EXHIBIT 10.37
MEMORANDUM OF AGREEMENT
This Memorandum of Agreement ("Agreement") sets forth the agreements
reached between Functional Capacity Evaluation Technologies, Inc. ("FCET") and
Work Recovery, Inc. ("WRI") (together the "Parties"), which the Parties agree
shall constitute a legally binding agreement among the Parties until such
time as a more detailed agreement may be entered.
WHEREAS, WRI and FCET entered into an Initial Engagement which by its
terms has expired; and
WHEREAS, WRI wishes to enter into a long-term agreement with FCET to
provide certain management services to WRI; and
WHEREAS, FCET represents and the Parties agree that FCET possesses
managerial resources with the expertise to provide these certain management
services and is willing to provide these services to WRI.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
contained below and intending to be legally bound, the Parties hereto agree
as follows:
1. Subject to the terms and conditions of this Agreement, FCET agrees to
provide worldwide sales and marketing, service support and engineering
management services to WRI. It is understood by the Parties that the
individuals performing these services maintain other jobs for which they are
responsible and will continue to be responsible during the term of this
Agreement. WRI shall maintain the responsibility for providing those
services normally associated with the offices of the Chief Executive Officer,
President, Chief Operating Officer and Chief Financial Officer including all
investor relations, financing, accounting, debtor relations, SEC reporting
and compliance, accounts payable and receivable management, and the overall
general administration of WRI.
2. In addition to these services, and until adequate capital or cash flow
from operations is generated, FCET agrees to organize field sale
representation through the sales team(s) of one or more companies with which
FCET executives are familiar, in order to provide broader market coverage
than WRI alone can provide. It is understood that these sales
representatives have primary responsibility to the company where they are
currently employed, but that to the degree that there is an overlap in the
market they service, they will also provide sales representation for the
ERGOS system of WRI. FCET retains all rights and control over the allocation
of time spent by these individuals selling the ERGOS system. It being
further understood by the Parties that this is a short-term accommodation
and a less than optimal approach and that at some point in the future,
predicated on available financing at any time, a sales force will be hired
directly into WRI, at which time FCET may, at its option and in its sole
discretion, discontinue the relationships with these companies.
3. This Agreement shall remain in full force and effect for a period of
three years commencing on October 22, 1997, cancelable at anytime by FCET
upon (a) six months prior written notice to WRI; (b) 30-day written notice
upon failure of WRI, upon a vacancy in the office of the President of WRI, to
hire a replacement acceptable to FCET within 30 days of the date of such
vacancy or failure of WRI to comply with Section 12, 14, 15 or 17 of this
Agreement; or (c) 10-day written notice to WRI for failure of WRI to make
payment of amounts owed to FCET pursuant to Section 4, 7, 8 and 9 of this
Agreement. WRI may immediately cancel this Agreement for cause, which shall
be defined as gross malfeasance in the performance of FCET of its obligations
under this Agreement. Upon termination by the lapsing of time, the
Agreement may be renewed by mutual consent of the Parties. Upon termination
for whatever reason, WRI shall pay to FCET all amounts earned by FCET up and
until the date of termination, in accordance with the terms and conditions of
this Agreement. Upon termination of this Agreement by FCET in accordance
with Section 3(a) or by WRI for cause (as defined above) and payment by WRI
of all amounts earned by FCET up and until the date of termination, FCET
shall return to WRI all prospect lists, customer lists and any sales and
marketing literature used by it in carrying out its activities under this
Agreement.
4. For good and valuable consideration for the services rendered by FCET
under this Agreement, WRI agrees to compensate FCET as follows:
(a) WRI will pay to FCET a monthly fee of $30,000 per month, payable in
advance of each month, plus $10,000 per month beginning January 1, 1998
for manufacturing management services if the assembly of the ERGOS system
has not been subcontracted to an outside third party by such time.
(b) WRI will pay to FCET 10% of its book revenues generated from the
sale of its products and services subsequent to the commencement date
hereof, not including recovery from bankruptcy claims or collection of
prior accounts receivable previously written off the books of WRI and
excepting the revenues from sales made to those prospects on the attached
list prior to January 21, 1998 on which FCET will be paid 2.5% of the
sale price. Amounts payable to FCET under this paragraph (b) will be
payable as collected from the account debtor with respect to sales
revenues and with respect to other revenues shall be due within five days
of each month-end.
(c) WRI will pay to FCET a $1 million cash bonus if, during the term of
this Agreement, WRI generates a cumulative total of $5 million in earnings
calculated before interest, taxes, depreciation and amortization and all
restructuring costs. It is agreed that the fees paid to FCET in (a) and
(b) above are expenses in compiling the earnings of WRI. Should the
bonus be earned, FCET and WRI shall agree to negotiate, in good faith,
reasonable payment terms at the time this target is achieved.
(d) Commencing upon termination of this Agreement due to the lapse of
time or cancellation by FCET for failure of WRI to comply with Sections
3(b) or 3(c) of this Agreement, WRI will pay to FCET a royalty of 3% of
book revenues generated during the immediately succeeding year after the
effective date of termination, 2% of book revenues generated during the
next two succeeding years after the effective date of termination and 1%
of the book revenues generated during the next succeeding year after the
effective date of termination, calculated based on the proportion of
revenues generated during each fiscal year ending June 30, and payable
within 90 days after each fiscal year end or upon completion of the annual
audit, whichever comes first.
(e) Concurrent with the execution of this Agreement, WRI shall grant to
FCET, or its designees as FCET may elect, immediately exercisable stock
options for 20% of the outstanding stock of WRI (calculated on a fully
diluted basis and after giving effect to any equity interest provided to
Xxxxxx and/or Quest with respect to the debt of WRI presently held by
them) at an exercise price equal to the lower of the share price as of the
close of business on October 21, 1997 ($.16 per share) or the closing
price as of the signing of a more detailed agreement with respect to the
matters described in this Agreement. The stock options shall have
protection against percentage dilution up to an additional $5 million in
new equity capital and WRI shall provide FCET 30 days prior written notice
of the filing of any registrations with the SEC. Prior to their
exercise, the options shall be subject to cancellation by WRI if (i) this
Agreement is canceled by WRI for gross malfeasance in the performance of
FCET under the terms of this Agreement; or (ii) the failure of Xxxxxx or
WRI to raise the necessary funds, obtain financing from other sources or
generate adequate cash from operations to enable WRI to successfully
reorganize and remain outside of Bankruptcy (which, for purposes of this
Agreement, is defined as a voluntary or involuntary or uncontested
involuntary filing for liquidation under Chapter 7 of the U.S. Federal
Bankruptcy Statutes as amended.)
5. FCET shall report to WRI's President and shall have no obligation to
interact with any other officer, director or creditor of WRI or with
investors, news or media representatives.
6. FCET shall be solely responsible for the worldwide sales and marketing
activities of WRI and, except as requested by FCET, no WRI employee shall
have any interaction with potential prospects or customers during the term of
this Agreement. Should any WRI employee engage in any unauthorized
interaction with potential prospects or customers, their names shall be
brought to the attention of the Board of Directors for a determination of
their disposition.
7. WRI shall reimburse FCET for reasonable travel and living expenses
incurred by FCET personnel or personnel from other companies that FCET
utilizes to promote the ERGOS product in the marketing of the ERGOS system,
including prospect travel to and from demonstration sites, as approved by the
President of WRI. WRI shall reimburse FCET for these expenses five business
days after their submission.
8. WRI shall reimburse FCET for all reasonable out-of-pocket expenses
incurred by any individuals acting on behalf of WRI, or for reasonable
consulting fees paid to outside third parties, both as approved by the
President. It is acknowledged and agreed that FCET has entered into a
renewal of a consulting agreement with Xxxx Xxxxxxxx commencing October 22,
1997 for an additional three months of service at a rate of $3,333.33 per
month, payable in advance of each month, which amount WRI agrees to reimburse
to FCET. Should FCET or Xx. Xxxxxxxx terminate their consulting agreement
during a month or should Xx. Xxxxxxxx fail to fulfill the responsibilities of
his consulting agreement, FCET agrees to reimburse to WRI any amounts paid to
Xx. Xxxxxxxx in advance of services rendered during that particular month.
9. WRI shall be responsible for the cost of all new hires and any
additional expenses incurred to support the operating plans of WRI, as
approved by the President. This includes the services of Xxxx Xxxxxxxx
should he become a WRI employee. Should Xx. Xxxxxxxx become an employee of
FCET, the monthly fee paid to FCET shall be increased by his cost to FCET
including his salary, benefits and travel and living expenses as agreed to
by the President of WRI.
10. It is understood by the Parties that FCET is acting solely in a
consulting capacity, that it does not have any decision making authority
with respect to the operations of WRI and that all matters pertaining to the
operation of WRI are the responsibility of the officers and directors of WRI
including, but not limited to all financing decisions, product pricing
decisions, hiring and firing of all employees and entrance into and
termination of material contracts.
11. During the term of this Agreement, FCET may have access to proprietary
and/or confidential information with respect to WRI's products, promotional
materials, current and prospective clients, and business and financial
strategies existing prior to July 21, 1997. WRI shall identify to FCET in
writing any such material that it considers of a confidential or proprietary
nature which shall include WRI's patents, copyrights and any other rights
and information relating to the ERGOS technology ("Proprietary Information").
FCET agrees that, during the term of this Agreement, such information is
proprietary and confidential and further agrees not to use such information
for any purposes other than promoting the sale of WRI products. Upon
termination of this Agreement, FCET shall return to WRI any unused materials
that it receives from WRI in connection with carrying out its activities and
all copies of any Proprietary Information.
(a) At all times during and for two years following the termination of
this Agreement, FCET covenants and agrees to hold in strictest confidence,
not disclose to any third party or use any Proprietary Information without
the express written consent of WRI or the lawful owner of the ERGOS
technology. This covenant and agreement shall survive this Agreement and
continue to be binding upon FCET after the expiration or termination
hereof, whether by passage of time or otherwise so long as the Proprietary
information shall remain Proprietary Information. Notwithstanding the
foregoing, the foregoing covenant and agreement shall run with the ERGOS
technology and any person who becomes the lawful owner of the ERGOS
technology shall have the right to waive all or any portion of FCET's
obligations hereunder.
FCET shall have no obligations or restrictions with respect to any
Proprietary Information which:
(i) has come into the public domain prior to, or after the disclosure
thereof and in such case through no wrongful act of FCET; or
(ii) has been lawfully received from a third party without
restrictions or breach of this Agreement; or
(iii) is independently developed in good faith by employees of FCET
who did not have access to the Proprietary Information; or
(iv) is approved for release or use by written authorization of WRI;
or
(v) is not properly designated or confirmed in writing as proprietary.
12. The Parties to this Agreement and WRI's officers and directors agree
to keep confidential any information pertaining to FCET or its Agreements with
FCET or any of its affiliated companies without the prior written consent of
FCET, except as may be required under SEC reporting requirements, in which
case FCET shall have the right to review and reasonably modify the information
pertaining to FCET. Furthermore, the Parties agree that they shall not
interfere with, disrupt or disparage, either publicly or privately, the
efforts of FCET or WRI, its lenders, investors, consultants or others who are
supporting the entering into of this Agreement.
13. When asked, FCET will present itself to the marketplace as a consultant
to WRI and will answer questions from the customer in an honest and direct
manner consistent with its knowledge of the facts.
14. WRI shall retain full responsibility for ensuring that any products
sold are delivered in a timely manner, free of material defects, and for
providing the resources to install, train and provide technical support and
service to customers.
15. WRI agrees to hold FCET, its employees, officers, directors, investors
and related companies harmless for any loss or damage attributable to WRI or
its products and will indemnify same for any claims made by WRI's customers,
stockholders, officers, directors or creditors unless such claims are proven
to be solely the result of gross malfeasance in the performance of FCET under
the terms of this Agreement. WRI shall maintain general and product
liability insurance with a reputable carrier, in amounts and on the same
general terms and conditions as is currently maintained, and shall name FCET
a named insured and shall deliver to FCET evidence of coverage and renewal.
WRI shall maintain directors and officers insurance with a reputable carrier,
in amounts and on the same general terms and conditions as is currently
maintained, and shall name FCET, its officers, directors and employees as
named insureds and shall deliver to FCET evidence of coverage. In addition,
WRI shall reimburse FCET for annual renewal of a $3 million E&O insurance
policy in its name, the cost of which is currently $16,000 per year and
which coverage lapses on July 21, 1998.
16. FCET understands that WRI is attempting to raise additional investment
capital from one or more sources, and FCET agrees to reasonably assist WRI by
providing information generated from sales activities for the purpose of
developing marketing and/or business plans, allowing WRI to discuss the role
of FCET in the management of WRI (subject to the prior approval of FCET) and,
if necessary, meeting with prospective investors. However, FCET shall not
be obligated to be a solicitor of funds from any source nor to write the
business plans required to raise such funds. WRI agrees to hold FCET harmless
from any claims arising from such financing activities.
17. WRI shall agree to relocate those operations for which FCET has
management responsibility to a location selected by FCET, with the mutual
consent of the President.
18. It is understood by the Parties to this Agreement that FCET makes no
representations, whether expressed or implied, as to its ability to guarantee
sufficient cash flow to support the operations of WRI.
The Parties agree that this Agreement shall be binding upon its execution
and in full force and effect until such time as a more detailed agreement
with respect to the matters described herein may be executed.
Agreed to this 4th day of November, 1997, by
FUNCTIONAL CAPACITY EVALUATION
WORK RECOVERY, INC. TECHNOLOGIES, INC.
/s/XXXXXX X. XXXXX /s/XXXXXX X. XXXXXXXXXX
CEO TREASURER
