Document:

exv10w1

Exhibit 10.1

EXECUTION
VERSION 

LICENSE AGREEMENT

     This License Agreement (“Agreement”), made this 27th day of May, 2009 (“Effective Date”),
between Echo Therapeutics, Inc., a corporation existing under the laws of the State of Delaware,
having its principal place of business at 10 Forge Parkway, Franklin, Massachusetts 02038
(“Licensor”), and Ferndale Pharma Group, Inc., a corporation existing under the laws of the State
of Michigan, having its principal place of business at 780 West Eight Mile Road, Ferndale, Michigan
48220 (“Licensee”).

RECITALS

     A. Licensor is engaged in the business of research, development, production and
commercialization of transdermal medical devices and pharmaceuticals, with emphasis on (i)
transdermal continuous glucose monitoring (tCGM) systems for use in clinical settings and by people
with diabetes and (ii) transdermal drug delivery technologies;

     B. Licensor has developed and is commercializing the Prelude Technology (as defined below);

     C. Licensor has developed Know-How (as defined below) relating to the Prelude Technology; and

     D. Subject to the terms and conditions of this Agreement, Licensee desires to obtain from
Licensor an exclusive license under the Patents (as defined below) and the Know-How in order to
develop, have developed, assemble, use, market, have marketed, sell and have sold, and export the
Products (as defined below) within the scope of the Field (as defined below) and in the Territory
(as defined below);

     NOW, THEREFORE, in consideration of the mutual promises herein contained, it is agreed as
follows:

     1. Definitions.

“50% Royalty” has the meaning given in Section 6.2.

“510(k) Clearance” means the 510(k) medical device clearance from the FDA for the PreludeTM
SkinPrep System, which states, inter alia, that the labeling is substantially equivalent to
that approved by the FDA for the SonoPrepTM System in 510(k) Number K040525.

“Affiliate” means any company, corporation, firm, partnership or other entity that controls,
is controlled by or is under common control with the party in question. As used in this
definition, the term “control” means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a party, whether through
ownership of voting securities, by contract, or otherwise.

“Available Product Opportunity” means a combination of lidocaine and Azone TSTM.

 

 

“Clearance” means any approvals (including pricing and reimbursement approvals), licenses,
registrations or authorizations of any federal, state or local regulatory agency,
department, bureau or other governmental entity, necessary for the marketing and commercial
sale of the Products in the Field in a regulatory jurisdiction including, but not limited
to, a 510(k) Clearance.

“Commercial Sale” means a commercial sale of Product Components to a non-Affiliate
third-party within the scope of the Field in the Territory.

“Confidential Information” means, with respect to a party, all information of any kind
whatsoever, and all tangible and intangible embodiments thereof of any kind whatsoever,
which is disclosed by such party to the other party and is marked, identified or otherwise
indicated to be confidential at the time of disclosure to the other party. Notwithstanding
the foregoing, Confidential Information of a party shall not include information which the
other party can establish by written documentation (a) to have been publicly known prior to
disclosure of such information by the disclosing party to the other party, (b) to have
become publicly known, without fault on the part of the other party, subsequent to
disclosure of such information by the disclosing party to the other party, (c) to have been
received by the other party at any time from a source, other than the disclosing party,
rightfully having possession of and the right to disclose such information, (d) to have been
otherwise known by the other party prior to disclosure of such information by the disclosing
party to the other party, or (e) to have been independently developed by employees or agents
of the other party without access to or use of such information disclosed by the disclosing
party to the other party.

“Contract Year” has the meaning given in Section 6.2.

“Defense Action” means a lawsuit or claim that arises out of Licensee’s practice of the
composition or method of preparing the composition as set forth in one or more of the claims
of the Patents.

“Device” means a mechanical skin ablation device including embedded software, with charging
stand.

“FDA” means the United States Food and Drug Administration.

“Field” means the temporary disruption of the outer layer of the skin prior to the
application of topical analgesic/anesthetic cream, for local dermal anesthesia or analgesia
prior to a needle insertion or IV procedure.

“Final Patent Refusal” means a final, non-appealable denial or refusal (not subject to
re-examination) to issue a patent in a certain country by that country’s patent reviewing
body.

“Improvement Plan” has the meaning given in Section 6.2.

“Improvements” means any replacements, improvements or modifications to the Device or
Product Components, in each case in the Field.

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“Know-How” means trade secret and other know-how rights in all information and data that is
not generally known (including, but not limited to, information and data regarding formulae,
procedures, protocols, techniques and results of experimentation and testing), which is
necessary or useful to use, develop, sell, or seek Clearance for the Prelude Technology for
use in the Field.

“Joint Inventions” means inventions, discoveries, know-how, trade secrets, and other
information, that are made jointly by the parties in the course of the performance of this
Agreement.

“Joint Patents” means any and all patents claiming Joint Inventions.

“Net Sales” means the gross amounts or cash equivalents actually received by Licensee or its
Affiliates, subsidiaries, Sublicensees or assigns during the term of this Agreement less
amounts directly attributable to: (i) rebates actually paid or taken (including government
rebates such as Medicaid chargebacks or rebates), administrative fees in lieu of rebates
paid to managed care and similar institutions, chargebacks and retroactive price
adjustments; (ii) refunds, credits or allowances actually granted upon claims, rejections or
returns of such sales of Product Components, including recalls, regardless of the party
requesting the claim, rejection, or return; (iii) separately itemized freight, postage,
packaging, shipping, and insurance charges actually incurred by Licensee for delivery of
such Product Components; (iv) taxes (but not income taxes on sales), duties, or other
governmental charges levied on or measured by the invoiced amount for the Product
Components, and actually paid by Licensee; and (v) normal and customary trade, quantity and
cash discounts and allowances actually allowed.

“Option” has the meaning given in Section 2.4.

“Option Period” has the meaning given in Section 2.4.

“Patents” means the patents and patent applications identified on attached Schedule A,
including (i) all patent applications which are renewals, divisions, continuations,
continuations-in-part, substitutions, or additions of the patents listed on Schedule A, (ii)
all foreign counterparts of the patents listed on Schedule A, and (iii) all patents,
including reissues, re-examinations and extensions which may issue on any of the preceding.

“Prelude Technology” means a proprietary technology known as the PreludeTM SkinPrep System
that is capable of, among other things, temporarily disrupting the outer layer of the skin
for the purpose of administering a topical anesthetic or analgesic and accelerating the time
to onset for topical anesthetic or analgesic drugs including, but not limited to, lidocaine.

“Product Components” means, collectively, an abrasive tip, a reference electrode ring,
Benzalkonium Chloride for skin preparation, and topical 4% lidocaine cream.

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“Products” means the Device and the products and formulations based on the Prelude
Technology described on attached Schedule B that are comprised of the Product Components and
assembled in a kit.

“Qualifying Third Party” means a corporate partner or a licensee that receives
commercialization rights to the Product for use in the Field in the Territory under a
sublicense.

“Recipient” means the party receiving Confidential Information.

“Sublicense Consideration” means payments made by a Sublicensee to Licensee or its
Affiliates in consideration for a sublicense agreement to use the Patents, such as up-front
license fees, maintenance fees, milestone fees, and minimum unearned royalties; but
excluding all earned running royalties (since earned running royalties on Licensee’s Net
Sales are payable to Licensor pursuant to Section 6.2).

“Sublicensee” means any party, other than an Affiliate, that obtains certain rights under
this Agreement by entering into an agreement or arrangement with Licensee, or receives a
license grant from Licensee under the Patents.

“Sublicensee Breach” means a breach by a Sublicensee of the payment obligations affecting
Licensor or any other material terms and conditions of a sublicense that would constitute a
breach of the terms and conditions of this Agreement if such acts were performed by
Licensee.

“Territory” means the United States and its territories and possessions, Canada, Mexico and
the United Kingdom.

“Total Claim Amount” means all amounts expended by Licensor and/or Licensee in connection
with any third party claim of infringement or misappropriation in a Defense Action,
including, but not limited to, attorney fees and legal costs, and/or a royalty or other
amount that must be paid to a third party as a result of a final claim or judgment or
settlement.

“Trademarks” means the trademarks set forth on the attached Schedule C.

     2. Grant of License; Sublicenses; Licensee’s Right of First Refusal; Improvements;
Licensor’s Supply and Sale of Certain Goods to Licensee.

     2.1 Subject to the terms and conditions of this Agreement, Licensor grants to Licensee
the exclusive right and license under the Patents, and the Know-How to develop, have
developed, assemble, use, market, have marketed, sell and have sold, and export the
Products, within the scope of the Field in the Territory.

     2.2 Licensee may use the Trademarks solely as necessary to use, offer for sale, sell,
lease and/or export the Products in accordance with the terms and conditions of this
Agreement. Licensee acknowledges that all use of the Trademarks pursuant to this Agreement
must be in accordance with Licensor’s policies and must meet Licensor’s

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quality standards. Licensee understands and agrees that its use of the Trademarks does not
create any right, title or interest in or to the use of the Trademarks and that all such use
and goodwill associated with the Trademarks will inure to the benefit of Licensor. Except
as expressly permitted by Licensor in writing, Licensee shall not adopt nor attempt to
register any trademark, trade name or service mark which is confusingly similar to the
Trademarks. In addition to the Trademarks, Licensee, in Licensee’s sole discretion, may use
other trademarks to use, offer for sale, sell, lease and/or export the Products in
accordance with the terms and conditions of this Agreement. Licensee shall be responsible
for developing and registering trademarks for the Products, and shall own all such
trademarks. Licensee shall not be obligated to use the Trademarks, but may do so in its
sole discretion and otherwise in accordance with the terms and conditions of this Agreement.

     2.3 Licensee shall have the unconditional right to sublicense any right granted to
Licensee under this Agreement, subject to the following conditions:

     2.3.1 In each such sublicense, the Sublicensee will be permitted to grant
further sublicenses, and so forth for further sub-tier sublicenses, but only on the
condition that any such sublicense will be subject to the terms and conditions of
the license granted to Licensee under this Agreement, including payments to Licensor
of royalties and other fees set forth in Section 6 based upon consideration paid by
any further Sublicensee for any such further sublicense.

     2.3.2 Licensee will forward to Licensor, within thirty (30) days following its
execution, a fully executed, complete and accurate copy of each sublicense granted
under this Agreement. Licensor’s receipt of such sublicense will not constitute a
waiver of any of Licensor’s rights or Licensee’s obligations under this Agreement.
Each such sublicense agreement shall be treated as the Confidential Information of
Licensee.

     2.3.3 Each sublicense will contain a right of termination by Licensee in the
event of a Sublicensee Breach. In the event of a Sublicensee Breach, and if after a
reasonable opportunity to cure as provided in any such Sublicensee’s sublicense,
such Sublicensee fails to cure such Sublicensee Breach, then Licensee will terminate
the sublicense unless Licensor agrees in writing that such sublicense need not be
terminated. Such Sublicensee Breach and termination of a Sublicensee’s sublicense
will not affect the term of Licensee’s license hereunder or the sublicense of any
non-breaching Sublicensee.

     2.3.4 Upon termination of this Agreement for any reason, all sublicenses will
be assigned to Licensor, and Licensor will have no greater duties or lesser rights
under such sublicenses than Licensor has under the Agreement.

Licensee shall have the sole discretion to determine the financial and other terms on which
any sublicenses shall be granted under this Agreement; however, no such sublicense agreement
shall alter any obligation owed by Licensee to Licensor under this Agreement.

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     2.4 For a period of twelve (12) months following Licensee’s receipt of notification
that the 510(k) Clearance has been granted (the “Option Period”), Licensor grants to
Licensee the right of first refusal (“Option”) to obtain an exclusive license to develop,
have developed, assemble, use, market, have marketed, sell and have sold, and import and
export all products that fall within the definition of Available Product Opportunity.
Whether to exercise such Option is solely at the discretion of Licensee, but if Licensee
does exercise the Option, Licensee must exercise the Option within the Option Period by
payment of a [**] Option fee. The Option fee shall be paid at the time of
Licensee’s exercise of the Option and shall be fully creditable against any subsequent
license fee due for such technology. Upon payment of such Option fee, the same rights
granted in Sections 2.1 through 2.3 of this Agreement shall be extended automatically to
cover the use of the Available Product Opportunity.

     2.5 Any Improvements to the Patents or Know-How made by or for Licensor during the term
of this Agreement shall be made available to Licensee and be deemed included within the
scope of the licensed rights under this Agreement without any additional consideration on
the part of Licensee.

     2.6 Promptly following the Effective Date, Licensor shall disclose to Licensee all
Know-How and assist Licensee in the use of all such Know-How to enable Licensee to perform
its obligations under this Agreement. In addition, Licensor shall make available to
Licensee during the term of this Agreement, at Licensor’s expense, upon reasonable notice
and during normal business hours, the reasonable assistance of Licensor’s employees who are
knowledgeable about the Know-How in order to facilitate Licensee’s efforts to develop and
commercialize the Products in accordance with the terms and conditions of this Agreement.

     2.7 In consideration for the sums paid pursuant to this Agreement, Licensor shall not,
during the term of this Agreement, conduct, fund, license or participate in, directly or
indirectly through one or more third parties, the development, distribution or
commercialization in any country in the Territory, of any product that can reasonably be
interpreted to compete with the Products within the scope of the Field in the Territory.
Notwithstanding the foregoing, the restrictions in this Section 2.7 shall not apply to any
product relating to Licensor’s Symphony or AzoneTS-based technologies, as identified on
attached Schedule D.

     2.8 Licensee shall notify Licensor of the occurrence of the first Commercial Sale no
later than ten (10) days after such sale.

     2.9 Exclusively for the purposes of this Agreement, Licensor shall supply all of
Licensee’s requirements of the Devices, the abrasive tips and the reference electrode rings
pursuant to the terms and conditions of a Supply Agreement to be negotiated in good faith
and executed by the parties subsequent to the Effective Date of this

 

			
	**	 	Echo Therapeutics, Inc. has requested confidential
treatment of this competitive and financial information, the disclosure of
which could result in competitive harm.

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Agreement. Licensee, at Licensee’s cost and expense, shall supply and/or have supplied
the Benzalkonium Chloride for skin preparation and the topical 4% lidocaine cream.

     3. Representations and Warranties.

Licensor represents and warrants to Licensee that:

     3.1 Licensor is the exclusive owner or licensee of all rights to the Patents, the
Trademarks and the Know-How, has the right to grant this exclusive license to Licensee, and
has not granted to any other person, firm or corporation any right, license, shop right, or
privilege to the Patents, the Trademarks or the Know-How within the scope of the Field in
the Territory.

     3.2 Other than the Patents, Licensor has not (i) filed, or caused to be filed, any
pending patent applications based on or claiming the Prelude Technology for use in the
Field, or (ii) obtained in its name or caused to be obtained in the name of others any
letters patent based on or claiming the Prelude Technology for use in the Field.

     3.3 By execution of this Agreement, Licensor does not violate any other agreements,
rights or obligations existing between Licensor and any other person, firm, corporation or
other entity.

     3.4 To Licensor’s knowledge, there are no existing or threatened actions, suits or
claims pending against Licensor with respect to Licensor’s right to enter into and perform
its obligations under this Agreement.

     3.5 Licensor is not aware of any third party intellectual property rights that are
infringed by the Patents, the Trademarks or by the Prelude Technology.

     3.6 Licensor has not granted any rights that currently exist under the Patents, the
Trademarks and/or the Know-How within the scope of the Field in the Territory other than the
rights granted in this Agreement.

     3.7 Licensor has disclosed to Licensee all the information in Licensor’s possession or
control concerning side effects, injury, toxicity or sensitivity reaction and incidents
associated with the use of the Prelude Technology in the Field, whether or not obtained from
any clinical or non-clinical studies.

     3.8 This Agreement is a legal and valid obligation binding upon Licensor and
enforceable in accordance with its terms.

Licensee represents and warrants to Licensor that:

     3.9 Licensee shall use commercially reasonable and diligent efforts to commercialize
the Products in the Territory. Without limiting the generality of the foregoing, Licensee
shall use commercially reasonable and diligent efforts to (i) obtain

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necessary Clearances for the Products in the Territory, and (ii) manufacture, market and
sell the Products to meet market needs in the Territory.

     4. The Patents and Inventions.

     4.1 Subject to the terms and conditions of this Agreement, all right, title and
interest, in and to the Patents vests solely in Licensor. Licensor shall have the
obligation to file, prosecute and maintain all Patents in the Territory at its sole expense
during the term of this Agreement. Licensor shall pay all expenses in connection with its
filing, prosecution and maintenance of the Patents in the Territory.

     4.2 Subject only to the rights expressly granted to the other party hereunder, each
party retains its entire right, title and interest in and to any inventions, discoveries,
know-how, trade secrets, and other information made or developed solely by such party and/or
its consultants in the course of the performance of this Agreement (“Sole Inventions”), and
shall have the right, but not the obligation, at its own expense, to file, prosecute and
maintain any patents claiming its Sole Inventions in all countries of the world.

     4.3 Both parties shall jointly own any and all Joint Inventions, provided, however,
that Licensor shall be granted an exclusive fully-paid, royalty free license to any and all
Joint Inventions that are based on, related to or in any way incorporate the Patents and/or
the Prelude Technology. Licensor and Licensee shall designate one of them to be responsible
for filing, prosecuting and maintaining any and all Joint Patents. All costs and expenses
of filing, prosecuting, maintaining, defending and enforcing such Joint Patents will be
borne equally by both Licensor and Licensee. The party designated to perform patenting
activities shall seek the comments of the other party and shall keep the other informed of
the progress of such prosecution by providing quarterly status reports and copies of all
correspondence between their patent counsel and the patent offices of the countries where
such applications were filed. Such other party shall reasonably assist the party designated
in the prosecution of Joint Patents, including, without limitation, by executing any
necessary powers of attorney. Each party shall provide the other party with quarterly
written updates on its commercialization efforts under any Joint Patents. Each party shall
notify the other party of any infringement of a Joint Patent known to such party and, if it
takes action to enforce a Joint Patent, it shall provide the other party with quarterly
updates on the status of its enforcement efforts.

     4.4 Licensor shall not, during the term of this Agreement, abandon the Patents in any
country in the Territory without first consulting with Licensee and obtaining Licensee’s
prior written consent for such abandonment, unless abandonment is in favor of a subsequent
patent application claiming the subject matter of the proposed abandoned application and the
patentability of the subject matter is not negatively affected.

     4.5 Licensor may conspicuously mark all Devices with the word “PreludeTM” and the words
“This product is patented by Echo Therapeutics, Inc. and distributed under license by
Ferndale Pharma Group, Inc. [or the name of an Affiliate of Licensee, as directed by
Licensee]”, or with such alternate wording as the parties may agree upon from time to time.

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     5. Information; Confidentiality.

     5.1 Licensor shall, upon request and to the best of its ability, furnish to Licensee
and/or its nominees, copies of all information and documents in Licensor’s possession which
are reasonably necessary to commercialize the Products within the scope of the Field in the
Territory.

     5.2 During the term of this Agreement, and for a period of seven (7) years following
the expiration or earlier termination hereof, each party shall maintain in confidence all
Confidential Information disclosed by the other party, and shall not use, disclose or grant
the use of the Confidential Information, except on a need-to-know basis to those Affiliates,
directors, officers, employees, consultants, clinical investigators, contractors,
Sublicensees, distributors, permitted assignees, partners, investors, or advisors, to the
extent such disclosure is reasonably necessary in connection with such party’s activities as
expressly authorized by this Agreement. To the extent that disclosure is authorized by this
Agreement, prior to disclosure, each party shall obtain agreement of any such person or
entity to hold in confidence and not make use of the Confidential Information for any
purpose other than those permitted by this Agreement. Each party shall notify the other
promptly upon discovery of any unauthorized use or disclosure of the other party’s
Confidential Information.

     5.3 Except as otherwise provided in Section 5.2 above, neither party shall disclose any
terms or conditions of this Agreement to any third party without the prior written consent
of the other party.

     5.4 The confidentiality obligations contained in this Section 5 shall not apply to the
extent that the Recipient is required (a) to disclose information by law, order or
regulation of a governmental agency or a court of competent jurisdiction, provided that the
Recipient shall provide written notice thereof to the other party and sufficient opportunity
to object to any such disclosure or to request confidential treatment thereof, or (b) to
disclose information to any regulatory authority for purposes of obtaining a Clearance for
the Products.

     6. License Fees, Sublicense Consideration, Milestone Payments and Payment of Royalties.

     6.1 Licensee shall pay to Licensor the following amounts: (i) a license fee of Seven
Hundred Fifty Thousand Dollars ($750,000) on the Effective Date, and (ii) a milestone
payment of Seven Hundred Fifty Thousand Dollars ($750,000) within ninety (90) days of
Licensee’s receipt of a copy of the FDA’s written grant of the 510(k) Clearance.
Additionally, Licensee shall pay to Licensor the following milestone payments based on
aggregate Net Sales of Product Components:

     [**]

     6.2 Royalty payments due to Licensor shall be equal to: (i) for all Net Sales in a
Contract Year up to $[**], [**] percent ([**]%) of all Net Sales of the Product

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Components within the scope of the Field in the Territory, and (ii) for all Net Sales
in a Contract Year over $[**], [**] percent ([**]%) of all Net Sales of the Product
Components within the scope of the Field in the Territory; however, where a Licensor patent
application has received a Final Patent Refusal, all such royalty payments from sales in
such country shall be reduced by one-half (the “50% Royalty”). Notwithstanding the
foregoing, if a Product has market exclusivity or similar commercial protection granted by a
regulatory authority in a Territory in which there is a Final Patent Refusal, then the 50%
Royalty shall not be applicable until the market exclusivity period has expired. Regardless
of the amount of Net Sales for such year, Licensee shall pay a minimum annual royalty to
Licensor for each 12-month period as set forth below. Year 1 shall commence on the first
Commercial Sale and each of the nine (9) successive 12-month periods shall represent Years
2-10 (each, a “Contract Year”).

	 	 	 
	Contract Year	 	Minimum Annual Royalty
	1
	 	[**]
	2
	 	[**]
	3
	 	[**]
	4
	 	[**]
	5 — 10
	 	[**]

Such minimum annual royalty amount shall not be construed as a limitation in any way on the
annual royalty payment due from Licensee to Licensor, it being understood that the royalty
in any Contract Year for Net Sales shall not exceed the higher of (a) the applicable royalty
amount as described in this Section 6.2 (i.e., [**]% and/or [**]% of Net Sales, as the case
may be), or (b) the minimum royalty for that Contract Year. If the royalty actually due
under this Agreement based on Net Sales is less than the applicable annual minimum royalty,
Licensee shall pay Licensor, no later than thirty (30) days after the end of the preceding
12-month period, the applicable annual minimum royalty amount to meet its obligations in
this Section 6.2. If Licensee fails to pay Licensor the minimum annual royalty amount in
any Contract Year, Licensee shall promptly confer with Licensor to review Licensee’s sales
data and the relevant market conditions. Licensee shall present to Licensor a business plan
for improving the sales performance (the “Improvement Plan”). Licensee shall promptly
implement the Improvement Plan. In addition, Licensor shall have the right to change the
exclusive license grant under Section 2.1 of this Agreement to a non-exclusive license upon
sixty (60) days notice to Licensee. Such change to a non-exclusive license is Licensor’s
sole remedy for the first occurrence of nonpayment of minimum annual royalties;
specifically, Licensor would not have the right to terminate this Agreement pursuant to
Section 8.2 for material breach or default for the first occurrence of nonpayment of minimum
annual royalties. If Licensee does not pay Licensor the minimum annual royalty amount in any
subsequent Contract Year, then Licensor shall have the right to terminate this License
Agreement upon thirty (30) days prior written notice to Licensee. For purposes of clarity,
Licensee’s failure to pay quarterly royalties based upon actual sales of Product
Components shall be considered a material breach of this Agreement. 

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     6.3 Licensee shall pay to Licensor [**] percent ([**]%) of all Sublicense
Consideration.

     6.4 Licensee shall keep accurate records of all sales of Products, shall render written
statements thereof to Licensor within thirty (30) days after the end of each Contract Year
quarter during the term of this Agreement, and shall pay to Licensor with each such
statement the amount of all royalties earned during the corresponding Contract Year quarter.
All such quarterly royalty payments shall be calculated by Licensee using $[**] as the
baseline amount ($[**] = one-quarter of $[**]). For purposes of clarity, Licensee shall
make quarterly royalty payments based upon actual Net Sales of Product Components in such
quarter. The written statements will provide details of Net Sales by Product Components and
by package, including reasonable detail as to the computation of the Net Sales during such
quarter. The written statements shall be mailed (via certified mail, return receipt
requested) to Licensor at the addresses indicated above. Licensee shall impose the same
reporting requirements upon its Sublicensees, except that the information shall be
determined within twenty (20) days from the end of each Contract Year quarter so that
Licensee may pay the royalties earned on sales by Sublicensees simultaneously with
Licensee’s royalties. Payment of royalties and license fees shall be made by wire transfer,
in U.S. Dollars, in accordance with wire transfer instructions provided to Licensee, or in
such other manner as the parties may agree in writing.

     6.5 Upon expiration of all of the Patents, or if all of the Patents shall be determined
by the final, non-appealable order of a court or courts of competent jurisdiction to be
invalid (either, a “Patent Default”), notwithstanding the 10-year term in Section 8.1,
Licensee shall continue to have all rights under this Agreement, but shall only have the
obligation to pay Licensor the 50% Royalty on sales of Product Components made after the
date of expiration or invalidity covered only by the Patents expired or invalidated.

     6.6 Once per calendar year during the term of this Agreement, Licensor shall have the
right to have Licensee’s books and records audited by an accountant of Licensor’s choosing
to ascertain the accuracy of Licensee’s reports. Such audits shall be scheduled within
thirty (30) days following delivery of notice by Licensor to Licensee and shall be performed
during Licensee’s normal business hours and shall be conducted in a manner that does not
interfere unreasonably with Licensee’s business. In the event that any audit determines
that the reported Net Sales was less than ninety-five percent (95%) of actual Net Sales for
the period in question, Licensee agrees to pay the additional royalties, plus a late fee
equal to 11/2% per month of the amount of all royalty payments that were not accurately and
timely made, and the actual cost of such audit. If any audit determines that the reported
Net Sales was not less than ninety-five percent (95%) of actual Net Sales for the period in
question, Licensee agrees to pay the additional royalties (if any), plus a late fee equal to
11/2% per month of the amount of all royalty payments that were not accurately and timely made
(if any); however, the actual cost of such audit shall be paid by Licensor.

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     7. Product Development and Regulatory Approval; Commercialization.

     7.1 Licensee shall be responsible for all Product development fees and costs, and for
all FDA and regulatory filings, in the Territory. Licensee shall obtain all required
authorizations from all governmental bodies and regulatory agencies relating to Licensee’s
marketing, sale and distribution of the Products within the scope of the Field in the
Territory. Licensee and Licensee’s Sublicensees shall be solely responsible for obtaining
and securing all such required authorizations, and Licensee shall have the final
decision-making authority with respect to all aspects of the required authorizations of the
Products.

     7.2 Licensee shall be responsible for commercializing the Products within the scope of
the Field in the Territory. Decisions regarding matters such as advertising and promotion
shall be the sole responsibility of Licensee, provided however that Licensee’s
commercialization activities shall be consistent and in compliance with governmental
authorizations for the Products and with the terms of this Agreement.

     7.3 Licensee shall set prices for Products in the Territory and shall obtain all
governmental pricing approvals as may be required. Licensee shall also be responsible for
distribution of the Products within the scope of the Field in the Territory.

     7.4 Licensee will prepare or have prepared all Promotional Materials. Any placement,
use or distribution of Promotional Materials which contains any Trademark or any reference
to Licensor shall be subject to Licensor’s prior written approval, which approval shall not
be unreasonably withheld or delayed. Licensee shall submit to Licensor for approval drafts
of all Promotional Materials, prior to use. Licensor shall promptly evaluate Promotional
Materials submitted to it by Licensee and shall use reasonable efforts to approve or
disapprove such Promotional Materials in writing within ten (10) business days after
receipt. Any submission which is not revised or disapproved in writing by Licensor within a
fifteen (15) business day period shall be deemed approved. Printing of Promotional
Materials in advance of receiving Licensor’s written approval is done at Licensee’s own
risk. Licensee shall have no such obligation with respect to any of Licensee’s Mark(s).
Licensee shall provide to Licensor two (2) samples of all printed Promotional Materials.

     7.5 Licensor shall be responsible for all product development as such development
relates to the Device, the abrasive tip, and the reference electrode ring. As set forth in
Section 7.1 above, Licensee shall be responsible for all Product development fees and costs.

     8. Term and Termination.

     8.1 This Agreement and the rights and licenses granted hereunder shall commence on the
Effective Date and, unless earlier terminated pursuant to this Agreement, shall extend until
the later of (i) the tenth anniversary of the first Commercial Sale within the scope of the
Field in the Territory or (ii) expiration of the last to expire of the Patents in the
Territory. Notwithstanding the foregoing, upon the expiration of the term, Licensee shall
have a paid-up license and shall continue to have all rights under this

12

 

Agreement, but shall have no obligation to pay Licensor any further royalties on sales of
Product Components.

     8.2 Upon any material breach or default under this Agreement, the non-breaching party
may terminate this Agreement by providing thirty (30) days’ written notice to the breaching
party. Said termination shall become effective at the end of such thirty (30) day period
unless, during such period, the breaching party cures such defect or default.

     8.3 Any party may immediately terminate this Agreement if a party is adjudicated a
bankrupt or becomes insolvent, or enters into a composition with creditors, or if a receiver
is appointed for it.

     8.4 Upon termination of this Agreement for any reason, (a) Licensee shall fully account
for, and pay to, Licensor all royalties within sixty (60) days of such termination; (b)
Licensee shall immediately transfer to Licensor (i) copies of all information, reports,
submissions and data relating to the Products and generated during the term of this
Agreement, and (ii) all rights which Licensee may have gained under this Agreement; and (c)
all rights and licenses granted to Licensee pursuant to this Agreement shall immediately
terminate. Upon termination of this Agreement for any reason, nothing herein shall be
construed to release either party of any obligation which accrued prior to the effective
date of such termination.

     8.5 Notwithstanding Section 8.4, upon termination of this Agreement for any reason,
Licensee and its Sublicensees, Affiliates, distributors, agents and wholesalers shall,
without restriction, and in their sole discretion, have the right to market and sell
Products remaining in their inventory for a total of one hundred eighty (180) days after
receipt of notice of termination. Any and all royalty payments due Licensor shall be made
pursuant to Section 6.

     9. Patent Enforcement.

     9.1 Infringement of Patents by Third Party. Licensor, at its own expense,
shall have the first option to police the Patents for use in the Field in the Territory
against infringement by other parties within the Territory, but Licensor shall, when
practicable, notify Licensee in writing twenty (20) days before filing any suit. This right
to police includes the right to institute and prosecute an action or proceeding to abate
such infringement and to resolve such matter by settlement or otherwise at Licensor’s
expense and through counsel of its selection. Licensor has full authority to settle on such
terms as Licensor determines, except that Licensor shall not reach any settlement whereby it
provides a license for future activities to a third party under the Patents for use in the
Field in the Territory without the consent of Licensee, which consent Licensee can withhold
for any reason. Licensee shall provide reasonable assistance to Licensor with respect to
such actions, but only if Licensor reimburses Licensee for out-of-pocket expenses incurred
in connection with any such assistance rendered at Licensor’s request or reasonably required
by Licensee and if Licensor notifies Licensee, when practicable, in writing twenty (20) days
before filing any suit. Licensee retains the right to participate,

13

 

with counsel of its own choosing and at its own expense, in any action under this
Section 9.1.

     If Licensor exercises its option to police the Patents pursuant to this Section 9.1,
Licensor shall retain one hundred percent (100%) of any recovery or settlement received
after reimbursement of Licensee’s out-of-pocket expenses incurred under this Section 9.1.

     If Licensor does not exercise its option to police the Patents under this Section 9.1,
Licensee shall have the option, but not the obligation, to so police the Patents for use in
the Field within the Territory, and Licensee may withhold up to fifty percent (50%) of the
payments otherwise thereafter due during the course of any such litigation to Licensor under
this Agreement under the following terms. Licensee may apply the amounts withheld to pay
Licensee’s out-of-pocket litigation expenses, including reasonable attorneys’ fees. If
Licensee recovers damages in the patent litigation, the award shall be applied first to
satisfy Licensee’s unreimbursed expenses and legal fees for the litigation, next to
reimburse Licensor for any payments under this Agreement which are past due or were withheld
pursuant to this Section 9.1, and then to reimburse Licensor for any other unreimbursed
expenses and legal fees for the litigation. The remaining balance shall be divided equally
between Licensor and Licensee.

     Notwithstanding the foregoing, Licensor and Licensee each has the right to institute
and prosecute a separate additional action or proceeding against a third party if Licensor
or Licensee determines that it has suffered damages as a result of the alleged infringement.

     9.2 Infringement of Third Party Rights. If Licensor and/or its Affiliates, or
Licensee, its Affiliates, Sublicensees, distributors or other customers are sued or
threatened with suit by a third party alleging infringement of patents or other intellectual
property rights that are alleged to cover the manufacture, use, sale, importation,
exportation or distribution of one or more Products, the sued or threatened party shall
promptly notify the other in writing and provide a copy of the lawsuit or claim. Licensor
and Licensee shall each be permitted at all times to defend itself, through counsel of its
own choice.

     If a Defense Action arises, Licensor shall in each instance have the first option to
control the defense in any such claim or suit. Within ten (10) calendar days of learning of
the claim or suit, Licensor shall provide notice to Licensee of whether or not it will
control the defense of such claim or suit. If Licensor exercises its option to control the
Defense Action, Licensee shall fully cooperate with Licensor in the defense of any such
suit. Licensor shall keep Licensee timely informed of material developments in the defense
of such claim or suit. If Licensor does not exercise its option to control the Defense
Action, Licensee shall control the Defense Action, and Licensor shall fully cooperate with
Licensee in the defense of any such suit. Licensee shall keep Licensor timely informed of
material developments in the defense of such claim or suit. The Total Claim Amount expended
by each of Licensor and Licensee shall be shared equally (subject to the below limitation on
quarterly royalty payments) by Licensor and Licensee. Licensee shall deduct royalty
payments otherwise due to Licensor under this Agreement

14

 

to account for Licensor’s share in the Total Claim Amount. Notwithstanding the
foregoing, if amounts are paid in response to a Defense Action, (i) Licensor shall at no
time be paid royalty amounts less than 6% of Net Sales, regardless of the amounts paid in
satisfaction of the Total Claim Amount, and (ii) Licensee’s sole means of collecting
Licensor’s share of the Total Claim Amount shall be through the reduction of royalties
otherwise due to Licensor from Licensee.

     The terms of this Section 9.2 shall not apply to or affect Licensor’s or Licensee’s
indemnity obligations per Section 10.

     9.3 In the event any party learns of facts that might reasonably result in a lawsuit
involving the Patents, the Trademarks, the Products and/or this Agreement, or in the event
any party is sued for matters involving the Patents, the Trademarks, the Products and/or
this Agreement, such party shall promptly notify all other parties to this Agreement.

     10. Indemnity. Licensee shall defend, indemnify and hold Licensor (and its directors,
officers, medical and professional staff, employees and agents) and their respective successors,
heirs and assigns harmless from and against all costs, liabilities, damages, expenses, and losses
(including reasonable attorney fees and costs) incurred through claims, suits, actions, demands, or
judgments of third parties against Licensor based on, or arising out of, (a) Licensee’s breach of
any representation, warranty, covenant or obligation in this Agreement, (b) the clinical
development, regulatory development, marketing, manufacture, use, sale and/or export of any Product
Component by Licensee, (c) the clinical development, regulatory development, marketing, use, sale
and/or export of any Device by Licensee, or (d) the exercise of the licenses granted under this
Agreement. Licensor shall defend, indemnify and hold Licensee and its directors, officers, medical
and professional staff, employees and agents and their respective successors, heirs and assigns
harmless against all costs, liabilities, damages, expenses, and losses (including reasonable
attorney fees and costs) incurred through claims, suits, actions, demands, or judgments of third
parties against Licensee based on, or arising out of, (a) Licensor’s breach of any representation,
warranty, covenant or obligation in this Agreement, or (b) the development (excluding clinical and
regulatory development), use, and/or manufacture of any Device or any Product Component
manufactured by Licensor. Nothing herein is intended to relieve any party from liability for its
own act, omission or negligence. No party shall have any liability to another party for
consequential damages of the other party. Notwithstanding the above, the indemnity obligations
provided here extend to the parties only and no right shall be established or inferred to benefit
any third person.

     11. Insurance. Licensee shall, throughout the term of this Agreement, obtain and maintain at
its own cost and expense from a qualified insurance company licensed to do business in the
Territory product liability insurance in such amounts as is customary in the industry, but in no
event less than $2,000,000. Such product liability insurance shall name Licensor as an additional
named insured. Within thirty (30) days of receiving written request, Licensee agrees to furnish
Licensor with a certificate of insurance evidencing such coverage, and in no event shall Licensee
manufacture, distribute, or sell the Products prior to obtaining such insurance. Licensor shall,
throughout the term of this Agreement, obtain and maintain at its own cost and expense from a
qualified insurance company licensed to do business in the Territory standard comprehensive general
liability insurance. Within thirty (30) days of receiving written request,

15

 

Licensor agrees to furnish Licensee with a certificate of insurance evidencing such coverage.
Notwithstanding the foregoing, Licensor’s obligation to maintain such insurance shall extend for
five (5) years beyond the date that Licensor entirely ceases distributing and selling products.
Licensor shall provide notice to Licensee if and when Licensor intends on terminating any such
insurance policy.

     12. Notices. Any notice required by this Agreement must be in writing and sent to an
executive officer at the appropriate party’s address first written above (or to another address
designated by the party to receive such notice) by registered mail or by an
internationally-recognized courier service, in either case with a signature proof of receipt.

     13. Assignment. The parties shall not have the right to assign this Agreement, or any rights
or obligations granted hereunder without the prior written consent of the other party (such consent
not to be unreasonably withheld). An assignment shall not release the assignor or affect the
rights of the non-assigning party against the assignor. Notwithstanding the foregoing, provided
the assigning party remains liable for all its obligations under this Agreement, Licensee and
Licensor may assign any of their respective rights and/or delegate any of its duties to their
respective Affiliates. Notwithstanding the foregoing, any party may transfer its rights and
delegate its duties under this Agreement in connection with its merger, acquisition or
consolidation with another person or firm, provided that such person or firm shall first have
agreed with Licensor and Licensee in writing to perform the transferring party’s obligations and
duties hereunder.

     14. Bankruptcy. All rights and licenses granted under or pursuant to this Agreement by
Licensor to Licensee are, and shall otherwise be deemed to be, for purposes of Section 365(n) of
the Bankruptcy Code, licenses of rights to “intellectual property” as defined under Section 101(52)
of the Bankruptcy Code. The parties agree that Licensee, as a licensee of such rights under this
Agreement, shall retain and may fully exercise all of its rights and elections under the Bankruptcy
Code. The parties further agree that in the event of the commencement of a bankruptcy proceeding by
or against Licensor under the Bankruptcy Code, Licensee shall be entitled to a complete duplicate
of, or complete access to, as appropriate, any such intellectual property and all embodiments of
such intellectual property, and same, if not already in its possession, shall be promptly delivered
to Licensee (i) upon any such commencement of a bankruptcy proceeding upon written request therefor
by Licensee unless Licensor elects to continue to perform all of its obligations under this
Agreement, or (ii) if not delivered under (i) above, upon the rejection of this Agreement by or on
behalf of Licensor upon written request therefor by Licensee.

     15. Binding Effect. This Agreement shall inure to the benefit of and be binding upon the
parties and their respective heirs, representatives, successors and permitted assigns, but nothing
contained in this paragraph shall be deemed to grant a right to make assignments other than as is
above provided.

     16. Governing Law; Jurisdiction. Any and all disputes, controversies, differences or claims
arising from or related to this Agreement, or the interpretation, making, performance, breach or
termination thereof or transactions conducted pursuant to the rights and duties granted by this
Agreement shall be governed by and interpreted in accordance with the laws of the State of
Delaware, excluding Delaware’s conflict of laws principles. Neither party shall commence

16

 

any litigation against the other arising out of this Agreement or the termination of this Agreement
except in a court located in the State of Delaware. Each party consents to jurisdiction over it by
and exclusive venue in such a court.

     17. Complete Agreement. This Agreement, including its attached exhibits, contains the entire
agreement between the parties regarding its subject matter, and supersedes all previous agreements
and negotiations.

     18. Amendment. None of the terms of this Agreement shall be amended or modified except in a
writing signed by both parties.

     19. Counterparts. This Agreement may be executed in counterparts, and each counterpart shall
be deemed an original hereof.

     20. Waiver. No failure of a party to take any action or assert any right hereunder shall be
deemed to be a waiver of such right in the event the continuance or repetition of the circumstances
giving rise to such right.

     21. Cumulative Remedies. All rights and remedies existing under this Agreement are cumulative
to, and not exclusive of, any right and remedies otherwise available at law or in equity.

     22. Headings. Article and section headings in this Agreement are included for convenience of
reference only, and shall not constitute a part of this Agreement for any other purpose or be given
any substantive effect.

     23. Independent Contractor Relationship. Licensor and Licensee shall act solely as
independent contractors and nothing in this Agreement shall be construed to create a partnership or
joint venture, principal/agent, employer/employee or other fiduciary relationship. No party has
the power or authority to act for, bind or commit any other party in any way. No party is
authorized to make any statement, claims, representation or warranties, or to act on behalf of
another party, except as specifically authorized in writing by the other.

     24. Survival of Sections. Sections 2.1-2.7 (inclusive), 3, 4.2, 6, 8.4, 8.5, 9, 10, 12, 13,
15, 16, 17, 18, 19, 21, 23 and 24 shall survive termination or expiration (as the case may be) of
this Agreement and shall remain in full force and effect. The provisions of this Agreement which
do not survive termination or expiration hereof (as the case may be) shall nonetheless be
controlling on, and shall be used in construing and interpreting the rights and obligations of the
parties hereto with regard to any dispute, controversy or claim which may arise under, out of, in
connection with, or relating to this Agreement.

     25. Severability. In the event that any one or more of the provisions contained in this
Agreement or in any other agreement or instrument referred to herein, shall, for any reason, be
held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement or any other such agreement
or instrument and such invalid or unenforceable provision shall be construed by limiting it so as
to be valid and enforceable to the maximum extent compatible with, and possible under, applicable
law.

17

 

     26. Use of Name. Licensor and Licensee shall consult with each other before issuing any press
release or otherwise making any public statements with respect to this Agreement and the
transactions contemplated hereby and shall not issue any such press release or make any such public
statement except as they may mutually agree and except as required under Federal securities laws or
other laws applicable to Licensor and Licensee. Neither party shall use the name of the other
party in any advertising, promotional or sales literature, or in any other form of publicity
without prior written consent obtained from the other party in each case, which consent shall not
be unreasonably withheld.

     27. Third Party Beneficiaries. This Agreement confers no benefits, rights, or remedies on
any individual, entity, or other person who is not a party to this Agreement.

[SIGNATURE PAGE FOLLOWS]

18

 

     IN WITNESS WHEREOF the parties have caused this Agreement to be executed as of the Effective
Date.

	 	 	 	 	 
	 	ECHO THERAPEUTICS, INC.

 	 
	 	/s/ Patrick T. Mooney
 	 
	 	By:  Patrick T. Mooney 	 
	 	Its:   Chairman and Chief Executive Officer 	 
	 
	 	FERNDALE PHARMA GROUP, INC.

 	 
	 	/s/ Michael J. Burns
 	 
	 	By:  Michael J. Burns 	 
	 	Its:  President and Chief Operating Officer 	 

19

 

	 	 	 	 	 

SCHEDULE A

THE PATENTS

“Skin Permeation Device for Analyte Sensing or Transdermal Drug Delivery”

Applications Pending

	 	 	 	 	 	 	 
	Country	 	Serial No.	 	Date Filed	 	Status
	United States
	 	12/110,034
	 	04/25/08
	 	Pending

PCT Applications Pending

	 	 	 	 	 	 	 	 	 
	Serial No.	 	Publication No.	 	Publication Date	 	Filing Date	 	Status
	PCT/US2008/61623
	 	WO08/134545
	 	11/06/08
	 	04/25/08
	 	Pending

20

 

SCHEDULE B

THE PRODUCTS

     A mechanical skin ablation device including embedded software, with charging stand,
known as PreludeTM.

     An assembled kit to be used with PreludeTM, which is comprised of the following components:

	 	•	 	an abrasive tip;
	 
	 	•	 	a reference electrode ring;
	 
	 	•	 	Benzalkonium Chloride for skin preparation; and
	 
	 	•	 	topical 4% lidocaine cream.

21

 

SCHEDULE C

THE TRADEMARKS

	 	 	 	 	 
	Trademark	 	Country	 	Application No.
	Prelude
	 	United States
	 	77/732,793
	Prelude SkinPrep System
	 	United States
	 	77/732,783

22

 

SCHEDULE D

1. Licensor’s proprietary wireless, needle-free, transdermal continuous glucose monitoring system
known as the SymphonyTM tCGM System.

2. Licensor’s proprietary AzoneTSTM platform-based drug products, with the exception of a
combination of lidocaine and Azone TSTM.

23f8klad052809indagfinal.htm - Generated by SEC Publisher for SEC Filing

 

EXHIBIT 10.1

[Form for Section 16 Executives]

INDEMNITY AGREEMENT

     THIS AGREEMENT is made as of __________________, _____ by and between Lithia Motors, Inc., an Oregon corporation (Company), and _____________________________ (Indemnitee), a
senior executive of the Company.

RECITALS

     A. It is essential to the Company to retain and attract as
senior executive the most capable persons available.

     B. The increase in corporate litigation subjects directors
and executives to expensive litigation risks at the same time that the availability and coverage of directors’ and officers’ liability insurance have been reduced.

     C. It is now and always has been the express policy of the Company to indemnify its directors and officers so as to provide them with the maximum possible protection permitted by law.

     D. The Restated Articles of Incorporation of the Company (Restated Articles) require indemnification of the directors and officers of the Company as provided in the Restated Articles and permit additional indemnifications of directors and officers by contract. The Oregon Business Corporation Act (the “Act”) expressly provides that the indemnification provisions set forth in the Act are not exclusive, and thereby contemplates that contracts may be entered into between the Company and members of the Board of Directors
and executive officers with respect to indemnification of directors and officers.

          NOW, THEREFORE, the Company and Indemnitee agree as follows:

     1. Services to the Company; Cooperation. Indemnitee will serve or continue to serve as a director
or executive officer of the Company for so long as Indemnitee is duly elected or until Indemnitee tenders a resignation in writing or is removed.

     2. Definitions. As used in this Agreement:

          (a) The term “Change in Control” shall mean that any of the following has occurred: (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a company owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under that Act), directly or indirectly, of securities of the Company representing 20% or more of the total voting power represented by the Company’s then outstanding Voting Securities, (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the

1

30162527.01

beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other entity, other than a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 80% of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company (in one transaction or a series of transactions) of all or substantially all of the Company’s assets.

           (b) The term “Expenses” shall include expenses of investigations, judicial or administrative proceedings or appeals, personal travel and per diem expenses, attorneys’ fees and disbursements and any expenses of establishing a right to indemnification under Section 11 of this Agreement, but shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.

           (c) The term “Proceeding” shall include any threatened, pending or completed action, suit or proceeding, arbitration, mediation or investigation, whether brought in the right of the Company or otherwise and whether of a civil, criminal, administrative or investigative nature, in which Indemnitee may be or may have been involved as a party or otherwise, by reason of the fact that Indemnitee is or was a director or officer of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, whether or not serving in such capacity at the time any liability or expense is incurred for which indemnification or reimbursement can be provided under this Agreement.

           (d) The term “Independent Legal Counsel” shall mean legal counsel, selected as provided in Section 10, who has not otherwise performed services for the Company or the Indemnitee within the last five years (other than in connection with matters referred to in Section 10).

           (e) References to “other enterprise” shall include employee benefit plans; references to “fines” shall include any excise tax assessed with respect to any employee benefit plan; references to “serving at the request of the Company” shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner reasonably believed to be in the best interest of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the Company” as referred to in this Agreement.

     3. Indemnity in Third-Party Proceedings. The Company shall indemnify Indemnitee in accordance with the provisions of this Section 3 if Indemnitee is a party to or threatened to be made a party to any Proceeding (other than a Proceeding by or in the right of the Company to procure a judgment in its favor) against all Expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by Indemnitee in connection with the Proceeding, but only if Indemnitee acted in good faith and in a manner which Indemnitee reasonably believed

2

 

to be in or not opposed to the best interests of the Company and, in the case of a criminal proceeding, in addition, had no reasonable cause to believe that Indemnitee’s conduct was unlawful.

     4. Indemnity in Proceedings by or in the Right of the Company. The Company shall indemnify Indemnitee in accordance with the provisions of this Section 4 if Indemnitee is a party to or threatened to be made a party to any Proceeding by or in the right of the Company to procure a judgment in its favor against all Expenses actually and reasonably incurred by Indemnitee in connection with the defense or settlement of the Proceeding, but only if Indemnitee acted in good faith and in a manner which Indemnitee reasonably believed to be in or not opposed to the best interests of the Company. No indemnification for Expenses shall be made under this Section 4 in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudged by a court to be liable to the Company, unless and only to the extent that any court in which the Proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity.

     5. Indemnification of Expenses of Successful Party. Notwithstanding any other provisions of this Agreement, to the extent that Indemnitee has been successful, on the merits or otherwise, in defense of any Proceeding or in defense of any claim, issue or matter therein, including the dismissal of an action without prejudice, the Company shall indemnify Indemnitee against all Expenses incurred in connection therewith.

     6. Additional Indemnification.

           (a) The Company agrees, as set forth in this Section 6(a), to indemnify Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification may not be specifically authorized by the Company’s Restated Articles of Incorporation, the Company’s Bylaws, the Act or the other provisions of this Agreement. Accordingly, notwithstanding any limitation in Sections 3, 4 or 5, the Company shall indemnify Indemnitee to the fullest extent permitted by law if Indemnitee is a party to or threatened to be made a party to any Proceeding (including a Proceeding by or in the right of the Company to procure a judgment in its favor) against all judgments, fines, amounts paid in settlement and Expenses actually and reasonably incurred by Indemnitee in connection with the Proceeding. No indemnity shall be made under this Section 6(a) on account of Indemnitee’s conduct which constitutes a breach of Indemnitee’s duty of loyalty to the Company or its shareholders or is an act or omission not in good faith or which involves intentional misconduct or a knowing violation of the law.

           (b) For purposes of Section 6(a), the meaning of the phrase “to the fullest extent permitted by law” shall include, but not be limited to: 

                  (i) to the fullest extent permitted by the provision of the Act that authorizes or contemplates additional indemnification by agreement, or the corresponding provision of any amendment to or replacement of the Act, and 

                  (ii) to the fullest extent authorized or permitted by any amendments to or replacements of the Act adopted after the date of this Agreement that increase the extent to which a corporation may indemnify its officers and directors.

3

 

           (c) The Company agrees to indemnify Indemnitee for Expenses if Indemnitee is called, in connection with a Proceeding, as a non-party witness by reason of the fact that Indemnitee is or was a director or officer of the Company.

     7. Exclusions. Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnity in connection with any claim made against Indemnitee: 

           (a) for which payment has actually been made to or on behalf of Indemnitee under any insurance policy or other indemnity provision, except with respect to any excess beyond the amount paid under any insurance policy or other indemnity provision; 

           (b) for any transaction from which Indemnitee derived an improper personal benefit;

           (c) for an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of state statutory or common law; 

           (d) if a court having jurisdiction in the matter shall finally determine that such indemnification is not lawful under any applicable statute or public policy; or 

           (e) in connection with any Proceeding (or part of any Proceeding) initiated by Indemnitee, or any Proceeding by Indemnitee against the Company and its directors, officers, employees or other indemnitees, unless (i) the Company is expressly required by law to make the indemnification, (ii) the Proceeding was authorized by the Board of Directors of the Company, (iii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law, or (iv) Indemnitee initiated the Proceeding pursuant to Section 11 of this Agreement and Indemnitee is successful in whole or in part in the Proceeding.

     8. Advances of Expenses. The Company shall pay the Expenses incurred by Indemnitee in any Proceeding not brought directly by the Company or any of its affiliates in advance at the written request of Indemnitee, if Indemnitee: 

           (a) furnishes the Company a written affirmation of the Indemnitee’s good faith belief that Indemnitee is entitled to be indemnified by the Company under this Agreement; and 

           (b) furnishes the Company a written undertaking to repay the advance to the extent that it is ultimately determined that Indemnitee is not entitled to be indemnified by the Company.

     Advances shall be made without regard to Indemnitee’s ability to repay the Expenses and without regard to Indemnitee’s ultimate entitlement to indemnification under the other provisions of this Agreement. Advances made under this Section 8 shall be paid by the Company to Indemnitee as soon as practicable but in any event within thirty (30) business days

4

 

after written request by Indemnitee to the Company pursuant to this Section 8, which request includes satisfactory evidence as to the amount of the Expenses.

     9. Notification and Defense of Claim. Not later than thirty (30) days after receipt by Indemnitee of notice of the commencement of any Proceeding, Indemnitee will, if a claim in respect of the Proceeding is to be made against the Company under this Agreement, notify the Company of the commencement of the Proceeding. The omission to notify the Company will not relieve the Company from any liability which it may have to Indemnitee otherwise than under this Agreement. With respect to any Proceeding as to which Indemnitee notifies the Company of the commencement:

           (a) The Company will be entitled to participate in the Proceeding at its own expense.

           (b) Except as otherwise provided below, the Company may, at its option and jointly with any other indemnifying party similarly notified and electing to assume such defense, assume the defense of the Proceeding, with legal counsel reasonably satisfactory to the Indemnitee. Indemnitee shall have the right to use separate legal counsel in the Proceeding, but the Company shall not be liable to Indemnitee under this Agreement, including Section 8 above, for the fees and expenses of separate legal counsel incurred after notice from the Company of its assumption of the defense, unless (i) Indemnitee reasonably concludes that there may be a conflict of interest between the Company and Indemnitee in the conduct of the defense of the Proceeding or (ii) the Company does not use legal counsel to assume the defense of such Proceeding. The Company shall not be entitled to assume the defense of any Proceeding brought by or on behalf of the Company or as to which Indemnitee shall have made the conclusion provided for in (i) above.

           (c) If two or more persons who may be entitled to indemnification from the Company, including the Indemnitee, are parties to any Proceeding, the Company may require Indemnitee to use the same legal counsel as the other parties. Indemnitee shall have the right to use separate legal counsel in the Proceeding, but the Company shall not be liable to Indemnitee under this Agreement, including Section 8 above, for the fees and expenses of separate legal counsel incurred after notice from the Company of the requirement to use the same legal counsel as the other parties, unless the Indemnitee reasonably concludes that there may be a conflict of interest between Indemnitee and any of the other parties required by the Company to be represented by the same legal counsel.

           (d) The Company shall not be liable to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any Proceeding effected without its written consent, which shall not be unreasonably withheld. Indemnitee shall permit the Company to settle any Proceeding the defense of which it assumes, except that the Company shall not settle any action or claim in any manner which would impose any penalty or limitation on Indemnitee without Indemnitee’s written consent, which may be given or withheld in Indemnitee’s sole discretion.

     10. Procedure Upon Application for Indemnification. Any indemnification under Sections 3, 4, 5 or 6 of this Agreement shall be made no later than sixty (60) days after receipt of the written request of Indemnitee for indemnification and shall not require that a determination

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be made in accordance with the Act by the persons specified in the Act that indemnification is required under this Agreement. However, unless it is ordered by a court in an enforcement action under Section 11 of this Agreement, no such indemnification shall be made if a determination that the Indemnitee is not entitled to indemnification under this Agreement is made within such 60-day period (a) in the absence of a Change in Control, by (i) the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to the Proceeding or (ii) Independent Legal Counsel appointed by the Board of Directors in a written opinion (which counsel shall be appointed if a quorum is not obtainable under (i)) or (b) following a Change in Control, by Independent Legal Counsel selected by Indemnitee and reasonably acceptable to the Company.

     11. Enforcement. Indemnitee may enforce any right to indemnification or advances granted by this Agreement to Indemnitee in any court of competent jurisdiction if (a) the Company denies the claim for indemnification or advances, in whole or in part, or (b) the Company does not dispose of the claim within sixty (60) days of a written request for indemnification or advances. Indemnitee, in the enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting the claim. It shall be a defense to any such enforcement action (other than an action brought to enforce a claim for advancement of Expenses pursuant to Section 8 above, if Indemnitee has tendered to the Company the required affirmation and undertaking) that Indemnitee is not entitled to indemnification under this Agreement, but the burden of proving this defense shall be on the Company. Neither a failure of the Company (including its Board of Directors or its shareholders) to make a determination prior to the commencement of the enforcement action that indemnification of Indemnitee is proper in the circumstances, nor an actual determination by the Company (including its Board of Directors or its shareholders) that indemnification is improper shall be a defense to the action or create a presumption that Indemnitee is not entitled to indemnification under this Agreement or otherwise. The termination of any Proceeding by judgment, order of court, settlement, conviction or upon a plea of nolo-contendere, or its equivalent, shall not, of itself, create a presumption that Indemnitee is not entitled to indemnification under this Agreement or otherwise.

     12. Partial Indemnification. If Indemnitee is entitled under any provisions of this Agreement to indemnification by the Company for some or part of the Expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by Indemnitee in the investigation, defense, appeal or settlement of any Proceeding but not, however, for the total amount, the Company shall indemnify Indemnitee for the portion of the Expenses, judgments, fines and amounts paid in settlement to which Indemnitee is entitled.

     13. Nonexclusivity and Continuity of Rights. The indemnification provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may be entitled under the Company’s Restated Articles of Incorporation, the Company’s Bylaws, any other agreement, any vote of shareholders or directors, the Act, or otherwise, both as to action in Indemnitee’s official capacity and as to action in another capacity while holding office. The indemnification under this Agreement shall continue as to Indemnitee even though Indemnitee ceases to be a director or officer and shall inure to the benefit of the heirs and personal representatives of Indemnitee.

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     14. Business Combinations. If any person or group (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) acquires the legal right to elect a majority of the Board of Directors of the Company in a transaction or series of transactions that has not received the prior approval of the Board of Directors of the Company, the Company or its successor, as the case may be, shall, for a period of two years following the date that such legal right is acquired (the “Trigger Date”), maintain any and all directors and officers’ liability insurance in effect prior to the Trigger Date that covers Indemnitee.

     15. Severability. If this Agreement or any portion of it is invalidated on any ground by any court of competent jurisdiction, the Company shall indemnify Indemnitee as to Expenses, judgments, fines and amounts paid in settlement with respect to any Proceeding to the full extent permitted by any applicable portion of this Agreement that is not invalidated or by any other applicable law or arrangement.

     16. Subrogation. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee. Indemnitee shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights.

     17. Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both parties. No waiver of any of the provisions in this Agreement shall constitute a waiver of any other provisions of this Agreement (whether or not similar) nor shall any waiver constitute a continuing waiver, unless expressly stated in any waiver.

     18. Notices. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given (a) upon delivery if delivered by hand to the party to whom the notice or other communication shall have been directed or (b) if mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed:

               (i) If to Indemnitee, at the address indicated on the signature page of this Agreement.

               (ii) If to the Company, to

                    Lithia Motors, Inc.

                    360 E. Jackson Street

                    Medford, OR 97501

                    Attention: Chief Executive Officer

or to any other address as may have been furnished to Indemnitee by the Company.

     19. Counterparts. The parties may execute this Agreement in two counterparts, each of which shall constitute the original.

     20. Applicable Law. This Agreement shall be governed by and construed in accordance with the law of the state of Oregon.

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     21. Successors and Assigns. This Agreement shall be binding upon the Company and its successors and assigns.

          IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as of the day and year first written above.

		
	LITHIA MOTORS, INC. 	INDEMNITEE 
	By:_______________________________ 	 __________________________ 
	Title:__________________________  	(Signature) 
		
		__________________________ 
		_______________________________ 
		_______________________________ 
	 	Address 

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