Document:

Exhibit 10.39

 

TERMINATION
AND ASSIGNMENT AGREEMENT

 

This Termination and Assignment Agreement (the “Agreement”)
is made and entered into this 29th day of October 2007 (the “Effective
Date”), by and between Depomed, Inc., a California corporation (“Depomed”),
and King Pharmaceuticals, Inc., a Tennessee corporation (“King”).

 

BACKGROUND

 

A.                                   Depomed and
King are parties to that certain Promotion Agreement, dated as of June 27,
2006 (the “Promotion Agreement”). 
Capitalized terms used herein without definition shall have the meanings
ascribed to them in the Promotion Agreement, as in effect immediately prior to
the execution of this Agreement.

 

B.                                     The parties
desire to terminate the Promotion Agreement on the terms set forth herein.

 

It is therefore agreed as follows:

 

1.                                      TERMINATION OF PROMOTION AGREEMENT; RELEASE

 

1.1                                 Additional
Definitions:

 

(a)           “Joint Transition Committee” or “JTC”
shall refer to the committee established pursuant to the Transition Plan
described herein.

 

(b)           “Transition Period” shall refer to
the period beginning on the Effective Date and ending on December 31,
2007.

 

(c)           “Transition Plan” shall have the
meaning given to it in Section 5.1, herein.

 

1.2                                 Termination of
Promotion Agreement.  The
Promotion Agreement is hereby terminated in its entirety, provided that (a) the
following provisions of the Promotion Agreement shall survive the termination
of the Promotion Agreement, as contemplated thereby:  Section 7.2 (Maintenance of Records), Article 11
(Indemnification; Limitation on Liability), Article 12 (Confidentiality
and Publicity); Article 14 (Notices) and Article 15 (Insurance); and (b) the
following provisions of the Promotion Agreement shall survive until the second
anniversary of the Effective Date:  Section 7.3
(Payments); and Section 4.4(d) (related to ownership of Promotional
Material copyrights).

 

1.3                                 Conflicting
Terms.  Notwithstanding the provisions
of the foregoing Section 1.2, to the extent that any surviving rights and
obligations of the parties under the Promotion Agreement directly conflict with
the express rights and obligations of the parties provided herein, the terms of
this Agreement shall govern.

 

 

1.4           Mutual
Releases.  Each of the parties, by
and for itself and on behalf of its employees, agents, other representatives,
officers, directors, stockholders, partners, members, Affiliates, subsidiaries,
predecessors, successors, and assigns, fully releases and discharges the other
party and its employees, agents, other representatives, officers, directors,
stockholders, partners, members, Affiliates, subsidiaries, predecessors,
successors, and assigns, from any and all claims, rights, demands, liabilities,
obligations, damages, actions, and causes of action, of every kind and nature,
in law, equity, or otherwise, known and unknown, suspected and unsuspected,
disclosed and undisclosed, arising out of any act, omission, event, transaction
or occurrence on or before the Effective Date that relates to the Product or
the obligations under the Promotion Agreement; provided that this release shall
not affect the surviving rights and obligations under the Promotion Agreement
as set forth in Section 1.2, or any rights and obligations under this
Agreement including but not limited to Depomed’s product liability
indemnification obligations as set forth in Section 8.1(d) (and any
exhibit hereto).

 

2.                                      PAYMENTS

 

2.1           Termination Payments.  King shall make a termination payment to
Depomed equal to Twenty-Eight Million Dollars ($28,000,000) on the Effective
Date, by wire transfer of immediately available funds to a Depomed account
pursuant to wire transfer instructions provided to King by Depomed on or before
the Effective Date.

 

2.2           Books and Records.  Each party shall maintain complete and
accurate books and records in sufficient detail, in accordance with GAAP and
all applicable laws, rules, ordinances and regulations, to enable verification
of the performance of such party’s payment obligations under this
Agreement.  Such records shall be
maintained for a period of twenty-four (24) months after the end of the Term or
longer if required by applicable law.

 

2.3           Marketing Expenses.

 

(a)           Q3 Expense Reconciliation
Report.  The JCC has produced
the report for the Agreement Quarter ended September 30, 2007 related to
Advertising/ Marketing/Educational Expenses required by Section 7.5(b) of
the Promotion Agreement (the “Q3 Expense Reconciliation Report”).  The Q3 Expense Reconciliation Report
indicates that King incurred Three Million Eight Hundred Thirty-Eight Thousand
Two Hundred Forty-Three Dollars and Forty-Two Cents ($3,838,243.42) in Advertising/Marketing/Educational Expenses
incurred by King in the Agreement Quarter ended September 30, 2007, and
that Depomed is required to make a payment to King equal to One Million
Eighty-Six Thousand Seventy-Two Dollars and Thirty-Four Cents ($1,086,072.34)
pursuant to the terms of the Promotion Agreement in respect of
Advertising/Marketing/Educational Expenses incurred by King in the Agreement
Quarter ending September 30, 2007. 
This payment was made by Depomed on October 26, 2007 by wire
transfer.

 

(b)           Final Expense
Reconciliation.  Exhibit A
attached hereto sets forth (a) Advertising/Marketing/Educational Expenses
incurred by King during the period beginning on October 1, 2007 and ending
on the Effective Date, and (b) certain adjustments to
Advertising/Marketing/Educational Expenses incurred by King that have 

 

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been mutually agreed to by
the parties (the “Final Expense Reconciliation Report”).  The Final Expense Reconciliation Report
indicates, and the parties have agreed, that King has incurred Five Hundred
Ninety-Nine Thousand, Forty-Three Dollars and Ninety-Nine Cents ($599,043.99)
of Advertising/Marketing/Educational Expenses during the period covered by it,
after giving effect to the adjustments set forth therein.

 

(c)           King 2007 Marketing
Expenses.  The “King 2007
Marketing Expenses” are equal to Six Million Two Hundred Twelve Thousand Six
Hundred Fifty-Two Dollars and Eighty-Two Cents ($6,212,652.82), which amount is
the sum of (a) Five Million Six Hundred Thirteen Thousand, Four Hundred
Sixty-One Dollars and Eighty-Three Cents. ($5,613,461.83) (which is equal to
King’s share of Advertising/Marketing/Educational Expenses for the three
Agreement Quarter period ended September 30, 2007, as reflected in the
reports for those Agreement Quarters produced pursuant to Section 7.5(b) of
the Promotion Agreement); and (b) the amount set out in the Final Expense
Reconciliation Report and Section 2.2(b), above.

 

(d)           Payment of remaining
budget for Advertising/Marketing/Educational Expenses.  On the Effective Date, King shall make a
payment to Depomed equal to One Million Nine Hundred Twelve Thousand Three
Hundred Forty-Seven Dollars and Eighteen Cents ($1,912,347.18), which is the
remainder of (A) Eight Million One Hundred Twenty-Five Thousand Dollars
($8,125,000), minus (B) the King 2007 Marketing Expenses, by wire transfer
of immediately available funds to a Depomed account pursuant to wire transfer
instructions provided to King by Depomed on or before the Effective Date.

 

(e)           No Additional Marketing
Expenses.  Neither party shall
have any obligation to the other in respect of
Advertising/Marketing/Educational Expenses from and after the Effective
Date.  After the Effective Date each
party is solely responsible for expenses incurred in fulfilling its remaining
obligations unless otherwise set forth in the Transition Plan attached hereto.

 

(f)                                    Post
Transition Period Expense Reconciliation.

 

(i)            As identified in the Transition
Plan, and only with the approval of the JTC, certain expenses will be paid by
King during the Transition Period.  The
Final Reconciliation Report includes adjustments for the anticipated amount of
those expenses.  After the Effective
Date, King shall not incur additional expense unless approved by the JTC.  In the event that the JTC approves the
payment of expenses to be paid by King during the Transition Period that are
not reflected in the Final Reconciliation Report, Depomed shall reimburse King
for such expenses on presentation of an invoice, as described below.  The signatures of Depomed’s JTC members on a
form describing such expense shall be conclusive evidence that Depomed has
agreed to reimburse King for such expense.

 

(ii)           Not later than December 31,
2007, the JTC will prepare a reconciliation of expenses incurred by King during
the Transition Period, and any further adjustments to the expenses reflected in
the Final Reconciliation Report for expenses discovered by King for the period
covered by it (as evidenced by reasonable documentation to the JTC 

 

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describing such additional
expenses), or reductions of estimated expenses reflected in the Final
Reconciliation Report (as evidenced by reasonable documentation to the JTC
describing such reduced expenses).  The
JTC shall execute a form describing such reconciliation, and approving the
reimbursement to King or Depomed (as applicable) of the net amount payable pursuant
to such reconciliation.  The party
responsible for reimbursing the other party pursuant to this Section 2.3(f)(ii) (the
“Reimbursing Party”)  shall do so not later than January 10,
2008; provided, however, that in no event shall the Reimbursing Party be
obligated to reimburse the other party in an amount in excess of Two Hundred
Thousand Dollars ($200,000).

 

2.4           Promotion Fees.

 

(a)           Q3 Promotion Fees.  Depomed has provided to King the report
required by Section 7.1(b) of the Promotion Agreement in respect of
the Agreement Quarter ended September 30, 2007, which report indicates
that Depomed is required to pay King $2,150,330.43 in Promotion Fees for the
Agreement Quarter ended September 30, 2007.  This amount was paid to King by wire transfer
on October 26, 2007.

 

(b)           Q4 Promotion Fees.  Depomed shall have no obligation to pay King
Promotion Fees for any period subsequent to the Agreement Quarter ended September 30,
2007.

 

3.                                      REGULATORY MATTERS

 

Pharmacovigilance, including
adverse event information, medical inquiries and complaint exchange, shall be
governed by the Safety Agreement executed between the parties on March 23,
2007, as may be amended from time to time by the parties.  The parties agree to amend the Safety
Agreement not later than November 15, 2007 such that Depomed will no longer
have an obligation to deliver adverse event and complaint information to King
and King shall share appropriate information with Depomed after the Effective
Date.

 

4.                                      INTELLECTUAL PROPERTY MATTERS; PRODUCT
DOCUMENTATION

 

4.1           Termination
of Rights and Licenses; Reversion of Rights.  Without limiting the generality of Section 1,
all of King’s rights and licenses under the Promotion Agreement shall,
including the rights set forth in Section 2.1 of the Promotion Agreement,
terminate as of the Effective Date and automatically revert to Depomed;
provided, however, that Depomed shall have a limited , non-assignable,
non-sublicensable, non-exclusive, royalty-free right and license to use the
King Trademarks in the Territory solely in connection with Depomed’s promotion
of the Product during the Transition Period or as otherwise expressly
contemplated by the Transition Plan. 
Furthermore, until June 30, 2008, Depomed shall have a limited,
non-assignable, non-sublicensable, non-exclusive, royalty-free right and license
to use the King Trademarks in the Territory solely to the extent necessary for
Depomed to distribute the “starter kits” and “pharmacy mats” as described in
the Transition Plan.  Depomed
acknowledges the validity of King’s right, title and interest in and to the
King Trademarks and shall not have, assert or acquire any right, title or
interest in or to any of the King Trademarks. 
Also, King shall have a limited, nonassignable, non-sublicensable,
non-exclusive, royalty-free right and license to use the 

 

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Depomed
Trademarks in the Territory solely in connection with King’s performance of its
post-termination obligations during the Transition Period.

 

4.2           Ownership of Intellectual Property.  King hereby represents and warrants to
Depomed that: (i) to the best of King’s knowledge, none of King’s
employees, agents, or other persons acting under its authority, developed,
conceived or reduced to practice any inventions, discoveries or know-how
relating to the Product (collectively, “Inventions”), (ii) that in
the event that any Inventions were so developed, conceived or reduced to
practice by any such parties, King does hereby assign all of its right, title
and interest therein to Depomed and (iii) that in the event that King
becomes aware of the existence of any such Inventions, it will provide prompt
written notice to Depomed of same, including a written description of such
Invention, and it will take such actions as Depomed shall reasonably request to
evidence such assignment and to enable Depomed to understand and exploit such
Invention.

 

4.3           Promotional Material Copyright Assignment.  King hereby assigns
to Depomed King’s right, title and interest in and to all copyrights to all
Promotional Materials created by or on behalf of King (including Promotional
Materials currently under development by or on behalf of King) during the Term
of this Agreement or the Promotion Agreement in connection with the Promotion
of the Product.  King shall deliver to
Depomed copies of such materials (including in electronic form) as contemplated
by the Transition Plan.

 

5.                                      TRANSITIONAL COMMERCIAL OBLIGATIONS; COMPLIANCE

 

5.1           Transition
Plan.  (a) As Depomed is to
assume full control and responsibility of Promoting the Product as of the
Effective Date, and full responsibility for any Details that occur on or after January 1,
2008, the parties have developed and agreed upon the Transition Plan attached
hereto as Exhibit B.  The parties
shall have no obligation to undertake any transition activities not set forth
in the Transition Plan.  The costs of
transitioning marketing and related materials shall include only those
activities specifically identified in the Transition Plan.  Each party is responsible for assuming one
hundred percent (100%) of the costs incurred by it associated with the orderly
transition of key marketing programs, materials and other identified matters
from King to Depomed, as set forth in the Transition Plan.

 

5.2           Compliance.  In performing its duties hereunder, each
party shall, and shall cause its employees and agents to, comply with all Legal
Requirements, including the FDA’s regulations and guidelines concerning the
advertising of prescription drug products, DDMAC’s promotional guidelines, the
Department of Health and Human Services Office of the Inspector General
Compliance Program Guidance for Pharmaceutical Manufacturers, the American
Medical Association’s Guidelines on Gifts to Physicians, the PhRMA Code on
Interactions with Healthcare Providers, the Prescription Drug Marketing Act of
1987, as amended, and the rules and regulations promulgated thereunder,
the ACCME Standards for Commercial Support of Continuing Medical Education,
equal employment, non-discrimination and federal and state anti-kickback Legal
Requirements, Legal Requirements with respect to submission of false claims to
governmental or private health care payors, and all industry and professional
standards, which may be applicable to the activities (including the
warehousing, handling and distribution of Samples) to be performed by such
party hereunder.  None of King, Depomed,
or either party’s employees and agents shall offer, pay, solicit or receive any
remuneration to or from 

 

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Professionals in order to induce referrals of or purchase of the
Product.  The King Sales Force shall have
no direct contact with, nor shall the King Sales Force be involved with the
delivery of Product to patients, other than delivery of Samples directly to
Professionals authorized to prescribe the Product.  The King Sales Force was trained in
connection with compliance with Sec. 1128B(b) of the Social Security
Act and the AMA Guidelines on Gifts to Physicians from Industry prior to
engaging in Promotion of the Product.

 

6.                                      CONFIDENTIALITY AND PUBLICITY

 

6.1           Confidentiality. 
Pursuant to this Agreement and the Promotion Agreement, a party
receiving Proprietary Information from the other, directly or indirectly, will
treat such Proprietary Information as confidential, will use such Proprietary
Information only for the purposes of the Promotion Agreement and this Agreement
and will not disclose, and will take all reasonable precautions to prevent the
disclosure of, such Proprietary Information to (a) any of its officers,
directors, managers, equity holders, employees, agents, representatives,
Affiliates or consultants who are not required to know such Proprietary
Information or who are not bound by a like obligation of confidentiality or (b) Third
Parties.  The terms and conditions of
this Agreement shall be considered to be the Proprietary Information of both
parties and shall be treated by each party as such.

 

6.2           Disclosures
Required by Law.  In the event the recipient party is required
under applicable Legal Requirements to disclose Proprietary Information in
connection with bona fide legal process (including in connection with any bona
fide dispute hereunder) or is required to disclose Proprietary Information
under the rules of the securities exchange upon which its securities are
traded, the recipient party may do so only if it limits disclosure to that
purpose after giving the disclosing party prompt written notice of any instance
of such a requirement in reasonable time for the disclosing party to attempt to
object to or to limit such disclosure. 
In the event of disclosures required under applicable Legal
Requirements, the recipient party shall cooperate with the disclosing party as
reasonably requested thereby.

 

6.3           Publicity. 
Neither party will originate any publicity, news release, public comment
or other public announcement, whether to the press, to stockholders, or
otherwise, relating to this Agreement, without the consent of the other party,
except for such announcement which, in accordance with the advice of legal counsel
to the party making such announcement, is required by law.  Except as otherwise permitted pursuant to the
immediately preceding sentence, any party making any announcement which is
required by law will, unless prohibited by law, give the other party an
opportunity to review the form and content of such announcement and comment
before it is made.  Either party shall
have the right to make such filings with governmental agencies, including the
United States Securities and Exchange Commission, as to the contents and
existence of this Agreement as it shall reasonably deem necessary or
appropriate.  The parties have agreed
upon the form and content of a joint press release to be issued by the parties
promptly following the execution of this Agreement.  Once such press release or any other written
statement is approved for disclosure by both parties, either party may make
subsequent public disclosure of the contents of such statement without the
further approval of the other party.

 

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6.4                                 Survival.  The provisions of this Article 6 shall
remain in effect until the third anniversary of the Effective Date.

 

7.                                      REPRESENTATIONS AND WARRANTIES

 

7.1                                 By King.  King hereby represents and warrants to
Depomed as follows:

 

(a)           It is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation.  It has all requisite power and authority to
carry on its business and to own and operate its properties and assets.  The execution, delivery and performance of
this Agreement have been duly authorized by all necessary corporate action on
its part.  It has obtained all
authorizations, consents and approvals, governmental or otherwise, necessary
for the execution and delivery of this Agreement, and to otherwise perform its
obligations under this Agreement.

 

(b)           There is no pending or, to its knowledge, threatened
litigation involving it which would have any material adverse effect on this
Agreement or on its ability to perform its obligations hereunder.

 

(c)           There is no indenture, contract, or agreement to which it
is a party or by which it is bound which prohibits or would prohibit the
execution and delivery by it of this Agreement or the performance or observance
by it of any material term or condition of this Agreement.

 

(d)           To its knowledge, it has paid Depomed all amounts due and
payable by it to Depomed pursuant to the Promotion Agreement.

 

7.2                                 By Depomed.  Depomed hereby represents and warrants to
King as follows:

 

(a)           It is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation.  It has all requisite power and authority to
carry on its business and to own and operate its properties and assets.  The execution, delivery and performance of
this Agreement have been duly authorized by all necessary corporate action on
its part.  It has obtained all
authorizations, consents and approvals, governmental or otherwise, necessary
for the execution and delivery of this Agreement, and to otherwise perform its
obligations under this Agreement.

 

(b)           There is no pending or, to its knowledge, threatened
litigation involving it which would have any material adverse effect on this
Agreement or on its ability to perform its obligations hereunder.

 

(c)           There is no indenture, contract, or agreement to which it
is a party or by which it is bound which prohibits or would prohibit the
execution and delivery by it of this Agreement or the performance or observance
by it of any material term or condition of this Agreement.

 

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(d)           To its knowledge, it has paid King all amounts due and
payable by it to King pursuant to the Promotion Agreement.

 

8.                                      INDEMNIFICATION

 

8.1                                 Indemnification.  Each party will defend, at its own expense,
indemnify and hold harmless the other party and its Affiliates from and against
any and all damages, liabilities, losses, costs, and expenses, including
reasonable attorneys’ fees, arising out of any Third Party claim, suit or
proceeding brought against the other party or its Affiliates to the extent such
claim, suit, or proceeding is based upon a claim arising out of or relating to (i) any
breach or violation of, or failure to perform, any covenant or agreement made
by such indemnifying party in this Agreement, unless waived in writing by the
indemnified party; (ii) any breach of the representations or warranties
made by such indemnifying party in this Agreement; or (iii) the negligence
or willful misconduct of the indemnifying party, except (under any of (i) or
(ii)) to the extent arising out of the breach, violation, failure, negligence
or willful misconduct of the indemnified party. 
In addition, Depomed will defend, at its own expense, indemnify and hold
harmless King and its Affiliates from and against any and all damages,
liabilities, losses, costs, and expenses, including reasonable attorneys’ fees,
arising out of any Third Party claim, suit or proceeding brought against King
or its Affiliates to the extent such claim, suit or proceeding is based upon a
claim arising out of or relating to (a) any actions of sales
representatives employed by Depomed, or a Third Party engaged by Depomed, to
Promote the Product, (including any false or misleading representations to
Professionals, customers or others regarding King or the Product); (b) any
agreement between Depomed and BLS; (c) any claim made by any Person that
the manufacture, use or sale of the Product infringes or misappropriates the
patent, trademark, or other intellectual property rights of such Person, except
with respect to any claim relating to the King Trademarks; and/or (d) any
product liability claim made by any Person with respect to the Product, except
to the extent liability is based on a breach by King of Section 4.2 of the
Promotion Agreement.   Each party agrees that it shall
promptly notify the other in writing of any such claim or action and give the
indemnifying party full information and assistance in connection
therewith.  The indemnifying party shall
have the sole right to control the defense and the sole right to settle or
compromise any such claim or action, except that the prior written consent of
the other party shall be required in connection with any settlement or
compromise which could (i) place any obligation on or require any action
of such other party; (ii) admit or imply any liability or wrongdoing of
such other party; or (iii) adversely affect the goodwill or public image
of such other party.  Notwithstanding the
foregoing, the indemnified party may participate therein through counsel of its
choice, but the cost of such counsel shall be borne solely by the indemnified
party.  The provisions of this Section 8.1
shall survive until the third anniversary of the Effective Date (except as to
claims as to which a party has notified the other in writing prior to the third
anniversary of the Effective Date, in which event, the indemnifying party’s
obligations under this Section 8.1 shall survive with respect to any such
claim until its resolution).

 

8.2           Consequential
Damages.  NEITHER KING NOR DEPOMED
(WHICH FOR THE PURPOSES OF THIS SECTION 8.2 SHALL INCLUDE THEIR RESPECTIVE
AFFILIATES, DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS) SHALL HAVE ANY LIABILITY
TO THE OTHER FOR ANY PUNITIVE DAMAGES, SPECIAL, INCIDENTAL, CONSEQUENTIAL OR
INDIRECT DAMAGES, OR LOSS OF PROFITS, 

 

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RELATING TO OR ARISING FROM THIS AGREEMENT, EVEN IF SUCH DAMAGES MAY HAVE
BEEN FORESEEABLE; PROVIDED THAT SUCH LIMITATION SHALL NOT APPLY IN THE
CASE OF FRAUD OR WILLFUL MISCONDUCT.

 

9.                                      NOTICES

 

All notices required or permitted hereunder shall be
given in writing and sent by facsimile transmission (with a copy sent by
first-class mail), or mailed postage prepaid by certified or registered mail
(return receipt requested), or sent by a nationally recognized express courier
service, or hand-delivered at the following address:

 

If
to Depomed:

 

Depomed, Inc.

1360
O’Brien Drive

Menlo
Park, California  94025

Attention:  President

Fax
No.:  (650) 462-9991

 

With
a copy to:

Heller
Ehrman LLP

275
Middlefield Road

Menlo
Park, CA  94025

Attention:  Julian Stern

Fax
No:  (650) 324-0638

 

If
to King:

 

King
Pharmaceuticals, Inc.

501
Fifth Street

Bristol,
Tennessee 37620

Attn:
Legal Department

Facsimile:
(423) 990-2566

 

All notices shall be deemed made upon receipt by the
addressee as evidenced by the applicable written receipt.

 

10.                               MISCELLANEOUS

 

10.1         Headings.  The titles, headings or
captions and paragraphs in this Agreement are for convenience only and do not
define, limit, extend, explain or describe the scope or extent of this
Agreement or any of its terms or conditions and therefore shall not be
considered in the interpretation, construction or application of this
Agreement.

 

10.2         Severability.  In the event that any of the provisions or a
portion of any provision of this Agreement is held to be invalid, illegal, or
unenforceable by a court of competent jurisdiction or a governmental authority,
such provision or portion of provision will be construed and enforced as if it
had been narrowly drawn so as not to be invalid, illegal, or unenforceable, 

 

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and the validity, legality, and enforceability of the enforceable
portion of any such provision and the remaining provisions will not be
adversely affected thereby.

 

10.3         Entire Agreement.  This Agreement and the Promotion Agreement,
together with any exhibit hereto or thereto, contain all of the terms agreed to
by the parties regarding the subject matter hereof and supersede any prior
agreements, understandings, or arrangements between them, whether oral or in
writing.

 

10.4         Amendments.  This Agreement may not be amended, modified,
altered, or supplemented except by means of a written agreement or other instrument
executed by both of the parties hereto. 
No course of conduct or dealing between the parties will act as a
modification or waiver of any provisions of this Agreement.

 

10.5         Counterparts.  This Agreement may be executed in any number
of counterparts, each of which will be deemed an original as against the party
whose signature appears thereon, but all of which taken together will
constitute but one and the same instrument. 
Furthermore, this Agreement may be executed by facsimile or .pdf
signature and such facsimile or .pdf signature shall be as binding as the
original signatures of the parties.

 

10.6         Waiver.  The failure of either party to enforce or to
exercise, at any time or for any period of time, any term of or any right
arising pursuant to this Agreement does not constitute, and will not be
construed as, a waiver of such term or right, and will in no way affect that
party’s right later to enforce or exercise such term or right.

 

10.8         Successors and Assigns.  Subject to Section 10.9, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and assigns permitted under this Agreement.

 

10.9         Assignment.  This Agreement and the rights granted herein
shall not be assignable by either party hereto without the prior written
consent of the other party.  Any
attempted assignment without consent shall be void.  Notwithstanding the foregoing, a party may
transfer, assign or delegate its rights and obligations under this Agreement
without consent to (a) an Affiliate or (b) a successor to all or
substantially all of its business or assets of the assigning party to which
this Agreement relates, whether by sale, merger, consolidation, acquisition,
transfer, operation of law or otherwise or (c) in the case of either
party, to one or more financial institutions providing financing to such party
pursuant to the terms of a security agreement relating to such financing.

 

10.10       Construction.  The parties acknowledge and agree that: (a) each
party and its representatives have reviewed and negotiated the terms and
provisions of this Agreement and have contributed to its revision; and (b) the
terms and provisions of this Agreement will be construed fairly as to each
party hereto and not in favor of or against either party regardless of which
party was generally responsible for the preparation or drafting of this
Agreement.  Unless the context of this
Agreement otherwise requires: (i) words of any gender include each other
gender; (ii) words using the singular or plural number also include the
plural or singular number, respectively; (iii) the terms “hereof,” “herein,”
“hereby,” and derivative or similar words refer to this entire Agreement; (iv) the
terms “Article,” “Section,” or “Exhibit” refer to the specified 

 

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Article, Section, or Exhibit of this Agreement; (v) “or” is
disjunctive but not necessarily exclusive; and (vi) the term “including”
or “includes” means “including without limitation” or “includes without
limitation.”  Whenever this Agreement
refers to a number of days, such number shall refer to calendar days unless
business days are specified.

 

10.11       Governing Law.  This Agreement will be construed under and in
accordance with, and governed in all respects by, the laws of the State of New
York, without regard to its conflicts of law principles.

 

10.12       Equitable Relief.  Each party acknowledges that a breach by it
of the provisions of this Agreement may not reasonably or adequately be
compensated in damages in an action at law and that such a breach may cause the
other party irreparable injury and damage. 
By reason thereof, each party agrees that the other party is entitled to
seek, in addition to any other remedies it may have under this Agreement or otherwise,
preliminary and permanent injunctive and other equitable relief to prevent or
curtail any breach of this Agreement by the other party; provided, however,
that no specification in this Agreement of a specific legal or equitable remedy
will be construed as a waiver or prohibition against the pursuing of other
legal or equitable remedies in the event of such a breach. Each party agrees
that the existence of any claim, demand, or cause of action of it against the
other party, whether predicated upon this Agreement, or otherwise, will not
constitute a defense to the enforcement by the other party, or its successors
or assigns, of the covenants contained in this Agreement.

 

10.13       Relationship Between Parties.  The parties hereto are acting and performing
as independent contractors, and nothing in this Agreement creates the
relationship of partnership, joint venture, sales agency, or principal and
agent.  Neither party is the agent of the
other, and neither party may hold itself out as such to any other party.  All financial obligations associated with
each party’s business will be the sole responsibility of such party.

 

[signature page follows]

 

11

 

IN WITNESS WHEREOF, the undersigned have caused this
Agreement to be duly executed by their duly authorized officers on the date
first above written.

 

DEPOMED,
INC.

 

	
  By: 

  	
  /s/ Carl A. Pelzel

  	
   

  
	
   

  	
   

  
	
  Carl A. Pelzel

  	
   

  
	
  President and Chief
  Executive Officer

  	
   

  

 

 

KING
PHARMACEUTICALS, INC.

 

	
  By: 

  	
  /s/ Brian A. Markinson

  	
   

  
	
   

  	
   

  
	
  Brian A. Markinson

  	
   

  
	
  President and Chief
  Executive Officer

  	
   

  

 

12Exhibit 10.40

 

February 8, 2008

 

Mr. Carl
Pelzel

 

Dear
Carl:

 

I
refer you to the employment offer letter between you and Depomed, Inc.
dated as of August 24, 2007 (the “Offer Letter”).

 

This
letter is to confirm our agreement that: 
(a) the option to purchase 62,500 shares required to be issued to
you under the Offer Letter not later than March 31, 2008 at an exercise
price equal to $1.98 was granted to you on January 25, 2008, with an
exercise price equal to $3.60 per share; and (b) to compensate you for the
incremental increase in the exercise price of that stock option, the Company
will issue you a 30,000 share fully vested stock award under the Company’s 2004
Equity Incentive Plan (the “2004 Plan”) on the earlier to occur of (i) January 9,
2009; and (ii) immediately prior to the occurrence of an event of “Change in Control”, as so determined by
the Company’s Board of Directors pursuant to Section 10.4 of the Company’s
2004 Equity Incentive Plan.

 

Except
as modified by this letter, all other provisions of the Offer Letter remain in
effect.

 

Please
countersign where indicated below to indicate that the foregoing correctly sets
forth our agreement

 

On
behalf of the

Board
of Directors,

 

	
  /s/
  Craig R. Smith, M.D.

  	
   

  
	
   

  
	
  Craig
  R. Smith, M.D.

  
	
  Chairman
  of the Board of Directors

  

 

	
   

  	
  Acknowledged
  and Agreed:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/
  Carl A. Pelzel

  
	
   

  	
  Carl
  A. Pelzel

  
	
   

  	
   

  
	
   

  	
  Date:
  February 19, 2008

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