EXCLUSIVE DISTRIBUTION
LICENSE AGREEMENT
THIS AGREEMENT is made as of the day of June, 1995, by and between
HEURISTIC DEVELOPMENT GROUP, INC. a Delaware corporation, headquartered at 17575
Pacific Coast Highway, Pacific Palisades, California 90272 (hereinafter referred
to as "HDG"), and NAUTILUS GROUP JAPAN, LTD., a Delaware corporation,
headquartered at P.O. Box 3090, Boynton Beach, Florida 33424 (hereinafter
referred to as "Distributor");
WITNESSETH:
THAT WHEREAS, HDG is engaged in the business of designing, developing and
distributing throughout the world, proprietary software and hardware products
and proprietary computerized systems relating to the management and functioning
of health clubs and similar facilities using exercise or physical fitness
equipment including without limitation computerized services and instructional
material for patrons of such clubs and facilities; as defined in Section 1.01;
and
WHEREAS, Distributor is desirous of acquiring certain exclusive territorial
rights in Japan to act as a Distributor for certain products developed by HDG;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
of the parties hereto, and in accordance with the terms and conditions specified
herein, HDG and Distributor hereby agree as follows:
ARTICLE I - DEFINITIONS
1.01 Products. Products means any and all "fitness-related" hardware and
software products owned and developed by HDG or any entity more than 50%
controlled by HDG (unless waived by NGJ, with additions and modifications by and
for HDG during the term of this Agreement, including, but not limited to those
which are merchandised under various HDG Trademarks, but specifically excludes
any products not related to the fitness market. Other than the rights granted
herein, NGJ shall have no rights to or in the Products.
1
"Fitness-related" is further defined to include only those facilities that
utilize physical fitness products such as weight training equipment, exercise
equipment, cardiovascular equipment, rehabilitation equipment, aerobic training
and equipment and other such devices as part of conducting their trade or
business. The parties hereto agree that the market includes, but is not limited
to, any type of facility that would be a customer or potential customer of a
supplier of any of the above types of equipment or training programs.
HDG will provide all software necessary to operate the Intellihealth System,
however, this obligation does not extend to Intellihealth System hardware.
1.02 HDG Trademarks. Trademarks means any and all trademarks and service
marks used to identify the products and services of HDG.
1.03 Territory. Territory means Japan.
ARTICLE II - RIGHTS AND DUTIES
2.01 Designation of Distributor. HDG hereby grants Distributor the
exclusive right and license to market, use and grant sub licenses to others to
distribute the Products within the Territory during the term of this Agreement.
2.02 Expansion of Product Lines. HDG agrees that it will extend any or all
of the rights granted herein to Distributor for all other fitness industry
products that HDG or any entity more than 50% controlled by HDG may subsequently
design, develop, license and/or distribute pursuant to Section 1.01 herein.
2.03 Compliance with Laws. Distributor shall comply with all laws, rules
and regulations existing in the Territory from time to time concerning the
Products and shall keep HDG informed of any relevant changes therein.
Distributor shall provide any import licenses that may be required for the
importation of the Products and, except as provided in Section 4.01 hereof,
shall pay all custom duties as well as any other duties and taxes payable at the
time of or by reason of the importation of the Products.
2.04 Competing Products. During the term of this Agreement, without the
prior written approval of HDG, neither Distributor nor any of its affiliates
shall distribute, manufacture or sell in the Territory any products which are
competitive with the Products; provided, however, that neither the foregoing
terms of this Section 2.04 nor the terms of Section 2.06 hereof shall apply to
or in any manner diminish or affect either (i) the rights retained by
Distributor in Section 1 of the Assignment made as of August 22, 1994 by and
2
between Nautilus Group Japan, Ltd. and EIS International Group, Ltd. (since
renamed Heuristic Development Group, Ltd.) (i.e., the right to use the "Source
Programs" and the "EIS Expert Instructor System" in Sumitomo Nautilus Clubs
pursuant to the "Franchise Agreement", as such terms are used in the
Assignment), or (ii) the licenses granted by EIS International Group, Ltd. to
Nautilus Group Japan, Ltd. pursuant to Paragraphs 6(a) and 6(b) of said
Assignment.
2.05 Activities Outside the Territory. Distributor shall not seek
customers, establish branches or maintain distribution depots for the Products
outside the Territory. Without limiting the foregoing, Distributor shall not
sell the Products to any customer who Distributor knows or has reason to believe
will sell or ship the Products outside the Territory.
2.06 Alteration of Products. Distributor shall not make any alteration to
the Products unless such alteration shall have been approved in writing by HDG.
ARTICLE III - PRICING, PAYMENT AND SHIPPING
3.01 Pricing and Payment Terms. HDG and Distributor agree that, at such
time as they believe that the Products offered for sale by HDG are in a form
suitable for sale in the Territory, they will negotiate the royalty which
Distributor shall pay HDG and the associated payment terms. It is understood
that Distributor shall pay HDG an arm's length royalty or fee on terms no less
favorable than those granted by HDG to its other distributors, but only out of
any royalties, fees or other income received by NGJ from the distribution,
license or exploitation of any such products or services in the Territory. If
HDG and Distributor cannot agree on such an arms length royalty or payment
terms, then both parties agree to settle such dispute via 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 HDG and Distributor.
3.02 Orders and Shipment.
(a) HDG shall use its best efforts to produce and to ship all approved
orders of Products in a timely manner and, whenever commercially
practical, within 45 days of the date an order is accepted. Orders
shall be accepted by HDG only on the terms and conditions agreed to by
HDG and in accordance with the procedures established by HDG for the
review, acceptance and
3
processing of such orders, the approval of which will not be
unreasonably withheld.
(b) All shipments of Products shall be EX-WORKS HDG's facilities in Los
Angeles, California USA, unless agreed to otherwise by HDG and
Distributor.
(c) All claims for damage, delay or shortage during transit shall be made
directly against the carrier by the Distributor. The Distributor shall
inspect all shipments of Products upon receipt, and shall notify HDG
of any damage or shortage within ten (10) days of receipt of such
shipment by the ultimate customer of Distributor. Failure to so notify
HDG shall constitute acceptance by the Distributor, thereby relieving
HDG of all liability for damages or shortages.
ARTICLE IV-INTELLECTUAL PROPERTY RIGHTS
4.01 Trademarks, Patents and Proprietary Rights. HDG agrees to reimburse
Distributor promptly upon request or pay directly all fees and expenses
associated with the registration, application and enforcement of all trademarks,
patents and proprietary rights within the Territory.
4.02 Trademark Rights. HDG shall retain full ownership of all HDG related
trademarks and associated registrations and applications therefor in the
Territory during the entire term of this Agreement and thereafter, and
Distributor agrees that nothing contained herein shall give to Distributor any
right, title or interest in the HDG trademarks in the Territory or elsewhere
except the right to use the same in accordance with the terms of this Agreement.
Distributor agrees that any and all use which it makes of the HDG trademarks
shall inure exclusively to the benefit of HDG.
4.03 Trademark Notice. Distributor agrees to depict appropriate trademark
notices, such as "(R)" and "TM", whenever it uses the HDG trademarks on or in
connection with the Products and related services covered by this Agreement.
Distributor shall obtain the prior approval of HDG of all advertising,
promotional material, labels and other items containing HDG's tradenames or
trademarks. For purposes of this Section 4.03, if HDG shall not reject any
advertising, promotional material, labels or other items within fifteen (15)
days of receipt, it shall be deemed to have granted its approval.
4.04 Notification of Infringement. Distributor agrees to notify HDG
promptly in the event Distributor determines that any patent, trademark or
4
other proprietary rights of HDG are being infringed by any unauthorized acts of
third parties, and Distributor further agrees to take no action of any kind with
respect to such infringement except in accordance with the express written
authorization of HDG. While it shall be at the sole discretion of HDG whether to
take appropriate action with respect to such infringement, HDG shall use its
best efforts to abate such infringement, and if any action is taken, HDG shall
be solely responsible for the prosecution and expense of such action, and HDG
shall retain any and all monetary recoveries derived therefrom. Distributor
shall cooperate with HDG in the prosecution of any such infringement.
Distributor shall be reimbursed for its reasonable out-of-pocket expenses
incurred in connection with any such prosecution.
ARTICLE V - TERM AND TERMINATION
5.01 Term. This Agreement shall be effective as of the date which the first
set forth above, and shall remain in effect until it is terminated by notice in
writing:
(a) delivered not less than ninety (90) days in advance by either party to
the other, effective on the fifth, tenth, fifteenth, twentieth, or any
subsequent five-year anniversary of the date (as agreed to in writing
by the parties hereto) on which the first Product is in a form
suitable for sale within the Territory (the "Commencement Date");
(b) delivered by either party to the other, effective as of the last day
of any month, if the party receiving such notice is in default in the
payment of any sums due under this Agreement, or has breached any
covenant or agreement contained in this Agreement, and such default or
breach has continued unremedied for thirty days after receipt by the
defaulting or breaching party of written notice thereof;
(c) delivered by either party to the other, effective as of the last day
of any month, if the party receiving such notice has been adjudicated
bankrupt or makes a general assignment for the benefit of creditors;
or has commenced a voluntary proceeding under any bankruptcy,
insolvency or similar law or acquiesces in the commencement of such
proceeding; or has such a proceeding commenced against it which
remains undismissed for thirty days; or suffers the appointment of a
receiver, liquidator or custodian for its assets which appointment
remains undischarged for thirty days.
5
(d) delivered pursuant to Section 5.03 (b).
5.02 Right of First Refusal. If HDG shall terminate this Agreement pursuant
to Section 5.01(a) hereof, and within one hundred twenty (120) days thereafter
propose to enter into an agreement with a third party (the "New Agreement") to
distribute the Products in the Territory, HDG shall provide Distributor with the
proposed terms of the New Agreement. Distributor may elect to distribute the
Products in the Territory on the terms of the New Agreement by giving notice to
HDG within thirty (30) days of receipt of the terms of the New Agreement.
5.03 Injunctive Relief and Failure to Exploit.
(a) HDG trademarks and other assets proprietary to HDG which are the
subject of this Agreement are unique and of great value to HDG, and
would be impossible to replace. Accordingly, because a breach of this
Agreement by Distributor would cause HDG irreparable damage, HDG
shall have the right to injunctive relief in the event of such a
breach, in addition to all other remedies available at law or equity,
all of which remedies shall be cumulative.
(b) Distributor shall use reasonable commercial efforts to exploit the
Products in the Territory during the term of this Agreement. If
Distributor shall fail to use such reasonable commercial efforts, then
HDG, at its option, and as its sole remedy for such failure fly
Distributor, may terminate this Agreement upon sixty days' notice to
Distributor, at any time after the third anniversary of the
Commencement Date.
5.04 Survival of Covenants. Termination of this Agreement shall not affect
the continuing validity and enforceability of Sections 4.02, 6.04 and 6.12
hereof.
ARTICLE VI - MISCELLANEOUS
6.01 Assignability.
(a) This Agreement and the rights granted hereunder to Distributor shall
in no event be construed to be an assignment to Distributor of any
ownership interest in the property rights of HDG which are the subject
of this Agreement. The rights herein granted shall be personal to
Distributor and shall not be sold, assigned, divided, transferred or
encumbered, but may be sub licensed in connection with sales of the
Products by Distributor, either
6
voluntarily or by operation of law, without the prior written consent
of HDG, which consent shall not be unreasonably withheld.
(b) This Agreement, and all terms and conditions provided herein, shall
inure to the benefit of HDG and to its successors and assigns, and to
NGJ and to its successors and permitted assigns, without limitation.
6.02 Independent Contractor Status. No joint venture, association or
partnership is created by this Agreement, and HDG and Distributor are
independent contractors with respect to each other, and neither shall have any
power, nor shall either represent that it has any power, to bind the other or to
assume or to create any obligation, express or implied, on behalf of the other
party, or in the other party's name.
6.03 Warranties and Maintenance. With respect to Products purchased by
Distributor from HDG, HDG shall furnish Distributor with its standard written
limited warranties, which in turn Distributor shall furnish to the ultimate
customer to whom Distributor or its representative sells the Product.
Distributor is not authorized to make and shall not make on behalf of HDG any
warranties or representations concerning the workmanship, merchantability or
fitness for a particular purpose of any such Products, other than those
contained in HDG's standard written limited warranties, except as required by
law. Distributor shall be responsible for performing all warranty, repairs and
all maintenance on such Products sold by Distributor or its representatives
within a reasonable time after notification by the customer or HDG of the need
therefor, and all such repairs and maintenance shall be done in a competent and
workmanlike manner so that the Products shall perform according to HDG's
specifications. Distributor shall not make any alterations in or modifications
of any HDG product without written authorization from HDG but shall make all
such alterations and modifications required by HDG, at the expense of HDG.
Distributor shall be reimbursed for its out-of-pocket expenses reasonably
incurred in connection with all warranty service work requested or authorized by
HDG. Nothing herein shall prohibit Distributor from performing any warranty work
required by law provided that Distributor notifies HDG, prior to performing such
work, of such requirement.
7
6.04 Indemnity.
(a) Distributor shall indemnify HDG from any and all liability, loss,
damage, expense, costs and attorney's fees HDG may suffer or incur as
a result of asserted claims, demands, costs or judgments against it
arising out of any claimed or actual defects or negligence pertaining
to the services rendered by Distributor or its employees or agents,
regardless of the nature of the claimed or actual defects or
negligence except for design defects in Products specified by HDG, and
as a result of any breach of any term or condition of this Agreement
by Distributor or arising from any contractual dispute between
Distributor and Sumitomo Nautilus Clubs.
(b) During the entire Term of this Agreement, Distributor shall maintain
adequate amounts of general liability insurance directed to its
operations and the Products subject to this Agreement, but not less
than One Million Dollars ($l,000,000.00) in cumulative coverage, and
the coverage of such insurance shall extend to HDG and to the
customers of Distributor. Distributor shall furnish HDG a
certificate(s)) evidencing the aforementioned minimum amount of
general and product liability Insurance, and Distributor agrees that
no reduction in the amount of such general liability insurance shall
be made without the prior written consent of HDG.
(c) HDG shall indemnify Distributor from any and all liability, loss,
damage, expense, costs and attorney's fees Distributor may suffer or
incur as a result of Distributor merchandising the Products in the
Territory pursuant to the provisions of this Agreement, based upon any
asserted claims, demands, costs or judgments against Distributor (i)
arising out of any claimed or actual infringement of trademark,
patent, trade secret or similar proprietary rights owned by third
parties in the Territory with respect to the HDG trademarks or the
Products, or (ii) arising out of any claimed or alleged defective
Products, warranty claims respecting the Products and other similar
actions.
(d) During the entire Term of this Agreement, HDG shall maintain adequate
amounts of general liability and product liability insurance directed
to its operations and the Products subject to this Agreement, but not
less than One Million Dollars ($1,000,000.00) in cumulative coverage,
and the coverage of such insurance shall extend to both HDG and its
customers, including Distributor and its customers in the Territory.
HDG shall furnish Distributor a certificate(s) evidencing the
8
aforementioned minimum amount of general and product liability
insurance, and HDG agrees that it will not reduce its coverage of such
insurance below the aforementioned minimum amount without the prior
written consent of Distributor.
6.05 Advertising Support and Cooperation. HDG shall furnish Distributor,
without charge, such advertising, promotional and merchandising support
materials which HDG prepares in the normal course of business for its
distributors. Upon request of Distributor, and subject to availability, HDG
shall furnish Distributor, without charge, proofs, prints and camera-ready
artwork with respect to such materials for the use of Distributor in adapting
such materials for use in the Territory. Distributor may have the English
language text of such materials translated into Japanese for use in the
Territory, it being understood that all claims to copyright in such materials,
whether in English or Japanese, shall remain the property of HDG. All claims to
copyright with respect to original materials prepared by or for Distributor
which use the HDG trademarks shall be the property of HDG.
6.06 Severability. In the event any one or more of the provisions contained
in this Agreement shall, for any reason, by held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.
6.07 Modification. No renewal or termination notice hereof, or modification
or waiver of any of the provisions herein contained, or any future
representation, promise or condition in connection with the subject matter
hereof, shall be binding upon either party unless made in writing and signed on
its behalf. A mere acknowledgment or acceptance of any action inconsistent with
the provisions of this Agreement, or failure to object thereto, shall not be
deemed an acceptance or approval of such inconsistent provisions.
6.08 Authority. HDG and Distributor each represent and warrant to each
other that it has duly authorized the execution of this Agreement, that its
obligations hereunder are legal and binding upon it and do not violate any other
agreement to which it is a party and that it will use its best efforts to carry
out the marketing activities and other actions called for herein with respect to
sales of the Products in the Territory.
6.09 Integration. This Agreement supersedes and is in lieu of all existing
Agreements or arrangements between the parties relating to the subject matter
hereof, and contains the entire Agreement between HDG and
9
Distributor. There are merged herein all prior and collateral representations,
promises and conditions in connection with the subject matter hereof. Any
representation, promise or condition not incorporated herein shall not binding
upon either party.
6.10 Governing Law. The construction, validity and performance of this
Agreement shall be determined in accordance with and governed by the laws of the
State of California. HDG and Distributor both waive any and all objections,
including, without limitation, objections to jurisdiction, to the exclusive use
of the state and federal courts of the State of California for the resolution of
any and all disputes which may arise between the parties.
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 arbitraton. The costs and fees paid to the arbitrator(s) will be split
equally between HDG and Distributor.
6.11 Notices. Notices to be sent under the terms of this Agreement shall be
sent to the following addresses:
If to Nautilus Group Japan, Ltd.:
c/o Clark Management Company
P.O. Box 3090
Boynton Beach, FL 33424
Attention: Gregory L. Zink, Chief Operating Officer
If to Heuristic Development Group, Inc.:
17575 Pacific Coast Highway
Pacific Palisades, CA 90272
Attention: Deborah E. Griffin, Chief Operating Officer
6.12 Confidentiality. Distributor agrees that neither it nor its employees
or agents shall make any unauthorized use or disclosure of Confidential
Information. Distributor shall be responsible for any unauthorized use or
disclosure of Confidential Information made by any of its employees and agents
and shall take reasonable precautions to prevent such use or disclosure. As used
herein, "Confidential Information" shall mean any and all trade secrets and
other information relating to the Products and the business of HDG or this
Agreement that has not been previously
10
publicly released by duly authorized representatives of HDG. The term
"Confidential Information" shall not, however, include (i) information that, at
the time of use or disclosure is publicly known, other than as a result of a
breach of this Agreement, (ii) information that Distributor can demonstrate was
known to it prior to the time it was obtained from HDG, and (iii) information
which was obtained from a third party who was entitled to provide such
information to Distributor.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
hereby have by their respective duly authorized officers caused this Agreement
to be executed and attested, all being done as of the day and year first above
written.
HEURISTIC DEVELOPMENT GROUP, INC
By: /s/ Steven R. Gumins
--------------------------
Steven R. Gumins
Chief Executive Officer
Attest:
By: /s/ Deborah E. Griffin
-------------------------
Deborah E.Griffin
Chief Operating Officer
NAUTILUS GROUP JAPAN, LTD.
By: /s/ Gregory L. Zink
--------------------------
Gregory L. Zink
Chief Operating Officer
Attest:
By: /s/ Jerald N. Downen
--------------------------
Jerald N. Downen
Executive Vice President
11