Document:

Exhibit
10.50

SETTLEMENT
AGREEMENT AND MUTUAL RELEASE

 

This Settlement
Agreement and Mutual Release (“Agreement”) is entered into as of June 21,
2004 (the “Effective Date”) by and between, on the one hand, Ethicon
Endo-Surgery, Inc. (“Ethicon”) and Lubomyr I. Kuzmak, M.D.
(“Dr. Kuzmak”), and on the other hand, Inamed Corporation, Inamed
Development Company, and BioEnterics Corporation (collectively, “Inamed”).  Ethicon, Dr. Kuzmak and Inamed are
collectively referred to herein as the “Parties.”

 

This Agreement is
made with respect to the following facts:

 

A.                                   Ethicon,
Dr. Kuzmak and Inamed are parties to a lawsuit captioned Inamed Corporation, Inamed Development Company, and
BioEnterics Corporation v. Ethicon Endo-Surgery, Inc. and Lubomyr I.
Kuzmak, Case No. 99-02160 MMM (MAXx), currently pending in the
United States District Court for the Central District of California (the
“Action”).

 

B.                                     The
following definitions shall apply in this Agreement:

 

(i)                                     “‘429
patent” means United States Patent No. 5,226,429, “Laparoscopic Gastric
Band and Method.”

 

(ii)                                  “Licensed
Products” means any instrument the manufacture, use or sale of which would, but
for the licenses granted under this Agreement, infringe at least one Valid
Claim of a Licensed Patent if such instrument were sold in the U.S.  For purposes of this agreement, Inamed
admits that the Lap-Band® system and accessories manufactured and sold by
Inamed, or any similar future adjustable gastric band made, used or sold by
Inamed is a Licensed Product.

 

(iii)                               “Licensed Patents” means
(a) the patents and patent applications, listed on Attachment A
hereto, including any other counterparts worldwide, (b) all patents that
have issued or in the future issue from such patent applications, and
(c) any and all related continuations, continuations-in-part, divisions,
renewals, reissues, reexaminations, extensions, and patents of addition and
patents of importation.

 

(iv)                              “Net
Sales” means, with respect to any Licensed Product, the invoiced sales price of
such Licensed Product billed to independent customers, less (a) credits,
allowances, discounts, returns, and rebates to, and chargebacks (but not
offsets) from the account of, such independent customers for spoiled, damaged,
out-dated, rejected or returned Licensed Product; (b) actual freight and
insurance costs incurred in transporting such Licensed Product to such
customers if not otherwise paid or reimbursed by the customer; (c) cash,
quantity and trade discounts and other price reductions; (d) sales, use,
value-added and other direct taxes incurred if not otherwise paid or reimbursed
by the customer; and, (e) customs duties, surcharges and other
governmental charges incurred in connection with

 

1

 

the exportation or importation of such Licensed
Product if not otherwise paid or reimbursed by the customer.

 

(v)                                 “‘604
patent” means U.S. Patent 5,601,604, including any other counterparts
worldwide, as well as any and all related continuations, continuations-in-part,
divisions, renewals, reissues, reexaminations, extensions, and patents of
addition and patents of importation.

 

(vi)                              “Claims”
means any and all claims, actions, causes of action, demands, costs, and
charges of whatever nature, whether known or unknown.

 

(vii)                           “First Commercial Sale”
shall mean the first commercial sale in an arms length transaction to an
independent third party of an adjustable gastric band by Ethicon in the U.S.
after it receives PMA approval by the FDA for such gastric band, and not in
connection with any clinicals or promotional activities.

 

(viii)                        “‘176 patent” means U.S. Patent
RE 36,176, including any other counterparts worldwide, as well as any and all
related continuations, continuations-in-part, divisions, renewals, reissues,
reexaminations, extensions, and patents of addition and patents of importation.

 

(ix)                                “Valid
Claim” means a claim of an issued and unexpired patent within the Licensed
Patents, which has not been held permanently revoked, unenforceable or invalid
by a decision of a court or other governmental agency of competent
jurisdiction, unappealable or unappealed within the time allowed for appeal,
and which has not been admitted to be invalid or unenforceable through reissue
or disclaimer or otherwise.

 

C.                                     The
Parties wish to resolve the Action, and all other pending disputes between
them, in the manner set forth below.

 

NOW THEREFORE, in
consideration of all the terms and conditions of this Agreement, the Parties
agree as follows:

 

1.                                      Consent Judgment.  On or before the Effective Date, the Parties
shall cause their counsel to exchange signatures on a Consent Judgment
substantially in the form attached hereto as Exhibit A.

 

2.                                      License.  Ethicon hereby grants to Inamed a worldwide, non-exclusive
license, with no right to sublicense or enforce, under the Licensed Patents, to
make, use, sell, offer for sale and import Licensed Products; provided,
however, that the license granted herein shall become effective only upon
receipt of the compensation specified in paragraph 3 of this Agreement.

 

3.                                      Compensation.  Within five (5) business days of the
Effective Date, as sole and exclusive compensation for, and in lieu of, any and
all damages Ethicon may have suffered as of the Effective Date in connection
with any acts by or on behalf of Inamed or any Inamed affiliate stipulated to
by Inamed in the Consent Judgment under Section 1 of this Agreement,
Inamed

 

2

 

shall pay to Ethicon, by wire transfer in accordance
with written instructions to be provided by Ethicon, the sum of $17,250,000.00
(Seventeen Million Two Hundred Fifty Thousand Dollars) in immediately available
U.S. funds.

 

4.                                      Running Royalty.  On sales of Licensed Products between
July 1, 2004 and June 20, 2011 (the expiration date of the ‘429
patent) Inamed shall pay Ethicon a running royalty of:

 

A.                                   7.5%
of Net Sales of Licensed Products within the United States, until the First
Commercial Sale, at which time the royalty rate shall reduce to 5.5% of Net
Sales of Licensed Products.

 

B.                                     3.5%
of Net Sales of Licensed Products outside the United States.

 

5.                                      Step-Down.  In further consideration for Ethicon
resolving the Action herein, on sales of Licensed Products during the remainder
of the term of this Agreement (as described in Section 6.1 below) after
the expiration of the ‘429 patent on June 20, 2011, Inamed agrees to pay
Ethicon 2% of Net Sales of Licensed Products.

 

6.                                      Term and Termination.

 

6.1                               This
Agreement shall terminate upon the expiration of the last to expire of the
Valid Claims. Inamed’s royalty obligations under Sections 4 and 5 of this
Agreement shall terminate no later than May 12, 2013 (the expiration date
for the ‘176 patent).

 

6.2                               Either
party may terminate this Agreement upon 120 days written notice for any
material breach or default of the other party. 
Such termination shall become effective at the end of the 120 day period
unless during such period the party in breach or default cures such breach or
default.  Notwithstanding the preceding
sentence, from the date either party notifies the other party that it wishes to
commence a proceeding in accordance with the dispute resolution procedures set
forth in Attachment B until the date such proceeding has been concluded,
the running of the time period referred to in this paragraph for curing a
breach shall be suspended with respect to the subject matter of the dispute,
claim or controversy.

 

7.                                      No Challenges.  Inamed agrees not to directly or indirectly
challenge or cause to be challenged the validity or enforceability of any
Licensed Patent, or Ethicon’s ownership of any Licensed Patent, before any
court, agency or tribunal, unless Inamed is charged with infringement of any
Licensed Patent by Ethicon, Dr. Kuzmak or their respective affiliates.

 

8.                                      Reports, Payments and Audits.

 

8.1                               Reports and Payments.  Within ninety (90) days after the close of
each calendar quarter, Inamed shall deliver to Ethicon a report certified by an
officer of Inamed of the amount of Net Sales of Licensed Products sold by
Inamed during such calendar quarter, and the amount of royalties owed to
Ethicon under Section 4 of this Agreement.  If a payment is due, Inamed shall remit such payment with the
report.

 

8.2                               Audit Rights.  Inamed shall maintain accurate books and
records in sufficient detail to enable the payments due hereunder to be
determined.  Such records shall be
available

 

3

 

for inspection at the
expense and on request by Ethicon during normal business hours, by Ethicon’s
independent certified public accountant, for three years after the calendar
year to which they pertain, for purposes of verifying the accuracy of the
reports and payments made to Ethicon. 
Such public accountant shall disclose to Ethicon whether such audit
reveals any underpayment of royalties and the amount of any such underpayment,
and no other information.  If such
inspection reveals an underpayment to Ethicon greater than 5%, then Inamed
agrees to pay Ethicon interest on such underpayment of the lesser of
(a) 10%, and (b) the maximum rate permitted by law.

 

8.3                               Currency.  Earned royalties based on sales in any
country shall be paid in United States Dollars.  The rate of exchange for such payments from sales in a foreign
country shall be the official rate of exchange of the currency of the country
from which royalties are payable as quoted by the Wall Street Journal, New York
Edition, on the last business day of the Calendar Quarter for which the earned
royalties are payable.

 

9.                                      Order re Claim 41 of ‘176 Patent.  Concurrent with the presentation of the
Consent Judgment referenced in paragraph 1 of this Agreement, the parties
shall lodge a stipulation with the Court vacating in its entirety the Court’s
Order dated April 26, 2004 entitled “Order Granting In Part And Denying In
Part Plaintiff’s Motion For Summary Judgment Regarding Patent Invalidity.”

 

10.                               No Contest Clause.  Ethicon agrees not to contest the ownership,
validity or inventorship of the ‘604 patent or any of its foreign
counterparts.  Inamed agrees not to
contest the ownership, validity or inventorship of the ‘176 patent and any of
its foreign counterparts.  The parties
mutually covenant not to bring any action of any kind against the other party
relating to the ownership, validity, inventorship, or infringement of the ‘176
and ‘604 patents, and to cause any such pending actions, wherever in the world
they may be pending, to be promptly abandoned and/or withdrawn.

 

11.                               Releases.

 

11.1                        Release by Ethicon.  Ethicon, on behalf of itself and its
predecessors, successors, assigns, and affiliates, does hereby now and forever
release and discharge Inamed, and its predecessors, successors, assigns, and
affiliates, and each of their respective current and former officers,
directors, employees, agents, attorneys, and representatives, from any and all
Claims that were, or could have been, asserted in the Action.

 

11.2                        Release by Dr. Kuzmak.  Dr. Kuzmak, on behalf of himself and
his predecessors, successors, assigns, and affiliates, does hereby now and
forever release and discharge Inamed, and its predecessors, successors,
assigns, and affiliates, and each of their respective current and former
officers, directors, employees, agents, attorneys, and representatives, from
any and all Claims that were, or could have been, asserted in the Action.

 

11.3                        Release by Inamed of Ethicon.  Inamed, on behalf of itself and its
predecessors, successors, assigns, and affiliates, does hereby now and forever
release and discharge Ethicon and its predecessors, successors, assigns, and
affiliates, and each of their respective current and

 

4

 

former officers,
directors, employees, agents, attorneys, and representatives, from any and all
Claims that were, or could have been, asserted in the Action.

 

11.4                        Release by Inamed of Dr. Kuzmak.  Inamed, on behalf of itself and its
predecessors, successors, assigns, and affiliates, does hereby now and forever
release and discharge Dr. Kuzmak and his predecessors, successors,
assigns, and affiliates, and each of their respective current and former
officers, directors, employees, agents, attorneys, and representatives, from
any and all Claims that were, or could have been, asserted in the Action.

 

11.5                        Waiver of Civil Code Section 1542.  The Parties hereby waive and relinquish all
rights and benefits they may have under Section 1542 of the California
Civil Code, which provides as follows:

 

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.

 

11.6                        Acknowledgement.  The Parties agree and acknowledge that each
Party’s performance of its obligation under Sections 1 and 9 shall be fulfilled
upon performance of the Parties of the acts specified therein, and all releases
set forth in this Section 11 and all other rights and obligations of the
Parties set forth in this Agreement shall continue in full force and effect
regardless of whether the Court elects to adjudicate as the Parties contemplate
under Section 9 (but not if the Court declines to so adjudicate under
Section 1) and that Inamed agrees to take all reasonable steps to persuade
the Court to so adjudicate under both Sections 1 and 9.

 

12.                               No
Warranties.  Other than as expressly
set forth herein, neither Party to this Agreement makes any warranties or
representations, express or implied, and each Party disclaims reliance upon any
representation or warranty not explicitly set forth herein.

 

13.                               Assignability.  This license is not transferable or
assignable other than in connection with: (i) a transfer or assignment to a
purchaser of all or substantially all of the assets of Inamed; or, (ii) a
merger of a purchaser with Inamed; or, (iii) an acquisition of more than a
majority of the voting shares of Inamed; or, (iv) a purchase by the assignee of
the entire adjustable gastric band business (subject to paragraph 14 hereof);
***

 

14.                               ***

 

***  Confidential portion omitted and filed
separately with the Securities and Exchange Commission.

 

5

 

15.                               Warranties
and Representations.

 

15.1                        No
Assignment of Claims.  Each Party
warrants and represents that it has not, sold, assigned, conveyed, pledged,
encumbered or in any way transferred to any person or entity any Claim release
by such Party under this Agreement.

 

15.2                        Independent
Advice.  Each Party warrants and
represents that it has received independent legal advice from such Party’s
attorneys with respect to the rights and obligations arising under this
Agreement, and the advisability of entering into this Agreement.

 

15.2        Due Authorization; Binding Obligation.  Each Party warrants and represents that the
representative signing below is duly authorized to enter into and deliver this
Agreement, and that it is fully entitled to grant the releases, enter into the
covenants, and undertake the obligations set forth herein.  Further, each party hereby warrants and
represents to the other party that this Agreement constitutes a legal, valid,
binding obligation, enforceable against such party in accordance with its
terms.

 

15.3                        Licensed
Patents.  Ethicon warrants and
represents that Ethicon is the sole owner or exclusive licensee of the Licensed
Patents.

 

15.4                        Survival
of Warranties.  All warranties and
representations set forth in this Agreement shall survive the execution and
delivery of this Agreement.

 

16.                               Choice
of Law.  This Agreement shall be
governed by and construed in accordance with the internal, substantive law of
the State of California, without regard to its choice of laws principles.

 

17.                               No
Oral Modification.  This Agreement
may be modified only in a writing signed by the parties.

 

18.                               No
Construction Against Drafter.  All
Parties participated in the review, drafting and negotiation of this Agreement,
and no presumption shall be applied against any Party in connection with the
interpretation of this Agreement.

 

6

 

19.                               Integrated
Agreement.  This Agreement and its
exhibits and schedules constitutes the entire agreement of the Parties with
respect to the subject matter herein.

 

20.                               Counterparts.  This Agreement may be executed and delivered
in any number of counterparts, including counterpart signatures transmitted by
facsimile.

 

21.                               Notice.  Any notice required or desired to be given
under this Agreement shall be in writing and served by an overnight air courier
service as follows:

 

If to Ethicon:

 

President

Ethicon Endo-Surgery, Inc.

4545 Creek Road

Cincinnati, Ohio 45242

 

With a copy to (which will not constitute notice):

 

Chief Patent Counsel

Johnson & Johnson

One Johnson & Johnson Plaza

Cincinnati, Ohio 08933

 

If to Dr. Kuzmak:

 

Dr. Lubomyr Kuzmak

30 Crest Drive

South Orange, N.J. 07079

 

If to Inamed:

 

Inamed Corporation

Chief Executive Officer

5540 Ekwill Street

Santa Barbara, California 93111

 

Telephone:(805)683-6761

Fax:  (805) 692-5432

 

22.                               Dispute
Resolution.  The parties agree to be
bound by the dispute resolution provisions set forth in Attachment B
hereto.

 

23.                               Severability.  Any provision hereof which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.

 

7

 

IN WITNESS
WHEREOF, the Parties have approved and executed this Agreement as of the
Effective Date.

 

	
  ETHICON
  ENDO-SURGERY INC.

  
	
   

  
	
  By:

  	
  /s/ Jeffrey A.
  Maillen

  	
   

  
	
   

  
	
  Its:

  	
  VICE PRESIDENT,
  LICENSING; ACQUISITIONS

  	
   

  
	
   

  
	
   

  
	
  INAMED
  CORPORATION

  
	
   

  
	
  By:

  	
  /s/ Joseph
  Newcomb

  	
   

  
	
   

  
	
  Its:

  	
  EXEC. V.P.

  	
   

  
	
   

  
	
   

  
	
  INAMED
  DEVELOPMENT COMPANY

  
	
   

  
	
  By:

  	
  /s/ Joseph
  Newcomb

  	
   

  
	
   

  
	
  Its:

  	
  EXEC. V.P.

  	
   

  
	
   

  
	
   

  
	
  BIOENTERICS
  CORPORATION

  
	
   

  
	
  By:

  	
  /s/ Joseph
  Newcomb

  	
   

  
	
   

  
	
  Its:

  	
  EXEC. V.P.

  	
   

  
	
   

  
	
   

  
	
  LUBOMYR I.
  KUZMAK

  
	
   

  
	
  By:

  	
  /s/ Roxana A.
  Kuzmak

  	
   

  
	
   

  	
  Its Attorney in
  fact

  	
   

  
	
   

  	
  and Agent for

  	
   

  
	
   

  	
  Lubomyr I.
  Kuzmak

  	
   

  

 

8

 

ATTACHMENT
A

 

Licensed Patents

 

	
  COUNTRY

  	
   

  	
  NUMBER

  	
   

  	
  ISSUE DATE

  	
   

  	
  TITLE

  
	
  U.S.

  	
   

  	
  4,592,339

  	
   

  	
  03-Jun-86

  	
   

  	
  Gastric Banding
  Device

  
	
  U.S.

  	
   

  	
  4,696,288

  	
   

  	
  29-Sep-87

  	
   

  	
  Calibrating
  Apparatus and Method of Using the Same for Gastric Banding Surgery

  
	
  U.S.

  	
   

  	
  5,074,868

  	
   

  	
  24-Dec-91

  	
   

  	
  Reversible
  Stoma-Adjustable Gastric

  
	
  U.S.

  	
   

  	
  5,226,429

  	
   

  	
  13-Jul-93

  	
   

  	
  Laparoscopic
  Gastric Band and Method

  
	
  U.S.

  	
   

  	
  5,222,788

  	
   

  	
  04-Jun-96

  	
   

  	
  Finger-like
  Laparoscopic Blunt Dissector Device

  
	
  Canada

  	
   

  	
  2,170,841

  	
   

  	
  01-Mar-96

  	
   

  	
  Finger-like
  Laparoscopic Blunt Dissector Device

  
	
  U.S.

  	
   

  	
  RE 36,176

  	
   

  	
  30-Mar-99

  	
   

  	
  Laparoscopic
  Adjustable Gastric Banding Device and Method for Implantation and Removal
  Thereof

  
	
  Canada

  	
   

  	
  2,107,629

  	
   

  	
  21-Dec-99

  	
   

  	
  Laparoscopic
  Adjustable Gastric Banding Device

  
	
  Mexico

  	
   

  	
  188,317

  	
   

  	
  19-Mar-98

  	
   

  	
  Laparoscopic
  Adjustable Gastric Banding Device

  
	
  EPO

  	
   

  	
  0 611 561

  	
   

  	
  02-Dec-98

  	
   

  	
  Laparoscopic
  Adjustable Gastric Banding Device

  
	
  US SN 09/205,
  195 Division of Re. Application Serial No. 08/927,494

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  Laparoscopic
  Adjustable Gastric Banding Removal Thereof

  
	
  US

  	
   

  	
  5,910,149

  	
   

  	
  08-Jun-99

  	
   

  	
  Non-Slipping
  Gastric Band

  

 

9

 

ATTACHMENT
B

 

Dispute Resolution

 

Any controversy or
claim arising out of or relating to this Agreement shall be resolved by
arbitration before a single arbitrator in accordance with the Commercial
Arbitration Rules of the American Arbitration Association (“AAA”) then
pertaining (available at www.adr.org), except where those rules conflict with
this provision, in which case this provision controls. Any court with
jurisdiction shall enforce this clause and enter judgment on any award. The
arbitrator shall be selected within twenty business days from commencement of
the arbitration from the AAA’s National Roster of Arbitrators pursuant to
agreement or through selection procedures administered by the AAA. Within 45 days
of initiation of arbitration, the parties shall reach agreement upon and
thereafter follow procedures, including limits on discovery, assuring that the
arbitration will be concluded and the award rendered within no more than eight
months from selection of the arbitrator or, failing agreement, procedures
meeting such time limits will be designed by the AAA and adhered to by the
parties. The arbitration shall be held in Los Angles, CA and the arbitrator
shall apply the substantive law of California, except that the interpretation
and enforcement of this arbitration provision shall be governed by the Federal
Arbitration Act. Prior to commencement of arbitration, emergency relief is
available from any court to avoid irreparable harm. THE ARBITRATOR SHALL NOT
AWARD EITHER PARTY PUNITIVE, EXEMPLARY, MULTIPLIED OR CONSEQUENTIAL DAMAGES, OR
ATTORNEYS FEES OR COSTS.

 

Prior to
commencement of arbitration, the parties must attempt to mediate their dispute
using a professional mediator from AAA, the CPR Institute for Dispute
Resolution, or like organization selected by agreement or, absent agreement,
through selection procedures administered by the AAA. Within a period of 45
days after the request for mediation, the parties agree to convene with the
mediator, with business representatives present, for at least one session to
attempt to resolve the matter. In no event will mediation delay commencement of
the arbitration for more than 45 days absent agreement of the parties or
interfere with the availability of emergency relief.

 

10EXHIBIT
10.1

 

STRAIGHT NOTE

 

 

	
  $200,000

  	
   

  	
  South El Monte,
  California

  	
   

  	
  May 17, 2004

  

 

 

For value received, Lee
Pharmaceuticals promises to pay Mark DiSalvo or order, at South El Monte,
California the sum of TWO HUNDRED THOUSAND DOLLARS, with interest from May 17,
2004, on unpaid principal at the rate of fifteen (15) percent for a ninety (90)
day period.  Principal plus accrued
interest will be due and payable on August 14, 2004.  Interest shall be calculated on the basis of the unpaid principal
balance daily, based on a 365-day year, actual day month.  Principal and interest shall be payable in
lawful money of the United States.  If
action were instituted on this note, I promise to pay such sum as the Court may
fix as attorney’s fees.  This note is
unsecured.

 

 

	
  MAY 17, 2004

  	
   

  	
  RONALD G. LEE

  	
   

  
	
  Date

  	
  Lee Pharmaceuticals -
  Ronald G. Lee

  
	
   

  	
   

  
	
   

  	
   

  
	
  MAY 17, 2004

  	
   

  	
  MICHAEL L. AGRESTI

  	
   

  
	
  Date

  	
  Lee Pharmaceuticals –
  Michael L. Agresti

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