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Exhibit
10.5
SETTLEMENT
AGREEMENT
This Settlement Agreement
(the “Agreement”) is entered into on July 30, 2007
(the “Effective Date”) by and between Taiwan Sumida
Electronics, Inc. (“TSE”), a Taiwan corporation with
its principal place of business in Taiwan, Republic of China and
Monolithic Power Systems, Inc. (“MPS”), a Delaware
corporation with its principal place of business in San Jose,
California, U.S.A. TSE and MPS are referred to collectively herein
as the “Parties.”
WHEREAS, on December 25,
2002, the Parties entered into an Indemnification Agreement
regarding, inter alia, the defense of patent infringement
claims brought by O2 Micro International, Limited. (“O2
Micro”) against TSE;
WHEREAS, on January 6,
2003, O2 Micro initiated a patent infringement lawsuit against TSE
and its parent company Sumida Corporation in the Eastern District
of Texas ( O2 Micro International Limited v. Sumida Corp., et
al. , Case No. C 03-0007 TJW) (“the O2 Texas
Action”) ;
WHEREAS, on August 30,
2005, MPS notified TSE that it was terminating the Indemnification
Agreement on the ground that, inter alia , TSE failed to
provide proper and full information and assistance to MPS under the
Indemnification Agreement;
WHEREAS, MPS filed a lawsuit
against TSE on August 31, 2005 in the Northern District of
California ( Monolithic Power Systems, Inc. v. Taiwan Sumida
Electronics, Inc., Case No. C 05-3522 CW) alleging, inter
alia, that TSE had breached the Indemnification Agreement (the
“Indemnity Action”; together, the Indemnity Action and
the O2 Texas Action referred to as the
“Actions”);
WHEREAS, the O2 Texas Action
proceeded to trial in November 2005 and the jury returned a verdict
that TSE had willfully infringed O2 Micro’s U.S. Patent
No. 6,396,722. On April 12, 2006, judgment was entered in
the O2 Texas Action in favor of O2 Micro in the amount of $4
million and an injunction was issued against TSE. On
February 14, 2007, an order was entered in the O2 Texas Action
awarding O2 Micro attorneys’ fees and costs in the amount of
$2,819,620.99.
1.
WHEREAS, TSE filed
counterclaims against MPS in the Indemnity Action seeking, inter
alia , declaratory judgment that TSE had not breached the
Indemnification Agreement and that MPS had breached the
Indemnification Agreement and the covenant of good faith and fair
dealing implied in the Indemnification Agreement;
WHEREAS, on June 25,
2007, the Court in the Indemnity Action entered an Order Granting
in Part Taiwan Sumida’s Motion for Summary Judgment and
Granting in Part MPS’s Motion for Summary Adjudication and
Denying MPS’s Motion to Stay Proceedings (the
“Order”);
WHEREAS, pursuant to the
Court’s June 25, 2007 Order, the Parties participated in
mediation before Hon. Edward A. Infante (Ret.) and Judge Infante
has approved the terms of the parties’ settlement;
WHEREAS, each of the Parties
denies any wrongdoing or liability to the other, but nonetheless
wish to resolve their disputes once and for all;
NOW, THEREFORE, in consideration for the
mutual settlement terms, representations and covenants set forth
below, the Parties hereby agree as follows:
1. Payment of Money by
MPS. No later than three (3) business days from the
Effective Date, MPS shall pay TSE a one time sum of two million,
four-hundred and sixty-three thousand U.S. dollars
(U.S.$2,463,000.00) by wire transfer (“Upfront
Payment”). The wire transfer instructions have been provided
separately by TSE to MPS.
2. Letter of
Credit/Escrow. MPS and TSE shall in good faith negotiate
the terms and conditions of an irrevocable stand-by letter of
credit or, an escrow agreement , in the amount of Seven Million,
Three Hundred and Fifty Thousand United States Dollars
2.
($7,350,000.00), which may be drawn upon
by TSE, under circumstances and instructions to which the Parties
have separately agreed, fully to satisfy any remaining obligations
set forth in the Indemnity Agreement. This letter of credit or
escrow account and the Upfront Payment constitute MPS’s
entire monetary obligation to TSE and its Affiliates; MPS has no
other monetary obligations to TSE or its Affiliates. As used in
this Agreement, an “Affiliate” of TSE or MPS,
respectively, shall mean any corporation, company or other legal
entity, which (directly or indirectly) controls, is controlled by,
or is under common control with TSE or MPS, respectively, but such
corporation, company or other legal entity shall be deemed an
Affiliate only so long as such ownership or control exists.
Control, as used in this definition of Affiliate, means direct or
indirect ownership of more than fifty percent (50%) of the
outstanding shares or securities (representing the right to select
directors or other managing authority) or more than fifty percent
(50%) interest in the income of the entity in
question.
3. Dismissal of Claims
Without Prejudice. Within three business days after MPS
provides the wire transfer to TSE, as provided for in paragraph 1
above, the Parties will file a stipulation dismissing without
prejudice all of their claims in the Indemnity Action and providing
that the Court in the Indemnity Action shall retain jurisdiction to
enforce the terms of this Agreement. For purposes for this
paragraph only, the Parties agree that if after sixty
(60) days from the Effective Date the Parties are still not
able to agree upon the terms and conditions of the Letter of Credit
or the escrow agreement as set forth in paragraph 2 above, then
either Party can, by notice, cause the dismissal of the Indemnity
Action to be set aside, unless the Parties are in good faith
continuing to negotiate the terms and conditions of the Letter of
Credit or the escrow. If the dismissal of the Indemnity Action is
set aside, then the Parties agree that Indemnity Action shall be
restored to the Court’s docket in Case No. C 05-3522 as if
Case No. C 05-3522 had not been dismissed. The parties also
agree that if the Indemnity Action thereafter results in a judgment
against MPS in excess of the Upfront Payment, the Upfront Payment
shall be deemed to be a pre-payment by MPS to TSE which shall be
applied against and deducted from any monetary award provided by
the Court. If a judgment against MPS is entered in an
3.
amount less than the Upfront Payment,
such judgment will be deemed satisfied to the extent of the Upfront
Payment, but TSE shall be entitled to retain the entire amount of
the Upfront Payment. The stipulation and order to be entered by the
Court are attached hereto as Exhibit A. Unless and until MPS
has opened the Letter of Credit or funded the escrow account
pursuant to paragraph 4, paragraphs 5, 6 and 7 of this Agreement
shall not be effective. All other terms and conditions shall be
effective as provided herein.
4. Dismissal of Claims
With Prejudice. Within three business days after MPS has
opened the letter of credit or funded an escrow account to which
TSE has consented, as provided for in paragraph 2 above, the
Parties will replace the stipulation of paragraph 3 with a new
stipulation dismissing with prejudice all of their claims in the
Indemnity Action and providing that the Court in the Indemnity
Action shall retain jurisdiction to enforce the terms of this
Agreement. The stipulation and order to be entered by the Court are
attached hereto as Exhibit B. If the stipulation in paragraph
3 cannot be replaced for any reason, then the Parties agree that
the stipulation filed under Section 3 shall have the force and
effect of a dismissal with prejudice as if the Parties had filed
the stipulation under this paragraph 4. Upon opening a letter of
credit or funding an escrow account pursuant to this paragraph 4,
paragraphs 5, 6 and 7 shall be deemed effective and paragraph 3
shall no longer be deemed effective.
5. Termination of the
Indemnification Agreement. MPS and TSE confirm that the
Indemnification Agreement and any and all other oral or written
(UCC or otherwise) indemnity obligations between the Parties are
hereby terminated and are of no further force or effect.
6. Mutual Release of
Liability . Except as provided in or arising under this
Agreement, TSE and MPS, on behalf of themselves and their
respective officers, directors, employees, agents, Affiliates,
attorneys, successors and assigns, each completely, unconditionally
and forever releases one another and their respective officers,
directors,
4.
employees, agents, Affiliates and
attorneys, successors and assigns from, and covenants not to sue
upon, any and all actions, causes of action, claims, demands,
accountings, liabilities, damages, or obligations, in law and/or
equity, suspected or unsuspected, known or unknown, asserted or
unasserted, the foregoing related to or specifically arising under
the Actions, which any of them has or may have as principal, agent,
indemnitee, indemnitor or otherwise.
7. General Matters
Regarding Releases . TSE and MPS agree that this Agreement
is intended to provide for a full and final compromise, release,
and settlement of all claims, demands, actions and causes of
action, known or unknown, suspected or unsuspected, asserted or
unasserted, that relate to or specifically arise under the Actions.
TSE and MPS also acknowledge that any one of them may discover
facts that are different and/or different from those now known to
them or believed to be true. TSE and MPS assume the risk posed by
such different or additional facts and specifically waive all
rights any of them may have under section 1542 of the
California Civil Code or under any comparable federal or state
statute or rule of law. California Civil Code section 1542 provides
as follows:
A general release does not
extend to claims to which the creditor does not know or suspect to
exist in his or her favor at the time of executing the release,
which if known by him or her must have materially affected his or
her settlement with the debtor.
TSE and MPS have executed this Agreement
with the full knowledge that they are forever releasing and
extinguishing all unknown and unsuspected claims either of them
might have against the other that relate to or specifically arise
under the Actions.
8. O2 Texas
Action. TSE agrees and acknowledges TSE shall, with no
control or involvement by MPS, continue to defend against the
claims brought by O2 Micro against TSE in the O2 Texas Action
and/or endeavor to settle those claims in good faith.
9. Representations and
Warranties . Each of the Parties hereby represents and
warrants to the other party as follows:
a. It has the full right,
power, and authority to enter into this Agreement, and that the
individuals signing this Agreement have full authority and are duly
authorized and empowered to execute on behalf of the Party for
which they are signing.
5.
b. Neither the execution,
delivery, nor performance of this Agreement will violate, breach,
conflict with, or constitute a default under, any law, statute,
regulation, contract, agreement or other arrangement to which such
party is a party or is subject, or by which it is bound.
c. Such Party has been
represented by legal counsel of its choice throughout the
negotiations that preceded the execution of this Agreement, and
this Agreement has been executed with the consent and on the advice
of such legal counsel.
10. Notices.
All notices required or permitted to be given hereunder shall be in
writing and shall be delivered by hand, or if dispatched by prepaid
air courier or by re
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