in the License
Agreement).
1.3 "Fix" shall mean a change, either a modification or addition, to a Licensed
---
Program(s) or its published Documentation (as defined in the License Agreement)
that when made or added to a Licensed Program(s), overcomes an Error.
1.4 "Licensed Program(s)" means the software product(s) listed on Exhibit A.
-------------------
The Licensed Program(s) includes any and all Fixes, Maintenance Releases, Major
Releases or New Releases delivered to Licensee under this Agreement or the
License Agreement.
1.5 "Maintenance Release" means a new release of a Licensed Program with a
-------------------
change in the ZZ component of that Licensed Program's X.YY.ZZ version number or
a Fix.
1.6 "Major Release" means a new release of a Licensed Program with a change in
-------------
the YY component of that Licensed Program's X.YY.ZZ version number.
1.7 "New Version" means a new release of a Licensed Program with a change in
-----------
the X component of that Licensed Program's X.YY.ZZ version number.
1.8 "Workaround" usually means a set of procedures that a Licensee follows to
----------
circumvent or mitigate the impact of an Error. The Error still exists. A
Workaround may be provided at Distributor' discretion in lieu of a Fix for a
specific Error.
1.9 Other Defined Terms. Except as expressly defined in this Agreement,
-------------------
capitalized terms shall have the meaning ascribed to them in the Software
License Agreement between the parties.
Section 2. Scope of Support and Maintenance Services.
- ------------------------------------------------------
2.1 Services Provided. During the term of this Agreement, Distributor shall
-----------------
support Licensed Program(s) by providing the services described in the following
paragraphs of this Section 2. Distributor has no obligation to correct or
support Errors arising from Licensee's misuse, improper use, alteration, or
damage to Licensed Program(s), or Licensee's combining or merging Licensed
Program(s) with any hardware or software not identified as compatible by
Distributor.
2.2 Technical Support. Distributor will provide telephone technical support
------------------
regarding use of the Licensed Program(s) and resolution of Errors to Licensee's
Support Contacts designated under Section 2.6.2. Distributor technical support
representatives will be available by telephone Monday through Friday from 9.00
a.m. to 5:030 p.m. Japan time. [Optional In addition, on-call technical support
staff will be available twenty-four (24) hours per day, seven days a week.] A
technical support representative will endeavor to return the Licensee's call
within thirty (30) minutes of receiving the page triggered by the Licensee's
voice message for High Priority situations described below.
2.3 Support Response. Distributor will assign all Licensee requests for Error
----------------
support one of three response priorities which will dictate the timing and
nature of the response as follows:
High Priority. A major feature/function of the Licensed Program(s) is not
-------------
working or the system integrity is at risk.
Response Goal: Endeavor to provide a Fix or Workaround within twenty-four
(24) hours of Licensee's report of the problem. If the Fix or Workaround
cannot be provided within the twenty-four (24) hours Distributor will dedicate
resources to the problem resolution and will inform Licensee on a daily basis
of the resolution status.
Medium Priority. Licensee's work flow is inhibited or a non-major
---------------
feature/function of the Licensed Programs is not working.
Response Goal: Endeavor to provide a Fix or Workaround within two (2)
business days of the Licensee's report of the problem. If the problem cannot
be resolved within the two (2) business days, Distributor will inform Licensee
on a weekly basis of the resolution status.
Low Priority. Licensee has a problem which is not seriously impacting
------------
Licensee's workflow.
Response Goal: Endeavor to provide a Fix or a Workaround within five (5)
business days of Licensee's report of the problem. If the problem cannot be
resolved within the five (5) business days, Distributor will provide Licensee
with a status evaluation regarding the ultimate resolution.
2.4 Subsequent Release(s). Distributor will send Major Releases and New
---------------------
Versions to Licensee when made generally commercially available by Distributor
to its customers. Maintenance Releases will be provided to Licensee pursuant to
Section 2.3 when Licensee is experiencing or in Distributor' sole judgment may
experience a High Priority situation. Each Major Release, Maintenance Release
and New Version delivered by Distributor under this Agreement is subject to the
provisions of the License Agreement between Distributor and Licensee and shall
be automatically deemed to be included under the definition of Software under
the License Agreement.
2.5 Limits of Support.
-----------------
2.5.1 Seattle Headquarters. This Agreement covers the support that
--------------------
Distributor is able to provide for a Licensed Program(s) from its Japan
headquarters by telephone, fax or electronic mail. In the event that Licensee
desires or requires on-site support for a Licensed Program(s), the parties will
have to negotiate that issue separately.
2.6 Licensee Cooperation and Support Contacts.
-----------------------------------------
2.6.1 Licensee Cooperation. Licensee acknowledges that Distributor may not
--------------------
be able to resolve an Error if Licensee does not use its best efforts to
cooperate with and assist Distributor in resolving the Error.
2.6.2 Support Contacts. Licensee will designate two (2) authorized Support
----------------
Contacts and agrees that each Support Contact will be knowledgeable in all
aspects of the Licensee's operating environment in which Licensed Programs are
being used.
Page 1 of 4
<PAGE>
Section 3. Support and Maintenance Fees.
- -----------------------------------------
3.1 Required Coverage. The following coverage conditions must be satisfied in
-----------------
order for this Agreement to be effective: 1) All Licensed Program(s) licensed
by Licensee must be included; and 2) all Licensed Program(s) to be covered by
this Agreement on the effective date of this Agreement are the then current
Licensed Program(s) furnished by Distributor.
3.2 Annual Fee. Licensee shall pay an annual Support and Maintenance Fee at
----------
Distributor' rate in effect at the beginning of each annual term of this
Agreement. The annual Support and Maintenance Fee in effect as of the effective
date of this Agreement is set forth in Exhibit A hereto. Payment shall be due
within thirty (30) days of invoicing by Distributor. A finance charge of one
percent (1%) per month will be charged on amounts not paid within thirty (30)
days of the due date.
3.3 Notice of Change in Annual Fee. At least sixty (60) days before the end of
------------------------------
each year of the term of this Agreement Distributor shall give Licensee written
notice specifying changes in the annual Support and Maintenance fee for renewal
of this Agreement for the succeeding annual term.
3.4 Additional Licensed Program(s). If after the execution of this Agreement,
------------------------------
under the License Agreement Licensee increases the Authorized Users of Licensed
Program(s) or acquires additional Licensed Program(s) Licensee shall pay an
additional Support and Maintenance Fee proportional to the increase in license
fees under the License Agreement pro-rated in order to reflect how much of the
annual term is then remaining in the current annual term. Licensee shall pay
this additional fee to Distributor within thirty (30) days after the date of the
Distributor invoice therefor. A finance charge of one percent (1%) per month
will be charged on amounts not paid within thirty (30) days of the due date.
Section 4. Disclaimer Of Any Implied Warranties.
- -------------------------------------------------
Disclaimer of Warranty. THIS IS A SERVICES AGREEMENT. EXCEPT FOR ANY
----------------------
WARRANTIES SET FORTH IN THE LICENSE AGREEMENT APPLICABLE TO ANY MAJOR RELEASE OR
NEW RELEASE FURNISHED HEREUNDER, THERE ARE NO WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OR IMPLIED WARRANTY ARISING OUT OF COURSE OF
PERFORMANCE, COURSE OF DEALING, OR USAGE OF TRADE.
Section 5. Term and Termination.
- ---------------------------------
5.1 Term. The initial term of this Agreement shall begin on the effective date
----
of the License Agreement and shall end on the first anniversary of the effective
date. Renewals of this Agreement shall be for a term of twelve (12) months and
shall begin on the ending date of the preceding term.
5.2 Renewal. This Agreement shall be automatically renewed for a succeeding
-------
term at the end of each current term unless Licensee provides Distributor with
thirty (30) day prior written notice before the end of the term of Licensee's
decision to not renew this Agreement. In no event, however, shall the term of
this Agreement extend beyond the term of the License Agreement.
5.3 Termination. This Agreement will terminate: 1) upon the expiration or
-----------
termination of the License Agreement; 2) upon the expiration of the then current
term of this Agreement and timely receipt by Distributor of Licensee's decision
to not renew this Agreement; 3) at Distributor' election, upon failure of
Licensee to pay Support and Maintenance Fees when due; or 4) upon thirty (30)
days prior written notice if either party has materially breached the provisions
of this Agreement and has not cured such breach within such notice period.
Termination of this Agreement for any reason shall not relieve Licensee from any
remaining obligations under this Agreement, including but not limited to, the
payment of any amounts due nor shall it affect any additional remedies that
Distributor may have at law or in equity. Upon termination of this Agreement,
Distributor may, at its option, declare the entire amount of the unpaid balance
due under this Agreement to be immediately due and payable.
Section 6. Miscellaneous.
- -------------------------
6.1 Miscellaneous Provisions. Dispute resolution and other provisions are
------------------------
contained in Schedule 1 to this Agreement.
6.2 Schedules And Exhibits. Each of the exhibits and schedules listed below
----------------------
shall be incorporated into and shall for all purposes be deemed a part of this
Agreement:
Exhibit A - Product Support and Maintenance Fee Schedule
Schedule 1 - Dispute Resolution and Other Provisions
IN WITNESS WHEREOF, Distributor and Licensee, each acting with proper authority
have executed this Agreement as indicated below.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
[TRANS COSMOS, INC. / SUB-DISTRIBUTOR] LICENSEE: [CUSTOMER]
<S> <C>
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
____________(voice); ____________(fax) _____________(voice); __________(fax)
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
By: By:
- --------------------------------------------------------------------------------------------
Name: Name (Print):
- --------------------------------------------------------------------------------------------
Title: Title:
- --------------------------------------------------------------------------------------------
Date: Date:
- --------------------------------------------------------------------------------------------
</TABLE>
Page 2 of 4
<PAGE>
[TRANS COSMOS, INC. / SUB-DISTRIBUTOR]
PRIMUS COMMUNICATIONS CORPORATION
SUPPORT AND MAINTENANCE AGREEMENT
EXHIBIT A
PRODUCT SUPPORT AND MAINTENANCE FEE SCHEDULE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PRODUCT % OF PURCHASE PRICE PURCHASE PRICE SUPPORT AND PAYMENT DATE
MAINTENANCE FEE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SolutionBuilder(R) %
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
All pricing effective until [insert date]
This Exhibit is hereby approved and accepted:
[TRANS COSMOS INC./ SUB-DISTRIBUTOR] [CUSTOMER]
By: By:
---------------------------- -----------------------------
---------------------------- -----------------------------
Its: Its:
------------------------- -------------------------
Dated: Dated:
------------------------- --------------------------
Page 3 of 4
<PAGE>
[TRANS COSMOS, INC. / SUB-DISTRIBUTOR]
PRIMUS(TM) COMMUNICATIONS CORPORATION
SUPPORT AND MAINTENANCE AGREEMENT
SCHEDULE 1
DISPUTE RESOLUTION AND OTHER PROVISIONS
1. Dispute Resolution.
-------------------
1.1 Governing Law. This Agreement shall be governed by and interpreted in
accordance with the internal laws of the State of Washington, and, where such
laws are preempted by the laws of the United States, by the internal laws of the
United States, in each case without regard to (a) conflicts of laws principles
and renvoi, (b) the applicability, if any, of the United Nations Convention on
Contracts for the International Sale of Goods, and (c) the Washington State
Franchise Act (RCW 19.100).
1.2 Mediation. In the event of any controversy or claim arising out of or
relating to this Agreement or the breach or interpretation thereof, the parties
shall, upon five days notice from either one to the other, submit themselves and
the subject-matter of the dispute to mediation before an independent mediator to
be appointed by the head office of the American Arbitration Association. Costs
of mediation shall be borne equally between the parties.
1.3 Arbitration. In the event that the parties remain in dispute following the
mediation, the controversy or claim shall be determined by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association by a single, disinterested arbitrator appointed in accordance with
such Rules. The determination of the arbitrator shall be final, conclusive and
binding. Judgment upon the award rendered may be entered in any court of any
state or country having jurisdiction.
1.4 Conduct. Each party shall ensure that any mediation and arbitration are
conducted as speedily as is reasonably possible, and that all and any
information disclosed during or in connection with the arbitration is treated by
each party with the strictest confidence.
1.5 Interim and Permanent Relief. Upon the application of either party to this
Agreement, and whether or not an arbitration or mediation has yet been
initiated, all courts having jurisdiction over one or more of the parties are
authorized to: (i) issue and enforce in any lawful manner such temporary
restraining orders, preliminary injunctions and other interim measures of relief
as may be necessary to prevent harm to a party's interests or as otherwise may
be appropriate pending the conclusion of arbitration proceedings pursuant to
this Agreement; and (ii) enter and enforce in any lawful manner such judgments
for permanent equitable relief as may be necessary to prevent harm to a party's
interests or as otherwise may be appropriate following the issuance of arbitral
awards pursuant to this Agreement.
1.6 Venue. Any mediation or arbitration conducted under or in connection with
this Agreement shall take place in Seattle, Washington at a time and location to
be determined by the mediator or arbitrator, as the case may be.
1.7 Legal Expenses. If any proceeding is brought by either party to enforce or
interpret any term or provision of this Agreement, the substantially prevailing
party in such proceeding shall be entitled to recover, in addition to all other
relief arising out of this Agreement, such party's reasonable attorneys' and
other experts' (including without limitation accountants) fees and expenses.
2. Excused Performance; Force Majeure. If the performance of this Agreement is
----------------------------------
adversely restricted by reason of any circumstances beyond the reasonable
control and without the fault or negligence of the party affected, then the
party affected, upon giving prompt written notice to the other party, shall be
excused from such performance on a day-to-day basis to the extent of such
restriction (and the other party shall likewise be excused from performance of
its obligations on a day-to-day basis to the extent such party's obligations
relate to the performance so restricted); provided, however, that the party so
affected shall use all commercially reasonable efforts to avoid or remove such
causes of non-performance and both parties shall proceed whenever such causes
are removed or cease.
3. Exclusion of Certain Claims. IN NO EVENT SHALL ANY OF DISTRIBUTOR,
---------------------------
DISTRIBUTORS' LICENSORS OR LICENSEE BE LIABLE (WHETHER IN TORT OR CONTRACT,
UNDER STATUTE OR OTHERWISE) FOR ANY INDIRECT, SPECIAL, CONSEQUENTIAL OR
INCIDENTAL DAMAGES, INCLUDING WITHOUT LIMITATION DAMAGES FOR LOSS OF PROFITS,
BUSINESS INTERRUPTION, LOSS OF INFORMATION AND THE LIKE, ARISING OUT OF ITS
PERFORMANCE OR NONPERFORMANCE OF THIS AGREEMENT OR THE USE, INABILITY TO USE OR
RESULTS OF USE OF THE LICENSED PROGRAMS OR THE SOFTWARE, EVEN IF IT HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
4. Limitation of Liability. The liability (whether in tort or contract, under
-----------------------
statute or otherwise) of Distributor and Distributor's Licensors with regard to
this Agreement or any Licensed Programs, Software or other items furnished in
connection with this Agreement shall in no event exceed the support and
maintenance fees paid by Licensee to Distributor under this Agreement.
5. Equitable Relief. Each of Licensee and Distributor acknowledges that damages
----------------
will be an inadequate remedy if the other violates the terms of this Agreement,
or otherwise fails to perform its obligations hereunder. Accordingly, subject to
Section 1 of this Schedule, each of them and Distributor's Licensors shall have
the right, in addition to any other rights each of them may have, to obtain in
any court of competent jurisdiction, temporary, preliminary and permanent
injunctive relief to restrain any breach, threatened breach, or otherwise to
specifically enforce any of the obligations in this Agreement.
6. Waiver. No waiver of or with respect to any provision of this Agreement, nor
------
consent by a party to the breach of or departure from any provision of this
Agreement, shall in any event be binding on or effective against such party
unless it be in writing and signed by such party, and then such waiver shall be
effective only in the specific instance and for the purpose for which given.
7. Captions and Headings. The captions and headings are inserted in this
---------------------
Agreement for convenience only, and shall not be deemed to limit or describe the
scope or intent of any provision of this Agreement.
8. Severability; Invalidity. If any provision of this Agreement is held to be
------------------------
invalid, such invalidity shall not render invalid the remainder of this
Agreement or the remainder of which such invalid provision is a part. If any
provision of this Agreement is so broad as to be held unenforceable, such
provision shall be interpreted to be only so broad as is enforceable.
9. Assignment. Licensee shall not assign any of its rights this Agreement
----------
without the prior written consent of Distributor, which shall not be
unreasonably withheld. Subject to the foregoing restriction on assignment by
Licensee, this Agreement shall be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and assigns.
10. Notices. Any notice or other communication under this Agreement given by
-------
either party to the other party shall be deemed to be properly given if given in
writing and delivered (i) by facsimile transmission (receipt confirmed) or (ii)
delivered, if in Japan, by nationally recognized overnight courier, and if
outside Japan, by internationally recognized overnight courier (e.g., DHL),
properly addressed and prepaid, to the recipient at the address identified in
its signature block to this Agreement and, in the case of Primus, to Primus
Communications Corporation, Attn: Corporate Attorney, 1601, Fifth Avenue, Ste.
1900, Seattle, WA 98101, U.S.A. Any party may from time to time change its
address by giving the other parties notice of the change in accordance with this
Section.
11. Entire Agreement; Amendments. This Agreement constitutes and embodies the
----------------------------
entire agreement and understanding between the parties with respect to the
subject matter hereof and supersedes all prior or
Page 4 of 4
<PAGE>
contemporaneous written, electronic or oral communications, agreements or
understandings between the parties with respect thereto. This Agreement may not
be modified or amended except by a written instrument executed by the parties.
Page 5 of 4
<PAGE>
PRIMUS COMMUNICATIONS CORPORATION
EXCLUSIVE DISTRIBUTION LICENSE AGREEMENT
SCHEDULE 3(a)
Upgrade Fees
------------
Upon execution of this Agreement, Distributor shall pay Primus Upgrade fees in
the amount of Three Hundred Sixty Seven Thousand Two Hundred Ninety US Dollars
(US $367,290).
SCHEDULE 3(b)
Level 2 Support Fees
--------------------
Throughout the Distribution Term, Distributor shall remit to Primus ten percent
(10%) of the support and maintenance fees paid by each Authorized End-User with
respect to the Software. Distributor shall remit such fees within thirty (30)
days of receipt from an Authorized End-User.
Distributor shall ensure that all payments are accompanied by a certificate
signed by a duly authorized representative of Distributor, identifying the
Authorized End-User, and the Software License Agreement under which the payment
is made.
Without Primus' prior written consent, such consent not to be unreasonably
withheld or delayed, Distributor shall not enter into any support and
maintenance agreement with respect to the Software for a fee of less than
fifteen percent (15%) of the license fees paid under the relevant Software
License Agreement.
Page 18
<PAGE>
PRIMUS COMMUNICATIONS CORPORATION
EXCLUSIVE DISTRIBUTION LICENSE AGREEMENT
SCHEDULE 4
Schedule 4(a): Distribution License Fees - Authorized End-Users
----------------------------------------------------------------
<TABLE>
<CAPTION>
Product Fees (US$) per No. of Total Fees Payment Date
------- -------------- ------ ---------- ------------
Description Authorized Authorized
- ----------- ---------- ----------
Workstation Workstations
----------- ------------
<S> <C> <C> <C> <C>
SolutionBuilderJ 770 2,120 One Million Six Hundred Execution of this
(Kanji) Thirty Two Thousand Agreement
Four Hundred US Dollars
(US $ 1,632,400)
</TABLE>
Schedule 4(b): Authorized Evaluators
------------------------------------
<TABLE>
<CAPTION>
Product Fees (US$) per Authorized Maximum Evaluation Maximum No. of
------- ------------------------- ------------------ --------------
Description Workstation Agreement Term Software Copies On
- ----------- ----------- -------------- ------------------
Servers
-------
<S> <C> <C> <C>
SolutionBuilderJ Nil 90 days 30*
(Kanji)
</TABLE>
* Primus and Distributor shall consult with each other throughout the
Distribution Term to determine whether this number may be adjusted from time to
time.
Page 19
<PAGE>
PRIMUS COMMUNICATIONS CORPORATION
EXCLUSIVE DISTRIBUTION LICENSE AGREEMENT
SCHEDULE 5
Primus' Software Warranties
---------------------------
1. Warranties.
----------
1.1. Media. Primus warrants to Distributor that the media on which the
-----
Software is delivered by Primus to Distributor will be free from defects in
materials and workmanship for a period of ninety (90) days beginning on the date
of shipment by Primus.
1.2. Performance. During the Distribution Term with respect to Distributor,
-----------
and for the applicable warranty period with respect to each sub-licensee that
executes a Software License Agreement with Distributor, Primus warrants to
Distributor that the Software as delivered by Primus to Distributor shall
perform in all material respects in accordance with the applicable
specifications set forth in the Documentation (and with such other
specifications as may be agreed upon in writing by Primus and Distributor).
1.3. Infringement. Primus warrants to Distributor that use, reproduction,
------------
marketing and distribution in accordance with this Agreement of the Software as
delivered by Primus to Distributor does not infringe any valid copyright,
patent, trademark or trade secret existing under the laws of the United States
or any country within the Exclusive Territory.
1.4 Year 2000. Primus warrants to Distributor that the Software as delivered
---------
by Primus to Distributor does not depend upon any internal date or time fields
which would give rise to a Software malfunction upon the transition from the
year 1999 to 2000, or upon any other date transition from the date of the
Agreement through the year 2010 where Distributor is marketing or to which
Distributor is shipping the Software.
1.5 Viruses. Distributor has expressed a concern that the Software should
-------
not contain any virus. Accordingly, Primus warrants that, to the best of its
knowledge after reasonable investigation, no material portion of the Software as
delivered by Primus to Distributor will, other than under the control of
Distributor or Authorized End-Users or Authorized Evaluators, (1) at some
specific time or upon a specific instruction or occurrence of a given event,
materially adversely stop, limit or interfere with the operation of the Software
in conformity with the Documentation, or (2) materially adversely damage, alter
or render inaccessible the Software, or any other hardware, software, data
attached to, resident on, or accessible to the system on which the Software is
executed or stored.
2. Bugs and Abatement. Without limiting the foregoing, Primus does not warrant
------------------
that the Software is free from all bugs, errors, or omissions. Losses for which
Distributor would be entitled to compensation as a result of Primus' non-
compliance with the warranties in this Schedule 5 shall automatically abate to
the extent they are caused by the fact that the Software has been damaged,
abused, modified, or combined with other software by persons other than Primus'
authorized employees or representatives, or other than at Primus' express
direction.
3. Performance Remedy. If any Software fails to comply with the warranties set
------------------
forth in Paragraphs 1.1, 1.2, 1.4 and 1.5 above and (a) Distributor provides
written notice of the scope and nature of such non-compliance to Primus within
the warranty period, (b) Distributor has used its commercially reasonable best
efforts to replicate the circumstances surrounding the non-compliance and
provided Primus with such other information and materials to fix the non-
compliance as Primus has reasonably requested and (c) Primus is unable to
resolve or has not made substantial progress in its attempts to resolve the non-
compliance within sixty (60) days of receipt of such notice, then Primus shall
repay Distributor the license fees, support fees received by Primus and Upgrade
fees specified in Schedules 3 and 4, less a deduction (the "Performance Remedy
Deduction," as defined below) for any end-user license fees, support fees and/or
Upgrade fees that Distributor and/or its sub-distributors are not obligated to
refund to Authorized End-Users), and immediately terminate the Distribution
Term, in full and final satisfaction of all and any of Distributor's claims
arising out of media or Software failure, except for Primus' failure to meet its
obligations under Sections 11.4 and 12 of this Agreement. "Performance Remedy
Deduction" means an amount equal to the sum of (i) the product obtained by
multiplying Seven Hundred Seventy US Dollars (US $770) by the number of
Authorized Workstations licensed to Authorized End-Users and with respect to
which the Initial Software media and performance warranties afforded to such
Authorized End-Users under their respective Software License Agreements are no
longer effective, (ii) ten percent (10%) of end-user support and maintenance
fees that Distributor and/or its sub-distributors are not obligated to refund to
Authorized End-Users ("Non-Refundable S&M Fees"), and (iii) the product obtained
by multiplying fifty percent (50%) of Non-Refundable S&M Fees by a fraction, the
numerator of which is $770, and the denominator of which is the license fee paid
by sub-licensees under the applicable Software License Agreement for the
relevant Authorized Workstations.
4. Infringement Remedy. Primus shall defend and indemnify Distributor against
-------------------
any proceeding based upon any failure to satisfy the warranty set forth in
Paragraph 1.3 above, provided that (a) Distributor shall notify Primus in
writing of any claim of infringement promptly after it has been made, (b) Primus
shall have exclusive control over the defense and settlement of the proceeding,
(c) Distributor shall provide such
Page 20
<PAGE>
assistance in defense of the proceeding as Primus may reasonably request, at
Primus' reasonable expense, and (d) Distributor shall comply with any settlement
or court order made in connection with the proceeding. In the event that use of
the Software becomes, or in Primus' reasonable opinion is likely to become, the
subject of a claim of infringement of any intellectual property right of any
third party, Primus shall have the right to: (i) procure the continuing right of
Distributor to use the Software; (ii) replace or modify the Software in a
functionally equivalent manner so that it no longer infringes; or (iii) repay
Distributor the license fees, support fees and Upgrade fees specified in
Schedules 3 and 4, less the Infringement Remedy Deduction (as defined below),
and immediately terminate this Agreement, in full and final satisfaction of all
and any of Distributor's claims arising out any infringement claim, except for
claims resulting from Primus' failure to meet its obligations under Sections
11.4 and 12 of this Agreement. "Infringement Remedy Deduction" means an amount
equal to the sum of (i) the sum of all "Depreciated Amounts" (as defined below),
(ii) ten percent (10%) of Non-Refundable S&M Fees, and (iii) the product
obtained by multiplying fifty percent (50%) of Non-Refundable S&M Fees by a
fraction, the numerator of which is $770, and the denominator of which is the
license fee paid by sub-licensees under the applicable Software License
Agreement for the relevant Authorized Workstations. "Depreciated Amount" means,
with respect to each executed Software License Agreement, Seven Hundred Seventy
US Dollars (US $770) reduced by the same proportion applicable to any refund of
the license fees paid under such Software License Agreement, multiplied by the
number of Authorized Workstations licensed under such Software License
Agreement.
5. Warranties Repeated For Replacements and New Software. The warranties and
-----------------------------------------------------
other provisions of this Schedule 5 shall be automatically repeated for any
modifications of the Software delivered to remedy any non-compliance with the
warranties under Paragraphs 1.1 through 1.5 above, and for any New Software, in
each case upon shipment of the same to Distributor by Primus.
6. Disclaimer Of Implied Warranties. Primus makes no representation or
--------------------------------
warranty in connection with the Initial Software and New Software, except as set
forth in Paragraph 1 above. EXCEPT AS SPECIFICALLY SET FORTH IN THIS SCHEDULE
5, PRIMUS DISCLAIMS AND DISTRIBUTOR WAIVES AND RELEASES ALL RIGHTS AND REMEDIES
OF DISTRIBUTOR, AND ALL WARRANTIES, OBLIGATIONS, AND LIABILITIES OF PRIMUS,
EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE, WITH RESPECT TO ANY BUG, ERROR,
OMISSION, DEFECT, DEFICIENCY, OR NONCONFORMITY IN ANY SOFTWARE OR OTHER ITEMS
FURNISHED UNDER THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO ANY: (A) IMPLIED
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE; (B) IMPLIED
WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING, OR USAGE OF
TRADE; OR (C) CLAIM OF INFRINGEMENT.
Page 21
<PAGE>
PRIMUS COMMUNICATIONS CORPORATION
EXCLUSIVE DISTRIBUTION LICENSE AGREEMENT
SHEDULE 6
Dispute Resolution And Other Provisions
---------------------------------------
1. Dispute Resolution.
------------------
1.1 Governing Law; English Language to Apply. This Agreement shall be governed
by and interpreted in accordance with the internal laws of the State of
Washington, and, where such laws are preempted by the laws of the United States,
by the internal laws of the United States, in each case without regard to (a)
conflicts of laws principles and renvoi, and (b) the applicability, if any, of
the United Nations Convention on Contracts for the International Sale of Goods.
The governing language for this Agreement, for the transactions contemplated
hereby, for any notices, instruments or other documents or media transmitted or
delivered hereunder, and for the negotiation and/or resolution of any dispute or
other matter between the parties, shall be the English language. In the event of
any conflict between the provisions of any instrument, document, or other media
and an English version thereof, the provisions of the English version shall
prevail. Distributor hereby waives all and any rights it may have under any law
in the Exclusive Territory to have the Agreement written in any language other
than English. In transactions between the parties, a decimal point shall be
indicated by a period, and not by a comma. Notice periods shall be determined by
reference to the local time of the notice recipient.
1.2 Mediation. In the event of any controversy or claim arising out of or
relating to this Agreement or the breach or interpretation thereof, the parties
shall, upon not less than thirty (30) days notice from either one to the other,
submit themselves and the subject-matter of the dispute to mediation before an
independent mediator to be appointed by the Seattle office of the American
Arbitration Association or, if such office cannot do so, by the head office of
the American Arbitration Association. Costs of mediation shall be borne equally
between the parties.
1.3 Arbitration. In the event that the parties remain in dispute following the
mediation, the controversy or claim shall be determined by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association by a single, disinterested arbitrator appointed in accordance with
such Rules. The determination of the arbitrator shall be final, conclusive and
binding. Judgment upon the award rendered may be entered in any court of any
state or country having jurisdiction.
1.4 Conduct. Each party shall ensure that any mediation and arbitration are
conducted as speedily as is reasonably possible, and that all and any
information disclosed during or in connection with the arbitration is treated by
each party with the strictest confidence.
1.5 Interim and Permanent Relief. Upon the application of either party to this
Agreement, and whether or not an arbitration or mediation has yet been
initiated, all courts having jurisdiction over one or more of the parties are
authorized to: (i) issue and enforce in any lawful manner such temporary
restraining orders, preliminary injunctions and other interim measures of relief
as may be necessary to prevent harm to a party's interests or as otherwise may
be appropriate pending the conclusion of arbitration proceedings pursuant to
this Agreement; and (ii) enter and enforce in any lawful manner such judgments
for permanent equitable relief as may be necessary to prevent harm to a party's
interests or as otherwise may be appropriate following the issuance of arbitral
awards pursuant to this Agreement.
1.6 Venue. Any mediation or arbitration conducted under or in connection with
this Agreement shall take place in Seattle, Washington at a time and location to
be determined by the mediator or arbitrator, as the case may be.
1.7 Legal Expenses. If any proceeding is brought by either party to enforce or
interpret any term or provision of this Agreement, the substantially prevailing
party in such proceeding shall be entitled to recover, in addition to all other
relief arising out of this Agreement, such party's reasonable attorneys' and
other experts' (including without limitation accountants) fees and expenses.
2. Exclusion of Certain Claims. IN NO EVENT SHALL EITHER PARTY BE LIABLE
---------------------------
(WHETHER IN TORT OR CONTRACT, UNDER STATUTE OR OTHERWISE) FOR ANY INDIRECT,
SPECIAL, PUNITIVE, CONSEQUENTIAL OR INCIDENTAL DAMAGES, INCLUDING WITHOUT
LIMITATION DAMAGES FOR LOSS OF PROFITS, BUSINESS INTERRUPTION, LOSS OF
INFORMATION AND THE LIKE, ARISING OUT OF ITS PERFORMANCE OR NONPERFORMANCE OF
THIS AGREEMENT OR THE USE, INABILITY TO USE OR RESULTS OF USE OF THE SOFTWARE,
EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
3. Limitation of Liability. Except with respect to Primus' obligations under
-----------------------
paragraph 4 of Schedule 5 (Primus' infringement remedy) and for infringements by
Distributor and/or any of Distributor's sub-distributors of any of Primus'
intellectual property rights, neither Primus' nor Distributor's liability
(whether in tort or contract, under statute or otherwise) with regard to this
Agreement or any Software or other items furnished in connection with this
Agreement shall in any event exceed Two Million US Dollars (US $2,000,000).
4. Equitable Relief. Each of Distributor and Primus acknowledges that damages
----------------
will be an inadequate remedy if the other violates the terms of this Agreement
protecting the other's intellectual property rights. Accordingly, subject to
Section 1 of this Schedule, each of them shall have the right, in addition to
any other rights each of them may have, to obtain in any court of competent
jurisdiction, temporary, preliminary
Page 22
<PAGE>
and permanent injunctive relief to restrain any breach, threatened breach, or
otherwise to specifically enforce any of such terms.
5. Waiver. No waiver of or with respect to any provision of this Agreement, nor
------
consent by a party to the breach of or departure from any provision of this
Agreement, shall in any event be binding on or effective against such party
unless it be in writing and signed by such party, and then such waiver shall be
effective only in the specific instance and for the purpose for which given.
6. Captions and Headings. The captions and headings are inserted in this
---------------------
Agreement for convenience only, and shall not be deemed to limit or describe the
scope or intent of any provision of this Agreement.
7. Severability; Invalidity. If any provision of this Agreement is held to be
------------------------
invalid, such invalidity shall not render invalid the remainder of this
Agreement or the remainder of which such invalid provision is a part. If any
provision of this Agreement is so broad as to be held unenforceable, such
provision shall be interpreted to be only so broad as is enforceable.
8. Assignment. Distributor shall not assign any of its rights this Agreement
----------
without the prior written consent of Primus, which shall not be unreasonably
withheld. Subject to the foregoing restriction on assignment by Distributor,
this Agreement shall be binding upon, inure to the benefit of and be enforceable
by the parties and their respective successors and assigns.
9. Notices. Any notice or other communication under this Agreement given by
-------
either party to the other party shall be deemed to be properly given if given in
writing and delivered (i) by facsimile transmission (receipt confirmed) or (ii)
by internationally recognized private courier (e.g., DHL), to the recipient at
the address identified in its signature block to this Agreement. Either party
may from time to time change its address by giving the other party notice of the
change in accordance with this Section.
11. Entire Agreement; Amendments. This Agreement constitutes and embodies the
----------------------------
entire agreement and understanding between the parties with respect to the
subject matter hereof and supersedes all prior or contemporaneous written,
electronic or oral communications, agreements or understandings between the
parties with respect thereto. This Agreement may not be modified or amended
except by a written instrument executed by the parties. In the event of any
conflict between the provisions of this Agreement and the terms of any form of
purchase order or invoice, the provisions of this Agreement shall prevail.
Page 23
<PAGE>
PRIMUS COMMUNICATIONS CORPORATION
EXCLUSIVE DISTRIBUTION LICENSE AGREEMENT
SCHEDULE 7
FLEXSAFE Escrow Agreement
-------------------------
Page 24
<PAGE>
FLEXSAFE ESCROW AGREEMENT
Account Number 1618098-00001
--------------------
This Agreement is effective April 9, 1996 between Data Securities International,
Inc. ("DSI") and Primus Communications Corporation ("Depositor"), who
---------------------------------
collectively may be referred to in this Agreement as "the parties" and who are
more fully identified in the Exhibit A.
A. Depositor and Depositor's client have entered or will enter into a license
agreement, development agreement, and/or other agreement regarding certain
proprietary technology of Depositor (referred to in this Agreement as "the
license agreement").
B. Depositor desires to avoid disclosure of its proprietary technology except
under certain limited circumstances.
C. Depositor desires to establish an escrow with DSI to provide for the
retention, administration and controlled access of the proprietary technology
materials of Depositor.
D. The parties desire this Agreement to be supplementary to the license
agreement pursuant to 11 United States [Bankruptcy] Code, Section 365(n).
ARTICLE 1 -- DEPOSITS
1.1 Obligation to Make Deposit. Upon the signing of this Agreement by the
--------------------------
parties, Depositor shall deliver to DSI the proprietary information and other
materials ("deposit materials") to be deposited under this Agreement.
1.2 Identification of Tangible Media. Prior to the delivery of the deposit
--------------------------------
materials to DSI, Depositor shall conspicuously label for identification each
document, magnetic tape, disk, or other tangible media upon which the deposit
materials are written or stored. Additionally, Depositor shall complete Exhibit
B to this Agreement by listing each such tangible media by the item label
description, the type of media and the quantity. The Exhibit B must be signed by
Depositor and delivered to DSI with the deposit materials. Unless and until
Depositor makes the initial deposit with DSI, DSI shall have no obligation with
respect to this Agreement, except the obligation to notify Depositor regarding
the status of the deposit account as required in Section 3.2 below.
1.3 Deposit Inspection. When DSI receives the deposit materials and the
------------------
Exhibit B, DSI will conduct a deposit inspection by visually matching the
labeling of the tangible media containing the deposit materials to the item
descriptions and quantity listed on Exhibit B.
1.4 Acceptance of Deposit. At completion of the deposit inspection, if DSI
---------------------
determines that the labeling of the tangible media matches the item descriptions
and quantity on Exhibit B, DSI will date and sign the Exhibit B and mail a copy
thereof to Depositor. If DSI determines that the labeling does not match the
item descriptions or quantity on the Exhibit B, DSI will (a)
<PAGE>
note the discrepancies in writing on the Exhibit B; (b) date and sign the
Exhibit B with the exceptions noted; and (c) provide a copy of the Exhibit B to
Depositor. DSI's acceptance of the deposit occurs upon the signing of the
Exhibit B by DSI.
1.5 Depositor's Representations. Depositor represents as follows:
---------------------------
a. Depositor lawfully possesses all of the deposit materials deposited
with DSI;
b. With respect to all of the deposit materials, Depositor has the right
and authority to grant to DSI the rights as provided in this Agreement;
and
c. The deposit materials are not subject to any lien or other encumbrance.
1.6 Deposit Updates. Updates to the deposit materials may be added to the
---------------
existing deposit. All deposit updates shall be listed on a new Exhibit B and
the new Exhibit B shall be signed by Depositor. Each Exhibit B will be held and
maintained separately within the escrow account. An independent record will be
created which will document the activity for each Exhibit B. The processing of
all deposit updates shall be in accordance with Sections 1.2 through 1.5 above.
All references in this Agreement to the deposit materials shall include the
initial deposit materials and any updates.
1.7 Removal of Deposit Materials. The deposit materials may be removed and/or
----------------------------
exchanged only on written instructions signed by Depositor or as otherwise
provided in this Agreement.
ARTICLE 2 -- FLEXSAFE ENROLLMENTS
2.1 FlexSAFE Enrollments. After DSI's acceptance of the deposit materials,
--------------------
Depositor may enroll one or more beneficiaries to this technology escrow
account. Depositor will execute and submit to DSI a FlexSAFE Beneficiary
Enrollment document, Exhibit T, listing each beneficiary to be enrolled as a
FlexSAFE Beneficiary under the Agreement. Upon DSI's acceptance of Exhibit T,
DSI will issue an enrollment letter and a copy of this Agreement to the FlexSAFE
Beneficiary.
2.2 Other Third Parties. DSI shall have no obligation to any other third party
-------------------
except a FlexSAFE Beneficiary accepted by DSI. DSI and Depositor shall have the
right to modify or cancel the Agreement without the consent of any third party.
ARTICLE 3 -- CONFIDENTIALITY AND RECORD KEEPING
3.1 Confidentiality. DSI shall maintain the deposit materials in a secure,
---------------
environmentally safe, locked receptacle which is accessible only to authorized
employees of DSI. DSI shall have the obligation to reasonably protect the
confidentiality of the deposit materials. Except as provided in this Agreement,
DSI shall not disclose the content of this Agreement to any third party and
shall not disclose, transfer, make available, or use the deposit materials. If
DSI receives a subpoena or other order of a court or other judicial tribunal
pertaining to the
Page 2
<PAGE>
disclosure or release of the deposit materials, DSI will immediately notify
Depositor. It shall be the responsibility of Depositor to challenge any such
order; provided, however, that DSI does not waive its rights to present its
position with respect to any such order. DSI will not be required to disobey
any court or other judicial tribunal order. (See Section 8.5 below for notices
of request orders.)
3.2 Status Reports. DSI will issue to Depositor and FlexSAFE Beneficiary
--------------
a report profiling the account history at least semi-annually. DSI may provide
copies of the account history upon request. Depositor will notify DSI if the
account history is not to be provided to FlexSAFE Beneficiary.
3.3 Audit Rights. During the term of this Agreement, Depositor shall have
------------
the right to inspect the written records of DSI pertaining to this Agreement.
Any inspection shall be held during normal business hours and following
reasonable prior notice.
ARTICLE 4 -- GRANT OF RIGHTS TO DSI
4.1 Title to Media. Depositor hereby transfers to DSI the title to the
--------------
media upon which the proprietary information and materials are written or
stored. However, this transfer does not include the ownership of the proprietary
information and materials contained on the media such as any copyright, trade
secret, patent or other intellectual property rights.
4.2 Right to Make Copies. DSI shall have the right to make copies of the
--------------------
deposit materials as reasonably necessary to perform this Agreement. DSI shall
copy all copyright, nondisclosure, and other proprietary notices and titles
contained on the deposit materials onto any copies made by DSI. With all
deposit materials submitted to DSI, Depositor shall provide any and all
instructions as may be necessary to duplicate the deposit materials including
but not limited to the hardware and/or software needed.
4.3 Right to Sublicense Upon Release. As of the effective date of this
--------------------------------
Agreement, Depositor hereby grants to DSI a non-exclusive, irrevocable,
perpetual, and royalty-free license to sublicense the deposit materials to
FlexSAFE Beneficiary upon the release, if any, of the deposit materials in
accordance with Sections 5.1 and 5.2 below. Except upon such a release, DSI
shall not sublicense or otherwise transfer the deposit materials.
ARTICLE 5 -- RELEASE OF DEPOSIT
5.1 Release of Deposit Upon Depositor's Instruction. Upon receipt by DSI of
-----------------------------------------------
written instruction directly from Depositor, Depositor's trustee in bankruptcy,
or a court of competent jurisdiction, DSI will release a copy of the deposit
materials to the FlexSAFE Beneficiary identified in the instruction. However,
DSI is entitled to receive any fees due DSI before making the release. This
Agreement will terminate upon the release of the deposit materials held by DSI.
Page 3
<PAGE>
5.2 Filing for Release of Deposit by FlexSAFE Beneficiary.
------------------------------------------------------
a. Upon notice to DSI by FlexSAFE Beneficiary of the occurrence of a
release condition as defined in Section 5.3, DSI shall provide
Depositor with a copy of FlexSAFE Beneficiary's notice by certified
mail, return receipt requested, or by commercial express mail. If
Depositor provides DSI with contrary instructions within sixty (60)
days, DSI shall not deliver a copy of the deposit materials to
FlexSAFE Beneficiary.
"Contrary Instructions" shall mean the written representation by
Depositor that a Release Condition has not occurred or has been cured.
Upon receipt of Contrary Instructions, DSI shall send a copy of the
Contrary Instructions to FlexSAFE Beneficiary by certified mail, return
receipt requested, or by commercial express mail. Additionally, DSI
shall notify both Depositor and FlexSAFE Beneficiary that there is a
dispute to be resolved pursuant to Section 8.3. Subject to Section
6.3, DSI will continue to store the deposit materials without release
pending (a) instructions from Depositor or (b) order of a court.
b. If no contrary instructions are given to DSI, Depositor agrees that DSI
shall deliver a copy of the deposit materials to the FlexSAFE
Beneficiary who provides DSI with all of the following:
1. Copy of a current, valid license agreement between Depositor and
FlexSAFE Beneficiary;
2. Written demand that a copy of the deposit materials be released and
delivered to FlexSAFE Beneficiary;
3. Written notice that the copy of the deposit materials being
released to FlexSAFE Beneficiary be used only as permitted under
the license agreement;
4. Specific delivery instructions along with any fees due DSI; and
5. Written notice that the release of the copy of the deposit
materials is pursuant to 11 United States Code Section 365(n).
5.3 Release Conditions. As used in this Agreement, "Release Conditions" shall
------------------
mean the existence of any one or more of the following circumstances,
uncorrected for more than thirty (30) days:
a. Entry of an order for relief under Title 11 of the United States Code;
b. The making by Depositor of a general assignment for the benefit of
creditors;
c. The appointment of a general receiver or trustee in bankruptcy of
Depositor's business or property; or
Page 4
<PAGE>
d. Action by Depositor under any state insolvency or similar law for
the purpose of its bankruptcy, reorganization, or liquidation.
5.4 Use License Following Release. Unless otherwise provided in the license
-----------------------------
agreement, upon release of the deposit materials in accordance with this Article
5, FlexSAFE Beneficiary shall have a non-exclusive, non-transferrable,
irrevocable right to use the deposit materials for the sole purpose of
continuing the benefits afforded to FlexSAFE Beneficiary by the license
agreement. FlexSAFE Beneficiary shall be obligated to maintain the
confidentiality of the released deposit materials.
ARTICLE 6 -- TERM AND TERMINATION
6.1 Term of Agreement. The initial term of this Agreement is for a period of
-----------------
one year. Thereafter, this Agreement shall automatically renew from year-to-year
unless (a) Depositor instructs DSI in writing that the Agreement is terminated;
or (b) the Agreement is terminated by DSI for nonpayment in accordance with
Section 6.3. If the deposit materials are subject to another escrow agreement
with DSI, DSI reserves the right, after the initial one year term, to adjust the
anniversary date of this Agreement to match the then prevailing anniversary date
of such other escrow arrangements.
6.2 Term of FlexSAFE Enrollment. Upon receipt by DSI of Depositor's executed
---------------------------
Exhibit T, the FlexSAFE Beneficiary will be enrolled for an initial term of one
(1) year, unless this Agreement terminates earlier, causing the FlexSAFE
Beneficiary enrollment to terminate. Subsequent enrollment terms may be adjusted
to the anniversary date of this Agreement and shall automatically renew from
year-to-year unless (a) Depositor instructs DSI in writing to terminate the
FlexSAFE Beneficiary enrollment; or (b) the enrollment is terminated by DSI for
nonpayment in accordance with Section 6.3.
6.3 Termination for Nonpayment. In the event of the nonpayment of fees owed
--------------------------
to DSI, DSI shall provide written notice of delinquency to all parties to this
Agreement. Unless Depositor has instructed DSI to terminate FlexSAFE Beneficiary
pursuant to subsection 6.2(a), Depositor or FlexSAFE Beneficiary shall have the
right to make the payment to DSI to cure the default. If the past due payment is
not received in full by DSI within one month of the date of such notice, then
DSI shall have the right to terminate this Agreement at any time thereafter by
sending written notice of termination to all parties. DSI shall have no
obligation to take any action under this Agreement so long as any payment due to
DSI remains unpaid.
6.4 Disposition of Deposit Materials Upon Termination. Upon termination of
-------------------------------------------------
this Agreement by instruction of Depositor, DSI shall destroy, return, or
otherwise deliver the deposit materials in accordance with such instructions.
Upon termination for nonpayment, DSI may, at its sole discretion, destroy the
deposit materials or return them to Depositor. DSI shall have no obligation to
return or destroy the deposit materials if the deposit materials are subject to
another escrow agreement with DSI.
6.5 Survival of Terms Following Termination. Upon termination of this
---------------------------------------
Agreement, the following provisions of this Agreement shall survive:
Page 5
<PAGE>
a. Depositors's Representations (Section 1.5).
b. The obligations of confidentiality with respect to the deposit
materials.
c. The licenses granted in the sections entitled Right to Sublicense
Upon Release (Section 4.3) and Use License Following Release (Section
5.4), if a release of the deposit materials has occurred prior to
termination.
d. The obligation to pay DSI any fees and expenses due.
e. The provisions of Article 8.
f. Any provisions in this Agreement which specifically state they
survive the termination or expiration of this Agreement.
Article 7 -- DSI'S FEES
7.1 Fee Schedule. DSI is entitled to be paid its standard fees and expenses
------------
applicable to the services provided. DSI shall notify the party responsible for
payment of DSI's fees at least 90 days prior to any increase in fees. For any
service not listed on DSI's standard fee schedule, DSI will provide a quote
prior to rendering the service, if requested.
7.2. Payment Terms. DSI shall not be required to perform any service unless the
-------------
payment for such service and any outstanding balances owed to DSI are paid in
full. All other fees are due upon receipt of invoice. If invoiced fees are not
paid, DSI may terminate this Agreement in accordance with Section 6.3. Late fees
on past due amounts shall accrue at the rate of one and one-half percent per
month (18% per annum) from the date of the invoice.
Article 8 -- LIABILITY AND DISPUTES
8.1. Right to Rely on Instructions. DSI may act in reliance upon any
-----------------------------
instruction, instrument, or signature reasonably believed by DSI to be genuine.
DSI may assume that any employee of Depositor or FlexSAFE Beneficiary who gives
any written notice, request, or instruction has the authority to do so. DSI
shall not be responsible for failure to act as a result of causes beyond the
reasonable control of DSI.
8.2. Indemnification. DSI shall be responsible to perform its obligations under
----------------
this Agreement and to act in a reasonable and prudent manner with regard to this
escrow arrangement. Provided DSI has acted in the manner stated in the preceding
sentence, Depositor agrees to indemnify, defend and hold harmless DSI from any
and all claims, actions, damages, arbitration fees and expenses, costs,
attorney's fees and other liabilities incurred by DSI relating in any way to
this escrow arrangement.
8.3. Dispute Resolution. Any dispute relating to or arising from this Agreement
------------------
shall be resolved by arbitration under the Commercial Rules of the American
Arbitration Association. Unless otherwise agreed by Depositor and FlexSAFE
Beneficiary, arbitration will take place
Page 6
<PAGE>
in San Diego, California, U.S.A. Any court having jurisdiction over the matter
may enter judgment on the award of the arbitrator(s). Service of a petition to
confirm the arbitration award may be made by First Class mail or by commercial
express mail, to the attorney for the party or, if unrepresented, to the party
at the last known business address.
8.4 Controlling Law. This Agreement is to be governed and construed in
---------------
accordance with the laws of the State of California, without regard to its
conflict of law provisions.
8.5 Notice of Requested Order. If any party intends to obtain an order from
-------------------------
the arbitrator or any court of competent jurisdiction which may direct DSI to
take, or refrain from taking any action, that party shall:
a. Give DSI at least two business days' prior notice of the hearing;
b. Include in any such order that, as a precondition to DSI's
obligation, DSI be paid in full for any past due fees and be paid for
the reasonable value of the services to be rendered pursuant to such
order; and
c. Ensure that DSI not be required to deliver the original (as opposed to
a copy) of the deposit materials if DSI may need to retain the
original in its possession to fulfill any of its other duties.
ARTICLE 9 -- GENERAL PROVISIONS
9.1 Entire Agreement. This Agreement, which includes the Exhibits described
----------------
herein, embodies the entire understanding between the parties with respect to
its subject matter and supersedes all previous communications, representations
or understandings, either oral or written. No amendment or modification of this
Agreement shall be valid or binding unless signed by both parties hereto, except
the Exhibit A need not be signed by either party.
9.2 Notices. All notices, invoices, payments, deposits and other documents
-------
and communications shall be given to the parties at the addresses specified in
the attached Exhibit A. It shall be the responsibility of the parties to notify
each other as provided in this Section in the event of a change of address. The
parties shall have the right to rely on the last known address of the other
parties. Unless otherwise provided in this Agreement, all documents and
communications may be delivered by First Class mail.
9.3 Severability. In the event any provision of this Agreement is found to be
------------
invalid, voidable or unenforceable, the parties agree that unless it materially
affects the entire intent and purpose of this Agreement, such invalidity,
voidability or unenforceability shall affect neither the validity of this
Agreement nor the remaining provisions herein, and the provision in question
shall be deemed to be replaced with a valid and enforceable provision most
closely reflecting the intent and purpose of the original provision.
Page 7
<PAGE>
9.4 Successors. This Agreement shall be binding upon and shall inure to the
----------
benefit of the successors and assigns of the parties. However, DSI shall have
no obligation in performing this Agreement to recognize any successor or assign
of Depositor unless DSI receives clear, authoritative and conclusive written
evidence of the change of parties.
- -------------------------------- Data Securities International, Inc.
Depositor
By: /s/ James H. Robb By: /s/ Kathleen M. Cummins
----------------------------- -----------------------------
Name: JAMES H. ROBB Name: KATHLEEN M. CUMMINS
-------------------------- ----------------------------
Title: Senior V.P. Title: CONTRACT ADMINISTRATOR
------------------------- --------------------------
Date: 4-4-96 Date: 4-9-96
------------------------- ---------------------------
Page 3
<PAGE>
EXHIBIT A
DESIGNATED CONTACT
Account Number 1618098-00001
---------------------
Notices, deposit material returns and
communications to Depositor Invoices to Depositor should be
should be addressed to: addressed to:
Company Name: Primus Communications Corp. SAME
___________________________ ___________________________________
Address:________________________________ ___________________________________
1601 FIFTH AVE., STE. 1400
________________________________ ___________________________________
SEATTLE, WA 98101
________________________________ ___________________________________
Designated Contact: PEGGY O'REILLY Contact: ACCOUNTS PAYABLE
_____________________ ___________________________
Telephone: 206-292-1000
______________________________ ___________________________________
Facsimile: 206-292-1745
______________________________ ___________________________________
Requests from Depositor to change the designated contact should be given in
writing by the designated contact or an authorized employee.
Contracts, deposit materials and Invoice inquiries and fee remittances
notices to DSI should be addressed to: to DSI should be addressed to:
DSI DSI
Contact Administration Accounts Receivable
Suite 200 Suite 1450
9555 Chesapeake Drive 425 California Street
San Diego, CA 92123 San Francisco, CA 94104
Telephone: (619) 694-1900 (415) 398-7900
Facsimile: (619) 694-1919 (415) 398-7914
Date: 4/4/96
___________________________________
<PAGE>
EXHIBIT T
FLEXSAFE BENEFICIARY ENROLLMENT
Account Number
---------------------
Pursuant to the FlexSAFE Escrow Agreement ("Agreement"), Depositor hereby
enrolls the following as a FlexSAFE Beneficiary:
<TABLE>
<S> <C>
Notices and communications to FlexSAFE Invoices to FlexSAFE Beneficiary should be
Beneficiary should be addressed to: addressed to:
Company Name:
---------------------------- ------------------------------------------
Address:
--------------------------------- ------------------------------------------
--------------------------------- ------------------------------------------
--------------------------------- ------------------------------------------
Designated Contact: Contact:
---------------------- ----------------------------------
Telephone:
------------------------------- ------------------------------------------
Facsimile:
------------------------------- ------------------------------------------
Data Securities International, Inc.
- -----------------------------------------
Depositor
By: By:
-------------------------------------- ---------------------------------------
Name: Name:
------------------------------------ ------------------------------------
Title: Title:
----------------------------------- -----------------------------------
Date: Date:
------------------------------------ ------------------------------------
</TABLE>
Page 10
<PAGE>
EXHIBIT 10.7
Terms offered are valid only through
---------------
PRIMUS KNOWLEDGE SOLUTIONS, INC.
Software Marketing and Distribution Agreement
Primus Contract ID: SMDA
----------
This Agreement ("Agreement") is made between Primus Knowledge Solutions, Inc.
("Primus"), 1601 Fifth Avenue, Suite 1900, Seattle, Washington 98101, U.S.A.
(fax: +1 (206) 292-1825) and
Distributor Name: Primus Knowledge Solutions, KK, a Japanese corporation
("Distributor")
Distributor Address: Ebisu Prime Sq. Tower
1-1-39 Hiroo, Shibuya-ku
Tokyo, JAPAN 150
Fax No.: +81 3-5469-3005
Primus is the owner and licensee of the Software (defined below). Primus wishes
to market and distribute the Software in the Territory (defined below).
Distributor has know-how and experience in marketing and distributing software
in the Territory, and in providing related services, and wishes to assist
Primus. Primus is willing to appoint Distributor to market and distribute the
Software in the Territory, and Distributor is willing to accept such
appointment, all on the terms and conditions specified below. Therefore, for
good and valuable consideration, the receipt and sufficiency of which they each
acknowledge, Primus and Distributor agree to be bound by such terms and
conditions.
EXECUTED as of the date set forth below Primus' signature (the "Effective
Date"):
<TABLE>
<CAPTION>
Primus Knowledge Solutions, Inc. Distributor
<S> <C>
By: /s/ Michael A. Brochu By: /s/ Yasuki Matsumoto
--------------------------------------- ---------------------------------------------
Michael A. Brochu Yasuki Matsumoto
Its: President and Chief Executive Officer Its: Board of Directors
--------------------------------------- ------------------------------------------
Date: March 31, 1999 Dated: March 31, 1999
--------------------------------------- ------------------------------------------
Terms and Conditions
<CAPTION>
Table A Distributor's Rights
- ---------------------------------------------------------------------------------------------------------------------------------
Product Language Platform Exclusivity Territory Distribution Term
------------------------------------------------------- ----------------------
Operating Database Exclusive Non-Exclusive Start Date End Date
System
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Primus Products Windows First
NT No Effective anniversary
SolutionSeries(TM) Japanese & limitation/1/ Yes No Japan Date of Effective
Server and Sun Date
SolutionExplorer(TM) English Solaris/1/
SolutionPublisher(R)
- -----------------------------------------------------------------------------------------------------------------------------------
SolutionSeries(TM) Japanese Windows First
Server and NT No Effective anniversary
SolutionExplorer(TM) English & limitation/1/ No Yes Korea Date of Effective
SolutionPublisher(R) Sun Date
Solaris/1/
- ------------------------------------------------------------------------------------------------------------------------------------
Upstream Supplier
Products
- ------------------------------------------------------------------------------------------------------------------------------------
Seagate Crystal Info English Windows First
V.6/2/ and NT N/A No Yes Japan and Korea Effective anniversary
Japanese Datee of Effective
Date
- -----------------------------------------------------------------------------------------------------------------------------------
KBI Total Product English N/A No Yes Japan and Korea Effective 1/30/2000
Support Suite Date
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 1: So long as Primus markets them to its own customers
Note 2: Limited to Client License and Report/Query license (no OLAP license)
and subject to the licensing and other restrictions set forth in
Schedule 7
<TABLE>
<CAPTION>
Table B Software Distribution Fees and Support and Maintenance Fees
- ----------------------------------------------------------------------------------------------------------------------------------
Product Language Platform Distributor's Resale Software Royalty Primus Maintenance
--------------------------- Price Percentage Fee Percentage
Operating Database
System
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Primus Products Windows
SolutionSeries(TM) English NT No [Yen]2,400,000 40% 50%
Server & limitation/3/
SolutionExplorer(TM) English Sun [Yen] 480,000 40% 50%
SolutionPublisher(R) English Solaris/3/ [Yen] 270,000 40% 50%
- ------------------------------------------------------------------------------------------------------------------------------------
Primus Products Windows
SolutionSeries(TM) English NT No US $25,000 40% 50%
Server & limitation/3/
SolutionExplorer(TM) English Sun US $4,995 40% 50%
SolutionPublisher(R) English Solaris/3/ US $47,375 40% 50%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
Product Language Platform Distributor's Resale Software Royalty Primus Maintenance
--------------------------- Price Percentage Fee Percentage
Operating Database
System
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Upstream Supplier
Products
- -----------------------------------------------------------------------------------------------------------------------------------
Seagate Crystal Info English Windows NT N/A TBD TBD TBD
V.6
- ------------------------------------------------------------------------------------------------------------------------------------
KBI Total Product English N/A TBD TBD TBD
Support Suite
- ------------------------------------------------------------------------------------------------------------------------------------
Note 3: So long as Primus markets them to its own customers
Note 4: Distributor may provide one SolutionSeries Server to each of its
customers at no charge, and without incurring royalty obligations
to Primus
Note 5: Per concurrent user
Note 6: Per pack of 25 concurrent user
<CAPTION>
Table C Services Fees
-----------------------------------------------------------------------------------------------------------------------------------
Service Description Location Fee per Labor Day (US $) Distributor's Discount Effective Period
From Applicable Start Date End Date
List Price
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Primus Services
- -----------------------------------------------------------------------------------------------------------------------------------
Sales Training Seattle Applicable List Price 0% Effective First
Date Anniversary
Effective
Date
- ---------------------------------------------------------------------------------------------------
Certification--Client Services Seattle Applicable List Price 0%
- ---------------------------------------------------------------------------------------------------
Certification--Technical Support Seattle Applicable List Price 0%
- ---------------------------------------------------------------------------------------------------
Client Services United States Applicable List Price 0%
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Table D Distributor's Performance
- --------------------------------------------------------------------------------------------------------------------------------
Products Net Revenues Qualified Sales Qualified Qualified Marketing Effective Period
-----------------------
(US $) Persons Consultants Technicians Funds (US $) Start Date End Date
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SolutionSeries Server,
SolutionExplorer and Effective 12/31/99
SolutionPublisher 818,000 2 2 1 N/A Date
products
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Table E Referral Fees
- ------------------------------------------------------------------------------------------------------------------------------------
Products Referral Percentage Effective Period
------------------------------------------
Start Date End Date
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Primus Products 10% First Anniversary of
- ---------------------------------------------------------------------------------------- Effective Date Effective Date
Seagate Products 10%
- ----------------------------------------------------------------------------------------
KBI Products 10%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Section 1. Definitions
For purposes of this Agreement, the following capitalized phrases shall be
ascribed the following meanings:
1.1 "Affiliate" means a Person in which another Person (i) owns equity
---------
possessing at least fifty percent (50%) of the equity interest, or (ii) controls
equity possessing at least twenty percent (20%) of the total combined voting
power of all classes of equity entitled to vote.
1.2 "Applicable List Price" means Primus' then current list prices for the
---------------------
Territory, as notified by Primus to Distributor from time to time, for: (i) the
Software; (ii) the provision of technical support services and Updates; and
(iii) any sales training, certification or client services provided by Primus
(except to the extent specified otherwise in Table C).
1.3 "Confidential Information Agreement" means Primus' standard form Bilateral
----------------------------------
Non-Disclosure Agreement, a copy of which is attached to this Agreement as
Schedule 1. "Confidential Information" shall have the meaning ascribed to it in
------------------------
such agreement.
1.4 "Distribution Term" means the period specified in Table A for each Software
-----------------
product, and during which Distributor and its Sub-Distributors may exercise the
rights granted to Distributor under Section 2. Primus or Distributor may
terminate the Distribution Term as described in Section 10.
1.5 "Documentation" means the Software user, system administrator and technical
-------------
manuals and other documentation, including additional, updated or revised
documentation, if any, that Primus provides to Distributor.
1.6 "End User" means any Person that acquires a license to use the Software for
--------
production end user purposes, and not for redistribution, and that has executed
a License Agreement with Distributor or a Sub-Distributor.
1.7 "End User Maintenance" means the provision to End Users of technical
--------------------
support services with respect to the Software, and the distribution of Updates
to End Users by Distributor or any sub-distributors, all in accordance with the
provisions of the Support and Maintenance Agreement. "End User Maintenance
fees" means the fees payable to Distributor by End Users for End User
Maintenance.
1.8 "Evaluation Agreement" means a form of software evaluation agreement that
--------------------
is identical in all material respects to Primus' then current standard
evaluation license agreement for the Territory, the current form of which is
attached to this Agreement in Schedule 2. Primus may change the current form of
evaluation license agreement from time to time and at any time, upon prior
written notice to Distributor.
1.9 "Evaluator" means any Person that acquires a license to evaluate the
---------
Software and that has executed an Evaluation Agreement.
1.10 "Exclusive Software" means the Software specified in Table A as being
------------------
subject to Distributor's exclusive distribution rights in the specified
Territory.
Page 2 of 21
<PAGE>
1.11 "Initial Software" means the first version of each Software product that
----------------
Primus delivers to Distributor pursuant to this Agreement, together with any
modifications thereof delivered to remedy any non-compliance with the warranties
under Sections 9.3.1-9.3.3.
1.12 "License Agreement" means a form of software license agreement that is
-----------------
identical in all material respects to Primus' then current standard end user
license agreement for the Territory, the current form of which is attached to
this Agreement in Schedule 2. Primus may change the current form of end user
license agreement from time to time and at any time, upon prior written notice
to Distributor.
1.13 "Net Revenue" means the amount of Software license and Primus Maintenance
-----------
fees actually paid by Distributor to Primus under this Agreement and recognized
by Primus as revenue in accordance with United States "Generally Accepted
Accounting Principles", exclusive of shipping charges, customs, import and
export duties, value added taxes and other sales taxes, and duties.
1.14 "New Software" means any versions of the Software delivered to Distributor
------------
by Primus other than the Initial Software.
1.15 "Non-Exclusive Software" means the Software specified in Table A as being
----------------------
subject to Distributor's non-exclusive distribution rights.
1.16 "Performance Goals" is defined in Section 3.1.1.
-----------------
1.17 "Person" means any individual, partnership, company, corporation, trust,
------
association or other entity or organization whatsoever.
1.18 "Primus Maintenance" means Primus' provision of support and maintenance to
------------------
Distributor, namely Secondline Support and Updates. Primus Maintenance fees
means the fees payable to Primus by Distributor for Primus Maintenance.
1.19 "Primus Software" means the object code version of Primus' computer
---------------
software programs (including any third party products licensed by Primus and
embedded in Primus' computer programs) identified in Table A as Primus products.
1.20 "Qualified Consultant" means a client services consultant employed by
--------------------
Distributor who has completed a Primus client services certification course
within the past twelve (12) months.
1.21 "Qualified Sales Person" means a sales person employed by Distributor who
----------------------
has completed a Primus sales training course within the past twelve (12) months.
1.22 "Qualified Technician" means a technical support analyst employed by
--------------------
Distributor who has completed a Primus technical support certification course
within the past twelve (12) months.
1.23 "Secondline Support" means Primus' obligations to provide technical
------------------
support to Distributor's technical support organization, as more particularly
described in Schedule 3.
1.24 "Software" means all or any portion of (i) the Primus Software, (ii) the
--------
Upstream Supplier Software, and (iii) any Updates.
1.25 "Sub-Distributor" means any Person that distributes computer hardware or
---------------
software, or that provides related services, and that has executed a Sub-
Distribution Agreement with Distributor either (i) to make the Software and
Documentation available to End Users in conjunction with such Person's other
products or services, or (ii) to distribute the Primus Software and the Upstream
Supplier Software and Documentation on a stand-alone basis.
1.26 "Sub-Distribution Agreement" means a written agreement between Distributor
--------------------------
and each Sub-Distributor that provides the Sub-Distributor with certain sub-
licensing rights to the Software and Documentation, which rights shall not
exceed those granted to Distributor by Primus under this Agreement.
1.27 "Support and Maintenance Agreement" means a form of end user support and
---------------------------------
maintenance agreement that is identical in all material respects to Primus' then
current standard end user support and maintenance agreement for the Territory,
the current form of which is attached to this Agreement in Schedule 2. Primus
may change the current form of end user support and maintenance agreement from
time to time and at any time, upon prior written notice to Distributor.
1.28 "Term" means the term of this Agreement, as more fully described in
----
Section 10.
1.29 "Territory" means the geographic area specified in Table A.
---------
1.30 "Trademarks" means: (i) Primus' trademarks Primus, SolutionSeries,
----------
SolutionBuilder, SolutionExplorer, SolutionPublisher and their associated logos;
(ii) any applicable Upstream Supplier Trademarks; and (iii) and any and all
other trademarks and/or service marks that Primus may use and approve in writing
for use by Distributor in connection with the Software.
1.31 "Updates" means new releases, major releases and maintenance releases of
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the Software which Primus or the applicable Upstream Supplier does not designate
as different products for which it charges separately
1.32 "Upstream Supplier" means a third party that has granted Primus a license
-----------------
to distribute and sub-license products developed by the third party (or its
licensors).
1.33 "Upstream Supplier Software" means the object code version of any Upstream
--------------------------
Supplier's computer software programs (including any third party products
licensed by the Upstream Supplier and embedded in such computer programs)
identified in Table A as Upstream Supplier products.
1.34 "Web Access Customers" means the end user customers of any End User who
--------------------
access the server portions of the Software via the World Wide Web using a
browser interface, to retrieve information from (but not contribute information
to) the End User's database.
1.35 Tables. References to Tables include any subsequent Tables (numbered A-1,
------
A-2 and so forth) to which both of the parties agree in writing.
Section 2. Appointment as Distributor
2.1 Appointment. Subject to the provisions of this Agreement, Primus hereby
-----------
appoints Distributor, for the duration of the Distribution Term and throughout
the world, as a distributor for the marketing, distribution and sub-licensing of
the Software to Persons whose head offices are located in the Territory. The
appointment shall be exclusive with respect to the Exclusive Software, and non-
exclusive with respect to the Non-Exclusive Software. Distributor hereby accepts
such appointment.
2.2 License Grants. Subject to the provisions of this Agreement, Primus hereby
--------------
grants to Distributor, and Distributor hereby accepts:
2.2.1 Marketing and Distribution: A limited, worldwide, non-transferable
license, with limited right to sub-license to Sub-Distributors, throughout the
Distribution Term, to (i) promote, market and demonstrate the Software and
Documentation to Persons whose head offices are located in the Territory, and
(ii) distribute the Software and Documentation throughout the Territory to End-
Users and Evaluators whose head offices are located in the Territory. The
foregoing license shall be an exclusive license with respect to the
Page 3 of 21
<PAGE>
Exclusive Software and related Documentation (subject to Section 2.2.5 below),
and a non-exclusive license with respect to the Non-Exclusive Software and
related Documentation.
2.2.2 Right To Sub-License To End-Users and Evaluators: A limited,
worldwide, non-transferable license, with limited right to sub-license to Sub-
Distributors, throughout the Distribution Term, to sub-license the Software and
Documentation to End-Users and Evaluators whose head offices are located in the
Territory. The foregoing license shall be an exclusive license with respect to
the Exclusive Software and related Documentation (subject to Section 2.2.5
below), and a Semi-Exclusive license with respect to the Semi-Exclusive Software
and related Documentation, and a non-exclusive license with respect to the Non-
Exclusive Software.
2.2.3 Internal Use: A limited, worldwide, non-exclusive, non-transferable
license to reproduce, distribute and use the Software and Documentation for
Distributor's internal, non-production purposes during the Term, solely to the
extent reasonably necessary to enable Distributor to (i) promote, market and
demonstrate the Software, (ii) become familiar with the Software for purposes of
providing End User Maintenance to End Users and Evaluators, and (iii) make back-
up and archival copies.
2.2.4 Limitations on Exclusivity. Notwithstanding any provision of this
Agreement to the contrary, the grants from Primus to Distributor contained in
Section 2.1 and this Section 2.2 shall not be deemed to prohibit:
(i) the sub-licensing of the Software to an end user located within
the Territory by a Person located outside the Territory, provided that: (a) such
Person is authorized by Primus to license Software to its own Affiliates, and
the End User located in the Territory is an Affiliate of such Person, (b) such
Person is offering Software in combination with other products on an OEM or VAR
basis as an authorized distributor of Primus, or (c) the end user is a Web
Access Customer;
(ii) an End User's providing a Person located outside the Territory
with access to the server portions of the Software, provided that: (a) the
server on which the server portions of the Software are installed is under the
custody and control of the End User, and (b) such Person is either (x) an
Affiliate of the End User and is bound by the terms of the End User's License
Agreement, or (y) is a Web Access Customer of the End User;
(iii) the promotion and marketing of the Software via the Internet and
on the World Wide Web by Primus or any licensor, licensee or sub-licensee of
Primus.
2.3 Reservation. Primus reserves all rights to the Software, Documentation 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 2.2 and in accordance with the following:
2.3.1 Modifications, Combinations and Translations. Without Primus'
specific, prior written consent, which Primus may provide or withhold in its
sole and absolute discretion, Distributor may not: (i) modify or create
derivatives of the Software or the Documentation; (ii) incorporate the Software
into any other computer software program; or (iii) translate any of the Software
or the Documentation. Primus may condition its consent upon Distributor's
written agreement to such commercial terms respecting (a) Distributor's
compensation for its efforts, and (b) technical specifications, as are mutually
acceptable to each of Primus and Distributor.
2.3.2 Ownership of Derivatives. Any modifications, translations or other
derivative works made to or derived from the Software or Documentation by
Distributor or any Person given access to the Software by Distributor, and all
related intellectual property rights (collectively, "Derivatives"), shall be
deemed to be work made for hire on behalf of Primus, and Primus shall be the
sole owner of all right, title and interest in and to such Derivatives. To the
extent that ownership of any Derivative does not vest in Primus by operation of
law, Distributor hereby assigns, and shall ensure assignment of all right, title
and interest in and to such Derivative to Primus. Upon request by Primus, and at
Primus' reasonable expense, Distributor shall execute all such written
agreements and instruments, and take all such other action as may be necessary
to perfect Primus' title in and to any Derivative. Nothing in this Section 2.3.2
shall be deemed to provide Primus with ownership rights in (i) products owned by
Distributor or its other licensors, and which Distributor combines with the
Software or the Documentation, or (ii) any know-how of Distributor that
Distributor uses to create any Derivative, except to the extent that such know-
how relates solely to the Software or Documentation.
2.3.3 Media. Unless Distributor first obtains Primus' prior written
consent, not to be unreasonably withheld, Distributor may only distribute the
Software to End-Users and Evaluators on CD-ROM or magnetic disk.
2.3.4 Appointment of Sub-Distributors. Before appointing any Sub-
Distributor, Distributor shall obtain Primus' written approval (not to be
unreasonably withheld) to an accurate English translation of Distributor's
proposed model Sub-Distribution Agreement (the "Model Agreement"). Subject to
Distributor's obtaining such approval, the initial Sub-Distributors shall be the
Persons listed in Schedule 4. Distributor may not appoint any other Sub-
Distributors without obtaining Primus' prior written approval (not to be
unreasonably withheld). Distributor's request for approval shall contain, at a
minimum: (a) the name and a description of the proposed Sub-Distributor; and (b)
an accurate English translation of the proposed Sub-Distribution Agreement,
marked to show changes from the Model Agreement. Distributor shall ensure that:
(i) Distributor may unilaterally terminate all Sub-Distributor appointments and
associated license rights upon termination of the Distribution Term, in each
case without any liability on the part of Primus; (ii) Sub-Distributors shall
have no right to appoint sub-distributors; (iii) the relevant Sub-Distribution
Agreement permits Distributor's assignment of the Sub-Distribution Agreement to
Primus or its nominee; (iv) each Sub-Distributor complies with the obligations
of Distributor under this Agreement, as though such obligations applied directly
to the Sub-Distributor; and (v) Primus is a third-party beneficiary of
Distributor's rights with respect to each of its Sub-Distributors.
2.3.5 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, but only the right to transfer possession.
Title to copies of the Software and the Documentation distributed under this
Agreement shall remain with Primus at all times. Distributor acknowledges that
the Software, the Documentation and Primus' 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.
2.3.6 Reverse Engineering. Except to the extent (if any) permitted by
applicable law, Distributor shall not decompile, or create
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<PAGE>
or attempt to create, by reverse engineering or otherwise, the source code from
the object code supplied under this Agreement.
2.3.7 Future Rights to Acquire Software. Distributor shall not grant to any
Person any option to sub-license the Software that can be exercised after
expiration of the Distribution Term.
2.3.8 Service Bureau. Distributor shall not rent or lease the Software, and
shall not use or distribute the Software to operate a service bureau or similar
service.
Section 3. Distributor's Obligations
3.1 Sales Efforts. Throughout the Distribution Term, Distributor shall use its
-------------
best efforts to solicit orders from responsible and credit-worthy End Users
located in the Territory, for the licensing of the Software and the provision of
End User Maintenance. Without limiting the generality of the foregoing,
throughout the Distribution Term:
3.1.1 Performance Goals. Distributor shall use all commercially reasonable
efforts to: (i) generate Net Revenues in excess of those specified in Table D;
(ii) ensure that sufficient employees of Distributor have attended Primus' sales
training, consulting and technical support certification courses, such that
Distributor employs no fewer than the number of Qualified Sales Persons,
Qualified Consultants and Qualified Technicians specified in Table D throughout
the Distribution Term; and (iii) invest not less than the amount specified in
Table D as marketing funds in the marketing and promotion of the Software
(collectively, the "Performance Goals"). Without limiting Primus' other
remedies, if Distributor fails to meet any of the Performance Goals, then Primus
may, after consultation with Distributor, but in Primus' sole and absolute
discretion, change any exclusive appointment or license grant to a non-exclusive
appointment or license grant.
3.1.2 Marketing Activities. Distributor shall: (i) engage in market
research for the purpose of identifying optimum marketing and distribution
strategies in the Territory; (ii) advise Primus of all such measures as are
necessary for the localization of the Software; (iii) market and promote the
Software in the Territory, using the Trademarks; (iv) coordinate sales, services
and technical support training programs with Primus; (v) establish, train and
maintain a sales and services network with respect to the Software and (vi)
ensure that only Qualified Consultants and Qualified Technicians provide
deployment, technical support and other consulting services related to Primus'
products.
3.1.3 Marketing Practices. Distributor shall avoid deceptive, misleading or
unethical practices that are or might be detrimental to Primus, its licensors,
or the Software, and shall conduct all activities under the Agreement so as to
maintain and support the reputation of Primus and Primus' products and services.
3.1.4 Warranties. Distributor shall not make any representations or
warranties to any Person on behalf of Primus or Primus' licensors, nor assign
any representations or warranties that Primus makes to Distributor under this
Agreement to any Person. Distributor may provide its own warranties to End
Users with respect to the Software, but shall ensure that such warranties (and
any related remedies) do not exceed those provided by Primus to Distributor
under this Agreement.
3.2 End User Maintenance. Throughout the Distribution Term, Distributor or
--------------------
Distributor's qualified sub-contractor, at Distributor's sole expense, shall
provide End Users with End User Maintenance.
3.3 Client Services. Throughout the Distribution Term, Distributor or
---------------
Distributor's qualified sub-contractor, at Distributor's sole expense, shall
provide End Users and Evaluators with such Software installation, implementation
and training services as are reasonably necessary to enable the End User or
Evaluator to use the Software successfully. Distributor shall use its
commercially reasonable efforts to obtain metrics from each End User regarding
the End User's use of, and success with the Software, and shall provide such
metrics to Primus. Primus shall provide Distributor with recommendations as to
the scope and nature of such metrics.
3.4 Agreements with Third Parties.
-----------------------------
3.4.1 License, Support and Maintenance, and Evaluation Agreements.
Distributor shall not (i) distribute any Software or Documentation to End Users,
nor (ii) provide any End User with End User Maintenance, except under a valid
License Agreement and Support and Maintenance Agreement, respectively, executed
by the End User. Distributor shall comply with its obligations under all such
Agreements. Distributor shall ensure that all End Users comply with their
obligations under all such Agreements.
3.4.2 Evaluation Agreements. Distributor may order a reasonable number of
copies of the Software and Documentation from Primus, for supervised
demonstration and customer evaluation purposes. Distributor shall not distribute
any Software or Documentation to Evaluators except under a valid Evaluation
Agreement executed by the Evaluator. Distributor shall not be required to pay
Software license fees or Primus Maintenance fees for Software distributed
pursuant to an Evaluation Agreement; provided always that Distributor does not
permit any evaluation to extend beyond thirty (30) days without Primus' prior
written consent, not to be unreasonably withheld. Distributor shall ensure that
all Evaluators comply with their obligations under all such Agreements.
3.4.3 Execution of Agreements. Distributor shall execute agreements with
Sub-Distributors, End Users and Evaluators only in its own name (and not that of
Primus). Distributor shall provide Primus with an accurate summary in English of
all License Agreements, Support and Maintenance Agreements and Sub-Distribution
Agreements executed by End Users or Sub-Distributors promptly after their
execution, containing at a minimum the information required to be entered in
each table of the License Agreement and the Support and Maintenance Agreement.
3.4.4 Modifications to Agreements. Distributor may not modify the License
Agreement or the Support and Maintenance Agreement except as specified in this
Section 3.4.4.
(i) Material Changes. Distributor may make material changes to the
License Agreement or the Support and Maintenance Agreement, with Primus' prior
written approval, not to be unreasonably withheld or delayed. To obtain such
approval, Distributor shall submit an accurate English translation of the
proposed changes to Primus. To the extent that Primus has not responded to
Distributor concerning the proposed changes within five (5) business days, the
submitted changes shall be deemed approved by Primus.
(ii) Immaterial Changes. Distributor may make immaterial changes to
the License Agreement and the Support and Maintenance Agreement at any time
without any obligation to obtain Primus' prior approval; provided always,
however, that Distributor shall defend, indemnify and hold Primus harmless from
and against any and all claims, loss, liability, damages and expense (including
attorneys and other expert's fees) incurred by Primus in consequence of such
changes. Distributor shall notify Primus of such changes when made.
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3.5 Transactions Outside the Territory. If Distributor becomes aware that a
----------------------------------
customer may require any Software outside the Territory, and if the exception to
territorial restriction specified in Section 2.2.4(ii) does not apply, then
Distributor shall promptly notify Primus.
3.6 Reports. Throughout the Distribution Term, Distributor shall: (i) provide
-------
Primus with the plans, forecasts and reports, in English (collectively,
"Reports"), specified in this Section 3.6; (ii) ensure that each Report contains
the minimum information reasonably requested by Primus; and (iii) use all
commercially reasonable efforts to ensure the accuracy of each Report.
3.6.1 Annual Business Plan. On or before October 15 of each year of the
Distribution Term, Distributor shall provide Primus with an annual business plan
(based on a December 31 year end) for the distribution of the Software and the
provision of End User Maintenance by Distributor and Sub-Distributors in the
Territory.
3.6.2 Monthly Forecasts. On or before the fifth (5th) day of each calendar
month, Distributor shall provide Primus with a quarterly forecast for the
current month and subsequent two (2) months, for the sub-licensing of the
Software and provision of End User Maintenance in the Territory.
3.6.3 Monthly Reports. On or before the fifteenth (15th) day of each
calendar month, Distributor shall provide Primus with a report specifying: (i)
the sub-licensing of the Software and provision of End User Maintenance to End
Users in the Territory for the calendar month last ended: (ii) the status of all
Evaluation Agreements in effect in the Territory for the calendar month last
ended, and the related evaluations by potential customers; and (iii) metrics
regarding use of the Software by End Users.
3.7 Accounting. Throughout the Term and until the sixth (6th) anniversary of
----------
its termination, Distributor shall keep complete and accurate records clearly
showing: (i) in accordance with Japanese generally accepted accounting
principles and on a consistent basis, all revenues arising out of the
distribution of the Software and the provision of End User Maintenance by
Distributor and the Sub-Distributors; (ii) all amounts payable to Primus under
this Agreement; and (iii) the location, model name, and serial number of all
servers on which the Software distributed by Distributor or any Sub-Distributor
is installed. Such records, and those specified below, are collectively referred
to in this section as "Distribution Records".
3.7.1 Records. For each License Agreement, Support and Maintenance
Agreement and Sub-Distribution Agreement executed, the Distribution Records
shall include at a minimum: (i) the name and address of the End User or Sub-
Distributor; (ii) the dates of shipment; (iii) a copy of each such Agreement,
and each purchase order and invoice, including all amendments and exhibits; (iv)
records of revenues received and receivable in respect of End User Maintenance
and the period to which such End User Maintenance revenues apply; and (v) in the
case of Sub-Distributors only, a copy of each monthly Sub-Distributors' revenue
report to Distributor.
3.7.2 Audit Rights. Within ten (10) days of Primus' written request,
Distributor shall provide accurate copies of the requested Distribution Records
or any requested information contained in the Distribution Records to Primus in
English; provided, however, that Primus may request such information no more
frequently than once per quarter. Upon ten (10) days prior written notice,
Primus may inspect, audit, and copy the Distribution Records and access the
servers 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 (i) Primus has been properly paid all fees to which it is entitled under
this Agreement, and (ii) no infringement of Primus' intellectual property rights
with respect to the Software, the Documentation or the Trademarks has occurred.
Unless an audit discloses a material discrepancy in favor of Distributor or any
of its sub-distributors, Primus may exercise such audit rights no more than once
during any twelve (12) month period. In the event of any understatement of any
Software license fees or Primus Maintenance fees due to Primus, Distributor
shall promptly pay such fees at the Applicable List Price, and Primus will
extend this Agreement to correct any such deficiency. This remedy and Primus'
acceptance of any payment shall be without prejudice to any additional rights or
remedies of Primus under this Agreement or applicable law.
3.7.3 Log Files. Upon written request by Primus, Distributor shall transmit
to Primus a current, complete and correct copy of the log file for each server
on which the Software is installed; provided, however, that unless review of a
log file has indicated additional fees are due to Primus, Primus may not request
a copy of any one log file more frequently than once a year.
3.8 Governmental Compliance.
-----------------------
3.8.1 Regulatory Approvals. Distributor shall obtain and maintain all
licenses, permits, certificates and authorizations required to perform its
obligations under this Agreement, including without limitation those required
for: (i) Distributor's appointment and performance as distributor and licensee
of Primus, and that of any Sub-Distributors; and (ii) the import of the Software
and Documentation into the Territory. All regulatory and other approvals which
are obtained for the Software by Distributor shall be obtained on behalf of
Primus and for Primus' sole benefit. Distributor represents that no regulatory
approvals which have not already been obtained by Primus and/or Distributor are
presently required for licensing and distribution of the Software in the
Territory.
3.8.2 US Export Control. Distributor shall comply with all then applicable
US export control laws and regulations in connection with its distribution of
the Software and Documentation, and the disclosure of any technical information
related thereto.
3.8.3 U.S. Foreign Corrupt Practices Act. Distributor shall comply with the
requirements of the U.S. Foreign Corrupt Practices Act ("FCPA"), and shall not
take nor omit to take, directly or indirectly, any action that might cause
Primus to be in violation of the FCPA.
3.8.4 Foreign Exchange Controls. Distributor shall be solely responsible
for compliance with any foreign exchange controls affecting the Territory.
3.9 Primus' Intellectual Property Rights.
------------------------------------
3.9.1 Primus' Ownership. Distributor shall not represent to any Person that
it has any ownership interest in the Software, Documentation, Trademarks or
Primus' Confidential Information. Distributor acknowledges that no action by it
or on its behalf shall create in Distributor's favor any right, title or
interest in or to the Software, Documentation, Trademarks, and/or Primus'
Confidential Information, or in any registrations, filings, renewal or
enforcement rights of Primus pertaining to them.
3.9.2 Notice of Third Party Infringement. Distributor shall promptly advise
Primus of any suspected or actual infringements of Primus' intellectual property
rights of which Distributor becomes aware. Distributor shall cooperate with and
assist Primus, at Primus' reasonable expense, in any action undertaken by Primus
against any suspected infringement by third parties.
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3.9.3 Notice by Primus. Distributor shall not market, display, reproduce,
distribute, sub-license or use the Software or Documentation for a period of
three (3) months commencing on Primus' notice to Distributor that Distributor
should cease use or distribution of the Software due to an infringement claim.
3.9.4 Intellectual Property Rights Registration. Distributor shall, at
Primus' reasonable expense, provide Primus with all assistance reasonably
required by Primus to register Primus throughout the Territory as the owner of
Primus' intellectual property rights with respect to the Software and the
Documentation, including without limitation the Trademarks.
3.10 Costs and Expenses. Distributor shall bear and be liable for all costs and
------------------
expenses that it initiates or incurs in fulfilling its obligations under this
Agreement, except as otherwise expressly specified in a written agreement
executed by both parties.
Section 4. Primus' Obligations
4.1 Training. Following execution of this Agreement, and at such other times
--------
during the Distribution Term as Primus reasonably determines (for example, upon
Primus' release of a significant Update), Primus shall provide the training to
Distributor and Sub-Distributors as specified below, at Primus' then current
rates for such services at locations mutually acceptable to both parties, or, to
the extent indicated in Table C, at the rates, discounts and locations specified
in Table C:
4.1.1 Sales Training. Primus shall provide such sales and pre-sales
information and training as Primus reasonably determines necessary, after
consultation with Distributor, for the promotion, marketing and demonstration of
the Software by Distributor.
4.1.2 Certification Training. Primus shall provide such product
certification training (covering client services and technical support skills
for the Software) as Primus reasonably determines necessary, after consultation
with Distributor.
4.2 Updates. During the Distribution Term, Primus shall (i) provide Distributor
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with reasonable prior notice concerning the release of all Updates, and (ii)
provide Distributor with Updates if and when they are generally available for
commercial release in the Territory. Distributor shall not entitle any End User
to any Updates until the Update is generally available for commercial release.
4.3 Secondline Support. During the Distribution Term, Primus shall provide
------------------
Distributor with Secondline Support. Primus shall have no obligation to directly
support End Users or Sub-Distributors. Primus need not provide any other
technical support except on a basis acceptable to Primus.
4.4 Marketing Materials. During the Distribution Term, Primus shall provide
-------------------
Distributor with initial copies of Primus' marketing materials and price lists
applicable to the promotion, marketing and distribution of the Software in the
Territory, together with any updates created by Primus. Distributor shall be
responsible for the costs of reproducing any such materials.
4.5 Referrals. During the Distribution Term, to the extent that Distributor has
---------
exclusive rights as Primus' distributor of the Software, Primus shall forward to
Distributor any inquiry or order with respect to the Software that Primus has
received, and that originates from the Territory.
Section 5. Other Obligations Of The Parties
5.1 Tax Structuring. Throughout the Distribution Term, Primus and Distributor
---------------
shall consult and work together to determine the most mutually tax-efficient
structure for distribution of the Software within the Territory, and for payment
of all fees to Primus.
5.2 No Authority. Neither of the parties shall have any authority to bind or
------------
act for, or assume any obligation or responsibility on behalf of, the other
party, except as such authority may be specifically and expressly delegated in
this Agreement. The parties hereto do not intend, and this Agreement shall not
be deemed to create a partnership, joint venture, franchise, employment or other
relationship between them.
5.3 Confidential Information. Each of the parties shall comply with the
------------------------
provisions of the Confidential Information Agreement.
Section 6. Ordering and Shipment
6.1 Order Submission. Distributor shall order Software and Documentation from
----------------
Primus by delivering to Primus: (i) a Distributor purchase order, substantially
in the form attached as Exhibit A; and (ii) a copy of a valid End User purchase
order issued to Distributor or any Sub-Distributor; (iii) if applicable, any
Sub-Distributor purchase order; and (iv) the License Agreement and Maintenance
Agreement executed by the End-User. Sub-Distributors and End Users may not order
Software or Documentation directly from Primus.
6.2 Order Acceptance. Primus shall accept all reasonable orders from
----------------
Distributor for Software and Documentation that are in accordance with the terms
of this Agreement. Distributor may not cancel or amend an order once it has been
received by Primus without Primus' prior written consent.
6.3 Delivery. Primus shall deliver orders of Software and Documentation
--------
accepted by Primus to Distributor FCA Seattle. The trade term "FCA" shall be
interpreted in accordance with "Incoterms 1990", as promulgated by the
International Chamber of Commerce.
6.4 Customs and Taxes. Distributor shall be responsible for clearing Software
-----------------
and Documentation through all customs, and shall pay any and all taxes or duties
imposed by any governmental authority on (i) the export or import of the
Software or Documentation, and (ii) the licensing of the Software within the
Territory.
Section 7. Fees and Payments
Except to the extent expressly stated otherwise in this Agreement, Distributor
shall pay Primus royalties as specified in this Section 7 for all Software and
Documentation distributed under this Agreement, and shall pay Primus fees for
all Primus Maintenance provided under this Agreement, and for all client
services provided by Primus to Distributor (including, for example, but without
limitation, consulting and educational services).
7.1 Software Royalties. Subject to Section 7.1.1 below, on or before the
------------------
thirtieth (30th) day following the end of each calendar quarter (based on a
December 31 year end), Distributor shall pay Primus running royalties equal to
the "Software Royalty Percentage" of the "Gross Software Revenue" that was
"Realized" by Distributor during such quarter.
"Software Royalty Percentage" means the software royalty percentage specified in
Table B.
"Gross Software Revenue" means any and all royalties, sublicensing fees and
other revenues Realized by Distributor in connection with the distribution or
sub-licensing of the Software, together with any damages, interest thereon, and
similar monetary awards (other than awards of attorneys' fees) paid by third
parties to Distributor or any Affiliate of Distributor in connection with
infringement of any intellectual property rights associated with any part of the
Software.
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"Realized" is defined in Section 7.3.1 below.
7.1.1 Minimum Software Royalties. With respect to each distribution of the
Software under this Agreement, Distributor shall pay Primus minimum royalties
equal to the Software Royalty Percentage of "Distributor's Resale Price."
"Distributor's Resale Price" means the list price fees applicable to the
Territory for the sub-licensing of Software to Sub-Distributors. The
Distributor's Resale Price for the initial Distribution Term is specified in
Table B. Primus may modify the Distributor's Resale Price for each subsequent
Distribution Term upon not less than thirty (30) days prior written notice to
Distributor. Primus may determine the Distributor's Resale Price in its sole
discretion, but only after consultation with Distributor.
7.2 Primus Maintenance Fees. Subject to Section 7.2.1, on or before the
-----------------------
thirtieth (30th) day following the end of each calendar quarter (based on a
December 31 year end), Distributor shall pay Primus fees for Primus Maintenance
equal to the "Primus Maintenance Fee Percentage" of the "Gross Maintenance
Revenue" Realized by Distributor during such quarter.
"Primus Maintenance Fee Percentage" means the maintenance fee percentage
specified in Table B.
"Gross Maintenance Revenue" means any and all fees and other revenues Realized
by Distributor in connection with the provision of technical support and Updates
to Sub-Distributors, End Users, and any other third parties.
7.2.1 Minimum Maintenance Fees. Distributor shall pay Primus minimum fees
for Primus Maintenance. For purposes of determining the minimum fees, the Gross
Maintenance Revenue Realized by Distributor during the relevant quarter shall be
deemed to be eighteen percent (18%) of the Distributor's Resale Price for the
Software with respect to which Distributor Realizes Gross Software Revenue
during the quarter.
7.3 Provisions Relating to Gross Revenue. For the purposes of this Section 7,
------------------------------------
"Gross Revenue" means Gross Software Revenue and Gross Maintenance Revenue.
7.3.1 Realization of Gross Revenue. Gross Revenue will be deemed to be
"Realized" on the first to occur of (i) the date on which any royalties,
sublicensing fees, End-User Maintenance fees or other revenues are paid to
Distributor; and (ii) the ninetieth (90th) day following the execution of the
applicable License Agreement or Support and Maintenance Agreement by an End-User
(or any amendment thereto).
7.3.2 Gross Revenue from Bundled or Promotional Transactions. The Gross
Revenue in a unit-priced transaction (e.g., bundled transactions, discount or
promotional offers, and the like) involving both (i) the Software or End User
Maintenance (or both), and (ii) one or more other products or services provided
by Distributor, will be the greater of: (i) Distributor's stand-alone price
associated with the Software or the End User Maintenance in transactions
involving the Software or End User Maintenance alone; and (ii) the actual
revenue realized by Distributor in the unit-priced transaction, prorated between
the Software or End User Maintenance (or both) and such other products and
services in accordance with their respective stand-alone prices.
7.3.3 Exclusions from Gross Revenue. Gross Revenue does not include (i)
revenues realized by Distributor in connection with the licensing or support and
maintenance of separately identified and priced software that is developed,
licensed, or otherwise acquired by Distributor which Distributor may combine for
distribution purposes with all or part of the Software; or (ii) amounts received
by Distributor that are attributable to separately itemized and billed shipping
costs and insurance or to sales taxes or similar taxes.
7.4 No Charge for Internal Use and Evaluations. Distributor shall not be
------------------------------------------
required to pay Primus Software royalties or fees for Primus Maintenance with
respect to: (i) Software that Distributor uses internally pursuant to the
internal use license granted under Section 2.2.4; and (ii) Software used by
Evaluators; provided always, however, that Distributor does not permit any
evaluation to extend beyond thirty (30) days without Primus' prior written
consent, not to be unreasonably withheld.
7.5 Splits. If Primus sub-licenses any Software within the Territory as part of
------
a transaction involving an End-User whose head office is located outside the
Territory, or if Licensee sub-licenses any Software outside the Territory as
part of a transaction involving an End User whose head office is located within
the Territory, then Primus and Licensee shall split equally between them the
Software license fees and support and maintenance fees payable by the End User.
In the event of any multiple-territory transaction where Distributor and Primus'
other distributors, agents or representatives cannot mutually resolve their
respective shares in the compensation arising from the customer order, then
Primus may, in its sole and absolute discretion, allocate the Software license
fees, End User Maintenance fees, and the responsibility for providing End User
Maintenance among them (less, in the case of Distributor, any compensation
payable to Primus under this Agreement).
7.4 Referrals. If a customer in the Territory prefers to sub-license Software
---------
or purchase services directly from Primus for use in the Territory, and if
Distributor's appointment with respect to such Software is non-exclusive, then
Distributor shall refer the customer to Primus. If the customer sub-licenses
Software from Primus as a direct result of Distributor's activities, and within
six (6) months of Distributor's last substantial contact with the customer
concerning the Software, then Primus shall pay Distributor a referral fee equal
to the "Referral Percentage" of the software license fees recognized in
accordance with US generally accepted accounting principles by Primus from such
customer in the first year of the sub-license term. "Referral Percentage" means
the percentage amount specified in Table E.
7.5 Applicable List Price; Distributor's Discount. The Applicable List Price
---------------------------------------------
contains a list of Software license and End User Maintenance fees recommended by
Primus for use by Distributor in distributing the Software and providing End
User Maintenance in the Territory. If Distributor wishes to sub-license Software
or provide End User Maintenance at less than the Applicable List Price, or if
Distributor wants to provide any Person with an option to acquire rights to the
Software or End User Maintenance at less than the Applicable List Price, then
Distributor shall first provide Primus with not less than five (5) business days
prior written notice. Notwithstanding any of the foregoing, Distributor shall be
under no obligation to sub-license the Software or provide End User Maintenance
to End Users at the Applicable List Price, but may price the Software and End
User Maintenance in its reasonable discretion.
7.6 Payment Terms. Unless another date is specified in this Agreement, all
-------------
payments by Distributor to Primus shall be due within thirty (30) days of the
date of Primus' invoice. Distributor shall make all payments in United States
currency, in readily available funds. Overdue payments shall accrue interest at
the lesser of US prime rate on the date of the invoice plus five percent (5%)
per annum, or the maximum rate permitted by applicable law. If any sums require
Page 8 of 21
<PAGE>
conversion into US currency, then the conversion rate shall be that published in
the Wall Street Journal for the fifteenth day of the month in which Primus
delivers its invoice to Distributor or, if no rate is published for the
fifteenth day, the next day on which the rate is published.
7.7 Taxes; Withholding. As between Distributor and Primus, Distributor shall be
------------------
solely responsible for any applicable sales, use, or any value added or similar
taxes (collectively, "Sales Taxes") payable under, or arising out of or in
connection with this Agreement, other than taxes imposed in the United States
based upon Primus' income. Any prices, fee schedules or invoices provided by
Primus are exclusive of any Sales Taxes, unless specifically stated otherwise.
Upon request by Primus, Distributor shall promptly furnish Primus with copies of
tax receipts and other documents evidencing the withholding and payment of any
local taxes applicable to Primus, so that Primus may file for a tax credit.
Distributor shall cooperate with Primus in taking all such steps and filing all
such documents as Primus reasonably requests to minimize any such withholding.
Section 8. Trademark Matters
8.1 License to Use Trademarks. Primus hereby grants Distributor a non-exclusive
-------------------------
license, with right to sub-license to Sub-Distributors, to use the Trademarks in
the Territory during the Distribution Term, solely in connection with: (i) the
promotion, marketing, licensing, and distribution of the Software; and (ii) the
provision of End User Maintenance and of implementation and training services
related to the Software. Primus reserves all other rights to the Trademarks.
8.2 Proprietary Notices; Use of Trademarks; Approval of Promotional Materials.
-------------------------------------------------------------------------
Distributor shall not remove, obscure or alter any notice of copyright, trade
secret, trademark or other proprietary right appearing in or on any Software or
Documentation or any related packaging and shall ensure that each copy of all or
any portion of the Software or Documentation made by Distributor includes such
notices. Distributor shall clearly indicate the ownership of the Trademarks by
Primus whenever it uses the Trademarks. Distributor shall comply with the
trademark usage guidelines and procedures established by Primus from time to
time. Upon request by Primus, Distributor shall provide Primus with an
opportunity to inspect and approve any packaging, descriptive or promotional
materials pertaining to the Software and Documentation or otherwise containing
references to the Trademarks. Distributor may appropriately use its own
trademarks and trade names in connection with distributing the Software, subject
to Primus' prior written approval. Any goodwill arising out of use of the
Trademarks by Distributor or any Sub-Distributor shall inure solely to the
benefit of Primus.
8.3 No Infringement. Distributor shall not at any time adopt, use or register
---------------
any identical or similar mark or symbol or combination thereof which infringes
any of the Trademarks. If Distributor has already done or attempted to do so,
directly or indirectly, Distributor shall immediately assign all rights to such
mark or symbol to Primus. In no event shall Distributor use the name "Primus" or
any of the Trademarks (whether or not registered) except as expressly permitted
under this Agreement.
Section 9. Warranties
9.1 Distributor's Warranties. Distributor represents and warrants to Primus as
------------------------
follows:
9.1.1 Authority. The execution and delivery of this Agreement by
Distributor and the performance of the obligations contemplated hereby have been
duly and validly authorized by all necessary legal action on its part, and this
Agreement is legal, valid and binding against Distributor in accordance with its
terms.
9.1.2 No Default. The execution, delivery and performance of this Agreement
by Distributor does not and shall not conflict with any obligation of
Distributor under any agreement or instrument to which Distributor is a party or
by which it is bound.
9.1.3 Adequate Resources. Distributor has sufficient resources and
experience to properly perform its obligations under this Agreement, and shall
commit such resources to its obligations throughout the Term. None of
Distributor's executive officers have any actual knowledge of any existing or
forthcoming event that may materially adversely affect Distributor's ability or
willingness to comply with its obligations under this Agreement.
9.2 Primus' Warranties. Primus represents and warrants to Distributor as
------------------
follows:
9.2.1 Organization and Authority. The execution and delivery of this
--------------------------
Agreement by Primus and the performance of the obligations of Primus
contemplated hereby have been duly and validly authorized by all necessary legal
action on its part, and this Agreement is legal, valid and binding against
Primus in accordance with its terms.
9.2.2 No Default. The execution, delivery and performance of this Agreement
by Primus does not and shall not conflict with any obligation of Primus under
any agreement or instrument to which Primus is a party or by which it is bound.
9.3 Primus Software Warranties.
--------------------------
9.3.1 Media. Primus warrants to Distributor that the media on which the
Primus Software is delivered by Primus will be free from defects in materials
and workmanship for a period of ninety (90) days beginning on the date of
shipment by Primus.
9.3.2 Performance; Year 2000. Primus warrants to Distributor that the
Primus Software as delivered by Primus: (i) will perform in all material
respects in accordance with the applicable specifications set forth in the
applicable Documentation for a period of ninety (90) days beginning on the date
of shipment by Primus; and (ii) is "Year 2000 Compliant." Year 2000 Compliant
for the purposes of this Section 9.3.2 means that the Primus Software, when used
with accurate date data and in accordance with its associated documentation, is
capable of properly processing date data from, into and between the twentieth
and twenty-first centuries, including the years 1999, 2000 and leap years,
provided that all other products (e.g., hardware, software and firm-ware) used
with it properly exchange date data with the Primus Soft-ware.
9.3.3 Infringement. Primus warrants to Distributor that use in accordance
with this Agreement of the Primus Software as delivered by does not infringe:
(i) to the best of Primus' knowledge, any valid copyright in any country in the
Territory, or (ii) to Primus' actual knowledge, any patent or trademark existing
under the laws of any country in the Territory.
9.3.4 Upstream Supplier Software Warranties. Primus warrants to Distributor
that the Upstream Supplier Software, as delivered by Primus to Distributor, will
conform to the warranties specified in Schedule 5.
9.3.5 Bugs and Abatement. Without limiting the foregoing, Primus does not
warrant that the Software is free from all bugs, errors, or omissions. The
warranties in this Section 9.3 shall automatically abate to the extent that the
Software has been damaged, abused, modified, or combined with other software by
Page 9 of 21
<PAGE>
Persons other than Primus' authorized employees or representatives, or other
than at Primus' express direction.
9.3.6 Performance Remedy. If any Software fails to comply with the
warranties set forth in Sections 9.3.1 and 9.3.2, and paragraphs A.1, A.2 , B.1
and B.2 of Schedule 5, and if Distributor provides written notice of the non-
compliance to Primus within five (5) business days of expiration of the warranty
period then, except as otherwise specified in Schedule 5, Primus will either
repair or, at its option, replace any non-complying media or Software. If Primus
is unable to correct the noncompliance within sixty (60) days of receipt of such
written notice from Distributor then, except as otherwise specified in Schedule
5, Primus shall, as Distributor's sole remedy, (i), with respect to non-
compliant Initial Software, promptly refund all of the Software license fees
paid by Distributor for such Software and terminate the Distribution Term with
respect to the non-compliant Software, and (ii), with respect to non-compliant
New Software, promptly refund all of the most recent annual support and
maintenance fees paid by Distributor to Primus and attributable to the
development of such New Software, in each case (i) and (ii) in full and final
satisfaction of all and any of Distributor's claims arising out of media or
Software failure.
9.3.7 Infringement Remedy. Primus shall defend and indemnify Distributor
against any proceeding based upon any failure to satisfy the warranties set
forth in Section 9.3.3 and paragraphs A.3 and B.3 of Schedule 5, as
Distributor's sole remedy, provided that: (i) Distributor shall notify Primus in
writing of any claim of infringement promptly after it has been made; (ii)
Primus or its licensors shall have exclusive control over the defense and
settlement of the proceeding; (iii) Distributor shall make no admission of
liability nor enter into any settlement without the prior written agreement of
Primus; (iv) Distributor shall provide such assistance in defense of the
proceeding as Primus or its licensors may reasonably request, at Primus'
reasonable expense; and (v) Distributor shall comply with any court order or
settlement made in connection with the proceeding. If use of the Software is, or
in Primus' reasonable opinion is likely to become, the subject of a claim of
infringement of any intellectual property right of any third party, then Primus
may: (a) procure the continuing right of Distributor to use the Software; (b)
replace or modify the Software in a functionally equivalent manner so that it no
longer infringes; or (c) except as otherwise specified in Schedule 5, terminate
the Distribution Term with respect to the Software subject to the infringement
claim and refund to Distributor an amount equal to the depreciated license fees
paid by Distributor for such Software (calculated on a straight line basis over
a five (5) year life).
9.3.8 Warranties Repeated For Replacements and New Software. The warranties
and other provisions of this Section 9.3 shall be automatically repeated for any
modifications of the Software delivered to remedy any non-compliance with the
warranties under Sections 9.3.1 and 9.3.2 and for any New Software, in each case
upon shipment of the same by Primus to Distributor.
9.3.9 Disclaimer Of Implied Warranties. Primus makes no representation or
warranty in connection with the Software, except as set forth in Sections 9.3.1
9.3.4. EXCEPT AS SPECIFICALLY SET FORTH IN THIS SECTION 9.3, AND EXCEPT FOR
DEATH OR BODILY INJURY THAT RESULTS FROM PRIMUS' PROVEN WILLFUL MISCONDUCT OR
NEGLIGENCE, PRIMUS DISCLAIMS AND DISTRIBUTOR WAIVES AND RELEASES ALL RIGHTS AND
REMEDIES OF DISTRIBUTOR, AND ALL WARRANTIES, OBLIGATIONS, AND LIABILITIES OF
PRIMUS, EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE, WITH RESPECT TO ANY
BUG, ERROR, OMISSION, DEFECT, DEFICIENCY, OR NONCONFORMITY IN ANY SOFTWARE OR
OTHER ITEMS FURNISHED UNDER THIS AGREEMENT OR THE SUPPORT AND MAINTENANCE
AGREEMENT, INCLUDING BUT NOT LIMITED TO ANY: (A) IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE; (B) IMPLIED WARRANTY
ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING, OR USAGE OF TRADE; (C)
CLAIM OF INFRINGEMENT; AND (D) STATUTORY REMEDIES.
Section 10. Term and Termination
10.1 Term. The term of this Agreement shall continue indefinitely unless
----
otherwise agreed in a written instrument executed by both parties. Expiration of
the Term or of the Distribution Term shall not, in and of themselves, cause the
termination of License Agreements with End-Users.
10.2 Distribution Term. Unless sooner terminated pursuant to Sections 10.2.1
-----------------
and 10.2.2 below, or as provided elsewhere in this Agreement, the Distribution
Term shall expire as specified in Table A. The expiring Distribution Term shall
automatically renew for succeeding one calendar year periods unless: (i)
Distributor has not met or exceeded its Performance Goals; or (ii) either party
has notified the other not less than forty-five (45) days prior to expiration of
the then current Distribution Term of its desire not to renew the Distribution
Term.
10.2.1 Earlier Termination by Either Party. Either party may immediately
terminate the Distribution Term at any time if: (i) any proceedings are
commenced by, for or against the other party under any bankruptcy, insolvency or
debtor relief law and are not dismissed within thirty (30) days; or (ii) the
other party has materially breached its obligations under this Agreement and has
not cured such failure within thirty (30) days of notification of the breach by
the non-breaching party.
10.2.2 Earlier Termination by Primus. Primus may immediately terminate the
Distribution Term at any time if: (i) Distributor has engaged in the development
or distribution of any product which competes with the Software; (ii)
Distributor has challenged the validity or exclusivity of any of the
intellectual property rights of Primus or its licensors (including without
limitation the Trademarks and/or Primus' Confidential Information); or (iii)
Distributor has failed to make a payment when due under Section 7 above, and has
not cured such failure within ten (10) business days following written notice
from Primus.
10.3 Local Termination Liabilities. Primus shall have no liability for early
-----------------------------
termination of the Distribution Term or of the Term in accordance with the
provisions of this Agreement, including without limitation any liability for
goodwill that has been established, or for any damages on account of prospective
profits or anticipated sales. Distributor waives, and shall ensure that each
Sub-Distributor waives any and all rights, claims and causes of action against
Primus arising out of any such termination.
Section 11. Post Termination Obligations
Upon any termination of the Distribution Term:
11.1 Distributorship. Distributor shall immediately: (i) pay Primus any sums
---------------
that are outstanding under this Agreement, the due dates of which shall be
automatically accelerated to the date of termination; (ii) discontinue any
representations that it is an authorized distributor of the Software or of
Primus; and (iii) except to the extent required by Distributor to provide End
User Maintenance to End Users,
Page 10 of 21
<PAGE>
permanently delete all copies of any of the Software from the hard drives of all
computers in Distributor's possession or under its control, destroy all other
media in Distributor's possession or under its control on which any of the
Software is stored, certify the same in writing to Primus, and return to Primus
all copies of the Documentation and Primus' Confidential Information then in
Distributor's possession or under its control.
11.2 Inventory. Primus shall refund to Distributor the fees paid by Distributor
---------
for any Documentation and any related packaging that Distributor returns to
Primus within thirty (30) days of termination of the Distribution Term or this
Agreement, but only to the extent that (i) the Documentation and related
packaging is in the same condition as it was when shipped to Distributor, and
(ii) the Documentation and related packaging is for the then current versions of
the applicable Software.
11.3 Interim Orders. Primus may (i) reject all or part of any orders received
--------------
from Distributor after notice but prior to the effective date of termination, or
(ii) require Distributor's performance of any outstanding orders,
notwithstanding the fact that delivery dates for such orders may extend beyond
the effective date of termination.
11.4 Ongoing Installation Programs. With Primus' prior written consent, not to
-----------------------------
be unreasonably withheld or delayed, Distributor shall complete all
implementation and training programs which, prior to receiving notice of
termination, it had agreed to provide to End Users.
11.5 Assignment of Agreements. Distributor shall offer to assign to Primus or
------------------------
Primus' designee all License Agreements, Evaluation Agreements, Support and
Maintenance Agreements and Sub-Distribution Agreements entered into by
Distributor or any Sub-Distributor. To the extent that Primus or its designee
accept such assignment:
11.5.1 Primus' Assumption of Obligations. Primus or its designee shall
assume Distributor's obligations: (i) to End Users under License Agreements and
Support and Maintenance Agreements, (ii) to Evaluators under Evaluation
Agreements, and (iii) to Sub-Distributors under Sub-Distributor Agreements.
11.5.2 End User Installment Payments. Primus shall pay to Distributor all
fees paid to Primus under the assigned agreements by the End User, Evaluator or
Sub-Distributor (the "Pre-Assignment Fees"), but only to the extent that
Distributor has already paid Primus the fees due under this Agreement for the
Software or support and maintenance to which the Pre-Assignment Fees relate.
11.5.3 End User Prepayments. Distributor shall pay to Primus or Primus'
designee the amount representing the unused portion of all End User Maintenance
fees that have been prepaid by End Users as of the assignment date, less Primus
Maintenance fees for such unused portions that Distributor has already paid to
Primus. Unused portions of support and maintenance fees shall be determined by
multiplying the total fees for the relevant term (the "Relevant Term") by a
fraction, the numerator of which is the number of days of the Relevant Term
remaining, and the denominator of which is the total number of days of the
Relevant Term.
Section 12. Indemnification
Distributor shall defend, indemnify and hold Primus harmless from and against
any loss, liability, damages or expense (including attorneys' and other experts'
fees) incurred by Primus and arising out of: (i) any warranty, representation,
indemnity, guarantee or similar assurance, and any related remedy, provided by
Distributor or any Sub-Distributor with respect to the Software, the
Documentation or the End User Maintenance to the extent that any of them exceed
the warranties and remedies provided by Primus to Distributor under Section 9.3
of this Agreement; (ii) any omission or inaccuracy in Distributor's or Sub-
Distributor's verbal or written statements, advertisements and promotional
materials that relate to Primus, the Software, the Documentation or the End User
Maintenance; or (iii) any failure by Distributor or any Sub-Distributor to
comply promptly with their obligations under the provisions of this Agreement
headed "Governmental Compliance" (Section 3.8) and "Taxes; Withholding."
(Section 7.8).
Section 13. Dispute Resolution and Other Provisions; Schedules
13.1 Dispute Resolution and Other Provisions. Dispute resolution and other
---------------------------------------
provisions are contained in Schedule 6.
13.2 Schedules. Each of the Schedules and Exhibits listed below shall be
---------
incorporated into and shall for all purposes be deemed a part of this Agreement:
<TABLE>
<S> <C>
Schedule 1 - Confidential Information
Agreement
Schedule 2 - End User Agreement Forms
Schedule 3 - Secondline Support
Schedule 4 - Initial Sub-Distributors
Schedule 5 - Upstream Supplier Warranties
Schedule 6 - Dispute Resolution and Other
Provisions
Schedule 7 - Seagate Products License
Restrictions
Exhibit A - Distributor's Form of
Purchase Order
</TABLE>
Page 11 of 21
<PAGE>
PRIMUS KNOWLEDGE SOLUTIONS, INC.
Software Marketing and Distribution Agreement
Schedule 1
Confidential Information Agreement
Insert Current NDA
Primus Contract ID: NDA _________________
PRIMUS KNOWLEDGE SOLUTIONS, INC.
Bilateral Non-Disclosure Agreement
This Bilateral Non-Disclosure Agreement ("Agreement") is made between Primus
Knowledge Solutions, Inc. ("Primus"), 1601 Fifth Avenue, Suite 1900, Seattle,
Washington 98101 (fax: (206) 292-1825), and the entity identified below,
including the legal entity of which it is part (collectively, the "Company").
Company Name: __________________________________
Company Address: _______________________________
_______________________________
Fax No.: _______________________________
Primus and the Company (collectively referred to as the "Parties" and
individually referred to as a "Party") have determined to establish terms
governing the use and protection of "Confidential Information" (as defined
below) that one Party (the "Owner") may disclose to the other Party (the
"Recipient"). Therefore, for good and valuable consideration, the receipt and
sufficiency of which they each acknowledge, the Parties each agree as specified
in the Terms and Conditions below.
EXECUTED as of the date set forth below Primus' signature (the "Effective
Date"):
Company Primus Knowledge Solutions, Inc.
Signature:__________________________ By: _____________________________
(Print name)________________________ _____________________________
Title:______________________________ Its:_____________________________
Dated: _____________________________ Dated: __________________________
Terms and Conditions
Section 1. Definitions.
1.1 "Confidential Information" means any and all information disclosed by
Owner 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.
1.1.1 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 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.
Section 2. Covenant Not to Disclose.
Recipient shall not use Owner's Confidential Information except for purposes of
evaluating, maintaining and furthering a business relationship with Owner.
Recipient shall maintain in confidence the Confidential Information received
from Owner and shall not directly or indirectly disclose such information to any
person or entity except Recipient's employees and consultants, and then only on
a need-to-know basis. Recipient shall ensure that such employees and
consultants are bound by a written agreement to protect the received
Confidential Information from unauthorized use and disclosure. Recipient shall
protect Owner's Confidential Information from disclosure to others using the
same degree of care that it uses to protect its own most highly confidential
information, but in no event less than a reasonable standard of care. Recipient
shall not make or distribute any more copies or summaries of Owner's
Confidential Information than are necessary to evaluate, maintain and further a
business relationship between the Parties, and shall ensure that all such copies
or summaries are marked as confidential and the property of Owner.
Section 3. No Obligation Of Disclosure.
Neither Party shall have any obligation to disclose its Confidential Information
to the other. Either Party may, at any time, cease providing its Confidential
Information to the other Party, and may require the return of Confidential
Information previously disclosed by written notice.
Section 4. Disclosure Required By Law.
If any applicable law, regulation or court order requires Recipient to disclose
any of Owner's Confidential Information, Recipient shall promptly notify Owner
in writing prior to making any such disclosure, in order to facilitate Owner's
efforts to protect its Confidential Information. In such circumstances,
Recipient shall cooperate with
Page 12 of 34
<PAGE>
Owner, at Owner's reasonable expense, in seeking and obtaining protection for
Owner's Confidential Information.
Section 5. Title.
Owner shall retain all ownership rights in and to the Confidential Information
it discloses to Recipient. No licenses or rights under any patent, trademark,
copyright, trade secret or other intellectual property right shall be granted or
implied under this Agreement. Neither Party shall be obligated under this
Agreement to acquire from or provide to the other Party any service or product.
Section 6. Termination.
Either Party may terminate this Agreement at any time without cause upon written
notice to the other party. All obligations of confidentiality shall survive such
termination. Upon termination of this Agreement, Recipient shall promptly return
all of Owner's Confidential Information provided to it in tangible form,
together with any and all copies and/or summaries, and shall destroy all of
Owner's Confidential Information that is electronically stored; provided,
however, that each Party's legal department may retain one copy of the
Confidential Information in its file solely for the purpose of identifying
information designated as "Confidential Information."
Section 7. Specific Performance.
The Parties acknowledge that Confidential Information is unique and valuable,
and that Owner will have no adequate remedy at law if Recipient does not comply
with its obligations under this Agreement. Therefore, Owner shall have the
right, in addition to any other rights it may have, to obtain in any court of
competent jurisdiction temporary, preliminary and permanent injunctive relief to
restrain any breach, threatened breach, or otherwise to specifically enforce any
obligations of Recipient if Recipient fails to perform any of its obligations
under this Agreement.
Section 8. Miscellaneous.
8.1. Dispute Resolution.
8.1.1 Governing Law. This Agreement shall be governed by and interpreted in
accordance with the internal laws of the State of Washington, and, where such
laws are preempted by the laws of the United States, by the internal laws of the
United States, in each case without regard to conflicts of laws principles.
8.1.2 Arbitration. In the event of any controversy or claim arising out of
or relating to this Agreement or the breach or interpretation thereof, the
parties shall, upon five days notice from either one to the other, submit
themselves and the subject-matter of the dispute to arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association by
a single, disinterested arbitrator appointed in accordance with such Rules. The
determination of the arbitrator shall be final, conclusive and binding.
Judgment upon the award rendered may be entered in any court of any state or
country having jurisdiction. Each party shall ensure that any arbitration is
conducted as speedily as is reasonably possible, and that all and any
information disclosed during or in connection with the arbitration is treated by
each party with the strictest confidence. Any arbitration conducted under or in
connection with this Agreement shall take place in Seattle, Washington at a time
and location to be determined by the arbitrator.
8.1.3 Interim and Permanent Relief. Upon the application of either party to
this Agreement, and whether or not an arbitration has yet been initiated, all
courts having jurisdiction over one or more of the parties are authorized to:
(i) issue and enforce in any lawful manner such temporary restraining orders,
preliminary injunctions and other interim measures of relief as may be necessary
to prevent harm to a party's interests or as otherwise may be appropriate
pending the conclusion of arbitration proceedings pursuant to this Agreement;
and (ii) enter and enforce in any lawful manner such judgments for permanent
equitable relief as may be necessary to prevent harm to a party's interests or
as otherwise may be appropriate following the issuance of arbitral awards
pursuant to this Agreement.
8.1.4 Legal Expenses. If any proceeding is brought by either party to
enforce or interpret any provision of this Agreement, the substantially
prevailing party in such proceeding shall be entitled to recover, in addition to
all other relief arising out of this Agreement, such party's reasonable
attorneys' and other experts' fees and expenses.
8.2 Waiver; Severability; Invalidity. No waiver of or with respect to any
provision of this Agreement, nor consent by a party to the breach of or
departure from any provision of this Agreement, shall in any event be binding on
or effective against such party unless it be in writing and signed by such
party, and then such waiver shall be effective only in the specific instance and
for the purpose for which given. If any provision of this Agreement is held to
be invalid, such invalidity shall not render invalid the remainder of this
Agreement or the remainder of which such invalid provision is a part. If any
provision of this Agreement is so broad as to be held unenforceable, such
provision shall be interpreted to be only so broad as is enforceable.
8.3 Notices. Any notice or other communication under this Agreement given
by either party to the other party shall be deemed to be properly given if given
in writing and delivered (i) by nationally recognized private courier (e.g.,
Federal Express) or (ii) by mail (return receipt requested), properly addressed
and stamped with the required postage, to the recipient at the address
identified in its signature block to this Agreement. Either party may from time
to time change its address by giving the other party notice of the change in
accordance with this Section.
8.4 Entire Agreement; Amendments. This Agreement constitutes and embodies
the entire agreement and understanding between the parties with respect to the
subject matter hereof and supersedes all prior or contemporaneous written,
electronic or oral communications, agreements or understandings between the
parties with respect thereto. This Agreement may not be modified or amended
except by a written instrument executed by the parties.
Page 13 of 34
<PAGE>
PRIMUS KNOWLEDGE SOLUTIONS, INC.
Software Marketing and Distribution Agreement
Schedule 2
End User Agreement Forms
Insert Primus' current end user forms for resellers
Terms offered are valid only through
--------------
PRIMUS KNOWLEDGE SOLUTIONS KK
Software License Agreement
This Agreement ("Agreement") is made between Primus Knowledge Solutions KK, a
Japanese corporation ("Primus KK"), Ebisu Primue Sq. Tower, 1-1-39 Hiroo,
Shibuya-ku, Tokyo, Japan 150 (fax: +81-3-5469-3005) and
Licensee Name: ("Licensee")
------------------------------
Licensee Address:
---------------------------
---------------------------
Fax No.:
---------------------------
Primus KK is an authorized Distributor of Primus Knowledge Solutions, Inc., a
Washington U.S.A corporation ("Primus"). Licensee wishes to license software
from Primus KK that is developed or licensed by Primus, and Primus KK is willing
to provide such software, all on the terms and conditions contained in this
Agreement and set forth below. Therefore, for good and valuable consideration,
the receipt and sufficiency of which the parties acknowledge, Primus KK and
Licensee agree to be bound by such terms and conditions.
EXECUTED as of the date set forth below Primus KK's signature (the "Effective
Date"):
Primus Knowledge Solutions KK Licensee
By: By:
--------------------------------- ---------------------------------
--------------------------------- ---------------------------------
Its: Its:
-------------------------------- --------------------------------
Dated: Dated:
------------------------------ ------------------------------
Terms and Conditions
Table A -- Product Identification and Fees
<TABLE>
<CAPTION>
# Fee- # Authorized # Authorized Fee Per Software
Based # Authorized Users Users Distribution User/Server License Fees
Language Servers Workstations (personal ID) (concurrent) Term (US $) (US $)
-------- ------- ------------ ------------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Primus
SolutionBuilder/TM/ Japanese N/A N/A N/A
TOTAL ORDER -- PRODUCT FEES: US $
</TABLE>
Table B -- Payment Terms
<TABLE>
<CAPTION>
Payment Date Payment Amount (US $)
<S> <C> <C>
Total
</TABLE>
Table C -- Authorized Server Information
<TABLE>
<CAPTION>
Model # Serial # IP Address, Host ID And/Or Disk ID Licensed Site (Street/City/State/Phone)
- ------- -------- ---------------------------------- ---------------------------------------
<S> <C> <C> <C>
* * *
</TABLE>
* To be provided within 30 days of contract execution
Section 1. Definitions.
For the purposes of this Agreement, the following capitalized words and phrases
shall be ascribed the following meanings:
1.1 "Application Server" means an Authorized Server on which Licensee installs
and uses the Software applications.
1.2 "Authorized Server" means the servers of Licensee designated in Table C as
Authorized Servers, on which Licensee may use the Server Software at the
Licensed Site(s).
1.3 "Authorized User" means any employee or individual independent contractor
of Licensee or of Licensee's end-user customers who is authorized by Licensee to
use the Software as provided in Sections 2.1 and 2.2.1. The maximum number of
Authorized Users is specified in Table A, and in any supplemental Table A's.
Personal ID Users. Where a number of Authorized Users is specified in Table A
as a personal ID user, up to that number of individual Authorized Users to whom
Licensee has issued a personal user ID and password linked to their personal
user ID may use the applicable Software program by accessing the Authorized
Server(s). Licensee shall ensure that only one personal ID is assigned to each
individual Authorized User, and that no more than one individual Authorized User
uses any one personal user ID and linked password. "Individual" Authorized User
means an individual
Page 14 of 34
<PAGE>
person, and not a corporation, company, partnership or association or other
entity or organization.
Concurrent Users. Where a number of Authorized Users is specified in Table A
above as a concurrent user, up to that number of individual Authorized Users may
use the applicable Software program on a concurrent user basis by accessing the
Authorized Server(s), without regard to the user ID of the individual.
1.4 "Authorized Workstation" means a computer workstation or terminal of an
Authorized User with respect to which Licensee has paid a license fee for use of
the Client Software. The maximum number of Authorized Workstations is specified
in Table A, and in any supplemental Table A's.
1.5 "Client Software" means that portion of the Software that is designated in
the Documentation for use on an Authorized Workstation.
1.6 "Confidential Information" means any information disclosed by either party
that is marked with "confidential," "proprietary" or a similar legend.
Confidential Information may be in tangible form, verbal disclosure that is
identified as confidential, or electronic form on any media. Confidential
Information does not include information that is or becomes generally available
to the public other than by breach of this Agreement or which is or becomes
known to the receiving party other than by disclosure by the other party.
1.7 "Database Server" means an Authorized Server on which Licensee stores its
data for use with the Primus Software, and with respect to which Licensee has
paid Primus KK a license fee for use with the Primus Server Software. A Database
Server and an Application Server may be the same server. The maximum number of
Database Servers is specified in Table A, and in any supplemental Table A's.
1.8 "Distribution Term" means the term described in Section 7.2.
1.9 "Documentation" means the Software user manuals, training manuals and other
documentation, including additional, updated or revised documentation, if any,
supplied to Licensee by Primus KK.
1.10 "Fee-Based Server" means a Database Server or an Upstream Supplier Server.
1.11 "Initial Software" means the first versions of the Software delivered to
Licensee pursuant to this Agreement, together with any modifications thereof
delivered to remedy any non-compliance with the warranties under Sections 6.1,
6.2 and 6.3.
1.12 "License" means the license granted under Section 2.
1.13 "License Term" means the term of the License as specified in Section 7.1
1.14 "Licensed Site(s)" means the location(s) of the Authorized Server(s)
specified in Table C.
1.15 "New Software" means any versions of the Software delivered to Licensee by
Primus KK pursuant to the Support and Maintenance Agreement. New Software does
not include Initial Software.
1.16 "Primus Software" means the Software developed by Primus, as more
particularly identified in Table A.
1.17 "Server Software" means that portion of the Software that is designated in
the Documentation for use on an Authorized Server.
1.18 "Software" means the object code version of Primus' and any Upstream
Supplier's computer programs (including any third party products licensed by
Primus and embedded in Primus' computer programs) more fully described in Table
A, including any modifications or future releases of such software that Primus
KK may provide to Licensee under this Agreement or under the Support and
Maintenance Agreement.
1.19 "Support and Maintenance Agreement" means the Support and Maintenance
Agreement between Primus KK and Licensee, executed contemporaneously with this
Agreement.
1.20 "Trademarks" means Primus' trademarks Primus, SolutionSeries,
SolutionBuilder, SolutionExplorer, SolutionPublisher and their associated logos,
and any and all other trademarks and/or service marks that Primus KK may use and
approve in writing for use by Licensee in connection with the Software.
1.21 "Upstream Supplier Server" means an Authorized Server with respect to which
Licensee has paid Primus KK a license fee for use with the Upstream Supplier
Software. The maximum number of Upstream Supplier Servers is specified in Table
A, and in any supplemental Table A's.
1.22 "Upstream Supplier Software" means the Software sub-licensed by an Upstream
Supplier to Primus for distribution by Primus and Primus KK, as more
particularly specified in Table A.
1.23 "Upstream Supplier" means a third party that has granted Primus a license
to distribute and sub-license products developed by the third party (or its
licensors) to Primus KK and to end-users such as Licensee.
Section 2. Rights To Use Software.
2.1 Grant of License. Subject to the provisions of this Agreement, Primus KK
grants to Licensee a non-exclusive, non-transferable license, without right to
sub-license, and solely to support products marketed, distributed and/or
supported by Licensee in its ordinary course of business, to: (i) during the
Distribution Term, (a) reproduce, distribute and install the Server Software at
Licensed Sites on the then current number of Authorized Servers, (b) reproduce,
distribute and install the Client Software on up to the then current number of
Authorized Workstations, and (c) assign personal user IDs and linked passwords,
as appropriate, to up to the then current number of individual Authorized Users;
(ii) during the License Term, use and allow Authorized Users to use the Client
Software on up to the then current number of Authorized Workstations of Licensee
or the Authorized Users; (iii) during the License Term, use and allow up to the
then current number of Authorized Users to use the Server Software on Licensee's
Authorized Server(s); (iv) during the License Term, (a) use and allow Authorized
Users to use the Documentation in conjunction with their use of the Software,
(b) modify the Documentation to the extent permitted under Section 2.2.4(b)
below, and (c) make one paper copy of those portions of the Documentation
consisting of the Primus Software user manuals for each Authorized Workstation
and two paper copies for each Authorized Server; (v) during the License Term,
use the Trademarks solely in copies of the Software and Documentation made and
distributed in accordance with this Agreement, and (vi) during the License Term,
modify the SolutionPublisher and SolutionExplorer Software configuration files,
solely to customize the SolutionPublisher and SolutionExplorer Software to
Licensee's presentation standards.
2.2 Reservation. All rights to the Software, Documentation, Trademarks and
trade secrets of Primus not expressly granted to Licensee in this Agreement are
reserved by Primus KK and Primus. Without limiting the generality of the
foregoing, Licensee shall use the Software only for the purposes specified in
Section 2.1 and in accordance with the following:
2.2.1 Authorized Users. Licensee shall ensure that all Authorized Users
comply with Sections 2 and 5.7 of this Agreement.
Page 15 of 34
<PAGE>
2.2.2 Location and Relocation of Authorized Servers. Only locations under the
direct custody and control of Licensee in countries previously approved in
writing by Primus KK shall qualify as Licensed Sites. If Licensee wants to move
the Server Software from an Authorized Server to a different server of Licensee
or wants to move an Authorized Server with the Server Software to a different
Licensed Site, then Licensee must give prior written notice to Primus KK of the
desired change and the model, serial number and ID of the new Authorized Server,
and the address of the new Licensed Site, as applicable.
2.2.3 Testing and Back-up Copies. Licensee may reproduce the Software as
reasonably necessary for bona fide testing, back-up or archival purposes.
2.2.4 Modifications.
(a) Software. Licensee assumes full responsibility for any changes,
modifications or improvements to the Software made by any person other than
Primus KK or Primus KK's authorized agent, or other than at Primus KK's express
direction. Primus KK recommends that Licensee consult with Primus KK prior to
making any modifications. Licensee hereby releases Primus KK and Primus from all
liability and waives all rights, claims and remedies against Primus KK and
Primus, for any and all loss and damages of any kind or nature, to the extent
that they arise out of any such changes, modifications or improvements.
(b) Training Manuals. Licensee may modify only those portions of the
Documentation consisting of the Primus Software training manuals, by modifying
Primus' generic content standard and process documents as necessary to meet
Licensee's internal training needs, provided however, that Primus shall retain
and Licensee hereby assigns to Primus all and any ownership rights in and to all
such modifications, and provided further, that such modifications shall be
deemed to be Documentation under this Agreement, to the effect that Licensee has
the same rights to use the modifications as apply to the rest of the
Documentation.
2.2.5 No Conveyance of Ownership; Trade Secrets. This Agreement does not
convey to Licensee ownership of the Software or Documentation or any media
delivered to Licensee on which the Software is stored, but only the right to use
the Software, Documentation and media as provided in this Agreement. Licensee
acknowledges that the Software (including without limitation its structure,
organization and code), the Documentation and Primus' and Primus KK'ss
Confidential Information, and all technical data and information associated
therewith constitute trade secrets and are the valuable property of Primus,
Primus KK and their licensors and that the Software and Documentation are
protected by copyright and trademark rights.
2.2.6 Trademarks. Licensee shall not remove, obscure or alter any notice of
copyright, patent, trade secret, trademark or other proprietary right or
disclaimer appearing in or on any Software or Documentation and shall ensure
that every copy of all or any portion of the Software and/or Documentation made
by Licensee includes such notices. Licensee shall clearly indicate the ownership
of the Trademarks by Primus or Primus KK, as applicable, whenever it uses the
Trademarks.
2.2.7 Reverse Engineering. Except to the extent (if any) permitted by
applicable law, Licensee shall not decompile, or create or attempt to create, by
reverse engineering or otherwise, the source code from the object code supplied
hereunder or use it to create a derivative work.
2.2.8 Service Bureau. Licensee shall not use or distribute any of the
Software to operate a service bureau or similar service.
Section 3. Delivery Of Software.
Primus KK shall deliver to Licensee at Licensee's reasonably designated
destination, F.O.B. Primus KK'ss premises in Tokyo: (i) one reproducible master
of the Primus Software, and two reproducible masters of those portions of the
Documentation consisting of the Primus Software user manuals; and (ii) one set
of Documentation for the Upstream Supplier Software, and either (a) one
reproducible master of the Upstream Supplier Software, or (b) that number of
pre-packaged sets of the Upstream Supplier Software as are necessary for all of
Licensee's Authorized Workstation, Authorized User and Authorized Server rights
with respect to such Software.
Section 4. Compensation; Additional Purchases.
4.1 Payment of License Fee. Licensee shall pay Primus KK the Software license
fees in cash in the amounts and on the dates specified in Tables A and B. Unless
Licensee's accounting policies permit Licensee to pay such fees in the absence
of a purchase order, Licensee shall issue an appropriate purchase order with
respect to such fees immediately following execution of this Agreement by
Licensee. Payment is due as specified in Table B, irrespective of whether
Licensee has issued a purchase order. Primus KK may impose a finance charge of
1% per month on amounts unpaid by Licensee on their due date.
4.2 Additional License Rights. If Licensee wishes to increase the number of
Authorized Workstations, Authorized Users or Fee Based Servers, then Licensee
shall submit a purchase order to Primus KK for the quantity of additional
Authorized Workstations, Authorized Users and Fee-Based Servers desired at the
rates and in the minimum blocks for increasing licensed usage specified in
Schedule 3 (if any). Under no circumstances shall any of such rights extend
beyond the period in which Distributor has the right to distribute the Software.
If no rate or minimum is specified, then Primus KK and Licensee shall negotiate
in good faith to determine a mutually satisfactory rate and minimum license
amount, and shall both execute an amendment to this Agreement reflecting such
terms in supplemental Tables A and B (numbered A-1, A-2 and so forth). Upon
execution of the amendment, Licensee may (i) install the Server Software on the
additional Fee-Based Servers; (ii) install the Client Software on the additional
Authorized Workstations; and (iii) increase the number of Authorized Users
accordingly. If Licensee increases the number of Fee-Based Servers, then
Licensee shall also notify Primus KK of (a) the model, serial number and ID of
the server on which the Server Software is to be installed, and its IP address,
host ID and/or disk ID, and (b) the location of the Licensed Site.
4.3 Sales Taxes, Etc. Licensee shall be responsible for any applicable sales,
use, or any value added or similar taxes payable with respect to the licensing
of the Software to Licensee, or arising out of or in connection with this
Agreement, other than taxes imposed in Japan based upon Primus KK's income. If
Licensee has tax-exempt status, Licensee shall provide written evidence of such
status with its purchase orders.
4.4 Accounting. Licensee shall keep current, complete and accurate records
regarding the location, model name, and serial number of all Authorized Servers
on which the Server Software is installed, of all
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<PAGE>
installations of the Client Software made by Licensee and any Authorized User,
of all personal user IDs and linked passwords issued with respect to applicable
Software, and of the number of concurrent users of applicable Software. Licensee
shall provide such information to Primus KK within five (5) days of Primus KK's
written request. Upon five (5) days prior written notice, Primus KK and/or its
representatives may inspect, audit, and copy such records of Licensee and access
the Server Software at any of Licensee's relevant locations and/or Licensed
Sites, at any time during Licensee's regular business hours. Unless an audit
discloses a material discrepancy in Licensee's favor, Primus KK may exercise
such audit rights no more than once during any twelve (12) month period. In the
event of any understatement of the license fees due, Licensee shall promptly pay
such fees based upon Primus KK's then current list price and, upon receipt of
such fees, Primus KK will extend this License to correct any such deficiency.
Primus KK's acceptance of any payment shall be without prejudice to any other
rights or remedies of Primus KK under this Agreement or applicable law. Upon
written request by Primus KK, Licensee shall transmit a current, complete and
correct copy of the log file for each copy of the Server Software to Primus KK;
provided, however, that Primus KK may not request a copy of the log file more
frequently than once a quarter, unless review of a log file has indicated
additional fees are due to Primus KK.
Section 5. Additional Rights And Obligations.
5.1 Increase in Application Servers. Licensee may increase the number of
Application Servers at no charge. If Licensee wishes to increase the number of
Application Servers, then Licensee shall provide Primus KK with written notice
of (i) the quantity of additional Application Servers desired, (ii) the model,
serial number and ID of the server on which the Server Software is to be
installed, and its IP address, host ID and/or disk ID, and (iii) the location of
the Licensed Site. Upon written acceptance by Primus KK, Licensee may install
the Server Software on the additional Application Server. Primus KK and Licensee
shall amend Table C accordingly.
5.2 Data Protection. Licensee shall maintain current back-up copies of all of
Licensee's data used in connection with the Software.
5.3 Reference. Licensee authorizes Primus KK to disclose that it is a customer
and agrees to be a reference account for Primus KK.
5.4 Third Party Products. The Software incorporates material which is licensed
from third parties. Any third party licensor of such material shall be a direct
and intended third party beneficiary of this Agreement who may enforce this
Agreement directly against Licensee.
5.5 Confidential Information. Neither Primus KK nor Licensee shall, with
respect to any Confidential Information which one of them (a "Recipient")
receives from the other (a "Discloser"), at any time, without the express prior
written consent of Discloser, except solely for the purposes contemplated in any
written agreement between them, disclose or otherwise make known or available to
any person or entity, or use for Recipient's own account, any of Discloser's
Confidential Information. Recipient shall use all reasonable procedures to
safeguard Discloser's Confidential Information.
5.6 Compliance With Law. Licensee shall comply with all applicable laws and
regulations in its use of the Software and Documentation. Without limiting the
generality of the foregoing, Licensee shall not export or re-export, directly or
indirectly, any Software in violation of any applicable United States export
control laws and regulations and shall promptly provide Primus KK with any
"letter of assurance" requested by Primus KK pursuant to such laws and
regulations.
5.7 Protection Against Unauthorized Use. Licensee shall promptly notify Primus
KK of any unauthorized use of any Software of which Licensee becomes aware. In
the event of any unauthorized use by any Authorized User (or by any employee,
agent, representative or contractor of Licensee or of any Authorized User),
Licensee shall use its best efforts to immediately terminate and prevent further
occurrences of such unauthorized use. If Licensee commences any legal proceeding
in connection with such unauthorized use, then Primus KK and Primus may, at
Primus KK's or Primus' option and expense, participate in or control any such
proceeding. In such event, Licensee, Primus KK and Primus shall each provide the
other with such authority, information and assistance related to such proceeding
as may be reasonably necessary to safeguard Primus KK's and Primus' interests
and Licensee's rights under this Agreement.
5.8 Miscellaneous Provisions. Dispute resolution and other provisions are
contained in Schedule 1 to this Agreement. The parties shall resolve any
disputes in accordance with such provisions.
Section 6. Primus KK's Warranties; Remedies.
6.1 Primus Software Warranties.
6.1.1 Media. Primus KK warrants to Licensee that the media on which the
Primus Software is delivered by Primus KK to Licensee will be free from defects
in materials and workmanship for a period of ninety (90) days beginning on the
date of shipment by Primus KK.
6.1.2 Performance. Primus KK warrants to Licensee that the Primus Software as
delivered by Primus KK to Licensee will perform in all material respects in
accordance with the applicable specifications set forth in the applicable
Documentation for a period of ninety (90) days beginning on the date of shipment
by Primus KK.
6.1.3 Infringement. Primus KK warrants to Licensee that use in accordance
with this Agreement of the Primus Software as delivered by Distributor does not
infringe: (i) to the best of Distributor's knowledge, any valid copyright in any
in Japan, or (ii) to Distributor's actual knowledge, any patent or trademark
existing under the laws of Japan.
6.2 Upstream Supplier Software Warranties. Primus KK warrants to Licensee that
the Upstream Supplier Software, as delivered by Primus KK to Licensee, will
conform to the warranties specified in Schedule 2.
6.3 Authority. Primus KK warrants to Licensee that Primus KK has all requisite
corporate authority to execute and deliver this Agreement, and that the
execution, delivery and performance of this Agreement by Primus KK does not
conflict with any obligation of Primus KK under any agreement or instrument to
which Primus KK is a party or by which it is bound.
6.4 Bugs and Abatement. Without limiting the foregoing, Primus KK does not
warrant that the Software is free from all bugs, errors, or omissions. The
warranties in this Section 6.1 shall automatically abate to the extent that the
Software has been damaged, abused, modified, or combined with other software by
persons other than Primus KK's authorized employees or representatives, or other
than at Primus KK's express direction.
6.5 Performance Remedy. If any Software fails to comply with the warranties set
forth in Sections 6.1.1 and 6.1.2, and paragraphs A.1 and A.2 of Schedule 2, and
if Licensee provides written notice of the non-compliance to Primus KK within
the warranty period then, except as otherwise specified in Schedule 2, Primus KK
will either repair or, at its option, replace any non-complying media or
Software. If Primus KK is unable to correct the noncompliance within sixty (60)
days of
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<PAGE>
receipt of such written notice from Licensee then, except as otherwise specified
in Schedule 2, Primus KK shall (i), with respect to non-compliant Initial
Software, promptly refund all of the License fees paid for such Software and
terminate the License with respect to such Software, and (ii), with respect to
non-compliant New Software, promptly refund all of the most recent annual
Support and Maintenance Agreement fees paid by Licensee and attributable to the
development of such New Software, in each case (i) and (ii) in full and final
satisfaction of all and any of Licensee's claims arising out of media or
Software failure.
6.6 Infringement Remedy. Primus KK shall defend and indemnify Licensee against
any proceeding based upon any failure to satisfy the warranties set forth in
Section 6.1.3 and paragraph A.3 of Schedule 2, provided that (a) Licensee shall
notify Primus KK in writing of any claim of infringement promptly after it has
been made, (b) Primus KK or its licensors shall have exclusive control over the
defense and settlement of the proceeding, (c) Licensee shall make no admission
of liability nor enter into any settlement without the prior written agreement
of Primus KK, (d) Licensee shall provide such assistance in defense of the
proceeding as Primus KK or Primus KK's licensors may reasonably request, at
Primus KK's reasonable expense, and (e) Licensee shall comply with any court
order or settlement made in connection with the proceeding. If use of the
Software is, or in Primus KK's reasonable opinion is likely to become, the
subject of a claim of infringement of any intellectual property right of any
third party, then Primus KK shall have the right to: (i) procure the continuing
right of Licensee to use the Software; (ii) replace or modify the Software in a
functionally equivalent manner so that it no longer infringes; or (iii) except
as otherwise specified in Schedule 2, terminate the License with respect to the
Software subject to the infringement claim and refund to Licensee an amount
equal to the depreciated License fees paid by Licensee for such Software
(calculated on a straight line basis over a five (5) year life).
6.7 Warranties Repeated For Replacements and New Software. The warranties and
other provisions of this Section 6 shall be automatically repeated for any
modifications of the Software delivered to remedy any non-compliance with the
warranties under Sections 6.1 and 6.2 and for any New Software, in each case
upon shipment of the same by Primus KK to Licensee.
6.6 Disclaimer Of Implied Warranties. Primus KK makes no representation or
warranty in connection with the Software, except as set forth in Sections 6.1,
6.2 and 6.3. EXCEPT AS SPECIFICALLY SET FORTH IN THIS SECTION 6, AND TO THE
MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, PRIMUS KK DISCLAIMS, FOR ITSELF AND
FOR PRIMUS, AND LICENSEE WAIVES AND RELEASES ALL RIGHTS AND REMEDIES OF
LICENSEE, AND ALL WARRANTIES, OBLIGATIONS, AND LIABILITIES OF [DISTRIBUTOR] OR
OF PRIMUS, EXPRESS OR IMPLIED, ARISING BY LAW OR OTHERWISE, WITH RESPECT TO ANY
BUG, ERROR, OMISSION, DEFECT, DEFICIENCY, OR NONCONFORMITY IN ANY SOFTWARE OR
OTHER ITEMS FURNISHED UNDER THIS AGREEMENT OR THE SUPPORT AND MAINTENANCE
AGREEMENT, INCLUDING BUT NOT LIMITED TO ANY: (A) IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE; (B) IMPLIED WARRANTY
ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING, OR USAGE OF TRADE; (C)
CLAIM OF INFRINGEMENT; OR (D) STATUTORY REMEDY.
Section 7. Term and Termination.
7.1 License Term. The License Term shall commence upon the date of this
Agreement and shall continue in perpetuity unless the Agreement is terminated in
accordance with Section 7.3.
7.2 Distribution Term. If no Distribution Term is specified in Table A, then
the Distribution Term shall be the same as the License Term. The Distribution
Term, if specified in Table A, shall commence as specified for Software
identified in Table A as being subject to the Distribution Term and, subject to
earlier termination of this Agreement in accordance with Section 7.3, shall
expire as specified in Table A. Expiration of the Distribution Term shall not in
and of itself automatically terminate the right of Licensee and/or Authorized
Users to continue to use the Software and Documentation pursuant to Section 2
above.
7.3 Termination On Breach. In the event of a material breach or default under
this Agreement by either party, the non-breaching party may terminate this
Agreement by giving the breaching party written notice of the breach or default
and the non-breaching party's intention to terminate. At the non-breaching
party's sole and absolute discretion, the Agreement shall automatically
terminate thirty (30) days after delivery of such notice, unless the breaching
party cures the breach or default before the expiration of the thirty (30) day
period. A material breach includes, without limitation, Licensee's failure to
pay license fees when due.
7.4 Post Termination Obligations. Following termination of this Agreement,
howsoever arising, Licensee shall destroy all copies of the Server Software
within five (5) days of such termination, and all copies of the Client Software
and the Documentation within twenty (20) days of such termination, and
immediately thereafter provide Primus KK with a written certification signed by
an authorized representative of Licensee certifying that all copies of the
Software have been destroyed and all use of the Software has been discontinued.
Upon written request, each party shall return or destroy all copies of any
Confidential Information of the other, as certified by an executive officer of
the returning party.
7.5 Survival. The provisions of Sections 2.2.5, 2.2.7 and 5.5 hereof, and of
Sections 1, 3, 4 and 5 of Schedule 1 hereto shall survive termination of this
Agreement, howsoever arising.
Section 8. Schedules And Exhibits.
Each of the exhibits and schedules listed below shall be incorporated into and
shall for all purposes be deemed a part of this Agreement:
Schedule 1 - Dispute Resolution and Other Provisions
Schedule 2 - Upstream Supplier Software Warranties
Page 18 of 34
<PAGE>
SCHEDULE 1
DISPUTE RESOLUTION AND OTHER PROVISIONS
1. Dispute Resolution.
1.1 Governing Law. This Agreement shall be governed by and interpreted in
accordance with the internal laws of the State of Washington, and, where such
laws are preempted by the laws of the United States, by the internal laws of the
United States, in each case without regard to (a) conflicts of laws principles,
and (b) the applicability, if any, of the United Nations Convention on Contracts
for the International Sale of Goods. In the event of any claim, liability or
dispute (collectively, a "Claim") arising out of the performance by Primus KK of
its obligations under this Agreement, and provided that the Claim does not
involve (i) Primus Knowledge Solutions, Inc., a Washington, U.S.A. corporation
or its licensors (collectively, "Primus US"), (ii) the performance of the
Software, or (iii) any intellectual property rights pertaining to the Software,
then Primus KK and Licensee may jointly elect to (a) have any such Claim be
governed by Japanese law, and (b) resolve the Claim in Japan. Any such election
shall be deemed to supercede the provisions of Sections 1.1, 1.2, 1.3 and 1.6 of
this Schedule 1, solely for the purposes of such Claim.
1.2 Mediation. In the event of any controversy or claim arising out of or
relating to this Agreement or the breach or interpretation thereof, the parties
shall, upon five days notice from either one to the other, submit themselves and
the subject-matter of the dispute to mediation before an independent mediator to
be appointed by the head office of the American Arbitration Association or,
unless the dispute involves (i) Primus US, (ii) the performance of the Software,
or (iii) any intellectual property rights pertaining to the Software, by such
other organization as shall be mutually acceptable to the parties. Costs of
mediation shall be borne equally between the parties.
1.3 Arbitration. In the event that the parties remain in dispute following the
mediation, the controversy or claim shall be determined by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association by a single, disinterested arbitrator or, unless the dispute
involves (i) Primus US, (ii) the performance of the Software, or (iii) any
intellectual property rights pertaining to the Software, in accordance with the
rules of such other organization as shall be mutually acceptable to the parties
such other. The arbitrator shall be appointed in accordance with the applicable
rules. The determination of the arbitrator shall be final, conclusive and
binding. Judgment upon the award rendered may be entered in any court of any
state or country having jurisdiction.
1.4 Conduct. Each party shall ensure that any mediation and arbitration are
conducted as speedily as is reasonably possible, and that all and any
information disclosed during or in connection with the arbitration is treated by
each party with the strictest confidence.
1.5 Interim and Permanent Relief. Upon the application of either party to this
Agreement, and whether or not an arbitration or mediation has yet been
initiated, all courts having jurisdiction over one or more of the parties are
authorized to: (i) issue and enforce in any lawful manner such temporary
restraining orders, preliminary injunctions and other interim measures of relief
as may be necessary to prevent harm to a party's interests or as otherwise may
be appropriate pending the conclusion of arbitration proceedings pursuant to
this Agreement; and (ii) enter and enforce in any lawful manner such judgments
for permanent equitable relief as may be necessary to prevent harm to a party's
interests or as otherwise may be appropriate following the issuance of arbitral
awards pursuant to this Agreement.
1.6 Venue. Any mediation or arbitration conducted under or in connection with
this Agreement shall take place at the location of party against whom the
proceeding is brought, at a time to be determined by the mediator or arbitrator,
as the case may be.
1.7 Legal Expenses. If any proceeding is brought by either party to enforce or
interpret any term or provision of this Agreement, the substantially prevailing
party in such proceeding (as determined by the arbitrator in its sole
discretion) shall be entitled to recover, in addition to all other relief
arising out of this Agreement, such party's reasonable attorneys' and other
experts' (including without limitation accountants) fees and expenses (as
determined by the arbitrator in its sole discretion.
2. Excused Performance; Force Majeure. If the performance of this Agreement is
adversely restricted by reason of any circumstances beyond the reasonable
control and without the fault or negligence of the party affected, then the
party affected, upon giving prompt written notice to the other party, shall be
excused from such performance on a day-to-day basis to the extent of such
restriction (and the other party shall likewise be excused from performance of
its obligations on a day-to-day basis to the extent such party's obligations
relate to the performance so restricted); provided, however, that the party so
affected shall use all commercially reasonable efforts to avoid or remove such
causes of non-performance and both parties shall proceed whenever such causes
are removed or cease.
3. Exclusion of Certain Claims. IN NO EVENT SHALL PRIMUS KK OR PRIMUS US BE
LIABLE (WHETHER IN TORT OR CONTRACT, UNDER STATUTE OR OTHERWISE) FOR ANY
INDIRECT, SPECIAL, CONSEQUENTIAL OR INCIDENTAL DAMAGES, INCLUDING WITHOUT
LIMITATION DAMAGES FOR LOSS OF PROFITS, REPLACEMENT WITH SUBSTITUTE PRODUCTS,
BUSINESS INTERRUPTION, LOSS OF INFORMATION AND THE LIKE, ARISING OUT OF ITS
PERFORMANCE OR NONPERFORMANCE OF THIS AGREEMENT OR THE USE, INABILITY TO USE OR
RESULTS OF USE OF THE SOFTWARE, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
4. Limitation of Liability. Primus KK's liability arising out of this agreement
shall in no event exceed the fees paid by Licensee to Primus KK under this
Agreement.
5. Equitable Relief. Each of Licensee and Primus KK acknowledges that damages
will be an inadequate remedy if the other violates the terms of this Agreement,
or otherwise fails to perform its obligations hereunder. Accordingly, subject to
Section 1 of this Schedule, each of them shall have the right, in addition to
any other rights each of them may have, to obtain in any court of competent
jurisdiction, temporary, preliminary and permanent injunctive relief to restrain
any breach, threatened breach, or otherwise to specifically enforce any of the
obligations in this Agreement.
6. Waiver. No waiver of or with respect to any provision of this Agreement, nor
consent by a party to the breach of or departure from any provision of this
Agreement, shall in any event be binding on or effective against such party
unless it be in writing and signed by such party, and then such waiver shall be
effective only in the specific instance and for the purpose for which given.
7. Captions and Headings. The captions and headings are inserted in this
Agreement for convenience only, and shall not be deemed to limit or describe the
scope or intent of any provision of this Agreement.
8. Severability; Invalidity. If any provision of this Agreement is held to be
invalid, such invalidity shall not render invalid the remainder of this
Agreement or the remainder of which such invalid provision is a part. If any
provision of this Agreement is so broad as to be held unenforceable, such
provision shall be interpreted to be only so broad as is enforceable.
9. Assignment. Licensee shall not assign any of its rights under this Agreement
without the prior written consent of Primus KK, which shall not be unreasonably
withheld. Distributor May assign all or any of its rights and obligations under
this Agreement to Primus upon expiration or termination of Distributor's rights
to distribute the Software. Subject to the foregoing restriction on assignment
by Licensee, this Agreement shall be binding upon, inure to the benefit of and
be enforceable by the parties and their respective successors and assigns.
Primus KK may assign all or any of its rights to enforce this Agreement to any
licensor of Primus KK.
10. Notices. Any notice or other communication under this Agreement given by
either party to the other party shall be deemed to be properly given if given in
writing and delivered (i) by facsimile transmission (receipt
Page 19 of 34
<PAGE>
confirmed) or (ii) by nationally recognized private courier, (e.g., Federal
Express) properly addressed and prepaid, to the recipient at the address
identified on the first page of this Agreement. Either party may from time to
time change its address by giving the other party notice of the change in
accordance with this Section.
11. Entire Agreement; Amendments. This Agreement constitutes and embodies the
entire agreement and understanding between the parties with respect to the
subject matter hereof and supersedes all prior or contemporaneous written,
electronic or oral communications, representations, agreements or understandings
between the parties with respect thereto. This Agreement may not be modified or
amended except by a written instrument executed by both parties. In the event of
any conflict between the provisions of this Agreement and the terms of any form
of purchase order or invoice, the provisions of this Agreement shall prevail.
Licensee's standard terms of purchase, if any, are inapplicable.
12. Counterparts. This Agreement and any amendments hereto may be executed in
one or more counterparts, which taken together shall constitute a single
agreement between the parties.
Page 20 of 34
<PAGE>
Terms offered are valid only through
------------
PRIMUS KNOWLEDGE SOLUTIONS KK
Support And Maintenance Agreement
This Agreement ("Agreement") is made between Primus Knowledge Solutions KK, a
Japanese corporation ("Primus KK"), Ebisu Primue Sq. Tower, 1-1-39 Hiroo,
Shibuya-ku, Tokyo, Japan 150 (fax: +81-3-5469-3005) and
Licensee Name: ("Licensee")
--------------------------
Licensee Address:
--------------------------
--------------------------
Fax No.:
--------------------------
Licensee has licensed certain software from Primus KK. Licensee wishes to
receive, and [wishes to provide related support and maintenance services, all on
the terms and conditions contained in this Agreement and set forth below.
Therefore, for good and valuable consideration, the receipt and sufficiency of
which the parties acknowledge, Primus KK and Licensee agree to be bound by such
terms and conditions.
EXECUTED as of the date set forth below Primus KK's signature (the "Effective
Date"):
Primus Knowledge Solutions KK Licensee
By: By:
------------------------------- -------------------------------
Its: Its:
------------------------------- -------------------------------
Dated: Dated:
------------------------------ -------------------------------
Terms and Conditions
Table A Product And Support And Maintenance Fees
<TABLE>
<CAPTION>
Product Language Software License Support & Annual Support & Payment Terms
Fees (US $) Maintenance Rate* Maintenance Fee (US $) Payment Date Payment Amount (US $)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Primus Products
- ------------------------------------------------------------------------------------------------------------------------------------
SolutionBuilder(R) Japanese
- ------------------------------------------------------------------------------------------------------------------------------------
Total Initial Order N/A
Fees (US $)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Percentage of total license fees
Section 1. Definitions.
For the purposes of this Agreement, the following capitalized words and phrases
shall be ascribed the following meanings:
1.1 "Error" means the failure of a Licensed Program to conform in any material
respect to its published Documentation.
1.2 "Fix" shall mean a modification or an addition to a Licensed Program or its
Documentation that overcomes an Error when made or added to such program or
Documentation.
1.3 "License Agreement" means the Software License Agreement executed by Primus
KK and Licensee contemporaneously with this Agreement, together with any and all
amendments to the Software License Agreement.
1.4 "Licensed Program" means any of the software products specified in Table A.
Licensed Programs include any and all Upgrades delivered to Licensee pursuant to
this Agreement or the License Agreement.
1.5 "Maintenance Release" means a Fix, or a new release of a Licensed Program
with a change in the ZZ component of that Licensed Program's X.YY.ZZ version
number.
1.6 "Major Release" means a new release of a Licensed Program with a change in
the YY component of that Licensed Program's X.YY.ZZ version number.
1.7 "New Release" means a new release of a Licensed Program with a change in
the X component of that Licensed Program's X.YY.ZZ version number.
1.8 "Support and Maintenance Term" means an annual period during which Primus
KK shall provide Licensee with the support and maintenance services specified in
this Agreement.
1.9 "Upgrade" means Maintenance Releases, Major Releases and New Releases.
1.10 "Workaround" means a set of procedures that Licensee may follow to
circumvent or mitigate the impact of an Error, notwithstanding that the Error
still exists. Primus KK may provide a Workaround in lieu of a Fix in Primus KK's
sole discretion.
1.11 Other Defined Terms. Except as expressly defined in this Agreement,
capitalized terms shall have the meaning ascribed to them in the License
Agreement.
Section 2. Primus KK's Provision of Services.
2.1 Technical Support. Primus KK shall provide telephone, fax and electronic
support from its Seattle headquarters regarding use of the Software and
resolution of Errors Monday through Friday from 6.30 a.m. to 5:30 p.m. Tokyo
time. In addition, Primus KK shall make on-call technical support staff
available for High Priority situations (as
Page 21 of 34
<PAGE>
defined in Section 2.2.1 below) twenty-four (24) hours a day, seven (7) days a
week. Primus KK shall provide such support to up to two (2) support contacts
designated by Licensee who shall be knowledgeable in all aspects of Licensee's
operating environment. Primus KK shall use all commercially reasonable efforts
to ensure that a technical support representative returns Licensee's call within
one hour of receiving Licensee's notification of a High Priority situation
(described below).
2.2 Support Response. Primus KK will assign all Licensee requests for Error
support one of three response priorities. The priorities will dictate the timing
and nature of the response as follows:
2.2.1 High Priority. A major feature/function of the Software is not working or
the system integrity is at risk.
Response Goal: Primus KK shall use all commercially reasonable efforts to
provide a Fix or Workaround within twenty-four (24) hours of Licensee's report
of the problem. If Primus KK cannot provide the Fix or Workaround within the
twenty-four (24) hours Primus KK will dedicate resources to the problem
resolution and will inform Licensee on a daily basis of the resolution status.
2.2.2 Medium Priority. Licensee's work flow is inhibited or a non-major
feature/function of the Software is not working.
Response Goal: Primus KK shall use all commercially reasonable efforts to
provide a Fix or Workaround within two (2) business days of the Licensee's
report of the problem. If Primus KK cannot resolve the problem within the two
(2) business days, Primus KK will inform Licensee on a weekly basis of the
resolution status.
2.2.3 Low Priority. Licensee has a problem which is not seriously impacting
Licensee's workflow.
Response Goal: Primus KK shall use all commercially reasonable efforts to
provide a Fix or a Workaround within five (5) business days of Licensee's report
of the problem. If Primus KK cannot resolve the problem within the five (5)
business days, Primus KK will provide Licensee with a status evaluation
regarding the ultimate resolution.
2.2.4 On-Site Visits. If Primus KK and Licensee mutually determine that Primus
KK may more effectively resolve a High Priority Error with an on-site visit to
Licensee's relevant location, then Licensee shall be responsible for Primus KK's
reasonable travel and living expenses incurred in conducting such visit. If
Licensee requests Primus KK to attend on-site for any other purpose, and Primus
KK agrees, then Licensee shall pay Primus KK for Primus KK's services on a time
and materials basis, at Primus KK's then current daily rates, and shall
reimburse Primus KK for Primus KK's reasonable travel and living expenses.
2.3 Licensee Cooperation. Licensee acknowledges that Primus KK may not be able
to resolve an Error if Licensee does not use all commercially reasonable efforts
to cooperate with and assist Primus KK in resolving the Error (including,
without limitation, in replicating the Error, in retrieving workstation, server
and log file data relating to the Error, and in providing Primus KK with remote
access to Licensee's installation for support purposes).
2.4 Upgrades. Primus KK shall provide Licensee with Upgrades as and when they
are made generally commercially available by Primus KK to Primus KK's customers.
Primus KK may provide Licensee with Maintenance Releases if Licensee is
experiencing, or in Primus KK's sole discretion may experience a High Priority
situation. As specified in the License Agreement, Upgrades shall constitute
"Software" under the License Agreement.
2.5 Scope of Support and Upgrade Services. Primus KK shall have no obligation
to correct Errors or support queries arising from Licensee's misuse or
alteration of the Software, failure or fluctuation of electrical power,
maintenance of the Software by anyone other than Primus KK or Primus KK's
authorized representatives, or Licensee's combining or merging Software with any
hardware or software not identified as compatible by Primus KK. Primus KK shall
have no obligation to correct Errors or support Licensed Programs except with
respect to the then current and next last current Major Releases; provided,
however, that for the purposes of determining the next last current Major
Release, Primus KK shall ignore any version of any Licensed Program that does
not comply with the media or performance warranties under the License Agreement.
It shall be a condition to Primus KK's provision of support services and
Upgrades pursuant to this Agreement that Licensee shall be current on its
support and maintenance fee payments for all of the Software.
Section 3. Fees
3.1 Annual Fee. Licensee shall pay the initial annual support and maintenance
fee in cash in the amounts and on the dates set forth in Table A. Licensee shall
pay subsequent annual support and maintenance fees within thirty (30) days of
the commencement of each successive Support and Maintenance Term. Unless
Licensee's accounting policies permit Licensee to pay such fee in the absence of
a purchase order, Licensee shall issue an appropriate purchase order with
respect to such fees within twenty (20) days of the commencement of each
successive Support and Maintenance Term.
3.2 Notice of Change in Annual Fee. At least sixty (60) days before the end of
each Support and Maintenance Term, Primus KK shall notify Licensee in writing of
any increase in the support and maintenance fee for the next Support and
Maintenance Term. Annual increases of the support and maintenance fees shall not
exceed a percentage of the previous annual fee that is the greater of (a) five
percent (5%), or (b) the percentage increase in the United Kingdom Retail Prices
Index for the one year period preceding the notice.
3.3 Payment Terms. Payment is due as specified in this Agreement irrespective
of whether Licensee has issued a purchase order. If Primus KK provides Licensee
with services under this Agreement that require payment from Licensee in
addition to the annual support and maintenance fee, then Licensee shall pay such
fees and any related expenses within thirty (30) days of receiving Primus KK's
invoice. Primus KK may impose a finance charge of one percent (1%) per month on
amounts not paid within thirty (30) days of their applicable due date.
3.4 Sales Taxes, Etc. Licensee shall be responsible for any applicable sales,
use, or any value added or similar taxes payable with respect to support and
maintenance services, or arising out of or in connection with this Agreement,
other than taxes imposed in Japan based upon Primus KK's income. The fees in
Tables A are exclusive of taxes unless expressly specified.
3.5 Additional License Rights. In the event that Licensee acquires rights under
the License Agreement to additional Authorized Workstations or Authorized Users
("Additional Seats"), Primus KK and Licensee shall both execute an amendment to
this Agreement reflecting the increase in a supplemental Table A (numbered A-1,
A-2 and so forth).
3.6 Support and Maintenance on Additional Seats. Licensee shall pay one
calendar year's support and maintenance fees on the Additional Seats at a rate
to be agreed with Primus KK (the "Agreed Rate"). Licensee shall make such
payment at the time it acquires the
Page 22 of 34
<PAGE>
Additional Seats. The then current Support and Maintenance Term shall be
automatically extended to the next anniversary of the effective date of the
applicable amendment. On or before the date on which the superceded Support and
Maintenance Term would have expired, Licensee shall pay Primus KK support and
maintenance fees at the Agreed Rate on a pro-rated basis through the end of the
Support and Maintenance Term then in effect, on all Authorized Workstations
and/or Authorized Users other than the Additional Seats.
Section 4. Disclaimer Of Any Implied Warranties
THIS IS A SERVICES AGREEMENT. EXCEPT FOR ANY WARRANTIES SET FORTH IN THE
LICENSE AGREEMENT APPLICABLE TO ANY UPGRADE FURNISHED HEREUNDER, [DISTRIBUTOR]
MAKES NO WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY
IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR
IMPLIED WARRANTY ARISING OUT OF COURSE OF PERFORMANCE, COURSE OF DEALING, OR
USAGE OF TRADE.
Section 5. Term and Termination
5.1 Term. The initial Support and Maintenance Term shall begin on the Effective
Date and shall end on its first anniversary.
5.2 Renewal. Notwithstanding the provisions of Section 5.1, this Agreement
shall be automatically renewed for a succeeding Support and Maintenance Term at
the end of each Support and Maintenance Term, unless Licensee provides Primus KK
with not less than thirty (30) days prior written notice before the end of the
expiring term of Licensee's decision to not renew this Agreement. Renewals shall
be deemed to include any rate increase of which Primus KK has notified Licensee
in accordance with Section 3.2 above.
5.3 Termination. This Agreement will terminate: 1) upon the expiration or
termination of the License Agreement; 2) upon the expiration of the then current
Support and Maintenance Term and timely receipt by Primus KK of Licensee's
decision to not renew this Agreement; and/or 3) at Primus KK's sole and absolute
discretion, upon failure of Licensee to pay support and maintenance fees when
due.
5.4 Termination on Breach. In the event of a material breach of this Agreement
by either party where no other remedy is specified, the non-breaching party may
terminate this Agreement by giving the breaching party written notice of the
breach and the non-breaching party's intention to terminate. This Agreement
shall automatically terminate sixty (60) days after such notice, unless the
breaching party cures or is making substantial progress in curing the breach or
default before the expiration of the sixty (60) day period.
Section 6. Miscellaneous Provisions
6.1 Miscellaneous Provisions. The dispute resolution and other provisions
contained in Schedule 1 to the Software License Agreement between the parties
are hereby incorporated into this Agreement, and shall for all purposes be
deemed a part of this Agreement.
Page 23 of 34
<PAGE>
Primus Contract ID: Eval
------------
PRIMUS KNOWLEDGE SOLUTIONS, INC.
Evaluation Agreement
This Evaluation Agreement ("Agreement") is made between Primus Knowledge
Solutions, Inc. ("Primus"), 1601 Fifth Avenue, Suite 1900, Seattle, Washington
98101 (fax: +1 (206) 292-1825) and
Licensee Name: ("Licensee")
------------------------------
Licensee Address:
---------------------------
---------------------------
Fax No.:
---------------------------
Primus has developed the computer software programs more particularly described
in Table A below (the "Software"). Licensee wishes to evaluate the Software.
Primus is willing to deliver and loan to Licensee one (1) CD-ROM containing the
Software, on the terms and conditions contained in this Agreement. Therefore,
for good and valuable consideration, the receipt and sufficiency of which they
each acknowledge, Primus and Licensee agree to be bound by such terms and
conditions.
EXECUTED as of the date set forth below Primus' signature (the "Effective
Date"):
Primus Knowledge Solutions, Inc. Licensee
By: By:
--------------------------------- ---------------------------------
--------------------------------- ---------------------------------
Its: Its:
-------------------------------- --------------------------------
Dated: Dated:
------------------------------ ------------------------------
Terms and Conditions
Table A -- Software Subject to Evaluation
<TABLE>
<CAPTION>
# Authorized # Authorized Evaluation Term
# Authorized # Authorized Users Users Commencement Evaluation Term
Product Language Servers Workstations (concurrent) (personal ID) Date End Date
------- -------- ------------ ------------ ------------ ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
SolutionSeries/TM/ Server Japanese N/A N/A N/A
SolutionExplorer/TM/ Japanese N/A N/A N/A
SolutionPublisher/TM/ Japanese N/A N/A N/A
</TABLE>
Section 1. Definitions
1.1 "Authorized Server" means that number of servers under the direct care,
custody and control of Licensee specified in Table A above (or such higher
number as Primus may authorize in a written instrument executed by an officer of
Primus) on which Licensee may install and use the Server Software, and whose
location, and whose IP address, host ID and/or disk ID Licensee has provided to
Primus in writing or by email within ten (10) days of the Effective Date.
1.2 "Authorized User" means any employee or individual independent contractor
of Licensee.
Personal ID Users. Where a number of Authorized Users is specified in Table
A as a personal ID user, up to that number of Authorized Users to whom Licensee
has issued personal user IDs and passwords linked to their user ID may use the
applicable Software program. Licensee shall ensure that only one personal user
ID is assigned to each individual Authorized User, and that no more than one
individual Authorized User uses any one personal user ID and linked password.
"Individual" Authorized User means an individual person, and not a corporation,
company, partnership, association or other entity or organization.
Concurrent Users. Where a number of Authorized Users is specified in Table A
above as a concurrent user, up to that number of individual Authorized Users may
use the applicable Software program on a concurrent user basis by accessing the
Authorized Server.
1.3 "Authorized Workstation" means a computer workstation under the care,
custody and control of Licensee, used by an Authorized User.
1.4 "Client Software" means that portion of any client/server Software program
that is designated in the Documentation for use on an Authorized Workstation.
1.5 "Evaluation Term" means the evaluation period specified in Table A above
(or such longer period as Primus may authorize in a written instrument executed
by an officer of Primus), unless sooner terminated pursuant to Section 6.
Section 2. Rights To Use Software.
2.1 Grant of License. Subject to the provisions of this Agreement, Primus
grants to Licensee for the Evaluation Term a non-exclusive, non-transferable
license, without right to sub-license, and solely to evaluate the Software to:
(i) install the Server Software on the Authorized Server and to reproduce,
distribute and install the Client Software on up to that number of Authorized
Workstations specified in Table A; (ii) use and allow up to that number of
Authorized Users specified in Table A to use the Server Software on the
Authorized
Page 24 of 34
<PAGE>
Server; (iii) use and allow Authorized Users to use the Client Software on the
Authorized Workstations; and (iv) use and allow Authorized Users to use the
Software documentation in conjunction with their use of the Software.
2.2 Reservation. All rights to the Software and related documentation not
expressly granted to Licensee in this Agreement are reserved by Primus. Without
limiting the generality of the foregoing, Licensee shall use the Software only
for the purposes specified in Section 2.1 and in accordance with the following:
(a) Modifications. Licensee shall not modify the Software nor the related
documentation.
(b) No Conveyance of Ownership; Trade Secrets. This Agreement does not
convey to Licensee ownership of the Software or related documentation or any
media delivered to Licensee on which the Software is stored, but only the right
to use the Software and related documentation as provided in this Agreement.
Licensee acknowledges that the Software (including without limitation its
structure, organization and code), the documentation and all technical data and
information associated therewith constitute trade secrets and are the valuable
property of Primus and its licensors and that the Software and Documentation are
protected by international copyright and trademark rights.
(c) Trademarks. Licensee shall not remove, obscure or alter any notice of
copyright, patent, trade secret, trademark or other proprietary right appearing
in or on any Software and/or related documentation and shall ensure that each
copy of all or any portion of the Software and/or such documentation made by
Licensee includes such notices. Licensee shall clearly indicate the ownership of
Primus' trademarks by Primus whenever it uses such trademarks.
(d) Reverse Engineering. Except to the extent (if any) permitted by
applicable law, Licensee shall not decompile, or create or attempt to create, by
reverse engineering or otherwise, the source code from the object code supplied
hereunder or use it to create a derivative work.
2.3 Expiration of License. Unless otherwise agreed to by the parties in
writing, upon expiration of the Evaluation Term Licensee shall immediately (i)
remove all copies of the Software and (ii) return all copies of the Software,
any other tangible media containing the Software and the documentation to
Primus.
Section 3. Non-Disclosure.
Licensee shall not disclose to any person or entity any information about the
Software or other Primus confidential information that is furnished to or
otherwise becomes known to Licensee, except that Licensee may disclose such
information on a need to know basis to its employees who are obligated to
maintain the confidentiality of such information. Licensee's obligation to
maintain the confidentiality of such information shall not apply to information
which (a) was known to Licensee before receiving such information, (b) is in the
public domain, (c) is received by Licensee from a third party who was legally
entitled to make an unrestricted disclosure, or (d) Licensee independently
develops.
Section 4. Disclaimer.
Licensee accepts the Software AS IS and WITH ALL FAULTS, DEFECTS AND ERRORS.
PRIMUS SHALL HAVE NO LIABILITY FOR ANY ERROR, OMISSION OR DEFECT IN THE
SOFTWARE. PRIMUS MAKES NO WARRANTY, EXPRESS OR IMPLIED, REGARDING THE SOFTWARE,
INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS
FOR A PARTICULAR PURPOSE, TITLE, OR WARRANTY ARISING FROM COURSE OF DEALING OR
TRADE USAGE.
Section 5. Limitation of Damages.
PRIMUS SHALL NOT HAVE, AND LICENSEE RELEASES PRIMUS FROM, ANY LIABILITY (WHETHER
IN CONTRACT, TORT, UNDER STATUTE OR OTHERWISE) FOR ANY DAMAGES INCURRED BY
LICENSEE ARISING OUT OF THIS AGREEMENT AND/OR USE OF THE SOFTWARE, INCLUDING
WITHOUT LIMITATION ANY DIRECT, INDIRECT, INCIDENTAL, SPECIAL, OR CONSEQUENTIAL
DAMAGES OR LOSS OF DATA, SAVINGS, OR PROFITS, EVEN IF PRIMUS HAS BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES.
Section 6. Termination
6.1 Termination on Notice. Either party may terminate the Evaluation Term at
any time by giving the other not less than thirty (30) days prior written notice
of termination.
6.2 Termination on Breach. In the event of a material breach or default under
this Agreement by either party, the non-breaching party may terminate the
Evaluation Term immediately by giving the breaching party written notice of the
breach or default and the non-breaching party's intention to terminate.
Section 7. Dispute Resolution.
7.1 Governing Law. This Agreement shall be governed by and interpreted in
accordance with the internal laws of the State of Washington, USA, and, where
such laws are preempted by the laws of the United States, by the internal laws
of the United States, in each case without regard to (a) conflicts of laws
principles and renvoi and (b) the applicability, if any, of the United Nations
Convention on Contracts for the International Sale of Goods.
7.2 Arbitration. In the event of any controversy or claim arising out of or
relating to this Agreement or the breach or interpretation thereof, the
controversy or claim shall be determined by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association by a
single, disinterested arbitrator appointed in accordance with such Rules. The
determination of the arbitrator shall be final, conclusive and binding.
Judgment upon the award rendered may be entered in any court of any state or
country having jurisdiction.
7.3 Conduct. Each party shall ensure that any mediation and arbitration are
conducted as speedily as is reasonably possible, and that all and any
information disclosed during or in connection with the arbitration is treated by
each party with the strictest confidence.
7.4 Interim and Permanent Relief. Upon the application of either party to this
Agreement, and whether or not an arbitration or mediation has yet been
initiated, all courts having jurisdiction over one or more of the parties are
authorized to: (i) issue and enforce in any lawful manner such temporary
restraining orders, preliminary injunctions and other interim measures of relief
as may be necessary to prevent harm to a party's interests or as otherwise may
be appropriate pending the conclusion of arbitration proceedings pursuant to
this Agreement; and (ii) enter and enforce in any lawful manner such judgments
for permanent equitable relief as may be necessary to prevent harm to a party's
interests or as otherwise may be appropriate following the issuance of arbitral
awards pursuant to this Agreement.
Page 25 of 34
<PAGE>
7.5 Venue. Any arbitration conducted under or in connection with this
Agreement shall take place in Seattle, Washington at a time and location to be
determined by the arbitrator.
7.6 Legal Expenses. If any proceeding is brought by either party to enforce or
interpret any term or provision of this Agreement, the substantially prevailing
party in such proceeding shall be entitled to recover, in addition to all other
relief arising out of this Agreement, such party's reasonable attorneys' and
other experts' (including without limitation accountants) fees and expenses.
Section 8. Miscellaneous.
8.1 Equitable Relief. Each of the parties acknowledges that damages will be an
inadequate remedy if any other violates the terms of this Agreement pertaining
to protection of intellectual property rights, or otherwise fails to perform its
obligations hereunder. Accordingly, subject to Section 7 of this Agreement,
each of the parties shall have the right, in addition to any other rights each
of them may have, to obtain in any court of competent jurisdiction, temporary,
preliminary and permanent injunctive relief to restrain any breach, threatened
breach, or otherwise to specifically enforce any of the obligations in this
Agreement.
8.2 Waiver. No waiver of or with respect to any provision of this Agreement,
nor consent by a party to the breach of or departure from any provision of this
Agreement, shall in any event be binding on or effective against such party
unless it be in writing and signed by such party, and then such waiver shall be
effective only in the specific instance and for the purpose for which given.
8.3 Severability; Invalidity. If any provision of this Agreement is held to
be invalid, such invalidity shall not render invalid the remainder of this
Agreement or the remainder of which such invalid provision is a part. If any
provision of this Agreement is so broad as to be held unenforceable, such
provision shall be interpreted to be only so broad as is enforceable.
8.4 Assignment. Licensee shall not assign any of its rights this Agreement.
Subject to the foregoing restriction on assignment by Licensee, this Agreement
shall be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
8.5 Notices. Any notice or other communication under this Agreement given by
either party to the other party shall be deemed to be properly given if given in
writing and delivered (i) by facsimile transmission (receipt confirmed) or (ii)
by nationally recognized overnight courier (e.g., Federal Express), properly
addressed and prepaid, to the recipient at the address identified in its
signature block to this Agreement. Any party may from time to time change its
address by giving the other par-ties notice of the change in accordance with
this Section.
8.6 Entire Agreement; Amendments. This Agreement constitutes and embodies the
entire agreement and understanding between the parties with respect to the
subject matter hereof and supersedes all prior or contemporaneous written,
electronic or oral communications, agreements or understandings between the
parties with respect thereto. This Agreement may not be modified or amended
except by a written instrument executed by the parties, except that Primus may
increase or extend the rights that it has granted to Licensee at any time and
from time to time, in Primus' sole and absolute discretion, as evidenced solely
by a written document executed by any vice president of Primus. In the event of
any conflict between the provisions of this Agreement and the terms of any form
of purchase order or invoice, the provisions of this Agreement shall prevail.
8.7 English Language. The governing language for this Agreement, for the
transactions contemplated hereby, for any notices, instruments or other
documents or media transmitted or delivered hereunder, and for the negotiation
and/or resolution of any dispute or other matter between the parties, shall be
the English language. In the event of any conflict between the provisions of
any instrument, document, or other media and an English version thereof, the
provisions of the English version shall prevail. Licensee hereby waives all and
any rights it may have under any law in any country to have the Agreement
written in any language other than English. In transactions between the
parties, a decimal point shall be indicated by a period, and not by a comma.
Notice periods shall be determined by reference to the local time of the notice
recipient.
Page 26 of 34
<PAGE>
PRIMUS KNOWLEDGE SOLUTIONS, INC.
Software Marketing and Distribution Agreement
Schedule 3
Secondline Support
Section 1. Definitions.
For the purposes of this Schedule, the following capitalized words and phrases
shall be ascribed the following meanings:
1.1 "Error" means the failure of any Software program to conform in any
-----
material respect to its published Documentation.
1.2 "Fix" shall mean a modification or an addition to a Software program or its
---
Documentation that overcomes an Error when made or added to such program or
Documentation.
1.3 "Workaround" means a set of procedures that Distributor may follow to
----------
circumvent or mitigate the impact of an Error, notwithstanding that the Error
still exists. Primus may provide a Workaround in lieu of a Fix in Primus' sole
discretion.
1.4 Other Defined Terms. Other capitalized words and phrases shall have the
-------------------
meanings ascribed to them in Section 1 of the Software Marketing and
Distribution Agreement of which this Schedule is part.
Section 2. Primus' Provision of Secondline Support.
2.1 Technical Support. Primus shall provide telephone, fax and electronic
-----------------
support to Distributor from its Seattle office regarding use of the Software and
resolution of Errors Monday through Friday from 6.30 a.m. to 5:30 p.m. local
time at such office. In addition, Primus shall make on-call technical support
staff available for High Priority situations (as defined in Section 2.2.1 below)
twenty-four (24) hours a day, seven (7) days a week. Primus shall provide such
support to up to two (2) support contacts designated by Distributor who shall be
knowledgeable in all aspects of Distributor's and End Users' operating
environments.
2.2 Support Response. Primus will assign all Distributor requests for Error
----------------
support one of three response priorities. The priorities will dictate the timing
and nature of the response as follows:
2.2.1 High Priority. A major feature/function of the Software is not working
or the system integrity is at risk.
Response Goal: Primus shall use all commercially reasonable efforts to provide
a Fix or Workaround to Distributor within forty eight (48) hours of
Distributor's report of the problem. If Primus cannot provide the Fix or
Workaround within the forty-eight (48) hours Primus will dedicate resources to
the problem resolution and will inform Distributor on a daily basis of the
resolution status.
2.2.2 Medium Priority. An End User's work flow is inhibited or a non-major
feature/function of the Software is not working.
Response Goal: Primus shall use all commercially reasonable efforts to provide
a Fix or Workaround to Distributor within four (4) business days of the
Distributor's report of the problem. If Primus cannot resolve the problem within
the four (4) business days, Primus will inform Distributor on a weekly basis of
the resolution status.
2.2.3 Low Priority. An End User has a problem which is not seriously
impacting Distributor's workflow.
Response Goal: Primus shall use all commercially reasonable efforts to provide
a Fix or a Workaround to Distributor within seven (7) business days of
Distributor's report of the problem. If Primus cannot resolve the problem within
the seven (7) business days, Primus will provide Distributor with a status
evaluation regarding the ultimate resolution.
2.3 On-Site Visits. If Primus and Distributor mutually determine that Primus
--------------
may more effectively resolve a High Priority Error with an on-site visit to
Distributor's or the End User's relevant location, then Distributor shall be
responsible for Primus' reasonable travel and living expenses incurred in
conducting such visit. If Distributor requests Primus to attend on-site for any
other purpose, and Primus agrees, then Distributor shall pay Primus for Primus'
services on a time and materials basis, at Primus' then current daily rates for
the Territory, and shall reimburse Primus for Primus' reasonable travel and
living expenses.
2.4 Access to Primus' Knowledgebase. To the extent reasonably determined
-------------------------------
necessary by Primus, Primus shall provide Distributor with access to Primus'
knowledgebase of solutions to Software Errors. Distributor shall comply with
Primus' reasonable security precautions related to such access, and shall treat
all knowledgebase information as Confidential Information of Primus; provided,
however, that Distributor may disclose Error solutions to End Users as part of
its End User Maintenance obligations, but only as confidential information under
an effective non-disclosure agreement between Distributor and the End User.
2.5 Distributor Cooperation. Distributor acknowledges that Primus may not be
-----------------------
able to resolve an Error if Distributor and any affected End User do not use all
commercially reasonable efforts to cooperate with and assist Primus in resolving
the Error (including, without limitation, in replicating the Error, in
retrieving workstation, server and log file data relating to the Error, and in
providing Primus with remote access to Distributor's or the End User's
installation for support purposes).
2.6 Scope of Secondline Support Services. Primus shall have no obligation to
------------------------------------
correct Errors or support queries arising from any misuse or alteration of the
Software by any Person other than Primus, failure or fluctuation of electrical
power, maintenance of the Software by anyone other than Primus or Primus'
authorized representatives, or the combination or merging of the Software by any
Person other than Primus with any hardware or software not identified as
compatible by Primus. Primus shall have no obligation to correct Errors or
support Software programs except with respect to the then current and next last
current "Major Releases." "Major Releases" means a new release of a Software
program with a change in the YY component of that Software program's X.YY.ZZ
version number. It shall be a condition to Primus' provision of Secondline
Support that Distributor shall be current on its Support and Maintenance fee
payments for all of the Software.
Page 27 of 34
<PAGE>
PRIMUS KNOWLEDGE SOLUTIONS, INC.
Software Marketing and Distribution Agreement
Schedule 4
Initial Sub-Distributors
Initial Sub-Distributors
- ------------------------
Page 28 of 34
<PAGE>
PRIMUS KNOWLEDGE SOLUTIONS, INC.
Software Marketing And Distribution Agreement
Schedule 5
Upstream Supplier Software Warranties
A. Knowledge Broker Solution ("KBI") Support Suite Warranties
1. Media. The media on which the KBI Software is delivered by Primus will be
-----
free from defects in materials and workmanship for a period of ninety (90) days
beginning on the date of shipment by Primus.
2. Performance; Year 2000. The KBI Software as delivered by Primus: (i) will
----------------------
perform in all material respects in accordance with the applicable
specifications set forth in the applicable Documentation for a period of ninety
(90) days beginning on the date of shipment by Primus; and (ii) is "Year 2000
Compliant." Year 2000 Compliant means, for the purposes of this paragraph A.2,
that the KBI Software, when used with accurate date data and in accordance with
its associated documentation, is capable of properly processing date data from,
into and between the twentieth and twenty-first centuries, including the years
1999, 2000 and leap years, provided that all other products (e.g., hardware,
software and firm-ware) used with it properly exchange date data with the KBI
Software.
3. Infringement. To Primus' knowledge, use in accordance with this Agreement of
------------
the KBI Software as delivered by Primus to Distributor does not infringe any
valid copyright, patent or trademark existing under the laws of the Territory.
- ------------------------------------------------------------------------------
B. Seagate Crystal Info v.6 Warranties
1. Media. The media on which the Seagate Software is delivered by Primus will be
-----
free from defects in materials and workmanship for a period of ninety (90) days
beginning on the date of shipment by Primus.
2. Performance; Year 2000. The Seagate Software as delivered by Primus: (i) will
----------------------
perform substantially in accordance with the applicable specifications set forth
in the applicable Documentation in all material respects for a period of ninety
(90) days beginning on the date of shipment by Primus; and (ii) is "Year 2000
Compliant." Year 2000 Compliant means, for the purposes of this paragraph B.2,
that the Seagate Software will (i) under normal use and service, record, store,
process, and present calendar dates falling on or after January 1, 2000, in the
same manner, and with the same functionality, as such Seagate Software do with
dates falling on or before December 31, 1999; and (ii) lose no functionality
with respect to the introduction of records containing dates falling on or after
January 1, 2000. Notwithstanding the foregoing, if the date related
functionality of the Seagate Software relies upon the operating system on which
it is running or the software to which it interfaces, then the above limited
warranty applies only to the extent that such operating system and other
software properly exchanges date data with the Seagate Software.
3. Infringement. To the best of Primus' knowledge, use in accordance with this
------------
Agreement of the Seagate Software as delivered by Primus does not infringe any
valid patent or copyright in the Territory, nor any trademark rights of a third
party based on the laws of the United States, Canada, Japan, New Zealand,
Australia, South Africa, or any country in Europe or South America.
Page 29 of 34
<PAGE>
PRIMUS KNOWLEDGE SOLUTIONS, INC.
Software Marketing and Distribution Agreement
Schedule 6
Dispute Resolution And Other Provisions
Dispute Resolution
- ------------------
1.1 Governing Law. This Agreement shall be governed by and interpreted in
-------------
accordance with the internal laws of the State of Washington, and, where such
laws are preempted by the laws of the United States, by the internal laws of the
United States, in each case without regard to (a) conflicts of laws principles,
and (b) the applicability, if any, of the United Nations Convention on Contracts
for the International Sale of Goods. The governing language for this Agreement,
for the transactions contemplated hereby, for any notices, instruments or other
documents or media transmitted or delivered hereunder, and for the negotiation
and/or resolution of any dispute or other matter between the parties, shall be
the English language. In the event of any conflict between the provisions of any
document and an English version thereof, the provisions of the English version
shall prevail. Distributor hereby waives all and any rights it may have under
any law in any country or portion thereof to have the Agreement written in any
language other than English. In transactions between the parties, a decimal
point shall be indicated by a period, and not by a comma. Notice periods shall
be determined by reference to the local time of the notice recipient.
1.2 Mediation. In the event of any controversy or claim arising out of or
relating to this Agreement or the breach or interpretation thereof, the parties
shall, upon five days notice from either one to the other, submit themselves and
the subject-matter of the dispute to mediation before an independent mediator to
be appointed by the head office of the American Arbitration Association. Costs
of mediation shall be borne equally between the parties.
1.3 Arbitration. If the parties remain in dispute following the mediation, then
the controversy or claim shall be determined by arbitration in accordance with
the Commercial Arbitration Rules of the American Arbitration Association by a
single, disinterested arbitrator appointed in accordance with such Rules. The
determination of the arbitrator shall be final, conclusive and binding. Judgment
upon the award rendered may be entered in any court of any state or country
having jurisdiction.
1.4 Conduct. Each party shall ensure that any mediation and arbitration are
conducted as speedily as is reasonably possible, and that all and any
information disclosed during or in connection with the arbitration is treated by
each party with the strictest confidence.
1.5 Interim and Permanent Relief. Upon the application of either party to this
Agreement, and whether or not an arbitration or mediation has yet been
initiated, all courts having jurisdiction over one or more of the parties are
authorized to: (i) issue and enforce in any lawful manner such temporary
restraining orders, preliminary injunctions and other interim measures of relief
as may be necessary to prevent harm to a party's interests or as otherwise may
be appropriate pending the conclusion of arbitration proceedings pursuant to
this Agreement; and (ii) enter and enforce in any lawful manner such judgments
for permanent equitable relief as may be necessary to prevent harm to a party's
interests or as otherwise may be appropriate following the issuance of arbitral
awards pursuant to this Agreement.
1.6 Venue. Any mediation or arbitration conducted under or in connection with
this Agreement shall take place in Seattle, Washington, at a time to be
determined by the mediator or arbitrator, as the case may be.
1.7 Legal Expenses. If any proceeding is brought by either party to enforce or
interpret any term or provision of this Agreement, the substantially prevailing
party in such proceeding (as determined by the arbitrator in its sole
discretion) shall be entitled to recover, in addition to all other relief
arising out of this Agreement, such party's reasonable attorneys' and other
experts' (including without limitation accountants) fees and expenses (as
determined by the arbitrator in its sole discretion.
2. Excused Performance; Force Majeure. If the performance of this Agreement is
----------------------------------
adversely restricted by reason of any circumstances beyond the reason-able
control and without the fault or negligence of the party affected, then the
party affected, upon giving prompt written notice to the other party, shall be
excused from such performance on a day-to-day basis to the extent of such
restriction (and the other party shall likewise be excused from performance of
its obligations on a day-to-day basis to the extent such party's obligations
relate to the performance so restricted); provided, however, that the party so
affected shall use all commercially reasonable efforts to avoid or remove such
causes of non-performance and both parties shall proceed whenever such causes
are removed or cease.
3. Exclusion of Certain Claims. IN NO EVENT SHALL PRIMUS BE LIABLE (WHETHER IN
---------------------------
TORT OR CONTRACT, UNDER STATUTE OR OTHERWISE) FOR ANY INDIRECT, SPECIAL,
CONSEQUENTIAL OR INCIDENTAL DAMAGES, INCLUDING WITHOUT LIMITATION DAMAGES FOR
LOSS OF PROFITS, BUSINESS INTERRUPTION, LOSS OF INFORMATION AND THE LIKE,
ARISING OUT OF ITS PERFORMANCE OR NONPERFORMANCE OF THIS AGREEMENT OR THE USE,
INABILITY TO USE OR RESULTS OF USE OF THE SOFTWARE, EVEN IF PRIMUS HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
4. Limitation of Liability. Primus' liability arising out of this agreement
-----------------------
shall in no event exceed the fees paid by Distributor to Primus under this
Agreement.
5. Equitable Relief. Each of Distributor and Primus acknowledges that damages
----------------
will be an inadequate remedy if the other violates the terms of this Agreement,
or otherwise fails to perform its obligations hereunder. Accordingly, subject to
Section 1 of this Schedule, each of them shall have the right, in addition to
any other rights each of them may have, to obtain in any court of competent
jurisdiction, temporary, preliminary and permanent injunctive relief to restrain
any breach, threatened breach, or otherwise to specifically enforce any of the
obligations in this Agreement.
6. Waiver. No waiver of or with respect to any provision of this Agreement, nor
------
consent by a party to the breach of or departure from any provision of this
Agreement, shall in any event be binding on or effective against such party
unless it be in writing and signed by such party, and then such waiver shall be
effective only in the specific instance and for the purpose for which given.
7. Captions and Headings. The captions and headings are inserted in this
---------------------
Agreement for convenience only, and shall not be deemed to limit or describe the
scope or intent of any provision of this Agreement.
8. Severability; Invalidity. If any provision of this Agreement is held to be
------------------------
invalid, such invalidity shall not render invalid the
Page 30 of 34
<PAGE>
remainder of this Agreement or the remainder of which such invalid provision is
a part. If any provision of this Agreement is so broad as to be held
unenforceable, such provision shall be interpreted to be only so broad as is
enforceable.
9. Assignment. Distributor shall not assign any of its rights this Agreement
----------
without the prior written consent of Primus, which shall not be unreasonably
withheld. Subject to the foregoing restriction on assignment by Distributor,
this Agreement shall be binding upon, inure to the benefit of and be enforceable
by the parties and their respective successors and assigns. Primus may assign
all or any of its rights to enforce this Agreement to any licensor of Primus.
10. Notices. Any notice or other communication under this Agreement given by
-------
either party to the other party shall be deemed to be properly given if given in
writing and delivered: (i) by facsimile transmission (receipt confirmed); or
(ii) by internationally recognized private courier, (e.g., Federal Express)
properly addressed and prepaid, to the recipient at the address identified on
the first page of this Agreement. Either party may from time to time change its
address by giving the other party notice of the change in accordance with this
Section.
11. Entire Agreement; Amendments. This Agreement constitutes and embodies the
----------------------------
entire agreement and understanding between the parties with respect to the
subject matter hereof and supersedes all prior or contemporaneous written,
electronic or oral communications, representations, agreements or understandings
between the parties with respect thereto. This Agreement may not be modified or
amended except by a written instrument executed by both parties. Only executive
officers of Primus shall have authority to amend this Agreement on behalf of
Primus. In the event of any conflict between the provisions of this Agreement
and the terms of any form of purchase order or invoice (including without
limitation any attached as a schedule or exhibit to this Agreement), the
provisions of this Agreement shall prevail. Distributor's standard terms of
purchase, if any, are inapplicable.
12. Counterparts. This Agreement and any amendments hereto may be executed in
------------
one or more counterparts, which taken together shall constitute a single
agreement between the parties.
Page 31 of 34
<PAGE>
PRIMUS KNOWLEDGE SOLUTIONS, INC.
Software Marketing and Distribution Agreement
Schedule 7
Seagate Licensing Restrictions
- --------------------------------------------------------------------------------
SEAGATE'S MINIMUM TERMS OF END USER LICENSE
- --------------------------------------------------------------------------------
To the extent that the Seagate products are not shipped by Primus subject to a
shrink-wrap or click-wrap license agreement, each End User License must contain
the following minimum (or substantially similar), terms and conditions
applicable to Seagate Products (sometimes for purposes of this Exhibit D, the
"Software"), modified as necessary for multi-copy packages:
APPLICABLE TO ALL SEAGATE PRODUCTS:
- ----------------------------------
1. GRANT OF LICENSE. The End User is granted a personal, nonexclusive license to
use a single copy of the software program, including any updates, additional
modules, or additional software provided by Seagate in connection therewith (the
"Software") solely for End User's own use in conjunction with the OEM Product or
System, and solely in accordance with the terms and conditions of this license
agreement. End User may copy the Software into the memory of any computer,
solely as necessary to use the Software in accordance with this license
agreement.
2. OEM PRODUCT ACCESS. The license granted is qualified, in that the End User's
licensed copy of the Seagate Software may only be used with the third party
(OEM) product with which it was provided. Accessing data that is not created by,
or used by, the third party (OEM) product is in violation of the End User's
license.
3. THIRD PARTY BENEFICIARY. End User is notified that Seagate Software
Information Management Group, Inc., ("Seagate") is a third-party beneficiary to
the End User License to the extent it relates to use of the Seagate Software.
Such provisions are made expressly for the benefit of Seagate and are
enforceable by both OEM and Seagate.
4. COPYRIGHT AND COPIES. The Software (including any copy thereof), is owned
by Seagate or its suppliers and is protected by United States copyright and
patent laws and international treaty provisions. The Software copy is licensed,
not sold to you, and you are not an owner of any copy thereof. You may either
(a) make one copy of the Software solely for backup or archival purposes, or (b)
transfer the Software to a single hard disk provided you keep the original
solely for backup or archival purposes. You may not otherwise copy the
Software, except as necessary to use the OEM Product or System or as authorized
by applicable law, and you may not copy the written materials accompanying the
Software. Seagate hereby reserves all rights not explicitly granted in this
software license agreement.
5. OTHER RESTRICTIONS. You may not rent or lease the Software, but you may
transfer the Software and accompanying written materials on a permanent basis
provided you retain no copies and the recipient agrees to the terms of this
Agreement. If the Software is an update, any transfer must include the update
and all prior versions. You may not modify or translate the Software. You
may not reverse engineer, decompile or disassemble the Software, except to the
extent expressly authorized by applicable law. End User may not remove, alter
or destroy any form of copyright notice, proprietary markings or confidential
legends placed upon or contained within the Software.
6. DUAL MEDIA. If the Software package contains more than one form of media,
such as a 3.5" diskette and a CD-ROM, then you may use only the media
appropriate for your computer or computer system. You may not use the other
media on another computer or loan, rent, lease, or transfer them to another
except as part of the permanent transfer (as provided above), of all Software
and written materials.
7. NO WARRANTY. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, THE
Software PROVIDED TO END USER HEREUNDER IS PROVIDED BY SEAGATE "AS IS" WITHOUT
ANY CONDITION OR WARRANTY WHATSOEVER. THE ENTIRE RISK ASSOCIATED WITH THE
INSTALLATION AND USE OF THE Software RESIDES WITH END USER. ALL OTHER
CONDITIONS OR WARRANTIES, EITHER EXPRESS OR IMPLIED, ARE DISCLAIMED BY SEAGATE,
INCLUDING, WITHOUT LIMITATION, THE IMPLIED CONDITIONS OR WARRANTIES OF
MERCHANTABILITY, OWNERSHIP AND FITNESS FOR A PARTICULAR PURPOSE. SEAGATE SHALL
NOT BE LIABLE FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR OTHER
DAMAGES.
8. TERM. This license is effective until terminated. End User may terminate
it at any time by destroying the Software together with all copies,
modifications and merged portions in any form. It will also terminate
automatically upon End user's failure to comply with any term or condition of
this Agreement. In the event of such termination, End User agrees to promptly
destroy the Software together with all copies, modifications and merged portions
in any form.
9. MISCELLANEOUS. The terms and conditions herein state the entire license
agreement with End user relative to any Seagate Software, and supersede any
prior agreement, whether written or oral, relating to the subject matter hereof.
The parties disclaim the application of the United Nations Convention on the
International Sale of Goods. This license agreement is governed by the laws of
the State of California, U.S.A., without reference to conflict of laws
principles. All disputes arising out of this license agreement shall be
litigated or otherwise resolved exclusively in the State of California. End
User may not export or re-export the Software or documentation without the
appropriate United States or foreign government licenses. If any provision of
this license agreement is ruled invalid, such invalidity shall not affect the
validity of the remaining portions of this license agreement.
10. U.S. GOVERNMENT RESTRICTED RIGHTS. The Software and accompanying
documentation are deemed to be "commercial computer software" and "commercial
computer software documentation," respectively, pursuant to DFAR Section
227.7202 and FAR Section 12.212, as applicable. Any use, modification,
reproduction release, performance, display or disclosure of the software and
accompanying documentation by the U.S. Government shall be governed solely by
the terms of this license agreement and shall be prohibited except to the extent
expressly permitted by the terms of this license agreement.
End User must affix the following legend to each copy of the Software:
Page 32 of 34
<PAGE>
Use, duplication, reproduction, or transfer of this commercial Software and
accompanying documentation is restricted in accordance with FAR 12.212 and DFARS
227.7202 and by a license agreement. Contact Legal Department, Seagate
Software, P.O. Box 67427, Scotts Valley, California, 95067 U.S.A.
SPECIFIC SEAGATE PRODUCT USE RESTRICTIONS:
- ------------------------------------------
A. CRYSTAL INFO:
-------------
INSTALLATION AND USE. Seagate Crystal Info 6.0 is licensed to End User in
a combination of three potential Modules: (1) Client License (2) OLAP
Add-In License and (3) Report/Query Add-In License. Each licensed version
of the Software includes one Administrator ID, which shall correspond to a
single, designated individual (the "Administrator"). The Administrator may
install and use the components as set forth in the Client License, OLAP
Add-In License and Report/Query Add-In License; solely to facilitate
licensed use of the applicable Module(s). The End User must possess an
individual license and accompanying authorized Unique User ID ("UUID")
permitting access to and use of the Module(s) licensed. End User may
install and use (in the manner provided) only the Module(s) (including
their respective components), for which End User has obtained an express
license and accompanying authorized UUID(s). End User may have only as
many UUIDs defined or in use as have been authorized by Seagate, as set
forth in End User's particular license pack. Unless End User's purchase
agreement provides expressly to the contrary, no UUID may be shared by more
than one individual End User.
(1) Client License. Provided the total number of copies used or
--------------
installed at any one time does not exceed the number of licenses
purchased or UUIDs authorized(as set forth in End User's Client
License pack) End User may use the Client License (including the
stated components) to view, schedule and analyze existing reports as
follows: (a) End User may install Info Server, Info Administrator,
Info Views, Info APS, Sentinel, Info Analyzer, Info OLAP Server and
Info Desktop (except that End User may not schedule cubes) on one or
more computers under End User's control, and (b) End User may install
the Info WebAccess Server on one or more web servers to provide access
by authorized End Users via web browser; except that any End User who
is not licensed to use the OLAP Add-In License may not access or use
the Info Worksheet for Java component. Web browser access may be used
in addition to access via Info Desktop client software. Provided one
copy of "client" (but not "server") components of Crystal Info 6.0 is
installed only on the permanent memory of a single desktop computer,
and that computer is used by one authorized End User at least 80% of
the time the computer is in use, that same end user may make one copy
of such client components to use on a portable or home computer
primarily used by such authorized End User.
(2) OLAP Add-In License. End User may install and use the components
-------------------
as set forth in the Client License. Subject to the same use conditions
placed on components of the Client License, End User may install and
use the Info Cube Designer to design OLAP cubes; Info Desktop to
schedule OLAP cubes; and Info Worksheet or Info Worksheet for Java (as
provided in the Info WebAccess Server and Info OLAP Server), to view
and manipulate OLAP cube information. End User may not design reports
unless End User is licensed to use the Report/Query Add-In License.
(3) Report/Query Add-In License. End User may install and use the
---------------------------
components as set forth in the Client License. Subject to the same use
conditions placed on components of the Client License, End User may
install and use Info Report Designer and Info Query Designer to design
reports and queries from relational or multidimensional databases. End
User may use the reports to populate Info Folders of other authorized
End Users.
Page 33 of 34
<PAGE>
PRIMUS KNOWLEDGE SOLUTIONS, INC.
Software Marketing and Distribution Agreement
Exhibit A
Distributor's Form of Purchase Order
Attach Distributor's Form of Purchase Order
Page 34 of 34
<PAGE>
EXHIBIT 10.24
[ENCOMPASS GLOBALIZATION LOGO APPEARS HERE]
SERVICE AGREEMENT
This Service Agreement (the "Agreement") is made and entered into as of the
later of the two dates on the signature page by and between Primus
Communications Corporation ("Primus"), a Washington corporation, and EnCompass
Globalization, Inc. ("EGS"), a Washington corporation.
In consideration of the covenants and conditions hereinafter set forth, EGS and
Primus agree as follows:
1. Services
During the term of this Agreement, EGS shall provide the following services
(the "WORK"):
The WORK shall conform to the specifications and delivery schedule listed in
the Schedule(s) agreed between the parties and attached hereto. In the event
that Primus desires to make changes to the WORK specifications and/or
delivery schedule during the term of this Agreement, Primus shall so notify
EGS, and both parties shall agree in writing on necessary adjustments, if
any, to the other terms of this Agreement required to accommodate such
changes.
2. Charges
As full and complete compensation for the WORK properly rendered by EGS
hereunder, Primus shall pay EGS the sum set forth on applicable Schedule in
United States dollars in accordance with the payment schedule attached
therein.
3. Responsibilities of Primus
(a) Primus shall use all commercially reasonable efforts to comply with all
applicable local, state and federal laws with respect to the maintenance of
appropriate and safe working areas for all staff from EGS who may work at a
Primus office or facility.
(b) Primus will ensure that one or more of Primus' designated representatives
are reasonably available to EGS and/or its employees to address questions
or issues related to the WORK.
(c) Primus shall provide EGS with such information as is reasonably necessary
for EGS to fully and properly perform the WORK, including code, designs,
notes, techniques, and tools used. EGS shall treat all such information as
"Confidential Information" (as defined in Section 7(a)) of Primus.
4. License Grant to Primus Product
(a) Primus hereby grants to EGS for the shorter of (a) the term of this
Agreement, or (b) the time during which EGS is performing the WORK, a non-
exclusive, personal, non-transferable, non-assignable license, without
right to sub-license, to use, modify, translate and adapt the Primus
product for the sole purpose of the WORK. The license granted pursuant to
this Section 3 is for EGS' internal use only and EGS shall, at all times,
strictly comply with the provisions of Section 7 with respect to the
subject matter of the license and all derivatives thereof.
- --------------------------------------------------------------------------------
EnCompass Globalization Page 1 Service Agreement v2.1 2/10/98
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<PAGE>
(b) Except as otherwise expressly authorized or provided in this Agreement, EGS
shall not translate, manufacture, duplicate, copy, modify, license, or
distribute any Primus product or part thereof without the prior written
authorization of Primus.
5. Delivery of and Preparation of Work
(a) The parties shall each deliver to the other the items indicated in
applicable Schedule in accordance with the schedule set forth therein,
including delivery of the WORK drafts if provided in the Schedule.
(b) Primus shall evaluate the WORK completed by EGS and may reject in writing
all or any portion of the WORK within thirty (30) days of the date of
receipt by Primus. If no written rejection is given to EGS by Primus within
the specified time, the WORK shall be deemed to be accepted by Primus. If
Primus rejects the WORK, its notice to EGS shall set forth the specific
reasons for its rejection. EGS submit a corrected WORK within fifteen (15)
days of receipt of such a notice of rejection, and Primus shall have an
additional thirty (30) days following receipt to accept or reject the
corrected WORK. If Primus rejects the corrected WORK then, without
prejudice to their other legal and equitable remedies, the parties shall
negotiate in good faith to determine a mutually satisfactory equitable
adjustment to the fees and expenses paid or payable by Primus. If Primus
and EGS have not reached agreement on the equitable adjustment within
ninety (90) days of Primus' final rejection notice, then either of the
parties may initiate the dispute resolution procedures specified in
Section 14.
(c) Conformity to the specifications and to EGS' warranties herein shall solely
determine Primus's right to accept or reject the WORK performed by EGS.
Acceptance by Primus shall not be arbitrarily or unreasonably withheld.
6. Work For Hire/Assignment of Proprietary Rights
All deliverables and all other works prepared by EGS in the course of
performing the WORK hereunder shall (to the maximum extent possible) be
deemed to be "work made for hire" done by EGS for Primus pursuant to 17
U.S.C. Section 201 (b) and, to the extent (if at all) not "work made for
hire" shall be, and hereby are, transferred, sold, conveyed and assigned to
Primus and Primus shall own all copyrights and other proprietary rights
including rights in any inventions, designs, concepts, techniques,
discoveries, improvements, trade secrets and patent rights as though Primus
were the original sole creator or inventor thereof. EGS shall execute and
deliver such instruments and take such other action as may be required to
carry out the transfer, sale and assignments of proprietary rights
contemplated by this paragraph. Any documents, magnetically or optically
encoded media, or other materials or collections of data created by EGS under
this Agreement shall be owned by Primus in their entirety. Techniques, tools,
know-how and proprietary expertise of EGS or any of its agents or
subcontractors used in preparing the deliverables shall not be included in
any "work for hire" transfer of rights to Primus.
7. Confidentiality
(a) "Confidential Information" means (i) any of a party's proprietary
technology or computer software in all versions and forms of expression,
whether or not the same has been patented or the copyright thereto
registered, is the subject of a pending patent or registration application
or forms the basis for a patentable invention; (ii) any manual, notes,
documentation, technical information, drawings, diagrams, specifications,
formulas, or know-how related to any of the foregoing, (iii) any
information regarding current or proposed products, customers, contracts,
business methods, financial data or marketing data, (iv) any other
information that is clearly marked or designated as
- --------------------------------------------------------------------------------
EnCompass Globalization Page 2 Service Agreement v2.1 2/10/98
Confidential
<PAGE>
confidential or proprietary by such party, and (v) the terms and conditions
of this Agreement. Confidential Information includes unwritten information
that is identified by such party as confidential at the time of, or within
fifteen (15) days of disclosure. Confidential Information does not include
information which: (vi) was in a party's lawful possession prior to the
disclosure and had not been obtained by such party either directly or
indirectly from the other party, (vii) is lawfully disclosed to such party
by a third party without restrictions on its disclosure, (viii) is
independently developed by such party without reference to the other
party's Confidential Information, or (ix) became known to such party from a
source other than the other party other than by the breach of an obligation
of confidentiality owed to the other party. It shall be the receiving
party's burden to show information is not Confidential Information of the
other party.
(b) Neither party shall directly or indirectly disclose, disseminate, publish
articles concerning, or otherwise make known or available to any person or
entity not confidentially bound to a party any Confidential Information of
the other party without prior written permission from the other party.
Neither party shall use Confidential Information of the other party for any
purpose other than the implementation of this Agreement, and then such use
shall only be by employees and authorized independent contractors of such
party in the course of performing this Agreement. Each party shall take all
necessary steps to insure that Confidential Information of the other party
is not disclosed or distributed by its employees, independent contractors
or agents in violation of the provisions of this Agreement. Upon the
request of a party, the other party shall provide to the requesting party
in writing the names of the persons to whom Confidential Information of
such party has been disclosed and/or the steps being taken by the other to
maintain the confidentiality of such party's Confidential Information. Upon
request by a party, the other party shall return any Confidential
Information provided by the requesting party, which shall be accompanied by
a certificate of an officer of the returning party certifying that all
copies of such Confidential Information of the foregoing have been returned
to the requesting party, or otherwise destroyed, except that the returning
party's legal department may retain one copy for their files.
(c) Notwithstanding anything to the contrary herein, the confidentiality
obligations for both parties set forth herein shall survive any termination
or expiration of this Agreement.
8. Representations and Warranties of EGS
EGS hereby represents and warrants that:
(a) The WORK, as delivered to Primus, will not and does not infringe any
copyright, patent, trade secret, or other proprietary right held by any
third party; provided that this representation and warranty shall not apply
to any portion of the items originally supplied by Primus;
(b) The WORK will meet the specifications listed in applicable Schedule(s)
attached to this Agreement;
(c) EGS will provide in all of its agreements with employees, persons or
entities whose services were, are, and will be rendered in connection with
the WORK, that such employees, persons and entities are not and will not be
impaired by contract or otherwise from the WORK, and that the WORK or any
"sale", licensing or use thereof does not and will not infringe upon or
interfere with the rights of any person or entity;
(d) The WORK will be created by full-time employees of EGS within the scope of
their employment and under obligation to assign inventions to EGS, or by
independent contractors under written obligations to assign all rights in
the WORK to EGS;
- --------------------------------------------------------------------------------
EnCompass Globalization Page 3 Service Agreement v2.1 2/10/98
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<PAGE>
(e) The WORK provided by EGS hereunder shall be performed in a professional
manner and shall be of a high grade, nature, and quality, and be consistent
with industry standards;
(f) The personnel of EGS will be available to consult with Primus and its
personnel with respect to the WORK at such times and for such periods as
Primus may reasonably request;
(g) EGS' employees and subcontractors shall, while on Primus property or
conducting any Primus related business, comply with all applicable, local,
state and federal laws, including specifically all laws prohibiting
harassment of any kind in the workplace. EGS assumes all responsibility for
providing to its employees and subcontractors any training that may be
required to insure compliance with such laws.
(h) The WORK shall conform in all respects to the applicable specifications set
forth in the Schedules.
These representations and warranties are continuous in nature and shall be
deemed to have been given by EGS at the execution of this Agreement and at
the time of Primus's acceptance of the WORK.
9. Non-Solicitation of EGS Employees
Primus agrees not to knowingly solicit for employment, nor for hire, EGS
employees or contractors during the period WORK is being performed pursuant
to this Agreement or for a period of six (6) months thereafter, without
permission, in writing, from an officer of EGS.
10. Indemnity
(a) EGS hereby agrees to defend, indemnify and hold harmless Primus and its
successors, officers, directors and employees from and against any and all
costs, expenses, liabilities, loses, damages, injunctions, suits, actions,
fines, penalties, claims and demands of every kind or nature, including
reasonable attorney's fees, expert witness fees, and litigation costs by
any person or third party, arising out of EGS' breach of any of the above
warranties or in connection with any claim that the WORK, names, and marks
furnished by EGS under this Agreement constitute an infringement of any
confidential information, trade secret, patent, copyright, trademark, trade
name, or other legal right of any third party.
(b) Primus hereby agrees to defend, indemnify and hold harmless EGS and its
successors, officers, directors and employees from and against any and all
costs, expenses, liabilities, loses, damages, injunctions, suits, actions,
fines, penalties, claims and demands of every kind or nature, including
reasonable attorney's fees, expert witness fees, and litigation costs by
any person or third party (collectively, a "Claim"), arising out of the
Primus product delivered by Primus to EGS for the WORK under this Agreement
or the distribution, sale and/or use of such product by Primus or its
distributors, agents, customers, or other third parties, except to the
extent that the Claim arises out of any services or products, or portions
thereof, provided by EGS.
(c) If any action or claim shall be brought against either party ("Indemnitee")
in respect to which indemnity may be sought from the other party
("Indemnitor") pursuant to the provisions of this Section, Indemnitee shall
promptly notify Indemnitor in writing, specifying the nature of the action
and the total monetary amount sought or other such relief as is sought
therein. Indemnitee shall cooperate with Indemnitor at Indemnitor's
reasonable expense in all reasonable respects in connection with the
defense of any such action. Indemnitor may, upon written notice thereof to
Indemnitee, undertake to conduct
- --------------------------------------------------------------------------------
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<PAGE>
all proceeding or negotiations in connection therewith, assume the defense
thereof, and if it so undertakes, it shall also undertake all other
required steps or proceedings to settle or defend any such action,
including the employment of counsel which shall be satisfactory to
Indemnitee, and payment of all expenses. Indemnitee shall have the right to
employ separate counsel and participate in the defense thereof. Indemnitor
shall reimburse Indemnitee upon demand for any payment made or loss
suffered by it at any time after the date hereof, based upon the judgment
of any court of competent jurisdiction or pursuant to a bona fide
compromise or settlement of claims, demands or actions, in respect to any
damage to which the foregoing relates.
(d) If the WORK furnished hereunder (exclusive of that portion delivered to EGS
by Primus) is in any action held to constitute an infringement and its use
is enjoined, in addition to any other remedies herein provided, EGS shall
immediately and at its expense:
(i) procure for Primus the right to continue use, sale, and marketing of that
portion of the WORK which is held to constitute an infringement; or
(ii) replace or modify the WORK with a version of the WORK that is non-
infringing.
If (i) or (ii) is not available to EGS, EGS shall refund to Primus all
amounts paid to EGS by Primus hereunder and, in addition, shall fulfill
its indemnification obligations under this Agreement
(e) Notwithstanding anything to the contrary herein, this indemnity provision
shall survive any termination or expiration of this Agreement.
11. Force Majeure
Neither party shall be liable for failure or delay in the performance of any
of its obligations under this Agreement if such delay or failure is caused by
circumstances beyond the control of the party affected. Strikes or other
labor difficulties that are capable of being terminated on terms unacceptable
to the party affected shall not be considered circumstances within the
control of such party.
12. Waiver
None of the provisions of this Agreement shall be deemed to have been waived
by any act of or acquiescence on the part of either EGS or Primus, or their
agents or employees, but only by an instrument in writing signed by
authorized officers of Primus and of EGS. No waiver of any provision of this
Agreement shall constitute a waiver of any other provision or the same
provision on another occasion.
13. Attorney's Fees and Governing Law
In the event an action is commenced to enforce a party's rights under this
Agreement, the substantially prevailing party in such action shall be
entitled to recover its actual costs and reasonable attorney's fees. This
Agreement shall be governed by and interpreted in accordance with the laws of
the State of Washington, U.S.A., without regard to principles of conflicts of
laws.
14. Dispute Resolution
14.1 Mediation. In the event of any controversy or claim arising out of or
---------
relating to this Agreement or the breach or interpretation thereof, the
parties shall, upon fifteen (15) days notice from either one to the other,
submit themselves and the subject-matter of the dispute to mediation before
an independent mediator to be appointed by the Seattle office of the American
Arbitration Association or, if such office cannot do so, by the head office
of the
- --------------------------------------------------------------------------------
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<PAGE>
American Arbitration Association. Costs of mediation shall be borne equally
between the parties.
14.2 Arbitration. If the parties remain in dispute following the mediation,
-----------
then the controversy or claim shall be determined by arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association by a single, disinterested arbitrator appointed in accordance
with such Rules. The determination of the arbitrator shall be final,
conclusive and binding. Judgment upon the award rendered may be entered in
any court of any state or country having jurisdiction.
14.3 Conduct. Each party shall ensure that any mediation and arbitration are
-------
conducted as speedily as is reasonably possible, and that all and any
information disclosed during or in connection with the arbitration is treated
by each party with the strictest confidence.
14.4 Interim and Permanent Relief. Upon the application of either party to
----------------------------
this Agreement, and whether or not an arbitration or mediation provision has
yet been initiated, all courts having jurisdiction over one or more of the
parties are authorized to: (i) issue and enforce in any lawful manner such
temporary restraining orders, preliminary injunctions and other interim
measures of relief as may be necessary to prevent harm to a party's interests
or as otherwise may be appropriate pending the conclusion of arbitration
proceedings pursuant to this Agreement; and (ii) enter and enforce in any
lawful manner such judgments for permanent equitable relief as may be
necessary to prevent harm to a party's interests or as otherwise may be
appropriate following the issuance of arbitral awards pursuant to this
Agreement.
14.5 Venue. Any mediation or arbitration conducted under or in connection with
-----
this Agreement shall take place in Seattle, Washington at a time and location
to be determined by the mediator or arbitrator, as the case may be.
15. Notices and Requests
All notices and requests in connection with this Agreement shall be deemed
given as of the day they are deposited with Federal Express, DHL, Airborne or
similar overnight courier, charges prepaid, return receipt requested, and
addressed as follows:
<TABLE>
<CAPTION>
EnCompass Group, Inc. Primus
<S> <C>
4040 Lake Washington Blvd. N.E. Address: 1601 Fifth Avenue, #1900
Suite 205, Kirkland, WA 98033 Seattle, Washington 98101
Attention: Chad Hamblin Attention: Corporate Attorney
-------------
Facsimile: (206) 828-2070 Facsimile: (206) 292-1825
</TABLE>
16. No Partnership or Agency
It is expressly declare that this Agreement and the relationships between
the parties established hereby does not constitute a partnership, joint
venture, agency, or contract of employment between them.
17. Assignments
This Agreement shall be binding upon and insure to the benefit of the
parties hereto and their respective successors and assigns, except that EGS
may not assign, nor attempt to assign, its rights or obligations under this
Agreement in any way without the prior written consent of Primus.
18. Entire Agreement; Modification
This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof, merges all prior and contemporaneous
communications, and supercedes all prior representations, agreements and
understandings with respect to the subject matter hereof,
- --------------------------------------------------------------------------------
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<PAGE>
and all Schedules are incorporated herein by this reference. This Agreement
shall not be effective until signed by both parties, and it shall not be
modified except by a written agreement dated subsequent to the date of this
Agreement and signed on behalf of both EGS and Primus by their respective
duly authorized representatives .
19. General
(a) If any provision of this Agreement shall be held by a court of competent
jurisdiction to be illegal, invalid or unenforceable, the remaining
provisions shall remain in full force and effect.
(b) The section headings used in this Agreement and the attached Schedules are
intended for convenience only and shall not be deemed to supersede or
modify any provision(s).
(c) Subject to the limitations set forth in this Agreement, this Agreement will
inure to the benefit of and be binding upon the parties, their successors,
administrators, heirs and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date set forth below. All signed copies of this Agreement shall be deemed
originals.
EnCompass Group, Inc. Primus Communications Corporation
By [Sign]: /s/ James R. Ladd By [Sign]: /s/ David Hadley
_____________________ _______________________
Name [Print]: James R. Ladd Name [Print]: David Hadley
__________________ _______________________
Title: President & CEO Title: SR. V. PRES.
_________________________ ___________________________
Date: 2/16/98 Date: 2/13/98
__________________________ ____________________________
Federal Employer ID#: 91-168599
-------------------------------
- --------------------------------------------------------------------------------
EnCompass Globalization Page 7 Service Agreement v2.1 2/10/98
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Schedule A
----------
This Schedule is made pursuant to the Service Agreement (the "Agreement") dated
February 3rd, 1998 by and between Primus Communications Corporation ("Primus")
- ------------------ ---------------------------------
and EnCompass Globalization Inc. ("EGS").
A. Term
ESG's provision of services under this Schedule A shall commence on January
-------
12th, 1998 and shall be completed by June 26th, 1998. Any extension of
- ---------- ---------------
such services shall be by mutual written agreement of both parties.
B. Description of Work (the "WORK")
This project will involve the following:
1. Onsite UI translation/localization
2. Translation and adaptation of online help and documentation materials
supplied by Primus
3. Onsite testing as directed by Primus personnel
What this project does not include:
1. Actual DBCS encoding or engineering work
<TABLE>
<CAPTION>
Requested Work for SolutionBuilder, SolutionExplorer, SolutionPublisher
- ---------------------------------------------------------------------------------------------------------------------------------
Description Unit Unit Type Rate % New Cost Confidence NOTES
Level
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Onsite Localization 280 Hour $55.00 $15,400.00 90%
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Estimated Subtotal 280 $15,400.00
- -----------------------------------------------------------------------------------------------------------------------------------
Onsite Testing (1 person) 400 Hour $65.00 $26,000.00 90%
- -----------------------------------------------------------------------------------------------------------------------------------
Onsite Testing (1 person) 160 Hour $65.00 $10,400.00 90%
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Estimated Subtotal 560 $36,400.00
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Translation/Update
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Translation, Editing, Proofing 50000 Word $ 0.38 80% $15,200.00 85%
- -----------------------------------------------------------------------------------------------------------------------------------
Verification of Old Content 13.3 Hour $50.00 $665.00 70%
- -----------------------------------------------------------------------------------------------------------------------------------
Page Proofing 274 Page $ 8.00 $2,192.00 85% Expect page count
will increase.
- -----------------------------------------------------------------------------------------------------------------------------------
Index/TOC Generation 22 Page $50.00 $1,100.00 75% Assuming 5% of page
count.
- -----------------------------------------------------------------------------------------------------------------------------------
SolutionExplorer User
Guide ver. 1.0
- -----------------------------------------------------------------------------------------------------------------------------------
Translation, Editing, Proofing 5700 Word $ 0.38 100% $2,166.00 85%
- -----------------------------------------------------------------------------------------------------------------------------------
Page Proofing 52 Page $ 8.00 $416.00 85% Expect page count
will increase.
- -----------------------------------------------------------------------------------------------------------------------------------
Translation, Editing, Proofing 2400 Word $ 0.38 100% $912.00 85%
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Translation, Editing, Proofing 3000 Word $ 0.38 100% $1,140.00 85% Original word count is
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
actually less work
- ------------------------------------------------------------------------------------------------------------------------------------
Page Proofing 35 Page $ 8.00 $ 280.00 85% Expect page count
will increase.
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Translation, Editing, Proofing 14400 Word $ 0.38 25% $ 1,368.00 85%
- ------------------------------------------------------------------------------------------------------------------------------------
Verification of Old Content 14.4 Hour $50.00 $ 720.00 70%
- ------------------------------------------------------------------------------------------------------------------------------------
Page Proofing 90 Page $8.00 $ 720.00 85% Expect page count
will increase.
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Translation, Editing, Proofing 16100 Word $ 0.38 20% $ 1,223.60 85%
- -----------------------------------------------------------------------------------------------------------------------------------
Verification of Old Content 17.1 Hour $50.00 $ 855.00 70%
- -----------------------------------------------------------------------------------------------------------------------------------
Index/TOC Generation 12 Page $50.00 $ 600.00 75% Assuming 5% of page
count.
- -----------------------------------------------------------------------------------------------------------------------------------
Online Help translation/Update
- -----------------------------------------------------------------------------------------------------------------------------------
22500 Word $ 0.38 60% $ 5,130.00 85%
- -----------------------------------------------------------------------------------------------------------------------------------
Verification of Old Content 12 Hour $50.00 $ 600.00 70%
- -----------------------------------------------------------------------------------------------------------------------------------
SolutionExplorer Help ver. 1.0 250 Word $ 0.38 100% $ 95.00 60% Modified from
Explorer User Guide
- -----------------------------------------------------------------------------------------------------------------------------------
9200 Word $ 0.38 50% $ 1,748.00 85%
- -----------------------------------------------------------------------------------------------------------------------------------
Verification of Old Content 6.1 Hour $50.00 $ 305.00 70%
- -----------------------------------------------------------------------------------------------------------------------------------
File Conversions & Bug Fixes 40 Hour $55.00 $ 2,200.00 75%
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Estimated Subtotal $39,635.60
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Parking Fees
- -----------------------------------------------------------------------------------------------------------------------------------
- 2 spaces for 1 month 2 Month $150.00 $ 300.00 85%
- -----------------------------------------------------------------------------------------------------------------------------------
- 1 space for 2 months 2 Month $150.00 $ 300.00 85%
- -----------------------------------------------------------------------------------------------------------------------------------
- 1 space for 1 month 1 Month $150.00 $ 150.00 85%
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Estimated Subtotal 5 $ 750.00
- -----------------------------------------------------------------------------------------------------------------------------------
Overall Subtotal $92,185.60
Project Management 3% $ 2,765.57
===================================================================================================================
Estimation of entire project cost $94,951.17
</TABLE>
Assumptions:
The above price schedule and description of work is based on the below
assumptions.
1. Primus will provide the necessary technical environment for onsite work.
2. Primus will supervise and lead all onsite testing work conducted by EGS.
3. Primus will provide any art files needed for the documentation or DTP work.
4. That the English documentation given to EGS for Japanese translation will not
change upon receipt of those materials by EGS. If the materials do change EGS
will bill Primus on a time and materials basis for any extra work caused by
such a change.
C. Delivery Schedule for Both Parties
EGS' ability to submit its deliverables to Primus on schedule is directly
dependent on Primus providing EGS with the needed deliverables by the dates
specified in the attached project schedule document. In order to prevent any
confusion the deliverables for both parties are stated in the project schedule
document.
- --------------------------------------------------------------------------------
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<PAGE>
D. Third Party Components
Unless otherwise agreed to, EGS shall not be responsible for localizing any part
of Primus' products which is based on a third party tool or component. EGS shall
not be held responsible for any delays or inability to carry out this
localization project in the event a third party tool, which was not specified
from the beginning, was the cause for such a problem. Furthermore, Primus shall
compensate EGS for any costs associated with extra work which reasonably result
from an unspecified third party tool or component, and which Primus has approved
in writing in advance of their being incurred. All third party tools need to be
specified and provided by Primus.
E. Training Availability
At the beginning of the project cycle, EGS' tester(s) will need to have basic
product training to familiarize them with the features, technologies, and
caveats of the software. Standard and/or customized training and any classes
needed in order for EGS staff to conduct the localization work will be provided
by Primus free of charge to EGS.
G. Charges
Primus agrees to pay EGS on a time and materials (hourly and/or per word basis)
for the tasks specified in item B) in United States dollars in accordance with
the following payment schedule:
(i) For onsite work, Primus agrees to pay EGS time and half of hourly rates for
any overtime work conducted by EGS. Overtime is defined as more than 8
hours of work conducted during a 24 hour period. EGS will get written
permission from COMPANY before any overtime work is undertaken by EGS.
(ii) For invoicing purposes or in the event of termination of this Agreement by
Primus, EGS shall maintain and Primus shall approve time records on all
WORK performed by employee(s), agents(s), or independent contractor(s) of
EGI, and Primus shall pay EGS at the rates specified below:
<TABLE>
<CAPTION>
---------------------------------------------------------------
Resource Rate
---------------------------------------------------------------
<S> <C> <C>
Testing $65 per hour
---------------------------------------------------------------
Documentation/Translation $55 per hour
---------------------------------------------------------------
Engineering $80 per hour
---------------------------------------------------------------
</TABLE>
(iii) Primus shall reimburse EGS for reasonable parking or other related
reasonable expenses for technical members of EGS who go to Primus to
perform localization related work. These expenses will be included in the
estimate/invoice provided to Primus.
(iv) EGS shall invoice Primus once a month on a progress billing basis for the
actual amount of work conducted by EGS. Primus shall make payments net
thirty (30) days upon receipt of invoice.
(v) Primus shall have the right to cancel this Schedule with or without cause.
If Primus cancels the Schedule, then Primus will provide EGS fifteen (15)
days prior written notice of such cancellation. Upon receipt of such
notice, EGS will discontinue all WORK thereunder, and upon request by
Primus, will turn over to Primus all WORK in progress applicable to this
Schedule. Primus will pay for all non-recoverable expenses incurred by EGS
prior to receipt of such notice and previously approved in writing by
Primus up to the effective date of cancellation in accordance with this
Schedule. Primus shall pay for all WORK at the agreed
- --------------------------------------------------------------------------------
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<PAGE>
rates prior to EGS' receipt of the cancellation notice, unless the
termination is for cause, and Primus is entitled to any compensation from
EGS.
EnCompass Group, Inc. Primus
Date: 2/12/98 Date: 2/11/98
------------------------- -------------------------
By: James R. Ladd By: David M. Hadley
--------------------------- ---------------------------
Name[Print]: James R. Ladd Name[Print]: David M. Hadley
------------------ ------------------
Title: President & CEO Title: S.V. Pres.
------------------------ ------------------------
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Confidential
Page 11
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EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our reports dated
March 12, 1999 (except Note 14, as to which the date is May 3, 1999), in
Amendment No. 3 to the Registration Statement (Form S-1 No. 333-77477) and the
related Prospectus of Primus Knowledge Solutions, Inc.
Ernst & Young LLP
Seattle, Washington
June 25, 1999
