<PAGE>
As filed with the Securities and Exchange Commission on April 30, 1999
Registration 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
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>
Suite 1900
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, WA 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. [_]
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
<CAPTION>
Title of Each Class Proposed Maximum Amount of
of Securities to Be Registered Aggregate Offering Price(1) Registration Fee
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.025 par value per share... $50,370,000.00 $14,003.00
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(a).
---------------
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 APRIL 30, 1999
[PRIMUS LOGO APPEARS HERE]
Shares
Common Stock
Primus Knowledge Solutions, Inc. is offering shares of its common stock.
This is Primus's initial public offering. We have filed an application for the
common stock to be quoted on the Nasdaq National Market under the symbol
"PKSI."
--------------
Investing in the common stock involves certain risks.
See "Risk Factors" beginning on page 5.
--------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price........................................... $ $
Underwriting Discounts and Commissions.......................... $ $
Total Proceeds to Primus........................................ $ $
</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 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 AND A GRAPHIC REPRESENTING THE IMPORTANCE OF CUSTOMER
SERVICE 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.
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.]
[THE SOLUTIONPUBLISHER, SOLUTIONEXPLORER AND SOLUTIONBUILDER LOGOS AND A GRAPHIC
REPRESENTATION OF THE PRIMUS KNOWLEDGE MANAGEMENT SOLUTION ACCOMPANIED BY THE
FOLLOWING TEXT:
SolutionPublisher provides an organization's customers access to
around-the-clock problem resolution through Web self-service.
SolutionExplorer's Web architecture allows field-service personnel and business
partners to access and contribute to the knowledge base.
SolutionBuilder enables customer-support professionals to find existing
solutions and author new solutions while working with a customer.]
[SAMPLE SOLUTIONBUILDER, SOLUTIONEXPLORER, AND SOLUTIONPUBLISHER SCREENS
ACCOMPANIED BY A DESCRIPTION OF EACH PRODUCT AND ITS STRENGTHS.]
INSIDE FRONT COVER
Many leading companies are using Primus SolutionSeries products to solve their
customer-support problems.
[Screen shots with customers' customized interfaces]
<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 Shareholders.................................................. 54
Description of Capital Stock............................................ 56
Shares Eligible for Future Sale......................................... 59
Underwriting............................................................ 61
Legal Matters........................................................... 63
Experts................................................................. 63
Additional Information.................................................. 63
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, (4) no exercise
of the underwriters' over-allotment option and (5) a 1-for-3 reverse split of
our common stock.
<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 through associative problem-solving
technology
We developed our products using associative problem-solving technology,
rather than alternative methodologies such as enhanced text retrieval,
decision trees and case-based reasoning, to improve the relevance of
solutions retrieved, support and enhance diverse problem-solving approaches
and cost-effectively capture 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 scalable solutions for 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 the extended enterprise
and its 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........ shares
Common stock to be
outstanding after this
offering................... shares
Use of proceeds............. For general corporate purposes, including working
capital. See "Use of Proceeds."
Proposed 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 34,167 shares issuable on exercise of
warrants at a weighted-average exercise price of $5.85 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)
Pro forma basic and diluted net
loss per share................. $ (1.32) $ (0.20)
Shares used in computation of
pro forma basic and diluted net
loss per share................. 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
. pro forma consolidated balance sheet data as adjusted to give effect to
our sale of shares of common stock offered through this
prospectus at the assumed initial public offering price of $ per
share and after deducting anticipated underwriting discounts and
commissions and estimated offering expenses and proceeds of $337,000 from
the exercise of warrants to purchase 66,389 shares of common stock at a
weighted-average exercise price of $4.10.
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 $ 2,423 $
Working capital deficit........................ (1,099) (1,099)
Total assets................................... 11,546 11,546
Long-term obligations, net of current ......... 1,054 1,054
Redeemable convertible preferred stock......... 23,373 --
Total shareholders' equity (deficit)........... (23,318) 55
</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
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones we face. If any of the following risks actually occur, our business,
financial condition or results of operations could be materially and adversely
affected. In such case, the trading price of our common stock could decline and
you may lose all or part of your investment.
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."
Our results fluctuate from quarter to quarter
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."
Quarter-to-quarter timing of our license revenue will sometimes vary based on
factors outside our control
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
5
<PAGE>
Where we are implementing the software, we will account for the agreement as
an item of deferred revenue and will recognize the revenue ratably 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 45 to 60 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."
Our quarterly operating results may vary due to the effects of seasonality
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.
6
<PAGE>
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 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 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.
The usefulness of our product depends in part on factors outside our control
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 product,
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."
Our market is highly competitive
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
7
<PAGE>
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."
We are currently dependent on Versant's database software
We incorporate into our products a database licensed from Versant. We are
currently working on integrating 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."
Our success depends on our ability to expand our sales and marketing
infrastructure
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 expanding 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."
We may not be able to retain skilled technical personnel in a tight labor
market
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, operating results
and financial condition.
We have recently added several new members to our management team
In the last nine months 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."
We may be unable to expand our implementation and consulting capabilities,
either internally or by expanding relationships with systems integrators and
consulting firms
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
8
<PAGE>
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."
There are risks associated with our international operations
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:
. 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.
We must adapt to technology trends and evolving industry standards to remain
competitive
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.
Continued integration of our products with other third-party software is
important to market acceptance of our product
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
9
<PAGE>
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.
We may be unable to adequately protect our proprietary rights
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 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 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. 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.
Certain existing shareholders own a large percentage of our voting stock
Following the closing of this offering, our officers, directors and
affiliated entities together will beneficially own approximately % of the
outstanding shares of our common stock ( % if the underwriters' over-
allotment option is exercised in full). As a result, these shareholders will be
10
<PAGE>
able to [influence][control] 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 Shareholders."
Management has broad discretion in using the proceeds from this offering
We have not identified specific uses for the 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 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>
90 days after effectiveness of this offering...................
180 days after effectiveness of this offering..................
At various times thereafter upon the expiration of one-year
holding periods....................................................
----
Total.............................................................
====
</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
11
<PAGE>
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 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 $ million in net proceeds from the
sale of the shares of common stock in this offering, at the assumed
initial public offering price of $ per share (approximately $ 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 increased
domestic and international sales and marketing expenditures, increased research
and development expenditures, and capital expenditures made in the ordinary
course of our business. 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 purposes and
capital expenditures 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
. our pro forma capitalization, as adjusted to give effect to the sale of
shares of common stock at the assumed initial public offering
price of $ per share (less anticipated underwriting discounts and
commissions and estimated expenses we expect to pay in connection with
this offering) and proceeds from the exercise of warrants to purchase
66,389 shares of common stock at a weighted-average exercise price of
$4.10 per share
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 $
--------- --------- -----
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;
9,435,407 shares issued and outstanding,
pro forma; shares issued and
outstanding, pro forma as adjusted(1)...... 112 236
Additional paid-in capital.................. 9,975 33,225
Accumulated deficit......................... (33,401) (33,401)
Accumulated other comprehensive loss........ (5) (5)
--------- --------- -----
Total shareholders' equity (deficit)...... (23,318) 55
--------- --------- -----
Total capitalization.................... $ 1,109 $ 1,109 $
========= ========= =====
</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
. 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
. 34,167 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 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 shares of common
stock at the assumed initial public offering price of $ 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 $ , or $ per
share. This represents an immediate increase in the pro forma net tangible book
value of $ per share to existing shareholders and an immediate dilution of
$ per share to new investors, or approximately % of the assumed initial
public offering price of $ per share.
The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $
Pro forma net tangible book value per share at March 31, 1999...... $0.03
Increase per share attributable to new investors...................
-----
Pro forma as adjusted net tangible book value per share after this
offering..........................................................
----
Dilution per share to new investors................................ $
====
</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 % $33,748,000 % $3.55
New investors...............
--------- --- ----------- ---
Total..................... 100% $ 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 4.10
=========
</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, 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............... -- 43 137 317 348 12 145
Service............... -- 332 1,090 2,086 2,461 526 790
------- ------- ------- ------- -------- ------- -------
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)
======= ======= ======= ======= ======== ======= =======
Pro forma basic and
diluted net loss per
share(1)............... $ (1.32) $(0.48)
Shares used in
computation of pro
forma basic and diluted
net loss per share(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 $ 2,423
Working capital
(deficit).............. (1,154) (923) 2,043 (1,957) (216) (1,099) (1,099)
Total assets............ 454 1,737 5,877 5,274 13,687 11,546 11,546
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) 55
</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.
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 1992, 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 1992 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.
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. 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 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
17
<PAGE>
. 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. While implementation services are not
essential to the functionality of our software, 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, we have concluded that revenue recognition
over the implementation period is appropriate. Consequently, we account for
agreements for which we have agreed to provide implementation as an item of
deferred revenue and recognize the revenue ratably over the period of
implementation. 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 45 to 60 days.
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 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.
18
<PAGE>
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 6.1 4.0 0.9 3.7
Service........................... 45.0 40.2 28.6 38.5 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. 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 market
acceptance of our SolutionSeries products, increased international sales and
increases in both the size and productivity of the sales force. 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 increased market acceptance of SolutionBuilder
and introduction of SolutionPublisher in August 1996. The increase from 1997 to
1998 primarily
19
<PAGE>
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.
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. 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.
All of the increases resulted primarily from increases in purchases of
maintenance and support contracts by our growing installed customer base and
consulting fees attributable to an increased number of implementations. 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 $12,000
and $145,000 for the three months ended March 31, 1998 and 1999, respectively,
and $137,000, $317,000 and $348,000 in 1996, 1997 and 1998, respectively. The
cost of licenses increased $133,000, or 1,108%, from the three months ended
March 31, 1998 to the three months ended March 31, 1999, and $180,000, or 131%,
from 1996 to 1997, and $31,000, or 10%, from 1997 to 1998. Cost of licenses as
a percentage of license revenues were 1.3% and 5.0% for the three months ended
March 31, 1998 and 1999, respectively, and 9.4%, 8.9% and 5.8% 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
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 $526,000 and $790,000 for the three months ended March 31, 1998
and 1999, respectively, and $1.1 million, $2.1 million and $2.5 million in
1996, 1997 and 1998, respectively. Cost of service revenue increased $264,000,
or 50%, from the three months ended March 31, 1998 to the three months ended
March 31, 1999, and $996,000, or 91%, from 1996 to 1997, and $375,000, or 18%,
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. Cost of
service revenue as a percentage of service revenues were 126% and 78% for the
three months ended March 31, 1998 and 1999, respectively, and 113%, 128% and
95% 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
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<PAGE>
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. 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 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
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<PAGE>
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 22% for the three months ended March
31, 1998 and 1999, respectively, and 51%, 30% 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. 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 $10.9 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.
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<PAGE>
Quarterly Results of Operations
The following table presents our unaudited quarterly results of operations
for 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, 31, March 31,
1998 1998 1998 1998 1999
--------- -------- --------- ------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
License....................... $ 948 $ 1,231 $ 1,419 $ 2,436 $ 2,901
Service....................... 417 592 790 777 1,010
------- ------- ------- ------- -------
Total revenues................ 1,365 1,823 2,209 3,213 3,911
------- ------- ------- ------- -------
Cost of revenues:
License....................... 12 17 58 261 145
Service....................... 526 502 710 723 790
------- ------- ------- ------- -------
Total cost of revenues........ 538 519 768 984 935
------- ------- ------- ------- -------
Gross profit................... 827 1,304 1,441 2,229 2,976
Operating expenses:
Sales and marketing........... 1,268 2,056 3,069 3,357 2,876
Research and development...... 713 934 885 754 1,065
General and administrative.... 460 569 709 1,533 879
------- ------- ------- ------- -------
Total operating expenses...... 2,441 3,559 4,663 5,644 4,820
------- ------- ------- ------- -------
Loss from operations........... (1,614) (2,255) (3,222) (3,415) (1,844)
Interest income (expense),
net........................... (12) (41) (26) 27 8
------- ------- ------- ------- -------
Loss before income taxes....... (1,626) (2,296) (3,248) (3,388) (1,836)
Income tax provision .......... -- -- -- (45) (27)
------- ------- ------- ------- -------
Net loss....................... $(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 1998 and the three months ended March 31,
1999.
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------
March 31, June 30, Sept. 30, Dec. 31, March 31,
1998 1998 1998 1998 1999
--------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
License.................... 69.5 % 67.5 % 64.2 % 75.8 % 74.2 %
Service.................... 30.5 32.5 35.8 24.2 25.8
------ ------ ------ ------ ------
Total revenues............. 100.0 100.0 100.0 100.0 100.0
------ ------ ------ ------ ------
Cost of revenues:
License.................... 0.9 0.9 2.6 8.1 3.7
Service.................... 38.5 27.5 32.2 22.5 20.2
------ ------ ------ ------ ------
Total cost of revenues..... 39.4 28.4 34.8 30.6 23.9
------ ------ ------ ------ ------
Gross margin................ 60.6 71.6 65.2 69.4 76.1
Operating expenses:
Sales and marketing........ 92.9 112.8 138.9 104.5 73.5
Research and development... 52.2 51.2 40.1 23.5 27.2
General and
administrative............ 33.7 31.2 32.1 47.7 22.5
------ ------ ------ ------ ------
Total operating expenses... 178.8 195.2 211.1 175.7 123.2
------ ------ ------ ------ ------
Loss from operations........ (118.2) (123.6) (145.9) (106.3) (47.1)
Interest income (expense),
net........................ (0.9) (2.3) (1.2) 0.8 0.2
------ ------ ------ ------ ------
Loss before income taxes.... (119.1) (125.9) (147.1) (105.5) (46.9)
Income tax provision ....... -- -- -- (1.4) (0.7)
------ ------ ------ ------ ------
Net loss.................... (119.1)% (125.9)% (147.1)% (106.9)% (47.6)%
====== ====== ====== ====== ======
</TABLE>
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<PAGE>
The trends discussed above in the annual and quarterly comparisons of
operating results generally apply to the comparison of operating results for
the five quarters in the 15-month period ended March 31, 1999. 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 $33.5
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 $216,000 at December 31, 1998. The increase in
the working capital deficit is attributable to a $2.0 million decrease in cash
and securities available-for-sale and accounts receivable, offset by a $1.4
million
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<PAGE>
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 $7.4 million at December 31, 1998.
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 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.
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
. 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 of this offering. We believe that the
net proceeds of this offering, together with our existing cash and cash
equivalents, and available bank borrowings, will be sufficient to meet our
25
<PAGE>
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.
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, 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.
26
<PAGE>
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 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
. reducing escalation of problems to senior analysts
. reducing training time
. increasing call deflections to the Web
. increasing solution reuse
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 a crucial 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 threaten 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.
28
<PAGE>
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. 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. According to a 1995 survey by Andersen Consulting, call tracking
accounted for only 20% of the total cost of a call, with 62% of the total costs
relating to problem solving and the balance attributable to administrative
costs.
29
<PAGE>
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 or 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.
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 require
the user to know the exact words used by the
systems developer to label a particular
concept. They tend to 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
often prove to be costly and time consuming to
develop. Furthermore, since the solution to a
problem is not captured in the product's
workflow, it is similarly 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,
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.
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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.
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. 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. To date, many companies have
handled the growing number of support inquiries over the Web by posting static
responses to
31
<PAGE>
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,
Web-based applications can be more rapidly and cost-effectively deployed to the
extended enterprise over the Internet or through corporate intranets and
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.
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 studies conducted
by several of our users, 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
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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
. 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.
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<PAGE>
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 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.
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<PAGE>
Build additional strategic
relationships
We currently have strategic marketing
partnerships with several call-tracking and
customer-relationship-management software
vendors. 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>
<C> <C> <C> <S>
Initial
Product Release Targeted User Description
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 an n-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; PC OEMs;
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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<PAGE>
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
consists 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, 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
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<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 value added reseller
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 party to any material legal proceedings.
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<PAGE>
MANAGEMENT
Executive Officers and Directors
Our executive officers and directors as of April 30, 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)......... 50 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
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.
44
<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.
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 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. We expect our shareholders to approve
this plan in May 1999. Members of our board of directors are eligible to
participate in the 1999 plan.
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. No member of our board of
directors or of its compensation committee serves 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 $2.8 million and
800,000 shares of our Series D preferred stock for $1.6 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 $58,000. 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 $3.2 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 $74,000 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, Audino and Block purchased 1,000, 5,556 and
50,713 shares, respectively, 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."
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<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
Executive Officer 1998 199,995 45,833 -- --
Elizabeth J. Huebner.... 1999 34,375(2) -- 36,666 --
Chief Financial Officer
and Vice President 1998 46,655(3) -- 106,666 --
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
Services 1998 85,456(6) -- 100,000 --
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
Sales 1998 118,606 20,870 -- 103,236(12)
</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 $125,000.
Mr. Walter is also eligible to receive a performance-based bonus in 1999.
(8) Mr. Sperry resigned from his position as chairman of our board of
directors on November 6, 1998.
(9) Represents severance payments received by Mr. Sperry upon his resignation.
(10) Mr. Hanafee resigned from his position as our vice president of sales on
December 31, 1998.
(11) Represents severance payments received by Mr. Hanafee upon his
resignation.
(12) Represents commission payments.
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<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth certain information regarding stock options we
granted during fiscal 1998.
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------
Potential
Realizable Value
at Assumed Annual
Rates of Stock
Number of Percentage of Price
Securities Total Options Appreciation for
Underlying Granted to Exercise Option Term(3)
Options Employees in Price Expiration -----------------
Name Granted(#) Fiscal Year(1) ($/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 $301,868 $764,992
Kim M. Nelson........... -- -- -- -- -- --
Patricia L. Cox......... 100,000 15.72 3.00 4/08/08 188,668 478,123
Edward L. Walter........ -- -- -- -- -- --
Steven L. Sperry........ -- -- -- -- -- --
David Hanafee........... -- -- -- -- -- --
</TABLE>
- --------
(1) Based on a total of 635,953 option shares granted to employees during
fiscal 1998.
(2) Options were granted at an exercise price equal to the fair market value of
our common stock at the time of the grant.
(3) The assumed rates of appreciation are prescribed by the Securities and
Exchange Commission for illustrative purposes only and are not intended to
forecast or predict future stock prices.
Aggregate Option Exercises in Fiscal 1998 and Year-End Option Values
None of Messrs. Brochu, Nelson or Walter exercised any options during fiscal
1998, nor did any of Mesdames Huebner or Cox. The following table sets forth
certain information regarding unexercised stock options held by our current and
former executive officers as of December 31, 1998.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Value Realized Options at Fiscal In-the-Money Options at
Acquired (Market Price at Year-End Fiscal Year-End($)(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 $ 477,747 $1,286,250
Elizabeth J. Huebner.... -- -- -- 106,666 -- 159,999
Kim M. Nelson........... -- -- -- -- -- --
Patricia L. Cox......... -- -- -- 100,000 -- 300,000
Edward L. Walter........ -- -- -- -- -- --
Steven L. Sperry........ 165,000 349,800 825,947 -- 2,577,841 --
David Hanafee........... -- -- 29,164 -- 87,492 --
</TABLE>
- --------
(1) Based on an assumed fair market value of our common stock at December 31,
1998 of $6.00 per share less the exercise price.
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 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
49
<PAGE>
.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 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.
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 has adopted our 1999 option plan, subject to
shareholder approval. The purpose of our 1999 option 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 option plan will
replace our current stock option plans for purposes of all future stock
incentive awards. The 1999 option 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
666,667 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 option plan, as
will shares that become available when options granted under the old plans
expire or are otherwise cancelled without exercise.
Stock Option Grants. The board of directors or a committee appointed by the
board will serve as the plan administrator of the 1999 option plan. The plan
administrator will have the authority to select individuals to receive options
under the 1999 option 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
50
<PAGE>
grant), the vesting provisions and the option term. For purposes of the 1999
option 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 option plan will expire 10 years from the date of
grant.
Stock Awards. The plan administrator is authorized under the 1999 option 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 option 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 or restricted stock awards also will
lapse.
1999 Employee Stock Purchase Plan
Our board of directors has adopted our 1999 employee stock purchase plan,
subject to shareholder approval. We will implement the 1999 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 85% of the fair market value on the last day of each purchase period.
Under certain circumstances specified in the plan, the purchase price may be
adjusted during an offering 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.
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<PAGE>
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' 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. As of March 31, 1999, there were 2,696,522 shares of
our common stock remaining available for issuance under this plan. In April
1999, we increased the shares reserved under the 1995 plan to 3,333,333. 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.
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<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 purchased 813,008 shares of our Series A preferred
stock for $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 1,076,818 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 $2.0 million of SolutionBuilder licenses and related
upgrade rights. Trans Cosmos pays us a portion of its technical support income
related to 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.
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 royalty on license and maintenance fees for those products.
Unless either party terminates, the agreement automatically renews for
additional one-year periods. The agreement has customary termination provisions
for breach and for failure by Primus KK to meet certain revenue 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 agreement is not fixed, but specific projects are described in mutually
agreed statements of work that establish time frames in which the projects are
to be completed.
In April 1999, we agreed to issue an aggregate of 18,333 shares of common
stock to Primus KK for issuance to its employees as compensation for their past
services and granted fully vested options to purchase an aggregate of 10,000
shares of common stock to Primus KK employees.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of our common stock as of March 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 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 March
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 Prior to After
Name and Address Beneficially Owned Offering Offering
---------------- ------------------ -------- --------
<S> <C> <C> <C>
Entities affiliated with Trans Cosmos,
Inc.(1)
777-108th Avenue, N.E., Suite 2300
Bellevue, WA 98004....................... 1,793,624 18.8% . %
Entities affiliated with Oak Investment
Partners VI,
Limited Partnership(2)
Suite 1300
525 University Avenue
Palo Alto, CA 94301...................... 1,576,773 16.5% . %
Norwest Equity Partners, V, L.L.P.(3)
Suite 250
245 Lytton Avenue
Palo Alto, CA 94301...................... 1,441,166 15.1% . %
Steven L. Sperry(4)
14616 S.E. 246th Place
Kent, WA 98042........................... 820,114 8.5% . %
Snowdon, L.P.(5)
1119 St. Paul Street
Baltimore, MD 21117...................... 862,659 9.0% . %
J.Z. Knight(6)
14507 Yelm Highway Southeast
Yelm, WA 98597........................... 570,937 5.9% . %
Michael A. Brochu(7)...................... 203,125 1.9% . %
Patricia L. Cox(8)........................ 29,166 * *
David Hanafee............................. 29,167 * *
Elizabeth J. Huebner...................... -- -- --
Kim M. Nelson............................. -- -- --
Edward L. Walter.......................... -- -- --
Directors and executive officers
as a group (9 persons)................... 415,785 4.2% . %
</TABLE>
54
<PAGE>
- --------
* less than one percent
(1) Represents the following: (a) 200,000 shares issuable upon conversion of
preferred stock held by Trans Cosmos; (b) 1,350,556 shares issuable upon
conversion of the preferred stock held by Trans Cosmos USA, a wholly-owned
subsidiary of Trans Cosmos; and (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. Trans
Cosmos is deemed to beneficially own all such shares. Yasuki Matsumoto, a
director of Primus, is president and chief executive officer 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 and Oak VI Affiliates, respectively, and thus are each
deemed to beneficially own the respective shares. Fredric W. Harman, a
director of Primus, is a managing member of Oak Associates VI, L.L.C.
(3) Represents 7,833 shares issuable on exercise of warrants and 1,433,333
shares issuable upon conversion of preferred stock. Norwest Venture Capital
is the general partner of Norwest Equity Partners, V, and thus is deemed to
beneficially own such shares. Promod Haque, a director of Primus, is a
partner of Norwest Venture Capital.
(4) Represents 210,833 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 March 31, 1999.
(5) Represents shares issuable upon conversion of the preferred stock.
(6) Represents 16,667 shares issuable on exercise of warrants and 554,270
shares held directly by Ms. Knight.
(7) Represents 1,000 shares held directly by Mr. Brochu and 202,125 shares
subject to options that are exercisable currently or within 60 days of
March 31, 1999. Excludes 18,375 shares subject to options held by Delialah
D. Brochu, Mr. Brochu's former spouse.
(8) Includes shares subject to options that are exercisable currently or within
60 days of March 31, 1999.
55
<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 our one-for-three reverse stock split, there were 9,435,407
shares of common stock outstanding held of record by 187 shareholders.
Following this offering, there will be shares of common stock
outstanding (assuming no exercise of the underwriters' over-allotment option
and no exercise of outstanding options). 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 5,707,555 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
56
<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
57
<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.
58
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the common stock.
We cannot provide any assurance that a significant public market for the common
stock will develop or be sustained after this offering. Future sales of
substantial amounts of common stock in the public market, or the possibility of
such sales occurring, could adversely affect prevailing market prices for the
common stock or our future ability to raise capital through an offering of
equity securities.
After this offering, we will have outstanding shares of common stock
( shares if the underwriters' over-allotment option is exercised in
full). Of these shares, the shares that we expect to sell in this
offering ( shares if the underwriters' over-allotment option is
exercised in full) will be freely tradable in the public market without
restriction under the Securities Act, unless such shares are held by
"affiliates" of Primus, as that term is defined in Rule 144 under the
Securities Act.
The remaining 9,535,929 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.
Pursuant to certain "lock-up" agreements, all the executive officers,
directors and certain shareholders of Primus, who collectively hold an
aggregate of restricted shares, have agreed not to offer, sell, contract
to sell, grant any option to purchase or otherwise dispose of any such shares
for a period of 180 days from 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, shares that are not
subject to lock-up agreements will be eligible for sale in the public market in
accordance with Rules 144 and 701. On the date of the expiration of the lock-up
agreements, an additional restricted shares will be eligible for
immediate sale (of which shares will be subject to certain volume, manner
of sale and other limitations under Rule 144). The remaining restricted
shares will be eligible for sale pursuant to Rule 144 on the expiration of
various one-year holding periods over the six months following the expiration
of the lock-up period.
Following the expiration of such lock-up periods, certain shares issued upon
exercise of options we granted prior to the date of this prospectus will also
be available for sale in the public market pursuant to Rule 701 under the
Securities Act. Rule 701 permits resales of such 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. Under Rule
144, beginning 90 days after the date of this prospectus, a person who has
beneficially owned restricted shares for at least one year 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
shares immediately after this offering)
. the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such
sale.
59
<PAGE>
Sales under Rule 144 are also subject to certain manner of sale and notice
requirements and to the availability of current public information about
Primus. Under Rule 144(k), a person who has not been an affiliate of Primus
during the preceding 90 days 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.
We intend to file, after the effective date of this offering, a registration
statement on Form S-8 to register up to approximately 4,602,094 shares of
common stock reserved for issuance under our 1993 stock plan, our 1994 stock
plan, our 1995 stock plan, our 1999 stock plan and our 1999 employee stock
purchase plan. The registration statement will become effective automatically
upon filing. Shares issued under the foregoing plans, after the filing of a
registration statement on Form S-8, may be sold in the open market, subject, in
the case of certain holders, to the Rule 144 limitations applicable to
affiliates, the above-referenced lock-up agreements and vesting restrictions
imposed by us.
In addition, following this offering, the holders of 5,707,555 shares of
outstanding common stock will, under certain circumstances, have rights to
require us to register their shares for future sale.
60
<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, subject to the terms and conditions set forth in the
underwriting agreement, to purchase from us 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..........................................................
===
</TABLE>
The representatives have advised us 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 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 additional shares of common stock at the same price
per share as we will receive for the 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 shares
offered hereby. If purchased, such additional shares will be sold by the
underwriters on the same terms as those on which the 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 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.
61
<PAGE>
Indemnity. The underwriting agreement contains covenants of indemnity among
the underwriters and us against certain civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representation 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 or hereafter acquired 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 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. We have applied 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 believed 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
62
<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
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. 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.
63
<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' 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
, 1999.
- -------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon completion of
the reverse stock split described in paragraph 3 of Note 14 to the
consolidated financial statements.
April 30, 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 1998
-------- -------- ----------- -------------
(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 5,599 4,777
Prepaid royalties.............. 73 166 65
Other current assets........... 70 307 300
-------- -------- --------
Total current assets...... 4,019 11,488 9,338
Property and equipment, net...... 1,208 1,914 1,922
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, 1998,
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............... $ 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............... 137 317 348 12 145
Services.............. 1,090 2,086 2,461 526 790
---------- ---------- ---------- ---------- ----------
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. 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 generally 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.
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)
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 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.
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)
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 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).
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)
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 either automatically convert into common stock or it is
assumed that the preferred stockholders will voluntarily 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.
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.
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.
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)
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>
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.
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)
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.
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>
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)
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.
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.
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)
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 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.
In addition, the Company has granted rights of first offer to the Series B
holders and is precluded from carrying out certain actions without the approval
of the majority of the Series B holders voting as a group.
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)
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
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-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)
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 5.61% to 4.45% 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-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)
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 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 $7.50 per share
as part of the Series D financing. 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.
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. As of March 31, 1999, outstanding warrants were as follows:
<TABLE>
<CAPTION>
Number
------------------------------------ Exercise
Common Preferred Price
------ --------- --------
<S> <C> <C>
14,840 -- $2.25
39,550 -- 3.00
22,500 -- 6.00
5,000 -- 9.00
-- 55,999 2.50
------ ------
81,890 55,999
====== ======
</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)
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-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)
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>
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 $1,334 $2,490
International........................... -- 31 1,430 31 1,421
------ ------ ------ ------ ------
Total revenues........................ $2,422 $5,189 $8,610 $1,365 $3,911
====== ====== ====== ====== ======
</TABLE>
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)
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, subject to shareholder
approval. 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.
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 and, in connection with the stock split,
the Company adjusted the authorized shares in its capitalization subject to
shareholder approval. 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.
F-21
<PAGE>
BACK COVER
SOLUTIONSERIES PRODUCTS
[LOGO OF SOLUTIONPUBLISHER] Provides Web self-service to customers around the
clock. Problems not solved by self-service can be escalated to customer support
personnel.
[LOGO OF SOLUTIONEXPLORER] Uses the Web to enable extended enterprise employees
and partners to contribute to and draw upon the problem-resolution knowledge
base.
[LOGO OF SOLUTIONBUILDER] Desktop application for capturing, solving, reusing
and sharing problem-resolution information.
<PAGE>
[PRIMUS LOGO APPEARS HERE]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than the
underwriting discounts and commissions, payable by the registrant in connection
with the sale of the common stock being registered hereby. All amounts shown
are estimates, except the Securities and Exchange Commission registration fee,
the NASD filing fee and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................ $ 14,003
NASD filing fee.................................................... 5,537
Nasdaq National Market listing fee................................. 5,000
Blue Sky fees and expenses......................................... 10,000
Printing and engraving expenses.................................... 175,000
Legal fees and expenses............................................ 500,000
Accounting fees and expenses....................................... 250,000
Transfer Agent and Registrar fees.................................. 10,000
Miscellaneous expenses............................................. 5,460
--------
Total.............................................................. $950,000
========
</TABLE>
Item 14. Indemnification of Directors and Officers
Sections 23B.08.500 through 23B.08.600 of the Washington Business Corporation
Act (the "WBCA") authorize a court to award, or a corporation's board of
directors to grant, indemnification to directors and officers on terms
sufficiently broad to permit indemnification under certain circumstances for
liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"). Section 10 of the registrant's Restated Bylaws (Exhibit 3.2
hereto) provides for indemnification of the registrant's directors, officers,
employees and agents to the maximum extent permitted by Washington law. The
directors and officers of the registrant also may be indemnified against
liability they may incur for serving in that capacity pursuant to a liability
insurance policy maintained by the registrant for such purpose.
Section 23B.08.320 of the WBCA authorizes a corporation to limit a director's
liability to the corporation or its shareholders for monetary damages for acts
or omissions as a director, except in certain circumstances involving
intentional misconduct, knowing violations of law or illegal corporate loans or
distributions, or any transaction from which the director personally receives a
benefit in money, property or services to which the director is not legally
entitled. Section 5.2 of the registrant's Fourth Amended and Restated Articles
of Incorporation (Exhibit 3.1 hereto) contains provisions implementing, to the
fullest extent permitted by Washington law, such limitations on a director's
liability to the registrant and its shareholders.
The Underwriting Agreement (Exhibit 1.1 hereto) provides for indemnification
by the Underwriters of the registrant and its executive officers and directors,
and by the registrant of the Underwriters, for certain liabilities, including
liabilities arising under the Securities Act, in connection with matters
specifically provided in writing by the Underwriters for inclusion in this
Registration Statement.
II-1
<PAGE>
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 the proposed 3-for-1 reverse
stock split of the registrant's common stock.
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 $1.00 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 $1,128,924.
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 2,611,443 shares remained
outstanding as of April 1, 1999.
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-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1* Fourth Amended and Restated Articles of Incorporation of the
registrant.
3.2* 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.
</TABLE>
II-3
<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)
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>
- --------
* To be filed by amendment.
** Registrant has sought confidential treatment pursuant to Rule 406 for
portions of the referenced exhibit.
(b) Financial Statement Schedules
All 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.
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 14, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to provide to the Underwriters,
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-4
<PAGE>
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Seattle,
State of Washington, on the 30th day of April, 1999.
Primus Knowledge Solutions, Inc.
/s/ Michael A. Brochu
___________________________________
Michael A. Brochu, President
POWER OF ATTORNEY
Each person whose individual signature appears below hereby authorizes and
appoints Michael A. Brochu and Elizabeth J. Huebner, and each of them, with
full power of substitution and resubstitution and full power to act without the
other, as his true and lawful attorney-in-fact and agent to act in his name,
place and stead and to execute in the name and on behalf of each person,
individually and in each capacity stated below, and to file, any and all
amendments to this Registration Statement, including any and all post-effective
amendments and amendments thereto and any registration statement relating to
the same offering as this Registration Statement that is to be effective upon
filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended,
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in fact and agents, and each of them, full power and
authority to do and perform each and every act and thing, ratifying and
confirming all that said attorneys-in-fact and agents or any of them or their
or his substitute or substitutes may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated below on the 30th day of April, 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)
/s/ Antonio M. Audino Director
________________________________________
Antonio M. Audino
/s/ Promod Haque Director
________________________________________
Promod Haque
/s/ Fredric W. Harman Director
________________________________________
Fredric W. Harman
/s/ Yasuki Matsumoto Director
________________________________________
Yasuki Matsumoto
</TABLE>
II-6
<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* Fourth Amended and Restated Articles of Incorporation of the
registrant.
3.2* 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)
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>
- --------
* To be filed by amendment.
** Registrant has sought confidential treatment pursuant to Rule 406 for
portions of the referenced exhibit.
<PAGE>
EXHIBIT 10.1
PRIMUS COMMUNICATIONS CORPORATION
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT is entered into as of the 9th day of
February, 1996, by and among PRIMUS COMMUNICATIONS CORPORATION, a Washington
corporation (the "Company"), and the parties listed on Schedule A hereto (the
"Investors"), as at any time amended.
RECITALS
The Investors are purchasing, as of the date of this Agreement, shares of
the Company's Series A Convertible Preferred Stock (the "Series A Stock").
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged, the parties hereto agree as follows:
l. Definitions
For purposes of this Agreement:
(a) The term "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended (the
"Act"), and the declaration or ordering of effectiveness of such registration
statement or document;
(b) The term "Registrable Securities" means (i) the Common Stock of
the Company issuable or issued upon conversion of the Series A Stock and (ii)
any Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of,
such Series A Stock or Common Stock, excluding in all cases, however, any
Registrable Securities sold by a person in a transaction in which its rights
under this Agreement are not assigned;
(c) The number of shares of "Registrable Securities then outstanding"
shall be determined by the number of shares of Common Stock outstanding which
are, and the number of shares of Common Stock issuable pursuant to then
exercisable or convertible securities which are, Registrable Securities;
(d) The term "Holder" means any person owning or having the right to
acquire Registrable Securities who is a party to this Agreement as of the date
hereof or who
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT Page 1
<PAGE>
may be added as a party hereto pursuant to the terms of this Agreement, and any
assignee thereof in accordance with Section 12; and
(e) The term "Form S-3" means such form under the Act as in effect on
the date hereof or any registration form under the Act subsequently adopted by
the Securities and Exchange Commission (the "SEC") that similarly permits
inclusion or incorporation of substantial information by reference to other
documents filed by the Company with the SEC.
2. Request for Registration
(a) If the Company shall receive, at any time after the earlier of (i)
February 9, 2000 or (ii) six months after the effective date of the first
registration statement for a public offering of securities of the Company to the
general public, a written request from the Holders of at least 30% of the
Registrable Securities then outstanding that the Company file a registration
statement (other than on Form S-3) under the Act covering the registration (x)
of at least 25% of the Registrable Securities originally issued to the Holders
with an aggregate offering price to the public of such Registrable Securities
reasonably expected to be not less than $20,000,000 or (y) of at least
$7,500,000 of Registrable Securities with an aggregate offering price to the
public of such Registrable Securities and all other securities included in such
registration reasonably expected to be not less than $15,000,000, then the
Company shall, within ten days of the receipt of such request, give written
notice of such request to all Holders and shall, subject to the limitations of
Section 2(b), use its best efforts to effect as soon as practicable the
registration under the Act of all Registrable Securities that the Holders
request to be registered in a written request to be given within 30 days of the
mailing of such notice by the Company.
(b) The Holders initiating the registration request hereunder
("Initiating Holders") must distribute the Registrable Securities covered by
their request by means of a public offering underwritten by a reputable national
or regional underwriter. The right of any Holder to include its Registrable
Securities in such registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their Registrable Securities through such
underwriting shall (together with the Company as provided in Section 4(e)) enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by a majority in interest of the
Initiating Holders. Notwithstanding any other provision of this Section 2, if
the underwriter advises the Initiating Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
Initiating Holders shall so advise all Holders of Registrable Securities which
would otherwise be underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the underwriting shall be
allocated among all Holders thereof, including the Initiating Holders, in
proportion (as nearly as practicable) to the amount of Registrable Securities of
the Company owned by each Holder.
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT Page 2
<PAGE>
(c) The Company is obligated to effect no more than two registrations
pursuant to this Section 2 or more than one such registration during any 12-
month period.
(d) Notwithstanding the foregoing, if the Company shall furnish to the
Holders requesting a registration statement pursuant to this Section 2: (i) a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company it would be seriously
detrimental to the Company and its shareholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing
for up to two periods of not more than 90 days each after receipt of the request
of the Initiating Holders; provided, however, that the Company may not use this
right more than once (for a total of up to 180 days) in any 12-month period or
(ii) within 30 days of receiving a request for registration pursuant to this
Section 2, a certificate signed by the President of the Company stating that the
Company intends within 45 days of the date of such certificate to file a
registration statement for the initial public offering of securities of the
Company to the general public, the Company shall not be obligated to effect the
registration requested pursuant to this Section 2; provided, however, that the
Company shall promptly notify the Holders requesting a registration pursuant to
this Section 2 of any decision by the Company to abandon or indefinitely delay
such initial public offering.
3. Company Registration
If (but without any obligation to do so) the Company proposes to register
(including for this purpose a registration effected by the Company for
shareholders other than the Holders) any of its stock or other securities under
the Act in connection with the public offering of such securities solely for
cash (other than a registration relating solely to the sale of securities to
participants in a Company stock plan, or a registration on any form that does
not include substantially the same information as would be required to be
included in a registration statement covering the sale of the Registrable
Securities), the Company shall, at each such time, promptly give each Holder
written notice of such registration. Upon the written request of each Holder
given within 20 days after mailing of such notice by the Company, the Company
shall, subject to the provisions of Section 8, cause to be registered under the
Act all of the Registrable Securities that each such Holder has requested to be
registered.
4. Obligations of the Company
Whenever required under this Agreement to effect the registration of any
Registrable Securities, the Company shall, as expeditiously as reasonably
possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for up to 90 days.
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT Page 3
<PAGE>
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of all securities covered by such registration
statement.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto covered
by such registration statement is required to be delivered under the Act, of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing.
(g) At the request of any Holder requesting registration of
Registrable Securities pursuant to this Agreement, furnish on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Agreement (i) an opinion, dated such date,
of the counsel representing the Company for the purposes of such registration,
in form and substance as is customarily given to underwriters in an underwritten
public offering, addressed to the underwriters and (ii) a letter dated such
date, from the independent certified public accountants of the Company, in form
and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, addressed to the
underwriters.
5. Furnish Information
It shall be a condition precedent to the obligations of the Company to take
any action pursuant to this Agreement that the selling Holders shall furnish to
the Company such information regarding themselves, the Registrable Securities
held by them and the intended method of disposition of such securities as shall
be reasonably required to effect the
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT Page 4
<PAGE>
registration of their Registrable Securities and to execute such documents in
connection with such registration as the Company may reasonably request.
6. Expenses of Demand Registration
All expenses other than underwriting discounts and commissions and transfer
taxes incurred in connection with the underwriting, registrations, filings or
qualifications pursuant to Section 2, including, without limitation, all
registration, filing and qualification fees, printing and accounting fees, the
fees and disbursements of counsel for the Company and the fees and disbursements
of one counsel for the selling Holders shall be borne by the Company; provided,
however, that the Company shall not be required to pay for any expenses of any
registration proceeding begun pursuant to Section 2 if the registration request
is subsequently withdrawn at the request of the Holders of a majority of the
Registrable Securities to be registered (which Holders shall bear such
expenses), unless the Holders of a majority of the Registrable Securities agree
to forfeit the right to one registration pursuant to Sections 2 and 15.
7. Expenses of Company Registration
The Company shall bear and pay all expenses incurred in connection with any
registration, filing or qualification of Registrable Securities with respect to
the registrations pursuant to Section 3 for each Holder, including, without
limitation, all registration, filing and qualification fees, printing and
accounting fees, the fees and disbursements of counsel for the Company and the
fees and disbursements of one counsel for the selling Holders; provided,
however, that the selling Holders shall bear the expenses of any underwriting
discounts and commissions and transfer taxes relating to the Registrable
Securities.
8. Underwriting Requirements
The Company shall not be required under Section 3 to include any of the
Holders' securities in an underwritten offering of the Company's securities
unless such Holders accept the terms of the underwriting as agreed upon between
the Company and the underwriters selected by it. If the total amount of
securities, including Registrable Securities, requested by shareholders to be
included in such offering exceeds the amount of securities that the underwriters
reasonably believe compatible with the success of the offering, then the Company
shall be required to include in the offering only that number of such
securities, including Registrable Securities, which the underwriters believe
will not jeopardize the success of the offering. The securities to be included
in the registration in the event of such a reduction shall be apportioned first
to the Company, then pro rata among the selling Holders according to the total
amount of securities requested to be sold in such registration by such Holders
and then pro rata among any other selling shareholders according to the total
amount of securities otherwise entitled to be included therein owned by each
such other selling shareholder, or in such other proportions as shall mutually
be agreed to by such selling shareholders; provided that in no event shall the
amount of securities of the selling Holders included in the offering be reduced
below 20% of the total amount of securities included in such offering, unless
such offering is the initial public offering of the Company's securities, in
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT Page 5
<PAGE>
which case the selling Holders may be excluded if the underwriters make the
determination described above and provided no other shareholder's securities are
included.
9. Delay of Registration
No Holder shall have any right to obtain or seek an injunction restraining
or otherwise delaying any such registration as the result of any controversy
that might arise with respect to the interpretation or implementation of this
Agreement.
10. Indemnification
In the event any Registrable Securities are included in a registration
statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the Securities Exchange Act of 1934, as amended (the
"1934 Act"), against any losses, claims, damages or liabilities (joint or
several) to which they may become subject under the Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively, a "Violation"): (i) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein, in light of the circumstances under which they
were made, or any amendments or supplements thereto, (ii) the omission or
alleged omission to state therein a material fact required to be stated therein,
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, or (iii) any violation or alleged
violation by the Company of the Act, the 1934 Act, any state securities law or
any rule or regulation promulgated under the Act, the 1934 Act or any state
securities law; and the Company will reimburse each such Holder, underwriter or
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this Section 10(a) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of the Company, which consent shall not be unreasonably withheld,
nor shall the Company be liable in any such case for any such loss, claim,
damage, liability or action to the extent that it arises out of or is based upon
a Violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by,
or on behalf of, any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will indemnify
and hold harmless the Company, each of its officers, directors, agents or
employees, each person, if any, who controls the Company within the meaning of
the Act, any underwriter and any other Holder selling securities in such
registration statement or any person who controls such Holder, against any
losses, claims, damages or liabilities (joint or several) to which the
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT Page 6
<PAGE>
Company or any such officer, director, agent, employee, controlling person, or
underwriter, or other such Holder or its controlling person may become subject,
under the Act, the 1934 Act or other federal or state law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by, or on behalf of, such Holder expressly for use
in connection with such registration; and each such Holder will reimburse any
legal or other expenses reasonably incurred by the Company or any such partner,
officer, director, agent, employee, controlling person, underwriter or other
such Holder or its controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement contained in this Section 10(b) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld.
(c) Promptly after receipt by an indemnified party under this Section
10 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 10, deliver to the
indemnifying party a written notice of the commencement thereof, and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly notified, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if, in the opinion of counsel for the indemnifying
party, representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable period of time of the commencement of any
such action shall relieve such indemnifying party of any liability to the
indemnified party under this Section 10 to the extent prejudicial to its ability
to defend such action, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 10.
11. Reports Under the Act
With a view to making available to the Holders the benefits of SEC Rule 144
promulgated under the Act and any other rule or regulation of the SEC that may
at any time permit a Holder to sell securities of the Company to the public
without registration or pursuant to a registration on Form S-3, the Company
agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after 90 days from the
effective date of the first registration statement filed by the Company for the
offering of its securities to the general public;
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT Page 7
<PAGE>
(b) take such action, including the voluntary registration of its
Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company that
it has complied with the reporting requirements of SEC Rule 144 (at any time
after 90 days from the effective date of the first registration statement filed
by the Company), the Act and the 1934 Act (at any time after it has become
subject to such reporting requirements), or that it qualifies as a registrant
whose securities may be resold pursuant to Form S-3 (at any time after it so
qualifies), (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company, and (iii)
such other information as may be reasonably requested in availing any Holder of
any rule or regulation of the SEC that permits the selling of any such
securities without registration or pursuant to such form.
12. Assignment of Registration Rights
The rights to cause the Company to register Registrable Securities pursuant
to this Agreement may be assigned by a Holder to a transferee or assignee of
such securities who shall, upon such transfer or assignment, be deemed a
"Holder" under this Agreement; provided that the Company is, within a reasonable
period of time after such transfer, furnished with written notice of the name
and address of such transferee or assignee and the securities with respect to
which such registration rights are being assigned; provided, further, that such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Act and that such transferee or assignee is either (a) a
partner or retired partner of any Holder that is a partnership, (b) a member of
the immediate family or a trust for the benefit of any Holder that is an
individual, or (c) the transferee or assignee of at least 150,000 shares of the
Registrable Securities.
l3. Limitations on Registration Rights
(a) No Holder shall have the right to cause the Company to register
Registrable Securities pursuant to this Agreement if (i) such Holder holds
Registrable Securities having a fair market value of $750,000 or less or (ii)
such Registrable Securities may be sold under the Act without volume limitation
and without an effective registration statement under the Act; provided,
however, that during the five-year period after the effective date of the first
registration statement for a public offering of the Company's securities, any
Holder that continues to hold at least $5,000,000 of Registrable Securities
shall maintain such Holder's registration rights notwithstanding the provisions
at clause (ii).
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT Page 8
<PAGE>
(b) From and after the date of this Agreement, the Company shall not,
without the prior written consent of the Holders of a majority of the
outstanding Registrable Securities, enter into any agreement with any holder or
prospective holder of any securities of the Company that would allow such holder
or prospective holder to (a) include such securities in any registration filed
under Section 2, 3 or 15, unless under the terms of such agreement, such holder
or prospective holder may include such securities in any such registration only
to the extent that the inclusion of its securities will not reduce the amount of
the Registrable Securities of the Holders which is included or (b) make a demand
registration which could result in such registration statement being declared
effective prior to the earlier of either of the dates set forth in Section 2(a)
or within 180 days of the effective date of any registration effected pursuant
to Section 2.
14. "Market Stand-Off" Agreement
The Holders hereby agree that they shall not, to the extent requested by
the Company and an underwriter of Common Stock (or other securities) of the
Company, sell or otherwise transfer or dispose (other than to donees who agree
to be similarly bound) of any Registrable Securities for 180 days following the
effective date of a registration statement of the Company filed under the Act;
provided, however, that all officers and directors of the Company and all other
persons with registration rights (whether or not pursuant to this Agreement)
enter into similar agreements.
In order to enforce the foregoing covenant, the Company may impose stop-
transfer instructions with respect to the Registrable Securities of the Holders
(and the shares or securities of every other person subject to the foregoing
restriction) until the end of such period.
15. Form S-3 Registration
In case the Company shall receive from the Holders of Registrable
Securities then outstanding a written request or requests that the Company
effect a registration on Form S-3 and any related qualification or compliance
with respect to Registrable Securities owned by such Holders, reasonably
expected to generate gross proceeds of not less than $2,000,000, the Company
will:
(a) promptly give written notice of the proposed registration and
any related qualification or compliance to all other Holders;
(b) as soon as practicable effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holders'
Registrable Securities as are specified in such request together with all or
such portion of the Registrable Securities of any other Holders joining in such
request as are specified in a written request given within 15 days after receipt
of written notice from the Company; provided, however, that the Company
shall not be obligated to effect any such registration, qualification or
compliance pursuant to this
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT Page 9
<PAGE>
Section 15: (i) if Form S-3 is not available for such offering by the Holders;
(ii) if the Company shall furnish to the Holders a certificate signed by the
President of the Company stating that, in the good faith judgment of the Board
of Directors of the Company, it would be seriously detrimental to the Company
and its shareholders for such Form S-3 registration to be effected at such time,
in which event the Company shall have the right to defer the filing of the Form
S-3 registration statement for a period of not more than 90 days after receipt
of the request of the Holders under this Section 15; provided, however, that the
Company shall not use this right more than once in any 12-month period; (iii) if
the Company has, within the six month period preceding the date of such request,
already effected one such registration on Form S-3 for the Holders pursuant to
this Section 15; (iv) if the Company within the six month period preceding the
date of such request has effected a registration of securities in which the
Holders of Registrable Securities requesting registration pursuant to this
Section 15 were entitled to participate to the fullest extent they desired
pursuant to Section 2 or 3; or (v) in any particular jurisdiction in which the
Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration qualification or
compliance; and
(c) subject to the foregoing, file a registration statement covering
the Registrable Securities and other securities so requested to be registered as
soon as practical after receipt of the request or requests of the Holders. All
expenses incurred in connection with a registration requested pursuant to this
Section 15, including, without limitation, all registration, filing,
qualification, printing and accounting fees and the reasonable fees and
disbursements of one counsel for the selling Holders and counsel for the
Company, shall be borne by the Company; provided, however, that the selling
Holders shall bear the expenses of any underwriting discounts and commission and
transfer taxes relating to the securities to be registered on behalf of the
Holders.
16. Notices
Unless otherwise provided, any notice required or permitted under this
Agreement shall be given in writing and shall be deemed effectively given upon
personal delivery to the party to be notified or upon deposit with the United
States Post Office, postage prepaid, registered or certified with return receipt
requested and addressed to the party to be notified at the address indicated for
such party on the signature page hereof or on Schedule A hereto, or at such
other address as such party may designate by ten days' advance written notice to
the other parties given in the foregoing manner.
17. Amendments and Waivers
Any term of this Agreement may be amended and the observance of any term
may be waived (either generally or in a particular instance and either
retroactively or prospectively) only with the written consent of the Company and
the holders of a majority of the shares of Series A Stock and Common Stock that
are Registrable Securities themselves or upon which Registrable Securities are
based. Additional Holders may be added to this Agreement with
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT Page 10
<PAGE>
such consent by amending Schedule A hereto and adding a signature page executed
by such additional Holder.
18. Severability
If one or more provisions of this Agreement are held to be unenforceable
under applicable law, such provision shall be excluded from this Agreement, and
the balance of this Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
19. Governing Law
This Agreement shall be governed by and construed under the laws of the
State of Washington as applied to agreements among Washington residents entered
into and to be performed entirely within the State of Washington.
20. Counterparts
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
21. Entire Agreement
This Agreement constitutes the full and entire understanding and agreement
between the parties with respect to the subject matter hereof and supersedes all
prior agreements with respect to the subject matter hereof.
PRIMUS COMMUNICATIONS CORPORATION
By /s/ STEVEN L. SPERRY
------------------------------
Its President & CEO
----------------------------
Address: 1601 Fifth Avenue, Suite 1900
Seattle, Washington 98101
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REGISTRATION RIGHTS AGREEMENT Page 11
<PAGE>
OAK INVESTMENT PARTNERS VI, LIMITED PARTNERSHIP
By its General Partner,
Oak Associates VI,
Limited Partnership
By /s/ Frederic Harman
----------------------------
General Partner
OAK VI AFFILIATES FUND, LIMITED PARTNERSHIP
By its General Partner,
Oak VI Affiliates, LLC
By /s/ Frederic Harman
----------------------------
Member
NORWEST EQUITY PARTNERS, V
A Minnesota Limited Liability Partnership,
By: Itasca Partners V, L.L.P., General Partner
By:
----------------------------
Promod Haque, Partner
TRANS COSMOS, INC.
By
----------------------------
Its
-------------------------
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REGISTRATION RIGHTS AGREEMENT Page 12
<PAGE>
OAK INVESTMENT PARTNERS VI, LIMITED PARTNERSHIP
By its General Partner,
Oak Associates VI,
Limited Partnership
By
----------------------------
General Partner
OAK VI AFFILIATES FUND, LIMITED PARTNERSHIP
By its General Partner,
Oak VI Affiliates, LLC
By
----------------------------
Member
NORWEST EQUITY PARTNERS, V
A Minnesota Limited Liability Partnership,
By: Itasca Partners V, L.L.P., General Partner
By: /s/ Promod Hague
----------------------------
Promod Haque, Partner
TRANS COSMOS, INC.
By
----------------------------
Its
-------------------------
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REGISTRATION RIGHTS AGREEMENT Page 12
<PAGE>
OAK INVESTMENT PARTNERS VI, LIMITED PARTNERSHIP
By its General Partner,
Oak Associates VI,
Limited Partnership
By
----------------------------
General Partner
OAK VI AFFILIATES FUND, LIMITED PARTNERSHIP
By its General Partner,
Oak VI Affiliates, LLC
By
----------------------------
Member
NORWEST EQUITY PARTNERS, V
A Minnesota Limited Liability Partnership,
By: Itasca Partners V, L.L.P., General Partner
By:
----------------------------
Promod Haque, Partner
TRANS COSMOS, INC.
/s/ Koki Okuda
By Koki Okuda
----------------------------
Its President
-------------------------
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REGISTRATION RIGHTS AGREEMENT Page 12
<PAGE>
Schedule A
Oak Investment Partners VI, L.P.
525 University Avenue, Suite 1500
Palo Alto, CA 94301
Attn: Frederic Harman, General Partner
Oak VI Affiliates Fund, Limited Partnership
525 University Avenue, Suite 1500
Palo Alto, CA 94301
Attn: Frederic Harman, General Partner
Norwest Equity Partners, V
c/o Promod Haque
Norwest Venture Capital
Building 3, Suite 105
3000 Sand Hill Road
Menlo Park, CA 94025
Trans Cosmos, Inc.
Sumitomo Seimei Bldg
3-3 Akasaka 3 Chome
Minato-Ku
Tokyo, Japan 107
Attn: Hiroshi Kaizuka
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT Page 13
<PAGE>
PRIMUS COMMUNICATIONS CORPORATION
AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
THIS AMENDMENT TO REGISTRATION RIGHTS AGREEMENT (this "Amendment") is made
as of the 27th day of March 1997, by and among PRIMUS COMMUNICATIONS
CORPORATION, a Washington corporation (the "Company") and the persons listed as
shareholders in the signature pages to this Amendment (collectively, the
"Shareholders" and individually, a "Shareholder").
RECITALS
A. The Shareholders are holders of outstanding shares of the Company's
Series A Preferred Stock, $.001 par value (the "Series A Stock"), and holders of
outstanding shares of the Company's Series C Convertible Preferred Stock, $.001
per value (the "Series C Stock").
B. The Company and the Shareholders are parties to a Registration Rights
Agreement, dated as of February 9, 1996 (the "Registration Rights Agreement").
C. The Shareholders are acquiring shares of Series C Stock pursuant to the
terms of a Series C Preferred Stock Purchase Agreement dated the date hereof
between the Company and the Shareholders (the "Purchase Agreement").
D. It is a condition to the obligations of the Shareholders under the
Purchase Agreement that this Amendment be executed by the parties hereto, and
the parties are willing to execute this Amendment and to be bound by the
provisions of this Amendment and the Registration Rights Agreement, as amended
hereby.
AGREEMENT
NOW THEREFORE, the parties hereto hereby agree as follows:
1. Definitions
Capitalized terms used but not defined in this Amendment shall have the
respective definitions ascribed to such terms in the Registration Rights
Agreement.
2. Amendment to Section 1
The definition of "Registrable Securities" contained in Section 1 of the
Registration Rights Agreement is amended and restated in its entirety to read as
follows:
(b) The term "Registrable Securities" means (i) the Common Stock of the
Company issuable or issued upon conversion of the Series A Stock or Series C
Stock and (ii) any Common Stock of the Company issued as (or issuable upon the
conversion or exercise
- --------------------------------------------------------------------------------
Amendment to Registration Rights Agreement Page 1
<PAGE>
of any warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, such
Series A Stock or Series C Stock or Common Stock, excluding in all cases,
however, any Registrable Securities sold by a person in a transaction in which
its rights under this Agreement are not assigned.
3. Amendment of Section 17
Section 17 of the Registration Rights Agreement is amended and restated in
its entirety to read as follows:
Any term of this Agreement may be amended and the observance of any term
may be waived (either generally or in a particular instance and either
retroactively or prospectively) only with the written consent of the Company and
the holders of a majority of the shares of Series A Stock. Series C Stock and
Common Stock that are Registrable Securities themselves or upon which
Registrable Securities are based. Additional Holders may be added to this
Agreement with such consent by amending Schedule A hereto and adding a signature
page executed by such additional Holder.
4. Effectiveness
This Amendment shall be effective upon execution by the Company and
Shareholders owning at least a majority of the Shares owned by all of the
Shareholders.
5. Counterparts
This Amendment may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
- --------------------------------------------------------------------------------
Amendment to Registration Rights Agreement Page 2
<PAGE>
IN WITNESS WHEREOF, this Amendment has been executed as of the date and
year first above written.
COMPANY:
PRIMUS COMMUNICATIONS CORPORATION
By: /s/ Steven L. Sperry
---------------------------------
Steven L. Sperry, President
Address:
1601 Fifth Avenue, Suite 1900
Seattle, WA 98101
SHAREHOLDERS:
TRANS COSMOS USA INC.
By: /s/ Shozo Okuda
---------------------------------
Shozo Okuda, President
Address:
4040 Lake Washington Blvd. N.E.
Suite 205
Kirkland, WA 98033
ENCOMPASS GROUP INC.
By: /s/ Yasuki Matsumoto
---------------------------------
Yasuki Matsumoto, President
Address:
4040 Lake Washington Blvd. N.E.
Suite 205
Kirkland, WA 98033
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Amendment to Registration Rights Agreement Page 3
<PAGE>
OAK INVESTMENT PARTNERS VI, LIMITED PARTNERSHIP
By its General Partner,
Oak Associates VI,
Limited Partnership
By: /s/ Frederick W. Harman
-------------------------------
Frederick W. Harman, General Partner
Address:
525 University Avenue, Suite 1500
Palo Alto, CA 94301
OAK VI AFFILIATES FUND, LIMITED PARTNERSHIP
By its General Partner,
Oak VI Affiliates, LLC
By: /s/ Frederick W. Harman
-------------------------------
Frederick W. Harman, Member
Address:
525 University Avenue, Suite 1500
Palo Alto, CA 94301
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Amendment to Registration Rights Agreement Page 4
<PAGE>
NORWEST EQUITY PARTNERS, V
A Minnesota Limited Liability Partnership,
By: Itasca Partners V, L.L.P., General Partner
By: /s/ Promod Haque
-------------------------------
Promod Haque, Partner
Address:
Norwest Venture Capital
c/o Promod Haque
245 Lytton Ave.
Suite 250
Palo Alto, CA 94301-1426
<PAGE>
PRIMUS KNOWLEDGE SOLUTIONS, INC.
SECOND AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
THIS SECOND AMENDMENT TO REGISTRATION RIGHTS AGREEMENT (this "Amendment")
is made as of the 22nd day of July 1998, by and among PRIMUS KNOWLEDGE
SOLUTIONS, INC. (formerly Primus Communications Corporation), a Washington
corporation (the "Company"), the persons listed as shareholders in the signature
pages to this Amendment (collectively, the "Shareholders" and individually, a
"Shareholder"), and the persons listed as investors in the signature pages to
this Amendment (collectively, the "Investors" and individually, an "Investor").
RECITALS
A. The Shareholders are holders of outstanding shares of the Company's
Series A Preferred Stock, $.001 par value (the "Series A Stock"), and holders of
outstanding shares of the Company's Series C Convertible Preferred Stock, $.001
par value (the "Series C Stock").
B. The Company and the Shareholders are parties to a Registration Rights
Agreement, dated as of February 9, 1996 and amended as of March 27, 1997 (the
"Registration Rights Agreement").
C. The Investors and certain of the Shareholders are acquiring shares of
the Company's Series D Convertible Preferred Stock, $.001 par value (the "Series
D Stock") pursuant to the terms of a Series D Preferred Stock Purchase Agreement
dated the date hereof between the Company and the Investors (the "Purchase
Agreement").
D. It is a condition to the obligations of the Investors under the
Purchase Agreement that this Amendment be executed by the parties hereto, and
the parties are willing to execute this Amendment and to be bound by the
provisions of this Amendment and the Registration Rights Agreement, as amended
hereby.
AGREEMENT
NOW THEREFORE, the parties hereto hereby agree as follows:
1. Definitions
Capitalized terms used but not defined in this Amendment shall have the
respective definitions ascribed to such terms in the Registration Rights
Agreement.
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Second Amendment to Registration Rights Agreement Page 1
<PAGE>
2. Amendment to Section 1
The definition of "Registrable Securities" contained in Section 1 of the
Registration Rights Agreement is amended and restated in its entirety to read as
follows:
(b) The term "Registrable Securities" means (i) the Common Stock of the
Company issuable or issued upon conversion of the Series A Stock, Series C Stock
or Series D Stock and (ii) any Common Stock of the Company issued as (or
issuable upon the conversion or exercise of any warrant, right or other security
which is issued as) a dividend or other distribution with respect to, or in
exchange for or in replacement of, such Series A Stock, Series C Stock, Series D
Stock or Common Stock, excluding in all cases, however, any Registrable
Securities sold by a person in a transaction in which its rights under this
Agreement are not assigned.
3. Amendment to Section 14
The first paragraph of Section 14 of the Registration Rights Agreement is
amended and restated in its entirety to read as follows:
The Holders hereby agree that they shall not, to the extent requested by
the Company and an underwriter of Common Stock (or other securities) of the
Company, sell or otherwise transfer or dispose (other than to donees who agree
to be similarly bound) of any Registrable Securities for 180 days following the
effective date of a registration statement of the Company filed under the Act;
provided, however, that all officers and directors of the Company and all other
persons with registration rights (whether or not pursuant to this Agreement)
enter into similar agreements. Notwithstanding the foregoing, in the event that
an underwriter determines that it is willing to waive the provisions of any such
agreement with respect to any number of Registrable Securities, the parties
hereto agree that such waiver shall first be granted with respect to shares of
the Series D Stock (or shares of capital stock of the Company into which the
Series D Stock may be converted) and, if the waiver extends to less than the
full number of shares of Series D Stock, to the Holders of Series D Stock (or
shares of capital stock of the Company into which the Series D Stock my be
converted) on a pro rata basis according to the number of shares of Series D
Stock held by such persons. The Company hereby agrees to use its commercially
reasonable best efforts to ensure that any such waiver is allocated in
accordance with the terms of this paragraph.
4. Amendment of Section 17
Section 17 of the Registration Rights Agreement is amended and restated in
its entirety to read as follows:
Any term of this Agreement may be amended and the observance of any term
may be waived (either generally or in a particular instance and either
retroactively or prospectively) only with the written consent of the Company and
the holders of a majority of the shares of Series A Stock, Series C Stock,
Series D Stock and Common Stock that are Registrable Securities themselves or
upon which Registrable Securities are based. Additional Holders
- --------------------------------------------------------------------------------
Second Amendment to Registration Rights Page 2
<PAGE>
may be added to this Agreement with such consent by amending Schedule A hereto
and adding a signature page executed by such additional Holder.
5. Effectiveness
This Amendment shall be effective upon execution by the Company, the
Investors and Shareholders owning at least a majority of the Shares owned by all
of the Shareholders.
6. Counterparts
This Amendment may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
- --------------------------------------------------------------------------------
Second Amendment to Registration Agreement Page 3
<PAGE>
IN WITNESS WHEREOF, this Amendment has been executed as of the date and
year first above written.
COMPANY:
PRIMUS KNOWLEDGE SOLUTIONS, INC.
By: /s/ Michael A. Brochu
__________________________________________
Michael A. Brochu, Chief Executive Officer
Address:
1601 Fifth Avenue, Suite 1900
Seattle, WA 98101
- --------------------------------------------------------------------------------
Second Amendment to Registration Rights Agreement Page 4
<PAGE>
SHAREHOLDERS:
TRANS COSMOS USA INC.
By: /s/ Shozo Okuda
_______________________________
President
Address:
777-108th Ave. NE
Suite 2300
Bellevue, WA 98004
TRANS COSMOS INC.
By: /s/ Shozo Okuda
_______________________________
President
Address:
777-108th Ave. NE
Suite 2300
Bellevue, WA 98004
ENCOMPASS GROUP, INC.
By: /s/ Yasuki Matsumoto
_______________________________
President
Address:
777-108th Ave. NE
Suite 2300
Bellevue, WA 98004
- --------------------------------------------------------------------------------
Second Amendment to Registration Rights Agreement Page 5
<PAGE>
OAK INVESTMENT PARTNERS VI, LIMITED PARTNERSHIP
By its General Partner,
Oak Associates VI, LLC
By: /s/ Fredric W. Harman
________________________________________
Fredric W. Harman, General Partner
Address:
525 University Avenue, Suite 1500
Palo Alto, CA 94301
OAK VI AFFILIATES FUND, LIMITED PARTNERSHIP
By its General Partner,
Oak VI Affiliates, LLC
By: /s/ Fredric W. Harman
________________________________________
Fredric W. Harman, Member
Address:
525 University Avenue, Suite 1500
Palo Alto, CA 94301
- --------------------------------------------------------------------------------
Second Amendment to Registration Rights Agreement Page 6
<PAGE>
NORWEST EQUITY PARTNERS, V
A Minnesota Limited Liability Partnership,
By: Itasca Partners V, L.L.P., General Partner
By: /s/ Promod Haque
________________________________________
Promod Haque, Partner
Address:
Norwest Venture Capital
c/o Promod Haque
245 Lytton Ave.
Suite 250
Palo Alto, CA 94301-1426
- --------------------------------------------------------------------------------
Second Amendment to Registration Rights Agreement Page 7
<PAGE>
INVESTORS:
PIPER JAFFRAY INC.
By: /s/ Buzz Banson
________________________________________
Its: Managing Director
- --------------------------------------------------------------------------------
Second Amendment to Registration Rights Agreement Page 8
<PAGE>
SNOWDON, L.P.
By Nevis Capital Management, Inc. its
General Partner
By: /s/ David Wilmerdin
________________________________________
David Wilmerding, President
- --------------------------------------------------------------------------------
Second Amendment to Registration Rights Agreement Page 9
<PAGE>
EXHIBIT 10.2
SEPARATION AGREEMENT
This Separation Agreement (this "Agreement") is entered into as of November
6, 1998 (the "Effective Date") by STEVEN L. SPERRY (hereinafter referred to as
"Sperry") and PRIMUS KNOWLEDGE SOLUTIONS, INC. (hereinafter referred to as the
"Company").
RECITALS
A. Sperry has served as Chairman of the Board ("Chairman") and as a
director, officer and employeeof the Company.
B. Sperry and the Company wish to enter into an agreement setting forth
the terms under which his employment and other services for the Company will
terminate.
C. This Agreement is not and should not be construed as an admission or
statement by either party that it or any other party has acted wrongfully or
unlawfully. Both parties expressly deny any wrongful or unlawful action.
AGREEMENTS
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
promises contained below, and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, it is agreed as follows:
1. TERMINATION DATE AND RESPONSIBILITIES
Sperry's service as Chairman and a director and employee of the Company
will terminate effective at 12:01 a.m. on the Effective Date, and Sperry shall
submit to the Company simultaneous with the execution and delivery of this
Agreement a written resignation of his positions as an officer and director and
employee of the Company. From and after the Effective Date, Sperry shall no
longer be an officer or director or employee of the Company, and shall have no
further duties as such; provided, however, that with respect to minutes of board
meetings which Sperry attended while a director and which have not yet been
reviewed and approved by the board of directors in ordinary course, Sperry shall
have the opportunity to review and make comments upon such minutes. As of the
Effective Date, Sperry's employment with the Company will terminate and he will
have no further employment responsibilities to the Company. Company will, in the
ordinary course of its payroll cycles, compute and pay to Sperry amounts due in
consideration of accrued but unused vacation time.
<PAGE>
2. CIRCUMSTANCES OF TERMINATION
Sperry and the Company agree that Sperry will resign from the Company and
that for all future purposes they will acknowledge Sperry's termination of
employment and board service as a voluntary resignation. The Company shall,
after consultation with Sperry, disseminate an announcement concerning Sperry's
voluntary resignation to (a) the Company's employees, (b) the Company's
customers and (c) the Company's shareholders.
3. SEVERANCE PAYMENT
The Company shall pay Sperry Seventy Five Thousand Dollars ($75,000)
severance pay, less withholding of such taxes and amounts which are required by
law.
4. COBRA Benefits
The Company and Sperry acknowledge Sperry's right to self-pay medical
benefits under COBRA if he elects to do so.
5. STOCK OPTIONS
5.1 Status of Stock Options
Sperry and the Company acknowledge and agree that the stock options held by
Sperry, and the status thereof, are as set forth in this Section 5:
(a) Options to purchase 495,000 shares of common stock at an exercise price
of $.29425 per share granted to Sperry on November 26, 1993, as listed in
Exhibit A, shall expire on November 26, 1998 in accordance with their terms and
the terms of the stock option plan under which such options were granted, unless
Sperry exercises such options before expiration.
(b) Options to purchase 399,999 shares of common stock at an exercise price
of $.75 per share granted to Sperry on June 12, 1995, as listed in Exhibit A,
are fully vested and exercisable as of the date hereof, and options to purchase
200,000 shares of common stock at an exercise price of $1.00 per share granted
to Sperry on August 15, 1995, as listed in Exhibit A, are partially vested (50%)
as of the date hereof and shall become fully vested and exercisable on January
1, 1999 in accordance with their terms and the terms of the stock option plan
under which such options were granted. The 90-day post-termination exercise
period specified in such plan shall commence on the Effective Date in accordance
with the plan with respect to all options listed in this paragraph.
-2-
<PAGE>
(c) The options to purchase 350,000 shares of common stock at an exercise
price of $1.00 per share granted to Sperry on December 19, 1997, as listed in
Exhibit B, shall terminate on the Effective Date in accordance with their terms
and the terms of the stock option plan under which such options were granted.
(d) Options to purchase 1,977,843 shares of common stock at an exercise
price of $1.00 per share granted to Sperry on December 19, 1997, as listed in
Exhibit B, shall expire on the fifth anniversary of the Effective Date in
accordance with their terms and the terms of the stock option plan under which
such options were granted, unless Sperry exercises such options before
expiration.
(e) This Agreement confirms the termination pursuant to resolutions of the
of Board of Directors of the Company dated December 19, 1997 (the " 12/97
Resolutions") of 1,977,843 options previously awarded to Sperry, and the award
under the 12/97 Resolutions of (i) a non-qualified stock option to Sperry to
acquire 1,977,843 shares of the Company's Common Stock, at an exercise price of
$1.00 per share, and (ii) a non-qualified stock option to Sperry to acquire
350,000 shares of the Company's Common Stock, at an exercise price of $1.00 per
share, all as more particularly described in the 12/97 Resolutions. This
Agreement shall serve as the Option Termination Agreement referred to in the
12/97 Resolutions.
5.2 Acknowledgment Regarding Stock Options
Sperry hereby acknowledges that, other than this Agreement, there are no
agreements or commitments between him and the Company, other than the provisions
contained in the applicable stock options plans under which his options were
granted and in any stock option agreements delivered to Sperry in connection
therewith, concerning the vesting or other terms of his options. The Company
hereby acknowledges that Sperry has stated that he presently intends to exercise
all vested but unexercised options held by him, within the option exercise
periods referenced above. The Company covenants that it will comply with its
obligations under the applicable Stock Option Agreements and Stock Option Plans.
Nothing in this Agreement shall obligate the Company or any plan administrator
under such plans to exercise any discretion granted to it under such plans to
the detriment of the Company (for example, but without limitation, (a) the
Company shall be under no obligation to accept any non-cash consideration for
the exercise of stock options, if the acceptance of such consideration would
cause the Company to incur any financial charge, and (b) the Company shall be
under no obligation to exercise any discretion if, in consequence, in the
opinion of the Company's accountants, such exercise would render unavailable to
the Company any "pooling of interest" accounting).
-3-
<PAGE>
6. NONDISPARAGEMENT
6.1 Nondisparagement by the Company
The Company hereby agrees that it will not make, and it will use reasonable
efforts to prevent its present and future affiliates, directors and employees
from making, any false, misleading, disparaging, or negative representations or
statements with regard to Sperry or his abilities, business practices,
judgments, decisions or employment by the Company; provided, however, that the
Company may (a) inform others of the dates of Sperry's employment by the
Company, his rate of pay and the existence and terms of the Information
Agreement (as defined below), (b) take any action it deems necessary or
appropriate to enforce its rights under this Agreement and the Information
Agreement and (c) make any disclosures required by law.
6.2 Nondisparagement by Sperry
Sperry hereby agrees that he will not make, and he will use reasonable
efforts to prevent his present and future affiliates, employers, employees and
family members from making, any false, misleading, disparaging or negative
representations or statements with regard to the Company or its business,
business practices, products, services, policies, judgments, decisions,
officers, directors or employees; provided, however, that Sperry may (a) inform
others of the dates of Sperry's employment by the Company, his rate of pay and
the existence and terms of the Information Agreement (as defined below), (b)
take any action he deems necessary or appropriate to enforce his rights or
defend his actions under this Agreement and the Information Agreement and (c)
make any disclosures required by law.
7. CONFIDENTIALITY OF AGREEMENT
Sperry and Company agree that, except to the extent required by applicable
law and financial disclosures in accordance with GAAP, each of them will keep
the terms of this Agreement completely confidential, and that neither of them
will disclose any information concerning this Agreement or its terms to anyone
other than their respective legal counsel, and/or financial advisors, and in the
case of Sperry, Sperry's immediate family, all of whom will be informed of and
bound by this confidentiality clause; provided, however, that Sperry shall in
appropriate circumstances disclose the limitations that the Information
Agreement place on him.
8. ENTIRE AGREEMENT; AMENDMENT
This Agreement sets forth the entire understanding between Sperry and the
Company and supersedes any prior agreements or understanding, express or
implied,
-4-
<PAGE>
pertaining to the terms of his employment with the Company and the termination
of the employment relationship. Sperry acknowledges that in executing this
Agreement, he does not rely upon any representation or statement by any
representative of the Company concerning the subject matter of this Agreement,
except as expressly set forth in the text of the Agreement. This Agreement may
not be modified or amended except by a written instrument executed by both
parties.
9. SUCCESSORS AND ASSIGNS
This Agreement is binding on the heirs, successors, representatives and
assigns of each party.
10. SEVERABILITY; HEADINGS
If any provision of this Agreement is held to be invalid, then 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 is so
broad as to be held unenforceable, then such provision shall be interpreted to
be only so broad as is enforceable. 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.
11. COUNTERPARTS
This Agreement may be executed on separate counterparts, any one of which
need not contain signatures of more than one party, but all of which taken
together shall constitute one and the same agreement.
12. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the state of Washington without application of the principles of
conflicts of laws.
[This space intentionaly left blank]
-5-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
dates indicated below.
PRIMUS KNOWLEDGE SOLUTIONS, INC.
/s/ ELIZABETH J. HUEBNER /s/ STEVEN L. SPERRY
- --------------------------------- ---------------------------------
Title: VP-CFO STEVEN L. SPERRY
---------------------------
Dated: 11/6/98 Dated: 11/6/98
--------------------------- ---------------------------
-6-
<PAGE>
EXHIBIT A
INCENTIVE STOCK OPTIONS
<TABLE>
<CAPTION>
GRANT DATE TYPE GRANTED PRICE EXERCISED VESTED CANCELED UNVESTED EXPIRATION DATE
<C> <S> <C> <C> <C> <C> <C> <C> <C>
11/26/93 ISO 495,000 $0.29425 0 495,000 0 0 11/26/98
6/12/95 ISO 399,999 $ 0.75 0 399,999 0 0 6/12/05
8/15/95 ISO 200,000 $ 1.00 0 100,000 0 100,000 8/15/05
</TABLE>
<PAGE>
EXHIBIT B
NON-QUALIFIED STOCK OPTIONS
<TABLE>
<CAPTION>
GRANT DATE TYPE GRANTED PRICE EXERCISED VESTED CANCELED UNVESTED EXPIRATION DATE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
12/19/97 NQSO 1,977,843 $1.00 0 1,977,843 0 0 12/19/2007
12/19/97 NQSO 350,000 $1.00 0 0 0 350,000 12/19/2007
</TABLE>
<PAGE>
November 7, 1998
HAND DELIVERED
- --------------
The Board of Directors
Primus Knowledge Solutions, Inc.
c/o Mr. Tony Audino, Director
Suite 1900, 1601 Fifth Avenue
Seattle, Washington 98101
Re: Resignation from Primus
Dear Fellow Board Members:
I hereby resign from my positions as Chairman of the Board of Directors of
Primus Knowledge Solutions, Inc. ("Primus"), as a Primus director, as an officer
of Primus, and from my employment with Primus. My resignation is tendered
concurrent with my execution and delivery of a Separation Agreement between
myself and Primus, and is contingent upon Primus' execution of such Separation
Agreement.
Let me also take this occasion to reassure you that I have been deliberate
and methodical in reviewing my entire relationship with Primus, including my
obligations to Primus under the employee confidentiality agreement which I
signed. Moreover, I am hereby returning to Primus all "Materials" (within the
meaning of the confidentiality agreement), along with a written inventory of
these returned materials. You can rest assured that I have absolutely no
intention of ever misusing these materials, nor have I ever done so.
As the founder of Primus and as an owner of the company, I thank each of
you for your efforts, and wish Primus every success.
Sincerely,
Steven L. Sperry
<PAGE>
EXHIBIT 10.3
This JOINT VENTURE AGREEMENT is entered into as of the 16 day of November 1995,
between Trans Cosmos K.K., a Japanese corporation (hereinafter referred to as
"TCI"), and Primus Communications Corporation, a Washington corporation
(hereinafter referred to as "PCC").
RECITALS
A. TCI and PCC desire to establish a joint venture for the purpose of
localizing and selling certain products developed and manufactured by PCC in
Japan.
B. TCI and PCC desire to form a Japanese kabushiki kaisha through which to
operate the joint venture, on certain mutually acceptable terms and conditions.
AGREEMENT
Accordingly, TCI and PCC agree as follows:
Article 1: Joint Venture Business
Subject to the terms and conditions set forth in this Agreement, TCI and
PCC will form a "kabushiki kaisha" (hereinafter referred to as "Newco") to
jointly localize and market in Japan "SolutionBuilder" (as such term is defined
below) and other products which PCC offers to Newco and Newco agrees to localize
and market (SolutionBuilder and such other products, hereinafter to be referred
to, collectively and severally, as the "Products").
TCI and PCC shall hold equal voting interests in Newco and, except as
otherwise provided in this Agreement, shall bear equal responsibility for
Newco's operation. TCI and PCC shall share equally in the profits of Newco.
In this Agreement, the term "SolutionBuilder" refers to a software product
developed by PCC known as "SolutionBuilder" and any enhanced (revised) versions
of that product, as well as any product which is the functional equivalent of
SolutionBuilder or any enhanced (revised) versions thereof, so long as any such
product is developed by PCC.
Article 2: Structure and Establishment
Newco shall be formed by TCI and PCC in accordance with Japanese law and
pursuant to the formation documents attached to this Agreement as Exhibit A.
However, in the event of any inconsistency or conflict between this Agreement
and the incorporation documents of Newco, this Agreement shall prevail.
Any increase in Newco's authorized capital or paid-in capital shall require the
prior written approval of both TCI and PCC.
Page (1)
<PAGE>
All costs incurred by promoters or incorporators to form Newco shall be
reimbursed by Newco promptly upon formation.
The target date for establishment of Newco shall be November 20, 1995.
Promptly upon appointment and each year thereafter while Newco is in
existence, Newco's board of directors shall establish a "Business Strategy." The
"Business Strategy" shall be a written document identifying Newco's intended
approach to marketing and servicing the Products and shall include staffing
plans, contemplated distribution methodology and service, support and pricing
guidelines.
Article 3: Shareholders Meetings
1. Shareholders meetings
Regular shareholders meetings shall be convened within 3 months of the last day
of each fiscal year. Extraordinary shareholders meetings shall be scheduled as
necessary or appropriate. All regular and extraordinary shareholders meetings
shall be convened in Japan.
2. Notification of shareholders meetings
Notification of shareholders meetings shall be provided in writing to all voting
shareholders no less than three weeks prior to the date of the meeting.
3. Voting procedure, quorum
For Newco's shareholders meetings, representation of more than half the issued
shares shall constitute a quorum. Resolutions presented by shareholders will be
adopted if agreed to by a majority the quorum.
4. Important items
The major items described here will be discussed at the shareholders meetings.
General voting rules notwithstanding, appropriate items will be adopted upon
unanimous approval of attending shareholders.
(1) Changes in business purpose
(2) Increasing or decreasing capitalization
(3) Disposal of all or a major portion of assets
(4) Determination of dividends
Page (2)
<PAGE>
(5) Dissolution, liquidation, merger
(6) Alteration or amendment of the Articles of Incorporation
Article 4: Board of Directors
1. Composition of the Board of Directors
For the foreseeable future, the Board shall be composed of 4 Directors. Of
these, 2 shall be elected from candidates nominated by TCI and 2 shall be
elected from candidates nominated by PCC.
2. Appointment and term of the Directors
All Directors will be selected at Newco's shareholders meeting and will serve
for a term of two year from the time of their appointment. However, the term of
service for Directors selected at the establishment of Newco will extend to the
first regular shareholder's meeting. Directors can be re-appointed.
3. Representative Director (Daihyo Torishimariyaku)
Newco will have two representative directors, one selected by TCI from among the
two directors TCI appoints, and the other selected by PCC from among the two
directors appointed by PCC.
4. Quorum and voting regulations
At Board meetings, each Director will have the rights to one vote. A quorum will
be 2/3 of the total number of Directors. Adoption of motions at Board meetings
will require a simple majority of votes by Directors in attendance. In cases
where voting at a Board meeting is deadlocked or reached an impasse, the
decision of the Representative Director shall hold final sway.
5. Vacancies on the Board
Regardless of the reason for the vacancy, vacancies on the Board will be filled
by a replacement named by the party that nominated the original Director.
6. Important Items
Determination of the following points will be made by unanimous vote of the
attending
Page (3)
<PAGE>
Directors at a Board meeting where at least one Director nominated by each
parent company is present:
(1) All expenditures, borrowings, guarantees, loans or asset sales
of the corporation in excess of (Yen)[10] million or with terms of more
than one year.
(2) The adoption of and any changes to the Business Strategy of the
company, as such is established by the company's Board of Directors,
including, without limitation, any provisions relating to the marketing
plan for "SolutionBuilder" and other products of PCC to be localized or
marketed or both by the company.
(3) The amendment, settlement, rescission or termination of any
contract or commitment of the company, if, as a result thereof, the
company could incur a liability in excess of (Yen)[10] million).
(4) The sale, pledge, mortgage or other transfer or lease of all or
substantially all of the assets of the company.
(5) The execution, amendment, rescission, or termination of any
license, assistance or marketing services agreement.
(6) The approval of yearly budgets and amendments thereto.
(7) Any changes in capitalization and requests for capital
contributions by existing or prospective shareholders.
(8) The purchase, acquisition, transfer, pledge or encumbrance of
any shares or other equity participation in any other entity and the
exercise of any voting rights inherent in such shares or other equity
participation.
(9) The determination of compensation of specific officers in the
company.
(10) The approval of all contracts by which any individual or legal
entity not a full-time employee of the company is authorized to bind the
company and the approval of transactions contemplated with shareholders.
(11) The transfer of shares in the company.
(12) The amendment of the Articles of Incorporation.
(13) The registration, sale, acquisition or enforcement of production
rights, publishing rights, trade secrets, know-how, patents, trademarks,
trade names or other intellectual property in which the company has or
intends to have an interest.
Page (4)
<PAGE>
(14) The payment to any shareholder of any funds, including, without
limitation advances, royalties, service fees and dividends.
Article 5: Auditor
Newco will have two auditors, one appointed by TCI and one by PCC.
Article 6: Officers
In order to manage the operations of Newco, it will be possible to
designate any of the following officers:
(1) President
(2) Chairman
(3) Vice President
(4) Senior Managing Director, Managing Director
The election of any of the above officers will be the responsibility of the
Board of Directors.
Article 7: Accounting Register
Newco will maintain complete books and records in accordance with Japanese
accounting regulations, and the auditors' report will be presented to TCI and
PCC within 20 days of completion of the audit. Furthermore, Newco will provide
PCC with quarterly reports prepared in accordance with U.S. standard accounting
principles (GAAP) and either TCI or PCC may request, no more than once annually,
a special audit of Newco to be conducted by an accounting firm qualified to
conduct an audit under U.S. GAAP. TCI and PCC shall be able inspect the books
and records of Newco, and inspect its accounting at any time.
Article 8: TCI's Support of Newco
For one year after its establishment, TCI shall provide Newco with office
and employees at no cost, and will bear the cost of regular operating expenses.
Following the first year, the distribution of operating cost will be decided by
mutual agreement of TCI and PCC based on the profitability of Newco.
Article 9: Product License, Localization and Marketing Terms.
Any license to be granted to Newco by PCC shall be granted under a written
license agreement in form and substance satisfactory to both Newco and PCC. Any
localization of any of the Products for marketing in Japan shall be performed
pursuant to a written localization agreement in form and substance satisfactory
to both Newco and PCC, which shall include, without limitation, clear
identification of all right, title and interest in and to any
Page (5)
<PAGE>
intellectual property rights associated with the Products and such localization
effort. Any arrangement concerning marketing of the Products by Newco shall be
effected pursuant to a written marketing agreement in form and substance
satisfactory to both Newco and PCC. These three contracts will form the entire
legal relationship between PCC and Newco.
Article 10: Contract Term
Subject to early termination under Article 11 below, the initial term of
this Agreement shall be five (5) years from the date Newco is incorporated,
which initial term shall be automatically renewed for another two (2) year
provided TCI and PCC remain shareholders of Newco, and provided neither party
notifies the other more than 180 days prior to the end of the contract term of
their intention not to renew.
Article 11: Cause for Termination of this contract
This Agreement may be terminated upon election of either party (a) if the
other party breaches any material term of this Agreement or any agreement
contemplated herein, and such other party has failed within thirty (30) calendar
days after receipt of notice thereof to cure (or if curing cannot reasonably be
completed, taken and continues to take reasonable steps to cure) such breach;
(b) the board of directors or the shareholders of Newco are unable to reach
agreement on a material issue on which the board of directors' or the
shareholders' decisions, as the case may be, is sought or required; (c) the
other party is adjudicated bankrupt or insolvent or institutes any proceedings,
or has proceedings instituted against it which are not dismissed or withdrawn
within sixty (60) calendar days, under the applicable laws of bankruptcy and
insolvency, or makes a general assignments for the benefit of its creditors, or
is generally not paying its debts as such debts become due, or is liquidated or
dissolved; (d) there are any material changes to the business operations of the
other party, including, without limitation, changes in the management, assets or
liabilities of such other party (through sale, acquisition, merger or
otherwise); or (e) any governmental agency should require alteration or
modification of any provision of this Agreement or any agreement contemplated
herein which shall materially, adversely affect the party's interest in
proceeding with formation and operation of Newco.
Article 12: Effects of Termination
Upon termination of this Agreement under Articles 10 or l1 above, Newco
shall be wound up and dissolved pursuant to Japanese law and this Agreement;
provided, however, that upon termination pursuant to Article 10 or Clauses 11
(a), (b), (d) or (e), the parties expressly acknowledge that, to avoid
unnecessary losses and liabilities to Newco, such winding up and dissolution may
take up to one hundred and eighty (180) calendar days from the date of
termination. Upon dissolution of Newco, any agreements between Newco and TCI or
Newco and PCC shall be terminated and the parties hereto agree to take any and
all actions necessary or advisable to effect such terminations. Notwithstanding
anything to the contrary contained herein, the parties obligations under
Articles 9, 12, 13, 14, 15, 16, and 25 hereunder shall survive termination of
this Agreement. PCC hereby agrees that TCI shall have
<PAGE>
the right to receive Newco's customer lists and Newco's right and obligations
under any then existing service contracts with Newco customers. In the event
that TCI does assume Newco's service contracts with its customers, PCC will
provide TCI with PCC's then-standard service contract. At the time of
dissolution of the company, the disposition of any assets, securities, or debts
not mentioned above shall be determined through mutual discussion between TCI
and PCC.
Article 13: Non-competition
Each party hereto agrees that while it continues to own shares of Newco it
shall not, directly or indirectly, by itself or through any subsidiary,
affiliate, agent or related or controlled organization or persons, knowingly
engage in any business which shall be in competition with Newco for the duration
of this Agreement and for [two(2)] years after the parties ceases to be a
shareholder of Newco.
Article 14: Confidentiality
Each party shall keep confidential and not use, copy, reproduce, photograph
or otherwise memorialize (except as permitted by this Agreement or any agreement
contemplated herein) all proprietary trade secrets and commercial and technical
information developed by Newco, or made available to Newco by the other party or
a third party with restrictions as to disclosure or use, except to the extent
that such party can prove that such trade secrets or information:
(a) Are in or becomes a part of the public domain, unless the same
occurs as a consequence of a breach hereof by the party;
(b) Are lawfully obtained by the party or Newco from a third party
without breach of these confidentiality obligations; or
(c) Are documented as being known to the party prior to their
disclosure by Newco or the party providing the trade secret or information, as
the case may be.
Information concerning the Products and marketing and financial
information shall be deemed to be included within the trade secrets and
information protected hereby. Each of the parties further agrees that it will
(i) limit disclosure of such trade secrets and information to employees,
attorneys, accountants and other advisors having a need to know, for such party
to perform its obligations under this Agreement and the agreements contemplated
hereby and (ii) ensure that all such third parties to whom any such trade
secrets or information shall be disclosed will be obligated to treat it in the
manner set forth in this Article 14.
Article 15: Legal Compliance
Immediately following execution of this Agreement, the parties shall
commence taking all steps deemed necessary or advisable to effect the intentions
of this Agreement and the
Translation of Final Draft Page (7)
From Fax of 10/15/95
<PAGE>
agreements contemplated herein, including, without limitation, obtaining all
required approvals from the governments of both Japan and the U.S.A. and making
any filings required in Japan for PCC to preserve its interest in its
intellectual property, including, without limitation, the Products. The parties
shall cooperate fully with each other in this respect, and each shall promptly
furnish upon request satisfactory evidence of obtaining any necessary government
approvals.
Article 16: Assignment
Each party agrees that it will not assign, delegate or otherwise transfer,
in whole or in part, directly or indirectly whether voluntarily, involuntarily,
or by operation of law, any rights or obligations under this Agreement, without
the prior written consent of the other party, which consent shall not be
unreasonably withheld. Any purported assignment, transfer or delegation in
violation of this Article 16 shall be null and void. Subject to the foregoing
limits on assignment, this Agreement shall be binding upon and inure to the
benefit of the parties and their respective permitted successors and assigns.
This Agreement does not create and shall not be construed as creating any rights
enforceable by any person not a party to this Agreement.
Article 17: Governing Law
It is recognized that this contract was created in Tokyo Japan, and its
interpretation, efficacy and performance are governed in all points by the laws
of Japan.
Article 18: Exclusive Jurisdiction
Any litigation involving this contract brought forth by TCI or PCC shall
fall under the exclusive jurisdiction of Tokyo Regional Court, as specified by
Japanese Law.
Article 19: Language
This contract was created in Japanese. Even if an English version is
created, that account will be allowed no influence on the interpretation of this
contract.
Article 20: Effect of Joint Venture.
This Agreement does not constitute any party to this Agreement as the
legal representative or agent of any other party hereto for any purpose
whatsoever. No party hereto shall have any right or authority to assume, create
or incur any liability or obligation of any kind, express or implied, against,
in the name of or on behalf of any other party except in accordance with this
Agreement or as may otherwise be agreed in writing by the parties.
Article 21: Entire Agreement.
This Agreement (including, for purposes of this Article 21, the attached
exhibits and the agreements contemplated herein) sets forth the entire
understanding and agreement of the parties with respect to the subject matter
hereof and supersedes all prior and/or
Page (8)
<PAGE>
contemporaneous understandings, negotiations, representations and writings
relating thereto. This contract is the complete expression of the participants
agreement. Moreover, no external evidence will be allowed in the interpretation
of the agreement that this contract sets forth.
Article 22: Amendment.
No provision of this Agreement may be amended or modified, orally or
otherwise, except by a writing signed by the party against which the
modification or amendment is sought to be enforced.
Article 23: No Waiver.
No waiver of compliance by one party with any term or condition of this
Agreement that such other party was or is obligated to comply with is effective
unless in writing; provided that such waiver shall not operate as a waiver of,
or estoppel with respect to, any other or subsequent negligence. No failure to
exercise and no delay in exercising any right, remedy or power hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right, remedy or power hereunder preclude any other or further exercise thereof
or exercise of any other right, remedy or power provided herein or by law.
Article 24: Severability.
If any provision of this Agreement, or the application thereof to any
circumstance, person or place, shall be held by a court or other tribunal of
competent jurisdiction to be invalid, unenforceable or void, the remainder of
this Agreement and such provisions as applied to other circumstances, persons or
places shall remain in full force and effect.
Article 25: Notices.
All notices and other communications required or permitted under this
Agreement shall be in writing and shall be sent by confirmed facsimile
transmission (FAX) to the number set forth below or by telegram to the address
set forth below (in each such case notice shall be deemed given on the date of
transmission) or by overnight air courier service (in which case notice shall be
deemed given when received by addressee or on the fourth (4th) calendar day
after the date of delivery to the courier, whichever is earlier), or by
registered or certified air mail, return receipt requested, postage prepaid and
properly addressed (in which case notice shall be deemed given when received by
the addressee or on the fifth (5th) calendar day after the date of mailing,
whichever is earlier), to the addresses set forth below, or such other address
as a party may hereafter provide notice of to the other:
Trans Cosmos Inc. Primus Communications Corp.
3-3-3 Akasaka, 1601 Fifth Avenue, Suite 1900
Minato-ku, Tokyo 107 Seattle, WA 98101
Tel: 03-3586-2880 Tel: (206) 292-1000
Fax: 03-3586-2419 Fax: (206) 292-1825
<PAGE>
In witness whereof, the parties have executed this Agreement on the date below.
Trans Cosmos Inc.: Primus Communications Corp.
By: /s/ Jun Kobayashi By: /s/ Steven L. Sperry
--------------------------- --------------------------------
Dated: November 16, 1995 Dated: November 16, 1995
------------------------- -----------------------------
<PAGE>
EXHIBIT 10.4
FIRST AMENDMENT TO
JOINT VENTURE AGREEMENT
This First Amendment to Joint Venture Agreement ("First Amendment") is made and
entered into as of September 16th, 1997, by and among Trans Cosmos, Inc., a
----
Japanese corporation ("TCI"), Primus Communications Corporation, a Washington
corporation ("Primus"), and Best Career Company, a Japanese corporation ("BCC").
Background
Primus and TCI are parties to a certain Joint Venture Agreement, dated November
16, 1995 ("Agreement").
Pursuant to the Agreement, Primus and TCI established Primus Communications
Corp. Japan, a Japanese corporation ("Primus KK"). The total outstanding stock
of Primus KK is 200 shares, of which Primus owns 100 shares and TCI owns 100
shares. The total authorized stock of Primus KK is 800 shares.
TCI and Primus wish to add BCC as a party to the Agreement and as a shareholder
of Primus KK.
TCI and Primus wish to amend the Agreement to provide for the issuance of
additional stock in Primus KK in order that TCI and Primus each holds
approximately 15% of the common stock of Primus KK, and BCC holds the remaining
approximately 70 percent, and to reconstitute the Board of Directors and
Statutory Auditors of Primus KK as set forth below.
Both Primus and TCI are willing to waive their preferential rights to receive
this additional stock under Article 8 of the Articles of Incorporation of
Primus KK.
To accomplish the foregoing, TCI, BCC and Primus are entering into this First
Amendment to the Agreement in accordance with Article 22 of the Agreement.
Agreement
For good and valuable consideration, the receipt and sufficiency of which the
parties acknowledge, the parties agree as follows:
Section 1. Defined Terms
Except as expressly defined in this Amendment, capitalized terms shall have the
same meanings ascribed to them in the Agreement.
Section 2. Amendment
2.1 Amendments. The Agreement is hereby amended as follows:
----------
(a) BCC is hereby added as a party to the Agreement.
(b) Article 1 is amended to provide that TCI and BCC shall have an
aggregate 85.71% voting interest and Primus 14.29% voting interest.
(c) Article 4(4) is amended to include a provision that Board of
Directors meetings shall be held on 14 days' notice and that, if necessary to
allow directors to attend, the corporation may hold Board of Directors meetings
by telephonic or video conferencing from time to time.
(d) Article 3(2) is amended to provide that Shareholders meetings shall
be held on 4 weeks' notice.
(e) Article 4(1) amended to provide that the Board is to be comprised
of six (6) Directors, of which five (5) Directors shall be elected from
candidates nominated by TCI and BCC and one (1) Director shall be elected from a
candidate nominated by Primus.
<PAGE>
(f) Article 5 is amended to provide that TCI and BCC shall appoint
both auditors.
2.2 Documentation; Translations. Within ten days of the execution of this
---------------------------
Amendment (the "Amendment Date"), TCI shall ensure that the Japanese version of
the Agreement is amended to reflect the terms to which the parties agree in this
Amendment and that all necessary Japanese government approvals and filings have
been obtained or made. On or before the Amendment Date, TCI shall also prepare
Japanese versions of all such corporate instruments as are necessary to effect
the transactions contemplated by this Amendment (the "Corporate Instruments").
The Corporate Instruments shall include, without limitation, the following:
(a) a resolution of the board of directors authorizing the issuance
of 500 additional shares of common stock to BCC such that the total outstanding
shares equal 700 shares: 100 held by Primus, 100 held by TCI and 500 held by
BCC;
(b) an amendment to the Articles of Incorporation of Primus KK to
provide for up to six directors, and to incorporate the additional notice
periods set forth in Section 2.1(c) and (d) above for shareholders and
directors meetings if necessary;
(c) written resolutions of Primus KK's directors and shareholders (i)
consenting to the changes described in paragraphs (a) and (b) above; (ii)
approving BCC's purchase of shares of common stock as above set forth; (iii)
accepting the resignation of one of the directors and the Statutory Auditor
designated by Primus; and (iv) appointing TCI's designees to fill the newly
created vacancies on the Board of Directors and the vacant seat of the Statutory
Auditor.
2.3 Effective Date of Japanese Versions. On or before the Amendment Date, TCI
-----------------------------------
shall provide Primus with true, accurate and correct English translations of the
Japanese versions of the amended Agreement and the Corporate Instruments. Until
Primus receives such translations, the provisions of this English version shall
prevail among the parties, notwithstanding any provision of the Agreement to the
contrary.
Section 3. TCI's Purchase of Additional Stock
3.1 Stock Purchase. Upon execution of this Amendment, BCC shall pay Primus KK
--------------
Twenty Five Million Yen (Y25,000,000) in readily available funds (the "Stock
Purchase Price"). As soon as possible thereafter, but in any event upon the
Corporate Instruments becoming effective, Primus KK shall issue to BCC Five
Hundred (500) shares of common stock of Primus KK.
3.2 Appointments to Board of Directors; Change in Statutory Auditor. On the
---------------------------------------------------------------
Amendment Date, Primus shall cause one of the Primus KK Directors designated by
Primus to resign. Following such resignation, TCI and BCC shall designate three
directors to fill the three empty positions on Primus KK's Board of Directors
such that, after such change, TCI and BCC will occupy five Board Seats and
Primus will occupy one Board seat. In addition, Primus shall cause its
Statutory Auditor to resign, and TCI and BCC shall appoint a Statutory Auditor
in his stead.
3.3 Allocation of Profits. Upon BCC's payment of the Stock Purchase Price to
---------------------
Primus KK, TCI, BCC and Primus shall allocate Primus KK's profits and losses in
the proportions of their respective ownership of shares of Primus KK common
stock.
Section 4. Board Representation, Etc.
4.1 Execution of Corporate Instruments. Each of the parties to this
----------------------------------
Amendment shall execute the Japanese version of the amendment to the Agreement
and the Corporate Instruments, as necessary to effect the terms of this
Amendment.
Section 5. Exclusive Distribution Agreement.
Notwithstanding anything to the contrary in the Joint Venture Agreement, the
parties agree that TCI shall
Page 2 of 3
<PAGE>
be granted the rights set forth in the Primus Communications Corporation
Exclusive Distribution License Agreement.
Section 6. Ongoing Joint Venture.
Primus and Primus KK shall each negotiate in good faith to establish a mutually
acceptable exclusive distribution license agreement between them, under which
Primus KK has exclusive worldwide rights for marketing, distribution and
licensing of all Asian language equivalents of all of Primus' products.
Section 7. Miscellaneous.
Except as expressly amended by this Amendment, the Agreement shall remain
unaltered and in full force and effect.
Executed as of the date set forth above.
PRIMUS COMMUNICATIONS TRANS COSMOS, INC.
CORPORATION
By: /s/ Steven L. Sperry By: /s/ Yasuki Matsumoto
---------------------------------------- --------------------------
Steven L. Sperry Yasuki Matsumoto
--------------------------
Its: President and Chief Executive Officer Its: Director
--------------------------
BEST CAREER COMPANY
By: /s/ Naka Ichiyanagi
----------------------------------------
Naka Ichiyanagi
----------------------------------------
Its: President
---------------------------------------
ACCEPTED:
PRIMUS COMMUNICATIONS CORP. JAPAN
/s/ (signature illegible)
- -------------------------------------------
By:
Its:
<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
"[ * ]" = omitted, confidential material which material has been separately
filed with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
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than Owner, provided that such source is not bound by any obligation of
confidentiality to Owner with respect to such information; or
(d) was independently developed by Recipient without reference to the
Confidential Information communicated by Owner.
1.5 Distribution Term. "Distribution Term" means that part of the Term during
-----------------
which Distributor (and Distributor's sub-distributors) shall be entitled to
exercise the rights licensed to Distributor under Section 2. The Distribution
Term may be terminated as described in Section 11.
1.6 Documentation. "Documentation" means the Software user manuals, training
-------------
manuals and other documentation, including additional, updated or revised
documentation, if any, supplied by Primus to Distributor.
1.7 Early Termination Amount. "Early Termination Amount" means an amount that
------------------------
is equal to the sum of (a) the product of (i) US $[*]/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 $[*]/2/ by a fraction,
the numerator of which is the number of Unlicensed Seats, and the denominator of
which is [*]/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
[*]/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
"[ * ]" = omitted, confidential material which material has been separately
filed with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
page 2
<PAGE>
1.14 Subsidiary. "Subsidiary" means an Entity in which another Entity owns
----------
equity possessing at least fifty percent (50%) of the total combined voting
power of all classes of equity entitled to vote.
1.15 Term. "Term" shall mean the term of this Agreement, as described in
----
Section 11.
1.16 Trademarks. "Trademarks" means the trademarks Primus and
----------
SolutionBuilder(R), and any and all other trademarks and/or service marks of
which Primus is the owner or licensee, and that Primus approves in writing for
use by Distributor in connection with the Software.
1.17 Upgrades. "Upgrades" means Maintenance Releases, Major Releases and New
--------
Versions (each as defined below).
1.17.1 Maintenance Release. "Maintenance Release" means a new release
of the Software with a change in the ZZ component of the Software's X.YY.ZZ
version number.
1.17.2 Major Release. "Major Release" means a new release of the
Software with a change in the YY component of the Software's X.YY.ZZ version
number.
1.17.3 New Version. "New Version" means a new release of the Software
with a change in the X component of the Software's X.YY.ZZ version number.
Section 2. Appointment as Distributor
2.1 License Grants. Subject to the provisions of this Agreement, Primus hereby
--------------
grants to Distributor for the Distribution Term, and Distributor hereby accepts:
(a) Exclusive Distribution: An exclusive, non-transferable license,
with limited right to sub-license, to (i) promote, market and demonstrate the
Software and Documentation throughout the Exclusive Territory, (ii) distribute
the Software and Documentation throughout the Exclusive Territory to Authorized
End-Users, and (iii) distribute and sub-license the Software and Documentation
throughout the Exclusive Territory to Authorized Evaluators for use on
Authorized Workstations;
(b) Exclusive Right To Sub-License To Authorized End-Users: An
exclusive, non-transferable license, with limited right to sub-license to
Distributor's sub-distributors, to sub-license the Software and Documentation
throughout the Exclusive Territory to Authorized End-Users, to the extent of the
rights contained in the Software License Agreement; and
(c) Reproduction: A non-exclusive, non-transferable license, with
right to sub-license to one Entity designated by Distributor and approved by
Primus, to reproduce the Software and the Documentation in accordance with sound
industry practices at any one location in Japan (or to have the Software and
Documentation thus reproduced on its behalf), to the extent necessary to (i)
fulfill the obligations of Distributor and its sub-distributors to Authorized
End-Users and Authorized Evaluators within the Exclusive Territory, and/or (ii)
promote, market and demonstrate the Software.
With respect to paragraph (b) above, the parties acknowledge that the rights of
Authorized End-Users under the Software License Agreement with respect to the
Software and the Documentation may in certain respects exceed the distribution
and reproduction rights granted to Distributor under this Agreement;
2.2 Reservation. Primus reserves all rights to the Software, Documentation,
-----------
Trademarks, and Confidential Information of Primus not expressly included in the
scope of the grant of rights to Distributor in this Agreement. Without limiting
the generality of the foregoing, Distributor shall use the Software only for the
purposes specified in Section 2.1 and in accordance with the following:
2.2.1 Modifications, Derivatives and Combinations; Translations.
---------------------------------------------------------
Except as provided under Section 4.6.2 (Release of Source Code from Escrow),
Distributor has no rights to, and shall not modify or create derivatives of the
Software or the Documentation. Distributor has no rights to, and shall not
Confidential
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<PAGE>
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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<PAGE>
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 [*] US
Dollars (US $[*]) 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 [*] US Dollars (US $[*]).
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
"[ * ]" = omitted, confidential material which material has been separately
filed with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
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<PAGE>
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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<PAGE>
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
page 7
<PAGE>
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 [*] US Dollars (US $[*]), 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 [*] US Dollars (US $[*]) 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
"[ * ]" = omitted, confidential material which material has been separately
filed with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
page 8
<PAGE>
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.
Confidential
page 9
<PAGE>
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 [*] US Dollars (US $[*]).
SCHEDULE 3(b)
Level 2 Support Fees
--------------------
Throughout the Distribution Term, Distributor shall remit to Primus [*] percent
([*]%) of the support and maintenance fees paid by each Authorized End-User with
respect to the Software. Distributor shall remit such fees within thirty (30)
days of receipt from an Authorized End-User.
Distributor shall ensure that all payments are accompanied by a certificate
signed by a duly authorized representative of Distributor, identifying the
Authorized End-User, and the Software License Agreement under which the payment
is made.
Without Primus' prior written consent, such consent not to be unreasonably
withheld or delayed, Distributor shall not enter into any support and
maintenance agreement with respect to the Software for a fee of less than
[*] percent ([*]%) of the license fees paid under the relevant Software
License Agreement.
- ------------
[*] -- omitted, confidential material, which material has been separately filed
with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
Page 18
<PAGE>
PRIMUS COMMUNICATIONS CORPORATION
EXCLUSIVE DISTRIBUTION LICENSE AGREEMENT
SCHEDULE 4
Schedule 4(a): Distribution License Fees - Authorized End-Users
----------------------------------------------------------------
<TABLE>
<CAPTION>
Product Fees (US$) per No. of Total Fees Payment Date
------- -------------- ------ ---------- ------------
Description Authorized Authorized
- ----------- ---------- ----------
Workstation Workstations
----------- ------------
<S> <C> <C> <C> <C>
SolutionBuilderJ [*] [*] [*] Execution of this
(Kanji) (US $ [*]) Agreement
</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.
- ----------------------
[*] -- omitted, confidential material, which material has been separately filed
with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
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 [*] US Dollars (US $[*]) 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) [*]
percent ([*]%) 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 [*] percent
([*]%) of Non-Refundable S&M Fees by a fraction, the numerator of which is $[*],
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
- ----------------------
[*] -- omitted, confidential material, which material has been separately filed
with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
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) [*] percent ([*]%) of Non-Refundable S&M Fees, and (iii)
the product obtained by multiplying [*] percent ([*]%) of Non-Refundable S&M
Fees by a fraction, the numerator of which is $[*], 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, [*] US Dollars (US
$[*]) 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.
- ------------------
[*] -- omitted, confidential material, which material has been separately filed
with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
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 10.6
FIRST RIGHT OF REFUSAL
This Agreement dated this 26th day of September 1997 is between Primus
----
Communications Corporation ("HQ") and Primus K.K. ("KK").
It is the parties' intent to enter into a long term exclusive distribution
arrangement pursuant to which KK shall be the exclusive distributor of all Asian
language versions of HQ's products. This first right of refusal is an interim
arrangement to provide KK with necessary assurances until such time as such
agreement has been entered into.
With respect to the long-term distribution arrangement (but not the first
right of refusal that is the subject of this agreement) this letter is only an
expression of present intent and does not create or impose any binding legal
duties or obligations on either of KK or HQ. This Agreement does not affect in
any way any rights or obligations which may or may not exist regarding such long
term distribution arrangement.
Now therefore, for good and valuable consideration, receipt of which is
acknowledged by the parties, the parties agree as follows:
HQ hereby grants KK the first right of refusal as provided below.
Prior to entering into any agreement with any person or entity for the
distribution of Asian language equivalents of HQ's products, HQ shall offer
substantially identical terms to KK. HQ shall notify KK of such terms. Such
notice shall contain all key terms of the proposed agreement. KK shall treat
such notice and any related communications as confidential information under the
Non-Disclosure Agreement between KK and HQ. If KK does not notify HQ that it
accepts such terms within thirty (30) days of such notice, then HQ shall be
permitted to enter into an agreement on such key terms and no other key terms
during the three (3) month period from the date of expiration of such notice.
Except as set forth above, and except for that certain Exclusive Distribution
License Agreement, dated of even date herewith, between HQ and Trans Cosmos,
Inc. ("TCI"), HQ shall not enter into any other agreements for distribution of
Asian language products, but may market and distribute such products directly.
This first right of refusal shall terminate upon any of the following events:
1. If any member of the KK Group (as defined below) challenges in any legal or
arbitration proceeding the validity of the copyright, patents, trademarks,
or trade secrets of HQ, then HQ may immediately terminate this right of
first refusal by notice to KK. "KK Group" means KK, TCI, Best Career
Company ("Best") or any entity controlling, controlled by or under common
control of TCI and/or Best.
1
<PAGE>
2. If any member of the KK Group commercially markets or distributes any
product (a "KK Product") that is, or if marketed and distributed in the
English language would be competitive with HQ's SolutionBuilder(R) and/or
SolutionPublisher(R) software products, and if any marketing and
distribution of the KK Product continues for a period in excess of thirty
(30) days from notice from HQ to KK requesting that such marketing and
distribution cease, then HQ may immediately terminate this First Right of
Refusal by notice to KK.
3. If TCI and/or Best transfers any of their interest in KK to a third party
which is not a TCI Affiliate (as defined below), HQ may immediately
terminate this right of first refusal by notice to KK. "TCI Affiliate"
means any entity in which TCI owns equity possessing at least eighty
percent (80%) of the total combined voting power of all classes of equity
entitled to vote
Any notice required or permitted to be given under this Agreement shall be
effective if it is in writing and sent prepaid by internationally recognized
private courier (e.g., DHL) and by fax, to the appropriate party hereto at the
address set forth below. Either party may change its address for receipt of
notice by notice to the other party in accordance with this section.
If to HQ: Primus Communications Corporation
1601 Fifth Avenue, Suite 1900
Seattle, Washington 98101 USA
Attn: President and Chief Executive Officer
Fax: (206) 292-1825
with a copy to: Primus Communications Corporation
1601 Fifth Avenue, Suite 1900
Seattle, Washington 98101 USA
Attn: Corporate Attorney
Fax: (206) 292-1825
If to KK: Primus K.K.
Ebisu Square Tower, 2nd Floor
1-1-39, Hiroo
Tokyo 150, Japan
Fax: 03-5469-3005
With a copy to: Trans Cosmos Inc.
3-3-3 Akasaka
Minato-ku
Tokyo 107, Japan
Fax: 03-3586-2880
and
2
<PAGE>
With a copy to: Foster Pepper & Shefelman PLLC
1111 Third Avenue, Suite 3400
Seattle, Washington 98101
Attn: Diane M. Istvan
Fax: (206) 749-1958
The dispute resolution and other provisions contained in Schedule 1 to this
Agreement shall be incorporated into and shall for all purposes be deemed part
of this Agreement.
This Agreement may be executed in counterparts, which taken together shall
constitute one single agreement between the parties.
PRIMUS COMMUNICATIONS CORPORATION
/s/ Steven L. Sperry
--------------------------------
By: Steven L. Sperry
Its President and Chief Executive
Officer
PRIMUS K.K.
/s/ SIGNATURE ILLEGIBLE
--------------------------------
By
Its President
3
<PAGE>
SHEDULE 1
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. KK hereby waives all and any rights it may have under any law 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 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. 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.
3. 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.
4. 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.
5. Assignment. KK shall not assign any of its rights under this Agreement
----------
without the prior written consent of Primus, which shall not be unreasonably
withheld. Subject to the foregoing restriction on assignment by KK, this
Agreement shall be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.
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
1
<PAGE>
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.
2
<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
SolutonExplorer(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 [*] [*] [*]
Server & limitation/3/
SolutionExplorer(TM) English Sun [*] [*] [*]
SolutionPublisher(R) English Solaris/3/ [*] [*] [*]
- ------------------------------------------------------------------------------------------------------------------------------------
Primus Products Windows
SolutionSeries(TM) English NT No US[*] [*] [*]
Server & limitation/3/
SolutionExplorer(TM) English Sun US[*] [*] [*]
SolutionPublisher(R) English Solaris/3/ US[*] [*] [*]
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[*] - omitted, confidential material, which material has been separately filed
with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
<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 [*] Effective First
Date Anniversary
Effective
Date
- ---------------------------------------------------------------------------------------------------
Certification--Client Services Seattle Applicable List Price [*]
- ---------------------------------------------------------------------------------------------------
Certification--Technical Support Seattle Applicable List Price [*]
- ---------------------------------------------------------------------------------------------------
Client Services United States Applicable List Price [*]
- -----------------------------------------------------------------------------------------------------------------------------------
<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 [*] 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.
[*] - omitted, confidential material, which material has been separately filed
with the Securitities and Exhange commission pursuant to a request for
confidential tratment.
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
-------
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
Page 4 of 21
<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.
Page 5 of 21
<PAGE>
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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<PAGE>
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
-------
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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<PAGE>
"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 [*] percent ([*]%) 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
[*] = omitted, confidential material, which material has been separately filed
with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
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.
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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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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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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
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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
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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 10.8
VERSANT OBJECT TECHNOLOGY CORPORATION
AMENDED AND RESTATED
VALUE ADDED RESELLER LICENSE AGREEMENT
This Value Added Reseller License Agreement (the "Agreement") is entered into in
Fremont, California on 12/31/97 (the "Effective Date") between Versant Object
Technology Corporation, a California corporation with principal offices at 6539
Dumbarton Circle, Fremont, California, 94555 ("Versant") and Primus
Communications Corporation with offices at 1601 Fifth Avenue, Suite 1900,
Seattle, Washington 98101 ("Primus").
For good and valuable consideration, the receipt and sufficiency of which the
parties acknowledge, the parties agree as follows:
1. DEFINITIONS
1.1. "Application" shall mean software programs which are developed by Primus,
-----------
and which are identified in Exhibit A of this Agreement, and derivatives
thereof, and which contain Embedded Run Time and/or Versant/VMA Software. The
definition of Application does not include any software developed or marketed by
any third party.
1.2. "Client" shall mean a specific computer that is periodically connected to
------
one or more Servers.
1.3. "Development Software" shall mean the software licensed by Versant or
--------------------
which Versant has the right to license, and which is used for developing the
Application and which can create or modify arbitrary data base schema.
1.4. "Distribution Term" shall mean the period of time commencing on execution
-----------------
of this Agreement, and ending when terminated in accordance with the provisions
of Section 12.**, during which Primus and Primus's sub-distributors shall be
entitled to exercise the rights granted to Primus under Section 2 of this
Agreement.
1.5 "Documentation" shall mean any manual(s) or specifications shipped by
-------------
Versant with the Software or otherwise provided by Versant with respect to the
Software.
1.6 "Embedded" shall mean completely contained within the Application in such a
--------
manner as to limit access to the Run-Time Software and/or Versant/VMA except
through the Application.
1.7 "Enhancement" shall mean any change or addition to any of the Software
-----------
that corrects Errors (including without limitation bug-fixes and workarounds),
improves function, adds new function, and/or improves performance, and which is
not separately priced as further described in Exhibit B incorporated hereto.
Except where expressly specified, references to any of the Software shall be
deemed to include Enhancements of such Software.
Confidential
1
<PAGE>
1.8 "Error" shall mean the failure of all or any of the Software to conform to
-----
the Documentation.
1.9 "Limited Development Software" shall mean the software licensed by Versant
----------------------------
or which Versant has the right to license which is used for developing the
Application but which does not use language interfaces developed by Versant, but
rather uses interfaces developed by Primus using the Development Software.
1.10 "Maintenance" shall mean Versant's provision of telephone, fax and
-----------
electronic support regarding use of the Software and resolution of any Errors,
as more fully described in Exhibit B, and Versant's provision of Enhancements.
1.11 "Maintenance Fees" shall mean the fees for Maintenance set out in Exhibit
----------------
B.
1.12 "Net Selling Price" shall mean the license fees for the Application
-----------------
recognized as revenue on Primus's income statement in accordance with Generally
Accepted Accounting Principles (USA.)
1.13 "Royalty Percentage" shall mean the percentage of Net Selling Price that
------------------
Primus agrees to pay Versant each time Primus distributes an Application and in
consideration of such distribution, becomes entitled to payment of license fees
from distributee...
1.14 "Royalty Amount" shall mean the absolute dollar amount that Primus agrees
--------------
to pay Versant as more particularly described in Exhibit D.
1.15 "Run Time Software" shall mean Software licensed by Versant or which
-----------------
Versant has a right to license which is (a) Embedded in the Application and
deployed as part of the Application, (b) a limited version of the Development
Software and Limited Development Software, (c) does not allow the Application or
a Client connected to a Server on which the Application is installed and running
to have direct access to the general purpose capabilities of the Development
Software or the Limited Development Software for creating or modifying arbitrary
database schema, and (d) does not allow substantive modification of the
Application (excluding, without limitation, any modification of configuration
files and the appearance of the graphical user interface) built with the
Development Software and Limited Development Software. The Application may,
subject to the forgoing, create or modify database schema.
1.16 "Seat" shall mean a keyboard and a Client that are connected to a Server.
----
1.17 "Server" is a computer on which the Software and/or the Application is
------
installed and running and that has one or more Clients periodically connected to
it.
1.18 "Software" shall mean the Development Software, Limited Development
--------
Software, Run Time Software and Versant/VMA, together with all Enhancements.
Confidential
2
<PAGE>
1.19 "Substantial Value" shall mean that an Application has an overall
-----------------
functional purpose that is not the same overall functional purpose as any
Software licensed to Primus by Versant.
1.20 "User" shall mean a person accessing a Server via a Client.
----
1.21 "Versant/VMA" shall mean the Versant Multi-Media Access product which
-----------
allows users to store, manage and index multimedia data in the Software and
provides utilities which load flat files into the Software as instances of pre-
defined text, audio, image, video, URL or application-specific classes.
Applications can then be developed to perform search and retrieval of data.
2. GRANT OF LICENSE FOR SOFTWARE
Provided that Primus pays all fees set out in this Agreement:
2.1 Primus' Internal Use Of The Software. Versant hereby grants to Primus for
------------------------------------
the Distribution Term a worldwide, non-exclusive license, with limited rights of
assignment (as set forth in Section 17.8) to copy, distribute and use the
Development Software and Limited Development Software, and to create derivatives
of the Development Software and Limited Development Software as follows:
2.1.1 to copy, distribute and use the Development Software and Limited
Development Software solely for Primus's own Application development activities
on the number of Seats Primus has paid for, only on the specific computer serial
number(s) which Primus agrees to supply to Versant within thirty (30) days of
putting the Development Software and Limited Development Software into use.
Primus may also copy, distribute and use the Development Software and Limited
Development Software temporarily on a back-up computer if the designated
computer is inoperative, provided that Versant is informed electronically or in
writing.
2.1.2. to combine the Development Software and Limited Development
Software with Primus's software products to create the Application, provided
that the Software remains subject to the provisions of this Agreement.
2.2. Primus' Distribution Rights With Respect To Run Time Software. Provided
-------------------------------------------------------------
that the Application has Substantial Value, Versant hereby grants to Primus for
the Distribution Term a worldwide, non-exclusive, royalty bearing license, with
limited rights of assignment (as set forth in Section 17.8), and with limited
right to sub-license, to copy, distribute, market, promote, demonstrate, display
and use Embedded Run Time Software and Versant/VMA as follows:
2.2.1 Use for Primus' Internal Purposes. Primus and/or any outsourcer of
Primus may copy, distribute and use Run Time Software and Versant/VMA on up to
three (3) Servers under either of their care, custody and control, with up to
twenty (20) concurrent Users per Server, provided that such Users shall be
employees or individual independent contractors of Primus or such outsourcer for
internal support of the Application only;
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2.2.2 Distribution Rights. Primus may copy, distribute and sub-license
Run Time Software and Versant/VMA solely for use with the Application to end-
users and to sub-distributors. (Primus' sub-license of Run Time Software or
Versant/VMA shall be pursuant to a written license agreement which, except with
respect to the duration of rights licensed to end users, shall provide no more
rights concerning the Software than are provided under this Agreement and which
shall limit the use of the Run-Time Software and Versant/VMA to its end users);
2.2.3 Evaluations; Beta-Testing; Sales and Marketing. Provided Primus
receives no compensation from its customers, Primus, with no payment due to
Versant, may copy and distribute a reasonable number of copies of Run-Time
Software and Versant/VMA to end users, solely for use with the Application for
evaluation or beta test purposes, for a period not to exceed one hundred eighty
(180) days, provided that any such period shall not be extended or renewed
without written permission from Versant. Primus may also, with no payment to
Versant, make and distribute up to thirty five (35) copies of the Run-Time
Software for use for Primus' and its sub-distributors' sales and marketing
activities.
2.2.4 Sub-Distribution Rights. Primus may sub-license its rights under
this Section 2.2 to any sub-distributor (including without limitation any value
added reseller or original equipment manufacturer), provided that such sub-
license shall be pursuant to a written license agreement which, except with
respect to the duration of rights licensed to end users, shall provide no more
rights concerning the Software than are provided under this Agreement and which
shall limit the use of the Run-Time Software and Versant/VMA to its end users.
Primus shall be solely responsible for reporting and paying any royalty payments
due upon revenues recognized from licensing the Application.
2.3 Service Bureau. Versant hereby grants to Primus for the Distribution Term a
--------------
worldwide, non-exclusive, royalty bearing license, with limited rights of
assignment (as set forth in Section 17.8), and with limited right to sub-
license, to copy, distribute, market, promote, demonstrate, display and use
Embedded Run Time Software and Versant/VMA in the operation of a service bureau
operated by Primus and/or one or more representatives contracting with Primus.
Primus shall pay Versant the service bureau fees set forth in Exhibit D, based
upon a maximum number of concurrent Users.
2.4 License Fees. Any Run Time Software and Versant/VMA license fees specified
------------
under this Agreement shall remain in force for three (3) years from the
Effective Date. Such license fees shall be automatically renewed for additional
one-year periods throughout the Distribution Term, unless Versant and Primus
agree to a different fee arrangement in a writing executed by both of them.
Primus may off-set against unpaid license fees any amounts which it is owed by
Versant pursuant to any provision of this Agreement.
3. LICENSE GRANT: DOCUMENTATION
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Versant hereby grants to Primus for the Distribution Term a non-exclusive,
royalty-free license, without right to sub-license, and with limited right to
assignment (as set forth in Section 17.8), to use the Documentation. Primus is
expressly not given a right to copy the Documentation. Versant shall provide
Primus with a reasonable number of additional copies of the Documentation upon
request.
4. PROHIBITIONS ON USE OF THE SOFTWARE
4.1 Reverse Engineering. Primus agrees not to cause or permit the reverse
-------------------
engineering, disassembly, or decompilation of the Software.
4.2 Test Results. Primus shall not disclose the results of any benchmark tests
------------
of the Development Software or the Limited Development Software outside of
Primus's organization without the prior written permission of Versant, which
consent shall not be unreasonably withheld or delayed, and which shall be deemed
given if Versant has not responded to a request within five (5) business days of
notice. Nothing in this Section 4.2 shall restrict Primus from performing and
publishing the results of any benchmark tests on any Application.
4.3 Versant VMA -- On-line Services. Except to the extent set forth in Section
-------------------------------
2.3, Primus has no right to use Versant/VMA for any dial-up, remote access,
interactive, Internet-based or other online service.
4.4 Trademarks. Primus shall not to remove or obliterate any copyright,
----------
trademark or proprietary rights notices of Versant or Versants Licensors. In
addition, Primus shall include a copyright notice in the start-up or "About"
screen of the Application indicating that portions of the Application include
technology of Versant or Versant's Licensors (if any) noted in Exhibit A.
5. TITLE
5.1 Versant's Ownership. All right, title and interest in the Software and
-------------------
Documentation including any copyright, patent, trade secret, trademark or other
intellectual property rights remains at all times with Versant or Versant's
licensor. Primus acquires no rights of ownership in the Software except as
otherwise granted herein.
5.2 Primus' Ownership. Excepting the Embedded Software, all other right, title
-----------------
and interest in the Applications belongs to and remains at all times with
Primus.
6. PAYMENT & SHIPPING
6.1 Freight Terms. Shipment of Software and Documentation is FOB Fremont, CA.
-------------
6.2 Payment Terms. All payments shall be due and payable within forty (40)
-------------
days of the date of invoice.
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6.3 Refunds. All fees set out in this Agreement are non-cancelable and non-
-------
refundable except as expressly allowed in this Agreement.
6.4 Taxes. Any amounts payable under this Agreement and the Purchase Order are
-----
net amounts and are payable in full to Versant. Primus is responsible for all
sales, use, or any value added or similar taxes payable with respect to the
Software and Documentation, other than taxes based upon Versant's income.
7. WARRANTY
7.1 No Virus. Versant represents and warrants to Primus that, at the time of
--------
delivery of any version of the Software to Primus, such Software does not
contain threats known as viruses, time bombs, logic bombs, Trojan horses or
similar or other malicious computer instructions, intentional devices or
techniques that can, or were designed to threaten, infect, attach, assault,
vandalize adversely modify or shut down a computer system or any component of
such computer system including without limitation its security or user data, or
any software program operating thereon.
7.2 Media. Versant represents and warrants to Primus that, at the time of
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delivery of any version of the Software to Primus, and for thirty (30) days
thereafter, the media containing such Software shall be free of defects in
manufacture and workmanship. If such a defect is discovered by Primus during
this period, Versant shall immediately replace the defective material with non-
defective media.
7.2 Year 2000. Versant represents and warrants that the operation and/or
---------
performance of any version of the Software shall not be affected by the numeric
change of years from 1999 to 2000. Versant offers no warranty of any kind as to
those portions of any Application that are not composed of the Software, and any
effect the change of years may have on such portions.
7.3 Performance. Provided that Primus has paid for Maintenance, Versant
-----------
represents and warrants to Primus that, for a period of one year from the date
of shipment of any version of the Software, such Software will perform in all
material respects in accordance with the Documentation. If any Software fails
to comply with this warranty and Primus provides written notice of the non-
compliance to Versant within the warranty period, then Versant shall have thirty
(30) days in which to repair or, at its option, replace any non-complying
software before being liable for breach of this warranty. If Primus does not
pay for Maintenance or is in material default of any maintenance obligations,
the Software is licensed "AS IS".
OTHER THAN AS STATED IN THIS SECTION, THERE IS NO REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING WITHOUT LIMITATION,
THE CONDITION OF SOFTWARE, ITS MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.
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7.2 Beta Software. From time to time Versant may desire to provide and Primus
-------------
may wish to test certain experimental releases of Software labeled "Beta" ("Beta
Software"). Beta Software is not suitable for production use. Versant makes no
warranty on Beta Software and such software is distributed "AS IS". At
Versant's request, Primus will promptly return all copies of the Beta Software
to Versant or certify in writing to Versant that Primus has destroyed the Beta
Software and all copies.
8. INFRINGEMENT INDEMNIFICATION
8.1 Versant's Indemnification. Versant will defend, indemnify and hold Primus
-------------------------
harmless from and against any and all loss, liability, damages or expense
(including reasonable attorney's fees) arising out of any claim against Primus
to the extent that the claim is that that the Software and Documentation as
delivered or any part thereof, when used within the scope of this Agreement,
infringes any patent, copyright, trademark, service mark, trade secret or other
proprietary right, provided that Primus notifies Versant promptly in writing of
any claim or potential claim, gives Versant the exclusive control of the defense
and settlement thereof (unless Versant counterclaims or threatens to
counterclaim against Primus), and provides all reasonable assistance, at
Versant's reasonable expense, in connection therewith. Versant will consult
with Primus prior to Versant's execution of any settlement agreement, if such
settlement agreement may reasonably adversely affect Primus.
8.2 Limitations on Versant's Indemnification. Versant shall have no liability
----------------------------------------
for any claim of infringement based on: (i) use of a superseded or altered
release of the Software or portion thereof if (a) such infringement would have
been avoided by the use of a current, unaltered release of the Software, (b)
Versant has provided Primus with reasonably adequate notice of the possible
infringement claim for Primus to be able to upgrade its sub-distributors and
end-users to a version of the Applications in which the non-infringing release
is Embedded, and (c) Versant has reimbursed Primus for Primus' additional cost
and expense reasonably incurred in effecting such upgrade; or (ii) the
combination, operation or use of the Software furnished under this Amendment
with products or data not furnished by Versant if such infringement would have
been avoided by the use of the Software without such products or data.
8.3 Versant's Options. In the event use of the Software becomes, or in
-----------------
Versant's reasonable opinion is likely to become, the subject of a claim of
infringement of a patent, copyright or other proprietary right, it is Versant's
option to remedy the situation by: (i) procuring the continuing right to use the
Software, or (ii) replacing or modifying the Software so that it no longer
infringes, or (iii) terminating the license and refunding the license fees paid
by Primus for the infringing Software, and indemnifying Primus for all payments
Primus is obligated to make to Primus' sub-licensees in consequence of their and
Primus' inabilities to use the infringing Software.
THE FOREGOING STATES THE ENTIRE LIABILITY AND OBLIGATION OF VERSANT WITH RESPECT
TO INFRINGEMENT OR CLAIMS OF INFRINGEMENT OF ANY PATENT, COPYRIGHT, TRADE
SECRET, OR ANY OTHER PROPRIETARY RIGHT.
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8.4 Primus' Indemnification. Primus will defend, indemnify and hold Versant
-----------------------
harmless from and against any and all loss, liability, damages or expense
(including reasonable attorney's fees) arising out of any claim against Versant
to the extent that the claim is that the any portion of the Application, with
the exception of those portions consisting of any of the Software, infringes any
patent, copyright, trademark, service mark, trade secret or other proprietary
right, provided that Versant notifies Primus promptly in writing of any claim or
potential claim, gives Primus the exclusive control of the defense and
settlement thereof (unless Primus counterclaims or threatens to counterclaim
against Versant), and provides all reasonable assistance, at Primus' reasonable
expense, in connection therewith. Primus will consult with Versant prior to
Primus' execution of any settlement agreement, if such settlement agreement may
reasonably adversely affect Versant.
9. MAINTENANCE
9.1 Provision of Maintenance. Versant shall provide Primus with Maintenance
------------------------
throughout the Distribution Term. Versant shall provide Primus with
Enhancements as and when Versant makes them generally available to Versant's
customers. Versant shall not be obligated to provide Primus with Maintenance or
Enhancements if Primus has not paid Maintenance fees when due.
9.2 Scope of Maintenance. Versant need only provide Maintenance for (a) the
--------------------
most recent version of the Software and (b) the preceding version, for no longer
than 24 months after the current version becomes generally available; provided
always, however, that no version of the Software shall qualify as a version for
these purposes unless it conforms with the performance warranty set forth in
Section 7.3, and provided further, that Versant shall use its commercially
reasonable efforts to provide Maintenance with respect to the version earlier
than the version preceding the most recent version. Versant shall provide
Primus with not less than six (6) months prior written notice of Versant's
ceasing to provide Maintenance for a release level of an operating system, and
not less than twelve (12) months' notice of Versants' ceasing to provide
Maintenance of a supported platform. Subject to the foregoing, Versant need
only provide Maintenance for Software that is in an environment supported by
Versant. For purposes of this Section 9.2, "version" shall mean an Enhancement
whose "x" component of its "xx.yy.zz" designation is different from previous
Enhancements.
9.3 Designated Primus Support Contact. Primus shall appoint one person as the
---------------------------------
principal Maintenance contact for the communication of bugs and errors to
Versant and for the receipt of bug and error fixes, work-arounds and
Enhancements, if any. Additionally, Primus shall appoint another person as a
back up to the principal Maintenance contact.
9.4 Application Support and Maintenance. Except with respect to Errors in the
-----------------------------------
Software, Primus shall be solely responsible for the maintenance of its
Application.
9.5 Warranty. Versant shall provide Primus with Maintenance in a good,
--------
professional and workmanlike manner, consistent with industry standards.
10. CONSULTATION AND TRAINING
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Versant will provide Primus with Consulting and Training as set out in Exhibit
C.
11. ROYALTIES
Primus will pay Versant Royalty Amounts for distributed Run Time and Versant/VMA
software as set out in Exhibit D hereto.
12. TERMINATION
12.1 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.
12.2 Distribution Term. Unless sooner terminated pursuant to Sections 12.2.1
-----------------
12.2.3 below, the Distribution Term shall continue indefinitely. Expiration of
the Distribution Term shall not, in and of itself, cause the termination of
Primus' sub-licenses with end-users of any Run Time Software or Versant VMA.
12.2.1 Earlier Termination by Versant. Versant may terminate the
Distribution Term at any time, by the delivery to Primus of not less than two
(2) calendar years' prior written notice to that effect. Versant may not give
any such notice until after the first anniversary of the Effective Date.
12.2.2 Earlier Termination by Primus. Primus may terminate the
Distribution Term at any time, by the delivery to Versant of not less than one
hundred twenty (120) days prior written notice to that effect.
12.2.3 Default. If either party default in the material performance of
any provision of this Agreement, then the non-defaulting party may give written
notice to the defaulting party that if the default is not cured within one
hundred twenty (120) days, the Distribution Term shall be terminated. If the
non-defaulting party gives such notice and the default is not cured in the one
hundred twenty (120) day cure period, then at the option of the defaulting
party, the Distribution Term will terminate immediately at the end of such
period.
12.3 Post Termination Obligations. If the Distribution Term is terminated
----------------------------
then Primus shall use its commercially reasonable efforts to persuade end-users
of any Application to transfer to a substitute computer software program in
which no Software is Embedded. Except to the extent necessary for Primus to
fulfill its support obligations to end-users using any Application, Primus shall
(a) cease all use of the Software and Documentation, and (b) within thirty (30)
days of ceasing to require the Software and Documentation for such purposes
certify to Versant in writing that Primus has destroyed or has returned the
Software and Documentation and all copies in any form to Versant at Primus's
expense.
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13. RESTRICTION
If Primus is any unit or agency of the United States Government, or this license
is pursuant to a contract with any such unit or agency, Primus agrees that the
Software and Documentation is "Commercial Computer Software" as defined under
DFARS and that the Government will receive only "restricted rights" to the
Software and Documentation. All such Software shall contain the following
legend: RESTRICTED RIGHTS LEGEND: Use, duplication, or disclosure by the
Government is subject to restrictions as set forth in subparagraph (c) (1) (ii)
of the Rights in Technical Data and Computer Software clause at DFARS 52.227-
7013. Versant Object Technology Corporation 6539 Dumbarton Circle, Fremont, CA
94555 Unpublished - rights reserved under the copyright laws of the United
States.
14. REPORTING TO VERSANT
14.1 Installation Details. At Versant's request and not more frequently than
--------------------
twice a year, Primus will submit a signed statement to Versant containing (a)
the number of Run Time Software copies and Versant/VMA copies in use by Primus
and, to the best of Primus' knowledge, by Primus' sub-licensees, and (b) the
serial numbers of the Servers on which Primus has installed Run Time Software
and Versant VMA and, to the best of Primus' knowledge, the serial numbers of the
Servers on which Primus' sub-licensees have installed Run Time Software and
Versant VMA. Primus agrees to provide such information within thirty (30) days
of such request.
14.2 Quarterly Reporting. Not more than thirty (30) days after the end of each
-------------------
calendar quarter, Primus will pay any royalties due less any prepaid amounts,
whether a Royalty Percentage or Royalty Amount, and shall submit to Versant a
statement which includes at a minimum (but only to the best of Primus' knowledge
with respect to shipments, distributions and installations and copies made by
sub-licensees of Primus):
(a) a list of all shipments of the Application; and
(b) the location of distributions (country or state); and
(c) Run-Time Software installed and the number of copies of each.
Primus will use all commercially reasonable efforts to obtain the above
information and to provide it to VERSANT on a timely basis.
14.3 Audit Rights. Primus shall allow an independent certified public
------------
accountant to review Primus's books and records, solely to determine the
accuracy of the reports submitted by Primus under this Section 14. The
independent accountant will be chosen by Versant and approved by Primus, whose
approval shall not be unreasonably withheld. The cost of the independent
accountant's review will be at Versant's cost unless an error of more than 5% is
found, in which case the accountant's reasonable costs and expenses it shall be
at Primus's cost. The reviews will occur at mutually agreeable times during
normal business hours and will not occur more
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frequently than one time per year. The independent accountant will be instructed
to keep all information learned strictly confidential.
15. CONFIDENTIAL INFORMATION
15.1 Definition. "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. Confidential Information of Versant
also includes, without limitation, any and all non-public information, data
know-how and documentation which is related to Versant's object-oriented
database system, language interfaces, database utilities, development tools,
bench mark or similar test results supplied by Versant, system internals,
program strategies, and business plans.
15.2 Exclusions. Confidential Information shall not include information which
----------
(i) is or becomes a part of the public domain through no act or omission of the
Recipient; or (ii) was in the Recipient's lawful possession prior to the
disclosure and had not been obtained by the Recipient either directly or
indirectly from the Owner; or (iii) is lawfully disclosed to the Recipient by a
third party without restriction on disclosure; or (iv) is independently
developed by the Recipient.
15.3 Non-Disclosure Covenant. The parties agree, both during the term of this
-----------------------
Agreement and for a period of two years after termination of the Agreement and
of all licenses granted hereunder, to hold each other's Confidential Information
in confidence. The parties agree not to make each other's Confidential
Information available in any form to any third party or to use each other's
Confidential Information for any other purpose than the implementation of this
Agreement. Each party agrees to take all reasonable steps to ensure that
Confidential Information is not disclosed or distributed by its employees or
agents in violation of the provisions of this Agreement.
16. PUBLICITY
Primus and Versant agree that they will cooperate to publicize the existence of
this Agreement but not its specific terms and conditions as appropriate, and
specifically, Primus consents to Versant's identification of Primus as a
customer of Versant; provided, however, that neither party shall be restricted
from disclosing the terms and conditions of this Agreement to the extent
required by applicable law.
17. GENERAL
17.1 Dispute Resolution.
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17.1.1 Governing Law. This Agreement shall be governed by and interpreted
in accordance with the internal laws of the State of California, 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.
17.1.2 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 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 American Arbitration Association. Costs of mediation shall be borne equally
between the parties.
17.1.3 Arbitration. In the event that the parties remain in dispute for
more than fifteen (15) days 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.
17.1.4 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.
17.1.5 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.
17.1.6 Venue. Any mediation or arbitration conducted under or in
connection with this Agreement shall take place in the city in which the
answering party is headquartered at a time and location to be determined by the
mediator or arbitrator, as the case may be.
17.1.7 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.
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17.2 Compliance with US Export Controls. Provided that Versant has provided
----------------------------------
Primus with a current and correct Export Control Classification Number for the
Software and such other information as may reasonably be required by Primus for
export of the Software outside the United States, Primus shall comply fully with
all relevant United States export controls.
17.3 Entire Agreement; Invalidity. This Agreement and its Exhibits set forth
----------------------------
the entire agreement and understanding of the parties relating to the subject
matter herein and merges all prior agreements, discussions, and understandings.
This Agreement shall supersede the terms and conditions of Primus's Purchase
Order. This Agreement amends and restates in its entirety that certain Value
Added Resale Agreement dated as of December 30, 1994 between the parties, as
amended. If any provision of this Agreement is held unenforceable for any
reason, that provision shall be severed to the extent invalid and the balance of
this Agreement shall remain in full force and effect.
17.4. Equitable Relief. Each of Versant 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 17.1.5, 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 such terms.
17.5 Notices. Any notice required or permitted by this Agreement shall be in
-------
writing and shall be sent by prepaid or certified mail, return receipt
requested, or by prepaid nationally recognized private carrier (e.g., Federal
Express), addressed to Versant's and Primus's addresses set forth at the
beginning of this Agreement. Either party may from time to time change its
address for notices by giving notice of the change in accordance with this
Section.
17.6 Exclusion of Certain Claims. REGARDLESS OF WHETHER ANY REMEDY FAILS OF
---------------------------
ITS ESSENTIAL PURPOSE, IN NO EVENT WILL EITHER PARTY BE LIABLE FOR INCIDENTAL,
INDIRECT, SPECIAL OR CONSEQUENTIAL, DAMAGES, NOTWITHSTANDING BEING AWARE OF THE
POSSIBILITY OF SUCH DAMAGES. EXCEPT WITH RESPECT TO SECTIONS 7.2, 7.3, 8 AND
9, NEITHER PARTY'S LIABILITY SHALL EXCEED THE LICENSE AND MAINTENANCE FEES PAID
BY PRIMUS TO VERSANT WITH RESPECT TO THE SOFTWARE.
17.7 Certain Claims Procedures. In order for Primus to make any claim against
-------------------------
Versant for any alleged breach of Section 9, Primus must first make a reasonably
detailed written claim to Versant alleging breach of such section addressed to
Versant's then current Vice President of Consulting and Technical Support.
After Versant's receipt of such Notice, the senior management of both parties
shall immediately meet to attempt to resolve the dispute. During such period
Versant agrees to work with Primus on a commercially reasonable best efforts
basis to attempt to resolve Primus's issues. If the senior management can not
resolve the dispute(s), either party may invoke the dispute resolution
procedures set forth in Section 17.1.
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17.7 Counterparts; Facsimile; Exhibits. This Agreement may be executed in
---------------------------------
counterparts, which taken together shall constitute a single agreement between
the parties. This Agreement and its Exhibits may be executed by facsimile and
such Agreements shall be valid and of full force and effect. Each of the
Schedules and Exhibits listed below shall be incorporated into and shall for all
purposes be deemed a part of this Agreement:
Exhibit A
Exhibit B
Exhibit C
Exhibit D
17.8 Assignment. Neither party may assign this agreement without the written
----------
consent of the other, not to be unreasonably withheld or delayed, except that
Primus may assign the whole of this agreement to any entity that purchases all
or substantially all of the assets of Primus, or to any entity into which Primus
merges.
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18. ESCROW
Primus may, at its option, and at any time while this Agreement is current,
enter into a Software source code escrow agreement with Versant using Fort Knox
Escrow Services, located at 3539A Church Street Clarkston, Georgia 30021-1717
USA, as Software escrow agent. Licensee agrees to pay all costs of entering into
the Software Escrow Agreement and all annual renewal costs that will be invoiced
by Fort Knox directly. Versant shall keep a true, complete and accurate copy of
the source code for all Enhancements with Fort Knox. Versant shall ensure that
Fort Knox releases such source code to Primus promptly on the occurrence of (a)
any failure by Versant to support the Software as required under this Agreement,
or if Versant has defaulted in any material respect under this Agreement, and
(b) the commencement and failure to dismiss within thirty (30) days of any
bankruptcy, insolvency or similar suit against Versant. Versant shall grant
Primus a perpetual, non-exclusive, non-transferable license, without right to
sub-license, to copy, distribute, modify and use Versant's source code for the
Software at Primus' corporate headquarters, solely to operate and maintain the
Software for use and licensing in accordance with the provisions of this
Agreement. Primus shall treat the source code with at least the same degree of
care and security as it treats its own commercially valuable source code.
SO AGREED BETWEEN THE PARTIES:
"Versant"
VERSANT OBJECT TECHNOLOGY
By: /s/ Gary Rhea
----------------------------
Name: Gary Rhea
-------------------------
Title: CFO
-------------------------
Date: 12/31/97
--------------------------
"Primus"
Primus Communications Corporation
By: /s/ Michael A. Brochu
----------------------------
Authorized Representative
Name: Michael A. Brochu
-------------------------
Title: President & CEO
------------------------
Date: 12/31/96
-------------------------
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EXHIBIT A
SOFTWARE & HARDWARE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
SOFTWARE PART NUMBER PRICE QTY # OF USERS, EXTENSION COMPUTER COMPUTER
IF SERVER SERIAL MFG/MODEL
OR NUMBER IF SERVER OR
OF CLIENTS TERMINAL
MFG
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
VERSANT 960-0104 $[*] As set out N/A $[*] Sun Solaris
ODBMS in Exhibit HP
Prepaid Run Time D Windows
Licenses NT
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Applications: Primus' SolutionSeries(TM) software, including without limitation
its SolutionBuilder(TM), SolutionExplorer(TM) and SolutionPublisher(TM)
products, and all components thereof, together with all derivatives thereof.
Versant Licensors
--------------------------
Total Prepaid License Fees $[*]
----
[*] = omitted, confidential material, which material has been separately filed
with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
<PAGE>
EXHIBIT B
MAINTENANCE FEES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
SOFTWARE PART NUMBER TERM PRICE QTY EXTENSION
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
VERSANT ODBMS M960-0104 1 Year $[*] 1 $[*]
Prepaid Run Time [*] percent
Licenses - Maintenance of Prepaid Run
Time
License
Designated Support 970-2101 6/1/98 - $[*] 1 $[*]
Engineer (DSE)* 5/31/99
(existing DSE support
is valid until 5/31/98)
24 x 7 Support** 970-2407 1 Year $[*] 1 $[*]
- -------------------------------------------------------------------------------------------------
</TABLE>
* DSE cost calculation is $[*] x [*]% = $[*] (Cost plus G&A). $[*] x [*]% =
$[*] less [*]% results in $[*]. Versant will offer this service at Primus'
election if Primus provides a purchase order for the amount set out above on
or before 12/31/98.
**Annual rate increases may not exceed equivalent increases in CPI. Versant
will assume "commercially reasonable best efforts" obligations to resolve
software errors within mutually determined timeframes. Versant will offer
this service at Primus' election if Primus provides a purchase order for the
amount set out above on or before 12/31/98.
Total Maintenance Fees Payable is $ [*]
VAR Principal Maintenance Contact:
VAR Back-up Maintenance Contact:
--------------------------
---------------
[*] = omitted, confidential material, which material has been separately filed
with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
3
The terms of this Agreement are confidential
<PAGE>
Provided that all maintenance calls are received within Versant's business
hours, Versant shall make an initial response to Severity 4 maintenance call
within forty-eight (48) hours after receipt. Severity 4 issues will be dealt
with on a case by case basis and Versant will work with Primus to address
Primus's enhancement request in a commercially reasonable manner.
Primus shall appoint one (1) person as the principle point of contact for the
communication of bugs and errors to Versant and for the receipt of bug and error
fixes, work arounds and updates, if any. Additionally Primus may appoint another
person as a back up of the principle contact. Primus and Versant may agree to
nominate additional contacts from time to time.
In addition, Primus may at any time during the term of this Agreement elect to
pay for and to receive Versant's standard 24 x & maintenance support services.
Primus shall notify Versant of its intention to receive this extended support
service, and Versant agrees to provide this service within 14 days of Primus's
request. If Primus's request is made on an "urgent" basis, Versant will make
commercially reasonable efforts to begin the 24 x 7 service in a faster period.
December 31, 1997
<PAGE>
EXHIBIT C
VERSANT OBJECT TECHNOLOGY
MAINTENANCE AND TECHNICAL SUPPORT
Provided that Primus has paid the maintenance fees, Versant shall provide during
6:00 AM - 6:00 PM Pacific Time (USA) on Versant's normal business days,
telephone consulting services to Primus's designated personnel to assist such
personnel in resolving problems, obtaining clarification relative to the
Software and Documentation and providing assistance regarding suspected defects
or errors in the Software or Documentation.
By mutual agreement of the parties, Versant shall furnish qualified personnel
for on site assistance to Primus to resolve problems and to assist in
customization. In such event Primus shall pay to Versant at the rates agreed
between the parties for the time of such personnel and reimburse Versant for
reasonable travel and living expenses as agreed between the parties.
Versant agrees to diligently work for the prompt resolution of defects and
errors in the Software and in the Documentation. Versant agrees to respond to
Primus by using a contact telephone number for each support call.
Notwithstanding the foregoing, in case of a system down condition, (i.e.
Severity 1, as defined below) attributable to Versant, Versant may utilize means
of communication for both reporting of errors and the conditions thereof.
Versant shall respond to and complete correction of errors, defects and
malfunctions, in accordance with the following schedule:
Severity 1 Causes data corruption or system crash or Primus cannot make
effective use of Software;
Severity 2 Feature does not work as documented, no reasonable work around
exists and Primus has a critical need of the feature;
Severity 3 Feature doesn't work as documented but reasonable work around
exist or Primus can wait for the next release for a fix;
Severity 4 Enhancement request.
Provided that maintenance calls are received within Versant's maintenance hours,
Versant shall make an initial response to a Severity 1 maintenance call within
two (2) hours after receipt. Versant shall make all commercially reasonable
efforts to provide a fix, work around, or to patch severity 1 bugs within forty
eight (48) hours after the bug is replicated. Versant and Primus will use all
commercially reasonable commercial efforts to work together to allow Versant to
replicate the bug in the most timely fashion.
Provided that maintenance calls are received within Versant's maintenance hours,
Versant shall make an initial response to Severity 2 maintenance calls within
four (4) hours after receipt. Versant shall make its best commercial efforts to
provide a fix or work around for Severity 2 bugs a soon as possible but in any
event ten (10) business days.
Provided that maintenance calls are received within Versant's maintenance hours.
Versant shall make an initial response to Severity 3 maintenance calls within
forty-eight hours after receipt. Versant shall make commercially reasonable best
efforts to identify a resolution and provide workaround or fix to Severity 3
bugs as soon as possible but in any case within forty-five (45) days and to
incorporate Severity 3 fixes in the next upcoming release of the product.
December 31, 1997
<PAGE>
EXHIBIT D
ROYALTIES
1. Prepaid Royalties. On or before December 31, 1997, Primus shall provide
-----------------
Versant with a non-cancelable and non-refundable purchase order for (a) a
prepaid Royalty Amount and prepaid Maintenance fee (calculated at a rate [*]
percent ([*%]) of the Royalty Amount in an aggregate amount of [*] US Dollars
(US $[*]), and for (b) [*] US Dollars (US $[*]) to be paid by Primus in full and
final settlement of all and any obligations of Primus with respect to Versant's
provision of support and maintenance services for the period beginning on
January 1,1996 and ending on December 31, 1997. Payment terms for sums due under
the purchase order shall be Net 40. Royalty Amounts and Maintenance fees due
upon Primus' distribution of the Application shall be applied against the
prepaid Royalty Amount and prepaid Maintenance fee respectively. When the
prepaid Royalty Amount and the prepaid Maintenance fee have been exhausted,
Primus will pay additional Royalty Amounts pursuant to Section 14.2 of this
Agreement, and additional Maintenance fees pursuant to Paragraph 6 below.
2. Royalty Amount. Unless reduced pursuant to Paragraph 3 below, the Royalty
--------------
Percentage shall be [*] percent [*%]. The Royalty Amount shall be determined by
multiplying the Net Selling Price by the applicable Royalty Percentage.
The Royalty Amount shall be payable by Primus on each occasion occurring after
September 31, 1997 on which Primus distributes the Application and becomes
entitled to payment of license fees by the distributee in consideration
of such distribution. Primus is free to price the Application as it sees fit,
provided that Primus shall not discount the Application and increase the fees
payable for the other components of the transaction commensurately with the
intention of avoiding or reducing the Royalty Amount.
3. Primus' Option to Reduce Royalty Percentage. If Primus provides Versant
--------------------------------------------
with an irrevocable purchase order for prepaid royalties [*] US Dollars (US
$[*]) on or before June 30, 1998 then, effective on the date on which Primus
delivers such purchase order to Versant, the Royalty Percentage shall be reduced
to [*] percent [*%]; provided, however, that if Primus recognizes revenues from
sub-licenses of the Application in excess of [*] US Dollars (US $[*]) during any
calendar year ending December 31 ("Reduced Rate Revenues"), then the Royalty
Percentage for the Reduced Rate Revenues shall be [*] percent ([*%]). If Primus
issues such purchase order, then Primus shall pay the [*]US Dollars (US $[*])
within forty (40) days of receipt of Versant's invoice.
4. Service Bureau Fees. If the Application is used in connection with the
-------------------
operation of a service bureau by Primus, Primus shall pay Versant a license fee
of [*] US Dollars (US $[*]) per concurrent user. Primus will initially pay for
[*] concurrent users. Primus will notify Versant on or before March 31, 1998 of
its intentions regarding when the service bureau will become operational, and
Primus and Versant shall jointly determine the timing for Primus' payment of
license fees with respect to the service bureau. If Versant provides service
bureau or similar rights to any other person or entity on a concurrent user
basis at rates that are lower than the rates provided by Versant to Primus then,
effective as of the date Versant provides such lower rate to such person or
entity, Versant shall reduce Primus' rate to the lower rate for any additional
concurrent user service bureau rights that Primus acquires from Versant.
5. Run Time Software Platforms. Run Time Software may only be deployed on the
---------------------------
platforms described in Exhibit A.
- ----------------------------
[*] = omitted, confidential material, which material has been separately filed
with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
<PAGE>
6. Maintenance Fees. During the period beginning September 1, 1997 and ending
December 31, 1998, Primus shall pay Versant Maintenance fees equal to [*]
percent ([*]%) of Royalty Amounts due to Versant. After December 31, 1998,
Primus shall pay Versant Maintenance fees equal to [*] percent ([*]%) of
Royalty Amounts due to Versant. Primus shall pay Maintenance fees due Versant
in the same manner and at the same time as Primus is required to pay Royalty
Amounts pursuant to Section 14.2 of this Agreement.
Provided that Primus has paid for Maintenance for the Run Time Software,
Versant shall provide Maintenance services as set out in the Agreement to
Primus. Primus acknowledges that Primus is solely responsible for maintenance of
its Application. If the end user does not elect to purchase Maintenance from
Primus for the Application Software, the end user shall not receive any support
or upgrades to the Application Software.
- -----------------------------
[*] = omitted, confidential material, which material has been separately filed
with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
<PAGE>
EXHIBIT 10.9
PRIMUS COMMUNICATIONS CORPORATION
SOFTWARE LICENSE AGREEMENT
This Agreement is made by and between Primus Communications Corporation
("Primus"), a Washington corporation, and Licensee (as defined below) and is
dated as of the date set forth below Primus' signature at the end of this
Agreement.
Basis of Agreement.
- -------------------
A. Primus has developed Software which allow users to capture, retrieve and
electronically publish solutions to product support problems. The Software
consists of 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, and
SolutionPublisher(TM) software, which allows customers direct access to product
support solutions over the Internet.
B. Licensee seeks to license Primus' Software listed in Exhibit A for use in
its operations and Primus is willing to license 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 subsidiaries, employees,
contractors, representatives and customers of Licensee.
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
2.3.2.
1.2 "Authorized User" means any Authorized SB User and/or any Authorized SP
---------------
User.
1.3 "Authorized SB User" means (i) any employee of Licensee, and/or (ii) a
------------------
subsidiary, contractor, customer, agent or representative of Licensee and the
employees of such subsidiary, contractor, customer, agent or representative who
are authorized by Licensee to use the SolutionBuilder portions of the Software
as provided in Sections 2.2 and 2.3.3.
1.4 "Authorized SP User" means a user with respect to whom Licensee has paid a
------------------
license fee for use of the SP Server Software. The maximum number of concurrent
users is specified in Exhibit A.
1.5 "Authorized Workstation" means a computer workstation or terminal of an
----------------------
Authorized SB 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.
1.6 "Client Software" means that portion of the Software that is designated in
---------------
the Documentation as SolutionBuilder software for use on an Authorized
Workstation.
1.7 "Documentation" means the Software user manuals and other documentation
-------------
supplied to Licensee by Primus pursuant to Section 2.1.
1.8 "License" means the license granted under Section 2.
-------
1.9 "Licensee" means 3Com Corporation and all wholly owned subsidiaries of
--------
3Com Corporation.
1.10 "License Term" means the term of the License as set forth in Section 2.7.1
------------
1.11 "Licensed Site(s)" means the location(s) of the Authorized Server(s)
-----------------
designated by Licensee in Exhibit A as the same may be changed from time to time
as provided in Section 2.3.2. A Licensed Site shall be restricted to locations
under the care, custody and control of Licensee.
1.12 "Server Software" means that portion of the Software that is designated in
---------------
the Documentation for use on an Authorized Server.
1.13 "Service Bureau" means the renting, timeshare leasing, or charging of fees
--------------
for access to or use of the Software by Licensee to any third party except as
expressly authorized under Section 2.3.6.
1.14 "SB Server Software" means that portion of the Server Software designated
------------------
in the Documentation as SolutionBuilder Software
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, as such Exhibit may be
amended from time to time, including any modifications or future versions of
such software that Primus may provide to Licensee under this Agreement or any
maintenance and support agreement.
1.16 "SP Server Software" means that portion of the Server Software
------------------
designated in the Documentation as SolutionPublisher software.
Section 2. Software License.
- ---------- ----------------
2.1 Delivery. Upon payment to Primus of the license fees specified in Exhibit
--------
A, or delivery of a valid purchase order with respect to such fees, Primus shall
deliver to Licensee one reproducible master of the Software, and one
reproducible master of the Documentation. Primus shall also deliver paper
copies of the Documentation as specified in Exhibit A. Such Software and
Documentation shall be delivered FOB Licensee's dock in the United States.
2.2 Grant of License. Subject to the provisions of this Agreement, Primus
----------------
grants to Licensee a non-exclusive, non-transferable license, without right to
sub-license (except as specified herein), during the License Term, to: (i),
reproduce, distribute and install the Client Software on the then current number
of Authorized Workstations, and reproduce, distribute and install the Server
Software on the then current number of Authorized Servers; (ii) use and allow
Authorized SB Users to use the SB Server Software on Licensee's Authorized
Server(s) and use and allow Authorized SP Users to use the SP Server Software on
Licensee's Authorized Server(s); (iii) use and allow Authorized SB Users to use
the Client Software on Authorized Workstations of Licensee or the Authorized
Users; and (iv) reproduce and use the Documentation in conjunction with
Licensee's use of the Software, and reproduce, use and allow Authorized SB Users
to use the Documentation in conjunction with their use of the Software.
2.3 Reservation. All rights to the Software and 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 2.2 and in accordance with the following:
2.3.1 Licensee shall not reproduce, install or use (or permit any Authorized
SB User to reproduce, install or use) the Client Software on any computer
workstations or terminals (whether via network access or other means) in an
aggregate number greater than the then current number of Authorized
Workstations. Licensee may increase the number of Authorized Workstations from
time to time as provided in Section 3.1.1.
2.3.2 Licensee shall not use the Server Software or authorize or permit any
Authorized User to reproduce, install or use the Server Software on any computer
other than an Authorized Server. 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 notify Primus promptly following such change with the model and
serial number of the new Authorized Server and/or the address of the new
Licensed Site, as applicable. Licensee need not comply with the above procedure
if the relocation is done temporarily while an Authorized Server is inoperable.
2.3.3 Licensee may provide copies of the Client Software and use of the SB
Server Software on Licensee's Authorized Server for use in accordance with the
terms of this Agreement to its contractors, customers, agents and
representatives who agree to use the Client Software only in conjunction with
Licensee's Authorized Servers. Licensee shall be responsible for any failure by
any Authorized User to comply with the terms of this Agreement. Licensee shall
not make any Client Software available to any person or entity other than to
Licensee's employees or to a subsidiary, contractor, customer, agent or
Page 1 of 7
<PAGE>
representative of Licensee who becomes an Authorized SB User as provided under
this Section 2.3.3.
2.3.4 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 shall ensure that each copy of all or any portion of the
Software made by Licensee includes such notices.
2.3.5 Licensee shall not modify, translate, decompile, 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 or knowingly allow
any third party to do so except that Licensee may integrate the Software with
another computer program for use on the Authorized Workstations and the
Authorized Servers. Any portion of the Software so integrated will be subject
to the terms of this Agreement. Without limiting the generality of the
foregoing, Licensee shall not use Software as a basis to create or develop any
standalone software program to perform the same functions as the Software that
(i) incorporates any portion of the Software or (ii) 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.
2.3.6 Except as expressly authorized in Sections 2.3.3 or 5.5, Licensee shall
not sublicense, sell, lend, rent, lease, give, transfer, assign, or otherwise
dispose of all or any portion of the Software or any interest in the Software or
use (or cause to be used) the Software as part of a Service Bureau or any
similar purpose. Any such transfer or disposition without such consent shall be
voidable at Primus' option.
2.3.7 Licensee shall not export or re-export, directly or indirectly, any
Software in violation of any applicable export control laws. Without limiting
the generality of the foregoing, Licensee shall not export or re-export the
Software to any country to which such export or re-export is prohibited by U.S.
export control laws without obtaining permission of the United States Office of
Export Administration or its successors. At Primus' written request, Licensee
shall provide Primus with any "Letter of Assurance" required to be obtained by
Primus under United States export laws and regulations.
2.3.8 In addition to its reproduction rights with regard to the Client
Software under the License, Licensee may reproduce the Software as necessary for
bona fide back-up or archival purposes only. Licensee shall be responsible for
maintaining current archival copies of Licensee's data and Licensee expressly
releases Primus from liability for any loss of data, corruption or other damage
of such data for any reason, including without limitation, loss, corruption or
damage occurring as result of a failure of the Software to operate as set forth
in the Documentation. This release shall not extend to loss or damage arising
out of Primus' gross negligence or willful misconduct.
2.3.9 Licensee assumes full responsibility for any changes, modifications or
improvements to the Software made by any person other than Primus or Primus'
authorized agent. To the extent that they arise out of any such changes,
modifications or improvements, Licensee hereby releases Primus from all
liability and waives all rights, claims and remedies against Primus, for any and
all damages of any kind or nature, to the extent they result from such acts.
2.3.10 Licensee shall ensure that no more than the maximum number of users
specified in Exhibit A use the SP Server Software at any one time.
2.4 Protection Against Unauthorized Use. Licensee shall promptly notify Primus
-----------------------------------
of any unauthorized use of any Software which comes to Licensee's attention. In
the event of any unauthorized use by any Authorized User or any employee, agent
or representative of Licensee or such Authorized User, Licensee shall use
reasonable efforts to terminate such unauthorized use and to retrieve any copy
of the Software in the possession or control of the person engaging in such
unauthorized use. Licensee shall promptly notify Primus of any legal proceeding
initiated by Licensee in connection with such unauthorized use. Primus may, at
its option and expense, participate in any such proceeding and, in such event,
Licensee shall provide such authority, information and assistance related to
such proceeding as Primus may reasonably request to protect Primus' interests,
at Primus' expense.
2.5 No Conveyance of Ownership. This Agreement does not convey to Licensee
--------------------------
ownership of the Software or any copy of the Software, but only the right to use
the Software in strict accordance with this Agreement. Licensee acknowledges
the representation that Primus and Primus' licensors are the sole and exclusive
owners of the Software; that the Software and all technical data and information
associated therewith constitute trade secrets and are the valuable property of
Primus and its licensors; that the Software is protected by copyright and
trademark; and that Primus and its licensors retain all title and ownership in
the Software.
2.6 Third Party Products. The Software incorporates material which is licensed
--------------------
by Primus from Versant Object technology Corporation ("Versant") and which is
used by agreement between Primus and Versant. Licensee acknowledges and agrees
that Versant is a direct and intended third party beneficiary of this Agreement
which may enforce this Agreement directly against Licensee.
2.7 Term and Termination.
--------------------
2.7.1 The License Term shall commence upon the date of this License Agreement
and shall continue in perpetuity unless the Agreement is terminated in
accordance with Section 2.7.3.
2.7.2 INTENTIONALLY DELETED
2.7.3 In the event of a material breach or default under this Agreement by
Licensee, Primus may terminate this Agreement by giving Licensee written notice
of the breach or default and Primus' intention to terminate. The Agreement
shall automatically terminate thirty (30) days after delivery of such notice
unless Licensee cures the breach or default before the expiration of the thirty
(30) day period.
2.7.4 After termination of this Agreement, 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, (including any modified, partial or merged versions) and
immediately thereafter provide 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.
2.8 3Com Corporation and Subsidiaries. 3Com Corporation warrants and guarantees
---------------------------------
to Primus that 3Com Corporation and its wholly-owned subsidiaries (collectively,
the "3Com Group") shall each perform their obligations as a Licensee in
accordance with the provisions of this Agreement. 3Com Corporation further
warrants that, by executing this Agreement, 3Com Corporation binds each member
of the 3Com Group as a Licensee under this Agreement.
Section 3. Compensation.
- ---------- ------------
3.1 Purchase Order.
--------------
3.1.1 Increase in Authorized Workstations. In the event that Licensee wishes
-----------------------------------
to increase the number of Authorized Workstations on which the Client Software
may be used, Licensee shall submit a purchase order to Primus for the quantity
of additional Authorized Workstations desired in accordance with Exhibit A.
Such orders shall be placed in minimum blocks of twenty-five (25) units. Upon
acceptance of Licensee's purchase order by Primus, which shall not be
unreasonably withheld, Licensee may reproduce and install the Client Software on
such additional Authorized Workstations and Primus shall deliver Documentation
for the additional workstations in the quantities set forth in Exhibit A, at
Primus' expense.
3.1.2 Increase in Authorized Servers. In the event that Licensee wishes to
------------------------------
increase the number of Authorized Servers, Licensee shall submit a purchase
order to Primus for the quantity of additional Authorized Servers desired in
accordance with Exhibit A. Such purchase orders shall state the model and
serial number on which the Server Software is to be installed and the location
of the Licensed Site. Upon acceptance of Licensee's purchase order by Primus,
which shall not be unreasonably withheld, Licensee may reproduce and install the
Server Software on such additional Authorized Servers, and Primus shall deliver
Documentation for each additional server in the quantities set forth in Exhibit
A, at Primus' expense.
3.1.3 Increase in Authorized Users. In the event that Licensee wishes to
----------------------------
increase the number of Authorized Users, Licensee shall submit a purchase order
to Primus for the quantity of additional Authorized Users desired in accordance
with Exhibit A. Upon acceptance of Licensee's purchase order by Primus, which
shall not be unreasonably withheld, Licensee may increase the number of
Authorized
Page 2 of 7
<PAGE>
Users by the additional number and may reproduce the Documentation up to the
total number of Authorized Users.
3.2 License Fee. Licensee shall pay Primus the Software license fees specified
-----------
in Exhibit A. Licensee shall issue a purchase order immediately following
execution of this Agreement by Licensee. Licensee shall pay such license fees
to Primus within thirty (30) days after date of invoice, provided that the
invoice is not issued until the Software or Documentation (as applicable) is
shipped.
3.3 Accounting and Records. Licensee shall keep current, complete and
----------------------
accurate records regarding the location, model name, 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 or an Authorized User
under this Agreement and shall provide such information to Primus upon request.
Upon request, Primus' certified public accountant, may inspect, audit, and copy
such records of Licensee related to this Agreement and access the Server
Software at any time during Licensee's regular business hours upon five (5)
business days' prior written notice provided that such right may be exercised no
more than once during any calendar year and solely for determining Licensee's
compliance with the provisions of this Agreement. If any such audit discloses
any understatement of the license fees due, Licensee shall promptly pay to
Primus any deficiency, plus interest at a rate provided in Section 3.4.2 from
the date such payment should have been made until paid. Primus' acceptance of
any payment shall be without prejudice to Primus' rights for statements or
audits hereunder. The certified public accountant shall use any information
received in conjunction with the audit solely for the specific purposes of this
Agreement. Primus shall ensure that, except for purposes of enforcement of this
Agreement, such accountant shall keep confidential all confidential information
of Licensee that such accountant receives or obtains.
3.4 Other Payment Terms.
-------------------
3.4.1 Licensee shall be responsible for any applicable sales or use taxes 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 levied or imposed in the United States of America based upon
Primus' income. If Licensee has tax-exempt status, a certificate or other
evidence of such tax exemption shall be provided with Licensee's purchase order.
If the parties agree in writing that Primus shall ship Software or Documentation
outside the United States, and that Licensee shall pay related fees to Primus
from outside the United States, then the provisions of subsection 3.4.1.2 shall
apply. Neither party shall be under any obligation to enter into any such
agreement by virtue of this Agreement.
3.4.1.2 If applicable law of any country from which Licensee pays fees
to Primus, or to which Licensee ships Software to Licensee, requires Licensee to
withhold any income taxes levied by the country authorities on payments to be
made pursuant to this Agreement ("Withholding Taxes"), Licensee shall take
advantage of the reduced Withholding Tax provided for by the country/United
States tax treaty then in force and shall be entitled to deduct such Withholding
Tax from the payments due to Primus under this Agreement. Licensee shall
promptly effect payment of the Withholding Tax to the appropriate tax
authorities and shall transmit to Primus within 15 days of such payment official
tax receipts or other evidence issued by the appropriate tax authorities
sufficient to enable Primus to support a claim for income tax credits in the
United States. Licensee further shall assist Primus at Primus' expense, upon
request, if Primus contests to the country government in question, by
appropriate legal or administrative proceedings, the validity or amount of the
Withholding Tax. In the event that Primus does not receive official tax
receipts within 30 days, Primus shall have the right to invoice Licensee for
such Withholding Tax and Licensee agrees to pay such amounts upon receipt of
invoice.
3.4.2 A finance charge of one percent (1%) per month will be charged on
amounts not paid within forty-five (45) days after the date specified in Section
3.2.
Section 4. Warranties and Remedies.
- ---------- -----------------------
4.1 Warranties.
----------
4.1.1 Primus warrants to Licensee for a period of one hundred twenty (120)
days from the date of shipment by Primus that the media on which the Software is
distributed will be free from defects in materials and workmanship;
4.1.2 Primus warrants to Licensee for a period of one hundred twenty (120)
days from the date of shipment of such Software by Primus to Licensee that the
Software shall perform in all material respects in accordance with the
applicable specifications set forth in the Documentation delivered by Primus and
in attachments or exhibits to this Agreement; and
4.1.3 Primus warrants to Licensee that the Software does not infringe any
valid copyright, patent, trademark, trade secret or other intellectual property
of a third party arising under the laws of the United States. Primus warrants to
Licensee that, to the best of Primus' knowledge, the Software does not infringe
any valid third party copyright existing in any of the following countries: the
United Kingdom; Singapore.
4.1.4 Without limiting the foregoing, Primus does not warrant that the
Software is free from all bugs, errors, or omissions. The warranties set forth
in this Section 4.1 apply only to the latest release of the Software made
available by Primus to Licensee. Such warranties shall automatically terminate
if the Software has been subjected to damage or abuse or Licensee modifies or
operates the Software in any manner inconsistent with the Documentation.
4.1.5 Primus represents and warrants that it is the true owner of the
Software and possesses all rights, authority and permission to grant the rights
and uses to Licensee permitted under this Agreement, including, such rights from
Primus' licensor(s) to sublicense any of its material incorporated into the
Software.
4.2 Performance Remedy. If any Software subject to the warranties set forth in
------------------
Section 4.1 fails to comply with the warranty set forth in Sections 4.1.1 or
4.1.2 and Licensee provides written notice of the same within the warranty
period, Primus will either repair or, at its option, replace any non-complying
media or Software. If Primus is unable to correct the noncompliance within
thirty (30) days of receipt of such written notice from Licensee, Primus may,
after consultation with Licensee, promptly refund all of the license fees paid
for the Software, in full satisfaction of Licensee's claims for media or
Software failure, and immediately terminate the License. Such consultation
shall include, at a minimum, negotiation between the parties to determine terms
under which Licensee may continue to use the non-conforming Software, and under
which Primus may continue work to remedy such non-conformity without incurring a
commercially unreasonable loss. Upon such termination, Licensee shall return or
destroy the Software as provided for under Section 2.7.4. Any replacement media
or Software will be warranted for an additional one hundred twenty (120) day
period.
4.3 Infringement Remedy. Primus shall defend Licensee against any proceeding
-------------------
based upon any failure to satisfy the warranty set forth in Section 4.1.3,
provided that (a) Licensee notifies Primus of the proceeding promptly after it
has commenced, (b) Primus has exclusive control over the defense and settlement
of the proceeding, (c) Licensee provides such assistance in defense of the
proceeding as Primus may reasonably request, at Primus' reasonable expense, and
(d) Licensee complies with any settlement or court order made in connection with
the proceeding (e.g., relating to the future use of any infringing Software),
provided Primus complies with the provisions for remedying the problem as
specified below. Further, Primus shall: (i) indemnify Licensee against any and
all damages, costs, and attorneys' fees finally awarded against Licensee in any
infringement proceeding under this Section 4.3, (ii) reimburse the expenses
reasonably incurred by Licensee to provide the assistance requested by Primus
under (c) above, and (iii) if the action is settled, pay any amounts agreed to
by Primus in settlement of any claims of infringement. Primus shall have no
liability under Section 4.1.3 or this Section 4.3 for any claim of infringement
arising out of Licensee's modification of the Software or for any claim arising
out of the combination of the Software with a program, product, or material not
furnished by Primus, to the extent such infringement would not have occurred but
for such modification or combination. 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 copyright, patent, trademark, trade secret or other
intellectual property of a third party, it is Primus' option to remedy
Page 3 of 7
<PAGE>
the situation by: (i) procuring the continuing right of Licensee to use the
Software; (ii) replacing or modifying the Software in a functionally equivalent
manner so that it no longer infringes; or (iii) with Licensee's consent,
terminating the License and refunding to Licensee an amount equal to the
depreciated License fee paid by Licensee (calculated on a straight line basis
over a three (3) year life). Upon such termination, Licensee shall return or
destroy the Software as provided for under Section 2.7.4.
4.4 Exclusivity; Disclaimer. Primus makes no representation or warranty with
-----------------------
regard to the Software or other items furnished under this Agreement, except as
set forth in Section 4.1. The obligations of Primus under Sections 4.2 and 4.3
are the sole and exclusive remedies of Licensee regarding any noncompliance with
the warranties set forth in Section 4.1. EXCEPT AS SPECIFICALLY SET FORTH IN
THIS SECTION 4, PRIMUS DISCLAIMS AND LICENSEE WAIVES AND RELEASES ALL RIGHTS AND
REMEDIES OF LICENSEE, 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,
WARRANTY SERVICES, 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.
4.5 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.
Section 5. Miscellaneous.
- ---------- -------------
5.1 Limitation of Remedy. IN NO EVENT SHALL EITHER PARTY BE LIABLE (WHETHER IN
--------------------
TORT, NEGLIGENCE, CONTRACT, WARRANTY, PRODUCT LIABILITY OR OTHERWISE) FOR ANY
INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES OR LOSS OF PROFITS OR
SAVINGS 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 EITHER PARTY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
5.2 Limitations of Liability. Except for Primus' obligations under Section
------------------------
4.3, neither party's liability (whether in tort, negligence, contract, warranty,
product liability or otherwise) with regard to this Agreement or any Software or
other items furnished under this Agreement shall exceed the license fees paid by
Licensee to Primus under this Agreement.
5.3 Injunctive Relief. Each of Licensee and Primus acknowledges that their
-----------------
respective obligations with respect to the use and provision of the Software are
essential elements of the transactions contemplated in this Agreement; that, but
for the agreement of each of them to comply with such obligations, the other
would not have entered into this Agreement; and 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, 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.
5.4 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 in person or mailed (return receipt requested), properly
addressed and stamped with the required postage, to the intended recipient at
its address specified herein, or sent via confirmed facsimile and confirmed by
first class mail. Either party may from time to time change its address by
giving the other party notice of the change in accordance with this Section 5.4.
5.5 Assignment. Neither party shall assign any of its rights under all or any
----------
part of, this Agreement, directly, by operation of law, or otherwise, without
the prior written consent of the other party, which shall not be unreasonably
withheld. Subject to the foregoing restriction on assignment by both parties,
this Agreement shall be binding upon, inure to the benefit of and be enforceable
by the parties and their respective successors and assigns.
5.6 Nonwaiver. Any failure by either party to insist upon or enforce
---------
performance by Licensee of any of the provisions of this Agreement or to
exercise any rights or remedies under this Agreement or otherwise by law shall
not be construed as a waiver or relinquishment of either party's right to assert
or rely upon the provision, right, or remedy in that or any other instance;
rather the provision, right, or remedy shall be and remain in full force and
effect.
5.7 Attorney's Fees and Expenses. In the event of any proceeding under this
----------------------------
Agreement, the prevailing party in any such proceeding shall be entitled to
reasonable attorney's fees and expenses, including the full cost of any
arbitration, trial and any appeal.
5.8 Reference. Licensee authorizes Primus to disclose that it is a customer
---------
and agrees to be a reference account for Primus. Notwithstanding, Primus shall
obtain Licensee's prior written consent before using Licensee's name in any
advertising, marketing materials, press releases, published articles or reports,
or other similar types of documents distributed or announcements made to the
public.
5.9 Applicable Laws; Forum. This Agreement shall be interpreted, construed,
----------------------
and enforced in accordance with the laws of the State of Washington without
reference to its choice of law rules and not including the 1980 UN Convention on
Contracts for the International Sale of Goods. Plaintiff party may only
commence or prosecute a suit, proceeding, or claim to enforce the provisions of
this Agreement relating to the Software, or other items furnished under this
Agreement, or otherwise arising under or by reason of this Agreement, in a court
of competent jurisdiction in the state of the defendant party, Washington if
Primus is the defendant party and California if Licensee is the defendant party.
5.10 Entire Agreement. This Agreement constitutes the entire agreement,
----------------
and supersedes any and all prior agreements and representations between Primus
and Licensee related to the Software and other items furnished under this
Agreement. Licensee acknowledges and agrees that it has read, negotiated and
agreed to all of the provisions of this Agreement including without limitation
Sections 4.4, 5.1 and 5.2. This Agreement may not be amended except by a
written instrument executed by both parties.
5.11 Exhibits. The Exhibits listed below shall form a part of this Agreement:
---------
Exhibit A - Product and Fee Schedule
IN WITNESS WHEREOF, the parties hereto each acting with proper authority have
executed this Agreement as indicated below.
PRIMUS COMMUNICATIONS CORPORATION LICENSEE: 3COM CORPORATION
- -------------------------------------------------------------------------------
1601 Fifth Avenue, Suite 1900
- -------------------------------------------------------------------------------
Page 4 of 7
<PAGE>
- -------------------------------------------------------------------------------
Seattle, WA 98101
- -------------------------------------------------------------------------------
206-292-1000
- -------------------------------------------------------------------------------
By /s/ Steven L. Sperry By /s/ Thomas L. Thomas
- ------------------------------------------------------------------------------
Steven L. Sperry Name (Print) Thomas L. Thomas
- ------------------------------------------------------------------------------
Title: President and Chief Title SUP - CIO
Executive Officer
- ------------------------------------------------------------------------------
Date 6-27-97 Date 6/25/97
- ------------------------------------------------------------------------------
Page 5 of 7
<PAGE>
PRIMUS COMMUNICATIONS CORPORATION
SOFTWARE LICENSE AGREEMENT
EXHIBIT A
PRODUCT AND FEE SCHEDULE
INITIAL ORDER
- -------------
<TABLE>
<CAPTION>
PRODUCT # AUTHORIZED # AUTHORIZED # AUTHORIZED DISTRIBUTION FEE
WORKSTATIONS SERVERS USERS TERM
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SolutionBuilder [*] (See Note 1) N/A N/A $[*]
- --------------------------------------------------------------------------------------------------------
SolutionPublisher N/A (See Note 1) [*] N/A $[*]
- --------------------------------------------------------------------------------------------------------
</TABLE>
Note 1: Licensee shall notify Primus of the number of Authorized Servers as
soon as reasonably practicable following contract execution
Licensee shall pay Primus license fees totalling $[*], and maintenance and
support fees totalling $[*], for an aggregate of $[*]. Primus shall invoice
Licensee as soon as practicable following execution of this Agreement. Licensee
shall pay the aggregate fees in the following amounts, and on the following
dates:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
PAYMENT AMOUNT PAYMENT DATE
(US $)
- --------------------------------------------------------------------------------------------------------
<S> <C>
[*] May 31, 1997
- --------------------------------------------------------------------------------------------------------
[*] August 31, 1997
- --------------------------------------------------------------------------------------------------------
[*] October 31, 1997
- --------------------------------------------------------------------------------------------------------
[*] December 31, 1997
- --------------------------------------------------------------------------------------------------------
TOTAL US $[*]
- --------------------------------------------------------------------------------------------------------
</TABLE>
ADDITIONAL ORDERS
- -----------------
SolutionBuilder. Primus hereby grants Licensee the option, for a period
commencing on the date of this Agreement and ending on December 31, 1999 (the
"Option Period"), to increase the number of Authorized Workstations at the
prices set forth in the table below. The prices depend upon the number of
Authorized Workstations for which Licensee has acquired rights under this
Agreement. Licensee may exercise its rights under this option at any time and
from time to time during the Option Period, by following the procedure described
in Section 3.1.1 of this Agreement. Licensee shall pay Primus all additional
license fees due with respect to additional Authorized Workstations within
thirty (30) days of receipt of Primus' invoice.
<TABLE>
<CAPTION>
NO. OF AUTHORIZED WORKSTATIONS FEE PER AUTHORIZED WORKSTATION (US $)
<S> <C>
[*] [*]
[*] [*]
[*] [*]
</TABLE>
SolutionPublisher. Primus hereby grants Licensee the option, for the duration of
the Option Period, to increase the number of Authorized SP Users from [*] to
[*], for a purchase price of [*] US Dollars (US $[*]). Licensee may exercise its
rights under this option at any time and from time to time during the Option
Period, by following the procedure described in Section 3.1.3 of this Agreement.
Licensee shall pay Primus all additional license fees due with respect to
additional Authorized SP Users within thirty (30) days of receipt of Primus'
invoice.
[*] = omitted, confidential material, which material has been separately filed
with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
Page 6 of 7
<PAGE>
The SolutionBuilder and SolutionPublisher options described above shall be
collectively and individually referred to as the "Option."
AUTHORIZED SERVERS
- ------------------
- -------------------------------------------------------------------------------
MODEL # SERIAL # LICENSED SITE (Street/City/State/Phone)
- -------------------------------------------------------------------------------
* * *
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
* To be provided by Licensee as soon as reasonably practicable after contract
execution
DOCUMENTATION MANUALS
- ---------------------
Primus shall deliver the following manuals to Licensee in accordance with
Section 2.1 of the Agreement:
1 user guide for every 10 Authorized Workstations; 1 system
administrator guide for every 100 Authorized Workstations; 1
SolutionReports guide for every 50 Authorized Workstations; 1
installation guide for every 100 Authorized Workstations
This Exhibit is hereby approved and accepted:
Primus Communications Corporation
- -------------------------------------------------------------------------------
By: /s/ Steven L. Sperry By: /s/ Thomas L. Thomas
- -------------------------------------------------------------------------------
Name: Steven L. Sperry Name (Print): Thomas L. Thomas
- -------------------------------------------------------------------------------
Title: President and Chief Title: SUP - CIO
Executive Officer
- -------------------------------------------------------------------------------
Date: 6/27/97 Date: 6/25/97
- -------------------------------------------------------------------------------
Page 7 of 7
<PAGE>
Exhibit 10.10
AMENDMENT NO. 1 TO SOFTWARE LICENSE AGREEMENT
BETWEEN 3COM CORPORATION AND PRIMUS COMMUNICATIONS CORPORATION
DATE OF AGREEMENT: June 30, 1997
This Amendment 1 ("Amendment") is made this 25th day of June, 1997 to the
Software License Agreement between Primus and 3Com Corporation dated June 25,
1997 ("Agreement"). Terms not otherwise defined herein shall have the meanings
ascribed to them in the Agreement.
WHEREAS, the parties do not wish to negotiate a new contract at this time but do
wish to continue their business relationship based on the terms and conditions
of their original Agreement.
NOW THEREFORE, the parties agree to be bound by the terms of their original
Agreement which is hereby amended as follows:
1) Section 2 of the Agreement is hereby amended to include a new paragraph 2.9
entitled Escrow Agreement which shall read as follows:
Escrow Agreement
- ----------------
Primus Agrees that it will, at all times, maintain the source code for Solution
Publisher and Solution Builder 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 Exhibit B and is hereby incorporated in this Agreement.
Primus agrees that it has deposited all source code to the SolutionPublisher and
SolutionBuilder software products into the escrow account and that it will
deposit all updates to such software products into the account.
2) Section 5.11 is hereby amended to add Exhibit B entitled FLEXSAFE ESCROW
AGREEMENT
3) Exhibit A is hereby amended to replace SolutionPublisher usage language with
the following:
SolutionPublisher
- -----------------
Primus hereby grants Licensee the option, for the duration of the Option Period,
to:
(1) increase the number of Authorized SP Users from [*] to [*], for a fee of [*]
US Dollars (US $[*]); and/or
(2) increase the number of Authorized SP Users from [*] to an unlimited number
for a purchase price of [*] US Dollars (US$[*]). If Licensee has previously
exercised the option in section 1 above and increased the number of Authorized
SP Users to [*], then Primus shall provide Licensee with a US$[*] credit
towards the US$[*].
Licensee may exercise its rights under this option at any time and from time to
time during the Option Period, by following the procedure described in Section
3.1.3 of this Agreement. Licensee shall pay Primus all additional license fees
due with respect to additional Authorized SP Users within thirty (30) days of
receipt of Primus' invoice.
3Com Corporation: Primus Communications Corporation:
Signature /s/ Thomas L. Thomas Signature /s/ Steve Sperry
---------------------- ----------------------
Printed SVP - CIO Printed Steve Sperry
---------------------- -----------------------
Title SVP - CIO Title President
------------------------ -------------------------
Date 6/25/97 Date June 25, 1997
--------------------------- ---------------------------
- ----------
[*] = omitted, confidential material, which material has been separately filed
with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
<PAGE>
EXHIBIT 10.11
AMENDMENT NO. 2 TO SOFTWARE LICENSE AGREEMENT
BETWEEN 3COM CORPORATION AND PRIMUS COMMUNICATIONS CORPORATION
This Amendment No .2 to Software License Agreement ("Amendment") is made as of
September 26, 1997, by and between Primus Communications Corporation ("Primus")
and 3Com Corporation ("3Com"), and amends that certain Software License
Agreement between Primus and 3Com dated as of June 27, 1997, as amended (the
"Agreement").
Background
The parties wish to make provision for 3Com to use and modify Primus' training
materials related to the Software and the Documentation, on the terms and
conditions contained in this Amendment. The parties do not wish to negotiate a
new contract at this time but do wish to continue their business relationship
based on the terms and conditions of the Agreement, as amended by this
Amendment.
Agreement
For good and valuable consideration, the receipt and sufficiency of which is
acknowledged, the parties agree as follows:
1. Defined Terms. Terms not otherwise defined in this Amendment shall have the
-------------
meanings ascribed to them in the Agreement.
2. Inclusion of Training Materials in Software License Agreement. Section 1.7
-------------------------------------------------------------
of the Agreement (Definition of Documentation) shall be amended in its entirety
by the substitution of:
"1.7 "Documentation" means the Software user manuals, Software training
-------------
materials, and other documentation supplied to Licensee by Primus pursuant
to Section 2.1."
3. Rights to Modify. Section 2.2 of the Agreement (Grant of License) shall be
----------------
amended by the deletion of "and" before "(iv)", and the insertion of the
following before the final period:
"; and (v) modify those portions of the Documentation consisting of the
training manuals, by modifying Primus' generic content standard and process
documents as necessary to meet 3Com's internal training needs, provided
however, that Primus shall retain and 3Com 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 3Com has the same rights to use the
modifications as apply to the rest of the Documentation"
4. No Other Effect on Agreement. Except as expressly set forth in this
----------------------------
Amendment, the Agreement shall remain unaltered and in full force and effect.
EXECUTED as of the date first written above:
3COM CORPORATION: PRIMUS COMMUNICATIONS CORPORATION
By: /s/ David P. Doherty By: /s/ Steven L. Sperry
- ------------------------------ ---------------------------------
Steven L. Sperry
______________________________ _________________________________
Its:-------------------------- Its: President & CEO
<PAGE>
[LETTERHEAD OF PRIMUS]
Exhibit 10.12
August 27, 1998
Mr. Clarence Wilhelm Confidential
Director, Application Development
3Com Corporation
1800 West Central Road
Mount Prospect, IL 60056-2293
Re: Third Amendment to Software License Agreement and Second Amendment to
Support and Maintenance Agreement Between 3Com Corporation ("3Com") and
Primus Knowledge Solutions, Inc. ("Primus")
Dear Mr. Wilhelm:
This letter is to confirm our agreement with respect to 3Com's purchase of
additional rights to use Primus' SolutionBuilder and SolutionPublisher(R)
software, and new rights to use Primus' SolutionExplorer(TM) software
(collectively, the "Software"). Upon signature by both of 3Com and Primus, this
letter shall serve as an amendment to the Software License Agreement, dated as
of June 26, 1997, between 3Com and Primus, as amended (the "License Agreement"),
and the Support and Maintenance Agreement, dated as of June 27, 1997, between
3Com and Primus, as amended (the "Support Agreement"). Except as otherwise
expressly defined in this Amendment, capitalized terms shall have the meanings
ascribed to them in the License Agreement.
We agree as follows:
1. The License Agreement shall be amended as specified below.
1.1 Recital A. Recital A shall be amended by the insertion of
---------
",SolutionExplorer(TM) software, an Internet browser based application,
that allows remote service professionals and other analysts to solve
problems in broadly the same manner as the SolutionBuilder application"
before ", and SolutionPublisher(R) software".
1.2 Authorized Server. Section 1.1 shall be amended by the
-----------------
insertion after "computers of Licensee" of "(whose model number, serial
number and street address Licensee has provided to Primus)".
1
<PAGE>
Mr. Clarence Wilhelm
3Com Corporation
August 27, 1998
Page 2
1.3 Authorized User. Section 1.2 shall be amended by its
---------------
deletion, and the substitution of the following:
1.2 "Authorized User" means any Authorized SB User, any
---------------
Authorized SE User, and/or any Authorized SP User. The maximum
number of Authorized Users is set forth in Exhibit A, and in
subsequent Exhibit A's (numbered A-1, A-2 and so forth) that are
agreed in writing between Primus and Licensee.
Personal ID Users. Where a number of Authorized Users is
specified in Exhibit 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 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 Exhibit A 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.
1.3 Authorized SB User. Section 1.3 shall be amended by the
------------------
substitution of "Section 2.2." for "Sections 2.2 and 2.3.3."
1.4 Authorized SE User. A new Section 1.3A shall be inserted
------------------
after Section 1.3, as follows:
1.3A "Authorized SE User" means (i) any employee of Licensee,
------------------
and/or (ii) a subsidiary, contractor, customer, agent or
representative of Licensee and the employees of such subsidiary,
contractor, customer, agent or representative who are authorized
by Licensee to use the SolutionExplorer portions of the Software
as provided in Section 2.2.
1.5 Authorized SP User. Section 1.4 shall be amended by the
------------------
deletion of its second sentence.
1.6 Authorized Workstation. Section 1.5 shall be amended by the
----------------------
deletion of the last sentence and its replacement by:
The maximum number of Authorized Workstations is set forth in
Exhibit A, and in subsequent Exhibit A's (numbered A-1, A-2 and
so forth) that are agreed in writing between Primus and Licensee.
2
<PAGE>
Mr. Clarence Wilhelm
3Com Corporation
August 27, 1998
Page 3
1.7 SE Server Software. A new Section 1.14A shall be inserted
------------------
after Section 1.14, as follows:
1.14A "SE Server Software" means that portion of the Server
------------------
Software designated in the Documentation as SolutionExplorer
Software.
1.8 Grant of License. Section 2.2 shall be amended by its
----------------
deletion, and by the substitution of the following. (These amendments
incorporate the changes made by the Second Amendment to the License
Agreement, dated as of September 26, 1997.)
2.2 Grant of License. Subject to the provisions of this
----------------
Agreement, Primus grants to Licensee a non-exclusive, non-
transferable license, without right to sub-license, to: (i)
during the License 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 SE Users that will (and subsequently do)
regularly use the applicable Software as part of their everyday
duties during the License Term; (ii) during the License Term, use
and allow Authorized SB Users to use the Client Software on up to
the then current number of Authorized Workstations; (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 those portions of the
Documentation consisting of the 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, and provided further,
that Primus shall not disclose or use for its own account any
information of Licensee contained in such modifications that is
"Confidential Information" of Licensee under that certain Non
Disclosure Agreement dated as of June 7, 1996, between Licensee
and Primus, and (c) make one paper copy of those portions of the
Documentation consisting of the 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 Solution-Explorer configuration
files, solely to customize the SolutionPublisher and
SolutionExplorer Software to Licensee's presentation standards.
3
<PAGE>
Mr. Clarence Wilhelm
3Com Corporation
August 27, 1998
Page 4
1.9 Software Use By Authorized Users. Section 2.3.3 shall be
--------------------------------
amended by the deletion of the first and last sentences.
1.10 Performance Warranty. Section 4.1.2 shall be amended by the
--------------------
insertion after "Exhibits to this Agreement" of " ,that the Software will
scale to meet Licensee's reasonable user requirements, including without
limitation that the Software will scale to the actual number of Authorized
Users using the Software in production. Primus further warrants to
Licensee that versions 3.0 and subsequent versions of the Software will not
malfunction at any time as a result of the transition from the year 1999 to
the year 2000, or upon any other date transitions that occur between the
execution of this Agreement and the year 2010, and that the Software will
continue to process all date and time data with consistency and accuracy
after December 31, 1999 as it did before December 31, 1999."
The second sentence of Section 4.2 shall be amended by the
substitution of "ninety (90)" for "thirty (30)".
1.11 Intellectual Property Warranty. Section 4.1.3 shall be
------------------------------
amended by the addition of the following sentence at its end: "Primus
warrants to Licensee that, to the actual knowledge of employees of Primus
at director level and senior, the Software does not infringe any valid
third party copyright, patent, trademark, trade secret or other
intellectual property right arising under the laws of any country in which
Licensee uses the Software in accordance with this Agreement."
1.12 Exhibit A-1. A new Exhibit A-1 shall be added, in the form
-----------
attached as Exhibit 1 to this letter.
2. The Support Agreement shall be amended as specified below.
2.1 High Priority Response Goal. The second sentence of the
---------------------------
second paragraph of Section 2.3, headed "High Priority", shall be amended
-------------
in its entirety to read: "Response Goal: Endeavor to provide a Fix or
Workaround within twenty-four (24) hours of Customer's report of the
problem (notwithstanding the provisions of Section 2.4 below)".
2.2 Patches. Section 2.4 shall be amended by the addition of the
-------
following proviso at the end of the first sentence: "provided always,
however, that where Primus cannot determine a viable Workaround for an
Error, Primus shall use all commercially reasonable efforts to provide
Customer with a Fix."
2.3 Upgrades. Section 2.4 shall be further amended by the
--------
addition at its end of the following:
Upon shipment to Customer of any Major Release, Maintenance
Release, New Version or Fix (collectively, an "Upgrade"), Primus
shall be deemed to have repeated the warranties in Section 4 of
the License Agreement with respect to the Upgrade; provided
always, however, that if any Upgrade fails to comply
4
<PAGE>
Mr. Clarence Wilhelm
3Com Corporation
August 27, 1998
Page 5
with the warranties under Sections 4.1.1 or 4.1.2 of the License
Agreement, and Primus exercises its rights to terminate under the
performance remedy specified in Section 4.2 of the License Agreement,
then Primus need only refund to Customer all of the most recent annual
support and maintenance fee attributable to the development of the
non-compliant Upgrade, together with a pro-rated amount of the annual
fee reflecting the unused portion of the annual support and
maintenance term. Except to the extent of this proviso, Section 4.2
and the other provisions of section 4 of the License Agreement shall
be fully applicable.
2.4 Conditions to Coverage. Section 3.1, sub-clause (2) shall be
----------------------
amended in its entirety to read as follows: " 2) all Licensed Program(s)
to be covered by this Agreement are the then current Licensed Programs
furnished by Primus; provided, however, that if any current Licensed
Program does not does not conform to the warranties set forth in Sections
4.1.1 and 4.1.2 of the License Agreement, then the Licensed Programs to be
covered by this Agreement shall include the next most recent Licensed
Program."
2.5 Exhibit A-1. A new Exhibit A-1 shall be added, in the form
-----------
attached as Exhibit 2 to this letter.
3. Except as expressly stated in Sections 1 and 2 above, each of the
License Agreement and the Support Agreement shall remain unaltered and in
full force and effect.
Please indicate your agreement to the terms of this letter by executing the
enclosed duplicate in the space provided below. This letter shall be effective
as of August 28, 1998. The terms offered by this letter shall expire at close of
business on August 30, 1998, unless 3Com has accepted them in writing by
executing the duplicate.
Sincerely,
/s/ Michael A. Brochu
Michael A. Brochu
President and Chief Executive Officer
Primus Knowledge Solutions, Inc.
AGREED AND ACCEPTED:
3COM CORPORATION DATED: August 28, 1998
---------
By: /s/ (signature illegible)
--------------------------
--------------------------
Its:
-------------------------
5
<PAGE>
EXHIBIT 1
---------
PRIMUS KNOWLEDGE SOLUTIONS, INC.
SOFTWARE LICENSE AGREEMENT
EXHIBIT A-1
PRODUCT AND FEE SCHEDULE
<TABLE>
<CAPTION>
Order
- -----
- -----------------------------------------------------------------------------------------------------------------------------------
Product Language # Authorized # Authorized Users # Authorized Distribution Price Per Total Fees
Workstations Users Users Term Workstation/User (US $)
(personal ID) (concurrent) (US $)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SolutionSeries(TM) English N/A N/A N/A N/A See Note 2
Server
- -----------------------------------------------------------------------------------------------------------------------------------
SolutionBuilder(R) English See Note 1 N/A N/A N/A
- --------------------------------------------------------------------------------------------------- [*] [*]
SolutionExplorer(TM) English N/A See Note 1 N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------------
SolutionPublisher(R) English N/A N/A Unlimited N/A N/A [*]
- -----------------------------------------------------------------------------------------------------------------------------------
Total Order Fees N/A See Note 1 See Note 1 [*] N/A N/A $[*]
(US $)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 1: Product Flexibility
- ----------------------------
Licensee has not yet determined the exact number of Authorized Workstations of
SolutionBuilder Software and Authorized Users (personal ID) of SolutionExplorer
Software that it requires, although Licensee has finally determined to make an
aggregate investment in such products in an amount of [*]. Therefore, Licensee
wishes to have, and Primus is willing to provide Licensee with the flexibility
to substitute Authorized Workstations of SolutionBuilder Software for Authorized
Users (personal ID) of Primus' SolutionExplorer software, and vice-versa.
Accordingly, Licensee may substitute Authorized Workstations of SolutionBuilder
Software for Authorized Users (personal ID) of SolutionExplorer Software that
Primus has licensed to it under this Exhibit A-1 and this Agreement, on a one-
for-one basis, and vice-versa; provided always, however, that the aggregate
number of Authorized Workstations and Authorized Users (personal ID) of such
Software may not exceed [*].
Note 2: Fees for Authorized Servers.
- -----------------------------------
Notwithstanding the provisions of Section 3.1.2, Primus shall not charge
Licensee any fees for (i) Authorized Servers on which Licensee has, in good
faith, installed the Software prior to the date on which Primus executes this
Exhibit A-1, and (ii) Authorized Servers on which Licensee, in good faith,
installs the Software, the rights to which Licensee has acquired pursuant to
this Exhibit A-1.
Payment Terms. Licensee shall pay Primus the license fees specified above in
- -------------
the amounts and on the dates set forth in the table below:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Payment Amount (US $) Payment Date
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
[*] September 28, 1998
- -----------------------------------------------------------------------------------------------------------------------
[*] The 30th day following the Enhancement Delivery Date
(as defined below)
- -----------------------------------------------------------------------------------------------------------------------
Total US $[*] N/A
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
[*] is omitted, confidential material, which material has been separately filed
with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
6
<PAGE>
Option Terms For Increasing Licensed Usage Of Software
- ------------------------------------------------------
Primus hereby grants Licensee an option to acquire additional rights to the
Software, on the terms set forth in Table X below. The provisions of this
option with respect to the SolutionBuilder Software shall supercede the option
rights granted over SolutionBuilder Software in Exhibit A of the License
Agreement:
Table X - Product Fees
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Product Language # Authorized # Authorized Minimum Purchase Price Per Total Option
Workstations Users (personal (Authorized Authorized Expiration
Subject to ID) Subject to Workstations/Users) Workstation/ User Date
Option Option (US $)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SolutionBuilder(R) English Unlimited N/A [*] [*] N/A 12/31/1999
- -----------------------------------------------------------------------------------------------------------------------------------
SolutionExplorer(TM) English N/A Unlimited [*] [*] N/A 12/31/1999
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The options granted above shall be exercised by delivery of an irrevocable
purchase order to Primus for the applicable number of workstations and users
(collectively, "Seats") at the applicable price, on or before the relevant
option expiration date. Licensee shall pay the requisite license fees within
thirty (30) days of the date on which the purchase order is delivered to Primus.
Upon exercise of all or any part of the options, Licensee shall pay support and
maintenance fees upon the number of Seats acquired, at a rate of [*] percent
[*] of the per Seat price, multiplied by the number of Seats acquired.
Support and maintenance services will be subject to the provisions of the
Support and Maintenance Agreement.
Additional Obligations of Primus.
- --------------------------------
Primus will deliver the following two additional capabilities for the Software
to Licensee in a general release version on or before March 31, 1999. Primus
shall be solely responsible for determining whether the Software contains such
capabilities, but shall make such determination in good faith and on a
reasonable basis. The date on which Primus delivers such capabilities is
referred to in this Exhibit A-1 as the "Enhancement Delivery Date." On or before
the 30th day following the Enhancement Delivery Date, Licensee shall pay Primus
the License fee balance of [*] US Dollars (US $[*]), as specified in the Payment
Terms table above.
Extended Attributes: The SolutionBuilder, SolutionExplorer, SolutionX(TM) and
SolutionReports applications will be extended to allow the site administrator to
define up to six additional solution attributes. The site administrator will
have the ability to name the attribute as well as define a list of acceptable
values and a default for that attribute. The application user will be presented
with the attributes identified by their given names as well as a default value
and a pull down list of acceptable values for each. The attributes will also be
available for solution query, solution search constraint, SolutionX query and
solution reporting. It will also be possible to set the value of an attribute
as a search constraint from call tracking or from the product selection
mechanism in the SolutionPublisher application. In the SolutionPublisher and
SolutionExplorer applications an option will be available to hide any attribute
on the user interface.
Application Security: Security will be added enabling any solution or statement
to be removed from the end user's view by setting a security attribute
controlling their visibility. A single security attribute will be added to the
SolutionBuilder and SolutionExplorer applications for the purpose of controlling
access to solutions. The site administrator will be able to create up to 64
user security groups via SolutionAdmin. The security attribute will have a pull
down list of all of the user security groups (defined in SolutionAdmin). When
the value of the attribute is set to a group, only users added to that group
will have access to that solution. A users denied access to a secured solution
will be denied access in the following ways: the solution will not be returned
in a solution search, the solution will not be returned in a query, the solution
will not be available if opened by ID, no statements that exist exclusively in
solutions to which a user has no access will be returned in a statement matching
operation.
Technical Assistance. Upon request by Licensee, Primus shall assist Licensee
- --------------------
with Licensee's utilization of any of the Software, including any upgrade, on a
time and materials basis, and on such written terms and conditions as may be
reasonably acceptable to each of Primus and Licensee. Primus shall provide such
assistance at a per labor day rate of $[*] for the period ending August 31,
1999. On September 1, 1999 and each anniversary thereof, Primus may increase
such rate by a percentage of the previous
[*] is omitted, confidential material, which material has been separately filed
with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
7
<PAGE>
labor day rate that is equal to the percentage increase in the All Cities
Average United States Consumer Price Index (all items, base period 1982-84=100)
for the nearest published one year period preceding that September 1, as
published by the US Department of Labor. Primus shall not mark up any materials
that it obtains for, or provides to Licensee, except with Licensee's prior
written consent.
This Exhibit is hereby approved and accepted:
PRIMUS KNOWLEDGE SOLUTIONS, INC. 3COM CORPORATION
By: /s/ Michael A. Brochu By: /s/ (signature illegible)
--------------------------------- ---------------------------------
Michael A. Brochu ---------------------------------
Its President and Chief Executive Its
Officer ---------------------------------
Dated: Aug. 28, 1998 Dated: Aug. 28, 1998
------------------------------ ---------------------------------
8
<PAGE>
EXHIBIT 2
---------
PRIMUS KNOWLEDGE SOLUTIONS, INC.
SUPPORT AND MAINTENANCE AGREEMENT
EXHIBIT A-1
SUPPORT AND MAINTENANCE FEE SCHEDULE
Support And Maintenance Fees
- ----------------------------
Licensee shall pay Primus as specified in the table below for support and
maintenance services with respect to the Licensed Programs that Customer
licensed pursuant to Exhibit A-1 to the License Agreement. Licensee shall pay
Primus the applicable fees on or before the dates specified in the table below.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Product Language Software License Support & Annual Support & Payment Terms
License Maintenance Maintenance Fee ---------------------------------------
Fees (US $) Rate* (US $) Payment Date Payment
Amount (US $)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SolutionBuilder(R) English [*] [*] [*]
- ------------------------------------------------------------------------------------------- September 28, [*]
SolutionExplorer(TM) English 1998
- -----------------------------------------------------------------------------------------------------------------------------------
SolutionPublisher(R) English [*] [*] [*]
- ------------------------------------------------------------------------------------------- September 28, [*]
Total Order Fees N/A [*] N/A [*] 1998
(US $)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Percentage of total license fees
This Exhibit is hereby approved and accepted:
PRIMUS KNOWLEDGE SOLUTIONS, INC. 3COM CORPORATION
By: /s/ Michael A. Brochu By: (signature illegible)
--------------------------------- ----------------------------
Michael A. Brochu ----------------------------
Its President and Chief Executive Its
Officer -------------------------
Dated: Aug. 28, 1998 Dated: Aug. 28, 1998
_______________ _______________
[*] is omitted, confidential material, which material has been separately filed
with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
9
<PAGE>
December 24, 1998
VIA FEDERAL EXPRESS Confidential
- -------------------
3Com Corporation
Attn: Dave Doherty
5400 Bayfront Plaza
Santa Clara, CA 95052
Re: Third Amendment to Software License Agreement and Second Amendment to
Support and Maintenance Agreement, dated as of August 28, 1998
(collectively, the "Amendment") Between 3Com Corporation ("3Com") and
Primus Knowledge Solutions, Inc. ("Primus") Delivery of Additional
Capabilities by Primus
Dear Dave:
Introduction
This letter is to confirm our agreement that Primus has fulfilled certain of its
obligations under the Amendment (defined above). Capitalized terms not
otherwise expressly defined in this letter shall have the meaning ascribed to
them in the Software License Agreement, dated as of June 27, 1997, between
Primus and 3Com, as amended (the "Software License Agreement").
Primus' Obligations To Deliver Certain Enhancements
Under the Amendment, Primus is obligated to deliver to 3Com on or before March
31, 1999 certain enhancements to the Software, as specified in the two
paragraphs immediately below (collectively, the "Additional Obligations")
"Extended Attributes: The SolutionBuilder, SolutionExplorer, SolutionX(TM)
-------------------
and SolutionReports applications will be extended to allow the site
administrator to define up to six additional solution attributes. The site
administrator will have the ability to name the attribute as well as define
a list of acceptable values and a default for that attribute. The
application user will be presented with the attributes identified by their
given names as well as a default value and a pull down list of acceptable
values for each. The attributes will also be available for solution query,
solution search constraint, SolutionX query and solution reporting. It
will also be possible to set the value of an attribute as a search
constraint from call tracking or from the product selection mechanism in
the SolutionPublisher application. In the SolutionPublisher and
SolutionExplorer applications an option will be available to hide any
attribute on the user interface.
Application Security: Security will be added enabling any solution or
--------------------
statement to be removed from the end user's view by setting a security
attribute controlling their visibility. A single security attribute will
be added to the SolutionBuilder and SolutionExplorer applications for the
purpose of controlling access to solutions. The site administrator will be
able to create up to 64 user security groups via SolutionAdmin. The
security attribute will have a pull down list of all of the user security
groups (defined in
<PAGE>
3Com Corporation
December 24, 1998
Page 2 of 2
SolutionAdmin). When the value of the attribute is set to a group, only
users added to that group will have access to that solution. A users denied
access to a secured solution will be denied access in the following ways:
the solution will not be returned in a solution search, the solution will
not be returned in a query, the solution will not be available if opened by
ID, no statements that exist exclusively in solutions to which a user has
no access will be returned in a statement matching operation."
Primus' Fulfillment Of Its Obligations
Based upon the enhancements to the Software that Primus has delivered to 3Com
(the "Enhancements"), and the results of tests performed by 3Com on the
Enhancements, Primus has determined that it has fulfilled the Additional
Obligations as of the date of this letter. 3Com agrees with Primus'
determination.
Confirmation Of Certain Rights Of 3Com With Respect To The Enhancements
Each of 3Com and Primus acknowledge that (i) the Enhancements constitute
Software under the Software License Agreement; (ii) the warranty provisions of
the Software License Agreement apply to the Enhancements; and (iii) Primus is
obligated to provide 3Com with technical support and upgrades relating to the
Enhancements pursuant to the Support and Maintenance Agreement, dated as of June
27, 1997, between Primus and 3Com, as amended.
Please indicate your agreement to the terms of this letter by executing the
enclosed duplicate in the space provided below.
Sincerely,
PRIMUS KNOWLEDGE SOLUTIONS, INC.
By: /s/ Michael A. Brochu
--------------------------------
Michael A. Brochu
--------------------------------
Its: President & CEO
--------------------------------
AGREED AND ACCEPTED:
3COM CORPORATION DATED: 12/24/98
---------
By: /s/ Clarence Wilhelm
--------------------------------
Director Application Development
--------------------------------
Its:
--------------------------------
<PAGE>
Exhibit 10.13
PRIMUS COMMUNICATIONS CORPORATION
SUPPORT AND MAINTENANCE AGREEMENT
This Agreement is made by and between Primus Communications Corporation
("Primus"), a Washington corporation, and Customer (as defined below) and is
dated as of the date set forth below Primus' signature at the end of this
Agreement. Terms not otherwise defined herein shall have the same meanings
ascribed to them as in the Software License Agreement between the parties
executed contemporaneously with this Agreement (the "License Agreement").
Basis of Agreement.
- -------------------
A. Customer has licensed the Licensed Program(s) (as defined below) from Primus
under the License Agreement and desires to obtain support and maintenance for
such programs.
B. Primus desires to provide such support and maintenance services for such
Licensed Program(s) upon the terms and conditions set forth in this Agreement.
C. Accordingly, in consideration of these premises and the terms and conditions
set forth below, Customer and Primus agree as follows:
Section 1. Definitions.
- ------------------------
1.1 "Customer" means 3Com Corporation and all wholly owned subsidiaries of
--------
3Com Corporation.
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 Customer 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 Customer follows to
----------
circumvent or mitigate the impact of an Error. The Error still exists. A
Workaround may be provided at Primus' discretion in lieu of a Fix for a specific
Error.
Section 2. Scope of Support and Maintenance Services.
- ------------------------------------------------------
2.1 Services Provided. During the term of this Agreement, Primus shall support
-----------------
Licensed Program(s) by providing the services described in the following
paragraphs of this Section 2. Primus has no obligation to correct or support
Errors resulting from Customer's misuse, improper use, alteration, or damage to
Licensed Program(s), or Customer's combining or merging Licensed Program(s) with
any hardware or software not identified as compatible by Primus.
2.2 Technical Support. Primus will provide telephone technical support
------------------
regarding use of the Licensed Program(s) and resolution of Errors to Customer's
Support Contacts designated under Section 2.6.2. Primus technical support
representatives will be available by telephone Monday through Friday from 5:00
a.m. to 5:30 p.m. PDT/PST. 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 Customer's call within thirty
(30) minutes of receiving the page triggered by the Customer's voice message for
High Priority situations described below.
2.3 Support Response. Primus will assign all Customer 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 Customer's report of the problem. If the Fix or Workaround
cannot be provided within the twenty-four (24) hours Primus will dedicate
resources to the problem resolution and will inform Customer on a daily basis
of the resolution status.
Medium Priority. Customer'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 Customer's report of the problem. If the problem cannot
be resolved within the two (2) business days, Primus will inform Customer on a
weekly basis of the resolution status.
Low Priority. Customer has a problem which is not seriously impacting
------------
Customer's workflow.
Response Goal: Endeavor to provide a Fix or a Workaround within five (5)
business days of Customer's report of the problem. If the problem cannot be
resolved within the five (5) business days, Primus will provide Customer with
a status evaluation regarding the ultimate resolution.
2.4 Subsequent Release(s). Primus will send Major Releases, New Versions,
---------------------
Maintenance Releases and Fixes and Workarounds (for the same platforms as
Customer's) to Customer when made generally commercially available by Primus to
its customers. Maintenance Releases will be provided to Customer pursuant to
Section 2.3 when Customer is experiencing or in Primus' sole judgment may
experience an Error. Each Major Release, Maintenance Release, New Version, Fix
and Workaround delivered by Primus under this Agreement is subject to the
provisions of the License Agreement between Primus and Customer 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 Primus is
--------------------
able to provide for a Licensed Program(s) from its Seattle headquarters by
telephone, fax or electronic mail. In the event that Customer desires or
requires on-site support for a Licensed Program(s), the parties will have to
negotiate that issue separately.
2.6 Customer Cooperation and Support Contacts.
-----------------------------------------
2.6.1 Customer Cooperation. Customer acknowledges that Primus may not be
--------------------
able to resolve an Error if Customer does not use its commercially reasonable
best efforts to cooperate with and assist Primus in resolving the Error.
2.6.2 Support Contacts. Customer will designate two (2) authorized Support
----------------
Contacts and agrees that each Support Contact will be knowledgeable in all
aspects of the Customer's operating environment in which Licensed Programs are
being used.
2.6.3 3Com Corporation and Subsidiaries. 3Com Corporation warrants and
---------------------------------
guarantees to Primus that 3Com Corporation and its wholly-owned subsidiaries
(collectively, the "3Com Group") shall each perform their obligations as a
Customer in accordance with the provisions of this Agreement. 3Com Corporation
further warrants that, by executing this Agreement, 3Com Corporation binds each
member of the 3Com Group as a Customer under this Agreement.
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
Page 1 of 4
<PAGE>
Program(s) licensed by Customer 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 Primus.
3.2 Annual Fee. Customer shall pay an annual Support and Maintenance Fee at
----------
Primus' 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 Primus. A finance charge of one percent (1%)
per month will be charged on amounts not paid within forty-five (45) 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 Primus shall give Customer 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 Customer increases the Authorized Users of Licensed
Program(s) or acquires additional Authorized Workstations, Customer 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. Customer shall pay
this additional fee to Primus within thirty (30) days after the date of the
Primus 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. Limitation of Liability.
- ------------------------------------
4.1 Excused Performance. Neither party shall be liable for, or be considered
-------------------
to be in breach of or default under this Agreement on account of, any delay or
failure to perform as required under this Agreement as a result of any cause or
condition beyond either party's reasonable control.
4.2 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. SERVICES SHOULD BE PERFORMED
IN A PROFESSIONAL MANNER PER INDUSTRY STANDARDS.
4.3 Limitation of Liability. IN NO EVENT SHALL EITHER PARTY'S CUMULATIVE
-----------------------
LIABILITY FOR ANY CLAIM ARISING IN CONNECTION WITH THIS AGREEMENT EXCEED THE
ANNUAL SUPPORT AND MAINTENANCE FEE PAID TO PRIMUS BY CUSTOMER FOR THE PERIOD IN
WHICH THE CAUSE OF ACTION ACCRUED. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR
ANY INDIRECT, CONSEQUENTIAL, SPECIAL, EXEMPLARY, OR INCIDENTAL DAMAGES OF
WHATEVER KIND AND HOWEVER CAUSED, WHETHER IN CONTRACT OR IN TORT, EVEN IF EITHER
PARTY KNEW OR SHOULD HAVE KNOWN OF THE POSSIBILITY OF SUCH DAMAGES.
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 Customer provides Primus with thirty
(30) day prior written notice before the end of the term of Customer'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 Primus of Customer's decision to
not renew this Agreement; 3) upon failure of Customer to pay Support and
Maintenance Fees when due; provided, however, that if Customer is in breach for
non-payment, termination shall not occur automatically, but only if Primus, in
its sole and absolute discretion, provides Customer with written notice of
termination; 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 Customer 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 Primus may have at law or in equity. If Primus
terminates this Agreement other than in circumstances in which Customer is in
breach of any provision of this Agreement, Primus shall refund to Customer that
portion of the annual support and maintenance fees that is attributable to the
unused number of days of the then current annual term, calculated on a day by
day basis.
Section 6. Miscellaneous.
- -------------------------
6.1 Notices. Any notice or any other communication under this Agreement
-------
(excluding Customer's requests for support) given by either party to the other
shall be deemed to be properly given if given in writing and delivered in person
or mailed (return receipt requested), properly addressed and stamped with the
required postage, or sent via confirmed facsimile and confirmed by first class
mail.
6.2 Assignment. Neither party shall assign any of its rights under all or any
----------
part of this Agreement, directly, by operation of law, or otherwise, without the
prior written consent of the other party, which shall not be unreasonably
withheld. Subject to the foregoing restriction of assignment by Customer, this
Agreement shall be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.
6.3 Non-waiver. Any failure by either party to insist upon or enforce
----------
performance by the other party of any provisions of this Agreement or to
exercise any rights or remedies under this Agreement or otherwise by law shall
not be construed as a waiver or relinquishment of either party's right to assert
or rely upon the provision, right, or remedy in that or any other instance;
rather the provision, right or remedy shall be and remain in full force and
effect.
6.4 Attorney's fees and Expenses. In the event of any proceeding under this
----------------------------
Agreement, the prevailing party in any such proceeding shall be entitled to
reasonable attorney's fees and expenses, including the full cost of any
arbitration, trial and any appeal.
6.5 Applicable Laws; Forum. This Agreement shall be interpreted, construed,
----------------------
and enforced in accordance with the laws of the State of Washington without
reference to its choice of law rules and not including the 1980 U.N. Convention
on Contracts for the International Sale of Goods. Plaintiff party may only
commence or prosecute a suit, proceeding, or claim to enforce the provisions of
this Agreement relating to the Software, or other items furnished under this
Agreement, or otherwise arising under or by reason of this Agreement, in a court
of competent jurisdiction in the state of the defendant party, Washington if
Primus is the defendant party and California if Licensee is the defendant party.
6.6 Entire Agreement. This Agreement constitutes the entire agreement, and
----------------
supersedes any and all prior agreements and representations, whether oral or
written, between Primus and Customer relating to the subject matter contained
herein. This Agreement may not be amended except by a written instrument
executed by both parties.
6.7 Exhibits. The Exhibit listed below shall form part of this Agreement:
--------
Exhibit A - Product Support and Maintenance Fee Schedule
Page 2 of 4
<PAGE>
IN WITNESS WHEREOF, the parties hereto each acting with proper authority have
executed this Agreement as indicated below.
<TABLE>
<CAPTION>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
PRIMUS COMMUNICATIONS CORPORATION CUSTOMER: 3COM CORPORATION
- ------------------------------------------------------------------------------------------------------------------------------------
1601 Fifth Avenue, Suite 1900
- ------------------------------------------------------------------------------------------------------------------------------------
Seattle, WA 98101
- ------------------------------------------------------------------------------------------------------------------------------------
Tel: 206-292-1000 Tel:
- ------------------------------------------------------------------------------------------------------------------------------------
Fax: 206-292-1825 Fax:
- ------------------------------------------------------------------------------------------------------------------------------------
By: /s/ Steven L. Sperry By: /s/ Thomas L. Thomas
- ------------------------------------------------------------------------------------------------------------------------------------
Name: Steven L. Sperry Name (Print): /s/ Thomas L. Thomas
- ------------------------------------------------------------------------------------------------------------------------------------
Title: President and Chief Executive Officer Title: SVP-CIO
- ------------------------------------------------------------------------------------------------------------------------------------
Date: 6-27-97 Date: 6/25/97
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 3 of 4
<PAGE>
PRIMUS COMMUNICATIONS CORPORATION
SUPPORT AND MAINTENANCE AGREEMENT
EXHIBIT A
PRODUCT SUPPORT AND MAINTENANCE FEE SCHEDULE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
PRODUCT % OF PURCHASE SUPPORT AND
PURCHASE PRICE PRICE MAINTENANCE FEE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SolutionBuilder [*]% $[*] (See Note 1)
- -------------------------------------------------------------------------------------------------
SolutionPublisher [*]% $[*] (See Note 1)
- -------------------------------------------------------------------------------------------------
</TABLE>
Note 1: Customer shall pay Primus support and maintenance fees of $[*] for
the period commencing September 1, 1997, and ending May 31, 1998. Primus shall
provide support and maintenance to Customer under this Agreement at no charge,
for the period commencing on execution of this Agreement, and ending on August
31, 1997. Payment dates and amounts are specified in exhibit A to the Software
License Agreement between the parties, of even date herewith (the "Software
License Agreement").
ADDITIONAL ORDERS
- -----------------
If Customer exercises the Option granted to it by Primus under the Software
License Agreement and acquires rights for additional Authorized Workstations
and/or additional Authorized SP Users pursuant to the Option, the annual Support
and Maintenance Fees for the additional Authorized Workstations and/or
additional Authorized SP Users shall equal [*] percent [*]% of their purchase
price. (The terms "Option," "Authorized Workstations" and "Authorized SP Users"
shall have the same meanings ascribed to them as in the Software License
Agreement.)
This exhibit is hereby approved and accepted:
<TABLE>
<CAPTION>
<S> <C>
By: /s/ Steven L. Sperry By: /s/ Thomas L. Thomas
- -----------------------------------------------------------------------------------------------------------------
Name: Steven L. Sperry Name (Print): Thomas L. Thomas
- -----------------------------------------------------------------------------------------------------------------
Title: President and Chief Executive Officer Title: SVP-CIO
- -----------------------------------------------------------------------------------------------------------------
Date: 6-27-97 Date: 6/25/97
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
[*] * omitted, confidential material, which material has been separately filed
with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
Page 4 of 4
<PAGE>
Exhibit 10.14
AMENDMENT NO. 1 TO SUPPORT AND MAINTENANCE AGREEMENT
BETWEEN 3COM CORPORATION AND PRIMUS
DATE OF AGREEMENT: June 25, 1997
This Amendment 1 ("Amendment") is made this 25th day of June, 1997 to the
Support and Maintenance Agreement between Primus and 3Com Corporation dated June
25, 1997 ("Agreement"). Terms not otherwise defined herein shall have the
meanings ascribed to them in the Agreement.
WHEREAS, the parties do not wish to negotiate a new contract at this time but do
wish to continue their business relationship based on the terms and conditions
of their original Agreement.
NOW THEREFORE, the parties agree to be bound by the terms of their original
Agreement which is hereby amended as follows:
1) Section 3.3 of the Agreement is hereby amended to add the following to the
end of the section:
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 All Cities Average United States
Consumer Price Index (all items, base period 1982-84=100) for the one year
period preceding the notice, as published by the US Department of Labor.
3Com Corporation: Primus Communications Corporation:
Signature /s/ Thomas L. Thomas Signature /s/ Steve Sperry
---------------------- ----------------------
Printed Thomas L. Thomas Printed Steve Sperry
------------------------ ----------------------
Title SVP - CIO Title President & CEO
------------------------- -------------------------
Date 6/25/97 Date June 25, 1997
---------------------------
<PAGE>
EXHIBIT 10.15
Change of Control Agreement
This Change of Control Agreement (this "Agreement"), dated as of
, 1999, is between PRIMUS KNOWLEDGE SOLUTIONS, INC., a Washington
- --------------
corporation (the "Company"), and (the "Employee").
-----------------
RECITAL
The Board of Directors of the Company (the "Board") has determined that it
is in the best interests of the Company and its shareholders to ensure that the
Company will have the continued dedication of the Employee, notwithstanding the
possibility, threat or occurrence of a Change of Control (as defined in Section
1.1 hereof) of the Company. The Board believes it is imperative to diminish the
inevitable distraction of the Employee arising from the personal uncertainties
and risks created by a pending or threatened Change of Control, to encourage the
Employee's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Employee with reasonable compensation and benefit arrangements upon a Change of
Control.
AGREEMENT
In order to accomplish these objectives, the Board has caused the Company
to enter into this Agreement.
1. DEFINITIONS
1.1 Change of Control
"Change of Control" means any of the following events:
(a) Consummation of any merger, consolidation or share exchange of the
Company or pursuant to which shares of the Company's stock are converted into
cash, securities or other property, if following such merger, consolidation or
share exchange the holders of the Company's outstanding voting securities
immediately prior to such merger, consolidation or share exchange own less than
a majority of the outstanding voting securities of the surviving corporation;
(b) Consummation of any sale, lease, exchange or other transfer in one
transaction or a series of related transactions of all or substantially all of
the Company's assets other than a transfer of the Company's assets to a
majority-owned subsidiary of the Company; or
<PAGE>
(c) Acquisition by a person, within the meaning of Section 3(a)(9) or of
Section 13(d)(3) of the Exchange Act of 1934, as amended (the "Exchange Act") of
a majority or more of the Company's outstanding voting securities (whether
directly or indirectly, beneficially or of record). Ownership of voting
securities shall take into account and shall include ownership as determined by
applying Rule 13d-3(d)(1)(i) under the Exchange Act.
1.2 Change of Control Date
"Change of Control Date" shall mean the first date on which a Change of
Control occurs.
1.3 Employment Period
"Employment Period" shall mean the one-year period commencing on the Change
of Control Date and ending on the first anniversary of such date.
2. TERM
The term of this Agreement ("Term") shall be for one year following the
Change of Control Date, unless extended by the parties hereto.
3. EFFECT ON OTHER AGREEMENTS
The provisions of this Agreement shall be deemed to amend the terms of that
certain Option Agreement[s] between the Company and the Employee, dated
, relating to the Employee's options to purchase shares of the
- -------- --------
Company's common stock (the " Options").
--------------
4. ACCELERATION OF VESTING
Immediately prior to closing of a Change of Control fifty percent (50%) of
the unvested portion of the Options shall automatically become
--------------
fully vested and exercisable whether or not the vesting requirements set forth
in the applicable Option Agreement[s] have been satisfied.
5. EMPLOYMENT
5.1 Employment Period
During the Employment Period, the Company hereby agrees to continue the
Employee in its employ or in the employ of its affiliated companies, and the
Employee hereby agrees to remain in the employ of the Company or its affiliated
companies, in accordance with the terms and provisions of this Agreement;
provided,
2
<PAGE>
however, that either the Company or the Employee may terminate the employment
relationship subject to the terms of this Agreement.
5.2 Position and Duties
During the Employment Period, the Employee's title, position, authority,
duties and responsibilities shall be at least commensurate in all material
respects with the most significant of those held, exercised and assigned at any
time during the 90-day period immediately preceding the Change of Control Date.
5.3 Location
During the Employment Period, the Employee's services shall be performed at
the Company's headquarters on the Change of Control Date or any office which is
subsequently designated as the headquarters of the Company and is located in
King County, Washington.
5.4 Termination Prior to Change of Control
If prior to the Change of Control Date, the Employee's employment with the
Company or its affiliated companies terminates for any reason, then the Employee
shall have no further rights under this Agreement; provided, however, that the
Company may not avoid liability for any termination payments which would have
been required during the Employment Period pursuant to Section 9 hereof by
terminating the Employee prior to the Employment Period where such termination
is carried out in anticipation of a Change of Control and the principal
motivating purpose is to avoid liability for such termination payments.
6. ATTENTION AND EFFORT
During the Employment Period, and excluding any periods of vacation and
sick leave to which the Employee is entitled, the Employee will devote all his
productive time, ability, attention and effort to the business and affairs of
the Company and the discharge of the responsibilities assigned to him hereunder,
and he will use his reasonable best efforts to perform faithfully and
efficiently such responsibilities. It shall not be a violation of this
Agreement for the Employee to (a) serve on corporate, civic or charitable boards
or committees approved in advance by the Company's Board of Directors, (b)
deliver lectures, fulfill speaking engagements or teach at educational
institutions, (c) manage personal investments, so long as such activities do not
significantly interfere with the performance of the Employee's responsibilities
in accordance with this Agreement and (d) other activities approved in advance
by the Company. It is expressly understood and agreed that to the extent any
such activities have been conducted by the Employee prior to the Employment
Period, the continued
3
<PAGE>
conduct of such activities (or the conduct of activities similar in nature and
scope thereto) during the Employment Period shall not thereafter be deemed to
interfere with the performance of the Employee's responsibilities to the
Company.
7. COMPENSATION AND BENEFITS
As long as the Employee remains employed by the Company during the
Employment Period, the Company agrees to pay or cause to be paid to the
Employee, and the Employee agrees to accept in exchange for the services
rendered hereunder by him, the following compensation:
7.1 Salary
The Employee shall receive an annual base salary (the "Annual Base Salary")
at least equal to the annual salary established by the Board or a committee of
the Board (the "Compensation Committee") for the fiscal year in which the Change
of Control Date occurs. The Annual Base Salary shall be paid in substantially
equal installments and at the same intervals as the salaries of other employees
of the Company are paid. The Board or the Compensation Committee shall review
the Annual Base Salary at least annually and shall determine in good faith and
consistent with any generally applicable Company policy any increases for future
years.
7.2 Bonus
In addition to Annual Base Salary, the Employee shall be awarded an annual
bonus (the "Annual Bonus") in cash at least equal to the average annualized (for
any fiscal year consisting of less than 12 full months) bonus paid or payable,
including by reason of any deferral, to the Employee by the Company and its
affiliated companies in respect of the three fiscal years immediately preceding
the fiscal year in which the Change of Control Date occurs. Each such Annual
Bonus shall be paid no later than 90 days after the end of the fiscal year for
which the Annual Bonus is awarded, unless the Employee shall elect to defer the
receipt of such Annual Bonus.
7.3 Incentive, Retirement and Welfare Benefit Plans; Vacation
During the Employment Period, the Employee shall be entitled to
participate, subject to and in accordance with applicable eligibility
requirements, in such fringe benefit programs as shall be generally made
available to other employees of the Company and its affiliated companies from
time to time during the Employment Period by action of the Board (or any person
or committee appointed by the Board to determine fringe benefit programs and
other emoluments), including, without limitation, paid vacations; any stock
purchase, savings or retirement plan, practice, policy or program; and all
welfare benefit plans, practices, policies or programs
4
<PAGE>
(including, without limitation, medical, prescription, dental, disability,
salary continuance, employee life, group life, accidental death and travel
accident insurance plans or programs).
7.4 Expenses
During the Employment Period, the Employee shall be entitled to receive
prompt reimbursement for all reasonable employment expenses incurred by him in
accordance with the policies, practices and procedures of the Company and its
affiliated companies in effect for the employees of the Company and its
affiliated companies during the Employment Period.
8. TERMINATION
During the Employment Period, employment of the Employee may be terminated
as follows:
8.1 By the Company or the Employee
At any time during the Employment Period, the Company may terminate the
employment of the Employee with or without Cause (as defined below), and the
Employee may terminate his employment for Good Reason (as defined below) or for
any reason, upon giving Notice of Termination (as defined below).
8.2 Automatic Termination
This Agreement and the Employee's employment during the Employment Period
shall terminate automatically upon the death or Total Disability of the
Employee. The term "Total Disability" as used herein shall mean the Employee's
inability (with such accommodation as may be required by law and which places no
undue burden on the Company), as determined by a physician selected by the
Company and acceptable to the Employee, to perform the duties set forth in
Section 5.2 hereof for a period or periods aggregating 120 calendar days in any
12-month period as a result of physical or mental illness, loss of legal
capacity or any other cause beyond the Employee's control, unless the Employee
is granted a leave of absence by the Board. The Employee and the Company hereby
acknowledge that the duties specified in Section 5.2 hereof are essential to the
Employee's position and that Employee's ability to perform those duties is the
essence of this Agreement.
8.3 Notice of Termination
Any termination by the Company or by the Employee during the Employment
Period shall be communicated by Notice of Termination to the other party given
in accordance with Section 12 hereof. The term "Notice of Termination" shall
mean a
5
<PAGE>
written notice which (a) indicates the specific termination provision in this
Agreement relied upon and (b) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Employee's employment under the provision so indicated. The failure by the
Employee or the Company to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason or Cause shall not
waive any right of the Employee or the Company hereunder or preclude the
Employee or the Company from asserting such fact or circumstance in enforcing
the Employee's or the Company's rights hereunder.
8.4 Date of Termination
During the Employment Period, "Date of Termination" means (a) if the
Employee's employment is terminated by reason of death, at the end of the
calendar month in which the Employee's death occurs, (b) if the Employee's
employment is terminated by reason of Total Disability, immediately upon a
determination by the Company of the Employee's Total Disability, and (c) in all
other cases, five days after the effective date of notice pursuant to Section 12
hereof. The Employee's employment and performance of services will continue
during such five-day period; provided, however, that the Company may, upon
notice to the Employee and without reducing the Employee's compensation during
such period, excuse the Employee from any or all of his duties during such
period.
9. TERMINATION PAYMENTS
In the event of termination of the Employee's employment during the
Employment Period, all compensation and benefits set forth in this Agreement
shall terminate, except as specifically provided in this Section 9.
9.1 Termination by the Company Other Than for Cause or by the Employee for
Good Reason
If during the Employment Period the Company terminates the Employee's
employment other than for Cause or the Employee terminates his employment for
Good Reason, the Employee shall be entitled to:
(a) receive payment of the following accrued obligations (the "Accrued
Obligations"):
(i) the Employee's Annual Base Salary through the Date of
Termination to the extent not theretofore paid; and
6
<PAGE>
(ii) any compensation previously deferred by the Employee
(together with accrued interest or earnings thereon, if any) and any
accrued vacation pay which would be payable under the Company's standard
policy, in each case to the extent not theretofore paid;
(b) an amount as severance pay equal to one-half of Employee's Annual
Base Salary for the fiscal year in which the Date of Termination occurs;
provided, that such payment shall be in full and final satisfaction of any claim
of the Employee against the Company arising out of the officer's employment by
the Company or the termination of such employment; and
(c) immediate vesting and exercisability of all options to purchase
securities of the Company held by the Employee, including but not limited to the
Options.
- --------------
9.2 Termination for Cause or Other Than for Good Reason
If during the Employment Period the Employee's employment shall be
terminated by the Company for Cause or by the Employee for other than Good
Reason, this Agreement shall terminate without further obligation on the part of
the Company to the Employee, other than the Company's obligation to pay the
Employee the Accrued Obligations to the extent theretofore unpaid.
9.3 Expiration of Term
In the case of a termination of the Employee's employment as a result of
the expiration of the Term of this Agreement, this Agreement shall terminate
without further obligation on the part of the Company to the Employee, other
than the Company's obligation to pay the Employee the Accrued Obligations.
9.4 Termination Because of Death or Total Disability
If during the Employment Period the Employee's employment is terminated by
reason of the Employee's death or Total Disability, this Agreement shall
terminate automatically without further obligation on the part of the Company to
the Employee or his legal representatives under this Agreement, other than the
Company's obligation to pay the Employee the Accrued Obligations (which shall be
paid to the Employee's estate or beneficiary, as applicable in the case of the
Employee's death).
9.5 Payment Schedule
All payments of the Accrued Obligations and the Severance Obligation, or
any portion thereof payable pursuant to this Section 9, shall be made to the
Employee within thirty calendar days of the Date of Termination.
7
<PAGE>
9.6 Cause
For purposes of this Agreement, "Cause" means cause given by the Employee
to the Company and shall be limited to the occurrence of one or more of the
following events:
(a) A clear refusal to carry out any material lawful duties of the
Employee or any directions of the Board, all reasonably consistent with the
duties described in Section 5.2 hereof, provided the Employee has been given
reasonable notice and opportunity to correct any such failure;
(b) Violation by the Employee of a state or federal criminal law
involving the commission of a crime against the Company or any of its
subsidiaries; or
(c) Deception, fraud, misrepresentation or dishonesty by the Employee;
any incident materially compromising the Employee's reputation or ability to
represent the Company with investors, customers or the public.
9.7 Good Reason
For purposes of this Agreement, "Good Reason" means
(a) The assignment to the Employee of any duties materially
inconsistent with the Employee's title, position, authority, duties or
responsibilities as contemplated by Section 5.2 hereof or any other action by
the Company which results in a material diminution in such title, position,
authority, duties or responsibilities;
(b) Any failure by the Company to comply with any of the provisions of
Section 7 hereof;
(c) The Company's requiring the Employee to be based at any office or
location other than that described in Section 5.3 hereof;
(d) Any failure by the Company to comply with and satisfy Section 13
hereof, provided that the Company's successor has received at least ten days'
prior written notice from the Company or the Employee of the requirements of
Section 13 hereof; or
(e) Any other material violation of any provision of this Agreement by
the Company.
8
<PAGE>
9.8 Excess Parachute Limitation
If either the Company or the Employee receives confirmation from the
Company's independent tax counsel or its certified public accounting firm, or
such other accounting firm retained as independent certified public accountants
for the Company (the "Tax Advisor"), that any payment by the Company to the
Employee under this Agreement or otherwise would be considered to be an "excess
parachute payment" within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended, or any successor statute then in effect (the "Code"),
then the aggregate payments by the Company pursuant to this Agreement shall be
reduced to the highest amount that may be paid to the Employee by the Company
under this Agreement without having any portion of any amount payable to the
Employee by the Company or a related entity under this Agreement or otherwise
treated as such an "excess parachute payment," and, if permitted by applicable
law and without adverse tax consequence, such reduction shall be made to the
last payment due hereunder. Any payments made by the Company to the Employee
under this Agreement which are later confirmed by the Tax Advisor to be "excess
parachute payments" shall be considered by all parties to have been a loan by
the Company to the Employee, which loan shall be repaid by the Employee upon
demand, together with interest calculated at the lowest interest rate authorized
for such loans under the Code, without a requirement that further interest be
imputed.
10. REPRESENTATIONS, WARRANTIES AND OTHER CONDITIONS
In order to induce the Company to enter into this Agreement, the Employee
represents and warrants to the Company that neither the execution nor the
performance of this Agreement by the Employee will violate or conflict in any
way with any other agreement by which the Employee may be bound or with any
other duties imposed upon Employee by corporate or other statutory or common
law.
11. NOTICE AND CURE OF BREACH
Whenever a breach of this Agreement by either party is relied upon as
justification for any action taken by the other party pursuant to any provision
of this Agreement, other than pursuant to the definition of Cause set forth in
Section 9.6 hereof, before such action is taken, the party asserting the breach
of this Agreement shall give the other party at least ten days' prior written
notice of the existence and the nature of such breach before taking further
action hereunder and shall give the party purportedly in breach of this
Agreement the opportunity to correct such breach during the ten-day period.
9
<PAGE>
12. FORM OF NOTICE
All notices given hereunder shall be given in writing, shall specifically
refer to this Agreement and shall be personally delivered or sent by telecopy or
other electronic facsimile transmission or by reputable overnight courier, at
the address set forth below or at such other address as may hereafter be
designated by notice given in compliance with the terms hereof. Such notice
shall be effective upon receipt or upon refusal of the addressee to accept
delivery.
If to Employee:
-------------- --------------
-----------------------------
-----------------------------
If to Company: Primus Knowledge Solutions, Inc.
1601 Fifth Ave., Suite 1900
Seattle, WA 98101
Attn: General Counsel
Phone: (206) 292-1000
Facsimile: (206) 292-1825
Copy to: Perkins Coie LLP
1201 Third Avenue, 40th Floor
Seattle, WA 98101-3099
Attn: Greg Gorder
Phone: (206) 583-8888
Facsimile: (206) 583-8500
13. ASSIGNMENT
This Agreement is personal to the Employee and shall not be assignable by
the Employee. The Company shall assign to and require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all the business and/or assets of the Company to assume expressly
and agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession had taken
place. As used in this Agreement, "Company" shall mean Primus Knowledge
Solutions, Inc. and any successor to its business and/or assets as aforesaid
which assumes and agrees to perform this Agreement by operation of law, or
otherwise. All the terms and provisions of this Agreement shall be binding upon
and inure to the benefit of and be enforceable by the parties hereto and their
respective successors and permitted assigns.
10
<PAGE>
14. WAIVERS
No delay or failure by any party hereto in exercising, protecting or
enforcing any of its rights, titles, interests or remedies hereunder, and no
course of dealing or performance with respect thereto, shall constitute a waiver
thereof. The express waiver by a party hereto of any right, title, interest or
remedy in a particular instance or circumstance shall not constitute a waiver
thereof in any other instance or circumstance. All rights and remedies shall be
cumulative and not exclusive of any other rights or remedies.
15. AMENDMENTS IN WRITING
No amendment, modification, waiver, termination or discharge of any
provision of this Agreement, nor consent to any departure therefrom by either
party hereto, shall in any event be effective unless the same shall be in
writing, specifically identifying this Agreement and the provision intended to
be amended, modified, waived, terminated or discharged and signed by the Company
and the Employee, and each such amendment, modification, waiver, termination or
discharge shall be effective only in the specific instance and for the specific
purpose for which given. No provision of this Agreement shall be varied,
contradicted or explained by any oral agreement, course of dealing or
performance or any other matter not set forth in an agreement in writing and
signed by the Company and the Employee.
16. APPLICABLE LAW
This Agreement shall in all respects, including all matters of
construction, validity and performance, be governed by, and construed and
enforced in accordance with, the laws of the state of Washington, without regard
to any rules governing conflicts of laws.
17. ARBITRATION
Any dispute arising under this Agreement shall be subject to arbitration.
The arbitration proceeding shall be conducted in accordance with the Commercial
Arbitration Rules of the American Arbitration Association (the "AAA Rules") then
in effect, conducted by one arbitrator either mutually agreed upon or selected
in accordance with the AAA Rules, except that the parties thereto shall have any
right to discovery as would be permitted by the Federal Rules of Civil Procedure
for a period of 90 days following the commencement of such arbitration and the
arbitrator thereof shall resolve any dispute which arises in connection with
such discovery. The arbitration shall be conducted in King County, Washington
under the jurisdiction of the Seattle office of the American Arbitration
Association. The arbitrator shall have authority only to interpret and apply
the provisions of this Agreement and shall have
11
<PAGE>
no authority to add to, subtract from, or otherwise modify the terms of this
Agreement. Any demand for arbitration must be made within 60 days of the
event(s) giving rise to the claim that this Agreement has been breached. The
arbitrator's decision shall be final and binding, and each party agrees to be
bound by the arbitrator's award subject, only to an appeal therefrom in
accordance with the laws of the state of Washington. Either party may obtain
judgment upon the arbitrator's award in the Superior Court of King County,
Washington.
18. SEVERABILITY
If any provision of this Agreement shall be held invalid, illegal or
unenforceable in any jurisdiction, for any reason, then, to the full extent
permitted by law, (a) all other provisions hereof shall remain in full force and
effect in such jurisdiction and shall be liberally construed in order to carry
out the intent of the parties hereto as nearly as may be possible, (b) such
invalidity, illegality or unenforceability shall not affect the validity,
legality or enforceability of any other provision hereof, and (c) any court or
arbitrator having jurisdiction thereover shall have the power to reform such
provision to the extent necessary for such provision to be enforceable under
applicable law.
19. ENTIRE AGREEMENT
This Agreement on and as of the date hereof constitutes the entire
agreement between the Company and the Employee with respect to the subject
matter hereof and all prior or contemporaneous oral or written communications,
understandings or agreements between the Company and the Employee with respect
to such subject matter are hereby superseded and nullified in their entireties.
20. COUNTERPARTS
This Agreement may be executed in counterparts, each of which counterpart
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
21. HEADINGS
All headings used herein are for convenience only and shall not in any way
affect the construction of, or be taken into consideration in interpreting, this
Agreement.
12
<PAGE>
IN WITNESS WHEREOF, the parties have executed and entered into this
Agreement effective on the date first set forth above.
EMPLOYEE
----------------------------------------
------------- --------------------
PRIMUS KNOWLEDGE SOLUTIONS,
INC.
By
-----------------------------------------
13
<PAGE>
Exhibit 10.17
SYMBOLOGIC CORPORATION
EMPLOYEE STOCK OPTION AND RESTRICTED STOCK AWARD PLAN
1 GENERAL PROVISIONS
1.1 Purpose of the Plan
The purpose of the Employee Stock Option and Restricted Stock Award Plan
(the "Plan") is to provide incentives to selected employees of Primus
Communications Corporation (the "Company"), and future subsidiaries of the
Company, thereby helping to attract and retain the best available personnel
for positions of responsibility with the Company and otherwise promoting
the success of the business activities of the Company. The incentives will
be in the form of options to purchase shares of the Company's common stock
and/or restricted stock awards of the Company's common stock.
1.2 Definitions
As used in this Plan, the following definitions will apply:
(a) "Employer" shall mean the Company or any parent or subsidiary of the
Company that now exists or is hereafter organized or acquired by the
Company.
(b) "Employee" shall mean any person employed by or acting as an agent,
contractor, or subcontractor for the Company or parent or subsidiary
of the Company that now exists or is hereafter organized or acquired
by the Company.
(c) "Shareholder-Employee" shall mean an Employee who owns stock
representing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Employer. For this purpose, the
attribution of stock ownership rules provided in Section 425 (d) of
the Internal Revenue Code will apply.
(d) "Common Stock" shall mean the Company's common stock, par value
$0.025.
(e) "Incentive Stock Options" shall mean incentive stock options within
the meaning of Section 422 (a) of the Internal Revenue Code.
(f) "Nonqualified Stock Options" shall mean any options granted pursuant
to this Plan that are not Incentive Stock Options.
(g) "Award" or "Restricted Stock Award" shall mean Common Stock of the
Company granted to an Employee pursuant to and subject to the
limitations described in Part III of this Plan, Restricted Stock Award
Provisions.
(h) "Option" shall mean a right to purchase Common Stock of the Company
pursuant to Part II of this Plan, Stock Option Provisions. Options
will include both Incentive Stock Options and Nonqualified Stock
Options.
(i) "Optioned Stock" shall mean the Common Stock subject to an Option.
(j) "Grantee" shall mean any Employee who receives an Award.
(k) "Optionee" shall mean an Employee who receives an Option.
(l) "Board" shall mean the Board of Directors of the Company.
(m) "Committee" shall mean the Committee appointed by the Board in
accordance with this Plan.
(n) "Continuous Status as an Employee" shall mean the absence of any
interruption or termination of service as an Employee. Continuous
Status as an Employee will not be considered interrupted in the case
of sick leave, military leave, or any other leave of absence approved
by the Committee.
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1.3 Shares Subject to the Plan
1.3.1 Total Shares Available.
----------------------
(a) The number of shares that may be issued and sold pursuant to Options
granted under the Stock Option Provisions of this Plan and that may be
issued pursuant to the Restricted Stock Award Provisions of this Plan
will not, in the aggregate, exceed 6,700,000 shares of the Common
Stock of the Company.
(b) Common Stock issued under this Plan may be either authorized and
unissued shares or shares issued and thereafter acquired by the
Company. If any Options granted under this Plan will, for any reason,
expire without having been exercised in full, or if any Awards will,
for any reason, be forfeited or canceled, the Common Stock not
purchased under such options, or so forfeited, will be available again
for the purposes of this Plan.
1.3.2 Adjustments to Shares Available.
-------------------------------
(a) The number of shares of Common Stock covered by each outstanding
Option and Award, the number of shares of Common Stock available for
grant of additional Options and Awards, and the price per share of
Common Stock specified in each outstanding Option, will be
proportionately adjusted for any increase or decrease in the number of
issued shares of Common Stock resulting from any stock split or other
subdivision or consolidation of shares, the payment of any stock
dividend (but only on the Common Stock), or any other increase or
decrease in the number of such shares of Common Stock effected without
receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company will not be
deemed to have been "effected without receipt of consideration." Such
adjustment will be made by the Committee, whose determination in that
respect will be final, binding, and conclusive.
(b) No Option will be adjusted by the Committee pursuant to Section 3 in a
manner that causes the Option, if an Incentive Stock Option, to fail
to continue to qualify as an Incentive Stock Option.
1.4 Administration of the Plan
1.4.1 The Committee.
-------------
(a) This Plan will be administered by the Compensation Committee of the
Board or such other Committee as will be appointed by the Board. The
Committee will consist of not less than three (3) members of the
Board; provided, however, that for as long as the Board consists of
one Director, the Plan will be administered by that Director, who
shall possess all powers of the Committee hereunder. Once appointed,
the Committee will continue to serve until otherwise directed by the
Board. From time to time, the Board may increase the size of the
Committee and appoint additional members, remove members with or
without cause, appoint new members in substitution for existing
members, and fill vacancies. The Committee will select one of its
members as chairman and will hold meetings at such times and places as
the chairman or a majority of the Committee may determine.
(b) A majority of the members of the Committee, if it consists of more
than one member, will consist of members of the Board who are not
eligible to receive Options or Awards. Members of the Committee who
are either eligible for Options or Awards or who have been granted
Options or Awards will be counted for all purposes in determining the
existence of a quorum at any meeting of the Committee and will be
eligible to vote on all matters before the Committee, except only that
such members will not vote or otherwise act on the grant or the
modification of the terms of any Option or Award granted or to be
granted to himself or herself. If the Committee consists of one
member, that member may not grant an Option or Award to himself or
herself.
2
<PAGE>
(c) The Committee will, if so requested, present a written report to the
Board indicating the Employees to whom Options and Awards have been
granted since the date of the last such report, and, in each case, the
date or dates of Options and Awards granted, the number of shares
optioned and awarded, and the Option price and Award value per share.
(d) The Board will have the power at any time to remove all members of the
Committee and thereafter to directly administer this Plan as a
Committee of the whole. In such an event, all references in the Plan
to the "Committee" will refer to the Board.
1.4.2 Powers of the Committee.
-----------------------
(a) Subject to the provisions and limitations of this Plan, and any
applicable written agreement pursuant to the Plan, the Committee will
have the authority and discretion:
(1) to determine the Employees to whom Options and Awards are to be
granted, the times of grant, and the number of shares to be
represented by each Option and Award;
(2) to determine the Option price for the shares of Common Stock to
be issued pursuant to each Option, subject to the provisions of
paragraph 3 (b) of Part II of this Plan in the case of Incentive
Stock Options;
(3) to authorize any person or persons to execute and deliver Option
and Award agreements or to take any other actions deemed by the
Committee to be necessary or appropriate to effectuate the grant
of Options and Awards by the Committee;
(4) to make all other determinations and take all other actions that
the Committee deems necessary or appropriate to administer the
Plan in accordance with its terms and conditions and applicable
laws.
(b) All actions of the Committee will be either by (i) a majority vote of
all members of the Committee at a meeting of the Committee; or (ii) by
unanimous written consent of all members of the Committee without a
meeting of the Committee.
(c) All decisions, determinations, and interpretations of the Committee
will be final and binding on all persons, including all Optionees,
Grantees, and any other holders or persons interested in any Option or
Award, unless otherwise expressly determined by a vote of the majority
of the Board. No member of the Committee or of the Board will be
liable for any action or determination made in good faith with respect
to this Plan.
1.5 Term of the Plan
1.5.1 This Plan will become effective on the earlier of (a) the date of
adoption of this Plan by the Board; or (b) the date of shareholder approval
of the Plan as set forth below. Unless sooner terminated as provided below,
the Plan will terminate on the tenth anniversary of its effective date.
Options may be granted at any time after the effective date and prior to
the date of termination of the Plan.
1.5.2 Amendment or Early Termination.
------------------------------
(a) The Board may terminate this Plan at any time. The Board may amend
this Plan at any time and from time to time in such respects as the
Board may deem advisable, except that, without approval of the holders
of a majority of the outstanding shares of the Common Stock, no such
revision or amendment will:
(1) increase the number of shares of Common Stock subject to the Plan
other than in connection with an adjustment under Section 3.2 of
Part I; or
(2) change the designation of the class of Employees eligible to be
granted Options or Awards.
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<PAGE>
(b) No amendment or termination of the Plan will affect Options or Awards
granted prior to such amendment or termination, and all such Options
and Awards will remain in full force and effect notwithstanding such
amendment or termination.
1.6 Shareholder Approval
Continuance of the Plan will be subject to approval of the Plan by
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock of the Company at a duly convened meeting of the shareholders
of the Company, which approval must occur within twelve (12) months before
or after the date of adoption of the Plan by the Board.
2 STOCK OPTION PROVISIONS
2.1 Nonqualified Stock Options and Incentive Stock Options
Options in the form of Nonqualified Stock Options and Options that qualify
as Incentive Stock Options may be granted under the Plan.
2.2 Eligibility for Options
Options may be granted only to Employees whom the Committee, in its
discretion, determines to be key Employees of the Company, a parent, or a
subsidiary. The granting of Options will be entirely discretionary with the
Committee, and the adoption of this Plan will not confer on any Employee
any right to receive any Options unless and until such Options are granted
by the Committee. Neither the adoption of this Plan nor the granting of any
Options will confer on any Employee any right with respect to continuation
of employment, nor will the same interfere in any way with his or her right
(or with the right of the Employer) to terminate his or her employment at
any time.
2.3 Terms and Conditions of Options
All Options granted pursuant to this Plan must be authorized by the
Committee, and must be documented in written agreements in such form as the
Committee will from time to time approve, which agreements will comply with
and be subject to all of the following terms and conditions:
(a) Number of Shares and Annual Limitation. Each Option agreement will
--------------------------------------
state the number of shares subject to the Option. Any number of
Options may be granted to a single eligible Employee at any time and
from time to time, except that, in the case of Incentive Stock
Options, the aggregate fair market value (determined as of the time
each Option is granted) of all shares of Common Stock with respect to
which Options are exercisable for the first time by such Employee in
any one calendar year (under all Incentive Stock Option plans of the
Company, its parent, and all of its Subsidiaries taken together) will
not exceed One Hundred Thousand Dollars ($100,000).
(b) Option Price and Consideration.
------------------------------
(1) The Option price for the shares of Common Stock to be issued
pursuant to the Option will be such price as is determined by the
Committee, but, in the case of Incentive Stock Options, will in
no event be less than the fair market value of the Common Stock
on the date of grant of the Incentive Stock Option.
(2) In the case of an Incentive Stock Option granted to an Employee
who, immediately before the grant of such Incentive Stock Option,
is a Shareholder-Employee, the Incentive Stock Option price will
be at least one hundred ten percent (110%) of the fair market
value of the Common Stock on the date of grant of the Incentive
Stock Option. The fair market value will be determined by the
Committee in its discretion; provided, however, that, if a public
market exists for the Common Stock, the fair market value will be
the mean of the bid and asked prices of the Common Stock as of
the date of grant as reported
4
<PAGE>
on the National Association of Securities Dealers Automated
Quotation System (NASDAQ), or if the Common Stock is listed on a
stock exchange, the closing price on the exchange as of the date
of grant of the Option.
(3) The Option price will be payable either (i) in United States
dollars on exercise of the Option, or (ii) if so determined by
the Committee and specified in the Option agreement, in other
property, including, without limitation, Common Stock at its fair
market value on the date of exercise.
(c) Term of Option. No Stock Option granted pursuant to this Plan will in
--------------
any event be exercisable after the expiration of ten (10) years from
the date such Option is granted. Subject to the foregoing and other
applicable provisions of this Plan, the term of each Option will be
determined by the Committee in its discretion.
(d) Manner of Exercise: Rights as Shareholder. An Option will be deemed to
-----------------------------------------
be exercised when written notice of exercise has been given to the
Company in accordance with the terms of the Option by the person
entitled to exercise the Option, together with full payment for the
shares of Common Stock subject to such notice.
(e) Death of Optionee. Unless otherwise provided in an Optionee's written
-----------------
agreement pursuant to this Plan, in the event of the death of an
Optionee who at the time of his or her death was an Employee and who
had been in Continuous Status as an Employee since the date of grant
of the Option, the Option will (unless the Committee determines
otherwise) terminate on the earlier of (i) one (1) year after the date
of death of the Optionee, or (ii) the expiration date otherwise
provided in the Option agreement, except that in no event will any
Nonqualified Stock Option expire before the end of the ninety (90) day
period immediately following the Optionee's death. The Option rights
will be exercisable at any time prior to such termination by the
Optionee's estate, or by such person or persons who have acquired the
right to exercise the Option by bequest or by inheritance or by reason
of the death of the Optionee.
(f) Disability of Optionee. Unless otherwise provided in an Optionee's
----------------------
written agreement pursuant to this Plan, if an Optionee's status as an
Employee is terminated at any time during the Option period by reason
of a disability (within the meaning of Section 22(e)(3) of the
Internal Revenue Code or any shareholder agreement between Employer
and Employee), and if such Optionee had been in Continuous Status as
an Employee at all times between the date of grant of the Option and
the termination of his or her status as an Employee, his or her Option
will terminate on the earlier of (i) one (1) year after the date of
termination of his or her status as an Employee, or (ii) the
expiration date otherwise provided in his or her Option agreement. The
Option will be exercisable by the Optionee at any time prior to such
termination date.
(g) Termination of Status as an Employee.
------------------------------------
(1) Unless otherwise provided in an Optionee's written agreement
pursuant to the Plan, if an Optionee's status as an Employee is
terminated at any time after the grant of his or her Option for
any reason other than death, disability, or termination by reason
of fraud or willful misconduct, as provided in subparagraph
3(g)(2) below, his or her Option will terminate on the earlier of
(i) the same day of the third month after the date of termination
of his or her status as an Employee, or (ii) the expiration date
otherwise provided in his or her Option agreement. The Option
will be exercisable by the Optionee at any time prior to such
termination date, but only to the extent that it was exercisable
by the Optionee on the date of termination of employment.
(2) Unless otherwise provided in an Optionee's written agreement
pursuant to the Plan, if an Optionee's status as an Employee is
terminated at any time after the grant of his or her Option by
reason of fraud or willful misconduct, then his or her Option
will terminate on the date of termination of his or her status as
an Employee.
5
<PAGE>
(h) Non-Transferability of Options. An Option may not be sold, pledged,
------------------------------
assigned, transferred, or disposed of in any manner other than by will
or by the laws of descent or distribution, and may be exercised,
during the lifetime of the Optionee, only by the Optionee.
(i) Date of Grant of Option. The date of grant of an Option will, for all
-----------------------
purposes, be the date on which the Committee makes the determination
granting such Option. Such date of grant will be specified in the
Option agreement.
(j) Conditions On Issuance of Shares.
--------------------------------
(1) Shares of Common Stock will not be issued with respect to an
Option granted under this Plan unless the exercise of such Option
and the issuance and delivery of such Shares pursuant thereto
will comply with all relevant provisions of law, including,
without limitation, the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, or applicable state
securities statutes or other jurisdictions, the rules and
regulations promulgated under all such statutes, and the
requirements of any stock exchange on which the Common Stock may
then be listed, and will be further subject to the approval of
counsel for the Company with respect to such compliance.
(2) As a condition to the exercise of an Option, the Company may
require the person exercising such Option to represent and
warrant at the time of exercise that the shares of Common Stock
are being purchased only for investment and without any present
intention to sell or distribute such Common Stock if, in the
opinion of counsel for the Company, such a representation is
required by any applicable law.
(k) Merger, Sale of Assets, etc. In the event of a proposed merger of the
---------------------------
Company with or into any other corporation, or in the event of a
proposed sale of substantially all of the assets of the Company, or in
the event of a proposed dissolution or liquidation of the Company, the
Committee may, in the exercise of its sole discretion, terminate all
outstanding Options as of a date fixed by the Committee. In such
event, however, the Committee will notify each Optionee of such action
in writing not less than ninety (90) days prior to the termination
date fixed by the Committee, and each Optionee will have the right to
exercise his or her Options prior to such termination date.
(l) Substitute Stock Options. In connection with the acquisition or
------------------------
proposed acquisition by the Company or any subsidiary, whether by
merger, acquisition of stock or assets, or other reorganization
transaction, of a business any employees of which have been granted
stock options, the Committee is authorized to issue, in substitution
of any such unexercised stock option, a new Option under this Plan
that confers on the Optionee substantially the same benefits as the
old option; provided, however, that the issuance of any new Incentive
Stock Option for an old incentive stock option will satisfy the
requirements of Section 425 (a) of the Internal Revenue Code.
(m) Tax Compliance. The Employer, in its sole discretion, may take any
--------------
actions reasonably believed by it to be required to comply with any
local, state, or federal tax laws relating to the reporting or
withholding of taxes attributable to the grant or exercise of any
Option or the disposition of any shares of Common Stock issued on
exercise of an Option, including, but not limited to (i) withholding
from any Optionee exercising an Option a number of shares of Common
Stock having a fair market value equal to the amount required to be
withheld by the Employer under applicable tax laws, and (ii)
withholding from any form of compensation or other amount due an
Optionee or holder of shares of Common Stock issued on exercise of an
Option any amount required to be withheld by the Employer under
applicable tax laws. Withholding or reporting will be considered
required for purposes of this subparagraph if any tax deduction or
other favorable tax treatment available to Employer is conditioned on
such reporting or withholding.
(n) Other Provisions. Option agreements executed pursuant to this Plan may
----------------
contain such other provisions as the Committee will deem advisable;
provided, in the case of Incentive Stock Options, that the provisions
are not inconsistent with the provisions of Section 422 (a) of the
Internal Revenue Code or with any of the other terms and conditions of
this Plan.
6
<PAGE>
3 RESTRICTED STOCK AWARD PROVISIONS
3.1 Restricted Stock Awards
Common Stock of the Company may be awarded to an eligible Employee in the
form of a Restricted Stock Award pursuant to the provisions and subject to
the limitations of this Part III.
3.2 Eligibility for Awards
Awards may be granted only to Employees whom the Committee, in its
discretion, determines to be key Employees of the Company, a parent, or a
subsidiary. The granting of Awards will be entirely discretionary with the
Committee, and the adoption of this Plan will not confer on any Employee
any right to receive any Awards unless and until such Awards are granted by
the Committee. Neither the adoption of this Plan nor the granting of any
Awards will confer on any Employee any right with respect to continuation
of employment, nor will the same interfere in any way with his or her right
(or with the right of the Employer) to terminate his or her employment at
any time.
3.3 Terms and Conditions of Awards
All Awards granted pursuant to this Plan must be authorized by the
Committee, and must be documented in written agreements in such form as the
Committee will from time to time approve, which agreements will comply with
and be subject to all of the following terms and conditions:
(a) Shares Subject to Award. The shares of Common Stock subject to
------------------------
Restricted Stock Awards are as stated in Section 3 of Part I.
(b) Escrow. Stock certificates evidencing shares of Common Stock granted
-------
as a Restricted Stock Award will be issued in the name of the Grantee
and deposited in escrow with an escrow service chosen by the Committee
(the "Escrow Agent") to be held by the Escrow Agent subject to the
terms hereof and subject to delivery to the Grantee or redelivery to
the Escrow Agent in accordance with the terms and provisions of this
Part III. By acceptance of an Award, the Grantee grants an irrevocable
power of attorney to the Escrow Agent to transfer and deliver such
Common Stock and stock certificates evidencing the same in accordance
with the terms and provisions hereof and the directions of the
Committee given pursuant to this Plan.
(c) Dividends and Voting Rights. During the period while the stock
----------------------------
certificates evidencing restricted stock are held in escrow as
provided in this Plan, all dividends payable with respect to such
stock will be paid by the Escrow Agent directly to the Grantee named
therein and such Grantee will be entitled to exercise all voting
rights with respect to such stock, all in the same manner and to the
full extent as though such stock were held by the Grantee free of the
escrow.
(d) Escrow Stock not Transferable. No transfer or other disposition of
------------------------------
Common Stock held in escrow under this Plan may be made by the Grantee
as long as such stock is held under and remains subject to the escrow.
(e) Release of Stock from Escrow. Common Stock held in escrow pursuant to
-----------------------------
the provisions of this Part III will be released from such escrow by
the delivery of the stock certificate evidencing such shares to the
Grantee (or, in the case of death or disability of the Grantee, to the
Grantee's estate or legal guardian) at:
(1) The completion by the Grantee of such number of years or other
periods of Continuous Status as an Employee measured from the
date of the Award as the Committee will determine;
(2) The death of the Grantee;
7
<PAGE>
(3) The determination by the Committee, acting in its sole
discretion, to authorize the release of such stock to the Grantee
on the occurrence of any event that the Committee determines to
warrant such release; or
(4) The occurrence of a change in control of the Company. The term
"control" will refer to the acquisition of twenty percent (20%)
or more of the voting securities of the Company by any person or
by persons acting as a group within the meaning of Section 13(d)
of the Securities Exchange Act of 1934; provided, however, that,
for the purposes of this subparagraph, no change in control will
be deemed to have occurred if prior to the acquisition of, or
offer to acquire, twenty percent (20%) or more of the voting
securities of the Company, the full Board of Directors will have
adopted by not less than a two-thirds vote a resolution
specifically approving such acquisition or offer. For purposes of
this subparagraph, the term "person" refers to an individual or a
corporation, partnership, trust, association, joint venture,
pool, syndicate, sole proprietorship, unincorporated
organization, or any other form of entity not specifically listed
herein.
(f) Termination of Employment. If Grantee ceases to be an Employee during
-------------------------
the period that any Common Stock is held in escrow hereunder for the
Grantee's account, other than by reason of death, normal retirement,
or approved early retirement (and such Common Stock is not then
subject to release under items (1), (2), or (4) of Section 3 (e)
above), such stock will be forfeited to the Company and all rights of
the Grantee with respect thereto terminated, unless, in the case of
termination by act of the Company, the Committee, within thirty (30)
days following such termination, authorizes the release of such Common
Stock to such Grantee under the authority granted to it by item (3) of
Section 3 above. On the expiration of such 30-day period without
action by the Committee to release such Common Stock to the Grantee,
the Common Stock will be deemed forfeited and the stock certificates
evidencing the same will be redelivered to the Company, whereupon they
will be canceled and retired.
CERTIFICATE OF ADOPTION
I certify that this Plan was approved by the shareholders of the Company on
November 29, 1993.
I certify that this Plan was amended by the shareholders of the Company on
December 2, 1994.
/s/ Steven L. Sperry
________________________________________________
Steven L. Sperry, Chairman of the Board
Attest:
/s/ Kenneth L. Block
________________________________________________
Kenneth L. Block, Secretary
8
<PAGE>
EXHIBIT 10.18
SYMBOLOGIC CORPORATION
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1 GENERAL PROVISIONS
1.1 Purpose of the Plan
The purpose of the Symbologic Corporation Non-Employee Director Stock
Option Plan (the "Plan") is to attract and retain the services of
experienced and knowledgeable non-employee directors of Symbologic
Corporation (the "Company") and to provide an incentive for such directors
to increase their proprietary interest in the Company's long-term success.
1.2 Shares Subject to the Plan
1.2.1 Total Shares Available.
-----------------------
(a) The number of shares that may be issued and sold pursuant to options
granted under this Plan will not, in the aggregate, exceed two
hundred thousand (200,000) shares of the common stock of the Company
(the "Shares").
(b) Common stock issued under this Plan may be either authorized and
unissued shares or shares issued and thereafter acquired by the
Company. If any options granted under this Plan will, for any reason,
expire without having been exercised in full, the common stock not
purchased under such options, or so forfeited, will be available again
for the purposes of this Plan.
1.2.2 Adjustments to Shares Available. The number of shares of common stock
--------------------------------
covered by each outstanding option, the number of shares of common stock
available for grant of additional options, and the price per share of
common stock specified in each outstanding option, will be proportionately
adjusted for any increase or decrease in the number of issued shares of
common stock resulting from any stock split or other subdivision or
consolidation of shares, the payment of any stock dividend (but only on
the common stock), or any other increase or decrease in the number of such
shares of common stock effected without receipt of consideration by the
Company; provided, however, that conversion of any convertible securities
of the Company will not be deemed to have been "effected without receipt
of consideration." Such adjustment will be made by the Board of Directors,
whose determination in that respect will be final, binding, and
conclusive.
1.3 Administration of the Plan
This Plan shall be administered by the Board of Directors of the Company
(the "Board"), or, in the event the Board shall appoint and/or authorize a
Compensation Committee to the administer this Plan, by such committee.
Subject to the terms of this Plan, the Board shall have the power to
construe the provisions of this Plan, to determine all questions arising
thereunder and to adopt and amend such rules and regulations for the
administration of this Plan as it may deem desirable.
1.4 Term of the Plan
1.4.1 Effective Date. This Plan will become effective on the date of
--------------
shareholder approval of this Plan as set forth below. Unless sooner
terminated as provided below, this Plan will terminate on the tenth
anniversary of its effective date. Options may be granted at any time
after the effective date and prior to the date of termination of this
Plan.
1.4.2 Amendment or Early Termination. The Board may amend, terminate or suspend
------------------------------
this Plan at any time, in its sole and absolute discretion; provided,
however, that without the approval of the shareholders no amendment shall
(1) increase the number of Shares subject to the option; (2) reduce the
option price below 100% of the fair market value of the Shares subject to
the option at the time the option was granted; (3) increase
1
<PAGE>
beyond 5,000 the number of Shares for which options may be granted to each
Director in a calendar year; or (4) change the timing with respect to
which such options are granted.
1.5 Shareholder Approval
This Plan shall be subject to approval by affirmative vote of the holders
of a majority of the outstanding shares of common stock of the Company at
a duly convened meeting of the shareholders of the Company, voting in
person or by proxy at such meeting.
2 STOCK OPTION PROVISIONS
2.1 Nonqualified Stock Options
Only options in the form of Nonqualified Stock Options may be granted
under this Plan.
2.2 Participation in the Plan
Each Director of the Company who is not an employee of the Company or any
subsidiary ("Director") shall receive annually an option to acquire 5,000
Shares under this Plan concurrent with the annual election of Directors by
the shareholders of the Company. Each former Director of the Company
during the period prior to the adoption of this Plan who was not an
employee of the Company while serving on the Board shall receive an option
to acquire 5,000 Shares under this Plan for each year of service as a
Director.
2.3 Terms and Conditions of Options
Each option granted to a Director or former Director under this Plan and
the issuance of shares thereunder shall be subject to the following terms:
(a) Option Agreement. Each option granted under this Plan shall be
----------------
evidenced by an option agreement (the "Agreement") duly executed on
behalf of the Company and by the Director to whom such option is
granted (the "Optionee"). Each Agreement shall comply with and be
subject to the terms and conditions of this Plan and shall
conclusively evidence by the Optionee's signature thereon that it is
the intent of the Optionee to continue to serve as a Director of the
Company for the remainder of the year in which the option was granted,
except in the case of an Optionee who is a former Director. The
Agreement may contain such other terms, provisions and conditions not
inconsistent with this Plan as may be determined by the Board.
(b) Option Exercise Price. The option exercise price for the option
---------------------
granted under this Plan shall be the fair market value of the Shares
covered by the option at the time the option is granted. As described
in Section 2.2, options granted under this Plan are considered granted
on the date of the corresponding annual election of Directors by the
shareholders of the Company, except for options granted to former
Directors, which shall be considered granted on the date this Plan is
adopted by the shareholders of the Company.
(c) Vesting of Options. Each option granted under this Plan shall become
------------------
exercisable, but not for any fractional shares or for less than 100
shares, one (1) year from the date of grant of the option. Each option
granted under this Plan shall become fully exercisable upon the
occurrence of the first of the following events:
(1) the Optionee is terminated as a Director by reason of death or
disability; or
(2) a change in control occurs, as defined by one or more of the
following events: (i) a person or entity acquires or otherwise
becomes the owner (as a result of a purchase, merger, stock
exchange, or otherwise) of fifty percent (50%) or more of the
Company's outstanding common stock; or (ii) the merger of the
Company into any entity, fifty percent (50%) or more of the
outstanding common stock of which is owned by other than owners
of the
2
<PAGE>
common stock of the Company prior to such merger; or (iii)
replacement of incumbent Directors or election of newly elected
Directors constituting a majority of the Board of Directors of
the Company where such replacement or election has not been
unanimously supported by the Board of Directors of the Company;
or (iv) the Securities and Exchange Commission declares effective
a registration statement of the Company filed pursuant to the
Securities Act of 1933, other than a registration on Form S-8
respecting any employee or director stock plan.
(d) Manner of Exercise of Option. No option granted under this Plan may be
----------------------------
exercised until a corresponding Agreement (as described in Section
2.3(a)) has been executed by the Company and the Director to whom the
option was granted. Any option may be exercised by giving written
notice, signed by the Optionee, to the Company stating the number of
Shares with respect to which the option is being exercised,
accompanied by payment in full for such Shares, which payment may be
in cash or in shares of common stock of the Company already owned by
the person or persons exercising the option, valued at fair market
value at the time of the exercise, or partly in cash and partly in
such shares.
(e) Term of Options. Each option shall expire not more than ten (10) years
---------------
from the date of grant, but shall be subject to earlier termination
pursuant to Section 2.3(h).
(f) Transferability. An option granted pursuant to this Plan may not be
---------------
sold, pledged, assigned, hypothecated, transferred, or disposed of in
any manner other than by will or by the laws of descent or
distribution, and may be exercised, during the lifetime of the
Optionee, only by the Optionee.
(g) Participant's or Successor's Rights as Shareholders. Neither the
---------------------------------------------------
recipient of an option under this Plan nor his or her successor(s) in
interest shall have any rights as a shareholder of the Company with
respect to any Shares subject to an option granted to such person
until such person becomes a holder of record of such Shares.
(h) Termination of Status as a Director.
-----------------------------------
(1) Unless otherwise provided in the Optionee's Agreement, if the
Optionee's status as a Director is terminated at any time after
the grant of the option for any reason other than death,
disability, or termination by reason of fraud or willful
misconduct, the option will terminate on the earlier of (i) one
(1) year after the date the Optionee ceases to be a Director, or
(ii) the expiration date otherwise provided in the Agreement. The
option will be exercisable by the Optionee at any time prior to
such termination date, but only to the extent that it was
exercisable by the Optionee on the date of termination of as a
Director.
(2) Unless otherwise provided in the Optionee's Agreement, in the
event of the death of the Optionee, the option will terminate on
the earlier of (i) one (1) year after the date of the death of
the Optionee, or (ii) the expiration date otherwise provided in
the Agreement, except that in no event will any option expire
before the end of the ninety (90) day period immediately
following the Optionee's death. The option rights will be
exercisable at any time prior to such termination by the
Optionee's estate, or by such person or persons who have acquired
the right to exercise the option by bequest or by inheritance or
by reason of the death of the Optionee.
(3) Unless otherwise provided in the Optionee's Agreement, if the
Optionee's status as a Director is terminated at any time by
reason of a disability (within the meaning of Section 22(e)(3) of
the Internal Revenue Code), the option will terminate on the
earlier of (i) one (1) year after the date of the termination of
the Optionee's status as a Director, or (ii) the expiration date
otherwise provided in the Agreement. The option will be
exercisable by the Optionee at any time prior to such termination
date.
(4) If the Optionee's status as a Director is terminated at any time
after the grant of the option by reason of fraud or willful
misconduct, then the option will terminate on the date of the
termination of the Optionee's status as a Director.
3
<PAGE>
(i) Conditions On Issuance of Shares.
--------------------------------
(1) Shares of common stock will not be issued with respect to an
option granted under this Plan unless the exercise of such option
and the issuance and delivery of such Shares pursuant thereto
will comply with all relevant provisions of law, including,
without limitation, the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, or applicable state
securities statutes or other jurisdictions, the rules and
regulations promulgated under all such statutes, and the
requirements of any stock exchange on which the common stock may
then be listed, and will be further subject to the approval of
counsel for the Company with respect to such compliance.
(2) As a condition to the exercise of an option, the Company may
require the person exercising such option to represent and
warrant at the time of exercise that the shares of common stock
are being purchased only for investment and without any present
intention to sell or distribute such common stock if, in the
opinion of counsel for the Company, such a representation is
required by any applicable law.
(j) Tax Compliance. The Company, in its sole discretion, may take any
--------------
actions reasonably believed by it to be required to comply with any
local, state, or federal tax laws relating to the reporting or
withholding of taxes attributable to the grant or exercise of any
option or the disposition of any shares of common stock issued on
exercise of an option, including, but not limited to (i) withholding
from any Optionee exercising an option a number of shares of common
stock having a fair market value equal to the amount required to be
withheld by the Company under applicable tax laws, and (ii)
withholding from any form of compensation or other amount due the
Optionee or holder of shares of common stock issued on exercise of an
option any amount required to be withheld by the Company under
applicable tax laws. Withholding or reporting will be considered
required for purposes of this subparagraph if any tax deduction or
other favorable tax treatment available to Company is conditioned on
such reporting or withholding.
CERTIFICATE OF ADOPTION
I certify that the foregoing Plan was approved by the Board of Directors of the
Company on November 1, 1994.
/s/ Steven L. Sperry
_______________________________________
Steven L. Sperry, Chairman of the Board
I certify that the foregoing Plan was approved by the shareholders of the
Company on December 2, 1994.
/s/ Kenneth L. Block
_______________________________________
Kenneth L. Block, Secretary
4
<PAGE>
EXHIBIT 10.19
PRIMUS KNOWLEDGE SOLUTIONS, INC.
1995 STOCK INCENTIVE COMPENSATION PLAN
(as amended and restated on March 12, 1996)
SECTION 1. PURPOSE
The purpose of the Primus Communications Corporation 1995 Stock Incentive
Compensation Plan (the "Plan") is to enhance the long-term profitability and
shareholder value of Primus Knowledge Solutions, Inc., a Washington corporation
(the "Company"), by offering incentives and rewards to those employees,
directors, officers, consultants, agents, advisors and independent contractors
of the Company and its Subsidiaries (as defined in Section 2 below) who are key
to the Company's growth and success, and to encourage them to remain in the
service of the Company and its Subsidiaries and to acquire and maintain stock
ownership in the Company.
SECTION 2. DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set forth
below:
2.1 Award
"Award" means an award or grant made to a Participant pursuant to the Plan,
including, without limitation, awards or grants of Options, Stock Appreciation
Rights, Stock Awards or any combination of the foregoing.
2.2 Board
"Board" means the Board of Directors of the Company.
2.3 Cause
"Cause" means dishonesty, fraud, misconduct, unauthorized use or disclosure
of confidential information or trade secrets, or conviction or confession of a
crime punishable by law (except minor violations), in each case as determined by
the Plan Administrator, whose determination shall be conclusive and binding.
2.4 Code
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
<PAGE>
2.5 Common Stock
"Common Stock" means the common stock, par value $.025 per share, of the
Company.
2.6 Corporate Transaction
"Corporate Transaction" means any of the following events:
(a) Approval by the holders of the Common Stock of any merger or
consolidation of the Company in which the Company is not the continuing or
surviving corporation or pursuant to which shares of the Common Stock are
converted into cash, securities or other property, other than a merger of the
Company in which the holders of the Common Stock immediately prior to the merger
have substantially the same proportionate ownership of common stock of the
surviving corporation immediately after the merger;
(b) Approval by the holders of the Common Stock of any sale, lease,
exchange or other transfer in one transaction or a series of related
transactions of all or substantially all of the Company's assets other than a
transfer of the Company's assets to a majority-owned subsidiary (as the term
"subsidiary" is defined in Section 8.3 of the Plan) of the Company; or
(c) Approval by the holders of the Common Stock of any plan or
proposal for the liquidation or dissolution of the Company.
2.7 Disability
"Disability" means "disability" as that term is defined for purposes of the
Company's group long-term disability plan or other similar successor plan
applicable to salaried employees.
2.8 Early Retirement
"Early Retirement" means retirement as that term is defined by the Plan
Administrator from time to time for purposes of the Plan.
2.9 Exchange Act
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.10 Fair Market Value
"Fair Market Value" shall be as established in good faith by the Plan
Administrator or (i) if the Common Stock is listed on the Nasdaq National
Market, the closing price for the Common Stock as reported by the Nasdaq
National Market on the trading day or (ii) if the
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<PAGE>
Common Stock is listed on the New York Stock Exchange, the mean of the high and
low per share trading prices for the Common Stock as reported in The Wall Street
Journal for the New York Stock Exchange--Composite Transactions (or similar
successor consolidated transactions reports), for a single trading day.
2.11 Grant Date
"Grant Date" means the date designated in a resolution of the Plan
Administrator as the date an Award is granted. If the Plan Administrator does
not designate a Grant Date in the resolution, the Grant Date shall be the date
the Plan Administrator adopted the resolution.
2.12 Holder
"Holder" means the Participant to whom an Award is granted, or the personal
representative of a Holder who has died.
2.13 Incentive Stock Option
"Incentive Stock Option" means an option to purchase Common Stock granted
under Section 7 of the Plan with the intention that it qualify as an "incentive
stock option" as that term is defined in Section 422 of the Code.
2.14 Nonqualified Stock Option
"Nonqualified Stock Option" means an option to purchase Common Stock
granted under Section 7 of the Plan other than an Incentive Stock Option.
2.15 Option
"Option" means the right to purchase Common Stock granted under Section 7
of the Plan.
2.16 Participant
"Participant" means an individual who is a Holder of an Award or, as the
context may require, any employee, director, officer, consultant, agent, advisor
or independent contractor of the Company or a Subsidiary who has been designated
by the Plan Administrator as eligible to participate in the Plan.
2.17 Plan Administrator
"Plan Administrator" means the Board or any committee of the Board
designated to administer the Plan under Section 3.1 of the Plan.
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<PAGE>
2.18 Restricted Stock
"Restricted Stock" means shares of Common Stock granted under Section 10 of
the Plan the rights of ownership of which are subject to restrictions prescribed
by the Plan Administrator.
2.19 Retirement
"Retirement" means retirement as of the individual's normal retirement date
under the Company's [retirement plan] or other similar successor plan applicable
to salaried employees.
2.20 Securities Act
"Securities Act" means the Securities Act of 1933, as amended.
2.21 Stock Appreciation Right
"Stock Appreciation Right" means an Award granted under Section 9 of the
Plan.
2.22 Stock Award
"Stock Award" means an Award granted under Section 10 of the Plan.
2.23 Subsidiary
"Subsidiary," except as expressly provided otherwise, means any entity that
is directly or indirectly controlled by the Company or in which the Company has
a significant ownership interest, as determined by the Plan Administrator, and
any entity that may become a direct or indirect parent of the Company.
2.24 Window Period
"Window Period" means a period of 10 days on which there is trading in the
Common Stock on the Nasdaq National Market or New York Stock Exchange, beginning
with the third trading day after disclosure by the Company to the public of its
earnings for the fiscal period just ended and ending with the twelfth such day.
2.25 Window Period Fair Market Value
"Window Period Fair Market Value" means the highest Fair Market Value
during a Window Period.
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<PAGE>
SECTION 3. ADMINISTRATION
3.1 Plan Administrator
The Plan shall be administered by the Board or a committee or committees
(which term includes subcommittees) appointed by, and consisting of two or more
members of, the Board. The Board may delegate the responsibility for
administering the Plan with respect to designated classes of eligible
Participants to different committees, subject to such limitations as the Board
deems appropriate. Committee members shall serve for such term as the Board may
determine, subject to removal by the Board at any time. The composition of any
committee responsible for administering the Plan with respect to officers and
directors of the Company who are subject to Section 16 of the Exchange Act with
respect to securities of the Company shall comply with the requirements of Rule
16b-3 under Section 16(b) of the Exchange Act.
3.2 Administration and Interpretation by the Plan Administrator
Except for the terms and conditions explicitly set forth in the Plan, the
Plan Administrator shall have exclusive authority, in its discretion, to
determine all matters relating to Awards under the Plan, including the selection
of individuals to be granted Awards, the type of Awards, the number of shares of
Common Stock subject to an Award, all terms, conditions, restrictions and
limitations, if any, of an Award and the terms of any instrument that evidences
the Award. The Plan Administrator shall also have exclusive authority to
interpret the Plan and may from time to time adopt, and change, rules and
regulations of general application for the Plan's administration. The Plan
Administrator's interpretation of the Plan and its rules and regulations, and
all actions taken and determinations made by the Plan Administrator pursuant to
the Plan, shall be conclusive and binding on all parties involved or affected.
The Plan Administrator may delegate administrative duties to such of the
Company's officers as it so determines.
SECTION 4. STOCK SUBJECT TO THE PLAN
4.1 Authorized Number of Shares
4.2 Reuse of Shares
Any shares of Common Stock that have been made subject to an Award that
cease to be subject to the Award (other than by reason of exercise or payment of
the Award to the extent it is exercised for or settled in shares), including,
without limitation, in connection with the cancellation of an Award and the
grant of a replacement Award, shall again be
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<PAGE>
available for issuance in connection with future grants of Awards under the
Plan. Shares that are subject to tandem Awards shall be counted only once.
SECTION 5. ELIGIBILITY
Awards may be granted under the Plan to those officers, directors and key
employees of the Company and its Subsidiaries as the Plan Administrator from
time to time selects. Awards may also be made to consultants, agents, advisors
and independent contractors who provide services to the Company and its
Subsidiaries.
SECTION 6. AWARDS
6.1 Form and Grant of Awards
The Plan Administrator shall have the authority, in its sole discretion, to
determine the type or types of Awards to be made under the Plan. Such Awards
may include, but are not limited to, Incentive Stock Options, Nonqualified Stock
Options, Stock Appreciation Rights and Stock Awards. Awards may be granted
singly, in combination or in tandem so that the settlement or payment of one
automatically reduces or cancels the other. Awards may also be made in
combination or in tandem with, in replacement of, as alternatives to, or as the
payment form for, grants or rights under any other employee or compensation plan
of the Company.
6.2 Acquired Company Awards
Notwithstanding anything in the Plan to the contrary, the Plan
Administrator may grant Awards under the Plan in substitution for awards issued
under other plans, or assume under the Plan awards issued under other plans, if
the other plans are or were plans of other entities ("Acquired Entities") (or
the parent of the Acquired Entity) and the new Award is substituted, or the old
award is assumed, by reason of a merger, consolidation, acquisition of property
or of stock, reorganization or liquidation (the "Acquisition Transaction"). In
the event that a written agreement pursuant to which the Acquisition Transaction
is completed is approved by the Board and said agreement sets forth the terms
and conditions of the substitution for or assumption of outstanding awards of
the Acquired Entity, said terms and conditions shall be deemed to be the action
of the Plan Administrator without any further action by the Plan Administrator,
except as may be required for compliance with Rule 16b-3 under the Exchange Act,
and the persons holding such Awards shall be deemed to be Participants and
Holders.
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<PAGE>
SECTION 7. AWARDS OF OPTIONS
7.1 Grant of Options
The Plan Administrator is authorized under the Plan, in its sole
discretion, to issue Options as Incentive Stock Options or as Nonqualified Stock
Options, which shall be appropriately designated.
7.2 Option Exercise Price
The exercise price for shares purchased under an Option shall be as
determined by the Plan Administrator, but shall not be less than 100% of the
Fair Market Value of the Common Stock on the Grant Date with respect to
Incentive Stock Options.
7.3 Term of Options
The term of each Option shall be as established by the Plan Administrator
or, if not so established, shall be 10 years from the Grant Date.
7.4 Exercise of Options
The Plan Administrator shall establish and set forth in each instrument
that evidences an Option the time at which or the installments in which the
Option shall become exercisable, which provisions may be waived or modified by
the Plan Administrator at any time. If not so established in the instrument
evidencing the Option, the Option will become exercisable according to the
following schedule, which may be waived or modified by the Plan Administrator at
any time:
<TABLE>
<CAPTION>
Period of Holder's Continuous Employment or
Service With the Company or Its Subsidiaries
From the Option Grant Date Percent of Total Option That Is Exercisable
- ---------------------------------------------------------------------------------------------
<S> <C>
After 1 year 25%
After 2 years 50%
After 3 years 75%
After 4 years 100%
</TABLE>
To the extent that the right to purchase shares has accrued thereunder, an
Option may be exercised from time to time by written notice to the Company, in
accordance with procedures established by the Plan Administrator, setting forth
the number of shares with respect to which the Option is being exercised and
accompanied by payment in full as described in Section 7.5 of the Plan. The
Plan Administrator may determine that an Option
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<PAGE>
may not be exercised as to less than 100 shares at any one time (or the lesser
number of remaining shares covered by the Option).
7.5 Payment of Exercise Price
The exercise price for shares purchased under an Option shall be paid in
full to the Company by delivery of consideration equal to the product of the
Option exercise price and the number of shares purchased. Such consideration
must be paid in cash, except that the Plan Administrator may, either at the time
the Option is granted or at any time before it is exercised and subject to such
limitations as the Plan Administrator may determine, authorize payment in cash
and/or one or more of the following alternative forms: (i) Common Stock already
owned by the Holder for at least six months (or any shorter period necessary to
avoid a charge to the Company's earnings for financial reporting purposes)
having a Fair Market Value on the day prior to the exercise date equal to the
aggregate Option exercise price; (ii) a promissory note authorized pursuant to
Section 11 of the Plan; (iii) if the Common Stock is publicly traded, delivery
of a properly executed exercise notice, together with irrevocable instructions,
to (a) a brokerage firm designated by the Company to deliver promptly to the
Company the aggregate amount of sale or loan proceeds to pay the Option exercise
price and any withholding tax obligations that may arise in connection with the
exercise and (b) the Company to deliver the certificates for such purchased
shares directly to such brokerage firm, all in accordance with the regulations
of the Federal Reserve Board; or (iv) such other consideration as the Plan
Administrator may permit.
7.6 Post-Termination Exercises
The Plan Administrator shall establish and set forth in each instrument
that evidences an Option whether the Option will continue to be exercisable, and
the terms and conditions of such exercise, if a Holder ceases to be employed by,
or to provide services to, the Company or its Subsidiaries, which provisions may
be waived or modified by the Plan Administrator at any time. If not so
established in the instrument evidencing the Option, the Option will be
exercisable according to the following terms and conditions, which may be waived
or modified by the Plan Administrator at any time. In case of termination of
the Holder's employment or services other than by reason of death or Cause, the
Option shall be exercisable, to the extent of the number of shares purchasable
by the Holder at the date of such termination, only: (i) within three years if
the termination of the Holder's employment or services are coincident with
Disability, (ii) within three months if the termination of the Holder's
employment services is coincident with Retirement or Early Retirement at the
Company's request or (iii) within three months after the date the Holder ceases
to be an employee, director, officer, consultant, agent, advisor or independent
contractor of the Company or a Subsidiary if termination of the Holder's
employment or services is for any reason other than Disability, but in no event
later than the remaining term of the Option. Any Option exercisable at the time
of the Holder's death may be exercised, to the extent of the number of shares
purchasable by the Holder at the date of the Holder's death, by the personal
representative of the Holder's estate entitled thereto at any time or from time
to time within
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<PAGE>
one year after the date of death, but in no event later than the remaining term
of the Option. In case of termination of the Holder's employment or services for
Cause, the Option shall automatically terminate upon first notification to the
Holder of such termination, unless the Plan Administrator determines otherwise.
If a Holder's employment or services with the Company are suspended pending an
investigation of whether the Holder shall be terminated for Cause, all the
Holder's rights under any Option likewise shall be suspended during the period
of investigation. A transfer of employment or services between or among the
Company and its Subsidiaries shall not be considered a termination of employment
or services. Unless the Plan Administrator determines otherwise, a leave of
absence approved in accordance with Company procedures shall not be considered a
termination of employment or services, except that with respect to Incentive
Stock Options such leave of absence shall be subject to any requirements of
Section 422 of the Code.
SECTION 8. INCENTIVE STOCK OPTION LIMITATIONS
To the extent required by Section 422 of the Code, Incentive Stock Options
shall be subject to the following additional terms and conditions:
8.1 Dollar Limitation
To the extent the aggregate Fair Market Value (determined as of the Grant
Date) of Common Stock with respect to which Incentive Stock Options are
exercisable for the first time during any calendar year (under the Plan and all
other stock option plans of the Company) exceeds $100,000, such portion in
excess of $100,000 shall be treated as a Nonqualified Stock Option. In the
event the Participant holds two or more such Options that become exercisable for
the first time in the same calendar year, such limitation shall be applied on
the basis of the order in which such Options are granted.
8.2 10% Shareholders
If a Participant owns 10% or more of the total voting power of all classes
of the Company's stock, then the exercise price per share of an Incentive Stock
Option shall not be less than 110% of the Fair Market Value of the Common Stock
on the Grant Date and the Option term shall not exceed five years.
8.3 Eligible Employees
Individuals who are not employees of the Company or one of its parent
corporations or subsidiary corporations may not be granted Incentive Stock
Options. For purposes of this Section 8.3 of the Plan, "parent corporation" and
"subsidiary corporation" shall have the meanings attributed to those terms for
purposes of Section 422 of the Code.
8.4 Term
The term of an Incentive Stock Option shall not exceed 10 years.
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<PAGE>
8.5 Exercisability
An Option designated as an Incentive Stock Option must be exercised within
three months after termination of employment for reasons other than death to
qualify for Incentive Stock Option tax treatment, except that in the case of
termination of employment due to Disability, such Option must be exercised
within one year after such termination.
8.6 Taxation of Incentive Stock Option
In order to obtain certain tax benefits afforded to Incentive Stock Options
under Section 422 of the Code, the Participant must hold the shares issued upon
the exercise of an Incentive Stock Option for two years after the date of grant
of the Incentive Stock Option and one year from the date of exercise. A
Participant may be subject to the alternative minimum tax at the time of
exercise of an Incentive Stock Option. The Committee may require a Participant
to give the Company prompt notice of any disposition of shares acquired by the
exercise of an Incentive Stock Option prior to the expiration of such holding
periods.
SECTION 9. STOCK APPRECIATION RIGHTS
9.1 Grant of Stock Appreciation Rights
The Plan Administrator may grant a Stock Appreciation Right separately or
in tandem with a related Option.
9.2 Tandem Stock Appreciation Rights
A Stock Appreciation Right granted in tandem with a related Option will
give the Holder the right to surrender to the Company all or a portion of the
related Option and to receive an appreciation distribution (in shares of Common
Stock or cash or any combination of shares and cash, as the Plan Administrator
shall determine at any time) in an amount equal to the excess of the Fair Market
Value for the Window Period during which the Stock Appreciation Right is
exercised over the exercise price per share of the right, which shall be the
same as the exercise price of the related Option, except that if the right is
exercised during a Window Period, the amount will be equal to the excess of the
Window Period Fair Market Value for the Window Period during which the Stock
Appreciation Right is exercised over the exercise price per share of the right.
A tandem Stock Appreciation Right will have the same other terms and provisions
as the related Option. Upon and to the extent a tandem Stock Appreciation Right
is exercised, the related Option will terminate.
9.3 Stand-Alone Stock Appreciation Rights
A Stock Appreciation Right granted separately and not in tandem with an
Option will give the Holder the right to receive an appreciation distribution in
an amount equal to the excess of the Fair Market Value for the date the Stock
Appreciation Right is exercised over the exercise price per share of the right,
except that if the right is exercised during a Window
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<PAGE>
Period, the amount will be equal to the excess of the Window Period Fair Market
Value for the Window Period during which the right is exercised over the
exercise price per share of the right. A stand-alone Stock Appreciation Right
will have such terms as the Plan Administrator may determine, except that the
exercise price per share of the right must be at least equal to 85% of the Fair
Market Value on the Grant Date and the term of the right, if not otherwise
established by the Plan Administrator, shall be 10 years from the Grant Date.
9.4 Exercise of Stock Appreciation Rights
Unless otherwise provided by the Plan Administrator in the instrument that
evidences the Stock Appreciation Right, the provisions of Section 7.6 of the
Plan relating to the termination of a Holder's employment or services shall
apply equally, to the extent applicable, to the Holder of a Stock Appreciation
Right. Stock Appreciation Rights held by Participants who are subject to
Section 16 of the Exchange Act may be exercised solely in accordance with the
requirements for compliance with Rule 16b-3 under the Exchange Act.
SECTION 10. STOCK AWARDS
10.1 Grant of Stock Awards
The Plan Administrator is authorized to make Awards of Common Stock to
Participants on such terms and conditions and subject to such restrictions, if
any (whether based on performance standards, periods of service or otherwise),
as the Plan Administrator shall determine, which terms, conditions and
restrictions shall be set forth in the instrument evidencing the Award. The
terms, conditions and restrictions that the Plan Administrator shall have the
power to determine shall include, without limitation, the manner in which shares
subject to Stock Awards are held during the periods they are subject to
restrictions and the circumstances under which forfeiture of Restricted Stock
shall occur by reason of termination of the Holder's services.
10.2 Issuance of Shares
Upon the satisfaction of any terms, conditions and restrictions prescribed
in respect to a Stock Award, or upon the Holder's release from any terms,
conditions and restrictions of a Stock Award, as determined by the Plan
Administrator, the Company shall deliver, as soon as practicable, to the Holder
or, in the case of the Holder's death, to the personal representative of the
Holder's estate or as the appropriate court directs, a stock certificate for the
appropriate number of shares of Common Stock.
10.3 Waiver of Restrictions
Notwithstanding any other provisions of the Plan, the Plan Administrator
may, in its sole discretion, waive the forfeiture period and any other terms,
conditions or restrictions on
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<PAGE>
any Restricted Stock under such circumstances and subject to such terms and
conditions as the Plan Administrator shall deem appropriate.
SECTION 11. LOANS, LOAN GUARANTEES AND INSTALLMENT PAYMENTS
To assist a Holder (including a Holder who is an officer or director of the
Company) in acquiring shares of Common Stock pursuant to an Award granted under
the Plan, the Plan Administrator may authorize, either at the Grant Date or at
any time before the acquisition of Common Stock pursuant to the Award, (i) the
extension of a loan to the Holder by the Company, (ii) the payment by the Holder
of the purchase price, if any, of the Common Stock in installments, or (iii) the
guarantee by the Company of a loan obtained by the grantee from a third party.
The terms of any loans, installment payments or guarantees, including the
interest rate and terms of repayment, will be subject to the Plan
Administrator's discretion. Loans, installment payments and guarantees may be
granted with or without security. The maximum credit available is the purchase
price, if any, of the Common Stock acquired plus the maximum federal and state
income and employment tax liability that may be incurred in connection with the
acquisition.
SECTION 12. ASSIGNABILITY
No Option or Stock Appreciation Right granted under the Plan may be
assigned or transferred by the Holder other than by will or by the laws of
descent and distribution, and during the Holder's lifetime, such Awards may be
exercised only by the Holder. Notwithstanding the foregoing, and to the extent
permitted by Rule 16b-3 under the Exchange Act and Section 422 of the Code, the
Plan Administrator, in its sole discretion, may permit such assignment, transfer
and exercisability and may permit a Holder of such Awards to designate a
beneficiary who may exercise the Award or receive compensation under the Award
after the Holder's death.
SECTION 13. ADJUSTMENTS
13.1 Adjustment of Shares
In the event that at any time or from time to time a stock dividend, stock
split, spin-off, combination or exchange of shares, recapitalization, merger,
consolidation, distribution to shareholders other than a normal cash dividend,
or other change in the Company's corporate or capital structure results in (i)
the outstanding shares, or any securities exchanged therefor or received in
their place, being exchanged for a different number or class of securities of
the Company or of any other corporation or (ii) new, different or additional
securities of the Company or of any other corporation being received by the
holders of shares of Common Stock of the Company, then the Plan Administrator,
in its sole discretion, shall make such equitable adjustments as it shall deem
appropriate in the circumstances in (a) the maximum number of and class of
securities subject to the Plan as set forth in Section 4.1 of
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<PAGE>
the Plan and (b) the number and class of securities that are subject to any
outstanding Award and the per share price of such securities, without any change
in the aggregate price to be paid therefor. The determination by the Plan
Administrator as to the terms of any of the foregoing adjustments shall be
conclusive and binding.
13.2 Corporate Transaction
Except as otherwise provided in the instrument that evidences the Award, in
the event of any Corporate Transaction, each Option, Stock Appreciation Right or
Stock Award that is at the time outstanding shall automatically accelerate so
that each such Award shall, immediately prior to the specified effective date
for the Corporate Transaction, become 100% vested, except that such acceleration
will not occur if in the opinion of the Company's accountants it would render
unavailable "pooling of interest" accounting for a Corporate Transaction that
would otherwise qualify for such accounting treatment or to the extent that the
Board determines not to allow for acceleration of vesting. Notwithstanding the
foregoing, no Incentive Stock Option shall become exercisable pursuant to this
Section 13.2 without the Holder's consent, if the result would be to cause such
Option not to be treated as an Incentive Stock Option (whether by reason of the
annual limitation described in Section 8.1 of the Plan or otherwise).
13.3 Further Adjustment of Awards
Without limiting the preceding Section 13.2 of the Plan, the Plan
Administrator shall have the discretion, exercisable at any time before a sale,
merger, consolidation, reorganization, liquidation or change in control of the
Company, as defined by the Plan Administrator, to take such further action as it
determines to be necessary or advisable, and fair and equitable to Participants,
with respect to Awards. Such authorized action may include (but shall not be
limited to) establishing, amending or waiving the type, terms, conditions or
duration of, or restrictions on, Awards so as to provide for earlier, later,
extended or additional time for exercise, payment or settlement or lifting
restrictions, differing methods for calculating payments or settlements,
alternate forms and amounts of payments and settlements and other modifications,
and the Plan Administrator may take such actions with respect to all
Participants, to certain categories of Participants or only to individual
Participants. The Plan Administrator may take such actions before or after
granting Awards to which the action relates and before or after any public
announcement with respect to such sale, merger, consolidation, reorganization,
liquidation or change in control that is the reason for such action.
13.4 Limitations
The grant of Awards will in no way affect the Company's right to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
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SECTION 14. WITHHOLDING OF TAXES
The Company may require the Holder to pay to the Company the amount of any
withholding taxes that the Company is required to withhold with respect to the
grant, exercise, payment or settlement of any Award. In such instances, the
Plan Administrator may, in its discretion and subject to the Plan and applicable
law, permit the Holder to satisfy withholding obligations, in whole or in part,
by paying cash, by electing to have the Company withhold shares of Common Stock
or by transferring shares of Common Stock to the Company, in such amounts as are
equivalent to the Fair Market Value of the withholding obligation.
SECTION 15. AMENDMENT AND TERMINATION OF PLAN
15.1 Amendment of Plan
The Plan may be amended by the shareholders of the Company. The Board may
also amend the Plan in such respects as it shall deem advisable; however, to the
extent required for compliance with Rule 16b-3 under the Exchange Act, Section
422 of the Code or any applicable law or regulation, shareholder approval will
be required for any amendment that will (i) increase the total number of shares
as to which Options may be granted or which may be used in payment of Stock
Appreciation Rights under the Plan or that may be issued as Restricted Stock,
(ii) materially modify the class of persons eligible to receive Awards, (iii)
materially increase the benefits accruing to Participants under the Plan, or
(iv) otherwise require shareholder approval under any applicable law or
regulation.
15.2 Termination of Plan
The Company's shareholders or the Board may suspend or terminate the Plan
at any time. The Plan will have no fixed expiration date; provided, however,
that no Incentive Stock Options may be granted more than 10 years after the
Plan's effective date.
15.3 Consent of Holder
The amendment or termination of the Plan shall not, without the consent of
the Holder of any Award under the Plan, alter or impair any rights or
obligations under any Award theretofore granted under the Plan.
SECTION 16. REPURCHASE AND FIRST REFUSAL RIGHTS
16.1 Repurchase Rights
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16.2 First Refusal Rights
Until the date on which the initial registration of the Common Stock under
Section 12(b) or 12(g) of the Exchange Act first becomes effective, the Company
shall have the right of first refusal with respect to any proposed sale or other
disposition by the Holder of any shares of Common Stock issued pursuant to an
Award granted under the Plan. Such right of first refusal shall be exercisable
in accordance with the terms and conditions established by the Plan
Administrator and set forth in the agreement evidencing such right.
SECTION 17. MARKET STAND-OFF
In connection with any underwritten public offering by the Company of its
equity securities pursuant to an effective registration statement filed under
the Securities Act, including the Company's initial public offering, a
Participant shall not sell, make any short sale of, loan, hypothecate, pledge,
grant any option for the purchase of, or otherwise dispose or transfer for value
or otherwise agree to engage in any of the foregoing transactions with respect
to, any shares issued pursuant to an Award granted under this Plan without the
prior written consent of the Company or its underwriters. Such limitations
shall be in effect for such period of time from and after the effective date of
the final prospectus for the offering as may be requested by the Company or such
underwriters; provided, however, that in no event shall such period exceed one
hundred eighty (180) days. The limitations of this paragraph shall in all
events terminate two (2) years after the effective date of the Company's initial
public offering.
Participant shall be subject to the market stand-off provisions of this
paragraph provided and only if the officers and directors of the Company are
also subject to similar arrangements with respect to shares of the Company held
by them (other than any shares to be involved in the offering).
In the event of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
Company's outstanding Common Stock effected as a class without the Company's
receipt of consideration, then any new, substituted or additional securities
distributed with respect to the purchased shares shall be immediately subject to
the provisions of this paragraph, to the same extent the purchased shares are at
such time covered by such provisions.
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<PAGE>
In order to enforce the limitations of this Section, the Company may impose
stop-transfer instructions with respect to the purchased shares until the end of
the applicable stand-off period.
SECTION 18. GENERAL
18.1 Notification
The Plan Administrator shall promptly notify a Participant of an Award, and
a written grant shall promptly be executed and delivered by or on behalf of the
Company.
18.2 Continued Employment or Services; Rights in Awards
Neither the Plan, participation in the Plan as a Participant nor any action
of the Plan Administrator taken under the Plan shall be construed as giving any
Participant or employee of the Company any right to be retained in the employ of
the Company or limit the Company's right to terminate the employment or services
of the Participant.
18.3 Registration; Certificates for Shares
The Company shall be under no obligation to any Participant to register for
offering or resale under the Securities Act of 1933, as amended, or register or
qualify under state securities laws, any shares of Common Stock, security or
interest in a security paid or issued under, or created by, the Plan. The
Company may issue certificates for shares with such legends and subject to such
restrictions on transfer and stop-transfer instructions as counsel for the
Company deems necessary or desirable for compliance by the Company with federal
and state securities laws.
18.4 No Rights as a Shareholder
No Option, or Stock Appreciation Right shall entitle the Holder to any
dividend (except to the extent provided in an Award of Dividend Equivalent
Rights), voting or other right of a shareholder unless and until the date of
issuance under the Plan of the shares that are the subject of such Awards, free
of all applicable restrictions.
18.5 Compliance With Laws and Regulations
It is the Company's intention that, so long as any of the Company's equity
securities are registered pursuant to Section 12(b) or 12(g) of the Exchange
Act, the Plan shall comply in all respects with Rule 16b-3 under the Exchange
Act and, if any Plan provision is later found not to be in compliance with such
Rule, the provision shall be deemed null and void, and in all events the Plan
shall be construed in favor of its meeting the requirements of Rule 16b-3.
Notwithstanding anything in the Plan to the contrary, the Board, in its sole
discretion, may bifurcate the Plan so as to restrict, limit or condition the use
of any provision of the Plan to Participants who are officers or directors
subject to Section 16 of the Exchange
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<PAGE>
Act without so restricting, limiting or conditioning the Plan with respect to
other Participants. Additionally, in interpreting and applying the provisions of
the Plan, any Option granted as an Incentive Stock Option pursuant to the Plan
shall, to the extent permitted by law, be construed as an "incentive stock
option" within the meaning of Section 422 of the Code.
18.6 No Trust or Fund
The Plan is intended to constitute an "unfunded" plan. Nothing contained
herein shall require the Company to segregate any monies or other property, or
shares of Common Stock, or to create any trusts, or to make any special deposits
for any immediate or deferred amounts payable to any Participant, and no
Participant shall have any rights that are greater than those of a general
unsecured creditor of the Company.
18.7 Severability
If any provision of the Plan or any Award is determined to be invalid,
illegal or unenforceable in any jurisdiction, or as to any person, or would
disqualify the Plan or any Award under any law deemed applicable by the Plan
Administrator, such provision shall be construed or deemed amended to conform to
applicable laws, or, if it cannot be so construed or deemed amended without, in
the Plan Administrator's determination, materially altering the intent of the
Plan or the Award, such provision shall be stricken as to such jurisdiction,
person or Award, and the remainder of the Plan and any such Award shall remain
in full force and effect.
SECTION 19. EFFECTIVE DATE
The Plan's effective date is the date on which it is adopted by the Board,
so long as it is approved by the Company's shareholders at any time within 12
months of such adoption or, if earlier, and to the extent required for
compliance with Rule 16b-3 under the Exchange Act, at the next annual meeting of
the Company's shareholders after adoption of the Plan by the Board.
Originally adopted by the Board on December 27, 1995, and approved by the
Company's shareholders on January 16, 1996; amended and restated by the Board on
March 12, 1996; amended by the Board on January 24, 1997; amended by the Board
on November 4, 1997; amended by the Board on December 19, 1997; amended by the
Board on February 10, 1998, and amendment approved by the Company's shareholders
on May 13, 1998.
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<PAGE>
AMENDMENT DATED JANUARY 24, 1997
TO
PRIMUS COMMUNICATIONS CORPORATION
1995 STOCK INCENTIVE COMPENSATION OPTION PLAN
The Primus Communications Corporation 1995 Stock Incentive Compensation
Plan (as amended and restated on March 12, 1996) (the "1995 Plan"), is hereby
further amended as follows:
Section 16.1 of the 1995 Plan is amended to read in its entirety as
follows:
16.1 Repurchase Rights
Should the Participant cease to be employed by or provide
services to the Company while holding one or more shares of Common
Stock issued or issuable pursuant to the exercise of an Option or
Stock Appreciation Right granted under this Plan or pursuant to a
Stock Award under the Plan, then those shares, including any shares of
Restricted Stock that are no longer subject to forfeiture, shall be
subject to repurchase by the Company, at the Company's sole
discretion, at the Fair Market Value of such shares on the date of
such repurchase and the Participant shall have no further shareholder
rights with respect to those shares. The terms and conditions upon
which such repurchase right shall be exercisable (including the period
and procedure for exercise) shall be established by the Plan
Administrator and set forth in the instrument evidencing such
repurchase right.
The date of the adoption of such amendment by the Board of Directors of the
corporation is January 24, 1997.
The effective date of such amendment shall be January 24, 1997, the date of
adoption by the Board.
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<PAGE>
AMENDMENT DATED NOVEMBER 4, 1997
TO
PRIMUS COMMUNICATIONS CORPORATION
1995 STOCK INCENTIVE COMPENSATION PLAN
The Primus Communications Corporation 1995 Stock Incentive Compensation
Plan, as amended and restated (the "1995 Plan"), was further amended by the
Board of Directors on November 4, 1997, as follows:
Section 4.1 of the 1995 Plan was amended in its entirety to read as
follows:
4.1 Authorized Number of Shares
Subject to adjustment from time to time as provided in Section
13.1 of the Plan, a maximum of 4,500,000 shares of Common Stock shall
be available for issuance under the Plan. Shares issued under the
Plan shall be drawn from authorized and unissued shares.
The effective date of such amendment shall be November 4, 1997, the date of
adoption by the Board, unless the shareholders of the corporation fail to
approve such amendment within the requisite period of time.
<PAGE>
AMENDMENT DATED DECEMBER 19, 1997
TO
PRIMUS COMMUNICATIONS CORPORATION
1995 STOCK INCENTIVE COMPENSATION PLAN
The Primus Communications Corporation 1995 Stock Incentive Compensation
Plan, as amended and restated (the "1995 Plan"), is hereby further amended as
follows:
Section 4.1 of the 1995 Plan is amended in its entirety to read as follows:
4.1 Authorized Number of Shares
Subject to adjustment from time to time as provided in Section
13.1 of the Plan, a maximum of 6,500,000 shares of Common Stock shall
be available for issuance under the Plan. Shares issued under the
Plan shall be drawn from authorized and unissued shares.
The effective date of such amendment shall be December 19, 1997, the date
of adoption by the Board, unless the shareholders of the corporation fail to
approve such amendment within the requisite period of time.
<PAGE>
AMENDMENT DATED FEBRUARY 10, 1998
TO
PRIMUS COMMUNICATIONS CORPORATION
1995 STOCK INCENTIVE COMPENSATION PLAN
The Primus Communications Corporation 1995 Stock Incentive Compensation
Plan, as amended and restated (the "1995 Plan"), is hereby further amended as
follows:
Section 4.1 of the 1995 Plan is amended in its entirety to read as follows:
4.1 Authorized Number of Shares
Subject to adjustment from time to time as provided in Section
13.1 of the Plan, a maximum of 8,500,000 shares of Common Stock shall
be available for issuance under the Plan. Shares issued under the
Plan shall be drawn from authorized and unissued shares.
The date of the adoption of such amendment by the Board of Directors of the
corporation is February 10, 1998.
The effective date of such amendment shall be February 10, 1998, the date
of adoption by the Board, unless the shareholders of the corporation fail to
approve such amendment within the requisite period of time.
<PAGE>
EXHIBIT 10.20
PRIMUS KNOWLEDGE SOLUTIONS, INC.
1999 STOCK INCENTIVE COMPENSATION PLAN
SECTION 1. PURPOSE
The purpose of the Primus Knowledge Solutions, Inc.1999 Stock Incentive
Compensation Plan (the "Plan") is to enhance the long-term shareholder value of
Primus Knowledge Solutions, Inc., a Washington corporation (the "Company"), by
offering opportunities to selected persons to participate in the Company's
growth and success, and to encourage them to remain in the service of the
Company and its Related Corporations (as defined in Section 2) and to acquire
and maintain stock ownership in the Company.
SECTION 2. DEFINITIONS
For purposes of the Plan, the following terms shall be defined as set forth
below:
"Award" means an award or grant made pursuant to the Plan, including,
without limitation, awards or grants of Stock Awards and Options, or any
combination of the foregoing.
"Board" means the Board of Directors of the Company.
"Cause" means dishonesty, fraud, misconduct, unauthorized use or disclosure
of confidential information or trade secrets, or conviction or confession of a
crime punishable by law (except minor violations), in each case as determined by
the Plan Administrator, and its determination shall be conclusive and binding.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Common Stock" means the common stock, no par value, of the Company.
"Corporate Transaction" means any of the following events:
(a) Consummation of any merger or consolidation of the Company with or into
another corporation; or
(b) Consummation of any sale, lease, exchange or other transfer in one
transaction or a series of related transactions of all or substantially all of
the Company's assets other than a transfer of the Company's assets to a
majority-owned subsidiary corporation (as defined in Section 8.3) of the
Company.
"Disability," unless otherwise defined by the Plan Administrator, means a
mental or physical impairment of the Participant that is expected to result in
death or that has lasted or is expected to last for a continuous period of 12
months or more and that causes the Participant to be unable, in the opinion of
the Company, to perform his or her duties for the Company or a Related
Corporation and to be engaged in any substantial gainful activity.
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"Effective Date" has the meaning set forth in Section 17.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" shall be as established in good faith by the Plan
Administrator or (a) if the Common Stock is listed on the Nasdaq National
Market, the average of the high and low per share sales prices for the Common
Stock as reported by the Nasdaq National Market for a single trading day or (b)
if the Common Stock is listed on the New York Stock Exchange or the American
Stock Exchange, the average of the high and low per share sales prices for the
Common Stock as such price is officially quoted in the composite tape of
transactions on such exchange for a single trading day. If there is no such
reported price for the Common Stock for the date in question, then such price on
the last preceding date for which such price exists shall be determinative of
Fair Market Value.
"Grant Date" means the date on which the Plan Administrator completes the
corporate action relating to the grant of an Award and all conditions precedent
to the grant have been satisfied, provided that conditions to the exercisability
or vesting of Awards shall not defer the Grant Date.
"Incentive Stock Option" means an Option to purchase Common Stock granted
under Section 7 with the intention that it qualify as an "incentive stock
option" as that term is defined in Section 422 of the Code.
"Nonqualified Stock Option" means an Option to purchase Common Stock
granted under Section 7 other than an Incentive Stock Option.
"Option" means the right to purchase Common Stock granted under Section 7.
"Option Term" has the meaning set forth in Section 7.3.
"Parent," except as otherwise provided in Section 8.3 in connection with
Incentive Stock Options, means any entity, whether now or hereafter existing,
that directly or indirectly controls the Company.
"Participant" means (a) the person to whom an Award is granted; (b) for a
Participant who has died, the personal representative of the Participant's
estate, the person(s) to whom the Participant's rights under the Award have
passed by will or by the applicable laws of descent and distribution, or the
beneficiary designated in accordance with Section 11; or (c) the person(s) to
whom an Award has been transferred in accordance with Section 11.
"Plan Administrator" means the Board or any committee or committees
designated by the Board or any person to whom the Board has delegated authority
to administer the Plan under Section 3.1.
"Related Corporation" means any Parent or Subsidiary of the Company.
"Securities Act" means the Securities Act of 1933, as amended.
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<PAGE>
"Stock Award" means shares of Common Stock or units denominated in Common
Stock granted under Section 9, the rights of ownership of which may be subject
to restrictions prescribed by the Plan Administrator.
"Subsidiary," except as otherwise provided in Section 8.3 in connection
with Incentive Stock Options, means any entity that is directly or indirectly
controlled by the Company.
"Successor Corporation" has the meaning set forth in Section 12.3.
"Termination Date" has the meaning set forth in Section 7.6.
SECTION 3. ADMINISTRATION
3.1 Plan Administrator
The Plan shall be administered by the Board and/or a committee or
committees (which term includes subcommittees) appointed by, and consisting of
two or more members of, the Board (a "Plan Administrator"). If and so long as
the Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act,
the Board shall consider in selecting the members of any committee acting as
Plan Administrator, with respect to any persons subject or likely to become
subject to Section 16 of the Exchange Act, the provisions regarding (a) "outside
directors" as contemplated by Section 162(m) of the Code and (b) "nonemployee
directors" as contemplated by Rule 16b-3 under the Exchange Act. Notwithstanding
the foregoing, the Board may delegate the responsibility for administering the
Plan with respect to designated classes of eligible persons to different
committees consisting of two or more members of the Board, subject to such
limitations as the Board deems appropriate. Committee members shall serve for
such term as the Board may determine, subject to removal by the Board at any
time. To the extent consistent with applicable law, the Board may authorize a
senior executive officer of the Company to grant Awards to specified eligible
persons, within the limits specifically prescribed by the Board.
3.2 Administration and Interpretation by Plan Administrator
Except for the terms and conditions explicitly set forth in the Plan, the
Plan Administrator shall have exclusive authority, in its discretion, to
determine all matters relating to Awards under the Plan, including the selection
of individuals to be granted Awards, the type of Awards, the number of shares of
Common Stock subject to an Award, all terms, conditions, restrictions and
limitations, if any, of an Award and the terms of any instrument that evidences
the Award. The Plan Administrator shall also have exclusive authority to
interpret the Plan and the terms of any instrument evidencing the Award and may
from time to time adopt, and change, rules and regulations of general
application for the Plan's administration. The Plan Administrator's
interpretation of the Plan and its rules and regulations, and all actions taken
and determinations made by the Plan Administrator pursuant to the Plan, shall be
conclusive and binding on all parties involved or affected. The Plan
Administrator may delegate administrative duties to such of the Company's
officers as it so determines.
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SECTION 4. STOCK SUBJECT TO THE PLAN
4.1 Authorized Number of Shares
Subject to adjustment from time to time as provided in Section 12.1, the
number of shares of Common Stock that shall be available for issuance under the
Plan shall be:
(a) 1,166,666 shares plus;
(b) an annual increase to be added on the first day of the Company's fiscal
year beginning in 2001 equal to the lesser of (i) 666,666 shares and (ii) 5% of
the adjusted average common shares outstanding of the Company used to calculate
fully diluted earnings per share as reported in the Annual Report to
shareholders for the preceding year; provided that any shares from any such
increases in previous years that are not actually issued shall be added to the
aggregate number of shares available for issuance under the Plan; plus
(c) any authorized shares (i) not issued or subject to outstanding awards
under the Company's Employee Stock Option and Restricted Stock Award Plan
(Symbologic Corporation) and 1995 Stock Incentive Compensation Plan (the "Prior
Plans") on the Effective Date and (ii) any shares subject to outstanding awards
under the Prior Plans on the Effective Date that cease to be subject to such
awards (other than by reason of exercise or payment of the awards to the extent
they are exercised for or settled in shares), which shares shall no longer be
available for grant and issuance under the Prior Plans, but shall be available
for issuance under the Plan.
Shares issued under the Plan shall be drawn from authorized and unissued
shares or shares now held or subsequently acquired by the Company.
4.2 Reuse of Shares
Any shares of Common Stock that have been made subject to an Award that
cease to be subject to the Award (other than by reason of exercise or payment of
the Award to the extent it is exercised for or settled in shares) shall again be
available for issuance in connection with future grants of Awards under the
Plan.
SECTION 5. ELIGIBILITY
Awards may be granted under the Plan to those officers, directors and
employees of the Company and its Related Corporations as the Plan Administrator
from time to time selects. Awards may also be made to consultants, agents,
advisors and independent contractors who provide services to the Company and its
Related Corporations; provided, however, that such Participants render bona fide
services that are not in connection with the offer and sale of the Company's
securities in a capital-raising transaction and do not directly or indirectly
promote or maintain a market for the Company's securities.
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<PAGE>
SECTION 6. AWARDS
6.1 Form and Grant of Awards
The Plan Administrator shall have the authority, in its sole discretion, to
determine the type or types of Awards to be made under the Plan. Such Awards may
include, but are not limited to, Incentive Stock Options, Nonqualified Stock
Options and Stock Awards. Awards may be granted singly or in combination.
6.2 Settlement of Awards
The Company may settle Awards through the delivery of shares of Common
Stock, cash payments, the granting of replacement Awards or any combination
thereof as the Plan Administrator shall determine. Any Award settlement,
including payment deferrals, may be subject to such conditions, restrictions and
contingencies as the Plan Administrator shall determine. The Plan Administrator
may permit or require the deferral of any Award payment, subject to such rules
and procedures as it may establish, which may include provisions for the payment
or crediting of interest, or dividend equivalents, including converting such
credits into deferred stock equivalents. The Plan Administrator may at any time
offer to buy out, for a payment in cash or Common Stock, an Award previously
granted based on such terms and conditions as the Plan Administrator shall
establish and communicate to the Participant at the time such offer is made.
6.3 Acquired Company Awards
Notwithstanding anything in the Plan to the contrary, the Plan
Administrator may grant Awards under the Plan in substitution for awards issued
under other plans, or assume under the Plan awards issued under other plans, if
the other plans are or were plans of other acquired entities ("Acquired
Entities") (or the parent of the Acquired Entity) and the new Award is
substituted, or the old award is assumed, by reason of a merger, consolidation,
acquisition of property or of stock, reorganization or liquidation (the
"Acquisition Transaction"). In the event that a written agreement pursuant to
which the Acquisition Transaction is completed is approved by the Board and said
agreement sets forth the terms and conditions of the substitution for or
assumption of outstanding awards of the Acquired Entity, said terms and
conditions shall be deemed to be the action of the Plan Administrator without
any further action by the Plan Administrator, except as may be required for
compliance with Rule 16b-3 under the Exchange Act, and the persons holding such
awards shall be deemed to be Participants.
SECTION 7. AWARDS OF OPTIONS
7.1 Grant of Options
The Plan Administrator is authorized under the Plan, in its sole
discretion, to issue Options as Incentive Stock Options or as Nonqualified Stock
Options, which shall be appropriately designated.
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7.2 Option Exercise Price
The exercise price for shares purchased under an Option shall be as
determined by the Plan Administrator, but shall not be less than 100% of the
Fair Market Value of the Common Stock on the Grant Date with respect to
Incentive Stock Options and not less than 85% of the Fair Market Value of the
Common Stock on the Grant Date with respect to Nonqualified Stock Options. For
Incentive Stock Options granted to a more than 10% shareholder, the Option
exercise price shall be as specified in Section 8.2.
7.3 Term of Options
The term of each Option (the "Option Term") shall be as established by the
Plan Administrator or, if not so established, shall be ten years from the Grant
Date. For Incentive Stock Options, the maximum Option Term shall be as
specified in Sections 8.2 and 8.4.
7.4 Exercise of Options
The Plan Administrator shall establish and set forth in each instrument
that evidences an Option the time at which, or the installments in which, the
Option shall vest and become exercisable, which provisions may be waived or
modified by the Plan Administrator at any time. If not so established in the
instrument evidencing the Option, the Option shall vest and become exercisable
according to the following schedule, which may be waived or modified by the Plan
Administrator at any time:
<TABLE>
<CAPTION>
Period of Participant's Continuous
Employment or Service With the Company
or Its Related Corporations From the Percent of Total Option
Option Grant Date That Is Vested and Exercisable
- -------------------------------------------------------------------------------
<S> <C>
After 1 year 25%
Each additional one-month period of
continuous service completed thereafter An additional 1/48
After 4 years 100%
</TABLE>
The Plan Administrator may adjust the vesting schedule of an Option held by
a Participant who works less than "full-time" as that term is defined by the
Plan Administrator.
To the extent that an Option has vested and become exercisable, the Option
may be exercised from time to time by delivery to the Company of a written stock
option exercise agreement or notice, in a form and in accordance with procedures
established by the Plan Administrator, setting forth the number of shares with
respect to which the Option is being exercised, the restrictions imposed on the
shares purchased under such exercise agreement, if any, and such representations
and agreements as may be required by the Plan Administrator, accompanied by
payment in full as described in Section 7.5. An Option may not be exercised as
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<PAGE>
to less than a reasonable number of shares at any one time, as determined by the
Plan Administrator.
7.5 Payment of Exercise Price
The exercise price for shares purchased under an Option shall be paid in
full to the Company by delivery of consideration equal to the product of the
Option exercise price and the number of shares purchased. Such consideration
must be paid in cash or by check or, unless the Plan Administrator in its sole
discretion determines otherwise, either at the time the Option is granted or at
any time before it is exercised, in any combination of
(a) cash or check;
(b) tendering (either actually or, if and so long as the Common Stock is
registered under Section 12(b) or 12(g) of the Exchange Act, by attestation)
shares of Common Stock already owned by the Participant for at least six months
(or any shorter period necessary to avoid a charge to the Company's earnings for
financial reporting purposes) having a Fair Market Value on the day prior to the
exercise date equal to the aggregate Option exercise price;
(c) if and so long as the Common Stock is registered under Section 12(b)
or 12(g) of the Exchange Act, delivery of a properly executed exercise notice,
together with irrevocable instructions, to (i) a brokerage firm designated by
the Company to deliver promptly to the Company the aggregate amount of sale or
loan proceeds to pay the Option exercise price and any withholding tax
obligations that may arise in connection with the exercise and (ii) the Company
to deliver the certificates for such purchased shares directly to such brokerage
firm, all in accordance with the regulations of the Federal Reserve Board; or
(d) such other consideration as the Plan Administrator may permit.
In addition, to assist a Participant (including a Participant who is an
officer or a director of the Company) in acquiring shares of Common Stock
pursuant to an Award granted under the Plan, the Plan Administrator, in its sole
discretion, may authorize, either at the Grant Date or at any time before the
acquisition of Common Stock pursuant to the Award, (i) the payment by a
Participant of a full-recourse promissory note, (ii) the payment by the
Participant of the purchase price, if any, of the Common Stock in installments,
or (iii) the guarantee by the Company of a loan obtained by the Participant from
a third party. Subject to the foregoing, the Plan Administrator shall in its
sole discretion specify the terms of any loans, installment payments or loan
guarantees, including the interest rate and terms of and security for repayment.
7.6 Post-Termination Exercises
The Plan Administrator shall establish and set forth in each instrument
that evidences an Option whether the Option shall continue to be exercisable,
and the terms and conditions of such exercise, if a Participant ceases to be
employed by, or to provide services to, the Company or its Related Corporations,
which provisions may be waived or modified by the Plan Administrator at any
time. If not so established in the instrument evidencing the Option, the Option
shall be
7
<PAGE>
exercisable according to the following terms and conditions, which may be waived
or modified by the Plan Administrator at any time:
(a) Any portion of an Option that is not vested and exercisable on the date
of termination of the Participant's employment or service relationship (the
"Termination Date") shall expire on such date.
(b) Any portion of an Option that is vested and exercisable on the
Termination Date shall expire upon the earliest to occur of
(i) the last day of the Option Term;
(ii) if the Participant's Termination Date occurs for reasons other
than Cause, death or Disability, the three-month anniversary of such Termination
Date; and
(iii) if the Participant's Termination Date occurs by reason of
Disability or death, the one-year anniversary of such Termination Date.
Notwithstanding the foregoing, if the Participant dies after the Termination
Date while the Option is otherwise exercisable, the portion of the Option that
is vested and exercisable on such Termination Date shall expire upon the earlier
to occur of (y) the last day of the Option Term and (z) the first anniversary of
the date of death, unless the Plan Administrator determines otherwise.
Also notwithstanding the foregoing, in case of termination of the
Participant's employment or service relationship for Cause, the Option shall
automatically expire upon first notification to the Participant of such
termination, unless the Plan Administrator determines otherwise. If a
Participant's employment or service relationship with the Company is suspended
pending an investigation of whether the Participant shall be terminated for
Cause, all the Participant's rights under any Option likewise shall be suspended
during the period of investigation.
A Participant's transfer of employment or service relationship between or
among the Company and its Related Corporations, or a change in status from an
employee to a consultant, agent, advisor or independent contractor, shall not be
considered a termination of employment or service relationship for purposes of
this Section 7. Employment or service relationship shall be deemed to continue
while the Participant is on a bona fide leave of absence, if such leave was
approved by the Company or a Related Corporation in writing and if continued
crediting of service for purposes of this Section 7 is expressly required by the
terms of such leave or by applicable law (as determined by the Company). The
effect of a Company-approved leave of absence on the terms and conditions of an
Option shall be determined by the Plan Administrator, in its sole discretion.
SECTION 8. INCENTIVE STOCK OPTION LIMITATIONS
To the extent required by Section 422 of the Code, Incentive Stock Options
shall be subject to the following additional terms and conditions:
8
<PAGE>
8.1 Dollar Limitation
To the extent the aggregate Fair Market Value (determined as of the Grant
Date) of Common Stock with respect to which Incentive Stock Options are
exercisable for the first time during any calendar year (under the Plan and all
other stock option plans of the Company) exceeds $100,000, such portion in
excess of $100,000 shall be treated as a Nonqualified Stock Option. In the
event the Participant holds two or more such Options that become exercisable for
the first time in the same calendar year, such limitation shall be applied on
the basis of the order in which such Options are granted.
8.2 More Than 10% Shareholders
If an individual owns more than 10% of the total voting power of all
classes of the Company's stock, then the exercise price per share of an
Incentive Stock Option shall not be less than 110% of the Fair Market Value of
the Common Stock on the Grant Date and the Option Term shall not exceed five
years. The determination of more than 10% ownership shall be made in accordance
with Section 422 of the Code.
8.3 Eligible Employees
Individuals who are not employees of the Company or one of its parent
corporations or subsidiary corporations may not be granted Incentive Stock
Options. For purposes of this Section 8.3, "parent corporation" and "subsidiary
corporation" shall have the meanings attributed to those terms for purposes of
Section 422 of the Code.
8.4 Term
Except as provided in Section 8.2, the Option Term shall not exceed 10
years.
8.5 Exercisability
An Option designated as an Incentive Stock Option shall cease to qualify
for favorable tax treatment as an Incentive Stock Option to the extent it is
exercised (if permitted by the terms of the Option) (a) more than three months
after the Termination Date for reasons other than death or Disability, (b) more
than one year after the Termination Date by reason of Disability, or (c) after
the Participant has been on leave of absence for more than 90 days, unless the
Participant's reemployment rights are guaranteed by statute or contract.
For purposes of this Section 8.5, Disability shall mean "disability" as
that term is defined for purposes of Section 422 of the Code.
8.6 Taxation of Incentive Stock Options
In order to obtain certain tax benefits afforded to Incentive Stock Options
under Section 422 of the Code, the Participant must hold the shares issued upon
the exercise of an Incentive Stock Option for two years after the Grant Date and
one year from the date of exercise. A Participant may be subject to the
alternative minimum tax at the time of exercise of an Incentive
9
<PAGE>
Stock Option. The Participant shall give the Company prompt notice of any
disposition of shares acquired by the exercise of an Incentive Stock Option
prior to the expiration of such holding periods.
8.7 Promissory Notes
The amount of any promissory note delivered pursuant to Section 7.5 in
connection with an Incentive Stock Option shall bear interest at a rate
specified by the Plan Administrator, but in no case less than the rate required
to avoid imputation of interest (taking into account any exceptions to the
imputed interest rules) for federal income tax purposes.
SECTION 9. STOCK AWARDS
9.1 Grant of Stock Awards
The Plan Administrator is authorized to make Awards of Common Stock or
Awards denominated in units of Common Stock on such terms and conditions and
subject to such restrictions, if any (which may be based on continuous service
with the Company or the achievement of performance goals), as the Plan
Administrator shall determine, in its sole discretion, which terms, conditions
and restrictions shall be set forth in the instrument evidencing the Award. The
terms, conditions and restrictions that the Plan Administrator shall have the
power to determine shall include, without limitation, the manner in which shares
subject to Stock Awards are held during the periods they are subject to
restrictions and the circumstances under which forfeiture of the Stock Award
shall occur by reason of termination of the Participant's employment or service
relationship.
9.2 Issuance of Shares
Upon the satisfaction of any terms, conditions and restrictions prescribed
in respect to a Stock Award, or upon the Participant's release from any terms,
conditions and restrictions of a Stock Award, as determined by the Plan
Administrator, the Company shall release, as soon as practicable, to the
Participant or, in the case of the Participant's death, to the personal
representative of the Participant's estate or as the appropriate court directs,
the appropriate number of shares of Common Stock.
9.3 Waiver of Restrictions
Notwithstanding any other provisions of the Plan, the Plan Administrator
may, in its sole discretion, waive the forfeiture period and any other terms,
conditions or restrictions on any Stock Award under such circumstances and
subject to such terms and conditions as the Plan Administrator shall deem
appropriate.
SECTION 10. WITHHOLDING
The Company may require the Participant to pay to the Company the amount of
any withholding taxes that the Company is required to withhold with respect to
the grant, vesting or exercise of any Award. Subject to the Plan and applicable
law, the Plan Administrator may, in its
10
<PAGE>
sole discretion, permit the Participant to satisfy withholding obligations (up
to the minimum rate), in whole or in part, by paying cash, by electing to have
the Company withhold shares of Common Stock or by transferring shares of Common
Stock to the Company, in such amounts as are equivalent to the Fair Market Value
of the withholding obligation. The Company shall have the right to withhold from
any Award or any shares of Common Stock issuable pursuant to an Award or from
any cash amounts otherwise due or to become due from the Company to the
Participant an amount equal to such taxes. The Company may also deduct from any
Award any other amounts due from the Participant to the Company or a Related
Corporation.
SECTION 11. ASSIGNABILITY
Awards granted under the Plan and any interest therein may not be assigned,
pledged or transferred by the Participant and may not be made subject to
attachment or similar proceedings otherwise than by will or by the applicable
laws of descent and distribution, and, during the Participant's lifetime, such
Awards may be exercised only by the Participant. Notwithstanding the foregoing,
and to the extent permitted by Section 422 of the Code, the Plan Administrator,
in its sole discretion, may permit such assignment, transfer and exercisability
and may permit a Participant to designate a beneficiary who may exercise the
Award or receive compensation under the Award after the Participant's death;
provided, however, that any Award so assigned or transferred shall be subject to
all the same terms and conditions contained in the instrument evidencing the
Award.
SECTION 12. ADJUSTMENTS
12.1 Adjustment of Shares
In the event that, at any time or from time to time, a stock dividend,
stock split, spin-off, combination or exchange of shares, recapitalization,
merger, consolidation, distribution to shareholders other than a normal cash
dividend, or other change in the Company's corporate or capital structure
results in (a) the outstanding shares, or any securities exchanged therefor or
received in their place, being exchanged for a different number or class of
securities of the Company or of any other corporation or (b) new, different or
additional securities of the Company or of any other corporation being received
by the holders of shares of Common Stock of the Company, then the Plan
Administrator shall make proportional adjustments in (i) the maximum number and
kind of securities subject to the Plan as set forth in Section 4.1 and (ii) the
number and kind of securities that are subject to any outstanding Award and the
per share price of such securities, without any change in the aggregate price to
be paid therefor. The determination by the Plan Administrator as to the terms of
any of the foregoing adjustments shall be conclusive and binding.
Notwithstanding the foregoing, a dissolution or liquidation of the Company or a
Corporate Transaction shall not be governed by this Section 12.1 but shall be
governed by Sections 12.2 and 12.3, respectively.
12.2 Dissolution or Liquidation
In the event of the proposed dissolution or liquidation of the Company, the
Plan Administrator shall notify each Participant as soon as practicable prior to
the effective date of such proposed transaction. The Plan Administrator in its
discretion may permit a Participant to
11
<PAGE>
exercise an Option until ten days prior to such transaction with respect to all
vested and exercisable shares of Common Stock covered thereby and with respect
to such number of unvested shares as the Plan Administrator shall determine. In
addition, the Plan Administrator may provide that any forfeiture provision or
Company repurchase option applicable to any Award shall lapse as to such number
of shares as the Plan Administrator shall determine, contingent upon the
occurrence of the proposed dissolution or liquidation at the time and in the
manner contemplated. To the extent an Option has not been previously exercised,
the Option shall terminate automatically immediately prior to the consummation
of the proposed action. To the extent a forfeiture provision applicable to a
Stock Award has not been waived by the Plan Administrator, the Stock Award shall
be forfeited automatically immediately prior to the consummation of the proposed
action.
12.3 Corporate Transaction
In the event of a Corporate Transaction, except as otherwise provided in
the instrument evidencing the Award, each outstanding Option shall be continued,
assumed or an equivalent option or right substituted by the surviving
corporation, the successor corporation or its parent corporation, as applicable
(the "Successor Corporation"). In the event that the Successor Corporation
refuses to continue, assume or substitute for the Option, the Participant shall
fully vest in and have the right to exercise the Option as to all of the shares
of Common Stock subject thereto, including shares as to which the Option would
not otherwise be vested or exercisable. If an Option becomes fully vested and
exercisable in lieu of assumption or substitution in the event of a Corporate
Transaction, the Plan Administrator shall notify the Participant in writing or
electronically that the Option shall be fully vested and exercisable for a
specified time period after the date of such notice, and the Option shall
terminate upon the expiration of such period, in each case conditioned on the
consummation of the Corporate Transaction. For the purposes of this Section
12.3, the Option shall be considered assumed if, following the Corporate
Transaction, the option or right confers the right to purchase or receive, for
each share of Common Stock subject to the Option, immediately prior to the
Corporate Transaction, the consideration (whether stock, cash, or other
securities or property) received in the merger or sale of assets by holders of
Common Stock for each share held on the effective date of the transaction (and
if holders were offered a choice of consideration, the type of consideration
chosen by the holders of a majority of the outstanding shares); provided,
however, that if such consideration received in the Corporate Transaction is not
solely common stock of the Successor Corporation, the Plan Administrator may,
with the consent of the Successor Corporation, provide for the consideration to
be received upon the exercise of the Option, for each share of Common Stock
subject thereto, to be solely common stock of the Successor Corporation equal in
fair market value to the per share consideration received by holders of Common
Stock in the Corporate Transaction. All Options shall terminate and cease to
remain outstanding immediately following the consummation of the Corporate
Transaction, except to the extent assumed by the Successor Corporation.
In the event of a Corporate Transaction, the vesting of Shares subject to
Stock Awards shall accelerate, and the forfeiture provisions to which such
Shares are subject shall lapse, if and to the same extent that the vesting of
outstanding Options accelerates in connection with the Corporate Transaction.
If unvested Options are to be assumed, continued or substituted by a Successor
Corporation without acceleration upon the occurrence of a Corporate Transaction,
the
12
<PAGE>
forfeiture provisions to which such shares are subject will continue with
respect to shares of the Successor Corporation that may be issued in exchange
for such Shares.
12.4 Further Adjustment of Awards
Subject to Sections 12.2 and 12.3, the Plan Administrator shall have the
discretion, exercisable at any time before a sale, merger, consolidation,
reorganization, liquidation or change in control of the Company, as defined by
the Plan Administrator, to take such further action as it determines to be
necessary or advisable, and fair and equitable to the Participants, with respect
to Awards. Such authorized action may include (but shall not be limited to)
establishing, amending or waiving the type, terms, conditions or duration of, or
restrictions on, Awards so as to provide for earlier, later, extended or
additional time for exercise, lifting restrictions and other modifications, and
the Plan Administrator may take such actions with respect to all Participants,
to certain categories of Participants or only to individual Participants. The
Plan Administrator may take such action before or after granting Awards to which
the action relates and before or after any public announcement with respect to
such sale, merger, consolidation, reorganization, liquidation or change in
control that is the reason for such action.
12.5 Limitations
The grant of Awards shall in no way affect the Company's right to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
SECTION 13. MARKET STANDOFF
In connection with any underwritten public offering by the Company of its
equity securities pursuant to an effective registration statement filed under
the Securities Act, including the Company's initial public offering, a person
shall not sell, make any short sale of, loan, hypothecate, pledge, grant any
option for the purchase of, or otherwise dispose of or transfer for value or
otherwise agree to engage in any of the foregoing transactions with respect to
any shares issued pursuant to an Award granted under the Plan without the prior
written consent of the Company or its underwriters. Such limitations shall be in
effect for such period of time as may be requested by the Company or such
underwriters and agreed to by the Company's officers and directors with respect
to their shares; provided, however, that in no event shall such period exceed
180 days. The limitations of this paragraph shall in all events terminate two
years after the effective date of the Company's initial public offering. Holders
of shares issued pursuant to an Award granted under the Plan shall be subject to
the market standoff provisions of this paragraph only if the officers and
directors of the Company are also subject to similar arrangements.
In the event of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
Company's outstanding Common Stock effected as a class without the Company's
receipt of consideration, any new, substituted or additional securities
distributed with respect to the purchased shares shall be immediately subject to
the provisions of this Section 13, to the same extent the purchased shares are
at such time covered by such provisions.
13
<PAGE>
In order to enforce the limitations of this Section 14, the Company may
impose stop-transfer instructions with respect to the purchased shares until the
end of the applicable standoff period.
SECTION 14. AMENDMENT AND TERMINATION OF PLAN
14.1 Amendment of Plan
The Plan may be amended only by the Board in such respects as it shall deem
advisable; provided, however, that to the extent required for compliance with
Section 422 of the Code or any applicable law or regulation, shareholder
approval shall be required for any amendment that would (a) increase the total
number of shares available for issuance under the Plan, (b) modify the class of
persons eligible to receive Options, or (c) otherwise require shareholder
approval under any applicable law or regulation. Any amendment made to the Plan
that would constitute a "modification" to Incentive Stock Options outstanding on
the date of such amendment shall not, without the consent of the Participant, be
applicable to such outstanding Incentive Stock Options but shall have
prospective effect only.
14.2 Termination of Plan
The Board may suspend or terminate the Plan at any time. Unless sooner
terminated as provided herein, the Plan shall terminate ten years after the
earlier of the Plan's adoption by the Board and approval by the shareholders.
14.3 Consent of Participant
The amendment or termination of the Plan or the amendment of an outstanding
Award shall not, without the Participant's consent, impair or diminish any
rights or obligations under any Award theretofore granted to the Participant
under the Plan. Any change or adjustment to an outstanding Incentive Stock
Option shall not, without the consent of the Participant, be made in a manner so
as to constitute a "modification" that would cause such Incentive Stock Option
to fail to continue to qualify as an Incentive Stock Option. Notwithstanding
the foregoing, any adjustments made pursuant to Section 12 shall not be subject
to these restrictions.
SECTION 15. GENERAL
15.1 Evidence of Awards
Awards granted under the Plan shall be evidenced by a written instrument
that shall contain such terms, conditions, limitations and restrictions as the
Plan Administrator shall deem advisable and that are not inconsistent with the
Plan.
15.2 No Individual Rights
Nothing in the Plan or any Award granted under the Plan shall be deemed to
constitute an employment contract or confer or be deemed to confer on any
Participant any right to continue in the employ of, or to continue any other
relationship with, the Company or any Related
14
<PAGE>
Corporation or limit in any way the right of the Company or any Related
Corporation to terminate a Participant's employment or other relationship at any
time, with or without Cause.
15.3 Registration
Notwithstanding any other provision of the Plan, the Company shall have no
obligation to issue or deliver any shares of Common Stock under the Plan or make
any other distribution of benefits under the Plan unless such issuance, delivery
or distribution would comply with all applicable laws (including, without
limitation, the requirements of the Securities Act), and the applicable
requirements of any securities exchange or similar entity.
The Company shall be under no obligation to any Participant to register for
offering or resale or to qualify for exemption under the Securities Act, or to
register or qualify under state securities laws, any shares of Common Stock,
security or interest in a security paid or issued under, or created by, the
Plan, or to continue in effect any such registrations or qualifications if made.
The Company may issue certificates for shares with such legends and subject to
such restrictions on transfer and stop-transfer instructions as counsel for the
Company deems necessary or desirable for compliance by the Company with federal
and state securities laws.
To the extent that the Plan or any instrument evidencing an Award provides
for issuance of stock certificates to reflect the issuance of shares of Common
Stock, the issuance may be effected on a noncertificated basis, to the extent
not prohibited by applicable law or the applicable rules of any stock exchange.
15.4 No Rights as a Shareholder
No Option or Stock Award denominated in units shall entitle the Participant
to any cash dividend, voting or other right of a shareholder unless and until
the date of issuance under the Plan of the shares that are the subject of such
Award.
15.5 Compliance With Laws and Regulations
Notwithstanding anything in the Plan to the contrary, the Plan
Administrator, in its sole discretion, may bifurcate the Plan so as to restrict,
limit or condition the use of any provision of the Plan to Participants who are
officers or directors subject to Section 16 of the Exchange Act without so
restricting, limiting or conditioning the Plan with respect to other
Participants. Additionally, in interpreting and applying the provisions of the
Plan, any Option granted as an Incentive Stock Option pursuant to the Plan
shall, to the extent permitted by law, be construed as an "incentive stock
option" within the meaning of Section 422 of the Code.
15.6 Participants in Foreign Countries
The Plan Administrator shall have the authority to adopt such
modifications, procedures and subplans as may be necessary or desirable to
comply with provisions of the laws of foreign countries in which the Company or
its Related Corporations may operate to assure the viability of the benefits
from Awards granted to Participants employed in such countries and to meet the
objectives of the Plan.
15
<PAGE>
15.7 No Trust or Fund
The Plan is intended to constitute an "unfunded" plan. Nothing contained
herein shall require the Company to segregate any monies or other property, or
shares of Common Stock, or to create any trusts, or to make any special deposits
for any immediate or deferred amounts payable to any Participant, and no
Participant shall have any rights that are greater than those of a general
unsecured creditor of the Company.
15.8 Severability
If any provision of the Plan or any Award is determined to be invalid,
illegal or unenforceable in any jurisdiction, or as to any person, or would
disqualify the Plan or any Award under any law deemed applicable by the Plan
Administrator, such provision shall be construed or deemed amended to conform to
applicable laws, or, if it cannot be so construed or deemed amended without, in
the Plan Administrator's determination, materially altering the intent of the
Plan or the Award, such provision shall be stricken as to such jurisdiction,
person or Award, and the remainder of the Plan and any such Award shall remain
in full force and effect.
15.9 Choice of Law
The Plan and all determinations made and actions taken pursuant hereto, to
the extent not otherwise governed by the laws of the United States, shall be
governed by the laws of the State of Washington without giving effect to
principles of conflicts of laws.
SECTION 16. EFFECTIVE DATE
The Effective Date is the date on which the Plan is adopted by the Board,
so long as it is approved by the Company's shareholders at any time within 12
months of such adoption.
16
<PAGE>
PLAN ADOPTION AND AMENDMENTS/ADJUSTMENTS
SUMMARY PAGE
<TABLE>
<CAPTION>
Section/Effect of Date of Shareholder
Date of Board Action Action Amendment Approval
<S> <C> <C> <C>
_________, 199__ Initial Plan Adoption _____________, 199_
</TABLE>
-1-
<PAGE>
EXHIBIT 10.22
W E S T L A K E C E N T E R
OFFICE LEASE AGREEMENT
Between
Westlake Center Associates Limited Partnership
and
Symbologic Corporation
1
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C> <C>
1. LEASE DATA AND EXHIBITS 3
1(a). Building 3
1(b). Premises 3
1(c). Floor Areas 3
1(d). Lease Term 3
1(e). Commencement Date 3
1(f). Expiration Date 3
1(g). Monthly Rent 3
1(h). Security Deposit 3
1(i). Notice Addresses 3
1(j). Exhibits 3
2. PREMISES 4
3. RENT 4
4. ACCEPTANCE OF PREMISES 4
5. POSSESSION 4
6. SECURITY DEPOSIT 4
7. USE 5
8. SERVICES AND UTILITIES 5
8(a). Standard Services 5
8(b). Interruption of Services 5
8(c). Additional Services 5
9. RENTAL ADJUSTMENTS, OPERATING COSTS 6
9(a). Definitions 6
9(b). Base Amount 7
9(c). Additional Rent for Increases 7
9(d). Actual Operating Costs 7
9(e). Determinations 7
9(f). Beginning and End of Term 7
9(g). Further Adjustment 7
9(h). Base Rent 7
9(i). Personal Property Taxes 7
10. COMPLIANCE WITH LAW 8
11. ALTERATIONS BY LESSEE 8
11.1 Alterations 8
11.2 Title 8
11.3 Lessee's Personal Property 8
12. LOSS, DAMAGE, AND INJURY 9
13. REPAIRS 9
14. ABANDONMENT 10
15. LIENS 10
16. ASSIGNMENT AND SUBLETTING 10
17. ACCIDENT - INDEMNITY 11
18. INSURANCE 11
18.1 Lessee's Insurance 11
18.2 Lessee's Failure to Insure 12
18.3 Compliance with Policies 12
19. WAIVER OF SUBROGATION 12
20. PERSONAL PROPERTY TAX 12
21. RULES AND REGULATIONS 12
22. HOLDING OVER 12
23. ENTRY BY LESSOR 12
24. INSOLVENCY OR BANKRUPTCY 13
25. DEFAULT 13
26. REMEDIES IN DEFAULT 13
27. LATE CHARGES 14
28. RECONSTRUCTION 14
29. EMINENT DOMAIN 15
30. SUBORDINATION 15
31. SALE BY LESSOR 15
32. ATTORNEY FEES 16
33. SURRENDER OF PREMISES 16
34. WAIVER 16
35. NOTICE 16
36. DEFINED TERMS 16
37. TIME 16
38. SUCCESSORS AND ASSIGNS 16
39. SEPARABILITY 16
40. LENDER PROVISIONS 16
41. ESTOPPEL CERTIFICATES 16
42. COVENANT OF QUIET ENJOYMENT 17
43. BROKERS 17
44. HAZARDOUS SUBSTANCES 17
45. SPECIAL PROVISIONS 17
</TABLE>
2
<PAGE>
WESTLAKE CENTER
LEASE AGREEMENT
THIS LEASE AGREEMENT, dated the 28th day of July, 1995,
---- -----------
is by and between WESTLAKE CENTER ASSOCIATES LIMITED PARTNERSHIP, a Washington
limited partnership, hereinafter called "Lessor," and Symbologic Corporation,
hereinafter called "Lessee." As parties hereto, Lessor and Lessee agree:
1. LEASE DATA AND EXHIBITS. The following terms as used herein shall
-----------------------
have the meanings provided in this Section 1, unless otherwise
specifically modified by provisions of this Lease:
(a) Building: Known as Westlake Center, Seattle, Washington, or such
other name as Lessor may designate from time to time, situated on
a portion of the real property more particularly described in
Section 2 hereof.
(b) Premises: For the purposes of this lease the Premises shall
Consist of 24,725 square feet comprising a portion of the 18th
Floor and the entirety of the 19th Floor of the Building, as
outlined on the floor plan attached hereto as Exhibit C,
including Tenant Improvements, if any, as described in Exhibit
A.
(c) Floor Areas: The agreed rentable area of the Premises is 24,725
square feet and of the Building is 335,850 square feet.
(d) Lease Term: Five (5 ) years.
(e) Commencement Date: November 1, 1995 or such earlier or later date
as provided in Section 5 hereof.
(f) Expiration Date: October 31, 2000.
(g) Monthly Rent: $_______*________, per month, payable in advance on
or before the first day of each month per Section 3 hereof. Rent
shall be adjusted from time to time as provided in Section 9
hereof. * See Attachment II, Special Provision #1.
(h) Security Deposit: $37,602.60.
(i) Notice Addresses:
Lessor: Westlake Center Associates
c/o Koehler, McFadyen & Company
1601 Fifth Avenue, Suite 2210
Seattle, WA 98101
Lessee: For notices prior to Commencement Date:
Symbologic Corporation
700 Fifth Avenue, Suite 2500
Seattle, WA 98104
Attn: Patrick Keenan
For notices after the Commencement Date:
Symbologic Corporation
1601 Fifth Avenue, Suite 1900
Seattle, WA 98101
Attn: Patrick Keenan
(j) Exhibits: The following exhibits or riders are made a part of
this Lease:
Attachment I: Rules and Regulations
Attachment II: Special Provisions
Exhibit A - Tenant Improvements
Exhibit B - Lessee's Plan Requirements
Exhibit C - Floor Plan of Leased Premises
3
<PAGE>
2. PREMISES. Lessor does hereby lease to Lessee, and Lessee does
--------
hereby lease from Lessor, upon the terms and conditions herein set forth, the
Premises described in Section 1(b) hereof as shown on Exhibit C attached hereto
and incorporated herein, situated on the real property in Seattle, King County,
Washington, described as follows:
Lots 1, 2, 3, 7, 8, 9, 10, 11, and 12, Block 1, ADDITION TO THE TOWN
OF SEATTLE as laid off by the Heirs of SARAH A. BELL, deceased (commonly known
as Heirs of SARAH A. BELL'S ADDITION TO THE CITY OF SEATTLE) according to the
plat recorded in Volume 1 of Plats, page 103, in King County, Washington;
EXCEPT the Southwesterly 12 feet of said Lots 1, 2, and 3 condemned by
the City of Seattle in King County Superior Court Cause No. 52280, for the
widening of Fourth Avenue, as provided by Ordinance 13776 of said City; and
EXCEPT the Southeasterly 7 feet of said Lots 1 and 12 condemned by the
City of Seattle, in King county Superior Court Cause No. 57057 for the widening
of Pine Street as provided by Ordinance 14500 of said City;
TOGETHER WITH all of the vacated alley lying within said Block 1. The
Property is generally bounded by Fifth Street on the east, Pine Street on the
south, Fourth Avenue on the west, and Olive Way on the north.
3. RENT. Lessee agrees to and shall pay to Lessor, the Monthly Rental
----
stated in Section 1(g) in advance on the first day of each calendar month during
the Lease Term, at the office of Lessor specified in Section 1(i), or at such
other place as Lessor may from time to time designate in writing. Rent payable
for any period of less than one calendar month shall equal 1/30 of the Monthly
Rental for each day of such period, and shall be payable on the first day of
such period.
4. ACCEPTANCE OF PREMISES. Except for those punchlist items scheduled
----------------------
by Lessor and Lessee prior to the Lease Commencement Date, Lessee's occupancy of
the Premises shall be deemed to constitute acceptance of same and acknowledgment
by Lessee that Lessor has fully complied with its obligations hereunder to
construct and deliver to Lessee the Premises. Lessor shall have the right to
enter the Premises to complete or repair any such unfinished items and entry by
Lessor, its agents, servants, employees, or contractors for such purpose shall
not constitute an actual or constructive eviction, in whole or in part, or
entitle Lessee to any abatement or diminution of Rent or relieve Lessee of any
of its obligations under this Lease, or impose any liability upon Lessor or its
agents, servants, employees, or contractors.
5. POSSESSION. If Lessor fails to deliver possession of Premises
----------
ready for occupancy at the commencement of the Lease Term, Lessor shall not be
liable for any damage caused thereby, nor shall this Lease become void or
voidable, but in such event, no Rental shall be payable by Lessee to Lessor for
any portion of the Lease Term until Lessor can deliver possession of Premises to
Lessee ready for occupancy by Lessee. If the Commencement Date of the Lease
Term is delayed, the termination date will be extended by a like period of time.
If Lessee, with Lessor's permission, enters into possession of Premises prior to
commencement of the Lease Term, all of the terms and conditions of this Lease
shall apply during such prior period, including payment of Rent at the Monthly
Rate stated in Section 1(g). The Premises shall be ready for occupancy on the
date the Lessor receives approval from the City of Seattle for occupancy of the
Premises.
6. SECURITY DEPOSIT. As security for the full and faithful
----------------
performance of every covenant and condition of this Lease to be performed by
Lessee, Lessee has paid to Lessor the Security Deposit as specified in Section
1(h) hereof, receipt of which is hereby acknowledged. If Lessee shall default
with respect to any covenant or condition of this Lease, including but not
limited to the payment of Rent, Additional Rent, or any other payment due under
this Lease, Lessor may apply all or any part of the Security Deposit to the
payment of any sum in default or any other sum which Lessor may be required to
spend or incur by reason of Lessee's default or any other sum which Lessor may
in its reasonable discretion deem necessary to spend or incur by reason of
Lessee's default. In such event, Lessee shall, within five (5) days of written
demand therefore by Lessor, deposit with Lessor the amount so applied. If Lessee
shall have fully complied with all of the covenants and conditions of this
Lease, but not otherwise, the amount of the Security Deposit
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then held by Lessor shall be repaid to Lessee (or, at Lessor's option, to the
last assignee of Lessee's interest hereunder) within thirty (30) days after the
expiration or sooner termination of this Lease.
In the event of Lessee's default under this Lease, Lessor's right to
retain the Security Deposit shall be deemed to be in addition to any and all
other rights and remedies at law or in equity available to Lessor. Lessor shall
not be required to keep any Security Deposit separate from its general funds and
Lessee shall not be entitled to any interest thereon.
7. USE. Lessee shall use and occupy the Premises only for general
---
office purposes and for no other purposes without Lessor's prior written
consent. Lessee shall not do or permit anything to be done in or about the
Premises nor bring or keep anything therein which will in any way increase the
existing rate of or affect any fire or other insurance upon the Building or any
of its contents, or cause a cancellation of any insurance policy covering said
Building or any part thereof or any of its contents. Lessee shall not do or
permit anything to be done in or about the Premises which will in any way
obstruct or interfere with the rights of other tenants or occupants of the
Building or injure or annoy them or use or allow the Premises to be used for any
improper, immoral, unlawful, or objectionable purpose, nor shall Lessee cause,
maintain, or permit any nuisance in, on, or about the Premise. Lessee shall not
commit or suffer to be committed any waste in or upon the Premises.
8. SERVICES AND UTILITIES.
----------------------
(a) Standard Services. Lessor shall cause the Premises and the public
and Common Areas of the Building, such as lobbies, elevators, stairs, corridors,
and restrooms, to be maintained in reasonably good order and condition
consistent with the operation and maintenance of the Building as a first-class
office building in Seattle, except for damage occasioned by any act or omission
of Lessee or Lessee's officers, contractors, agents, invitees, licensees, or
employees, the repair of which damage shall be paid for by Lessee.
From 7:00 a.m. to 6:00 p.m. on weekdays and from 7:00 a.m. to 1:00
p.m. on Saturday, excluding legal holidays ("Normal Business Hours"), Lessor
shall furnish the Premises with electricity for lighting and operation of
standard office machines, water, heat and air conditioning, and elevator
service.
During all other hours, Lessor shall furnish such services, including
elevator service as reasonably required to provide access to the Premises,
except for heat and air conditioning. If requested by Lessee, Lessor shall
furnish heat and air conditioning at times other than Normal Business Hours and
the cost of such services as established by Lessor shall be paid by Lessee as
Additional Rent. Lessor shall also provide lamp replacement service for building
standard fluorescent light fixtures, toilet room supplies, window washing at
reasonable intervals, and customary building janitorial service. No janitorial
service shall be provided Saturdays, Sundays, or legal holidays. The costs of
any janitorial or other service provided or caused to be provided by Lessor to
Lessee which are in addition to the services ordinarily provided building
tenants shall be paid in the manner provided for payment of Rent in Section 3 of
this Lease.
Lessor shall be obligated to provide the services and utilities as
outlined herein only so long as Lessee is not in default per Section 25 of this
Lease.
(b) Interruption of Services. Lessor shall not be liable for any
loss, injury, or damage to person or property caused by or resulting from any
variation, interruption, or failure of such services due to any cause
whatsoever, or from failure to make any repairs or perform any maintenance. No
temporary interruption or failure of such services incident to the making of
repairs, alterations, or improvements, or due to accident, strike, or conditions
or events beyond Lessor's reasonable control shall be deemed an eviction of
Lessee or relieve Lessee from any of Tenant's obligations hereunder.
(c) Additional Services. Lessee will not, without the written consent
of Lessor, use any apparatus or device in the Premises using current in excess
of 110 volts, except as may be provided in Exhibit A; nor connect with electric
current, except through existing electrical outlets in the Premises, or water
pipes, any apparatus or device, for the purposes of using electric current or
water. If Lessee shall require water or electric current in excess of that
usually furnished or supplied for use of the Premises as general office space,
Lessee shall first procure the consent of Lessor to the use thereof and Lessor
may cause a water meter or electric current meter to be installed in the
Premises, so as to measure the amount of water and electric current consumed for
any such other use. The cost of any such meters and of installation,
maintenance, and repair thereof
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shall be paid by the Lessee and Lessee agrees to pay to Lessor promptly upon
demand therefore by Lessor for all such water and electric current consumed as
shown by said meters, at the rates charged for such services by the City of
Seattle or the local public utility, as the case may be, furnishing the same,
plus any additional expense incurred in keeping account of the water and
electric current so consumed. Wherever heat generating machines or equipment are
used in the Premises which affect the temperature otherwise maintained by the
air conditioning systems, Lessor reserves the right to install supplementary air
conditioning units in the Premises and the cost thereof, including the cost of
installation, operation, and maintenance of any such supplementary equipment,
shall be paid by Lessee to Lessor upon demand by Lessor. Lessee shall obtain a
maintenance agreement at Lessee's sole cost and expense for routine and
preventative maintenance of said supplemental equipment.
9. RENTAL ADJUSTMENTS, OPERATING COSTS.
------------------------------------
(a) Definitions. In addition to the Rent provided in Section 1(g) of
this Lease, Lessee shall pay to Lessor increases under this Section 9 as
"Additional Rent," utilizing the following definitions:
(1) "Operating Costs" shall include Costs of Energy, Real Property
Taxes, and Other Operating Costs.
(2) "Real Property Taxes" shall mean taxes on real property and
personal property, and taxes on property of Lessee, as described in Section 9(i)
below, which have not been paid by Lessee directly to the taxing authority;
charges and assessments (or any installment thereof due during the Lease Year)
levied with respect to the land, the Building, any improvements, fixtures, and
equipment, and all other property of Lessor, real or personal, used directly in
the operation of the Building and located in or on the Building; and any taxes
levied or assessed (or any installment thereof due during the Lease Year) in
addition to or in lieu of, in whole or in part, such real property or personal
property taxes, or any other tax upon leasing of the Building or rents
collected, but not including any federal or state income or franchise tax.
(3) "Costs of Energy" shall mean all expenses paid or incurred by
Lessor in the normal operation and maintenance of the Building for electricity,
gas, and similar energy sources, including any surcharges imposed by the utility
company.
(4) "Other Operating Costs" shall mean all other expenses paid or
incurred by Lessor for obtaining services and products for maintaining,
operating, and repairing the Building and the personal property used in
conjunction therewith, including, without limitation, the costs of refuse
collection, water, sewer, and other utilities services (excluding costs included
in the Cost of Energy), supplies, janitorial and cleaning services, window
washing, landscape maintenance, services of independent contractors,
compensation (including employment taxes and fringe benefits) of all persons who
perform duties in connection with the operation, maintenance, and repair of the
Building, its equipment and the land upon which it is situated, insurance
premiums, licenses, permits, and inspection fees, customary management fees,
legal and accounting expenses, and any other expense or charge whether or not
herein above described which in accordance with generally accepted accounting
and management practices would be considered an expense of maintaining,
operating, or repairing the Building, excluding or deducting, as appropriate:
(i) Costs of any special services rendered to individual tenants
(including Lessee) for which a special charge is made;
(ii) Depreciation or amortization of costs required to be
capitalized in accordance with generally accepted accounting practices (except
Other Operating Costs shall include amortization of capital improvements made
subsequent to the initial development of the Building which are designed with a
reasonable probability of improving the operating efficiency of the Building,
provided that such amortization costs shall not exceed reasonably expected
savings in operating costs resulting from such capital improvements).
(5) "Lease Year" shall mean the twelve-month period commencing
January 1 and ending December 31.
(6) "Actual Operating Costs" shall mean the actual expenses paid or
incurred by Lessor for Operating Costs during any Lease Year of the Term hereof.
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(7) "Actual Operating Costs Allocable to the Premises" shall mean
the Lessee's Pro Rata Share of the Actual Operating Costs.
(8) "Estimated Operating Costs Allocable to the Premises" shall
mean Lessor's estimate of Actual Operating Costs Allocable to the Premises for
the following Lease Year to be given by Lessor to Lessee pursuant to Section
9(c) below.
(9) "Base Year" shall mean calendar year 1996.
(10) "Pro Rata Share" shall be a proportion determined by using a
ratio, the numerator of which is the net rentable area of the Premises and the
denominator of which is the Net Rentable Area of the Building.
(b) Base Amount. For purposes of this Section, Operating Costs
-----------
Base Amount shall be Lessee's Pro Rata Share of the Base Year Actual Operating
Costs adjusted per Section 9(g).
(c) Additional Rent for Estimated Increases in Operating Costs.
----------------------------------------------------------
Prior to the commencement of each Lease Year after the Base Year (1996), during
the Term hereof, Lessor shall furnish Lessee a written statement of the
Estimated Operating Costs Allocable to the Premises, for such Lease Year, and a
calculation of the Additional Rent as follows: One-twelfth (1/12) of the amount,
if any, by which such Estimated Operating Costs Allocable to the Premises
exceeds the Operating Costs Base Amount shall be Additional Rent payable by
Lessee as provided in Section 3 for each month during such Lease Year.
(d) Actual Operating Costs. Approximately ninety (90) days after
----------------------
the close of each Lease Year during the Term hereof for which an estimated
statement was delivered to Lessee pursuant to subsection (c), or as soon
thereafter as practicable, Lessor shall deliver to Lessee a written statement
setting forth the Actual Operating Costs Allocable to the Premises during the
preceding Lease Year. If such costs for any Lease Year exceed Estimated
Operating Costs Allocable to the Premises paid by Lessee to Lessor pursuant to
subsection (c), Lessee shall pay the amount of such excess to Lessor as added
Additional Rent within thirty (30) days after receipt of such statement by
Lessee. If such statement shows such costs to be less than the amount paid by
Lessee to Lessor pursuant to subsection (c), then the amount of such overpayment
by Lessee shall be credited by Lessor to the next immediate Rent payable by
Lessee.
(e) Determinations. The determination of Actual Operating Costs and
--------------
Estimated Operating Costs Allocable to the Premises shall be made by Lessor.
Lessor or its agent shall keep records in reasonable detail showing all
expenditures made for the items enumerated above, which records shall be
available for inspection by Lessee at any reasonable time.
(f) Beginning and End of Term. If this Lease shall commence or
-------------------------
terminate on a day other than the first or last day of a Lease Year, the amount
of any adjustment between Estimated and Actual Costs Allocable to the Premises
with respect to the Lease Year in which such commencement or termination occurs
shall be prorated on the basis which the number of days of such Lease Year bears
to 365; and any amount payable by Lessor to Lessee or Lessee to Lessor with
respect to such adjustment shall be payable within thirty (30) days after
delivery by Lessor to Lessee of the statement of Actual Costs Allocable to the
Premises with respect to such Lease Year.
(g) Further Adjustment. In the event the average occupancy level of
------------------
the Building for any Lease Year was or is not ninety percent (90%) of full
occupancy, then the Estimated Costs and Actual Costs for such year shall be
proportionately adjusted by Lessor to reflect those costs which would have
occurred had the Building been ninety percent (90%) occupied during such year.
(h) Base Rent. Notwithstanding anything to the contrary in this
---------
Section 9, the Rent payable by Lessee shall in no event be less than the Rent
specified in Section 1(g) of this Lease.
(i) Personal Property Taxes. Lessee shall pay, prior to
-----------------------
delinquency, all personal property taxes payable with respect to all Property of
Lessee located on the Premises or the Building and promptly, upon request of
Lessor, shall provide written proof of such payment. As
7
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used herein, "Property of Lessee" shall include all improvements which are paid
for by property taxes assessed against the Property of Lessee, whether assessed
as real or personal property.
10. COMPLIANCE WITH LAW. Lessee shall not use the Premises or permit
-------------------
anything to be done in or about the Premises which will in any way conflict with
any law, statute, ordinance, or governmental rule or regulation now in force or
which may hereafter be enacted or promulgated. Lessee shall at its sole cost
and expense promptly comply with all laws, statutes, ordinances, and
governmental rules, regulations, or requirements now in force or which may
hereafter be in force and with the requirements of any board of fire
underwriters or other similar body now or hereinafter constituted relating to or
affecting the condition, use, or occupancy of the Premises, excluding structural
changes not related to or affected by Lessee's improvements or acts. The
judgment of any court of competent jurisdiction or the admission of Lessee in an
action against Lessee, whether Lessor be a party thereto or not, that Lessee has
violated any law, statute, ordinance, or governmental rule, regulation, or
requirement, shall be conclusive of that fact as between Lessor and Lessee.
11. ALTERATIONS BY LESSEE.
---------------------
11.1 Alterations. Lessee shall in no event make or permit to be made
-----------
any alteration, modification, substitution, or other change of any nature to the
mechanical, electrical, plumbing, HVAC, and sprinkler systems within or serving
the Premises. After completion of Lessee's Improvements within the Premises,
Lessee shall not make or permit any other improvements, alterations, fixed
decorations, substitutions, or modifications, structural or otherwise, to the
Premises or the Building ("Alterations") without the prior written consent of
Lessor, any such consent to also include the conditions under which the
Alterations may be made (Lessor consent will not be unreasonably withheld).
Alterations shall include, but not be limited to, the installation or
modification of carpeting, walls, partitions, counters, doors, shelves, lighting
fixtures, hardware, locks, ceiling, and window and wall coverings; but shall not
include the initial Tenant Improvements placed within the Premises pursuant to
Exhibit A. All such Alterations shall be made at Lessee's sole expense, by
contractors or subcontractors approved by Lessor, and only after (i) Lessee has
obtained any necessary permits from governmental authorities and (ii) Lessee
has submitted complete plans and specifications to Lessor with respect to the
Alterations and Lessor has approved them. Lessor, at its own expense, shall
have the right, but not the obligation, to supervise the making of any
Alterations by Lessee. If any mechanic's lien is filed against the Premises or
the Building for work or materials furnished to Lessee, the lien shall be
discharged by Lessee within ten (10) days thereafter, solely at Lessee's
expense, by either paying off or bonding the lien. Should Lessee fail to
discharge any lien within ten (10) days of its filing, Lessor shall have the
right, but not the obligation, to discharge said lien at Lessee's expense.
Lessee shall indemnify and hold Lessor harmless from any and all expenses
(including attorney fees), liens, claims, or damage to persons, property, or the
Building which may arise from the making of any Alterations. Any Alterations
made without the prior consent of Lessor may be corrected or removed by Lessor,
and Lessee shall, on demand, pay the cost thereof as Additional Rent. The work
relating to any Alterations shall not interfere with, or cause annoyance to, any
other tenants of the Building or disrupt any access to, or use of, the common
facilities. Upon request, Lessee will deliver to Lessor a complete set of "as
built" plans showing the approved Alterations.
11.2 Title. Any Alterations or any equipment, machinery, furniture,
-----
furnishings, and other property or improvements installed or located in the
Premises by or on behalf of Lessor or Lessee (i) shall, except for "Lessee's
Personal Property" as defined below, immediately become the property of Lessor
and (ii) shall remain upon and be surrendered to Lessor with the Premises as a
part thereof at the end of the Term; provided, however, that if Lessee is not in
Default under this Lease, Lessee shall have the right to remove, prior to the
end of the Term, Lessee's Personal Property. Notwithstanding the foregoing,
Lessor may, upon notice to Lessee, elect that any Alterations be removed at the
end of the Term, and Lessee shall cause such Alterations to be removed at
Lessee's expense and shall restore the Premises to their condition prior to the
making of such Alterations, reasonable wear and tear excepted. Upon Lessee's
failure to do so, Lessor may remove such Alterations and restore the Premises
and Lessee shall promptly reimburse Lessor for the cost of such work.
11.3 Lessee's Personal Property. "Lessee's Personal Property" shall
--------------------------
mean all equipment, machinery, furniture, furnishings, and/or other property now
or hereafter installed or placed in or on the Premises by and at the sole
expense of Lessee with respect to which Lessee has not been granted any credit
or allowance by Lessor and which (i) is not used, or was not procured for use,
in connection with the operation, maintenance or protection of the Premises or
the Building; (ii) is
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removable without damage to the Premises or the Building, and (iii) is not a
replacement of any property of Lessor, whether such replacement is made at
Lessee's expense or otherwise. Notwithstanding any other provision of this
Lease, Lessee's Personal Property shall not include any Alterations or any
Improvements or other property installed or placed in or on the Premises as part
of Lessee's Improvements, whether or not any such Alterations, Improvements, or
other property were at Lessee's expense. Lessee shall promptly pay all personal
property taxes on Lessee's Personal Property, as applicable. Lessee shall remove
all Lessee's Personal Property from the Premises at the termination of this
Lease. Any property belonging to Lessee or any other person which is left in the
Premises after the date the Lease is terminated for any reason shall be deemed
to have been abandoned. In such event, Lessor shall have the right to declare
itself the owner of such property and to dispose of it in whatever manner Lessor
considers appropriate without waiving its right to claim from Lessee all
expenses and damages caused by Lessee's failure to remove such property, and
Lessee shall not have any right to compensation or claim against Lessor as a
result.
12. LOSS, DAMAGE, AND INJURY. All the property of Lessee, its
------------------------
agents, or invitees, or any other person, located in or on the Premises or the
Building, shall be and remain at the sole risk of Lessee or such agent, invitee,
or person. Lessee hereby expressly agrees that Lessor and its agents, servants,
and employees shall not be liable or responsible for any damage or injury to the
person or property of Lessee, or its agents, servants, employees, licensees,
invitees, or contractors, directly or indirectly caused by, (i) dampness or
water in any part of the Premises or Buildings; (ii) bursting, leaking, or
overflow of water, sewer, steam, or sprinkler pipes and heating or plumbing
fixtures; (iii) air conditioning or heating failures; (iv) interruption or
variance in the quality of electrical service supplied to the Lessee; (v)
interference with light, air, or other incorporeal hereditaments; (vi)
operations in the construction of any public or quasi-public works; (vii) theft
or other crime, whether violent or non-violent in nature; (viii) fire, accident,
natural disaster, or other casualty; (ix) latent or apparent defect or change of
conditions in the Premises and/or the Building; and (x) any other source,
circumstance, or cause whatsoever, except to the extent such damage or injury is
caused by or directly attributable to the negligence or willful misconduct of
Lessor and/or its agents, servants, and employees, and then only to the extent
that Lessee, its agents, servants, employees, licensees, invitees, or
contractors are not compensated therefore by insurance (and, in any event,
subject to the provisions of Section 19 hereof). No representation, guarantee,
assurance, or warranty is made or given by Lessor that the communications or
security systems, devices, or procedures used, if any, will be effective to
prevent injury to Lessee or any other person or damage to, or loss (by theft or
otherwise) of any of Lessee's property, or of the property of any other person,
and the Lessor reserves the right to discontinue or modify at any time such
communications or security systems, devices, or procedures without liability to
Lessee.
13. REPAIRS. By entry hereunder, Lessee accepts the Premises as
-------
being in good, sanitary order, condition, and repair. Lessee shall, at Lessee's
sole cost and expense, keep the Premises and every part thereof in good
condition and repair, damage thereto by fire, earthquake, act of God, or the
elements excepted. Lessee shall, upon the expiration or sooner termination of
the Term hereof, surrender the Premises to Lessor in the same condition as when
received, ordinary wear and tear and damage by fire, earthquake, act of God, or
the elements excepted. It is specifically understood and agreed that Lessor has
no obligation and has made no promises to alter, remodel, improve, repair,
decorate, or paint the Premises or any part thereof and that no representations
respecting the condition of the Premises or the Building of which the Premises
are a part have been made by Lessor to Lessee except as specifically herein set
forth. Lessor shall keep the Building and all machinery, equipment, fixtures,
and systems of every kind attached to, or used in connection with the operation
of the Building, including all electrical, heating, mechanical, sanitary,
sprinkler, utility, power, plumbing, cleaning, refrigeration, ventilating, air
conditioning, and elevator systems and equipment (excluding, however, lines,
improvements, systems, and machinery for water, gas, steam, and electricity
owned and maintained by any public utility company or governmental agency or
body or any supplemental equipment as provided in Section 8(c), Additional
Services) in good order and repair consistent with operation of the Building as
a first-class office building. Lessor, at its cost and expense, shall make all
repairs and replacements necessary to comply with its obligations set forth in
the immediately preceding sentence except for repairs caused by the negligence
or willful misconduct of Lessee, its agents, employees, invitees, and guests,
which repairs shall be made by Lessor at the cost of Lessee, and for which
Lessee shall pay promptly upon receipt of an invoice setting forth the cost of
such repairs. There shall be no abatement of rents due and payable hereunder
and no liability on the part of Lessor by reason of any inconvenience,
annoyance, or injury arising from Lessor's making reasonable repairs, additions,
or improvements to the Building in accordance with its obligations hereunder.
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14. ABANDONMENT. Lessee shall not vacate or abandon the Premises at
-----------
any time during the Term, and if Lessee shall abandon, vacate, or surrender said
Premises, or be dispossessed by process of law, or otherwise, any personal
property belonging to Lessee and left on the Premises shall be deemed to be
abandoned. Any expense incurred by Lessor in moving, storing, or disposing of
such property shall be paid by Lessee upon demand of Lessor.
15. LIENS. Lessee shall keep the Premises and the property in which
-----
the Premises are situated, free from any liens arising out of any work
performed, materials furnished, or obligations incurred by Lessee.
16. ASSIGNMENT AND SUBLETTING. Lessee shall not assign, transfer,
-------------------------
mortgage, pledge, hypothecate, or encumber this Lease, or any interest therein,
and shall not sublet the said Premises or any part thereof, or any right or
privilege appurtenant thereto, or suffer any other person (the agents and
servants of Lessee excepted) to occupy or use the said Premises, or any portion
thereof, without the written consent of Lessor (Lessor consent will not be
unreasonably withheld). A consent to one assignment, subletting, occupation, or
use by any other person shall not be deemed to be a consent to any subsequent
assignment, subletting, occupation, or use by another person. Any such
assignment or subletting without such consent shall be void, and shall, at the
option of Lessor, terminate this Lease. This Lease shall not, nor shall any
interest therein, be assignable as to the interest of Lessee by operation of
law, without the written consent of Lessor. Any assignment of this Lease by
Lessee shall not relieve Lessee of its obligations hereunder, including its
obligation for payment of Rent.
Without limiting the generality of the foregoing, Lessor may condition
its consent to any transfer upon satisfaction of all or any of the following
conditions:
(a) the net assets of the assignee, licensee, sublessee, or other
transferee or permittee (collectively "transferee") immediately prior to the
transfer shall not be less than the greater of the net assets of Lessee
immediately prior to the transfer or the net assets of Lessee at the time of the
signing of this Lease;
(b) such transfer shall not adversely affect the quality and type of
business operation which Lessee has conducted theretofore;
(c) such transferee shall assume in writing, on a form acceptable to
Lessor, all of Lessee's obligations hereunder and Lessee shall provide Lessor
with a copy of such assumption/transfer document;
(d) Lessee shall pay to Lessor a transfer fee of Five Hundred Dollars
($500.00) prior to the effective date of the transfer plus all out-of-pocket
expenses to reimburse Lessor for costs and expenses incurred with respect to the
transfer, including, without limitation, review of financial materials, meetings
with representatives of transferor and/or transferee, and preparation, review,
approval, and execution of the required transfer documentation;
(e) Lessee to which the Premises were initially leased shall continue
to remain liable under this Lease for the performance of all terms, including,
but not limited to, payment of Rental due under this Lease;
(f) each of Lessor's Mortgagees shall have consented in writing to
such transfer; and
(g) such other conditions as Lessor may reasonably deem
appropriate.
Without limiting Lessor's right to withhold its consent to any
transfer by Lessee, and regardless of whether Lessor shall have consented to any
such transfer, neither Lessee nor any other person having an interest in the
possession, use, occupancy, or utilization of the Premises or any part thereof
shall enter into any lease, sublease, license, concession, assignment, or other
transfer or agreement for use, occupancy, or utilization of all or any portion
of the Premises which provides for rental or other payment for such use,
occupancy, or utilization calculated, in whole or in part, on the basis of the
net income or profits derived by any person or entity from the space so leased,
used, occupied, or utilized, and any such purported lease, sublease, license,
concession, assignment, or other transfer or agreement shall be absolutely void
and ineffective as a conveyance
10
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of any right or interest in the possession, use, occupancy, or utilization of
all or any part of the Premises. There shall be no deduction from the rental
payable under any sublease or other transfer nor from the amount thereof passed
on to any person or entity, for any expenses or costs related in any way to the
subleasing or transfer of such space.
Regardless of whether Lessor shall have consented to a transfer
(including, without limitation, a sublease, concession agreement, or other
arrangement whereby all or any portion 1 of the Premises are used or occupied by
a party other than Lessee), any and all amounts received as a result of such
transfer, as sub-rent or otherwise, shall be the property of and payable to
Lessor to the extent that such amount (calculated on a square foot basis) is
greater than 1.15 times the Annual Basic Rental (on a per square foot basis)
payable under this Lease, but the same shall not be deemed to be a consent by
Lessor to any such transfer or a waiver of any right or remedy of Lessor
hereunder. Nothing in this section shall prevent Lessee, on approved
assignments and sublets, from receiving sublease Rental payments which are less
than 1.15 times the Annual Basic Rental (on a square foot basis) payable under
this Lease so long as Lessee is not in default under this Lease, including
payment of the full Rental amount.
17. ACCIDENT - INDEMNITY. Lessee shall defend and indemnify Lessor
--------------------
and save it harmless from and against any and all liability, damages, costs, or
expenses, including attorney fees, arising from any act, omission, or negligence
of Lessee, or the officers, contractors, licensees, agents, servants, employees,
guests, or invitees of Lessee in or about the Premises or the Building or
appurtenances thereto or arising from any accident, injury, or damage, howsoever
and by whomsoever caused, to any person or property, occurring in or about the
Premises or the Building or appurtenances thereto provided that the foregoing
provisions shall not be construed to make Lessee responsible for loss, damage
liability, or expense resulting from injuries to third parties caused by the
negligence of Lessor, or of any officer, contractor, licensee, agent, servant,
employee, guest, or invitee of Lessor.
18. INSURANCE.
---------
18.1. Lessee's Insurance. Lessee, at its expense, shall obtain and
maintain in effect as long as this Lease remains in effect and during such other
time as Lessee occupies the Premises or any part thereof insurance policies
providing at least the following coverage:
a. Comprehensive general liability insurance, including insurance
against assumed or contractual liability under this Lease, with respect to the
Premises, to afford protection with limits, per occurrence, of not less than One
Million Dollars ($1,000,000), combined single limit, with respect to personal
injury and death and property damage, such insurance to provide for no
deductible;
b. All-risk property and casualty insurance, including theft,
written at replacement cost value and with replacement cost endorsement,
covering all of Lessee's Personal Property in the Premises; and
c. If, and to the extent, required by law, worker's compensation
or similar insurance offering statutory coverage and containing statutory
limits. Employer's liability coverage of not less than One Hundred Thousand
Dollars ($100,000).
Such policies will be maintained in companies and in form reasonably
acceptable to Lessor and will be written as primary policy coverage and not
contributing with, or in excess of, any coverage which Lessor shall carry.
Lessee will deposit the policy or policies of such required insurance or
certificates thereof with Lessor prior to the Lease Commencement Date, which
policies shall name Lessor or its designee as additional named insured with
regard to Section 18.1a. and loss payee with regard to Section 18.1b. and shall
also contain a provision stating that such policy or policies shall not be
cancelled or materially altered except after thirty (30) days written notice to
Lessor. All such policies of insurance shall be effective as of the date Lessee
occupies the Premises and shall be maintained in force at all times during the
Term of this Lease and all other times during which Lessee shall occupy the
Premises. In addition to the foregoing insurance coverage, Lessee shall require
any contractor retained by it to perform work on the Premises to carry and
maintain, at no expense to Lessor, during such times as contractor is working in
the Premises, a non-deductive (i) comprehensive general liability insurance
policy, including, but not limited to, contractor's liability coverage,
contractual liability coverage, completed operations coverage, broad form
property damage endorsement, and contractor's protective liability coverage,
11
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to afford protection with limits per occurrence, of not less than One Million
Dollars ($1,000,000), combined single limit, with respect to personal injury and
death and property damage, such insurance to provide for no deductible, and (ii)
worker's compensation insurance or similar insurance in form and amounts as
required by law. In the event of damage to or destruction of the Premises and
the termination of this Lease by Lessor, Lessee agrees that it will pay Lessor
all of its insurance proceeds relating to Tenant Improvements and Alterations
made in the Premises by or on behalf of Lessee.
Lessor shall not be required to carry insurance of any kind on
Lessee's Improvements (other than those Improvements specified in Exhibit A by
Lessor), installed within the Premises by or on behalf of Lessee or any other
property of Lessee, and Lessor shall not be obligated to repair any damage
thereto or replace the same. Lessor is not responsible for any loss or damage
falling under Lessee's deductible.
18.2 Lessee's Failure to Insure. If Lessee shall fail to obtain
--------------------------
insurance as required under this Section 18, Lessor may, but shall not be
obligated to, obtain such insurance, and in such event, Lessee agrees to pay, as
Additional Rent, the premium for such insurance upon demand by Lessor.
18.3 Compliance with Policies. Lessee will not do or suffer to be
------------------------
done, or keep or suffer to be kept, anything in, upon or about the Premises
which will contravene Lessor's policies insuring against loss or damage by fire,
other casualty, or any other cause, including without limitation, public
liability, or which will prevent Lessor from procuring such policies in
companies acceptable to Lessor. If any act or failure to act by Lessee in and
about the Building and the Premises shall cause the rates with respect to
insurance policies required to be maintained by Lessor under this Section 18 or
under the provisions of leases with respect to any other tenants in the
Building, to be increased beyond those rates that would normally be applicable
for such coverages, Lessee will pay, as Additional Rent, the amount of any such
increases upon demand by Lessor.
19. WAIVER OF SUBROGATION. Lessor and Lessee do each herewith and
---------------------
hereby release and relieve the other from responsibility for, and waive their
entire claim of recovery for (i) any loss or damage to the real or personal
property either located anywhere in the Premises or the Building and including
the Building itself, arising out of or incident to the occurrence of any of the
perils which may be covered by the fire and lightning insurance policy, with
all-risk endorsement, in common use in the Seattle locality, or (ii) loss
resulting from business interruption at the Premises or loss of Rental income
from the Building, arising out of or incident to the occurrence of any of the
perils which may be covered by the business interruption insurance policy and by
the loss of rental income insurance policy in common use in the Seattle locality
whether the loss or damage is due to the negligence of either said parties,
their agents or employees, or any other cause. Each party shall obtain any
special endorsements, if required by their insurer, to evidence compliance with
the aforementioned waiver to the extent such waivers are reasonably available.
20. PERSONAL PROPERTY TAX. Lessee agrees to pay or cause to be paid,
---------------------
before delinquency, any and all taxes levied or assessed upon all equipment,
furniture, fixtures, and other personal property located in the Premises except
that which may be owned by Lessor.
21. RULES AND REGULATIONS. Lessee shall faithfully observe and
---------------------
comply with the rules and regulations printed on or annexed to this Lease and
all reasonable modifications of and additions thereto from time to time put into
effect by Lessor notice of which shall be given to Lessee. Lessor shall not be
responsible to Lessee for the nonperformance by any other tenant or occupant of
the Building of any of said rules and regulations.
22. HOLDING OVER. Lessee agrees to vacate the Premises at the end of
------------
the Term. If Lessee holds possession of the Premises after the Term of this
Lease, Lessee shall become a tenant from month to month upon the terms herein
specified but at a monthly rental equivalent to 125% of the then prevailing
Rental paid by Lessee at the expiration of the Term of this Lease pursuant to
all of the provisions of Sections 3 and 9 hereof, payable in advance on or
before the first day of each month, and Lessee shall continue in possession
until such tenancy shall be terminated by Lessor, or until Lessee shall have
given to Lessor a written notice of his intention to terminate at least one
month prior to the date of termination of such monthly tenancy.
23. ENTRY BY LESSOR. Lessor reserves and shall at any and all
---------------
reasonable times have the right to enter the Premises to inspect same, to supply
janitor service, and any other service to be provided by Lessor to Lessee
hereunder, to submit said Premises to prospective purchasers or
12
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tenants, to post notices of nonresponsibility, and to alter, improve, or repair
the Premises and any portion of the Building of which the Premises are a part,
without abatement of Rent, and may for that purpose erect scaffolding and other
necessary structures where reasonably required by the character of the work to
be performed, always providing the entrance to the Premises shall not be blocked
thereby, and further providing that the business of Lessee shall not be
interfered with unreasonably. Lessee hereby waives any claim for damages for any
injury or inconvenience to or interference with Lessee's business, any loss of
occupancy or quiet enjoyment of the Premises, and any other loss occasioned
thereby. For each of the aforesaid purposes, Lessor shall at all times have and
retain a key with which to unlock all of the doors in, upon, and about the
Premises, excluding Lessee's vaults and safes, and Lessor shall have the right
to use any and all means which Lessor may deem proper to open said doors in an
emergency, in order to obtain entry to the Premises, and any entry to the
Premises obtained by Lessor by any of said means, or otherwise, shall not under
any circumstances be construed or deemed to be a forcible or unlawful entry
into, or a detainer of, the Premises, or an eviction of Lessee from the Premises
or any portion thereof.
24. INSOLVENCY OR BANKRUPTCY. Either (a) the appointment of a
------------------------
receiver to take possession of all or substantially all of the assets of Lessee;
or (b) an assignment by Lessee for the benefit of creditors; or (c) any action
taken or suffered by Lessee under any insolvency, bankruptcy, or reorganization
act, shall constitute a breach of this Lease by Lessee. Upon the happening of
any such event, this Lease shall terminate five (5) days after written notice of
termination from Lessor to Lessee. In no event shall this Lease be assigned or
assignable by operation of law or by voluntary or involuntary bankruptcy
proceedings or otherwise and in no event shall this Lease or any rights or
privileges hereunder be an asset of Lessee under any bankruptcy, insolvent, or
reorganization proceedings.
If, despite the foregoing provisions of this Section 24, Lessee shall
voluntarily or involuntarily come under the jurisdiction of the Federal
Bankruptcy Code and thereafter Lessee or its trustee in bankruptcy, under the
authority of and pursuant to applicable provisions thereof, shall determine to
assign this Lease (and be so entitled to assign this Lease), Lessee agrees that
(i) Lessee or its trustee will provide to Lessor sufficient information enabling
it to independently determine whether Lessor will incur actual and substantial
detriment by reason of such assignment and (ii) "adequate assurance of future
performance" under this Lease, as that term is generally defined under the
Federal Bankruptcy Code, will be provided to Lessor by Lessee and its assignee
as a condition of said assignment.
25. DEFAULT. The occurrence of any one or more of the following
-------
events shall constitute a default and breach of this Lease by Lessee: (a) The
vacating or abandonment of the Premises by Lessee; (b) The failure by Lessee to
make any payment of Rent or any other payment required to be made by Lessee
hereunder, as and when due, where such failure shall continue for a period of
three (3) days after written notice thereof by Lessor to Lessee; (c) The
failure by Lessee to observe or perform any of the covenants, conditions, or
provisions of this Lease to be observed or performed by the Lessee, other than
described in (b) above, where such failure shall continue for a period of thirty
(30) days after written notice thereof by Lessor to Lessee; provided, however,
that if the nature of Lessee's default is such that more than thirty (30) days
are reasonably required for its cure, then Lessee shall not be deemed to be in
default if Lessee commences such cure within said thirty (30) day period and
thereafter diligently prosecutes such cure to completion.
26. REMEDIES IN DEFAULT. In the event of any Default or breach by
-------------------
Lessee, Lessor may at any time thereafter, with or without notice or demand and
without limiting Lessor in the exercise of a right or remedy which Lessor may
have by reason of such default or breach:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case Lessee shall immediately surrender possession of the
Premises to Lessor and Lessor may reenter and occupy the Premises. Reentry and
taking of possession pursuant to this paragraph shall not be construed as an
election to terminate the Lease unless a written notice of intention to so
terminate is provided to Lessee by Lessor. Upon such reentry, Lessor shall have
the right to relet all or any part of the Premises for any such term or terms
and conditions as Lessor in its sole discretion may deem advisable with the
right to complete construction of or make Alterations and repairs to the
Premises. Lessee shall pay to Lessor in the event of such reletting, as soon as
ascertained, the costs and expenses incurred by Lessor in such reletting,
completion of construction, or in making such Alterations and repairs. Rentals
received by Lessor from such reletting shall be applied: first to the payment
of any indebtedness, other than Rent, due hereunder from Lessee to Lessor,
including costs of renovation and Alteration of the Premises, reasonable
attorney fees, and
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<PAGE>
real state commissions paid; second, to the payment of Rent due and payable
hereunder and to any other payments required to be made by Lessee hereunder; and
the residue, if any, shall be held by Lessor in payment of future Rent or
damages as the same may become due and payable hereunder; and the balance, if
any, at the end of the Term of this Lease shall be paid to Lessee. Should such
Rentals received from time to time from such reletting during any month be a
lesser Rental than herein agreed to by Lessee, Lessee shall pay such deficiency
to Lessor. Lessee shall pay such deficiency each month as the amount thereof is
ascertained by Lessor.
(b) Lessor shall have the right, at Lessor's option, to suspend or
discontinue the services specified in Section 8 hereof, during the continuance
of any Default or breach and such suspension or discontinuance shall not be
deemed or construed to be an eviction or ejection of Lessee.
(c) Lessor shall also have the right upon Lessee's Default to
terminate this Lease by giving Lessee written notice thereof; to accelerate all
Rent payments due hereunder for the remaining Term hereof, or if any extension
option has been exercised, for the remainder of such option term; and to recover
from Lessee all damages incurred by Lessor by reason of Lessee's Default
including, but not limited to, the cost of recovering possession of the
Premises, expenses of reletting, including renovation and Alteration of the
Premises, reasonable attorney fees, any real estate commissions paid, all past
due Rent, and the worth at the time of the award by the court having
jurisdiction thereof of the amount by which the unpaid Rent for the balance of
the term, or if an extension option has been exercised, for the remainder of
such option term, exceeds the amount of such Rental for the same period that
Lessee proves could be reasonably avoided. Unpaid installments of Rent or other
sums shall bear interest from the date due at the rate of eighteen percent
(18%). In the event Lessee shall have abandoned the Premises, Lessor shall have
the option of (a) taking possession of the Premises and recovering from Lessee
the amounts specified in subparagraph (a) or (c) of this paragraph, or (b)
proceeding under the provisions of the following subparagraph (d).
(d) Maintain Lessee's right to possession, in which case this Lease
shall continue in effect whether or not Lessee shall have abandoned the
Premises. In such event, Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover Rent as it
becomes due hereunder.
(e) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the State of Washington in which state the
Premises are located.
27. LATE CHARGES. Lessee hereby acknowledges that late payment by
------------
Lessee to Lessor of Rent or other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of Rent or any sum due from Lessee shall not be
received by Lessor or Lessor's designee within three (3) days after the due
date, then Lessee shall pay to Lessor a late charge equal to the maximum amount
permitted by law (and in the absence of any governing law, five percent (5%) of
such overdue amount), plus any attorney fees incurred by Lessor by reason of
Lessee's failure to pay Rent and/or other charges when due hereunder. The
parties hereby agree that such late charges represent a fair and reasonable
estimate of the cost that Lessor will incur by reason of the late payment by
Lessee. Acceptance of such late charges by the Lessor shall in no event
constitute a waiver of Lessee's default with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder.
28. RECONSTRUCTION. In the event the Premises or the Building of
--------------
which the Premises are a part are destroyed or damaged by any casualty, Lessor
shall have the option to repair or replace the damaged or destroyed part or to
terminate this Lease by giving written notice of its election to terminate
within 30 days of such event. If Lessor does not terminate this Lease, Lessor
shall have a period of at least 180 days to complete the repair or replacement
of the damaged or destroyed part from the later of the date of the casualty or
the date of the completion of the insurance adjustment made in connection with
such casualty, and provided insurance proceeds are made available and are
permitted to be used for such purpose by the holder of the most senior mortgage
or deed of trust applicable to the real property in which the Premises are
located. If Lessor does not terminate, this Lease shall remain in full force
and effect, except that Lessee shall be entitled to a proportionate reduction of
Rent while such repairs are being made, such proportionate reduction to be based
upon the extent to which the Premises are rendered
14
<PAGE>
untenantable and making of such repairs shall interfere with the business
carried on by Lessee in the Premises.
Lessor shall not be required to repair any injury or damage by fire or
other cause, or to make any repairs or replacements of any panels, decoration,
office fixtures, ceiling, floor covering, partitions, or any other property
placed in the Premises by Lessee. Lessor shall not be liable for any loss due
to interruption of Lessee's business. Any proceeds which may become payable to
Lessor under any policies for fire or other casualty insurance applicable to the
Building in which the Premises are located may be applied by Lessor either to
repair any damage with respect to which such insurance proceeds become payable
or to reduce any outstanding indebtedness of Lessor which is secured by a
mortgage or deed of trust applicable to the real property in which the Premises
are located.
29. EMINENT DOMAIN. If all or any part of the Premises shall be
--------------
taken or appropriated by any public or quasi-public authority under the power of
eminent domain, Lessor shall have the right, at its option, to terminate this
Lease, and Lessor shall be entitled to any and all income, rent, award, or any
interest therein whatsoever which may be paid or made in connection with such
public use or purpose, and Lessee shall have no claim against Lessor for the
value of any unexpired term of this Lease. If a part of the Premises shall be
so taken or appropriated and Lessor shall not elect to terminate this Lease, the
rental thereafter to be paid shall be reduced proportionately based on the area
taken, and Lessor shall make, or cause to be made, such repairs and alterations
as may reasonably be necessary to restore any part of the Premises not taken to
useful condition, provided a sufficient portion of the condemnation award is
made available and permitted to be used for such purpose by the holder of the
most senior mortgage or deed of trust applicable to the real property in which
the Premises are located. If any part of the Building other than the Premises
shall be so taken or appropriated, Lessor shall have the right, at its option,
to terminate this Lease and shall be entitled to the entire award, as above
provided.
30. SUBORDINATION. This Lease is subject and subordinate to the
-------------
lien, operation, and effect of any sale/leaseback or lease/subleaseback
transaction, mortgage, or deed of trust to any bank, insurance company, or other
lending institution, now in force, and to any first mortgage or first deed of
trust hereafter in force, against the land and/or Building of which the Premises
are a part, and upon any buildings hereafter placed upon the land of which the
Premises are a part, and to all advances made or hereafter to be made upon the
security thereof. This Lease shall also be subject and subordinate to any
ground lease now or hereinafter in force and applicable to the real property on
or in which the Premises are located. If requested by Lessor, Lessee shall
promptly execute any certificate or other document confirming such
subordination.
If any person or party shall succeed to all or part of Lessor's
interest in the Premises, whether by purchase, foreclosure, deed in lieu of
foreclosure, power of sale, cancellation, or termination of Lease (including,
without limitation, ground lease) or otherwise, whether voluntary, involuntary,
or by operation of law, and if so requested or required by such successor in
interest, Lessee shall attorn fully and completely to such successor in interest
and shall recognize such successor in interest as Lessor under this Lease for
the balance of the term of this Lease upon the same terms and conditions
provided herein, and Lessee shall execute such agreement in confirmation of such
attornment as such successor in interest shall reasonably request.
Notwithstanding anything contained herein to the contrary, he holder
of any mortgage or deed of trust may at any time subordinate the lien of its
mortgage or deed of trust to the operation and effect of this Lease without
obtaining the Lessee's consent thereto, by giving the Lessee written notice
thereof, in which event this Lease shall be deemed to be senior to such mortgage
or deed of trust without regard to the respective dates of execution and/or
recordation of such mortgage or deed of trust and this Lease and thereafter such
holder of such mortgage or deed of trust shall have the same rights as to this
Lease as it would have had were this Lease executed and delivered before the
execution of such mortgage or deed of trust.
The provisions of this Article to the contrary notwithstanding, and so
long as Lessee is not in default hereunder, this Lease shall remain in full
force and effect for the full Term hereof.
31. SALE BY LESSOR. In the event of a sale or conveyance by Lessor
--------------
of the Building containing the Premises, the same shall operate to release
Lessor from any future liability upon any of the covenants or conditions,
expressed or implied, herein contained in favor of Lessee, and in such event
Lessee agrees to look solely to the responsibility of the successor in the
interest of
15
<PAGE>
Lessor in and to this Lease. This Lease shall not be affected by any such sale,
and Lessee agrees to attorn to the purchaser or assignee.
32. ATTORNEY FEES. In the event of any action or proceeding brought
-------------
by either party against the other under this Lease, the prevailing party shall
be entitled to recover its costs of suit and the fees of its attorneys in such
action or proceeding in such amount as the Court may adjudge reasonable.
33. SURRENDER OF PREMISES. The voluntary or other surrender of this
---------------------
Lease by Lessee, or a mutual cancellation thereof, shall not work a merger, and
shall, at the option of the Lessor, terminate all or any existing subleases or
subtenancies, or may, at the option of the Lessor, operate as an assignment to
it of any or all such subleases or subtenancies.
34. WAIVER. The waiver by Lessor of any term, covenant, or condition
------
herein contained shall not be deemed to be a waiver of such term, covenant, or
condition or any subsequent breach of the same or any other term, covenant, or
condition herein contained. The subsequent acceptance of Rent hereunder by
Lessor shall not be deemed to be a waiver of any preceding breach by Lessee of
any term, covenant, or condition of this Lease, other than the failure of Lessee
to pay the particular Rental so accepted, regardless of Lessor's knowledge of
such preceding breach at the time of acceptance of such Rent.
35. NOTICE. All notices and demands which may or are required to be
------
given by either party to the other hereunder shall be in writing and shall be
deemed to be given two (2) days after the mailing date. All notices and demands
by the Lessor to the Lessee shall be sent by United States certified or
registered mail, postage prepaid, addressed to the Lessee at the Premises, or to
such place as the Lessee may from time to time designate in a notice to the
Lessor. All notices and demands by the Lessee to the Lessor shall be sent by
United States certified or registered mail, postage prepaid, addressed to the
Lessor at the address specified in Section 1(i), or to such other person or
place as the Lessor may from time to time designate in a notice to the Lessee.
In the event of a default for which Lessee is specifically given the right to
terminate this Lease, Lessee shall not exercise such right until it shall have
given notice by certified or registered mail to the holder of any first lien on
the demised Premises and shall have offered such lienholder a reasonable
opportunity to cure such default, including time to get possession of the
Premises by an expeditious foreclosure or trustee's sale if this should be
necessary to effect a cure.
36. DEFINED TERMS. The words "Lessor" and "Lessee" as used herein
-------------
shall include the plural as well as the singular. Words used in masculine
gender include the feminine and neuter. If there be more than one Lessee, the
obligations hereunder imposed upon Lessee shall be joint and several.
37. TIME. Time is of the essence of this Lease and each and all of
----
its provisions.
38. SUCCESSORS AND ASSIGNS. The covenants, terms, and conditions
----------------------
herein contained shall, subject to the provisions as to assignment, apply to and
bind the heirs, successors, executors, administrators, and assigns of the
parties hereto.
39. SEPARABILITY. Any provision of this Lease which shall prove to
------------
be invalid, void, or illegal shall in no way affect, impair, or invalidate any
other provision hereof and such other provision shall remain in full force and
effect.
40. LENDER PROVISIONS. Lessee agrees to make reasonable
-----------------
modifications of the Lease provisions as may be requested by lenders with a
security interest in the property, provided such modifications do not materially
alter the business terms of the Lease.
41. ESTOPPEL CERTIFICATE. Lessee shall, without charge, at any time
--------------------
and from time-to-time, within ten (10) days after receipt of request therefor by
Lessor, execute, acknowledge, and deliver to Lessor a written estoppel
certificate, in such form as may be determined by Lessor, certifying to Lessor,
the holder(s) of any mortgage(s) or deed(s) of trust designated by Lessor, any
purchaser of Lessor's interest in the Building, or any other person designated
by Lessor, as of the date of such estoppel certificate, the following: (i)
whether Lessee is in possession of the Premises; (ii) whether this Lease is in
full force and effect; (iii) whether there have been any amendments to this
Lease, and if so, specifying such amendments; (iv) whether there are then
existing any set-offs or defenses against the enforcement of any rights
hereunder, and if so, specifying such matters in
16
<PAGE>
detail; (v) the dates, if any, to which any rent or other charges have been paid
in advance and the amount of any Security Deposit held by Lessor; (vi) that
Lessee has no knowledge of any then existing defaults of Lessor under this
Lease, or if there are such defaults, specifying them in detail; (vii) that
Lessee has no knowledge of any event having occurred that authorizes the
termination of the Lease by Lessee, or if such event has occurred, specifying it
in detail; and (viii) the address to which notices to Lessee under this Lease
should be sent. Any such certificate may be relied upon by the person or entity
to whom it is directed or by any other person or entity who could reasonably be
expected to rely on it in the normal course of business.
42. COVENANT OF QUIET ENJOYMENT. Lessee, if and so long as it pays
---------------------------
all rents due hereunder, performs and observes the other terms and covenants to
be performed and kept by it as provided in this Lease, shall have the peaceable
and quiet possession of the Premises during the term free of any claims of
Lessor or anyone lawfully claiming by, through or under Lessor, subject,
however, to matters of public record existing as of the date of this Lease or to
which this Lease may be subordinated and to the terms of this Lease. This
covenant shall be construed as a covenant running with the land and shall not be
construed as a personal covenant or obligation of Lessor, except to the extent
of Landlord's interest in this Lease.
43. BROKERS. Lessee warrants that it has had no dealings with any
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real estate broker or agents in connection with the negotiation of this Lease
excepting only CB Commercial Real Estate, Inc. and it knows of no other real
estate broker or agent who is entitled to a commission in connection with this
Lease.
44. HAZARDOUS SUBSTANCES. Lessee shall not cause or permit any
--------------------
Hazardous Substances, as defined below, to be brought upon, kept, or used in or
about the Premises, the Building, or the Land by Lessee, its agents, employees,
contractors, or invitees, unless such Hazardous Substances are necessary for
Lessee's business (and such business is a Permitted Use) and will be used, kept,
and stored in a manner that complies with this Lease and all laws regulating any
such Hazardous Substances, provided that Lessee first obtains the written
consent of Lessor and provided further that Lessee indemnifies Lessor from and
against any and all liability with respect to such Hazardous Substances as more
particularly described below. If Lessee breaches the covenants and obligations
set forth herein, or if the present of Hazardous Substances on, in, or about the
Premises or any part of the Building or Land caused or permitted by Lessee, its
agents, employees, contractors, or invitees, results in contamination of the
Premises or any part of the Building or Land, or if contamination of the
Premises or any part of the Building or Land by Hazardous Substances otherwise
occurs for which Lessee is legally liable to Lessor, then Lessee shall indemnify
and hold Lessor harmless from and against any and all claims, judgments,
damages, penalties, fines, costs, liabilities, and losses (including, without
limitation, diminution in the value of the Premises, the Building, or Land,
damages for the loss or restriction on use of rentable or usable space or of any
amenity of the Premises or any part of the Building or Land, and sums paid in
settlement of claims, attorneys' fees, consultant fees, and expert fees) which
arise during or after the Lease Term as a result of such contamination. This
indemnification by Lessee of Lessor includes without limitation any and all
costs incurred in connection with any investigation of site conditions and any
cleanup, remedial, removal, or restoration work required by any federal, state,
or local governmental agency or political subdivision because of the presence of
such Hazardous Substances in or about the Premises, the Building, or Land or the
soil or ground water on or under the Building or the surface of the Land. The
provisions of this section shall survive the termination of this Lease. For
purposes of this section, the term "Hazardous Substances" shall be interpreted
broadly to include but not be limited to substances designated as hazardous
under the Resource Conservation and Recovery Act, 42 U.S.C. 6901, et seq., the
Federal Water Pollution Control Act, 33 U.S.C. 1257, et seq., the Clean Air Act,
42 U.S.C. 2001, et seq., or the Comprehensive Environmental Response
Compensation and Liability Act of 1980, 42 U.S.C. 9601, et seq., and the term
shall also be interpreted to include but not be limited to any substance which
after release into the environment and upon exposure, ingestion, inhalation, or
assimilation, either directly from the environment or indirectly by ingestion
through food chains, will or may reasonably be anticipated to cause death,
disease, behavior abnormalities, cancer, and/or genetic abnormalities.
45. SPECIAL PROVISIONS. Special provisions of this Lease numbered 1
-
through 25 are attached hereto and made a part hereof.
---
If none, so state in the following space ________________.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease as of
the day and year first above written.
17
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease as of
the day and year first above written.
LESSOR: LESSEE:
WESTLAKE CENTER ASSOCIATES SYMBOLOGIC CORPORATION
LIMITED PARTNERSHIP
By: /s/ Duke S. Kassolis By: /s/ Steven L. Sperry
_____________________________ __________________________
Duke S. Kassolis
Its: Senior Vice President Its: President & CEO
____________________________ _________________________
18
<PAGE>
ACKNOWLEDGMENT OF LESSOR
STATE OF Maryland )
__________ ) ss.
COUNTY OF Howard )
---------
On this 28th day of July, 1995, before me, the undersigned,
---- ----- --
a Notary Public in and for the State of Maryland, duly commissioned and sworn,
---------
personally appeared Duke S. Kassolis, to me known to be the Sr. Vice President,
---------------- ------------------
that executed the within and foregoing instrument, and acknowledged said
instrument to be the free and voluntary act and deed of said partnership, for
the uses and purposes therein mentioned and on oath stated that he/she was
authorized to execute said instrument.
WITNESS my hand and official seal hereto affixed the day and year in
this certificate above written.
Maxine P. Davis
______________________
Notary Public in and for the State
of Maryland residing at Ellicitt City,
--------- --------------
My commission expires June 8, 1996.
_____________
ACKNOWLEDGMENT OF LESSEE
(Corporate)
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this 12th day of July, 1995, before me personally appeared
---- ----- --
Steven L. Sperry and N/A to me
_________________________________ ___________________________
known to be the President and N/A ,
_______________________ ______________________________
respectively, of the corporation that executed the within and foregoing lease,
and acknowledged the said instrument to be the free and voluntary act and deed
of said corporation, for the uses and purposes therein mentioned, and on oath
stated that they were authorized to execute said instrument and that the seal
affixed is the corporate seal of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year first above written.
Lamina Webster
______________________
Notary Public in and for the State
of Wa residing at King Co.
___ ________
My commission expires 12/9/98.
________
(Individual)
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this day personally appeared before me Steven L. Sperry, to me
_________________
known to be the individual described in and who executed the foregoing lease,
and acknowledged that he signed the same as his free and voluntary act and deed,
for the uses and purposes therein mentioned.
GIVEN under my hand and official seal this 12th day of July, 1995 .
---- ----- --
Lamina Webster
___________________
Notary Public in and for the State
of Wa residing at King Co.
--- --------
My commission expires 12/9/98.
-------
19
<PAGE>
ATTACHMENT I
RULES AND REGULATIONS ATTACHED TO
AND MADE A PART OF THIS LEASE
1. No advertisement, sign, lettering, notice, or device shall be
placed in or upon Premises including windows, walls, and exterior doors except
such as may be approved in writing by Lessor.
2. Lettering upon the directory board and the doors as required by
Lessee shall be made by the sign company designated by Lessor.
3. No additional locks shall be placed upon any doors of Premises, and
Lessee agrees not to have any duplicate keys made without the consent of Lessor.
If more than two keys for any lock are desired, such additional keys shall be
paid for by Lessee. Upon termination of this Lease, Lessee shall surrender all
keys.
4. No major deliveries of furniture, freight, supplies not carried by
hand, or equipment of any kind shall be brought into or removed from Building
without the consent of Lessor. Lessor shall have the right to limit the weight
and size and to designate the position of all safes and other heavy property
brought into the Building. Such furniture, freight, equipment, safes, and other
heavy property shall be moved in or out of Building only at the times and in the
manner permitted by Lessor. Lessor will not be responsible for loss of or
damage to any of the items above referred to, and all damage done to Premises or
Building by moving or maintaining any of such items shall be repaired at the
expense of Lessee. Any merchandise not capable of being carried by hand shall
utilize hand trucks equipped with rubber tires and rubber side guards.
5. The entrances, corridors, stairways, and elevators shall not be
obstructed by Lessee, or used for any other purpose than ingress or egress to
and from Premises. Lessee shall not bring into or keep any animal within
Building, or any bicycle or other type of vehicle.
6. Lessee will not use or permit to be used in said Premises anything
that will increase the rate of insurance on said Building or any part thereof,
nor anything that may be dangerous to life or limb; nor in any manner deface or
injure said Building or any part thereof; nor overload any floor or part
thereof; nor permit any objectionable noise or odor to escape or to be emitted
from said Premises, or do anything or permit anything to be done upon said
Premises in any way tending to create a nuisance or to disturb any other tenant
or occupant of any part of said Building; and Lessee, at Lessee's expense, will
comply with all health, fire, and police regulations respecting said Premises.
7. Lessee shall not mark, drive nails, screw, or drill into woodwork
or plaster, or paint or in any way deface Building or any part thereof, or
Premises or any part thereof, or fixtures therein, without written consent of
Lessor. The expense of remedying any breakage, damage, or stoppage resulting
from a violation of this rule shall be borne by Lessee, except as permitted per
Exhibit A.
8. Canvassing, soliciting, and peddling in Building are prohibited and
each Lessee shall cooperate to prevent such activity.
9. The requirements of tenants will be attended to only upon
application at the main office of the Lessor. Lessor's employees shall not
perform any work or do anything outside of their regular duties, except on
issuance of special instructions from Lessor. If Lessor's employees are made
available for the assistance of any tenants, Lessor shall be paid for their
services by such tenants at reasonable hourly rates.
10. Lessor reserves the right to close and keep locked all entrance
and exit doors of the Building on Sundays and legal holidays and between the
hours of 6:00 p.m. of any day and 7:00 a.m. of the following day and during such
further hours as Lessor may deem advisable for the adequate protection of
Building and the property of the tenants.
20
<PAGE>
11. Lessor shall at its cost and expense, operate the air
conditioning system from 7:00 a.m. until 6:00 p.m. on business days, except on
Saturdays, when the hours shall be from 7:00 a.m. until 1:00 p.m.
12. Lessee shall exercise care and caution to insure that all water
faucets or water apparatus and electricity are carefully and entirely shut off
before Lessee or its employees leave Building, so as to prevent waste or damage.
Lessee shall be responsible for any damage to Premises or Building and for all
damage or injuries sustained by other tenants or occupants of Building arising
from Lessee's failure to observe this provision.
13. The toilet rooms, urinals, wash bowls, and other apparatus shall
not be used for any purpose other than that for which they were constructed and
no foreign substance of any kind whatsoever shall be thrown therein and the
expense of any breakage, stoppage, or damage resulting from the violation of
this rule shall be borne by the Lessee who, or whose employees or invitees,
shall have caused it.
14. Lessee shall not employ any person or persons other than the
janitor of Lessor for the purpose of cleaning the Premises unless otherwise
agreed to by Lessor. Except with the written consent of Lessor, no person or
persons other than those approved by Lessor shall be permitted to enter the
Building for the purpose of cleaning the same. Lessee shall not cause any
unnecessary labor by reason of Lessee's carelessness or indifference in the
preservation of good order and cleanliness. Lessor shall in nowise be
responsible to any Lessee for any loss of property on the Premises, however
occurring, or for any damage done to the effects of any Lessee by the janitor or
any other employee or any other person, except for loss or damage due to any
willful or negligent act of Lessor, its agent, employees, or contractors.
Janitor service shall include ordinary dusting and cleaning by the janitor
assigned to such work and shall not include cleaning of carpets or rugs, except
normal vacuuming, or moving of furniture or other special services.
15. Lessee shall not use, keep or permit to be used or kept any foul
or noxious gas or substance in the Premises, or permit or suffer the Premises to
be occupied or used in a manner offensive or objectionable to the Lessor or
other occupants of the Building by reason of noise, odors, and/or vibrations, or
interfere in any way with other Lessees or those having business therein, nor
shall any animals or birds be brought in or kept in or about the Premises or the
Building.
16. Lessee shall not use or keep in the Premises or the Building any
kerosene, gasoline, or inflammable or combustible fluid or material, or use any
method of heating or air conditioning other than that supplied by Lessor.
17. Lessor will direct electricians as to where and how telephone and
electrical wires are to be introduced. No boring or cutting for wires will be
allowed without the consent of Lessor. The location of telephones, call boxes,
and other office equipment affixed to the Premises shall be subject to the
approval of Lessor provided said approval shall not be unreasonably withheld.
18. Each Lessee, upon the termination of the tenancy, shall deliver
to the Lessor the keys of offices and rooms which shall have been furnished the
Lessee or which the Lessee shall have had made, and in the event of loss of any
keys so furnished, shall pay the Lessor therefor.
19. No furniture, packages, supplies, equipment, or merchandise will
be received in the Building or carried up or down in the elevators, except
between such hours and in such elevators as shall be designated by the Lessor.
20. On Saturdays, Sundays, and legal holidays, and on other days
between the hours of 6:00 p.m. and 7:00 a.m. the following day, access to the
Building, or to the halls, corridors, elevators, or stairways in the Building,
or to the Premises may be refused unless the person seeking access is known to
the person or employee of the Building in charge and he has a pass or is
properly identified. The Lessor shall in no case be liable for damages for any
error with regard to the admission to or exclusion from the Building of any
person. In case of invasion, mob, riot, public excitement, or other commotion,
the Lessor reserves the right to prevent access to the Building during the
continuance of the same by closing the doors or otherwise, for the safety of the
Lessees and protection of property in the Building and the Building.
21
<PAGE>
21. The number and location of vending machine or machines of any
description maintained or operated upon the Premises must be approved by Lessor.
22. The word "Building" as used herein means that Building of which
the premises are a part.
23. Chair floor pads must be used under all chairs with rollers or
casters.
24. Lessor reserves the right to make such other and further
regulations as in its judgment may from time to time be needed or desirable for
the safety, care and cleanliness of Premises or Building and the preservation of
good order therein.
22
<PAGE>
ATTACHMENT II
SPECIAL PROVISIONS
1. Early Occupancy
---------------
Lessee shall be entitled to occupy the premises one month early (on October 1,
1995) without rental charge for the month of October 1995. Said occupancy
during this month of early occupancy shall be per all the terms of this lease
except for the payment of rent.
2. Monthly Rent
------------
The following Monthly Rent shall be payable during the Lease Term based upon the
following scheduled occupancy of net rentable area*:
<TABLE>
<CAPTION>
Period Net Rentable Area* Basic Annual Rate Rent Basic Monthly
- ------ ------------------ ----------------------- ------------
<S> <C> <C> <C>
11/1/95 - 01/31/96 14,000 SF $16.25 $18,958.33
02/1/96 - 06/30/96 16,660 SF $16.25 $22,560.42
07/1/96 - 08/31/96 19,336 SF $16.25 $26,184.17
09/1/96 - 10/31/96 22,036 SF $16.25 $29,840.42
11/1/96 - 10/31/97 24,725 SF $16.25 $33,481.77
11/1/97 - 10/31/98 24,725 SF $17.25 $35,542.19
11/1/98 - 10/31/00 24,725 SF $18.25 $37,602.60
</TABLE>
*Nothwithstanding the schedule above, Lessee shall be responsible for rent on
any space occupied within the Premises which is occupied ahead of schedule. In
other words, Lessee shall be responsible for monthly rent payments on space
occupied within the Premises on the earlier of (i) the date shown in the
schedule above or (ii) the date space is occupied. Occupied space shall be the
net rentable area, including circulation space internal to the premises, that is
being utilized by Lessee's employees, agents, contractors, subtenants and the
like including the use of furniture, fixtures, files, storage, and other
beneficial uses of the Premises.
3. Lease Renewal Options
---------------------
So long as Lessee is not in default under the terms of this lease and provided
that Lessee is occupying one full floor, Lessee shall have the option to extend
the lease for one (1) renewal period of five (5) years. Lessee shall exercise
its options by providing six (6) months written notice to Lessor prior to the
end of the preceding Lease Term. The rent during the renewal term shall be equal
to ninety-five percent (95%) of the market rent for similar space in comparable
buildings within the Seattle Central Business District ("CBD").
4. Expansion Option/Right of First Offer
-------------------------------------
For so long as Lessee is not in default of the Lease and subject to the pre-
existing rights of Lessor's existing tenants, Lessee shall have:
(a) The option to lease all vacant space located upon the eighteenth (18th) and
twentieth (20th) floors, as said space becomes available, upon terms and
conditions identical to those applicable to Lessee's existing space
(including provisions relating to tenant improvements and design
reimbursement). With respect to expansion space taken under this provision
(a), the following shall apply:
1
<PAGE>
(i) Lessor shall notify Lessee as vacant space becomes available and
Lessee shall have ten (10) days within which to exercise its
option to Lease the space on the date it becomes available,
(ii) Lessor shall not be responsible to lease space to Lessee for any
term less than two (2) years,
(iii) Lessor shall not be responsible for any tenant improvements for
any term less than three (3) years, provided however, that
should Lessee exercise its option to renew per Special Provision
#3 above, the improvements that would have been provided by
Lessor if the term of the expansion space was greater than three
(3) years will be reimbursed by Lessor upon said renewal,
(iv) Any space taken after the 26th month of the initial term shall
be at market rental rates as defined in above;
(b) If option (a) above is not exercised, Lessee shall have the right of first
offer to lease the space on the eighteenth (18th) or twentieth (20th)
floors of the building. Lessor will provide Lessee with a schedule of
existing lease terms (including option rights) for tenants currently
occupying space on the floors subject to Lessee's option and right of first
offer. In the event that Lessor desires to make a written offer (the
"Offer") to a third party to lease the option space, Lessor shall first
present the Offer to Lessee and give Lessee ten (10) business days within
which to determine whether Lessee will accept the Offer. If Lessee gives
Lessor written notice within such ten (10) day period that Lessee intends
to accept the Offer, then Lessee shall be bound to enter into a written
Lease Agreement in accordance with the terms of the Offer. If Lessee does
not give Lessor such written notice within the ten (10) day period, then
Lessor shall be free to close the transaction with another party on
substantially the same terms as the Offer and Lessee's right of first
offer, with respect to the expansion space delineated in such Offer, shall
terminate and be of no further force or effect.
5. Early Termination
-----------------
Lessee shall have the option of terminating this Lease effective at any time
after the 36th month of the Lease Term. Lessee will provide Lessor at least 180
days written notice of its election to terminate. The written notice will
specify the reason for Lessee's termination. Upon vacating the Premises, lessee
shall pay Lessor a cash termination penalty equal to the uanmortized costs of
tenant improvements, leasing commissions, moving allowances, and architectural
fees (based on a 60-month straight-line amortization) plus:
An amount equal to three (3) months' rent if the termination occurs
between the 36th and the 42nd month of the Lease term;
An amount equal to two (2) months' rent if the termination occurs
between the 42nd and 48th month of the Lease term; and
An amount equal to one (1) months' rent if the termination occurs
after the commencement of the 48th month of the Lease term.
The intent of this early termination agreement is to allow Lessee flexibility if
it should have to downsize its operation as a result of a material loss in its
sales or should it need additional space as a result of increased sales.
Therefore, this early termination option may only be exercised for one or all of
the following reasons:
2
<PAGE>
1. Reduction in the size of the existing space is not approved.
Prior to any termination, Lessor shall be given the option to reduce
Lessee's space and keep Lessee as a tenant within a smaller premises.
Within thirty (30) days after providing the termination notice described
above, Lessor shall have the option to decide to reduce Lessee to the size
so stated by Lessee. If Lessor elects to reduce the size of Lessee's space,
then the termination payments due by Lessee to Lessor as outlined above
shall be prorated on the amount of space reduced (i.e. if ten percent (10%)
of the spaces is given up, the amount of the payment will be 10% of the
total amount of the payment that would have been paid if the entire lease
had been terminated). If Lessor does not exercise its option for the
contraction of space, then Lessee may terminate as described above in this
Section. Lessor will provide written notice of its election with the thirty
(30) day time period.
2. Cessation of business by Lessee.
3. Expansion space is not available.
If Lessee's termination notice specifies that Lessee requires at least a
twenty-five percent (25%) increase in its space and Lessor cannot
accommodate this growth in reasonable units of space in the building within
six (6) months of said notice. Any space provided to Lessee by Lessor must
be within the same elevator bank as the existing premises. Lessor will
notify Lessee in writing within sixty (60) days after the receipt of
Lessee's termination notice of Lessor's ability to fulfill Lessee's
additional space requirements.
Both Lessor and Lessee agree that the early termination option is not to be used
to facilitate the move of Lessee from Westlake Center to another building in the
Seattle-Bellevue Metropolitan area prior to the end of the initial Lease Term as
stated above.
6. Parking
-------
Lessee shall have the option to enter into parking contracts for up to twelve
(12) automobiles in the building's underground parking facility based upon its
initial occupancy of 14,000 square feet. Additional parking may be taken with
the stepped absorption of space on the ration of one (1) space for each 1,200
square feet taken. Should Lessee not elect to enter into their allotted parking
contracts within thirty (30) days of occupancy or should Lessee cancel parking
contracts during the term of the Lease, then the contracts shall revert back to
Lessor for Lessor's use, and thereafter Lessee may have the right to pick the
spaces back up with sixty (60) days written notice.
7. Relocation Costs
----------------
Lessor shall reimburse Lessee for the actual costs of relocation of furniture,
equipment, and files up to $1.00 per square foot of total committed space
(24,725 SF). Lessee will coordinate bids from responsible firms to select a bid
for relocation with review and approval by Lessor.
8. Working/Construction Drawings
-----------------------------
Lessor shall pay Marvin Stein & Associates for the actual costs of all working
drawings required for completion of quality tenant space.
3
<PAGE>
9. Acceptance of Premises
----------------------
Section 4, Acceptance of Premises, is hereby amended by adding the
following sentence to the end of the Section:
"Any work undertaken by Lessor pursuant to this Paragraph 4 will be
performed in a manner which minimizes any disruption to Lessee's
business."
10. Possession
----------
Section 5, Possession, is hereby amended by deleting "at the
commencement of the Lease Term" in Line 1 and substituting "on or
before the Commencement Date."
Section 5, Possession, is hereby further amended by the addition of
the following sentence at the end of the Section:
"If Lessee has provided information required in Exhibit B on a timely
basis and the Premises are not ready for occupancy by February 1,
1996, Lessee may terminate this Lease by providing written notice of
termination to the Lessor."
11. Use
---
Section 7, Use, is hereby amended by deleting the second sentence in
its entirety and replacing it with the following:
"If Lessee does, or permits to be done, anything in or about the
Premises which Lessor reasonably believes will increase the existing
rate of, or otherwise affect, any fire or other insurance maintained
by Lessor on the Building or any of its contents, or cause a
cancellation of any insurance policy covering the Building or any part
thereof or any of its contents, Lessee shall cease such activity after
receiving written notice thereof from Lessor."
12. Services and Utilities
----------------------
Section 8(b), Services and Utilities, is hereby amended to add the
following paragraph to the end of the subsection:
"If Lessee is unable to conduct its business operations with the
Premises due to an interruption of utility services which continues
for seventy two (72) hours, then Rent shall be abated for each day
thereafter until utility service is restored."
13. Rental Adjustments, Operating Costs
-----------------------------------
Section 9.(a) (2), Rental Adjustments, Operating Costs, is hereby
amended by adding the following to the end of the subsection:
"business and occupation taxes levied by the State of Washington or
any excise taxes due as a result of the sale or transfer of Lessor's
interest in the Building."
4
<PAGE>
14. Rental Adjustments, Operating Costs
-----------------------------------
Section 9.(a)(4), Rental Adjustments, Operating Costs, is hereby
amended by adding the following exclusions to the subsection:
(i) brokerage commissions, (ii) attorneys fees incurred in the
negotiation or enforcement of tenant leases, financing or refinancing
the Building, or representation of Lessor in any sale transaction; or
(iii) costs incurred in any financing or refinancing of the Building.
15. Compliance with Law
-------------------
Section 10, Compliance with Law, is hereby amended by adding the
following paragraph to the end of the Section:
"Nothing in the Paragraph 10 shall be construed or interpreted to
require Lessee to make any capital improvements to the Building or the
Premises."
16. Abandonment
-----------
Section 14, Abandonment, is hereby amended by deleting "vacate or" in
Line 1 and "vacate" in Line 2.
17. Waiver of Subrogation
---------------------
Section 19, Waiver of Subrogation, is hereby amended by deleting "to
the extent such waivers are reasonably available" from the last line
and substituting the following at the end of the Section:
"and supply copies of these endorsements to the other party. If such
waivers are not reasonably available, the party unable to obtain such
waiver shall immediately notify the other party and in this case, the
waiver set forth in the first sentence of this Paragraph 19 shall be
of no force or effect with respect to either party."
18. Entry by Lessor
---------------
Section 23, Entry by Lessor, is hereby amended by deleting "thereby"
at the end of the second sentence and replacing it with the following
at the end of the Section:
"as a result of Lessor exercising its rights under this Paragraph 23."
19. Reconstruction
--------------
Section 28, Reconstruction, is hereby amended by deleting "180 days"
in Line 5 and substituting "120 days".
20. Subordination
-------------
Section 30, Subordination, is hereby amended by adding the following
to the end of the Section:
"so long as Lessee is not in default under the terms of this Lease,
Lessor's mortgagee will not disturb the peaceful occupancy of the
Lessee following any foreclosure."
5
<PAGE>
21. Sale By Lessor
--------------
Section 31, Sale By Lessor, is hereby amended by adding the following
paragraph to the end of the Section:
"Lessee may continue to look to Lessor for responsibility under this
Lease to the extent Lessor's assignee does not agree in writing to
assume all of the obligations of Lessor under this Lease, including,
without limitation, the obligation to account for and refund to Lessee
the Security Deposit."
22. Default
-------
Section 25, Default, is hereby amended by deleting "vacating or" in
Line 2 and further amended by adding "business" after "three (3)" and
before "days" in Line 5.
23. Brokers
-------
Section 43, Brokers, is hereby amended by adding the following
sentence to the end of the Section:
"Lessor shall pay the commission due CB Commercial Real Estate in
accordance with the terms of a separate agreement with the broker."
24. Rental Adjustments, Operating Costs
-----------------------------------
Section 9(g), Rental Adjustments, Operating Costs, is hereby amended
by deleting the paragraph and substituting the following:
"In the event the average occupancy level of the building for any
Lease Year which is the Base Year was or is not ninety percent (90%)
of full occupancy, then for purposes of calculating the Base Amount
the Actual Operating Costs for Base Year shall be proportionately
adjusted by Lessor to reflect those costs which would have occurred
had the Building been ninety percent (90%) occupied during such year."
25. Building Conference Room
------------------------
"Lessee will be allowed twenty-four (24) hours of use each year of the
Building conference room at no additional charge."
6
<PAGE>
Exhibit A
Tenant Improvements
Lessor shall provide completion of tenant improvements for the eighteenth and
nineteenth floor per space plans dated approximately June 5, 1995 as prepared by
Marvin Stein & Associates, and attached as Exhibit C. The following outline
specifications shall also govern the improvements to be furnished by Lessor.
Where conflicts exist between the drawings and these specifications, the
information on the drawings shall have precedence except where the language in
these specifications specifically references and alters specific information on
the drawings.
Upon request from Lessee, Lessor shall provide Lessee copies of all invoices and
supporting documents relating to the cost of constructing the tenant
improvements. Lessee shall have the right to audit these costs at Lessee's sole
cost and expense. All costs will be supported by competitive bids for the work
performed and materials installed.
As used on the drawings, the word "tenant" shall refer to Lessee and the word
"contractor" shall refer to Lessor.
1. Partitions
----------
Modify existing partitions per space plan including the executive
offices on the Nineteenth Floor and the entry area on the Eighteenth
Floor. Demolish existing partitions at interior spaces. Repaint all
walls, color to be selected by Lessee from building standard samples.
2. Doors
-----
Remove all dark stained doors, frames and relites and replace them
with light stained doors, frames and relites similar to those existing
on the Eighteenth Floor. Restain all remaining existing doors, frames
and relites to match the sample door on the Nineteenth Floor.
3. Ceiling
-------
Damaged, stained or broken ceiling tiles shall be replaced. Relocate
as required, as a result of partition modification, sprinkler heads,
HVAC diffusers, and lighting fixtures.
4. Electrical Distribution and Data Cabling
----------------------------------------
Relocate existing electrical outlets and add new outlets as needed as
a result of partition modifications. Run telephone and data cabling
from a central point on the floors to the outlets located at offices
and workstations. Lessor shall provide a maximum of 140 runs of
Category 5 cable with 8 twisted pairs of wire each.
5. HVAC
----
Air balance HVAC system in the Premises.
6. Window Coverings
----------------
Provide building standard mini blinds in the conference rooms and the
CEO's office.
1
<PAGE>
7. Floor Coverings
---------------
Remove wood flooring and wood base. Re-carpet Premises with building
standard carpet as manufactured by Stratton "Catalina". Color to be
selected from building standard samples from the Stratton "Catalina"
line, a 30 oz. face weight material. Carpet shall be laid over
standard commercial pads per industry standards. Raised flooring shall
remain in the computer room.
8. Cabinetry
---------
Repair all damaged laminate finishes on existing cabinetry. Restain
shelving and cabinetry in the project room to match the doors.
9. Walls and Wallcovering
----------------------
Remove wallcovering in elevator lobby, reception area and conference
room except wood veneer wallcovering. Paint walls in building standard
color to be selected by Lessee. Skim coat wood veneer wallcovering and
paint in building standard color to be selected by Lessee. (Walls
shall be suitable for hanging art.) Lessor, Lessee and Marvin Stein &
Associates will mutually approve final plans for wall texture.
10. Wall Base
---------
Remove all wood base and replace it with rubber base selected by
Lessee from Lessor's building standard samples.
11. Countertop/Reception Desk
-------------------------
Remove stone countertop at reception desk and replace with building
standard plastic laminate. Color to be mutually selected. Remove
fabric wrap and provide painted verticle surfaces. Or, at Lessee's
option, Lessee may receive a $1,500.00 credit toward a new or upgraded
desk.
12. Conference Room Requirements
----------------------------
Remove built-in banquette seating and cabinetry in the conference room
and replace cabinet with simple presentation wall.
13. Appliances
----------
Provide building standard refrigerator and dishwasher in the lunchroom
on each floor.
14. Miscellaneous
-------------
Lessor to install key pads for access in each of the two stairwells
between the Eighteenth and Nineteenth Floors.
15. Exclusions
----------
Excluded from Lessor's work are all items not specifically included in
Items #1 through #14 above. Included in this exclusion are trade
fixtures, appliances, extra plumbing, extra cabinetry, furniture,
movable furniture partitions, storage shelving, installing telephone
handsets, fine finish items such as wall coverings, etc., and similar
items not specifically called out in these specifications or in
Exhibit C.
2
<PAGE>
Exhibit B
Lessee's Plan Requirements
The Commencement Date for the Lease and the special provision for early
occupancy (Special Provision # 1) are based upon Lessee providing Lessor fully
approved working drawings and material selections on a timely basis in order to
allow issuance of said working drawings for commencement of construction of the
Premises on the 19th floor no later than August 7, 1995. Working drawings for
the 18th floor shall be issued, approved for construction, on the earlier of (a)
April 15, 1996 or (b) seventy-five (75) days prior to the date Lessee seeks
occupancy on the 18th floor.
Included within the Lessee provided material selections and information are the
following:
. Selection of carpet and paint colors.
. Location of all data outlets.
. Location of new electrical and telephone outlets.
. Partition plan.
. Reflected ceiling plan.
. Other information necessary to obtain a building permit.
If, through no fault of Lessor, Lessee provides the working drawings and
material selections after the dates stated above and this delays the occupancy
of the Premises then, notwithstanding the provisions of Section 5 of the lease,
the Commencement Date of the lease shall not be extended and the payment of rent
shall commence on the Commencement Date.
1
<PAGE>
EXHIBIT 10.23
LEASE AMENDMENT I
The parties to this Amendment are Westlake Center Associates Limited
Partnership, a Washington limited partnership, hereinafter called "Lessor", and
PRIMUS KNOWLEDGE SOLUTIONS, INC. formerly doing business as PRIMUS
COMMUNICATIONS, formerly known as SYMBOLOGIC CORPORATION herein-after called
"Lessee."
Whereas the parties hereto have heretofore entered into a Lease executed under
the date of July 28, 1995, in and to 8,065 square feet on the Eighteenth Floor
and 16,660 square feet on the Nineteenth Floor, for a combined total of 24,725
square feet, known as Suite 1900, of the following described premises in the
City of Seattle, County of King, State of Washington, to wit:
Lots 1, 2, 3, 7, 8, 9, 10, 11 and 12, Block 1, ADDITION TO THE
TOWN OF SEATTLE as laid off by the Heirs of SARAH A. BELL,
deceased (commonly known as Heirs of SARAH A. BELL'S ADDITION
TO THE CITY OF SEATTLE) according to the plat recorded in Volume
1 of Plats, page 103, in King County, Washington;
EXCEPT the Southwesterly 12 feet of said Lots 1, 2 and 3 condemned
by the City of Seattle in King County Superior Court Cause No.
52280, for the widening of Fourth Avenue, as provided by Ordinance
13776 of said City; and
EXCEPT the Southeasterly 7 feet of said Lots 1 and 12 condemned by
the City of Seattle, in King County Superior Court Cause No. 57057
for the widening of Pine Street as provided by Ordinance 14500 of
said City;
TOGETHER WITH all of the vacated alley lying within said Block 1.
The Property is generally bounded by Fifth Street on the east,
Pine Street on the south, Fourth Avenue on the west, and Olive
Way on the north.
Whereas the parties desire to expand the Premises by 3,621 square feet of Net
Rentable Area on the 18th Floor of said Lease. Now, therefore, for good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties agree to amend the Lease, effective February 1, 1999,
as follows:
1. Section 1(b), Premises, is amended to show that the square footage of
the Premises has been revised from 24,725 S.F. to 28,346 S.F.
Therefore, Section 1(b), Premises, is amended to read as follows:
"Premises: Consisting of 16,660 square feet of net rentable area on
the 19th floor and 11,686 square feet of net rentable area on the 18th
Floor for a combined total of 28,346 square feet of net rentable area
of the building, as outlined on the floor plan attached hereto as
Exhibit C-1, including tenant improvements, if any, as described in
Exhibit A-1."
2. Section 1(c), Floor Areas, is amended to show that the agreed rentable
area of the Premises has been revised from 24,725 square feet to
28,346 square feet. Therefore, Section 1(c) is amended to read as
follows:
"The agreed net rentable area of the Premises is 28,346 square feet
and of the building is 335,850 square feet."
3. Section 1(e), Commencement Date, is amended to show the term for the
Lease expansion commences February 15, 1999.
4. Section 1(f), Expiration Date, for the 24,725 square feet is not
amended. The expiration date for the 3,621 square feet of expansion
space shall be co-terminus with the 24,725 square feet. Therefore,
the expiration date for the 28,346 square feet shall be October 31,
2000.
<PAGE>
5. Section 1(j), Exhibits, is amended to include the attached Exhibit A-
1, Tenant Improvements for the Eighteenth Floor Expansion Space,
supplementing the existing Exhibit A.
6. Section 1(j), Exhibits, is amended to include the attached Exhibit C-
1, The Expansion Premises, Eighteenth Floor, supplementing the
existing Exhibit C.
7. Attachment II, Special Provision #2, Monthly Rent, is amended to
include an additional 3,621 net rentable square feet. The additional
3,621 net rentable square feet shall be included in the rental rate
structure accordingly. Therefore, the rental rate structure in
Attachment II, Special Provision #2, of the Lease Agreement, shall be
adjusted to reflect increases to the Net Rentable Area and Monthly
Rent upon substantial completion of the tenant improvements as
outlined in the attached Exhibit A-1 as follows:
<TABLE>
<CAPTION>
Square Feet
of Basic Annual Basic
Period NRA Rental Rate Monthly Rent
- ------ --- ----------- ------------
<S> <C> <C> <C> <C>
02/01/99 - 02/14/99 24,725 $18.25/S.F. $18,801.30
02/15/99 - 02/28/99 24,725 $18.25/S.F. $18,801.30
3,621 $32.00/S.F. $ 4,506.13
- ------------------------------------ ------- ----------
28,346 $23,307.43
03/01/99 10/31/00 24,725 $18.25/S.F. $37,602.60
3,621 $32.00/S.F. $ 9,656.00
- ------------------------------------ ------- ----------
28,346 TOTAL: $47,258.60
</TABLE>
8. Attachment I, Special Provision #23, Brokers, is deleted in its
entirety and replaced with a new Special Provision #23, Brokerage
Fees, as follows:
"Lessor shall pay Pacific Real Estate Partners a brokerage fee of 5%
of the lease expansion consideration to be paid upon occupancy of
3,621 square foot expansion space by Lessee. Lessee warrants that it
has had no dealings with any real estate broker or agent in connection
with the negotiation of this Lease Amendment I excepting only Pacific
Real Estate Partners and it knows of no other real estate broker or
agent who is entitled to a commission in connection with this Lease
Amendment I."
9. Attachment II, Special Provision #6, Parking, is hereby amended to
show that Lessee shall have the option to enter into parking contracts
for up to three (3) additional parking contracts for a total of
twenty-three (23) parking contracts. Said contracts shall be available
for the tenants use throughout the term of this Agreement at the
prevailing rate charged by the operator of the garage plus all
applicable Washington State and local taxes. Additional parking may be
taken with any future expansion in the building at a ratio of 1/1,200
square feet of Net Rentable Area at the prevailing rate charged by the
operator of the garage plus all applicable Washington State and local
taxes.
10. Attachment II, Special Provisions, Number 3, Lease Renewal Options is
---------------------
hereby amended to include the following paragraph:
"Lessee shall have the right to renew the 3,621 square feet of
expansion space on the eighteenth (18th) floor at the same terms and
conditions as stated in Special Provisions, Number 3, Lease Renewal
-------------
Options of the Lease Agreement dated July 28, 1995."
-------
<PAGE>
11. Attachment II, Special Provisions, Number 4, Expansion Option/Right of
-------------------------
First Offer is hereby amended to delete the first sentence in its entirety and
- -----------
replace it with the following:
"For so long as Lessee is not in default of the Lease, Lessee shall
have the Senior Right of First Offer on any available space on the
eighteenth (18th) floor and be subject to the pre-existing rights of
Lessor's existing tenants on the twentieth (20th) floor and Lessee
shall have:"
Except as herein amended, said Lease shall remain in full force and effect in
accordance with all of its terms and provisions.
IN WITNESS HEREOF, the parties have hereinto set their hands and seals this
27th day of January, 1999.
- ---- ------- --
LESSOR: LESSEE:
WESTLAKE CENTER ASSOCIATES PRIMUS KNOWLEDGE SOLUTIONS,
LIMITED PARTNERSHIP INC.
By: Rouse Westlake Limited Partnership,
General Partner
By: Rouse-Seattle, Inc. By: /s/ Elizabeth J. Huebner
------------------------ ---------------------------
Its: General Partner Its: VP - CFO
----------------------- ---------------------------
By: /s/ Duke S. Kassolis
------------------------
Duke S. Kassolis
Its: Senior Vice President
-----------------------
<PAGE>
ACKNOWLEDGMENT OF LESSOR
STATE OF Maryland )
-----------
) ss.
COUNTY OF Howard )
------------
On this 27th day of January, 1999, before me, the undersigned, a
---- ------- --
Notary Public in and for the State of Maryland, duly commissioned
--------
and sworn, personally appeared Duke S. Kassolis, to me known to be the
----------------
Senior Vice President, that executed the within and foregoing
- ---------------------
instrument, and acknowledged said instrument to be the free and voluntary act
and deed of said partnership, for the uses and purposes therein mentioned and on
oath stated that he/she was authorized to execute said instrument.
WITNESS my hand and official seal hereto affixed the day and year in this
certificate above written.
Cynthia L. Teed
---------------------------------------
Notary Public in and for the State of Maryland
[STAMP APPEARS HERE] _________________ residing at _________
My commission expires 1/1/01
-----------------
Print Name Cynthia L. Teed
----------------------------
ACKNOWLEDGMENT OF LESSEE
(Corporate)
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this 11th day of January, 1999, before me personally appeared
---- ------- --
Elizabeth J. Huebner and ______________________________ to me
- -------------------
known to be the CFO and ______________________________,
---
respectively, of the corporation that executed the within and foregoing lease,
and acknowledged the said instrument to be the free and voluntary act and deed
of said corporation, for the uses and purposes therein mentioned, and on oath
stated that they were authorized to execute said instrument and that the seal
affixed is the corporate seal of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal
the day and year first above written.
Elizabeth P. Yaley
------------------
Notary Public in and for the State of
Washington residing at Bothell
---------- -------
[STAMP APPEARS HERE] My commission expires 4-29-2000
---------
Print Name Elizabeth P. Yaley
------------------
<PAGE>
EXHIBIT A-1
TENANT IMPROVEMENTS
FOR THE 3,621 SQUARE FOOT
EIGHTEENTH FLOOR EXPANSION SPACE
Lessor shall provide the expansion area in its "As Is" condition under this
Lease Amendment except for the following Lessor provided improvements to be
commenced upon execution of said Lease Amendment:
1. Lessor, at its sole cost, shall clean the carpet throughout the
premises.
2. Lessor, at its sole cost, shall repaint all painted surfaces in the
premises with building standard paint in a color mutually acceptable to
Lessor and Lessee. Lessor shall refurbish all doors and frames as
needed throughout the premises.
3. Lessor, at its sole cost, shall replace any damaged ceiling tiles.
4. To incorporate expansion space into Lessee's existing premises, Lessor
at Lessor's sole cost and expense, shall:
a. Remove existing partition and any associated electrical and data
lines as shown on Exhibit C.
b. Patch and paint area as needed where partitioning is removed.
c. Provide carpet patch to match existing carpet as close as
possible.
Excluded from Lessor's work are all items not specifically included in
Items #1 through #4 above. Included in this exclusion are trade fixtures,
plumbing, cabinetry, furniture, movable furniture partitions, work
stations, wood base, storage shelving, installing telephones, telephone
cable, any additional structural work required as a result of the location
of files, rolling files, installation of floor track and rolling files,
computer and data cable, fine finish items such as wall coverings, floor
coverings, millwork, etc., and similar items.
<PAGE>
EXHIBIT C-1
THE EXPANSION PREMISES
EIGHTEENTH FLOOR
3,621 SQUARE FEET
[MAP APPEARS HERE]
WESTLAKE CENTER OFFICE TOWER
SUITE 1805
3,621 SQ FT
<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
Confidential
<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
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<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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EnCompass Globalization Page 4 Service Agreement v2.1 2/10/98
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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
-------------------------------
- --------------------------------------------------------------------------------
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<PAGE>
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 $[ * ] $15,400.00 90%
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Estimated Subtotal 280 $15,400.00
- -----------------------------------------------------------------------------------------------------------------------------------
Onsite Testing (1 person) 400 Hour $[ * ] $26,000.00 90%
- -----------------------------------------------------------------------------------------------------------------------------------
Onsite Testing (1 person) 160 Hour $[ * ] $10,400.00 90%
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Estimated Subtotal 560 $36,400.00
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Translation/Update
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Translation, Editing, Proofing 50000 Word $[ * ] 80% $15,200.00 85%
- -----------------------------------------------------------------------------------------------------------------------------------
Verification of Old Content 13.3 Hour $[ * ] $665.00 70%
- -----------------------------------------------------------------------------------------------------------------------------------
Page Proofing 274 Page $[ * ] $2,192.00 85% Expect page count
will increase.
- -----------------------------------------------------------------------------------------------------------------------------------
Index/TOC Generation 22 Page $[ * ] $1,100.00 75% Assuming 5% of page
count.
- -----------------------------------------------------------------------------------------------------------------------------------
SolutionExplorer User
Guide ver. 1.0
- -----------------------------------------------------------------------------------------------------------------------------------
Translation, Editing, Proofing 5700 Word $[ * ] 100% $2,166.00 85%
- -----------------------------------------------------------------------------------------------------------------------------------
Page Proofing 52 Page $[ * ] $416.00 85% Expect page count
will increase.
- -----------------------------------------------------------------------------------------------------------------------------------
Translation, Editing, Proofing 2400 Word $[ * ] 100% $912.00 85%
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Translation, Editing, Proofing 3000 Word $[ * ] 100% $1,140.00 85% Original word count is
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[*] * omitted, confidential material, which material has been separately filed
with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
- --------------------------------------------------------------------------------
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
actually less work
- ------------------------------------------------------------------------------------------------------------------------------------
Page Proofing 35 Page $[*] $ 280.00 85% Expect page count
will increase.
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Translation, Editing, Proofing 14400 Word $[*] 25% $1,368.00 85%
- ------------------------------------------------------------------------------------------------------------------------------------
Verification of Old Content 14.4 Hour $[*] $ 720.00 70%
- ------------------------------------------------------------------------------------------------------------------------------------
Page Proofing 90 Page $[*] $ 720.00 85% Expect page count
will increase.
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Translation, Editing, Proofing 16100 Word $[*] 20% $ 1,223.60 85%
- -----------------------------------------------------------------------------------------------------------------------------------
Verification of Old Content 17.1 Hour $[*] $ 855.00 70%
- -----------------------------------------------------------------------------------------------------------------------------------
Index/TOC Generation 12 Page $[*] $ 600.00 75% Assuming 5% of page
count.
- -----------------------------------------------------------------------------------------------------------------------------------
Online Help translation/Update
- -----------------------------------------------------------------------------------------------------------------------------------
22500 Word $[*] 60% $ 5,130.00 85%
- -----------------------------------------------------------------------------------------------------------------------------------
Verification of Old Content 12 Hour $[*] $ 600.00 70%
- -----------------------------------------------------------------------------------------------------------------------------------
SolutionExplorer Help ver. 1.0 250 Word $[*] 100% $ 95.00 60% Modified from
Explorer User Guide
- -----------------------------------------------------------------------------------------------------------------------------------
9200 Word $[*] 50% $ 1,748.00 85%
- -----------------------------------------------------------------------------------------------------------------------------------
Verification of Old Content 6.1 Hour $[*] $ 305.00 70%
- -----------------------------------------------------------------------------------------------------------------------------------
File Conversions & Bug Fixes 40 Hour $[*] $ 2,200.00 75%
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Estimated Subtotal $39,635.60
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Parking Fees
- -----------------------------------------------------------------------------------------------------------------------------------
- 2 spaces for 1 month 2 Month $[*] $ 300.00 85%
- -----------------------------------------------------------------------------------------------------------------------------------
- 1 space for 2 months 2 Month $[*] $ 300.00 85%
- -----------------------------------------------------------------------------------------------------------------------------------
- 1 space for 1 month 1 Month $[*] $ 150.00 85%
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Estimated Subtotal 5 $ 750.00
- -----------------------------------------------------------------------------------------------------------------------------------
Overall Subtotal $92,185.60
Project Management [*]% $ 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.
- ---------------------------
[*] = omitted, confidential material, which material has been separately filed
with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
- --------------------------------------------------------------------------------
Confidential
Page 9
<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 $[*] per hour
---------------------------------------------------------------
Documentation/Translation $[*] per hour
---------------------------------------------------------------
Engineering $[*] 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
- --------------------------
[*] = omitted, confidential material, which material has been separately filed
with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
- --------------------------------------------------------------------------------
Confidential
Page 10
<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.
------------------------ ------------------------
- --------------------------------------------------------------------------------
Confidential
Page 11
<PAGE>
Exhibit 21.1
Subsidiaries of the Registrant
. Primus Knowledge Solutions K.K., a Japanese corporation
. Primus Knowledge Solutions (UK) Limited
<PAGE>
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 , 1999), in the
Registration Statement (Form S-1) and the related Prospectus of Primus
Knowledge Solutions, Inc. dated April 30, 1999.
Ernst & Young LLP
Seattle, Washington
- --------------------------------------------------------------------------------
The foregoing consent is in the form that will be signed upon the completion of
the reverse stock split described in Paragraph 3 of Note 14 to the consolidated
financial statements.
Seattle, Washington
April 30, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS OF PRIMUS KNOWLEDGE SOLUTIONS, INC AS OF DECEMBER 31, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,583,000
<SECURITIES> 2,833,000
<RECEIVABLES> 5,970,000
<ALLOWANCES> (371,000)
<INVENTORY> 0
<CURRENT-ASSETS> 11,488,000
<PP&E> 3,340,000
<DEPRECIATION> (1,426,000)
<TOTAL-ASSETS> 13,687,000
<CURRENT-LIABILITIES> 11,704,000
<BONDS> 0
0
23,157,000
<COMMON> 107,000
<OTHER-SE> (22,354,000)
<TOTAL-LIABILITY-AND-EQUITY> 13,687,000
<SALES> 6,034,000
<TOTAL-REVENUES> 8,610,000
<CGS> 2,809,000
<TOTAL-COSTS> 16,307,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 52,000
<INCOME-PRETAX> (10,558,000)
<INCOME-TAX> 45,000
<INCOME-CONTINUING> (10,603,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,603,000)
<EPS-PRIMARY> (2.82)
<EPS-DILUTED> (2.82)
</TABLE>
<PAGE>
EXHIBIT 99.1
REPORT OF ERNST AND YOUNG LLP, INDEPENDENT AUDITORS ON FINANCIAL STATEMENT
SCHEDULE
We have audited the consolidated financial statements of Primus Knowledge
Solutions, Inc. as of December 31, 1998 and 1997, and for each of the three
years in the period ended December 31, 1998, and have issued our report thereon
dated March 12, 1999, except for Note 14, as to which the date is ,
1999 (included elsewhere in this Registration Statement). Our audits also
included the financial statement schedule listed in Item 16(b) of this
Registration Statement. This schedule is the responsibility of the Company's
management. Our responsibility is to express and opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
Seattle, Washington Ernst & Young LLP
March 12, 1999
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon the completion of
the reverse stock split described in paragraph 3 of Note 14 to the consolidated
financial statements.
Seattle, Washington
April 30, 1999
