As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 6/12/08  Osiris Therapeutics, Inc.         PREM14A                1:1.8M                                   Merrill Corp-MD/FA

Document/Exhibit                   Description                      Pages   Size 

 1: PREM14A     Pre 14A                                             HTML   1.22M 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101) Information Required in Proxy Statement Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No.     )
Filed by the Registrant  x
Filed by a Party other than the Registrant  o
Check the appropriate box:
x	Preliminary Proxy Statement
o	Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
o	Definitive Proxy Statement
o	Definitive Additional Materials
o	Soliciting Material Pursuant to §240.14a-12
OSIRIS THERAPEUTICS, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
o	No fee required.
x	Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
	(1)		Title of each class of securities to which transaction applies:
	(2)		Aggregate number of securities to which transaction applies:
	(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).
	(4)		Proposed maximum aggregate value of transaction: $85,000,000
	(5)		Total fee paid: $3,340.50 (a)
			(a)  The fee was calculated by multiplying the maximum aggregate consideration of $85,000,000 to be paid to the registrant by 0.0000393.
o	Fee paid previously with preliminary materials.
o	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.
	(1)	Amount Previously Paid:
	(2)	Form, Schedule or Registration Statement No.:
	(3)	Filing Party:
	(4)	Date Filed:

 

 

7015 Albert Einstein Drive Columbia, Maryland 21046 Phone: 443.545.1800 Fax: 443.545.1701 www.Osiris.com

 

                         , 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 driver’s license or passport.  Cameras, recording devices and other electronic devices will not be permitted at the meeting.

 

 

	Sincerely,
	C. Randal Mills, Ph.D.
	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:		, 2008
TIME:		2:00 p.m. EDT
PLACE:		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.

 

	BY ORDER OF THE BOARD OF DIRECTORS
	Philip R. Jacoby, Jr.
	Corporate Secretary

 

 

                               , 2008

 

 

Assumed and Excluded Liabilities (see page 22)		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.
Conditions to the Technology Assets Closing (see page 30)		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.   NuVasive’s 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.
Conditions to the Manufacturing Assets Closing (see page 24)		NuVasive’s 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.
No Bids (see page 27)		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 NuVasive’s 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 NuVasive’s 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.
Non-Compete (see page 27)		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.
Indemnification (see page 32)		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 party’s 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.
Termination (see page 31)		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.
Closings (see page 22)		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.
Risk Factors (see page 15)		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.
Accounting Treatment (see page 19)		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.
Tax Consequences (see page 20)		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.
Required Approvals (see page 19)		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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Company Voting and Support Agreements (see page 19)		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.
Appraisal Rights (see page 19)		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.
Fees and Expenses (see page 21)		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.
No Payments to Stockholders (see page 11)		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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QUESTIONS AND ANSWERS REGARDING THE SPECIAL MEETING

 

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 NuVasive’s 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 NuVasive’s 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 SEC’s 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 SEC’s Internet site at http://www.sec.gov and you can also request copies of these documents from us.

 

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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 NuVasive’s offer, and to recommend a superior offer to our stockholders, subject to certain conditions, including NuVasive’s 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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RISK FACTORS

 

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 party’s 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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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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OTHER CONSIDERATIONS

 

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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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.  NuVasive’s 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 NuVasive’s 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 NuVasive’s 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 NuVasive’s 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, NuVasive’s employee benefit plans, policies, arrangements and payroll policies.  At NuVasive’s 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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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.

 

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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 NuVasive’s 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 party’s 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.

 

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SUMMARY OF MATERIAL TERMS OF THE MANUFACTURING AGREEMENT

 

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.

 

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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.

 

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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.

 

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