Exhibit 2
SETTLEMENT AGREEMENT
SETTLEMENT AGREEMENT (the "Agreement") dated as of July 2, 2004 by and
between INNOVATIVE SOFTWARE TECHNOLOGIES, INC., a California corporation, XXXXX
X. XXXX and XXXXX X. XXXXXX, both individuals, and ETHAN AND RANDY, LC, a Utah
limited liability company, ("E & R").
RECITALS
A. INNOVATIVE SOFTWARE TECHNOLOGIES, INC., including its subsidiary,
ENERGY PROFESSIONAL MARKETING GROUP CORPORATION (collectively "IST"), engage in
the business of marketing technology, business-to-consumer informational
software solutions and consulting services, and training applications in areas
such as personal finance, business development and financing for small to
mid-size companies and related matters.
B. Xxxxx X. Xxxx and Xxxxx X. Xxxxxx (the "Principals"), who have engaged
in activities similar to IST's business for more than five years, sold all of
the outstanding stock of ENERGY PROFESSIONAL MARKETING GROUP CORPORATION
("EPMG") to IST pursuant to a Stock Purchase Agreement dated December 31, 2001.
C. The consideration for such sale was the issuance and delivery of an
aggregate of 1,500,000 shares of IST Series A Preferred Stock and 3,529,412
shares of IST common stock.
D. The Principals have since asserted a number of claims against IST and
its president and former chairman with respect to IST's acquisition of EPMG, all
of which are denied by IST and its president.
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E. In order to resolve their differences, the Principals have agreed to
return to IST all shares of IST stock currently owned by the Principals, and
pursuant to paragraph 2 below, IST will release and disclaim competition and
solicitation restrictions so that E & R and their Related Persons and affiliates
are free to engage in the business previously engaged in by them.
WITNESSETH
In consideration of the mutual covenants and agreements hereinafter set
forth, the parties hereby agree as follows:
1. Terms of Settlement.
Subject to the conditions and upon the terms set forth in this Agreement,
E & R hereby assigns and returns to IST all of the IST stock owned by E & R and
the Principals, consisting of 1,200,500 shares of Series A Preferred Stock,
80,000 shares of Series B Preferred Stock and 6,784,762 shares of Common Stock
(the "Principals' Stock"),
2. Deliveries at Closing.
The Closing of the Transactions (including assignments, transfers,
deliveries and related events) has been held on the date hereof and shall be
deemed to be effective as of the close of business on June 26, 2004 ("the
Settlement Date") at the offices of Xxxxx Xxxxxxx & Xxxx XXX xx Xxxx Xxxx Xxxx,
Xxxx. Any prorations or allocations among the parties hereto which are
prescribed by this Agreement shall be made as of the Settlement Date. At the
Closing:
(a) E & R has delivered to IST certificates representing all of the
shares of the Principals' Stock described in paragraph 1 above, duly endorsed in
favor of IST or accompanied by one or more properly endorsed stock powers.
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(b) IST has delivered and transferred to E & R (i) the EPMG card
services, Discover, American Express and Echo merchant accounts, including their
associated reserves and the associated EPMG bank accounts at First Regional Bank
and Zion's Bank (subject to receiving the necessary consents), in accordance
with the Exhibit A attached hereto; (ii) the fixed assets of EPMG located in
Utah described in Exhibit B attached hereto; (iii) the CMS and WebBuilder
software code comprising the database management system, the website builder and
the real estate module; and (iv) joint ownership (together with IST) of all
confidential information and intangible property utilized by EPMG in serving its
existing and future clients; provided that statements that are subject to the
attorney-client privilege of the Principals and their affiliates and each asset
listed on Exhibit B hereto are confidential and proprietary to E&R; and provided
further, that EPMG has received from E & R a perpetual license to use the
January 1, 2004 version of the CMS and WebBuilder software for internal usage
and certain other rights that are further described in the License Agreement
attached hereto as Exhibit C. For purposes of clause (iv) of this paragraph
2(b), "intangible property" will not include causes of action, legal claims or
rights against third parties, trademark rights and trade names, and accounts
receivable and other rights to receive payment. To the extent of any conflict
between the preceding sentence and Exhibit B, the parties agree that Exhibit B
shall control.
(c) E & R and IST shall take the following actions with respect to
customer service and coaching session obligations:
(i) E & R hereby assumes responsibility to provide for
fulfillment to all existing customer service and coaching session obligations
related to EPMG and to provide for web hosting for all current EPMG website
hosting customers, the payment of all returns and allowances (including
associated refunds and chargebacks) for existing and former customers of EPMG
plus customers engaged by IST Kansas City prior to February 1, 2004 (provided
that E & R shall have no liability for refunds, returns or allowances on IST
sales that were originally processed through a merchant credit card account that
has not been transferred to E & R under paragraph 2(b) above). E & R will
receive from IST all EPMG customer data that is required to fulfill these
services.
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(ii) In exchange for this commitment by E & R, IST has paid to
E & R $300,000 in cash on the date hereof and hereby assigns and delivers to E &
R the on going monthly web hosting related subscription services revenue. IST
will also pay to E & R a fee in the amount of $125,000 payable monthly in twelve
equal payments of 10,416.67 with the first payment due August 1, 2004.
(iii) The obligation of E & R will continue for as long as IST
is not in breach or violation of this Agreement and such breach remains uncured
for a period of 14 calendar days after E & R delivers notice of the breach to
IST (which notice shall specify the nature of the breach).
(iv) IST will expend reasonable efforts to assist in a smooth
transition of the existing customers of EPMG to E & R and affirms that IST and
its affiliates do not own any lead data provided by third-party lead sources who
have provided leads to EPMG. IST will satisfy its contractual obligations with
its lead providers, although E&R will indemnify IST and EPMG against any
liabilities suffered by IST or EPMG under contracts with lead providers by
reason of IST's or EPMG's delivery of lead data to E&R pursuant to this
Agreement without the consent of such lead providers (except that E&R will have
fourteen (14) days from the date hereof to obtain all necessary consents from
such lead providers, and the foregoing indemnification shall only apply to lead
providers for whom consents are not obtained within said 14-day period). For a
period of 120 days after the date hereof, IST and its affiliates will not
(either directly or indirectly through the use of associates) market to those
EPMG customers who are currently engaged in coaching sessions and who have
purchased such coaching sessions during the one-year period prior to the date
hereof, as listed on Exhibit D hereto (the "Restricted Customers").
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(d) E & R confirms that ESI, Inc. has issued to IST a credit memo
for $251,846 which reduces the amount due to ESI, Inc. from IST.
(e) IST has paid the following:
(i) $400,000 in cash client reserves to the clients (the
"Designated Clients") specified on Exhibit E hereto; and
(ii) to each of Xxxxx X. Xxxx and Xxxxx X. Xxxxxx $183,333 as
full payment of bonuses due them for their services to IST in the past.
(iii) IST has paid one-half of the $50,000 bonus payable to
Xxxxx Xxxx (with E&R having paid the other half).
(f) E & R and IST have executed and delivered Product/Leads
Agreements in the forms attached as Exhibits F and G, respectively.
(g) IST hereby releases and waives any rights it or its affiliates
may have that restrict the solicitation of customers or competition of current
and former employees of EPMG. E & R intends to cause an affiliated entity to
offer to hire EPMG employees effective as of the Settlement Date. E & R assumes
all employee related expenses incurred by EPMG after the Settlement Date with
respect to those EPMG employees who accept employment with the E&R affiliate.
EPMG will comply with all applicable employment laws and regulations (including
those relating to the payment of wages, benefits and other employee-related
expenses) and historical company practices for liabilities accruing through the
Settlement Date relating to the EPMG employees who accept employment with E &
R's affiliate.
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(h) IST, E & R, Xxxxx Xxxxxx, and Xxxxx Xxxx have all entered into a
mutual releases in the form attached as Exhibit H hereto.
(i) IST has delivered to E & R a copy of the resolutions of the
board of directors of IST, certified as accurate by a duly authorized IST
officer, approving and ratifying the execution of this Agreement by IST and the
performance of IST of its obligations set forth herein.
Except as provided herein, all such documents, deliveries, assignments and
transfers (i) are free and clear of all liens and encumbrances, and (ii) are in
form and substance satisfactory to counsel for IST and E & R, as appropriate.
All of the foregoing payments, deliveries, assignments and transfers shall be
deemed to have occurred simultaneously as of the Settlement Date.
3. Representations and Warranties of IST.
IST represents and warrants to, and covenants to and for the benefit of, E
& R, that the following statements are true, correct and complete:
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3.1 Organization and Good Standing. IST is a corporation duly organized,
validly existing and in good standing under the laws of California, with full
corporate power to perform all of its obligations under this Agreement. IST is
duly qualified to do business as a foreign corporation and is in good standing
under the laws of each jurisdiction in which either the ownership or use of the
properties owned or used by it, or the nature of the activities conducted by it,
require such qualification.
3.2 Authority; No Conflict. This Agreement constitutes the legal, valid
and binding obligation of IST, enforceable against it in accordance with its
terms. IST has the absolute and unrestricted right, power, authority and
capacity to execute and deliver this Agreement and to perform its obligations
under it. IST is not required to give any notice to or obtain any consent from
any Person in connection with the execution and delivery of this Agreement or
the performance of the Transactions.
3.3 Legal Proceedings. To IST's Knowledge, except as described in IST's
filings with the U.S. Securities and Exchange Commission: (a) there is no
pending Proceeding that (1) has been commenced by or against IST; or (2)
challenges, or that may have the effect of preventing, delaying, making illegal,
or otherwise interfering with, the Transactions; (b) no such Proceeding has been
Threatened; and (c) no event has occurred or circumstance exists that may give
rise to or serve as a basis for the commencement of any such Proceeding. IST has
delivered to E & R copies of all pleadings, correspondence, and other documents
relating to each Proceeding now affecting IST.
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3.4 Financial Statements.
(a) The financial statements of IST (hereinafter collectively called
the "Financial Statements"), as filed with the United States Securities and
Exchange Commission on or as of the dates set forth below, are complete and
correct, have been prepared in accordance with generally accepted accounting
principles consistently applied and fairly present the financial condition of
the Company as at their respective dates and the results of its operations for
the periods covered thereby: (i) the audited consolidated balance sheet of IST
and its subsidiaries as of December 31, 2003, and the related consolidated
statements of earnings and source and application of funds for the year then
ended; and (ii) an unaudited balance sheet of IST as of March 31, 2004 and the
related statements of earnings and source and application of funds for the three
months then ended. The Financial Statements include all adjustments (which
consist only of normal recurring accruals) necessary for fair presentations.
(b) Absence of Undisclosed Liabilities. Except as and to the extent
reflected in or reserved against on the face of IST's March 31, 2004 Balance
Sheet, to IST's Knowledge, IST has no debts, liabilities or obligations (whether
absolute, accrued, contingent or otherwise) of any nature whatsoever, except for
liabilities and obligations incurred in the Ordinary Course of Business, none of
which is material, or liabilities or obligations incurred by or at the direction
of Xxxxx Xxxxxx or Xxxxx Xxxx;
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(c) Absence of Changes or Events. Except as specifically
contemplated by this Agreement or except as included in IST's filings with the
Securities and Exchange Commission, since March 31, 2004, IST has conducted its
business only in the ordinary course consistent with its prior practices and,
except for matters and events that will have no effect on its business or
prospects, has not:
(i) declared or made any distribution to its shareholders or
purchased, retired or redeemed, or obligated itself to purchase, retire or
redeem, any capital or equity interest in the Company;
(ii) experience any damage to or destruction or loss of any
material asset or property of IST, whether or not covered by insurance;
3.5 Taxes. To IST's Knowledge, IST has paid or made provision for the
payment of all taxes that have or may become due pursuant to all tax returns due
on or before the date hereof. The charges, accruals and reserves with respect to
taxes on the Financial Statements are adequate.
3.6 Title to Assets. At the date hereof, IST has good and valid title to
all of the assets transferred to E & R, free and clear of all liens, claims and
encumbrances. Upon the closing, as contemplated hereby, E & R will receive good
and valid title to the assets transferred to E & R, free and clear of all liens,
claims and encumbrances attributable to IST. Notwithstanding the foregoing, the
assets transferred to E & R are "as is" and with no warranties of any type or
kind, including without limitation warranties of merchantability or fitness for
a particular purpose.
3.7 Brokers or Finders. IST has incurred no obligation or liability,
contingent or otherwise, for brokerage or finders' fees or agents' commissions
or other similar payment in connection with this Agreement.
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3.8 Disclosure. No representation, warranty or covenant by IST contained
in this Agreement, nor any written statement or certificate furnished or to be
furnished by IST to E & R in connection herewith or pursuant hereto, contains
any untrue statement of a material fact, or omits to state any material fact
required to make the statements herein or therein not misleading.
3.9 E & R's Representations and Warranties. IST has no Knowledge of any
fact, event, circumstance, or condition that would constitute, either currently
or with the passage of time, a breach of any representation, warranty, or
covenant of E & R under this Agreement.
3.10 Kansas City Assets. IST acknowledges that it is responsible for all
costs, expenditures, leases and other obligations incurred at or with respect to
the operations and activities of IST and its Representatives at or with respect
to its Kansas City facilities, including all costs, refunds, returns,
allowances, expenses and other obligations related to employees, consultants and
agents who are working there immediately prior to the Closing, except that the
obligations of E & R under paragraph 2(c) above will apply to any sales made by
IST. IST will be entitled to all revenues, rights, interests, and other benefits
from such operations.
3.11 Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which a party is subject or any provision of
its charter or other organization documents or bylaws.
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4. Representations and Warranties of E & R
E & R represents and warrants to IST as follows:
4.1 Authority; No Conflict.
(a) Each Principal is an individual residing in the State of Utah,
U.S.A.
(b) This Agreement constitutes the legal, valid, and binding
obligation of E & R, enforceable against E & R in accordance with its terms. E &
R has the absolute and unrestricted right, power, and authority to execute and
deliver this Agreement and the documents referred to herein and to perform its
obligations under each of them.
(c) Neither the execution and delivery of this Agreement, nor the
consummation or performance of the Transactions by E & R, will contravene,
conflict with or result in a violation of any Governmental Requirement, Material
Contract or Organizational Document applicable to E & R, or give any Person the
right to prevent, delay, or otherwise interfere with the Transactions pursuant
to:
(i) any Legal Requirement or Order to which E & R may be
subject; or
(ii) any contract to which E & R is a party or by which a
Principal may be bound.
E & R will not be required to obtain any consent from any Person in
connection with the execution and delivery of this Agreement or the consummation
or performance of the Transactions.
4.2 Certain Proceedings. There is no Threatened Proceeding that has been
commenced against E & R or either Principal that challenges, or may have the
effect of preventing, delaying, making illegal, or otherwise interfering with,
the Contemplated Transaction.
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4.3 Brokers or Finders. E & R has incurred no obligation or liability,
contingent or otherwise, for brokerage or finder's fees or agent's commissions
or other similar payments in connection with this Agreement.
4.4 Title to Principals' Stock. At the date hereof, E & R, or the
Principals, as the case may be, will have good and valid title to all of the
Principals' Stock, free and clear of all liens, claims and encumbrances. Upon
the closing, as contemplated hereby, IST will receive good and valid title to
the Principals' Stock, free and clear of all liens, claims and encumbrances
attributable to E & R or the Principals. Other than the Principals' Stock, none
of the Principals, Private Mentoring Group, Inc., or ESI, Inc. beneficially own
any equity securities issued of IST.
4.5 IST's Representations and Warranties. Except as set forth on Exhibit I
hereto, or for matters referenced in the Recitals to this Agreement, neither the
Principals nor E & R have any Knowledge of any fact, event, circumstance, or
condition that would constitute, either currently or with the passage of time, a
breach of any representation, warranty, or covenant of IST under this Agreement.
4.6 Compliance with Legal Requirements and Contracts. To the Principals'
Knowledge, the Principals have at all times, as employees, directors, officers
or agents of the Company, complied in all material respects with all applicable
Legal Requirements relating to IST's business and operations of EPMG.
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4.7 Disclosure. No representation, warranty or covenant by E & R contained
in this Agreement, nor any written statement or certificate furnished or to be
furnished by E & R to IST in connection herewith or pursuant hereto, contains
any untrue statement of a material fact, or omits to state any material fact
required to make the statements herein or therein not misleading.
5. Covenants of Parties
5.1 Approvals of Governmental Bodies. Each party will, and will cause each
Related Person to, cooperate with all other parties with respect to all filings
and consents that either party is required by Legal Requirements to make in
connection with the Transactions, but this provision will not require any party
to dispose of or make any change in any portion of its business or to incur any
financial burden.
5.2 Access to Records. After the Closing, for good cause shown E & R and
IST will, upon at least five (5) days advance notice, provide the
Representatives of a party with access to such financial records of IST or EPMG
(or records relating to EPMG customers or sales) which, is reasonably necessary
to enable a party to complete any financial audit, complete and make filings
required by law, determine any tax liability, or otherwise comply with any Legal
Requirement or defend any legal action.
5.3 Transactions.
(a) Except for payments to the Designated Clients, IST will pay all
of its client reserves existing as of the date hereof in accordance with the (i)
existing contracts between IST and its Clients, or if none (ii) any historical
practice of IST that has been consistently applied and documented; provided,
that if E & R has not delivered to IST as of the date hereof copies of all lead
contracts between IST and/or EPMG (on the one hand) and their clients (on the
other hand), as well as documentation regarding IST's and/or EPMG's historical
practice of paying client reserves, then IST will not be responsible for its
failure to pay client reserves in accordance with any such contract or
historical practice with which it is not aware.
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(b) IST covenants and agrees that it will pay all accrued
liabilities as of the date of Closing that are due and owing to employees,
clients, customers, service providers and vendors arising from sales made prior
to the Closing for which payment has been received by EPMG prior to the Closing,
excluding any accrued liabilities which are being contested by EPMG in good
faith and accrued liabilities that are subject to offset. Concurrently with the
execution of this Agreement, IST and E & R shall jointly execute instruction
letters to Zions National Bank and First Regional Bank regarding the payment of
certain payables, including the amounts described in paragraphs 2(c)(ii) and
2(e).
(c) EPMG is entitled to all revenues and benefits from all sales
made by EPMG prior to the Settlement Date , including sales that, as of the
Settlement Date , have been authorized, are in process, or are awaiting
settlement under applicable credit card arrangements. If E & R or its affiliates
receives the proceeds of any such sale, then E & R will immediately deliver such
proceeds to IST. Similarly, if IST or its affiliates receives proceeds of sales
by E & R (including its affiliates) after the Settlement Date, then IST will
immediately deliver such proceeds to E & R. In addition, E&R will reimburse EPMG
for all EPMG expenses incurred in the ordinary course of business that accrue
between the Settlement Date and the date of Closing, unless EPMG is otherwise
relieved of such liability. IST and E&R will work together in good faith to
reconcile all sales and expense allocations prescribed by this paragraph, and
the parties agree to cooperate to prepare a weekly reconciliation report and
make any required refunds or reimbursements on a weekly basis.
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5.4 SEC Filings. Promptly after the Closing IST will file with the
Securities and Exchange Commission a Form 8-K (or other appropriate filing)
which accurately described the terms hereof and the transactions.
5.5 Abandonment. Upon request by E & R, IST will deliver a notice to E & R
to the effect that IST has relinquished and ceded to E & R any right to utilize
any lead data existing as of the Settlement Date that has been provided to EPMG
by third-party lead sources on or prior to the Settlement Date. In addition, for
a six-month period following the Closing, neither of IST or EPMG will solicit or
market to any of the lead providers listed on Exhibit K hereto (the "Restricted
Lead Providers"). It shall not be a breach of the foregoing sentence if IST or
its affiliates acquires (through merger, stock purchase, asset purchase, or
similar transaction) any business that, on or before the date of such
acquisition, obtained leads from any of the Restricted Lead Providers, so long
as such acquisition does not take place within the first four months following
Closing. Notwithstanding the foregoing, IST will at all times continue to have
the right to receive leads from Xxxxxxxxxxxxxx.xxx, Foreclosure World, Real
Estate Toolkit, Fast Cash, Xxxxxxxxxxxxxx.xxx, and Xxxxxxxxxxx Xxxxxxx.
5.6 Utah Leases. E & R will assume the leases of property located in Utah
that are described on Exhibit J attached hereto.
5.7 Cooperation. E & R and the Principals will cooperate with IST in good
faith in connection with ascertaining the fair market value of the Principals'
Stock and the assets transferred hereunder to E & R.
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6. Indemnification: Remedies
6.1 Survival. Except as provided in paragraph 6.5, all representations,
warranties, covenants, and obligations in this Agreement, will survive the
Closing only until December 31, 2005.
6.2 Indemnification and Payment of Damages by IST. IST shall indemnify and
hold harmless E & R and its Representatives for, and shall pay to E & R and its
Representatives the amount of, any loss, liability, claim, damage (excluding
incidental and consequential damages) or expense (including reasonable costs of
investigation and defense and reasonable attorneys' fees), whether or not
involving a third-party claim (collectively, "Damages"), arising, directly or
indirectly, from or in connection with: (i) any breach of any representation or
warranty made by IST in this Agreement or in any certificate delivered by IST
pursuant to this Agreement, and (ii) any breach by IST of any covenant or
obligation of IST in this Agreement, and (iii) the failure of IST to perform any
of the obligations assumed by IST pursuant to this Agreement, including pursuant
to Article 2 hereof.
6.3 Indemnification and Payment of Damages by E & R. E & R shall indemnify
and hold harmless IST and its Representatives, and shall pay IST and its
Representatives, for the amount of any Damages arising, directly or indirectly,
from or in connection with (i) any breach of any representation or warranty made
by E & R in this Agreement or in any certificate delivered by E & R pursuant to
this Agreement, and (ii) any breach by E & R of any covenant or obligation of E
& R in this Agreement, and (iii) the failure of E & R to perform any of the
obligations assumed by E & R pursuant to Agreement, including pursuant to
Article 2 hereof.
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6.4 Remedies; Specific Performance. The remedies provided in this
paragraph 6 will be the exclusive remedy with respect to the matters described
in paragraphs 6.2 and 6.3 hereof, except IST and E & R shall each have the right
to seek specific performance with respect to the Transactions.
6.5 Time Limitations. Except as provided below, IST and E & R will have no
liability (for indemnification or otherwise) with respect to any representation
or warranty, or covenant or obligation to be performed and complied with prior
to the Closing Date, unless on or before December 31, 2005, the aggrieved party
notifies the other party of a claim specifying the factual basis of that claim
in reasonable detail. The exceptions to the preceding sentence shall be
representations, warranties, covenants or obligations related to stock
ownership, taxes, ERISA and environmental issues; these exceptions will continue
in effect for the terms of the relevant statutes of limitations, including
extensions.
6.6 Limitations on Amount. Neither IST nor E & R will have any liability
(for indemnification or otherwise) with respect to the matters described in
paragraph 6 until the total of all Damages with respect to such matter exceeds
$50,000, and then only for the amount by which such Damages exceed $50,000. In
no event shall the aggregate amount of Damages for which either E & R or IST
(including their Representatives and Affiliates, taken collectively), have the
right to seek indemnification from the other party in excess of $675,000.
6.7 Procedure for Indemnification--Third Party Claims.
(a) Promptly after receipt by an indemnified party under paragraph 6
of notice of the commencement of any Proceeding against it, such indemnified
party will, if a claim is to be made against an indemnifying party under such
paragraph, give notice to the indemnifying party of the commencement of such
claim, but the failure to notify the indemnifying party will not relieve the
indemnifying party of any liability that it may have to any indemnified party,
except to the extent that the indemnifying party demonstrates that the defense
of such action is prejudiced by the indemnified party's failure to give such
notice.
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(b) If any Proceeding referred to in paragraph 6 is brought against
an indemnified party and the indemnified party gives notice to the indemnifying
party of the commencement of such Proceeding, the indemnifying party will,
unless (i) the claim involves taxes, be entitled to participate in such
Proceeding and, to the extent that it wishes (unless the indemnifying party is
also a party to such Proceeding and the indemnified party determines in good
faith that joint representation would be inappropriate, or (ii) the indemnifying
party fails to provide reasonable assurance to the indemnified party of its
financial capacity to defend such Proceeding and provide indemnification with
respect to such Proceeding), to assume the defense of such Proceeding with
counsel satisfactory to the indemnified party and, after notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such Proceeding, the indemnifying party will not, as long as it
diligently conducts such defense, be liable to the indemnified party under this
paragraph 6 for any fees of other counsel or any other expenses with respect to
the defense of such Proceeding, in each case subsequently incurred by the
indemnified party in connection with the defense of such Proceeding, other than
reasonable costs of investigation. If the indemnifying party assumes the defense
of a Proceeding, (i) it will be conclusively established for purposes of this
Agreement that the claims made in that Proceeding are within the scope of and
subject to indemnification; (ii) no compromise or settlement of such claims may
be effected by the indemnifying party without the indemnified party's consent
unless (A) there is no finding or admission of any violation of Legal
Requirements or any violation of the rights of any Person and no effect on any
other claims that may be made against the indemnified party, and (B) the sole
relief provided is monetary damages that are paid in full by the indemnifying
party; and (iii) the indemnified party will have no liability with respect to
any compromise or settlement of such claims effected without its consent. If
notice is given to an indemnifying party of the commencement of any Proceeding
and the indemnifying party does not, within ten days after the indemnified
party's notice is given, give notice to the indemnified party of its election to
assume the defense of such Proceeding, the indemnifying party will be bound by
any determination made in such Proceeding or any compromise or settlement
effected by the indemnified party.
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(c) Notwithstanding the foregoing, if an indemnified party
determines in good faith that there is a reasonable probability that a
Proceeding may adversely affect it or its affiliates other than as a result of
monetary damages for which it would be entitled to indemnification under this
Agreement, the indemnified party may, by notice to the indemnifying party,
assume the exclusive right to defend, compromise, or settle such Proceeding, but
the indemnifying party will not be bound by any determination of a Proceeding so
defended or any compromise or settlement effected without its consent (which may
not be unreasonably withheld).
6.8 Procedure for Indemnification--Other Claims. A claim for
indemnification for any matter not involving a third-party claim may be asserted
by notice as provided herein to the party from whom indemnification is sought.
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7. General Provisions
7.1 Expenses. Each party to this Agreement will bear its expenses incurred
in connection with the preparation, execution, and performance of this Agreement
and the Transactions, including all fees and expenses of agents,
representatives, counsel, and accountants. In the event of termination of this
Agreement, the obligation of each party to pay its own expenses will be subject
to any rights of a party arising from a breach of this Agreement by another
party.
7.2 Public Announcements. The parties will promptly make a public
announcement with respect to the Transactions.
7.3 Confidentiality. In connection with their business operations, each of
IST and E & R may have disclosed all or a portion of its Confidential
Information to another party. Each of E & R and IST shall cause its officers,
directors, members, agents and Representatives to hold in trust and confidence,
and shall not use or permit the use of, the Confidential Information of each
other party (including their affiliates). The undertakings and obligations of
the parties under this paragraph 7.3 shall not apply to any Confidential
Information of the other party that the receiving party can show (i) is or
becomes disclosed within the public domain through no fault of the receiving
party, (ii) is disclosed to a third party by the disclosing party without
restriction on such party, (iii) is approved for release by written
authorization of the disclosing party, (iv) is developed independently by a
Representative of the receiving party that does not have access to the
Confidential Information, (v) becomes known to the receiving party from a source
other than the disclosing party through no breach of any obligation of
confidentiality, or (vi) must be disclosed by the receiving party under subpoena
or other governmental compulsion.
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7.4 Notices. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (i) delivered by hand (with written confirmation of receipt), (ii)
when received by the addressee, if sent by a nationally recognized overnight
delivery service (receipt requested), in each case to the appropriate addresses
set forth below (or to such other addresses as a party may designate by notice
to the other parties):
IST: Innovative Software Technologies, Inc.
000 X.X. Xxxxxx Xxxxxx Xxxxx
Xxxxxxxxx, XX 00000
Attention: Xxxx X. Xxxxxx
Senior Counsel
Xxxxx & Lardner LLP
000 X. Xxxxx Xxxxxx, Xxxxx 0000
Xxxxx, XX 00000
(not to be considered as notice)
E & R (and Company after the 0000 Xxxxx 000 Xxxx
Xxxxxxx): Xxxxx, XX 00000
with a copy to: J. Xxxxxx Xxxxxx Holme Xxxxxxx & Xxxx LLP 000 Xxxxx Xxxx
Xxxxxx, Xxxxx 0000 Xxxx Xxxx Xxxx, XX 00000 (not to be considered as notice)
7.5 Remedies.
(a) Dispute Resolution. If the Closing has occurred and there is a
controversy, claim or dispute (a "Dispute") under this Agreement, the
disagreeing parties shall promptly meet with one another and diligently attempt
to resolve their disagreements. If they are unable to do so, then any party to
the Dispute may notify each other party that a Dispute exists (a "Notice of
Dispute").
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(b) Mediation. If the dispute has not been resolved by negotiation
within twenty days of the delivery of a Notice of Dispute, the parties shall
endeavor to settle the dispute by mediation under the then current CPR Model
Mediation Procedure for Business Disputes ("CPR Rules") or the comparable
provisions of the American Arbitration Association ("AAA Rules") as the parties
determine. Unless otherwise agreed, the parties shall agree upon a mediator or,
if they cannot agree upon a mediator within five days of commencement of the
mediation procedure, then they shall select a mediator pursuant to the CPR or
AAA Rules, as appropriate. Expenses of mediation shall be divided equally
between the parties to the Dispute.
(c) Arbitration.
(i) Assuming the inability of the parties to resolve their
differences as provided in subparagraphs (a) and (b), the Dispute (including any
question as to whether or not any Dispute falls within the terms of this
paragraph or the selection of an arbitrator) shall be settled by arbitration in
Salt Lake City, Utah in accordance with the CPR Rules, by a single arbitrator
mutually acceptable to the parties, or by the comparable AAA Rules, as the
parties shall agree, or as designated by the initiating party. Any party may
initiate arbitration from and after 60 days following the delivery of a Notice
of Dispute if the dispute has not then been settled by negotiation or mediation.
The arbitration procedure shall be governed by the United States Arbitration
Act, 9 U.S.C. xx.xx. 1-16, and the award rendered by the arbitrator shall be
final and binding on the parties and may be entered in any court having
jurisdiction thereof.
(ii) Each party shall have discovery rights as provided by the
Federal Rules of Civil Procedure; provided, however, that all such discovery
shall be commenced and concluded within forty-five (45) days of the initiation
of arbitration.
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(iii) It is the intent of the parties that any arbitration
shall be concluded as quickly as reasonably practicable. Unless the parties
otherwise agree, once commenced, the hearing on the disputed matters shall be
held at least four days a week until concluded, with each hearing date to begin
at 9:00 a.m. and to conclude at 5:00 p.m. The arbitrator shall use all
reasonable efforts to issue the final award or awards within a period of five
business days after closure of the proceedings. Failure of the arbitrator to
meet the time limits of this paragraph 7.5(c) shall not be a basis for
challenging the award. The parties shall maintain as confidential the existence
and result of the mediation and arbitration.
(iv) The arbitrator may instruct the non-prevailing party to
pay all costs of the proceedings, including the fees and expenses of the
arbitrator and the reasonable attorneys' fees and expenses of the prevailing
party, but only if the prevailing party shall have complied with the provisions
of subparagraphs (a) and (b). In the absence of such instruction, the parties
shall bear their own costs and share equally the fees and expenses of the
arbitrator.
(d) Ancillary Proceedings. Any legal proceeding instituted to
enforce an arbitration award hereunder may be brought in a court of competent
jurisdiction (either state or federal) in Salt Lake City or Provo, Utah. Each
party hereby submits to personal jurisdiction in either location, irrevocably
waives any objection as to venue, and further agrees not to plead or claim in
any such court that any such proceeding has been brought in an inconvenient
forum. Nothing herein shall be construed to prevent any party from seeking
equitable relief in such courts to restrain or prohibit any breach or threatened
breach of any covenant of a party set forth in this Agreement, whether or not
the parties have first sought to resolve the dispute through negotiation,
mediation or arbitration.
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7.6 Further Assurances. The parties will (i) furnish upon request to each
other such further information, (ii) execute and deliver to each such other
documents, and (iii) perform such other acts and things, all as the other party
may reasonably request (and without delivery of additional consideration) for
the purpose of carrying out the intent of this Agreement and the documents
referred to in this Agreement. To the extent reasonably required, after Closing,
IST shall permit E & R access to the pertinent parts of any Company records
(including audit work papers) which are not delivered to E & R at Closing.
7.7 Waiver. Neither the failure nor any delay by any party in exercising
any right, power, or privilege under this Agreement or the documents referred to
in this Agreement will operate as a waiver of such right, power, or privilege,
and no single or partial exercise of any such right, power, or privilege will
preclude any other or further exercise of such right, power, or privilege or the
exercise of any other right, power, or privilege. To the maximum extent
permitted by applicable law, (i) no claim or right arising out of this Agreement
or the documents referred to in this Agreement can be discharged by one party,
in whole or in part, by a waiver or renunciation of the claim or right unless in
writing signed by the other party; (ii) no waiver that may be given by a party
will be applicable except in the specific instance for which it is given; and
(iii) no notice to or demand on one party will be deemed to be a waiver of any
obligation of such party or of the right of the party giving such notice or
demand to take further action without notice or demand as provided in this
Agreement or the documents referred to in this Agreement.
7.8 Entire Agreement and Modification. This Agreement supersedes all prior
agreements between the parties with respect to its subject matter and, including
the Disclosure Schedules, Exhibits and other documents referred to in this
Agreement, constitutes the complete and exclusive statement of the terms of the
Agreement with respect to its subject matter. This Agreement may not be amended
except by a written agreement executed by the party to be charged with the
amendment.
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7.9 Assignments, Successors, and No Third-Party Rights. No party may
assign any of its rights or obligations under this Agreement without the prior
consent of the other parties. Subject to the preceding sentence, this Agreement
will apply to, be binding in all respects upon, and inure to the benefit of the
successors and permitted assigns of the parties. Nothing expressed or referred
to in this Agreement will be construed to give any Person other than the parties
to this Agreement any legal or equitable right, remedy, or claim under or with
respect to this Agreement or any provision of this Agreement. This Agreement and
all of its provisions and conditions are for the sole and exclusive benefit of
the parties to this Agreement and their successors and assigns.
7.10 Severability. If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
7.11 Construction. All words used in this Agreement will be construed to
be of such gender or number as the circumstances require. Unless otherwise
expressly provided, the word "including" does not limit the preceding words or
terms.
7.12 Governing Law. This Agreement will be governed by the laws of the
State of Utah, without regard to its conflicts of laws principles.
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7.13 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
8. Definitions.
For purposes of this Agreement the following terms have the meanings
specified or referred to in this paragraph 8:
"Closing" - as defined in paragraph 1 above.
"Closing Date" - the date first above shown.
"Confidential Information" - all research, products, services,
developments, components, parts, documents, information, drawings, processes,
electronic files, data, business plans, programs, specifications, techniques,
processes, tradesecrets, inventions, know-how, business plans, marketing and
financial information, employee information, and other information of a secret,
confidential or proprietary nature which has been developed by or for the
benefit of a party. The Confidential Information of E&R shall include its
proprietary interest in, and access to, existing EPMG lead data and e-mail
messages written to or from EPMG employees, subject to paragraph 5.2 hereof. A
party's Confidential Information shall include such portions of the Confidential
Information of another party as shall be transferred to the transferee party
pursuant to the terms of this Agreement.
"Damages" - as defined in paragraph 6 above.
"Designated Clients" - as defined in paragraph 2(f)(ii) above.
26
"Dispute" - as defined in paragraph 7.5(a) above.
"Financial Statements" - as defined in paragraph 3.3 above.
"Governmental Authorization" - any approval, consent, license, permit,
waiver, or other authorization issued, granted, or otherwise made available by
or under the authority of any governmental body or pursuant to any Legal
Requirement.
"Knowledge" - an individual will be deemed to have "Knowledge" of a
particular fact or other matter if such individual is actually aware of such
fact or other matter.
A Person (other than an individual) will be deemed to have "Knowledge" of
a particular fact or other matter if any of the following individual has, or at
any time had, actual Knowledge of such fact or other matter: The Persons are
Xxxxxxx Xxxxxxx, Xxxxxxxxxxx X. Xxxxx, Xxxxx Xxxxxxx, Xxxx Xxxxxx, Xxxxx
Xxxxxxxx, Will Xxxxxxx, and Xxxx Xxxxxxxx for IST and the Principals for E & R.
"Legal Requirement" - any federal, state, local, foreign, or other
administrative order, law, ordinance, regulation, statute, or treaty.
"Notice of Dispute" - as defined in paragraph 7.5(a) above.
"Order" - any award, decision, injunction, judgment, order, ruling, or
verdict entered, issued, made, or rendered by any court, administrative agency,
or other governmental body or by any arbitrator.
"Ordinary Course of Business" - an action taken by a Person will be deemed
to have been taken in the "Ordinary Course of Business" only if: (a) such action
is consistent with the past practices of such Person and is taken in the
ordinary course of the normal day-to-day operations of such Person; and (b) such
action is not required to be authorized by the governing board of such Person
and is not required to be specifically authorized by the parent company (if any)
of such Person.
27
"Person" - any individual, corporation, general, limited or limited
liability partnership, limited liability company, joint venture, estate, trust,
association, labor union, or other entity or governmental body.
"Principals" - as defined in paragraph B of the Recitals.
"Principals' Stock" - as defined in paragraph 1 above.
"Proceeding" - any legal action, arbitration, audit, investigation, or
litigation, commenced, brought, conducted, or heard by or before, or otherwise
involving, any governmental body or arbitrator.
"Related Person" - with respect to a particular individual: (a) each other
member of such individual's Family; (b) any Person that is directly or
indirectly controlled by such individual or members of such individual's Family;
(c) any Person in which such individual or members of such individual's Family
hold (individually or in the aggregate) a Material Interest; and (d) any Person
with respect to which such individual or one or more members of such
individual's Family serves as a director, officer, partner, executor, or trustee
(or in a similar capacity).
With respect to a specified Person other than an individual: (a) any
Person that directly or indirectly controls, is directly or indirectly
controlled by, or is directly or indirectly under common control with such
specified Person; (b) any Person that holds a Material Interest in such
specified Person; (c) each Person that serves as a director, officer, partner,
executor, or trustee of such specified Person (or in a similar capacity); (d)
any Person in which such specified Person holds a Material Interest; (d) any
Person with respect to which such specified Person serves as a general partner
or a trustee (or in a similar capacity); and (f) any Related Person of any
individual described in clause (b) or (c).
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For purposes of this definition, (a) the "Family" of an individual
includes (i) the individual, (ii) the individual's spouse, (iii) any other
natural Person who is related to the individual or the individual's spouse
within the second degree of consanguinity, and (iv) any other natural Person who
resides with such individual, and (b) "Material Interest" means direct or
indirect beneficial ownership (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934) of voting securities or other voting interests
representing at least 10% of the outstanding voting power of a Person or equity
securities or other equity interests representing at least 10% of the
outstanding equity securities or equity interests in a Person.
"Representative" - with respect to a particular Person, any director,
officer, employee, agent, advisor, or other representative of such Person.
"Settlement Date" - is defined in the introductory portion of paragraph 2
"Threatened" - a claim, Proceeding, dispute, action, or other matter will
be deemed to have been "Threatened" if any demand or statement has been made
(orally or in writing) or any notice has been given (orally or in writing).
29
"Transactions" - all of the transactions contemplated by this Agreement,
including: (a) the transfer to IST of the shares described in paragraph 1, (b)
the performance of E & R and IST of their respective covenants and obligations
under this Agreement; and (c) the parties performance of the various covenants
set forth herein. IN WITNESS WHEREOF, the parties have executed and delivered
this Agreement as of the date first written above. IST: E & R:
INNOVATIVE SOFTWARE TECHNOLOGIES, INC., ETHAN AND RANDY, LC,
a California corporation a Utah limited liability company
By: By:
------------------------------ ------------------------------
Name: Name:
Title: Title:
JOINDER FOR PURPOSES ONLY OF ANY INDIVIDUAL OBLIGATION OF THE
PRINCIPALS NAMED BELOW.
By: By:
--------------------- -----------------------
Name: Xxxxx X. Xxxx Name: Xxxxx X. Xxxxxx
--------------------- -----------------------
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