NOTE 15 - Contingencies

Employment Agreements

On June 30, 2011, the Company entered into three year executive employment agreements with three stockholders, Brian Keller, Christian Oertle and Daniel Fisher, to serve as our President, Chief Operating Officer and Executive Vice President, respectively. The agreements with Messrs. Keller and Fisher provide for annual salaries of $200,000 each and the agreement with Mr. Oertle provides for an annual salary of $150,000. Pursuant to the terms of the agreements, each of these stockholders is eligible to participate in the Company’s long term incentive compensation programs and is entitled to an annual bonus if the Company meets or exceeds criteria adopted by the Compensation Committee of the Board, subject to certain claw back rights. The agreements provide for payments of six months’ severance in the event of early termination (other than for cause).

On January 30, 2012, Mr. Fisher was removed from his position as Executive Vice President.  Pursuant to his employment agreement, Mr. Fisher was entitled to accrued salary through the date of termination. In addition, Mr. Fisher claimed pay for accrued vacation. We have paid Mr. Fisher $56,000 in unpaid salary and vacation pay and $23,000 in penalties of which $5,769 remains outstanding and was due on April 15, 2013.  Mr. Fisher has demanded delivery to him of 6,650,000 shares of the Company’s common stock. See Litigation below concerning a settlement with Mr. Fisher.

Leases

The Company leases its facilities under operating leases that expire at various dates.  Total rent expense under these leases is recognized ratably over the initial period of each lease.  Total rent and related expenses under operating leases were $317,712 and $450,877 for the nine months ended September 30, 2013 and 2012, respectively, and $98,491 and $133,595 for the three months ended September 30, 2013 and 2012, respectively.  Operating lease obligations after 2013 relate primarily to office facilities.

Litigation

Except as set forth below, we are not involved in any pending legal proceeding or litigation that could have a material impact upon our business or results of operations. To the best of our knowledge, no governmental authority is contemplating any proceeding to which we are a party or to which any of our properties is subject, which would reasonably be likely to have a material adverse effect on our business or results of operations.

Daniel Fisher v. BioZone Pharmaceuticals, Inc., Elliot Maza, Brauser Honig Frost Group, Michael Brauser, Barry Honig, and The Frost Group LLC

United States District Court, Northern District of California, No. 12-03716

On July 16, 2012, Daniel Fisher (“Fisher”), a former officer and director of the Company, commenced an action in the United States District Court for the Northern District of California against the Company and certain officers and investors thereof. Fisher asserts claims for breach of contract, conversion, wrongful termination, and unjust enrichment, and violation of the federal whistleblower statute arising from his former role as an officer and director of the Company and certain contractual agreements that he entered into with the Company. Fisher seeks $23 million in damages against all defendants.

This suit was settled on September 10, 2013, see below.

BioZone Pharmaceuticals, Inc. v. Daniel Fisher and 580 Garcia Properties, LLC

Supreme Court of the State of New York, County of New York, No. 652489/2012

On September 10, 2013, the Company settled the Fisher litigation by entering into a Settlement Agreement and Mutual Release (the “Settlement Agreement”) among Fisher, the Company, BZL, The Frost Group LLC, BrauserHonig Frost Group, Phillip Frost, Michael Brauser, Barry Honig, Elliot Maza, Brian Keller and Roberto Prego-Novo (collectively, the “Parties” and, individually, as a “Party”) dated as of September 5, 2013.

Pursuant to the Settlement Agreement, Fisher dismissed all of his claims contained in the action entitled, Daniel Fisher v. BioZone Pharmaceuticals, Inc., et al., No. 12-CV-03450 (WHA) (LB) United States District Court, Northern District of California, No. 12-03716, in consideration of the Company’s payment to him of the sum of $1,050,000 and the dismissal of the Company’s claims contained in the action entitled, BioZone Pharmaceuticals, Inc. v. Daniel Fisher and 580 Garcia Properties, LLC, Supreme Court of the State of New York, County of New York, No. 652489/2012.

Also, pursuant to the Settlement Agreement, Fisher sold his entire holdings of 6,650,000 shares of the Company’s common stock to various private accredited investors. The purchase of Fisher’s shares, which was a condition to the effectiveness of the Settlement Agreement, was completed on September 10, 2013.

The Settlement Agreement provides for complete mutual general releases of all claims between the Parties, including but not limited to, all claims arising out of or related to Fisher’s sale of his interest in BZL and related companies to the Company, compensation purportedly owed to Fisher under his terminated employment agreement with the Company and all amounts purportedly owed by the Company, as of the effective date of the Settlement Agreement, to Fisher’s wholly-owned limited liability company, 580 Garcia for rent and other amounts due under a written lease between the Company and 580 Garcia. In addition, Fisher agreed to seek the dismissal of all administrative claims and investigations he had instituted with state or Federal agencies against the Company and to remain bound by the non-competition terms contained in his former employment agreement with the Company. None of the Parties admitted to any wrong doing and the Parties agreed not to disparage one another.