Exhibit
10.7
JOINT PROSECUTION AND
DEFENSE AGREEMENT
This Joint Prosecution and Defense Agreement
(the "Agreement") is made effective as of April 1, 2004, by and
between ClearOne Communications, Inc. (“ClearOne”),
Parsons Behle & Latimer (“PB&L”), Edward Dallin
Bagley (“Bagley”) and Burbidge & Mitchell
(“B&M”). Each of the foregoing are individually
referred to as a "Party" and sometimes collectively referred to as
the "Parties" throughout this Agreement.
RECITALS
A. Bagley is a director and shareholder of
ClearOne.
B. On or about February 6, 2004, Lumbermens Mutual
Casualty Company (“Lumbermens”) filed a Complaint for
Declaratory Judgment in the United States District Court for the
District of Utah against ClearOne, Bagley and certain other current
and former directors of ClearOne entitled Lumbermens Mutual
Casualty Company v. ClearOne Communications, Inc. , Case No.
2:04CV0119TC (the “Insurance Litigation”).
C. On or about February 9, 2004, ClearOne and
Bagley filed a complaint against National Union Fire Insurance
Company of Pittsburgh, Pennsylvania (“National Union”)
and Lumbermens in the United States District Court for the District
of Utah entitled ClearOne Communications, Inc., et al. v.
National Union Fire Insurance Company, et al. , Case No.
2:04CV0145TS (the “Second Insurance
Lawsuit”).
D. PB&L has entered an appearance for, and is
representing, all defendants in the Insurance Litigation other than
Bagley and Michael A. Pierce. PB&L is representing ClearOne in
the Second Insurance Lawsuit. B&M has entered an appearance for
and is representing Bagley in the Insurance Litigation and the
Second Insurance Lawsuit.
E. In the Insurance Litigation, ClearOne and
Bagley have asserted counterclaims against National Union and
Lumbermens. In addition, the Second Insurance Lawsuit has been
consolidated with the Insurance Litigation for all purposes. (For
further reference in this Agreement, the “Insurance
Litigation” refers to all claims and defenses therein,
together with the Second Insurance Lawsuit unless otherwise
stated.)
F. In the Insurance Litigation (with the
consolidated claims from the Second Insurance Lawsuit), ClearOne is
pursuing claims, inter alia , to recover the policy limits
of ceratin policies for directors and officers insurance issued by
National Union and Lumbermens (the “Insurance
Policies”) and Bagley is pursuing related claims, inter
alia , to recover losses which he incurred due to National
Union’s and Lumbermens’s refusal to pay the policy
limits under the Insurance Policies to ClearOne which refusals
caused ClearOne to enter into a settlement agreement which diluted
his shareholdings in ClearOne. On the other hand, National Union
and
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Lumbermens
allege in the Insurance Litigation, inter alia , that they
have properly rescinded the Insurance Policies due to alleged fraud
in procuring the Insurance Policies.
G. The joint prosecution of the Company’s
claims and Bagley’s claims in the Insurance Litigation, and
defense of National Union’s and Lumbermens’ claims in
the Insurance Litigation, is in the best interests of ClearOne and
Bagley and will likely lead to an economy of litigation expenses in
the Insurance Litigation.
H. Due to their prior and current representation
of ClearOne and Bagley in litigation concerning matters which are
also the subject of the Insurance Litigation, PB&L and B&M
are familiar with the underlying facts in the Insurance Litigation
and are able to work as co-counsel in the Insurance
Litigation.
I. Through March 30, 2004, Bagley has paid the
attorney’s fees and costs of B&M in connection with
Insurance Litigation. On the other hand, ClearOne has paid the
attorney’s fees and costs of PB&L in connection with the
Insurance Litigation.
J. ClearOne, Bagley, PB&L and B&M now wish
(1) to reach certain agreements concerning the joint prosecution of
ClearOne’s and Bagley’s claims in the Insurance
Litigation and joint defense of claims made by National Union and
Lumbermens in the Insurance Litigation, (2) to allocate certain
responsibilities in the Insurance Litigation, (3) to make certain
agreements in order to protect all applicable privileges, including
the attorney/client privilege and work product doctrine, and (4) to
reach certain agreements concerning the payment of litigation
expenses, including attorney’s fees, in the Insurance
Litigation.
THEREFORE, upon the foregoing premises, which
are incorporated herein by reference, and in consideration of the
mutual covenants herein, the Parties agree as follows:
1. Joint Prosecution and Representation
. For purposes of the Insurance
Litigation, PB&L and B&M shall jointly prosecute
ClearOne’s and Bagley’s claims in the Insurance
Litigation and shall jointly defend ClearOne and Bagley with
respect to claims made by National Union and Lumbermens in such
litigation. PB&L and B&M shall divide and allocate duties
and responsibilities for pre-trial activities (including
discovery), as well as for trial in a cost efficient manner (but in
a manner which will not impede the effective representation of
ClearOne and Bagley). In connection with such joint representation,
B&M may make formal appearances for ClearOne and PB&L may
make formal appearances for Bagley.
2. Conflicts of Interest . There is a potential for a conflict of
interest arising from PB&L’s and B&M’s joint
and concurrent representation of ClearOne and Bagley. In
particular, and among various potential conflicts, ClearOne and
Bagley may have or may develop adverse positions with respect to
the division of any proceeds received by settlement, or otherwise,
from the Insurance Litigation. When any conflicts of interests
arise between ClearOne and Bagley in connection with the Insurance
Litigation, PB&L and B&M shall undertake to notify
ClearOne
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and Bagley of
the existence of such conflict(s) of interest. In the event of any
such conflicts, PB&L shall represent ClearOne solely with
respect to any conflict and B&M shall represent Bagley solely
with respect to such conflict. Accordingly, ClearOne a
