Exhibit 10.31
CONFIDENTIAL SETTLEMENT AGREEMENT
AND RELEASE OF ALL CLAIMS
     This Confidential Settlement Agreement and Release of All Claims
(“Agreement”) is made by and between Artes Medical, Inc.(the “Company”), a
Delaware corporation and William von Brendel (“Mr. von Brendel”).
     A. The Company terminated Mr. von Brendel’s employment on or about
October 26, 2006.
     B. On or about November 16, 2006, Mr. von Brendel filed a Demand for
Arbitration before the American Arbitration Association (the “Action”), alleging
wrongful termination, breach of contract, breach of the covenant of good faith
and fair dealing and fraud.
     C. The Company denies any wrongdoing and disputes the allegations of the
Action.
     D. The parties desire to avoid the potential inconvenience of litigation by
settling all claims and issues that have been raised, or could have been raised,
in relation to Mr. von Brendel’s employment with the Company, the termination
thereof, and arising out of or in any way related to the acts, transactions or
occurrences between Mr. von Brendel and the Company to date, on the terms set
forth below.
     THEREFORE, in consideration of the promises and mutual agreements set forth
in this Agreement, it is agreed by and between the undersigned as follows:
     1. Settlement Compensation.
     1.1 The Company agrees to pay to Mr. von Brendel, 12 months salary totaling
One Hundred Seventy Thousand Dollars ($170,000). Mr. von Brendel will be paid in
26 pay periods as W-2 income. Mr. von Brendel will receive gross pay each pay
period in the amount of $6,538.46, less all applicable withholdings. The
operative date of such payments is October 27, 2006. The Company will make all
payments necessary to bring Mr. von Brendel’s pay current within two weeks of
the effective date of this Agreement as described in paragraph 17 below.
     1.2 The Company will pay Mr. von Brendel, as W-2 income, bonus compensation
of Fifty-Six Thousand Dollars ($56,000), less all applicable withholdings, upon
the earlier of (i) the date final bonuses are distributed to all employees and
executive officers of the Company; or (ii) March 31, 2007.
     1.3 Mr. von Brendel will also be entitled to 12 months of additional stock
option vesting. Mr. von Brendel will have a total of 230,187 stock options which
will fully vest on the date the Agreement is executed by the parties. Mr. von
Brendel shall have 12 months after the date the Agreement is executed by the
parties to exercise his options. This 230,187 number of shares is based on the
Company’s pre-IPO (initial public offering) stock option schedule. Thus, such
shares will be subject to the same reverse split identified in the Company’s S-1
registration filing (1:4.25), and therefore the actual number of shares Mr. von
Brendel may be granted will be

 

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less than the 230,187 shares as shown in the schedule, attached as Exhibit A.
Pricing of options is also subject to increase to reflect the reverse split as
shown on Exhibit A.
     1.4 Mr. von Brendel shall indemnify, hold harmless and defend the Company
from any claims, tax liability, interest, penalties, attorneys’ fees or costs
which the Company is required to pay as a result of Mr. von Brendel’s failure to
report the Settlement Compensation described herein to the proper taxing
authorities.
     2. Dismissal of the Action. Upon executing this Agreement, Mr. von Brendel
agrees to obtain dismissal of the Action in its entirety, with prejudice, by
taking all necessary steps to secure such dismissal.
     3. Release of Claims.
     3.1 Mr. von Brendel for himself and his heirs, agents, assigns, executors,
successors and each of them, unconditionally, irrevocably and absolutely,
releases and discharges the Company and any parent and subsidiary corporations,
divisions, and affiliated corporations, partnerships or other affiliated
entities of the Company, past and present, as well as the Company’s employees,
officers, directors, agents, successors and assigns (“Releasees”), from all
claims related in any way to the transactions or occurrences between them to
date, to the fullest extent permitted by law, including, but not limited to, Mr.
von Brendel’s employment with the Company, the termination of that employment,
and all other losses, liabilities, claims, charges, demands and causes of
action, known or unknown, suspected or unsuspected, arising directly or
indirectly out of or in any way connected with Mr. von Brendel’s employment with
the Company. This release is intended to have the broadest possible application
and includes any and all tort, contract, common law, constitutional or other
statutory claims, including, but not limited to, alleged violations of Title VII
of the Civil Rights Act of 1964 and the California Fair Employment and Housing
Act, the Americans with Disabilities Act, and all claims for attorneys’ fees,
costs and expenses. However, nothing herein is intended to affect any vested
rights Mr. von Brendel may have obtained during the course of his employment
with the Company, or affect Mr. von Brendel’s obligations to the Company
pursuant to that certain Proprietary Information and Inventions Agreement
entered into between Mr. von Brendel and the Company.
     3.2 This release does not extend to claims which, as a matter of law,
cannot be waived, such as a right to indemnification under Labor Code
Section 2802.
     3.3 Mr. von Brendel and the Company declare and represent that they intend
this Agreement to be complete and not subject to any claim of mistake, and that
the release herein expresses a full and complete release and, regardless of the
adequacy or inadequacy of the consideration, intend the release to be final and
complete. Mr. von Brendel executes this release with the full knowledge that
this release covers all possible claims against the Releasees to the fullest
extent permitted by law.
     4. California Civil Code Section 1542 Waiver. Mr. von Brendel expressly
acknowledges and agrees that all rights under section 1542 of the California
Civil Code are expressly waived. That statute reads as follows:

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A general release does not extend to claims which the creditor does not know of
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.
     5. Representation Concerning Filing of Legal Actions. Mr. von Brendel
represents that, as of the date of this Agreement, there are no pending
lawsuits, charges, complaints, petitions, claims or other accusatory pleadings
against any of the Releasees in any court or with any governmental agency, with
the exception of the Action. Mr. von Brendel further agrees that, to the fullest
extent permitted by law, he will not prosecute, nor allow to be prosecuted on
his behalf, in any administrative agency, whether state or federal, or in any
court, whether state or federal, any claim or demand of any type related to the
matters released herein, it being the intention of Mr. von Brendel that with the
execution of this release, Releasees will be absolutely, unconditionally and
forever discharged of and from all obligations to or on behalf of each other
related in any way to the matters discharged herein. If any action is brought,
this Agreement will constitute an affirmative defense thereto.
     6. Nondisparagement. Mr. von Brendel agrees that he will not make any
voluntary statements, written or verbal, or cause or encourage others to make
any such statements that defame, disparage or in any way criticize the
reputation, business practices or conduct of the Company or any of the other
Releasees.
     7. Referral. The Company shall endeavor to direct all inquiries concerning
Mr. von Brendel to its Human Resources department. In response to inquiries, the
Company will only verify the dates of Mr. von Brendel’s employment and his job
title.
     8. Reemployment. Mr. von Brendel agrees that he will not apply for
employment or otherwise request to be considered for employment with the Company
or its affiliates, either in his former capacity or in any other position or
capacity.
     9. Confidentiality.
     9.1 The parties agree that the terms and conditions of this Agreement, as
well as the discussions that led to the terms and conditions of this Agreement
(collectively referred to as the “Confidential Settlement Information”) are
intended to remain confidential between Mr. von Brendel and the Company.
     9.2 The Company may disclose the amount of the Settlement Compensation, and
other terms deemed in good faith to be strictly necessary for the conduct of its
business, subject to a “need to know” basis.
     9.3 Mr. von Brendel agrees that he will not disclose the Confidential
Settlement Information to any other person, except that Mr. von Brendel may
disclose such information to his spouse, his attorney(s) and accountant(s), if
any, to the extent needed for legal advice or income tax reporting purposes.
When releasing this information to any such person, Mr. von Brendel shall advise
the person receiving the information of its confidential nature. Neither Mr.

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von Brendel nor anyone to whom the Confidential Settlement Information has been
disclosed will respond to, or in any way participate in or contribute to, any
public discussion, notice or other publicity concerning the Confidential
Settlement Information.
     9.4 If Mr. von Brendel is asked about the Action by anyone other than those
individuals specifically identified in paragraph 9.3, he may respond only as
follows: “The matter has been resolved.”
     10. Liquidated Damages for Violating Confidentiality Provisions. Mr. von
Brendel understands and agrees that the confidentiality provisions of this
Agreement, as set forth in paragraph 9 above, is a material part of this
Agreement. Mr. von Brendel agrees to refrain from violating these provisions.
Further, the parties understand and agree that it is difficult to ascertain the
measure of damage to the Company in the event of a breach of this provision by
Mr. von Brendel. For the foregoing reasons, if any of the provisions of
paragraph 9 are breached, the Company shall not be obligated to pay any sums
remaining under the terms of this Agreement to Mr. von Brendel, if any, and Mr.
von Brendel will pay, upon proof of breach, to the Company liquidated damages in
the sum of ten thousand dollars ($10,000). In the event of Mr. von Brendel’s
breach in accordance with this provision, all other provisions of this Agreement
will remain in full force and effect.
     11. No Admissions. By entering into this Agreement, Mr. von Brendel and the
Company make no admission that they have engaged, or are now engaging, in any
unlawful conduct. It is understood that this Agreement is not an admission of
liability, that there has been no trial or adjudication of any issue of law or
fact herein, and that the parties specifically deny liability and intend merely
to avoid expense by entering into this Agreement.
     12. Notice. Any notice required or permitted by this Agreement shall be in
writing and shall be deemed sufficient upon receipt, when delivered personally
or by courier, overnight delivery service, certified mail with postage prepaid,
or confirmed facsimile. Notice should be delivered to the following addresses:

     
Notice to Artes Medical, Inc.:
  Notice to William von Brendel:
Heller Ehrman LLP
  Gregory M. Garrison, Esq.
Joseph M. Parker, Esq.
  Garrison & McInnis, L.L.P.
4350 La Jolla Village Drive
  2650 Camino Del Rio North
7th Floor
  Suite 108
San Diego, CA 92122
  San Diego, CA 92108
Fax: (858) 450-8499
  Fax: (619) 299-4787

     13. Entire Agreement/Modification. This Agreement is intended to be the
entire agreement between the parties and supersedes and cancels any and all
other and prior agreements, written or oral, between the parties regarding this
subject matter. It is agreed that there are no collateral agreements or
representations, written or oral, regarding the settlement of claims between the
parties, other than those set forth in this Agreement. This Agreement may be
amended only by a written instrument executed by all parties hereto.

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     14. Severability. In the event any provision of this Agreement shall be
found unenforceable by an arbitrator or a court of competent jurisdiction, the
provision shall be deemed modified to the extent necessary to allow
enforceability of the provision as so limited, it being intended that the
Company shall receive the benefits contemplated herein to the fullest extent
permitted by law. If a deemed modification is not satisfactory in the judgment
of such arbitrator or court, the unenforceable provision shall be deemed
deleted, and the validity and enforceability of the remaining provisions shall
not be affected thereby.
     15. Applicable Law. The validity, interpretation and performance of this
Agreement shall be construed and interpreted according to the laws of the State
of California.
     16. Full Defense. This Agreement may be pled as a full and complete defense
to, and may be used as a basis for an injunction against, any action, suit or
other proceeding that may be prosecuted, instituted or attempted by Mr. von
Brendel in breach hereof. The parties agree that in the event an action or
proceeding is instituted by either party in order to enforce the terms or
provisions of this Agreement, the prevailing party shall be entitled to an award
of reasonable costs and attorneys’ fees incurred in connection with enforcing
this Agreement.
     17. Older Workers’ Benefit Protection Act. Mr. von Brendel acknowledges
that the Company has advised him to review this Agreement with an attorney
before signing it. Mr. von Brendel has 21 days within which to review and
consider this Agreement before signing it. Should Mr. von Brendel decide not to
use the entire 21 days, Mr. von Brendel knowingly and voluntarily waives any
claim that he was not in fact given that period of time or did not use the
entire 21 days to consult an attorney and/or consider this Agreement. Mr. von
Brendel may revoke the Agreement for up to seven calendar days after signing it,
and this Agreement shall not become effective or enforceable until the
revocation period has passed. Any revocation of this Agreement must be in
writing addressed to and received by Human Resources on behalf of the Company no
later than 5:00 p.m. on the seventh day after Mr. von Brendel signs it. If Mr.
von Brendel revokes this Agreement, he will not receive any of the benefits
described in this Agreement. This Agreement does not waive or release any rights
or claims Mr. von Brendel may have under the Age Discrimination in Employment
Act that arise after the execution of this Agreement.
     18. Attorneys’ Fees and Costs. Both parties to this Agreement agree that
they will bear their own attorneys’ fees, costs and all other expenses in
connection with the matters released in this Agreement.
     19. Good Faith. The parties agree to do all things necessary and to execute
all further documents necessary and appropriate to carry out and effectuate the
terms and purposes of this Agreement.
     20. Counterparts. This Agreement may be executed by facsimile signature,
and in separate counterparts, each of which shall be deemed an original and all
of which, when taken together, shall constitute one and the same instrument.

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     THE PARTIES TO THIS AGREEMENT HAVE READ THE FOREGOING AGREEMENT AND FULLY
UNDERSTAND EACH AND EVERY PROVISION CONTAINED HEREIN. WHEREFORE, THE PARTIES
HAVE EXECUTED THIS AGREEMENT ON THE DATE SHOWN BELOW.

              Dated: January 9, 2007   /s/ William von Brendel                  
William von Brendel    
 
            Dated: January 10, 2007   Artes Medical, Inc.    
 
           
 
  By:        /s/ Christopher J. Reinhard    
 
           
 
           Christopher J. Reinhard    
 
           
APPROVED AS TO FORM:
           
 
            Dated: January 9, 2007   Gregory M. Garrison    
 
                /s/ Gregory M. Garrison                   Gregory M. Garrison  
      Attorneys for William von Brendel    
 
            Dated: January 9, 2007   HELLER EHRMAN LLP    
 
                /s/ Joseph M. Parker                   Joseph M. Parker, Esq.  
      Attorneys for Artes Medical, Inc.    

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Exhibit A
(Options Summary)
[Intentionally Omitted]

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