Exhibit 10.42
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
LOS ANGELES DIVISION
GENSCI ORTHOBIOLOGICS, INC., Case No. CV 99-10111-MRP (EEx)
Plaintiff/Counterclaim
Defendant,
v. JOINT SETTLEMENT
AGREEMENT AND
AGREEMENTS FOR
OSTEOTECH, INC., RELEASE OF CLAIMS AND
AMENDMENT OF PLAN OF
Defendant/Counterclaim REORGANIZATION
Plaintiff/Third Party
Plaintiff.
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WHEREAS, the parties hereto, GenSci Orthobiologics, Inc. and GenSci
Regeneration Sciences, Inc. (collectively, "GenSci"), and Osteotech, Inc.
("Osteotech"), desire to resolve by settlement the following actions pending in
the United States District Court for the Central District of California: Case
Nos. 99-10111-MRP, 00-2313-MRP, and 00-11342-MRP (collectively, the
"Litigation") and all issues raised in the bankruptcy cases filed by GenSci and
currently pending in this District as Case Nos. SA 01-20438 RA and SA 01-20439
RA ( the "Chapter 11 Cases"); and
WHEREAS, the parties desire to resolve by settlement of the Litigation all
disputes known or posited currently to exist between them, and those that may be
reasonably contemplated, arising from GenSci's manufacturing, using, selling or
offering for sale certain demineralized bone tissue products, DynaGraft Gel,
DynaGraft Putty and Orthoblast (the "Accused Products"), which are alleged in
the Litigation to infringe United States Patent Nos. 5,290,558 (the "`558
patent"), 5,284,655 (the "'655 patent") and/or 5,676,146 (the "'146 patent");
and
WHEREAS, Case No. 99-10111-MRP was tried to a jury commencing on October
31, 2001 and GenSci was found by the jury to infringe the `558 and the `655
patents by manufacturing, using, marketing, selling or offering for sale
DynaGraft Gel and DynaGraft Putty, and the jury awarded Osteotech damages in the
amount of $17,533,634 (less the stipulated offset amount of $3,000,000); and
WHEREAS, mediation and settlement discussions were conducted between and
among the parties by the Honorable Xxxxxxx Xxxxx, Senior Judge of the United
States District Court on March 6, 2003, and under his direction the parties have
reached this agreement.
NOW, THEREFORE, IN CONSIDERATION OF the mutual covenants and agreements
set forth herein and other good and valuable consideration, GenSci and Osteotech
MUTUALLY SPECIFY AND AGREE THAT:
1. All terms, conditions, payments and stipulations of this Settlement
Agreement shall be incorporated by reference in a Plan of Reorganization and
Disclosure Statement (the "Plan") and filed with the United States Bankruptcy
Court, Santa Xxx Division (the "Bankruptcy Court"). GenSci agrees that prior to
filing the Plan and any revisions or amendments thereto with the Bankruptcy
Court for its approval, GenSci will provide a copy of the Plan and any revisions
or amendments thereto to Osteotech for its review and comments at least three
(3) business days prior to the filing with the Bankruptcy Court. The Plan shall
be subject to final approval of the Bankruptcy Court and the entry of a final
Order of the Bankruptcy Court. Osteotech will agree to the treatment of its
claims and security thereof in accordance with the terms of the Plan provided
such terms are consistent with the provisions of this Settlement Agreement.
Osteotech reserves the right to object to the Plan based upon any other grounds.
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2. GenSci acknowledges that DynaGraft Gel and DynaGraft Putty, the
products at issue in Case No. 99-10111, infringe one or more claims of each of
the `558 and `655 patents.
3. GenSci acknowledges that Orthoblast, the product at issue in Case No.
00-11342, infringes one or more claims of the `558 and `146 patents.
4. GenSci acknowledges the validity of the `558 and `655 patents.
5. GenSci acknowledges the enforceability of the `558 and `655 patents.
6. XxxXxx agrees not to seek reexamination by the Patent and Trademark
Office of the `558, or `655 patents.
7. GenSci will not challenge the validity or enforceability of the `146
patent as long as Osteotech does not assert the `146 patent against any GenSci
product other than the Orthoblast product.
8. Simultaneously with the execution of this Agreement, the parties shall
enter into a consent judgment in Case No. 99-10111-MRP in the form attached
hereto as Exhibit A (the "Consent Judgment") by which GenSci stipulates to an
injunction against infringement of the `558 and/or `655 patents by the DynaGraft
Gel and DynaGraft Putty products for the duration of the term of each such
patent, and further agree to cooperate fully in taking all steps necessary to
enter the Consent Judgment consistent with appropriate procedures and the
continuing jurisdiction of the United States District Court for the Central
District of California.
9. GenSci represents that the manufacture of DynaGraft Gel and DynaGraft
Putty ceased on September 16, 2002 and that it has not used, sold or offered for
sale DynaGraft Gel
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and DynaGraft Putty in the United States since that date. GenSci further
represents that the manufacture of Orthoblast ceased on or about September 16,
2002, that shipment of material quantities of Orthoblast terminated by the end
of the fourth quarter of 2002, and that shipment of remnants and returns of
Orthoblast terminated on April 18, 2003. GenSci and its subsidiaries (including,
but not limited to GenSci OCF, Inc.), officers, directors, employees and agents,
and those in active concert or participation with them, agree not to
manufacture, use, sell or offer to sell the Accused Products and any other
product containing demineralized osteogenic bone powder in a polyhydroxy carrier
where the carrier is enumerated in the claims of the `558 or `655 patents (e.g.,
Pluronic F127 is an acyclic polyhydric alcohol and a polyalkylene glycol) in the
United States, and in Belgium, Germany, France, Great Britain, Italy, the
Netherlands and Japan, where Osteotech has counterpart patents.
10. GenSci acknowledges that payments made to Osteotech pursuant to this
Settlement Agreement are a contemporaneous exchange of consideration for damages
resulting from XxxXxx's infringement of the `558 and `655 patents, taking into
account the risks of litigation, and shall not be construed as a reasonable
royalty. For purposes of implementing this settlement, Osteotech shall be deemed
to have an Allowed Undisputed Unsecured Claim of $7,500,000 plus interest to be
paid under the terms of the Plan as follows:
(a) No later than eleven (11) days after entry of a final order
confirming GenSci's Plan (the "Effective Date"), GenSci shall pay
Osteotech the sum of US$1,000,000 by wire transfer of such funds to an
account to be designated by Osteotech.
(b) In addition to the payment set forth in paragraph 10(a) herein,
GenSci shall pay or cause to be paid to Osteotech the sum of US$6,500,000,
to be paid in twenty (20) consecutive quarterly installments, each in the
amount of US$325,000. The first quarter payment shall be made by the tenth
day of the first full quarter following the Effective Date and thereafter
the quarterly payments shall be made on or before the first
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business day of the quarter. Additionally, with each quarterly payment
described herein, GenSci shall pay accrued interest at the federal
judgment rate (up to a cap of 3% per annum), calculated at the rate in
existence for the week preceding the end of the quarter, on the portion of
the US$6,500,000 outstanding from time to time, commencing on the date of
confirmation of the Plan. If GenSci is in default of any payment due under
this paragraph, then Osteotech shall provide GenSci with written notice of
such default by facsimile, e-mail or overnight courier to the address
specified herein. Upon the sending of that notice, GenSci shall have
thirty (30) calendar days to cure such default. If the default is not
cured within that period, Osteotech, without limiting its rights under
applicable law, shall have the right to accelerate all payments then owed
under this paragraph and as may be fully set forth in the Plan, with all
rights and remedies including but not limited to 11 U.S.C. ss. 1112, and
remedies related to the drawing on a clean, irrevocable, standby letter of
credit or payments from an irrevocable escrow agreement satisfactory to
Osteotech as set forth in Paragraph 12 hereof.
11. GenSci's obligations to Osteotech under Paragraph 10 herein, shall be
evidenced by, and shall be subject to the terms and conditions of the Plan and
as set forth in a promissory note in the form of Exhibit B hereto (the
"Promissory Note") in the principal amount of US$6,500,000, being executed by
GenSci in favor of Osteotech and delivered on or before the Effective Date.
12. To further secure the amounts due to Osteotech from GenSci pursuant to
Paragraph 10 herein, on the Effective Date, GenSci shall provide to Osteotech a
clean irrevocable standby letter of credit in a form acceptable to Osteotech
from a national banking institution having reserves not less than US $50,000,000
(the "Letter of Credit") or an irrevocable escrow agreement satisfactory to
Osteotech (the "Escrow Agreement") for the benefit of Osteotech in the principal
amount of US$5,000,000. In the event of default and acceleration pursuant to
Paragraph 10 herein, and as amplified by the Plan, Osteotech shall have the
right to present a sight draft on the Letter of Credit or demand payment of the
escrow funds pursuant to the Escrow Agreement in the aggregate accelerated
amount upon presentation of an officer's certificate with respect to the Letter
of Credit or a notice of default pursuant to the
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Escrow Agreement stating that an event of default has occurred and the time for
any cure has elapsed. The Parties agree that amounts provided as security for
the Letter of Credit or deposited in escrow pursuant to the Escrow Agreement do
not constitute property of the GenSci estate as defined in 11 U.S.C. ss. 541.
13. In addition to the Letter of Credit or Escrow Agreement securing the
balance of the US$6,500,000 due to Osteotech pursuant to Paragraph 10 herein,
GenSci shall secure the remaining balance of US$1,500,000 due to Osteotech
pursuant to Paragraph 10 herein by delivering to Osteotech as a part of the Plan
on or before the Effective Date a Security Agreement in the form of Exhibit C
hereto (the "Security Agreement"), pursuant to which GenSci grants Osteotech an
attached and perfected security interest to secure the balance of US$1,500,000,
in all personal property of GenSci, including but not limited to all now
existing or after acquired accounts, inventory, equipment, general intangibles
and intellectual property. This security interest shall be subordinate only to
liens granted by GenSci to secure indebtedness incurred by it for working
capital purposes from commercial or institutional lenders. The grant of the
security interest is in addition to and not in replacement of the Letter of
Credit or Escrow Agreement. Without limiting the provisions of the Security
Agreement, GenSci hereby represents and warrants that such assets are free of
any liens and encumbrances, except as set forth on Schedule A, and GenSci hereby
agrees that, except for commercial or institutional lenders, it shall not grant
to any person other than Osteotech a lien or encumbrance on any of its assets,
except as provided by the Security Agreement. This restriction shall not apply
if a) GenSci pays or causes to be paid to Osteotech the US$1,500,000 amount
secured by the Security Agreement; or b) if Osteotech otherwise agrees.
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14. Within ten (10) days of the Effective Date, the parties shall cause
their respective counsel to execute and file stipulated dismissals with
prejudice in the Litigation, with the parties bearing their own costs and
attorneys' fees.
15. The Plan and documents and exhibits relating thereto (the "Plan
Related Documents") shall be in form and substance reasonably satisfactory in
all respects to GenSci, Osteotech, and their respective counsel and advisors.
16. In connection with the filing of the Plan, GenSci shall:
(i) Make all filings with applicable governmental authorities
as may be required by applicable law; and
(ii) Use its reasonable best efforts to obtain confirmation of
the Plan as promptly as practicable and in any event not later than
November 1, 2003, with such date to be amended if not feasible, and
proceed diligently to obtain the dismissal of all appeals,
applications and motions for reconsideration with respect to the
Disclosure Statement, Plan, other order or ruling or order
confirming the Plan, as promptly as practicable.
17. The Plan shall also provide for a release by GenSci to Osteotech by
which GenSci releases, acquits, discharges and covenants not to sue Osteotech,
its successors and assigns, and their affiliates, parents, subsidiaries,
officers, directors, shareholders, employees, agents and attorneys from any and
all claims, causes of action, rights, allegations, liabilities or damages
whatsoever that GenSci has asserted, could have asserted or sought leave to
assert against Osteotech in the Litigation.
18. The Plan shall also provide for the delivery by Osteotech of a release
to GenSci by which Osteotech releases, acquits, discharges and covenants not to
sue GenSci, its agents, distributors, representatives, customers, successors and
assigns, and their affiliates, parents,
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subsidiaries, officers, directors, shareholders, employees, agents and attorneys
from any and all claims, causes of action, rights, allegations, liabilities or
damages whatsoever that Osteotech has asserted, could have asserted or sought
leave to assert against GenSci, its agents, distributors or representatives in
the Litigation.
19. GenSci represents that the GenSci products currently marketed under
the names Accell, DynaGraft II and OrthoBlast II (the "New Products") do not
infringe the `558 or `655 patents or any valid claim of the `146 patent, in that
they do not contain any hydroxyl groups and the formula for the carrier in the
DynaGraft II and OrthoBlast II products is as depicted in claim 1 of GenSci's
patent application no. 20030044445, as filed. GenSci has provided to Osteotech's
counsel, Xxxxxx & Xxxxxxx LLP, on an attorneys' eyes only basis, the following
documents that GenSci represents are true and correct and accurately describe
the New Products: SOPs of the preparation of the DynaGraft II and OrthoBlast II
products, but not of the carrier itself used therein; the procedure for the
treatment of Pluronic that GenSci represents is used by its supplier; a patent
application generally describing how Pluronic may be modified to eliminate
hydroxyl groups; certifications that the carrier in the DynaGraft II and
OrthoBlast II products does not contain hydroxyl groups and a flowchart
describing in general terms the process for making the Accell product. Based
upon Osteotech's counsels' analysis of the information provided and
representations made by GenSci about the formulation, composition and
manufacturing procedures for the New Products, and the determination by
Osteotech, in reliance on such information and representations, that the New
Products do not infringe the `558 or `655 patents or any valid claims of the
`146 patent, Osteotech covenants not to sue GenSci, its agents, distributors,
representatives, customers, successors and assigns, and their affiliates,
parents, subsidiaries, officers, directors, shareholders, employees, agents and
attorneys for infringement
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of its patents with respect to the manufacturing, using, marketing, selling or
offering for sale of the New Products, provided that the formulation and
composition of such products remains substantially the same as the formulation
and composition analyzed by Osteotech's counsel.
20. The parties agree that any press release or public statement
concerning this Settlement Agreement shall be limited to the terms of the
Settlement Agreement and shall not include quotations from the parties or their
representatives.
21. Except as specifically provided herein, the parties expressly agree
and understand that this Settlement Agreement does not extend to any other
person or entity, and that it does not affect Osteotech's rights against any
other person or entity that Osteotech may charge with infringement of its
patents, including the `558, `655 or `146 patents.
22. The parties declare and represent that: (a) no promise,
representation, inducement or agreement not expressed in this Settlement
Agreement has been made to any of them; (b) they are not relying on any promise,
representation, inducement or agreement in entering into this Agreement except
as expressly set forth in this Settlement Agreement; (c) this Settlement
Agreement (including all attached exhibits) contains the entire agreement
between the parties relating to its subject matter; (d) the parties have
consulted with counsel of their own choosing prior to entering into this
Settlement Agreement; and (e) the terms of this Settlement Agreement are
contractual and not mere recitals and will be more fully set forth in the Plan.
23. GenSci shall have the right to assign or transfer any of its rights
and obligations under this Settlement Agreement provided that the assignee
assumes all of GenSci's obligations under this Settlement Agreement. GenSci and
the issuer of any Letter of Credit or the grantors
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of any Escrow Agreement shall remain liable for its obligations under this
Settlement Agreement, notwithstanding any such assignment.
24. Osteotech shall have the right to assign or transfer any of its rights
and obligations under this Settlement Agreement.
25. The persons executing this Settlement Agreement on behalf of the
parties each represent and warrant that they have full and complete authority to
do so.
26. This Settlement Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, but such counterparts together shall constitute but one and the same
instrument.
27. Except as otherwise expressly provided herein, any notice required or
desired to be served, given or delivered pursuant to this Settlement Agreement
or the Plan shall be in writing, and shall be sent by manual delivery, facsimile
electronic transmission, overnight courier or United States mail (postage
prepaid) addressed to the party to be notified, and shall be effective as of the
date of delivery if manually delivered, on the date of sending if sent by
facsimile, on the first business day after the date of sending if sent by
overnight courier and four days after the date of mailing if mailed, at the
address of the party set forth below:
(a) If to GENSCI at:
0 Xxxxxxxx
Xxxxxx, XX 00000
ATTN: Xxxxxxx Xxxxxx
Fax No. 000-000-0000
email: xxxxx@xxxxxxxxx.xxx
with a copy to:
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Xxxxxxx X. Xxxxxxx, Esq.
Xxxxxx Xxxxx Xxxxxx & White
000 Xxxxx Xxxx Xxxxxx
Xxx Xxxxxxx, XX 00000
Fax No. 000-000-0000
email: xxxxxxxx@xxxxxx.xxx
(b) If to OSTEOTECH at:
00 Xxxxx Xxx
Xxxxxxxxx, XX 00000
ATTN: Xxxxxxx Xxxxxxxx
Fax. No. 000-000-0000
email: xxxxxxxx@xxxxxxxxx.xxx
with a copy to:
Xxxx X. Xxxxxxxx, Esq.
Xxxxxx & Xxxxxxx LLP
000 Xxxx Xxxxxx
Xxx Xxxx, XX 00000
Fax No. 000-000-0000
email: xxxxxxxx.xxxx@xxxxxxxxx.xxx
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IN WITNESS HEREOF, the undersigned certify their assent to the terms of
this Agreement. OSTEOTECH, INC. GENSCI ORTHOBIOLOGICS, INC.
By:___________________________________ By:___________________________________
Name:_________________________________ Name:_________________________________
Title:________________________________ Title:________________________________
Date:_________________________________ Date:_________________________________
GENSCI REGENERATION SCIENCES, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
Date:_________________________________
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