Exhibit 10.1 [q1022009.htm]

 
SETTLEMENT AGREEMENT
 
This SETTLEMENT AGREEMENT is entered into as of the latest of the dated
signatures below (“Effective Date”) by and among Technology Research Corporation
(“TRC”), and Shanghai ELE Manufacturing Corporation (“ELE”).
 
IN CONSIDERATION OF THE MUTUAL COVENANTS AND PROMISES CONTAINED HEREIN, THE
SUFFICIENCY OF WHICH THE PARTIES IRREVOCABLY ACKNOWLEDGE, THE PARTIES AGREE AS
FOLLOWS:
 

ARTICLE 1
 
DEFINITIONS
 
The following terms shall have the meaning set forth below when used in this
Agreement:
 
1.1           “’337 Patent”  means U.S. Patent No. 6,292,337 entitled
“Electrical System with Arc Protection”, including all foreign counterparts,
divisional, continuation, reissued, reexamined, continuation in-part patents and
any patents or pending applications claiming priority from them or any of their
parent applications.
 
1.2           “Chinese Patents” means Chinese Patent Nos. ZL200420096315.2,
ZL200520118736.5 and ZL200520118737.X, including all foreign counterparts,
divisional, continuation, reissued, reexamined, continuation in-part patents and
any patents or pending applications claiming priority from them or any of their
parent applications.
 
1.3     “Sold” means  ELE has shipped its products and invoiced its customer for
such products.
 
1.4           “Agreement” means this Settlement Agreement.
 
1.5           “Party” or “Parties” means any party to this Agreement.
 
1.6           “Stipulation of Dismissal With Prejudice” means the Stipulation of
Dismissal with Prejudice document attached as Appendix A.
 

ARTICLE 2
 
BACKGROUND
 
2.1           TRC is the owner of the entire right, title and interest in and to
the ’337 Patent.  ELE is the owner of the entire right, title and interest in
and to the Chinese Patents.
 
2.2           ELE filed suit against TRC in the U.S. District Court for the
Central District of California, No. 2:07-cv-1102-RGK-VBK.  The suit was
transferred to the U.S. District Court for the Middle District of Florida, No.
8:07-cv-1007-JDW-MSS (“the Action”).  In the Action, ELE sought declaratory
judgment of non-infringement of the ’337 patent and invalidity of the ’337
patent.  TRC asserted affirmative defenses and counterclaims, alleging, among
other things, that ELE infringes the ’337 Patent and that the ’337 patent is
valid and enforceable.
 
2.3           The parties to this Agreement now desire to settle the Action, and
to settle and resolve all issues which they may have against each other arising
out of or in connection with the ’337 patent and the Chinese Patents.
 

ARTICLE 3
 
PAYMENTS AND ROYALTIES
 
3.1           ELE shall pay TRC [request for confidential treatment] in full
settlement regarding all products made, used, sold, imported or offered for sale
by ELE prior to July 1, 2008 (“Past Products”).  This amount is to be offset by
the [request for confidential treatment] owed to ELE by TRC pursuant to Section
3.2 of this agreement.  The remaining [request for confidential treatment] shall
be payable within thirty days of the dismissal of the Action.
 
3.2           TRC shall pay ELE [request for confidential treatment] in full
settlement regarding all products made, used, sold, imported or offered for sale
by TRC prior to July 1, 2008 and in partial consideration for the license
granted to it by ELE pursuant to Section 4.3 of this Agreement.  This amount
shall be credited as an offset to the amount owed to TRC pursuant to Section 3.1
of this agreement and shall be credited upon execution of the Agreement.
 
3.3           For so long as the ’337 Patent is valid and enforceable, the
royalty for the license granted to ELE under this Agreement on any of ELE’s
Leakage Current Detector Interrupter Products other than Past Products (“ELE
LCDI Products”) Sold is [request for confidential treatment] on ELE LCDI
Products having a voltage rating of 125 volts or less, and is [request for
confidential treatment] on all other ELE LCDI Products.
 
3.4           Royalty payments will be paid quarterly, will be due for the
previous quarter on the 15th of the month following the end of that quarter, and
will be accompanied by a statement of the number of ELE LCDI Products (by
voltage rating when appropriate) Sold during that quarter.
 
3.5           ELE guarantees a minimum royalty payment of [request for
confidential treatment] for Fiscal year 2009 (7/08-6/09) and [request for
confidential treatment] for Fiscal year 2010 (7/09-6/10), payable at [request
for confidential treatment] per quarter.  If in any quarter, the amount of
actual royalties paid exceeds [request for confidential treatment], the amount
in excess of [request for confidential treatment] will be carried over and
credited toward the next quarters’ minimum royalty payment within the same
Fiscal year.
 
3.6           The payments required to be made pursuant to section 3.1 of this
Agreement shall be made in United States dollars by wire transfer of immediately
available funds as follows:
 
Technology Research Corporation
5250 140th Avenue North
Clearwater, FL 33760-3728

Bank Name:                                                      Wachovia Bank
City/State:                                           Winston-Salem, NC
 
Account No.:
[request for confidential treatment]

 
ABA No.:
[request for confidential treatment]

 
Swift Code:
[request for confidential treatment]

 
Account Name:

3.7           ELE agrees to keep records showing the sales or other disposition
of ELE LCDI Products sold or otherwise disposed of under the license herein
granted in sufficient detail to enable the royalties payable by ELE to be
determined.  Upon notice from TRC as described herein, which may be given no
more than once every twelve (12) months, ELE shall provide access to those
Auditors (defined below) whom TRC may request in writing as needing access to
the ELE’s statements, for the purpose of performing an audit of ELE’s compliance
with the terms and conditions set forth in the Agreement. ELE shall provide such
Auditors with reasonable assistance as they may require, at TRC’s sole cost and
expense.  If any audit by an Auditor results in ELE being notified that it is
not in compliance with provisions under this Agreement, ELE shall take actions
to comply with the recommendations contained in such notification.  All audits
will be paid for exclusively by TRC, shall require reasonable advanced written
notice to ELE (but in no event less than thirty (30) business days), and will be
conducted in a manner so as not to disrupt ELE’s business.  All information
accessed by Auditors as part of an audit shall be deemed the Confidential
Information of ELE and treated in accordance with the provisions contained in
Section(s) 3, 5 and 6 of the Stipulated Protective Order filed in connection
with the Action on or about August 27, 2007 and approved by the Court on or
about August 29, 2007.  In the event an audit concludes that ELE’s payments are
not in full compliance with this Agreement, then TRC's sole remedy shall be to
require ELE to pay such additional amounts as necessary to bring ELE into
compliance, including accrued interest at the rate of 1.5% per month or the
maximum lesser rate allowed by applicable law.  For purposes of this Section
3.7, "Auditor" shall mean those independent third party individuals unaffiliated
with TRC and engaged at TRC's sole cost and expense to audit ELE's compliance
with the terms and conditions set forth in this Agreement, and who: (a) are
reasonably acceptable to ELE as indicated by ELE in writing; and (b) have signed
confidentiality agreements with terms at least as strict as those contained
herein and in the above-referenced Stipulated Protective Order.
 
ARTICLE 4
 
LICENSE AGREEMENT
 
4.1           Conditioned upon ELE complying with the payment obligations
specified in section 3.1 of this Settlement Agreement, TRC hereby grants to ELE,
its subsidiaries, and its existing contract manufacturers, a perpetual,
worldwide, non-transferable (except as set forth in Section 10.1), non-exclusive
license, limited to the room air conditioner (RAC) market, to make, have made,
use, offer-to-sell, sell, export, and import, or otherwise dispose of products
and services, the making, having made, use, offering to sell, selling, exporting
or importing of which would in the absence of this license infringe any valid
and enforceable claim of the ’337 Patent.  This license shall apply to ELE’s
customers, manufacturers, partners, distributors, re-sellers, vendors, and their
respective end users, but only with respect to products and services made
by,  provided by, or purchased from ELE.  This license shall not be interpreted
or construed as granting ELE any right to sub-license any third party or
Non-Subsidiary rights to use any invention claimed in the ’337 Patent, except as
such invention is or was embodied in materials, equipment, or products provided
directly by ELE.  “Non-subsidiary” shall mean any corporation of which ELE does
not own or control more than 50% of the U.S. or foreign corporation, company or
other legal entity.  Further, this license shall not be interpreted or construed
to include any products or services of any third party that acquires ELE or any
of ELE’s subsidiaries or affiliates, where such products or services (i) were in
existence at the time of the acquisition or (ii) are new products or services
developed by said third party subsequent to said acquisition.
 
4.2           The term of the license granted to ELE shall be for the life of
the ’337 Patent.
 
4.3           Conditioned upon TRC complying with the payment obligations
specified in section 3.2 of this Settlement Agreement, ELE hereby grants to TRC,
its subsidiaries, and its existing contract manufacturers, a perpetual,
worldwide, non-transferable (except as set forth in Section 10.1), non-exclusive
license, limited to the room air conditioner (RAC) market, to make, have made,
use, offer-to-sell, sell, export, and import, or otherwise dispose of products
and services, the making, having made, use, offering to sell, selling, exporting
or importing of which would in the absence of this license infringe any valid
and enforceable claim of the Chinese patents.  This license shall apply to TRC’s
customers, manufacturers, partners, distributors, re-sellers, vendors, and their
respective end users, but only with respect to products and services made by,
made for, provided by, or purchased from TRC.  This license shall not be
interpreted or construed as granting TRC any right to sub-license any third
party or Non-Subsidiary rights to use any invention claimed in the Chinese
patents, except as such invention is or was embodied in materials, equipment, or
products provided directly or indirectly by TRC.  “Non-subsidiary” shall mean
any corporation of which TRC does not own or control more than 50% of the U.S.
or foreign corporation, company or other legal entity.  Further, this license
shall not be interpreted or construed to include any products or services of any
third party that acquires TRC or any of TRC’s subsidiaries or affiliates, where
such products or services (i) were in existence at the time of the acquisition
or (ii) are new products or services developed by said third party subsequent to
said acquisition.
 
4.4           The term of the license granted to TRC shall be for the life of
the last to expire Chinese Patents.
 
4.5           Other than this license and the release of Article 6, no license,
right, or immunity is granted by TRC or by ELE to each other or any third party,
either expressly or by implication, or by estoppel, or otherwise, to any
patents, inventions, or other property right.
 

ARTICLE 5
 
DISMISSAL OF THE ACTION
 
5.1           Within five business days after the complete execution and
delivery of this Agreement, TRC and ELE shall cause their respective counsel to
endorse and file the Stipulation of Dismissal With Prejudice attached as
Appendix A to cause all of their claims and counterclaims in the Action with
respect to each other to be dismissed with prejudice.  The Stipulation may be
amended to the extent necessary to comply with court rules.

ARTICLE 6
 
MUTUAL RELEASES
 
6.1           TRC hereby releases and forever discharges ELE, and all of its
respective directors, officers, stockholders, members, affiliate companies,
subsidiaries, acquired companies, acquirers, parent companies, employees,
attorneys, and agents (collectively, “ELE Entities”), and their permitted
successors and assigns, from any and all claims, demands, obligations, losses,
causes of action, damages, penalties, costs, expenses, attorney fees,
liabilities, compensation, and indemnities of any nature, whether based on
contract, tort, statute or other legal or equitable theory of recovery, whether
known or unknown, which as of the Effective Date of this Agreement TRC, and its
respective affiliate and parent companies, had or claims to have had against
ELE, including but not limited to any arising out of or in connection with
claims that were made or that could have been made in any form with respect to
the ’337 or Chinese patents or other patents, and except for any breach of this
Agreement.  This release shall apply to ELE’s customers, manufacturers,
partners, distributors, re-sellers, vendors, and their respective end users, but
only with respect to products and services made by, provided by, purchased from,
or licensed from ELE Entities.
 
6.2           ELE hereby releases and forever discharges TRC, and all of its
respective directors, officers, stockholders, members, affiliate companies,
subsidiaries, acquired companies, acquirers, parent companies, employees,
attorneys, and agents (collectively, “TRC Entities”), and their permitted
successors and assigns, from any and all claims, demands, obligations, losses,
causes of action, damages, penalties, costs, expenses, attorney fees,
liabilities, compensation, and indemnities of any nature, whether based on
contract, tort, statute or other legal or equitable theory of recovery, whether
known or unknown, which as of the Effective Date of this Agreement ELE, and its
respective affiliate and parent companies, had or claims to have had against
TRC, including but not limited to any arising out of or in connection with
claims that were made or that could have been made in any form with respect to
the ’337 or Chinese patents or other patents, and except for any breach of this
Agreement.  This release shall apply to TRC's customers, manufacturers,
partners, distributors, re-sellers, vendors, and their respective end-users, but
only with respect to products and services made by, provided by, purchased from,
or licensed from TRC Entities.
 
6.3           As long as this Agreement relating to the ‘337 Patent and Chinese
Patents remains in effect, TRC covenants that it will not enforce any other
patent against the ELE Entities on any ELE LCDI Products having the same design
as ELE LCDI Products sold within the United States prior to June 30, 2008.
 
6.4           As long as this Agreement relating to the ‘337 Patent and Chinese
Patents remains in effect, ELE covenants that it will not enforce any other
patent against the TRC Entities on any TRC LCDI Products having the same design
as TRC LCDI Products sold within the United States prior to June 30, 2008.
 
6.5           The mutual releases granted above are not to be construed as
releasing the parties from any obligations arising and unfulfilled under this
agreement.
 

ARTICLE 7
 
FEES AND COSTS
 
7.1           The Parties shall pay all of their own fees and expenses,
including court costs, legal fees and expert fees, incurred in the prosecution
or defense of the Action, and in the preparation of this Agreement.
 
ARTICLE 8
 
REPRESENTATIONS AND WARRANTIES
 
8.1           Each Party represents and warrants that it has the right to enter
into this Agreement.
 
8.2           The Parties' representatives, by their signatures below, represent
and warrant that they are duly authorized to execute and deliver this Agreement
on behalf of the respective Party.
 
8.3           TRC hereby represents, covenants, and warrants that it will not
assert against ELE Entities or their permitted successors and assigns, or any of
ELE’s customers, manufacturers, partners, distributors, re-sellers, vendors, or
any other permitted user of ELE LCDI Products (whether such permission is
granted directly by ELE or another licensee of ELE) (collectively together with
ELE Entities, “ELE Users”) any claim of infringement based upon the ’337 Patent
arising out of or in connection with the use, sale, or distribution of the ELE
LCDI Products.
 
8.4           ELE hereby represents, covenants, and warrants that it will not
assert against TRC Entities or their permitted successors and assigns, or any of
TRC’s customers, manufacturers, partners, distributors, re-sellers, vendors, or
any other permitted user of TRC LCDI Products (whether such permission is
granted directly by TRC or another licensee of TRC) (collectively together with
TRC Entities, “TRC Users”) any claim of infringement based upon the Chinese
patents arising out of or in connection with the use, sale, or distribution of
the TRC LCDI Products.
 
8.5           For as long as ELE continues to be a competitor in the LCDI
market, TRC will not license the ’337 Patent to any third party manufacturer in
China (other than to a contract manufacturer for TRC), except to the extent that
such a license is necessary to resolve litigation.  In the event that a license
of the ‘337 Patent is necessary to resolve litigation, the license will be at
royalty rates no lower than those paid by ELE pursuant to Section 3.3 and 3.5 of
this Agreement unless agreed to in writing by ELE,  as part of a settlement
agreement, or by order of a court of competent jurisdiction (a “Lower Rate
Mandate”).  In the event of a Lower Rate Mandate, at ELE’s sole discretion,
Section 3.3 and 3.5 of this Agreement may be deemed amended to permit ELE to pay
at the rate established by the Lower Rate Mandate effective on the same date the
Lower Rate Mandate becomes effective.
 

ARTICLE 9
 
CONFIDENTIALITY
 
9.1           The Parties shall keep the terms of this Agreement confidential
and shall not now or hereafter divulge these terms to any third party except:
 
9.1.1     with the prior written consent of the other Party; or
 
9.1.2     to any governmental body having jurisdiction to call for such terms;
or
 
9.1.3     as otherwise may be required by law or legal process, including to
legal and financial advisors in their capacity of advising a Party in such
matters; or
 
9.1.4     during the course of litigation so long as the disclosure of such
terms and conditions are restricted in the same manner as is the confidential
information of other litigating parties and so long as (a) the restrictions are
embodied in a court-entered Protective Order and (b) the disclosing Party
informs the other Party in writing at least ten (10) days in advance of the
disclosure; or
 
9.1.5     in confidence to legal counsel, accountants, banks, financing sources
and their advisors solely in connection with complying with financial
transactions or legal reporting requirements; or
 
9.1.6     any disclosure required by any applicable securities regulations,
including any disclosure required by TRC in public SEC filings, but only to the
extent that the disclosing party, determines in its sole discretion, that such
disclosure is required by applicable securities laws and regulations. 
 
9.2           The parties hereto mutually agree and acknowledge that any
unauthorized disclosure of  any cash payments made under this Agreement, any
minimum royalty payments and royalty rates payable under the cross-licensing
arrangements set forth in the Agreement could result in competitive harm to the
patent rights and intellectual property rights of TRC and ELE.
 
9.3           Notwithstanding the above, the Parties are free to disclose to any
customer or other member of the public at any time the terms of this Agreement
and the settlement of the Action to the extent provided, or in the form
provided, in Appendix B to this Agreement.
 

ARTICLE 10
 
GENERAL PROVISIONS
 
10.1          Assignment.  This Agreement and any rights, licenses or privileges
under this Agreement including, but not limited to, the license and release or
any rights under them, shall be freely assignable to (i) any parent, or
subsidiary of a Party or (ii) an acquiror of a Party or of any portion of a
Party’s business to which this Agreement applies (whether by way of an asset or
stock transaction).  TRC and ELE represent that they are not currently engaged
in any active negotiations in connection with their acquisition by any third
party.
 
10.2          Waiver.  The waiver by any Party of a breach of any provision of
this Agreement shall not operate or be construed as a waiver of any other or any
subsequent breach of the same or a different kind.
 
10.3          Amendments.  Any changes to this Agreement must be in writing
specifically stating an intention to modify this Agreement signed by the Party
or Parties to be bound.
 
10.4          Survival of Representations, Covenant and Warranties.  The
representations, covenants and warranties contained in this Agreement shall
survive the execution and delivery of this Agreement.
 
10.5          Relationship of Parties.  Nothing in this Agreement shall create
or be deemed to create any relationship of agency, partnership, or joint venture
between TRC, on the one hand, and ELE, on the other.
 
10.6          No Third Party Beneficiaries.  Except with respect to the ELE and
TRC Users, this Agreement is made and entered into for the sole protection and
benefit of the Parties, and no other person or entity shall be a direct or
indirect beneficiary of or shall have any direct or indirect cause of action or
claim in connection with this Agreement.
 
10.7          Notices.  Any notice or other communication required or permitted
under this Agreement shall be given in writing and shall be conclusively deemed
to have been duly given on the date delivered if delivered personally, or five
(5) days after deposit in the United States mail, by registered or certified
mail, postage prepaid, addressed as follows:
 
10.7.1       Notices to TRC shall be addressed to:
 
William C. Bergmann, Esq.
Baker & Hostetler LLP
Washington Square, Suite 1100
Washington, D.C.  20036-5304
 
10.7.2       Notices to ELE shall be addressed to:
 
Tony D. Chen, Esq.
Bingham McCutchen LLP
The Water Garden
1620 26th Street, Fourth Floor, North Tower
Santa Monica, CA 90404-4060

10.8          Headings.  All headings in this Agreement are used for convenience
only and shall not affect the interpretation of this Agreement.
 
10.9          Applicable Law; Choice of Forum; Jurisdiction.  This Agreement
shall be governed by and construed under the laws of the State of Delaware,
without regard to its conflict of laws provisions.  It is further agreed that
all disputes and matters whatsoever arising under, in connection with or
incident to this Agreement shall be litigated, if at all, in and before a United
States District Court, to the exclusion of the Courts of any state, locality or
country.  The Parties irrevocably consent to personal jurisdiction in such
District Courts for such purposes.
 
10.10        No Strict Construction.  Each Party and counsel for each Party have
reviewed this Agreement, and, accordingly, the normal rule of construction to
the effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Agreement.
 
10.11        Entire Agreement.  This Agreement contains the entire understanding
among TRC, on the one hand, and ELE, on the other, superseding all prior or
contemporaneous communications, negotiations, discussions, agreements, and
understandings among the Parties with respect to the subject matter of this
Agreement.
 
10.12        Counterparts.  This Agreement may be executed in any number of
counterparts, including those transmitted to and among the Parties via
facsimile, with the same effect as if the signatures on each counterpart were
upon a single instrument.  All counterparts, taken together, shall constitute
this Agreement.
 
10.13        Partial Invalidity.  If any of the provisions herein shall be
invalid, illegal or unenforceable in any respect, this Agreement shall be
construed without the term or provision so that this Agreement will remain
binding on the Parties.
 
10.14        Non-Disparagement.  Each Party will instruct its executive officers
and board members not to disparage any other Party with respect to the matters
at issue in the Action.  This clause is not intended to, and does not prevent,
either party from making general statements of the superiority of its products.
 

______________________________________________
 
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.  CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED WITH RESPECT TO THE OMITTED PORTIONS.  OMITTED TEXT IS INDICATED BY
“[request for confidential treatment]”.
_______________________________________________
 
 
 

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, intending to be legally bound, the Parties have caused this
Agreement to be executed by their duly authorized representatives as of the
dates set forth below.
 
On this _____ day of July, 2008
__________________________________________
     
Long Zhang
Chief Executive Officer
 
Shanghai ELE Manufacturing Corporation
       
On this _____ day of July, 2008
__________________________________________
 
Owen Farren
 
President and Chief Executive Officer
 
Technology Research Corporation

 
 

--------------------------------------------------------------------------------