RETAINER AGREEMENT
THIS AGREEMENT, made as of August 16, 1994 by and between EIS INTERNATIONAL
GROUP, LTD., a Delaware corporation ("EISIG"), and TRANSPAC SOFTWARE, INC., a
California corporation ("TPS"),
WITNESSETH:
THAT WHEREAS, EISIG is the owner, through assignment from Nautilus Group
Japan, Ltd., of computer source programs and related documentation (the "Source
Programs") for proprietary computerized systems relating to the management and
functioning of health clubs and similar facilities using exercise or fitness
equipment including without limitation computerized services and instructional
material for patrons of such clubs and facilities (collectively the "EIS Expert
Instructor System");
WHEREAS, EISIG wishes to retain TPS to assist EISIG in updating and
improving the Source Programs and in designing, developing and implementing such
improved Source Programs for use in the EIS Expert Instructor System and related
uses including, without limitation, other applications of the Source Programs
including insurance, weight loss, home and commercial exercise equipment, home
entertainment and credit and debit cards;
WHEREAS, TPS wishes to provide such assistance to EISIG upon the terms set
forth below;
NOW THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby mutually
acknowledged, the undersigned parties hereby covenant and agree as follows:
1. Services.
1.1. Software Specification. TPS and EISIG will jointly develop the
specification for an update to the existing Source Programs (the
"Specification"). The product described by the Specification (the "Release")
will be an advance over the existing EIS Expert Instructor System, and will
require approximately 2,200 hours of development time, with a minimum of 250
hours of development time per month. It is anticipated that the Release will
require no more than six months of development by TPS, using best commercially
reasonable efforts. When TPS and EISIG have mutually agreed upon the
Specification, the Specification will be incorporated
into this Agreement as Appendix A, and development of the Release based on the
Specification will commence.
1.2. Software Release. TPS will use its best commercially reasonable
efforts to complete the Release as promptly as practicable, and in any event
within six months from the date that the Specification is mutually Agreed upon.
1.3. TPS's Performance. TPS will perform the services under the direction
of EISIG. TPS, however, will determine the manner and means by which the
services are accomplished, subject to the express condition that TPS will at all
times comply with applicable law. TPS is an independent contractor without
authority to bind EISIG by contract or otherwise, and neither TPS nor TPS's
employees and agents are employees or agents of EISIG. TPS will provide
semi-monthly progress reports to EISIG in a form to be agreed upon by TPS and
EISIG.
1.4 Acceptance and Testing. Upon TPS's determination that the Release is
finished, TPS will deliver to EISIG the Release and written notice thereof.
EISIG will have fifteen (15) business days from TPS's delivery of the Release to
accept or reject the Release. EISIG will not unreasonably withhold its
acceptance.
1.5 Rejection of Release. In the event of EISIG's rejection of the Release,
EISIG will give to TPS written notice specifying the errors causing rejection.
If an express written approval or rejection is not received by TPS within such
period of fifteen (15) business days, EISIG will be deemed to have accepted the
Release.
1.6. Resubmission. In the event of such rejection, TPS will have a period
of ten (10) business days after receipt of notification of rejection to cure the
defects or other nonconformity set forth in such notice. Upon completion of such
cure TPS may resubmit the Release for acceptance in accordance with Section 1.4
above. The sequence of submission, rejection, and resubmission may occur
multiple times.
1.7 Maintenance. TPS will provide error fixes to the Release on a priority
basis for a period of three (3) months immediately following acceptance of the
Release by EISIG, at no further cost to EISIG. Errors include but are not
limited to conditions which result in system crashes, the failure to provide a
specified function, the failure to provide a specified user interface, and the
failure to provide the specified performance ("TPS Errors"). TPS Errors do not
include errors which were known to exist in the existing EIS Expert Instructor
System at the time that development of the
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Release began and the correction of which were not included in the Specification
(all such excluded errors being set forth in Appendix B attached hereto), or
errors which are the result of errors in code or data which was not developed by
TPS. The hours spent by TPS investigating error reports which are determined by
mutual consent of TPS and EISIG not to be TPS Errors will be compensated at the
consulting rate specified by Paragraph 2.4 of this Agreement.
1.8 Arbitration. TPS and EISIG will use their best efforts to resolve by
mutual agreement any disputes, controversies, or differences which may arise
from, under, out of, or in connection with acceptance of the Release. If such
disputes, controversies , or differences cannot be settled between the parties,
they will be settled finally by arbitration which will be in California and will
be in accordance with the Commercial Arbitration Rules of the American
Arbitration Association. The decisions rendered by the arbitrator(s) will be
final and binding upon both parties. Each party will bear its own expenses in
any such arbitration. The costs and fees paid to the arbitrator(s) will be
split equally between TPS and EISIG.
2. Payment.
2.1. Fees. EISIG shall pay TPS a fee of $120,000 for its development and
completion of the Release as described in Paragraphs 1.1 and l.2 above. The fee
will be paid in six monthly installments of $20,000, commencing approximately
30 days after agreement upon the Specification. There will be no reduction in
the fee if the Release is completed prior to the expiration of the six-month
period and no additional payment if the Release is not completed until after the
expiration of the six-month period. The fee referred to above is inclusive of
all services required, including testing and revisions required in the release
cycle to produce a final product for acceptance by EISIG.
2.2. Stock Option. As an additional incentive to TPS to complete the
development of the Release as quickly as possible, EISIG shall grant to TPS an
option to acquire ten percent (10%) of the common stock of EISIG at an exercise
price per share equal to that paid by the initial purchasers of EISIG's common
stock. The option shall become exercisable upon EISIG's written acceptance of
the Release pursuant to Paragraphs 1.4 through 1.6 hereof.
2.3. Preemptive Rights. TPS shall have a preemptive right, but no
obligation, to acquire additional shares of EISIG common stock at the same price
per share at which TPS may acquire its shares upon exercise of its option, to
the extent necessary to avoid dilution of its common stock
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interest to less than 10%, provided that such preemptive right shall only apply
with respect to any purchase or purchases of EISIG common stock, up to an
aggregate of twenty percent (20%) of such stock, by Xxxxxxxx Xxxxxxx. Such
preemptive right shall terminate on the day which is six months after the
earlier of (i) the date on which EISIG shall have provided TPS with written
notice that EISIG has accepted the Release, and (ii) the date on which EISIG
shall have been deemed to accept the Release pursuant to Paragraph 1.5 above.
2.4 Future Services. Following completion of the Release, EISIG shall not
guarantee any additional contracted work for TPS . However, TPS agrees to
provide its services upon EISIG's request in designated, scheduled projects
through December 31, 1998. The first 500 hours of services per calendar year
(ignoring for this purpose any services provided in development of the Release
pursuant to Paragraphs 1.1 through 1.3 hereof) shall be paid at a rate of $125
per hour, and the second 500 hours of services per calendar year (and any
additional time) shall be paid at a rate of $150 per hour. TPS will submit
written invoices to EISIG promptly with respect to each semi-monthly period
ending on the 15th or last day of each calendar month during which such services
are performed, detailing in summary form the services performed by TPS for EISIG
since the commencement of the designated project or the period covered by the
last invoice, as the case may be, and the number of hours devoted to such
services. EISIG will, if practicable, pay each such invoice within fifteen
days of its receipt by EISIG, but shall have a 30-day grace period in which to
complete the payment of any such invoice .
2.5. Vesting. The stock acquired upon exercise of the option described in
Paragraph 2.2 and pursuant to the preemptive rights described in Paragraph 2.3
shall vest at a rate of 25% per calendar year, and shall occur at December 31 of
each calendar year following the exercise of the option regardless of when the
preemptive rights are exercised, but in no event earlier than December 31, 1995.
Vesting in any year shall be contingent on TPS performing up to l,OOO hours of
service during such year (but not to exceed 5O hours in any calendar week
without TPS' consent), exclusive of any services provided pursuant to Paragraphs
1.l through 1.3 hereof, upon written request from EISIG and upon the terms
described in Paragraph 2.4. If EISIG does not request that TPS perform such
services in any year, then vesting for such year shall occur as though such
services had been requested and performed. If TPS fails to perform such
requested services in any year, all of TPS's shares which have not vested prior
to such year shall be subject to an option by EISIG to redeem such shares at a
price per share equal to the lesser of book value per share or the price per
share paid by TPS to purchase such shares pursuant to its option (the
"Redemption Option").
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Notwithstanding anything in the foregoing provisions of this Paragraph 2.5 to
the contrary, any and all of TPS's shares which have neither vested nor become
subject to the Redemption option as of the date of the occurrence of the first
of the following events to occur, shall upon such occurrence immediately vest:
(i) the closing of an initial public offering of the Company's stock or a
private placement of the Company's stock for an amount in excess of $5,000,000;
(ii) the Company's adoption of any plan of liquidation providing for the
distribution of all or substantially all of its assets; and (iii) a disposition
of all or substantially all of the business of the Company by sale or pursuant
to a merger, consolidation or other transaction (unless the existing
shareholders own, directly or indirectly, 50% or more of the voting stock or
other ownership interests of the entity or entities, if any, that succeed to the
business of the Company).
3. Board Representation.
TPS shall have one representative on EISIG's board of directors, which
board shall initially be comprised of six members, but may be expanded to
fifteen members. Each member of the board shall have one vote.
4. Term.
The term of this Agreement shall commence as of the date first set forth
above and shall terminate at December 31, 1998.
5. Exclusivity of Retainer.
Without the prior written consent of EISIG, neither TPS nor any of its
present employees shall, prior to the termination date of this Agreement and for
two years thereafter, develop or market software which is competitive with the
Release or the EIS Expert Instructor System as enhanced by the Release (the
"Enhanced EIS Expert Instructor System") or knowingly assist others in such
development.
6. Ownership.
6.1. Disclosure and Right to Use. With respect to all subject matter,
including ideas, processes, designs and methods, which TPS shall disclose or use
in its performance under this Agreement, TPS warrants that it has the right to
make such disclosure and it and EISIG have the right to use such subject matter
without liability to others.
6.2. Assignment of Rights. All copyright, intellectual property rights and
analogous rights throughout
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the world in the EIS Expert Instructor System, the Enhanced EIS Expert
Instructor System and the Release, to the extent now or hereafter possessed by
TPS or its employees, are hereby assigned to EISIG.
6.3. Ownership by EISIG. The product of all work performed under this
Agreement, including without limitation reports, documentation, drawings,
computer programs, inventions, masks, mask-works, devices, models and work in
progress, shall be the sole property of EISIG, and TPS hereby assigns to EISIG
all right, title and interest thereto. TPS agrees to assist EISIG and its
nominees in every proper way, entirely at EISIG's expense, to secure, maintain,
and defend for EISIG's benefit all copyrights, intellectual property rights and
patents relating to the Enhanced EIS Expert Instructor System and the Release in
any and all countries, such material to remain the property of EISIG whether
copyrighted, patented or not. Without limiting the generality of the foregoing,
TPS will execute and deliver such further conveyances, transfers and other
instruments as EISIG may request further to confirm and effect EISIG's ownership
of all such material.
6.4. Delivery of Source Files. Upon execution of this Agreement, TPS will
(i) deliver to EISIG a fully commented and properly documented copy of the
current version of the source files and object programs of the EIS Expert
Instructor System and all documentation associated with such source files and
object programs, and (ii) commence delivery to EISIG of a fully commented and
properly documented copy of the version of the source files and object programs
of the Release (in such stage of development as the Release shall be from time
to time) which copy is current at the time of delivery, and all documentation
associated with such source files and object programs, delivery being made upon
request from EISIG, but not more often than every 30 days. It is understood by
both parties that a source file is the version of the computer software program
that is intelligible to humans. Throughout the term of this Agreement, TPS will
diligently maintain the source files and object programs of the Release and all
documentation associated therewith so that at all times such source files and
associated documentation are functionally identical (using industry standard
levels of accuracy) to the object programs of the EIS Expert Instructor System
and Release which are operative from time to time. If, from time to time after
the Release, EISIG desires documentation (for example, functional
specifications) in addition to that which exists for the most current version of
the Release, TPS will develop the documentation under the post-Release
consulting terms contained in Paragraph 2.4 of this Agreement.
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6.5. Return of Property. TPS shall not remove any EISIG property from the
premises of EISIG without the prior written consent of EISIG. TPS shall return
to EISIG any EISIG property that has come into its possession during the term of
this Agreement when requested by EISIG, and in any event shall do so upon
termination of this Agreement unless TPS receives written authorization from
EISIG to keep such property.
6.6. Use by TPS of Knowledge. Notwithstanding the foregoing, nothing in
this Agreement will operate to prohibit or restrict TPS or any person related to
TPS from exercising any general skill, knowledge and experience derived in the
course of carrying out its obligations under this Agreement, provided such
exercise does not breach TPS's obligations of confidentiality pursuant to
Paragraph 7 below.
7. Confidentiality.
Neither TPS nor EISIG will, either during or subsequent to the term of this
Agreement, directly or indirectly divulge to any unauthorized person any
information designated as confidential by the other, nor will either disclose to
anyone other than their respective employees or use in any way, other than in
the course of the performance of this Agreement, any information regarding the
other including the other's know-how not known to the general public or
recognized as standard practice. The foregoing restrictions shall not apply to
information which (a) is known to the receiving party at the time of disclosure
to the receiving party, (b) has become publicly known through no wrongful act of
the receiving party, (c) has been rightfully received by the receiving party
from a third party without restriction on disclosure and without breach of this
Agreement, (d) has been independently developed by the receiving party, (e) has
been approved for release by written authorization of the other party or (f) has
been disclosed pursuant to a requirement of law.
8. Indemnity.
8.1. Mutual Indemnification. TPS will indemnify EISIG and hold it harmless
from and against all claims, damages, losses and expenses, including without
limitation reasonable attorneys' fees and costs of suit, to the extent arising
out of or in connection with (a) any knowing and willful infringement of the
patent, copyright, or intellectual property rights of others on the part of TPS
or TPS's employees or agents; or (b) any grossly negligent or willful act or
omission of TPS or TPS's employees or agents which proximately causes or
contributes to (i) any bodily injury, sickness, disease or death; (ii) any
injury to or destruction of tangible or intangible property (including computer
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programs and data) or any loss of use resulting therefrom; or (iii) any
violation of any statute, ordinance or regulation; or (c) any claim by a party
unaffiliated with EISIG with respect to misleading statements,
misrepresentations or fraud on the part of TPS or any TPS employee, agent or
representative, provided TPS is notified promptly in writing and is given full
authority, information and assistance for the defense, and provided further that
TPS will not be responsible for any settlement made without its consent or for
any of EISIG' s attorneys' fees or costs after TPS assumes the defense.
If TPS receives notice of an alleged infringement or if EISIG's use of any
product developed under this Agreement by TPS (a "Product") is prevented by an
injunction based on an alleged infringement, TPS will have the right, at its
option, to obtain the rights to continued use of the Product, to substitute
other suitable software, or to modify the Product so that it is suitable but no
longer infringing. TPS will have no liability to EISIG under this Paragraph 8.1
if a claim is based upon the use of Products in combination with equipment,
devices or software not delivered by TPS, or the use of any Products in a manner
for which the same were not designed or approved by TPS, or the modification of
Products by EISIG or any third party without the approval of TPS.
EISIG will indemnify TPS and hold it harmless from and against all claims,
damages, losses and expenses, including without limitation reasonable attorneys
fees and costs of suit, to the extent arising out of or in connection with (a)
any negligent or willful act or omission of EISIG or EISIG's employees or agents
which proximately causes or contributes to (i) any bodily injury, sickness,
disease or death; (ii) any injury to or destruction of tangible or intangible
property (including computer programs and data) or any loss of use resulting
therefrom; or (iii) any violation of any statute, ordinance or regulation; or
(b) any claim by a party unaffiliated with TPS with respect to misleading
statements, misrepresentations or fraud on the part of EISIG or any EISIG
employee, agent or representative, provided EISIG is notified promptly in
writing and is given full authority, information and assistance for the defense,
and provided further that EISIG will not be responsible for any settlement made
without its consent or for any of TPS's attorneys' fees or costs after EISIG
assumes the defense.
8.2. Indemnity for Certain Taxes. TPS will indemnify EISIG and hold it
harmless to the extent of any obligation imposed on EISIG (a) to pay any
individual income withholding taxes, social security, unemployment or disability
insurance or similar items, including interest and penalties thereon, in
connection with any payments made to TPS by EISIG
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pursuant to this Agreement or (b) resulting from TPS's being determined not to
be an independent contractor.
8.3. Insurance. TPS agrees to carry the following minimum insurance:
(a) Comprehensive General Liability with limits not less than $500,000
combined single limit.
(b) Automobile Liability with limits not less than $500,000 bodily
injury and property damage combined.
(c) Workers Compensation and Employers Liability in compliance with
all statutory and regulatory requirements in California .
Before beginning work under this Agreement, TPS will deliver to EISIG a
Certificate of Insurance which shows the coverage specified above, which names
EISIG as an additional insured, and which provides a 3O-day notice period for
cancellation or reduction in coverage or limits.
9. Effect of Termination.
Upon the termination of this Agreement each party shall be released from
all obligations and liabilities to the other occurring or arising hereunder
thereafter, except that such termination shall not relieve (a) TPS of its
obligations under Xxxxxxxxx 0, 0, 0 xx 0, (x) EISIG of its obligations under
Paragraph 7 or 8, or (c) either party from liability arising from breach of this
Agreement.
10. Assignment.
The rights and liabilities of the parties hereto shall bind and inure to
the benefit of their respective successors, executors, administrators and
assigns, as the case may be; provided that, since EISIG has specifically
contracted for TPS's services, TPS may not assign or delegate its obligations
under this Agreement either in whole or in part without the prior written
consent of EISIG. EISIG may in its discretion assign this Agreement in whole or
in part.
11. Equitable Relief and Attorneys' Fees.
11.1. Equitable Relief. Because the services to be provided by TPS
hereunder are personal and unique, and because TPS shall have access to and
become acquainted with confidential information of EISIG, TPS expressly agrees
that breach of this Agreement will result in irreparable harm to EISIG and that
EISIG will have the right to enforce this Agreement and its provisions by
injunction, specific
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performance or other equitable relief without prejudice to any other rights and
remedies that EISIG may have.
11.2. Attorneys' Fees. If any action at law or in equity is necessary to
enforce the terms of this Agreement, the prevailing party shall be entitled to
reasonable attorneys' fees, expert witness fees, costs of suit and expenses in
addition to any other relief to which such prevailing party may be entitled.
12. Governing Law.
The parties agree that this Agreement will be governed by and construed in
accordance with the laws of the State of California as applied to transactions
taking place wholly within California between California residents. If any
provision of this Agreement is for any reason found by a court of competent
jurisdiction to be unenforceable, such unenforceability will not render this
Agreement unenforceable or invalid as a whole and, in such event, such provision
will be changed and interpreted so as to best accomplish the objectives of such
unenforceable provision within the limits of applicable law.
13. Complete Understanding, Modification.
TPS and EISIG acknowledge that each has read this Agreement, understands
it, and agrees to be bound by its terms. TPS and EISIG further agree that this
Agreement and any written modifications made pursuant to it constitute the
complete and exclusive expression of the terms of the Agreement between TPS and
EISIG, and supersede all prior or contemporaneous proposals, oral or written,
understandings, representations, conditions, warranties, covenants and all other
communications between TPS and EISIG relating to the subject matter of this
Agreement. TPS and EISIG further agree that the headings of this Agreement are
for convenience of reference only and are not part of the substance of this
Agreement. TPS and EISIG further agree that this Agreement may not in any way be
explained or supplemented by a prior or existing course of dealings between the
parties, by any usage of trade or custom, or by any prior performance between
the parties pursuant to this Agreement or otherwise. The terms of this Agreement
apply to all purchase orders or analogous documents issued by EISIG before or
after execution of this Agreement, and the additional terms and conditions
contained in any such purchase orders are of no force and effect. Any waiver,
modification or amendment of any provision of this Agreement will be effective
only if in writing and signed by the parties to this Agreement.
14. DISCLAIMER OF WARRANTIES AND LIMITATION OF LIABILITY
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14.1. DISCLAIMER OF WARRANTIES. PARAGRAPHS 6.1 AND 8 STATE TPS'S SOLE AND
EXCLUSIVE OBLIGATION TO EISIG FOR ANY ALLEGED INFRINGEMENT OF ANY PROPRIETARY
RIGHT OR BREACH OF WARRANTY. EXCEPT FOR THE EXPRESS WARRANTIES STATED IN THIS
AGREEMENT, TPS MAKES NO ADDITIONAL WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, AS
TO ANY MATTER WHATSOEVER. IN PARTICULAR, ANY AND ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE ARE EXPRESSLY EXCLUDED.
14.2. LIMITATION OF LIABILITY. THE RIGHTS GRANTED TO EISIG UNDER PARAGRAPHS
6.1 AND 8 WILL BE EISIG's SOLE AND EXCLUSIVE REMEDY FOR ANY ALLEGED INFRINGEMENT
OF ANY PATENT, COPYRIGHT, TRADEMARK OR OTHER PROPRIETARY RIGHT AND FOR BREACH OF
WARRANTY. TPS WILL HAVE NO LIABILITY TO EISIG OR OTHER PARTIES FOR ANY DAMAGES,
INCLUDING ANY LOST PROFITS, LOST SAVINGS OR OTHER INCIDENTAL, CONSEQUENTIAL OR
SPECIAL DAMAGES EVEN IF TPS OR ANY TPS SALES REPRESENTATIVE HAS BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES, OR FOR ANY CLAIM BY ANY OTHER PARTY.
15. Notices.
All notices and other communications required or permitted to
be given under this Agreement must be in writing and will be effective when
delivered personally or deposited in the mail, postage prepaid and addressed to
the parties at their respective addresses set forth below, or at any new address
or addresses subsequently designated in writing by either party to the other:
EISIG TPS
17575 Pacific Coast Highway 0000 Xxxxxxx Xxxxx Xxxx.
Xxxxxxx Xxxxxxxxx, XX Suite 245
90272 Xxx Xxxx, XX 00000
IN WITNESS WHEREOF the parties have executed this Agreement by their agents
duly authorized in that regard on the date first written above.
EIS INTERNATIONAL GROUP, LTD. TRANSPAC SOFTWARE, INC.
/s/ Xxxxxxx X. Xxxxxxx /s/ Xxxxxxx Xxxxxxx
----------------------- ------------------------
Xxxxxxx X. Xxxxxxx Xxxxxxx Xxxxxxx
Chief Operating Officer President
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