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EXHIBIT 10.15
SETTLEMENT AGREEMENT
This SETTLEMENT AGREEMENT dated as of July 6, 1997 (this "Agreement") is
entered into by and among Eco Soil Systems, Inc., a Nebraska corporation ("Eco
Soil"), and Encore Technologies, Inc., a Minnesota corporation ("Encore"). The
foregoing parties are sometimes collectively referred to herein as the
"parties."
RECITALS
A. CONSULTING AGREEMENTS. Eco Soil and Encore are parties to an
Exclusive Consulting Agreement, dated as of January 1, 1995 (the "Existing
Consulting Agreement"), pertaining to, among other things, Eco Soil's
proprietary BioJect(TM) system.
B. LICENSE AGREEMENTS. Eco Soil and Encore are parties to the license
agreements listed on Exhibit "A" hereto (the "License Agreements"). The
Consulting Agreement and the License Agreements are sometimes referred to herein
collectively as the "Existing Agreements."
C. PURPOSE. The parties now desire generally to restructure their
relationship such that, among other things, Encore's role as a consultant will
be eliminated and its ability to enter the production business will be enhanced.
To effect the restructuring, (i) the parties will suspend the Existing
Agreements, (ii) Encore will transfer to Eco Soil all of Encore's intellectual
property rights in "Media" (as defined in the Assignment of Media Intellectual
Property attached hereto as Exhibit "B" (the "Assignment of Media Intellectual
Property")), (iii) Encore will transfer to Eco Soil all of Encore's intellectual
property rights in "TX-1" (as defined in the Assignment of TX-1 Intellectual
Property attached hereto as Exhibit "C" (the "Assignment of TX-1 Intellectual
Property")), (iv) the parties will enter into the License and Supply Agreement
attached hereto as Exhibit "D" (the "License and Supply Agreement"), which
relates to the licensing by Encore to Eco Soil of "AZO" (as defined therein),
and the production and sale of "Inoculum" (as defined therein), (v) Eco Soil
will make certain cash payments to Encore concurrently herewith, and (vi) Eco
Soil shall agree to make certain additional payments to Encore in accordance
with the terms hereof based upon Eco Soil's use of media in the production of
TX-1 or AZO, all as set forth more completely below.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties agree as follows:
1. SUSPENSION, POTENTIAL REVIVAL AND ULTIMATE TERMINATION OF EXISTING
AGREEMENTS. The parties hereby suspend the Existing Agreements, effective as of
the date hereof. As a result, neither party shall have any rights or obligations
under the Existing Agreements from and after the date hereof for so long as the
Existing Agreements are suspended. Notwithstanding the foregoing:
1.1 Upon the occurrence of a "Material Default Date" (as defined
in the License and Supply Agreement), the Existing Agreements shall be deemed
"revived," and the parties shall have the following obligations thereunder:
(a) From and after the Material Default Date, each party,
subject to Section 1.2 below, shall be restored to the same legal positions
which they held immediately prior to the execution and delivery of this
Agreement, and each party (again subject to Section 1.2 below) shall be
obligated to perform in full its obligations under the Existing Agreements so
revived from and after such revival for the unexpired term of such Existing
Agreements (except that Encore shall have no further
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obligations under the second sentence of the first paragraph of Section VIII of
the Consulting Agreement).
(b) To the extent that immediately prior to execution and
delivery of this Agreement either party has claims against the other under the
Existing Agreements, any applicable statutes of limitation will be tolled until
the Material Default Date, at which time such party shall have the right to
commence action thereon and, to the extent it prevails, to receive payment
thereon (it being understood, however, that any such claims shall be covered by
the release contemplated in Section 1.2 below).
(c) Any further obligations of Eco Soil to purchase
Inoculum or make "profit" payments under the License and Supply Agreement, or to
make payments hereunder with respect to Media, shall be terminated as of the
Material Default Date.
1.2 Notwithstanding the provisions of Section 1.1 above, the
rights and obligations of the parties under the Existing Agreements shall
finally and fully terminate (without suspension or any prospect of revival) upon
the earlier of:
(a) the date that the sum of the "profit" payments under
Section 3.2 of the License and Supply Agreement, plus any credits or offsets
against such "profit" payments pursuant to Sections 4.2(c) or 8 of the License
and Supply Agreements, equals $910,000;
(b) the termination, pursuant to Section 8(b) or 8(c) of
the License and Supply Agreement, of Eco Soil's obligations to purchase product
and/or make payments to Encore pursuant to the License and Supply Agreement; or
(c) in the event that the Existing Agreements are revived
pursuant to Section 1 hereof, the date upon which the total payments to Encore
pursuant to the Existing Agreements (as revived pursuant to Section 1.1 above)
after the Material Default Date equal the excess of (i) the "Material Default
Amount" (as such term is defined in the License and Supply Agreement) over (ii)
the aggregate amounts collected by Encore pursuant to exercise of remedies as a
consequence of such Material Default under the License and Supply Agreement,
including without limitation any amounts collected pursuant to the "Default
Judgment" called for by Section 7.1 thereof.
In order to further evidence the contemplated full general release of all claims
which the parties may have against each other, the parties agree that upon the
earlier of (i) the date that the sum of the "profit" payments under Section 3.2
of the License and Supply Agreement, plus any credits or offsets against such
"profit" payments pursuant to Sections 4.2(c) or 8 of the License and Supply
Agreements, equals $910,000 or (ii) the full payment of the Material Default
Amount, whether through payment by Eco Soil of the full amount required to be
paid pursuant to Section 1.2(c) hereof or otherwise, Encore and Eco Soil shall
provide each other with a full general release of all claims which Encore may
have against Eco Soil pursuant to the Existing Agreements, this Agreement, the
License and Supply Agreement or otherwise. Each such release shall contain a
waiver of California Civil Code Section 1542 and otherwise shall be in form
reasonably appropriate to evidence a full general release of claims.
Notwithstanding the foregoing, said releases shall not apply to (A) claims
arising under the Assignments or with respect to any representations or
warranties set forth in Section 4 of this Agreement or Section 13 or 14 of the
License and Supply Agreement, (B) the obligation of Encore to deliver product
ordered by Eco Soil in accordance with the terms of the License and Supply
Agreement but not yet delivered by Encore, or (C) the covenants of the parties
under Section 10 of the License and Supply Agreement.
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2. ESTABLISHMENT OF NEW RELATIONSHIP. The parties shall take the
following steps in order to establish a new relationship:
2.1 Concurrently herewith, Encore shall deliver to Eco Soil the
following:
(a) an executed Assignment of Media Intellectual Property
in the form attached hereto as Exhibit "B";
(b) an executed Assignment of TX-1 Intellectual Property
in the form attached hereto as Exhibit "C" (the documents delivered pursuant to
Sections 2.1(a) and (b) sometimes are referred to herein as the "Assignments");
and
(c) an executed License and Supply Agreement (this
Agreement, the Assignments and the License and Supply Agreement sometimes are
referred to herein collectively as the "Transaction Documents").
2.2 Concurrently herewith, Eco Soil shall deliver to Encore the
following:
(a) an executed License and Supply Agreement;
(b) [INTENTIONALLY DELETED]
(c) Eco Soil shall pay to Encore Fifty Thousand Dollars
($50,000) as consideration for the license granted by Encore to Eco Soil
pursuant to the License and Supply Agreement; and
(d) Eco Soil shall pay to Encore One Hundred Thousand
Dollars ($100,000) as an advance payment for Inoculum ordered (or to be ordered)
by Eco Soil pursuant to the License and Supply Agreement.
2.3 The parties acknowledge that the following steps already have
been taken and shall have the following effects:
(a) As of April 1, 1997, Eco Soil made a payment to
Encore of Fifty Thousand Dollars ($50,000) as an additional advance payment for
Inoculum ordered (or to be ordered) by Eco Soil pursuant to the License and
Supply Agreement, and substantially concurrently therewith Eco Soil provided
Encore with a purchase order (for handling pursuant to the terms hereof) calling
for production of 2,000 gallons of Inoculum by Encore. Accordingly, the total
advance payments made by Eco Soil as of the date hereof for Inoculum, after
giving effect to the payment required pursuant to Section 2.2(d) above, shall
equal $150,000; and
(b) On or about April 1, 1997, Eco Soil paid to Encore an
additional Fifty Thousand Dollars ($50,000). Such sum shall be treated as a
prepayment of amounts due pursuant to Section 3 hereof for the assignment by
Encore to Eco Soil of all of Encore's intellectual property rights in Media.
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3. MEDIA PAYMENTS.
3.1 As consideration for Encore's assigning all of its
intellectual property rights in Media to Eco Soil, Eco Soil will pay to Encore
$2 for each gallon of any media (whether or not produced using the Media
formulation assigned by Encore pursuant to the Assignment of Media Intellectual
Property) that Eco Soil uses in the scale-up of TX-1 or AZO distributed by Eco
Soil through the BioJect System or any other Biological Products Delivery System
during the three-year period beginning on March 1, 1997. Such media is referred
to herein as the "Earn-Out Media." The parties understand and agree that the
$50,000 payment made by Eco Soil pursuant to Section 2.3(b) hereof will be
considered a prepayment for the first 25,000 gallons of Earn-Out Media so used
by Eco Soil. Accordingly, Eco Soil will not have any obligation to make
additional payments to Encore for Media until it exhausts the $50,000 prepayment
credit. Once the $50,000 credit has been exhausted, Eco Soil shall pay to Encore
$2 for each gallon of Earn-Out Media used by Eco Soil in the scale-up of TX-1 or
AZO distributed by Eco Soil through the BioJect System or any other Biological
Products Delivery System during the three-year period beginning on March 1,
1997. Such payments shall be made within 60 days of any delivery of any such
TX-1 or AZO. If at the end of the three-year period beginning on March 1, 1997,
Eco Soil has not exhausted the $50,000 credit, Encore shall be entitled to keep
the credit balance with no obligation to reimburse Eco Soil. It is further
agreed by the parties that payments made pursuant to this Section 3.1 are
independent of and shall not be credited in any manner against Eco Soil's
obligation to provide certain payments of "Minimum Annual Profit" to Encore
pursuant to Section 5 of the License and Supply Agreement.
3.2 For each year during said 3-year period, Eco Soil shall
furnish to Encore one semiannual report for the six (6) months ending August 31
and one annual report for the year ending February 28/29 showing the total
amount (in gallons) of Earn-Out Media used in the scale-up of TX-1 or AZO
distributed through the BioJect System or any other Biological Products Delivery
System during the period to which such report relates. Such reports shall be due
on October 15 and April 1 of each year. Eco Soil shall keep complete and
accurate records in sufficient detail to properly reflect its use of Earn-Out
Media in the scale-up of TX-1 or AZO delivered through the BioJect System or any
other Biological Products Delivery System so as to enable the payments to be
made hereunder to be determined. Any such records reasonably appropriate for
calculation of the payments required to be made hereunder shall be made
available for review and copying by Encore upon request (provided that Eco Soil
shall have the right to shield from disclosure any information therein that Eco
Soil views as confidential, so long as such shielding does not unreasonably
interfere with calculation of the amounts payable hereunder). If such review
reveals any shortfall of 5% or more between the aggregate payments due under
Section 3.1 hereof and the aggregate amounts paid under Section 3.1 hereof as of
any date of review, then Eco Soil shall reimburse Encore for all audit costs
incurred, including the reasonable fees and expenses of Encore.
4. REPRESENTATIONS AND WARRANTIES.
4.1 Encore represents and warrants to Eco Soil as follows:
(a) Encore has had full access to the books and records
of Eco Soil relating to the parties' existing relationship and has, to its
complete satisfaction, independently assessed the value of its rights and
obligations under the Existing Agreements. On the basis of such analysis, Encore
independently has concluded, without reliance in any manner whatsoever upon any
representations, warranties or covenants of Eco Soil, to proceed with the
execution and consummation of this Agreement. The Existing Agreements and the
warrant referenced in Section 4.1(d) hereof constitute all of the
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agreements between the parties immediately prior to the execution and delivery
of the Transaction Documents.
(b) Encore does not possess any right, title, interest or
claim in or to Eco Soil's BioJect(TM), ClearLake(TM) or other Biological Product
Delivery Systems (as such term is used in the License and Supply Agreement), and
nothing herein or in the other agreements contemplated hereby shall be construed
as providing Encore with any such right, title, interest or claim.
(c) Encore has the requisite legal power and authority to
execute, deliver and carry out the Transaction Documents. The execution,
delivery and performance of the Transaction Documents by Encore does not require
the consent or approval of any other person or entity (unless such consent or
approval already has been obtained). This Agreement constitutes, and the
Assignments and the License and Supply Agreement will constitute when duly
executed and delivered, legally valid and binding obligations of Encore,
enforceable against Encore in accordance with their terms.
(d) Except for a transfer by Encore to a former
shareholder of half of its interest in a warrant to purchase 50,000 shares of
Eco Soil common stock, Encore has not previously assigned, transferred or
pledged, or purported to assign, transfer or pledge, to any person, any
interests in, or claims arising out of, the Existing Agreements or its past
relationship with Eco Soil. The parties acknowledge and agree that nothing in
this Agreement is intended to affect the validity of said warrant.
(e) Encore has not previously conveyed any right,
license, sublicense or other interest in and to the Intellectual Property (as
such term is defined, respectively, in the Assignment of Media Intellectual
Property and the Assignment of TX-1 Intellectual Property) to any other person
or entity, and no party claiming through Encore shall have a right to receive
any payments from Eco Soil as a consequence of Eco Soil's exercise of its rights
to use Media, to distribute Media or to distribute TX- 1 or AZO developed or
scaled-up with Media (provided that Eco Soil may be required to make certain
payments in connection with the use or sale of TX-1 in accordance with the terms
of the "Michigan State License Agreement" (as such term is defined in the
Assignment of TX-1 Intellectual Property)). Encore is not in default of its
obligations under the Michigan State License Agreement, and Encore has not
received any notice from the licensor thereunder alleging any such default.
Encore has not terminated the license granted therein pursuant to Section
VII.1(a) thereof, and Encore has not converted said License to a non-exclusive
license as contemplated by Section VII.1(b) thereof. As of the date hereof, no
sales or other events have occurred which give rise to the payment of royalties
under the Michigan State License Agreement, except for royalties that have been
paid in full or which Encore hereby covenants it promptly will pay in full out
of the funds provided to Encore pursuant to Section 2.2 hereof, and all minimum
royalties required to be paid thereunder as of the date hereof have been paid in
full.
(f) Encore has taken appropriate steps reasonable under
the circumstances to assure that the Know How (as such term is defined,
respectively, in the Assignment of Media Intellectual Property and the
Assignment of TX-1 Intellectual Property) has not been disclosed to any person
or entity other than Eco Soil and employees of Encore (the "Information
Sensitive Employees") involved in research, development and utilization of such
Know How. To Encore's best knowledge, no person or entity other than Eco Soil
and the Information Sensitive Employees have obtained access to, or have become
aware of, the Know How.
4.2 Eco Soil represents and warrants to Encore as follows:
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(a) Eco Soil has the requisite legal power and authority
to execute, deliver and carry out this Agreement.
(b) This Agreement has been executed and delivered by Eco
Soil and constitutes a valid and binding obligation, enforceable against it in
accordance with its terms.
(c) Eco Soil has not previously assigned, transferred or
pledged, or purported to assign, transfer or pledge, to any person, any interest
in, or claims arising out of, the Existing Agreements or its past relationship
with Encore. The Existing Agreements and the warrant referenced in Section
4.1(d) hereof constitute all of the agreements between the parties immediately
prior to the execution and delivery of the Transaction Documents.
5. SECRECY COVENANT. Encore shall take appropriate steps reasonable
under the circumstances to assure that the Know How (as such term is defined,
respectively, in the Assignment of Media Intellectual Property and the
Assignment of TX-1 Intellectual Property) is not disclosed to any person or
entity other than Eco Soil.
6. MISCELLANEOUS. The validity, interpretation, and performance of this
Agreement shall be controlled by and construed under the laws of the State of
Minnesota, the state in which this Agreement is accepted. Licensee hereby
irrevocably consents to the jurisdiction of the appropriate Minnesota courts
located in Hennepin County, Minnesota, and agrees that all litigation arising
hereunder shall be venued in Hennepin County, Minnesota. Each person executing
this Agreement represents that he or she has read and fully understands this
Agreement and that he or she has the authority to execute this Agreement. Each
of the parties further acknowledges that it has been represented by counsel in
connection with the preparation and execution of this Agreement and has been
advised of the legal effect hereof. This Agreement, the License and Supply
Agreement, the Assignment of Media Intellectual Property and the Assignment of
TX-1 Intellectual Property set forth the entire understanding of the parties
with respect to the subject matter hereof. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. No change, modification,
extension, termination or waiver of the Agreement, or any of the provisions
herein contained, shall be valid unless made in writing and signed by duly
authorized representatives of the parties hereto. The waiver by either party
hereto of any right hereunder or the failure to perform or of a breach by the
other party shall not be deemed a waiver of any other right hereunder or of any
other breach or failure by said other party whether of a similar nature or
otherwise. Any of the provisions of the Agreement which are determined to be
invalid or unenforceable in any jurisdiction shall be ineffective to the extent
of such invalidity or unenforceability in such jurisdiction, without rendering
invalid or unenforceable the remaining provisions hereof and without affecting
the validity or enforceability of any of the terms of the Agreement in any other
jurisdiction. Paragraph, section and similar headings used herein are not to be
considered part of this Agreement and are included solely for the convenience of
the parties and are not intended to be full or accurate descriptions of the
content thereof. Time is of the essence in this Agreement and the failure of
either party to promptly pay when due any payments (after the expiration of any
applicable notice and cure periods), or to perform any material obligations
required herein (after the expiration of any applicable notice and cure
periods), may be treated by the other party as a material breach of this
Agreement and shall entitle the non-breaching party to all rights and remedies
afforded by applicable law, subject to the limitations set forth herein.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed as of the date first above written.
ECO SOIL SYSTEMS, INC., ENCORE TECHNOLOGIES, INC.,
a Nebraska corporation a Minnesota corporation
By: /s/ Xxxxxxx X. Xxxxx By: /s/ Xxxxx Xxxxxx
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Name: Xxxxxxx X. Xxxxx Name: Xxxxx Xxxxxx
Its: Chief Executive Officer Its: President
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