EXHIBIT 99.1
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REPAYMENT AND SECURITY AGREEMENT
This Repayment and Security Agreement (hereinafter the "Repayment Agreement") is
entered into on this 21st day of May 2004 by and between Xxxxxxxx Corporation
(hereinafter "Xxxxxxxx") and First Systech International, Inc., (aka Etechlogix,
Inc.) (hereinafter referred to as "Systech and/or "Etechlogix").
RECITALS
A. On June 14, 2001 Unlimited, Inc. ("Unlimited") filed a complaint against
Xxxxxxxx and First Systech International, Inc., and Homey Farsi as an individual
in the State of Wisconsin Circuit Court Milwaukee County, Case Number
01-CV-005397 (the "Litigation"). Mr. Farsi was dismissed from the Litigation
pursuant to a Stipulation and Order of Dismissal filed with the Circuit Court on
March 11, 2004.
B. On August 15, 2002, the Wisconsin Circuit ordered the case to
arbitration in accordance with the Arbitration Provisions contained within the
Software License and related agreements between First Systech and Unlimited.
C. On October 22, 2002 Unlimited filed a demand for arbitration against
Xxxxxxxx and Systech (American Arbitration Association Case No. 76-117-0897).
D. As a result of the pending Litigation, Xxxxxxxx and Etechlogix entered
into the following agreements whereby Etechlogix agreed to indemnify Xxxxxxxx:
o Indemnification Agreement dated July 3, 2002
o Settlement Agreement dated March 6, 2003
o Joint Defense and Indemnity Agreement dated May 2003
E. On July 3, 2002 Etechlogix and Xxxxxxxx entered into an Indemnification
Agreement as a result of the underlying Litigation whereby Etechlogix promised
as follows:
1. Indemnification
1.1 Principals, jointly and severally, agree to indemnify,
save, hold harmless, discharge and release FAC [Xxxxxxxx] from
and against any and all Claims expenses, costs, including
attorneys' fees incurred by FAC arising out of the Asset
Purchase Agreement1 executed on October 2, 2000 for: (1)
services performed or products supplied to Unlimited by First
Systech prior to its purchase of the First Systech assets or
(2) from First Systech's operation of the business prior to
the Xxxxxxxx acquisition.
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1 The Asset Purchase Agreement additionally contains an indemnification clause
(Section 4, subsection 4.1 Covenants and Indemnification) whereby Systech
promised to indemnify, save, hold harmless, discharge and release the
Purchaser (Xxxxxxxx) from and against any and all Claims arising from or
based on (iii) any liability or other Claims or obligations, except for
those disclosed in the Financial Statements or the Disclosure Schedule or
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F. On or around March 6, 2003, Etechlogix and Xxxxxxxx settled their
arbitral dispute of June 2001 and signed a confidential Settlement Agreement.
The Settlement Agreement provides in relevant part:
5. Non-Waiver Clients
5.1 The clients identified on Schedule 5.1 either have or in
the future may file a claim against FAC and/or Principals
("Non-Waiver Clients").
5.2 Principals shall be liable for any and all claims asserted
by Non-Waiver Clients that arise out of or relate to the Asset
Purchase Agreement except for claims arising out of any and
all failures by FAC to perform its obligations under the Asset
Purchase Agreement, this Agreement and the Software, Support
and License Agreements with the clients.
Unlimited is specifically listed on Schedule 5.1 as a non-waiver client.
G. On or around May 2003, Xxxxxxxx and Etechlogix entered into a Joint
Defense Agreement2. Paragraph 12 of the Agreement provides:
The parties further agree that in the event that Xxxxxxxx is
found jointly and severally liable with Principals on any of
the matters referenced above or that may arise in the future,
Xxxxxxxx shall contribute only in accordance with the
allocation of percentage of fault as a result of Xxxxxxxx'x
independent actions subsequent to the Closing Date of the
Asset Purchase Agreement (i.e., October 2, 2000), as
determined by specific findings of fact, for its own
independent acts including any work performed by Xxxxxxxx,
representations or misrepresentations made by Xxxxxxxx, or its
own acts or omissions.
H. On October 21, 2003 through October 23, 2003 and November 17, 2003
through November 19, 2003, all parties attended an arbitration in Phoenix
Arizona with Xx. Xxxxxxx Irish presiding as the arbitrator (the "Arbitrator").
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the schedules hereto, respecting the Business WHICH AROSE PRIOR TO THE TIME
OF CLOSING (OCTOBER 2, 200) OR RESPECTING SERVICES PERFORMED OR PRODUCTS
SUPPLIED TO CUSTOMERS OF THE BUSINESS BEFORE THE TIME OF CLOSING OR ANY
OTHER CLAIMS OR LIABILITIES IN ANY WAY ARISING FROM THE BUSINESS THAT ARE
NOT DISCLOSED IN THE FINANCIAL STATEMENTS, THE DISCLOSURE SCHEDULE OR THE
SCHEDULES ATTACHED HERETO. (Emphasis supplied).
2 Although dated May 2003, this Agreement was not signed by both parties until
on or around August 27, 2003.
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I. On January 20, 2004 the Arbitrator rendered its decision in the above
referenced arbitration finding that i) Xxxxxxxx has no independent liability to
Unlimited; ii) Xxxxxxxx'x liability to Unlimited is based exclusively upon
Xxxxxxxx'x partial settlement stipulation entered into on July 20, 2002 between
Unlimited and Xxxxxxxx whereby Xxxxxxxx agreed to be held jointly and severally
liable with Systech if there was an arbitration award against Systech upon
Unlimited's claims of breach of contract and rescission; iii) because of the
partial settlement agreement, Xxxxxxxx and First Systech are jointly and
severally liable to Unlimited for $116,885.95 plus prejudgment interest at the
rate of 10% per annum from August 2, 1999 through January 20, 2004, and for
$9,125.07 to reimburse Unlimited for amounts previously advanced to the American
Arbitration Association. A copy of the Arbitral Award is attached hereto as
Exhibit 1.
J. Based on the arbitrator's finding that Xxxxxxxx has no independent
liability to Unlimited, Etechlogix recognizes and agrees that it is responsible
for the arbitral award in accordance with the terms and conditions set forth in
the Joint Defense and Indemnity Agreement.
K. As a result of Etechlogix's financial situation and lack of funds to
satisfy the award, Xxxxxxxx is willing and hereby agrees to satisfy the award in
a good faith attempt to save both Xxxxxxxx and Etechlogix additional costs and
expenses provided Etechlogix agrees to the terms and conditions set forth
herein.
WHEREFORE, the parties agree as follows:
AGREEMENT
1. Consideration. As sufficient consideration for this Repayment Agreement,
Xxxxxxxx and Etechlogix agree as follows:
1.1. Based on the arbitrator's finding in the Unlimited arbitration
that Xxxxxxxx has no independent liability to Unlimited, Etechlogix recognizes
and agrees that it is responsible for the arbitral award in accordance with the
terms and conditions set forth in the Indemnification Agreement, Settlement
Agreement and Joint Defense and Indemnity Agreement set forth above.
1.2. As a result of Etechlogix's financial situation and lack of funds
to satisfy the award, Xxxxxxxx is willing and hereby agrees to satisfy the award
in a good faith attempt to save both Xxxxxxxx and Etechlogix additional costs.
Xxxxxxxx agrees to tender to Unlimited the full amount of the arbitral award in
the amount of $182,385.52, comprised of damages in the amount of $116,885.95,
plus interest, fees and costs in the amount of $56,374.50, and the arbitrator's
fee of $9,125.07 (hereinafter all amounts collectively referred to as the
"Unlimited Arbitral Award").
1.3. Xxxxxxxx'x satisfaction of the Unlimited Arbitral Award shall be
deemed a loan to Etechlogix that shall be repaid by Etechlogix to Xxxxxxxx in
accordance with the terms and conditions set forth herein.
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2. Payment Terms. Etechlogix agrees to repay Xxxxxxxx for the Unlimited
Arbitral Award paid by Xxxxxxxx to Unlimited, interest (as defined in Paragraph
3) and attorneys fees (as defined in paragraph 4) (hereinafter the
"Obligation"), in accordance with the repayment plan set forth herein and the
amortization schedule attached hereto as Exhibit 2 and incorporated herein by
reference.
2.1. On the 20th day of each month, commencing in June, 2004,
Etechlogix shall pay to Xxxxxxxx monthly payments ("hereinafter Payments") in
the amount of $5,000 (Five Thousand U.S. Dollars) per month for the first twelve
(12) months as set forth on Exhibit 2 and adjusted upwards for each subsequent
year in an amount not less than $5,000 (Five Thousand U.S. Dollars) depending on
the financial condition of Etechlogix until such time that the Obligation is
repaid in full.
3. Interest. The outstanding principal balance of the Obligation shall bear
interest from the date that Xxxxxxxx paid the Unlimited Arbitral Award to
Unlimited (April 2, 2004) until paid at the rate of eight (8%) per annum until
paid in full or prorata, if paid earlier.
4. Attorneys Fees. Etechlogix shall reimburse Xxxxxxxx for its attorneys'
fees and costs incurred from January 1, 2004 until the date of this Repayment
Agreement as a result of Etechlogix's failure to satisfy the Unlimited Arbitral
Award and Xxxxxxxx'x agreement to satisfy the Unlimited Arbitral Award on behalf
of Etechlogix. Xxxxxxxx'x attorneys fees and costs total a minimum of $4,500 and
shall not exceed $10,000 and shall be billed separately and directly by
Xxxxxxxx'x attorneys to Etechlogix for payment within 10 (ten) days of execution
of this Repayment Agreement. In the event that Etechlogix fails to tender
payment to Xxxxxxxx'x counsel for the attorneys fees as billed, Xxxxxxxx, in its
sole discretion, shall have the right to include the unpaid attorneys fees to
the Obligation.
5. Quarterly and Year End Financials.
5.1. Within thirty (30) days from the end of each financial quarter,
Etechlogix shall provide Xxxxxxxx with its quarterly financial statements signed
by its Chief Financial Officer.
5.2. Within sixty (60) days or as soon as reasonably possible,
Etechlogix shall provide Xxxxxxxx with its audited year end financial
statements.
5.3. Xxxxxxxx acknowledges that the financial statements required to
be provided under this Section 5 may contain material nonpublic information, and
Xxxxxxxx agrees to maintain the financial statements in confidence as required
by the provisions of Regulation FD (17 CFR 243) and as set forth in the
Confidentiality and Non-Disclosure Agreement executed by the Parties and dated
February 12, 2004.
6. Security.
6.1. Grant of Security Interest. In order to secure the Obligation set
forth herein, Etechlogix hereby grants and conveys to Xxxxxxxx a security
interest in and lien on, the "Collateral" (defined below). (Such security
interest and lien is herein referred to as the "Security Interest" or the
"Lien").
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6.2. Collateral. The collateral used to secure the Obligation shall
include i) the issuance of a UCC-1 for all assets (the "Collateral") in favor of
Xxxxxxxx as set forth on Exhibit 6.2 (i) attached hereto and incorporated herein
by reference, and ii) the stipulation for entry of arbitral award described in
paragraph 11 as set forth on Exhibit 6.2(ii) respectively attached hereto and
incorporated herein by reference.
6.3. Etechlogix's representations.
6.3.1. First Priority Lien. The Security Interest being herein
granted to Xxxxxxxx is a first priority security interest in, and lien on, all
of the Collateral.
6.3.2. Defend Title. Etechlogix will defend title to Collateral
set forth on the UCC-1 Financing Statements against all persons, claims and
demands whatsoever.
6.3.3. Assurances of Title and Security Interest. On demand of
Xxxxxxxx, Etechlogix shall furnish further assurance of title to Xxxxxxxx,
execute any written agreement or do any other acts necessary to effectuate the
purpose and provisions of this Security Agreement and shall execute any
instrument or statement required by law or otherwise necessary to continue or
reconfirm or further perfect the Security Interest and to pay all costs in
connection therewith, including costs of filing.
6.3.4. No liens or other encumbrances. Etechlogix shall keep the
Collateral free and clear of all liens, security interests, claims, charges,
taxes, assessments, judgments and other encumbrances other than the Lien on the
Collateral as provided herein in this Repayment and Security Agreement.
7. Events of Default. Each of the following shall constitute an event of
default ("Event of Default") for purposes of this Repayment Agreement.
7.1. Etechlogix fails to pay the principal and accrued interest when
due under this Repayment Agreement, where such failure continues for a period of
three (3) consecutive business days after notice to Etechlogix.
7.2. Etechlogix fails to provide Xxxxxxxx with quarterly and year end
financials for a period of fifteen (15) days after notice to Etechlogix.
7.3. The filing of a petition by or against Etechlogix, or under any
similar law or other law relating to bankruptcy, insolvency, reorganization,
creditor compositions, arrangements or other relief for debtors, and where such
filing is not a voluntary action by Etechlogix, if such filing is not dismissed
or cured within ninety (90) days.
8. Notice of Default. In the Event of Default shall occur, Xxxxxxxx shall
give to Etechlogix notice of the Event of Default in writing via fax or email
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("Notice of Default"). Should the Event of Default continue for three (3)
consecutive business days after Notice of Default has been deemed to be given to
Etechlogix, Xxxxxxxx may take such actions as are allowed by this Repayment
Agreement as it deems appropriate.
9. Interest on Late Payments. Any payment under this Repayment Agreement
not paid on or before the date it becomes due shall bear interest at the rate of
one and one half percent (1.5%) compounded monthly from that date until it is
paid in full.
10. No Prepayment Penalty. Etechlogix shall have the privilege, at any
time, without charge, penalty or notice to repay all or any portion of the
Obligation.
11. Attorneys' Fees and Collection Costs. In the event a legal action or
arbitration or other proceeding is commenced to collect, enforce or interpret
this Repayment Agreement, to obtain a declaratory relief in connection with this
Repayment Agreement, or to otherwise obtain judicial relief in connection with
the transactions which are the subject of this Repayment Agreement, the
prevailing party shall be entitled to recovery reasonable attorneys' fees, costs
and expenses.
12. Amendments. No term or provision of this Repayment Agreement may be
amended or modified in any respect except in writing signed by the parties.
13. Notices. All notices or other communication required or permitted
hereunder shall be in writing and shall be deemed to have been given when
delivered in person or when postmarked, if mailed by certified or registered
mail, return receipt requested, postage prepaid and addressed as follows:
To Etechlogix: 00000 X. 00xx Xxxxxx,
Xxxxx 000
Xxxxxxxxxx, XX 00000
Facsimile: 000-000-0000
Attn: Xxxxx Xxxxx, Vice-President and
Chief Technology Officer
To Xxxxxxxx: Xxx Xxxxxxx Xxxxx
Xxxxx 000X
Xxxxxxxxx, XX 00000
Facsimile: 000-000-0000
Attn: Xxxx Xxxxxxxx
14. Stipulation for Entry of Arbitral Award.
14.1. In the event that Etechlogix fails to perform any obligation set
forth herein and said obligation is not cured within three (3) consecutive
business days from the date of notice in the manner set forth herein, Xxxxxxxx
may proceed to execute the Stipulation for Entry of Arbitral Award and
Stipulated Arbitral Award set forth on Exhibit 6.2 (ii) for the amount of the
outstanding Obligation (including interest and attorneys fees as described
herein), less any payments made pursuant to this Repayment Agreement.
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14.2. All terms and conditions contained in the Stipulation for Entry
of Arbitral Award and Stipulated Arbitral Award are incorporated herein by
reference.
14.3. In the event that Etechlogix performs their obligations set
forth in paragraph 2 herein, Xxxxxxxx shall file a notice of dismissal of the
arbitral action and return the original and any copies of the Stipulation for
Entry of Arbitral Award to Etechlogix.
15. Miscellaneous.
15.1. Dispute Resolution.
15.1.1. The Parties hereby irrevocably consent that any legal
action or proceeding to interpret or enforce this Repayment Agreement including
but not limited to, any action by any Party to modify, amend, rescind, annul or
terminate this Repayment Agreement or to seek any extraordinary or injunctive
relief, the issuance of any process in connection with such action or proceeding
including, but not limited to, the execution against any property whatsoever
(irrespective of its location, nature, use or intended use) be settled by
binding arbitration in accordance with the Commercial Arbitration Rules of the
American Arbitration Association ("AAA") and the procedures set forth below.
15.1.2. In the event of an uncured breach of the Repayment
Agreement by Etechlogix, Xxxxxxxx, within its own discretion, may elect to file
an action against Etechlogix with the American Arbitration Association in
Phoenix, Arizona.
15.1.3. Within ten (10) days from the date that Xxxxxxxx files a
demand for arbitration and request for entry of arbitral award, the American
Arbitration Association case administrator shall appoint a single arbitrator
from its commercial panel to hear the case and retain jurisdiction over the
matter. Neither party shall have the right to object to or reject the appointed
arbitrator except for conflict of interest.
15.1.4. In the event that Xxxxxxxx elects to file a demand for
arbitration and request for entry of Stipulated Arbitral Award, the demand for
arbitration shall include an accounting that sets forth: i) the amount of the
Obligation; ii) any credits paid by Etechlogix; iii) attorneys fees incurred as
a result of Etechlogix's uncured breach of the Repayment Agreement; and iv) all
supporting documentation establishing the credits paid by Etechlogix.
15.1.5. Etechlogix reserves the right to challenge the accounting
of the payments made by Etechlogix to Xxxxxxxx as set forth in Xxxxxxxx'x demand
for arbitration (hereinafter referred to as an "Accounting Dispute") and
expressly waives any other rights, claims, defenses, remedies or objections to
any of the underlying Indemnification Agreements and Settlement Agreement (set
forth in paragraph D), the Repayment and Security Agreement, the Stipulation for
Entry of Arbitral Award and Stipulated Arbitral Award and/or Xxxxxxxx'x demand
for arbitration and hereby stipulates that the Stipulated Arbitral Award may be
entered in favor of Xxxxxxxx upon Xxxxxxxx'x filing of the demand for
arbitration and request for entry of the Stipulated Arbitral Award.
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15.1.6. In the event that there is an Accounting Dispute,
Etechlogix shall provide Xxxxxxxx with written notice of its objection to
Xxxxxxxx'x accounting as set forth in the demand for arbitration and attach all
documents to support its objection within five (5) days after receiving
Xxxxxxxx'x demand for arbitration.
15.1.7. The parties shall meet and confer within five (5) days
after Etechlogix's written notice of its objection to Xxxxxxxx'x accounting.
15.1.8. In the event that Etechlogix believes it is entitled to
additional credits not shown in Xxxxxxxx'x demand for arbitration and the
parties are unable to resolve the Accounting Dispute, Etechlogix shall submit
its objection and an accounting summary of all payments that it made to Xxxxxxxx
and attach all documentation supporting its accounting summary to the appointed
arbitrator or the American Arbitration Association case administrator if an
arbitrator has not yet been appointed (with a copy to Xxxxxxxx) within ten (10)
days from the date it receives Xxxxxxxx'x demand for arbitration.
15.1.9. Within fifteen (15) days of the appointment of the
arbitrator, the arbitrator shall i) review the demand for arbitration,
Etechlogix's objection to Xxxxxxxx'x accounting, if any, and all other documents
submitted by the parties; ii) initiate a conference call, if required, to
further discuss any Accounting Dispute; iii) and if no conference call is
required confirm the credits paid by Etechlogix to Xxxxxxxx; and iv) proceed to
enter the Stipulated Arbitral Award in favor of Xxxxxxxx and as set forth herein
15.1.10. Because there is a high likelihood that breach, or
threatened breach, of this Repayment Agreement may lead to irreparable injury,
the undersigned stipulate that an aggrieved party may, in addition to any other
remedy, seek a temporary restraining order, preliminary injunction, and
permanent injunction from the court to restrain the breach or threatened breach
of this Repayment Agreement.
15.1.11. The decisions or awards of the Arbitrator shall be final
and binding upon the Parties affected thereby and each of the Parties hereby
irrevocably and expressly covenants to comply promptly and in good faith with
any and all such decisions or awards. Judgment upon the award rendered by the
arbitrator may be enforced in any court having jurisdiction thereof or in any
jurisdiction where the Parties have assets.
15.2. No delay or omission on the part of Xxxxxxxx in exercising any
rights under this Repayment Agreement shall operate as a waiver of such right or
of any other right under this Repayment Agreement. Etechlogix consents to the
acceptance of partial payments before or after maturity, all without prejudice
to Xxxxxxxx.
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15.3. Each of the undersigned parties represent that he is entering
into this Repayment Agreement with the full knowledge, consent and authority of
his attorney. This Repayment Agreement has been reviewed by the parties and
their respective attorneys, and the parties have had a full opportunity to
negotiate its contents. All parties intend that this Repayment Agreement be
complete and not subject to any claim of mistake. The parties expressly waive
any common law or statutory rule of construction that any ambiguity shall be
construed against the drafter of this Repayment Agreement and acknowledge that
for purposes of any such rule all parties contributed equally to the drafting of
this Repayment Agreement.
15.4. This Repayment Agreement may be executed in any number of
identical counterparts, each of which shall be deemed to be an original, and all
of which together shall be deemed to be an original, and all of which together
shall be deemed to be one and the same instrument when each party has signed one
(1) such counterpart.
IN WITNESS WHEREOF, Xxxxxxxx and Etechlogix agree to the terms set forth
herein in this Repayment and Security Agreement.
DATED: May 25, 2004 "Xxxxxxxx"
XXXXXXXX CORPORATION
By: /s/ Xxxxx Xxxxxxxx
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Xxxxx Xxxxxxxx, President
"Etechlogix"
DATED: May 21, 2004 FIRST SYSTECH INTERNATIONAL, INC.
(AKA ETECHLOGIX, INC)
By: /s/ Xxxxx Xxxxx
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Xxxxx Xxxxx, Vice-President and Chief
Technology Officer
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