UNITED STATES |
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SECURITIES AND EXCHANGE COMMISSION |
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Washington, D.C. 20549 |
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SCHEDULE 14A |
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(Rule 14a-101) |
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Proxy
Statement Pursuant to Section 14(a) of |
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Filed by the Registrant x |
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Filed by a Party other than the Registrant o |
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Check the appropriate box: |
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to §240.14a-12 |
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OSIRIS THERAPEUTICS, INC. |
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(Name of Registrant as Specified In Its Charter) |
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant) |
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Payment of Filing Fee (Check the appropriate box): |
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No fee required. |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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(1) |
Title of each class of securities to which transaction applies: |
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(2) |
Aggregate number of securities to which transaction applies: |
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(3) |
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): $85,000,000 (estimated solely for purposes of calculating the amount of the filing fee). |
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(4) |
Proposed maximum aggregate value of transaction: $85,000,000 |
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(5) |
Total fee paid: $3,340.50 (a) |
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(a) The fee was calculated by multiplying the maximum aggregate consideration of $85,000,000 to be paid to the registrant by 0.0000393. |
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Fee paid previously with preliminary materials. |
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
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(1) |
Amount Previously Paid: |
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(2) |
Form, Schedule or Registration Statement No.: |
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(3) |
Filing Party: |
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(4) |
Date Filed: |
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7015
Albert Einstein Drive |
, 2008
Dear Stockholder,
You are cordially invited to attend a special meeting of stockholders of Osiris Therapeutics, Inc. to be held at 2:00 p.m. Eastern Daylight Time (EDT), on , , 2008, at the principal executive offices of Osiris Therapeutics, Inc., located at 7015 Albert Einstein Drive, Columbia, Maryland 21046. At this meeting, we will seek stockholder approval of an asset purchase agreement with NuVasive, Inc. and the transactions contemplated thereby, including the sale by us to NuVasive of our Osteocel product line, including Osteocel® and Osteocel® XO, and related business assets.
On May 8, 2008, we entered into the asset purchase agreement with NuVasive, Inc., a medical device company headquartered in San Diego, California and focused on the design, development and marketing of products for the surgical treatment of spine disorders. The business assets to be sold pursuant to the asset purchase agreement involve the processing, manufacturing, marketing and selling of Osteocel, and a similar formulation in development, Osteocel XO. Osteocel is an allograft material containing cancellous bone, used in spinal fusion and other surgical procedures. Subject to the terms of the asset purchase agreement, the sale will be effected at two closings a technology assets closing which is expected to occur as soon as practicable following the satisfaction of various conditions precedent; and a manufacturing assets closing which is expected to occur within approximately eighteen months following the technology assets closing. During the period between the technology assets closing and the manufacturing assets closing, we will continue to manufacture or have manufactured, and supply, Osteocel pursuant to a manufacturing agreement to be entered into by us and NuVasive at the time of the technology assets closing. At the manufacturing assets closing we will transfer to NuVasive specified manufacturing equipment and facilities currently employed by us in the manufacture of Osteocel. Our business related to Osteocel and Osteocel XO will then terminate.
Enclosed with this letter is a Notice of Special Meeting, a Proxy Statement, and a Proxy Card and return envelope. Before deciding how to vote, you should review in detail the attached proxy statement for a more detailed explanation of the proposal to approve the sale, a description of the asset purchase agreement and the related manufacturing agreement, the background of the decision to enter into the asset purchase agreement, the reasons that our Board of Directors has decided to recommend that you approve the asset purchase agreement and the transactions contemplated thereby and a discussion of risk factors and other considerations, which appear in the sections of the proxy statement entitled Risk Factors and Other Considerations.
Our Board of Directors has unanimously approved and recommends that you vote FOR approval of the asset purchase agreement and the transactions contemplated thereby, all as further described in the accompanying proxy statement.
We hope you will be able to attend the special meeting. Your vote is important. Whether or not you plan to attend the special meeting, we urge you to vote. You are urged to vote by signing, dating and promptly returning the proxy card in the enclosed prepaid return envelope. Your proxy will be voted at the special meeting in accordance with your instructions. Failure to return a properly executed proxy card or to vote at the special meeting will have the same effect as a vote AGAINST approval of the asset purchase agreement and the transactions contemplated thereby. If you do not specify a choice on the proposal described in this proxy statement, your proxy will be voted as recommended by our Board of Directors. If you hold your shares through an account with a brokerage firm or other nominee or fiduciary such as a bank, please follow the instructions you receive from such brokerage firm or other nominee or fiduciary to vote your shares. Of course, if you attend the special meeting you may revoke your proxy and vote in person if you wish, even if you have previously returned your proxy card.
You may be asked to present valid picture identification at the special meeting, such as a drivers license or passport. Cameras, recording devices and other electronic devices will not be permitted at the meeting.
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Sincerely, |
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C. Randal Mills, Ph.D. |
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President and Chief Executive Officer |
YOUR VOTE IS IMPORTANT.
PLEASE RETURN YOUR PROXY CARD PROMPTLY.
OSIRIS THERAPEUTICS, INC.
7015 ALBERT EINSTEIN DRIVE
COLUMBIA, MARYLAND 21046
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON
, 2008
DATE: |
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, 2008 |
TIME: |
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2:00 p.m. EDT |
PLACE: |
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The offices of Osiris Therapeutics, Inc., 7015 Albert Einstein Drive, Columbia, Maryland 21046 |
PURPOSES:
1. To approve the asset purchase agreement by and between Osiris Therapeutics, Inc. and NuVasive, Inc. (a copy of which is attached as Appendix A to the proxy statement accompanying this Notice of Special Meeting), and the transactions contemplated thereby, including the sale to NuVasive of our Osteocel product line, including Osteocel® and Osteocel® XO, and related business assets; and
2. To transact such other business as may properly come before the meeting or any postponements or adjournments thereof.
Our Board of Directors has unanimously approved and recommends that you vote FOR approval of the asset purchase agreement and the transactions contemplated thereby, all as further described in the accompanying proxy statement.
WHO MAY VOTE:
You may vote if you were the record owner of Osiris Therapeutics, Inc. common stock at the close of business on , 2008. A list of stockholders of record will be available at the special meeting and during the 10 days prior to the meeting, at the office of the Corporate Secretary at the above address. This notice and proxy are first being mailed to stockholders on or about , 2008.
Stockholders are urged to carefully review the information contained in the accompanying proxy statement prior to deciding how to vote their shares at the special meeting.
All stockholders are cordially invited to attend the special meeting. Your participation in the special meeting, in person or by proxy, is important. Whether you plan to attend the special meeting or not, you are requested to complete, sign, date and return the enclosed proxy card as soon as possible in accordance with the instructions on the proxy card. A pre-addressed, postage prepaid return envelope is enclosed for your convenience. Your prompt cooperation will be greatly appreciated.
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BY ORDER OF THE BOARD OF DIRECTORS |
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Philip R. Jacoby, Jr. |
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Corporate Secretary |
, 2008
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7015
Albert Einstein Drive |
, 2008
PROXY STATEMENT FOR SPECIAL MEETING OF STOCKHOLDERS
This proxy statement provides information that you should read before you vote on the proposal that will be presented at the special meeting of stockholders of Osiris Therapeutics, Inc. The special meeting will be held on , 2008, at 2:00 p.m., EDT, at Osiris Therapeutics, Inc.s principal executive offices, located at 7015 Albert Einstein Drive, Columbia, Maryland 21046.
On or about , 2008, we began mailing this proxy statement and the accompanying proxy card to stockholders who according to our records owned shares of our common stock at the close of business on , 2008.
This proxy statement is available electronically at http://www.osiris.com.
TABLE OF CONTENTS
Table of Contents
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT |
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A-1 |
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D-1 |
1
This summary term sheet highlights material terms of the asset purchase agreement and related documents, and the proposed sale by us to NuVasive of our Osteocel product line, including Osteocel® and Osteocel® XO, and related business assets, and also highlights selected information described in greater detail elsewhere in this proxy statement. This summary term sheet does not contain all of the information that may be important to you in evaluating the asset purchase agreement and proposed sale. To understand fully the terms of the asset purchase agreement and proposed sale, we strongly encourage you to read this proxy statement in its entirety, including the information incorporated by reference and the appendices. We have included page references in this summary term sheet to direct you to a more complete discussion of certain topics in the proxy statement.
NuVasive, Inc. |
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NuVasive, Inc., a Delaware corporation, is the proposed purchaser under the Asset Purchase Agreement, dated May 8, 2008. NuVasive is a medical device company focused on the design, development and marketing of products for the surgical treatment of spine disorders. NuVasives product portfolio is focused on applications in the over $4.2 billion U.S. spine fusion market. NuVasives current principal product offering includes a minimally disruptive surgical platform called Maximum Access Surgery, or MAS®, as well as a growing offering of cervical and motion preservation products. |
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Osiris
Therapeutics, Inc. |
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Osiris Therapeutics, Inc., a Delaware corporation, is a stem cell therapeutic company focused on developing and marketing products to treat medical conditions in the inflammatory, orthopedic and cardiovascular areas. We currently manufacture, market and sell Osteocel, an allograft material containing cancellous bone for regenerating bone in orthopedic indications. Osteocel XO is a similar formulation under development, also using cancellous bone. Our core business, however, is the development of biologic drug candidates containing mesenchymal stem cells, including Prochymal, which is being evaluated in Phase III clinical trials for three indications, including acute and steroid refractory Graft versus Host Disease and also Crohns disease. Prochymal is the only stem cell therapeutic currently designated by the FDA as both an Orphan Drug and Fast Track product. We have also partnered with Genzyme Corporation to develop Prochymal as a medical countermeasure to nuclear terrorism and other radiological emergencies. Additionally, Prochymal is being developed for the repair of heart tissue following a heart attack, for the protection of pancreatic islet cells in patients with type 1 diabetes and for the treatment of moderate to severe chronic obstructive pulmonary disease. Our pipeline of internally developed biologic drug candidates under evaluation also includes Chondrogen for osteoarthritis in the knee. |
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Osteocel
Asset Sale |
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We are selling our Osteocel product line, including Osteocel and Osteocel XO, and related business assets.
The sale will be effected at two closings a technology assets closing which is expected to occur as soon as practicable following the satisfaction of various conditions precedent; and a manufacturing assets closing which is expected to occur within approximately eighteen months following the technology assets closing. During the period between the technology assets closing and the manufacturing assets closing, we will continue to manufacture or have manufactured, and supply, Osteocel, pursuant to a manufacturing agreement to be entered into between us and NuVasive at the time of the technology assets closing. At the technology assets closing, we will transfer to NuVasive technology and other business assets related to the first generation Osteocel product line including intellectual property, permits, data and records, and contract rights related to the development, manufacturing and sale of Osteocel and Osteocel XO. At the manufacturing assets closing, we will transfer specified Osteocel manufacturing equipment and facilities to NuVasive, including the leasehold interest in our Columbia, Maryland administrative offices and Osteocel processing facility. Our business related to Osteocel and Osteocel XO will then terminate. |
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Manufacturing
Agreement |
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In connection with the sale of the technology assets of the Osteocel business pursuant to the asset purchase agreement, we and NuVasive agreed to enter into a manufacturing agreement under which we will continue to process Osteocel and supply Osteocel to NuVasive for a period of eighteen months after the technology assets closing. During the term of the manufacturing agreement, NuVasive is responsible for submitting binding purchase orders to us, for stated minimum quantities of Osteocel over certain stated periods. Assuming that we can produce sufficient quantities in a timely manner, we estimate that we will have the opportunity to generate in excess of $50.0 million in revenue related to the manufacture and supply of Osteocel pursuant to the manufacturing agreement over a period of approximately eighteen months following the technology assets closing. |
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Osteocel
XC |
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Osteocel XC is the name we use to refer to our second generation mesenchymal stem cell product candidate for bone repair, which would utilize culture expanded mesenchymal stem cells to create a synthetic version of Osteocel. We are not currently selling Osteocel XC to NuVasive pursuant to the asset purchase agreement, and we are not currently engaged in an active product development program focused specifically on Osteocel XC. We have, however, granted NuVasive a right pursuant to the asset purchase agreement to acquire exclusive rights to Osteocel XC through December 31, 2009 on generally predefined terms subject, in part, to final negotiation. Through that same date, NuVasive is also afforded a right of first negotiation prior to any other transaction involving the transfer of Osteocel XC by us to a third party. |
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Reasons
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While the assets to be transferred represent a profitable product line for us, our Board of Directors believes they are not core to our business. Our Board of Directors believes it is appropriate and in our best interest and the best interest of our stockholders to sell these non-core assets and to invest the proceeds from the sale in our core research and development activities.
In deciding to authorize the sale, our Board of Directors considered a number of positive and negative factors, discussed in more detail later in this proxy statement under the heading Sale of Osteocel Business. |
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Purchase
Price |
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The initial purchase price to be paid to us at the technology assets closing will be $35.0 million in cash. The milestone payment to be paid to us at the manufacturing assets closing will be $12.5 million, payable either in cash or in shares of NuVasive common stock having then equivalent market value.
In addition, during the interim period between the technology assets closing and the manufacturing assets closing and, if applicable, after the manufacturing assets closing, we have the ability to earn additional milestone payments not to exceed approximately $37.5 million in the aggregate. Receipt of each of the milestone payments is conditioned upon the satisfaction of certain conditions, including conditions relating to the production and delivery by us of agreed upon quantities of Osteocel on or before certain agreed upon dates, and completion of the transfer of the manufacturing assets in accordance with agreed upon terms. These milestone payments may be paid, at the discretion of NuVasive, in cash or in shares of NuVasive common stock having then equivalent market value.
We have the opportunity to derive additional fee revenue during this interim period of in excess of $50.0 million from the manufacture and supply of Osteocel product under the manufacturing agreement, which imposes minimum purchase order obligations on NuVasive during the term of the agreement. |
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Assumed
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NuVasive has not agreed to assume any of our current liabilities. NuVasive has, however, agreed to assume the obligations to perform arising in the ordinary course of the Osteocel business after the technology assets closing date with respect to certain contracts to be assumed by NuVasive which constitute a portion of the technology assets, and after the manufacturing assets closing date with respect to certain contracts to be assumed by NuVasive which constitute a portion of the manufacturing assets. Additionally, NuVasive has agreed to assume all expenses and liabilities relating to the Osteocel business that arise in the ordinary course of the Osteocel business consistent with past practice after the technology assets closing. |
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Conditions to the
Technology Assets Closing |
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The obligation of each party to complete the purchase and sale of the assets to be transferred at the technology assets closing is subject to the satisfaction or waiver of the following conditions:
· receipt of all authorizations, consents, approvals and permits of governmental authorities specified in the asset purchase agreement, including the expiration or termination of any waiting period (including any extensions thereof) under the Hart-Scott-Rodino Act (which has now been satisfied);
· absence of any change in law or regulation or the presence of any injunction or other judgment or order that would restrain or otherwise prevent the proposed sale;
· absence of any action, suit, proceeding, claim, arbitration or investigation pending that is reasonably expected to result in an unfavorable judgment, order, decree, stipulation or injunction that would prohibit the transfer of the technology assets or cause such transfer to be rescinded;
· approval of the asset purchase agreement and the transactions contemplated thereby, by our stockholders;
· execution and delivery by us and NuVasive of the manufacturing agreement and a license agreement;
· execution and delivery of the other specified ancillary agreements and documents by us, NuVasive and/or each of our representatives; and
· other customary closing conditions.
Our obligation to complete the sale of the assets at the technology assets closing is subject to the satisfaction or waiver of the following conditions:
· the representations and warranties of NuVasive in the asset purchase agreement must be true and correct in all material respects (except those qualified by materiality or relating to the corporate status, organizational and governing documents, authorization of the transaction and corporate authority, which must be true and correct in all respects);
· NuVasive having performed in all material respects its pre-closing obligations and covenants; and
· other customary closing conditions.
NuVasives obligation to complete the purchase of the assets at the technology assets closing is subject to the satisfaction or waiver of the following conditions:
· the representations and warranties by us in the asset purchase agreement must be true and correct in all material respects (except those qualified by materiality or relating to the corporate status, organizational and governing documents, authorization of the transaction and corporate authority, and the title to and sufficiency of the transferred assets, which must be true and correct in all respects); |
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· our having performed in all material respects our pre-closing obligations and covenants;
· the absence of any material adverse event or development related to the Osteocel business;
· the absence of any liens, other than permitted liens, on the technology assets;
· we shall have received the required consents and delivered the required notices with respect to the sale of the assets; and
· other customary closing conditions. |
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Conditions to the
Manufacturing Assets Closing |
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NuVasives obligation to pay the third milestone payment of approximately $12.5 million at the time of the manufacturing assets closing is subject to satisfaction or waiver of the following conditions:
· our representations and warranties in the asset purchase agreement must be true and correct in all material respects (except those qualified by materiality or relating to the corporate status, organizational and governing documents, authorization of the transaction and corporate authority, and the title and sufficiency of the transferred assets which must be true and correct in all respects);
· our having performed in all material respects our obligations and covenants with respect to the manufacturing assets and the transfer thereof;
· the absence of any action, suit, proceeding, claim, arbitration or investigation pending that is reasonably expected to result in an unfavorable judgment, order, decree, stipulation or injunction that would prevent the transfer of the manufacturing assets or cause such transfer to be rescinded;
· the absence of any liens, other than permitted liens, on the manufacturing assets;
· delivery of certain ancillary agreements, documents and certificates;
· the absence of any material adverse event or development related to the manufacturing assets;
· the absence of any change in law or regulation or the presence of any injunction or order that would restrain or otherwise prevent the proposed sale of the manufacturing assets; and
· other customary closing conditions. |
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No
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We have agreed that, after execution of the asset purchase agreement and prior to the earlier of the manufacturing assets closing or the termination of the asset purchase agreement, we will not directly or indirectly, initiate, solicit, entertain or encourage any other entity or person to make a proposal to us to acquire any of the assets to be transferred pursuant to the asset purchase agreement or negotiate, discuss, or enter into an agreement related to such a proposal. |
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If, however, if at any time prior to obtaining stockholder approval for the asset sale, we receive an unsolicited proposal that our Board of Directors determines in good faith to be superior to NuVasives proposal and determines in good faith and after consultation with outside counsel that it must take action with respect to such proposal to avoid a breach of its fiduciary duties under Delaware law, and notifies NuVasive of such proposal and after good faith negotiations with NuVasive, our Board of Directors determines that such proposal remains superior to NuVasives proposal, we may furnish nonpublic information to, and negotiate with, the party making the superior proposal. After compliance with notice and negotiation provisions of the asset purchase agreement, our Board of Directors may withdraw, modify or qualify its recommendation that our stockholders approve the asset purchase agreement and the transactions contemplated thereby, and recommend the superior proposal. Notwithstanding such superior proposal or change in the recommendation of our Board of Directors, we are obligated to hold the stockholder meeting for purposes of approving the asset purchase agreement and the transactions contemplated thereby. |
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Non-Compete |
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We have agreed, for a period beginning with the technology assets closing and ending eighteen months after the manufacturing assets closing, not to engage in any business or activities, either directly or indirectly, that compete with the Osteocel business (other than our activities with respect to Osteocel XC), or solicit or encourage any employee, consultant or customer of NuVasive to leave the employ of, or cease doing business with, NuVasive. |
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Indemnification
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The parties have agreed to indemnify one another for any fraud, misrepresentations or breaches of representations, warranties and covenants contained in the asset purchase agreement. In addition, we have agreed to indemnify NuVasive for any retained liabilities and NuVasive has agreed to indemnify us for any assumed liabilities. With respect to the indemnification related to breach of representations, warranties and covenants, each partys right to indemnification will generally arise after its losses reach $250,000, with limited exceptions, and then it will receive payments for all losses, with the maximum indemnity payments for such losses equal to $15 million, except in the case of any breach by us of representations related to certain specified matters, as respects which the overall liability cap is increased to $20 million plus the amount of any milestone payment(s) earned by us, up to an aggregate total of $35 million. The obligations of each party to make any payment in respect of losses arising from fraud, intentional misrepresentation or intentional breach of a transaction document, and with respect to the assumed and excluded liabilities, is unlimited. |
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Termination
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The asset purchase agreement may be terminated at any time prior to the technology assets closing:
· by mutual consent of the parties;
· by either party, if, without the fault of the terminating party, the technology assets closing does not take place before September 8, 2008, subject to certain extensions;
· by either party, if a court or governmental entity permanently enjoins, restrains or prohibits the sale;
· by either party, if the asset purchase agreement is not approved by our stockholders provided that we may not terminate the agreement if failure to receive approval is caused by our action or failure to act and such action or failure to act constitutes a breach by us of the agreement; |
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· by either party, if the non-terminating party has breached any representation, warranty, covenant or agreement in any material respect, if such breach is not cured within 10 days; and
· by NuVasive if our Board of Directors changes its recommendation with respect to the sale.
We have agreed to pay NuVasive a $350,000 fee to cover negotiation expenses if the closing does not take place before September 8, 2008 and at the time of such termination stockholder approval has not been obtained and/or if our stockholders do not approve the asset purchase agreement and the transactions contemplated thereby.
If, however, the agreement is terminated after our Board of Directors changes its recommendation with respect to the asset sale, we are required to pay NuVasive a $2 million fee. |
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Closings |
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The technology assets closing will take place promptly after the receipt of all necessary consents and approvals. The manufacturing assets closing will take place promptly after the earlier to occur of (i) the termination of the manufacturing agreement by NuVasive, or (ii) the expiration of the stated term of the manufacturing agreement, which is eighteen months. |
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Risk Factors |
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There are risks and uncertainties related to the proposed sale, and risks to and uncertainties for us if the proposed sale is completed. You should carefully consider all of these risks and uncertainties in deciding how to vote on the proposal to approve the asset purchase agreement and the transactions contemplated thereby. If any of these risks occur, the business, financial condition or results of operation of our could be materially adversely affected, the value of its common stock could decline and you may lose all or part of your investment. |
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Accounting
Treatment |
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The sale of our Osteocel business will be accounted for as a sale of net assets. We believe that upon the technology assets closing we will recognize a gain on the sale of the assets. |
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Tax
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The proposed sale will be a taxable sale of assets. We anticipate that we will be able to offset substantially all of the taxable gain to be recognized for United States federal income tax purposes against our current operating and capital losses and net operating and capital loss carryforwards.
The sale of assets contemplated by the asset purchase agreement will not be a taxable event for our stockholders under applicable United States federal income tax laws. |
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Required
Approvals |
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The ability of the parties to consummate the sale is subject to the expiration of the applicable waiting period (including any extensions) under the U.S. Hart-Scott-Rodino Act (which waiting period has now been satisfied), and satisfaction of certain requirements of the U.S. Securities and Exchange Commission in connection with this proxy statement. We are also seeking stockholder approval pursuant to this proxy statement to satisfy any approvals which may be required in respect of the asset purchase agreement and the transactions contemplated thereby under the Delaware General Corporation Law. |
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Voting and Support Agreements |
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Officers and directors of ours, and certain of their affiliates, holding approximately 47% of our outstanding voting stock, have executed voting agreements committing to vote for the approval of the asset purchase agreement and the transactions contemplated thereby, subject in some cases to certain exceptions typical in voting agreements of this type, which allow for a reduction of the committed shares to 38%. Included among those who have executed voting agreements are Peter Friedli, the Chairman of the Board of Directors and our single largest stockholder, and certain of his affiliates, including Venturetec, Inc. and U.S. Venture 05, Inc., and C. Randal Mills, our President and CEO and a member of our Board of Directors. |
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Appraisal
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Under Delaware law and our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws, our stockholders do not have appraisal rights as a result of the proposed sale. |
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Fees
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Except as described above in certain termination events, each of the parties has paid and will pay its own expenses in connection with the asset purchase agreement and the transactions contemplated thereby. |
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No
Payments to Stockholders |
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All of the consideration received in the proposed sale will be paid to us. No payments will be made to any of our stockholders. |
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Set forth below are some key questions and answers to provide you with more information about the special meeting. These questions and answers are qualified in their entirety by reference to the more detailed information appearing elsewhere in or accompanying this proxy statement. We urge you to review the entire proxy statement and accompanying materials carefully.
SPECIAL MEETING AND VOTING
Q: Why am I receiving this proxy statement?
A: You have received this proxy statement and the enclosed proxy card from us because you held shares of our common stock on , 2008, the record date for the special meeting of stockholders.
Q: What is the proposal I will be voting on at the special meeting?
A: As a stockholder, you are requested to approve the asset purchase agreement with NuVasive, Inc., dated May 8, 2008, and the transactions contemplated thereby, including the sale by us to NuVasive of our Osteocel product line, including Osteocel® and Osteocel® XO, and related business assets. Our Board of Directors is not aware of any other matters to be presented at the special meeting. If any other matters should properly come before the special meeting, the persons named as proxies in the enclosed proxy card will vote the proxies in accordance with their best judgment.
Q: Who is entitled to vote?
A: Only holders of record of shares of our common stock on the close of business on , 2008 will be entitled to vote at the special meeting. Each share of our common stock issued and outstanding on the record date will be entitled to one vote. On , 2008, we began mailing this proxy statement to all persons entitled to vote at the special meeting. At the close of business on , 2008, there were shares of common stock outstanding, which constitute all of our voting shares.
Q: When and where is the special meeting being held?
A: The special meeting is being held on , 2008 at our principal executive offices located at 7015 Albert Einstein Drive, Columbia, Maryland 21046, at 2:00 P.M., EDT.
Q: What vote is required to approve the asset purchase agreement?
A: Under Delaware law and our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws, the affirmative vote of the holders of a majority of our outstanding shares of common stock is required for stockholder approval of the asset purchase agreement and the transactions contemplated thereby.
Q: Who is soliciting my proxy?
A: Our Board of Directors is soliciting your proxy. We are paying the cost of requesting these proxies. Our directors, officers and employees may request proxies in person or by telephone, mail, facsimile or otherwise, but they will not receive additional compensation for their services. We have not retained any third parties to assist us in soliciting proxies for the special meeting.
Q: How does the Board of Directors recommend that I vote at the special meeting?
A: The Board of Directors unanimously recommends that you vote FOR proposal No. 1, including the approval of the asset purchase agreement and the transactions contemplated thereby.
Q: How is my vote counted if I vote by proxy?
A: If you decide to vote by proxy, your proxy card will be valid only if you sign, date and return it before the special meeting to be held on , 2008. You may vote FOR, AGAINST or ABSTAIN. If you fail to vote FOR the sale or you ABSTAIN, it has the same effect as a vote AGAINST the proposal.
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Q: What if my shares are held in street name, will my broker be able to vote my shares?
A: Yes, but only if you provide instructions to your broker on how to vote.
Q: Can I change my vote after I have mailed my signed proxy card?
A: Yes, you may change your vote at any time before your shares are voted at the special meeting. You may change your vote in one of three ways:
1. You may notify the Corporate Secretary of Osiris in writing before the special meeting that you wish to revoke your proxy. In this case, please contact Osiris Therapeutics, Inc., 7015 Albert Einstein Avenue, Columbia, Maryland 21046, Attention: Philip R. Jacoby, Jr., Corporate Secretary.
2. You may submit a signed and dated proxy that is dated later than your original proxy.
3. You may attend the special meeting and vote. Merely attending the special meeting will not by itself revoke a proxy; you must obtain a ballot and vote your shares to revoke the previously submitted proxy.
PROPOSED SALE OF ASSETS
Q: What assets are being sold?
A: We are selling our Osteocel product line, including Osteocel and Osteocel XO, and related business assets. Osteocel is currently available and is used for regenerating bone in orthopedic indications. The sale will be effected at two closings a technology assets closing and a manufacturing assets closing. The assets to be transferred at the technology assets closing include intellectual property, permits, data and records, and contract rights related to the development, manufacturing, marketing and sale of Osteocel and Osteocel XO. The assets to be transferred at the manufacturing closing include specified Osteocel manufacturing equipment and facilities, including the leasehold interest in our Columbia, Maryland administrative offices and processing facility. Following the manufacturing assets closing, our business related to Osteocel and Osteocel XO will terminate. We have also granted NuVasive the right to acquire exclusive rights to Osteocel XC, (which is how we refer to a second generation mesenchymal stem cell product candidate for bone repair, which would utilize culture expanded mesenchymal stem cells to create a synthetic version of Osteocel) through December 31, 2009 on generally predefined terms subject, in part, to final negotiation, and have provided NuVasive with a right of first negotiation prior to any other transaction involving the transfer by us of Osteocel XC to a third party through that same date.
Q: What is the purchase price for the assets?
A: The initial purchase price to be paid to us by NuVasive at the technology assets closing is $35.0 million in cash.
During the interim period between the technology assets closing and the manufacturing assets closing, and, if applicable, after the manufacturing assets closing, NuVasive will pay us certain milestone payments, not to exceed approximately $50.0 million in the aggregate, including $12.5 million to be paid upon the manufacturing asset closing. Receipt of each of the milestone payments is conditioned upon the satisfaction of certain conditions, including conditions relating to the production and delivery by us of agreed upon quantities of product on or before certain agreed upon dates, and completion of the transfer of the manufacturing assets in accordance with agreed upon terms. These milestone payments may be paid, at the discretion of NuVasive, in cash or in freely transferable shares of NuVasive common stock having then equivalent market value.
Q: Why are we selling these assets?
A: While the assets to be transferred represent a profitable product line for us, our Board of Directors does not believe they are core to our business. Our Board of Directors believes it is appropriate and in our best interest and the best interest of our stockholders to sell these non-core assets and to invest the proceeds from the sale in our core research and development activities.
In deciding to authorize the sale, our Board of Directors considered a number of positive and negative factors, discussed in more detail later in this proxy statement.
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Q: Did the Board of Directors receive a fairness opinion on the sale of the assets?
A: No. The Board of Directors does not believe it was necessary to obtain a fairness opinion to assist it in its review of the proposed transaction and the negotiated purchase price.
Q: What if we receive another offer for the assets?
A: We have agreed that after execution of the asset purchase agreement and prior to the earlier of the manufacturing assets closing or the termination of the asset purchase agreement, we will not, directly or indirectly, initiate, solicit, entertain or encourage any other entity or person to make a proposal to us to acquire the assets to be transferred.
If, however, at any time prior to obtaining stockholder approval for the asset sale, we receive an unsolicited proposal that our Board of Directors determines in good faith to be superior to NuVasives proposal and it determines in good faith after consultation with outside counsel that it must take action with respect to such proposal to avoid a breach of its fiduciary duties under Delaware law, and notifies NuVasive of such proposal and after good faith negotiations with NuVasive, our Board of Directors determines that such proposal remains superior to NuVasives proposal, we may furnish nonpublic information to, and negotiate with, the party making the superior proposal. After compliance with the notice and negotiation provisions of the asset purchase agreement, our Board of Directors may withdraw, modify or qualify its recommendation that the stockholders approve the asset purchase agreement and the transactions contemplated thereby, and recommend the superior proposal. Notwithstanding such superior proposal or change in the recommendation of our Board of Directors, we are obligated to hold the stockholder meeting for purposes of approving the asset purchase agreement and the transactions contemplated thereby.
Q: Have any of our stockholders agreed to vote in favor of the proposal to approve the asset purchase agreement, and, if so, are there any material conditions to that agreement?
A: Officers and directors of ours, and certain of their affiliates, holding approximately 47% of our outstanding voting stock, have executed voting agreements committing to vote for the approval of the asset purchase agreement and related transactions, subject in some cases to certain exceptions typical in voting agreements of this type, which allow for a reduction of the committed shares to 38%. Included among those who have executed voting agreements are Peter Friedli, the Chairman of the Board of Directors and our single largest stockholder, and certain of his affiliates, including Venturetec, Inc. and U.S. Venture 05, Inc., and C. Randal Mills, our President and CEO and a member of our Board of Directors.
Q: What happens if the asset purchase agreement and the transactions contemplated thereby are not approved by holders of a majority of our outstanding shares?
A: The asset purchase agreement may be terminated by either us or NuVasive, in which case we will generally pay a termination fee to NuVasive in the amount of $350,000. If, however, the agreement is terminated after our Board of Directors changes its recommendation with respect to the asset sale, we are required to pay NuVasive a $2.0 million fee.
Q: Will I owe any federal income tax as a result of the asset sale?
A: No. You will not owe any federal income tax as a result of the asset sale.
Q: Will any of the proceeds from the sale be distributed to me as a stockholder?
A: No. We intend to retain the proceeds and use them to further our future business plans.
Q: Can I still sell my shares?
A: Yes. The sale will not affect your right to sell or otherwise transfer your shares of common stock.
Q: Who can I contact with questions about the proposal?
A: If you have more questions about the sale of assets or would like additional copies of this proxy statement, you should contact Osiris Investor Relations, at 443-545-1800.
In addition, we are a public reporting company and are required to file reports and other information with the SEC. You may read and copy this information at the SECs public reference facilities. You may call the SEC at 1-800-SEC-0330 for information about these facilities. This information is also available at the SECs Internet site at http://www.sec.gov and you can also request copies of these documents from us.
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In the Fall of 2007, we began to actively search for a potential acquirer of our Osteocel business and related assets. This initiative was commenced in anticipation of possible commercialization of our lead biologic drug product candidate, Prochymal, and after a determination that the divestiture of Osteocel, a human cell and tissue based product, would facilitate, both financially and operationally, our transition to a biologic drug company. We are not an orthopedics company, and it was determined that the effort involved in developing an adequate sales force to market and distribute Osteocel as an orthopedic product could be detrimental to our focus on becoming a biologic drug company.
In December 2007, while our search continued, we entered into a financial advisory agreement with Robin Young Consulting Group (RYCG), whereby RYCG agreed to provide services to us in connection with the potential sale by us of our Osteocel business to a select potential purchaser. As part of its services, RYCG agreed to introduce us to NuVasive, to explain Osteocel to NuVasive and to help NuVasive appreciate the value of incorporating Osteocel into their existing business model, and to assist us in structuring, negotiating and closing a transaction involving the sale to NuVasive of our Osteocel business. Pursuant to the arrangements entered into between us and RYCG, RYCG is entitled to a success fee, contingent upon the transaction closing and our receipt of the proceeds, of $600,000 plus one percent (1%) of the transaction value in excess of $70.0 million. These amounts are to be paid by us as and when we receive payments under the terms of the asset purchase agreement. In addition, we agreed to reimburse RYCG for reasonable out-of-pocket expenses incurred by RYCG in connection with its acting for us pursuant to the financial advisory agreement, and we agreed to indemnify RYCG in a manner typical for agreements of this type.
Beginning in the Fall of 2007 and continuing into the first quarter of 2008, we evaluated and considered three proposals for the purchase of our Osteocel business. Two of these proposals, including the NuVasive proposal, were given serious consideration by us and discussions or negotiations ensued by and between us and the prospective acquirers over the course of a number of months. After considering these proposals carefully, in light of our business objectives, we determined that the proposal for the sale of our Osteocel business to NuVasive was the more favorable of the available alternatives and we are determined to pursue that alternative.
Over the course of five months, discussions and due diligence ensued and negotiations took place with regard to the transaction with NuVasive, in various locations throughout the country. Our Board of Directors met on several occasions during this period to discuss with management the terms of the prospective transaction, the status of the negotiations and the prospect for the successful completion of the NuVasive transaction and possibly other transactions, and to evaluate the potential risks and benefits of the NuVasive transaction and possible other transactions.
On May 2, 2008, our Board of Directors met once again to consider and vote upon the approval of the asset purchase agreement with NuVasive and the transactions contemplated thereby, including the sale of Osteocel and Osteocel XO and the related business assets. After careful consideration, these matters were then approved by unanimous vote of our Board of Directors. The asset purchase agreement between us and NuVasive for the sale of our Osteocel business and related assets was then executed as of May 8, 2008.
Reasons for the Sale of our Osteocel Business
We are proposing to sell our Osteocel business to NuVasive because we believe that the sale and the transactions contemplated thereby are in the best interest of our company, and you.
While the business assets to be transferred represent a profitable product line for us, and represent a substantial portion of our revenue, our Board of Directors does not believe that this product line is core to our business. Our Board of Directors determined that the divestiture of our Osteocel product line will facilitate our transition to a biologic drug company and is the preferred course of action as we prepare for commercialization of Prochymal. Moreover, our Board of Directors believes that the divestiture of these non-core assets will allow us to invest the sale proceeds in our core research and development activities, and will facilitate our efforts to bring our biologic drug product candidates to market, and our objective of turning the promise of stem cells into a reality.
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Benefits of the Sale
The sale of our Osteocel business will:
· provide us with a minimum of $47.5 million in non-dilutive financing, including $35.0 million at the technology assets closing and $12.5 million at the manufacturing assets closing;
· provide us with the opportunity to earn up to an additional $37.5 million in milestone payments, if earned and received;
· provide us with the opportunity to derive additional fee revenue during the eighteen month period following the technology assets closing and prior to the manufacturing assets closing, from the manufacture and supply by us to NuVasive of Osteocel product under the manufacturing agreement, which imposes minimum purchase order obligations on NuVasive over this period; and
· allow us to direct substantially all of our research and development resources to our core business of commercializing biologic drug candidates containing culture expanded mesenchymal stem cells.
In arriving at a determination that the sale of our Osteocel business to NuVasive is in the best interest of our company and our stockholders, our Board of Directors carefully considered the terms of the asset purchase agreement, as well as the potential impact of the proposed sale on our company. As part of this process, the Board of Directors considered the advice of our advisors, including our legal and accounting advisors. In determining to authorize the proposed sale, our Board of Directors considered the benefits and factors set forth above, as well as the terms and conditions of the asset purchase agreement, including a provision which allows our Board to consider unsolicited offers to purchase our Osteocel business that are superior to NuVasives offer, and to recommend a superior offer to our stockholders, subject to certain conditions, including NuVasives right to match any superior offer and our obligation to pay NuVasive a termination fee in the amount of $2.0 million if we decide to pursue a transaction with a party other than NuVasive. In addition, our Board of Directors considered the fact that the asset purchase agreement did not contain any financing contingency or material due diligence conditions not satisfied at the time which the asset purchase agreement was entered into.
Risks of the Sale
Our Board of Directors also considered numerous potential risks associated with engaging in a proposed transaction, as well as failing to engage in the proposed transaction, as further described below under the heading Rick Factors which begins on page 15. You should carefully consider all of these risks before deciding how to vote on the proposed asset purchase agreement and the transactions contemplated thereby.
As discussed more fully beginning on page 15, these risks include the following:
· The proposed sale may not be completed or may be delayed if the conditions to closing are not satisfied or waived in a timely manner or ever.
· We may not receive all of the payments available to us under the terms of the asset purchase agreement, and accordingly, we may have less cash available to us to fund our remaining operations.
· The asset purchase agreement will expose us to contingent liabilities which could adversely affect our ability to pursue our core business focused on the development and marketing and obtaining of FDA approval for our biologic drug candidates, including Prochymal.
· If the proposed sale is not completed, we may explore other potential transactions, but alternatives may be less favorable to us.
· The failure to complete the proposed sale may result in a decrease in the market value of our common stock and may impair our ability to achieve our objectives of developing, obtaining FDA approval and marketing our biologic drug candidates, including Prochymal.
· By completing the proposed sale, we will be selling the assets that have historically generated substantially all of our revenue.
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· Our business following the sale will depend primarily on the success of our biologic drug candidates business.
· If the risks associated with the Osteocel business as previously disclosed by us occur and affect either NuVasive or us, and correspondingly our ability to earn milestones payments under the asset purchase agreement or to generate revenues under the manufacturing agreement, then we may not realize the full benefit of the proposed sale and related transactions, and our business, financial condition and results of operations could be materially adversely affected.
The foregoing discussion of the information and factors considered by our Board of Directors is not intended to be exhaustive, but does include material factors considered. In view of the complexity and wide variety of information and factors, both positive and negative, considered by our Board of Directors, it is not practical to quantify, rank or otherwise assign relative or specific weights to the factors considered. In addition, the Board did not reach any specific conclusion with respect to each of the factors considered, or any aspect of any particular factor. Instead, the Board conducted an overall analysis of the factors described above, including discussions with management and advisors. In considering the factors described above, individual members of the Board may have given different weights to different factors. The Board considered all of these factors in totality and concluded, on the whole, that such factors supported its determination to approve the proposed sale of our Osteocel business pursuant to the asset purchase agreement. After taking into consideration all of the factors set forth above, our Board of Directors, following consultations with its advisors, concluded that the proposed sale is fair to, and in the best interest of, our company and our stockholders, and that we should proceed with the sale.
Recommendation of our Board of Directors
Our Board of Directors has determined that the proposed sale of our Osteocel business is fair to, and in the best interest of, our company and our stockholders. Our Board of Directors unanimously approved the asset purchase agreement and the transactions contemplated thereby, and recommends that the stockholders vote in favor of the proposal to approve the asset purchase agreement and the transactions contemplated thereby, including the sale to NuVasive of our Osteocel product line, including Osteocel and Osteocel XO, and related business assets.
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You should carefully consider the risk factors described below as well as other information provided to you in this proxy statement in deciding how to vote on the proposal to approve the asset purchase agreement, the related transaction documents, and the consummation of the transactions contemplated thereby. If any of the following risk factors actually occur, our business, financial condition or results of operations could be materially adversely affected.
Risk Factors Regarding the Proposal to Approve the Asset Purchase Agreement and the Transactions Contemplated Thereby.
The proposed sale may not be completed or may be delayed if the conditions to closing are not satisfied or waived in a timely manner or ever.
The proposed sale may not be completed or may be delayed because the conditions to closing may not be satisfied or waived. Conditions which must be satisfied or waived prior to the technology assets closing include obtaining stockholder approval and required consents from third parties such as tissue suppliers and parties to important contracts. If the transaction is not completed, it is possible that we will have difficulty recouping the costs incurred in connection with negotiating the proposed transaction, our relationships with our customers, suppliers and employees may be damaged and our business may be seriously harmed. In addition, depending upon the reason for the termination, pursuant to the asset purchase agreement, we may become obligated upon termination to pay NuVasive a termination fee of up to $2.0 million.
We may not receive all of the payments available to us under the terms of the asset purchase agreement, and accordingly, we may have less cash available to us to fund our remaining operations.
The terms of the asset purchase agreement provide for an initial payment to us of $35.0 million in cash and allow for the prospect of additional milestone payments to us, of up to approximately an additional $50.0 million in the aggregate. In addition, pursuant to the terms of the manufacturing agreement, we will have the ability to earn fee revenues related to the production of Osteocel® that we supply to NuVasive following the technology assets closing and prior to the manufacturing assets closing. These potential fee revenues could exceed $50.0 million. Our ability to earn these milestone payments, or to earn fee revenues from the supply of Osteocel to NuVasive, is subject to a number of conditions and uncertainties, including raw material availability, and we have no assurances that any of these amounts will, in fact, be paid to or be received by us. Although there are certain minimum purchase order obligations under the manufacturing agreement, we may be limited or experience difficulty in our ability to fulfill those purchase orders. In addition, NuVasive has disclaimed any obligation under the asset purchase agreement to operate the purchased business to allow for or permit the achievement of any milestones. If we do not receive these payments, we will have less cash available to fund our remaining operations and to support the continued development and pursuit of FDA approval for our biologic drug candidates, including Prochymal.
The asset purchase agreement will expose us to contingent liabilities which could adversely affect our ability to pursue our core business focused on the development and marketing and obtaining of FDA approval for our biologic drug candidates, including Prochymal.
In the asset purchase agreement we have made customary representations and warranties, which are described below under the heading Summary of Material Terms of the Asset Purchase Agreement Representation and Warranties. We agreed to indemnify NuVasive for any losses from breaches of our representations and warranties that occur within specified periods following the technology assets closing. Our indemnification obligation for breach of representation and warranties under the asset purchase agreement relating to:
· disposition of certain contracts;
· intellectual property;
· authorizations and regulatory compliance;
· environmental matters;
· taxes; and
· brokers.
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survive until sixty days after the expiration of the applicable statutes of limitations.
Our representations and warranties under the asset purchase agreement relating to:
· organization, good standing and authority;
· organizational and governing documents, and approval;
· due execution and delivery;
· title to and sufficiency of transferred assets;
· consents and absence of conflicts;
· financial information;
· litigation and claims;
· compliance with laws;
· employees, independent contractors, labor matters and employee benefits;
· insurance;
· fair consideration and absence of fraudulent conveyance;
· product warranties and product liabilities;
· customers and suppliers;
· real property and leases;
· capital expenditures;
· absence of changes and complete disclosure since December 31, 2007; and
· obsolete items and inventory.
survive the technology assets closing and continue until eighteen months after the manufacturing assets closing.
The parties have agreed to indemnify each other for breaches of representations, warranties and covenants contained in the asset purchase agreement, and we have agreed to indemnify NuVasive for any excluded liabilities. With respect to the indemnification related to breach of representations, warranties and covenants, each partys right to indemnification will generally arise after its losses reach $250,000, and then it will receive payments for all losses, with the maximum indemnity payments for such losses equal to $15.0 million, except in the case of any breach by us of representations related to certain specified matters, as respects to which the overall liability cap is increased to $20.0 million plus the amount of any milestone payment(s) earned, up to an aggregate of $35.0 million. Should we incur liability for breach of these representations or warranties, our ability to pursue our core business focused on the development and marketing approval for our biologic drug candidates, including Prochymal, could be materially and adversely affected.
If the proposed sale is not completed, we may explore other potential transactions, but alternatives may be less favorable to us.
If the proposed sale is not completed, we may explore other strategic alternatives, including a sale of our Osteocel business assets to another party. An alternative transaction may have terms that are less favorable to us than the terms of the proposed sale, or we may be unable to reach agreement with any third party on an alternate transaction that we would consider to be reasonable.
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The failure to complete the proposed sale may result in a decrease in the market value of our common stock and may impair our ability to achieve our objectives of developing, obtaining FDA approval and marketing our biologic drug candidates, including Prochymal.
The failure to complete the proposed sale may result in a decrease in the market value of our common stock and may impair our ability to achieve our objectives of becoming profitable as quickly as possible and enhancing the value of our assets to our stockholders.
If our stockholders fail to approve the proposed sale, or if the proposed sale is not completed for any other reason, the market price of our common stock may decline. In addition, failure to complete the proposed sale will result in a reduction in the amount of cash otherwise available to us and may substantially limit our ability to implement our strategy of pursuing the continued development, FDA approval and marketing of our biologic drug candidates, including Prochymal.
Risk Factors Relating to Our Company if the Sale is Completed
By completing the proposed sale, we will be selling the assets that have historically generated substantially all of our revenue.
We will be selling our entire product line relating to the processing, manufacturing, marketing and selling of Osteocel. This business has historically been the source of substantially all of our revenue. Although we expect to receive continued revenues for the supply of product pursuant to the manufacturing agreement, these revenues will not be long term, will have substantially reduced margins and will likely cease concurrent with the manufacturing assets closing, anticipated to occur within eighteen months after the technology assets closing. Although our business related to the development, obtaining FDA approval and marketing of our biologic drug candidates, including Prochymal, will remain, this business has generated no appreciable revenue and has caused us to incur significant operating expenses and resulted in the incurrence of substantial losses in each year since our inception. We expect to continue to incur operating expenses and anticipate our expenses and losses will increase in the foreseeable future as we continue our efforts to develop, obtain FDA approval and market our biologic drug candidates, including Prochymal. Even in the event that all milestone payments are received by us under the asset purchase agreement, these funds and the funds available under the manufacturing agreement may not collectively be sufficient to fund our anticipated losses and expenses. Accordingly, we may need to seek additional funding prior to our becoming cash flow positive on an operational basis. We would likely seek such funding through public or private financing or some combination thereof. Additional funding may not be available to us on acceptable terms, or at all.
Our business following the sale will depend primarily on the success of our biologic drug candidates business.
Our biologic drug candidate business will be the primary focus of our business after the sale. We will, however, continue to manufacture Osteocel under the manufacturing agreement which should result in revenues related to the manufacture and supply of Osteocel to NuVasive until the manufacturing assets closing date, anticipated to occur approximately eighteen months after the technology assets closing date. Our long term business prospects will, however, be dependent almost solely on the success of our biologic drug candidate business. This business is based on novel technologies and involves significant risks and challenges in regards to product development and optimization, manufacturing, government regulation, intellectual property, third-party reimbursement and market acceptance, among other risks previously disclosed by us.
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If the risks associated with the Osteocel business as previously disclosed by us occur and affect either NuVasive or us, and correspondingly our ability to earn milestones payments under the asset purchase agreement or to generate revenues under the manufacturing agreement, then we may not realize the full benefit of the proposed sale and related transactions, and our business, financial condition and results of operations could be materially adversely affected.
On March 17, 2008, we filed our Annual Report on Form 10-K with the SEC that discussed various risks associated with our business generally, as well as risks specific to our Osteocel business. These risks include risks related to
· our dependence upon a limited supply of adult marrow-rich bone necessary to produce Osteocel;
· the potential for disease transmission from Osteocel and our biologic drug candidates, which are derived from human tissue and bone marrow sources;
· our limited experience manufacturing Osteocel and our ability to manufacture Osteocel in sufficient quantities;
· product liability claims;
· risks related to intellectual property including the patent position for Osteocel; and
· risks related to regulatory approval and other government regulations, including the risk that the FDA decides that Osteocel does not meet the appropriate regulatory requirements to allow for its continued sale.
If any of these risks (or the additional risks referred to in our Form 10-K filing referenced above) occur, and correspondingly our ability to earn milestone payments under the asset purchase agreement and/or generate revenues under the manufacturing agreement, then we may not realize the full benefit of the sale and the related transactions, and our business, financial condition and results of operations could be materially adversely affected.
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Company Voting and Support Agreements
Peter Friedli, the Chairman of our Board of Directors and our single largest stockholder, and certain entities with which he is affiliated, including Venturetec, Inc. and US Venture 05, Inc., together with C. Randal Mills, our President and Chief Executive Officer and a member of our Board of Directors, have entered into voting agreements with NuVasive simultaneously with the execution and delivery of the asset purchase agreement. As of June 1, 2008, the shares covered by the voting agreements represented in the aggregate approximately 47% of our outstanding common stock. Pursuant to the voting agreements, the stockholder parties thereto have agreed to vote in favor of the asset purchase agreement and the transactions contemplated thereby, subject in some cases to an exception typical in voting agreements of this type, which allows for reduction of the shares covered by the voting agreements to 38%, in the event that our Board of Directors, in the exercise of its fiduciary duties, changes its recommendation to the stockholders in respect of approval of the asset purchase agreement and the transactions contemplated thereby.
The above description summarizes select provisions of the voting agreements and is qualified in its entirety by reference to the complete text of the form of company voting and support agreement attached as Appendix C to this proxy statement. We urge you to read carefully the entire form of company voting and support agreement for its terms and other information that may be important to you.
Interest of Directors and Executive Officers in the Sale of Assets
In considering the recommendation of our Board of Directors with respect to the asset purchase agreement and the transactions contemplated thereby, you should be aware that certain of our directors and executive officers have interests in the sale of assets that are in addition to, or different from the interests of our stockholders generally and that create potential conflicts of interest. These interests are described below:
· Mr. Friedli, Chairman of our Board of Directors and our single largest stockholder, and certain entities with which he is affiliated, have entered into voting agreements as discussed above; and
· C. Randall Mills, our President and Chief Executive Officer and a member of our Board of Directors, has entered into a voting agreement as discussed above.
As of June 1, 2008, our directors and executive officers beneficially owned 16,974,973 shares of our outstanding common stock, representing approximately 51.6% of the outstanding shares of common stock. For additional information regarding the beneficial ownership of our common stock see the section of this proxy under the heading Security Ownership of Certain Beneficial Owners and Management. The vote of holders of a majority of the shares of our common stock outstanding on the record date is required to approve the asset purchase agreement and the transactions contemplated thereby.
Appraisal Rights
Neither Delaware law, nor our Amended and Restated Certificate of Incorporation or our Amended and Restated Bylaws provide for appraisal rights or other similar rights for stockholders who do not vote in favor of, or vote against, the sale.
Accounting Treatment
The proposed sale of our Osteocel business assets will be accounted for as a sale of net assets. Upon the closing of the transaction, we will recognize a gain and the historical and future financial results of the Osteocel business will be reported as results of discontinued operations in our statements of operations.
Required Approvals
Neither we nor NuVasive are aware of any regulatory requirements or governmental approvals or actions that may be required to consummate the transactions contemplated by the asset purchase agreement, except for expiration of the applicable waiting period (including any extensions thereof) under the U.S. Hart-Scott-Rodino Act (which has now occurred), compliance with the applicable regulations of the Securities and Exchange Commission in connection with this proxy statement, and compliance with the Delaware General Corporation Law in connection with the stockholder approval being requested at the special meeting for which this proxy statement has been prepared.
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Tax Consequences
The following is a summary of the principal material United States federal income tax consequences relating to the proposed sale of assets. The proposed sale of assets will be a transaction taxable to us for United States federal income tax purposes. We will recognize taxable income equal to the amount realized on the sale in excess of our tax basis in the assets sold. The amount realized on the sale will consist of the cash we receive in exchange for the assets sold, plus the amount of related liabilities assumed by NuVasive. Although the sale of the assets will result in a taxable gain to us, substantially all of the taxable gain will be offset against our current year losses from operations plus available net operating loss carry forwards, as currently reflected on our consolidated federal income tax returns.
The proposed sale of the assets will not be a taxable event for our stockholders under applicable United States federal income tax laws.
This summary does not consider the effect of any applicable foreign, state, local or other tax laws nor does it address tax consequences applicable to stockholders that may be subject to special federal income tax rules. This summary is based on the current provisions of the Internal Revenue Code, existing, temporary, and proposed Treasury regulations thereunder, and current administrative rulings and court decisions. Future legislative, judicial or administrative actions or decisions, which may be retroactive in effect, may affect the accuracy of any statements in this summary with respect to the transactions entered into or contemplated prior to the effective date of those changes.
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The following is a summary of the material provisions of the asset purchase agreement, a copy of which is attached as Appendix A to this proxy statement, and is incorporated by reference into this summary. While we believe this summary covers the material terms of the asset purchase agreement, this summary may not contain all of the information that is important to you, and we urge you to read the asset purchase agreement in its entirety.
The Parties
Osiris Therapeutics, Inc.
We are a stem cell therapeutic company headquartered in Columbia, Maryland, focused on developing and marketing products to treat medical conditions in the inflammatory, orthopedic, and cardiovascular areas. We were incorporated in Delaware in April 2002. Our predecessor company was organized in 1992. We currently manufacture, market and sell Osteocel® for regenerating bone in orthopedic indications. It is the only commercially available product in the U.S. containing viable stem cells. Our lead biologic drug candidate, ProchymalTM, is being evaluated in Phase III clinical trials for three indications, including acute and steroid refractory Graft versus Host Disease and Crohns disease, and is the only stem cell therapeutic currently granted both Orphan Drug and Fast Track status by the Food and Drug Administration (FDA). Prochymal is also being developed for the repair of heart tissue following a heart attack and for protection of pancreatic islet cells in patients with type 1 diabetes. Our pipeline of internally developed biologic drug candidates under evaluation also includes ChondrogenTM for osteoarthritis in the knee. We have also partnered with Genzyme Corporation to develop Prochymal as a medical countermeasure to nuclear terrorism and other radiological emergencies.
We are a fully integrated company, having developed capabilities in research, development, manufacturing, marketing and distribution of stem cell products. We have developed an extensive intellectual property portfolio to protect our technology in the United States and a number of foreign countries including 47 U.S. and 253 foreign patents owned or licensed.
NuVasive, Inc.
NuVasive, Inc., a Delaware corporation, is a medical device company headquartered in San Diego, California, focused on the design, development and marketing of products for the surgical treatment of spine disorders. NuVasives currently-marketed product portfolio is focused on applications for spine fusion surgery, a market estimated to exceed $4.2 billion in the United States in 2008. NuVasives principal product offering includes a minimally disruptive surgical platform called Maximum Access Surgery, or MASTM, as well as a growing offering of cervical and motion preservation products. NuVasives currently-marketed products are used predominantly in spine fusion surgeries, both to enable access to the spine and to perform restorative and fusion procedures. NuVasive focuses significant research and development efforts on both MAS and motion preservation products in the areas of (i) fusion procedures in the lumbar and thoracic spine, (ii) cervical fixation products, and (iii) motion preservation initiatives such as total disc replacement and nucleus-like cervical disc replacement.
Asset Sale
On May 2, 2008, our Board of Directors unanimously approved the asset purchase agreement and the transactions contemplated thereby pursuant to which we agreed, among other things, to sell our Osteocel product line, including Osteocel and Osteocel® XO, and related business assets to NuVasive for an initial payment of $35.0 million in cash. In addition, we have the ability to earn certain milestone payments not to exceed approximately $50.0 million in the aggregate. Receipt of each of the milestone payments is conditioned upon the satisfaction of certain conditions, including conditions relating to the production and delivery by us of agreed upon quantities of Osteocel on or before certain agreed upon dates and completion of the transfer of certain manufacturing assets in accordance with agreed upon terms. The assets consist of our business (which we refer to herein collectively as our Osteocel business) involving the development, processing, manufacturing, marketing and selling of an osteobiologic allograft material containing cancellous bone (which contains intrinsic viable mesenchymal stem cells) used in spinal fusion and other surgical procedures and commonly known as Osteocel and Osteocel XO, including current formulation and all development projects related to Osteocel and Osteocel XO (which we sometimes refer to herein collectively as Osteocel). Upon completion of the sale, our business related to Osteocel and Osteocel XO will then terminate.
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Manufacturing Agreement
In connection with the transactions contemplated by the asset purchase agreement, we agreed to enter into a manufacturing agreement with NuVasive to continue to manufacture and supply Osteocel for a period of eighteen months after the technology assets closing. For a summary of the material terms of the manufacturing agreement see the discussion in this proxy statement under the heading Summary of the Material Terms of the Manufacturing Agreement in this proxy statement.
Closings
Pursuant to the terms of the asset purchase agreement and to facilitate our continuing to manufacture and supply Osteocel pursuant to the manufacturing agreement, we will transfer all of the assets to be transferred with respect to the Osteocel business in two phases.
Technology Assets Closing
The consummation of the technology assets transfer, at which the technology assets related to the Osteocel business will be transferred (including intellectual property, permits, data and records, and contract rights related to the development, manufacturing and sale of Osteocel and Osteocel XO), will be held as soon as reasonably practicable after the special meeting of stockholders, if the asset purchase agreement and transactions contemplated thereby are approved by our stockholders and all other conditions to closing have been satisfied or waived.
Manufacturing Assets Closing
The consummation of the manufacturing assets transfer, at which the manufacturing assets related to the Osteocel business (including our leasehold interest in our Columbia, Maryland administrative offices and Osteocel processing facility and specified equipment now employed by us in the manufacture of Osteocel) will be transferred, will be held at the manufacturing assets closing, to be held as soon as reasonably practicable following the earlier to occur of the termination of the manufacturing agreement by NuVasive, and the expiration of the stated term of the manufacturing agreement, which is eighteen months from the date of the technology assets closing. Our business related to Osteocel and Osteocel XO will then terminate.
Purchased Assets, Excluded Assets and Assumed Liabilities
The assets to be sold pursuant to the asset purchase agreement consist of all of our operating assets, tangible property and intellectual property with respect to the Osteocel business and include the following:
· certain intellectual property including patents, trademarks, and copyrights and other intangible rights and property used in, held for use in, intended for use in, related to or necessary for the operation of the Osteocel business;
· all inventory and work in process existing as of the manufacturing closing date relating to the Osteocel business;
· certain rights related to the development of Osteocel, including all clinical trails and related clinical trial data;
· all data and records related to the operation of the Osteocel business, including client and customer lists;
· the tangible personal property used in or necessary for the operation of the Osteocel business;
· certain permits, licenses, franchises, consents, authorizations, registrations and other approvals and operating rights relating to the Osteocel business;
· all claims against third parties related to the operation of the Osteocel business;
· all rights related to deposits and prepaid expenses, claims for refunds and rights to offset in respect thereof relating to the assets and/or assets transferred pursuant to the agreement;
· all rights in and to certain contracts used in, related to or necessary for the operation of the Osteocel business; and
· all goodwill relating to the foregoing assets.
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Except for the foregoing assets, NuVasive will not acquire and will have no right, title or interest in any of our assets, and such assets will remain our property. Furthermore, we have specifically excluded from the assets to be initially transferred to NuVasive all of our right, title and interest in and to any second generation mesenchymal stem cell product for bone repair utilizing culture-expanded mesenchymal stem cells to create a synthetic version of Osteocel. We call this second generation mesenchymal stem cell product candidate Osteocel® XC. Although we are not currently engaged in an active product development program focused specifically on Osteocel XC, we have granted to NuVasive pursuant to the asset purchase agreement a right to acquire exclusive rights to Osteocel XC on generally predefined terms subject, in part, to final negotiation, through December 31, 2009. Through that same date, NuVasive is also afforded a right of first negotiation prior to any other transaction involving Osteocel XC.
NuVasive is assuming liabilities including:
· the obligations to perform arising in the ordinary course of business under any contracts assumed by NuVasive after the technology assets closing, if such contract constitutes a portion of the technology assets, and after the manufacturing assets closing, if such contract constitutes a portion of the manufacturing assets; and
· the expenses and liabilities relating to the Osteocel business which are incurred or accrued in the ordinary course of business after the technology assets closing (excluding our liabilities under the manufacturing agreement).
NuVasive is not assuming any liabilities other than as described above. Specifically, NuVasive is not assuming:
· any trade accounts payable of the Osteocel business;
· any of our liabilities or obligations in respect of any kind of our indebtedness;
· any of our liabilities or obligations related to the employment, termination or compensation of any of our employees, consultants or service providers, including any and all liabilities or obligations to any employees transferred from us to NuVasive incurred prior to the time such employees are employed by NuVasive;
· any of our liabilities or obligations relating to any product warranty or product liability claims owing, accrued or the underlying facts with respect to which arise out of our operation of the Osteocel business;
· any of our liabilities or obligations for any taxes relating to the Osteocel business for any period (or portion thereof) ending on or prior to the date of the technology assets closing and any taxes of the Osteocel business related to the manufacturing assets for any period (or portion thereof) ending on or prior to the manufacturing assets closing;
· any of our liabilities or obligations under any contract assumed by NuVasive prior to the date on which any such contract is transferred by us to NuVasive;
· any environmental liabilities or obligations to the extent arising out of the operation of the Osteocel business prior to the technology assets closing with respect to the technology assets and prior to the manufacturing assets closing with respect to the manufacturing assets; and
· any of our liabilities or obligations incurred, arising from or out of or in connection with the asset purchase agreement and the related agreements.
Purchase Price
Initial Purchase Price
At the technology assets closing, NuVasive will make payment to us of $35.0 million in cash, pursuant to the terms of the asset purchase agreement and assume certain liabilities related to the technology assets.
Additional Purchase Price
In addition to the initial purchase price, NuVasive is obligated, subject to and contingent upon our achievement of the performance milestones described below not later than the applicable date for satisfaction of each such milestone, to pay us an amount of cash or, subject to certain restrictions, shares of common stock of NuVasive having then equivalent market value (the form of payment of which is to be determined in the sole discretion of NuVasive), equal to the sum of the milestone(s) achieved by us.
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Each milestone is independent of each other milestone and may be satisfied and payment due therefor regardless of non-satisfaction of any other milestone.
Pursuant to the asset purchase agreement, NuVasive may not issue shares of NuVasive common stock in respect of any milestone payment, and will instead be obligated to deliver cash, unless such shares of NuVasive common stock may be re-sold by us pursuant to Rule 144 of the rules and regulations promulgated under the Securities Act of 1933, as amended, on the date of such issuance.
The milestones are as follows:
· if at any time prior to April 15, 2009, we have delivered to NuVasive an aggregate of 125,000 cubic centimeters of Osteocel in accordance with the terms of the manufacturing agreement, NuVasive shall pay to us $5.0 million;
· if at any time prior to the manufacturing assets closing, we have delivered to NuVasive an aggregate of 250,000 cubic centimeters of Osteocel, including any Osteocel delivered in satisfaction of any prior milestone in accordance with the terms of the manufacturing agreement, NuVasive shall pay to us an additional $5.0 million;
· subject to the prior satisfaction of the conditions described below, at the manufacturing assets closing, NuVasive shall pay to us $12.5 million plus or minus, an adjustment for certain then existing work in progress;
· if prior to the manufacturing assets closing, we have delivered to NuVasive an aggregate of 275,000 cubic centimeters of Osteocel in accordance with the terms of the manufacturing agreement, including the Osteocel delivered pursuant to any prior milestone, then NuVasive shall pay an additional $5.0 million to us at the manufacturing assets closing;
· at the manufacturing assets closing, NuVasive shall pay to us an amount equal to the product of (i) (A) the excess delivery amount divided by (B) 58,300, rounded down to the nearest whole number multiplied by (ii) $2.5 million; provided, however, that in no event shall the payment exceed $7.5 million. Excess delivery amount means the number by which the total number of cubic centimeters of Osteocel delivered to NuVasive prior to the manufacturing assets closing in accordance with the terms of the manufacturing agreement exceeds 250,000 cubic centimeters; and
· if at any time following the technology assets closing the Osteocel business generates $35.0 million in cumulative net sales NuVasive shall pay to us an additional $15.0 million.
In no event, however, shall the sum of all of the milestone payments made by NuVasive to us exceed $50.0 million plus or minus an adjustment for certain work in progress at the date of the manufacturing assets closing. NuVasives obligation to make the $12.5 million milestone payment at the manufacturing assets closing is subject to the satisfaction (or waiver by NuVasive) of the following conditions:
· the representations and warranties by us in the asset purchase agreement must be true and correct in all material respects with respect to the manufacturing assets at and as of the date of the manufacturing assets closing (except those qualified by materiality or relating to the corporate status, organizational documents and good standing, authorization of the transaction and corporate authority, and the title and sufficiency of the transferred assets, which must be true and correct in all respects);
· we must have performed and complied in all material respects with all our obligations and covenants with respect to the manufacturing assets and the transfer thereof;
· absence of any event, circumstance, development with respect to, change in or effect on the manufacturing assets that is, or could reasonably be expected to be, materially adverse to such manufacturing assets, taken as a whole;
· absence of any action, suit, proceeding claim, arbitration or investigation before any governmental entity or before any arbitrator pending that is reasonably expected to result in an unfavorable judgment, order, decree, stipulation or injunction that would either prevent the transfer of the manufacturing assets or cause such transfer to be rescinded;
· none of the work in process shall be held under a consignment or similar arrangement or be in transit and all such work in process shall have been manufactured in accordance with then current Good Tissue Practices (cGTP);
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· delivery to NuVasive of all certificates and bill of sale and assignment and assumption agreements in accordance with the asset purchase agreement;
· absence of any liens, other than permitted liens, on the manufacturing assets; and
· delivery to NuVasive of a good standing certificate from the Secretary of State of the State of Delaware.
Representations and Warranties
We have made a number of representations and warranties, subject to qualification in some cases, in the asset purchase agreement relating to:
· our corporate organization, good standing, organizational and governing documents and authority to enter into, execute and deliver and the enforceability of, the asset purchase agreement and the related transaction documents;
· title and sufficiency of the transferred assets;
· consents and absence of conflicts;
· tax matters;
· financial information;
· contracts to be assumed by NuVasive;
· litigation and claims;
· compliance with laws;
· employees, independent contractors, labor matters and employee benefits;
· intellectual property;
· insurance;
· fair consideration and absence of fraudulent conveyances;
· authorizations and regulatory compliance;
· product warranties and product liabilities;
· environmental matters;
· real property and leases;
· use of brokers or other representatives in connection with the asset sale;
· capital expenditures relating to the Osteocel business;
· absence of certain changes or events since December 31, 2007;
· obsolete items and inventory;
· customers and suppliers of the Osteocel business; and
· accuracy and adequacy of our disclosures to NuVasive relating to the Osteocel business.
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NuVasive has represented and warranted to us, among other things, that is an organization duly formed, validity existing and in good standing under the laws of the State of Delaware and has full corporate power and authority to execute and deliver and to perform its obligations under the asset purchase agreement and the related transaction documents. NuVasive has also represented that no further consents or approvals are required for it to consummate the purchase of the Osteocel business and that no broker or other representative acted on its behalf in connection with the transactions contemplated by the asset purchase agreement in such manner as to give rise to any valid claim by any person against us for any fees or other payment.
For purposes of claims for indemnification, all of the representations and warranties made by us and NuVasive will survive for eighteen months after the manufacturing assets closing except for those representations and warranties we made relating to taxes, disposition of certain contracts, intellectual property, authorizations and regulatory compliance, environmental matters and brokers which survive for sixty days after the expiration of the applicable statutes of limitations.
Further Assurances
Each party agreed with the other that at any time and from time to time following the date of the asset purchase agreement, and without further consideration, each will promptly execute and deliver to the other such further assurances, instruments and documents and take such further action as the other may reasonably request in order to carry out the full intent and purpose of the agreement and to consummate the transactions contemplated thereby. We have also agreed to take such further action as may be necessary to remedy a breach by us of the representations and warranties made by us in the asset purchase agreement concerning the title to and sufficiency of the transferred assets.
Covenants
The asset purchase agreement contains customary covenants on our operation and use of the assets related to the Osteocel business. We have agreed to conduct our activities associated with the transferred assets in their ordinary and usual course, consistent with past practice, and will use commercially reasonable efforts to preserve intact all rights, privileges, franchises and other authority related to the activities associated with the transferred assets, and maintain in their current, or currently-planned, condition its current relationships with licensors, licensees, suppliers, contractors, distributors, customers, and others having relationships related to the activities associated with the transferred assets. We have also agreed that, except as expressly contemplated by the asset purchase agreement or approved in writing by NuVasive, prior to the technology assets closing with respect to all technology assets and the manufacturing assets closing with respect to the manufacturing assets, we will not:
· create, incur or assume any obligation which would materially and adversely affect the transferred assets or NuVasives ability to operate the Osteocel business in substantially the same manner and condition as currently conducted by us;
· enter into certain contracts or violate, terminate, amend or otherwise modify or waive any of the terms of any contract to be assumed by NuVasive;
· sell, lease, license, transfer or dispose of any of the transferred assets (except for sales of Osteocel in the ordinary course of business consistent with our past practices);
· change any of our accounting methods with respect to the Osteocel business;
· terminate, waive or release any material right or material claim with respect to the Osteocel business or any of the transferred assets;
· license any of the technology to be transferred to NuVasive (except for licenses under our standard customer agreement made in the ordinary course of business consistent with our past practices);
· initiate, settle or agree to settle any litigation, action, suit, proceeding, claim or arbitration relating to the Osteocel business;
· change the manner in which we extend warranties, discounts or credits to customers with respect to Osteocel;
· modify or fail to maintain our current insurance coverage with respect to the transferred assets;
· sell, dispose of or encumber any of the transferred assets or license any transferred assets;
· enter into any agreements or commitments relating to the transferred assets;
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· fail to comply in all material respects with all laws and regulations applicable to the activities associated with the transferred assets;
· change or announce any change to the Osteocel business or the transferred assets; or
· agree to take any of the foregoing actions or take any action which would reasonably be expected to prevent us from performing or cause us not to perform one or more covenants required to be performed by us.
Financial Statements
We have agreed to provide NuVasive with certain historical financial statements and information related to the Osteocel business.
Confidentiality
We have agreed to maintain the confidentiality of all information related to the Osteocel business and the transferred assets. Our confidentiality obligations do not apply to the portion of any confidential information that we can demonstrate is in the public domain or enters the public domain without the wrongful act or breach of the asset purchase agreement by us, approved in advance by NuVasive for release, or subject to certain limited exceptions, disclosed by a court of competent jurisdiction.
Non-Solicitation/No-Bids
We have agreed that, until the earlier to occur of the manufacturing assets closing, or the termination of the asset purchase agreement, neither we nor any of our representatives will, directly or indirectly, initiate, solicit, entertain or encourage any proposal, inquiry or offer from any person (other than NuVasive) concerning the acquisition or license of all or any portion of the transferred assets, or make any statements to third parties which may reasonably be expected to lead to any such proposal, or negotiate, engage in any substantive discussions, or enter into any agreement, with any person concerning any such proposal.
If, however, at any time prior to obtaining stockholder approval we receive an unsolicited bona fide written proposal that did not result from any breach of our representations of warranties, our Board of Directors has determined in good faith that such proposal constitutes a superior proposal, our Board of Directors has determined in good faith, after consultation with outside counsel, that failure to take action with respect to such superior proposal would result in a breach of its fiduciary duties under Delaware law, then we must notify NuVasive of such determination and offer to discuss in good faith with NuVasive (and, if NuVasive accepts, thereafter negotiate in good faith), for a period of no less than five business days, any adjustments in the terms and conditions of the asset purchase agreement proposed by NuVasive. If, following such notice and discussions, our Board of Directors has determined that such proposal remains superior to NuVasives proposal, then we may furnish non-public information with respect to us to the person or group making such proposal pursuant to a customary confidentiality agreement, and participate in discussions or negotiations with such person or group regarding such proposal, and our Board of Director may withdraw, modify or qualify its recommendation that our stockholders approve the asset purchase agreement and the transactions contemplated thereby, and may recommend the superior proposal. We must, however, provide or make available to NuVasive any material non-public information concerning us, that is provided to the person making such proposal which was not previously provided or made available to NuVasive. Notwithstanding any such superior proposal or any change in the recommendation of our Board of Directors, we are obligated to hold the stockholder meeting for purposes of approving the asset purchase agreement and the transactions contemplated thereby.
Non-Competition and Non-Solicitation of Employees
From the date of the technology assets closing until eighteen months following the manufacturing assets closing, we have agreed to not:
· engage in any business or activities that compete with the Osteocel business;
· enter the employ of, or render services to, any person (or any affiliate of any person) who or which is engaged in a competitive business with respect to such competitive business;
· acquire a financial interest in, or otherwise become actively involved with, any competitive business;
· solicit, encourage or attempt to solicit or encourage any employee of NuVasive or any of its affiliates who was immediately prior to the technology assets closing or manufacturing assets closing (as applicable), an active employee of ours to leave the employment of NuVasive or its affiliates;
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· hire any of our former employees who left our employment in connection with the technology assets closing or the manufacturing assets closing;
· hire any of our former employees who terminates employment with NuVasive or its affiliates in the one year period following the manufacturing assets closing;
· solicit, encourage or attempt to solicit or encourage to cease to work with NuVasive or its affiliates any employee of, or consultant then under contract with, NuVasive or its affiliates who is or has been engaged in the Osteocel business;
· solicit, induce or attempt to induce any customer to cease doing business in whole or in part with NuVasive or its affiliates with respect to the Osteocel business;
· attempt to limit or interfere with any business agreement existing between the NuVasive and/or its affiliates and any third party; or
· disparage the business reputation or employees of NuVasive, or any of its affiliates, or take any actions, knowingly, willfully or, recklessly, that are harmful to the NuVasives or its affiliates goodwill with certain third parties or the public.
Notwithstanding the foregoing, we are not prohibited or restricted from:
· engaging in or operating the business of any second generation mesenchymal stem cell product for bone repair utilizing culturally-expanded mesenchymal stem cells to create a synthetic version of Osteocel, including, without limitation, Osteocel XC; or
· consummating a transaction with a third party, through stock or asset acquisition, merger, consolidation or otherwise, where any such third party acquires all or a portion of our outstanding common stock or assets, provided that any such third party agrees to be bound by the non-competition provisions of the asset purchase agreement.
Employee Matters
We have agreed to provide NuVasive with reasonable access to our active employees performing services with respect to the Osteocel business to enable NuVasive to discuss compensation terms and present offers of employment to such employees. NuVasive may, in its sole discretion, offer employment to these employees commencing as of the manufacturing assets closing. NuVasive has agreed to recognize each of our employees that it hires original hire date with us and prior service with us as service with NuVasive for purposes of eligibility to participate in, and determining vesting and any accrued benefits based on length of service under, NuVasives employee benefit plans, policies, arrangements and payroll policies. At NuVasives request, we have agreed to accelerate the vesting of any options to purchase our common stock, held by one or more of our former employees at or following the technology assets closing on the terms and subject to the conditions as NuVasive shall reasonably request and which are in accordance with the applicable option agreements and related documents.
Osteocel XC: Negotiation; Purchase Option
Purchase Option
For a period commencing on the date of the technology assets closing and ending on December 31, 2009, we have granted NuVasive the right to acquire from us the exclusive rights to any second generation mesenchymal stem cell product for bone repair utilizing culture expanded mesenchymal stem cells to create a synthetic version of Osteocel (i.e. Osteocel XC) at certain generally pre-defined terms, including a minimum cash price, an agreement to fund development efforts, an exclusive product supply agreement with an agreed gross margin and on non-monetary terms and conditions substantially similar to the terms and conditions on which the Osteocel business is being acquired by NuVasive pursuant to the asset purchase agreement. Consummation of any such transaction is in any event subject, in part, to final negotiation between the parties of the terms of the transaction.
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Right of First Negotiation
We have also agreed that until December 31, 2009, if we desire to enter into a transaction or accept a third-party proposal for the sale, license, joint-venture arrangement, transfer or partial transfer of Osteocel XC, we will first provide NuVasive with a notice of such desired transaction. If, within five business days of the receipt of such notice, NuVasive gives us written notice of its interest to negotiate a transaction on the terms contained in the notice, then we and NuVasive have agreed, to exclusively negotiate an agreement to carry out such transaction with NuVasive. If NuVasive fails to timely respond to the notice, or if we enter into an agreement for such transaction with NuVasive within thirty days, then neither we nor NuVasive shall have a right or be under any obligation to enter into such transaction, and we may, subject to NuVasives purchase option, consummate with a third-party a transaction on terms not materially less favorable to us than the terms contained in the notice.
Consents and Termination of Certain Contracts
We have agreed prior to the technology assets closing to obtain at our expense, consents and waivers for certain of the contracts being assumed by NuVasive. We have also agreed prior to the technology assets closing to terminate contracts relating to the Osteocel business.
Regulatory and Other Authorizations
We have agreed, that prior to the technology assets closing, we will use our commercially reasonable efforts to obtain in writing and at our own expense all consents and waivers related to certain contracts to be assumed by NuVasive. If the assignment or transfer of any assumed contract would constitute a breach thereof, we have agreed to establish with NuVasive any back-to-back arrangement reasonably requested by NuVasive in order to provide for NuVasive the benefits intended to be assigned under any such assumed contract (subject to the right of any third party thereunder to terminate such assumed contract), including, without limitation, the enforcement by us for the benefit of NuVasive, at NuVasives sole cost and expense, of any and all of our rights against a third party to such assumed contract arising out of the breach by such third party or otherwise.
Hart-Scott-Rodino Act Notification
We have agreed with NuVasive to promptly prepare, execute and file a notification with the United States Justice Department and the Federal Trade Commission as required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. Pursuant to the terms of the asset purchase agreement, the technology assets closing is subject to and conditioned upon the receipt of requisite approvals or the expiration of the applicable waiting period (including any extensions thereof) under the Hart-Scott-Rodino Act (which has now been obtained).
Public Announcements
Except as required by law, neither partys representatives can make any public announcement concerning the asset purchase agreement without the prior written consent of the other party.
Transfer Taxes
All taxes arising out of the consummation of the transactions contemplated by the asset purchase agreement imposed on us shall be paid by us and promptly discharged by us when due and all such taxes imposed on NuVasive shall be paid by NuVasive and promptly discharged by NuVasive when due.
Stockholder Meeting and Proxy
We have agreed to promptly prepare and file with the SEC a proxy statement relating to the approval of the asset purchase agreement and the transactions contemplated thereby by our stockholders, and to use our reasonable best efforts to promptly respond to any comments of the SEC with respect thereto, and to cause such proxy statement to be promptly mailed to our stockholders.
We have also agreed to promptly establish a record date for, duly call, give notice of, convene and hold a meeting of our stockholders for the purpose of obtaining the affirmative vote of the holders of a majority of our outstanding shares of common stock in favor of the approval of the asset purchase agreement and the transactions contemplated thereby. We have further agreed that the proxy statement will include a statement that our Board of Directors recommends to our stockholders that they approve the asset purchase agreement and the transactions contemplated thereby.
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Additionally, we have agreed that our Board of Directors will not modify or withdraw its recommendation or take any action with respect to the sale of the transferred assets to any party other than NuVasive unless, prior to the receipt of stockholder approval for the sale of the transferred assets to NuVasive, our Board of Directions determines in good faith that an unsolicited bona fide written alternative proposal received by us concerning the transferred assets constitutes a superior proposal (after compliance with the notification and negotiation provisions set forth in the asset purchase agreement), in which case, our Board of Directors may withdraw, modify or qualify its recommendation concerning the sale of the assets to NuVasive and may recommend such superior proposal; however, notwithstanding such superior proposal or change in recommendation of our Board of Directors, we are still obligated to hold the stockholder meeting.
Closing Conditions
The obligation of each party to consummate the transactions contemplated by the asset purchase agreement are subject to the satisfaction of the following conditions:
· all applicable waiting periods (including any extensions thereof) under the Hart-Scott-Rodino Act shall have expired or otherwise been terminated (which condition has now been satisfied);
· no law or regulation shall have been adopted or promulgated, and no temporary restraining order, preliminary or permanent injunction or other judgment or order issued by any governmental entity shall be in effect, which has the effect of making the transactions contemplated by the asset purchase agreement illegal, or otherwise enjoining or prohibiting the consummation of the transactions contemplated by the agreement; and
· our stockholders shall have approved the asset purchase agreement and the transactions contemplated thereby.
The obligation of NuVasive to consummate the transactions contemplated by the asset purchase agreement are subject to the satisfaction (or waiver by NuVasive) of the following conditions:
· our representations and warranties must be true and correct in all material respects (except those qualified by materiality or those relating to the corporate status, organizational and governing documents, authorization of the transaction and corporate authority and the title to and sufficiency of the transferred assets, which shall be true and correct in all respects) at and as of the technology assets closing as if then made (other than representations and warranties made as of a specified date, which need be true and correct only as of the specified date);
· we must have performed and complied in all material respects with all of our agreements and covenants required to be performed or complied with under the agreement including the delivery of the required financial statements;
· there must not have occurred, from the date of the agreement through the date of the technology assets closing, any material adverse effect on the Osteocel business or any event or development which, individually or in the aggregate, would have a material adverse effect on the Osteocel business;
· no action suit, proceeding claim, arbitration or investigation before any governmental entity or before any arbitrator shall be pending that would reasonably be expected to result in an unfavorable judgment, order, decree, stipulation or injunction that would either prevent consummation of the transactions contemplated by the agreement or cause such transactions to be rescinded;
· delivery of all required notices, consents and waivers by us;
· delivery by us to NuVasive of each intellectual property agreement, manufacturing agreement, bill of sale and assignment and assumption agreement, license agreement, certificate, certificate of good standing and opinion, required to be delivered to NuVasive pursuant to the agreement; and
· absence of any liens, other than permitted liens, on the transferred assets.
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Our obligation to consummate the transactions contemplated by the asset purchase agreement are subject to the satisfaction (or waiver by us) of the following conditions:
· the representations and warranties of NuVasive must be true and correct in all material respects (except for those that are qualified by materiality or those relating to the corporate status, organizational and governing documents, authorization of the transaction and corporate authority, which shall be true and correct in all respects) at and as of the date of the technology assets closing as if then made (other than representations and warranties made as of a specified date, which need be true and correct only as of the specified date);
· NuVasive must have performed and complied in all material respects with all of its agreement and covenants required to be performed or complied with under the agreement as of the technology assets closing;
· no action suit, proceeding claim, arbitration or investigation before any governmental entity or before any arbitrator shall be pending that would reasonably be expected to result in an unfavorable judgment, order, decree, stipulation or injunction that would either prevent consummation of the transactions contemplated by the agreement or cause such transactions to be rescinded; and
· delivery by NuVasive to us of each intellectual property agreement, manufacturing agreement, bill of sale and assignment and assumption agreement, license agreement, certificate, certificate of good standing, and opinion, required to be delivered to us pursuant to the asset purchase agreement.
Termination
The asset purchase agreement may be terminated at any time prior to the technology assets closing:
· by mutual written consent of NuVasive and us;
· by NuVasive or us if, without the fault of the terminating party, the technology assets closing has not occurred on of before September 8, 2008, subject to certain extensions;
· by NuVasive, if we are in material breach of any of our representations, warranties, covenants or agreements, which breach is not cured by us within ten calendar days following receipt of written notice of such breach or failure to perform, provided that NuVasive is not in material breach of any of its representations, warranties, covenants or agreements at the time such notice is delivered;
· by us, if NuVasive is in material breach of any of its representations, warranties, covenants or agreements, which breach is not cured by NuVasive within ten calendar days following receipt of written notice of such breach or failure to perform, provided that we are not in material breach of any of its representations, warranties, covenants or agreements at the time such notice is delivered;
· by NuVasive or us if any governmental entity has entered a final, non-appealable order or injunction restraining, enjoining or otherwise prohibiting the transactions contemplated by the agreement, provided that such right of termination is not available to any party if such party failed to take reasonable efforts to prevent or contest the imposition of such order or injunction;
· by NuVasive or us if our stockholders do not approve the agreement and the transactions contemplated thereby at the stockholders meeting or at any adjournment or postponement thereof, provided that we do not have the right to terminate the agreement if such failure to obtain stockholder approval is the result of our action or failure to act and such action or failure to act constitutes a breach of the agreement by us; or
· by NuVasive if our Board of Directors changes its recommendation that our stockholders approve the agreement and the transactions contemplated thereby.
In the event of termination of the agreement by NuVasive or us pursuant to the provisions set forth above, all obligations of the parties under the agreement terminate without any liability of any party to the other party, except for any liability of a party for breaches of agreement prior to such termination. Certain sections of the agreement survive any termination thereof.
If we or NuVasive terminate the agreement because the technology assets closing has not occurred on or before September 8, 2008 (or any extension thereof) and at the time of such termination stockholder approval has not been obtained or the agreement is terminated as a result of our stockholders not approving the agreement, then we have agreed to promptly pay to NuVasive $350,000.
Additionally, if we or NuVasive terminate the agreement after our Board of Directors changed its recommendation with respect to the asset sale, then we are required to promptly pay to NuVasive $2.0 million.
31
Indemnification
We have agreed to indemnify, defend and save harmless NuVasive and its directors, officers, employees, affiliates, agents, advisors, representatives, stockholders and assigns from, against and in respect of any and all losses incurred or suffered by any such party arising out of, or related to, the following:
· any misrepresentation or breach of warranty made by us in any transaction document or in any other document, certificate or other instrument required to be delivered by us under any transaction document;
· any breach or non fulfillment of any covenant or agreement made or to be performed by us in any transaction document or in any agreement or instrument entered in connection with any transaction document;
· any fraud or intentional misrepresentation with respect to, or intentional breach of, any transaction document by us; and
· any of our liabilities not assumed by NuVasive under the asset purchase agreement.
NuVasive has agreed to indemnify, defend and save harmless us and our directors, officers, employees, affiliates, agents, advisors, representatives, stockholders and assigns from, against and in respect of any and all losses incurred or suffered by any such party arising out of, or related to, the following:
· any misrepresentation or breach of warranty made by NuVasive in any transaction document or in any document, certificate or other instrument required to be delivered by NuVasive under any transaction document;
· any breach or non fulfillment of any covenant or agreement made or to be performed by NuVasive in any transaction document or in any agreement or instrument entered in connection with any transaction document;
· any fraud or intentional misrepresentation with respect to, or intentional breach of, any transaction document by NuVasive; and
· any of our liabilities assumed by NuVasive under the asset purchase agreement.
Pursuant to the asset purchase agreement the parties have agreed that neither party shall be liable or be obligated to make any payment in respect of losses suffered by an any indemnified party for a misrepresentation, breach of warranty, or breach or non fulfillment of any covenant by a party (other than with respect to our representations about the title to and sufficiency of the transferred assets) under any transaction document, certificate or other instrument, until the aggregate of all losses suffered by such indemnified party under the asset purchase agreement exceeds $250,000, after which such other party shall be entitled to recover all such losses. In no event, however, can the aggregate indemnity amount payable by any indemnifying party for a misrepresentation, breach of warranty or breach or non fulfillment of any covenant by a party other than with respect to certain specified representations and warranties made with respect to taxes, disposition of certain contracts, intellectual property, authorizations and regulatory compliance, environmental matters and brokers, exceed $15.0 million.
Additionally, neither party shall be liable or be obligated to make any payment in respect of losses suffered by an indemnified party for any misrepresentation or breach of warranty with respect to any of the specified representations or warranties other than with respect to representations and warranties relating to the disposition of certain assumed contracts or losses by us resulting from NuVasives breach or non-fulfillment of any covenant or agreement under any transaction document or other instrument, or document, required to be delivered under the asset purchase agreement until the aggregate of all losses suffered by such indemnified party exceeds $250,000, after which such party shall be entitled to recover all such losses. In no event, however, shall the aggregate indemnity amount payable by us with respect to such liabilities and all other liabilities of ours with respect to our breach of a warranty with respect to the disposition of certain contracts, when taken together with all other losses paid or payable to an indemnified party, exceed $20.0 million plus any milestone payment(s) that become payable pursuant to the asset purchase agreement. Additionally, absent fraud, intentional misrepresentation or intentional breach of agreement, in no event shall the aggregate indemnity amount for losses payable by any indemnifying party pursuant to the asset purchase agreement, exceed an aggregate total of $35.0 million.
Each partys liability and obligation to make any payment in respect of losses suffered by an indemnified party resulting from fraud, intentional misrepresentation or intentional breach of the agreement, or related to the liabilities retained by Osiris or assumed by NuVasive under the asset purchase agreement shall be unlimited.
32
For purposes of claims for indemnification, the representations and warranties set forth in the asset purchase agreement survive for eighteen months after the manufacturing assets closing except for those representations we made relating to taxes, disposition of certain contracts, intellectual property, authorization and regulatory compliance, environmental, and brokers which survive for sixty days after the expiration of the applicable statutes of limitations.
Amendment and Waivers
No amendment to, or any waiver with respect to any provision of, the asset purchase agreement will be effective unless in writing and executed, in the case of an amendment, by each party to the agreement or, in the case of a waiver by each party against whom the waiver is to be effective.
33
The following is a summary of the material provisions of the manufacturing agreement, a form of which is attached as Appendix B to this proxy statement, and is incorporated by reference into this summary. While we believe this summary covers the material terms of the manufacturing agreement, this summary may not contain all of the information that is important to you and we urge you to read the form of manufacturing agreement in its entirety.
Overview
In connection with the sale of the technology assets of the Osteocel business under the asset purchase agreement, we and NuVasive agreed to enter into the manufacturing agreement under which we will continue to process Osteocel and supply Osteocel to NuVasive for a period of eighteen months after the technology assets closing.
Manufacturing Obligations
During the term of the manufacturing agreement, we will manufacture and supply Osteocel to NuVasive in accordance with agreed upon manufacturing specifications and all applicable laws. NuVasive is responsible for submitting binding purchase orders to us, for stated minimum quantities of Osteocel over certain stated periods during the term of the manufacturing agreement. We are obligated to use our commercially reasonable efforts to procure donor tissue and to manufacture Osteocel as necessary to meet this minimum performance levels. We can, in our discretion, manufacture and deliver Osteocel to NuVasive in quantities that exceed the ordered quantities, but NuVasive is not obligated to purchase such excess product in amounts over a designated excess product level.
Assuming that we can produce sufficient quantities in a timely manner, we estimate that we will have the opportunity to generate in excess of $50.0 million in revenue related to the manufacture and supply of Osteocel pursuant to the manufacturing agreement over a period of approximately eighteen months following the technology assets closing. There can be no assurance, however, that we will be able to supply sufficient quantities or that we will otherwise be successful in this regard.
We have the ability to subcontract or delegate some or all of our manufacturing obligations to subcontractors approved by NuVasive.
Obligations of Osiris
In addition to its manufacturing obligations, we are responsible for:
· performing all quality control, release testing and documentation preparation and retention with respect to manufacturing lots;
· replacing product rejected by NuVasive;
· providing a limited warranty with respect to the product;
· complying with all packaging and labeling requirements;
· maintaining all manufacturing records and safety records;
· continuing its pursuit of accreditation from the American Association of Tissue Banks, and maintaining such accreditation once received; and
· notifying NuVasive of any customer complaints relating to the product, and assisting NuVasive with any complaint investigations.
34
Obligations of NuVasive
NuVasive has the following additional obligations under the manufacturing agreement:
· granting a non-exclusive and non-transferable license to us for the term of the manufacturing agreement under the technology assets, to fulfill our obligations under the manufacturing agreement; and
· obtaining, at its own expense, all required regulatory approvals to distribute, sell and market Osteocel.
Indemnification
Each of the parties have provided the other with indemnification with respect to losses and damages arising out of a breach of its responsibilities under the manufacturing agreement.
Term and Termination
The manufacturing agreement will begin on the date of the technology assets closing and extend for eighteen months thereafter. The manufacturing agreement may be terminated early as a result of an uncured breach by the non-terminating party, the bankruptcy or insolvency of a party, or if prior to the expiration of the agreement we have delivered to NuVasive an agreed upon number of cubic centimeters of Osteocel.
35
The following unaudited pro forma financial statements give effect to the sale of assets contemplated by the asset purchase agreement and the related transaction documents. The unaudited pro forma balance sheet and statements of operations filed with this report are presented for illustrative purposes only. The pro forma balance sheet as of March 31, 2008 has been prepared to reflect the sale if it had taken place on such date, and is not necessarily indicative of our financial position had such sale occurred on that date. The unaudited pro forma financial statements, including notes thereto, should be read in conjunction with our historical financial statements included in our Form 10-K for the year ended December 31, 2007, including portions thereof reproduced below under the heading Selected Financial Data, the unaudited financial statements filed in our Form 10-Q for the quarter ended March 31, 2008, and the unaudited financial statements for the business to be transferred to NuVasive, included as Appendix D to this proxy statement.
Costs and expenses attributed to the business to be transferred include direct costs primarily associated with the business, as well as corporate expenses, including accounting, legal and human resources expenses. The corporate expenses were allocated to the business based upon estimated relative time and resources dedicated to the business. Management believes the basis of the allocations is reasonable. Certain corporate non-operating transactions of ours have not been allocated to the transferred business. These items include interest income and expense.
Statement of Operations Data:
|
|
Three Months Ended March 31, 2008 |
|
|||||||
|
|
|
|
Pro Forma |
|
Pro Forma |
|
|||
|
|
Historical |
|
Adjustments |
|
As Adjusted |
|
|||
|
|
(In thousands, except per share data) |
|
|||||||
Product sales |
|
$ |
7,511 |
|
$ |
(7,511 |
) |
$ |
|
|
Cost of goods sold |
|
3,781 |
|
(3,781 |
) |
|
|
|||
Gross profit |
|
3,730 |
|
(3,730 |
) |
|
|
|||
Revenue from collaborative research licenses, royalties and grants |
|
362 |
|
|
|
362 |
|
|||
|
|
|
|
|
|
|
|
|||
Operating expenses: |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|||
Research and development |
|
16,875 |
|
(99 |
) |
16,776 |
|
|||
General and administrative |
|
2,608 |
|
(82 |
) |
2,526 |
|
|||
Total operating expenses |
|
19,483 |
|
(181 |
) |
19,302 |
|
|||
Loss from operations |
|
(15,391 |
) |
(3,549 |
) |
(18,940 |
) |
|||
|
|
|
|
|
|
|
|
|||
Interest income (expense): |
|
|
|
|
|
|
|
|||
Interest income |
|
145 |
|
|
|
145 |
|
|||
Interest expense |
|
(354 |
) |
|
|
(354 |
) |
|||
Total interest expense, net |
|
(209 |
) |
|
|
(209 |
) |
|||
|
|
|
|
|
|
|
|
|||
Net loss |
|
$ |
(15,600 |
) |
$ |
(3,549 |
) |
$ |
(19,149 |
) |
|
|
|
|
|
|
|
|
|||
Basic and diluted net loss per share |
|
$ |
(0.49 |
) |
|
|
$ |
(0.60 |
) |
|
|
|
|
|
|
|
|
|
|||
Weighted Average Common Stock outstanding, in thousands (basic and diluted) |
|
31,741 |
|
|
|
31,741 |
|
36
|
|
Year Ended December 31, 2007 |
|
|||||||
|
|
|
|
Pro Forma |
|
Pro Forma |
|
|||
|
|
Historical |
|
Adjustments |
|
As Adjusted |
|
|||
|
|
(In thousands, except per share data) |
|
|||||||
Product sales |
|
$ |
15,240 |
|
$ |
(15,240 |
) |
$ |
|
|
Cost of goods sold |
|
6,955 |
|
(6,955 |
) |
|
|
|||
Gross profit |
|
8,285 |
|
(8,285 |
) |
|
|
|||
Revenue from collaborative research licenses and grants |
|
2,048 |
|
|
|
2,048 |
|
|||
|
|
|
|
|
|
|
|
|||
Operating expenses: |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|||
Research and development |
|
50,851 |
|
(4,142 |
) |
46,709 |
|
|||
General and administrative |
|
6,708 |
|
(206 |
) |
6,502 |
|
|||
Total operating expenses |
|
57,559 |
|
(4,348 |
) |
53,211 |
|
|||
Loss from operations |
|
(47,226 |
) |
(3,937 |
) |
(51,163 |
) |
|||
|
|
|
|
|
|
|
|
|||
Interest income (expense): |
|
|
|
|
|
|
|
|||
Interest income |
|
1,321 |
|
|
|
1,321 |
|
|||
Interest expense |
|
(8,016 |
) |
|
|
(8,016 |
) |
|||
Total interest expense, net |
|
(6,695 |
) |
|
|
(6,695 |
) |
|||
|
|
|
|
|
|
|
|
|||
Net loss |
|
$ |
(53,921 |
) |
$ |
(3,937 |
) |
$ |
(57,858 |
) |
|
|
|
|
|
|
|
|
|||
Basic and diluted net loss per share |
|
$ |
(1.89 |
) |
|
|
$ |
(2.03 |
) |
|
|
|
|
|
|
|
|
|
|||
Weighted Average Common Stock outstanding, in thousands (basic and diluted) |
|
28,489 |
|
|
|
28,489 |
|
37
Balance Sheet Data:
|
|
As of March 31, 2008 |
|
||||||||||
|
|
|
|
|
|
|
|
||||||
|
|
|
|
Pro Forma Adjustments |
|
Pro Forma |
|
||||||
|
|
Historical |
|
Net Asset to be Sold |
|
Proceeds of Sale |
|
As Adjusted |
|
||||
|
|
(In thousands) |
|
||||||||||
Assets |
|
|
|
|
|
|
|
|
|
||||
Current assets: |
|
|
|
|
|
|
|
|
|
||||
Cash |
|
$ |
4,719 |
|
$ |
|
|
$ |
|
|
$ |
4,719 |
|
Short-term investments |
|
7,280 |
|
|
|
43,171 |
|
50,451 |
|
||||
Accounts receivable |
|
4,315 |
|
(3,955 |
) |
|
|
360 |
|
||||
Inventory |
|
4,622 |
|
(4,622 |
) |
|
|
|
|
||||
Prepaid expenses and other current assets |
|
1,406 |
|
(72 |
) |
|
|
1,334 |
|
||||
Total current assets |
|
22,342 |
|
(8,649 |
) |
43,171 |
|
56,864 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Property and equipment, net |
|
7,168 |
|
(8,283 |
) |
2,744 |
|
1,629 |
|
||||
Restricted cash |
|
280 |
|
|
|
|
|
280 |
|
||||
Other assets |
|
1,106 |
|
|
|
|
|
1,106 |
|
||||
Total assets |
|
$ |
30,896 |
|
$ |
(16,932 |
) |
$ |
45,915 |
|
$ |
59,879 |
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities and Stockholders Equity |
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
||||
Accounts payable and accrued expenses |
|
$ |
16,498 |
|
$ |
(3,068 |
) |
$ |
|
|
$ |
13,430 |
|
Notes payable, current portion |
|
12,891 |
|
|
|
|
|
12,891 |
|
||||
Capital lease obligations, current portion |
|
587 |
|
|
|
|
|
587 |
|
||||
Total current liabilities |
|
29,976 |
|
(3,068 |
) |
|
|
26,908 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Capital lease obligations, net of current portion |
|
8 |
|
|
|
|
|
8 |
|
||||
Total liabilities |
|
29,984 |
|
(3,068 |
) |
|
|
26,916 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Stockholders equity |
|
912 |
|
(13,864 |
) |
45,915 |
|
32,963 |
|
||||
Total liabilities and stockholders equity |
|
$ |
30,896 |
|
$ |
(16,932 |
) |
$ |
45,915 |
|
$ |
59,879 |
|
38
The unaudited pro forma financial information as of and for the three month period ended March 31, 2008 and for the year ended December 31, 2007, gives effect to the following pro forma adjustments:
Statement of Operations Data:
· To give retroactive effect to the decrease in net sales, cost of goods sold and operating expenses estimated to be attributable to our Osteocel business, including Osteocel and Osteocel XO and related business assets.
Balance Sheet Data:
· Represents assets to be sold to and liabilities to be assumed by NuVasive, Inc. related to our Osteocel business.
· Represents the gross cash sales price to be received at the technology assets closing of $35.0 million, plus the $12.5 million to be received upon the transfer of the manufacturing assets at the manufacturing assets closing.
· The asset purchase agreement provides us with opportunities to receive milestone payments in the maximum aggregate amount of $37.5 million, related to Osteocel sales and production goals. Such milestone payments have not been reflected in the pro forma balance sheet data, since their receipt cannot be assured until earned.
39
We derived the selected financial data presented below for the periods or dates indicated from the financial statements of Osiris Therapeutics, Inc.. Our financial statements for these periods were audited by Stegman & Company, an independent registered public accounting firm. You should read the data below in conjunction with our financial statements, related notes and other financial information appearing in Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations and Item 8. Financial Statements and Supplementary Data of our Annual Report on Form 10-K for the fiscal year ended December 31, 2007.
|
|
Year Ended December 31, |
|
|||||||||||||
|
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
|||||
|
|
(in thousands, except per share data) |
|
|||||||||||||
Statement of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Product sales |
|
$ |
15,240 |
|
$ |
8,291 |
|
$ |
957 |
|
$ |
|
|
$ |
|
|
Cost of goods sold |
|
6,955 |
|
3,697 |
|
444 |
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Gross profit |
|
8,285 |
|
4,594 |
|
513 |
|
|
|
|
|
|||||
Revenue from collaborative research licenses and grants |
|
2,048 |
|
1,181 |
|
3,013 |
|
3,911 |
|
3,981 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Research and development |
|
50,851 |
|
37,590 |
|
16,927 |
|
11,888 |
|
18,639 |
|
|||||
General and administrative and other expenses |
|
6,708 |
|
8,459 |
|
2,294 |
|
1,704 |
|
4,467 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total operating expenses |
|
57,559 |
|
46,049 |
|
19,221 |
|
13,592 |
|
23,106 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Loss from operations |
|
(47,226 |
) |
(40,274 |
) |
(15,695 |
) |
(9,681 |
) |
(19,125 |
) |
|||||
Interest expense, net |
|
(6,695 |
) |
(4,685 |
) |
(4,300 |
) |
(847 |
) |
(605 |
) |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net loss |
|
$ |
(53,921 |
) |
$ |
(44,959 |
) |
$ |
(19,995 |
) |
$ |
(10,528 |
) |
$ |
(19,730 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Basic and diluted net loss per share |
|
$ |
(1.89 |
) |
$ |
(2.70 |
) |
$ |
(2.23 |
) |
$ |
(1.19 |
) |
$ |
(3.60 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Weighted average shares of common stock used in computing basic and diluted net loss per share |
|
28,489 |
|
16,663 |
|
8,959 |
|
8,814 |
|
5,475 |
|
|
|
At December 31, |
|
|||||||||||||
|
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
|||||
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash and short-term investments |
|
$ |
18,164 |
|
$ |
39,181 |
|
$ |
43,471 |
|
$ |
488 |
|
$ |
1,339 |
|
Working capital |
|
7,247 |
|
33,166 |
|
38,103 |
|
(5,459 |
) |
(5,314 |
) |
|||||
Total assets |
|
37,041 |
|
49,168 |
|
51,014 |
|
5,972 |
|
9,748 |
|
|||||
Notes payable, less current portion |
|
1,200 |
|
25,000 |
|
47,411 |
|
7,519 |
|
179 |
|
|||||
Mandatorily redeemable convertible preferred stock |
|
|
|
|
|
64,267 |
|
|
|
|
|
|||||
Convertible preferred stock |
|
|
|
|
|
32,746 |
|
15,243 |
|
13,000 |
|
|||||
Accumulated deficit |
|
(241,424 |
) |
(187,503 |
) |
(142,544 |
) |
(122,549 |
) |
(112,021 |
) |
|||||
Total stockholders equity (deficit) |
|
14,336 |
|
11,287 |
|
(73,662 |
) |
(13,004 |
) |
(5,563 |
) |
|||||
40
|
|
First Quarter |
|
Second Quarter |
|
Third Quarter |
|
Fourth Quarter |
|
||||
2007 |
|
|
|
|
|
|
|
|
|
||||
Total revenues |
|
$ |
2,279 |
|
$ |
3,547 |
|
$ |
4,297 |
|
$ |
7,165 |
|
Product sales |
|
2,000 |
|
3,252 |
|
4,003 |
|
5,985 |
|
||||
Cost of goods sold |
|
901 |
|
1503 |
|
1,826 |
|
2,725 |
|
||||
Research and development expenses |
|
11,030 |
|
10,583 |
|
10,842 |
|
18,396 |
|
||||
General and administrative expenses and fees |
|
1,506 |
|
1,501 |
|
1,689 |
|
2,012 |
|
||||
Net loss |
|
(11,501 |
) |
(10,458 |
) |
(10,390 |
) |
(21,572 |
) |
||||
**Net loss per common share, basic and diluted |
|
(0.42 |
) |
(0.37 |
) |
(0.36 |
) |
(0.73 |
) |
||||
|
|
|
|
|
|
|
|
|
|
||||
2006 |
|
|
|
|
|
|
|
|
|
||||
Total revenues |
|
$ |
1,400 |
|
$ |
1,987 |
|
$ |
2,841 |
|
$ |
3,244 |
|
Product sales |
|
1,105 |
|
1,689 |
|
2,539 |
|
2,958 |
|
||||
Cost of goods sold |
|
489 |
|
762 |
|
1,113 |
|
1,333 |
|
||||
Research and development expenses |
|
4,368 |
|
10,922 |
|
9,242 |
|
13,058 |
|
||||
General and administrative expenses and fees |
|
1,138 |
|
1,209 |
|
5,300 |
|
812 |
|
||||
Net loss |
|
(5,121 |
) |
(11,605 |
) |
(15,565 |
) |
(12,668 |
) |
||||
**Net loss per common share, basic and diluted |
|
(0.56 |
) |
(1.27 |
) |
(0.75 |
) |
(0.46 |
) |
||||
|
|
|
|
|
|
|
|
|
|
||||
2005 |
|
|
|
|
|
|
|
|
|
||||
Total revenues |
|
$ |
385 |
|
$ |
1,339 |
|
$ |
1,285 |
|
$ |
961 |
|
Product sales |
|
|
|
|
|
284 |
|
673 |
|
||||
Cost of goods sold |
|
|
|
|
|
220 |
|
224 |
|
||||
Research and development expenses |
|
2,657 |
|
3,592 |
|
3,464 |
|
7,214 |
|
||||
General and administrative expenses and fees |
|
752 |
|
487 |
|
554 |
|
501 |
|
||||
Net loss |
|
(3,868 |
) |
(3,394 |
) |
(4,678 |
) |
(8,055 |
) |
||||
**Net loss per common share, basic and diluted |
|
(0.43 |
) |
(0.38 |
) |
(0.52 |
) |
(0.88 |
) |
**
Earning per share are calculated on a quarterly basis and may not be additive to year-to-date amounts.
41
The following table sets forth certain information with respect to the beneficial ownership of our common stock as of June 1, 2008 for (a) each of our executive officers and directors, (b) all of our current directors and executive officers as a group and (c) each stockholder that we know to be the beneficial owner of more than 5% of our common stock. Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the securities. We deem shares of common stock that may be acquired by an individual or group within 60 days of June 1, 2008 pursuant to the exercise of options or warrants to be outstanding for the purpose of computing the percentage ownership of such individual or group, but those shares are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person shown in the table. Except as indicated in footnotes to this table, we believe that the stockholders named in this table have sole voting and investment power with respect to all shares of common stock shown to be beneficially owned by them based on information provided to us by these stockholders. Percentage of ownership is based on 31,771,667 shares of common stock outstanding on June 1, 2008.
Name and Address of |
|
Number |
|
Percent |
|
Executive Officers and Directors |
|
|
|
|
|
Gregory H. Barnhill |
|
12,421 |
|
|
|
Harry E. Carmitchel, Jr. (1) |
|
88,250 |
|
|
|
Cary J. Claiborne (2) |
|
75,000 |
|
|
|
Lode Debrabandere (3) |
|
41,250 |
|
|
|
Earl R. Fender (4) |
|
42,500 |
|
|
|
Peter Friedli (5) |
|
16,239,720 |
|
49.3 |
% |
Felix Gutzwiller |
|
49,500 |
|
|
|
Philip R. Jacoby, Jr. (6) |
|
7,750 |
|
|
|
C. Randal Mills (7) |
|
400,000 |
|
1.2 |
% |
Jay M. Moyes |
|
4,500 |
|
|
|
Michelle LeRoux Williams (8) |
|
14,082 |
|
|
|
All directors and executive officers as a group (11 persons) |
|
16,974,973 |
|
51.6 |
% |
Other 5% Stockholders |
|
|
|
|
|
Venturetec, Inc. (9) |
|
4,153,310 |
|
13.0 |
% |
c/o
Osiris Therapeutics, Inc. |
|
|
|
|
|
Thomas Schmidheiny (10) |
|
3,053,267 |
|
9.5 |
% |
23
Fraubourg deHopital |
|
|
|
|
|
BIH SA (10) |
|
2,658,113 |
|
8.3 |
% |
23
Fraubourg deHopital |
|
|
|
|
|
(1) |
Includes 82,000 shares owned directly by Mr. Carmitchel and 6,250 shares issuable upon the exercise of options. |
(2) |
Mr. Claibornes employment terminated in November 2007. |
(3) |
Includes 41,500 shares issuable upon exercise of options. |
(4) |
Includes 42,500 shares issuable upon exercise of options. Mr. Fenders employment terminated in April 2008. |
(5) |
Includes 9,880,371 shares owned directly by Mr. Friedli; 1,000,000 shares issuable upon the exercise of outstanding warrants; assuming the warrants are exercised in full for cash; 205,423 shares issuable upon the conversion of a certain convertible promissory note, which may be converted at the discretion of the holder; 625 shares owned by Margrit Friedli, Mr. Friedlis mother; 3,963,629 shares owned by Venturetec, Inc., 189,681 shares issuable to Venturetec, Inc. upon the conversion of a certain convertible promissory note, which may be converted at the discretion of the holder and 1,000,000 shares owned by US Venture 05, Inc. Mr. Friedli is the President of Venturetec, Inc. and US Ventures 05, Inc. |
(6) |
Includes 5,625 shares owned directly by Mr. Jacoby and 2,175 shares issuable upon the exercise of options. |
(7) |
Includes 123,000 shares owned directly by Dr. Mills; 2,000 shares owned in custodial accounts where Dr. Mills is the custodian; and 275,000 shares issuable upon the exercise of options. |
(8) |
Includes 14,082 shares issuable upon the exercise of options. |
(9) |
Included 3,963,629 shares owned directly by Venturetec, Inc. and 189,681 shares issuable upon the conversion of a certain convertible promissory note owned by Venturetec, Inc., which may be converted at the discretion of the holder. |
(10) |
Includes 395,154 shares owned directly by Mr. Schmidheiny; 2,408,944 shares owned by BIH SA; and 249,169 shares issuable upon the conversion of a certain convertible promissory note owned by BIH SA, which may be converted at the discretion of the holder. Mr. Schmidheiny is the Chairman and controlling shareholder of BIH SA. |
42
Our Board of Directors knows of no other business which will be presented at the special meeting. However, if any other business is properly brought before the special meeting or any postponement or adjournment thereof, which may properly be acted upon, the proxies solicited hereby will be voted on such matter in accordance with the best judgment of the proxy holders named therein.
We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and, in accordance therewith, file reports, proxy statements and other information with the U.S. Securities and Exchange Commission. Reports, proxy statements and other information filed by us may be inspected without charge and copies obtained upon payment of prescribed fees from the Public Reference Section of the U.S. Securities and Exchange Commission at 100 F Street, NE, Washington, D.C. 20549, or by way of the U.S. Securities and Exchange Commissions website, http://www.sec.gov.
This proxy statement includes forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, or the Exchange Act. Forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, compensation arrangements, financing needs, plans or intentions relating to collaborations or business combinations, business trends and other information that is not historical information.
When used in this proxy statement, the words estimates, expects, anticipates, projects, plans, intends, believes, forecasts and variations of such words or similar expressions are intended to identify forward-looking statements. All forward-looking statements, including, without limitation, are based upon our current expectations and various assumptions. Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that managements expectations, beliefs and projections will result or be achieved.
There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in this proxy statement. Important factors that could cause our actual results to differ materially from the forward-looking statements we make in this proxy statement are set forth in this proxy statement, including Risk Factors. There may be other factors that may cause our actual results to differ materially from the forward-looking statements.
All forward-looking statements attributable to us or persons acting on our behalf apply only as of the date of this proxy statement and are expressly qualified in their entirety by the cautionary statements included herein. We undertake no obligation to publicly update or revise any forward-looking statements to reflect subsequent events or circumstances and do not intend to do so.
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE MEETING, YOU ARE URGED TO FILL OUT, SIGN, DATE AND RETURN THE ENCLOSED PROXY AT YOUR EARLIEST CONVENIENCE.
|
By order of the Board of Directors: |
|
|
|
|
|
Philip R. Jacoby, Jr. |
|
Corporate Secretary |
Columbia, Maryland
, 2008
43
ASSET PURCHASE AGREEMENT
by and between
OSIRIS THERAPEUTICS, INC.
and
NUVASIVE, INC.
Dated as of May 8, 2008
A-1
TABLE OF CONTENTS
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Conduct of Activities Associated with the Transferred Assets |
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A-31 |
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Post-Technology Closing Cooperation Relating to Transferred Assets |
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A-4
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (this Agreement) dated as of the 8th day of May, 2008, is by and between OSIRIS THERAPEUTICS, INC., a Delaware corporation (Seller), and NUVASIVE, INC., a Delaware corporation (Purchaser).
RECITALS:
A. Seller is engaged in the business of processing, manufacturing, marketing and selling an osteobiologic allograft material containing cancellous bone (which contains intrinsic viable mesenchymal stem cells) used in spinal fusion and other surgical procedures and commonly known as Osteocel® and Osteocel® XO including current formulation and all development projects related to Osteocel® and Osteocel® XO (collectively, the Product) (the development, manufacturing, marketing and sale of the Product shall be referred to herein as the Business).
B. Pursuant to this Agreement, Seller and Purchaser intend that (i) Seller sell and transfer to Purchaser all of Sellers right, title and interest in and to all of Sellers property and assets set forth in Section 1.1(a) hereof, and (ii) Purchaser assume certain specified obligations of Seller, contractual and otherwise, set forth in Section 1.2(a), all on the terms and conditions contained in, and as more fully set forth in, this Agreement.
C. Simultaneously with the execution and delivery of this Agreement and as a condition and material inducement to the willingness of Purchaser to enter into this Agreement, Purchaser and certain stockholders of Seller are entering into voting agreements pursuant to which, among other things, such stockholders have agreed to vote in favor of approval of the transactions contemplated by this Agreement and the other Transaction Documents and to take certain other actions in furtherance of the transactions contemplated hereby, in each case upon the terms and subject to the conditions set forth herein.
Accordingly, in consideration of the premises and the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
Section 1.1 Transferred Assets; Excluded Assets; Time of Transfer.
A-5
A-6
Schedule 1.1 Manufacturing Assets identifies all of the Transferred Assets that are being transferred to Purchaser at the Manufacturing Closing (the Manufacturing Assets).
Section 1.2 Assumed Liabilities; Retained Liabilities.
A-7
Section 1.3 Technology Closing; Manufacturing Closing. The consummation of the Technology Asset Transfer (the Technology Closing) shall be held as soon as reasonably practicable upon satisfaction of the conditions set forth in Article V of this Agreement or such other date and time as Purchaser and Seller shall agree (the Technology Closing Date). The consummation of the Manufacturing Asset Transfer (the Manufacturing Closing) shall be held as soon as reasonably practicable following the earlier to occur of (i) the termination of the Manufacturing Agreement by Purchaser pursuant to Section 7.1 of the Manufacturing Agreement and (ii) the expiration of the Term (as that term is defined in the Manufacturing Agreement) of the Manufacturing Agreement (the Manufacturing Closing Date). The Technology Closing
A-8
and the Manufacturing Closing shall be held at the offices of DLA Piper US LLP, 4365 Executive Drive, San Diego, California (or via exchange of documents via PDF and overnight mail courier).
Section 1.4 Initial Purchase Price. At the Technology Closing, Purchaser shall (i) assume the Assumed Liabilities related to the Technology Assets, and (ii) pay to Seller an aggregate of Thirty Five Million Dollars ($35,000,000) (the Initial Purchase Price). Purchaser shall pay the Initial Purchase Price to Seller by bank or cashiers check or, provided that Seller has delivered wire transfer instructions to Purchaser not less than two (2) business days prior to the Technology Closing Date, by wire transfer in United States dollars of immediately available funds to an account designated in writing by Seller.
Section 1.5 Additional Purchase Price.
A-9
If any payment under this Section 1.5(a) is made in the form of Purchaser Common Stock, then on the date of such payment Purchaser shall provide to Seller (I) a certificate from a duly authorized officer of Purchaser certifying that as of the date of such issuance (x) the Purchaser Common Stock so issued has been duly authorized and is validly issued, fully-paid and non-assessable and, (y) the provisions of Rule 144(c) of the Securities Act, are satisfied and (II) a legal opinion from Purchasers legal counsel that such Purchaser Common Stock has been duly authorized and validly issued, is fully paid and non-assessable and that the holding period set forth in Rule 144(b) of the Securities Act has been satisfied. If Purchaser is unable to satisfy the requirement set forth in the immediately preceding sentence, Seller shall be under no obligation to accept Purchaser Common Stock as payment for the Applicable Milestone Payment and Purchaser shall make such Applicable Milestone Payment in the form of cash, in United States dollars of immediately available funds.
A-10
A-11
Section 1.6 Withholding. Purchaser shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to Seller such amounts as Purchaser is required to deduct and withhold under the Code, or any provisions of state or local Tax law, with respect to the making of such payment. Purchaser shall notify Seller of the basis for such withholding no less than 10 business days prior to the proposed withholding and shall consider in good faith any views of Seller that such withholding is not required under the Code, or any provisions of state or local Tax law, with respect to the making of such payment.
Section 1.7 Allocation of Purchase Price. The Initial Purchase Price shall be allocated for Tax purposes among the Transferred Assets in accordance with Section 1060 of the Code. Purchaser shall prepare and deliver to Seller for Sellers approval, a proposed allocation of the Initial Purchase Price prepared in accordance with the foregoing within 45 days of the Technology Closing; provided, that if Seller withholds its approval to such allocation, Purchaser and Seller shall negotiate in good faith to agree upon the allocation of the Purchase Price within 30 days of Sellers receipt of Purchasers proposed allocation. Each of Purchaser and Seller shall
A-12
file IRS Form 8594 with its Federal income Tax Return consistent with such allocation as determined in accordance with the immediately preceding sentence for the Tax year in which this Agreement is consummated. Seller and Purchaser shall report all Tax consequences of the transactions contemplated by this Agreement in a manner consistent with such allocation, and not take any position inconsistent therewith upon examination of any Tax Return, in any refund claim, in any litigation or investigation or otherwise.
Seller represents and warrants to Purchaser as of the date hereof as follows:
Section 2.1 Organization, Good Standing and Authority. Seller is duly formed, validly existing and in good standing under the laws of the State of Delaware, and is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, except where failure to be qualified or to be in good standing would not materially and adversely affect the Business. Seller has full corporate power and authority to own the assets owned by it, to lease the properties and assets held by it under lease, to own and carry on the operation of the Business as it is now being conducted by it, and to operate the Business as heretofore operated by it.
Section 2.2 Organizational and Governing Documents; Approval.
Section 2.3 Due Execution and Delivery. Seller has all necessary power and authority to execute and deliver this Agreement and the other Transaction Documents to which it is a party and each instrument required hereby and thereby to be executed and delivered by it, and, prior to the Technology Closing, will have all necessary power and authority to carry out its obligations hereunder and thereunder. Seller has duly executed and delivered this Agreement and assuming the due authorization, execution and deliver of this Agreement by Purchaser, this Agreement constitutes (and, when executed and delivered, the Transaction Documents to which it is a party will constitute) the legal, valid and binding obligations of Seller enforceable against it in accordance with its terms, except that such enforcement (a) may be limited by bankruptcy, insolvency, moratorium or similar laws affecting creditors rights generally, and (b) is subject to
A-13
the availability of equitable remedies, as determined in the discretion of the court before which such a proceeding may be brought.
Section 2.4 Title and Sufficiency of Transferred Assets. Seller is the sole owner and has good and marketable title (or leasehold title, as the case may be) to the Transferred Assets free and clear of all liens, claims, charges, security interests, leases, covenants, options, pledges, rights of others, easements, rights of refusal, reservations, restrictions, encumbrances and other defects in title (collectively, Liens) except for (i) Liens incurred in the ordinary course of the Business, consistent with past practice, of the type identified on Schedule 2.4(i), (ii) Liens for Taxes not yet due and payable and (iii) Liens created by the express provisions of the Assumed Contracts (together, the Permitted Liens) whether imposed by agreement, understanding, law, equity, or otherwise. The Manufacturing Assets are all assets of Seller used in or related to the processing and manufacturing of the Products. The Transferred Assets are suitable for the uses to which they are being put or have been put in the ordinary course of the Business and are in good working order. The Transferred Assets and the Business Intellectual Property of Seller licensed to Purchaser under the License Agreement constitute all of the assets, property, real personal or mixed, tangible or intangible, of Seller used in, held for use in, or necessary for the operation of the Business as presently conducted.
Section 2.5 Consents; No Conflict. Except as set forth on Schedule 2.5, no consent, authorization, permit, waiver or approval of or from, or notice to, any person or any governmental authority is required as a condition to the execution and delivery of this Agreement or the other Transaction Documents by Seller or the consummation of the transactions contemplated by this Agreement and the Transaction Documents by Seller. Except as set forth on Schedule 2.5, the execution and delivery of this Agreement and the Transaction Documents and each instrument required hereby to be executed and delivered by Seller and the consummation of the transactions contemplated hereby and thereby by Seller will not give rise to a right of termination of, contravene or constitute a default under, or be an event which with the giving of notice or passage of time or both will become a default under, or give to others any rights of termination or cancellation of, or give rise to a right of acceleration of the performance required by or maturity of, or result in the creation of any Lien, claim, cost, Tax, losses or loss of any rights with respect to the Business or the Transferred Assets pursuant to any of the terms, conditions or provisions of or under any applicable law, the Seller Organizational Documents or under any Assumed Contract.
A-14
Section 2.7 Financial Information. Attached hereto as Schedule 2.7 are (i) the unaudited balance sheet, operating income and free cash flows of the Business as of the end of and for the fiscal year ended December 31, 2007 and (ii) the unaudited balance sheet of the Business (the Balance Sheet) as of March 31, 2008 (the Balance Sheet Date) and the unaudited operating income and free cash flows of the Business as of March 31, 2008 (together, the Financial Information). The Financial Information has been, and if required to be reported by Purchaser under Item 9.01 of Form 8-K and Regulation S-X of the federal securities laws for a business acquisition required to be described in answer to Item 2.01 of Form 8-K the unaudited balance sheet, operating income and free cash flows of the Business as of the end of and for the fiscal year ended December 31, 2006 prior to the Technology Closing Date will be, prepared in accordance with GAAP applied on a consistent basis throughout periods covered thereby, fairly represent in all material respects the financial condition, results of operations and cash flows of the Business as of the respective dates thereof and for the periods referred to therein and are consistent with the books and records of the Business, subject to the absence of footnotes and normal, recurring year-end adjustments. Seller does not have any indebtedness or other liability or obligation (whether known, unknown, mature, unmatured, absolute or contingent) of the Business, except for (a) liabilities and obligations shown on the Balance Sheet and (b) liabilities and obligations which have arisen since the date of the Balance Sheet in the ordinary course of business and which are not material to the Business, individually or in the aggregate. All reserves that are set forth in or reflected in the Balance Sheet have been established in accordance with GAAP consistently applied and are reasonably adequate.
Section 2.8 [Intentionally omitted.].
A-15
Section 2.10 Litigation and Claims. There is (a) no Action pending, or to the Sellers Knowledge, threatened against or affecting the Business (including any of the Transferred Assets) or the transactions contemplated hereby, or (b) to Sellers Knowledge, no governmental inquiry or investigation pending or threatened against or affecting the Business (including any of the Transferred Assets). The Seller has not received any written legal opinion or written memorandum or legal advice from legal counsel to the effect that Seller (with respect to the Business or the Transferred Assets) is exposed, from a legal standpoint, to any material liability or material disadvantage with respect to the Business or the prospects, financial condition, operations, property or affairs of the Business. The Seller is not in default with respect to any order, writ, injunction or decree of any governmental entity known to or served upon the Seller and relating to the Business or the Transferred Assets. There is no action or suit by the Seller and relating to the Business or the Transferred Assets that is pending, threatened or contemplated against any other person.
Section 2.11 Compliance With Laws. Seller is not in material violation of or in material default under any law, statute, regulation, rule, ordinance, administrative order or court order applicable to Seller with respect to the Business or the Transferred Assets, including, without limitation, the Public Health Services Act (PHSA) and relevant sections of the FDCA, and the United States National Organ Transplant Act, Title 21 of the Code of Federal Regulations Part 1271, Human Cells, Tissues, and Cellular and Tissue Based Products. To Sellers Knowledge, the Seller is not under investigation with respect to, has not been threatened to be charged with, nor has been given notice of, any violation of or material default under any law, statute, regulation, rule, ordinance, standard, guideline, administrative order or court order applicable to Seller with respect to the Business or the Transferred Assets. All permits (A) pursuant to which Seller currently operates or holds any interest in the property of the Business, or (B) which is required for the operation of the Business as currently conducted or the holding of any such interest has been issued or granted to Seller and are set forth on Schedule 2.11. All such permits are in full force and effect and constitute all permits required to permit the Seller to operate or conduct the Business or hold any interest in the Transferred Assets.
Section 2.12 Employees and Independent Contractors.
A-16
A-17
Section 2.13 Employee Benefits.
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Section 2.14 Labor Matters. (i) Seller is not a party to any collective bargaining agreement or other labor contract applicable to any Seller Employee, (ii) to Sellers Knowledge, no union has bargaining rights with respect to any Seller Employee and there are no threatened or apparent union organizing activities involving any Seller Employee, (iii) there are no strikes, slowdowns or work stoppages pending or, to Sellers Knowledge, threatened between Seller and an Seller Employee, and (iv) to Sellers Knowledge, there are no unfair labor practice complaints involving an Seller Employee pending against Seller. Seller shall be responsible for providing continuation coverage to the extent required by Section 4980B of the Code or similar state law (COBRA) to Seller Employees, and other qualified beneficiaries under COBRA with respect to such employees, who have a COBRA qualifying event (due to termination of employment with the Seller or otherwise) prior to or in connection with the transactions contemplated by this Agreement. Except as required by law, neither Purchaser nor any of its affiliates shall be responsible for the failure of Seller to comply with any of the requirements of COBRA, including applicable notice requirements.
Section 2.15 Intellectual Property.
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Section 2.16 Insurance. Schedule 2.16 contains a complete and correct list as of the date hereof of all insurance policies maintained by or on behalf of the Seller with respect to the Business and/or the Transferred Assets, including all legally required workers compensation insurance and errors and omissions, casualty, fire, product liability and general liability
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insurance. True and complete copies of each listed policy have been furnished to Purchaser. Such policies are in full force and effect, all premiums due thereon have been paid and the Seller has complied in all material respects with the provisions of such policies. The Seller has not received any notice from any issuer of such insurance policies canceling or amending any policies listed on Schedule 2.16. There is no claim by the Seller pending under any of such policies as to which coverage has been denied or disputed by the underwriters or in respect of which the underwriters have reserved their rights. Neither the Seller nor any affiliate thereof has ever maintained, established, sponsored, participated in or contributed to any self-insurance plan with respect to the Business and/or Transferred Assets.
Section 2.17 Fair Consideration; No Fraudulent Conveyance. Seller is not now and Seller will not be rendered insolvent by the sale, transfer and assignment of the Transferred Assets pursuant to the terms of this Agreement or the transactions contemplated hereby. Seller has no intention to file for bankruptcy, and, to Sellers Knowledge, no insolvency proceedings of any character including without limitation, bankruptcy, receivership, reorganization, composition or arrangement with creditors, voluntary or involuntary, affecting Seller or any of the Transferred Assets or Assumed Liabilities are pending or threatened. Seller is not entering into this Agreement and the transactions contemplated hereby with the intent to defraud, delay or hinder Sellers creditors and the consummation of the transactions contemplated by this Agreement and the transactions contemplated hereby will not have any such effect. The transactions contemplated hereby do not constitute a fraudulent conveyance, or otherwise give rise to any right of any creditor of Seller whatsoever to any of the Transferred Assets after the Technology Closing.
Section 2.18 Authorizations; Regulatory Compliance.
Schedule 2.18 sets forth a complete list of all approvals, clearances, authorizations, licenses or registrations required by any governmental entity having regulatory authority or jurisdiction over the Business and the Products, including the United States Food and Drug Administration (FDA) and any regulatory authority in the jurisdiction or country in which the Products are manufactured, to permit the design, development, pre-clinical and clinical testing, manufacture, labeling, marketing, promotion, import, export, use and sale of the Products, whether required of Seller or, to Sellers Knowledge, required of any of its suppliers or manufacturers. Except as set forth on Schedule 2.18:
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Section 2.19 Products; Product Liability.
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Section 2.21 Real Property; Leases. Except as set forth on Schedule 2.21, Seller does not own, lease or sublease any real property used in or necessary for the operation of the Business.
Section 2.22 Brokers. Except as set forth on Schedule 2.22, no broker or other representative has acted on behalf of Seller in connection with the transaction contemplated hereby in such manner as to give rise to any claim by any person against Purchaser or Seller for a finders fee, brokerage commission or similar payment.
Section 2.23 Capital Expenditures. Set forth on Schedule 2.23 is a list of Sellers approved capital expenditure projects related to the Business and involving in excess of $25,000 including: (i) projects which have been commenced but are not yet completed; (ii) projects which have not been commenced; and (iii) projects which have been completed in respect of which payment has been made, within the last twelve (12) months.
Section 2.24 No Changes. Except as set forth on Schedule 2.24, since December 31, 2007 there has not been, occurred or arisen any of the following:
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Section 2.25 Obsolete Items. Schedule 2.25 sets forth, as of the date hereof, a complete and accurate list of any category of products, supplies or parts used in the Business that has an aggregate inventory value in excess of $10,000 that has been identified through reasonable business practices to be obsolete, damaged or defective.
Section 2.26 Customers and Suppliers. Schedule 2.26 identifies the Business ten (10) largest customers and suppliers (measured by dollar volume in each case) during the calendar year 2007 and during the first three months of 2008, showing with respect to each, the name and address, dollar volume and nature of the relationship (including the principal categories of Product bought or sold). Seller is not required to provide any bonding or other financial security arrangements in connection with any of the transactions with its customers or supplies. Seller has not received any direct communication (whether written or oral) of any intention of any customer or supplier identified on Schedule 2.26 to discontinue its relationship as a customer or supplier of, or materially reduce its purchases from or sales to Seller (or, post-Technology Closing, from Purchaser).
Section 2.27 Disclosure. No statement (including without limitations, the representations and warranties and covenants contained in this Agreement) by Seller contained in this Agreement and none of the information contained in the schedules hereto, in any other Transaction Document and any document, written statement or certificate furnished to Purchaser and its representatives to Seller contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements herein or therein, in light of the circumstances in which they were made, not misleading. To the Sellers Knowledge, there exists no fact that adversely affects the value of the Transferred Assets or the Business, prospects, financial condition or operations of the Business which has not been set forth in this Agreement or the schedules hereto. Seller has afforded to the officers, employees and authorized representatives of Purchaser (including, without limitation, independent public accountants and attorneys) access to all financial and other books and records (including computer files, retrieval programs and similar documentation) of Seller with respect to the Business.
Purchaser hereby represents and warrants to Seller as of the date hereof as follows:
Section 3.1 Organization and Authority. Purchaser is duly formed, validity existing and in good standing under the laws of the State of Delaware and is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, except when failure to be so qualified would not materially and
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adversely affect Purchasers business. Purchaser has full corporate power and authority to execute and deliver this Agreement and the Transaction Documents to which it is party, to perform its obligations hereunder and under the Transaction Documents, to consummate the transactions contemplated hereby and thereby and to own and carry on the operation of its business as currently operated by it.
Section 3.3 Due Execution and Delivery. Purchaser has all necessary corporate power and authority to execute and deliver this Agreement and the other Transaction Documents to which it is a party and each instrument required hereby and thereby to be executed and delivered by it, and to carry out its obligations hereunder and thereunder. Purchaser has duly executed and delivered this Agreement and, assuming the due authorization, execution and deliver of this Agreement by Seller, this Agreement constitutes (and, when executed and delivered, the Transaction Documents to which it is a party will constitute) the legal, valid and binding obligations of Purchaser enforceable against it in accordance with its terms, except that such enforcement (a) may be limited by bankruptcy, insolvency, moratorium or similar laws affecting creditors rights generally, and (b) is subject to the availability of equitable remedies, as determined in the discretion of the court before which such a proceeding may be brought.
Section 3.4 Consents; No Conflicts. No consent, authorization, permit, waiver or approval of or from or notice to any person or any governmental authority is required as a condition to the execution and delivery of this Agreement by Purchaser or any of the Transaction Documents to which it is a party and the consummation of the transactions contemplated by this Agreement and such Transaction Documents by Purchaser. The execution and delivery of this Agreement and the other Transaction Documents and each instrument required hereby to be executed and delivered by Purchaser and the consummation of the transactions contemplated hereby and thereby by Purchaser will not contravene any applicable law or the Purchaser Organizational Documents.
Section 3.5 Brokers. No broker or other representative has acted on behalf of Purchaser in connection with the transaction contemplated hereby in such manner as to give rise to any valid claim by any person against Seller for a finders fee, brokerage commission or similar payment.
Section 4.1 Further Assurances. Each of Seller and Purchaser covenants and agrees with the other that at any time and from time to time hereafter, and without further consideration,
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each will promptly execute and deliver to the other such further assurances, instruments and documents and take such further action as the other may reasonably request in order to carry out the full intent and purpose of this Agreement and to consummate the transactions contemplated hereby. Without limiting the foregoing, Seller covenants and agrees with Purchaser that at any time and from time to time following the Technology Closing Date, if Seller shall be in breach of its representations and warranties set forth in Section 2.4 (Title and Sufficiency of Transferred Assets), Seller will, without further consideration, promptly execute and deliver to Purchaser such further assurances, instruments and documents and take such further action as Purchaser may reasonably request in order to remedy the breach of such representations and warranties.
Section 4.2 Conduct of Activities Associated with the Transferred Assets. During the period from the date of this Agreement to (i) the Technology Closing with respect to the Technology Assets and (ii) the Manufacturing Closing with respect to the Manufacturing Assets, Seller will conduct its activities associated with the Transferred Assets in their ordinary and usual course, consistent with past practice, and will use commercially reasonable efforts to (i) preserve intact all rights, privileges, franchises and other authority related to the activities associated with the Transferred Assets and (ii) maintain in their current or currently planned condition (as such currently planned condition has been expressly communicated to Purchaser including but not limited to those matters set forth in the schedules hereto) its current relationships with licensors, licensees, suppliers, contractors, distributors, customers, and others having relationships related to the activities associated with the Business and the Transferred Assets. Without limiting the generality of the foregoing, and except as (i) expressly contemplated by this Agreement, (ii) set forth on Schedule 4.2 or (iii) approved in writing by Purchaser in advance, prior to the Technology Closing with respect to all Transferred Assets and the Manufacturing Closing with respect to the Manufacturing Assets, Seller will not:
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Section 4.3 Financial Statements.
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Section 4.4 Post-Technology Closing Receipts. Seller shall hold in trust for, and promptly remit to Purchaser without deduction, any amounts collected or received by Seller that relate to the Business or Purchaser following the Technology Closing. Purchaser shall hold in trust for, and promptly remit to Seller without deduction, any amounts collected or received by Purchaser that either constitute accounts receivable related to Product sold by Seller prior to the Technology Closing Date or that do not relate to the Transferred Assets.
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The fact that Confidential Information may be in or becomes part of the public domain, in and of itself, does not exclude any specific information from obligations of this Agreement.
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Section 4.8 No Post-Technology Closing Retention of Copies. Immediately after (i) the Technology Closing with respect to the Technology Assets and (ii) the Manufacturing Closing with respect to the Manufacturing Assets, Seller shall deliver to Purchaser or destroy copies of any Transferred Assets in Sellers possession that are in addition to those delivered to Purchaser, whether such copies are in paper form, on computer media or stored in another form; provided, however, that Seller may retain and use copies of books and records (financial or otherwise) relating to the activities associated with the Transferred Assets to the extent necessary to comply with applicable law.
Section 4.9 Noncompetition and Nonsolicitation.
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Section 4.10 Notice of Breaches. From the date of this Agreement until (i) the Technology Closing date with respect to all Transferred Assets and (ii) the Manufacturing Closing with respect to the Manufacturing Assets, the Seller shall promptly deliver to the Purchaser a written notice containing supplemental information concerning events or circumstances first occurring subsequent to the date hereof which would render any
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representation, warranty or statement in this Agreement inaccurate or incomplete, or any covenant breached, as of any date after the date of this Agreement, specifying the applicable section of this Agreement to which such supplemental information applies (including any changes pursuant to subsection (b) of this Section, the Notice of Breach). Following the delivery of any such Notice of Breach, Seller shall promptly deliver to Purchaser all additional information reasonably requested by Purchaser with respect to the content of such Notice of Breach. No delivery of any Notice of Breach pursuant to this Section 4.10 or knowledge of any such breach (however obtained) shall be deemed to amend or supplement any schedule to this Agreement or affect the rights and remedies of Purchaser under Article VIII of this Agreement.
Section 4.11 Certain Employee Matters.
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Section 4.12 Right of First Negotiation; Purchase Option.
Section 4.13 Brand and Trademarks. Except as expressly provided in this Agreement or in the Manufacturing Agreement, Purchaser shall have no rights to any of Sellers intellectual property other than the Transferred Technology, and Seller shall have no rights to any of Purchasers intellectual property.
Section 4.14 Consents. Prior to the Technology Closing Date, Seller shall use its commercially reasonable efforts to obtain in writing and at its own expense all consents and waivers referred to on Schedule 2.5 hereto. To the extent that an attempted assignment or transfer of any Assumed Contract would constitute a breach thereof, this Agreement shall not constitute an assignment or attempted assignment thereof. In such a case, Seller shall establish with Purchaser any back-to-back arrangement reasonably requested by Purchaser in order to provide for Purchaser the benefits intended to be assigned under any such Assumed Contract (subject to the right of any third party thereunder to terminate such Assumed Contract), including, without limitation, the enforcement by Seller for the benefit of Purchaser, at Purchasers sole cost and expense, of any and all rights of Seller against a third party to such Assumed Contract arising out of the breach by such third party or otherwise.
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Section 4.15 Hart-Scott-Rodino Notification.
Section 4.16 Public Announcement. Except as required by law, neither party (nor any director, officer, employee or affiliate of either party) shall make any public announcement, whether written or oral, concerning this Agreement or the subject matter hereof without the prior written consent of the other.
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Section 4.17 Bulk Sales Laws. Seller shall comply, in connection with transactions contemplated by this Agreement, with any applicable bulk sales laws and any other applicable bulk sales laws with respect to or requiring notice to Sellers creditors, in effect as of the Technology Closing Date with respect to the Technology Assets and the Manufacturing Closing Date with respect to the Manufacturing Assets.
Section 4.18 Transfer Taxes. All sales or use, transfer, real property gains, excise, stamp, business and occupation, or other similar Taxes, resulting or arising out of or in connection with the consummation of the transactions contemplated hereby (Transfer Taxes) and imposed on Seller shall be paid by Seller and Seller shall promptly discharge such Transfer Taxes when due. All Transfer Taxes imposed on Purchaser other than Transfer Taxes resulting from Sellers breach of this Section 4.19 shall be paid by Purchaser.
Section 4.19 Termination of Certain Contracts. At or prior to the Technology Closing Date, Seller shall deliver to each party to those Contracts identified on Schedule 2.9(c) a notice of termination, which termination shall be effective as of the date set forth opposite each such Contract on Schedule 2.9(c). Notwithstanding the foregoing, Seller shall give any such notice of termination following the Technology Closing Date within two (2) business days of receipt of a written request of Purchaser to earlier deliver such notice of termination. Seller acknowledges that Sellers failure to comply with the provisions of this Section 4.20 shall be a material breach of this Agreement for purposes of Section 5.2(b) hereof.
Section 4.20 Preparation of Proxy Statement; Stockholder Meeting.
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Section 5.1 Conditions to Obligations of Each Party. The respective obligations of each of Purchaser and Seller to consummate the transactions contemplated in this Agreement are subject to the satisfaction of the following conditions:
Section 5.2 Conditions to the Obligations of the Purchaser. The obligation of Purchaser to consummate the transactions contemplated in this Agreement are subject to the satisfaction (or waiver by Purchaser) of the following additional conditions:
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Section 5.3 Conditions to the Obligations of Seller. The obligation of Seller to consummate the transactions contemplated in this Agreement are subject to the satisfaction (or waiver by Seller) of the following additional conditions:
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Section 6.1 Conditions to Third Milestone Payment. Purchasers obligation to make the Third Milestone Payment on the Manufacturing Closing Date shall be subject to the satisfaction (or waiver by Purchaser) of the following conditions:
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Section 7.1 Termination of Agreement. This Agreement may be terminated at any time prior to the Technology Closing:
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Section 7.3 Reimbursement of Expenses. Seller agrees that, if Purchaser or Seller terminates this Agreement (i) pursuant to Section 7.1(b) hereto and, at the time of such termination, the Stockholder Approval shall not have been obtained or (ii) pursuant to Section 7.1(f), then Seller shall pay to Purchaser promptly (but in any even no later than two business days after such termination) an amount of Three Hundred Fifty Thousand Dollars ($350,000.00) as reimbursement for Purchasers costs and expenses associated with the negotiation, implementation and performance of this Agreement prior to such termination. Seller further agrees that, (i) if Purchaser or Seller terminates this Agreement pursuant to Section 7.1(f) hereto and at the time of such termination the Stockholder Meeting shall have been held, the Stockholder Approval shall not have been obtained and, prior to the Stockholder Meeting, there shall have been a Change in Seller Board Recommendation or (ii) Purchaser terminates this Agreement pursuant to Section 7.1(g), then Seller shall pay to Purchaser promptly (but in any event no later than two business days after such termination) an amount of Two Million Dollars ($2,000,000). All amounts payable by Seller to Purchaser pursuant to this Section 7.3 shall be
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paid in a wire transfer of United States dollars in immediately available funds to an account designated by Purchaser to Seller in writing.
Section 8.1 Indemnification by Seller. Seller hereby agrees to indemnify, defend and save harmless Purchaser and its directors, officers, employees, affiliates, agents, advisors, representatives, stockholders and assigns (collectively, the Purchaser Indemnified Parties) from, against and in respect of any and all Losses incurred or suffered by any Purchaser Indemnified Party arising out of, or related to, the following (each, a Purchaser Claim):
Except as set forth in Section 8.6 with respect to third party Actions, in the event of any Purchaser Claim, Purchaser shall notify Seller and such notice shall be in writing and shall describe with reasonable specificity the nature and amount of such Purchaser Claim (a Purchaser Notice of Claim). A delay on the part of a Purchaser Indemnified Party in giving Seller a Purchaser Notice of Claim shall relieve Seller from its obligations under this Section 8.1 only to the extent that Seller is materially prejudiced thereby. A Purchaser Notice of Claim may be delivered at any time during the applicable survival period for such claim as set forth in Section 8.3 of this Agreement.
Section 8.2 Indemnification by Purchaser. Purchaser hereby agrees to indemnify, defend and save harmless Seller and its directors, officers, employees, affiliates, agents, advisors, representatives, stockholders and assigns (collectively, the Seller Indemnified Parties) from, against and in respect of any and all Losses incurred or suffered by any Seller Indemnified Party arising out of, or related to, the following (each, a Seller Claim):
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Except as set forth in Section 8.6 with respect to third party Actions, in the event of any Seller Claim, Seller shall notify Purchaser and such notice shall be in writing and shall describe with reasonable specificity the nature and amount of such Seller Claim (a Seller Notice of Claim). A delay on the part of a Seller Indemnified Party in giving Purchaser a Seller Notice of Claim shall relieve Purchaser from its obligations under this Section 8.2 only to the extent that Purchaser is materially prejudiced thereby. A Seller Notice of Claim may be delivered at any time during the applicable survival period for such claim as set forth in Section 8.3 of this Agreement.
Section 8.3 Survival. If the Technology Closing occurs, all representations and warranties of Purchaser and Seller contained herein or in any other Transaction Document or document, certificate or other instrument required to be delivered hereunder or thereunder in connection with the transactions contemplated hereby shall survive the Technology Closing and shall continue until eighteen months (18) months after the Manufacturing Closing, provided that the representations and warranties set forth in Section 2.6 (Taxes), Section 2.9(c) (Disposition of Certain Contracts), Section 2.15 (Intellectual Property), Section 2.18 (Authorizations; Regulatory Compliance), Section 2.20 (Environmental), Section 2.22 (Brokers), shall survive until sixty (60) days after the expiration of the applicable statutes of limitations (including any extensions or waivers thereof) (the Specified Representations); provided, further, that the representations and warranties on which any Claims for indemnification are based shall continue in effect until final resolution of such claims and such expiration thereof shall not effect the right of any Indemnified Party to seek indemnification for Losses pursuant to Article 8 hereof.
Section 8.4 Limitations. Notwithstanding anything contained in this Agreement to the contrary:
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Section 8.5 Resolution of Notice of Claim. Each Purchaser Notice of Claim and Seller Notice of Claim (each, a Notice of Claim) delivered hereunder shall be resolved as follows:
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Section 8.6 Third Party Actions. In the event any Action is instituted against an Indemnified Party, which involves a Claim for which indemnification may be sought, the Indemnified Party will, promptly after receipt of notice of any such Action, notify the indemnifying party of the commencement thereof. The failure to so notify the indemnifying party of the commencement of any such Action will relieve the indemnifying party from liability in connection therewith only to the extent that such failure materially and adversely affects the ability of the indemnifying party to defend the interests of the indemnifying party in such Action. Except as set forth on Schedule 8.6 hereto, the Indemnified Party shall have the right to control the defense or settlement of such Action; provided that the indemnifying party and its counsel (at such partys sole expense) may participate in (but not control the conduct of) the defense of such Action, but only to the extent that such participation does no affect any privilege relating to the Indemnified Party. Any settlement by the Indemnified Party of any such Action with third party claimants, or any judgment by any governmental entity with respect to such Action with third party claimants, shall be determinative of the amount of Losses relating to such matter for purposes of this Article VIII.
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Section 8.7 Exclusive Remedy. If the Technology Closing occurs, except for the rights of Purchaser set forth in Section 9.1(b) hereto, following the Technology Closing the right of the parties hereto to demand and receive indemnification pursuant to this Article VIII shall be the sole and exclusive remedy exercisable by a party with respect to this Agreement or the transactions contemplated hereby except for the right to seek specific performance of any of the agreements contained herein, and except in the case of fraud or intentional misrepresentation.
Section 8.8 Reliance. No Indemnified Party shall be required to show reliance on any representation, warranty, certificate or other agreement in order for such Indemnified Party to be entitled to indemnification hereunder.
Section 8.9 Tax Treatment of Indemnity Payments. Any payment pursuant to this Article VIII shall be considered an adjustment to the initial Purchase Price for Tax purposes, to the maximum extent permitted by law.
(a) Any dispute, controversy, difference or claim arising out of, relating to or in connection with this Agreement, any other Transaction Document, any transaction hereunder or thereunder or breach hereof or thereof shall be finally settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association (the Rules) then in effect by one (1) arbiter appointed with the consent of both Seller and Purchaser (and in the event such consent cannot be obtained within thirty (30) days following the request by Seller or Purchaser for the consent of the other, in accordance with the Rules). The arbiters award shall be final and binding, and, in all instances, be subject to the limitations set forth in Article VIII hereof. Judgment upon the award rendered by the arbiter may be entered in any court having jurisdiction thereof. The arbitration shall take place in the Cook County in the State of Illinois, or such other place as the parties may agree. The arbiters award shall be in writing and shall include (i) a provision that the prevailing party in the arbitration shall recover its costs of the arbitration and reasonable attorneys fees from the other party, and (ii) the amount of such costs and fees.
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Section 9.2 Merger Clause. This Agreement, the other Transaction Documents and the agreements, documents and instruments to be executed and delivered in connection herewith and therewith contain the final, complete and exclusive statement of the agreement between the parties with respect to the transactions contemplated herein and all other prior or contemporaneous oral communications (including, for avoidance of doubt, communications in connection with the preparation of this Agreement and the other Transaction Documents) and agreements, and all prior written communications (including, for avoidance of doubt, written drafts of this Agreement and the other Transaction Documents) and agreements, with respect to the subject matter hereof are merged herein and superseded. For the avoidance of doubt, it is the parties intent that no term contained in or omitted from any prior written draft of this Agreement or the other Transaction Documents be used as extrinsic evidence under any state law or judicial interpretation to determine the intent of the parties hereto.
Section 9.3 Amendments. No amendment to, or any waiver with respect to any provision of, this Agreement shall be effective unless in writing and executed, in the case of an amendment by each party to this Agreement or, in the case of a waiver by each party against whom the waiver is to be effective. No course of dealing and no failure or delay on the part of any party hereto in exercising any right, power or remedy conferred by this Agreement shall operate as a waiver thereof or otherwise prejudice such partys rights, powers and remedies. The failure of either party to this Agreement to require the performance of a term or obligation under this Agreement or the waiver by the other party to this Agreement of any breach hereunder shall not prevent subsequent enforcement of such term or obligation or be deemed a waiver of any subsequent breach hereunder. No single or partial exercise of any right, power or remedy conferred by this Agreement shall preclude any other or further exercise thereof or the exercise of any other right, power or remedy.
Section 9.4 Notices. All notices, requests and demands and other communications hereunder must be in writing and shall be deemed to have been duly given (i) if given by telecopy, when such telecopy is transmitted to the telecopy number specified in this Agreement, if written confirmation of receipt thereof is obtained, (ii) on the date of delivery shown on the return receipt (or, if none shown, three (3) days after deposit in the mail) if placed in the United States mails and forwarded by registered or certified mail, return receipt requested, postage prepaid, or (iii) one (1) business day after deposit in the mail, if delivered, prepaid, to an overnight courier. All such communications shall be addressed as follows:
Osiris Therapeutics, Inc.
7015 Albert Einstein Avenue
Columbia, Maryland 21046
Attention: Chief Executive Officer
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Facsimile: (443) 283-4259
with a required copy to:
McKenna Long & Aldridge LLP
303 Peachtree St., NE, Suite 5300
Atlanta, Georgia 30308
Attention: Michael Cochran, Esq.
Facsimile: (404) 527-4198
NuVasive, Inc.
7473 Lusk Boulevard
San Diego, California 92121
Attention: General Counsel
Facsimile: (858) 909-2479
with a required copy (which shall not constitute notice) to:
DLA Piper US LLP
4365 Executive Drive, Suite 1100
San Diego, California 92122
Attention: Michael Kagnoff
Facsimile: (858) 456-3075
Any party may change the address(es) to which notices to it are to be sent by giving notice of such change to the other parties in accordance with this Section.
Section 9.5 Captions. The captions are for convenience of reference only and shall not be construed as a part of this Agreement.
Section 9.6 Governing Law. This Agreement, including the validity hereof and the rights and obligations of the parties hereunder, shall be construed, interpreted, enforced and governed by and under the laws of the State of Delaware applicable to contracts made and to be performed entirely in such state, without regard to its rules regarding conflicts of law provisions.
Section 9.7 Schedules and Exhibits. All the schedules and exhibits referenced in and attached to this Agreement are incorporated herein by reference and shall be deemed to be a part of this Agreement for all purposes. If any provision of this Agreement is so broad as to be unenforceable, such provision shall be interpreted to be only so broad as if enforceable.
Section 9.8 Severability. The invalidity, unenforceability or illegality of any one or more phrases, sentences, clauses or provisions of this Agreement shall not affect the validity, enforceability or legality of the remaining portions of this Agreement or any part thereof (so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party), it being intended that each partys rights and privileges shall be enforceable to the fullest extent permitted by applicable law, and any such invalidity,
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unenforceability or illegality in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction (so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party).
Section 9.9 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall constitute an original but all of which shall constitute one and the same instrument. The parties need not sign the same counterpart.
Section 9.10 Fees and Expenses. Except as expressly set forth herein, Seller on the one hand, and Purchaser, on the other hand, shall each bear their own expenses in connection with the negotiation and preparation of this Agreement, all agreements, documents, and instruments contemplated hereby, and the consummation of the transactions contemplated hereby, including, without limitation, the fees and expenses of their respective counsel, accountants, and consultants.
Section 9.11 Benefits and Binding Effect. No party may assign or transfer any of their respective rights, benefits or obligations under this Agreement without the consent in writing of the other party hereto; provided, however, that any party may assign its rights, benefits and obligations hereunder in whole or in part to any successor or successors to (i) in the case of Purchaser, all or part of the Transferred Assets or its business in the event of a reorganization, merger or consolidation, sale or other transfer of a substantial portion of its assets or (ii) in the case of Seller, all of its business in the event of a reorganization, merger or consolidation (each of the events in (i) and (ii), a Corporate Event); provided that any acquiror or successor of Purchaser or Seller, as applicable, in connection with a Corporate Event shall, in the consenting parties reasonable discretion, be at least as creditworthy as the assigning party; provided further, however, that Seller may not assign or transfer any of its rights, benefits or obligations under this Agreement in connection with a Corporate Event prior to the Manufacturing Closing Date to any person identified on Schedule 9.11. Notwithstanding the foregoing, no assignment shall relieve the assigning party of responsibility for the performance of its obligations hereunder.
Section 9.12 No Third Party Beneficiary. The parties hereto do not intend to create any third party beneficiary rights or remedies with respect to any person, including without limitation any employees or former employees of Seller or other person or entity who is providing, or has provided services to Seller as a result of the provisions in this Agreement, and specifically hereby negate any such intention or construction.
Section 9.13 Definitions; Interpretation. For purposes of this Agreement, (a) the terms defined in this Agreement and in this Section 9.13 shall have the meanings assigned to them in this Agreement and this Section 9.13 and include the plural as well as the singular, (b) all accounting terms not otherwise defined herein have the meanings assigned under GAAP, (c) all references in this Agreement to designated Section or other subdivisions are to be designated Sections and other subdivisions of the body of this Agreement, (d) pronouns of either gender or neutral shall include, as appropriate, the other pronoun forms, and (e) the words herein, hereof and hereunder and other words of similar import refer to this Agreement as a whole and not to any particular Section or other subdivision. Each of the parties has participated in the drafting and negotiation of this Agreement. If an ambiguity or question of intent or interpretation arises, this Agreement must be construed as if it is drafted by both parties, and no
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presumption or burden of proof shall arise favoring or disfavoring any party by virtue of authorship of any of the provisions of this Agreement.
As used in this Agreement and the exhibits and schedules delivered pursuant to this Agreement, the following definitions will apply:
Action means any action, suit, claim, charge, cause of action or suit (whether in contract or tort or otherwise), litigation (whether at law or in equity, whether civil or criminal), controversy, assessment, arbitration, investigation, hearing, complaint, demand or other proceeding to, from, by or before any arbitrator, court, tribunal or other governmental entity.
Additional Product Delivery Payment means the product of (i) (A) the Excess Delivery Amount divided by (B) 58,300, rounded down to the nearest whole number multiplied by (ii) Two Million, Five Hundred Thousand Dollars ($2,500,000); provided, however, that in no event shall the Additional Product Delivery Payment exceed Seven Million, Five Hundred Thousand Dollars ($7,500,000).
Allowable Work in Process means the maximum total amount of Work in Process and Finished Inventory existing on the Manufacturing Closing Date which is reasonably necessary to support the sales forecasts provided by Purchaser to Seller.
Asset Acquisition Proposal means any proposal, inquiry or offer from any person (other than Purchaser) concerning the acquisition or license of all or any portion of the Transferred Assets.
Business Intellectual Property means any and all intellectual property and other intangible rights and property used in, held for use in, intended for use in, related to or necessary for the operation of the Business as presently conducted, including any or all of the following, and all rights in, arising out of, or associated therewith, including, but not limited to, all such rights used in the operation of the Business: (i) any and all Patent Rights; (ii) all inventions (whether patentable or not), invention disclosures, discoveries, improvements, trade secrets, proprietary information, technology, technical information, data (including data from scientific and clinical and pre-clinical studies and other research), customer, physician and supplier lists, procedures, processes, specifications, methods, techniques, ideas, results, marketing studies, plans and proposals, market research and all other information and know-how, whether or not patentable or protected as a trade secret, and all documentation relating to any of the foregoing; (iii) all trademarks, service marks, trade names, domain names, and registrations and applications relating to any of the foregoing, all logos, designs, brand names, trade dress and slogans, and all other rights corresponding thereto throughout the world (Trademark Rights); (iv) all copyrights, copyrights registrations and applications therefor, works of authorship and derivative works (including advertising, marketing and promotional materials, artwork, labels and other works of authorship) mask works, moral rights, and all other rights corresponding thereto throughout the world; (Copyright Rights) (v) all industrial designs and any registrations and applications therefor throughout the world; (vi) all software, including but not limited to source code, object, executable or binary code, templates, manuals and other items and documentation related thereto or associated therewith; (vii) all databases and data collections and all rights therein throughout the world; (viii) all Actions and rights to sue at law or in equity for any,
A-54
present or future infringement or other impairment thereto, including the right to receive all proceeds and damages therefrom, and all rights to obtain renewals, continuations, divisions or other extensions of legal protections pertaining thereto; and (ix) any similar or equivalent rights to any of the foregoing anywhere in the world, together with the goodwill and the business appurtenant thereto and any rights, claims or choses in action relating to or deriving from any of the foregoing.
Business Material Adverse Effect means any event, circumstance, development with respect to, change in or effect on the Business or the Transferred Assets that is, or would reasonably be expected to have, a material adverse effect on the business, assets, liabilities, financial condition or results of operations of the Business, taken as whole; provided, however, that any event, circumstance, development, change or effect arising out of or relating to the following shall not be taken into account in determining whether a Business Material Adverse Effect shall have occurred: (i) changes in general economic conditions which do not have a disproportionate impact on the Business, (ii) changes affecting generally the industry in which the Seller conducts the Business which do not have a disproportionate impact on the Business, (iii) the public announcement by Purchaser and Seller of the execution of this Agreement, (iv) any action taken or omitted to be taken by Seller pursuant to the express terms of this Agreement, (v) any change resulting solely from an action taken by Purchaser or its affiliates without the prior written consent of Seller, and (vi) any action taken at, and in accordance with, the written request of Purchaser.
Claims means, as the context dictates, any Purchaser Claim or Seller Claim.
Contract means any written or oral legally binding contract, agreement, instrument, commitment or undertaking of any nature (including leases, licenses, mortgages, notes, guarantees, sublicenses, subcontracts, letters of intent and purchase orders).
Code means the Internal Revenue Code of 1986, as amended, or as hereafter amended.
Excess Delivery Amount means the positive number, if any, by which the total number of cubic centimeters of Product that Seller shall have delivered to Purchaser prior to the Manufacturing Closing in accordance with the terms and provisions of, and subject to the specifications set forth in, the Manufacturing Agreement, exceeds the Second Delivery Threshold.
Finished Inventory means all finished goods inventory of Product.
GAAP means United States generally accepted accounting principals and practices in effect from time to time applied consistently throughout the periods involved.
Indemnified Party means, as the context dictates, any Purchaser Indemnified Party or Seller Indemnified Party.
Knowledge means, with respect to Seller, the actual knowledge of the individuals listed on Schedule 9.14 hereto or the knowledge that any such individual could obtain by reasonable inquiry.
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Losses shall mean the amount of any loss, claim, Tax, demand, loss, deficiency, damage, liability, judgment, fine, penalty, fee, cost or expense (including, without limitation, reasonable attorneys, consultants and experts fees and expenses) incurred, paid, accrued or sustained by the Purchaser Indemnified Parties, including, without limitation, any costs of defending any Actions or enforcing the Purchaser Indemnified Partys rights under this Agreement. In determining the amount of any Loss (but, for avoidance of doubt, not in determining whether a breach of representation, warranty or covenant exists), any qualifications in the representations, warranties and covenants with respect to a Business Material Adverse Effect, materiality, material or similar terms shall be disregarded and will not have any effect with respect to the calculation of the amount of any Losses attributable to a breach of any representation, warranty or covenant of the Seller set forth in the Transaction Documents, and the exhibits, schedules or certificates delivered in connection therewith.
Net Sales means (i) the gross amount invoiced by Purchaser and its affiliates for Product sold in bona fide arms-length transactions to any non-affiliated third party customer or distributor and (ii) the gross royalties and license fees payable to Purchaser by licensees, sublicensees and distributors for Product sold in bona fide, arms-length transactions, in each case, less the following offsets and deductions: (a) quantity and/or cash discounts from the gross invoice price which are actually allowed and taken; (b) freight, postage and insurance included in the invoice price; (c) amounts repaid or credited by reasons of rejections or return of goods or because of retroactive price reductions specifically identifiable to such Product; (d) amounts payable resulting from government (or agency thereof) mandated rebate programs; (e) third party rebates or charge-backs to the extent actually allowed; and (f) invoiced customs duties and sales Taxes (excluding income, value-added and similar Taxes), if any, all as determined in accordance with GAAP. Where there is an initial disposal by Purchaser or any of its affiliates to Purchaser or any of its affiliates, as applicable, and a subsequent sale to a person or entity other than the Purchaser or its affiliates, the Net Sales shall be calculated by reference to the invoiced ex-work pertaining to the first sale or other disposal to a person or entity other than Purchaser or its affiliates.
Patent Rights means any and all (A) patents, (B) patent applications, including, without limitation, all provisional applications, substitutions, continuations, continuations-in-part, divisions, renewals, and all patents granted thereon, (C) all patents-of-addition, reissues, reexaminations and extensions or restorations by existing or future extension or restoration mechanisms, including, without limitation, supplementary protection certificates or the equivalent thereof, and (D) any other form of government-issued right substantially equivalent to any of the foregoing used in, necessary for or related to the Business.
Purchaser Common Stock Value means the average closing sales price of one share of Purchaser Common Stock on the principal exchange on which the Purchaser Common Stock is traded over the ten-day trading period ending on the second trading day preceding the date of issuance of such Purchaser Common Stock to the Seller.
Superior Proposal shall mean an unsolicited bona fide Asset Acquisition Proposal by a third party to enter into a sale, lease, exchange transfer, license, acquisition or disposition of all of the Business and the Transferred Assets in a single transaction or a series of related transactions that (a) was not obtained or made as a direct or indirect result of a failure to comply
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with or breach of (or in violation of) the Agreement; and (b) is on terms and conditions that the Board of Directors of Seller determines, in its reasonable, good faith judgment, after obtaining and taking into account such matters that it deems relevant (taking into account all financial, regulatory, legal and other aspects thereof) following consultation with its outside legal counsel and regionally-recognized financial advisor: (x) is more favorable, from a financial point of view, to Sellers stockholders than the terms of this Agreement (taking into account any offer by the Purchaser to amend the terms of this Agreement,); and (y) is reasonably capable of being consummated on the terms proposed and on a timely basis (taking into account all financial, regulatory, legal and other aspects thereof); provided, however, that any such Asset Acquisition Proposal shall not be deemed to be a Superior Proposal if any financing required to consummate the transaction contemplated by such Asset Acquisition Proposal is not firmly committed and reasonably capable of being obtained by such third party, or if the consummation of such transaction is contingent on any such financing being obtained.
Taxes means (A) any and all foreign, and U.S. federal, state, local or other Taxes of any kind (together with any and all interest, penalties, additions to Tax and additional amounts imposed with respect thereto) imposed by any governmental entity, including Taxes on or with respect to income, franchises, windfall or other profits, gross receipts, property, sales, use, capital stock, payroll, employment, unemployment, social security, workers compensation or net worth, and Taxes in the nature of excise, withholding, ad valorem or value added; (B) any liability for the payment of any amounts of the type described in clause (A) as a result of being or ceasing to be a member of an affiliated, consolidated, combined or unitary group for any period; and (C) any liability for the payment of any amounts of the type described in clause (A) or (B) as a result of any express or implied obligation to indemnify any other Person or as a result of any obligations under any agreements or arrangements with any other Person with respect to such amounts and including any liability for Taxes of a predecessor or a transferor or otherwise by operation of law.
Tax Return means any return, report or similar filing (including the attached schedules) required to be filed with respect to Taxes, including any information return, claim for refund, amended return or declaration of estimated Taxes.
Technology Assets means all Transferred Assets other than the Manufacturing Assets.
WIP Value shall mean the positive or negative number equal to (i) with respect to Allowable Work in Process held by Seller as of the Manufacturing Closing Date that but for receipt of the documentation necessary for the Allowable Work in Process to constitute Finished Product, the product of (x) the aggregate cubic centimeters of such Allowable Work in Process, times (y) the then current Product Fee under the Manufacturing Agreement times (z) 0.7 minus (ii) the product of 17,500 times then current Product Fee under the Manufacturing Agreement.
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Index of Other Defined Terms:
Defined Terms |
|
Section Reference |
510(k) |
|
Section 2.18(d) |
Affirmative Response Notice |
|
Section 4.12(b) |
Agreement |
|
Preamble |
Antitrust Laws |
|
Section 4.15(b) |
Applicable Milestone Payment |
|
Section 1.5(a) |
Assumed Contracts |
|
Section 1.1(a)(x) |
Assumed Liabilities |
|
Section 1.2(a) |
Audited Financial Statements |
|
Section 4.3(c) |
Balance Sheet |
|
Section 2.7 |
Balance Sheet Date |
|
Section 2.7 |
Basket Amount |
|
Section 8.4(a) |
Bill of Sale Manufacturing Assets |
|
Section 6.1(g) |
Bill of Sale Technology Assets |
|
Section 5.2(g) |
Business |
|
Recital A |
Change in Seller Board Recommendation |
|
Section 4.20(c) |
COBRA |
|
Section 2.14 |
Competitive Business |
|
Section 4.9(a) |
Confidential Information |
|
Section 4.5 |
Contested Claim |
|
Section 8.5(c) |
Corporate Event |
|
Section 9.11 |
DGCL |
|
Section 4.6(a) |
End Date |
|
Section 7.1(b) |
ERISA |
|
Section 2.13(a) |
Excluded Assets |
|
Section 1.1(b) |
FDA |
|
Section 2.18 |
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Fifth Milestone Payment |
|
Section 1.5(a)(v) |
Financial Information |
|
Section 2.7 |
First Delivery Threshold |
|
Section 1.5(a)(i) |
First Milestone Payment |
|
Section 1.5(a)(i) |
Fourth Milestone Payment |
|
Section 1.5(a)(iv) |
General Cap Amount |
|
Section 8.4(a) |
Hazardous Material |
|
Section 2.20(a) |
HSR |
|
Section 4.15(a) |
Independent Contractors |
|
Section 2.12(b) |
Initial Purchaser Price |
|
Section 1.4 |
Intellectual Property Rights |
|
Section 4.7(a) |
IP Assignment Agreement Patents |
|
Section 5.2(h) |
IP Assignment Agreement Trademark |
|
Section 5.2(h) |
JPA Opinions |
|
Section 2.15(o) |
License Agreement |
|
Section 5.2(j) |
Licensed Technology |
|
Section 2.15(c) |
Liens |
|
Section 2.4 |
Manufacturing Agreement |
|
Section 5.2(i) |
Manufacturing Assets |
|
Section 1.1(a) |
Manufacturing Asset Transfer |
|
Section 1.1(c) |
Manufacturing Closing |
|
Section 1.3 |
Manufacturing Closing Date |
|
Section 1.3 |
Maximum Milestone Amount |
|
Section 1.5(a) |
Milestone |
|
Section 1.5(a) |
Milestone Assessment Notice |
|
Section 1.5(b)(ii) |
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Milestone Dispute Notice |
|
Section 1.5(b)(iii) |
Milestone Expiration Date |
|
Section 1.5(a) |
Negotiation Notice |
|
Section 4.12(b) |
Net Sales Threshold |
|
Section 1.5(b)(vi) |
Notice of Breach |
|
Section 4.10 |
Notice of Claim |
|
Section 8.5 |
Notice of Superior Proposal |
|
Section 4.6(a) |
Osteocel XC |
|
Section 4.12(a) |
Osteocel XC Transaction |
|
Section 4.12(b) |
Permitted Liens |
|
Section 2.4 |
PHSA |
|
Section 2.11 |
Product |
|
Recital A |
Product Development |
|
Section 1.1(a)(iv) |
Proxy Statement |
|
Section 4.20(a) |
Purchaser |
|
Preamble |
Purchaser Claim |
|
Section 8.1 |
Purchaser Common Stock |
|
Section 1.5(a) |
Purchaser Indemnified Parties |
|
Section 8.1 |
Purchaser Notice of Claim |
|
Section 8.1 |
Purchaser Organizational Documents |
|
Section 3.2(a) |
Records |
|
Section 1.1(a)(v) |
Restricted Period |
|
Section 4.9(a) |
Retained Liabilities |
|
Section 1.2(b) |
Rights of Set-Off |
|
Section 1.5(c) |
Rules |
|
Section 9.1(a) |
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SEC |
|
Section 4.20(a) |
Second Delivery Threshold |
|
Section 1.5(a)(ii) |
Second Milestone Payment |
|
Section 1.5(a)(ii) |
Securities Act |
|
Section 1.5(a) |
Seller |
|
Preamble |
Seller Benefit Plan |
|
Section 2.13(a) |
Seller Board Recommendation |
|
Section 4.20(b) |
Seller Claim |
|
Section 8.2 |
Seller Employees |
|
Section 2.12(a) |
Seller Indemnified Parties |
|
Section 8.2 |
Seller Notice of Claim |
|
Section 8.2 |
Seller Options |
|
Section 2.12(a) |
Seller Organizational Documents |
|
Section 2.2(a) |
Sixth Milestone Payment |
|
Section 1.5(a)(vi) |
Special Cap Amount |
|
Section 8.4(b) |
Special Cap Liabilities |
|
Section 8.4(b) |
Specified Representations |
|
Section 8.3 |
Stockholder Approval |
|
Section 4.20(b) |
Stockholders Meeting |
|
Section 4.20(b) |
Technology Asset Transfer |
|
Section 1.1(c) |
Technology Closing |
|
Section 1.3 |
Technology Closing Date |
|
Section 1.3 |
Third Milestone Payment |
|
Section 1.5(a)(iii) |
Transaction Documents |
|
Section 1.2(b)(viii) |
Transfer Taxes |
|
Section 4.18 |
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Transferred Assets |
|
Section 1.1 |
Transferred Employee |
|
Section 4.11(b) |
Transferred Technology |
|
Section 1.1(a)(i) |
Work in Process |
|
Section 1.1(a)(ii) |
[Signature Page to Follow]
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IN WITNESS WHEREOF, Seller and Purchaser have each caused this Agreement to be executed by their respective duly authorized officers, all as of the date first above written.
SELLER:
|
OSIRIS THERAPEUTICS, INC. |
|
|
|
|
|
By: |
C. RANDAL MILLS |
|
Name: |
C. Randal Mills |
|
Title: |
President & CEO |
PURCHASER:
|
NUVASIVE, INC. |
|
|
|
|
|
By: |
ALEXIS V. LUKIANOV |
|
Name: |
Alexis V. Lukianov |
|
Title: |
CEO and Chairman of the Board |
A-63
[FORM OF]
MANUFACTURING AGREEMENT
THIS MANUFACTURING AGREEMENT (the Agreement) is made and entered into as of , 2008 (the Effective Date), by and between Osiris Therapeutics, Inc. (Osiris), a Delaware corporation, and NuVasive, Inc. (NuVasive), a Delaware corporation.
RECITALS
WHEREAS, Osiris and NuVasive are parties to that certain Asset Purchase Agreement, dated , 2008 (the Asset Purchase Agreement), pursuant to which Osiris sold, and NuVasive purchased, technology related to manufacturing the Osteocel product line (as more specifically set forth therein); and
WHEREAS, NuVasive and Osiris desire to herein set forth an arrangement whereby Osiris shall manufacture and deliver to NuVasive, and NuVasive shall purchase, the Product (as defined below).
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto agree as follows:
As used herein, certain capitalized terms shall have the meanings ascribed to them as provided below:
B-1
B-2
B-3
B-4
Applicable Period |
|
Minimum Performance |
Effective Date to April 15, 2009 |
|
125,000 |
April 16, 2009 to eighteen (18) months following the Technology Closing Date (as defined in the Asset Purchase Agreement) |
|
125,000 |
B-5
B-6
B-7
B-8
B-9
B-10
B-11
B-12
B-13
If to Osiris: |
|
If to NuVasive |
|
|
|
Osiris Therapeutics, Inc. 7015 Albert Einstein Drive Columbia, MD 21046 Attention: Chief Executive Officer Fax No.: 443-545-1701
With a copy to:
McKenna Long & Aldridge LLP 303 Peachtree St., NE, Suite 5300 Atlanta, GA 30308 Attention: Michael Cochran, Esq. Fax No.: 404-527-4198 |
|
NuVasive, Inc. 7473 Lusk Boulevard San Diego, CA 92121 Attention: General Counsel Fax No.: [*]
With a copy (which shall not constitute notice) to:
DLA Piper US LLP 4365 Executive Drive Suite 1100 San Diego, CA 92122 Attention: Michael Kagnoff Fax No.: 858-638-5022 |
B-14
B-15
IN WITNESS WHEREOF, the undersigned caused this Agreement to be executed as of the Effective Date.
OSIRIS THERAPEUTICS, INC. |
|
NUVASIVE, INC. |
||
|
|
|
||
By: |
|
|
By: |
|
Name: |
|
Name: |
||
Its: |
|
Its: |
||
B-16
Osiris Materials Specifications numbers 90055, 90067, 90080, 90081, 90103, 9012, 90129, 90149, and 90188, as may be amended by mutual written agreement of the parties.
B-17
[FORM OF]
Company Voting and Support Agreement
COMPANY VOTING AND SUPPORT AGREEMENT, dated as of May 8, 2008, (this Agreement), by and between Nuvasive, Inc. (Nuvasive), a Delaware corporation, and (the Stockholder). Capitalized terms used but not defined herein shall have the meanings given to such terms in the Asset Purchase Agreement, dated as of the date hereof (the Purchase Agreement), by and between Nuvasive and Osiris Therapeutics, Inc. (the Company).
W I T N E S S E T H:
WHEREAS, Nuvasive and the Company are entering into the Purchase Agreement concurrently with the execution and delivery of this Agreement, which Purchase Agreement sets forth the terms and conditions on which Nuvasive will acquire certain assets of the Company (the Acquisition).
WHEREAS, as of the date hereof, the Stockholder is the beneficial and record owner of shares of Company Common Stock (the Existing Shares).
WHEREAS, Nuvasive has required, as a material inducement to Nuvasives willingness to enter into the Purchase Agreement, that the Stockholder enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual representations, warranties, covenants and agreements contained herein, and intending to be legally bound hereby, the parties hereto hereby agree as follows:
ARTICLE I
VOTING
1.1 Agreement to Vote. The Stockholder agrees that, from and after the date hereof and until this Agreement is terminated pursuant to Section 4.1, at the Stockholder Meeting and any other meeting of the stockholders of the Company, however called relating to any proposed action by the stockholders of the Company with respect to the matters set forth in Section 1.1(b) below (each, a Voting Event), the Stockholder shall:
(a) appear at each such Voting Event or otherwise cause the Existing Shares and any voting securities of the Company acquired by the Stockholder after the date hereof and prior to the record date of such Voting Event (together with the Existing Shares, the Voting Shares) owned beneficially or of record by the Stockholder to be counted as present thereat for purposes of calculating a quorum; and
(b) vote (or cause to be voted), in person or by proxy, all the Voting Shares (i) in favor of adoption of the Purchase Agreement and any other transactions and other matters specifically contemplated by the Purchase Agreement and (ii) against any action or agreement submitted for adoption of the stockholders of the Company that, to the Stockholders knowledge, would result in a breach of any covenant, representation or warranty or any other obligation or
C-1
agreement of the Company contained in the Purchase Agreement or of the Stockholder contained in this Agreement.
1.2 Fiduciary Duties. Each party hereto acknowledges and agrees that the Stockholder is not making any agreement or understanding herein in any capacity other than in its capacity as a stockholder of the Company. If the Stockholder or any affiliates, employees or agents of the Stockholder is an officer or member of the Board of Directors of the Company, nothing herein shall in any way limit or affect actions taken by them in such capacity, and no action taken in their capacity as such an officer or director in furtherance of their fiduciary duties as an officer or director of the Company shall be deemed to be a breach of the provisions of this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of the Stockholder. The Stockholder hereby represents and warrants to Nuvasive as follows:
(a) Authorization; Validity of Agreement; Necessary Action. This Agreement has been duly and validly executed and delivered by the Stockholder and, assuming this Agreement constitutes the valid and binding agreement of Nuvasive, constitutes the valid and binding agreement of the Stockholder, enforceable against the Stockholder in accordance with its terms, subject to (i) laws of general application relating to bankruptcy, insolvency and the relief of debtors, and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies.
(b) Ownership. As of the date hereof, the number of shares of Company Common Stock beneficially owned by the Stockholder is noted in the Recitals to this Agreement. The Existing Shares are, and the Voting Shares will be, owned beneficially by the Stockholder. As of the date hereof, the Existing Shares are the only shares of Company Common Stock held of record or beneficially owned by the Stockholder. Subject to Section 3.1, the Stockholder has and will have at all times through the time of any Voting Event sole voting power, sole power of disposition, sole power to issue instructions with respect to the matters set forth in Article I or Section 3.1 hereof, and sole power to agree to all of the matters set forth in this Agreement, in each case with respect to all of the Existing Shares and with respect to all of the Voting Shares at the time of any Voting Event, with no limitations, qualifications or restrictions on such rights, subject to applicable federal securities laws and the terms of this Agreement. The Stockholder has good title to the Existing Shares, free and clear of any Liens and the Stockholder will have good title to such Voting Shares as of the time of any Voting Event, free and clear of any Liens. The Stockholder further represents that any proxies heretofore given in respect of the shares of Company Common Stock owned beneficially and of record by such Stockholder, if any, are revocable, and have been revoked.
(c) No Violation. The execution and delivery of this Agreement by the Stockholder does not, and the performance by the Stockholder of its obligations under this Agreement will not, (i) contravene or conflict with the organizational or governing documents of
C-2
the Stockholder, (ii) contravene or conflict with or constitute a violation by Stockholder of any provision of any Law binding upon or applicable to the Stockholder or any of its properties or assets, or (iii) result in any violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any material obligation or to the loss of a material benefit under any loan, guarantee of indebtedness or credit agreement, note, bond, mortgage, indenture, lease or agreement binding upon the Company or any of its subsidiaries or result in the creation of any Lien (other than Permitted Liens) upon any of the properties or assets of the Stockholder, except for any of the matters set forth in the foregoing clause (iii) as would not reasonably be expected to materially impair the ability of the Stockholder to perform its obligations hereunder or to consummate the transactions contemplated hereby on a timely basis.
2.2 Representations and Warranties of Nuvasive. Nuvasive hereby represents and warrants to the Stockholder as follows:
(a) Authorization; Validity of Agreement; Necessary Action. This Agreement has been duly and validly executed and delivered by Nuvasive and, assuming this Agreement constitutes the valid and binding agreement of the Stockholder, constitutes the valid and binding agreement of Nuvasive, enforceable against Nuvasive in accordance with its terms, subject to (i) laws of general application relating to bankruptcy, insolvency and the relief of debtors, and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies.
(b) No Violation. The execution and delivery of this Agreement by Nuvasive does not, and the performance by Nuvasive of its obligations under this Agreement will not, (i) contravene or conflict with the organizational or governing documents of Nuvasive, (ii) contravene or conflict with or constitute a violation by Nuvasive of any provision of any Law binding upon or applicable to Nuvasive or any of its properties or assets or (iii) result in any violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any material obligation or to the loss of a material benefit under any loan, guarantee of indebtedness or credit agreement, note, bond, mortgage, indenture, lease or agreement binding upon Nuvasive or result in the creation of any Lien (other than Permitted Liens) upon any of the properties or assets of Nuvasive, except for any of the matters set forth in the foregoing clause (iii) as would not reasonably be expected to materially impair the ability of Nuvasive to perform his obligations hereunder or to consummate the transactions contemplated hereby on a timely basis.
ARTICLE III
OTHER COVENANTS
3.1 Further Agreements of the Stockholder. (a) The Stockholder hereby agrees, while this Agreement is in effect, and except as expressly contemplated hereby, not to sell, transfer, pledge, encumber, assign, distribute, gift or otherwise dispose of (collectively, a Transfer) or enter into any contract, option, put, call or other arrangement or understanding with respect to any Transfer (whether by actual disposition or effective economic disposition due to hedging, cash settlement or otherwise) of, any of the Voting Shares, or any interest therein, provided, that notwithstanding the foregoing, the Stockholder may Transfer any Voting Shares to
C-3
any transferee or transferees (including, for avoidance of doubt, any member of Stockholders immediate family, a trust for the benefit of the Stockholder or any member of the Stockholders immediate family or upon the death of the Stockholder) if either (i) Stockholder retains direct or indirect sole voting control over such Transferred Voting Shares through the term of this Agreement; or (ii) as a condition to such Transfer, such transferee or transferees shall execute an agreement that contains the same substantive covenants regarding voting and transfer as are contained in this Agreement.
(a) In case of a stock dividend or distribution of voting securities of the Company, or any change in the Company Common Stock by reason of any stock dividend or distribution, split-up, recapitalization, combination, exchange of shares or the like, the term Voting Shares shall be deemed to refer to and include the Voting Shares as well as all such stock dividends and distributions of voting securities of the Company and any voting securities into which or for which any or all of the Voting Shares may be changed or exchanged.
(b) The Stockholder agrees, while this Agreement is in effect, not to, nor to permit any investment banker, financial adviser, attorney, accountant or other representative or agent of the Stockholder to, directly or indirectly, engage in any activity which would be prohibited pursuant to Section 4.7 of the Purchase Agreement if engaged in by the Company.
(c) The Stockholder agrees, while this Agreement is in effect, not to take or agree or commit to take any action that would make any representation and warranty of the Stockholder contained in Section 2.1 of this Agreement inaccurate in any material respect. The Stockholder further agrees that it shall use its commercially reasonable efforts to cooperate with the Company to effect the transactions contemplated hereby including the Acquisition.
ARTICLE IV
MISCELLANEOUS
4.1 Termination. This Agreement shall terminate upon the earlier to occur of (a) the receipt of the Stockholder Approval (as defined in the Purchase Agreement) and (b) the termination of the Purchase Agreement pursuant to its terms. In the event of such termination of this Agreement, this Agreement shall forthwith become void and have no effect, without any liability or obligation on the part of any party; provided, however that nothing herein shall relieve any party from liability for any fraud, intentional misrepresentation or willful breach of any of its representations, warranties, covenants or agreements set forth in this Agreement prior to such termination.
4.2 Further Assurances. From time to time, at the other partys request and without further consideration, each party shall execute and deliver such additional documents and take all such further action as may be reasonably necessary or desirable to consummate the transactions contemplated by this Agreement.
4.3 No Ownership Interest. Nothing contained in this Agreement shall be deemed to vest in Nuvasive any direct or indirect ownership or incidence of ownership of or with respect to any Voting Shares. All rights, ownership and economic benefits of and relating to the
C-4
Voting Shares shall remain vested in and belong to the Stockholder, and Nuvasive shall have no authority to manage, direct, superintend, restrict, regulate, govern or administer any of the policies or operations of the Company or exercise any power or authority to direct the Stockholder in the voting of any of the Voting Shares, except as otherwise provided herein.
4.4 Notices. Except for notices that are specifically required by the terms of this Agreement to be delivered orally, all notices, requests, claims, demands and other communications hereunder shall be in writing and shall be deemed given if delivered personally, faxed (with confirmation) or sent by overnight courier (providing proof of delivery) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice)
NuVasive, Inc.
7473 Lusk Boulevard
San Diego, California 92121
Attention: General Counsel
Facsimile: (858) 909-2479
with a copy (which shall not constitute notice) to:
DLA Piper US LLP
4365 Executive Drive, Suite 1100
San Diego, California 92122
Attention: Michael Kagnoff
Facsimile: (858) 456-3075
and (b) if to the Stockholder:
4.5 Interpretation. When a reference is made in this Agreement to an Article or Section, such reference shall be to an Article or Section of this Agreement unless otherwise indicated. Whenever the words include, includes or including are used in this Agreement, they shall be deemed to be followed by the words without limitation. The words hereof, herein and hereunder and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. All terms defined in this Agreement shall have the defined meanings when used in any certificate or other document made or delivered pursuant thereto unless otherwise defined therein. Whenever the context of this Agreement requires, the gender of all words herein shall include the masculine, feminine and neuter, and the number of all words herein shall include the singular and plural. Any agreement, instrument or statute defined or referred to herein or in any agreement or
C-5
instrument that is referred to herein means such agreement, instrument or statute as from time to time amended, modified or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes) by succession of comparable successor statutes and references to all attachments thereto and instruments incorporated therein. Each of the parties has participated in the drafting and negotiation of this Agreement. If an ambiguity or question of intent or interpretation arises, this Agreement must be construed as if it is drafted by all the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of authorship of any of the provisions of this Agreement.
4.6 Counterparts. This Agreement may be executed in two or more consecutive counterparts (including by facsimile), each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument, and shall become effective when one or more counterparts have been signed by each of the parties and delivered (by telecopy or otherwise) to the other parties.
4.7 Entire Agreement; Third-Party Beneficiaries. This Agreement (including the exhibits and schedules hereto) constitutes the entire agreement, and supersedes all other prior agreements and understandings, both written and oral, between the parties, or any of them, with respect to the subject matter hereof and thereof and is not intended to and shall not confer upon any person other than the parties hereto any rights or remedies hereunder; provided, however, that the Company shall be deemed to be a third-party beneficiary of the Stockholders obligations under Sections 1.1 and 3.1 and shall be entitled to enforce the terms of this Agreement in respect thereto as if it were a party hereto.
4.8 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to any choice or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware.
4.9 Jurisdiction; Enforcement. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement. Each of the parties hereto irrevocably agrees that any legal action or proceeding with respect to this Agreement and the rights and obligations arising hereunder, or for recognition and enforcement of any judgment in respect of this Agreement and the rights and obligations arising hereunder brought by the other party hereto or its successors or assigns, shall be brought and determined exclusively in the Delaware Court of Chancery and any state appellate court therefrom within the State of Delaware (or, only if the Delaware Court of Chancery declines to accept jurisdiction over a particular matter, any state or federal court within the State of Delaware). Each of the parties hereto hereby irrevocably submits with regard to any such action or proceeding for itself and in respect of its property, generally and unconditionally, to the personal jurisdiction of the aforesaid courts and agrees that it will not bring any action relating to this Agreement or any of the transactions contemplated by this Agreement in any court other than the aforesaid courts. Each of the parties hereto hereby irrevocably waives, and agrees not to assert as a defense, counterclaim or otherwise, in any action or proceeding with respect to this Agreement, (a) any
C-6
claim that it is not personally subject to the jurisdiction of the above named courts for any reason other than the failure to serve in accordance with this Section 4.9, (b) any claim that it or its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such courts (whether through service of notice, attachment prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise) and (c) to the fullest extent permitted by the applicable Law, any claim that (i) the suit, action or proceeding in such court is brought in an inconvenient forum, (ii) the venue of such suit, action or proceeding is improper or (iii) this Agreement, or the subject mater hereof, may not be enforced in or by such courts.
4.10 Amendment. Any provision of this Agreement may be amended or waived if, and only if, such amendment or waiver is in writing and signed, in the case of an amendment, by each of the parties hereto, or in the case of a waiver, by the party against whom the waiver is to be effective. Notwithstanding the foregoing, no failure or delay by any party hereto in exercising any right hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise of any other right hereunder.
4.11 Severability. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the sole extent of such invalidity or unenforceability without rendering invalid or unenforceable the remainder of such term or provision or the remaining terms and provisions of this Agreement in any jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, such provision shall be interpreted to be only so broad as is enforceable.
4.12 Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties, and any assignment without such consent shall be null and void. Subject to the preceding sentence, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns.
C-7
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the date first above written.
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NUVASIVE, INC. |
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By: |
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Name: |
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Title: |
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Name: |
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Title: |
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Received and acknowledged as of |
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the date first above written: |
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OSIRIS THERAPEUTICS, INC. |
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Signature Page to Voting and Support Agreement
C-8
OSTEOCEL BUSINESS UNIT
A Wholly Owned Business Unit of Osiris Therapeutics, Inc.
Unaudited Carve Out Balance Sheets
Amounts in thousands
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March 31, 2008 |
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December 31, 2007 |
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ASSETS |
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Current assets: |
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Accounts receivable |
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$ |
3,955 |
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$ |
4,324 |
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Inventory |
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4,622 |
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3,983 |
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Prepaid expenses |
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72 |
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138 |
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Total current assets |
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8,649 |
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8,445 |
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Property and equipment, net |
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5,539 |
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4,596 |
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Total assets |
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$ |
14,188 |
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$ |
13,041 |
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LIABILITIES AND PARENT COMPANYS NET INVESTMENT |
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Current liabilities: |
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Accounts payable |
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$ |
2,931 |
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$ |
2,447 |
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Accrued vacation and bonuses |
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79 |
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34 |
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Other current liabilities |
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58 |
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70 |
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Total current liabilities |
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3,068 |
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2,551 |
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Parent companys net investment |
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11,120 |
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10,490 |
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Total liabilities and parent companys net investment |
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$ |
14,188 |
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$ |
13,041 |
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The accompanying notes are an integral part of these carve out financial statements.
D-1
OSTEOCEL BUSINESS UNIT
A Wholly Owned Business Unit of Osiris Therapeutics, Inc.
Unaudited Carve Out Statements of Operations
Amounts in thousands
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Three Months Ended |
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Year Ended |
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March 31, 2008 |
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December 31, 2007 |
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Product sales |
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$ |
7,511 |
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$ |
15,240 |
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Cost of goods sold |
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3,781 |
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6,955 |
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Gross profit |
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3,730 |
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8,285 |
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Operating expenses: |
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Research and development expense |
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3,711 |
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General and administrative expense |
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99 |
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431 |
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Corporate allocation |
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82 |
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206 |
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Total operating expenses |
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181 |
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4,348 |
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Net income |
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$ |
3,549 |
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$ |
3,937 |
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The accompanying notes are an integral part of these carve out financial statements.
D-2
OSTEOCEL BUSINESS UNIT
A Wholly Owned Business Unit of Osiris Therapeutics, Inc.
Unaudited Carve Out Statements of Changes in
Parent Companys Net Investment
Amounts in thousands
Balance at January 1, 2007 |
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$ |
3,494 |
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Intercompany transfers, net |
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3,059 |
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Net income |
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3,937 |
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Balance at December 31, 2007 |
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10,490 |
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Intercompany transfers, net |
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(2,919 |
) |
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Net income |
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3,549 |
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Balance at March 31, 2008 |
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$ |
11,120 |
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The accompanying notes are an integral part of these carve out financial statements.
D-3
OSTEOCEL BUSINESS UNIT
A Wholly Owned Business Unit of Osiris Therapeutics, Inc.
Unaudited Carve Out Statements of Cash Flow
Amounts in thousands
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Three Months Ended |
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Year Ended |
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March 31, 2008 |
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December 31, 2007 |
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Cash flows from operating activities: |
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Net income |
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$ |
3,549 |
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$ |
3,937 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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62 |
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105 |
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Non-cash Share-based payments |
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41 |
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69 |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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369 |
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(2,855 |
) |
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Inventory |
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(639 |
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(2,090 |
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Prepaid expenses |
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66 |
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(138 |
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Accounts payable and accrued expenses |
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517 |
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1,817 |
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Net cash provided by operating activities |
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3,965 |
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845 |
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Cash flows from investing activities: |
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Purchases of property and equipment |
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(881 |
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(3,834 |
) |
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Cash flows from financing activities: |
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Net transfers (to) from parent |
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(3,084 |
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2,989 |
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Net change in cash |
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Cash at beginning of period |
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Cash at end of period |
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$ |
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$ |
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The accompanying notes are an integral part of these carve out financial statements.
D-4
OSTEOCEL BUSINESS UNIT
A Wholly Owned Business Unit of Osiris Therapeutics, Inc.
NOTES TO UNAUDITED CARVE OUT FINANCIAL STATEMENTS
Amounts in Thousands
1. Nature of Business and Basis of Presentation
The Osteocel Business Unit is a division of Osiris Therapeutics, Inc. (the Company) and manufactures and distributes Osteocel, a human cell and tissue based allograft material containing cancellous bone product for the regeneration of bone in orthopedic indications. Osteocel XO is a similar formulation under development, also using cancellous bone. Osteocel was launched in July 2005 and is sold pursuant to written agreements, primarily to two customers.
Osteocel XC is the name we use to refer to our second generation mesenchymal stem cell product candidate for bone repair, which would utilize culture expanded mesenchymal stem cells to create a synthetic version of Osteocel. We are not currently engaged in an active product development program focused specifically on Osteocel XC. Osteocel XC is not considered to be part of the Osteocel Business Unit.
In May 2008, we announced that we had signed a definitive agreement to sell the Osteocel Business Unit to NuVasive, Inc. The sale will be effected at two closings a technology assets closing which is expected to occur as soon as practicable following the satisfaction of various conditions precedent; and a manufacturing assets closing which is expected to occur within approximately eighteen months following the technology assets closing. The Company will receive $35.0 million in cash upon the technology assets closing and $12.5 million in cash upon the manufacturing assets closing. During the period between the technology assets closing and the manufacturing assets closing, the Company will continue to manufacture or have manufactured, and supply, Osteocel to NuVasive. We are entitled to milestone payments of up to $37.5 million based upon certain manufacturing and sales thresholds and up to $52 million from the manufacture and supply of Osteocel under the manufacturing agreement.
The accompanying carve out financial statements and related notes thereto represent the carve out balance sheets and statements of operations, changes in parent company investment and cash flows of the Osteocel Business Unit. The carve out financial statements have been prepared in accordance with Regulation S-X, Article 3, General instructions as to the financial statements and Staff Bulletin Topic 1-B, Allocation of Expenses and Related Disclosure in Financial Statements of Subsidiaries, Divisions or Lesser Business Components of Another Entity. Certain assumptions and estimates were made in order to allocate a reasonable share of such expenses to the Osteocel Business Unit so that the accompanying carve out financial statements reflect substantially all costs of doing business.
Certain corporate overhead expenses have been allocated to the Osteocel Business Unit as a corporate allocation. These overhead charges include personnel costs for support functions such as accounting, finance, human resources, procurement, security and senior management. They also include non-personnel costs such as insurance, professional fees and other costs. The corporate overhead charges were allocated to the Osteocel Business Unit based upon estimated relative time and resources dedicated to the business unit. Management believes the basis of the allocations are reasonable.
Certain corporate non-operating transactions of ours have not been allocated to the Osteocel Business Unit. These items include interest income on our cash and short-term investment and interest expense on our debt and capitalized leases.
2. Summary of Significant Accounting Policies
The accompanying carve out financial statements were derived from the historical accounting records of Osiris Therapeutics, Inc.
Use of Estimates
The preparation of carve out financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in carve out financial statements and accompanying notes. Due to the inherent uncertainty involved in making those assumptions, actual results could differ from those estimates. Also, certain amounts in the accompanying carve out financial statements have been allocated in a way that management believes is reasonable and consistent in order to depict the historical financial position, results of operations, and cash flows of the Osteocel Business Unit on a stand-alone basis. Actual results could differ materially from those estimates. We believe that the most significant estimate that affect our financial statements are those that related to inventory valuation and share-based compensation.
D-5
OSTEOCEL BUSINESS UNIT
A Wholly Owned Business Unit of Osiris Therapeutics, Inc.
NOTES TO UNAUDITED CARVE OUT FINANCIAL STATEMENTS
Amounts in Thousands
Revenue Recognition
We recognize revenue on Osteocel sales when legal title to the product has passed to the customer, which occurs when the product is shipped from our Baltimore, Maryland manufacturing facilities or placed in designated freezers at the request of the customer. We have agreements with our customers that specify the terms of sale, including price. During the three months ended March 31, 2008 and the year ended December 31, 2007, sales of our Osteocel product were primarily to two customers. Historically, we have not incurred any sales returns.
Cost of Goods Sold
Costs of goods sold of Osteocel consist primarily of the costs to obtain the tissue and other chemical and supplies, quality and sterility testing, plus labor and allocated overhead costs and the costs of operating the clean-room facilities.
Research and Development Costs
Prior to 2008, we incurred research and development costs to launch and improve Osteocel and to develop Osteocel XO, and during 2007, we incurred development costs to expand our Baltimore, Maryland Osteocel manufacturing facilities, including production qualification runs. Research and development costs are expensed as incurred.
Concentration of Risk and Accounts Receivable
Our accounts receivable at both March 31, 2008 and December 31, 2007 consist of amounts due from commercial customers and we expect these receivables to be collected. Since the launch of Osteocel in July 2005, we have incurred $3 in bad debt expense related to the sale of Osteocel.
Inventory
Inventory consists of tissue products in process and available for distribution. We determine our inventory values using the first-in, first-out method. Due to the nature of our Osteocel product, we incur all of the costs to manufacture the product prior to completing the extensive testing and evaluation necessary to determine if the product can be released. We estimate the reserve for work-in-process inventory based upon our historical experience. Historically, we have nominal amounts of finished goods inventory.
Property and Equipment
The Asset Purchase Agreement calls for the transfer of the equipment used in the manufacture and storage of Osteocel to be transferred to NuVasive upon the manufacturing asset closing. The Agreement also calls for the transfer of the leasehold improvements and rights we have in the lease to our Columbia, Maryland administrative, research and development and manufacturing facilities. Our Baltimore, Maryland facilities will close by September 2008 and all our business activities, including the manufacture and storage of Osteocel will take place in our Columbia, Maryland facilities. Until the closing of our Baltimore facilities, no Osteocel activities took place in Columbia.
Since the Asset Purchase Agreement requires the transfer of the Columbia, Maryland facilities to NuVasive, these assets are included in the carve out balance sheets of the Osteocel Business Unit.
We record property and equipment, including improvements that extend useful lives, at cost, while maintenance and repairs are charged to operations as incurred. We calculate depreciation using the straight-line method based on the estimated useful lives ranging from three to seven years for furniture, equipment and internal use software. We amortize leasehold improvements over the shorter of the estimated useful life of the asset or the original term of the lease.
Share-Based Compensation
Employees of the Osteocel Business Unit participate in the Companys stock compensation plans. We recognize all share-based payments to employees in our financial statements based on their grant date fair values, using prescribed option-pricing models. We use the Black-Scholes option pricing model to value share-based payments. Compensation expense related to share-based awards is recognized on a straight-line basis based on the value of share awards that are scheduled to vest during the requisite service period. Share-based compensation expense is based on awards ultimately expected to vest and is reduced for estimated forfeitures.
D-6
OSTEOCEL BUSINESS UNIT
A Wholly Owned Business Unit of Osiris Therapeutics, Inc.
NOTES TO UNAUDITED CARVE OUT FINANCIAL STATEMENTS
Amounts in Thousands
3. Property and Equipment
Property and equipment consist of the following for the periods presented:
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March 31, 2008 |
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December 31, 2007 |
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Osteocel manufacturing assets |
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$ |
1,038 |
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$ |
810 |
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Leasehold improvements |
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4,151 |
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4,151 |
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Construction in process |
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771 |
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14 |
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5,960 |
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4,975 |
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Accumulated depreciation and amortization |
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(421 |
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(379 |
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Property and equipment, net |
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$ |
5,539 |
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$ |
4,596 |
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At March 31, 2008, we estimate that we will invest an additional $2.1 million in our Columbia, Maryland Osteocel manufacturing facilities and purchase approximately $600 of additional manufacturing equipment and freezers. These assets will be transferred to NuVasive upon the manufacturing asset closing.
4. Income Taxes
The Osteocel Business Unit is an entity not directly subject to income taxes. The results of the Osteocel Business Unit operations are included in the Companys federal and state income tax returns. As of March 31, 2008, the Company had approximately $223 million in net operating loss carryforwards. The Companys deferred tax assets have been fully reserved in both 2008 and 2007.
5. Share-Based Compensation
Information with respect to stock options and warrants can be found in Note 6 to Osiris Therapeutics, Inc. financial statements for the year ended December 31, 2007, that are filed as part of our Annual Report on Form 10-K.
6. Facility Lease
The future minimum lease payments due under the operating lease for our Columbia, Maryland facility at March 31, 2008, are as follows:
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Columbia |
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Facility |
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2008 |
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$ |
660 |
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2009 |
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978 |
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2010 |
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1,056 |
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2011 |
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1,082 |
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2012 |
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1,109 |
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2013 - 2016 |
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3,999 |
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$ |
8,884 |
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This lease will be assigned to NuVasive upon the manufacturing asset closing.
D-7
OSIRIS THERAPEUTICS, INC.
THIS PROXY IS BEING SOLICITED BY THE BOARD OF
DIRECTORS
OF
OSIRIS THERAPEUTICS, INC.
The undersigned, revoking any previous proxies relating to these shares, hereby acknowledges receipt of the Notice and Proxy Statement dated , 2008 in connection with the Special Meeting of Stockholders of Osiris Therapeutics, Inc. to be held at 2:00 p.m., EDT, on , , 2008 at the offices of Osiris Therapeutics, Inc., 7015 Albert Einstein Drive, Columbia, Maryland 21046, and hereby appoints C. Randal Mills and Philip R. Jacoby, Jr., and each of them (with full power to act alone), the attorneys and proxies of the undersigned, with power of substitution to each, to vote all shares of the Common Stock of OSIRIS THERAPEUTICS, INC. registered in the name provided herein which the undersigned is entitled to vote at the Special Meeting of Stockholders, and at any postponements or adjournments thereof, with all the powers the undersigned would have if personally present. Without limiting the general authorization hereby given, said proxies are, and each of them is, instructed to vote or act as indicated on the reverse side hereof on the proposals set forth in said Proxy.
SEE REVERSE SIDE FOR ALL PROPOSALS. If you wish to vote in accordance with the Board of Directors recommendations, just sign on the reverse side. You need not mark any boxes. Please mark, date and return this card promptly, using the enclosed envelope. No postage is required if mailed in the United States.
(SEE REVERSE SIDE)
Please Detach and Mail in the Envelope Provided
x Please mark votes as in this example.
The Board of Directors recommends a vote FOR Proposal 1.
1. Proposal to approve the Asset Purchase Agreement dated May 8, 2008, by and between Osiris and NuVasive, Inc. and the transactions contemplated thereby, including the sale by Osiris of its Osteocel product line, including Osteocel® and Osteocel® XO, and related business assets.
FOR |
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AGAINST |
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ABSTAIN |
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In their discretion, the proxies are authorized to vote upon such other matters as may properly come before the meeting or any adjournments or postponements thereof.
This Proxy when executed will be voted in the manner directed herein. If no direction is made this proxy will be voted FOR Proposal No. 1.
PLEASE MARK, SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
Signature: |
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Date: |
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Signature: |
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Date: |
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NOTE: Please insert date and sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee, guardian, or officer or other authorized person on behalf of a corporation or other entity, or in another representative capacity, please give full title as such under signature(s).