Exhibit 10.2


 


SETTLEMENT AGREEMENT AND RELEASE


 


I.  PARTIES


 


This Settlement Agreement (“Agreement”) is entered into by the United
States of America, acting through the United States Attorney’s Office for the
District of Massachusetts, and the Office of Inspector General (“OIG-HHS”) of
the United States Department of Health and Human Services (“HHS”); and
NeuroMetrix, Inc. (“NeuroMetrix”), a Delaware corporation with a principal
place of business in Waltham, Massachusetts, through their authorized representatives.  Collectively, all of the above shall be
referred to as “the Parties.”


 


II.  PREAMBLE


 


A.                                   WHEREAS,
at all relevant times, NeuroMetrix developed, designed, distributed, marketed,
and sold a medical device known as the NC-stat System (the “medical device”) to
physicians nationwide for the purpose of conducting nerve conduction studies
on-site to assist in the diagnosis of neuropathies in the peripheral nerves and
spine frequently caused by or associated with carpal tunnel syndrome, leg pain,
diabetes, and other clinical disorders;


 


B.                                     WHEREAS,
NeuroMetrix has agreed to enter into a deferred prosecution agreement with the
United States Attorney for the District of Massachusetts (the “Deferred
Prosecution Agreement”), under which NeuroMetrix will acknowledge that it is
guilty of a violation of 42 U.S.C. §1320a-7b(b)(2) by offering and paying
illegal remuneration to physicians to induce them to refer and recommend the
use of the NC-stat System to other physicans, as set forth in an Information
attached to the Deferred Prosecution Agreement;


 


C.                                     WHEREAS,
the United States alleges that NeuroMetrix caused to be submitted claims for
payment for the technical and professional component of use of the medical
device to the Medicare Program, established pursuant to Title XVIII of the
Social Security Act, § 1395-1395hhh, which is administered by HHS;


 


D.                                    WHEREAS,
the United States contends that it has certain civil claims against NeuroMetrix
as specified in Paragraph 2 below for engaging in the following conduct:


 

















 


(i)                                     The
United States contends that, from August 2004 through October 2006,
NeuroMetrix knowingly and willfully offered and paid illegal remuneration to
induce physicians to refer and recommend purchase of the NC-stat System, in
violation of 42 U.S.C. §1320a-7b(b)(2) through marketing programs known as
the “Referral Rewards Program” and “Customer Referral Program.”  As a result, NeuroMetrix knowingly caused the
submission of false or fraudulent claims to the Medicare Programs for nerve
conduction studies performed with the NC-stat System for which no payments
should have been made.


 


(ii)                                  The
United States contends that, from January 2003 through April 2006,
NeuroMetrix knowingly caused the submission of false or fraudulent claims for
payment to Medicare by providing coding reports to physicans that falsely
indicated the nerve conduction studies performed with the NC-stat System should
be billed under CPT Codes 95903 when no F-wave had been obtained, and which
services should have been billed under CPT Code 95900 instead, a specific code
for nerve conduction studies where no F-wave was obtained.  As a result, NeuroMetrix knowingly caused the
submission of false or fraudulent claims to Medicare that resulted in excess
payments from Medicare to which the physicians were not entitled.


 


E.                                      NeuroMetrix’s
conduct as described in the Information attached to the Deferred Prosecution
Agreement and Preamble Paragraph D is hereafter referred to as the “Covered
Conduct.”


 


F.                                      WHEREAS,
HHS-OIG contends that it has certain administrative claims against NeuroMetrix,
as specified in Paragraph 4 below, for engaging in the Covered Conduct.


 


G.                                     WHEREAS,
this Agreement is neither an admission of facts or liability by NeuroMetrix nor
a concession by the United States that its claims are not well-founded, and
NeuroMetrix denies that it engaged in any conduct giving rise to criminal or
civil liability with the sole exception of such admissions as NeuroMetrix makes
in connection with  the Deferred Prosecution
Agreement referenced in Paragraph B above.


 


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H.                                    WHEREAS,
to avoid the delay, expense, inconvenience, and uncertainty of protracted
litigation of these claims, the Parties mutually desire to reach a full and
final settlement as set forth below.


 


III. TERMS AND CONDITIONS


 


NOW, THEREFORE, in reliance on the representations contained herein and
in consideration of the mutual promises, covenants, and obligations set forth
below in this Agreement, and for good and valuable consideration as stated
herein, the Parties agree as follows:


 


1.                                       NeuroMetrix
agrees to pay to the United States the sum of two million four hundred ninety
eight thousand three hundred thirty seven dollars ($2,498,337), plus interest
in an amount of 2.75% per annum on the Settlement Amount as further set forth
below ($188.23 per day) from January 1, 2009 and continuing until and
including the day before complete payment is made (the “Settlement Amount”).  This sum shall constitute a debt immediately
due and owing to the United States on the Effective Date of this
Agreement.  The Settlement Amount shall
be electronically transferred pursuant to instructions provided by the United
States Attorney’s Office for the District of Massachusetts no later than the
second business day following the date on which this Agreement is fully
executed by the parties.


 


2.                                       Subject
to the exceptions in Paragraphs 3 and 4 below, and in consideration of the
obligations of NeuroMetrix set forth in this Agreement, conditioned upon
NeuroMetrix’s payment in full of the Settlement Amount, subject to Paragraph 12
below (concerning bankruptcy proceedings commenced within 91 days of the
Effective Date of this Agreement or any payment under this Agreement), and
subject to the simultaneous execution of the Deferred Prosecution Agreement
described in Preamble Paragraph B, the United States, on behalf of itself, and
its officers, agents, agencies, and departments, agrees to release NeuroMetrix,
its predecessors, and its current and former parents, affiliates, divisions,
subsidiaries, successors and assigns, and their current and former directors,
officers , and employees, from any civil or administrative monetary claim that
the United States has or may have under the False Claims


 


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Act, 31 U.S.C. §§ 3729-33; the Program Fraud Civil Remedies Act, 31
U.S.C. §§ 3801-12;  the Civil Monetary
Penalties Law, 42 U.S.C. § 1320a-7a;  any
statutory provision applicable to the federal funded program in this Agreement
for which the Civil Division, United States Department of Justice has actual
and present authority to assert and compromise pursuant to 28 C.F.R. Part O,
Subpart I, Section 0.45(d); and common law claims for fraud, unjust
enrichment, payment by mistake, or disgorgement for the Covered Conduct.


 


3.                                       Notwithstanding
any term of this Agreement, the United States specifically does not release any
person or entity from any of the following claims or liabilities:  (a) any criminal, civil, or
administrative claims arising under Title 26, U.S. Code (Internal Revenue
Code); (b) any criminal liability except as set forth in the Deferred
Prosecution Agreement;  (c) any
liability to the United States (or any agencies thereof) for any conduct other
than the Covered Conduct; (d) any claims based upon obligations created by
this Agreement; (e) except as explicitly stated in this Agreement, any
administrative liability, including mandatory exclusion from Federal health
care programs; (f) any express or implied warranty claims or other claims
for defective or deficient products and services provided by NeuroMetrix; (g) any
claims for personal injury or property damage or for other consequential
damages arising from the Covered Conduct; (h) any claim based on a failure
to deliver items or services due; or (i) any civil or administrative
claims against individuals, including current and former directors, officers,
and employees of NeuroMetrix, its predecessors, subsidiaries, and affiliates,
who receive written notification that they are the target of a criminal
investigation, are criminally indicted or charged, or are convicted, or who
enter into a criminal plea agreement.


 


4.                                       In
consideration of the obligations of NeuroMetrix set forth in this Agreement,
and the Corporate Integrity Agreement (“CIA”) entered into between OIG-HHS and
NeuroMetrix, conditioned on NeuroMetrix’s payment in full of the Settlement
Amount, and subject to Paragraph 12 below (concerning bankruptcy proceedings
commenced within 91 days of the effective date of this Agreement or any payment
under this Agreement), OIG-HHS agrees to release and refrain from instituting,
directing, or maintaining any administrative action seeking


 


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exclusion from the Medicare, Medicaid, or other Federal health care
programs (as defined in 42 U.S.C. § 1320a-7b(f)) against NeuroMetrix, its
predecessors, and its current or former parents, affiliates, divisions,
subsidiaries, successors, and assigns, under 42 U.S.C. § 1320a-7a (Civil
Monetary Penalties Law), or 42 U.S.C. § 1320a-7(b)(7) (permissive
exclusion for fraud, kickbacks or other prohibited activities), for the Covered
Conduct, except as reserved in Paragraph 3 above, and as reserved in this
Paragraph.  The OIG-HHS expressly
reserves all rights to comply with any statutory obligations to exclude
NeuroMetrix from the Medicare, Medicaid, or other Federal health care program
under 42 U.S.C. § 1320a-7(a) (mandatory exclusion) based upon the Covered
Conduct.  Nothing in this Paragraph
precludes the OIG-HHS from taking action against entities or persons, or for
conduct and practices, for which claims have been reserved in Paragraph 3
above.


 


5.                                       The
Parties each represent that this Agreement is freely and voluntarily entered
into without any degree of duress or compulsion whatsoever.


 


6.                                       NeuroMetrix
waives and shall not assert any defense it may have to criminal prosecution or
administrative action relating to the Covered Conduct, which defense may be
based in whole or in part on a contention that, under the Double Jeopardy
Clause of the Fifth Amendment of the Constitution or the Excessive Fines Clause
of the Eighth Amendment of the Constitution, this  Agreement bars a remedy sought in such
criminal prosecution or administrative action.


 


7.                                       In
consideration of the obligations of the United States set forth in this
Agreement, NeuroMetrix, on behalf of itself and its predecessors, its current
and former parents, affiliates, divisions, subsidiaries, successors and assigns
fully and finally releases, waives and discharges the United States, its
agencies, employees, servants, and agents from any claims (including attorneys’
fees, costs, and expenses of every kind and however denominated) which
NeuroMetrix has asserted, could have asserted, or may assert in the future
against the United States, its agencies, employees, servants, and agents,
related to or arising from the United States’ investigation and prosecution of
the Covered Conduct.


 


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8.                                       The
Settlement Amount that NeuroMetrix must pay pursuant to Paragraph 1 above will
not be decreased as a result of the denial of claims for payment now being
withheld from payment by any State or Federal payer, related to the Covered
Conduct; and, if applicable, NeuroMetrix agrees not to resubmit to any State
and Federal payer any previously denied claims, which denials were based on the
Covered Conduct, and agrees not to appeal or cause the appeal of any such
denials of claims.


 


9.                                       NeuroMetrix
agrees to the following:


 


a.                                       Unallowable
Costs Defined: that all costs (as defined in the Federal Acquisition
Regulation (“FAR”), 48 C.F.R. § 31.205-47 and in Titles XVIII and XIX of the
Social Security Act, 42 U.S.C. §§ 1395-1395hhh and 1396-1396v, and the
regulations and official program directives promulgated thereunder) incurred by
or on behalf of NeuroMetrix, its predecessors, parents, divisions,
subsidiaries, or affiliates, and its present or former officers, directors,
employees, and agents in connection with: 
(1) the matters covered by this Agreement and the related Deferred
Prosecution Agreement; (2) the United States’ civil and criminal
investigation relating to matters covered by this Agreement; (3) NeuroMetrix’s
investigation, defense, and any corrective actions undertaken in response to
the United States’ civil and criminal investigations in connection with the
matters covered by this Agreement (including attorneys’ fees); (4) the
negotiation and performance of this Agreement and the Deferred Prosecution
Agreement; (5) the payments made to the United States pursuant to this
Agreement and the Deferred Prosecution Agreement; and (6) the negotiation
of and obligations undertaken pursuant to the CIA to: (a) retain an
independent review organization to perform annual reviews as described in Section III
of the CIA; and (b) prepare and submit reports to the OIG-HHS, are
unallowable costs on Government contracts under the Medicare Program, Medicaid
Program, TRICARE Program, Department of Veterans Affairs (DVA), and the Federal
Employees Health Benefits Program (FEHBP).  
However, nothing in this Paragraph affects the status of costs that are
not allowable based on any other authority applicable to NeuroMetrix.  (All costs described or set forth in this
Paragraph are hereafter, “Unallowable Costs”).


 


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b.                                      Future
Treatment of Unallowable Costs: If applicable, these Unallowable Costs
shall be separately estimated and accounted for by NeuroMetrix and NeuroMetrix
shall not charge such Unallowable Costs directly or indirectly to any contracts
with the United States or any State Medicaid program, or seek payment for such
Unallowable Costs through any cost report, cost statement, information
statement, or payment request submitted by NeuroMetrix, its predecessors,
divisions, subsidiaries, or affiliates to Medicare, Medicaid, TRICARE, FEHBP or
DVA.


 


c.                                       Treatment
of Unallowable Costs Previously Submitted for Payment: If applicable,
NeuroMetrix further agrees that within 60 days of the Effective Date of this
Agreement, it shall identify to applicable Medicare and TRICARE fiscal
intermediaries, carriers, and/or contractors, and Medicaid, DVA, and FEHBP
fiscal agents, any Unallowable Costs (as defined in this Paragraph) included in
payments previously sought from the United States, or any State Medicaid
Program, including, but not limited to, payments sought in any cost reports,
cost statements, information reports, or payment requests already submitted by
NeuroMetrix, its predecessors, parents, divisions, subsidiaries, or affiliates
and shall request, and agree, that such cost reports, cost statements,
information reports, or payment requests, even if already settled, be adjusted
to account for the effect of the inclusion of the Unallowable Costs.  NeuroMetrix agrees that the United States, at
a minimum, shall be entitled to recoup from NeuroMetrix any overpayment, plus
applicable interest and penalties, as a result of the inclusion of such
Unallowable Costs on previously-submitted cost reports, information reports,
cost statements, or requests for payment. 
Any payments due after the adjustments have been made shall be paid to
the United States pursuant to the direction of the Department of Justice,
and/or the affected agencies.  The United
States reserves its rights to disagree with any calculations submitted by
NeuroMetrix or its parents, divisions, subsidiaries or affiliates on the effect
of inclusion of Unallowable Costs on NeuroMetrix or its divisions, subsidiaries
or affiliates’ cost reports, cost statements, or information reports.  Nothing in this Agreement shall constitute a
waiver of the


 


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rights of the United States to examine or re-examine the Unallowable
Costs described in this Paragraph.


 


10.                                 NeuroMetrix
agrees that it shall not seek payment for any of the health care billings
covered by this Agreement from any health care beneficiaries or their parents,
sponsors, legally responsible individuals, or third party payors.  NeuroMetrix waives any causes of action
against these beneficiaries or their parents, sponsors, legally responsible
individuals, or third party payors based upon the claims for payment covered by
this Agreement.


 


11.                                 NeuroMetrix
expressly warrants that it has reviewed its financial condition and that it is
currently solvent within the meaning of 11 U.S.C. §§ 547(b)(3) and
548(a)(1)(B)(ii)(I), and shall remain solvent following payment of the
Settlement Amount.  Further, the Parties
expressly warrant that, in evaluating whether to execute this Agreement, the
Parties (a) have intended that the mutual promises, covenants, and
obligations set forth herein constitute a contemporaneous exchange for new
value given to NeuroMetrix within the meaning of 11 U.S.C. § 547(c)(1), and (b) have
concluded that these mutual promises, covenants and obligations do, in fact,
constitute such a contemporaneous exchange.


 


12.                                 In
the event NeuroMetrix commences, or another party commences, within 91 days of
the Effective Date of this Agreement or any payment made hereunder, any case,
proceeding, or other action under any law relating to bankruptcy, insolvency,
reorganization, or relief of debtors (a) seeking to have any order for
relief of NeuroMetrix’s debts, or seeking to adjudicate NeuroMetrix as bankrupt
or insolvent, or (b) seeking appointment of a receiver, trustee, custodian
or other similar official for NeuroMetrix or for all or any substantial part of
NeuroMetrix’s assets, NeuroMetrix agrees as follows:


 


a.                                       NeuroMetrix’s
obligations under this Agreement may not be avoided pursuant to 11 U.S.C. §§
547 or 548, and NeuroMetrix shall not argue or otherwise take the position in
any such case, proceeding or action that: (i) NeuroMetrix’s obligations
under this Agreement may be avoided under 11 U.S.C. §§ 547 or 548; (ii) NeuroMetrix
was insolvent at the time this Agreement was entered into, or became insolvent
as a result of the payment made to the


 


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United States hereunder; or (iii) the mutual promises, covenants,
and obligations set forth in this Agreement do not constitute a contemporaneous
exchange for new value given to NeuroMetrix.


 


b.                                      If
NeuroMetrix’s obligations under this Agreement are avoided for any reason,
including, but not limited to, through the exercise of a trustee’s avoidance
powers under the Bankruptcy Code, the United States, at its sole option, may
rescind the releases provided in this Agreement, and bring any civil and/or
administrative claim, action or proceeding against NeuroMetrix for the claims
that would otherwise be covered by the releases provided in this
Agreement.  If the United States chooses
to do so, NeuroMetrix agrees that for purposes only of any claims, actions or
proceeding referenced in this first clause of this Paragraph (i) any such
claims, actions, or proceedings brought by the United States (including any
proceedings to exclude NeuroMetrix from participation in Medicare, Medicaid, or
other Federal health care programs) are not subject to an “automatic stay”
pursuant to 11 U.S.C. § 362(a) as a result of the action, case, or
proceeding described in the first clause of this Paragraph, and that
NeuroMetrix shall not argue or otherwise contend that the United States’
claims, actions, or proceedings are subject to an automatic stay; (ii) NeuroMetrix
shall not plead, argue, or otherwise raise any defenses under the theories of
statute of limitations, laches, estoppel, or similar theories, to any such
civil or administrative claims, actions, or proceedings which are brought by
the United States within 90 calendar days of written notification to
NeuroMetrix that the releases herein have been rescinded pursuant to this
Paragraph, except to the extent such defenses were available before the
Effective Date of this Agreement; and (iii) the United States has a valid
claim against NeuroMetrix in the amount of 
three million seven hundred twenty five thousand dollars ($3,725,000)
plus applicable multipliers and penalties and they may pursue their claims,
inter alia, in the case, action, or proceeding referenced in the first clause
of this Paragraph, as well as in any other case, action or proceeding; and


 


c.                                       NeuroMetrix
acknowledges that its agreements in this Paragraph are provided in exchange for
valuable consideration provided in this Agreement.


 


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13.                                 Except
as otherwise stated in this Agreement, this Agreement is intended to be for the
benefit of the Parties only, and by this instrument the Parties do not release
any claims against any other person or entity.


 


14.                                 Nothing
in this Agreement constitutes an agreement by the United States concerning the
characterization of the amounts paid hereunder for purposes of  the Internal Revenue laws, Title 26 of the
United States Code.


 


15.                                 Each
party to this Agreement shall bear its own legal and other costs incurred in
connection with this matter, including the preparation and performance of this
Agreement.


 


16.                                 This
Agreement is governed by the laws of the United States.  The Parties agree that the exclusive
jurisdiction and venue for any dispute arising between and among the Parties
under this Agreement shall be the United States District Court for the District
of Massachusetts, except that disputes rising under the CIA shall be resolved
exclusively through the dispute resolution provisions set forth in the CIA.


 


17.                                 The
undersigned NeuroMetrix signatory represents and warrants that he is authorized
by the Board of Directors to execute this Agreement.  The undersigned United States signatories
represent that they are signing this Agreement in their official capacities and
they are authorized to execute this Agreement on behalf of the United States.


 


18.                                 The
“Effective Date” of this Agreement shall be on the date of signature of the
last signatory to the Agreement. 
Facsimiles of signatures shall constitute acceptable binding signatures
for purposes of this Agreement.


 


19.                                 This
Agreement shall be binding on all successors, transferees, heirs, and assigns
of the Parties.


 


20.                                 This
Agreement shall not be amended except by written consent of the Parties, except
that only NeuroMetrix and OIG-HHS must agree in writing to modification of the
CIA, without the consent of any other party to this Agreement or the Deferred
Prosecution Agreement.


 


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21.                                 NeuroMetrix
hereby consents to the disclosure of this Agreement and the Deferred
Prosecution Agreement, and information about these agreements, by the United
States to the public.


 


22.                                 This
Agreement may be executed in counterparts, each of which shall constitute an
original and all of which shall constitute one and the same Agreement.


 


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UNITED STATES OF AMERICA


 


	
  By:

  	
  /s/ Jennifer A. Serafyn

  	
   

  	
  Dated: 2/9/09

  
	
   

  	
  JENNIFER A. SERAFYN

  	
   

  	
   

  
	
   

  	
  Assistant U.S. Attorney

  	
   

  	
   

  
	
   

  	
  United States Attorney’s Office

  	
   

  	
   

  
	
   

  	
  District of Massachusetts

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/Gregory E. Demske

  	
   

  	
  Dated: 2/6/09

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  GREGORY E. DEMSKE

  	
   

  	
   

  
	
   

  	
  Assistant Inspector General for Legal Affairs

  	
   

  	
   

  
	
   

  	
  Office of Counsel to the Inspector General

  	
   

  	
   

  
	
   

  	
  U.S. Department of Health and Human Services

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  NeuroMetrix, Inc.

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Shai Gozani

  	
   

  	
  Dated: 2/5/09

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Name: Shai Gozani

  	
   

  	
   

  
	
   

  	
  Title: President & CEO

  	
   

  	
   

  
	
   

  	
  NeuroMetrix, Inc.

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Joseph F. Savage, Jr.

  	
   

  	
  Dated: 2/5/09

  
	
   

  	
  JOSEPH F. SAVAGE, JR.

  	
   

  	
   

  
	
   

  	
  Goodwin Procter LLP

  	
   

  	
   

  
	
   

  	
  Counsel to NeuroMetrix, Inc.