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EXHIBIT 10.18
LICENSE AND SUPPLY AGREEMENT
THIS LICENSE AND SUPPLY AGREEMENT (this "Agreement") is entered into as
of July 6, 1997 by and between 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. NEW RELATIONSHIP. The parties previously entered into a Settlement
Agreement dated as of July 6, 1997 (the "Settlement Agreement"), pursuant to
which they have agreed to restructure their relationship. Specifically, the
parties have agreed to suspend the Exclusive Consulting Agreement, dated as of
January 1, 1995, and the license agreements listed on Exhibit "A" to the
Settlement Agreement.
B. PURPOSE. The parties' restructuring of their relationship permits
Encore to reduce its role as a consultant and to begin to produce microbes and
related products. As part of the restructuring, (i) Encore has agreed to grant
Eco Soil an exclusive, royalty-free, perpetual and worldwide license with
respect to AZO (as hereinafter defined) in accordance with the additional terms
identified in Section 2 hereof, (ii) Encore has agreed to produce certain
Inoculum for Eco Soil, in the amounts and times ordered by Eco Soil pursuant to
the terms hereof, and (iii) Eco Soil has agreed to purchase product and/or make
payments (including certain payments under the Settlement Agreement) to Encore
in amounts calculated to provide Encore with certain minimum amounts of "profit"
payments pursuant to this Agreement for each of the three years beginning March
1, 1997, 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. DEFINITIONS. For purposes of this Agreement, the following terms
shall have the following meanings:
"Additional Inoculum Products" shall have the meaning assigned to
such term in Section 6 hereof.
"Affiliate" shall mean, with respect to any Person, any other
Person which directly or indirectly controls, is controlled by, or is under
common control with, such Person. A Person shall be regarded as in control of
another Person if it owns, or directly or indirectly controls, at least forty
percent (40%) of the voting stock or other ownership interest of the other
Person, or if it directly or indirectly possesses the power to direct or cause
the direction of the management and policies of the other Person by any means
whatsoever.
"Assignments" means the Assignment of Media Intellectual Property
and the Assignment of TX-1 Intellectual Property referenced in the Settlement
Agreement.
"AZO" means any of Encore's trade secret or other proprietary
formulations or know how relating to the microorganism known as azospirillum
brasilense Cd, together with any trade secret or other know how relating to
Encore's present ability to produce, develop, deliver, ferment, distribute,
apply and/or otherwise use such microorganism in, by, through or in connection
with Biological Product Delivery Systems.
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"Biological Product Delivery Systems" means the BioJect(TM)
system and any equivalent, successor, improved, derivative or alternative
systems or vehicles developed by or marketed by Eco Soil for development,
delivery, fermentation, distribution and/or application of biological
products in the turf maintenance, agricultural crop, soil remediation
and/or water quality management industries.
"Confidential Information" shall have the meaning assigned to
such term in Section 10.1 hereof.
"Contract Year" shall mean each of: (a) March 1, 1997 through
February 28, 1998 (the "First Contract Year"); (b) March 1, 1998 through
February 28, 1999 (the "Second Contract Year"); and (c) March 1, 1999 through
February 29, 2000 (the "Third Contract Year").
"Declination Election" shall have the meaning assigned to such
term in Section 4.2(c) hereof.
"Declined Inoculum" shall have the meaning assigned to such term
in Section 4.2(c) hereof.
"Default Judgment" shall have the meaning assigned to such term
in Section 7.2 hereof.
"Encore Production Default" shall have the meaning assigned to
such term in Section 4.2(d) of this Agreement.
"Inoculum" shall mean AZO and the microorganisms and products
known as pseudomonas aureofaciens TX-1 and burkolaria cepacia J82 ("Deny J82"),
together with any equivalent, successor or improved products as may be capable
of being produced by any additional technology available to Encore without
unreimbursed expense to Encore in excess of that which Encore would incur
hereunder without such additional technology.
"Inoculum Technical Information" shall mean all proprietary
information developed or invented by either party which is utilized in the
design or production of Inoculum.
"Material Default" shall mean either of the following:
(a) a failure by Eco Soil to pay when due to Encore any
payments required under this Agreement aggregating at least $1,000, and the
continuation of such failure for a period of 20 days after Encore's delivery to
Eco Soil of written notice specifying the nature of the default, the amount of
the required payments to Encore that have not been paid when due, and the fact
that the failure to cure such default on or before said 20th day shall
constitute a "Material Default" hereunder (provided however, that from and after
the fourth time that such a default occurs hereunder and Encore provides Eco
Soil with the foregoing notice with respect thereto, the cure period specified
in this clause (a) shall be reduced to 10 days from Encore's delivery to Eco
Soil of the requisite written notice); or
(b) a failure by Eco Soil to perform any other material
obligation of Eco Soil under this Agreement (i.e., a material obligation other
than an obligation calling for the payment of money by Eco Soil to Encore), and
the continuation of such failure for a period of 30 days after Encore's delivery
to Eco Soil of a written notice specifying the nature of the default and the
fact that the failure to cure such default on or before said 30th day shall
constitute a "Material Default" hereunder.
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"Material Default Amount" shall have the meaning assigned to such
term in Section 7.1 hereof.
"Material Default Date" shall mean the date upon which an
applicable cure period set forth in the definition of "Material Default" expires
without the curing by Eco Soil of the default set forth in notice delivered to
Eco Soil.
"Person" shall mean an individual, corporation, partnership,
trust, business trust, association, joint stock company, joint venture, pool,
syndicate, sole proprietorship, unincorporated organization, governmental
authority or any other form of entity not specifically listed herein.
2. AZO LICENSE.
2.1 Subject to immediate termination in the event of any revival
pursuant to Section 1.2 of the Settlement Agreement of the "Existing Agreements"
(as defined in the Settlement Agreement), Encore hereby grants to Eco Soil an
exclusive, royalty-free, perpetual, worldwide license to make, use, license,
sub-license, sell, offer to sell and distribute AZO for development, delivery,
fermentation, distribution and/or application through BioJect(TM) and other
Biological Product Delivery Systems; provided, however, (a) that Encore retains
the right to make, use, license, sub-license, sell, offer to sell and distribute
AZO for other applications and uses and (b) prior to the date that Eco Soil has
a right to receive the release contemplated by Section 1.2 of the Settlement
Agreement, any such sub-license shall specifically acknowledge the fact that Eco
Soil's rights under the license to AZO granted herein are subject to termination
in accordance with this Agreement.
2.2 Encore agrees that any and all inventions, discoveries,
methods, processes and ideas (collectively, "Improvements") relating to AZO that
are conceived, developed, revised and/or reduced to practice by Encore during
the term of this Agreement, whether patentable or not, shall be promptly
reported to Eco Soil. As used in Section 2.1, the term "AZO" shall be deemed to
include Improvements.
2.3 Upon any termination of the license granted to Eco Soil
pursuant to Section 2.1 above as a consequence of a revival of the Existing
Agreements pursuant to Section 1.1 of the Settlement Agreement, Eco Soil
promptly following request therefor from Encore shall provide Encore with a list
of all persons or entities to whom Eco Soil has sub-licensed any of its rights
under the license granted pursuant to Section 2.1 above.
3. PAYMENTS BY ECO SOIL.
3.1 The parties acknowledge that on or about April 1, 1997, Eco
Soil provided Encore with a purchase order for 2,000 gallons of Inoculum and
with cash in the amount of $50,000, as prepayment of all amounts payable for
such Inoculum. As required by Sections 2.2(c), 2.2(d) and 2.3(a) of the
Settlement Agreement, concurrently herewith Eco Soil further shall deliver to
Encore (a) a purchase order for 4,000 additional gallons of Inoculum, (b) cash
in the amount of $100,000 as advance payment for all amounts payable for such
Inoculum and (c) cash in the amount of $50,000 as consideration for the License
granted by Encore to Eco Soil pursuant to this Agreement.
3.2 Subject to Sections 4.2(c) and 8 hereof, on or before the
last day of each month set forth in the left column below, Eco Soil shall
provide Encore with the corresponding payments listed in the right column below:
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DATE "PROFIT" PREPAYMENT
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FIRST CONTRACT YEAR:
August 1997 $ 15,000
September 1997 $ 15,000
October 1997 $ 12,000
November 1997 $ 12,000
December 1997 $ 12,000
February 1998 $ 144,000
SECOND CONTRACT YEAR:
April 1998 $ 15,000
May 1998 $ 15,000
June 1998 $ 15,000
July 1998 $ 30,000
August 1998 $ 30,000
September 1998 $ 30,000
October 1998 $ 15,000
November 1998 $ 15,000
December 1998 $ 15,000
January 1999 $ 15,000
February 1999 $ 155,000
THIRD CONTRACT YEAR:
March 1999 $ 15,000
April 1999 $ 15,000
May 1999 $ 15,000
June 1999 $ 15,000
July 1999 $ 30,000
August 1999 $ 30,000
September 1999 $ 30,000
October 1999 $ 15,000
November 1999 $ 15,000
December 1999 $ 15,000
January 2000 $ 15,000
February 2000 $ 140,000
3.3 The payments described in Section 3.2 represent payments of
the "profit" component of Inoculum or Additional Inoculum Products which Eco
Soil has the right to order under Section 3.4 of this Agreement. Subject to
Sections 4.2(c) and 8 hereof, Encore shall have the right to receive and retain
such payments irrespective of the quantity of Inoculum or Additional Inoculum
Product actually ordered by Eco Soil.
3.4 During each Contract Year, Eco Soil shall have the right to
order Inoculum and Additional Inoculum Products in aggregate quantities which
(on the basis of $15 of "profit" per gallon of Inoculum and an amount of
"profit" per gallon of Additional Inoculum Product as determined pursuant
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to Section 6 below) will not exceed the sum of "profit" payments scheduled to be
made by Eco Soil in said Contract Year pursuant to Section 3.2 (plus any unused
balance of "profit" payments from any prior Contract Year). Further, within 30
days after delivery of Inoculum or Additional Inoculum Product ordered by Eco
Soil (other than the Inoculum referenced in Section 3.1 hereof), Eco Soil shall
pay to Encore $10 for each gallon of Inoculum so delivered and the "cost
component" of each gallon of Additional Inoculum Product so delivered.
3.5 Eco Soil shall employ the following procedures with respect
to purchase orders:
(a) Eco Soil will place orders by facsimile sent to Encore
at the fax number set forth in Section 15.1 below;
(b) Each order placed by Eco Soil shall include a
requested delivery date, which shall be no earlier than 60 days after
the date of the order, unless otherwise agreed by Encore; and
(c) Each order placed by Eco Soil shall specify the volume
of product ordered by the purchase order (which, unless otherwise agreed
by Encore, shall not be less than 60 gallons per purchase order), and
shall state either the type of product to be delivered or that Eco Soil
and Encore shall consult with one another to determine the appropriate
product for Eco Soil's customers' needs.
4. PRODUCTION BY ENCORE.
4.1 Subject to the production covenants set forth in this Section
4 and Section 5 hereof, Encore will produce Inoculum and Additional Inoculum
Product and sell it to Eco Soil when, as and if ordered by Eco Soil during any
Contract Year pursuant to Section 3 above. Encore shall be responsible for
procuring at its own expense all raw materials necessary to produce Inoculum as
and when ordered by Eco Soil. Eco Soil hereby grants to Encore a non-exclusive
license to use the "Intellectual Property" referenced in the Assignment of TX-1
Intellectual Property solely to the extent necessary to produce and deliver TX-1
ordered by Eco Soil pursuant to this Agreement.
4.2 Encore hereby agrees to comply with the following production
covenants with respect to Inoculum:
(a) Encore shall produce all Inoculum in accordance with
the specifications set forth on Attachment No. 1 hereto, as from time to
time modified by mutual agreement of Eco Soil and Encore.
(b) Encore shall obtain and maintain an EPA establishment
number, and further shall obtain, at its sole cost, all necessary and
appropriate government approvals pertaining to the production of
Inoculum. Encore further shall provide reasonable assistance as
requested by Eco Soil in connection with Eco Soil's efforts to obtain
any required permits or product registrations required at federal, state
or local levels for sale of Inoculum produced pursuant to this
Agreement.
(c) Encore shall deliver product on the date(s) specified
in purchase orders delivered by Eco Soil pursuant to this Agreement; it
being understood that the date set for delivery shall be at least 60
days from the date of Encore's receipt of the purchase order, unless
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otherwise agreed by the parties. Notwithstanding the foregoing: (i)
Encore shall not be required to supply more than 5,000 gallons of
Inoculum in any 60-day period, unless otherwise agreed by the parties;
and (ii) in any event, Encore shall have the right within 15 days after
receipt of any purchase order relating to Inoculum, to provide Eco Soil
with written notice (a "Declination Election") that Encore irrevocably
elects to not produce the Inoculum requested in such particular purchase
order (the "Declined Inoculum"), in which case: (A) Encore shall be
released from any obligation to produce, and Eco Soil shall be released
from any obligation to accept from Encore, the Declined Inoculum; (B)
Eco Soil shall receive a credit of $25 per gallon of Declined Inoculum
against the "profit" payments next payable under Section 3.2 hereof; and
(C) the parties' respective rights and obligations hereunder shall not
otherwise be affected.
(d) If (i) Encore does not timely deliver a Declination
Election with respect to a particular purchase order in accordance with
Section 5.2(c)(ii) hereof, (ii) Encore thereafter fails to provide
product requested in such purchase order in accordance with the
requirements of this Agreement by the date set forth in the purchase
order, (iii) such failure is not excused pursuant to Section 15.5
hereof, and (iv) such failure persists for a period of 5 days after Eco
Soil provides Encore with written notice of such failure, then such
failure shall constitute an "Encore Production Default" for purposes of
this Agreement.
5. DELIVERY OF PRODUCT. All deliveries by Encore shall comply with
and shall be subject to the following terms and conditions:
5.1 Any terms contained in purchase orders submitted pursuant to
this Agreement, other than a specification of the type, quantity, requested
delivery dates for the products being ordered, shall have no force and effect
whatsoever. The terms and conditions set forth in this Agreement shall control
performance under any such orders.
5.2 Any Inoculum ordered by Eco Soil shall be shipped F.O.B.
Encore's production facility. All Inoculum ordered by Eco Soil will be shipped
to the location specified in the applicable purchase order (it being understood
that Encore shall not be required to prepare packages for shipment of less than
5 gallons to any particular location specified in the purchase order).
5.3 Eco Soil shall bear all cost of transportation and shall bear
all risk of loss while Inoculum is in transit.
5.4 Encore shall provide Eco Soil an opportunity to inspect, test
and accept or reject all product prior to shipment. Eco Soil may reject product
not meeting the requirements set forth in Section 4.2. In furtherance of these
rights, Encore shall provide Eco Soil, on the first of each month, with a
written schedule setting forth the production and shipment schedules for the
ensuing month (based upon purchase orders theretofore delivered by Eco Soil). In
addition, immediately prior to shipment Encore will make slides reasonably
designed to show the biological structure of Inoculum included in the shipment
and shall retain such slides (in a manner reasonably calculated to preserve
their utility as an indicia of the structure of the Inoculum to which they
apply) for a period of at least three years. If Eco Soil does not exercise its
right to inspect and test product prior to shipment, such product shall be
deemed to meet the specifications set therefor by the parties unless an analysis
of the slides relating to such shipment indicates otherwise.
5.5 Notwithstanding any provisions of this Agreement to the
contrary, Encore shall not be required to deliver (a) any further Additional
Inoculum Product from and after March 1, 2000,
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(b) more than 7,000 gallons of Inoculum from and after March 1, 2000, or (c) any
further Inoculum from and after October 1, 2000.
6. ADDITIONAL INOCULUM PRODUCTS. During the term hereof, Eco Soil may
present Encore with opportunities to produce additional inoculum products
("Additional Inoculum Products") for Eco Soil. The parties hereby agree to
negotiate in good faith to determine the appropriate specifications, delivery
terms and prices for such Additional Inoculum Products. The parties further
agree that in setting the price for such Additional Inoculum Products, they will
specify a "profit component" and a "cost component" for each price so
determined.
7. REMEDIES IN THE EVENT OF A MATERIAL DEFAULT. The parties
generally intend that Eco Soil's obligation hereunder to make payments of
Minimum Annual Profit shall "accelerate" on any Material Default Date and shall
be immediately due and payable. In furtherance of this general intent, the
parties more specifically agree as follows:
7.1 Upon the Material Default Date, Eco Soil shall become
obligated to immediately pay to Encore, in lieu of any further payment
obligations under any other sections of this Agreement, an amount (the "Material
Default Amount") equal to the excess of (i) $910,000 (representing the sum of
the "profit" payments scheduled under Section 3.2 hereof) over (ii) the sum of
(A) the aggregate "profit" payments made by Eco Soil to Encore as of the
Material Default Date, and (B) the aggregate amounts credited against such
"profit" payments pursuant to Section 4.2(c) or 8 hereof as of the Material
Default Date.
7.2 In order to secure Eco Soil's obligation to pay the Material
Default Amount, Encore shall be authorized and entitled to entry of a judgment
against Eco Soil (a "Default Judgment") in the amount of the excess of (a) the
balance of the "profit" payments still required to be made by Eco Soil hereunder
as of the last Quarterly Reporting Date covered by an Approved Quarterly Report,
over (b) an amount equal to $62,500 for each full or partial calendar month
elapsed from said Quarterly Reporting Date through the Material Default Date.
Said judgment shall be substantially in the form of Attachment No. 2 hereto and
may be filed by Encore in the Minnesota courts located in Hennepin County,
Minnesota (provided that (a) in connection therewith Encore files the
accompanying affidavit contemplated by Attachment No. 2 and (b) Eco Soil has not
previously terminated (in accordance with Section 8 hereof) its obligations
hereunder to purchase product and/or make "profit" payments). Eco Soil shall not
be entitled to contest or oppose entry of such Default Judgment, provided that
the foregoing shall not be construed as limiting Eco Soil's right to contest or
oppose entry of the Default Judgment if it contends that a Material Default has
not occurred under this Agreement or if the affidavits have been fraudulently
executed or submitted in bad faith.
7.3 Neither the provisions of Section 7.2 above nor the entry of
the Default Judgment shall limit Encore's right to maintain an action to recover
any excess of the Material Default Amount over the amount of the Default
Judgment.
7.4 In the event that Eco Soil makes payments pursuant to the
Existing Agreements (as revived pursuant to Section 1.1 of the Settlement
Agreement) after the Material Default Date prior to satisfaction in full of the
Default Judgment, such payments shall be applied to reduce Eco Soil's
obligations under the Default Judgment.
8. REMEDIES IN THE EVENT OF ENCORE PRODUCTION DEFAULTS. The parties
acknowledge and agree that Eco Soil may suffer significant damages in the event
that Encore fails to deliver Inoculum as
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and when required by purchase orders. The parties also understand, however, that
Encore desires a reasonable opportunity to work through supply difficulties it
might encounter before facing termination of Eco Soil's purchase obligations
hereunder. Accordingly, the parties agree that in the event of an Encore
Production Default, Eco Soil shall be entitled to exercise all rights and
remedies afforded by applicable law, subject to the following:
(a) Unless and until clause 8(b) or 8(c) below become applicable,
in the event of an Encore Production Default pertaining to Inoculum Eco
Soil's sole remedy shall be to offset against the next "profit" payments
payable pursuant to Section 3.2 hereof a stipulated amount equal to $25
for each gallon of Inoculum which is not timely delivered. The parties
agree that the actual damages that Eco Soil would suffer as a
consequence of such an Encore Production Default are difficult to
calculate, but that said $25 per gallon amount constitutes a reasonable
estimate of such damages and shall constitute reasonable liquidated
damages for such Encore Payment Default, enforceable under Minnesota
law.
(b) At any time after the fifth Encore Production Default after
the date of this Agreement (but not in connection with previous Encore
Production Defaults), Eco Soil shall have the right to terminate its
obligations to purchase product and/or provide any additional "profit"
payments hereunder as follows:
(i) If such Encore Production Default occurs on or before
the 18-month anniversary of the date of this Agreement, then Eco Soil
shall have the right to terminate its obligations to purchase product
and/or provide additional "profit" payments hereunder upon payment of
the lesser of $100,000 or 25% of the "profit" payments called for
hereunder through the end of the Third Contract Year that have not yet
been paid, credited or offset.
(ii) If such Encore Production Default occurs after the
18-month anniversary of the date of this Agreement, Eco Soil shall have
the right to terminate its obligations to purchase product and/or
provide any additional "profit" payments hereunder without obligation to
make any further payments to Encore.
(c) Notwithstanding the foregoing, the obligations of Eco Soil to
purchase further product from Encore and/or to make further payments hereunder
shall terminate upon the occurrence of a bankruptcy of Encore, another
insolvency of Encore, or a general assignment for the benefit of Encore's
creditors.
9. RELATIONSHIP.
9.1 This Agreement is not intended to constitute, create, give
effect to or otherwise recognize a joint venture or partnership relationship of
any kind. Eco Soil and Encore shall act as independent contractors hereunder,
and neither party shall have the authority to act as agent for or partner of the
other.
9.2 Nothing contained in this Agreement is to be construed as
providing for the sharing of profits or losses arising from the efforts of
either party. Unless otherwise agreed in writing, each party shall bear all
technical, development, production, marketing, administrative and other costs
and expenses which it incurs during the course of this Agreement, and neither
party shall have recourse against the other for compensation for any such costs
or expenses.
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10. CONFIDENTIALITY.
10.1 The parties acknowledge and agree that the Inoculum
Technical Information and any technical information relating to Improvements or
Additional Inoculum Products (collectively, the "Confidential Information") are
valuable only as long as they remain secret and generally unknown. Accordingly,
each of the parties agrees to take all steps necessary to maintain the
confidentiality and secrecy of the Confidential Information. Specifically, but
without limitation, each of the parties agrees that it will:
(a) maintain all Confidential Information in strictest
confidence and utilize all reasonable precautions necessary to protect
such Confidential Information, except as may otherwise be authorized in
writing by the other party;
(b) refrain from disclosing any Confidential Information
to any third party without the other party's prior written consent;
(c) limit access to Confidential Information to those
employees who reasonably require the information to enable such party to
exercise its rights and fulfill its obligations hereunder; provided that
such employees expressly agree to treat such Confidential Information as
confidential in the same manner and to the same extent as such party's
own confidential information; and
(d) abide by such other confidentiality restrictions or
practices with respect to the Confidential Information that may be
reasonably requested by the other party, including the execution and
delivery of such confidentiality/nondisclosure agreements as may be
requested from time to time.
10.2 Nothing contained in this Agreement shall in any way
restrict Eco Soil's rights to use, disclose or otherwise deal with any
Confidential Information which: (1) was in Eco Soil's possession through
legitimate means prior to the date of this Agreement; (2) Eco Soil obtained
thereafter from a source entitled to disclose such Confidential Information; (3)
which Eco Soil acquired as a consequence of the Assignment of Media Intellectual
Property or the Assignment of TX-1 Intellectual Property delivered pursuant to
the Settlement Agreement (provided, however, that if Eco Soil desires to provide
such Confidential Information to a third party prior to the date that Eco Soil
has the right to receive the release contemplated by Section 1.2 of the
Settlement Agreement, then Eco Soil shall require such third party to enter into
a confidentiality agreement in favor of both Eco Soil and Encore which
reasonably provides for the protection of such Confidential Information from
disclosure to other third parties that have not entered into such
confidentiality agreements); (4) was already generally known and within the
public domain as of the date of initial disclosure hereunder; or (5) which
becomes generally known thereafter through legitimate means and through no fault
of the party disclosing the same. Further, nothing contained herein shall in any
way restrict Eco Soil from procuring Inoculum or Alternative Inoculum Products
from persons or entities other than Encore, and from providing Inoculum
Technical Information to such parties to the extent Eco Soil deems appropriate
in connection therewith (provided, however, that if Eco Soil desires to provide
such Confidential Information to a third party prior to the date that Eco Soil
has the right to receive the release contemplated by Section 1.2 of the
Settlement Agreement, then Eco Soil shall require such third party to enter into
a confidentiality agreement in favor of both Eco Soil and Encore which
reasonably provides for the protection of such Confidential Information from
disclosure to other third parties that have not entered into such
confidentiality agreements).
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10.3 The obligations of the parties, their employees, personnel,
and others who may have received Confidential Information in confidence, to
maintain such information in confidence and secrecy, shall survive and shall
continue for a period of five years following expiration or termination of this
Agreement; provided, however, that Encore's obligations under this Section 10
shall terminate on any Material Default Date.
11. ACCOUNTING MATTERS. Encore shall furnish to Eco Soil within 30
days after each September 1, December 1, March 1 and June 1 (each, a "Quarterly
Reporting Date") during the term of this Agreement a report showing in
reasonably specific detail (a) the amounts of Inoculum and Additional Inoculum
Products delivered by Encore since the date of this Agreement through the
Quarterly Reporting Date pursuant to orders delivered by Eco Soil pursuant to
Section 3.4 hereof, (b) the amounts of the "profit" payments made by Eco Soil
since the date of this Agreement through the Quarterly Reporting Date, (c) any
amounts of Declined Inoculum since the date hereof through the Quarterly
Reporting Date, and any offsets under Section 8(a) since the date hereof through
the Quarterly Reporting Date. The report shall segregate all such amounts on a
Contract Year by Contract Year basis. The parties acknowledge that the periodic
reports called for in this Section 11 are intended to provide each party with
accurate statements of their respective positions relative to "profit" payments
(including in particular the extent of Eco Soil's continuing obligation to make
"profit" payments hereunder). Accordingly, the reports also shall show the
balance of "profit" payments still required to be made by Eco Soil from and
after the Quarterly Reporting Date. The parties agree to work together in good
faith to develop the format for such reports and to revise the content and
nature of such reports as reasonably requested by a party from time to time in
order to reflect such information. Encore shall keep complete and accurate
records in sufficient detail to properly reflect such matters 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 Eco Soil upon request (provided that
Encore shall have the right to shield from disclosure any information therein
that Encore views as confidential, so long as such shielding does not
unreasonably interfere with calculation of the amounts payable hereunder). If
any such review reveals that a report delivered by Encore overstates by $2,000
or more Eco Soil's obligation to make additional "profit" payments hereunder,
then Encore shall reimburse Eco Soil for all audit costs incurred, including the
reasonable fees and expenses of Eco Soil. Each such report shall be subject to
Eco Soil's review and approval, which shall not be unreasonably withheld. If Eco
Soil objects to such a report, then it shall do so within 20 days after its
receipt thereof in a writing delivered to Encore specifying in reasonable detail
the nature of its objection. Encore shall endeavor to respond to any objections
raised by Eco Soil, and the parties shall work together in good faith to
expeditiously agree upon and formally approve in writing a final report for each
Quarterly Reporting Date. Each Quarterly Report approved in accordance with this
Section 11 shall be referred to as an "Approved Quarterly Report."
12. TERMINATION.
12.1 Except for the 7,000 gallons of Inoculum referenced in
Section 5.5 above, Encore shall have no obligation to produce or sell to Eco
Soil any Inoculum or Additional Inoculum Products requested by Eco Soil pursuant
to purchase orders delivered after the end of the Third Contract Year.
Similarly, Eco Soil shall have no obligation hereunder to provide any additional
"profit" payments with respect to any Contract Year after the Third Contract
Year (it being understood that the foregoing shall not be construed as
diminishing Eco Soil's obligation to pay the cost component of any Inoculum
ordered prior to the end of the Third Contract Year for delivery during the
subsequent year).
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12.2 In the event that the "Existing Agreements" (as such term is
used in the Settlement Agreement) are "revived" in accordance with Section 1.1
of the Settlement Agreement, then (a) Encore's obligation to deliver additional
product hereunder shall terminate and (b) Eco Soil's obligation to purchase
additional product and/or make additional payments hereunder (other than as set
forth in Section 7 hereof or in the Default Judgment) shall terminate (it being
understood, however, that said terminated obligations shall be replaced by the
revived obligations of the parties under the Existing Agreements, subject to the
terms of the Settlement Agreement).
12.3 Upon termination of the supply obligations of Encore and the
payment obligations of Eco Soil as set forth above, Encore shall deliver to Eco
Soil all drawings, specifications, artwork, designs, plans, technical reports
and other materials relating to Additional Inoculum Products, and all copies
thereof, whether existing in printed form, electronic form or any other medium.
13. ENCORE REPRESENTATIONS AND WARRANTIES. Encore hereby represents
and warrants to Eco Soil as follows:
13.1 Encore (a) is a corporation duly organized, validly existing
and in good standing under the laws of the State of Minnesota; (b) has the
corporate power and authority and the legal right to own and operate its
property and assets, to lease the property and assets it operates under lease,
and to carry on its business as it is now being conducted and (c) is in
compliance with all requirements of applicable law, except to the extent that
any noncompliance would not have a material adverse effect on the properties,
business, financial or other condition of it and would not materially adversely
affect its ability to perform its obligations under the Agreement.
13.2 Encore (a) has the corporate power and authority and the
legal right to enter into the Agreement and to perform its obligations hereunder
and (b) has taken all necessary corporate action on its part to authorize the
execution and delivery of the Agreement and the performance of its obligations
hereunder. The Agreement has been duly executed and delivered on behalf of
Encore, and constitutes a legal, valid, binding obligation, enforceable against
Encore in accordance with its terms.
13.3 All necessary consents, approvals and authorizations of all
governmental authorities and other Persons required to be obtained by Encore as
of the date hereof in connection execution, delivery and performance of this
Agreement have been obtained.
13.4 The execution and delivery of the Agreement and the
performance of Encore's obligations hereunder (a) do not conflict with or
violate any requirement of applicable laws or regulations (other than conflicts
or violations which would not have a material adverse effect on the ability of
Encore to perform its obligations hereunder), and (b) do not conflict with, or
constitute a default under, any of its contractual obligations (other than
conflicts or defaults which would not have a material adverse effect on the
ability of Encore to perform its obligations hereunder).
13.5 Encore has not previously assigned, granted, licensed, or
otherwise provided to any person or entity any rights in AZO or the Inoculum
Technical Information pertaining to AZO that would be inconsistent with the
rights granted to Eco Soil hereunder. Encore has the right to grant the rights
granted hereunder free and clear of any rights or claims of any other persons or
entities. As of the date hereof, there are no pending, and to the best knowledge
of Encore, there are no threatened, suits, legal proceedings, claims or
governmental investigations against or with respect to Encore relating to AZO or
the Inoculum Technical Information pertaining thereto. There are no agreements
to which Encore is a party as of the date hereof, and Encore shall not enter
into any agreement during the term
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of this Agreement, that would prevent Encore's timely and complete performance
of the terms and conditions of this Agreement or that would cause any of
Encore's representations or warranties contained herein to be breached. To
Encore's best knowledge, neither AZO nor the Inoculum Technical Information
pertaining thereto violates or infringes any third party's copyrights, patents,
trade secrets, trademarks or other proprietary rights.
14. ECO SOIL REPRESENTATIONS AND WARRANTIES. Eco Soil hereby
represents and warrants to Encore as follows:
14.1 Eco Soil (a) is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nebraska; (b) has
the corporate power and authority and the legal right to own and operate its
property and assets, to lease the property and assets it operates under lease,
and to carry on its business as it is now being conducted and (c) is in
compliance with all requirements of applicable law, except to the extent that
any noncompliance would not have a material adverse effect on the properties,
business, financial or other condition of it and would not materially adversely
affect its ability to perform its obligations under the Agreement.
14.2 Eco Soil (a) has the corporate power and authority and the
legal right to enter into the Agreement and to perform its obligations hereunder
and (b) has taken all necessary corporate action on its part to authorize the
execution and delivery of the Agreement and the performance of its obligations
hereunder. The Agreement has been duly executed and delivered on behalf of Eco
Soil, and constitutes a legal, valid, binding obligation, enforceable against
Eco Soil in accordance with its terms.
14.3 All necessary consents, approvals and authorizations of all
governmental authorities and other Persons required to be obtained by Eco Soil
as of the date hereof in connection with the execution, delivery and performance
of this Agreement have been obtained.
14.4 The execution and delivery of the Agreement and the
performance of Eco Soil's obligations hereunder (a) do not conflict with or
violate any requirement of applicable laws or regulations (other than conflicts
or violations which would not have a material adverse effect on the ability of
Eco Soil to perform its obligations hereunder), and (b) do not conflict with, or
constitute a default under, any of its contractual obligations (other than
conflicts or defaults which would not have a material adverse effect on the
ability of Encore to perform its obligations hereunder).
15. MISCELLANEOUS.
15.1 Notices. Any consent, notice or report required or permitted
to be given or made under the Agreement by one of the parties hereto to the
other party shall be in writing, delivered personally, by facsimile or by U.S.
first class mail or courier, addressed to such other party at its address
indicated below, or to such other address as the addressee shall have last
furnished in writing to the addressor and (except as otherwise provided in the
Agreement) shall be effective upon receipt by the addressee.
(a) If the notice is directed to Encore, then it shall be
directed to the following address:
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Encore Technologies, Inc.
000 Xxxxxxxx Xxxx, Xxxxx 000
Xxxxxxxxxx, XX 00000
Facsimile: (000) 000-0000
Attn: Xxxxx Xxxxxx
If the purpose of the notice is to inform Encore of an exercise of
rights under 8(a) or 8(b), to provide a notice of breach of a
representation, warranty or covenant under the Settlement Agreement or
the Assignments, or to provide notice of any other default under Section
15.11 hereof, then a copy also shall be sent to:
Best & Xxxxxxxx
4000 First Bank Plaza
000 Xxxxxx Xxxxxx Xxxxx
Xxxxxxxxxxx, XX 00000-0000
Facsimile: (000) 000-0000
Attn: Xxxxx X. Xxxxx, Esq.
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(b) If the notice is directed to Eco Soil, then it shall
be directed to the following address:
Eco Soil Systems, Inc.
00000 Xxxxxxxxx Xxxx, Xxxxx 000
Xxx Xxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
Attention: Xxxxxxx X. Xxxxx
If the purpose of the notice is to provide notice of default giving rise
to a Material Default, to provide notice of breach of a representation
or warranty or covenant under the Settlement Agreement or the
Assignments, or to provide notice of any other default under Section
15.11 hereof, then a copy also shall be sent to:
Xxxxxx & Xxxxxxx
000 "X" Xxxxxx, Xxxxx 0000
Xxx Xxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
Attention: Xxxxx X. Xxxxxxxx
15.2 Governing Law. 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.
15.3 Assignment. Eco Soil shall not assign its rights or
obligations under this Agreement without the prior written consent of Encore;
provided, however, that Eco Soil may, without such consent, assign the Agreement
and its rights and obligations hereunder (a) to an affiliate of Eco Soil, (b) in
connection with the transfer or sale of all or substantially all of its business
or (c) in the event of its merger or consolidation or change in control or
similar transaction. Encore shall not assign its rights or obligations under
this Agreement without the prior written consent of Eco Soil, it being
acknowledged and agreed that Eco Soil is relying upon the particular expertise
possessed by Encore in agreeing to the scope and nature of the obligations
imposed upon Encore hereunder (and to the correlative rights afforded to
Encore). Any permitted assignee shall assume all obligations of its assignor
under the Agreement, but such assignment shall not operate to release the
assignor from liability for such obligations.
15.4 Waivers and Amendments. 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.
15.5 Force Majeure. Neither party shall be held liable or
responsible to the other party nor be deemed to have defaulted under or breached
the Agreement for failure or delay in fulfilling or performing any term of the
Agreement to the extent and for so long as, such failure or delay is caused by
or results from causes beyond the reasonable control of the affected party
including but not limited to fire, floods, embargoes, insurrections, riots, acts
of God or acts, omissions or delays in acting by any governmental authority or
the other party; provided, however, that no such event shall excuse performance
hereunder by a party unless the party seeking such excuse provides to the other
party, within 15 days after the occurrence of the event purportedly justifying
such excuse, written notice describing
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such event, its date of occurrence, and its anticipated effect upon such
performance by the party seeking to have its performance excused.
15.6 Entire Agreement. Except for the Settlement Agreement and
the Assignments, this Agreement embodies the entire understanding between the
parties and supersedes any prior understanding and agreements between and among
them respecting the subject matter hereof. There are no representations,
agreements, arrangements or understandings, oral or written, between the parties
hereto relating to the subject matter of the Agreement which are not fully
expressed herein or in the Settlement Agreement or the Assignments.
15.7 Severability. 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.
15.8 Waiver. 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.
15.9 Counterparts. The Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
15.10 Headings. 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.
15.11 Time is of the Essence. 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 entitling the non-breaching party to all rights and remedies
afforded by applicable law, subject to any limitations set forth herein.
IN WITNESS WHEREOF, the parties, through their authorized
representatives, have executed this Agreement effective as of the date first set
forth above.
ECO SOIL SYSTEMS, INC., ENCORE TECHNOLOGIES, INC.,
a Nebraska corporation a Minnesota corporation
By: /s/ XXXXXXX X. XXXXX By: /s/ XXXXX XXXXXX
-------------------------------- -------------------------------
Name: Xxxxxxx X. Xxxxx Name: Xxxxx Xxxxxx
Its: Chief Executive Officer Its: President
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