<PAGE>
                                                                    Exhibit 10.2

                      IN THE UNITED STATES DISTRICT COURT
                        FOR THE EASTERN DISTRICT OF TEXAS
                               MARSHALL DIVISION


Generation II Orthopedics Inc. and     S
Generation II USA Inc.                 S
                                       S
       Plaintiffs,                     S
                                       S
                                       S
            v.                         S
                                       S      Case No. 2-02CV-123-TJW (Ward)
                                       S
                                       S
DJ Orthopedics, Inc.,                  S
DJ Orthopedics, LLC, and               S
Smith & Nephew, Inc.                   S
                                       S
                                       S
       Defendants.                     S




                           NON-EXCLUSIVE LICENSE AND
                             SETTLEMENT AGREEMENT
                             ---------------------


     Effective, as of ____________ , 2003 ("Effective Date"), Generation II
Orthopedics Inc. ("Gen II") and Generation II USA Inc. ("Gen II USA"), as
licensor, dj Orthopedics, Inc. ("dj Ortho Inc.") and dj Orthopedics LLC ("dj
Ortho LLC"), as licensee, and Smith & Nephew, Inc. ("Smith & Nephew"), entered
into this Non-exclusive License and Settlement Agreement ("Agreement"), under
the terms and conditions set forth below.

     WHEREAS, Gen II and Gen II USA sued dj Ortho Inc., dj Ortho LLC and Smith
& Nephew (collectively "Defendants"), in the United States District Court for
the Eastern District of Texas, Marshall Division, Case No. 2-02CV-123-TJW (Ward)
("the Lawsuit"), alleging infringement of U.S. patents 5,302,169 ("169 patent")
and 5,400,806 ("806 patent");

          WHEREAS, Defendants denied the allegations of infringement and
asserted various affirmative defenses and counterclaims;



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<PAGE>
     WHEREAS, Gen II owns all right, title and interest in the '169 and '806
patents, and Gen II USA is the exclusive licensee of the '169 and '806 patents
in the United States;

     WHEREAS, DJ Ortho LLC is a wholly owned subsidiary of dj Ortho Inc.;

     WHEREAS, Smith & Nephew is the former owner of dj Ortho Inc., is no
longer making products accused of infringing the '169 and '806 patents, and is
indemnified by dj Ortho Inc. regarding infringement of the '169 and '806
patents;

     WHEREAS, the parties have agreed to resolve the controversy amicably
between them through this non-exclusive license and settlement agreement.

     THEREFORE, the parties, having agreed to be bound by the commitments and
obligations set forth below, enter into this Non-exclusive License and
Settlement Agreement under the following, mutually-agreeable terms and
conditions.

     1. LICENSE GRANT.

     Subject to the terms of this Agreement, Gen II and Gen II USA grant dj
Ortho Inc. and dj Ortho LLC a limited, fully paid-up, irrevocable,
non-exclusive, world-wide, royalty-free license and covenant not to sue, with
no right to grant sub-licenses, under the '169 and '806 patents (including all
corresponding patents and applications in other countries), and a covenant not
to sue under all other patents in existence which cover products and methods
licensed under this Agreement. The license and covenant not to sue granted in
this paragraph are limited to the making, using, selling or offering for sale
of the OAdjuster and other knee braces which have a pivotable joint (for
allowing the knee to bend), and arms with joint means, joints or adjustable
joints for allowing controlled medial and lateral inclination of the arms
relative to a pivotable joint, located on the non-pathology side, such that the
corrective force in the device is a pushing force from the non-pathology side.
This limitation would not prevent dj Ortho Inc. and dj Ortho

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<PAGE>

LLC from making, using, selling or offering for sale, knee braces as described
in the preceding sentence, which include arms on the pathology side that can
incline medially and laterally relative to the pivotable joint, as long as the
medial and lateral inclination is not controlled by an adjustment mechanism on
the pathology side. The license granted in this paragraph 1 also includes a
covenant not to sue to customers of dj Ortho Inc. and dj Ortho LLC.

     The License granted in this paragraph 1 shall be revoked if dj Ortho, Inc.
and/or dj Ortho LLC is unable to make the payments set forth in paragraph 2 for
any reason, including bankruptcy. Regardless of whether the Agreement is
revoked pursuant to this paragraph, the dismissal with prejudice against Smith
& Nephew and all releases and discharges for and by Smith & Nephew in this
Agreement shall remain in effect, provided that dj Ortho, Inc. and dj Ortho LLC
have made the initial $3,000,000 payment pursuant to paragraph 2A below, at
least 100 days have passed since the Effective Date, and dj Ortho, Inc. and/or
dj Ortho LLC has not declared bankruptcy.

     2.   PAYMENT FOR LICENSE.

     In consideration for the license and covenants not to sue granted in
paragraph 1, dj Ortho Inc. and dj Ortho LLC agree to pay Gen II and Gen II USA
the following sums:

          A.   Three Million Dollars (US $3,000,000) within ten business (10)
               days following receipt by dj Ortho Inc. and dj Ortho LLC of a
               fully executed Agreement and a Court Order dismissing the Lawsuit
               substantially in the form of the Agreed Final Judgment attached
               hereto as Exhibit 1; and

          B.   One Million Dollars (US $1,000,000) on or before January 30,
               2004.

     Such payments shall be made by way of electronic funds transfer. dj Ortho
Inc. and dj Ortho LLC also agree to withdraw its opposition against Gen II's
European parent, EP 676,941, within thirty (30) days after the Court dismisses
the Lawsuit. If all of claims 1, 2, 9, 10, 16-19


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<PAGE>
and 21 of the '169 patent and claims 1 and 2 of the '806 patent are held invalid
or unenforceable before January 30, 2004, the payment under paragraph 2.B. does
not have to be made unless and until there is final court decision from which no
further appeals can be taken which holds that at least one of claims 1, 2, 9,
10, 16-19 and 21 of the '169 patent or claims 1 and 2 of the '806 patent is
valid and enforceable, at which time such payment must be made within ten (10)
business days after dj Ortho Inc. and dj Ortho LLC are notified in writing of
such decision. dj Ortho, Inc., dj Ortho LLC, and Smith & Nephew will not
voluntarily take any action to seek invalidation of the '169 and '806 patents,
or to assist any third party attempt to invalidate the '169 and '806 patents.

     3.   REPRESENTATIONS AND WARRANTIES.

     Gen II and Gen II USA represent and warrant that they either own or control
all rights, title and interest to the respective patents for which they have
granted licenses in this Agreement, that they have the full power and authority
to grant the licenses in this Agreement, and that there are no agreements or
impediments to granting the rights each one has granted in this Agreement.

     4.   DISMISSAL OF CIVIL ACTION.

     Gen II, Gen II USA, dj Ortho, Inc., dj Ortho LLC, and Smith & Nephew, agree
to instruct their respective attorneys to sign and file an "Agreed Final
Judgment" in the Lawsuit in the form attached as Exhibit 1. In the event that a
future irresolvable dispute arises between the parties as to whether a product
not licensed under this Agreement is covered by any claim of the '169 or '806
patent, then none of the parties shall be precluded from asserting any claim or
defense relating to the '169 and '806 patents relied upon in the Lawsuit, other
than those covered by the license granted in this Agreement and the releases in
this Agreement. Nothing in this Agreement or in the Agreed Final Judgment
attached as Exhibit 1, shall be considered as an admission by dj


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Ortho Inc., dj Ortho LLC or Smith & Nephew that the Patient Ready Monarch,
OAdjuster or any other knee brace which has a pivotable joint (for allowing the
knee to bend), and arms with joint means, joints, or adjustable joints for
allowing controlled medial and lateral inclination of the arms relative to a
pivotable joint, located on the non-pathology side, such that the corrective
force in the device is a pushing force from the non-pathology side, infringes
the '169 and '806 patents, or that those patents are valid.

     5.   MUTUAL RELEASES.

     The following mutual releases are made subject to the payments in
paragraph 2:

          A.   GEN II, GEN II USA, FOR THEMSELVES AND THEIR AFFILIATES, AGENTS,
               SUCCESSORS AND ASSIGNS, AND LICENSEES, DO HEREBY RELEASE AND
               FOREVER DISCHARGE DJ ORTHO INC., DJ ORTHO LLC AND SMITH & NEPHEW,
               AND THEIR AFFILIATES, AGENTS, EMPLOYEES, OFFICERS, DIRECTORS AND
               ATTORNEYS, FROM CAUSES OF ACTION, LOSSES, PROMISES, DAMAGES,
               COSTS, EXPENSES, LIABILITIES AND DEMANDS OF WHATSOEVER CHARACTER,
               NATURE AND KIND, KNOWN AND UNKNOWN, SUSPECTED OR UNSUSPECTED,
               FIXED OR CONTINGENT, ARISING OUT OF OR IN ANY WAY RELATED TO THE
               ACTIONS, CONDUCT, OMISSIONS, OR EVENTS ALLEGED IN THE LAWSUIT.

          B.   DJ ORTHO INC., DJ ORTHO LLC AND SMITH & NEPHEW, FOR THEMSELVES
               AND THEIR AFFILIATES, AGENTS AND LICENSEES, SUCCESSORS AND
               ASSIGNS, DO HEREBY RELEASE AND DISCHARGE GEN II, GEN II USA, AND
               THEIR AFFILIATES, AGENTS, EMPLOYEES, OFFICERS, DIRECTORS AND
               ATTORNEYS, FROM CAUSES OF ACTION, LOSSES, PROMISES, DAMAGES,
               COSTS, EXPENSES, LIABILITIES AND DEMANDS OF WHATSOEVER CHARACTER,
               NATURE AND KIND, KNOWN AND UNKNOWN, SUSPECTED OR UNSUSPECTED,
               FIXED OR CONTINGENT, ARISING OUT OF OR IN ANY WAY RELATED TO THE
               ACTIONS, CONDUCT, OMISSIONS, OR EVENTS ALLEGED IN THE LAWSUIT.

          C.   THESE RELEASES ARE THE RESULT OF A COMPROMISED SETTLEMENT AND
               SHALL NEVER AT ANY TIME FOR ANY PURPOSE BE CONSIDERED AS AN
               ADMISSION OF LIABILITY OR RESPONSIBILITY ON THE PART OF ANY PARTY
               HERETO.


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          D.   THE ADVICE OF LEGAL COUNSEL HAS BEEN OBTAINED BY ALL PARTIES
               PRIOR TO THE EXECUTION OF THESE RELEASES. ALL PARTIES HEREBY
               EXECUTE THESE RELEASES VOLUNTARILY AND WITH THE EXPRESS INTENTION
               OF THEIR SIGNIFICANCE, AND WITH THE EXPRESS INTENTION OF
               EFFECTING THE EXTINGUISHMENT OF ANY AND ALL OBLIGATIONS, CLAIMS,
               AND CONTROVERSIES, ARISING OUT OF OR CONNECTED IN ANY WAY TO THE
               LAWSUIT.

     Each of the parties hereby acknowledges that there is a risk that,
subsequent to the execution of this Agreement, that it may discover, incur or
suffer from claims which were unknown or unanticipated at the time this
Agreement was executed, including, without limitation, unknown or unanticipated
claims which arise from, are based upon or are related to the issues and
matters raised by the Lawsuit which, if known by it on the date this Agreement
was executed, may have materially affected its respective decisions to execute
this Agreement. Each of the parties acknowledges that it is assuming the risk
of such unanticipated claims and agrees that this Agreement applies thereto.
Each party hereto expressly waives the benefits of Section 1542 of the
California Civil Code, if applicable, which provides:

     A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
     KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
     WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
     DEBTOR.

     Effective upon execution of this Agreement, each party waives and
relinquishes all rights and benefits which it has or may have under Section 1542
or the law of any other state or jurisdiction to the same or similar effect to
the full extent that it  may lawfully waive and relinquish all rights and
benefits pertaining to the subject matter of this Agreement. For the purpose of
this Agreement, Affiliates shall mean any and all immediate and ultimate parent
and subsidiary corporations, partnerships and entities of such and any other
corporations, partnerships or entities in which such person or its immediate and
ultimate parent and subsidiary corporations, partnerships and entities directly
or indirectly own a controlling interest.

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     6. SUCCESSORS AND ASSIGNS.

     This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns.

     7. TRANSFERABILITY OF LICENSES.

     The licenses granted under paragraph 1 shall not be transferable by dj
Ortho Inc. or dj Ortho LLC, without the prior written consent of Gen II and Gen
II USA, or their successors, except in the event that the product line of the
OAdjuster and other knee braces which have a pivotable joint (for allowing the
knee to bend), and arms with joint means, joints or adjustable joints for
allowing controlled medial and lateral inclination of the arms relative to a
pivotable joint, located on the non-pathology side, such that the corrective
force in the device is a pushing force from the non-pathology side, is sold to
or otherwise acquired by another party, and all conditions under paragraph 2
have been met, in which case the acquiring party shall automatically succeed to
the rights of the licensee under this Agreement.

     8. ENTIRE AGREEMENT.

     This Agreement represents and contains the entire agreement and
understanding between the parties with respect to the subject matter of this
Agreement, and supersedes any and all prior or contemporaneous oral and written
negotiations, agreements and understandings between the parties. No
representation, warranty, condition, understanding or agreement of any kind
with respect to the subject matter hereof shall be relied on by the parties
except those expressly contained herein. This Agreement may not be amended or
modified except by a written agreement signed by both parties.

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     9.   BREACH OF AGREEMENT.

     In the event that litigation is necessary to enforce or remedy a breach of
a provision of this agreement, the prevailing party shall be entitled to be
reimbursed by the losing party for all costs and expenses incurred thereby,
including, but not limited to, reasonable attorneys' fees for the services
rendered to such prevailing party.

    11.   SEVERABILITY.

     In the event that any condition or covenant herein is held to be invalid
or void by any court of competent jurisdiction, the same shall be deemed
severable from the remainder of the Agreement and in no way affect any other
covenant or condition contained herein. If any condition or covenant is deemed
invalid or void due to its scope or breadth, such provision shall be deemed
valid to the extent of the scope or breadth permitted by law.

     12.  GOVERNING LAW.

     This Agreement is made pursuant to, and shall be governed, by the laws of
the State of California.

     13.  HEADINGS.

     The headings of the sections, subsections and paragraphs of this Agreement
have been added for convenience only and shall not be deemed to be a part of
this Agreement.

     14.  ATTORNEYS' FEES AND COSTS.

     Each party shall bear its own costs and expenses, including attorney's
fees, in connection with the Lawsuit and the settlement thereof.




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     15.  CORRESPONDENCE TO PARTIES.
          --------------------------

     All notices, payments and other correspondence between the parties under
this Agreement shall be sent via U.S. Mail, first class, postage prepaid or by
overnight courier, as follows:



     Generation II Orthotics Inc.
     1211 Jacobson Way
     Richmond, BC V6W 1L5
     Attn: Dean Taylor, President

     Generation II USA, Inc.
     11818 North Creek Parkway North
     Suite 102
     Bothell, WA 98011
     Attn: Alan Young, Presidentdj Orthopedics, Inc., and
     dj Orthopedics LLC
     2985 Scott Street
     Vista, CA 92083
     Attn: General Counsel

     Smith & Nephew, Inc.
     1450 Brooks Road
     Memphis, TN 38816
     Attn: Patent Counsel

     IN WITNESS WHEREOF, the parties have caused duplicate originals of this
Non-exclusive License and Settlement Agreement to be executed by their duly
authorized representatives who, by executing this Agreement, warrant and
represent that they have the authority and consent to sign on behalf of their
respective corporations, on the date(s) and in the capacities shown.

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GENERATION II ORTHOPEDICS INC.               GENERATION II USA INC.

By:                                          By:
      -----------------------------                -----------------------------

Name:                                        Name:
      -----------------------------                -----------------------------

Title:                                       Title:
      -----------------------------                -----------------------------

Dated:                                       Dated:
      -----------------------------                -----------------------------





dj ORTHOPEDICS, INC.                         dj ORTHOPEDICS, LLC

By:                                          By:
      -----------------------------                -----------------------------

Name:                                        Name:
      -----------------------------                -----------------------------

Title:                                       Title:
      -----------------------------                -----------------------------

Dated:                                       Dated:
      -----------------------------                -----------------------------



SMITH & NEPHEW, INC.

By:   /s/ Joel Petrow
      -----------------------------

Name: Joel Petrow
      -----------------------------

Title: Assistant Secretary
      -----------------------------

Dated: May 21, 2003
      -----------------------------


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