EXCLUSIVE DISTRIBUTION AGREEMENT

 

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EXHIBIT 10.12

 

 

                        EXCLUSIVE DISTRIBUTION AGREEMENT

 

This Exclusive Distribution Agreement ("AGREEMENT") is made and entered into as

of May 26, 2004 ("AGREEMENT DATE") by and between Object Innovation, Inc., a

Florida corporation with its principal place of business at 8130 Baymeadows Way

West Suite 307, Jacksonville, Florida 32256 ("VENDOR"), and PPOL, Inc., a

California corporation with its principal place of business at 1 City Boulevard

West, Suite 870, Orange, CA 92868 ("DISTRIBUTOR"). For purposes related to

Section 2.5 (below), or any other Sections requiring similar date calibration,

the effective date ("EFFECTIVE DATE") of this Agreement will be July 15, 2004.

 

                                    RECITALS

 

WHEREAS, Vendor has rights to license and distribute, and to sublicense others

to license and distribute, the Products in the Territory (as those terms are

defined below); and

 

WHEREAS, Vendor desires to have Distributor, and Distributor desires to,

license, market and distribute the Products is the Territory pursuant to the

terms and conditions of this Agreement.

 

NOW, THEREFORE, is consideration of the mutual representations, warranties,

covenants and other terms and conditions contained herein, Vendor and

Distributor agree as follows:

 

                                    AGREEMENT

 

1.         DEFINITIONS

 

         1.1 "AFFILIATE" of a Person/Legal Entity shall mean any other

Person/Legal Entity controlled by, controlling, or under common control with

such first Person/Legal Entity.

 

         1.2 "CONFIDENTIAL INFORMATION" shall mean the source code for the

Software and any and all information and material disclosed by either part

("DISCLOSING PARTY") to the other party ("RECEIVING PARTY") (whether in writing,

or in oral, graphic, electronic or any other form) that is marked or identified

in writing as confidential or proprietary, or if disclosed orally or in other

intangible form or in any form that is not so marked, that is identified as

confidential at the time of such disclosure and summarized in writing and

transmitted to the Receiving Party within thirty (30) days of such disclosure.

Notwithstanding the previous sentence, information shall not be deemed

Confidential Information to the extent that such information: (a) was generally

known and available in the public domain at the time it was disclosed or

subsequently becomes generally known and available in the public domain through

no fault of the Receiving Party; (b) was known to the Receiving Party at the

time of disclosure; (c) is disclosed with the prior written approval of the

Disclosing Party; (d) was independently developed by the Receiving Party without

any use of the Confidential Information of the Disclosing Party; or (e) becomes

known to the Receiving Party from a source other than Disclosing Party within

breach of this Agreement by the Receiving Party and is otherwise not in

violation of the Disclosing Party's rights.

 

         1.3 "CONTRACT YEAR" shall mean a twelve month period ending on the

anniversary of the Effective Date.

 

         1.4 "DOCUMENTATION" shall mean the standard user documentation for the

Software, including, without limitation, user manuals, reference manuals,

training materials and installation manuals, and including my Japanese language

translations thereof.

 

         1.5 "AGREEMENT DATE" shall mean the date that this Agreement is signed

and fully takes effect.

 

         1.6 "EFFECTIVE DATE" shall mean that, for purposes related to the sales

and Distributor performance contemplated in this Agreement, the date which all

performance, milestones, and other metrics will be based.

 

         1.7 "END USER" shall mean a Person, other than Distributor, who has

licensed the Products for ordinary internal business usage and not for purposes

of further resale.

 

         1.8 "END USER LICENSE AGREEMENT" shall mean the End User terms and

conditions of license attached hereto as EXHIBIT A entered into between

Distributor (or Subsidiary, as applicable) and End User.

 

         1.9 "ERROR" shall mean a defect or combination of defects in the

Software that result in a failure of the Software to function in accordance with

the technical specifications for the Software as set forth in the applicable

Documentation.

 

 

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         1.10 "ERROR CORRECTION" shall mean a bug fix, patch or other

modifications or addition that, when made or added to the Software, corrects an

Error.

 

         1.11 "FIRM PERIOD" shall have the meaning set forth in Section 8.4.

 

         1.12 "FORCE MAJEURE EVENT" shall have the meaning set forth in Section

16.4.

 

         1.13 "GROSS REVENUE" shall mean all amounts received by Vendor for the

license of the Product, less (a) freight, handling, service, refunds for

returns, insurance and other charges for delivery of the product (including,

without limitation, charges for transmission) and (b) sales, use, excise, value

added and other taxes.

 

         1.14 "INITIAL TERM" shall have the meaning set forth in Section 14.1.

 

         1.15 "INTELLECTUAL PROPERTY RIGHTS" shall mean, on a world-wide basis,

any and all now known or hereafter known tangible and intangible (a) rights

associated with works of authorship, inc, without limitation, copyrights, moral

rights and mask-works, (b) rights associated with trademarks, service marks,

trade names and similar rights, (c) trade secret rights, (d) patents, designs,

algorithms and other industrial property rights, (e) rights in domain names; (f)

all registrations, applications, renewals, extensions, continuations, divisions

or reissues thereof now or hereafter existing, made or in force (including any

rights in any of the foregoing).

 

         1.16 "JAPANESE VERSION" shall have the meaning set forth in Section

2.2.

 

         1.17 "MAINTENANCE RELEASE" shall mean a subsequent version of the

Software that including Error Corrections.

 

         1.18 "PERSON" shall mean any natural person, corporation, partnership,

firm, association, limited liability company, government, governmental agency or

other entity, whether acting as an individual, fiduciary or other capacity.

 

         1.19 "PRICE LIST" shall mean the price list set forth in EXHIBIT C

attached hereto.

 

         1.20 "PRODUCTS" shall mean the Software and Documentation, individually

or collectively.

 

          1.21 "RENEWAL TERM" shall have the meaning set forth in Section 14.1.

 

         1.22 "SOFTWARE" shall mean the software programs set forth in EXHIBIT B

attached hereto, as Exhibit B may be amended from time to time by the parties'

mutual consent, and any modifications, changes (including translations or the

Japanese Version), improvements, workarounds and updates (including any Error

Corrections, Upgrades or Maintenance Releases) made to such software programs

during the Term.

 

         1.23 "SUPPORT SERVICES" shall mean the Level One and Level Two

maintenance and support serves set forth in EXHIBIT E attached hereto.

 

         1.24 "TERM" shall have the meaning set forth in Section 14.1.

 

         1.25 "TERRITORY" shall mean the country of Japan.

 

          1.26 "TRADEMARKS" shall mean the trademarks, trade names and service

marks set forth in EXHIBIT D attached hereto and such other marks as Vendor may

designate from time to time in writing during the Term.

 

         1.27 "UPGRADE" shall mean any new version of the Software that adds

substantial new functionality to such Software.

 

 

2.        GRANT OF RIGHTS

 

         2.1 GRANT OF DISTRIBUTORSHIP. Subject to the terms and conditions of

this Agreement, Vendor hereby grants to Distributor the exclusive right during

the Term, within the Territory, to: (a) market and solicit sub-licenses for the

Software and Documentation to End Users and (b) distribute the Software and

Documentation to such End Users, provided that such End Users have validity

entered into an End User License Agreement with Distributor pursuant to Section

3.1(a) below. The Parties agree that Distributor shall, within one hundred

eighty (180) days after the date hereof, assign all of its rights and

obligations under this Agreement to a newly formed Japanese entity (the

"Subsidiary" that shall be a least majority-owned by PPOL, Inc. and its

Affiliates. Upon such assignment, the

 

 

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Subsidiary shall be deemed the "Distributor" hereunder for all purposes.

Notwithstanding any such assignment, PPOL, Inc. shall remain liable for all of

Distributor's obligations hereunder.

 

         2.2 GRANT OF LICENSE TO SOFWARE AND DOCUMENTATION. Subject to the terms

and conditions of this Agreement, Vendor hereby grants to Distributor the

exclusive, royalty-free right and license (including the right to sublicense)

during the Term: (a) to modify and create derivative works of the Software and

Documentation for the purpose of developing a Japanese language version of the

Software and Documentation ("JAPANESE VERSION"); (b) to reproduce the Japanese

Version for distribution to End Users within the Territory; and (c) to use,

perform and display (whether publicly or otherwise) the Software and

Documentation for purposes of marketing, demonstrating, soliciting sub-licenses

for and distributing the Products, developing the Japanese Version, supporting

and maintaining the Products, and granting sub-licenses in accordance with the

terms hereof, in each case, solely in connection with fulfilling Distributor's

obligations and exercising Distributor's rights set forth in this Agreement. All

such derivative works shall, at all times, be the sole and exclusive property of

Vendor, but Vendor shall grant Distributor the right to use all such derivative

works in connection with fulfilling Distributor's obligations and exercising

Distributor's rights as set forth in this Agreement.

 

         2.3 GRANT OF LICENSE TO TRADEMARKS. Subject to the terms and conditions

of this Agreement, Vendor, hereby grants to Distributor the non-exclusive right

during the Term, within the Territory, to use the Trademarks for purposes of

advertising and promoting the Products hereunder. Distributor understands and

agrees that the use of any Trademark in connection with this Agreement shall not

create any right, title or interest in or to the use of the Trademark, and that

all such use and goodwill associated therewith shall inure solely to the benefit

of Vendor.

 

         2.4 GRANT OF RIGHT TO APPOINT SUB-DISTRIBUTORS. Subject to the terms

and conditions of this Agreement, Vendor hereby grants to Distributor the right

during the Term, to appoint sub-distributors within the Territory, in

Distributor's reasonable discretion and with Vendor's consent, such consent not

to be unreasonably withheld. Distributor shall not grant any sub-distribution

rights to a sub-distributor except pursuant to a written agreement in which such

sub-distributor agrees to all of the restrictions on the use of the Software and

Documentation contained herein and which agreement shall provide for conversion

to a non-exclusive agreement, if applicable, as set forth in Section 2.5 hereof.

 

         2.5 LIMITATION ON EXCLUSIVITY. Vendor reserves the right to convert the

exclusive right granted to Distributor under Section 2.1 into a non-exclusive

right in accordance with the terms of this Section 2.5 (or to terminate this

Agreement as set forth in Section 14) in the event that the Distributor,

together with its sub-distributors, fails to meet the mutual Gross Revenue goals

in the Territory as follows (each, a "Revenue Goal"):

 

               Contract Year 1 (commencing with the Effective Date and ending on

the day before the first anniversary of the Effective Date): US$1 million Gross

Revenues received by Vendor.

 

               Contract Year 2 (commencing with the first anniversary of the

Effective Date and ending on the day before the second anniversary of the

Effective Date): US$2 million Gross Revenues received by Vendor.

 

               Contract Year 3 (commencing with the second anniversary of the

Effective Date and ending on the day before the third anniversary of the

Effective Date): US$3 million Gross Revenues received by Vendor.

 

               Contract Year 4 (commencing with the third anniversary of the

Effective Date and ending on the day before the fourth anniversary of the

Effective Date): US$5 million Gross Revenues received by Vendor.

 

               Contract Year 5 (commencing with the fourth anniversary of the

Effective Date and ending on the day before the fifth anniversary of the

Effective Date): US$5 million Gross Revenues received by Vendor.

 

               For the purposes of determining whether the Revenue Goal for that

Contract Year has been met, the Gross Revenues actually received by Vendor from

distribution shall determine compliance. In the event that Vendor converts the

exclusive right granted to distribution under Section 2.1 into a non-exclusive

right in accordance with this Section 2.5, then any exclusive

sub-distributorship granted by Distributor or its sub-distributors in such

Territory will be automatically converted to non-exclusive sub-distributorship.

 

               By mutual consent of the Vendor and Distributor, the Effective

Date that is referenced herein may be extended to a new date that approximately

corresponds with the completion of the localization of Product to the Japanese

market. Since the intent is to measure Japanese sales performance, it is

reasonable to set the start of the Effective Date to when Japanese sales can

actually begin. In the event that localization has not been completed by the

Effective Date mentioned herein both parties agree to revise the Effective Date

to one that is appropriate.

 

 

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               The Revenue Goal in accordance with the terms in Section 2.5 is

the basic idea and plan for both parties; however, both parties share the

understanding that we shall have time for discussion to adjust the plan before

it take place. The fatal conversion of the exclusive right granted to

Distributor under Section 2.1 into a non-exclusive right from Vendor occurs in

the event that Distributor fails to remit corresponding amount of money to vest

the restricted shares they own until the time period in accordance with the

terms of 5.7 clause of Stock Purchase Agreement for the Vendor. About the

continuation of the Exclusivity, both parties shall discuss after both parties

see the performance of the Distributor and the Territory until the time period

in accordance with the terms of 5.7 clause of Stock Purchase Agreement.

 

3.        DISTRIBUTOR OBLIGATIONS

 

         3.1 GENERALLY. Distributor shall use commercially reasonable efforts

to:

 

               (a) advertise, market and promote the Products in the Territory;

 

               (b) solicit and promote the sub-licensing of the Software;

 

               (c) refrain from discrediting either the Products or Vendor;

 

               (d) include in all advertising and promotional materials all

applicable copyright and trademark notices as they appear on the Products;

 

               (e) provide Level One support to End Users in a professional and

workmanlike manner and in accordance with the highest industry standards;

 

               (f) obtain, pay all costs associated with, and be in possession

of all official approvals, licenses, registrations, and permits required by

virtue of any applicable law or regulation for the effective operation of its

business and its performance under this Agreement;

 

                (g) keep books, records and accounts of all transactions covered

by this Agreement and permit Vendor, its agents and representatives to examine

the same;

 

               (h) commence sales and distribution of the Products as soon as

reasonably practicable following execution of this Agreement;

 

               (i) not do anything to prevent the sale, or development of sales,

of the Products in the Territory;

 

               (j) obtain an adequate number of sufficiently qualified staff to

enable Distributor to promptly and efficiently perform its obligations under

this Agreement;

 

               (k) keep Vendor promptly informed of any complaint or dispute

concerning the Products supplied by Distributor;

 

               (l) conduct Distributor's business in an efficient, responsible,

and ethical manner so as to enhance and support the reputation and goodwill of

the Products in the Territory;

 

               (m) conduct Distributor's business in accordance with all laws

applicable in the Territory. Distributor must immediately notify Vendor in

writing if any law or regulation of a relevant Territory prevents it from

complying fully with the terms of this Agreement; and

 

               (n) refrain from producing, selling, licensing or distributing

any products which are, in Vendor's sole judgment, directly competitive with the

Products;

 

               (o) create an End User License Agreement for distribution of the

Products and Services to the Japanese market that is materially identical to the

sample EULA that is provided in EXHIBIT A as reference, taking common hap laws

and practices in consideration when creating the Japanese End User License

Agreement.

 

         3.2 SOLICITING LICENSES FOR SOFTWARE. Distributor shall have the right

to negotiate with prospective End Users and solicit the sub-licensing of the

Software. In the event that a prospective End User wishes to sub-license

Software, Distributor shall:

 

 

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               (a) Enter into a sub-license agreement for the Product with such

End User only upon the terms of the End User License Agreement;

 

               (b) negotiate with such End User and, if required by such End

User, propose changes to the End User License Agreement, provided that such

proposed changes shall be subject to Vendor's prior written approval in its

reasonable discretion; and

 

               (c) forward to Vendor information regarding each End User,

including the following:

 

                  (i) the Software to be licensed;

 

                  (ii) the name and site address of the End User;

 

                  (iii) the name, address and telephone number of a contact

         person or authorized representative of the End User;

 

                  (iv) the serial number of the central processing unit on which

         the licensed Software will run or, in the case of a network license,

         the number of licensed users;

 

                  (v) any proposed changes to the End User License Agreement.

 

         3.3 REVERSE ENGINEERING. Distributor shall not translate, disassemble

or reverse engineer the Products, in whole or in part.

 

4.        MAINTENANCE AND SUPPORT

 

         4.1 SUPPORT SERVICES. As between Vendor and Distributor, Distributor

shall be responsible for providing End Users with Level One Support Services for

the Software, as set forth in EXHIBIT E attached hereto. Vendor shall provide

Distributor with Level Two Support Services for the Software, as set forth in

EXHIBIT E.

 

         4.2 TRAINING. Vendor shall arrange at least one training course for

each major release or version upgrade of the Product that may be attended by

Distributor's and its sub-distributors' sales and/or technical personnel. These

courses shall take place at Vendor's principal place of business first above

written and shall include training on the operation of Product, sales training,

and technical training increasing the ability of Distributor and its

sub-distributors to provide sufficient technical support for their customers who

purchase Product. The cost of conducting these training courses shall be borne

by Vendor; provided, however, that Distributor and sub-distributors shall bear

the traveling and lodging expenses for their respective personnel.

 

 

5.        CHANGES IN SPECIFICATIONS

 

Vendor reserves the right from time to time to change the specifications of the

Products. Vendor shall advise Distributor of any proposed changes in

specifications at least ninety (90) days before such changes in specifications

or designs are commercially released.

 

 

6.        OWNERSHIP OF INTELLECTUAL PROPERTY

 

Vendor or its suppliers shall retain ownership of all Intellectual Property

Rights embodied in the Products and the Trademarks. Except as provided herein,

Distributor is not granted any rights to any Intellectual Property Rights with

respect to any Product.

 

 

7.        CONFIDENTIAL INFORMATION

 

Each party may be exposed to the other party's Confidential Information, Each

party agrees that during the Term, and for a period of one (1) year following

the Term, it shall use the other party's Confidential Information solely for

purposes of performing its obligations and/or exercising its rights under this

Agreement, and shall not disclose to any third party any Confidential

Information of the other party without prior written consent of such other

party. Each party may disclose the other party's Confidential Information only

to its employees as is reasonably necessary to allow such party to perform under

this Agreement and to obtain the benefits thereof, provided that each such

employee is under a written obligation of nondisclosure which protects the other

party's Confidential Information under terms substantially similar to those

herein.

 

8.        ORDERS; SHIPPING; CANCELLATON

 

 

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         8.1 ORDERS. The terms and conditions of this Agreement shall apply to

any and all orders submitted to Vendor. If accepted by Vendor, Vendor shall

fulfill each order placed by Distributor within 30 days or less, or else give

notice as to why fulfillment will take longer.

 

         8.2 SHIPPING. All shipments shall be made FOB Vendor's distribution

center. Provided, however, in Vendor's discretion, Vendor may provide for the

downloading of the Software by Distributor (or directly by the End User) and, if

downloaded by Distributor, Distributor shall only download the permitted number

of copies, and shall put any markings or labels on the medium containing the

Software as Vendor shall require. Delivery shall be deemed complete and risk of

loss or damage to the Products shall pass to Distributor upon Vendor's delivery

of Products to the first carrier or, if applicable, when downloaded. Distributor

shall instruct Vendor in writing as to which carrier Vendor should use to

transport Products ordered by Distributor. If Distributor has not so instructed

Vendor at the time of the order, Vendor may select the carrier. Distributor

shall pay all costs of transportation, reasonable insurance, export and import

fees, customs brokerage expenses and similar charges.

 

         8.3 ACCEPTANCE. Distributor shall, within seven (7) days after

delivery, inspect the Product(s) to confirm that the Product(s) are not

defective and conform to the Vendor's applicable warranty, the terms of this

Agreement and Distributor's order. In the event that Distributor notifies Vendor

of defective or non-conforming Products under this section, Vendor shall repair

or replace such Products, or refund the purchase price for such Products to

Distributor, at Distributor's sole election.

 

         8.4 CANCELLATION AND RESCHEDULING. Distributor shall not reschedule or

cancel any purchase order or portion thereof within three (3) business days of

the scheduled shipment date for such order ("FIRM PERIOD"). Distributor may

cancel or reschedule purchase orders prior to the Firm Period upon written

notice to Vendor.

 

 

9.        PRICE; TAXES; PAYMENTS; REPORTS

 

         9.1 PRICE FOR PRODUCTS. Vendor recognizes that Distributor may need to

do market research before appropriate pricing for Products and Services can be

set in Japan. Therefore, Vendor and Distributor agree that Distributor will have

the ability to establish Products and Services prices in Japan, as it best sees

fit, in order to maximize revenue, but that Vendor retains the final right to

approve or disapprove such pricing. All Products and Services revenue will be

split equally between Vendor and Distributor in a 50/50 ratio, and the money

will be remitted to Vendor to U.S. dollars based on the U.S. dollar-to-Japanese

yen exchange rate reports in THE WALL STREET JOURNAL on the payment date. In

addition, Vendor may, in its discretion, offer Distributor the rights to

sub-license other products of Vendor. If the Parties are able to agree upon

terms for the licensing of any such other products, they will amend this

Agreement accordingly. Vendor and Distributor also agree to review the 50/50

split, sometime prior to the end of the first year of this Agreement, to confirm

that such 50/50 split is equitable for both sides, and that they will work in

good faith to revise these terms in the event that either side feels it is not

equitable for them.

 

         9.2 PRICE FOR SERVICES. Distributor shall pay monthly support fees in

advance for the Level Two Support Services, as such fees are set forth in

EXHIBIT C ("SUPPORT FEES"). Vendor may not increase the monthly Support Fees

charged to Distributor during any Contract Year by more than ten percent (10%)

of the then-current Support Fees.

 

         9.3 TAXES. In addition to any payments due to Vendor under this

Agreement, Distributor shall pay any sales, use, excise, import, export or

value-added tax not based on Vendor's net income.

 

         9.4 PAYMENTS. Distributor shall remit fifty percent (50%) of any

payment it or its sub-distributor's receipt of such payment. Payment for the

Level Two Support Services shall be due by the tenth day of each calendar month.

 

         9.5 REPORTS. Distributor shall provide Vendor a quarterly report of its

sub-licensing activity. Such reports shall include without limitation, the name

and address of each End User that entered into a license for the Product during

such quarter, the license fees charged and received during such quarter and such

other information that Vendor may reasonably request. Distributor shall

communication to Vendor any recurring material problems with the Products

encountered by customers of Distributor.

 

         9.6 STOCK INCENTIVE. Restricted Shares (as such term is defined in the

Stock Purchase Agreement) held by PPOL, Inc., subject to the terms of that

certain Common Stock Purchase Agreement entered into between Vendor and PPOL,

Inc. contemporaneously herewith (the "STOCK PURCHASE AGREEMENT"), shall vest and

become Unrestricted

 

 

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Shares (as such term is defined in the Stock Purchase Agreement) at the rate of

one hundred (100) shares for each $10 million in Gross Revenue received by

Vendor from Distributor's licensing or sub-licensing of Products hereunder.

 

 

10.       WARRANTY

 

         10.1 PRODUCTS. Vendor warrants the Products to End Users pursuant to

the terms and conditions of the End User License Agreement as set forth in

EXHIBIT A. Vendor represents, warrants and covenants to Distributor that: (a)

Vendor has the right to grant the rights and licenses contemplated by this

Agreement, without the need for any licenses, releases, consents, approvals or

immunities not yet granted; (b) the media on which any Products are delivered to

Distributor shall be free from material defects in workmanship and materials;

(c) the Products shall operate in accordance with the Documentation and other

specifications therefore for a period of sixty days from delivery to

Distributor; (d) neither the Products nor Distributor's exercise of its rights

under this Agreement infringe, misappropriate or violate any U.S. patent,

trademark, copyright, privacy or publicity rights, or other rights of any third

party, or any law, rule or regulation promulgated by any government or

regulatory body; (e) the Products do not contain any material bugs or defects

and do not contain or make available any viruses, worms, Trojan horses, web

bugs, time bombs, "spyware" or other harmful or invasive code or components; and

(f) Vendor has not made and shall not make any commitments inconsistent with

Distributor's rights under this Agreement.

 

         10.2 SERVICES. Vendor represents, warrants and covenants to Dis