As filed with the Securities and Exchange Commission on June 1, 2015

File No. 001- 36905

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 2

to

Form 10

 

 

General Form for Registration of Securities

Pursuant to Section 12(b) or (g) of

The Securities Exchange Act of 1934

 

 

SeaSpine Holdings Corporation

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   47-3251758
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification Number)
2302 La Mirada Drive,
Vista, California
  92081
(Address of principal executive offices)   (Zip Code)

(760) 727-8399

(Registrant’s telephone number, including area code)

 

 

Securities to be registered pursuant to Section 12(b) of the Act:

 

Title of each class
to be so registered

 

Name of each exchange on
which each class is to be registered

Common Stock, par value $0.01 per share   The NASDAQ Stock Market LLC

Securities to be registered pursuant to Section 12(g) of the Act: None

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨    Accelerated filer   ¨
Non-accelerated filer   x    Smaller reporting company   ¨

 

 

 


INFORMATION INCLUDED IN INFORMATION STATEMENT

AND INCORPORATED BY REFERENCE IN FORM 10

CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT AND ITEMS OF FORM 10

This Registration Statement on Form 10 (“Form 10”) incorporates by reference information contained in the Information Statement filed as Exhibit 99.1 hereto (the “Information Statement”). The cross-reference table below identifies where the items required by Form 10 can be found in the Information Statement.

 

Item No.    Item Caption   

Location in Information Statement

1.    Business    “Information Statement Summary,” “Risk Factors,” “Business” and “Where You Can Find More Information”
1A.    Risk Factors    “Risk Factors” and “Special Note Regarding Forward-Looking Statements”
2.    Financial Information    “Information Statement Summary—Summary Historical Combined Financial Data,” “Selected Historical Combined Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
3.    Properties    “Business—Facilities”
4.    Security Ownership of Certain
Beneficial Owners and
Management
   “Security Ownership of Certain Beneficial Owners and Management”
5.    Directors and Executive Officers    “Management”
6.    Executive Compensation    “Executive Compensation”
7.    Certain Relationships and Related
Transactions, and Director
Independence
   “Risk Factors,” “Management” and “Certain Relationships and Related Party Transactions”
8.    Legal Proceedings    “Business—Legal Proceedings”
9.    Market Price of and Dividends on
the Registrant’s Common Equity
and Related Stockholder Matters
   “Information Statement Summary,” “Risk Factors,” “The Spin-Off,” “Dividend Policy” and “Description of SeaSpine Capital Stock”
10.    Recent Sales of Unregistered
Securities
   “Recent Sales of Unregistered Securities”
11.    Description of Registrant’s
Securities to be Registered
   “Description of SeaSpine Capital Stock”
12.    Indemnification of Directors and
Officers
   “Indemnification and Limitation of Liability of Directors and Officers” and “Management—Indemnification of Officers and Directors”
13.    Financial Statements and
Supplementary Data
   “Summary—Summary Historical Combined Financial Data,” “Selected Historical Combined Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Index to Financial Statements” including the Financial Statements
14.    Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure
   Not Applicable


ITEM 15. Financial Statements and Exhibits

 

(a) Financial Statements

See “Index to Financial Statements” beginning on page F-1 of the Information Statement.

 

(b) Exhibits

The following documents are filed as exhibits hereto:

 

Exhibit Index

 

Exhibit Description

  2.1   Form of Separation and Distribution Agreement between Integra LifeSciences Holdings Corporation and SeaSpine Holdings Corporation.
  3.1   Form of Amended and Restated Certificate of Incorporation of SeaSpine Holdings Corporation.
  3.2   Form of Amended and Restated Bylaws of SeaSpine Holdings Corporation.
  4.1   Form of Common Stock Certificate of SeaSpine Holdings Corporation.
10.1   Form of Transition Services Agreement between Integra LifeSciences Holdings Corporation and SeaSpine Holdings Corporation.
10.2   Form of Tax Matters Agreement between Integra LifeSciences Holdings Corporation and SeaSpine Holdings Corporation.
10.3   Form of Employee Matters Agreement between Integra LifeSciences Holdings Corporation and SeaSpine Holdings Corporation.
10.4   Form of Microfibrillar Collagen Supply Agreement between Integra LifeSciences Holdings Corporation and SeaSpine Holdings Corporation.
10.5   Form of Collagen Ceramic Supply Agreement between Integra LifeSciences Holdings Corporation and SeaSpine Holdings Corporation.
10.6   Form of Demineralized Bone Matrix and Collagen Ceramic Products Supply Agreement between Integra LifeSciences Holdings Corporation and SeaSpine Holdings Corporation.
10.7   Form of Indemnification Agreement entered into between SeaSpine Holdings Corporation and each of its directors and executive officers.
10.8   Form of SeaSpine Holdings Corporation 2015 Incentive Award Plan.
10.9   Form of SeaSpine Holdings Corporation 2015 Incentive Award Plan Stock Option Agreement.
10.10   Form of SeaSpine Holdings Corporation 2015 Employee Stock Purchase Plan.
10.11   Form of Non-Employee Director Compensation Program.
10.12   Employment Agreement, by and between SeaSpine Holdings Corporation, SeaSpine Orthopedics Corporation and Keith Valentine, dated April 28, 2015.
10.13   John Bostjancic Letter Agreement, dated March 30, 2015.
10.14   John Winge Letter Agreement, dated January 22, 2015.
10.15   Amended and Restated Lease between Salma Jason Monica Limited Partnership and SeaSpine, Inc., dated as of May 23, 2011 for property at 2384 La Miranda, Vista, CA.
10.16   Amended and Restated Lease between Salma Jason Monica Limited Partnership and SeaSpine, Inc., dated as of May 23, 2011 for property at 2302 La Miranda, Vista, CA
10.17   Amended and Restated Lease between Monarch RRC Properties, LLC (assignee of original landlord, New Goodyear LTD) and IsoTis Orthobiologics, Inc., dated as of February 23, 2006, for property at 2 Goodyear, Irvine, CA (the “Irvine Industrial Real Estate Lease”).


Exhibit Index

 

Exhibit Description

10.18   Amendment No. 1 to Irvine Industrial Real Estate Lease, dated as of May 26, 2011.
10.19   Amendment No. 2 to Irvine Industrial Real Estate Lease, dated as of May 14, 2013.
21.1   List of subsidiaries of SeaSpine Holdings Corporation.
99.1   Preliminary Information Statement of SeaSpine Holdings Corporation, subject to completion, dated June 1, 2015.


SIGNATURE

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.

 

SeaSpine Holdings Corporation
By:

/s/ John J. Bostjancic

Name: John J. Bostjancic
Title: Chief Financial Officer

Dated: June 1, 2015

Exhibit 2.1

 

SEPARATION AND DISTRIBUTION AGREEMENT

BY AND BETWEEN

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

AND

SEASPINE HOLDINGS CORPORATION

DATED AS OF [        ], 2015


TABLE OF CONTENTS

 

         Page  

ARTICLE I.

DEFINITIONS

 

  

  

Section 1.1  

General

     2   
Section 1.2  

Reference; Interpretation

     9   
Section 1.3  

Tax Matters

     9   

ARTICLE II.

THE SEPARATION

  

  

Section 2.1  

Restructuring

     10   
Section 2.2  

Transfer of SeaSpine Assets and SeaSpine Business; Assumption of SeaSpine Liabilities

     10   
Section 2.3  

Third-Party Consents and Government Approvals

     11   
Section 2.4  

Further Actions

     11   
Section 2.5  

Restructuring Documents

     12   
Section 2.6  

Certain Licenses and Permits

     12   

ARTICLE III.

DISTRIBUTION AND CERTAIN COVENANTS

  

  

Section 3.1  

Distribution

     12   
Section 3.2  

Integra Determinations

     12   
Section 3.3  

Charter; Bylaws

     13   
Section 3.4  

Directors

     13   
Section 3.5  

Election of Officers

     13   
Section 3.6  

State Securities Laws

     13   
Section 3.7  

Listing Application; Notice to Nasdaq

     13   
Section 3.8  

Removal of Certain Guarantees; Releases from Liabilities

     13   
Section 3.9  

Corporate Names; Trademarks

     15   
Section 3.10  

Ancillary Agreements

     15   
Section 3.11  

Acknowledgment by SeaSpine

     15   
Section 3.12  

Release

     15   
Section 3.13  

Discharge of Liabilities

     17   
Section 3.14  

Administration of Accounts

     17   
Section 3.15  

Further Assurances

     18   

ARTICLE IV.

CONDITIONS PRECEDENT

  

  

Section 4.1  

Conditions Precedent to Consummation of the Transactions

     18   
Section 4.2  

Right Not to Close

     19   

 

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ARTICLE V.

INDEMNIFICATION

  

  

Section 5.1

Indemnification by Integra

  20   
Section 5.2

Indemnification by SeaSpine

  20   
Section 5.3

Procedures for Indemnification

  20   
Section 5.4

Indemnification Payments

  22   
Section 5.5

Survival of Indemnities

  23   
Section 5.6

Limitation on Liability

  23   

ARTICLE VI.

LITIGATION MATTERS

  

  

Section 6.1

Case Allocation

  24   

ARTICLE VII.

ACCESS TO INFORMATION

  

  

Section 7.1

Provision of Corporate Records

  26   
Section 7.2

Access to Information

  27   
Section 7.3

Witnesses; Documents and Cooperation

  27   
Section 7.4

Confidentiality

  28   
Section 7.5

Privileged Matters

  29   
Section 7.6

Ownership of Information

  30   
Section 7.7

Cost of Providing Records and Information

  31   
Section 7.8

Retention of Records

  31   
Section 7.9

Other Agreements Providing for Exchange of Information

  31   
Section 7.10

Policies and Best Practices

  31   
Section 7.11

Compliance with Laws and Agreements

  31   

ARTICLE VIII.

DISPUTE RESOLUTION

  

  

Section 8.1

Agreement Disputes

  31   
Section 8.2

Negotiation

  32   
Section 8.3

Arbitration

  32   
Section 8.4

Choice of Law, Compliance, Enforcement, Costs

  32   
Section 8.5

Confidentiality of Proceedings

  32   
Section 8.6

Continuity of Service and Performance

  33   

ARTICLE IX.

INSURANCE

  

  

Section 9.1

General

  33   
Section 9.2

Combined Policies.

  33   
Section 9.3

D&O Policies

  33   
Section 9.4

Pre-Distribution Claims

  34   
Section 9.5

Retentions/Deductibles

  34   

 

ii


Section 9.6

Unearned Premium

  35   
Section 9.7

Expirations and Renewals

  35   
Section 9.8

Copies of Policies

  35   

ARTICLE X.

MISCELLANEOUS

  

  

Section 10.1

Complete Agreement; Construction

  35   
Section 10.2

Ancillary Agreements

  36   
Section 10.3

Counterparts

  36   
Section 10.4

Survival of Agreements

  36   
Section 10.5

Distribution Expenses

  36   
Section 10.6

Notices

  36   
Section 10.7

Waivers

  37   
Section 10.8

Amendments

  37   
Section 10.9

Assignment

  37   
Section 10.10

Successors and Assigns

  37   
Section 10.11

Termination

  37   
Section 10.12

Subsidiaries

  37   
Section 10.13

Third-Party Beneficiaries

  37   
Section 10.14

Title and Headings

  38   
Section 10.15

Schedules

  38   
Section 10.16

Governing Law

  38   
Section 10.17

Waiver of Jury Trial

  38   
Section 10.18

Specific Performance

  38   
Section 10.19

Severability

  38   

 

iii


SEPARATION AND DISTRIBUTION AGREEMENT

This Separation and Distribution Agreement (this “ Agreement ”) is dated as of [            ], 2015, by and between Integra LifeSciences Holdings Corporation, a Delaware corporation (“ Integra ”), and SeaSpine Holdings Corporation, a Delaware corporation and an indirect, wholly owned subsidiary of Integra (“ SeaSpine ” and, together with Integra, the “ Parties ”).

RECITALS:

WHEREAS, SeaSpine is and prior to the Distribution will be an indirect and/or direct, wholly owned subsidiary of Integra;

WHEREAS, the Board of Directors of Integra has determined that it is in the best interests of Integra and its stockholders to separate the business of SeaSpine and the SeaSpine Subsidiaries (the “ Spin-Off ”), all as more fully described in the Registration Statement, from Integra’s other businesses on the terms and conditions set forth herein;

WHEREAS, the Board of Directors of Integra has authorized the distribution to the holders of the issued and outstanding shares of common stock, par value $.01 per share, of Integra (the “ Integra Common Stock ”) as of the Distribution Record Date, by means of a dividend, of all of the issued and outstanding shares of common stock, par value $0.01 per share, of SeaSpine (each such share is individually referred to as a “ SeaSpine Share ” and collectively referred to as the “ SeaSpine Common Stock ”), respectively, on the basis of one (1) SeaSpine Share for every [            ] shares of Integra Common Stock (the “ Distribution ”);

WHEREAS, the Boards of Directors of Integra and SeaSpine have each determined that the Distribution, the other transactions contemplated by this Agreement and the Ancillary Agreements (the “ Transactions ”) are in the best interests of their respective companies and stockholders, as applicable, and have approved this Agreement and each of the Ancillary Agreements;

WHEREAS, the Parties have determined to set forth the principal corporate and other transactions required to effect the Distribution and to set forth other agreements that will govern certain other matters prior to and following the completion of the Distribution;

WHEREAS, the Parties intend that (i) the Internal Distribution will constitute a reorganization under Sections 355 and 368(a)(1)(D) of the Code and (ii) the Cash Contribution, together with the Distribution, will constitute a reorganization under Sections 355 and 368(a)(1)(D) of the Code, and this Agreement will be, and is hereby adopted as, a plan of reorganization under Section 368 of the Code; and

WHEREAS, the Restructuring and Distribution are part of a plan to separate the SeaSpine Business from the Integra Business.

NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, the Parties hereby agree as follows:

 

1


ARTICLE I.

DEFINITIONS

Section 1.1 General . Unless otherwise defined herein or unless the context otherwise requires, as used in this Agreement, the following terms shall have the following meanings:

Action ” shall mean any demand, action, suit, arbitration, inquiry, proceeding or investigation, audit, counter suit, hearing or litigation of any nature whether administrative, civil, criminal, regulatory or otherwise, by or before any Governmental Authority or any arbitration or mediation tribunal.

Affiliate ” shall mean, when used with respect to any specified Person, a Person that directly or indirectly controls, is controlled by, or is under common control with such specified Person. As used herein, “ control ” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or other interests, by contract or otherwise. Unless explicitly provided herein to the contrary, for purposes of this Agreement, Integra shall be deemed not to be an Affiliate of SeaSpine or any of its Subsidiaries, and SeaSpine shall be deemed not to be an Affiliate of Integra or any of its Subsidiaries (other than SeaSpine and the SeaSpine Subsidiaries).

Agent ” shall have the meaning set forth in Section 3.1(a) .

Agreement ” shall have the meaning set forth in the preamble to this Agreement.

Agreement Disputes ” shall have the meaning set forth in Section 8.1 .

Ancillary Agreements ” shall mean all of the written agreements, instruments, understandings, assignments or other arrangements (other than this Agreement) entered into by the Parties or by or among any of the Integra Entities, on the one hand, and any of the SeaSpine Entities, on the other hand, in connection with the transactions contemplated hereby, including the Transition Services Agreement, the Employee Matters Agreement, the Tax Matters Agreement, and the Supply Agreements.

Applicable Rate ” shall mean the rate of interest per annum announced from time to time by the Wall Street Journal as the “prime rate” at large U.S. money center banks.

Asset ” means all rights, properties or other assets, whether real, personal or mixed, tangible or intangible, of any kind, nature and description, whether accrued, contingent or otherwise, and wheresoever situated and whether or not carried or reflected, or required to be carried or reflected, on the books of any Person.

Business Day ” shall mean any day other than a Saturday, Sunday or a day on which commercial banking institutions located in the City of New York are authorized or obligated by Law or executive order to close.

Cash Contribution ” shall have the meaning set forth in Schedule 1.1 .

 

2


Claims Made Policies ” shall have the meaning set forth in Section 9.2(b) .

Code ” means the Internal Revenue Code of 1986, as amended.

Combined Policies ” shall have the meaning set forth in Section 9.2(b) .

Contract ” means any written, oral, implied or other contract, agreement, covenant, lease, license, guaranty, indemnity, representation, warranty, assignment, sales order, purchase order, power of attorney, instrument or other commitment, assurance, undertaking or arrangement that is binding on any Person or entity or any part of its property under applicable Law.

Contribution ” shall have the meaning set forth in Schedule 1.1.

Distribution ” shall have the meaning set forth in the recitals to this Agreement.

Distribution Date ” shall mean such date as may be determined by the Board of Directors of Integra or a committee of such Board of Directors, as the date as of which the Distribution shall be effected.

Distribution Record Date ” shall mean such date as may be determined by the Board of Directors of Integra or a committee of such Board of Directors, as the record date for the Distribution.

Effective Time ” shall mean 12:01 a.m., New York City time, on the Distribution Date.

Employee Matters Agreement ” shall mean the Employee Matters Agreement by and between Integra and SeaSpine, which agreement shall be entered into prior to or on the Distribution Date.

Entities ” shall mean, as applicable, the SeaSpine Entities and/or the Integra Entities (each an “ Entity ”).

Environmental Laws ” shall mean any and all federal, state, local and foreign statutes, laws, regulations, ordinances, rules, principles of common law, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or other governmental restrictions (including without limitation the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601, et . seq .), whether now or hereafter in existence, relating to the environment, natural resources, human health or safety, endangered or threatened species of fish, wildlife and plants, or to emissions, discharges or releases of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or hazardous substances or wastes into the environment (including without limitation indoor or outdoor air, surface water, groundwater and surface or subsurface soils), or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, petroleum or petroleum products, chemicals or industrial, toxic or hazardous substances or wastes or the investigation, cleanup or other remediation thereof.

Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended, together with the rules and regulations promulgated thereunder.

 

3


Governmental Authority ” shall mean any federal, state, local, foreign or international court, government, department, commission, board, bureau, agency, official, securities exchange (including the Nasdaq) or other regulatory, administrative or governmental authority.

Governmental Authorization ” shall mean any authorization, approval, consent, license, certificate or permit issued, granted, or otherwise made available under the authority of any court, governmental or regulatory authority, agency, stock exchange, commission or body.

Indemnifying Party ” shall have the meaning set forth in Section 5.3(a) .

Indemnitee ” shall have the meaning set forth in Section 5.3(a) .

Information Statement ” means the information statement, attached as an exhibit to the Registration Statement, and any related documentation to be provided to holders of Integra Common Stock in connection with the Distribution, including any amendments or supplements thereto.

Insurance Policy ” means any insurance policies and insurance Contracts, including, without limitation, general liability, property and casualty, workers’ compensation, automobile, marine, directors & officers liability, errors and omissions, employee dishonesty and fiduciary liability policies, whether, in each case, in the nature of primary, excess, umbrella or self-insurance overage, together with all rights, benefits and privileges thereunder.

Integra ” shall have the meaning set forth in the preamble to this Agreement.

Integra Action ” shall mean any current or future Action relating primarily to the Integra Business in which one or more SeaSpine Entities is a defendant or the party against whom any claim or investigation is directed, but excluding any Joint Action.

Integra Asset ” shall mean (a) all Assets owned by the Integra Entities, (b) all Assets owned by the SeaSpine Entities that are used primarily in, or that primarily relate to, the Integra Business and (c) all licenses, permits and authorizations listed on Schedule 2.6(a) .

Integra Business ” shall mean the medical technology business conducted by the Integra Entities, including the specialty surgical solutions and orthopedic and tissue technologies business, and any other business (other than the SeaSpine Business) directly conducted by any Integra Entity as of or prior to the date of this Agreement.

Integra Common Stock ” shall have the meaning set forth in the recitals to this Agreement.

Integra Entities ” means Integra and each Integra Subsidiary (each, an “ Integra Entity ”).

Integra Indemnitees ” shall mean:

(a) Integra and each Affiliate thereof after giving effect to the Distribution; and

 

4


(b) each of the respective Representatives of any of the entities described in the immediately preceding clause (a) and each of the heirs, executors, successors and assigns of any of such Representatives, except in the case of clauses (a) and (b), the SeaSpine Indemnitees; provided , however , that a Person who was a Representative of Integra or an Affiliate thereof may be an Integra Indemnitee in that capacity notwithstanding that such Person may also be a SeaSpine Indemnitee.

Integra LCs ” shall have the meaning set forth in Section 3.8(e) .

Integra Liabilities ” shall mean:

(a) any and all Liabilities that are expressly contemplated by this Agreement or any Ancillary Agreement (or the schedules hereto or thereto) as Liabilities to be assumed by Integra and all Liabilities of any of the Integra Entities under this Agreement or any of the Ancillary Agreements; and

(b) all Liabilities (other than Liabilities that are SeaSpine Liabilities), if and to the extent relating to, arising out of or resulting from:

(i) the ownership or operation of the Integra Business (including any discontinued business or any business which has been sold or transferred (for the avoidance of doubt, other than the SeaSpine Business)) as conducted at any time prior to, on or after the Distribution Date; or

(ii) the ownership or operation of any business conducted by Integra or any Integra Subsidiary at any time prior to, on or after the Distribution Date.

(c) Notwithstanding the foregoing, the Integra Liabilities shall not include:

(i) any Liabilities that are expressly contemplated by this Agreement or any Ancillary Agreement (or the schedules hereto or thereto) as Liabilities of SeaSpine or any SeaSpine Entity (including, for the avoidance of doubt, SeaSpine Liabilities); or

(ii) any Liabilities related or attributable to, or arising in connection with, Taxes or Tax Returns, which shall be exclusively governed by the Tax Matters Agreement.

Integra Marks ” shall include all names, logos or trademarks of Integra or its Affiliates (other than SeaSpine), all intellectual property rights therein and all trademarks and logos comprised of or derivative of any of the foregoing.

Integra Retained Assets ” shall mean (a) all Assets which are held at the Effective Time by Integra or any of the Integra Subsidiaries, other than any SeaSpine Assets and (b) all Assets owned by the SeaSpine Entities that are used primarily in, or that primarily relate to, the Integra Business.

Integra Subsidiaries ” shall mean (a) each of the Persons listed on Annex 1.1(a)(i) hereto, (b) except as otherwise set forth on Annex 1.1(a)(i) , any other Person (other than any SeaSpine Subsidiary) that is owned, directly or indirectly (in whole or in part), by any of the Persons listed on Annex 1.1(a)(i) hereto prior to the Distribution and (c) any other entity which becomes a Subsidiary of Integra after the Distribution.

 

5


Internal Distribution ” shall have the meaning set forth in Schedule 1.1 .

JAMS ” shall have the meaning set forth in Section 8.3 .

JAMS Rules ” shall have the meaning set forth in Section 8.3 .

Joint Action ” shall mean any current or future Action with respect to which it is unclear at the onset of such Action whether Liabilities will arise primarily in connection with the SeaSpine Business or the Integra Business.

Law ” shall mean all laws, statutes and ordinances and all regulations, rules and other pronouncements of Governmental Authorities having the effect of law of the United States of America, any foreign country, or any domestic or foreign state, province, commonwealth, city, country, municipality, territory, protectorate, possession or similar instrumentality, or any Governmental Authority thereof.

Liabilities ” shall mean any and all debts, liabilities, obligations, responsibilities, Losses, damages (whether compensatory, punitive or treble), fines, penalties and sanctions, absolute or contingent, matured or unmatured, liquidated or unliquidated, foreseen or unforeseen, joint, several or individual, asserted or unasserted, accrued or unaccrued, known or unknown, whenever arising, including without limitation those arising under or in connection with any Law (including any Environmental Law), Action, threatened Action, order or consent decree of any Governmental Authority or any award of any arbitration tribunal, and those arising under any contract, guarantee, commitment or undertaking, whether sought to be imposed by a Governmental Authority, private party, or party to this Agreement, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute, or otherwise, and including any costs, expenses, interest, attorneys’ fees, disbursement and expense of counsel, expert and consulting fees and costs related thereto or to the investigation or defense thereof.

Litigation Expenses ” shall have the meaning set forth in Section 6.1(f)(iii) .

Losses ” shall mean all losses, damages, claims, demands, judgments or settlements of any nature or kind, known or unknown, fixed, accrued, absolute or contingent, liquidated or unliquidated, including all reasonable costs and expenses (legal, accounting or otherwise as such costs are incurred) relating thereto, suffered by an Indemnitee.

Occurrence Based Policies ” shall have the meaning set forth in Section 9.2(a) .

Nasdaq ” shall mean the Nasdaq Global Market.

Parties ” shall have the meaning set forth in the preamble to this Agreement.

Person ” shall mean any natural person, corporation, business trust, limited liability company, joint venture, association, company, partnership or government, or any agency or political subdivision thereof.

 

6


Pre-Distribution Claim ” shall have the meaning set forth in Section 9.4(a) .

Records ” shall have the meaning set forth in Section 7.1(a) .

Registration Statement ” shall mean the registration statement on Form 10 filed by SeaSpine with the SEC to effect the registration of the SeaSpine Shares pursuant to the Exchange Act.

Representative ” shall mean, with respect to any Person, any of such Person’s directors, officers, employees, agents, consultants, advisors, accountants, attorneys and representatives.

Restructuring ” shall have the meaning set forth in Section 2.1(a) .

Restructuring Plan ” shall mean the Plan of Restructuring attached hereto as Schedule 1.1 .

SeaSpine ” shall have the meaning set forth in the preamble to this Agreement.

SeaSpine Action ” shall mean any current or future Action relating primarily to the SeaSpine Business in which one or more Integra Entities is a defendant or the party against whom a claim or investigation is directed, but excluding any Joint Action.

SeaSpine Assets ” shall mean (a) all Assets owned by the SeaSpine Entities, and (b) all Assets owned by the Integra Entities that are used primarily in, or that primarily relate to, the SeaSpine Business.

SeaSpine Business ” shall mean (a) the business focused on the design, development and commercialization of surgical solutions for the treatment of patients suffering from spinal disorders, including the comprehensive portfolio of orthobiologics and spinal fusion hardware, conducted by the SeaSpine Entities and (b) any other business (other than the Integra Business) directly conducted by any SeaSpine Entity as of or prior to the date of this Agreement.

SeaSpine Common Stock ” shall have the meaning set forth in the recitals to this Agreement.

SeaSpine Entities ” means SeaSpine and each SeaSpine Subsidiary (each, a “ SeaSpine Entity ”).

SeaSpine Indemnitees ” shall mean:

(a) SeaSpine and each Affiliate thereof after giving effect to the Distribution; and

(b) each of the respective Representatives of any of the entities described in the immediately preceding clause (a) and each of the heirs, executors, successors and assigns of any of such Representatives, except in the case of clauses (a) and (b), the Integra Indemnitees; provided , however , that a Person who was a Representative of SeaSpine or an Affiliate thereof may be a SeaSpine Indemnitee in that capacity notwithstanding that such Person may also be an Integra Indemnitee.

 

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SeaSpine Liabilities ” shall mean:

(a) any and all Liabilities that are expressly contemplated by this Agreement or any Ancillary Agreement (or the schedules hereto or thereto) as Liabilities to be assumed by SeaSpine or any SeaSpine Entity, and all Liabilities of any SeaSpine Entity under this Agreement or any of the Ancillary Agreements; and

(b) all Liabilities, if and to the extent relating to, arising out of or resulting from:

(i) the ownership or operation of the SeaSpine Business (including any discontinued business or any business which has been sold or transferred), as conducted at any time prior to, on or after the Distribution Date; or

(ii) the ownership or operation of any business conducted by SeaSpine or any SeaSpine Subsidiary at any time prior to, on or after the Distribution Date.

(c) Notwithstanding the foregoing, the SeaSpine Liabilities shall not include:

(i) any Liabilities that are expressly contemplated by this Agreement or any Ancillary Agreement (or the schedules hereto or thereto) as Liabilities of Integra; or

(ii) any Liabilities related or attributable to, or arising in connection with, Taxes or Tax Returns, which shall be exclusively governed by the Tax Matters Agreement.

SeaSpine Marks ” shall include all names, logos or trademarks of SeaSpine or its Affiliates, all intellectual property rights therein and all trademarks and logos comprised of or derivative of any of the foregoing.

SeaSpine Share ” shall have the meaning set forth in the recitals to this Agreement.

SeaSpine Specific Policies ” shall have the meaning set forth in Section 9.1 .

SeaSpine Subsidiaries ” shall mean (a) each of the Persons listed on Annex 1.1(b)(i) hereto, (b) except as otherwise set forth on Annex 1.1(b)(i) , any other Person that was owned, directly or indirectly (in whole or in part) by any of the Persons listed on Annex 1.1(b)(i) hereto prior to the Distribution and (c) any other entity which becomes a Subsidiary of SeaSpine after the Effective Time.

SEC ” means the United Stated Securities and Exchange Commission.

Spin-Off ” shall have the meaning set forth in the recitals to this Agreement.

Subsidiary ” shall mean with respect to any specified Person, any corporation or other legal entity of which such Person or any of its Subsidiaries controls or owns, directly or indirectly, 50% or more of the stock or other equity interests entitled to vote on the election of members to the board of directors or similar governing body or, in the case of a Person with no governing body, 50% or more of the equity or voting interests.

 

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Supply Agreements ” shall mean (i) the Microfibrillar Collagen Supply Agreement by and between an Integra Entity and a SeaSpine Entity, (ii) the Collagen Ceramic Supply Agreement by and between an Integra Entity and a SeaSpine Entity and (iii) the Demineralized Bone Matrix and Collagen Ceramic Products Supply Agreement by and between an Integra Entity and a SeaSpine Entity, which agreements shall be entered into prior to or on the Distribution Date, as may be amended from time to time.

Tax ” shall have the meaning set forth in the Tax Matters Agreement.

Tax Matters Agreement ” shall mean the Tax Matters Agreement by and between Integra and SeaSpine, which agreement shall be entered into prior to or on the Distribution Date, as may be amended from time to time.

Tax Return ” shall have the meaning set forth in the Tax Matters Agreement.

Third-Party ” shall mean any Person who is not a Party to this Agreement.

Third-Party Claim ” shall have the meaning set forth in Section 5.3(a) .

Transactions ” shall have the meaning set forth in the recitals to this Agreement.

Transition Services Agreement ” shall mean the Transition Services Agreement by and between Integra and SeaSpine, which agreement shall be entered into prior to or on the Distribution Date.

Section 1.2 Reference; Interpretation . References in this Agreement to any gender include references to all genders, and references to the singular include references to the plural and vice versa. The words “ include ,” “ includes ” and “ including ” when used in this Agreement shall be deemed to be followed by the phrase “ without limitation .” Unless the context otherwise requires, references in this Agreement to Articles, Sections and Schedules shall be deemed to be references to Articles and Sections of, and Schedules to, this Agreement. Unless the context otherwise requires, the words “ hereof ”, “ hereby ” and “ herein ” and words of similar meaning when used in this Agreement refer to this Agreement in its entirety and not to any particular Article, Section or provision of this Agreement. Neither this Agreement nor any Ancillary Agreement shall be construed against either Party as the principal draftsperson hereof or thereof.

Section 1.3 Tax Matters . The Tax Matters Agreement will govern Integra’s and SeaSpine’s respective rights, responsibilities and obligations after the Distribution with respect to Taxes, including ordinary course of business Taxes and Taxes, if any, incurred as a result of any failure of (i) the Internal Distribution to qualify as a reorganization under Sections 355 and 368(a)(1)(D) of the Code and (ii) the Cash Contribution, together with the Distribution, to qualify as a reorganization under Sections 355 and 368(a)(1)(D) of the Code. The Tax Matters Agreement sets forth the respective obligations of Integra and SeaSpine with respect to the filing of Tax Returns, the administration of Tax contests, cooperation and other matters, and imposes certain restrictions on Integra’s and SeaSpine’s ability to engage in certain actions following the Distribution. Except as expressly set forth in this Agreement or any Ancillary Agreement, all matters relating to Taxes in connection with the Transactions shall be governed exclusively by the Tax Matters Agreement.

 

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ARTICLE II.

THE SEPARATION

Section 2.1 Restructuring .

(a) The Parties have taken or will take, and have caused or will cause their respective Subsidiaries to take, all actions that are necessary or appropriate to implement and accomplish the transactions contemplated by each of the steps set forth in the Restructuring Plan (collectively, the “ Restructuring ”); provided , however , that all of such steps shall be completed by no later than the Distribution.

(b) All the transactions contemplated by the Restructuring and the Distribution are intended to be part of the same plan of reorganization, even though there may be delays between the completion of certain of the transactions.

Section 2.2 Transfer of SeaSpine Assets and SeaSpine Business; Assumption of SeaSpine Liabilities .

On the terms and subject to the conditions of this Agreement, and in furtherance of the Restructuring and the Spin-Off:

(a) Integra, by no later than the Effective Time, shall cause all of its (or its Subsidiaries’) rights, title and interest in and to all of the SeaSpine Assets and SeaSpine Business to be contributed, assigned, transferred, conveyed and delivered, directly or indirectly, to SeaSpine (or its Subsidiaries), and SeaSpine agrees to accept or cause to be accepted all such rights, title and interest in and to all the SeaSpine Assets and SeaSpine Business, in each case as contemplated by the Restructuring Plan and the applicable Ancillary Agreements. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT OR ANY ANCILLARY AGREEMENT, ALL ASSETS TRANSFERRED PURSUANT TO THIS AGREEMENT OR ANY ANCILLARY AGREEMENT ARE BEING TRANSFERRED AS IS, WHERE IS, WITH ALL FAULTS.

(b) Integra, by no later than the Effective Time, shall cause all of the SeaSpine Liabilities to be assigned, directly or indirectly, to SeaSpine, and SeaSpine agrees to accept, assume, perform, discharge and fulfill all of the SeaSpine Liabilities in accordance with their respective terms, in each case as contemplated by the Restructuring Plan.

(c) SeaSpine (or its Subsidiaries, as applicable), by no later than the Effective Time, shall cause all of its (or its Subsidiaries’) rights, title and interest in and to any Retained Assets to be distributed, assigned, transferred, conveyed and delivered, directly or indirectly, to Integra (or its Subsidiaries), and Integra agrees to accept or cause to be accepted all such rights, title and interest in and to such Retained Assets, in each case as contemplated by the Restructuring Plan and the applicable Ancillary Agreements. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT OR ANY ANCILLARY AGREEMENT, ALL ASSETS TRANSFERRED PURSUANT TO THIS AGREEMENT OR ANY ANCILLARY AGREEMENT ARE BEING TRANSFERRED AS IS, WHERE IS, WITH ALL FAULTS.

 

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(d) SeaSpine (or its Subsidiaries, as applicable), by no later than the Effective Time, shall cause any Integra Liabilities it holds to be assigned, directly or indirectly, to Integra, and Integra agrees to accept, assume, perform, discharge and fulfill all of such Integra Liabilities in accordance with their respective terms, in each case as contemplated by the Restructuring Plan.

(e) Upon completion of the transactions contemplated by Sections 2.1 , 2.2(a) , 2.2(b) , 2.2(c) and 2.2(d) above: (i) SeaSpine will own, directly or indirectly, the SeaSpine Business and the SeaSpine Assets and be subject to the SeaSpine Liabilities; and (ii) Integra will continue to own, directly or indirectly, the Integra Business and the Integra Retained Assets and continue to be subject to the Integra Liabilities.

Section 2.3 Third-Party Consents and Government Approvals .

(a) To the extent that either the Distribution or any step in the Restructuring Plan requires a consent of any third party or a Governmental Authorization, the Parties will use commercially reasonable efforts to obtain each such consent and Governmental Authorization at or prior to the time such consent or Governmental Authorization is required in order to lawfully effect the Distribution and each step in the Restructuring Plan.

(b) If any Asset may not be transferred by reason of the requirement to obtain the consent of any third party or a Governmental Authorization and such consent has not been obtained by the Distribution Date, then (unless otherwise expressly agreed by Integra and SeaSpine) such Asset shall not be transferred until such consent has been obtained. Subject to reimbursement from the other Party of all reasonable costs and expenses incurred in connection with such actions, Integra and SeaSpine, as the case may be, shall (i) use commercially reasonable efforts to provide or cause the owner of such Asset to use commercially reasonable efforts to provide to the other Party (or appropriate Entity affiliated with the other Party) all the rights and benefits under such Asset, (ii) cause such owner to enforce such Asset for the benefit of such other Party (or for the benefit of the Entity affiliated with the other Party) and (iii) assume or cause the appropriate Entity affiliated with it to assume all obligations of such Asset, in each case to the extent that such action does not cause a breach or default under such Asset. Both Parties shall otherwise cooperate and use commercially reasonable efforts to provide the economic and operational equivalent of an assignment or transfer of the Asset as of the Distribution Date.

(c) From and after the Distribution Date, each Party shall promptly transfer or cause the Entity(ies) affiliated with it to promptly transfer to the other Party or the appropriate Entity(ies) affiliated with the other Party, from time to time, any property received that is an Asset of the other Party or of any Entity affiliated with the other Party. Without limiting the foregoing, funds received by a Party or any Entity affiliated with such Party upon the payment of accounts receivable that belong to the other Party or any Entity affiliated with the other party, shall be transferred to the other Party (or Entity affiliated with the other Party) in accordance with the procedures set forth on Schedule 2.3(c).

Section 2.4 Further Actions . From and after the Distribution, upon the reasonable request of a Party hereto, the other Party hereto will promptly take, or cause its Subsidiaries to promptly take, all commercially reasonable actions necessary or appropriate to fully accomplish the Restructuring and to give effect to the transactions provided for in this Agreement, including each step in the Restructuring Plan, in accordance with the purposes hereof.

 

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Section 2.5 Restructuring Documents . All documents and instruments used to effect the Restructuring and otherwise to comply with this Agreement shall be in form satisfactory to Integra and SeaSpine.

Section 2.6 Certain Licenses and Permits .

(a) On or prior to the Distribution Date or as soon as reasonably practicable thereafter and except as set forth on Schedule 2.6(a) , Integra shall use its commercially reasonable efforts to transfer or cause to be transferred any transferable licenses, permits and authorizations issued by any Governmental Authority which relate primarily to the SeaSpine Business but which are held in the name of any Integra Entity, or in the name of any employee, officer, director, stockholder or agent of any such Integra Entity, or otherwise, on behalf of any SeaSpine Entity, to the appropriate SeaSpine Entity.

(b) On or prior to the Distribution Date or as soon as reasonably practicable thereafter, SeaSpine shall use its commercially reasonable efforts to transfer or cause to be transferred any transferable licenses, permits and authorizations issued by any Governmental Authority which relate primarily to the Integra Business but which are held in the name of any SeaSpine Entity, or in the name of any employee, officer, director, stockholder or agent of any such SeaSpine Entity, or otherwise, on behalf of any Integra Entity, to the appropriate Integra Entity.

ARTICLE III.

DISTRIBUTION AND CERTAIN COVENANTS

Section 3.1 Distribution .

(a) On or prior to the Distribution Date, Integra shall deliver to American Stock Transfer & Trust Company, LLC (the “ Agent ”) a single stock certificate representing all of the issued and outstanding SeaSpine Shares, in each case, endorsed by Integra in blank, for the benefit of the holders of Integra Common Stock, and Integra shall instruct the Agent to distribute, on or as soon as practicable following the Distribution Date, such number of the SeaSpine Shares to holders of record of shares of Integra Common Stock on the Distribution Record Date, all as further contemplated by the Registration Statement and hereby. SeaSpine shall provide any share certificates that the Agent shall require in order to effect the Distribution. The Distribution shall be effective at [            ] p.m., New York City time, on the Distribution Date.

(b) The SeaSpine Shares issued in the Distribution are intended to be distributed only pursuant to a book entry system. Integra shall instruct the Agent to deliver the SeaSpine Shares previously delivered to the Agent to a depositary and to mail to each holder of record of Integra Common Stock on the Distribution Record Date, a statement of the SeaSpine Common Stock credited to such holder’s account.

Section 3.2 Integra Determinations . Integra shall have the sole and absolute discretion to determine whether to proceed with all or part of the Distribution and all terms thereof,

 

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including the form, structure and terms of any transaction(s) and/or offering(s) to effect the Distribution and the timing of and conditions to the consummation of the Distribution. SeaSpine shall cooperate with Integra in all respects to accomplish the Distribution and shall, at Integra’s direction, promptly take any and all actions necessary or desirable to effect the Distribution.

Section 3.3 Charter; Bylaws . On or prior to the Distribution Date, SeaSpine and Integra shall take all necessary actions to provide for the adoption of the form of Certificate of Incorporation and Bylaws in substantially the form filed by SeaSpine with the SEC as exhibits to the Registration Statement.

Section 3.4 Directors . On or prior to the Distribution Date, Integra and SeaSpine shall have taken all necessary action to cause the board of directors of SeaSpine to consist of the individuals identified in the Registration Statement as directors of SeaSpine as of immediately following the Distribution.

Section 3.5 Election of Officers . On or prior to the Distribution Date, SeaSpine shall take all actions necessary and desirable so that as of the Distribution Date the officers of SeaSpine will be as set forth in the Registration Statement.

Section 3.6 State Securities Laws . Prior to the Distribution Date, Integra and SeaSpine shall take all such action as may be necessary or appropriate under the securities or blue sky laws of states or other political subdivisions of the United States of America in order to effect the Distribution.

Section 3.7 Listing Application; Notice to Nasdaq .

(a) Prior to the Distribution Date, Integra and SeaSpine shall prepare and file with Nasdaq a listing application and related documents and shall take all such other actions with respect thereto as shall be necessary or desirable in order to cause Nasdaq to list on or prior to the Distribution Date, subject to official notice of issuance, the SeaSpine Shares.

(b) Prior to the Distribution, Integra shall, to the extent possible, give Nasdaq not less than 10 days’ advance notice of the Distribution Record Date in compliance with Rule 10b-17 under the Exchange Act.

Section 3.8 Removal of Certain Guarantees; Releases from Liabilities .

(a) Except as otherwise specified in any Ancillary Agreement, (i) in the event that at any time before or after the Distribution Date, Integra or SeaSpine identifies any SeaSpine Liability for which any Integra Entity is a guarantor or obligor, SeaSpine shall use its commercially reasonable efforts to have, as quickly as practicable, such Integra Entities removed as guarantor of or obligor for any such Liability of SeaSpine, and (ii) in the event that at any time before or after the Distribution Date, Integra or SeaSpine identifies any Integra Liability for which any SeaSpine Entity is a guarantor or obligor, Integra shall use its commercially reasonable efforts to have, as quickly as practicable, such SeaSpine Entities removed as guarantor of or obligor for any such Liability of Integra.

 

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(b) If either Party is unable to obtain, or to cause to be obtained, any such required removal as set forth in Section 3.8(a) , the guarantor or obligor shall continue to be bound as such and, unless not permitted by Law or the terms thereof, the applicable Party shall use commercially reasonable efforts to cause the relevant beneficiary to cause one of its Affiliates, as agent or subcontractor for such guarantor or obligor to pay, perform and discharge fully all the obligations or other Liabilities of the relevant guarantor or obligor thereunder from and after the date hereof.

(c) If (i) SeaSpine is unable to obtain, or to cause to be obtained, any such required removal as set forth in Section 3.8(a) , or (ii) SeaSpine Liabilities arise from and after the Effective Time but before any Integra Entity, if such Integra Entity is a guarantor or obligor with reference to any such SeaSpine Liability, is removed pursuant to Section 3.8(a) , then SeaSpine shall indemnify each Integra Entity for all Liabilities incurred by any of them in such Person’s capacity as guarantor or obligor. Without limiting the foregoing, SeaSpine shall, or shall cause a SeaSpine Entity to, reimburse Integra as soon as practicable (but in no event later than 30 days) following delivery by Integra to SeaSpine of notice of a payment made pursuant to this Section 3.8 in respect of SeaSpine Liabilities.

(d) If (i) Integra is unable to obtain, or to cause to be obtained, any such required removal as set forth in Section 3.8(a) , or (ii) Integra Liabilities arise from and after the Effective Time but before any SeaSpine Entity, if such SeaSpine Entity is a guarantor or obligor with reference to any such SeaSpine Liability, is removed pursuant to Section 3.8(a) , then Integra shall indemnify each SeaSpine Entity for all Liabilities incurred by any of them in such Person’s capacity as guarantor or obligor. Without limiting the foregoing, Integra shall, or shall cause an Integra Entity to, reimburse SeaSpine as soon as practicable (but in no event later than 30 days) following delivery by SeaSpine to Integra of notice of a payment made pursuant to this Section 3.8 in respect of Integra Liabilities.

(e) In the event that at any time before or after the Distribution Date, Integra identifies any letters of credit, interest rate or foreign exchange contracts, surety bonds or other contracts (excluding guarantees) that relate primarily to the SeaSpine Business but for which an Integra Entity has contingent, secondary, joint, several or other Liability of any nature whatsoever, SeaSpine shall, at its expense, take such actions and enter into such agreements and arrangements as Integra may reasonably request to effect the release or substitution of Integra (or an Integra Entity).

(f) In the event that at any time before or after the Distribution Date, SeaSpine identifies any letters of credit, interest rate or foreign exchange contracts, surety bonds or other contracts (excluding guarantees) that relate primarily to the Integra Business but for which a SeaSpine Entity has contingent, secondary, joint, several or other Liability of any nature whatsoever, Integra shall, at its expense, take such actions and enter into such agreements and arrangements as SeaSpine may reasonably request to effect the release or substitution of SeaSpine (or a SeaSpine Entity).

(g) At and after the Effective Time, the Parties shall use commercially reasonable efforts to obtain, or cause to be obtained, any consent, substitution or amendment required to novate, assign or extinguish all SeaSpine Liabilities (with respect to the Integra Entities) and

 

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Integra Liabilities (with respect to the SeaSpine Entities) of any nature whatsoever transferred under this Agreement or an Ancillary Agreement, or to obtain in writing the unconditional release of the assignor so that in each such case, Integra (or an appropriate Integra Entity) shall be solely responsible for the Integra Liabilities and SeaSpine (or an appropriate SeaSpine Entity) shall be solely responsible for the SeaSpine Liabilities; provided, however, that no Party shall be obligated to pay any consideration therefor (except for filing fees or other similar charges) to any Third Party from whom such consent, substitution, amendment or release is requested. Whether or not any such consent, substitution, amendment or release is obtained, nothing in this Section 3.8 shall in any way limit the obligations of the Parties under Article V . If, as and when it becomes possible to delegate, assign, novate or extinguish any SeaSpine Liabilities or Integra Liabilities in accordance with the terms hereof, the Parties shall promptly sign all such documents and perform all such other acts as may be necessary to give effect to such delegation, novation, extinction or other release; provided, however, than no Party shall be obligated to pay any consideration therefor.

Section 3.9 Corporate Names; Trademarks . Except as otherwise specifically provided in any Ancillary Agreement or in any other agreement to which an Integra Entity and a SeaSpine Entity are parties, as soon as reasonably practicable after the Distribution Date but in any event within the time period set forth on Schedule 3.9 , each of SeaSpine and Integra will, at their own expense, cause their respective Subsidiaries to take the actions set forth on Schedule 3.9 .

Section 3.10 Ancillary Agreements . Prior to or on the Distribution Date, each of Integra and SeaSpine shall enter into the Ancillary Agreements and any other agreements in respect of the Distribution reasonably necessary or appropriate in connection with the Transactions.

Section 3.11 Acknowledgment by SeaSpine . SeaSpine, on behalf of itself and all SeaSpine Entities, acknowledges, understands and agrees that, except as expressly set forth herein or in any Ancillary Agreement, (a) none of Integra or any other Person has, in this Agreement or in any other agreement or document, or otherwise made any representation or warranty of any kind whatsoever, express or implied, to SeaSpine or any SeaSpine Entity or to any director, officer, employee or agent thereof in any way with respect to any of the Transactions or the business, assets, condition or prospects (financial or otherwise) of, or any other matter involving, the assets, Liabilities or businesses of Integra or any Integra Entity, SeaSpine or any SeaSpine Entity, any SeaSpine Assets, any SeaSpine Liabilities or the SeaSpine Business and (b) none of Integra or any other Person has made or makes any representation or warranty with respect to the Distribution or the entering into of this Agreement or the Ancillary Agreements or the Transactions. Except as expressly set forth herein or in any other Ancillary Agreement, SeaSpine and each SeaSpine Entity shall bear the economic and legal risk that the SeaSpine Assets shall prove to be insufficient or that the title of any SeaSpine Entity to any SeaSpine Assets shall be other than good and marketable and free from encumbrances. The provisions of any related assignment agreement or other related documents are expressly subject to this Section 3.11 and to Section 3.12 .

Section 3.12 Release .

 

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(a) Except as provided in Section 3.12(c) , effective as of the Effective Time, SeaSpine does hereby, on behalf of itself and each other SeaSpine Entity, release and forever discharge each Integra Indemnitee, from any and all Liabilities whatsoever to any SeaSpine Entity, whether at law or in equity (including any right of contribution), whether arising under any Contract, by operation of Law or otherwise, existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed at or before the Effective Time, including in connection with the Transactions.

(b) Except as provided in Section 3.12(c) , effective as of the Effective Time, Integra does hereby, for itself and each other Integra Entity, release and forever discharge each SeaSpine Indemnitee from any and all Liabilities whatsoever to any Integra Entity, whether at law or in equity (including any right of contribution), whether arising under any Contract, by operation of Law or otherwise, existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed at or before the Effective Time, including in connection with the Transactions.

(c) Nothing contained in Section 3.12(a) or Section 3.12(b) shall impair any right of any Person to enforce this Agreement, any Ancillary Agreement or any agreements, arrangements, commitments or understandings that are specified in, or contemplated to continue pursuant to, this Agreement or any Ancillary Agreement. Without limiting the foregoing, nothing contained in Section 3.12(a) or Section 3.12(b) shall release any Person from:

(i) any Liability assumed, transferred, assigned or allocated to such Person or any Entity affiliated with such Person in accordance with, or any other Liability of such person or any Entity affiliated with such Person under, this Agreement or any Ancillary Agreement;

(ii) any Liability that such Person may have with respect to indemnification or contribution pursuant to this Agreement or any Ancillary Agreement for claims brought by third Persons, which Liability shall be governed by the provisions of Article V and, if applicable, the appropriate provisions of the Ancillary Agreements;

(iii) any unpaid accounts payable or receivable arising from or relating to the sale, provision, or receipt of goods, payment for goods, property or services purchased, obtained or used in the ordinary course of business by any Integra Entity from any SeaSpine Entity, or by any SeaSpine Entity from any Integra Entity;

(iv) any Liability the release of which would result in the release of any Person other than an Integra Indemnitee (in the case of the release by the SeaSpine Entities) or a SeaSpine Indemnitee (in the case of the release by the Integra Entities); provided that each Party agrees not to bring suit, or permit any Entity affiliated with such Party to bring suit, against any such Integra Indemnitee or SeaSpine Indemnitee (as applicable) with respect to such Liability;

(v) any indemnification obligation under such Person’s articles of incorporation or bylaws; and

 

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(vi) any Liability arising under a written Contract entered into between an Integra Entity and a SeaSpine Entity prior to the Effective Time relating to the commercial sale of products or provision of services between such Entities (including for such purpose, their respective Affiliates).

(d) SeaSpine shall not make, and shall not permit any other SeaSpine Entity to make, any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or indemnification, against any Integra Indemnitee with respect to any Liabilities released pursuant to Section 3.12(a) . Integra shall not make, and shall not permit any other Integra Entity to make, any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or any indemnification, against any SeaSpine Indemnitee with respect to any Liabilities released pursuant to Section 3.12(b) .

(e) It is the intent of each of Integra and SeaSpine by virtue of the provisions of this Section 3.12 to provide for a full and complete release and discharge of all Liabilities existing or arising from all acts and events occurring or failing to occur or alleged to have occurred or to have failed to occur and all conditions existing or alleged to have existed at or before the Effective Time, between or among Integra or any other Integra Entity, on the one hand, and SeaSpine or any other SeaSpine Entity, on the other hand (including any contractual agreements or arrangements existing or alleged to exist between or among any such Entity(ies) at or before the Effective Time), except as expressly set forth in Section 3.12(c) . At any time, at the reasonable request of a Party, the other Party will cause each Entity affiliated with such Party to execute and deliver releases reflecting the provisions hereof.

Section 3.13 Discharge of Liabilities .

(a) Except as otherwise expressly provided herein or in any of the Ancillary Agreements, from and after the Effective Time, (i) Integra shall, and shall cause each other Integra Entity to, assume, pay, perform and discharge all Integra Liabilities in the ordinary course of business, consistent with past practice and (ii) SeaSpine shall, and shall cause each other SeaSpine Entity to, assume, pay, perform and discharge all SeaSpine Liabilities in the ordinary course of business, consistent with past practice. The agreements in this Section 3.13 are made by each Party for the sole and exclusive benefit of the other Party and the Entities affiliated with such other Party. To the extent reasonably requested to do so by the other Party, each Party agrees to execute and deliver such documents, in a form reasonably satisfactory to such Party, as may be reasonably necessary to evidence the assumption of any Liabilities hereunder.

(b) All intercompany trade, accounts receivable and accounts payable between any Integra Entity and SeaSpine Entity in existence at the Effective Time shall be paid, performed or otherwise settled in accordance with the Restructuring Plan.

Section 3.14 Administration of Accounts .

(a) All payments and reimbursements by any third-party (including in any lockbox or similar bank account of Integra or any of the other Integra Parties (other than SeaSpine and the other SeaSpine Parties)) in the name of or to Integra or any of the other Integra Parties (other

 

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than SeaSpine and the other SeaSpine Parties) that constitute SeaSpine Assets, or are received in respect of, the SeaSpine Business that are received after the Distribution shall be held by such Integra Party in trust for the benefit of SeaSpine and such Integra Party shall pay over or cause to be paid over to SeaSpine, in accordance with the procedures set forth on Schedule 2.3(c) , the amount of such payment or reimbursement without deduction, withholding or right of set-off; provided, however, that such Integra Party shall have the right to set-off, without duplication, any amounts owed to it by any SeaSpine Party pursuant to the Transition Services Agreement.

(b) All payments and reimbursements by any third-party (including in any lockbox or similar bank account of SeaSpine or any of the other SeaSpine Parties) in the name of or to SeaSpine or any of the other SeaSpine Parties that constitute Integra Assets, or are received in respect of, the Integra Business that are received after the Distribution shall be held by such SeaSpine Party in trust for the benefit of Integra and such SeaSpine Party shall pay over or cause to be paid over to Integra, in accordance with the procedures set forth on Schedule 2.3(c) , the amount of such payment or reimbursement without deduction, withholding or right of set-off; provided, however, that such SeaSpine Party shall have the right to set-off, without duplication, any amounts owed to it by any Integra Party pursuant to the Transition Services Agreement.

Section 3.15 Further Assurances . If at any time after the Effective Time any further action is reasonably necessary or desirable to carry out the purposes of this Agreement and the Ancillary Agreements, the proper officers of each Party shall take all such necessary action and do and perform all such acts and things, and execute and deliver all such agreements, assurances to the extent reasonably requested to do so by the other Party, each Party agrees to execute and deliver such documents, in a form reasonably satisfactory to such Party, as may be reasonably necessary to evidence the assumption of any Liabilities hereunder. Without limiting the foregoing, each Party shall use its commercially reasonable efforts promptly to obtain all consents and approvals, to enter into all agreements and to make all filings and applications that may be required for the consummation of the Transactions, including all applicable filings with, and approvals from, any Governmental Authority.

ARTICLE IV.

CONDITIONS PRECEDENT

Section 4.1 Conditions Precedent to Consummation of the Transactions . None of the Transactions shall become effective unless the following conditions have been satisfied or (except with respect to clauses (b) and (c) below) waived by the Board of Directors of Integra, in its sole and absolute discretion, at or before the Distribution:

(a) the Board of Directors of Integra shall have approved the Transactions, including the declaration of the Distribution, which approval may be given or withheld at its sole and absolute discretion;

(b) the SEC has declared effective the Registration Statement, with no stop order in effect with respect thereto, and with no proceedings for such purpose pending or threatened by the SEC;

 

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(c) SeaSpine shall have mailed the Information Statement (and such other information concerning SeaSpine, the SeaSpine Business, SeaSpine’s operations and management, the Distribution and such other matters as the Parties shall determine and as may otherwise be required by Law) to the holders of record of Integra Common Stock at the close of business on the record date for the Distribution;

(d) all other actions and filings necessary or appropriate under applicable federal or state securities Laws and state blue sky Laws in connection with the Transactions shall have been taken;

(e) prior to the Distribution, Integra shall have obtained an opinion from Latham & Watkins LLP, its tax counsel, in form and substance satisfactory to Integra (in its sole discretion), substantially to the effect that (i) the Internal Distribution will constitute a reorganization under Sections 355 and 368(a)(1)(D) of the Code and (ii) the Cash Contribution, together with the Distribution, will constitute a reorganization under Sections 355 and 368(a)(1)(D) of the Code;

(f) the SeaSpine Common Stock to be distributed pursuant to the Distribution and related transactions shall have been accepted for listing on Nasdaq, subject to official notice of issuance;

(g) the Ancillary Agreements shall have been executed and delivered by each of the Parties thereto and no Party to any of the Ancillary Agreements will be in material breach of any such agreement;

(h) any material Governmental Authorizations necessary to consummate the Transactions, or any portion thereof, shall have been obtained and be in full force and effect;

(i) SeaSpine’s amended and restated certificate of incorporation and amended and restated bylaws, each in substantially the form filed as exhibits to the Registration Statement are in effect;

(j) no preliminary or permanent injunction or other order, decree, or ruling issued by a Governmental Authority, and no statute (as interpreted through orders or rules of any Governmental Authority duly authorized to effectuate the statute), rule, regulation or executive order promulgated or enacted by any Governmental Authority shall be in effect preventing the consummation of, or materially limiting the benefits of, the Transactions; and

(k) no other event or development shall have occurred or failed to occur that, in the judgment of the Board of Directors of Integra, in its sole discretion, prevents the consummation of the Transactions or any portion thereof or makes the consummation of the Transactions inadvisable.

Section 4.2 Right Not to Close . Each of the conditions set forth in Section 4.1 is for the benefit of Integra and the Board of Directors of Integra may, in its sole and absolute discretion, determine whether to waive any condition, in whole or in part (other than the conditions set forth in Sections 4.1(b) and 4.1(c) above). Any determination made by the Board of Directors of Integra concerning the satisfaction or waiver of any or all of the conditions in

 

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Section 4.1 will be conclusive and binding on the Parties. The satisfaction of the conditions set forth in Section 4.1 will not create any obligation on the part of Integra to any other Person to effect any of the Transactions or in any way limit Integra’s right to terminate this Agreement as set forth in Section 10.11 .

ARTICLE V.

INDEMNIFICATION

Section 5.1 Indemnification by Integra . Except as otherwise specifically set forth in any provision of this Agreement from and after the Distribution Date, Integra shall indemnify, defend and hold harmless the SeaSpine Indemnitees from and against any and all Losses of the SeaSpine Indemnitees to the extent arising out of, by reason of or otherwise in connection with (a) the Integra Liabilities or alleged Integra Liabilities, including any breach by Integra of any provision of this Section 5.1 , (b) any breach by any Integra Entity of this Agreement, and (c) solely with respect to information regarding any Integra Entity provided by any Integra Entity in writing to SeaSpine expressly for inclusion in the Registration Statement or the Information Statement, any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading. This Agreement is not intended to address, and should not be interpreted to address, the matters specifically and expressly covered by the Ancillary Agreements unless such Ancillary Agreement expressly provides that this Agreement applies to any matter in such Ancillary Agreement.

Section 5.2 Indemnification by SeaSpine . Except as otherwise specifically set forth in any provision of this Agreement, from and after the Distribution Date, SeaSpine shall indemnify, defend and hold harmless the Integra Indemnitees from and against any and all Losses of the Integra Indemnitees to the extent arising out of, by reason of or otherwise in connection with (a) the SeaSpine Liabilities or alleged SeaSpine Liabilities, including any breach by any SeaSpine Entity of any provision of this Section 5.2, (b) any breach by any SeaSpine Entity of this Agreement, and (c) with respect to all information contained in the Registration Statement or the Information Statement (other than information regarding any Integra Entity provided by any Integra Entity in writing to SeaSpine expressly for inclusion in the Registration Statement or the Information Statement), any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading. This Agreement is not intended to address, and should not be interpreted to address, the matters specifically and expressly covered by the Ancillary Agreements unless such Ancillary Agreement expressly provides that this Agreement applies to any matter in such Ancillary Agreement.

Section 5.3 Procedures for Indemnification .

(a) If a claim or demand is made by a Third Party (a “ Third-Party Claim ”) against a SeaSpine Indemnitee or an Integra Indemnitee (each, an “ Indemnitee ”) as to which such Indemnitee is entitled to indemnification pursuant to this Agreement, such Indemnitee shall notify the Party which is or may be required pursuant to Sections 5.1 or 5.2 hereof to make such indemnification (the “ Indemnifying Party ”) in writing, and in reasonable detail, of the Third-Party Claim promptly and in any event by the date that is the 15th Business Day after receipt by

 

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such Indemnitee of written notice of the Third-Party Claim; provided , however , that failure to give such notification shall not affect the indemnification provided hereunder except to the extent the Indemnifying Party shall have been actually prejudiced as a result of such failure.

(b) Thereafter, the Indemnitee shall deliver to the Indemnifying Party, promptly (and in any event within 10 Business Days after the Indemnitee’s receipt thereof), copies of all notices and documents (including court papers) received by the Indemnitee relating to the Third-Party Claim. Notice under this Section 5.3 shall be provided in accordance with Section 10.6 . For the avoidance of doubt, knowledge of a Third-Party Claim by a Person who is a director of both Integra and SeaSpine shall not constitute notice for purposes of this Section 5.3 .

(c) Subject to Section 5.3(e) , if a Third-Party Claim is made against an Indemnitee, the Indemnifying Party shall be entitled to participate in the defense thereof and, if it so chooses and irrevocably acknowledges without condition or reservation its obligation to fully indemnify the Indemnitee therefor, to assume the defense thereof with counsel selected by the Indemnifying Party; provided , however , that such counsel is not reasonably objected to by the Indemnitee. Should the Indemnifying Party so elect to assume the defense of a Third-Party Claim, the Indemnifying Party shall, within 30 days (or sooner if the nature of the Third-Party Claim so requires), notify the Indemnitee of its intent to do so, and the Indemnifying Party shall thereafter not be liable to the Indemnitee for legal or other expenses subsequently incurred by the Indemnitee in connection with the defense thereof; provided , however , that such Indemnitee shall have the right to employ counsel to represent such Indemnitee if, in such Indemnitee’s reasonable judgment, (A) a conflict of interest between such Indemnitee and such Indemnifying Party exists in respect of such claim which would make representation of both such Parties by one counsel inappropriate, or (B) the Third-Party Claim involves substantially different defenses for the Indemnifying Party and the Indemnitee, and in such event the fees and expenses of such single separate counsel shall be paid by such Indemnifying Party. If the Indemnifying Party assumes such defense, the Indemnitee shall have the right to participate in the defense thereof and to employ counsel, subject to the proviso of the preceding sentence, at its own expense, separate from the counsel employed by the Indemnifying Party, it being understood that the Indemnifying Party shall control such defense. The Indemnifying Party shall be liable for the fees and expenses of counsel employed by the Indemnitee for any period during which the Indemnifying Party has failed to assume the defense thereof (other than during the period prior to the time the Indemnitee shall have given notice of the Third-Party Claim as provided above).

(d) If the Indemnifying Party shall have assumed the defense of a Third-Party Claim, in no event will the Indemnitee admit any liability with respect to, or settle, compromise or discharge, any Third-Party Claim without the Indemnifying Party’s prior written consent; provided , however , that the Indemnitee shall have the right to settle, compromise or discharge such Third-Party Claim without the consent of the Indemnifying Party if the Indemnitee releases the Indemnifying Party from its indemnification obligation hereunder with respect to such Third-Party Claim and such settlement, compromise or discharge would not otherwise adversely affect the Indemnifying Party. The Indemnifying Party shall not enter into any settlement, compromise or discharge of a Third-Party Claim without the consent (not to be unreasonably withheld, conditioned or delayed) of the Indemnitee if the settlement (A) has the effect of permitting any injunction, declaratory judgment, other order or other non-monetary relief to be entered, directly or indirectly, against the Indemnitee, (B) does not completely release the Indemnitee from all

 

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Liabilities and obligations with respect to such claim, (C) includes a statement or admission of fault, culpability or failure to act by or on behalf of the Indemnitee, or (D) is otherwise prejudicial to the Indemnitee. If an Indemnifying Party elects not to assume the defense of a Third-Party Claim, or fails to notify an Indemnitee of its election to do so as provided herein, such Indemnitee may compromise, settle or defend such Third-Party Claim; provided that the Indemnitee shall not compromise or settle such Third-Party Claim without the consent of the Indemnifying Party, which consent is not to be unreasonably withheld, conditioned or delayed.

(e) Notwithstanding the foregoing, the Indemnifying Party shall not be entitled to assume the defense of any Third-Party Claim (and shall be liable for the fees and expenses of counsel incurred by the Indemnitee in defending such Third-Party Claim) if the Third-Party Claim seeks an order, injunction or other equitable relief or relief for other than money damages against the Indemnitee which the Indemnitee reasonably determines, after conferring with its counsel, cannot be separated from any related claim for money damages. If such equitable relief or other relief portion of the Third-Party Claim can be so separated from that for money damages, the Indemnifying Party shall be entitled to assume the defense of the portion relating to money damages.

(f) In the event of payment by an Indemnifying Party to any Indemnitee in connection with any Third-Party Claim, such Indemnifying Party shall be subrogated to and shall stand in the place of such Indemnitee as to any events or circumstances in respect of which such Indemnitee may have any right or claim relating to such Third-Party Claim. Such Indemnitee shall cooperate with such Indemnifying Party in a reasonable manner, and at the cost and expense of such Indemnifying Party, in prosecuting any subrogated right or claim.

(g) SeaSpine shall, and shall cause the other SeaSpine Indemnitees to, and Integra shall, and shall cause the other Integra Indemnitees to, cooperate as may reasonably be required in connection with the investigation, defense and settlement of any Third-Party Claim. In furtherance of this obligation, the Parties agree that if an Indemnifying Party chooses to defend or to compromise or settle any Third-Party Claim, Integra or SeaSpine, as the case may be, shall use its reasonable best efforts to make available to the other Party, upon written request, the former and then current directors, officers, employees and agents of Integra or any SeaSpine Entity (as applicable) as witnesses and any Records or other documents within its control or which it otherwise has the ability to make available, to the extent that any such Person, Records or other documents may reasonably be required in connection with such defense, settlement or compromise. At the request of an Indemnifying Party, an Indemnitee shall enter into a reasonably acceptable joint defense agreement.

(h) The remedies provided in this Article V shall be cumulative and shall not preclude assertion by any Indemnitee of any other rights or the seeking of any and all other remedies against any Indemnifying Party.

Section 5.4 Indemnification Payments .

(a) Indemnification required by this Article V shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or a Loss is incurred. If the Indemnifying Party fails to make an indemnification

 

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payment required by this Article V within 30 days after receipt of a bill therefore or notice that a Loss has been incurred, the Indemnifying Party shall also be required to pay interest on the amount of such indemnification payment, from the date of receipt of the bill or notice of the Loss to but not including the date of payment, at the Applicable Rate.

(b) The amount of any claim by an Indemnitee under this Agreement shall be reduced to reflect any insurance proceeds actually received (net of costs or any mandatory premium increases) by any Indemnitee that result from the Losses that gave rise to such indemnity. Notwithstanding the foregoing, no Indemnitee will be obligated to seek recovery for any Losses from any Third Party before seeking indemnification under this Agreement and in no event will an Indemnifying Party’s obligation to indemnify and hold harmless any Indemnitee pursuant to this Agreement be conditioned upon the status of the recovery of any offsetting amounts from any such Third Party.

(c) The amount of any Loss subject to indemnification pursuant to this Article V shall be net of Taxes. Accordingly, the amount which an Indemnifying Party is required to pay to an Indemnitee will be adjusted to reflect any Tax benefit to the Indemnitee from the underlying Loss and to reflect any Taxes imposed upon the Indemnitee as a result of the receipt of such payment. Such an adjustment will first be made at the time that the indemnification payment is made and will further be made, as appropriate, to take into account any change in the liability of the Indemnitee for Taxes that occurs in connection with the final resolution of an audit by a Tax authority. For purposes of this Section 5.4(c) , the value of any Tax benefit to the Indemnitee from the underlying Loss shall be an amount equal to the product of (a) the amount of any present or future deduction allowed or allowable to the Indemnitee by the Code, or other applicable Law, as a result of such Loss and (b) the highest statutory rate applicable under Section 11 of the Code, or other applicable Law.

(d) Except with respect to any indemnification payment for Losses relating to a breach of the Tax Matters Agreement, which indemnification payments shall be treated in accordance with the Tax Matters Agreement, and to the extent permitted by Law, the Parties will treat any indemnification payment paid pursuant to this Article V as a capital contribution made by Integra to SeaSpine or as a distribution made by SeaSpine to Integra, as the case may be, immediately prior to the Distribution.

Section 5.5 Survival of Indemnities . The rights and obligations of each of Integra and SeaSpine and their respective Indemnitees under this Article V will survive the sale or transfer by any Party of any assets or businesses or the assignment by it of any Liabilities.

Section 5.6 Limitation on Liability . Except as may expressly be set forth in this Agreement or any Ancillary Agreement, none of Integra, any other Integra Entity, SeaSpine, or any other SeaSpine Entity shall in any event have any Liability to the other Party or to any Entity affiliated with the other Party, or to any other Integra Indemnitee or SeaSpine Indemnitee, as applicable, under this Agreement (a) to the extent that any such Liability resulted from any willful violation of Law or fraud by the Party seeking indemnification or (b) for any exemplary, punitive, special, indirect, consequential, remote or speculative damages (including in respect of lost profits or revenues), however caused and on any theory of liability (including negligence) arising in any way out of any provision of this Agreement, except to the extent, in the case of this

 

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clause (b), any such damages were natural, probable and reasonably foreseeable as of the date hereof. Notwithstanding the foregoing, the provisions of this Section 5.6 shall not limit an Indemnifying Party’s indemnification obligations with respect to any Liability that any Indemnitee may have to any third party not affiliated with any Integra Entity or SeaSpine Entity.

ARTICLE VI.

LITIGATION MATTERS

Section 6.1 Case Allocation .

(a) As of the Distribution Date, SeaSpine shall, and, as applicable, shall cause the other SeaSpine Entities to (i) diligently conduct, at its sole cost and expense, the defense of the SeaSpine Actions and any applicable future SeaSpine Actions; (ii) notify Integra of material litigation developments related to the SeaSpine Actions; and (iii) agree not to file any cross claim or institute separate legal proceedings against Integra in relation to the SeaSpine Actions. Upon the settlement or judgment of any SeaSpine Action, SeaSpine shall in good faith determine an equitable apportionment of such settlement or judgment as between SeaSpine and Integra. If Integra provides SeaSpine with a written notice of Integra’s objection to SeaSpine’s allocation of Liability within 60 days of receipt of that allocation, SeaSpine and Integra shall endeavor in good faith to negotiate a mutually agreeable allocation of such Liability. If Integra and SeaSpine have not reached a mutually agreeable allocation of such Liability within 90 days of SeaSpine’s receipt of such objection notice, either Integra or SeaSpine may request in writing to the other Party that such allocation be resolved through the dispute resolution mechanism provided in Article VIII herein.

(b) As of the Distribution Date, Integra shall, and, as applicable, shall cause the other Integra Entities to (i) diligently conduct, at its sole cost and expense, the defense of the Integra Actions, including and any applicable future Integra Actions; (ii) notify SeaSpine of material litigation developments related to the Integra Actions; (iii) agree not to file any cross claim or institute separate legal proceedings against SeaSpine in relation to the Integra Actions. Upon the settlement or judgment of any Integra Action, Integra shall in good faith determine an equitable apportionment of the settlement or judgment as between Integra and SeaSpine. If SeaSpine provides Integra with a written notice of SeaSpine’s objection to Integra’s allocation of Liability within 60 days of receipt of that allocation, Integra and SeaSpine shall endeavor in good faith to negotiate a mutually agreeable allocation of such Liability. If SeaSpine and Integra have not reached a mutually agreeable allocation of such Liability within 90 days of Integra’s receipt of such objection notice, either SeaSpine or Integra may request in writing to the other Party that such allocation be resolved through the dispute resolution mechanism provided in Article VIII herein.

(c) Each of Integra and SeaSpine agrees that at all times from and after the Effective Time, if an Action currently exists or is commenced by a third party with respect to which a Party (or any Entity affiliated with such Party) is a named defendant but such Action is otherwise not a Liability allocated to such named Party under this Agreement or any Ancillary Agreement, then the other Party shall use commercially reasonable efforts to cause the named but not liable defendant to be removed from such Action.

 

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(d) Notwithstanding anything in this Section 6.1 to the contrary, (i) Integra shall have the right to participate in the defense of any SeaSpine Action from which it has not been removed, and to be represented by attorneys of its own choosing and at its sole cost and expense and (ii) SeaSpine shall have the right to participate in the defense of any Integra Action from which it has not been removed, and to be represented by attorneys of its own choosing and at its sole cost and expense.

(e) SeaSpine shall indemnify and hold harmless Integra and the other Integra Entities against SeaSpine Liabilities arising in connection with any Action, and Integra shall indemnify and hold harmless SeaSpine and the other SeaSpine Entities against Integra Liabilities arising in connection with any Action, in each case, in accordance with the indemnification provisions of Article V .

(f) Joint Actions .

(i) As of the Distribution Date, Integra shall, and, as applicable, shall cause the other Integra Entities to (A) diligently conduct the defense of the Joint Actions, including any applicable future Joint Actions; (B) notify SeaSpine of material litigation developments related to the Joint Actions; and (C) agree not to file any cross claim or institute separate legal proceedings against SeaSpine in relation to the Joint Actions; provided , however , that if it becomes clear that a Joint Action relates primarily to the SeaSpine Business then from and after such time such Joint Action shall instead be deemed to be a SeaSpine Action subject to Section 6.1(a) above, and SeaSpine shall promptly reimburse Integra for any costs or expenses incurred by Integra in connection with such Joint Action pursuant to Section 6.1(f)(iii) ; provided , further , that if it becomes clear that a Joint Action relates primarily to the Integra Business then from and after such time such Joint Action shall instead be deemed to be an Integra Action subject to Section 6.1(b) above, and Integra shall promptly reimburse SeaSpine for any costs or expenses incurred by SeaSpine in connection with such Joint Action pursuant to Section 6.1(f)(iii) . Integra and SeaSpine shall regularly meet to review and discuss the progress of the Joint Actions and the classification thereof.

(ii) In a Joint Action, SeaSpine shall have the right to employ separate counsel to represent it and the other SeaSpine Entities if SeaSpine shall have reasonably concluded that (A) there may be a legal defense available to the SeaSpine Entities that are different from or in addition to those available to Integra, (B) representation of both Integra (or any Integra Entity) and SeaSpine (or any SeaSpine Entity) by the same counsel would be inappropriate due to actual or potential differing interests between them, or (C) the Joint Action involves a claim for equitable relief which would restrict or limit the future conduct of SeaSpine (or any SeaSpine Entity) or SeaSpine’s (or any SeaSpine Entity’s) business or operations, in which case fees and expenses of such counsel incurred by SeaSpine shall be included in the amounts allocated by Section 6.1(f)(iv) . Otherwise, SeaSpine shall have the right to employ separate counsel and to participate in (but not control) the defense, compromise, or settlement of any Joint Action, at its own expense. In the event of a conflict in the procedures described in this Section 6.1(f)(ii) and the procedures set forth in Sections 5.3(a) - (e) , the terms of this Section 6.1(f)(ii) will control.

 

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(iii) Integra shall initially pay all joint attorneys’, accountants’, consultants’, expert witnesses’ and other professionals’ fees and expenses and all other out-of-pocket costs incurred on behalf of itself and SeaSpine in the investigation, defense and/or evaluation of a Joint Action (“ Litigation Expenses ”). Integra shall periodically furnish to SeaSpine copies of invoices paid by Integra for Litigation Expenses. Within 30 days of SeaSpine’s receipt of such invoices, SeaSpine shall pay Integra an amount equal to one-half of the Litigation Expenses (or such other share of the Litigation Expenses as reasonably determined by Integra), representing SeaSpine’s estimated share of the Litigation Expenses. For each Joint Action, within 60 days of the final determination of SeaSpine’s allocation of Liability pursuant to Section 6.1(f)(iv) below, Integra shall provide to SeaSpine a proposed allocation of the Litigation Expenses between Integra and SeaSpine, calculated to be in proportion to Integra’s and SeaSpine’s respective allocated Liability for the settlement or judgment of the Joint Action. If SeaSpine does not object to the proposed allocation within 60 days, SeaSpine shall pay to Integra, or Integra shall pay to SeaSpine, the amount necessary to true up the amounts contributed by each company to match the allocation of the Litigation Expenses. If SeaSpine provides Integra with a written notice of objection to Integra’s allocation of Litigation Expenses within such 60 days, Integra and SeaSpine shall endeavor in good faith to negotiate a mutually agreeable allocation of such Litigation Expenses. If SeaSpine and Integra have not reached a mutually agreeable allocation of such Litigation Expenses within 90 days of Integra’s receipt of such objection notice, either SeaSpine or Integra may request in writing to the other Party that such allocation be resolved through the dispute resolution mechanism provided in Article VIII .

(iv) Integra shall propose an allocation of Liability for any judgment or settlement of a Joint Action, based upon, if available, the allocation identified by a court verdict or, in the event of a settlement, the settling counterparty (i.e., the third party that Integra and/or SeaSpine is entering into a settlement with). If neither is available, Integra shall in good faith determine an equitable apportionment of Liability as between Integra and SeaSpine based on the portion of Liability relating primarily to each of the Integra Business and SeaSpine Business, respectively. If SeaSpine provides Integra with a written notice of objection to Integra’s allocation of Liability within 60 days of receipt of that allocation, Integra and SeaSpine shall endeavor in good faith to negotiate a mutually agreeable allocation of such Liability. If SeaSpine and Integra have not reached a mutually agreeable allocation of such Liability within 90 days of Integra’s receipt of such objection notice, either SeaSpine or Integra may request in writing to the other Party that such allocation be resolved through the dispute resolution mechanism provided in Article VIII herein.

ARTICLE VII.

ACCESS TO INFORMATION

Section 7.1 Provision of Corporate Records .

 

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(a) At all times from and after the Distribution Date, upon the prior written request by SeaSpine for specific and identified agreements, documents, books, records or files including accounting and financial records (collectively, “ Records ”) which relate to SeaSpine or the conduct of the SeaSpine Business up to the Effective Time, or which SeaSpine determines are necessary or advisable (i) for use in any Action or to satisfy audit, accounting, claims, regulatory, litigation or other similar legal or regulatory requirements or (ii) to comply with reporting, disclosure, filing or other requirements imposed on SeaSpine or its Affiliates (including without limitation under applicable securities and Tax Laws) by a Governmental Authority, Integra shall arrange, as soon as reasonably practicable following the receipt of such request, to provide appropriate copies of such Records (or the originals thereof if SeaSpine has a reasonable need for such originals) in the possession or control of Integra, but only to the extent such items are not already in the possession or control of the requesting Party.

(b) At all times from and after the Distribution Date, upon the prior written request by Integra for specific and identified Records which relate to Integra or SeaSpine or the conduct of the Integra Business or the SeaSpine Business up to the Effective Time, or which Integra determines are necessary or advisable (i) for use in any Action or to satisfy audit, accounting, claims, regulatory, litigation or other similar legal or regulatory requirements or (ii) to comply with reporting, disclosure, filing or other requirements imposed on Integra or its Affiliates (including without limitation under applicable securities and Tax Laws) by a Governmental Authority, SeaSpine shall arrange, as soon as reasonably practicable following the receipt of such request, to provide appropriate copies of such Records (or the originals thereof if Integra has a reasonable need for such originals) in the possession or control of SeaSpine or any of the SeaSpine Subsidiaries, but only to the extent such items are not already in the possession or control of the requesting Party.

Section 7.2 Access to Information . From and after the Distribution Date, each of Integra and SeaSpine shall afford to the other and its authorized Representatives reasonable access during normal business hours, subject to appropriate restrictions for classified, privileged or confidential information, to the Representatives, properties, and Records of, in the possession of or in the control of the non-requesting Party and its Subsidiaries insofar as such access is reasonably required by the requesting Party and relates to such other Party or the conduct of its business prior to the Effective Time.

Section 7.3 Witnesses; Documents and Cooperation in Actions .

(a) Integra and SeaSpine shall each use commercially reasonable efforts to make available to the other, upon reasonable written request, its and its Subsidiaries’ former and then current officers, directors, employees and agents as witnesses and any Records or other documents within its control or which it otherwise has the ability to make available, to the extent that such Person, Records or other documents may reasonably be required in connection with any Action in which the requesting Party or any Entity affiliated with the requesting Party may from time to time be involved, except in the case of any Action in which any SeaSpine Entity is adverse to any Integra Entity. The requesting Party shall bear all out-of-pocket expenses in connection therewith.

 

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(b) Without limiting any provision of this Section 7.3 , each Party shall, and shall cause each Entity affiliated with such Party to, cooperate and consult, to the extent reasonably necessary with respect to any Actions.

(c) In connection with any matter contemplated by this Section 7.3 , the Parties will enter into a mutually acceptable joint defense agreement so as to maintain to the extent practicable any applicable attorney-client privilege or work product immunity of any Integra Entity and any SeaSpine Entity.

Section 7.4 Confidentiality .

(a) Integra and the Integra Subsidiaries on the one hand, and SeaSpine and the SeaSpine Subsidiaries on the other hand, shall not use or permit the use of and shall keep, and shall cause their respective Representatives to keep, confidential all information concerning the other Party in their possession, their custody or under their control to the extent such information, (i) relates to or was acquired during the period up to the Effective Time, (ii) relates to any Ancillary Agreement, (iii) is obtained in the course of performing services for the other Party pursuant to any Ancillary Agreement or (iv) is based upon or is derived from information described in the preceding clauses (i), (ii) or (iii), and each Party shall not (without the prior written consent of the other) otherwise release or disclose such information to any other Person, except such Party’s auditors, attorneys, consultants and advisors, unless compelled to disclose such information by judicial or administrative process or unless such disclosure is required by Law and such Party has used commercially reasonable efforts to consult with the other affected Party or Parties prior to such disclosure. Each Party shall be deemed to have satisfied its obligation to hold confidential any information concerning or owned by the other Party or any Entity affiliated with the other Party, if it exercises the same care as it takes to preserve confidentiality for its own similar information. The covenants in this Section 7.4 shall survive the transactions contemplated by this Agreement and shall continue indefinitely; provided , however , that the covenants in this Section 7.4 shall terminate with respect to any information not constituting a trade secret under applicable Law on the third anniversary of the later of the Distribution Date or the date on which the Party subject to such covenants with respect to such information receives it (but any such termination shall not terminate or otherwise limit any other covenant or restriction regarding the disclosure or use of such information under any Ancillary Agreement or other agreement, instrument or legal obligation). This Section 7.4 shall not apply to information (a) that has been in the public domain through no fault of such Party, (b) that has been later lawfully acquired from other sources by such Party, provided that such source is not known to be (or have been) bound by a confidentiality agreement, (c) the use or disclosure of which is permitted by this Agreement or any other Ancillary Agreement or any other agreement entered into pursuant hereto, (d) that is immaterial and its disclosure is required as part of the conduct of that Party’s business and would not reasonably be expected to be detrimental to the interests of the other Party or (e) that the other Party has agreed in writing may be so used or disclosed.

(b) If any Party, or any Entity affiliated with such Party, either determines that it is required to disclose pursuant to applicable Law, or receives any demand under lawful process or from any Governmental Authority to disclose or provide, information of the other Party (or of any Entity affiliated with the other Party) that is subject to the confidentiality provisions of

 

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Section 7.4(a) , such Party shall notify the other Party prior to disclosing or providing such information and shall cooperate at the expense of the requesting Party in seeking any reasonable protective arrangements requested by such other Party. Subject to the foregoing, the Person that received such request may thereafter disclose or provide such information if and to the extent required by such Law or by lawful process or such Governmental Authority; provided , however , that the Person shall only disclose such portion of the information as required to be disclosed or provided.

Section 7.5 Privileged Matters . Except as may be otherwise provided in an Ancillary Agreement, the Parties recognize that legal and other professional services that have been and will be provided prior to the Distribution Date have been and will be rendered for the benefit of the Integra Entities and the SeaSpine Entities, and that each of the Integra Entities, and each of the SeaSpine Entities should be deemed to be the client for the purposes of asserting all privileges which may be asserted under applicable Law. To allocate the interests of each Party in the information as to which any Party is entitled to assert a privilege, the Parties agree as follows:

(a) Integra shall be entitled, in perpetuity, to control the assertion or waiver of all privileges in connection with privileged information which relates solely to the Integra Business (other than with respect to Liabilities as to which SeaSpine is required to provide indemnification under Article V or Article VI ), whether or not the privileged information is in the possession of or under the control of Integra, SeaSpine or any other Entity. Integra shall also be entitled, in perpetuity, to control the assertion or waiver of all privileges in connection with privileged information that relates solely to the subject matter of any claims constituting Integra Liabilities, or other Liabilities as to which it is required to provide indemnification under Article V or Article VI , now pending or which may be asserted in the future, whether or not the privileged information is in the possession of or under the control of Integra, SeaSpine or any other Entity.

(b) SeaSpine shall be entitled, in perpetuity, to control the assertion or waiver of all privileges in connection with privileged information which relates solely to the SeaSpine Business (other than with respect to Liabilities as to which Integra is required to provide indemnification under Article V or Article VI ), whether or not the privileged information is in the possession of or under the control of Integra, SeaSpine or any other Entity. SeaSpine shall also be entitled, in perpetuity, to control the assertion or waiver of all privileges in connection with privileged information which relates solely to the subject matter of any claims constituting SeaSpine Liabilities, or other Liabilities as to which it is required to provide indemnification under Article V or Article VI , now pending or which may be asserted in the future, in any lawsuits or other proceedings initiated against or by SeaSpine, whether or not the privileged information is in the possession of or under the control of Integra, SeaSpine or any other Entity.

(c) The Parties agree that they shall have a shared privilege, with equal right to assert or waive, subject to the restrictions in this Section 7.5 , with respect to all privileges not allocated pursuant to the terms of Sections 7.5(a) and 7.5(b) .

(d) No Party may waive any privilege which could be asserted under any applicable Law, and in which the other Party has a shared privileged, without the consent of the other Party, which consent shall not be unreasonably withheld or delayed, except to the extent reasonably required in connection with any Third-Party Claims or as provided in subsection (e) below. Consent shall be in writing, or shall be deemed to be granted unless written objection is made within 20 days after notice upon the other Party requesting such consent.

 

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(e) In the event of any litigation or dispute between or among the Parties, any Party and a Subsidiary of the other Party, or a Subsidiary of one Party and a Subsidiary of the other Party, either such Party may waive a privilege in which the other Party has a shared privilege, without obtaining the consent of the other Party, provided , however , that such waiver of a shared privilege shall be effective only as to the use of information with respect to the litigation or dispute between the Parties and/or their Subsidiaries, and shall not operate as a waiver of the shared privilege with respect to any Third-Party Claims.

(f) If a dispute arises between or among the Parties or their respective Subsidiaries regarding whether a privilege should be waived to protect or advance the interest of any Party, each Party agrees that it shall negotiate in good faith, shall endeavor to minimize any prejudice to the rights of the other Party, and shall not unreasonably withhold consent to any request for a waiver by the other Party. Each Party hereto specifically agrees that it will not withhold consent to a waiver for any purpose except to protect its own legitimate interests.

(g) Upon receipt by any Party or by any Subsidiary thereof of any subpoena, discovery or other request which arguably calls for the production or disclosure of information subject to a shared privilege or as to which another Party has the sole right hereunder to assert a privilege, or if any Party obtains knowledge that any of its or any of its Subsidiaries’ current or former Representatives have received any subpoena, discovery or other request which arguably calls for the production or disclosure of such privileged information, such Party shall promptly notify the other Party of the existence of the request and shall provide the other Party a reasonable opportunity to review the information and to assert any rights it or they may have under this Section 7.5 or otherwise to prevent the production or disclosure of such privileged information.

(h) The transfer of all Records and other information pursuant to this Agreement is made in reliance on the agreement of Integra and SeaSpine, as set forth in Sections 7.2 , 7.4 , and 7.5 , to maintain the confidentiality of privileged information and to assert and maintain all applicable privileges. The access to information being granted pursuant to Sections 7.1 , 7.2, and 7.3 hereof, the agreement to provide witnesses and individuals pursuant to Sections 7.2 and 7.3 hereof, the furnishing of notices and documents and other cooperative efforts contemplated by Section 7.3 hereof, and the transfer of privileged information between and among the Parties and their respective Subsidiaries, Affiliates and Representatives pursuant to this Agreement shall not be deemed a waiver of any privilege that has been or may be asserted under this Agreement or otherwise.

Section 7.6 Ownership of Information . Any information owned by one Party or any of its Subsidiaries that is provided to a requesting Party pursuant to this Article VII shall be deemed to remain the property of the providing Person. Unless specifically set forth herein, nothing contained in this Agreement shall be construed as granting or conferring rights of license or otherwise in any such information.

 

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Section 7.7 Cost of Providing Records and Information . A Party requesting Records, information or access to Representatives, witnesses or properties, under this Article VII , agrees to reimburse the other Party and its Subsidiaries for the reasonable out-of-pocket costs, if any, incurred in seeking to satisfy the request of the requesting Party.

Section 7.8 Retention of Records . Except (a) as provided in the Tax Matters Agreement or (b) when a longer retention period is otherwise required by Law or agreed to in writing, the Integra Entities and the SeaSpine Entities shall retain all Records relating to the Integra Business and the SeaSpine Business as of the Effective Time for the periods of time provided in each Party’s record retention policy (with respect to the documents of such Party and without regard to the Distribution or its effects) as in effect on the Distribution Date. Notwithstanding the foregoing, in lieu of retaining any specific Records, Integra or SeaSpine may offer in writing to deliver such Records to the other and, if such offer is not accepted within 90 days, the offered Records may be destroyed or otherwise disposed of at any time. If a recipient of such offer shall request in writing prior to the scheduled date for such destruction or disposal that any of Records proposed to be destroyed or disposed of be delivered to such requesting Party, the Party proposing the destruction or disposal shall promptly arrange for delivery of such of the Records as was requested (at the cost of the requesting Party).

Section 7.9 Other Agreements Providing for Exchange of Information . The rights and obligations granted under this Article VII are subject to any specific limitations, qualifications or additional provisions on cooperation, access to information, privilege and the sharing, exchange or confidential treatment of information set forth in any Ancillary Agreement or in any other agreement to which an Integra Entity and a SeaSpine Entity are parties.

Section 7.10 Policies and Best Practices . Without representation or warranty, SeaSpine and Integra shall continue to be permitted to share, on a confidential basis, “best practices” information and materials (such as policies, workflow templates and standard form contracts).

Section 7.11 Compliance with Laws and Agreements . Nothing in this Article VII shall be deemed to require any Person to provide any information if doing so would, in the opinion of counsel to such Person, be inconsistent with any legal or constitutional obligation applicable to such Person.

ARTICLE VIII.

DISPUTE RESOLUTION

Section 8.1 Agreement Disputes . Except as specifically provided in any Ancillary Agreement, any controversy, dispute or claim arising out of, in connection with, or in relation to the interpretation, performance, nonperformance, validity, termination, enforcement or breach of this Agreement, or otherwise arising out of, or in any way related to this Agreement or the transactions contemplated hereby, including any claim based on contract, tort, statute or constitution (collectively, “ Agreement Disputes ”) shall be determined by binding arbitration according to the following provisions, as the sole and exclusive means of resolving such dispute, claim or controversy.

 

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Section 8.2 Negotiation . In the event either Party identifies an Agreement Dispute, it shall provide written notice thereof to the other Party identifying with reasonable particularity the facts which support the asserted dispute and the particular contractual provision at issue. Receipt of such notice by the other Party shall trigger a 30-day informal resolution process during which both Parties, through their designated representatives, shall attempt to resolve such Agreement Dispute in an amicable manner.

Section 8.3 Arbitration . In the event the Agreement Dispute remains unresolved at the end of such 30-day period, the Parties agree to seek to resolve such Agreement Dispute by arbitration administered by Judicial Arbitration and Mediation Services, Inc. (“ JAMS ”) pursuant to its Comprehensive Arbitration Rules and Procedures (the “ JAMS Rules ”), conducted in Philadelphia, Pennsylvania. For Agreement Disputes with an amount in controversy of less than $500,000, exclusive of interest or attorneys’ fees, the Agreement Dispute shall be heard and determined by a single arbitrator selected in accordance with the JAMS Rules. For Agreement Disputes with amount in controversy equal to or more than $500,000, exclusive of interest or attorneys’ fees, there shall be three arbitrators, with each Party appointing one arbitrator and the two party-appointed arbitrators agreeing on a third arbitrator who shall chair the arbitral tribunal. Any arbitrator not appointed within a reasonable time shall be appointed in accordance with the JAMS Rules. Any controversy concerning the jurisdiction of the arbitrator(s), whether an Agreement Dispute is an arbitrable Agreement Dispute, whether arbitration has been waived, whether an assignee of this Agreement is bound to arbitrate, or as to the interpretation of enforceability of this Article VIII shall be determined by the arbitrator(s). The final award in the arbitration shall be issued no later than six months after the date the arbitration is first filed with JAMS; all deadlines and dates in the arbitration shall be set such that they are consistent with, and shall not interfere with or derogate from, this six-month deadline. This Article VIII shall not preclude either Party from seeking provisional remedies in aid of arbitration from a court of appropriate jurisdiction.

Section 8.4 Choice of Law, Compliance, Enforcement, Costs . In resolving any Agreement Dispute, the Parties intend that the arbitrator(s) shall apply the substantive Laws of the State of Delaware, without regard to any choice of law principles thereof that would mandate the application of the laws of another jurisdiction. The Parties intend that the provisions to arbitrate set forth herein be valid, enforceable and irrevocable, and any award rendered by the arbitrator(s) shall be final and binding on the Parties. Each Party agrees to comply and to cause the Entities affiliated with such Party to comply with any award made in any such arbitration proceedings and agree to enforcement of or entry of judgment upon such award, in any court of competent jurisdiction. The arbitrator’s decision shall not be subject to appeal in any forum, but shall be enforceable by Delaware Courts if full compliance has not occurred within 30 days of the arbitrator’s written decision. Each Party shall bear its own costs of arbitration including its attorneys’ fees, without regard to which Party prevails; provided , that, the non-prevailing Party, as determined and identified by the arbitrator(s), shall bear 100% of costs and fees of the arbitrator(s).

Section 8.5 Confidentiality of Proceedings . Unless otherwise agreed in writing by or among the relevant Parties or permitted by this Agreement, the relevant Parties shall keep, and shall cause the Entities affiliated with them to keep, confidential all matters relating to the arbitration or the award. All negotiations, conferences and discussions pursuant to this Article

 

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VIII shall be treated as compromise and settlement negotiations; provided , that such matters may be disclosed (a) to the extent reasonably necessary in any proceeding brought to enforce this agreement to arbitrate or any arbitral award or for entry of a judgment upon the award and (b) to the extent otherwise required by Law or regulatory authority.

Section 8.6 Continuity of Service and Performance . During the course of dispute resolution pursuant to the provisions of this Article VIII , the Parties will continue to provide all other services and honor all other commitments under this Agreement and each Ancillary Agreement with respect to all matters not subject to such dispute resolution.

ARTICLE IX.

INSURANCE

Section 9.1 General . Each Insurance Policy owned or maintained by or on behalf of the Integra Entities that relates exclusively to (i) the SeaSpine Business (“ SeaSpine Specific Policies ”) shall be a SeaSpine Asset and (ii) the Integra Business shall be an Integra Asset. All other Insurance Policies shall be subject to the provisions of Section 9.2 .

Section 9.2 Combined Policies . Each of Integra and SeaSpine hereby agrees to use its commercially reasonable efforts to take the following actions, effective in each case prior to or on the Distribution Date (it being understood that SeaSpine shall be responsible for all premiums, costs and fees associated with (x) any new Insurance Policies placed for the benefit of SeaSpine pursuant to this Section 9.2 and (y) any incremental increase in any Insurance Policy’s premiums, costs and fees associated with the prior acts coverage or with the transitional services coverage relating to the Transition Services Agreement):

(a) each Insurance Policy listed in Schedule 9.2(a) (the “ Occurrence Based Policies ”) shall be cancelled or endorsed such that separate policies for each of Integra and SeaSpine shall be acquired on substantially similar terms, or such other terms as elected by the applicable insured party, as the Occurrence Based Policies (other than with respect to limits, retentions and deductibles, as applicable); and

(b)(i) each Insurance Policy listed in Schedule 9.2(b) (the “ Claims Made Policies ” and together with the Occurrence Based Policies, the “ Combined Policies ”) shall be cancelled or endorsed such that (ii) separate claims made policies for SeaSpine shall be acquired on substantially similar terms, or such other terms as elected by the applicable insured party, as the Claims Made Policies (other than with respect to limits, retentions and deductibles, as applicable), with retroactive dates under each such policy that are the same retroactive dates under the corresponding Integra Claims Made Policy for each of the insureds to be covered under the respective policies of Integra and SeaSpine. Such policies placed for the benefit of SeaSpine shall also include Theken Spine LLC, IsoTis, Inc., SeaSpine, Inc. and their respective Subsidiaries.

Section 9.3 D&O Policies .

(a) SeaSpine shall cause directors and officers Insurance Policies to be put in place as of the Distribution Date for the benefit of directors and officers of the SeaSpine Entities (it being understood that SeaSpine shall be responsible for all premiums, costs and fees associated with such policies).

 

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(b) For the six-year period commencing immediately after the Distribution Date, Integra shall maintain in effect coverage for claims that arise out of, or are primarily related to, the SeaSpine Assets, serving as a director or officer of the SeaSpine Entities, or the operation of the SeaSpine Business prior to the Distribution Date, with respect to those Persons who are currently covered by the Integra Entities’ existing directors and officers Insurance Policies, on terms and at limits no less favorable than the coverage currently provided under such policies.

(c) All premiums and commissions due with respect to the coverage under 9.3(b) shall be paid by Integra.

Section 9.4 Pre-Distribution Claims .

(a) With respect to existing occurrence based policies and (to the extent such claims have been or are drawn back to a period prior to the Distribution Date) claims made policies, for any claim asserted against any SeaSpine Entity after the Distribution Date arising out of an occurrence or Loss taking place prior to the Distribution Date (“ Pre-Distribution Claim ”), the applicable SeaSpine Entity may access coverage under the Insurance Policies under which the applicable SeaSpine Entity is (or was) insured and Integra shall cooperate with the applicable SeaSpine Entity in connection with the tendering of such claims.

(b) In the event that a Pre-Distribution Claim relates to the same occurrence for which any Integra Entity is seeking coverage under an Insurance Policy, and the limits under the applicable Insurance Policy are not sufficient to fund all covered claims of the applicable Integra Entity and the applicable SeaSpine Entity, amounts due under such Insurance Policy shall be paid to the respective Entities in proportion to the amounts which otherwise would be due were the limits of liability infinite.

(c) After the Distribution Date, any third-party administrator fees and deposits related to claims made under any Insurance Policy shall be paid in accordance with the protocol historically used prior to the Distribution Date.

Section 9.5 Retentions/Deductibles .

(a) For any Pre-Distribution Claim made after the Distribution Date, all amounts necessary to exhaust or otherwise satisfy all applicable retentions, deductibles or other amounts not covered by such policy shall be:

(i) paid by Integra to the extent such claim relates exclusively to the Integra Business;

(ii) paid by SeaSpine to the extent such claim relates exclusively to the SeaSpine Business;

 

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(iii) split equitably between Integra and SeaSpine, as determined in Integra’s reasonable discretion, for all other claims, including any claim relating to general corporate matters; or

(iv) SeaSpine shall comply with all terms and conditions of all policies covering or potentially covering any Pre-Distribution Claims. SeaSpine will cooperate with Integra, its counsel and its insurance broker concerning obtaining and maintaining coverage for Pre-Distribution Claims.

(b) SeaSpine shall be permitted to determine whether to settle any claim for which SeaSpine is required to pay any applicable deductibles or retentions pursuant to Section 9.5(a)(ii) ; provided that , SeaSpine shall not enter into any such settlement without the consent (not to be unreasonably withheld, conditioned or delayed) of Integra if the settlement (i) has the effect of permitting any injunction, declaratory judgment, other order or other non-monetary relief to be entered, directly or indirectly, against any Integra Entity, (ii) does not release the Integra Entities from all liabilities and obligations with respect to such claim, (iii) includes an admission of guilt or liability on behalf of any of the Integra Entities, or (iv) is otherwise prejudicial to any Integra Entity.

(c) For the avoidance of doubt, any dispute between the Parties arising out of or related to this Section 9.5 shall be subject to the dispute resolution provisions of Article VIII .

Section 9.6 Unearned Premium . Integra shall be entitled to its respective interest in any unearned premium paid by any insurer as a result of the cancellation or endorsement of any of the Combined Policies pursuant to Section 9.2(a) or Section 9.2(b) or the D&O Policies pursuant to Section 9.3 .

Section 9.7 Expirations and Renewals . With respect to any Combined Policy that expires prior to the Distribution Date, Integra shall, in its sole discretion, take any of the following actions: (i) allow the policy to expire and place separate policies for Integra and SeaSpine in accordance with Section 9.2 , as applicable, (ii) extend the policy through the Distribution Date or (iii) renew the policy.

Section 9.8 Copies of Policies . As soon as reasonably practical following the Distribution Date, Integra, at its own expense, shall provide to SeaSpine copies of all SeaSpine Specific Policies and all Combined Policies. At any time after the Distribution Date, upon the reasonable request of SeaSpine, Integra shall provide to SeaSpine copies of all other documents related to any SeaSpine Specific Policies or any Combined Policies (in each case, including without limitation, certificates of insurance, insurer quotes and documents provided to underwriters).

ARTICLE X.

MISCELLANEOUS

Section 10.1 Complete Agreement; Construction . This Agreement, including the Schedules, and the Ancillary Agreements shall constitute the entire agreement between the Parties with respect to the subject matter hereof and shall supersede all previous negotiations, commitments and writings with respect to such subject matter.

 

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Section 10.2 Ancillary Agreements . Except as may be expressly stated herein, this Agreement is not intended to address, and should not be interpreted to address, the matters specifically and expressly covered by the Ancillary Agreements.

Section 10.3 Counterparts . This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the Parties and delivered to the other Party.

Section 10.4 Survival of Agreements . Except as otherwise contemplated by this Agreement, all covenants and agreements of the Parties contained in this Agreement shall survive the Distribution Date.

Section 10.5 Distribution Expenses . Except as set forth on Schedule 10.5 or as otherwise expressly set forth in this Agreement or any Ancillary Agreement, all costs and expenses incurred on or prior to the Distribution Date (whether or not paid on or prior to the Distribution Date) in connection with the preparation, execution, delivery, printing and implementation of this Agreement and any Ancillary Agreement, the Registration Statement, the Distribution and the consummation of the transactions contemplated thereby, shall be charged to and paid by Integra. Except as set forth on Schedule 10.5 , such expenses shall be deemed to be Integra Liabilities. Except as otherwise set forth in this Agreement or any Ancillary Agreement, each Party shall bear its own costs and expenses incurred after the Distribution Date. Any amount or expense to be paid or reimbursed by any Party to any other Party shall be so paid or reimbursed promptly after the existence and amount of such obligation is determined and written demand therefor is made.

Section 10.6 Notices . All notices and other communications hereunder shall be in writing, shall reference this Agreement and shall be hand delivered or mailed by registered or certified mail (return receipt requested) to the Parties at the following addresses (or at such other addresses for a Party as shall be specified by like notice) and will be deemed given on the date on which such notice is received:

To Integra:

Integra LifeSciences Holdings Corporation

311 Enterprise Drive

Plainsboro, New Jersey 08536

Attention: General Counsel

Tel: (609) 275-0500

Fax: (609) 275-5363

To SeaSpine:

SeaSpine Holdings Corporation

2302 La Mirada Drive

Vista, California 92081

Attention: General Counsel

Tel: (760) 727-8399

Fax: (760) 216-5702

 

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Section 10.7 Waivers . The failure of any Party to require strict performance by any other Party of any provision in this Agreement will not waive or diminish that Party’s right to demand strict performance thereafter of that or any other provision hereof.

Section 10.8 Amendments . Subject to the terms of Sections 10.11 and 10.13 hereof, this Agreement may not be modified or amended except by an agreement in writing signed by each of the Parties.

Section 10.9 Assignment . This Agreement shall not be assignable, in whole or in part, directly or indirectly, by any Party without the prior written consent of the other Party, and any attempt to assign any rights or obligations arising under this Agreement without such consent shall be void; provided , however , that either Party may assign this Agreement to a purchaser of all or substantially all of the properties and assets of such Party so long as such purchases expressly assumes, in a written instrument in form reasonably satisfactory to the non-assigning Party, the due and punctual performance or observance of every agreement and covenant of this Agreement on the part of the assigning Party to be performed or observed.

Section 10.10 Successors and Assigns . The provisions to this Agreement shall be binding upon, inure to the benefit of and be enforceable by the Parties and their respective successors and permitted assigns.

Section 10.11 Termination . This Agreement (including Article V hereof) may be terminated and the Distribution may be amended, modified or abandoned at any time prior to the Distribution by and in the sole discretion of Integra without the approval of SeaSpine or the stockholders of Integra. In the event of such termination, no Party shall have any liability of any kind to any other Party or any other Person. After the Distribution, this Agreement may not be terminated except by an agreement in writing signed by the Parties; provided , however , that Article V shall not be terminated or amended after the Distribution in respect of a Third Party beneficiary thereto without the consent of such Person.

Section 10.12 Subsidiaries . Each of the Parties shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth herein to be performed by any entity that is contemplated to be a Subsidiary of such Party after the Distribution Date.

Section 10.13 Third-Party Beneficiaries . Except (a) as provided in Section 3.12 for the release of any Person provided thereunder, (b) as provided in Article V relating to Indemnitees, and (c) as specifically provided in any Ancillary Agreement, this Agreement and the Ancillary Agreements are solely for the benefit of the Parties and their respective Subsidiaries and Affiliates and shall not be deemed to confer upon any other Person any remedy, claim, liability, reimbursement, cause of action or other right in excess of those existing without reference to this Agreement.

 

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Section 10.14 Title and Headings . Titles and headings to Sections herein are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement.

Section 10.15 Schedules . The Schedules shall be construed with and as an integral part of this Agreement to the same extent as if the same had been set forth verbatim herein

Section 10.16 Governing Law . This Agreement shall be governed by and construed in accordance with the Laws of the State of Delaware applicable to Contracts made and to be performed in the state of Delaware.

Section 10.17 Waiver of Jury Trial . The Parties hereby irrevocably waive any and all right to trial by jury in any legal proceeding arising out of or related to this Agreement.

Section 10.18 Specific Performance . From and after the Distribution, in the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement, the Parties agree that the Party to this Agreement who is or is to be thereby aggrieved shall have the right to specific performance and injunctive or other equitable relief of its rights under this Agreement, in addition to any and all other rights and remedies at Law or in equity, and all such rights and remedies shall be cumulative. The Parties agree that, from and after the Distribution, the remedies at Law for any breach or threatened breach of this Agreement, including monetary damages, are inadequate compensation for any loss, that any defense in any action for specific performance that a remedy at Law would be adequate is hereby waived, and that any requirements for the securing or posting of any bond with such remedy are hereby waived.

Section 10.19 Severability . In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby. The Parties shall endeavor in good faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed as of the day and year first above written.

 

Integra LifeSciences Holdings Corporation
By:    
Name:  
Title:  

SeaSpine Holdings Corporation

By:    
Name:  
Title:  

Exhibit 3.1

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

SEASPINE HOLDINGS CORPORATION

SeaSpine Holdings Corporation, a corporation organized and existing under the General Corporation Law of the State of Delaware (the “ DGCL ”), does hereby certify that:

1. The Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on February 12, 2015.

2. The terms and provisions of this Amended and Restated Certificate of Incorporation have been fully approved by unanimous written consent of the Board of Directors of the Corporation and the Stockholders, pursuant to Subsections 141(f), 228(a), 242 and 245 of the DGCL. The text of the Amended and Restated Certificate of Incorporation reads in its entirety as follows:

ARTICLE I.

The name of the Corporation is SeaSpine Holdings Corporation (the “ Corporation ”).

ARTICLE II.

The address of the Corporation’s registered office in the State of Delaware is 2711 Centerville Road, Suite 400, Wilmington, County of New Castle, Delaware, 19808, and the name of its registered agent at such address is Corporation Service Company.

ARTICLE III.

The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the DGCL, as it now exists or may hereafter be amended and supplemented.

ARTICLE IV.

The Corporation is authorized to issue two classes of stock to be designated, respectively, “ Common Stock ” and “ Preferred Stock .” The total number of shares of capital stock which the Corporation shall have authority to issue is seventy-five million (75,000,000). The total number of shares of Common Stock that the Corporation is authorized to issue is sixty million (60,000,000), having a par value of $0.01 per share, and the total number of shares of Preferred Stock that the corporation is authorized to issue is fifteen million (15,000,000), having a par value of $0.01 per share.


ARTICLE V.

The designations and the powers, privileges and rights, and the qualifications, limitations or restrictions thereof in respect of each class of capital stock of the Corporation are as follows:

 

  A. COMMON STOCK

1. General . The voting, dividend, liquidation, conversion and stock split rights of the holders of the Common Stock are subject to and qualified by the rights of the holders of the Preferred Stock of any series as may be designated by the Board of Directors of the Corporation (the “ Board of Directors ”) upon any issuance of the Preferred Stock of any series.

2. Voting . Each holder of Common Stock shall be entitled to one (1) vote for each share of Common Stock held by such holder. Each holder of Common Stock shall be entitled to notice of any stockholders’ meeting in accordance with the Bylaws of the Corporation (as in effect at the time in question) (the “ Bylaws ”) and applicable law on all matters put to a vote of the stockholders of the Corporation.

Subject to the rights of any holders of any shares of Preferred Stock which may from time to time come into existence and be outstanding, the number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote, irrespective of the provisions of Section 242(b)(2) of the DGCL.

3. Dividends . Subject to the rights of any holders of any shares of Preferred Stock which may from time to time come into existence and be outstanding, the holders of Common Stock shall be entitled to the payment of dividends when, as and if declared by the Board of Directors in accordance with applicable law and to receive other distributions from the Corporation. Any dividends declared by the Board of Directors to the holders of the then outstanding Common Stock shall be paid to the holders thereof pro rata in accordance with the number of shares of Common Stock held by each such holder as of the record date of such dividend.

4. Liquidation . Subject to the rights of any holders of any shares of Preferred Stock which may from time to time come into existence and be outstanding, in the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the funds and assets of the Corporation that may be legally distributed to the Corporation’s stockholders shall be distributed among the holders of the then outstanding Common Stock pro rata in accordance with the number of shares of Common Stock held by each such holder.

 

  B. PREFERRED STOCK

Preferred Stock may be issued from time to time in one or more series, each of such series to have such terms as stated or expressed herein and in the resolution or resolutions providing for the issue of such series adopted by the Board of Directors as hereinafter provided. Authority is hereby expressly granted to the Board of Directors from time to time to issue the Preferred Stock in one or more series, and in connection with the creation of any such series, by adopting a resolution or resolutions providing for the issuance of the shares thereof and by filing a certificate of designations relating thereto in accordance with the DGCL, to determine and fix the number of shares of such series and such voting powers, full or limited, or no voting powers, and such designations, preferences and relative participating, optional or other special rights, and qualifications, limitations or restrictions thereof, including without limitation thereof, dividend


rights, conversion rights, redemption privileges and liquidation preferences, as shall be stated and expressed in such resolutions, all to the fullest extent now or hereafter permitted by the DGCL. Without limiting the generality of the foregoing, the resolution or resolutions providing for the issuance of any series of Preferred Stock may provide that such series shall be superior or rank equally or be junior to any other series of Preferred Stock to the extent permitted by law. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote, irrespective of the provisions of Section 242(b)(2) of the DGCL.

 

  C. STOCK SPLIT

Upon the filing and effectiveness of this Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware (the “ Effective Time ”), each then-outstanding share of Common Stock (“ Old Common Stock ”) shall be automatically converted into [            ] validly issued, fully paid and non-assessable shares of Common Stock without any further action by the Corporation or the holder of such shares of Old Common Stock (the “ Common Stock Split ”). Each stock certificate representing shares of Old Common Stock shall thereafter represent a number of shares of Common Stock equal to the same number of shares of Old Common Stock previously represented by such stock certificate, multiplied by [            ] and rounded down to the nearest whole number; provided, however, that each person holding of record a stock certificate or certificates that represented shares of Old Common Stock shall receive, upon surrender of such certificate or certificates, a new certificate or certificates evidencing and representing the number of whole shares of Common Stock to which such person is entitled as a result of the Common Stock Split based on the aggregate number of shares of Old Common Stock held by such person. No fractional interest in a share of Common Stock shall be deliverable upon the Common Stock Split. Stockholders who otherwise would have been entitled to receive any fractional interest in a share of Common Stock, in lieu of receipt of such fractional interest, shall be entitled to receive from the Corporation an amount in cash equal to the fair value of such fractional interest as of the Effective Time. All share numbers, dollar amounts and other provisions set forth herein give effect to the Common Stock Split.

ARTICLE VI.

For the management of the business and for the conduct of the affairs of the Corporation it is further provided that:

A. The directors of the Corporation shall be classified with respect to the time for which they severally hold office into three classes, as nearly equal in number as possible, designated as Class I, Class II and Class III. The initial Class I directors shall serve for a term expiring at the first annual meeting of the stockholders following the date hereof, the initial Class II directors shall serve for a term expiring at the second annual meeting of the stockholders following the date hereof and the initial Class III directors shall serve for a term expiring at the third annual meeting of stockholders following the date hereof, with directors of each class to hold office until their successors are duly elected and qualified; provided that the term of each director shall continue until the election and qualification of a successor and be subject to such director’s earlier death, resignation or removal. At each annual meeting of stockholders of the Corporation


beginning with the first annual meeting of stockholders following the date hereof, subject to any rights of the holders of shares of any class or series of Preferred Stock, the successors of the class of directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election; provided that the term of each director shall continue until the election and qualification of a successor and be subject to such director’s earlier death, resignation or removal. In the case of any increase or decrease, from time to time, in the authorized number of directors of the Corporation, the number of directors in each class shall be apportioned as nearly equal as possible. No decrease in the number of directors shall shorten the term of any incumbent director. The Board is authorized to assign members of the Board already in office to Class I, Class II and Class III.

B. The management of the business and the conduct of the affairs of the Corporation shall be vested in the Board of Directors. The number of directors which shall constitute the whole Board of Directors shall be fixed exclusively by one or more resolutions adopted from time to time by the Board of Directors.

C. Subject to the special rights of the holders of one or more series of Preferred Stock to elect directors, the Board of Directors or any individual director may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then outstanding shares of voting stock of the Corporation entitled to vote at an election of directors (the “ Voting Stock ”).

D. Subject to the special rights of the holders of one or more series of Preferred Stock to elect directors, any vacancies on the Board of Directors resulting from death, resignation, disqualification, retirement, removal or other causes and any newly created directorships resulting from any increase in the number of directors shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by the stockholders, and except as otherwise provided by law, be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum, or by a sole remaining director, and shall not be filled by the stockholders. Any director appointed in accordance with the preceding sentence shall hold office until such director’s successor shall have been elected and qualified or until his or her earlier death, resignation, disqualification, retirement or removal.

E. In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter or repeal Bylaws of the Corporation. In addition to any vote of the holders of any class or series of stock of the Corporation required by applicable law or by this Certificate of Incorporation (including any Certificate of Designation in respect of one or more series of Preferred Stock), the adoption, amendment or repeal of the Bylaws of the Corporation by the stockholders of the Corporation shall require the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding shares of the Voting Stock, voting together as a single class.

F. The directors of the Corporation need not be elected by written ballot unless the Bylaws so provide.


ARTICLE VII.

A. Subject to the rights of the holders of any series of Preferred Stock, any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of the stockholders of the Corporation, and the taking of any action by written consent of the stockholders in lieu of a meeting of the stockholders is specifically denied.

B. Special meetings of the stockholders of the Corporation may be called, for any purpose or purposes, at any time by the Board of Directors, the Chairperson of the Board of Directors, the Chief Executive Officer or President (in the absence of a Chief Executive Officer), but such special meetings may not be called by stockholders or any other person or persons.

C. Advance notice of stockholder nominations for the election of directors and of other business proposed to be brought by stockholders before any meeting of the stockholders of the Corporation shall be given in the manner provided in the Bylaws of the Corporation.

ARTICLE VIII.

A. To the maximum extent permitted by the DGCL, as the same exists or as may hereafter be amended, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. If the DGCL is amended after approval by the stockholders of this Article VIII to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL as so amended.

B. The Corporation, to the fullest extent permitted by law, may indemnify and advance expenses to any person made or threatened to be made a party to an action, suit or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he or she, or his or her testator or intestate, is or was a director, officer, employee or agent of the Corporation or any predecessor of the Corporation, or serves or served at any other enterprise as a director, officer, employee or agent at the request of the Corporation or any predecessor to the Corporation.

C. Neither any amendment nor repeal of this Article VIII, nor the adoption of any provision of the Corporation’s certificate of incorporation inconsistent with this Article VIII, shall eliminate or reduce the effect of this Article VIII in respect of any matter occurring, or any action or proceeding accruing or arising (or that, but for this Article VIII, would accrue or arise) prior to such amendment or repeal or adoption of an inconsistent provision.

ARTICLE IX.

Unless the Corporation consents in writing to the selection of an alternate forum, the Court of Chancery of the State of Delaware shall, to the fullest extent permitted by applicable law, be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by, or other wrongdoing by, any director, officer or employee of the Corporation to the Corporation


or the Corporation’s stockholders, (iii) any action asserting a claim against the Corporation or any director, officer or employee of the Corporation arising pursuant to any provision of the DGCL or the Certificate of Incorporation or the Bylaws of the Corporation, (iv) any action to interpret, apply, enforce or determine the validity of this Certificate of Incorporation or the Bylaws of the Corporation, or (v) any action asserting a claim against the Corporation or any director, officer or employee of the Corporation governed by the internal affairs doctrine. To the fullest extent permitted by law, any person purchasing or otherwise acquiring any interest in shares of capital stock of the Corporation shall be deemed to have notice of and consented to the provisions of this Article IX. If any provision or provisions of this Article IX shall be held to be invalid, illegal or unenforceable as applied to any person or entity or circumstance for any reason whatsoever, then, to the fullest extent permitted by law, the validity, legality and enforceability of such provisions in any other circumstance and of the remaining provisions of this Article IX (including, without limitation, each portion of any sentence of this Article IX containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) and the application of such provision to other persons or entities and circumstances shall not in any way be affected or impaired thereby.

ARTICLE X.

Notwithstanding any other provisions of this Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of the Voting Stock required by law or by this Certificate of Incorporation (including any Certificate of Designation in respect of one or more series of Preferred Stock), the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding shares of the Voting Stock, voting together as a single class, shall be required to alter, amend or repeal Articles VI, VII, VIII, IX and X.

[ Signature Page to Follow .]


IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated Certificate of Incorporation to be executed by its duly authorized officer on this     th day of             , 2015.

 

SEASPINE HOLDINGS CORPORATION

 

Exhibit 3.2

AMENDED AND RESTATED

BYLAWS

OF

SEASPINE HOLDINGS CORPORATION

 

 

ARTICLE I

Meetings of Stockholders

Section 1.1. Annual Meetings . The annual meeting of the stockholders of SeaSpine Holdings Corporation (the “Corporation”) for the election of directors (each, a “Director”) and for the transaction of such other business as properly may come before such meeting shall be held each year either within or without the State of Delaware at such place, if any, and on such date and at such time, as may be fixed from time to time by resolution of the Corporation’s Board of Directors (the “Board”) and set forth in the notice or waiver of notice of the meeting. The Board may postpone, reschedule or cancel any annual meeting of stockholders previously scheduled by the Board.

Section 1.2. Special Meetings . A special meeting of the stockholders of the Corporation for any purpose or purposes may be called at any time only by or at the direction of the Board pursuant to a resolution of the Board adopted by a majority of the total number of Directors then in office. Any special meeting of the stockholders shall be held at such place, if any, within or without the State of Delaware, and on such date and at such time, as shall be specified in such resolution. Business transacted at any special meeting of the stockholders shall be limited to the purpose(s) stated in the notice. The Board may postpone, reschedule or cancel any special meeting of the stockholders previously scheduled by the Board.

Section 1.3. Participation in Meetings by Remote Communication . The Board, acting in its sole discretion, may establish guidelines and procedures in accordance with applicable provisions of the Delaware General Corporation Law (the “DGCL”) and any other applicable law for the participation by stockholders and proxyholders in a meeting of stockholders by means of remote communications, and may determine that any meeting of stockholders will not be held at any place but will be held solely by means of remote communication. Stockholders and proxyholders complying with such procedures and guidelines and otherwise entitled to vote at a meeting of stockholders shall be deemed present in person and entitled to vote at a meeting of stockholders, whether such meeting is to be held at a designated place or solely by means of remote communication.

Section 1.4. Notice of Meetings . Whenever stockholders are required or permitted to take any action at a meeting, a notice of the meeting shall be given that shall state the place, if any, date and hour of the meeting, the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, the record date for determining the stockholders entitled to vote at the meeting (if such date is different from the record date for stockholders entitled to notice of the meeting) and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by law, the certificate of incorporation of the Corporation (the “Certificate of


Incorporation”) or these Bylaws, the notice of any meeting shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at the meeting as of the record date for determining the stockholders entitled to notice of the meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the records of the Corporation.

Section 1.5. Adjournments . Any meeting of stockholders may be adjourned from time to time, by the chairperson of the meeting or by the vote of a majority of the shares of stock present in person or represented by proxy at the meeting, to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the place, if any, and date and time thereof (and the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting) are announced at the meeting at which the adjournment is taken unless the adjournment is for more than thirty (30) days or a new record date is fixed for the adjourned meeting after the adjournment, in which case notice of the adjourned meeting in accordance with Section 1.4 of these Bylaws shall be given to each stockholder of record entitled to vote at the meeting. At the adjourned meeting, the Corporation may transact any business that might have been transacted at the original meeting. If after the adjournment a new record date for determination of stockholders entitled to vote is fixed for the adjourned meeting, the Board shall fix as the record date for determining stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote at the adjourned meeting, and shall give notice of the adjourned meeting to each stockholder of record as of the record date so fixed for notice of such adjourned meeting.

Section 1.6. Quorum . Except as otherwise provided in the Certificate of Incorporation or by law, the presence in person or by proxy of the holders of record of a majority in voting power of the shares entitled to vote at a meeting of stockholders shall constitute a quorum for the transaction of business at such meeting, provided , however , that where a separate vote by a class or series is required, the holders of a majority in voting power of all issued and outstanding stock of such class or series entitled to vote on such matter, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to such matter. In the absence of a quorum, the stockholders so present may, by a majority in voting power thereof, adjourn the meeting from time to time in the manner provided in Section 1.5 of these Bylaws until a quorum shall attend.

Section 1.7. Organization . At every meeting of stockholders the presiding officer shall be the Chairman of the Board, or in the event of his or her absence or disability, a presiding officer chosen by resolution of the Board. The Secretary, or in the event of his or her absence or disability, the Assistant Secretary, if any, or if there be no Assistant Secretary, in the absence of the Secretary, an appointee of the presiding officer, shall act as secretary of the meeting.

Section 1.8. Voting; Proxies . Except as otherwise provided in the Certificate of Incorporation or by law, every holder of record of shares entitled to vote at a meeting of stockholders is entitled to one vote for each share outstanding in his or her name on the books of

 

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the Corporation (x) at the close of business on the record date for such meeting or (y) if no record date has been fixed, at the close of business on the day next preceding the day on which notice of the meeting is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. Except as otherwise required by law, the Certificate of Incorporation, these Bylaws, the rules and regulations of any stock exchange applicable to the Corporation or pursuant to any other rule or regulation applicable to the Corporation, its securities or its stockholders, the vote of a majority of the voting power of the shares entitled to vote at a meeting of stockholders on the subject matter in question represented in person or by proxy at any meeting at which a quorum is present shall be sufficient for the transaction of any business at such meeting. The stockholders do not have the right to cumulate their votes for the election of Directors. Each stockholder entitled to vote at a meeting of stockholders or to express consent to or dissent from corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by proxy. A stockholder may authorize a valid proxy by executing a written instrument signed by such stockholder, or by causing his or her signature to be affixed to such writing by any reasonable means, including but not limited to by facsimile signature, a proxy solicitation firm or a like authorized agent. Proxies by electronic transmission must either set forth, or be submitted with, information from which it can be determined that the electronic transmission was authorized by the stockholder. Any copy, facsimile telecommunication or other reliable reproduction of a writing or transmission created pursuant to this section may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used if such copy, facsimile telecommunication or other reproduction is a complete reproduction of the entire original writing or transmission. No proxy may be voted or acted upon after the expiration of three years from the date of such proxy, unless such proxy provides for a longer period. Every proxy is revocable at the pleasure of the stockholder executing it unless the proxy states that it is irrevocable and applicable law makes it irrevocable. A stockholder may revoke any proxy that is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or by filing another duly executed proxy bearing a later date with the Secretary.

Section 1.9. Fixing Date for Determination of Stockholders of Record .

(a) In order that the Corporation may determine the stockholders entitled to notice of any meeting of stockholders or any adjournment thereof, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date shall, unless otherwise required by law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If the Board so fixes a date, such date shall also be the record date for determining the stockholders entitled to vote at such meeting unless the Board determines, at the time it fixes such record date, that a later date on or before the date of the meeting shall be the date for making such determination. The Secretary or any Assistant Secretary shall cause notice of each meeting of stockholders to be given in writing in a manner permitted by the DGCL not less than ten (10) days nor more than sixty (60) days prior to the meeting to each stockholder of record entitled to vote at such meeting as of the record date for determining the stockholders entitled to notice of the meeting, subject to such exclusions as are then permitted by the DGCL. The notice shall specify (i) the record date

 

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for determining the stockholders entitled to vote at the meeting (if such date is different from the record date for stockholders entitled to notice of the meeting), (ii) the place, if any, date and time of such meeting, (iii) the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting, (iv) in the case of a special meeting, the purpose or purposes for which such meeting is called and (v) such other information as may be required by law or as may be deemed appropriate by the Board, the Chairman of the Board, the President or the Secretary of the Corporation. If the stockholder list referred to in Section 1.10 of these Bylaws is made accessible on an electronic network, the notice of meeting must indicate how the stockholder list can be accessed.

(b) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix a record date, which shall not be more than sixty (60) days prior to such other action. If no such record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto.

Section 1.10. List of Stockholders Entitled to Vote . The officer who has charge of the stock ledger shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting ( provided , however , if the record date for determining the stockholders entitled to vote is less than ten (10) days before the date of the meeting, the list shall reflect the stockholders entitled to vote as of the tenth day before the meeting date), arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting at least ten (10) days prior to the meeting (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of meeting or (ii) during ordinary business hours at the principal place of business of the Corporation. If the meeting is to be held at a place, then a list of stockholders entitled to vote at the meeting shall be produced and kept at the time and place of the meeting during the whole time thereof and may be examined by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting. Except as otherwise provided by law, the stock ledger shall be the only evidence as to who are the stockholders entitled to examine the list of stockholders required by this Section 1.10 or to vote in person or by proxy at any meeting of stockholders.

Section 1.11. Inspectors of Election . The Corporation may, and shall if required by law, in advance of any meeting of stockholders, appoint one or more inspectors of election, who may be employees of the Corporation, to act at the meeting or any adjournment thereof and to make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. In the event that no inspector so appointed or designated is able to act at a meeting of stockholders, the person presiding at the meeting shall

 

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appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath to execute faithfully the duties of inspector with strict impartiality and according to the best of his or her ability. The inspector or inspectors so appointed or designated shall (i) ascertain the number of shares of capital stock of the Corporation outstanding and the voting power of each such share, (ii) determine the shares of capital stock of the Corporation represented at the meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (v) certify their determination of the number of shares of capital stock of the Corporation represented at the meeting and such inspectors’ count of all votes and ballots. Such certification and report shall specify such other information as may be required by law. In determining the validity and counting of proxies and ballots cast at any meeting of stockholders of the Corporation, the inspectors may consider such information as is permitted by applicable law. No person who is a candidate for an office at an election may serve as an inspector at such election.

Section 1.12. Conduct of Meetings . The Board may make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to any such rules and regulations, the presiding officer of any meeting shall have the right and authority to convene and (for any or no reason) to recess and/or adjourn the meeting and to prescribe rules, regulations and procedures for such meeting and to take all such actions as in the judgment of the presiding officer are appropriate for the proper conduct of such meetings. Such rules, regulations or procedures, whether adopted by the Board or prescribed by the presiding officer of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to stockholders of record of the Corporation, their duly authorized and constituted proxies or such other persons as the presiding person of the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by participants. The presiding person at any meeting of stockholders, in addition to making any other determinations that may be appropriate to the conduct of the meeting, shall, if the facts warrant, determine and declare to the meeting that a matter or business was not properly brought before the meeting and if such presiding person should so determine, such presiding person shall so declare to the meeting and any such matter or business not properly brought before the meeting shall not be transacted or considered. Unless and to the extent determined by the Board or the person presiding over the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.

Section 1.13. Notice of Stockholder Proposals and Nominations .

(a) Annual Meetings

(i) Nominations of persons for election to the Board and proposals of business to be considered by the stockholders at an annual meeting of stockholders may be made only (x) as specified in the Corporation’s notice of meeting (or any notice supplemental thereto), (y) by or at

 

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the direction of the Board, or a committee appointed by the Board for such purpose, or (z) by any stockholder of the Corporation who or which (1) is entitled to vote at the meeting, (2) complies in a timely manner with all notice procedures set forth in this Section 1.13, and (3) is a stockholder of record when the required notice is delivered and at the date of the meeting. A stockholder proposal must constitute a proper matter for corporate action under the DGCL.

(ii) Notice in writing of a stockholder nomination or stockholder proposal must be delivered to the attention of the Secretary at the principal place of business of the Corporation by the close of business not fewer than ninety (90) days nor more than one hundred twenty (120) days prior to the first anniversary of the preceding year’s annual meeting (which anniversary date, in the case of the first annual meeting of stockholders following the date hereof, shall be deemed to be [            ]); provided that if the date of the annual meeting is advanced by more than thirty (30) days or delayed by more than seventy (70) days from such anniversary date of the preceding year’s annual meeting, notice by the stockholder to be timely must be so delivered not earlier than one hundred twenty (120) days prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made. If the number of Directors to be elected to the Board at an annual meeting is increased, and if the Corporation does not make a public announcement naming the applicable nominees for Director or specifying the size of the increased Board at least one hundred (100) days prior to the first anniversary of the preceding year’s annual meeting, then any stockholder nomination in respect of the increased number of positions shall be considered timely if delivered not later than the close of business on the 10th day following the day on which a public announcement naming all nominees or specifying the size of the increased Board is first made by the Corporation.

(iii) Notice of a stockholder nomination shall include, as to each person whom the stockholder proposes to nominate for election or reelection as a Director, all information relating to such person required to be disclosed in solicitations of proxies for election of Directors or is otherwise required, in each case pursuant to and in accordance with Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder, including such person’s written consent to being named in the proxy statement as a nominee and to serving as a Director if elected. Notice of a stockholder proposal shall include a brief description of the business desired to be brought before the meeting, the text of the proposal (including the text of any resolutions proposed for consideration and if such business includes proposed amendments to the Certificate of Incorporation and/or Bylaws of the Corporation, the text of the proposed amendments), the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made.

(iv) Notice of a stockholder nomination or proposal shall also set forth, as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made:

(1) the name and address of such stockholder, as they appear on the Corporation’s books and records, and of any such beneficial owner;

 

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(2) the class or series and number of shares of capital stock of the Corporation which are owned beneficially and of record by such stockholder and any such beneficial owner;

(3) a description of any agreement, arrangement or understanding between or among such stockholder and any such beneficial owner, any of their respective affiliates or associates, and any other person or persons (including their names) in connection with the proposal of such nomination or other business;

(4) a description of any agreement, arrangement or understanding (including, regardless of the form of settlement, any derivative, long or short positions, profit interests, forwards, futures, swaps, options, warrants, convertible securities, stock appreciation or similar rights, hedging transactions and borrowed or loaned shares) that has been entered into by or on behalf of, or any other agreement, arrangement or understanding that has been made, the effect or intent of which is to create or mitigate loss to, manage risk or benefit of share price changes for, or increase or decrease the voting power of, such stockholder or any such beneficial owner or any such nominee with respect to the Corporation’s securities (a “Derivative Instrument”);

(5) to the extent not disclosed pursuant to clause (4) above, the principal amount of any indebtedness of the Corporation or any of its subsidiaries beneficially owned by such stockholder or by any such beneficial owner, together with the title of the instrument under which such indebtedness was issued and a description of any Derivative Instrument entered into by or on behalf of such stockholder or such beneficial owner relating to the value or payment of any indebtedness of the Corporation or any such subsidiary;

(6) a representation that such stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business or nomination;

(7) any other information relating to such stockholder and any such beneficial owner required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for, as applicable, the proposal and/or for the election of directors in an election contest pursuant to and in accordance with Section 14(a) of the Exchange Act and the rules and regulations promulgated thereunder; and

(8) a representation as to whether such stockholder or any such beneficial owner intends or is part of a group which intends (x) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Corporation’s outstanding capital stock required to elect the nominee or to approve or adopt the proposal or and/or (y) otherwise to solicit proxies from stockholders in support of such nomination or proposal.

If requested by the Corporation, the information required under clauses (iv)(2), (3), (4) and (5) of the preceding sentence of this Section 1.13(a) shall be supplemented by such stockholder and any such beneficial owner not later than ten (10) days after the record date for notice of the meeting to disclose such information as of such record date. The foregoing notice requirements

 

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of this Section 1.13(a) shall be deemed satisfied by a stockholder with respect to business or a nomination if such stockholder has notified the Corporation of his or her intention to present a proposal or make a nomination at an annual meeting in compliance with the applicable rules and regulations promulgated under the Exchange Act and such stockholder’s proposal or nomination has been included in a proxy statement that has been prepared by the Corporation to solicit proxies for such annual meeting.

(b) Special Meetings .

(i) Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation’s notice of meeting pursuant to Section 1.4 of these Bylaws. Nominations of persons for election to the Board at a special meeting of stockholders may be made only (x) by or at the direction of the Board, or a committee appointed by the Board for such purpose, if the Corporation’s notice of meeting indicated that the purposes of meeting included the election of Directors and specified the number of Directors to be elected, or (y) provided that the Board has determined that directors shall be elected at such meeting, by any stockholder of the Corporation. A stockholder may nominate persons for election to the Board (a “stockholder nomination”) at a special meeting only if the stockholder (1) is entitled to vote at the meeting, (2) complies in a timely manner with the notice procedures set forth in paragraph (ii) of this Section 1.13(b), and (3) is a stockholder of record when the required notice is delivered and at the date of the meeting.

(ii) Notice in writing of a stockholder nomination must be delivered to the attention of the Secretary at the principal place of business of the Corporation not more than 120 days prior to the date of the meeting and not later than the close of business on the later of the 90th day prior to the meeting or the 10th day following the last to occur of the public announcement by the Corporation of the date of such meeting and the public announcement by the Corporation of the nominees proposed by the Board to be elected at such meeting, and must comply with the provisions of Sections 1.12(a)(iii) and (iv) of these Bylaws. The foregoing notice requirements of this Section 1.13(b) shall be deemed satisfied by a stockholder with respect to a nomination if the stockholder has notified the Corporation of his or her intention to present a nomination at such special meeting in compliance with the applicable rules and regulations promulgated under the Exchange Act and such stockholder’s nomination has been included in a proxy statement that has been prepared by the Corporation to solicit proxies for such special meeting.

(c) General .

(i) Except as otherwise expressly provided in any applicable rule or regulation promulgated under the Exchange Act, only such persons who are nominated in accordance with the procedures set forth in this Section 1.13 shall be eligible to be elected at an annual or special meeting of stockholders of the Corporation to serve as Directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 1.13. Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, the presiding officer of a meeting of

 

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stockholders shall have the power and duty (x) to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the procedures set forth in this Section 1.13, and (y) if any proposed nomination or business is not in compliance with this Section 1.13, to declare that such defective nomination shall be disregarded or that such proposed business shall not be transacted.

(ii) The Corporation may require any proposed stockholder nominee for Director to furnish such other information as it may reasonably require to determine the eligibility of such proposed nominee to serve as a Director of the Corporation. Unless otherwise required by law, if the stockholder (or a qualified representative of the stockholder) making a nomination or proposal under this Section 1.13 does not appear at a meeting of stockholders to present such nomination or proposal, the nomination shall be disregarded and/or the proposed business shall not be transacted, as the case may be, notwithstanding that proxies in favor thereof may have been received by the Corporation. For purposes of this Section 1.13, to be considered a qualified representative of the stockholder, a person must be a duly authorized officer, manager or partner of such stockholder or must be authorized by a writing executed by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at the meeting of stockholders and such person must produce such writing or electronic transmission, or a reliable reproduction of the writing or electronic transmission, at the meeting of stockholders.

(iii) For purposes of this Section 1.13, “public announcement” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.

(iv) Notwithstanding the foregoing provisions of this Section 1.13, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 1.13; provided , however , that any references in these Bylaws to the Exchange Act or the rules and regulations promulgated thereunder are not intended to and shall not limit any requirements applicable to nominations or proposals as to any other business to be considered pursuant to this Section 1.13 and compliance with paragraphs (a) and (b) of this Section 1.13 shall be the exclusive means for a stockholder to make nominations or submit other business (other than, as provided in the last sentences of paragraphs (a) and (b) hereof, business or nominations brought properly under and in compliance with Rule 14a-8 or Rule 14a-11 of the Exchange Act, as such Rules may be amended from time to time). Nothing in this Section 1.13 shall be deemed to affect any rights of (x) stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act or (y) the holders of any series of preferred stock to elect Directors pursuant to any applicable provisions of the Certificate of Incorporation or of the relevant preferred stock certificate or designation.

(v) The announcement of an adjournment or postponement of an annual or special meeting does not commence a new time period (and does not extend any time period) for the giving of notice of a stockholder nomination or a stockholder proposal.

 

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ARTICLE II

Board of Directors

Section 2.1. General Powers . Except as may otherwise be provided by law or by the Certificate of Incorporation, the affairs and business of the Corporation shall be managed by or under the direction of the Board and the Board may exercise all the powers and authority of the Corporation. The Directors shall act only as a Board, and the individual Directors shall have no power as such.

Section 2.2. Number and Term of Office . The number of Directors shall initially be [            ], classified (including Directors in office as of the date hereof) with respect to the time for which they severally hold office into three classes, as nearly equal in number as possible, designated as Class I, Class II and Class III, which number may be modified (but not reduced to less than three) from time to time exclusively by resolution of the Board, subject to the rights of the holders of shares of any class or series of preferred stock, if any. The initial Class I directors shall serve for a term expiring at the first annual meeting of the stockholders following the date hereof, the initial Class II directors shall serve for a term expiring at the second annual meeting of the stockholders following the date hereof and the initial Class III directors shall serve for a term expiring at the third annual meeting of stockholders following the date hereof, with Directors of each class to hold office until their successors are duly elected and qualified, provided that the term of each Director shall continue until the election and qualification of a successor and be subject to such Director’s earlier death, resignation or removal. At each annual meeting of stockholders of the Corporation beginning with the first annual meeting of stockholders following the date hereof, subject to any rights of the holders of shares of any class or series of preferred stock, the successors of the class of Directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election, provided that the term of each Director shall continue until the election and qualification of a successor and be subject to such Director’s earlier death, resignation or removal. At each meeting of the stockholders for the election of Directors, provided a quorum is present, the Directors shall be elected by a plurality of the votes validly cast in such election. Any director may resign at any time upon notice to the Corporation. In the case of any increase or decrease, from time to time, in the authorized number of Directors, the number of Directors in each class shall be apportioned as nearly equal as possible. No decrease in the number of Directors shall shorten the term of any incumbent Director.

Section 2.3. Regular Meetings . Regular meetings of the Board may be held at such places within or without the State of Delaware and at such times as the Board may from time to time determine.

Section 2.4. Special Meetings . Special meetings of the Board shall be held whenever called by the President, by the Chairman of the Board, or by a majority of the Directors then in office, at such place, date and time as may be specified in the respective notices or waivers of notice of such meetings. Any business may be conducted at a special meeting. Notice of a special meeting of the Board shall be given by the person or persons calling the meeting at least twenty-four hours before the special meeting.

 

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Section 2.5. Notice of Meetings . Notices of special meetings shall be given to each Director, and notice of each resolution or other action affecting the date, time or place of one or more regular meetings shall be given to each Director not present at the meeting adopting such resolution or other action, subject to Section 2.8 of these Bylaws. Notices shall be given personally, or by telephone confirmed by facsimile or email dispatched promptly thereafter, or by facsimile or email confirmed by a writing delivered by a recognized overnight courier service, directed to each Director at the address from time to time designated by such Director to the Secretary. Each such notice and confirmation must be given (received in the case of personal service or delivery of written confirmation) at least 24 hours prior to the time of a meeting.

Section 2.6. Telephonic Meetings Permitted . Members of the Board, or any committee designated by the Board, may participate in a meeting thereof by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this by-law shall constitute presence in person at such meeting.

Section 2.7. Quorum; Vote Required for Action . At all meetings of the Board the directors entitled to cast a majority of the votes of the whole Board shall constitute a quorum for the transaction of business. Except in cases in which the Certificate of Incorporation, these Bylaws or applicable law otherwise provides, a majority of the votes entitled to be cast by the directors present at a meeting at which a quorum is present shall be the act of the Board.

Section 2.8. Adjournment . A majority of the Directors present may adjourn any meeting of the Board to another date, time or place, whether or not a quorum is present. No notice need be given of any adjourned meeting unless (a) the date, time and place of the adjourned meeting are not announced at the time of adjournment, in which case notice conforming to the requirements of Section 2.5 of these Bylaws shall be given to each Director, or (b) the meeting is adjourned for more than 24 hours, in which case the notice referred to in clause (a) shall be given to those Directors not present at the announcement of the date, time and place of the adjourned meeting.

Section 2.9. Action Without a Meeting . Unless otherwise restricted in the Certificate of Incorporation, any action required or permitted to be taken at any meeting of the Board may be taken without a meeting if all members of the Board consent thereto in writing or by electronic transmission, and such writing or writings or electronic transmissions are filed with the minutes of proceedings of the Board. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.

Section 2.10. Regulations . To the extent consistent with applicable law, the Certificate of Incorporation and these Bylaws, the Board may adopt such rules and regulations for the conduct of meetings of the Board and for the management of the affairs and business of the Corporation as the Board may deem appropriate. The Board may elect from among its members a chairperson and one or more vice-chairpersons to preside over meetings and to perform such other duties as may be designated by the Board.

 

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Section 2.11. Resignations of Directors . Any Director may resign at any time by submitting an electronic transmission or by delivering a written notice of resignation, signed by such Director, to the Chairman of the Board, the President or the Secretary. Such resignation shall take effect upon delivery unless the resignation specifies a later effective date or an effective date determined upon the happening of a specified event.

Section 2.12. Removal of Directors . Subject to the rights of the holders of shares of any class or series of preferred stock, if any, to elect Directors pursuant to the Certificate of Incorporation (including any certificate of designation thereunder), any Director may be removed only for cause, upon the affirmative vote of the holders of sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then outstanding shares of voting stock of the Corporation entitled to vote at an election of directors in accordance with the DGCL, the Certificate of Incorporation and these Bylaws.

Section 2.13. Vacancies and Newly Created Directorships . Subject to the rights of the holders of shares of any class or series of preferred stock, if any, to elect additional Directors pursuant to the Certificate of Incorporation (including any certificate of designation thereunder), any vacancy in the Board that results from the death, disability, resignation, disqualification or removal of any Director or from any other cause or newly created directorship shall be filled solely by the affirmative vote of a majority of the total number of Directors then in office, even if less than a quorum, or by a sole remaining Director. Any Director filling a vacancy shall be of the same class as that of the Director whose death, resignation, disqualification, removal or other event caused the vacancy, and any Director filling a newly created directorship shall be of the class specified by the Board at the time the newly created directorship was created. A Director elected to fill a vacancy or newly created Directorship shall hold office until his or her successor has been elected and qualified or until his or her earlier death, resignation or removal.

Section 2.14. Director Fees and Expenses . The amount, if any, which each Director shall be entitled to receive as compensation for his or her services shall be fixed from time to time by the Board. The Corporation will cause each non-employee Director serving on the Board to be reimbursed for all reasonable out-of-pocket costs and expenses incurred by him or her in connection with such service.

Section 2.15. Reliance on Accounts and Reports, etc . A Director, as such or as a member of any committee designated by the Board, shall in the performance of his or her duties be fully protected in relying in good faith upon the records of the Corporation and upon information, opinions, reports or statements presented to the Corporation by any of the Corporation’s officers or employees, or committees designated by the Board, or by any other person as to the matters the member reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation.

 

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ARTICLE III

Committees

Section 3.1. Designation of Committees . The Board shall designate such committees as may be required by applicable laws, regulations or stock exchange rules and may designate such additional committees as it deems necessary or appropriate. Each committee shall consist of such number of Directors, with such qualifications, as may be required by applicable laws, regulations or stock exchange rules or as from time to time may be fixed by the Board and shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation to the extent delegated to such committee by resolution of the Board, which delegation shall include all such powers and authority as may be required by applicable laws, regulations or stock exchange rules. No committee shall have any power or authority as to (a) approving or adopting, or recommending to the stockholders, any action or matter (other than the election or removal of directors) expressly required by the DGCL to be submitted to stockholders for approval, (b) adopting, amending or repealing any of these Bylaws or (c) as may otherwise be excluded by law or by the Certificate of Incorporation.

Section 3.2. Members and Alternate Members . The members of each committee and any alternate members shall be selected by the Board. The Board may provide that the members and alternate members serve at the pleasure of the Board. An alternate member may replace any absent or disqualified member at any meeting of the committee. An alternate member shall be given all notices of committee meetings, may attend any meeting of the committee, but may count towards a quorum and vote only if a member for whom such person is an alternate is absent or disqualified. Each member (and each alternate member) of any committee shall hold office only until the time he or she shall cease for any reason to be a Director, or until his or her earlier death, resignation or removal.

Section 3.3. Committee Procedures . A quorum for each committee shall be a majority of its members, unless the committee has only one or two members, in which case a quorum shall be one member, unless a greater quorum is established by the Board. The vote of a majority of the committee members present at a meeting at which a quorum is present shall be the act of the committee. Each committee shall keep regular minutes of its meetings and report to the Board when required. The Board shall adopt a charter for each committee for which a charter is required by applicable laws, regulations or stock exchange rules, may adopt a charter for any other committee, and may adopt other rules and regulations for the government of any committee not inconsistent with the provisions of these Bylaws or any such charter, and each committee may adopt its own rules and regulations of government, to the extent not inconsistent with these Bylaws or any charter or other rules and regulations adopted by the Board.

Section 3.4. Meetings and Actions of Committees . Except to the extent that the same may be inconsistent with the terms of any committee charter required by applicable laws, regulations or stock exchange rules, each committee designated by the Board may make, alter and repeal rules for the conduct of its business. In the absence of such rules each committee shall conduct its business in the same manner as the Board conducts its business pursuant to Article II of these Bylaws.

 

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Section 3.5. Resignations and Removals . Any member (and any alternate member) of any committee may resign from such position at any time by submitting an electronic transmission or by delivering a written notice of resignation, signed by such member, to the Chairman of the Board, the President or the Secretary. Such resignation shall take effect upon delivery unless the resignation specifies a later effective date or an effective date determined upon the happening of a specified event. Any member (and any alternate member) of any committee may be removed from such position by the Board at any time, either for or without cause.

Section 3.6. Vacancies . If a vacancy occurs in any committee for any reason, the remaining members (and any alternate members) may continue to act if a quorum is present. A committee vacancy may be filled only by the Board.

ARTICLE IV

Officers

Section 4.1. Officers; Election; Qualifications; Term of Office; Resignation; Removal; Vacancies . The Board shall elect a Chairman of the Board (who shall be a Director), a President and Secretary, and it may, if it so determines, choose a Vice Chairperson of the Board from among its members. The Board may also choose one or more Vice Presidents, one or more Assistant Secretaries, a Treasurer and one or more Assistant Treasurers and such other officers as it shall from time to time deem necessary or desirable. In addition, the Board from time to time may delegate to any officer the power to appoint subordinate officers or agents and to prescribe their respective rights, terms of office, authorities and duties. Any action by an appointing officer may be superseded by action by the Board. Any number of offices may be held by the same person, except that one person may not hold both the office of President and the office of Secretary. Unless otherwise determined by the Board, the officers of the Corporation need not be elected for a specified term but shall serve at the pleasure of the Board or for such terms as may be agreed in the individual case by each officer and the Board. Each officer shall hold office until his or her successor has been elected or appointed and qualified, or until his or her earlier death, resignation or removal. A failure to elect officers shall not dissolve or otherwise affect the Corporation. Any officer or agent may resign at any time by delivering notice of resignation, either in writing signed by such officer or by electronic transmission, to the Board, the Chairman of the Board or the President, without prejudice to the rights, if any, of the Corporation under any contract to which such officer is a party. Unless otherwise specified therein, such resignation shall take effect upon delivery. The Board may remove any officer with or without cause at any time, but such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise, may be filled by the Board or by the officer, if any, who appointed the person formerly holding such office.

 

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Section 4.2. Powers and Duties of Officers . An officer of the Corporation shall have such authority and shall exercise such powers and perform such duties (a) as may be required by law, (b) to the extent not inconsistent with law, as may be specified by resolution of the Board, (c) to the extent not inconsistent with law or as specified by resolution of the Board, as may be specified by the appointing officer with respect to a subordinate officer appointed pursuant to delegated authority under Section 4.1, and (d) to the extent not inconsistent with any of the foregoing, as generally pertain to their respective offices. The Board may require any officer, agent or employee to give security for the faithful performance of his or her duties.

Section 4.3. Appointing Attorneys and Agents; Voting Securities of Other Entities . Unless otherwise provided by resolution adopted by the Board, the Chairperson of the Board, the President or any Vice President may from time to time appoint an attorney or attorneys or agent or agents of the Corporation, in the name and on behalf of the Corporation, to cast the votes which the Corporation may be entitled to cast as the holder of stock or other securities in any other corporation or other entity, any of whose stock or other securities may be held by the Corporation, at meetings of the holders of the stock or other securities of such other corporation or other entity, or to consent in writing, in the name of the Corporation as such holder, to any action by such other corporation or other entity, and may instruct the person or persons so appointed as to the manner of casting such votes or giving such consents, and may execute or cause to be executed in the name and on behalf of the Corporation and under its corporate seal or otherwise, all such written proxies or other instruments as he or she may deem necessary or proper. Any of the rights set forth in this Section 4.8 which may be delegated to an attorney or agent may also be exercised directly by the Chairperson of the Board, the President or the Vice President.

ARTICLE V

Stock

Section 5.1. Certificates . The shares of the Corporation shall be represented by certificates or shall be uncertificated. Certificates for the shares of stock, if any, shall be in such form as is consistent with the Certificate of Incorporation and applicable law. Every holder of stock represented by a certificate shall be entitled, upon their request, to have a certificate signed by, or in the name of the Corporation by the chairperson or vice-chairperson of the Board, or the president or vice-president, and by the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the Corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue.

Section 5.2. Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates . The Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the

 

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owner of the lost, stolen or destroyed certificate, or such owner’s legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate.

Section 5.3. Transfer of Stock . Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares, duly endorsed or accompanied by appropriate evidence of succession, assignment or authority to transfer, the Corporation shall issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Within a reasonable time after the transfer of uncertificated stock, the Corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to Sections 151, 156, 202(a) or 218(a) of the DGCL. Subject to the provisions of the Certificate of Incorporation and these Bylaws, the Board may prescribe such additional rules and regulations as it may deem appropriate relating to the issue, transfer and registration of shares of the Corporation.

Section 5.4. Registered Stockholders . Prior to due surrender of a certificate for registration of transfer, the Corporation may treat the registered owner as the person exclusively entitled to receive dividends and other distributions, to vote, to receive notice and otherwise to exercise all the rights and powers of the owner of the shares represented by such certificate, and the Corporation shall not be bound to recognize any equitable or legal claim to or interest in such shares on the part of any other person, whether or not the Corporation shall have notice of such claim or interests. If a transfer of shares is made for collateral security, and not absolutely, this fact shall be so expressed in the entry of the transfer if, when the certificates are presented to the Corporation for transfer or uncertificated shares are requested to be transferred, both the transferor and transferee request the Corporation to do so.

Section 5.5. Transfer Agent and Registrar . The Board may appoint one or more transfer agents and one or more registrars, and may require all certificates representing shares to bear the signature of any such transfer agents or registrars.

ARTICLE VI

Indemnification and Advancement of Expenses

Section 6.1. Right to Indemnification . The Corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person (a “Covered Person”) who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a “proceeding”), by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was a director or officer of the Corporation or, while a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys’ fees)

 

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reasonably incurred by such Covered Person. Notwithstanding the preceding sentence, except as otherwise provided in Section 6.3, the Corporation shall be required to indemnify a Covered Person in connection with a proceeding (or part thereof) commenced by such Covered Person only if the commencement of such proceeding (or part thereof) by the Covered Person was authorized in the specific case by the Board of the Corporation.

Section 6.2. Advancement of Expenses . The Corporation shall to the fullest extent not prohibited by applicable law pay the expenses (including attorneys’ fees) incurred by a Covered Person in defending any proceeding in advance of its final disposition, provided , however , that, to the extent required by law, such payment of expenses in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the Covered Person to repay all amounts advanced if it should be ultimately determined that the Covered Person is not entitled to be indemnified under this Article VI or otherwise.

Section 6.3. Claims . If a claim for indemnification under this Article VI (following the final disposition of such proceeding) is not paid in full within sixty (60) days after the Corporation has received a claim therefor by the Covered Person, or if a claim for any advancement of expenses under this Article VI is not paid in full within thirty (30) days after the Corporation has received a statement or statements requesting such amounts to be advanced, the Covered Person shall thereupon (but not before) be entitled to file suit to recover the unpaid amount of such claim. If successful in whole or in part, the Covered Person shall be entitled to be paid the expense of prosecuting such claim to the fullest extent permitted by law. In any such action, the Corporation shall have the burden of proving that the Covered Person is not entitled to the requested indemnification or advancement of expenses under applicable law.

Section 6.4. Non-exclusivity of Rights . The rights conferred on any Covered Person by this Article VI shall not be exclusive of any other rights which such Covered Person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, these Bylaws, agreement, vote of stockholders or disinterested directors or otherwise.

Section 6.5. Amendment or Repeal . Any right to indemnification or to advancement of expenses of any Covered Person arising hereunder shall not be eliminated or impaired by an amendment to or repeal of these Bylaws after the occurrence of the act or omission that is the subject of the civil, criminal, administrative or investigative action, suit or proceeding for which indemnification or advancement of expenses is sought.

Section 6.6. Other Indemnification and Advancement of Expenses . This Article VI shall not limit the right of the Corporation, to the extent and in the manner permitted by law, to indemnify and to advance expenses to persons other than Covered Persons when and as authorized by appropriate corporate action.

 

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ARTICLE VII

Miscellaneous

Section 7.1. Dividends .

(a) Subject to any applicable provisions of law and the Certificate of Incorporation, dividends upon the shares of the Corporation may be declared by the Board at any regular or special meeting of the Board, or by written consent in accordance with the DGCL and these Bylaws, and any such dividend may be paid in cash, property or shares of the Corporation’s stock.

(b) A member of the Board, or a member of any committee designated by the Board shall be fully protected in relying in good faith upon the records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation by any of its officers or employees, or committees of the Board, or by any other person as to matters the Director reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation, as to the value and amount of the assets, liabilities and/or net profits of the Corporation, or any other facts pertinent to the existence and amount of surplus or other funds from which dividends might properly be declared and paid.

Section 7.2. Reserves . There may be set apart out of any funds of the Corporation available for dividends such sum or sums as the Board from time to time may determine proper as a reserve or reserves for meeting contingencies, equalizing dividends, repairing or maintaining any property of the Corporation or for such other purpose or purposes as the Board may determine conducive to the interest of the Corporation, and the Board may similarly modify or abolish any such reserve.

Section 7.3. Execution of Instruments . Except as otherwise required by law or the Certificate of Incorporation, the Board or any officer of the Corporation authorized by the Board may authorize any other officer or agent of the Corporation to enter into any contract or execute and deliver any instrument in the name and on behalf of the Corporation. Any such authorization must be in writing or by electronic transmission and may be general or limited to specific contracts or instruments.

Section 7.4. Fiscal Year . The fiscal year of the Corporation shall be determined by resolution of the Board.

Section 7.5. Seal . The corporate seal shall have the name of the Corporation inscribed thereon and shall be in such form as may be approved from time to time by the Board.

Section 7.6. Books and Records . Except to the extent otherwise required by law, the books and records of the Corporation shall be kept at such place or places within or without the State of Delaware as may be determined from time to time by the Board. Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account, and minute books, may be kept on, or by means of, or be in the form of, any information storage device or method, provided that the records so kept can be converted into clearly legible paper form within a reasonable time.

 

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Section 7.7. Manner of Notice . Except as otherwise provided herein or permitted by applicable law, notices to directors and stockholders shall be in writing and delivered personally or mailed to the directors or stockholders at their addresses appearing on the books of the Corporation. Without limiting the manner by which notice otherwise may be given effectively to stockholders, and except as prohibited by applicable law, any notice to stockholders given by the Corporation under any provision of applicable law, the Certificate of Incorporation, or these Bylaws shall be effective if given by a single written notice to stockholders who share an address if consented to by the stockholders at that address to whom such notice is given. Any such consent shall be revocable by the stockholder by written notice to the Corporation. Any stockholder who fails to object in writing to the Corporation, within 60 days of having been given written notice by the Corporation of its intention to send the single notice permitted under this Section 8.7, shall be deemed to have consented to receiving such single written notice. Notice to directors may be given by telecopier, telephone or other means of electronic transmission.

Section 7.8. Waiver of Notice of Meetings of Stockholders, Directors and Committees . Any waiver of notice, given by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at nor the purpose of any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in a waiver of notice.

Section 7.9. Amendment of Bylaws . Subject to the provisions of the Certificate of Incorporation, these Bylaws may be amended, altered or repealed (a) by resolution adopted by a majority of the Directors present at any special or regular meeting of the Board at which a quorum is present if, in the case of such special meeting only, notice of such amendment, alteration or repeal is contained in the notice or waiver of notice of such meeting, or (b) at any regular or special meeting of the stockholders upon the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding shares of the Corporation entitled to vote generally in the election of Directors, voting together as a single class, if, in the case of such special meeting only, notice of such amendment, alteration or repeal is contained in the notice or waiver of notice of such meeting.

 

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Exhibit 4.1

 

C- Incorporated Under the Laws of the State of Delaware

Shares

-0-

SEASPINE HOLDINGS CORPORATION

COMMON STOCK

Authorized Issue:         , Par Value $0.01

Specimen Certificate

This is to certify that                              is the owner of                              fully paid and non-assessable shares of the above Corporation transferable only on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this Certificate properly endorsed.

Witness, the seal of the Corporation and the signatories of its duly authorized officers.

 

Dated:

 

 

 

 

President Secretary

Exhibit 10.1

TRANSITION SERVICES AGREEMENT

THIS TRANSITION SERVICES AGREEMENT (this “ Agreement ”) is made and entered into as of [            ], 2015, by and between Integra LifeSciences Corporation, a Delaware corporation (“ Provider ”) and SeaSpine Holdings Corporation, a Delaware corporation (“ Recipient ”) (Provider and Recipient are referred to individually as a “ Party ”, and collectively as the “ Parties ”).

R E C I T A L S

WHEREAS , Provider and Recipient have entered into that certain Separation and Distribution Agreement, dated [            ], 2015 (the “ Separation Agreement ”), pursuant to which the SeaSpine Business (the “ Recipient Business ”) will be separated from the Integra Business; and

WHEREAS , to facilitate the transactions contemplated by the Separation Agreement, Provider and Recipient deem it to be appropriate and in their best interests that Provider and its Affiliates provide certain services to Recipient and its Affiliates on a transitional basis pursuant to the terms and conditions set forth herein.

NOW, THEREFORE , in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the receipt of which are hereby acknowledged, the Parties to this Agreement agree as follows:

ARTICLE I

DEFINITIONS

Section 1.1 Definitions . Capitalized terms used but not defined herein shall have the meanings assigned thereto in the Separation Agreement. In the case of capitalized terms defined herein by definitions inconsistent with the definitions ascribed to such terms in the Separation Agreement, the definitions provided herein shall be regarded as controlling for the purposes of this Agreement.

ARTICLE II

SERVICES

Section 2.1 Transition Services .

(a) On the terms and subject to the conditions of this Agreement, Provider shall provide the transition services set forth in Exhibit A (the “ Transition Services ”) to Recipient and its Affiliates.

(b) The Transition Services provided under this Agreement will be provided at a substantially similar level (type, frequency, quality, timeliness) and in a substantially similar manner as such services were performed by Provider with respect to the Recipient Business over the twelve (12) month period immediately prior to the Distribution Date. Recipient shall not resell, assign or subcontract any of the Transition Services to any Person whatsoever or permit the use of the Transition Services by any other Person (other than its Affiliates).


(c) Provider may perform its obligations through its Affiliates and/or Persons that are unaffiliated with any Party hereto (each, a “ Third Party ”); provided that Provider shall not be relieved of its obligations under this Agreement by use of such Affiliates and/or Third Parties and shall be responsible for compliance with the terms hereof by such Affiliates and/or Third Parties.

(d) Without limiting Provider’s obligations pursuant to Section 2.1(b) or otherwise under this Agreement, Recipient acknowledges that Provider may be providing similar services and/or services that involve the same resources as those used to provide the Transition Services, to its other businesses and/or Third Parties.

(e) Provider may suspend any or all of the Transition Services, to the extent and for the period it determines in good faith that the provision of such Transition Service(s) hereunder would violate any Law applicable to Provider. If Provider becomes aware of any such actual or potential violation, Provider shall promptly notify Recipient in writing of such violation and the Parties shall work together in good faith to seek and implement a reasonable alternative arrangement that resolves such violation, including provision of the applicable Transition Service through a Third Party. For the avoidance of doubt, Recipient shall not be obligated to pay any Fees in connection with any such suspended Transition Services during the period such services are not provided (other than Fees owed for such Transition Services rendered by but not paid for prior to such suspension).

(f) Recipient acknowledges and agrees that Provider is not in the business of providing services and that the Transition Services will be provided by Provider to Recipient in connection with, and in order to facilitate, the Spin-Off. This Agreement is not intended by the Parties to have Provider manage and operate the Recipient Business.

Section 2.2 Additional Transition Services . If Recipient reasonably determines that there are additional services that are necessary to conduct the Recipient Business but were not included in the Transition Services set forth in Exhibit A (each such service an “ Omitted Transition Service ”), then Recipient may provide written notice thereof to Provider requesting such additional services. Upon receipt of such a notice by Provider, the Parties shall negotiate in good faith an amendment to Exhibit A setting forth the Omitted Transition Service, the terms and conditions for the provision of such Omitted Transition Service and the Fees payable by Recipient for such Omitted Transition Service, all of which shall be commercially reasonable and pursuant to which such Omitted Transition Service shall become a “Transition Service” for all purposes of this Agreement. Recipient may request that Provider provide additional services that are not Omitted Transition Services, but the provision of such services shall be subject to the sole, but reasonable discretion of Provider and mutual agreement between the Parties with respect to the terms and conditions for the provision of such services and the Fees payable by Recipient for such services.

 

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Section 2.3 Consents .

(a) At Recipient’s sole cost and expense, Provider and Recipient shall, and shall cause their respective Affiliates to, cooperate and exercise commercially reasonable efforts to obtain (i) all consents, approvals or authorizations (the “ Consents ”) for any necessary software or other Intellectual Property that is not owned by Provider or its Affiliates or otherwise not allowed to be used or transferred to unaffiliated entities and is related to the provision of the Transition Services sufficient to enable Provider, its designee or a Third Party to perform the Transition Services in accordance with this Agreement and (ii) all other Consents to allow Provider to provide the Transition Services and to allow Recipient to access and use the Transition Services (collectively, the “ Required Consents ”).

(b) In the event that any Required Consent is not obtained, then, unless and until such Required Consent is obtained, the Parties hereto shall cooperate with each other in achieving a reasonable alternative arrangement for Recipient to continue to operate the Recipient Business and for Provider to perform Transition Services (if possible), in each case, in a manner that does not increase the costs to Provider in providing such Transition Services.

Section 2.4 Standard for Transition Services . In addition to the standards set forth in Section 2.1(b) , Provider shall at all times perform the Transition Services: (i) with at least the use of reasonable care and (ii) in material compliance with applicable Laws. Provider shall perform its duties and responsibilities hereunder diligently, in good faith and in a manner consistent with past standards and practices with respect to the Recipient Business.

Section 2.5 Provision of Services .

(a) Employment and Supervision . Provider shall have the sole responsibility to employ, pay, supervise, direct and discharge all of its personnel used in its provision of Transition Services hereunder. Provider shall be solely responsible for the payment of all employee benefits and any other direct and indirect compensation for any of its personnel assigned to perform services under this Agreement, as well as such personnel’s worker’s compensation insurance, employment taxes and other employer liabilities relating to such personnel as required by Law.

(b) Independence . Each of Provider and Recipient acknowledges that they are separate entities, each of which has entered into this Agreement for independent business reasons. Provider shall be an independent contractor in connection with the performance of Transition Services hereunder for any and all purposes (including federal or state tax purposes), and the employees performing Transition Services in connection herewith shall not be deemed to be employees or agents of Recipient and nothing contained herein shall be deemed to create a joint venture or partnership.

Section 2.6 Cooperation . During the Service Term (as defined below), the Parties shall, and shall cause each of their agents, auditors and representatives to, cooperate with each other in good faith (i) in the performance of the Transition Services and the Parties’ respective obligations under this Agreement and (ii) to facilitate an orderly and efficient transition of services, processes and functions as contemplated in this Agreement, and in each case in a manner consistent with the intent of this Agreement and without undue burden on any Party.

 

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Section 2.7 Service Interruption . Upon reasonable written notice to Recipient, Provider shall have the right to temporarily interrupt the provision of Transition Services for routine or emergency maintenance purposes whenever it is the commercially reasonable judgment of Provider that such action is desirable or necessary so long as such maintenance is consistent with Provider’s policies and standards applicable to provision of similar services to Provider’s own businesses. If maintenance is non-scheduled, with respect to Transition Services provided by Provider, Provider shall notify Recipient as far in advance as reasonably practicable under the circumstances that maintenance is required. Notwithstanding the foregoing, Recipient acknowledges and agrees that there may be some circumstances in which advance notice is not practicable, such as in the case of emergency or unanticipated failure. In such case, Provider shall be relieved of its obligations to provide Transition Services only for the period of time that the relevant facilities or systems are so shut down. Provider shall use commercially reasonable efforts to minimize each period of shut down and to schedule, to the extent reasonably practicable under the circumstances, such period of shut down so as to not materially inconvenience or disrupt the conduct of the Recipient Business. Provider shall consult with Recipient prior to temporary shut downs to the extent reasonably practicable or, if not reasonably practicable, promptly thereafter. This Section 2.7 shall not be applicable to any event that constitutes a Force Majeure Event, which is governed by Section 2.8 .

Section 2.8 Force Majeure .

(a) If Provider is prevented from or delayed in complying, either totally or in part, with any of the terms or provisions of this Agreement for any reason beyond its reasonable control, including without limitation acts of God, acts of any public enemy, floods, Laws or any judgment, decree, injunction or order of any Governmental Authority (a “ Force Majeure Event ”), then upon notice to Recipient, which shall be provided as promptly as practicable under the circumstances, the affected provisions and/or other requirements of this Agreement shall be suspended during the period of such disability and, unless otherwise set forth herein to the contrary, Provider shall not have any liability to any Person in connection therewith with respect to such period. Provider shall use commercially reasonable efforts to promptly remove such disability as soon as reasonably possible and shall use commercially reasonable efforts to provide the Transition Services during such period of disability; provided , however , that nothing in this Section 2.8 will be construed to require the settlement of any strike, walkout, lockout, other labor dispute or any other claim or litigation on terms which, in the reasonable judgment of Provider are contrary to its interest. It is understood that the settlement of a strike, walkout, lockout, other labor dispute or any other claim or litigation will be entirely within the discretion of Provider. If Provider is unable to provide any of the Transition Services due to such a disability, the Parties hereto shall use commercially reasonable efforts to cooperatively seek a solution that is mutually satisfactory.

(b) Notwithstanding anything in this Agreement to the contrary, the obligation of Provider to resume performance of its obligations hereunder pursuant to this Section 2.8 shall cease to be in effect to the extent and for the period that Recipient has acquired such Transition Services from an alternate source pursuant to this Section 2.8 . Recipient shall be free to acquire such Transition Services from an alternate source, at Recipient’s sole cost and expense, and without liability to Provider, for the period and to the extent reasonably necessitated by such non-performance and during the continuation of any

 

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agreement entered into with the provider of such Transition Service, and for that period that such Transition Service is provided by an alternate source, Provider shall have no obligation to provide such Transition Service to Recipient. For the avoidance of doubt, Recipient shall not be obligated to pay Provider for such Transition Services during the period when Provider is not providing itself, or through a Third Party, such Transition Services.

Section 2.9 TSA Manager . Each Party shall nominate a representative to act as the primary contact person for business issues arising under this Agreement (each a “ TSA Manager ”). The initial TSA Manager of Provider shall be [            ] and the initial TSA Manager of Recipient shall be [            ]. Each Party shall have the right at any time and from time to time to replace its TSA Manager by advising the other Party in writing of any change in its TSA Manager in accordance with Section 10.1 hereof. The Parties agree that all written communications relating to the provision of any Transition Service shall be directed to the TSA Managers. Each Party may treat an act of a TSA Manager on behalf of the other Party as an act authorized by such other Party.

Section 2.10 Obligations . The provision of Transition Services hereunder is subject to the following:

(a) Provider shall not be liable for any action or inaction taken or omitted to be taken by it, its Affiliate or a relevant Third Party pursuant to, and in accordance with, instructions received from Recipient;

(b) Provider may refuse to take any action requested by Recipient if it is not an action required to be taken under this Agreement. Any services provided beyond the scope of the Transition Services shall be billed on such basis as the Parties hereto may mutually agree in accordance with this Agreement;

(c) Provider shall have no obligation to perform any Transition Service to the extent that performing such Transition Service is dependent upon, or otherwise requires, Recipient to perform some service, operation or function prior to Provider performing any such Transition Service unless Recipient shall have, in fact, prior to when Provider is required to perform such Transition Service, performed such other service, operation or function consistent with commercially reasonable business practices;

(d) the Parties shall, during the term of this Agreement, comply with any applicable Law relating to the Transition Services;

(e) the Parties shall not, and shall cause their respective employees not to, break, bypass or circumvent, or attempt to break, bypass or circumvent any security system of any Party hereunder or obtain access to any program or data other than that to which access has been specifically granted; and

(f) the Parties shall, and shall cause their respective Representatives and employees to, at all times comply with all physical and technological security rules, policies and procedures of Provider and Recipient, as applicable.

 

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ARTICLE III

FEES AND PAYMENT

Section 3.1 Fees . During the Service Term for any Transition Service, the fees payable by Recipient for such Transition Service (the “ Fees ”) shall be as set forth on Exhibit A .

Section 3.2 Invoice and Payment . Provider shall invoice Recipient for amounts due hereunder on a monthly basis, and amounts due hereunder shall be paid by Recipient within thirty (30) days of receipt of the applicable invoice.

Section 3.3 Disputes and Resolution . Recipient shall promptly notify Provider in writing of any amounts billed to it that are in dispute. Upon receipt of such notice, Provider shall research the items in question in a reasonably prompt manner and cooperate with Recipient to resolve any such dispute. Any such dispute shall not relieve Recipient of the obligation to make prompt payment according to the mechanism described in this ARTICLE III for any undisputed amounts. In the event that the Parties agree that any amount that was paid by Recipient was not properly owed, Provider shall refund that amount within thirty (30) days of such agreement (or, alternatively, at Recipient’s option, Provider shall deduct the dollar amount from the next invoice submitted to Recipient).

Section 3.4 Taxes . To the extent required by applicable Law, there shall be added to any Fees due under this Agreement, and included on the applicable invoice, and Recipient agrees to pay to Provider, amounts equal to any Taxes, however designated or levied, based upon such Fees, or upon this Agreement or the Transition Services or materials provided under this Agreement, or their use, as provided by Provider to Recipient hereunder. Provider agrees to pay any such amounts received by it with respect to any Taxes to the appropriate Governmental Authority plus any interest and penalty that may be imposed as the result of Provider not remitting such Taxes in a timely manner. In the event any Taxes based upon services provided by Provider are not added to an invoice from Provider, Recipient shall be responsible, as applicable, to remit to the appropriate Governmental Authority any additional amounts due including Tax, interest and penalty (if the penalty is imposed as a result of Recipient’s payment failure or delay to make payment). If additional amounts are determined to be due on the Transition Services provided to Recipient hereunder as a result of an audit by a Tax jurisdiction, Recipient agrees to reimburse Provider for any additional Tax due, including any interest or penalties (if a penalty or interest is imposed as a result of Recipient’s failure or delay to make payment), unless Recipient has already paid such Tax, interest or penalty itself. The Parties hereto further agree that no Party hereto shall be required to pay any franchise Taxes, Taxes based on the net income of the other Party hereto or personal property Taxes on property owned or leased by a Party hereto.

 

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ARTICLE IV

DISCLAIMER AND LIMITATION OF LIABILITY

Section 4.1 Disclaimer of Warranties . EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, EACH PARTY MAKES NO REPRESENTATIONS OR WARRANTIES WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE TRANSITION SERVICES TO BE PROVIDED OR RECEIVED BY IT OR OTHERWISE WITH RESPECT TO THIS AGREEMENT.

Section 4.2 Limitation of Damages . EXCEPT IN THE CASE OF THIRD PARTY CLAIMS, NEITHER PARTY SHALL UNDER ANY CIRCUMSTANCES BE LIABLE TO THE OTHER PARTY FOR ANY SPECIAL, INDIRECT, PUNITIVE OR CONSEQUENTIAL DAMAGES (INCLUDING LOSS OF PROFITS OR REVENUE OR ANY DIMINUTION OF VALUE) RESULTING OR ARISING FROM THIS AGREEMENT, INCLUDING THE TRANSITION SERVICES, ANY PERFORMANCE OR NONPERFORMANCE OF THE TRANSITION SERVICES OR TERMINATION OF THE TRANSITION SERVICES REGARDLESS OF WHETHER SUCH DAMAGES OR OTHER RELIEF ARE SOUGHT BASED ON BREACH OF WARRANTY, BREACH OF CONTRACT, NEGLIGENCE, STRICT LIABILITY, IN TORT (INTENTIONAL OR OTHERWISE), OR ANY OTHER LEGAL OR EQUITABLE THEORY, SUBJECT TO SECTION 4.4 .

Section 4.3 Limitation of Liability . The maximum liability of Provider to, and the sole remedy of, Recipient for breach of this Agreement shall be an amount not to exceed the Fee scheduled to be paid by Recipient to Provider for the particular Transition Service that is the subject of such breach. The limitation of liability described in this Section 4.3 shall not apply to liabilities arising out of or resulting from gross negligence or willful misconduct or as provided in Section 4.4 .

Section 4.4 Exclusions From Section 4.2 and 4.3 . Neither the limitations of damages set forth in Section 4.2 nor the limitations of liability set forth in Section 4.3 shall apply to (i) a Party’s breach of ARTICLE VI or (ii) to a Party’s intentional and willful breaches or actual fraud.

ARTICLE V

OWNERSHIP OF ASSETS

Section 5.1 Systems . Any information system, software, computer network, database or data file owned, licensed, leased or provided by or for Provider which is used by Provider or its suppliers on behalf of Provider in connection with provision of any Transition Service, each as modified, maintained or enhanced from time to time by Provider or any relevant Third Party (collectively, the “ Systems ”) shall remain the sole exclusive property of Provider. Except as provided for in Section 5.1(a) and Section 5.1(b) or in any Transaction Document, under no circumstances will Recipient obtain hereunder any ownership right or license (implied or otherwise) in or to (i) any custom development work performed hereunder by Provider or Third Parties working at the direction of Provider, (ii) any intellectual property of Provider, or (iii) any Systems used in connection with the Transition Services not owned or licensed by Recipient as of the effective date of this Agreement.

(a) Data Products . Access to, and any license to use, Provider’s data products will be provided subject to Provider’s standard terms and conditions of use with respect thereto that are applicable to Third Parties (other than the payment terms, which are set forth in this Agreement).

 

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(b) Intellectual Property . Except with respect intellectual property expressly created for Recipient as a Transition Service deliverable or as otherwise agreed to by the Parties, as between Provider, on the one hand, and Recipient, on the other hand, all right, title and interest in and to all intellectual property developed or provided by Provider in connection with its provision of Transition Services shall be owned exclusively by Provider.

Section 5.2 Other Assets . Except as provided in Section 5.1 , all procedures, methods, systems, strategies, tools, equipment, facilities and other resources used by a Party hereto or any relevant Third Party shall remain the property of such Party and, except as otherwise provided herein, shall at all times be under the sole direction and control of such Party or Third Party.

ARTICLE VI

CONFIDENTIALITY

Section 6.1 Non-Disclosure . The Parties to this Agreement agree to, and to cause their Affiliates and Representatives to, keep confidential all information received in the performance of their duties under this Agreement, and shall not disclose such information except where such disclosure is reasonably necessary to perform, or settle any dispute regarding, their respective duties under this Agreement or is required by applicable Law or the rules of a stock exchange on which such Party (or its Affiliates) are listed, and shall not use any such information other than for the purposes of performance of Transition Services under this Agreement or obtaining the Transition Services from alternative sources should they become unavailable pursuant to the terms hereof, or obtaining any Required Consents, or for transferring or assigning any rights, obligations, accounts, products or licenses related to the provision of the Transition Services, as applicable and to the extent permitted hereunder. The obligations of the Parties and their respective Representatives under this Section 6.1 shall remain in effect indefinitely following the expiration or termination of this Agreement. Nothing in this Section 6.1 shall limit the obligations of confidentiality and non-use set forth in the Separation Agreement.

ARTICLE VII

INDEMNIFICATION

Section 7.1 Indemnification by Recipient . Recipient shall indemnify, defend and hold harmless Provider, its Affiliates and Representatives, and each of the successors and assigns of any of the foregoing (collectively, the “ Provider Indemnitees ”) from and against any and all Third Party Claims (as defined below) relating to, arising out of or resulting from (a) the provision of the Transition Services by Provider or their designees in accordance with the terms of this Agreement, (b) the failure of Recipient to comply with the terms and conditions set forth on Section 5.1(a) hereto or (c) any other breach of this Agreement by Recipient, in each case, except to the extent the Third Party Claims arise out of any breach by Provider of this Agreement or the negligence or willful misconduct of Provider in providing Transition Services hereunder. Provider shall take all commercially reasonable steps to mitigate any such claims upon becoming aware of any event which would reasonably be expected to, or does, give rise thereto, including incurring costs only to the minimum extent necessary to remedy the cause which gives rise to such claim.

 

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Section 7.2 Indemnification by Provider . Provider shall indemnify, defend and hold harmless Recipient, its Affiliates, their respective Representatives, and each of the successors and assigns of any of the foregoing (collectively, the “ Recipient Indemnitees ”) from and against any Third Party Claims relating to, arising out of or resulting from (a) gross negligence or willful misconduct on the part of Provider in providing the Transition Services or (b) any breach of this Agreement by Provider, in each case, except to the extent the Third Party Claims arise out of any breach by Recipient of this Agreement. Recipient shall take all commercially reasonable steps to mitigate any such claims upon becoming aware of any event which would reasonably be expected to, or does, give rise thereto, including incurring costs only to the minimum extent necessary to remedy the cause which gives rise to such claim.

Section 7.3 Indemnification Obligations Net of Insurance Proceeds . The Parties hereto intend that any liability subject to indemnification pursuant to this ARTICLE VII will be net of insurance proceeds actually received, realized or recovered by an Indemnified Party. Accordingly, the amount which any Party hereto (an “ Indemnifying Party ”) is required to pay to any Person entitled to indemnification hereunder (an “ Indemnified Party ”) will be reduced or offset by any insurance proceeds theretofore actually received, realized or recovered by or on behalf of the Indemnified Party in reduction of the related liability. If an Indemnified Party receives a payment (an “ Indemnity Payment ”) required by this Agreement from an Indemnifying Party in respect of any liability and subsequently receives insurance proceeds in respect thereof, then the Indemnified Party will pay to the Indemnifying Party an amount equal to the excess of the Indemnity Payment received over the amount of the Indemnity Payment that would have been due if the insurance proceeds had been received, realized or recovered before the Indemnity Payment was made.

Section 7.4 Procedures for Indemnification of Third Party Claims .

(a) If an Indemnified Party shall receive notice or otherwise learn of the assertion by a third party of any claim or of the commencement by any such third party of any action (collectively, a “ Third Party Claim ”) with respect to which an Indemnifying Party may be obligated to provide indemnification to such Indemnified Party pursuant to Section 7.1 or Section 7.2 , such Indemnified Party shall give the Indemnifying Party written notice thereof within twenty (20) days after becoming aware of such Third Party Claim. Any such notice shall describe the Third Party Claim in reasonable detail. Notwithstanding the foregoing, the failure of any Indemnified Party to give notice as provided in this Section 7.4(a) shall not relieve the relevant Indemnifying Party of its obligations under this ARTICLE VII , except to the extent that such Indemnifying Party is actually materially prejudiced by such failure to give notice.

(b) An Indemnifying Party may elect to defend (and to seek to settle or compromise), at such Indemnifying Party’s own expense and by such Indemnifying Party’s own counsel, any Third Party Claim. Within thirty (30) days after the receipt of notice from an Indemnified Party in accordance with Section 7.4(a) , the Indemnifying Party shall notify the Indemnified Party of its election whether the Indemnifying Party will assume responsibility for defending such Third Party Claim, which election shall specify any reservations or exceptions. After notice from an Indemnifying Party to an Indemnified Party of its election to assume the defense of a Third Party Claim, such Indemnified Party shall have the right to employ separate counsel and to participate in (but not control) the defense, compromise, or settlement thereof, but the fees and expenses of such counsel shall be the expense of such Indemnified Party.

 

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(c) If an Indemnifying Party elects not to assume responsibility for defending a Third Party Claim, or fails to notify an Indemnified Party of its election as provided in Section 7.4(b) , such Indemnified Party may defend such Third Party Claim, at the cost and expense of the Indemnifying Party to the extent indemnifiable hereunder.

(d) No Party hereto shall consent to entry of any judgment or enter into any settlement of a Third Party Claim without the consent of the other Party (which consent shall not be unreasonably withheld, delayed or conditioned).

ARTICLE VIII

DISPUTE RESOLUTION

Section 8.1 Dispute Resolution . Any and all disputes, controversies or claims, including any disputes regarding the enforceability of this Agreement, including this provision (each, a “ Dispute ”) arising under or relating to this Agreement shall be resolved in accordance with the terms of this Section 8.1 . Either Party may notify the other of its intent to resolve a Dispute by delivering a written notice to the TSA Manager of the other Party in accordance with Section 10.1 . The written notice shall describe the Dispute in reasonable detail (including references to the sections of this Agreement that are at issue in such Dispute and, if any claim involves an allegation that the other Party has committed a material breach, reasons as to why the Party serving such notice believes such breach to be material) (“ Initial Notice ”). The TSA Managers shall then meet and confer in good faith to attempt to resolve the Dispute. If the Dispute is not resolved within ten (10) days following the receipt of the Initial Notice, then either Party may, by a second notice to the other Party, submit such Dispute to [            ] of Recipient (or his/her designee) and [            ] of Provider (or his/her designee) (together, the “ Management Representatives ”). The Management Representatives shall then meet and confer in good faith to attempt to resolve the Dispute. If the Management Representatives are unable to resolve the Dispute, within ten (10) days following referral of such Dispute to the Management Representatives, then the Parties agree that any Party shall have the right to submit such Dispute to a court of competent jurisdiction in accordance with Section 10.8 . For avoidance of doubt, nothing contained in this Section 8.1 shall operate as a restriction on a Party’s rights to terminate this Agreement pursuant to ARTICLE IX . Nothing contained in this Section 8.1 shall restrict or limit any rights that a Party may have to seek injunctive relief (including specific performance) or other equitable relief.

 

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ARTICLE IX

TERM AND TERMINATION

Section 9.1 Term .

(a) Term of Agreement . This Agreement shall commence on the date hereof and shall end on the earliest of: (i) the date all Transition Services have expired in accordance with the terms of this Agreement, (ii) the date all Transition Services have been terminated in accordance with the terms of this Agreement or (iii) the date on which this Agreement is terminated (as a whole) pursuant to its terms.

(b) Term of Services . Provider shall provide each Transition Service beginning on the date hereof, or as otherwise set forth in Exhibit A or agreed to by the Parties in writing, and continuing for a period equal to the service term set forth in Exhibit A and any extension pursuant to the terms hereof (the “ Service Term ”), or as otherwise agreed to by the Parties in writing, unless renewed or sooner terminated in accordance with the provisions of this Agreement.

Section 9.2 Termination of Services .

(a) Termination of Particular Transition Services . Recipient may terminate its right to receive any particular Transition Service for any or no reason, by providing Provider with written notice of termination (the “ Termination Notice ”), not less than sixty (60) days (or such lesser number of days set forth in Exhibit A with respect to a specific Transition Service) prior to the date on which services shall be terminated (the “ Termination Date ”) setting forth in reasonable detail the applicable Transition Services to be terminated (the “ Terminated Services ”) and the Termination Date for each Terminated Service. Upon such termination, Recipient’s obligation to pay for such Terminated Services beyond the specified Termination Date will terminate.

(b) Termination for Breach . If a Party hereto materially breaches any of its obligations under this Agreement, and does not cure such default within thirty (30) days after receiving written notice thereof from the non-breaching Party, then the non-breaching Party may, at its option, terminate any Transition Service affected by such breach or this Agreement in its entirety by providing a Termination Notice to the breaching Party, for which termination the effective Termination Date shall be the date of receipt of such Termination Notice.

(c) Procedures on Termination of Services . Beginning on the Termination Date, Recipient shall not be obligated to pay any Fees in connection with any Terminated Services other than Fees owed for such Terminated Services rendered but not paid for prior to the Termination Date. Any Termination Notice delivered pursuant to this Section 9.2 shall be irrevocable, except as provided in Section 9.2(a) .

Section 9.3 Termination of the Transition Services Agreement . Any termination of this Agreement pursuant to this Section 9.3 shall be without prejudice to any rights or obligations of the Parties hereto accruing prior to such termination, including the right to payment of unpaid Fees and reimbursable costs owing for Transition Services performed prior to termination.

 

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(a) By Mutual Consent . This Agreement may be terminated by mutual consent of the Parties in writing at any time.

(b) Termination for Non-Payment . Provider may terminate this Agreement (to be effective immediately) if any Fees or other amounts due by Recipient hereunder fail to be timely paid in accordance with this Agreement or otherwise, except those amounts that are reasonably contested pursuant to the terms hereof, within thirty (30) days following written notice to Recipient by Provider of such failure.

(c) Bankruptcy Termination . This Agreement may be terminated by either Party hereto upon at least thirty (30) days prior written notice if the other Party hereto is declared insolvent or bankrupt, or makes an assignment for the benefit of creditors, or a receiver is appointed or any proceeding is demanded by, for or against the other under any provision of bankruptcy law.

Section 9.4 Procedures on Termination of the Agreement . Following any termination of this Agreement or termination of any Transition Services each Party hereto will cooperate with the other Party, at the requesting Party’s expense, as reasonably necessary to avoid disruption of the ordinary course of the other Party’s and its Affiliates’ businesses. Termination shall not affect any right to payment for Transition Services provided, or expenses incurred in connection therewith, prior to termination.

Section 9.5 Survival . Section 2.9 , ARTICLE III (with respect to Fees and Taxes attributable to periods prior to termination), ARTICLE IV , ARTICLE V , ARTICLE VI , ARTICLE VII , ARTICLE VIII , ARTICLE IX (including, without limitation, this Section 9.5 ) and ARTICLE X and shall survive any termination of this Agreement for the periods set forth in the applicable provisions, if any, or if none, indefinitely. Termination of this Agreement shall not relieve a Party of any liability that has accrued prior to the effective date of such termination.

ARTICLE X

MISCELLANEOUS

Section 10.1 Notices . All notices and other communications hereunder shall be in writing, shall reference this Agreement and shall be hand delivered, delivered via electronic mail or facsimile or mailed by registered or certified mail (return receipt requested) to the Parties at the addresses specified in Section 10.6 of the Separation Agreement (or at such other addresses for a Party as shall be specified by like notice) and will be deemed given on the date on which such notice is received.

Section 10.2 Severability . In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby. The Parties shall endeavor in good faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

 

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Section 10.3 Entire Agreement . This Agreement, including the Exhibits and Schedules hereto, and the Separation Agreements shall constitute the entire agreement between the Parties with respect to the subject matter hereof and shall supersede all previous negotiations, commitments and writings with respect to such subject matter.

Section 10.4 Assignment . This Agreement shall not be assignable, in whole or in part, directly or indirectly, by any Party without the prior written consent of the other Party, and any attempt to assign any rights or obligations arising under this Agreement without such consent shall be void; provided , however , that either Party may assign this Agreement to a purchaser of all or substantially all of the properties and assets of such Party so long as such purchases expressly assumes, in a written instrument in form reasonably satisfactory to the non-assigning Party, the due and punctual performance or observance of every agreement and covenant of this Agreement on the part of the assigning Party to be performed or observed.

Section 10.5 Successors and Assigns . The provisions to this Agreement shall be binding upon, inure to the benefit of and be enforceable by the Parties and their respective successors and permitted assigns.

Section 10.6 No Third Party Beneficiaries . This Agreement is solely for the benefit of the Parties and their respective Affiliates and shall not be deemed to confer upon any other Person any remedy, claim, liability, reimbursement, cause of action or other right in excess of those existing without reference to this Agreement.

Section 10.7 Amendments . This Agreement may not be modified or amended except by an agreement in writing signed by each of the Parties.

Section 10.8 Governing Law Submission to Jurisdiction; Waivers .

(a) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF DELAWARE.

(b) SUBJECT TO ARTICLE VIII , ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST THE PARTIES ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR ANY OBLIGATIONS HEREUNDER, SHALL BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF DELAWARE. BY EXECUTING AND DELIVERING THIS AGREEMENT, THE PARTIES, IRREVOCABLY (I) ACCEPT GENERALLY AND UNCONDITIONALLY THE EXCLUSIVE JURISDICTION AND VENUE OF THESE COURTS; (II) WAIVE ANY OBJECTIONS WHICH SUCH PARTY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (I) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVE AND AGREE NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM; (III) AGREE THAT SERVICE

 

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OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO SUCH PARTY AT THEIR RESPECTIVE ADDRESSES PROVIDED IN ACCORDANCE WITH SECTION 10.6 OF THE SEPARATION AGREEMENT; AND (IV) AGREE THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER SUCH PARTY IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT.

(C) THE PARTIES HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT.

Section 10.12 Rules of Construction . Interpretation of this Agreement shall be governed by the following rules of construction: (a) words in the singular shall be held to include the plural and vice versa, and words of one gender shall be held to include the other gender as the context requires; (b) references to the terms Article, Section, paragraph, Exhibit and Schedule are references to the Articles, Sections, paragraphs, Exhibits and Schedules to this Agreement unless otherwise specified; (c) the terms “hereof”, “herein”, “hereby”, “hereto”, and derivative or similar words refer to this entire Agreement, including the Exhibits and Schedules hereto; (d) references to “$” shall mean U.S. dollars; (e) the word “including” and words of similar import when used in this Agreement shall mean “including without limitation,” unless otherwise specified; (f) the word “or” shall not be exclusive; (g) references to “written” or “in writing” include in electronic form; (h) the headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement; (i) the Parties hereto have each participated in the negotiation and drafting of this Agreement and if an ambiguity or question of interpretation should arise, this Agreement shall be construed as if drafted jointly by the Parties thereto and no presumption or burden of proof shall arise favoring or burdening any Party hereto by virtue of the authorship of any of the provisions in this Agreement; (j) a reference to any Person includes such Person’s successors and permitted assigns; (k) any reference to “days” means calendar days unless Business Days are expressly specified; and (l) when calculating the period of time before which, within which or following which any act is to be done or step taken pursuant to this Agreement, the date that is the reference date in calculating such period shall be excluded and, if the last day of such period is not a Business Day, the period shall end on the next succeeding Business Day.

Section 10.13 Counterparts . This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the Parties and delivered to the other Party.

[Signature Page Follows]

 

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IN WITNESS WHEREOF , the Parties hereto have executed this Agreement as of the day and year first written above.

 

Provider

 

Integra LifeSciences Corporation

By:    
Name:  
Title:  

Recipient

 

SeaSpine Holdings Corporation

By:    
Name:  
Title:  

Exhibit 10.2

TAX MATTERS AGREEMENT

This TAX MATTERS AGREEMENT (this “ Agreement ”), is made and entered into as of [            ], 2015, by and between INTEGRA LIFESCIENCES HOLDINGS CORPORATION, a Delaware corporation (“ Integra ”), and SEASPINE HOLDINGS CORPORATION, a Delaware corporation (“ Spinco ”). All capitalized terms not otherwise defined shall have the meanings set forth in Article I .

RECITALS

WHEREAS, Integra and certain of its subsidiaries have joined in filing consolidated federal Income Tax Returns and certain consolidated, combined or unitary state or local Income Tax Returns;

WHEREAS, Integra LifeSciences Corporation, a Delaware corporation and wholly owned subsidiary of Integra (“ ILS ”), contributed all of the outstanding membership interests of Theken Spine, LLC (“ Theken ”), all of the outstanding stock of SeaSpine, Inc. (“ SeaSpine ”) and all of the outstanding stock of IsoTis, Inc. (“ IsoTis ”) to SeaSpine Orthopedics Corporation, a Delaware corporation and wholly owned subsidiary of ILS (“ Controlled ”) in exchange for common stock of Controlled;

WHEREAS, Integra and Spinco have entered into that certain Separation and Distribution Agreement, dated as of the date hereof (the “ Separation Agreement ”), pursuant to which, among other things, (i) ILS will contribute or will have contributed to Controlled additional assets and liabilities associated with the Spinco Business, (ii) ILS will contribute all of the outstanding common stock of Controlled to Spinco, (iii) ILS will distribute all of the outstanding common stock of Spinco to Integra in a transaction intended to qualify, in conjunction with the contribution described in clause (ii), under Sections 355 and 368(a)(1)(D) of the Code, (iv) Integra will contribute cash to Spinco and (v) Integra will distribute all of the outstanding common stock of Spinco to Integra’s stockholders in a transaction intended to qualify, in conjunction with the contribution described in clause (iv), under Sections 355 and 368(a)(1)(D) of the Code (collectively, the “ Spin-off Transactions ”);

WHEREAS, pursuant to the Spin-off Transactions, Spinco and its subsidiaries will leave the Pre-Spin Group; and

WHEREAS, the parties hereto, on behalf of themselves and their Affiliates, wish to provide for (i) the allocation of, and indemnification against, certain liabilities for Taxes, (ii) the preparation and filing of Tax Returns and the payment of Taxes with respect thereto and (iii) certain related matters.


NOW THEREFORE, in consideration of the foregoing and the respective covenants and agreements set forth below, the parties agree as follows:

ARTICLE I.

DEFINITIONS

When used herein the following terms shall have the following meanings:

Affiliate ” means, with respect to any entity (the “given entity”), each entity that directly or indirectly, through one or more intermediaries is controlled by the given entity. For purposes of this definition, “control” means, with respect to any entity, (a) the possession, directly or indirectly, of 50% or more of the voting power or value of outstanding equity interests of such entity or (b) the power to direct or cause the direction of management and policies of such entity, whether through ownership of securities, partnership or other ownership interests, by contract or otherwise. Unless otherwise indicated, the term Affiliate shall refer to Affiliates of a party as determined after the Spin-off Transactions.

Affiliated Group ” means, with respect to a Tax Period, (a) an affiliated group of corporations within the meaning of Section 1504(a) of the Code or, for purposes of any state or local Tax matters, any consolidated, combined, unitary or similar group of corporations within the meaning of any similar provisions of Tax law for the jurisdiction in question, and (b) for purposes of any federal, state or local Income Tax matters, any entity owned by a corporation described in clause (a) that is disregarded as separate from its owner for such purposes.

Agreement ” has the meaning set forth in the preamble to this Agreement.

Audit ” means any audit, assessment of Taxes, other examination by any Taxing Authority, proceeding or appeal of such a proceeding relating to Taxes, whether judicial or administrative.

Code ” means the Internal Revenue Code of 1986, as amended, or any successor thereto.

Controlled ” has the meaning set forth in the Recitals.

Current Allocation Methodology ” means the allocation methodology that is set forth in Exhibit A, as applied to Integra Prepared Pre-Spin/Straddle Mixed Returns.

Delaware VDA ” means the voluntary disclosure agreement relating to unclaimed property between Integra and the state of Delaware entered into prior to the date hereof, pursuant to which the entities included in the agreement must file Tax Returns with the state of Delaware on March 1, 2016, March 1, 2017, March 1, 2018 and additional dates as provided in the agreement.

Distribution ” has the meaning set forth in the Separation Agreement.

Distribution Date ” has the meaning set forth in the Separation Agreement.

Final Determination ” means (i) a decision, judgment, decree, or other order by a court of competent jurisdiction, which has become final and unappealable; (ii) a closing agreement or accepted offer in compromise under Sections 7121 or 7122 of the Code, or comparable agreements under the laws of other jurisdictions; (iii) any other final settlement with the IRS or other Taxing Authority (including the execution of IRS Form 870-AD, or a comparable form under

 

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the laws of other jurisdictions, but excluding any such form that reserves (whether by its terms or by operation of law) the right of the taxpayer to file a claim for refund or the right of the Taxing Authority to assert a further deficiency); (iv) the expiration of an applicable statute of limitations; or (v) the allowance of a refund or credit, but only after the expiration of all periods during which such refund or credit may be recovered (including by way of offset).

GAAP ” means generally accepted accounting principles in the United States, consistently applied.

ILS ” has the meaning set forth in the Recitals.

Income Tax ” means any and all Taxes based upon or measured by net income (regardless of whether denominated as an “income tax,” a “franchise tax” or otherwise).

Income Tax Return ” means a Tax Return relating to an Income Tax.

Integra ” has the meaning set forth in the preamble to this Agreement.

Integra Affiliated Group ” means, for any applicable Tax Period, Integra and each entity that is a member of an Affiliated Group for such Tax Period (or portion thereof) with respect to which Integra would be the common parent. For the avoidance of doubt, the Integra Affiliated Group shall include, for the portion of the Straddle Period that ends on the Distribution Date, Spinco and other entities that will be members of the Spinco Affiliated Group beginning on the day immediately after the Distribution Date.

Integra Group ” means Integra and its Affiliates, excluding any entity that would be a member of the Spinco Group.

Integra Member ” means any entity that would be a member of the Integra Group.

Integra Prepared Pre-Spin/Straddle Mixed Return ” has the meaning set forth in Section 2.3(a) .

IRS ” means the Internal Revenue Service or any successor thereto.

Latham Opinion ” means the opinion of Latham & Watkins LLP with respect to certain matters relating to qualification of the Spin-off Transactions under Sections 368(a)(1)(D) and 355 of the Code.

Opinion Representation Letters ” means the representation letters executed by officers of Integra, ILS and Spinco and delivered in connection with the Latham Opinion.

Overdue Rate ” means a variable rate of interest per annum equal to the Federal short-term rate as established from time to time pursuant to Section 1274(d) of the Code.

Person ” means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or a governmental entity or any department, agency or political subdivision thereof, without regard to whether any entity is treated as disregarded for U.S. federal income tax purposes.

 

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Post-Distribution Tax Period ” means a Tax Period that begins after the Distribution Date.

Pre-Distribution Tax Period ” means a Tax Period that ends on or before the Distribution Date.

Pre-Spin Group ” means Integra and its Affiliates before the Spin-off Transactions.

Pre-Spin Member ” means any entity that was a member of the Pre-Spin Group.

Representative ” means, with respect to any Person, any of such Person’s directors, officers, employees, agents, consultants, accountants, attorneys and other advisors.

Responsible Party ” means the party responsible for the preparation and filing of a Tax Return pursuant to Section 2.1 .

SeaSpine ” has the meaning set forth in the Recitals.

Section 355(e) Tax ” shall mean any Taxes imposed on the Pre-Spin Group resulting from a Final Determination that Section 355(e) of the Code is applicable to the Spin-off Transactions because the Spin-off Transactions were part of a plan or series of related transactions pursuant to which one or more persons acquired directly or indirectly stock of Integra or Spinco (or interests in any predecessor or successor thereto within the meaning of Section 355(e)) representing a “50-percent or greater interest” within the meaning of Section 355(e) of the Code.

Separate Affiliated Group ” means, with respect to any corporation, such corporation’s separate affiliated group as defined by Section 355(b)(3) of the Code and the Treasury Regulations promulgated thereunder.

Separation Agreement ” has the meaning set forth in the Recitals.

Spinco ” has the meaning set forth in the preamble to this Agreement.

Spinco Active Trade or Business ” means the active conduct (as defined in Section 355(b)(2) of the Code and the Treasury Regulations thereunder) by Spinco and its Separate Affiliated Group of the Spinco Business as conducted immediately prior to the Distribution.

Spinco Affiliated Group ” means Spinco and each entity that would be a member of an Affiliated Group with respect to which Spinco would be the common parent for any Post-Distribution Tax Period. For purposes of this Agreement, the Spinco Affiliated Group shall exist from and after the beginning of the day immediately after the Distribution Date.

Spinco Business ” means the “SeaSpine Business” as defined in the Separation Agreement.

 

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Spinco Group ” means Spinco and its Affiliates after the Spin-off Transactions.

Spinco Member ” means any entity that would be a member of the Spinco Group.

Spinco Prepared Pre-Spin/Straddle Nonmixed Return ” has the meaning set forth in Section 2.3(b) .

Spin-off Transactions ” has the meaning set forth in the Recitals.

Straddle Period ” means a Tax Period that begins on or before and ends after the Distribution Date.

Tax ” means any federal, state, foreign or local income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, capital stock, franchise, profits, withholding, social security, unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty or addition thereto.

Tax Asset ” means any Tax Item that has accrued for Tax purposes, but has not been used during a Tax Period, and that could reduce a Tax in another Tax Period, including, but not limited to, a net operating loss, net capital loss, investment tax credit, foreign tax credit, charitable deduction, credit related to alternative minimum tax and any other Tax credit.

Taxing Authority ” means the IRS or any other governmental authority responsible for the administration of any Tax.

Tax Item ” means any item of income, gain, loss, deduction, credit, recapture of credit or any other attribute or item (including the adjusted basis of property) that may have the effect of increasing or decreasing any Tax.

Tax Period ” means any period prescribed by law or any Taxing Authority for which a Tax Return is required to be filed or a Tax is required to be paid.

Tax Practices ” means the policies, procedures and practices customarily and consistently employed by the Pre-Spin Group in the preparation and filing of, and positions taken on, any Tax Returns of the Integra Affiliated Group or any Pre-Spin Member (or group thereof) for any Pre-Distribution Tax Period.

Tax Refund ” means any refund of Taxes, whether by payment, credit, offset, reduction in Tax or otherwise, plus any interest or other amounts received or payable with respect to such refund.

Tax Return ” means any return (including any information return), report, statement, declaration, notice, form, election, estimated Tax filing, claim for refund or other filing (including any amendments thereof and attachments thereto) required to be filed with or submitted to any Taxing Authority with respect any Tax.

 

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Tax Treatment ” has the meaning set forth in Section 3.3(a) .

Theken ” has the meaning set forth in the Recitals.

Treasury Regulations ” means the income tax regulations promulgated under the Code, as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).

ARTICLE II.

FILING OF TAX RETURNS AND PAYMENT OF TAXES

Section 2.1 Preparation and Filing of Tax Returns .

 

  (a) Subject to Section 2.3 , Integra shall prepare (or caused to be prepared) and timely file (taking into account applicable extensions):

 

  (i) all Tax Returns of the Integra Affiliated Group or any Pre-Spin Member (or group thereof) for any Pre-Distribution Tax Period other than Tax Returns described in Section 2.1(b)(i) ;

 

  (ii) all Tax Returns of the Integra Affiliated Group or any Pre-Spin Member (or group thereof) for any Straddle Period other than Tax Returns described in Section 2.1(b)(ii) ; and

 

  (iii) all Tax Returns of the Integra Affiliated Group or any Integra Member (or group thereof) for all Post-Distribution Tax Periods.

 

  (b) Subject to Section 2.3 , Spinco shall prepare (or caused to be prepared) and timely file (taking into account applicable extensions):

 

  (i) all Tax Returns for any Pre-Distribution Tax Period that are filed after the Distribution Date that relate solely to the Spinco Group or any Spinco Member (or group thereof);

 

  (ii) all Tax Returns for any Straddle Period that relate solely to the Spinco Group or any Spinco Member (or group thereof), including, for the avoidance of doubt, any Tax Return for a Straddle Period required to be filed by Spinco or any Spinco Member pursuant to the Delaware VDA; and

 

  (iii) all Tax Returns of the Spinco Affiliated Group or any Spinco Member (or group thereof) for all Post-Distribution Tax Periods, including, for the avoidance of doubt, any Tax Return for a Post-Distribution Tax Period required to be filed by Spinco or any Spinco Member pursuant to the Delaware VDA.

 

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Section 2.2 Provision of Filing Information . Each party shall cooperate with the Responsible Party in the preparation and filing of all Tax Returns relating to Pre-Distribution Tax Periods and Straddle Periods, including by providing the Responsible Party with (a) all necessary filing information in a manner consistent with past Tax Practices, (b) all other information reasonably requested in connection with the preparation of such Tax Returns, including permission to copy any applicable documents, and (c) such other assistance reasonably necessary or requested for the filing of such Tax Returns.

Section 2.3 Advance Review of Tax Returns .

 

  (a) At least fifteen (15) business days, or such other reasonable time as mutually agreed to by both parties, prior to the filing of any Tax Return pursuant to Section 2.1(a)(i) or Section 2.1(a)(ii) that includes a Spinco Member (collectively, an “ Integra Prepared Pre-Spin/Straddle Mixed Return ”), Integra shall provide Spinco with a copy of the portion of such Tax Return that relates to the Spinco Member.

 

  (b) At least fifteen (15) business days, or such other reasonable time as mutually agreed to by both parties, prior to the filing of any Tax Return pursuant to Section 2.1(b)(i) or Section 2.1(b)(ii) (collectively, a “ Spinco Prepared Pre-Spin/Straddle Nonmixed Return ”), Spinco shall provide Integra with a copy of such Tax Return.

 

  (c) Spinco and its Representatives shall have the right to review all related work papers prior to Integra’s filing of an Integra Prepared Pre-Spin/Straddle Mixed Return. Integra shall consult with Spinco and its Representatives regarding Spinco’s comments with respect to such Tax Returns or related work papers and shall in good faith consult with such party in an effort to resolve any differences with respect to (i) the preparation and accuracy of such Tax Returns and their consistency with past Tax Practices and (ii) the recommendations of Spinco and its Representatives for alternative positions with respect to items reflected on such Tax Returns; provided, however, that Integra shall not be obligated to consider any recommendation the result of which would materially adversely affect the Taxes of the Integra Affiliated Group (or any Integra Member) for any Straddle Period or Post-Distribution Tax Period, and Integra may condition the acceptance of any such recommendation upon the receipt of appropriate indemnification from Spinco for any increases in Taxes that may result from the adoption of the relevant alternative position.

 

  (d)

Integra and its Representatives shall have the right to review all related work papers prior to Spinco’s filing of a Spinco Prepared Pre-Spin/Straddle Nonmixed Return. Spinco shall consult with Integra and its Representatives regarding Integra’s comments with respect to such Tax Returns or related work papers and shall in good faith consult with such party in an effort to resolve any differences with respect to (i) the preparation and accuracy of such Tax Returns and their consistency with past Tax Practices and (ii) the recommendations of Integra and its Representatives for alternative positions with respect to items reflected on such Tax Returns; provided,

 

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  however, that Spinco shall not be obligated to consider any recommendation the result of which would materially adversely affect the Taxes of the Spinco Affiliated Group (or any Spinco Member) for any Straddle Period or Post-Distribution Tax Period, and Spinco may condition the acceptance of any such recommendation upon the receipt of appropriate indemnification from Integra for any increases in Taxes that may result from the adoption of the relevant alternative position.

Section 2.4 Consistent Positions on Tax Returns . The Responsible Party shall prepare all Tax Returns (a) for all Pre-Distribution Tax Periods and Straddle Periods in a manner consistent with past Tax Practices and (b) in a manner consistent with the Latham Opinion, except in either case as otherwise required by changes in applicable law or material underlying facts or as consented by the parties hereto in writing, which consent shall not be unreasonably withheld.

Section 2.5 Taxable Year . The parties agree that, to the extent permitted by applicable law, (a) the Tax Period with respect to federal Income Taxes of the Spinco Members included in the consolidated federal Income Tax Return of the Integra Affiliated Group for the Straddle Period that includes the Distribution Date (and all corresponding consolidated, combined, unitary or similar state or local Income Tax Returns of such Affiliated Group) shall end as of the close of the Distribution Date and (b) the Spinco Affiliated Group and each member thereof shall begin a new taxable year for purposes of such federal, state or local Income Taxes as of the beginning of the day after the Distribution Date. The parties further agree that, to the extent permitted by applicable law, all federal, state, local and foreign Tax Returns shall be filed consistently with this position.

Section 2.6 Straddle Period Taxes . For purposes of this Agreement, Taxes attributable to Straddle Periods shall be allocated between the portion of the Straddle Period ending on the Distribution Date and the portion of the Straddle Period beginning after the Distribution Date, as follows:

 

  (a) Income Taxes shall be allocated on the basis of the actual operations and taxable income for each such period, determined by closing the books at the end of the day on the Distribution Date; and

 

  (b) Non-Income Taxes shall be allocated by multiplying the amount of such Taxes for the entire Straddle Period by a fraction, the numerator of which is the number of days during the applicable portion of the Straddle Period and the denominator of which is the total number of days in the Straddle Period.

Section 2.7 Payment of Taxes .

 

  (a) Integra shall be liable for and shall pay all Taxes due and payable (including additional Taxes imposed as a result of a Final Determination) with respect to Tax Returns filed by Integra pursuant to Section 2.1(a) ; provided, however, that Integra and Spinco shall apportion and allocate the liability with respect to any Integra Prepared Pre-Spin/Straddle Mixed Returns in accordance with the Current Allocation Methodology.

 

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  (b) Spinco shall be liable for and shall pay all Taxes due and payable (including additional Taxes imposed as a result of a Final Determination) with respect to Tax Returns filed by Spinco pursuant to Section 2.1(b) .

 

  (c) Spinco or Integra, as applicable, shall pay to the other party the amount required to be paid pursuant to Section 2.7(a) under the Current Allocation Methodology within thirty (30) days after written demand is made by such other party; provided, however, that any such amount shall not be payable earlier than five (5) business days before the date on which the applicable Taxes are required to be paid to the Taxing Authority.

Section 2.8 Amended Returns . Notwithstanding anything to the contrary in this Agreement, no party may file any amendment to an Integra Prepared Pre-Spin/Straddle Mixed Return or Spinco Prepared Pre-Spin/Straddle Nonmixed Return without the other party’s consent, which consent shall not be unreasonably withheld; provided, however, that Integra may amend an Integra Prepared Pre-Spin/Straddle Mixed Return without Spinco’s consent if (a) such amendment will not have an adverse effect on Spinco or any Spinco Member (including as a result of Spinco’s indemnification obligations pursuant to Sections 3.3(c)(i) , 3.3(c)(ii)(B) and 3.3 (c)(iii)(B) ) or (b) such amendment will have an adverse effect on Spinco or any Spinco Member (including as a result of Spinco’s indemnification obligations pursuant to Sections 3.3(c)(i) , 3.3(c)(ii)(B) and 3.3 (c)(iii)(B) ) and Integra agrees to indemnify Spinco for any and all increases in the liability for Taxes of the Spinco Group or any Spinco Member arising solely as a result of Integra’s amendment of the Integra Prepared Pre-Spin/Straddle Mixed Return.

Section 2.9 Refunds of Taxes . Integra shall apportion and allocate any Tax Refund realized as a result of a Final Determination with respect to any Integra Prepared Pre-Spin/Straddle Mixed Return filed pursuant to Section 2.1(a)(i) and Section 2.1(a)(ii) in the same proportion as the liability for the Taxes with respect to such Tax Return was apportioned and allocated pursuant to the Current Allocation Methodology. Any Tax Refund realized as a result of a Final Determination with respect to any other Tax Return filed pursuant to Section 2.1(a) and Section 2.1(b) shall be for the benefit of the Responsible Party. If Integra or Spinco, as applicable, receives a Tax Refund with respect to which the other party is entitled to all or an allocable portion pursuant to this Section 2.9 , Integra or Spinco, as applicable, shall pay such amount to such other party in accordance with Section 4.1 .

Section 2.10 Tax Elections . Nothing in this Agreement is intended to change or otherwise affect any previous tax election made by or on behalf of the Integra Affiliated Group (including the election with respect to the calculation of earnings and profits under Section 1552 of the Code and the Treasury Regulations thereunder). Integra, as common parent of the Integra Affiliated Group, shall continue to have discretion, reasonably exercised, to make any and all elections with respect to all members of the Integra Affiliated Group for all Tax Periods for which it is obligated to file Tax Returns under Section 2.1(a) . Spinco, as common parent of the Spinco Affiliated Group, shall have sole discretion to make any and all elections with respect to

 

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all members of the Spinco Affiliated Group for all Tax Periods for which it is obligated to file Tax Returns under Section 2.1(b) ; provided, however, that if any such election could adversely affect any Integra Member, such election shall not be made without the prior written consent of Integra, which consent shall not be unreasonably withheld.

Section 2.11 Allocation of Tax Assets .

 

  (a) Except as provided in Section 2.11(b) , Integra and Spinco shall cooperate, each at its own cost and expense, in determining the allocation of any Tax Assets or Tax liabilities among the parties in accordance with the Code and Treasury Regulations (and any applicable state, local and foreign laws). In the absence of controlling legal authority or unless otherwise provided under this Agreement, Integra shall reasonably determine the allocation of all Tax Assets and Tax liabilities of the Pre-Spin Group. Integra and Spinco hereby agree to compute all Taxes for Post-Distribution Tax Periods and Straddle Periods consistently with the determinations made pursuant to this Section 2.11 unless otherwise required by a Final Determination.

 

  (b) To the extent that the amount of any Tax Asset is later reduced or increased by a Taxing Authority, or as a result of an Audit or carrybacks of Tax Assets from Post-Distribution Tax Periods of either the Integra Affiliated Group or any Integra Member, on the one hand, or the Spinco Affiliated Group or any Spinco Member, on the other hand, such reduction or increase shall be allocated to the party to which such Tax Asset was allocated pursuant to Section 2.11(a).

ARTICLE III.

INDEMNIFICATION

Section 3.1 By Integra . Subject to Section 3.3 , Integra shall indemnify and hold Spinco and each Spinco Member harmless against:

 

  (a) any and all Taxes for which Integra is liable pursuant to Section 2.7(a), Section 2.7(c) and Section 2.8(b) ; and

 

  (b) any and all increases in the liability for Taxes of the Spinco Group or any Spinco Member (or group thereof) as a result of an Integra Member’s material inaccuracies in, or failure to timely provide, such information and assistance specified in Section 2.2 .

Section 3.2 By Spinco . Subject to Section 3.3 , Spinco shall indemnify and hold Integra and each Integra Member harmless against:

 

  (a) any and all Taxes for which Spinco is liable pursuant to Section 2.7 ; and

 

  (b) any and all increases in the liability for Taxes of the Integra Affiliated Group or any Integra Member (or group thereof) as a result of a Spinco Member’s material inaccuracies in, or failure to timely provide, such information and assistance specified in Section 2.2 .

 

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Section 3.3 Tax Treatment of Spin-off Transactions .

 

  (a) The parties expressly agree for all purposes to treat the Spin-off Transactions as qualifying under Sections 355 and 368(a)(1)(D) of the Code in accordance with the Latham Opinion (the “ Tax Treatment ”). Each party hereto also expressly agrees to (i) comply with the representations made in the Opinion Representation Letters, (ii) not take any action (unless otherwise required by law) that is inconsistent with the Tax Treatment, and (iii) take any and all reasonable actions to support and defend the Tax Treatment. Without limiting the generality of the foregoing, Integra and Spinco further represent, agree and covenant that the representations and information contained in the Opinion Representation Letters, insofar as they concern or relate to such party or its Affiliates, are true, correct and complete in all material respects.

 

  (b) Without limiting the generality of Section 3.3(a) , Spinco further represents, agrees and covenants as follows:

 

  (i) From and after the Distribution Date until the second anniversary thereof, Spinco will (i) maintain its status as a company engaged in the Spinco Active Trade or Business for purposes of Section 355(b)(2) of the Code, and (ii) not engage in any transaction (or allow its Affiliates to engage in any transaction) that would result in it ceasing to be a company engaged in the Spinco Active Trade or Business for purposes of Section 355(b)(2) of the Code, in each case, taking into account Section 355(b)(3) of the Code, unless, prior to engaging in such transaction, Spinco obtains and provides to Integra a ruling from the IRS or a written opinion from a nationally recognized law firm with expertise in these matters, in form and substance reasonably acceptable to Integra, that such transaction, and any transaction or transactions related thereto, will not affect the qualification of the Spin-off Transactions under Sections 368(a)(1)(D) and 355 of the Code.

 

  (ii) From and after the Distribution Date until the second anniversary thereof, Spinco shall not take any of the following actions unless, prior to taking any such action, it obtains and provides to Integra a ruling from the IRS or a written opinion from a nationally recognized law firm with expertise in these matters, in form and substance reasonably acceptable to Integra, that such transaction, and any transaction or transactions related thereto, will not affect the qualification of the Spin-off Transactions under Sections 368(a)(1)(D) and 355 of the Code and will not cause Section 355(e) of the Code to apply:

 

  (A)

enter into (or, to the extent Spinco has the right to prohibit such action, permit) any transaction or series of transactions (or any agreement, understanding, arrangement or substantial negotiations,

 

11


  within the meaning of Section 355(e) of the Code and Treasury Regulations Section 1.355-7, to enter into a transaction or series of transactions), as a result of which any person or group of persons would (directly or indirectly) acquire or have the right to acquire from Spinco or one or more holders of its stock, a number of shares of its stock that, together with any shares issued in an equity offering described in clause (B) below, would comprise [    ]% or more of (1) the value of all outstanding shares of stock of Spinco as of the date of such transaction or (2) the total combined voting power of all outstanding shares of stock of Spinco as of the date of such transaction, or, with respect to either (1) or (2), in the case of a series of transactions, the date of the last transaction of such series;

 

  (B) issue equity of Spinco in an offering in excess, in the aggregate, together with any shares acquired in a transaction described in clause (A) above, of [    ]% of (1) the value of all outstanding shares of stock of Spinco as of the date of such transaction or (2) the total combined voting power of all outstanding shares of stock of Spinco, as of the date of such transaction, or, with respect to either (1) or (2), in the case of a series of transactions, as of the date of the last transaction of such series;

 

  (C) merge or consolidate with any other Person or liquidate or partially liquidate; or

 

  (D) in a single transaction or series of transactions (whether or not such transactions are related) sell or transfer (other than sales or transfers of inventory in the ordinary course of business) 40% or more of the gross assets of the Spinco Active Trade or Business or 40% or more of the gross assets of Spinco’s Separate Affiliated Group (such percentages to be measured based on fair market value as of the Distribution Date).

 

  (c) Notwithstanding anything to the contrary in Section 2.7 , Section 3.1, Section 3.2 or Section 6.2(c) :

 

  (i)

If there is a Final Determination that results in the disallowance, in whole or in part, of the Tax Treatment (other than (x) a disallowance which is addressed by Section 3.3(c)(ii) or (y) the Section 355(e) Tax which is addressed by Section 3.3(c)(iii) ), then any liability for Taxes of the Pre-Spin Group as a result of such disallowance shall be divided between Integra and Spinco in proportion to their respective fair market values as of the Distribution Date (determined using closing stock prices as of the Distribution Date). Integra shall be liable for, and shall indemnify Spinco and each Spinco Member against, any liability for which Integra is

 

12


  responsible pursuant to the preceding sentence, and Spinco shall be liable for, and shall indemnify Integra and each Integra Member against, any liability for which Spinco is responsible pursuant to the preceding sentence.

 

  (ii) (A) If there is a Final Determination that results in the disallowance, in whole or in part, of the Tax Treatment (other than the Section 355(e) Tax, which is addressed by Section 3.3(c)(iii) ), and Integra or any Integra Member (and neither Spinco nor any Spinco Member) has taken any action after the Distribution Date which action results in such disallowance, then Integra shall be liable for, and shall indemnify Spinco and each Spinco Member against, any Taxes of the Pre-Spin Group as a result of such disallowance.

(B) If there is a Final Determination that results in the disallowance, in whole or in part, of the Tax Treatment (other than the Section 355(e) Tax, which is addressed by Section 3.3(c)(iii) ), and Spinco or any Spinco Member (and neither Integra nor any Integra Member) has taken any action after the Distribution Date which action results in such disallowance, then Spinco shall be liable for, and shall indemnify Integra and each other Integra Member against, any Taxes of the Pre-Spin Group as a result of such disallowance.

 

  (iii) (A) If there is a Final Determination that Section 355(e) of the Code is applicable to the Spin-off Transactions solely because the Spin-off Transactions were part of a plan or series of related transactions pursuant to which one or more persons acquired directly or indirectly stock of Integra (or interests in any predecessor or successor thereto within the meaning of Section 355(e)) representing a “50-percent or greater interest” within the meaning of Section 355(e), then Integra shall be liable for, and shall indemnify Spinco and each Spinco Member against, the Section 355(e) Tax; and

(B) If there is a Final Determination that Section 355(e) of the Code is applicable to the Spin-off Transactions solely because the Spin-off Transactions were part of a plan or series of related transactions pursuant to which one or more persons acquired directly or indirectly stock of Spinco (or interests in any predecessor or successor thereto within the meaning of Section 355(e)) representing a “50-percent or greater interest” within the meaning of Section 355(e), then Spinco shall pay and be liable for, and shall indemnify Integra and each Integra Member against, the Section 355(e) Tax.

 

  (iv)

Any such claim for indemnification to effectuate this Section 3.3(c) shall otherwise be governed in the manner specified under this Article III , but

 

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  shall not affect in any manner the provisions of Article V and  Article VI (except as set forth in Section 6.2(a) ) with respect to cooperation and control of Audits.

Section 3.4 Certain Reimbursements . Each party shall notify the other party of any Taxes paid by it or any of its Affiliates that are subject to indemnification under this Article III . Any notification pursuant to this Section 3.4 shall include a detailed calculation (including, if applicable, separate allocations of such Taxes between the parties and supporting work papers) and a brief explanation of the basis for indemnification hereunder. Whenever such a notification is given, the indemnifying party shall pay the amount requested in such notice to the indemnified party in accordance with Article IV , but only to the extent the indemnifying party agrees with such request. To the extent the indemnifying party disagrees with such request, it shall so notify the indemnified party within thirty (30) days of receipt of such notice, whereupon the parties shall use their best efforts to resolve any such disagreement. Any indemnification payment made after such thirty (30) day period shall include interest at the Overdue Rate from the date of receipt of the original indemnification notice.

Section 3.5 Adjustments . The parties agree to cooperate in good faith, without bias to any Integra Member or Spinco Member, to make appropriate adjustments to accomplish the objectives of this Article III .

ARTICLE IV.

METHOD AND TIMING OF

PAYMENTS REQUIRED BY THIS AGREEMENT

Section 4.1 Payment in Immediately Available Funds; Interest . All payments made pursuant to this Agreement shall be made in immediately available funds. Except as otherwise provided in the Agreement, all payments shall be made within thirty (30) days of receipt of request therefor. Except as otherwise provided in the Agreement, any payment not made within thirty (30) days of receipt shall thereafter bear interest at the Overdue Rate.

Section 4.2 Characterization of Payments . Any payment (other than interest thereon) made hereunder by Integra to Spinco, or by Spinco to Integra, shall be treated by all parties for all Tax purposes to the extent permitted by law and GAAP as a non-taxable distribution or capital contribution made immediately prior to the Distribution, except to the extent that Integra and Spinco treat a payment as the settlement of an intercompany liability (including, without limitation, the settlement of an intercompany liability with respect to the sharing of Tax liabilities pursuant to the Current Allocation Methodology).

Section 4.3 Payments Net of Taxes . The amount of any Loss subject to indemnification pursuant to Article III shall be net of Taxes. Accordingly, the amount which an indemnifying party is required to pay to an indemnitee will be adjusted to reflect any Tax benefit to the indemnitee from the underlying Loss and to reflect any Taxes imposed upon the indemnitee as a result of the receipt of such payment. Such an adjustment will first be made at the time that the indemnification payment is made and will further be made, as appropriate, to take into account any change in the liability of the indemnitee for Taxes that occurs in

 

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connection with the final resolution of an audit by a Tax authority. For purposes of this Section 4.3 , the value of any Tax benefit to the indemnitee from the underlying Loss shall be an amount equal to the product of (a) the amount of any present or future deduction allowed or allowable to the indemnitee by the Code, or other applicable Law, as a result of such Loss and (b) the highest statutory rate applicable under Section 11 of the Code, or other applicable Law.

ARTICLE V.

COOPERATION; DOCUMENT RETENTION; CONFIDENTIALITY

Section 5.1 Provision of Cooperation, Documents and Other Information . Upon the reasonable request of any party to this Agreement, Integra or Spinco, as applicable, shall promptly provide (and shall cause its Affiliates to promptly provide) the requesting party with such cooperation and assistance, documents, and other information as may be necessary or reasonably helpful in connection with (a) the preparation and filing of any Tax Return, (b) the conduct of any Audit involving any Taxes or Tax Returns within the scope of this Agreement or (c) the verification by a party of an amount payable to or receivable from another party. Such cooperation and assistance shall include, without limitation, (i) the provision of books, records, Tax Returns, documentation or other information relating to any relevant Tax Return, (ii) the execution of any document that may be necessary or reasonably helpful in connection with the filing of any Tax Return, or in connection with any Audit, including, without limitation, the execution of powers of attorney and extensions of applicable statutes of limitations with respect to Tax Returns which Integra may be obligated to file on behalf of Spinco Members pursuant to Section 2.1 , (iii) the prompt and timely filing of appropriate claims for refund, and (iv) the use of reasonable best efforts to obtain any documentation from a governmental authority or a third party that may be necessary or reasonably helpful in connection with the foregoing. Each party shall make its employees and facilities available on a mutually convenient basis to facilitate such cooperation.

Section 5.2 Retention of Books and Records . Each party to this Agreement shall retain or cause to be retained (and shall cause each of their Affiliates to retain) all Tax Returns and all books, records, schedules, work papers, and other documents relating thereto, until the later of (a) the date seven (7) years from the close of the applicable Tax Period, (b) the expiration of all applicable statutes of limitations (including any waivers or extensions thereof) and (c) the expiration of any retention period required by law (e.g., depreciation or inventory records) or pursuant to any record retention agreement. The parties hereto shall notify each other in writing of any waivers, extensions or expirations of applicable statutes of limitations.

Section 5.3 Confidentiality of Documents and Information . Except as required by law or with the prior written consent of the other party, all Tax Returns, documents, schedules, work papers and similar items and all information contained therein that are within the scope of this Agreement shall be kept confidential by the parties hereto and their Representatives, shall not be disclosed to any other Person and shall be used only for the purposes provided herein.

 

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ARTICLE VI.

AUDITS

Section 6.1 Notification and Status of Audits or Disputes . Upon the receipt by any party to this Agreement (or any of its Affiliates) of notice of any pending or threatened Audit pertaining to Taxes subject to indemnification under this Agreement, such party shall promptly notify the other party in writing of the receipt of such notice. Each party to this Agreement shall use reasonable best efforts to keep the other party advised as to the status of any Audits pertaining to Taxes subject to indemnification under this Agreement. To the extent relating to any such Tax, each party hereto shall promptly furnish the other party with copies of any inquiries or requests for information from any Taxing Authority or any other administrative, judicial or other governmental authority, as well as copies of any revenue agent’s report or similar report, notice of proposed adjustment or notice of deficiency.

Section 6.2 Control and Settlement .

 

  (a) Integra shall have the right to control, and to represent the interests of all affected taxpayers in, any Audit relating, in whole or in part, to any Tax Return filed pursuant to Section 2.1(a)(i) and Section 2.1(a)(ii) and to employ counsel or other advisors of its choice at its own cost and expense; provided, however, that with respect to any issue arising on an Audit of an Integra Prepared Pre-Spin/Straddle Mixed Return that may have a significant adverse effect on Spinco or any Spinco Member (including as a result of Spinco’s indemnification obligations pursuant to Sections 3.3(c)(i) , 3.3(c)(ii)(B) and 3.3 (c)(iii)(B)) , Integra shall not settle or otherwise resolve any such issue without the written consent of Spinco, which consent shall not be unreasonably withheld.

 

  (b) Spinco shall have the right to control, and to represent the interests of all affected taxpayers in, any Audit relating, in whole or in part, to any Tax Return filed pursuant to Section 2.1(b)(i) and Section 2.1(b)(ii) and to employ counsel or other advisors of its choice at its own cost and expense; provided, however, that with respect to any issue arising on an Audit of a Spinco Prepared Pre-Spin/Straddle Nonmixed Return that may have a significant adverse effect on Integra or any Integra Member (including as a result of Integra’s indemnification obligations pursuant to Sections 3.3(c)(i) , 3.3(c)(ii)(A) and 3.3 (c)(iii)(A) ), Spinco shall not settle or otherwise resolve any such issue without the written consent of Integra, which consent shall not be unreasonably withheld.

 

  (c) The payment of any Taxes as a result of a Final Determination with respect to an Audit, as well as any payments between Integra and Spinco with respect to such Taxes to the extent such Audit relates to an Integra Prepared Pre-Spin/Straddle Mixed Return and the Current Allocation Methodology applies, shall be governed by Section 2.7 .

Section 6.3 Delivery of Powers of Attorney and Other Documents . Integra and Spinco shall execute and deliver to the other party, promptly upon request, powers of attorney authorizing such other party to extend statutes of limitations, receive refunds, negotiate settlements and take such other actions that Integra or Spinco, as applicable, reasonably considers to be appropriate in exercising its control rights pursuant to Section 6.2 , and any other documents reasonably necessary thereto to effect the exercise of such control rights.

 

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ARTICLE VII.

MISCELLANEOUS

Section 7.1 Effectiveness . This Agreement shall be effective from and after the Distribution Date and shall survive until the expiration of any applicable statute of limitations.

Section 7.2 Entire Agreement . This Agreement, together with all documents and instruments referred to herein and therein, constitute the entire agreement among the parties hereto with respect to the subject matter hereof and supersede and terminate all prior agreements and understandings, both written and oral.

Section 7.3 Guarantees of Performance . Each party hereby guarantees the complete and prompt performance by its Affiliates of all of its obligations and undertakings pursuant to this Agreement. If, subsequent to the consummation of the Spin-off Transactions, either Integra or Spinco shall be acquired by another entity (the “acquirer”) such that 50% or more of the acquired corporation’s common stock is held by the acquirer and its affiliates, the acquirer shall, by making such acquisition, simultaneously agree to jointly and severally guarantee the complete and prompt performance by the acquired corporation and any Affiliate of the acquired corporation of all of their obligations and undertakings pursuant to this Agreement and the acquired corporation shall cause such acquirer to enter into an agreement reflecting such guarantee.

Section 7.4 Severability . In the event any one or more of the provisions contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions hereof without including any of such which may hereafter be declared invalid, void or unenforceable. In the event that any such term, provision, covenant or restriction is hereafter held to be invalid, void or unenforceable, the parties hereto agree to use their best efforts to find and employ an alternate means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction.

Section 7.5 Waiver . Neither the failure nor any delay on the part of any party to exercise any right under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right preclude any other or further exercise of the same or any other right, nor shall any waiver of any right with respect to any occurrence be construed as a waiver of such right with respect to any other occurrence.

Section 7.6 Governing Law . This Agreement shall be governed and construed in accordance with the laws of the State of Delaware without regard to any applicable conflicts of law principles, except with respect to matters of law concerning the internal corporate or other organizational affairs of any entity which is a party to or subject of this Agreement, and as to those matters the law of the jurisdiction under which the respective entity derives its powers shall govern.

 

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Section 7.7 Notices . All notices and other communications required or permitted under this Agreement shall be in writing and shall be duly given when delivered in person, by facsimile (with a confirmed receipt thereof), by messenger or courier service, or by registered or certified mail (postage prepaid, return receipt requested), at the following addresses (or at such other address for a party as shall be specified by like notice):

If to Integra, to:

Integra LifeSciences Holdings Corporation

311 Enterprise Drive

Plainsboro, New Jersey 08536

Attention: Neal Glueck, VP of Tax

Email: Neal.Glueck@integralife.com

Tel: (609) 936-6981

Fax: (609) 750-4264

If to Spinco, to:

SeaSpine Holdings Corporation

2302 La Mirada Drive

Vista, California 92081

Attention: John Bostjancic, Chief Financial Officer

Email: john.bostjancic@seaspine.com

Tel: (760) 727-8399

Fax: (760) 727-8809

Section 7.8 Amendments . This Agreement may be amended at any time only by written agreement executed and delivered by duly authorized officers of Integra and Spinco.

Section 7.9 Successors and Assigns . Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by either party hereto (by operation of law or otherwise), without the prior written consent of the other party. All provisions of the Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns.

Section 7.10 No Third-Party Beneficiaries . This Agreement is solely for the benefit of the parties to this Agreement and their respective Affiliates and should not be deemed to confer upon third parties any remedy, claim, liability, reimbursement, claim of action or other right in excess of those existing without this Agreement.

Section 7.11 Headings; References . The article, section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. All references herein to “Article”, “Sections” or “Exhibits” shall be deemed to be references to Articles or Sections hereof or Exhibits hereto unless otherwise indicated.

 

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Section 7.12 Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original instrument, and all such counterparts shall together constitute one and the same instrument.

Section 7.13 Predecessors and Successors . To the extent necessary to give effect to the purposes of this Agreement, any reference to any corporation or other entity shall also include any predecessors or successors thereto, by operation of law or otherwise.

Section 7.14 Specific Performance . The parties hereto acknowledge and agree that irreparable damages will result if this Agreement is not performed in accordance with its terms, and each party agrees that any damages available at law for a breach of this Agreement would not be an adequate remedy. Therefore, to the full extent permitted by applicable law, the provisions hereof and the obligations of the parties hereunder shall be enforceable in a court of equity, or other tribunal with jurisdiction, by a decree of specific performance, and appropriate injunctive relief may be applied for and granted in connection therewith.

Section 7.15 Further Assurances . Subject to the provisions hereof, the parties hereto shall make, execute, acknowledge and deliver such other instruments and documents, and take all such other actions, as may be reasonably required in order to effectuate the purposes of this Agreement and to consummate the transactions contemplated hereby. Subject to the provisions hereof, each party shall, in connection with entering into this Agreement, performing its obligations hereunder and taking any and all actions relating hereto, comply with all applicable laws, regulations, orders and decrees, obtain all required consents and approvals and make all required filings with any governmental authority (including any regulatory or administrative agency, commission or similar authority) and promptly provide the other party with all such information as it may reasonably request in order to be able to comply with the provisions of this sentence.

Section 7.16 Setoff . All payments to be made by any party under this Agreement shall be made without setoff, counterclaim or withholding, all of which are expressly waived.

Section 7.17 Expenses . Except as specifically provided in this Agreement, each party agrees to pay its own costs and expenses resulting from the fulfillment of its respective obligations hereunder.

Section 7.18 Rules of Construction . Any ambiguities shall be resolved without regard to which party drafted the Agreement.

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the date above written.

 

INTEGRA LIFESCIENCES HOLDINGS CORPORATION,
a Delaware corporation
By:

 

Name:
Title:

SEASPINE HOLDINGS CORPORATION,

a Delaware corporation

By:

 

Name:
Title:

Exhibit 10.3

EMPLOYEE MATTERS AGREEMENT

BY AND BETWEEN

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

AND

SEASPINE HOLDINGS CORPORATION

DATED AS OF [            ] , 2015


EMPLOYEE MATTERS AGREEMENT

This Employee Matters Agreement (the “ Agreement ”) is entered into as of [            ], 2015, by and between Integra LifeSciences Holdings Corporation, a Delaware corporation (“ Integra ”), and SeaSpine Holdings Corporation, a Delaware corporation (“ SeaSpine ”), each a “Party” and together, the “Parties.”

RECITALS:

WHEREAS, SeaSpine is and prior to the Distribution will be a wholly owned subsidiary of Integra;

WHEREAS, the board of directors of Integra has determined that it is advisable and in the best interests of Integra to establish SeaSpine as an independent publicly traded company;

WHEREAS, to effect this separation, the Parties have entered into that certain Separation and Distribution Agreement dated as of [            ], 2015 (as amended or otherwise modified from time to time, the “ Separation Agreement ”); and

WHEREAS, pursuant to the Separation Agreement, Integra and SeaSpine are entering into this Agreement for the purpose of allocating between and among them certain assets, Liabilities (as defined below) and responsibilities with respect to certain (i) employees, (ii) compensation and benefit plans, programs and arrangements and (iii) other employee-related matters.

NOW, THEREFORE, in consideration of the foregoing premises, the mutual promises and covenants hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, agree as follows:

ARTICLE I

DEFINITIONS AND INTERPRETATION

Section 1.1 Definitions . The following capitalized terms shall have the meanings set forth below when used in this Agreement:

Accrued PTO ” means, with respect to an Integra Employee or a SeaSpine Employee, such individual’s accrued vacation, paid-time-off and sick time, if any.

Affiliate ” shall mean, with respect to any specified Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the specified Person. For this purpose “ control ” of a Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through ownership of voting securities, by contract or otherwise. Unless explicitly provided herein to the contrary, for purposes of this Agreement, Integra shall be deemed not to be an Affiliate of SeaSpine or any of its Subsidiaries, and SeaSpine shall be deemed not to be an Affiliate of Integra or any of its Subsidiaries (other than SeaSpine and the SeaSpine Subsidiaries).

Auditing Party ” has the meaning set forth in Section 9.10 .

Agreement ” shall have the meaning set forth in the preamble to this Agreement and includes all Exhibits attached hereto or delivered pursuant hereto.

Ancillary Agreements ” shall have the meaning provided in the Separation Agreement.

 

1


Benefit Plan ” shall mean any compensation and/or benefit plan, program, arrangement, agreement or other commitment that is sponsored, maintained, entered into or contributed to by an entity or with respect to which such entity otherwise has any liability or obligation, whether fixed or contingent, including each such (i) employment, consulting, noncompetition, nondisclosure, nonsolicitation, severance, termination, pension, retirement, supplemental retirement, excess benefit, profit sharing, bonus, incentive, sales incentive, commission, deferred compensation, retention, transaction, change in control and similar plan, program, arrangement, agreement or other commitment, (ii) stock option, restricted stock, restricted stock unit, contract stock, share unit, performance stock, stock appreciation, stock purchase, deferred stock or other compensatory equity or equity-based plan, program, arrangement, agreement or other commitment, (iii) savings, life, health, disability, accident, medical, dental, vision, cafeteria, insurance, flexible spending, adoption/dependent/employee assistance, tuition, vacation, relocation, paid-time-off, other fringe benefit and other employee compensation plan, program, arrangement, agreement or other commitment, including in each case, each “employee benefit plan” as defined in Section 3(3) of ERISA and any trust, escrow, funding, insurance or other agreement related to any of the foregoing.

COBRA ” shall mean the continuation coverage requirements for “group health plans” under Title X of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, and as codified in Code Section 4980B and Sections 601 through 608 of ERISA, together with all regulations promulgated thereunder.

Code ” shall mean the Internal Revenue Code of 1986, as amended.

Distribution ” shall have the meaning provided in the Separation Agreement.

Distribution Date ” shall have the meaning provided in the Separation Agreement.

Distribution Ratio ” shall mean the quotient obtained by dividing (i) one by (ii) [            ].

Distribution Time ” shall mean [            ] p.m., New York City time, on the Distribution Date.

DOL ” shall mean the U.S. Department of Labor.

ERISA ” shall mean the Employee Retirement Income Security Act of 1974, as amended.

Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended.

Force Majeure ” has the meaning set forth in Section 10.19 .

Former Integra Employee ” shall mean any employee, consultant, director or other service provider who provides or provided services primarily for the benefit of any Integra Entity and who (A) terminates or has terminated his or her employment or other service relationship with any Integra Entity at any time, including any such individual who terminated employment or service prior to the Distribution Time, and (B) the Parties determine to be a Former Integra Employee. For the avoidance of doubt, any transfer of employment or other service relationship between the Integra Entities and/or the SeaSpine Entities for purposes of effectuating the Distribution shall not constitute a termination of employment or other service relationship for purposes of this definition. To the extent such designation is not readily made, the Parties agree to negotiate in good faith to agree upon a designation as a Former Integra Employee or a Former SeaSpine Employee.

 

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Former SeaSpine Employee ” shall mean any employee, consultant, director or other service provider who provides or provided services primarily for the benefit of any SeaSpine Entity or with respect to the SeaSpine Business and who (A) terminates or has terminated his or her employment or other service relationship at any time, including any such individual who terminated employment or service prior to the Distribution Time, and (B) whom the Parties determine to be a Former SeaSpine Employee. For the avoidance of doubt, any transfer of employment or other service relationship between Integra Entities and/or SeaSpine Entities for purposes of effectuating the Distribution shall not constitute a termination of employment or other service relationship for purposes of this definition. To the extent such designation is not readily made, the Parties agree to negotiate in good faith to agree upon a designation as a Former Integra Employee or a Former SeaSpine Employee.

Governmental Authority ” shall mean any U.S. federal, state, local or non-U.S. court, government, department, commission, board, bureau, agency, official or other regulatory, administrative or governmental authority.

Hiring Party ” shall have the meaning provided in Section 9.2 .

HIPAA ” shall mean the Health Insurance Portability and Accountability Act of 1996, as amended.

Integra ” shall have the meaning provided in the preamble to this Agreement.

Integra 401(k) Plan ” shall mean the Integra LifeSciences Corporation 401(k) Trust.

Integra Allocation Factor ” shall mean the quotient obtained by dividing (i) the Integra Post-Separation Stock Value, by (ii) the sum of (A) the Integra Post-Separation Stock Value, plus (B) the product of (x) the SeaSpine Stock Value times (y) the Distribution Ratio.

Integra Benefit Plan ” shall mean each Benefit Plan sponsored, maintained entered into or contributed to by any Integra Entity, in any case, under which more than one service provider is eligible to receive compensation and/or benefits.

Integra Cash Incentive Plans ” shall have the meaning provided in Section 6.1 .

Integra Cafeteria Plan ” shall mean a “cafeteria plan” (within the meaning of Section 125 of the Code), including any health flexible spending account or dependent care plan, maintained by Integra.

Integra Common Stock ” shall mean the common stock, par value $0.01 per share, of Integra.

Integra Employee ” shall mean each employee, consultant, director and other service provider who provides services primarily for the benefit of any Integra Entity and who, following the Distribution Time, remains employed by or in service with any Integra Entity, including any such active employees and any such employees on approved leaves of absence. Notwithstanding the foregoing or anything to the contrary contained herein, for purposes of Article III, each member of Integra’s Board of Directors serving as of immediately prior to the Distribution Time and Jack Henneman shall be an Integra Employee.

Integra Entities ” shall mean Integra and the Subsidiaries of Integra other than SeaSpine and the SeaSpine Subsidiaries (each, an “ Integra Entity ”).

Integra Equity Awards ” shall mean the Integra Options, Integra Performance Share Awards, Integra Restricted Stock Awards and Integra RSU Awards, collectively.

 

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Integra Equity Plans ” shall mean Integra’s 2000 Equity Incentive Plan, the 2001 Equity Incentive Plan, the Third Amended and Restated 2003 Equity Incentive Plan and the Employee Stock Purchase Plan, and any other stock option or equity incentive compensation plan or arrangement maintained by any Integra Entity on or prior to the Distribution Date for the benefit of employees, consultants, directors and/or other service providers of any Integra Entity. For the avoidance of doubt, neither the SeaSpine Holdings Corporation 2015 Incentive Award Plan nor the SeaSpine Holdings Corporation 2015 Employee Stock Purchase Plan shall be deemed to be an Integra Equity Plan.

Integra Health and Welfare Plans ” shall mean, collectively, the plans listed on Exhibit A hereto and any group welfare plans or programs maintained by an Integra Entity in a foreign jurisdiction.

Integra Individual Agreement ” shall mean each Benefit Plan sponsored, maintained entered into or contributed to by any Integra Entity, in any case, under which no more than one service provider is eligible to receive compensation and/or benefits.

Integra Option ” shall mean an option to purchase shares of Integra Common Stock granted pursuant to any Integra Equity Plan.

Integra Participant ” shall mean any individual who, (i) prior to the Distribution Date, is eligible to participate in one or more Integra Benefit Plans, and (ii) following the Distribution Date, is (A) an Integra Employee who is eligible to participate in one or more Integra Benefit Plans, (B) a Former Integra Employee who remains entitled to payments, benefits and/or participation under any Integra Benefit Plan, (C) a Former SeaSpine Employee who terminated employment or other service on or prior to the Distribution Date, to the extent such individual remains entitled to payments, benefits and/or participation under any Integra Benefit Plan, or (D) a beneficiary, dependent or alternate payee of any of the foregoing. For the avoidance of doubt, “Integra Participant” shall not include any individual who becomes a SeaSpine Participant (or any beneficiary, dependent or alternate payee thereof) once such individual becomes a SeaSpine Participant.

Integra Performance Share Award ” shall mean an award of Integra performance stock granted under any Integra Equity Plan.

Integra Post-Separation Stock Value ” shall mean the volume weighted average per-share price of Integra Common Stock trading in the “when issued market” on the Distribution Date.

Integra Pre-Separation Stock Value ” shall mean the volume weighted average per-share price of Integra Common Stock trading the “regular way with due bills” over the five (5) trading-day period ending on the Distribution Date.

Integra Ratio ” shall mean the quotient obtained by dividing the Integra Pre-Separation Stock Value by the Integra Post-Separation Stock Value.

Integra Restricted Stock Award ” shall mean an award of restricted shares of Integra Common Stock granted under any Integra Equity Plan

Integra RSU Award ” shall mean an award of Integra contract stock granted under any Integra Equity Plan.

IRS ” shall mean the Internal Revenue Service.

 

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Law ” shall mean any law, statute, ordinance, code, rule, regulation, order, writ, proclamation, judgment, injunction or decree of any Governmental Authority.

Liability ” and “ Liabilities ” shall have such meanings as provided in the Separation Agreement.

Participating Company ” shall mean, with respect to an Integra Benefit Plan, any Integra Entity and, prior to the Distribution, each SeaSpine Entity, in each case, that is a participating employer in such Integra Benefit Plan.

Party ” or “ Parties ” shall have the meaning provided in the preamble to this Agreement.

Person ” shall mean an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, a union, an unincorporated organization or a governmental entity or any department, agency or political subdivision thereof.

Records ” shall have such meaning as provided in the Separation Agreement.

Representatives ” shall have such meaning as provided in the Separation Agreement.

Separation Agreement ” shall have the meaning provided in the recitals to this Agreement.

SeaSpine ” shall have the meaning provided in the preamble to this Agreement.

SeaSpine 401(k) Plan ” shall have the meaning provided in Section 4.1 .

SeaSpine Allocation Factor ” shall mean the quotient obtained by dividing (i) the product of (A) the SeaSpine Stock Value times (B) the Distribution Ratio, by (ii) the sum of (A) the Integra Post-Separation Stock Value, plus (B) the product of (x) the SeaSpine Stock Value times (y) the Distribution Ratio.

SeaSpine Benefit Plan ” shall mean each Benefit Plan (i) that is not an Integra Benefit Plan, (ii) which is sponsored, maintained, entered into or contributed to by any SeaSpine Entity, and (iii) under which more than one service provider is eligible to receive compensation and/or benefits, including the SeaSpine 401(k) Plan, each SeaSpine Equity Plan, the SeaSpine Cafeteria Plan and the SeaSpine Health and Welfare Plans.

SeaSpine Business ” shall have the meaning provided in the Separation Agreement.

SeaSpine Cafeteria Plan ” shall mean a “cafeteria plan” (within the meaning of Section 125 of the Code), including any health flexible spending account or dependent care plan, maintained by any SeaSpine Entity.

SeaSpine Common Stock ” shall mean the common stock, par value $0.001 per share, of SeaSpine.

SeaSpine Employee ” shall mean each employee, consultant, director and other service provider who provides services primarily for the benefit of any SeaSpine Entity or with respect to the SeaSpine Business and who, following the Distribution Time, is employed by or in service with any SeaSpine Entity, including any such active employees and any such employees on approved leaves of absence. Notwithstanding the foregoing or anything to the contrary contained herein, for purposes of Article III, none of the members of Integra’s Board of Directors serving as of immediately prior to the Distribution Time or Jack Henneman shall be an Integra Employee shall be a SeaSpine Employee.

 

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SeaSpine Entities ” means SeaSpine and each SeaSpine Subsidiary (each, a “ SeaSpine Entity ”).

SeaSpine Equity Awards ” shall mean the SeaSpine Options, SeaSpine Performance Share Awards, SeaSpine Restricted Stock Awards and SeaSpine RSU Awards, collectively.

SeaSpine Health and Welfare Plans ” shall have the meaning provided in Section 5.1 .

SeaSpine Individual Agreement ” shall mean each Benefit Plan sponsored, maintained entered into or contributed to by any SeaSpine Entity, in any case, under which no more than one service provider is eligible to receive compensation and/or benefits.

SeaSpine Option ” shall mean an option to purchase shares of SeaSpine Common Stock issued pursuant to the SeaSpine Equity Plan as part of an equitable adjustment to an Integra Option made in connection with the Distribution.

SeaSpine Participant ” shall mean any individual who is or becomes (i) a SeaSpine Employee who is eligible to participate in one or more SeaSpine Benefit Plans, (ii) a Former SeaSpine Employee who remains entitled to payments, benefits and/or participation under any SeaSpine Benefit Plan, or (iii) a beneficiary, dependent or alternate payee of any of the foregoing, in each case, beginning on the first date that such individual qualifies as a SeaSpine Participant in accordance with any of the foregoing.

SeaSpine Performance Share Award ” shall mean an award of performance shares issued pursuant to the SeaSpine Equity Plan as part of an equitable adjustment to an Integra Performance Share Award made in connection with the Distribution.

SeaSpine Ratio ” shall mean the quotient obtained by dividing the Integra Pre-Separation Stock Value by the SeaSpine Stock Value.

SeaSpine Restricted Stock Award ” shall mean an award of restricted shares of SeaSpine Common Stock issued pursuant to the SeaSpine Equity Plan as part of an equitable adjustment to an Integra Restricted Stock Award made in connection with the Distribution.

SeaSpine RSU Award ” shall mean an award of restricted stock units granted under the SeaSpine Equity Plan as part of an equitable adjustment to an Integra RSU Award made in connection with the Distribution.

SeaSpine Stock Value ” shall mean the volume weighted average per-share price of SeaSpine Common Stock trading in the “when issued market” on the Distribution Date.

SeaSpine Subsidiaries ” shall have such meaning as provided in the Separation Agreement.

Subsidiary ” shall mean, with respect to any specified Person, any corporation, partnership, limited liability company, joint venture or other organization, whether incorporated or unincorporated, of which at least a majority of the securities or interests having by the terms thereof ordinary voting power to elect at least a majority of the board of directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such specified Person or by any one or more of its subsidiaries, or by such specified Person and one or more of its subsidiaries.

 

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Transactions ” shall have such meaning as provided in the Separation Agreement.

Workers’ Comp Liabilities ” shall have the meaning provided in Section 5.6 .

Section 1.2 References; Interpretation . References in this Agreement to any gender include references to all genders, and references to the singular include references to the plural and vice versa. Unless the context otherwise requires, the words “include,” “includes” and “including” when used in this Agreement shall be deemed to be followed by the phrase “without limitation.” Unless the context otherwise requires, references in this Agreement to Articles, Sections and Exhibits shall be deemed references to Articles and Sections of, and Exhibits to, this Agreement. Unless the context otherwise requires, the words “hereof,” “hereby” and “herein” and words of similar meaning when used in this Agreement refer to this Agreement in its entirety and not to any particular Article, Section or provision of this Agreement.

ARTICLE II

GENERAL PRINCIPLES

Section 2.1 Post-Distribution Employment . Immediately after the Distribution Time, by virtue of this Agreement and without further action by any Person, (a) each Integra Employee shall continue to be employed or engaged at Integra or such other Integra Entity as employs or engages such Integra Employee as of immediately prior to the Distribution Time, and (b) each SeaSpine Employee shall continue to be employed or engaged at SeaSpine or such other SeaSpine Entity as employs or engages such SeaSpine Employee as of immediately prior to the Distribution Time. The Parties shall cooperate to effectuate any transfers of employment contemplated by this Agreement, including transfers necessary to ensure that all Integra Employees are employed or engaged at an Integra Entity and all SeaSpine Employees are employed or engaged at a SeaSpine Entity, in each case, as of immediately prior to the Distribution Time.

Section 2.2 No Termination/Severance; No Change in Control . No Integra Employee or SeaSpine Employee shall (a) terminate employment or service or be deemed to terminate employment or service solely by virtue of the consummation of the Distribution, any transfer of employment or other service relationship contemplated hereby, or any related transactions or events contemplated by the Separation Agreement, this Agreement or any other Ancillary Agreement, or (b) become entitled to any severance, termination, separation or similar rights, payments or benefits, whether under any Benefit Plan or otherwise, in connection with any of the foregoing. Neither the Distribution nor any other transaction(s) contemplated by the Separation Agreement, this Agreement or any other Ancillary Agreement shall constitute or be deemed to constitute a “change in/of control” or any similar corporate transaction impacting the vesting or payment of any amounts or benefits for purposes of any Integra Benefit Plan or SeaSpine Benefit Plan.

Section 2.3 Termination of SeaSpine Participation in Integra Benefit Plans; Liability for Benefit Plans and Individual Agreements .

(a) Except as otherwise expressly provided for in this Agreement (including with respect to participation in any Integra Equity Plan) or as otherwise expressly agreed to in writing between the Parties, effective as of the Distribution Time, (i) SeaSpine and each other SeaSpine Entity shall cease to be a Participating Company in each Integra Benefit Plan (to the extent any such SeaSpine Entity was such a Participating Company as of immediately prior to the Distribution), and (ii) each SeaSpine Participant shall cease to participate in, be covered by, accrue benefits under or be eligible to contribute to any Integra Benefit Plan (to the extent any such SeaSpine Participant so participated in any Integra Benefit Plan as of immediately prior to the Distribution), and, in each case, Integra and SeaSpine shall take all necessary action prior to the Distribution Time to effectuate each such cessation.

 

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(b) Effective as of the Distribution Time, each Integra Individual Agreement set forth on Exhibit C hereto is hereby transferred and assigned, without further action by any Person, to SeaSpine (or to such other SeaSpine Entity as SeaSpine may designate) and each such transferred agreement shall, from and after the Distribution Time, constitute a SeaSpine Individual Agreement.

(c) Effective as of the Distribution Time, (A) Integra and/or the other Integra Entities shall be solely liable for, and no SeaSpine Entity shall have any obligation or Liability under, any Integra Benefit Plan or Integra Individual Agreement, and (B) except to the extent provided in Section 3.1 below, SeaSpine and/or the other SeaSpine Entities shall be solely liable for, and no Integra Entity shall have any obligation or Liability under, any SeaSpine Benefit Plan or any SeaSpine Individual Agreement.

Section 2.4 Employment Law Liabilities .

(a) Separate Employers . Subject to the provisions of ERISA and the Code, on and after the Distribution Date, each Integra Entity shall be a separate and independent employer from each SeaSpine Entity.

(b) Employment Litigation . Except as otherwise expressly provided in this Agreement and to the extent permissible under applicable Law, (i) SeaSpine and/or the other SeaSpine Entities shall be solely liable for, and no Integra Entity shall have any obligation or Liability with respect to, any employment-related claims and Liabilities regarding SeaSpine Employees, prospective SeaSpine Employees and/or Former SeaSpine Employees relating to, arising out of, or resulting from the prospective employment or service, actual employment or service and/or termination of employment or service, in any case, of such individual(s) with any Integra Entity or SeaSpine Entity, whether the basis for such claims arose before, as of, or after the Distribution Time, and (ii) Integra and/or the other Integra Entities shall be solely liable for, and no SeaSpine Entity shall have any obligation or Liability with respect to, any employment-related claims and Liabilities regarding Integra Employees, prospective Integra Employees and/or Former Integra Employees relating to, arising out of, or resulting from the prospective employment or service, actual employment or service and/or termination of employment or service, in any case, of such individual(s) with any Integra Entity or SeaSpine Entity, whether the basis for such claims arose before, as of, or after the Distribution Time.

(c) Prior Notice of Claims Settlement . Each Party hereto shall, when applicable, notify in writing and consult with the other Party prior to making any settlement of an employee claim or an employment-related claim, for the purpose of attempting to avoid any prejudice to such other Party arising from the settlement. For the avoidance of doubt, nothing herein shall prevent any Party from settling any employment-related claim or shall confer upon any Party any rights of consent or other rights (other than to notice of proposed settlement and consultation) with respect to any employee claim against another Party.

Section 2.5 Service Recognition .

(a) Pre-Distribution Service Credit . With respect to SeaSpine Participants, each SeaSpine Benefit Plan shall provide that all service, all compensation and all other benefit-affecting determinations (including with respect to vesting) that, as of immediately prior to the Distribution Time, were recognized under a corresponding Integra Benefit Plan (or would have been recognized under a corresponding Integra Benefit Plan in which such SeaSpine Participant was eligible to participate immediately prior to the

 

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Distribution Time, had such SeaSpine Participant actually participated in such corresponding Integra Benefit Plan) shall, as of immediately after the Distribution Time or any subsequent effective date for such SeaSpine Benefit Plan, receive full recognition, credit and validity and be taken into account under such SeaSpine Benefit Plan to the same extent as credit was (or would have been) recognized under such Integra Benefit Plan, except (i) to the extent that duplication of benefits would result or (ii) for benefit accrual under any defined benefit pension plan.

(b) Post-Distribution Service Credit . Except to the extent required by applicable Law, (i) no Integra Entity shall be obligated to recognize any service of a SeaSpine Employee after the Distribution Time for any purpose under any Integra Benefit Plan, and (ii) no SeaSpine Entity shall be obligated to recognize any service of an Integra Employee after the Distribution Time for any purpose under any SeaSpine Benefit Plan; provided , however , that nothing herein shall prohibit any Integra Entity or any SeaSpine Entity from recognizing such service.

Section 2.6 Reimbursement .

(a) Reimbursement of Integra . From time to time after the Distribution, SeaSpine shall promptly reimburse Integra, upon Integra’s reasonable request and the presentation by Integra of such substantiating documentation as SeaSpine shall reasonably require, for the cost of any obligations or Liabilities satisfied or assumed by an Integra Entity that are the responsibility of a SeaSpine Entity pursuant to this Agreement. Except as otherwise provided in this Agreement, any such request for reimbursement must be made by Integra not later than ninety (90) days following the date on which such obligations or Liabilities are satisfied or assumed, as applicable, by a Integra Entity.

(b) Reimbursement of SeaSpine . From time to time after the Distribution, Integra shall promptly reimburse SeaSpine, upon SeaSpine’s reasonable request and the presentation by SeaSpine of such substantiating documentation as Integra shall reasonably require, for the cost of any obligations or Liabilities satisfied or assumed by a SeaSpine Entity that are the responsibility of a Integra Entity pursuant to this Agreement. Except as otherwise provided in this Agreement, any such request for reimbursement must be made by SeaSpine not later than ninety (90) days following the date on which such obligations or Liabilities are satisfied or assumed, as applicable, by a SeaSpine Entity.

Section 2.7 French Employees . Schedule 1 attached hereto contains certain terms and conditions with respect to employees residing in France. Notwithstanding anything to the contrary anywhere else in this Agreement, Schedule 1 is incorporated herein by reference and shall control in the event of any inconsistency between this Agreement and Schedule 1 solely as they relate to employees residing in France.

ARTICLE III

ADJUSTMENT OF INTEGRA EQUITY AWARDS; EQUITY PLANS

Section 3.1 Treatment of Outstanding Integra Options .

(a) Integra Option Adjustments . Subject to Sections 3.1(b) , 3.5 , 3.6 , 3.7 and 3.8 :

(i) Integra Options Granted Prior to 2015 . Each Integra Option that remains outstanding as of immediately prior to the Distribution Time that was granted prior to calendar year 2015 shall be converted, as of immediately prior to the Distribution Time, into both an Integra Option and a SeaSpine Option pursuant to the following adjustment mechanisms (and shall otherwise be subject to the same terms and conditions after the Distribution Time as applied to such Integra Option immediately prior to the Distribution Time):

(A) Shares Subject to New SeaSpine Option . The number of shares of SeaSpine Common Stock subject to the new SeaSpine Option shall be equal to the product obtained by multiplying (x) the number of shares of Integra Common Stock subject to the Integra Option immediately prior to the Distribution Time, times (y) the SeaSpine Allocation Factor, times (z) the SeaSpine Ratio, and rounding down to the nearest whole share.

 

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(B) Exercise Price of New SeaSpine Option . The per share exercise price of the new SeaSpine Option shall be equal to the quotient obtained by dividing (x) the per share exercise price of the Integra Option immediately prior to the Distribution Time, by (y) the SeaSpine Ratio, and rounding such quotient up to the nearest whole cent.

(C) Shares Subject to Post-Distribution Integra Option . The number of shares of Integra Common Stock subject to the post-Distribution Integra Option shall be equal to the product obtained by multiplying (x) the number of shares of Integra Common Stock subject to the Integra Option immediately prior to the Distribution Time, times (y) the Integra Allocation Factor, times (z) the Integra Ratio, and rounding down to the nearest whole share.

(D) Exercise Price of Post-Distribution Integra Option . The per share exercise price of the post-Distribution Integra Option shall be equal to the quotient obtained by dividing (I) the per share exercise price of the pre-Distribution Integra Option immediately prior to the Distribution Time, by (II) the Integra Ratio, and rounding such quotient up to the nearest whole cent.

(ii) Integra Options Granted in 2015 . Each Integra Option that remains outstanding as of immediately prior to the Distribution Time that was granted in calendar year 2015 shall be adjusted, as of immediately prior to the Distribution Time, solely into an Integra Option pursuant to the following adjustment mechanisms:

(A) Shares Subject to Post-Distribution Integra Option. The number of shares of Integra Common Stock subject to the post-Distribution Integra Option shall be equal to the product obtained by multiplying (I) the number of shares of Integra Common Stock subject to the Integra Option immediately prior to the Distribution Time, times (II) the Integra Ratio, and rounding such product down to the nearest whole share.

(B) Exercise Price of Post-Distribution Integra Option. The per share exercise price of the post-Distribution Integra Option shall be equal to the quotient obtained by dividing (I) the per share exercise price of the Integra Option immediately prior to the Distribution Time, by (II) the Integra Ratio, and rounding such quotient up to the nearest whole cent.

(b) The adjustments to the Integra Options contemplated by this Agreement, including without limitation, adjustments to the exercise price of Integra Options, to the number of shares subject to Integra Options and with respect to conversions into SeaSpine Options, are all intended to comply in all respects with the requirements of Sections 409A and 424 of the Code, in each case, to the extent applicable, and all such provisions shall be interpreted and implemented in accordance with the foregoing.

 

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Section 3.2 Treatment of Outstanding Integra RSU Awards . Subject to Sections 3.5, 3.6, 3.7 and 3.8:

(a) Integra RSU Awards held by Peter Arduini . Each Integra RSU Award that is outstanding as of immediately prior to the Distribution Time that is held by Peter Arduini shall be converted, as of immediately prior to the Distribution Time, into both: (i) an Integra RSU Award that (A) covers a number of post-Distribution shares of Integra Common Stock equal to the number of shares of Integra Common Stock covered by the Integra RSU Award immediately prior to the Distribution Time, and (B) is subject to the same terms and conditions after the Distribution Time as applied immediately prior to the Distribution Time, and (ii) a SeaSpine RSU Award (A) that covers a number of shares of SeaSpine Common Stock equal to the product obtained by multiplying (x) the number of shares of Integra Common Stock covered by the Integra RSU Award immediately prior to the Distribution Time, times (y) the Distribution Ratio, and (B) is otherwise subject to the same terms and conditions after the Distribution Time as applied to such Integra RSU Award immediately prior to the Distribution Time.

(b) Integra RSU Awards held by Integra Employees or Former Integra Employees (other than Peter Arduini) . Each Integra RSU Award that is outstanding as of immediately prior to the Distribution Time that is held by an Integra Employee or Former Integra Employee, other than Peter Arduini, shall be adjusted, as of immediately prior to the Distribution Time, into solely an Integra RSU Award that (A) covers a number of post-Distribution shares of Integra Common Stock determined by multiplying (I) the number of share of Integra Common Stock covered by the Integra RSU Award immediately prior to the Distribution Time times (II) the Integra Ratio (rounding such product down to the nearest whole share), and (B) is otherwise subject to the same terms and conditions after the Distribution Time as applied to such Integra RSU Award immediately prior to the Distribution Time.

(c) Integra RSU Awards held by SeaSpine Employees . Each Integra RSU Award that is outstanding as of immediately prior to the Distribution Time that is held by a SeaSpine Employee shall be adjusted, as of immediately prior to the Distribution Time, into solely a SeaSpine RSU Award that (i) covers a number of shares of SeaSpine Common Stock equal to the product obtained by multiplying (A) the number of shares of Integra Common Stock covered by the Integra RSU Award immediately prior to the Distribution Time times (B) the SeaSpine Ratio (rounding such product down to the nearest whole share), and (ii) is otherwise subject to the same terms and conditions after the Distribution Time as applied to such Integra RSU Award immediately prior to the Distribution Time.

Section 3.3 Treatment of Outstanding Integra Restricted Stock Awards . Subject to Sections 3.5, 3.6, 3.7 and 3.8:

(a) Integra Restricted Stock Awards held by Integra Employees or Former Integra Employees . Each Integra Restricted Stock Award that is outstanding as of immediately prior to the Distribution Time that is held by an Integra Employee or Former Integra Employee shall be adjusted, as of immediately prior to the Distribution Time, into solely an Integra Restricted Stock Award that (i) covers a number of post-Distribution shares of Integra Common Stock determined by multiplying (A) the number of shares of Integra Common Stock covered by the Integra Restricted Stock Award immediately prior to the Distribution Time times (B) the Integra Ratio (rounding such product down to the nearest whole share), and (ii) is subject to the same terms and conditions after the Distribution Time as applied immediately prior to the Distribution Time.

 

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(b) Integra Restricted Stock Awards held by SeaSpine Employees . Each Integra Restricted Stock Award that is outstanding as of immediately prior to the Distribution Time that is held by a SeaSpine Employee shall be adjusted, as of immediately prior to the Distribution Time, into solely a SeaSpine Restricted Stock Award that (i) covers a number of shares of SeaSpine Common Stock equal to the product obtained by multiplying (A) the number of shares of Integra Common Stock covered by the Integra Restricted Stock Award immediately prior to the Distribution Time times (B) the SeaSpine Ratio (rounding such product down to the nearest whole share), and (ii) is otherwise subject to the same terms and conditions after the Distribution Time as applied to such Integra Restricted Stock Award immediately prior to the Distribution Time.

Section 3.4 Treatment of Outstanding Integra Performance Share Award . Subject to Sections 3.5, 3.6, 3.7 and 3.8:

(a) Integra Performance Share Awards held by Integra Employees or Former Integra Employees. Each Integra Performance Share Award that is outstanding as of immediately prior to the Distribution Time that is held by an Integra Employee or Former Integra Employee shall be adjusted, as of immediately prior to the Distribution Time, solely into an Integra Performance Share Award that (i) covers a number of post-Distribution shares of Integra Common Stock determined by multiplying (A) the number of shares of Integra Common Stock covered by the Integra Performance Share Award immediately prior to the Distribution Time times (B) the Integra Ratio (rounding such product down to the nearest whole share), and (ii) is subject to the same terms and conditions after the Distribution Time as applied immediately prior to the Distribution Time.

(b) Integra Performance Share Awards held by SeaSpine Employees . Each Integra Performance Share Award that is outstanding as of immediately prior to the Distribution Time that is held by a SeaSpine Employee shall be adjusted, as of immediately prior to the Distribution Time, into solely a SeaSpine Performance Share Award that covers a number of shares of SeaSpine Common Stock equal to the product obtained by multiplying (A) the number of shares of Integra Common Stock covered by the Integra Performance Share Award immediately prior to the Distribution Time times (B) the SeaSpine Ratio (rounding such product down to the nearest whole share). Such SeaSpine Performance Share Award shall be subject to the same terms and conditions after the Distribution Time as applied to such Integra Performance Share Award immediately prior to the Distribution Time; provided , however , that the parties shall cause such award to be amended pursuant to the form amended and restated agreement attached hereto as Exhibit D .

Section 3.5 Miscellaneous Terms . The Distribution shall not, in and of itself, constitute a termination of employment or service for any Integra Employee or any SeaSpine Employee for purposes of any Integra Equity Awards or SeaSpine Equity Awards, as applicable, held by such individual. With respect to awards adjusted or granted in accordance with this Article III , (a) employment with or service to Integra and/or its Affiliates shall be treated as employment with or service to, as applicable, SeaSpine with respect to SeaSpine Equity Awards held by Integra Employees and (b) employment with or service to SeaSpine and/or its Affiliates shall be treated as employment with or service to, as applicable, Integra with respect to Integra Equity Awards held by SeaSpine Employees.

Section 3.6 Adjustment of Certain Accelerated Vesting Provisions .

(a) Notwithstanding the foregoing, with respect to any unvested SeaSpine Equity Awards granted to an Integra Employee in accordance with this Agreement, if the original Integra Equity Award (that was partially adjusted into the SeaSpine Equity Award) was subject, as of immediately prior to the Distribution, to accelerated vesting provisions (i) by reference to a termination of employment or service with Integra and/or (ii) in connection with a “Change in Control” (as defined in the applicable award agreement and/or Integra Equity Plan) of Integra, then the SeaSpine Equity Award also shall be subject to such same acceleration provisions upon the Integra’s Employee’s termination of employment or service with the relevant Integra Entity(ies) and/or in connection with a Change in Control of Integra.

 

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(b) Further notwithstanding the foregoing, with respect to any unvested SeaSpine Equity Awards granted to a SeaSpine Employee in accordance with this Agreement, if the original Integra Equity Award (that was partially adjusted into the SeaSpine Equity Award), was subject, as of immediately prior to the Distribution, to accelerated vesting provisions (i) by reference to a termination of employment or service with Integra and/or (y) in connection with a “Change in Control” (as defined in the applicable award agreement and/or Integra Equity Plan) of Integra, then the SeaSpine Equity Award, also shall be subject to such same acceleration provisions upon the SeaSpine Employee’s termination of employment or service with the relevant SeaSpine entity(ies) and/or in connection with a change in control of SeaSpine.

Section 3.7 Waiting Period . Integra may determine, in its sole discretion, that, for reasons of administrative convenience, Integra Options shall not be exercisable, and that other Integra Equity Awards shall not be settled, in each case, during a period beginning on a date prior to the Effective Date determined by Integra in its sole discretion, and continuing until reasonably practicable after the Distribution Time.

Section 3.8 No Accelerated Vesting . The Parties hereto acknowledge and agree that in no event shall the vesting of any Integra Equity Awards or SeaSpine Equity Awards, in any case, accelerate solely by reason of the transactions or events contemplated by the Separation Agreement, this Agreement or any Ancillary Agreement.

Section 3.9 Tax Deduction . The Parties acknowledge and agree that each of the applicable tax deductions for which they may be eligible for federal income tax purposes with regard to the Integra Equity Awards and SeaSpine Equity Awards, in any case, shall be determined in accordance with Revenue Ruling 2002-1.

Section 3.10 Adoption and Approval of SeaSpine Equity Plans . Prior to the Distribution Time, Integra shall cause SeaSpine to adopt the SeaSpine 2015 Incentive Award Plan (the “ SeaSpine Equity Plan ”) and the SeaSpine 2015 Employee Stock Purchase Plan (the “ SeaSpine ESPP ”). In addition, prior to the Distribution Time, Integra shall approve the SeaSpine ESPP and the SeaSpine Equity Plan as the sole stockholder of SeaSpine.

Section 3.11 Cooperation . Each of the Parties shall establish an appropriate administration system in order to handle in an orderly manner exercises of Integra Options and SeaSpine Options and the settlement of other Integra Equity Awards and SeaSpine Equity Awards. The Parties shall work together to unify and consolidate all indicative data and payroll and employment information on regular timetables and make certain that each applicable entity’s data and records in respect of such awards are correct and updated on a timely basis. The foregoing shall include employment status and information required for tax withholding/remittance and reporting, compliance with trading windows and compliance with the requirements of the Exchange Act and other applicable Laws.

Section 3.12 SEC Registration . SeaSpine agrees that it shall use reasonable efforts to maintain on a continuous basis an effective registration statement(s) under the Securities Act (and maintain the prospectus(es) contained therein for its/their intended use) with respect to the shares of SeaSpine Common Stock authorized for issuance under the SeaSpine Equity Plan and the SeaSpine ESPP. Integra agrees that, following the Distribution Date, it shall use reasonable efforts to continue to maintain a Form S-8 Registration Statement (and maintain the prospectus(es) contained therein for its/their intended use) with respect to and cause to be registered pursuant to the Securities Act, the shares of Integra Common Stock authorized for issuance under the Integra Equity Plans as required pursuant to the Securities Act and any applicable rules or regulations thereunder.

 

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Section 3.13 Integra ESPP . Integra shall continue to administer its Employee Stock Purchase Plan, including with respect to SeaSpine Employees and Former SeaSpine Employees who participated in such plan prior to the Distribution.

ARTICLE IV

TAX-QUALIFIED DEFINED CONTRIBUTION PLAN

Section 4.1 Integra 401(k) Plan; SeaSpine 401(k) Plan . The Parties acknowledge and agree that, as of the Distribution Date, SeaSpine or another SeaSpine Entity has established or will establish a defined contribution plan and trust solely for the benefit of eligible SeaSpine Participants (the “ SeaSpine 401(k) Plan ”). SeaSpine shall be responsible for taking all necessary, reasonable and appropriate action to maintain and administer the SeaSpine 401(k) Plan so that it is qualified under Section 401(a) of the Code and the related trust thereunder is exempt under Section 501(a) of the Code. Following the Distribution Time, SeaSpine (acting directly or through any SeaSpine Entity) shall be responsible for any and all Liabilities and other obligations with respect to the SeaSpine 401(k) Plan, and Integra (acting directly or through any Integra Entity) shall be responsible for any and all Liabilities and other obligations with respect to the Integra 401(k) Plan.

Section 4.2 Transfer of SeaSpine 401(k) Plan Assets . As soon as practicable following the Distribution Date (or such later time as mutually agreed by the Parties), Integra shall cause the accounts (including any promissory notes related to outstanding participant loans) in the Integra 401(k) Plan attributable to eligible SeaSpine Participants and their beneficiaries and alternate payees and any Integra Participants who are Former SeaSpine Employees and their beneficiaries and alternate payees, if any, and all of the assets in the Integra 401(k) Plan related thereto to be transferred to the SeaSpine 401(k) Plan, and SeaSpine shall cause the SeaSpine 401(k) Plan to accept such transfer of accounts, promissory notes and underlying assets and, effective as of the date of such transfer, to assume and to fully perform, pay and discharge, all obligations relating to the accounts of SeaSpine Participants (to the extent the assets related to those accounts are actually transferred from the Integra 401(k) Plan to the SeaSpine 401(k) Plan).

Section 4.3 No Distributions . No distribution of account balances shall be made to any SeaSpine Participant solely on account of the transfers from the Integra 401(k) Plan described in Section 4.2 above.

Section 4.4 Regulatory Filings . In connection with the transfer of assets and Liabilities from the Integra 401(k) Plan to the SeaSpine 401(k) Plan contemplated in this Article IV , Integra and SeaSpine (each acting directly or through any Integra Entity or the SeaSpine Entity, as applicable) shall cooperate in making any and all appropriate filings required by the IRS, or required under the Code, ERISA or any applicable regulations, and shall take all such action as may be necessary and appropriate to cause such plan-to-plan transfer to take place as soon as practicable after the effectiveness of the SeaSpine 401(k) Plan; provided , however , that SeaSpine shall be solely responsible for complying with any requirements and applying for any IRS determination letters with respect to the SeaSpine 401(k) Plan.

 

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ARTICLE V

HEALTH AND WELFARE PLANS; WORKERS’ COMPENSATION

Section 5.1 SeaSpine Health and Welfare Plans . As of the Distribution Date, SeaSpine or one or more SeaSpine Subsidiaries maintains or will establish each of the health and welfare plans set forth on Exhibit B hereto (together with any group welfare plans or programs maintained by a SeaSpine Entity in a foreign jurisdiction, the “ SeaSpine Health and Welfare Plans ”) for the benefit of eligible employees of the SeaSpine Entities and their dependents and beneficiaries, each of which shall remain in effect immediately following the Distribution. In addition, as of the Distribution Date, Integra or one or more of the Integra Entities maintains each of the health and welfare plans set forth on Exhibit A hereto (the “ Integra Health and Welfare Plans ”).

Section 5.2 Cafeteria Plan . As soon as practicable following the Distribution Date and if and to the extent not effected prior to the Distribution Date, Integra (acting directly or through any other Integra Entity) shall, in accordance with Revenue Ruling 2002-32, cause the portion of the Integra Cafeteria Plan applicable to the SeaSpine Participants to be segregated into a separate component and the account balances in such component to be transferred to the SeaSpine Cafeteria Plan, which will include any health flexible spending account and dependent care plan. The SeaSpine Cafeteria Plan shall reimburse Integra or the Integra Cafeteria Plan to the extent amounts were paid by the Integra Cafeteria Plan and not collected from the SeaSpine Participant and such amounts are subsequently collected by the SeaSpine Cafeteria Plan with respect to such SeaSpine Participant.

Section 5.3 COBRA and HIPAA .

(a) SeaSpine (acting directly or through any other SeaSpine Entity) and the SeaSpine Health and Welfare Plans shall be solely responsible for compliance with the health care continuation coverage requirements of COBRA with respect to all SeaSpine Participants (and their respective dependents and beneficiaries), in each case, who experience a COBRA qualifying event on or after the first date on which such individual qualifies as a SeaSpine Participant. Integra (acting directly or through any other Integra Entity) and the Integra Health and Welfare Plans shall be solely responsible for compliance with the health care continuation coverage requirements of COBRA with respect to each individual who is an Integra Participant (or a dependent or beneficiary thereof) at the time such individual experiences a COBRA qualifying event, provided that SeaSpine shall reimburse Integra to the extent of any Liability actually incurred by an Integra Entity with respect thereto relating to an Integra Participant who is a Former SeaSpine Employee. Neither the consummation of the Distribution, any transfer of employment contemplated hereby, or any related transactions or events contemplated by the Separation Agreement, this Agreement or any other Ancillary Agreement shall constitute a COBRA qualifying event for purposes of COBRA with respect to any Integra Participant or any SeaSpine Participant (or any dependent or beneficiary thereof).

(b) SeaSpine (acting directly or through any other SeaSpine Entity) shall be responsible for compliance with any certificate of creditable coverage or other applicable requirements of HIPAA or Medicare applicable to the SeaSpine Health and Welfare Plans with respect to SeaSpine Participants. Integra (acting directly or through any other Integra Entity) shall be responsible for compliance with any certificate of creditable coverage or other applicable requirements of HIPAA or Medicare applicable to the Integra Health and Welfare Plans with respect to Integra Participants.

Section 5.4 Integra to Provide Information . To the extent permitted by Law, Integra or the relevant Integra Health and Welfare Plan shall provide to SeaSpine or the relevant SeaSpine Health and Welfare Plan (to the extent that relevant information is in Integra’s possession) such data as may be necessary for SeaSpine to comply with its obligations hereunder, which may include the names of SeaSpine Participants who were participants in or otherwise entitled to benefits under the Integra Health and Welfare

 

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Plans prior to the Distribution, together with each such individual’s service credit under such plans, information concerning each such individual’s current plan-year expenses incurred towards deductibles, out-of-pocket limits and co-payments, maximum benefit payments, and any benefit usage towards plan limits thereunder. Integra shall, as soon as practicable after requested, provide SeaSpine with such additional information that is in Integra’s possession (and not already in the possession of a SeaSpine Entity) as may be reasonably requested by SeaSpine and necessary to administer effectively any SeaSpine Health and Welfare Plan. Integra and each SeaSpine Entity shall enter into such other agreements as are necessary to comply with this Section 5.4 , including, but not limited to, any agreements required by HIPAA.

Section 5.5 Liabilities .

(a) Health and Welfare Benefits . With respect to employee welfare and fringe benefits that are provided under the Integra Health and Welfare Plans, Integra shall, with respect to SeaSpine Participants who participated in such Integra Health and Welfare Plans, cause the Integra Health and Welfare Plans to pay and discharge all eligible claims of SeaSpine Participants (if applicable, through such insurance policies) that are incurred prior to the termination of such SeaSpine Participants’ participation in the applicable Integra Health and Welfare Plan, and SeaSpine shall cause the SeaSpine Health and Welfare Plans to pay and discharge all eligible claims of SeaSpine Participants (if applicable, through such insurance policies) that are incurred on or after enrollment of such SeaSpine Participants in the SeaSpine Health and Welfare Plans (it being understood that neither Integra Health and Welfare Plans nor SeaSpine Health and Welfare Plans shall be responsible for any claims that arise following the claimant’s termination of participation in the applicable Integra Health and Welfare Plan if the claimant does not validly enroll in an applicable SeaSpine Health and Welfare Plan).

(b) Short-Term and Long-Term Disability Benefits . For the avoidance of doubt, with respect to any SeaSpine Employee who becomes entitled to receive long-term or short-term disability benefits prior to the Distribution Time, such SeaSpine Employee shall be transferred to, and shall receive any long-term or short-term disability benefits to which such SeaSpine Employee is entitled under, the SeaSpine Health and Welfare Plans as of the Distribution Time in accordance with the terms of such plans.

(c) Incurred Claim Definition . For purposes of this Article V , a claim or Liability shall generally be deemed to be incurred (i) with respect to medical, dental, vision, and/or prescription drug benefits, on the date that the health services giving rise to such claim or Liability are rendered or performed and not when such claim is made; provided , however that with respect to a period of continuous hospitalization, a claim is incurred upon the first date of such hospitalization and not on the date that such services are performed and (ii) with respect to life insurance, accidental death and dismemberment and business travel accident insurance, upon the occurrence of the event giving rise to such claim or Liability.

(d) Accrued Paid-Time-Off . Following the Distribution Time, (i) SeaSpine shall (directly or through another SeaSpine Entity) recognize and honor the Accrued PTO credited to each SeaSpine Employee by such individual’s employer immediately prior to the Distribution Time and (ii) Integra shall (directly or through another Integra Entity) recognize and honor the Accrued PTO credited to each Integra Employee by such individual’s employer immediately prior to the Distribution Time. Notwithstanding the foregoing, (x) all Accrued PTO shall be used in accordance with the terms and conditions of the post-Distribution employer’s applicable policies and programs, to the extent permissible by law, and (y) any paid-time-off accruals in respect of post-Distribution services (if any) shall be made in accordance with the terms and conditions of the post-Distribution employer’s applicable policies and programs.

 

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Section 5.6 Workers’ Compensation Liabilities . All workers’ compensation Liabilities relating to, arising out of, or resulting from any claim by an Integra Employee or Former Integra Employee that results from an accident occurring, or from an occupational disease which becomes manifest (collectively, “ Workers’ Comp Liabilities ”) before, as of or after the Distribution Time, shall be retained by and be obligations of Integra or its insurers. All Workers’ Comp Liabilities relating to, arising out of, or resulting from any claim by a SeaSpine Employee or Former SeaSpine Employee that arises or manifests prior to the date on which such SeaSpine Employee or Former SeaSpine Employee was covered by an applicable workers’ compensation insurance program maintained by a SeaSpine Entity shall be obligations of Integra and its insurers, provided that SeaSpine shall reimburse Integra to the extent of any such Workers’ Comp Liability actually incurred by an Integra Entity. All Workers’ Comp Liabilities relating to, arising out of, or resulting from any claim by a SeaSpine Employee or Former SeaSpine Employee that arises or manifests on or after the date on which such SeaSpine Employee or Former SeaSpine Employee was covered under a workers’ compensation insurance program maintained by a SeaSpine Entity shall be obligations of SeaSpine and its insurers. For purposes of this Agreement, a compensable injury giving rise to a Workers’ Comp Liability shall be deemed to be sustained upon the occurrence of the event giving rise to eligibility for workers’ compensation benefits or at the time that an occupational disease becomes manifest, as the case may be. Each Integra Entity and each SeaSpine Entity shall cooperate with respect to any notification to appropriate Governmental Authorities of the Distribution Time and the issuance of new, or the transfer of existing, workers’ compensation insurance policies and claims handling contracts.

ARTICLE VI

INCENTIVE COMPENSATION

Section 6.1 SeaSpine Cash Incentive Plans and Liabilities . Following the Distribution Time, SeaSpine shall assume or retain, as applicable, responsibility for any and all payments, obligations and other Liabilities relating to any amounts that any SeaSpine Employee has either earned (if not payable by its terms prior to the Distribution Time) or become eligible to earn, in either case, as of the Distribution Time under any cash incentive, annual performance bonus, commission and similar cash plan or program maintained by Integra in which one or more SeaSpine Employees is eligible to participate as of immediately prior to the Distribution Time (excluding, for the avoidance of doubt, any such plans maintained by a SeaSpine Entity that are not Integra Benefit Plans) (the “ Integra Cash Incentive Plans ”), and shall fully perform, pay and discharge the foregoing if and when such payments, obligations and/or other Liabilities become due. Integra shall have no Liability for any payments, obligations or other Liabilities relating to any SeaSpine Employee with respect to any Integra Cash Incentive Plan after the Distribution Time. Following the Distribution Time, the SeaSpine Entities shall be solely responsible for, and no Integra Entities shall have any obligation or Liability with respect to, any and all payments, obligations and other Liabilities under any cash incentive, annual performance bonus, commission and similar cash plan or program maintained by SeaSpine, and shall fully perform, pay and discharge the forgoing if and when such payments, obligations and/or other Liabilities become due.

Section 6.2 Integra Retention of Cash Incentive Liabilities . Following the Distribution Time, the Integra Entities shall be solely liable for, and no SeaSpine Entity shall have any obligation or Liability with respect to, any and all payments, obligations and other Liabilities relating to any awards that any Integra Employee has earned or is eligible to earn under the Integra Cash Incentive Plans and shall fully perform, pay and discharge the foregoing if and when such payments, obligations and/or other Liabilities become due.

 

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ARTICLE VII

PAYROLL REPORTING AND WITHHOLDING

Section 7.1 Payroll .

(a) Form W-2 . With respect to SeaSpine Employees, the Parties shall adopt the “standard procedure” for preparing and filing IRS Forms W-2 (Wage and Tax Statements), as described in Revenue Procedure 2004-53 (“ Rev. Proc. 2004-53 ”).

(b) Form 941 . Each Party shall be responsible for filing IRS Forms 941 for its respective employees.

Section 7.2 Forms W-4 and W-5 . With respect to SeaSpine Employees, the Parties shall adopt the “standard procedure” of Rev. Proc. 2004-53 for purposes of filing IRS Forms W-4 (Employee’s Withholding Allowance Certificate) and W-5 (Earned Income Credit Advance Payment Certificate).

Section 7.3 Garnishments, Tax Levies, Child Support Orders, and Wage Assignments . With respect to garnishments, tax levies, child support orders, and wage assignments in effect with Integra (or any other Integra Entity) as of the Distribution Date for any SeaSpine Employee or Former SeaSpine Employee, SeaSpine (and any other employing SeaSpine Entity), as appropriate, shall honor such payroll deduction authorizations and shall continue to make payroll deductions and payments to the authorized payee, as specified by the court or governmental order which was on file with Integra as of immediately prior to the Distribution Date. Integra shall, as soon as practicable after the Distribution Date, provide SeaSpine (and any other employing SeaSpine Entity), as appropriate, with such information in Integra’s possession (and not already in the possession of a SeaSpine Entity) as may be reasonably requested by the SeaSpine Entities and necessary for the SeaSpine Entities to make the payroll deductions and payments to the authorized payee as required by this Section 7.3 .

Section 7.4 Authorizations for Payroll Deductions . Unless otherwise prohibited by a Benefit Plan or by this Agreement or another Ancillary Agreement or by applicable Law, SeaSpine and the other SeaSpine Entities, as appropriate, shall honor payroll deduction authorizations attributable to any SeaSpine Employee that are in effect with any Integra Entity on the Distribution Date relating to such SeaSpine Employee, and shall not require that such SeaSpine Employee submit a new authorization to the extent that the type of deduction by SeaSpine or any other SeaSpine Entity, as appropriate, does not differ from that

 

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made by the Integra Entity. Such deduction types include: pre-tax contributions to any SeaSpine Benefit Plan, including any voluntary benefit plan; scheduled loan repayments to any SeaSpine Benefit Plan; and direct deposit of payroll, employee relocation loans, and other types of authorized company receivables usually collectible through payroll deductions. Each Party shall, as soon as practicable after the Distribution Date, provide the other Party with such information in its possession as may be reasonably requested by the other Party and as necessary for that Party to honor the payroll deduction authorizations contemplated by this Section 7.4 .

ARTICLE VIII

INDEMNIFICATION

Section 8.1 General Indemnification . The indemnification rights and obligations of the Parties under this Agreement shall be governed by, and be subject to, the provisions of Article V of the Separation Agreement, which provisions are hereby incorporated by reference into this Agreement.

ARTICLE IX

GENERAL AND ADMINISTRATIVE

Section 9.1 Business Associate Agreements . The Parties hereby agree to enter into any business associate agreements that may be required for the sharing of any information pursuant to this Agreement to comply with the requirements of HIPAA.

Section 9.2 Non-Solicitation . Each Party agrees that it shall not, and it shall cause its Affiliates (such Party and its Affiliates collectively, the “ Hiring Party ”) not to, prior to the first anniversary of the Distribution Date, knowingly, directly or indirectly, on their own behalf or in the service or on behalf of others, solicit, aid, induce or encourage any individual who is a current employee of the other Party or the other Party’s Affiliates to leave his or her employment and to work for such Hiring Party or others without the prior written consent of the other Party. The restrictions contained in this Section 9.2 shall not apply to (a) general solicitations not specifically directed to any employee of a Party or its Affiliates (including a search firm who has not been encouraged or advised to approach any such employee), or (b) any solicitation or hiring of an individual who is no longer employed by a Party or its Affiliates at the time of such solicitation or hiring.

Section 9.3 Access to Information . From and after the Distribution Date, each of Integra and SeaSpine shall afford to the other and its authorized Representatives reasonable access during normal business hours, subject to appropriate restrictions for classified, privileged or confidential information, to the Representatives, properties, and Records of, in the possession of or in the control of the non-requesting Party and its Subsidiaries insofar as such access is reasonably required by the requesting Party and relates to such other Party or the conduct of its business prior to the Distribution Time. Any information shared or exchanged pursuant to this Agreement shall be subject to the confidentiality requirements set forth in the Separation Agreement and shall be subject to appropriate restrictions for classified, privileged or confidential information.

Section 9.4 Reasonable Efforts/Cooperation . Each Party shall use its commercially reasonable efforts to promptly take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable Laws to consummate the transactions contemplated by this Agreement, including adopting Benefit Plans and/or Benefit Plan amendments. Without limiting the generality of the foregoing, each of the Parties shall reasonably cooperate in all respects with regard to all matters relating to the transactions contemplated by this Agreement for which the other Party seeks a determination letter or private letter ruling from the IRS, an advisory opinion from the DOL or any other filing, consent or approval with respect to or by a Governmental Authority.

 

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Section 9.5 Employer Rights . Except as expressly provided for in Article V , nothing in this Agreement shall (a) prohibit any SeaSpine Entity from amending, modifying or terminating any SeaSpine Benefit Plan or SeaSpine Individual Agreement at any time, subject to the terms and conditions thereof, or (b) prohibit any Integra Entity from amending, modifying or terminating any Integra Benefit Plan or any Integra Individual Agreement at any time, subject to the terms and conditions thereof. In addition, nothing in this Agreement shall be interpreted as an amendment or other modification of any Benefit Plan.

Section 9.6 Effect on Employment . Without limiting any other provision of this Agreement, none of the Distribution or any actions taken in furtherance of the Distribution, whether under the Separation Agreement, this Agreement, any other Ancillary Agreement or otherwise, in any case, shall in and of itself cause any employee to be deemed to have incurred a termination of employment or service or, except as expressly provided in this Agreement, to entitle such individual to any payments or benefits under any Benefit Plan or otherwise. Furthermore, nothing in this Agreement is intended to or shall confer upon any Integra Employee, Former Integra Employee, SeaSpine Employee or Former SeaSpine Employee any right to continued employment or service, or any recall or similar rights to an individual on layoff or any type of approved leave.

Section 9.7 Consent Of Third Parties . If any provision of this Agreement is dependent on the consent or action of any third party, the Parties hereto shall use their commercially reasonable efforts to obtain such consent or cause such action. If such consent is withheld or such action is not taken, the Parties hereto shall use their commercially reasonable efforts to implement the applicable provisions of this Agreement to the fullest extent practicable. If any provision of this Agreement cannot be implemented due to the failure of such third party to consent or take action, the Parties hereto shall negotiate in good faith to implement the provision in a mutually satisfactory alternative manner.

Section 9.8 Access To Employees . Following the Distribution Date, Integra and SeaSpine shall, or shall cause the Integra Entities and the SeaSpine Entities, as applicable, to make available to each other those Integra Employees or SeaSpine Employees, as applicable, who may reasonably be needed by the other Party in order to defend or prosecute any legal or administrative action (other than a legal action between any Integra Entities on the one hand and any SeaSpine Entities on the other) to which any employee, director or Benefit Plan of the Integra Entities or SeaSpine Entities is a party and which relates to their respective Benefit Plans prior to the Distribution Date. The Party to whom an employee is made available in accordance with this Section 9.8 shall pay or reimburse the other Party for all reasonable expenses reimbursed by such other Party to such employee in connection therewith, including all reasonable travel, lodging, and meal expenses, but excluding any amount for such employee’s time spent in connection herewith.

Section 9.9 Beneficiary Designation/Release Of Information/Right To Reimbursement . Without limiting any other provision hereof, to the extent permitted by applicable Law and except as otherwise provided for in this Agreement, all beneficiary designations, authorizations for the release of information and rights to reimbursement made by or relating to SeaSpine Participants under Integra Benefit Plans and in effect immediately prior to the Distribution Time shall be transferred to and be in full force and effect under the corresponding SeaSpine Benefit Plans until such beneficiary designations, authorizations or rights are replaced or revoked by, or no longer apply to, the relevant SeaSpine Participant.

 

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Section 9.10 Audit Rights . Each of Integra and SeaSpine, and their duly authorized representatives, shall have the right to conduct reasonable audits with respect to all information required to be provided to it by the other Party under this Agreement. The Party conducting the audit (the “ Auditing Party ”) may adopt reasonable procedures and guidelines for conducting audits and the selection of audit representatives under this Section 9.10 . The Auditing Party shall have the right to make copies of any records at its expense, subject to any restrictions imposed by applicable Laws and to any confidentiality provisions set forth in the Separation Agreement, which are incorporated by reference herein. The Party being audited shall provide the Auditing Party’s representatives with reasonable access during normal business hours to its operations, computer systems and paper and electronic files, and provide workspace to its representatives. After any audit is completed, the Party being audited shall have the right to review a draft of the audit findings and to comment on those findings in writing within thirty (30) days after receiving such draft.

Section 9.11 Compliance . As of the Distribution Date, SeaSpine (acting directly or through any SeaSpine Entity) shall be solely responsible for compliance under ERISA and all other applicable law with respect to each SeaSpine Benefit Plan.

ARTICLE X

MISCELLANEOUS

Section 10.1 Non-Occurrence of Distribution . Notwithstanding anything in this Agreement to the contrary, if the Separation Agreement is terminated prior to the Distribution Time, all actions and events that are, under this Agreement, to be taken or occur effective prior to, as of or following the Distribution Time, or otherwise in connection with the Separation, shall not be taken or occur, except to the extent otherwise determined by Integra.

Section 10.2 Section 409A . Notwithstanding anything in this Agreement to the contrary, with respect to any compensation or benefits that may be subject to Section 409A of the Code and related Department of Treasury guidance thereunder, the Parties agree to negotiate in good faith regarding any treatment different from that otherwise provided herein to the extent necessary or appropriate to (a) exempt such compensation and benefits from Section 409A of the Code, (b) comply with the requirements of Section 409A of the Code, and/or (c) otherwise avoid the imposition of tax under Section 409A of the Code; provided , however , that this Section 10.2 does not create an obligation on the part of either Party to adopt any amendment, policy or procedure, to take any other action or to indemnify any Person for any failure to do any of the foregoing.

Section 10.3 Entire Agreement . This Agreement and the Exhibits referenced herein and attached hereto, as well as the Separation Agreement and any other agreements and documents referred to herein or therein, constitute the entire agreement between the Parties with respect to the subject matter hereof, and supersede all previous agreements, negotiations, discussions, understandings, writings, commitments and conversations between the Parties with respect to such subject matter. No agreements or understandings exist between the Parties with respect to the subject matter hereof other than those set forth or referred to herein.

Section 10.4 Counterparts . This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the Parties and delivered to the other Party.

 

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Section 10.5 Survival of Agreements . Except as otherwise expressly contemplated by this Agreement, all covenants and agreements of the Parties contained in this Agreement shall survive the Distribution Date.

Section 10.6 Notices . All notices and other communications hereunder shall be in writing, shall reference this Agreement and shall be hand delivered or mailed by registered or certified mail (return receipt requested) to the Parties at the following addresses (or at such other addresses for a Party as shall be specified by like notice) and will be deemed given on the date on which such notice is received:

To Integra:

Integra LifeSciences Holdings Corporation

311 Enterprise Drive

Plainsboro, NJ 08536

Attention: General Counsel

Tel: (609) 275-0500

Fax: (609) 275-5363

To SeaSpine:

SeaSpine Holdings Corporation

2302 La Mirada Drive

Vista, CA 92081

Fax: (760) 216-5702

Attention: General Counsel

Notice by courier or certified or registered mail shall be effective on the date it is officially recorded as delivered to the intended recipient by return receipt or similar acknowledgment. All notices and communications delivered in person shall be deemed to have been delivered to and received by the addressee, and shall be effective, on the date of personal delivery.

Section 10.7 Waivers . The failure of any Party to require strict performance by any other Party of any provision in this Agreement will not waive or diminish that Party’s right to demand strict performance thereafter of that or any other provision hereof.

Section 10.8 Amendments . Subject to the terms of Sections 10.10 and 10.12 , this Agreement may not be modified or amended except by an agreement in writing signed by each of the Parties.

Section 10.9 Assignment . This Agreement shall not be assignable, in whole or in part, directly or indirectly, by any Party without the prior written consent of the other Party, and any attempt to assign any rights or obligations arising under this Agreement without such consent shall be void; provided , however , that either Party may assign this Agreement to a purchaser of all or substantially all of the properties and assets of such Party so long as such purchases expressly assumes, in a written instrument in form reasonably satisfactory to the non-assigning Party, the due and punctual performance or observance of every agreement and covenant of this Agreement on the part of the assigning Party to be performed or observed.

Section 10.10 Termination . This Agreement may be terminated and the Distribution may be amended, modified or abandoned at any time prior to the Distribution by and in the sole discretion of Integra without the approval of SeaSpine or the stockholders of Integra. In the event of such termination, no Party shall have any liability of any kind to any other Party or any other Person. After the Distribution, this Agreement may not be terminated except by an agreement in writing signed by the Parties.

 

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Section 10.11 Performance . Each of Integra with respect to the Integra Entities and SeaSpine with respect to the SeaSpine Entities shall cause to be performed, and hereby guarantees the performance of, and all actions, agreements and obligations set forth in this Agreement by such Persons.

Section 10.12 No Third-Party Beneficiaries . Except as otherwise expressly provided in this Agreement, this Agreement is for the sole benefit of the Parties and their successors and assigns, and nothing herein, express or implied, is intended to or shall confer upon any other Person or entity any legal or equitable right, benefit or remedy of any nature whatsoever, under or by reason of this Agreement. Without limiting the generality of the foregoing, in no event shall any Integra Employee, Former Integra Employee, Integra Participant, SeaSpine Employee, Former SeaSpine Employee or SeaSpine Participant (or any dependent, beneficiary or alternate payee of any of the foregoing) have any third-party rights under this Agreement.

Section 10.13 Title and Headings . Titles and headings to Sections herein are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement.

Section 10.14 Exhibits . The Exhibits attached hereto are incorporated herein by reference and shall be construed with and as an integral part of this Agreement to the same extent as if the same had been set forth verbatim herein.

Section 10.15 Governing Law . This Agreement shall be governed by and construed in accordance with the Laws of the State of Delaware applicable to Contracts made and to be performed in the state of Delaware.

Section 10.16 Dispute Resolution . The provisions of Article VIII of the Separation Agreement shall apply , mutatis mutandis , to all disputes, controversies or claims (whether arising in contract, tort or otherwise) that may arise out of or relate to, or arise under or in connection with this Agreement or the transactions contemplated hereby.

Section 10.17 Waiver of Jury Trial . EACH PARTY IRREVOCABLY AND ABSOLUTELY WAIVES THE RIGHT TO A TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING BROUGHT BY A PARTY TO COMPEL THE DISPUTE RESOLUTION PROCEDURES PROVIDED IN SECTION 10.15 OF THIS AGREEMENT AND ARTICLE VIII OF THE SEPARATION AGREEMENT AND THE ENFORCEMENT OF ANY AWARDS OR DECISION OBTAINED FROM SUCH ARBITRATION PROCEEDING, AND AGREES TO TAKE ANY AND ALL ACTION NECESSARY OR APPROPRIATE TO EFFECT SUCH WAIVER.

Section 10.18 Specific Performance . Subject to the provisions of Article VIII of the Separation Agreement, from and after the Distribution, in the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement, the Parties agree that the Party to this Agreement who is or is to be thereby aggrieved shall have the right to seek specific performance and injunctive or other equitable relief of its rights under this Agreement, in addition to any and all other rights and remedies at Law or in equity, and all such rights and remedies shall be cumulative. The Parties agree that, from and after the Distribution, the remedies at Law for any breach or threatened breach of this Agreement, including monetary damages, are inadequate compensation for any loss, that any defense in any action for specific performance that a remedy at Law would be adequate is hereby waived, and that any requirements for the securing or posting of any bond with such remedy are hereby waived.

 

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Section 10.19 Severability . In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby. The Parties shall endeavor in good faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their respective officers as of the date first set forth above.

 

INTEGRA LIFESCIENCES HOLDINGS CORPORATION
By:  
Name:
Title:
SEASPINE HOLDINGS CORPORATION
By:  
Name:
Title:

Exhibit 10.4

MICROFIB SUPPLY AGREEMENT

(Integra as Supplier)

This Supply Agreement (“ Agreement ”) sets forth the terms and conditions under which Integra LifeSciences Corporation (“ Integra ”) contracts with SeaSpine Orthopedics Corporation (“ SeaSpine ” and together with Integra, the “ Parties ”) to provide the products set forth on Exhibit A (each individually, a “ Microfib Product ” and collectively, the “ Microfib Products ”) on a non-exclusive basis at the prices set forth herein.

1. MANUFACTURING AND SUPPLY RELATIONSHIP :

1.1 General; the Microfib Products . Under this Agreement, SeaSpine engages Integra as a Microfib Products supplier. Integra may designate an affiliate of Integra to perform its obligations hereunder, provided that Integra shall remain liable for all such obligations. Attached hereto as Exhibit A is a complete list of the Microfib Products (as of the Effective Date (as defined in Section 3 )) and their Prices (as defined in Section 2.1(a) ). No other right or license is or shall be created or granted hereunder by implication, estoppel or otherwise, except as expressly provided in this Agreement. SeaSpine agrees to use the Microfib Products solely as part of a Mozaik Product (as defined below) and not to sell the Microfib Product in separate form. “ Mozaik Product ” means a ceramic collagen matrix product marketed under the Mozaik brand, including Mozaik Strip, Mozaik Putty, and Mozaik Moldable Morsels, and all equivalent products that are (x) marketed under spine brands, or (y) provided to third parties on a private label basis, in each case as of the Effective Date, any next generation successor version of any of the foregoing products and any biomaterial products created after the Effective Date that use any of the foregoing ceramic collagen matrix products as a subcomponent in the manufacture of the final configuration of such biomaterial product.

1.2 Specifications . The specifications for the Microfib Products (as the same may be modified from time to time hereunder, the “ Specifications ”) as of the Effective Date are set forth in Exhibit B .

 

  1.3 Changes to the Microfib Products .

 

  a. Integra shall have the right to modify the Microfib Products or their Specifications (i) as necessary to comply with changes in Law (as defined in Section 8.1 ) or (ii) for any other reason provided that such modification does not affect the form, fit, function, safety or appearance of the Microfib Products. If, however, Integra plans to modify any Microfib Product or its Specifications, Integra shall provide SeaSpine written notice at least sixty (60) days in advance of the effectiveness of such modification (unless impractical for regulatory reasons, in which case such notice shall be provided promptly after the need to modify the Microfib Products or their Specifications is determined by Integra).

 

  b. Integra will not in any event use tendons from bovine other than New Zealand bovine in the manufacture of the Microfib Products without the prior written consent of SeaSpine.

 

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  c. If Integra makes a modification to the Microfib Products in accordance with this Section 1.3 , Integra shall provide SeaSpine with information on the changes, and corresponding updated guidelines and instructions for use, if applicable.

2. MICROFIB PRODUCT PRICES AND OTHER FEES :

 

  2.1 Prices .

 

  a. SeaSpine shall pay Integra for the Microfib Products at the per gram prices listed in Exhibit A , as such prices may be modified as described in Section 2.1(b) (the “ Prices ”).

 

  b. Integra may increase its Prices for the Microfib Products annually effective after Integra has given SeaSpine sixty (60) days’ prior notice of such Price increases. Price increases shall apply to all orders shipped after the effective date of such increase. Annual price increases shall not exceed the greater of (i) three percent (3%) or (ii) the annual change in the consumer price index for all urban consumers for all cities for the twelve month period immediately preceding the notice of such price increase, as published by the United States Bureau of Labor Statistics (http://www.bls.gov); provided , however , that if at any time during the Term, Integra experiences a documented increase in its variable costs related to the Microfib Products of greater than five percent (5%) in any calendar year, the Parties will meet and confer in good faith to negotiate applicable adjustments to the Prices.

3. EFFECTIVE DATE : The effective date of this Agreement shall be [                  ],2015 (“ Effective Date ”).

4. TERM AND TERMINATION :

4.1 Term . This Agreement shall commence on the Effective Date and expire, except as earlier terminated hereunder, on the seventh (7th) anniversary of the Effective Date (the “ Initial Term ”), provided that this Agreement shall automatically renew for an additional one (1) year period after the end of the Initial Term. After such one year-renewal period, SeaSpine may, upon written notice to Integra at least one hundred eighty (180) days prior to the expiration of such one year-renewal period (or, if applicable, the first Term Extension) extend the Agreement for up to two additional three (3) year periods (each, a “ Term Extension ”). The Parties may, upon mutual written agreement, extend the Term thereafter. The Initial Term and any Term Extension are collectively referred to as the “ Term ”.

4.2 Termination

 

  a.

Breach . Either Party may terminate this Agreement for cause upon written notice of material breach by the other Party of this Agreement (a “ Termination Notice ”), which shall include an opportunity for the breaching Party to cure. If the breaching Party does not cure the material breach identified in the Termination

 

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  Notice within ninety (90) days (or if such breach is a failure of SeaSpine to make payment to Integra when due hereunder, thirty (30) days) after receipt of such Termination Notice or such longer cure period as the Parties may agree in writing, this Agreement shall terminate.

 

  b. Convenience . After the end of the Initial Term, either Party may terminate this Agreement for convenience upon at least one hundred eighty (180) days’ written notice to the other Party.

 

  c. Bankruptcy, etc . Either Party may terminate this Agreement immediately upon written notice to the other Party if proceedings in bankruptcy or insolvency are instituted by or against the other Party, or a receiver is appointed, or if any substantial part of the assets of the other Party is the object of attachment, sequestration or other type of comparable proceeding, and such proceeding is not vacated or terminated within sixty (60) days after its commencement of institution.

 

  4.3 Effects of Termination .

 

  a. Mutual Obligations . After either Party provides a Termination Notice and pending termination of this Agreement, the Parties shall continue to perform their respective obligations hereunder until termination or expiration of the Term is effective. Expiration of the Term or termination of this Agreement shall not relieve the Parties of any obligation accruing prior to such expiration or termination. Each Party agrees, at the request of the other Party upon the expiration of the Term or termination of this Agreement, to return or destroy at the option of the receiving party all Confidential Information exchanged pursuant to Section 10 , except such Confidential Information it may be required to retain under applicable Laws.

 

  b. Termination by Integra . Upon termination of this Agreement by Integra pursuant to Section 4.2(a) (Breach) , Integra may, at its sole option, supply and ship any Order(s) (as defined below) submitted to Integra prior to the effective date of termination or expiration of the Term to SeaSpine and SeaSpine shall pay the applicable Prices, all in accordance with the terms and conditions of this Agreement.

 

  c. Termination by SeaSpine . Upon termination of this Agreement by SeaSpine pursuant to Section 4.2(a) (Breach) , with respect to Order(s) submitted to Integra and accepted prior to the effective date of termination, SeaSpine may at its option, either (x) cancel any unfilled Orders or (y) advise Integra that SeaSpine wishes to have such unfilled Orders filled, in which event Integra shall supply and ship the Microfib Products pursuant to such then pending Orders for the Microfib Products for delivery after the effective date of termination or expiration. SeaSpine shall pay the applicable Prices, all in accordance with the terms and conditions of this Agreement.

 

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4.4 Final Order . In the event of termination or expiration of this Agreement for any reason other than by Integra pursuant to Section 4.2(a) (Breach) or Section 4.2(c) (Bankruptcy, etc.) , SeaSpine shall have the right, at its discretion, to place a final order for the Microfib Products prior to or on the last day of the Term in an amount of each Microfib Product not in excess of the lesser of (A) one hundred thirty percent (130%) of the amount of such Microfib Product set forth in the last forecast (including the Binding Forecast and calendar quarters 3 and 4 included therein) provided by SeaSpine in accordance with Section 5.2 prior to the placement of such final order and (B) four (4) times the Maximum Quarterly Order (as defined in Section 5.2 ). If SeaSpine desires to order additional grams of Microfib Product in excess of such amount, SeaSpine shall notify Integra in writing and the Parties shall discuss in good faith, provided that Integra shall have no obligation to accept any such additional order. Integra may schedule delivery of the final order over four calendar quarters with the first such calendar quarter beginning at least three (3) months after the end of the Term, at Integra’s discretion, provided that Integra will make available for delivery in each such calendar quarter an amount of each Microfib Product that, when added to the amount of such Microfib Product previously made available by Integra pursuant to this Section 4.4 , equals at least (i) (A) the amount of such Product included in the final order, divided by (B) 4, multiplied by (ii) the number of such calendar quarters to date.

5. ORDERS; FORECASTS; ACCEPTANCE OF THE MICROFIB PRODUCTS, ETC.

5.1 Orders . SeaSpine is obligated to purchase the Microfib Products for which it has issued a firm order or orders to Integra (“ Order(s) ”), whether pursuant to a forecast that is deemed binding hereunder, or pursuant to a purchase order accepted by Integra. Integra does not stock the Microfib Products in inventory for purchase by SeaSpine. All Orders must contain delivery dates not less than ninety (90) days after the date of receipt of the Order by Integra, unless otherwise agreed upon in writing by Integra.

5.2 Forecasts . No later than the first business day of each calendar quarter, SeaSpine shall provide Integra with a written rolling forecast as to SeaSpine’s requirements of the Microfib Products for the next four (4) calendar quarter period. Each calendar quarter forecast will consist of the following:

 

  a. The first two (2) calendar quarters of each forecast shall be binding on SeaSpine (“ Binding Forecast ”) and accompanied by an Order for such forecasted amount of the Microfib Products. The Order shall be in writing and shall specify the delivery date (which must be at least ninety (90) days after the receipt by Integra of the Order), quantity of each Microfib Product ordered and the Prices and total cost of the Order.

 

  b. Each forecast shall update the prior forecast by:

 

  i. dropping the previous calendar quarter 1 from the forecast;

 

  ii. moving calendar quarter 2 from the previous forecast to be calendar quarter 1 of the updated forecast;

 

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  iii. updating, as appropriate and subject to clause (c) below, calendar quarters 3 and 4 of the previous forecast, which as updated will be calendar quarters 2 and 3 of the updated forecast; and

 

  iv. adding a new calendar quarter 4 to the updated forecast, subject to clause (c) below.

The initial forecast for the Microfib Products is set forth on Exhibit C attached hereto.

 

  c. SeaSpine may not increase or decrease the amounts forecasted in the Binding Forecast, but may, subject to Integra’s written acceptance, issue additional Orders during such two (2) calendar quarter period as provided in Section 5.6 . In addition, SeaSpine may not increase the number of grams of the Microfib Products forecasted for any calendar quarter period (e.g., 2Q 2016) by more than thirty percent (30%) in aggregate from the number of grams first forecast for such calendar quarter (i.e. when such calendar quarter period was calendar quarter 4 of the forecast), and SeaSpine may not reduce such number of grams first forecasted for such calendar quarter by more than ten percent (10%) in aggregate from the number of grams first forecast for such calendar quarter, without the prior written consent of Integra. SeaSpine shall not order for any calendar quarter more than the number of grams of Microfib Product set forth on Exhibit D attached hereto (the “ Maximum Quarterly Order ”).

 

  d. SeaSpine will use commercially reasonable efforts to ensure that the forecast for calendar quarters 3 and 4 is accurate, but the forecast for such calendar quarters will not constitute an Order.

 

  e. In the event that SeaSpine fails to provide a Binding Forecast for a particular calendar quarter, unless Integra otherwise notifies SeaSpine in writing, the last available forecasted amount for such calendar quarter shall become a firm Order, provided , however , that nothing contained in this Section 5.2(e) shall be deemed to affect any of Integra’s rights or limit any of Integra’s remedies as a result of such failure.

5.3 Batch Sizes . SeaSpine agrees to order the Microfib Products in whole multiples of the batch sizes set forth on Exhibit D (although SeaSpine acknowledges and agrees that the actual quantity of the Microfib Products delivered may be adjusted as set forth in Section 5.5 or as otherwise expressly provided in this Agreement).

5.4 Acceptance of Orders . Upon receipt of an Order, Integra shall review the Order and shall have ten (10) business days from the Order’s receipt to notify SeaSpine of Integra’s acceptance or rejection of the Order. Integra shall accept any Order for a Binding Forecast that complies with the terms of this Agreement. If any other Order is rejected by Integra, Integra shall use reasonable efforts to provide SeaSpine with a reason for the rejection. If Integra fails to reject an Order in such ten (10) business day period, such Order shall be deemed accepted. Integra shall use commercially reasonable efforts to fill accepted Orders with Microfib Product

 

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not later than ninety (90) days after the receipt of the Order or on the delivery date requested, whichever date is later. However, reasonable delay in shipment (where any delay of ninety (90) days or less after scheduled shipment shall be presumed reasonable) shall not be considered a breach of this Agreement and shall not relieve SeaSpine of its obligations to accept such shipment.

5.5 Whole Lots . Due to variances in manufacturer yields of the Microfib Products (“ Product Lots ”), in filling any Order for SeaSpine, Integra has the right to deliver to SeaSpine a quantity of the Microfib Products that is larger or smaller than the Order. Within three (3) business days of notification by Integra of the quantity of the Microfib Products constituting a Product Lot, SeaSpine agrees to issue to Integra a revised purchase order matching the quantity of the Microfib Products in such Product Lot. Regardless of the size of an Order, all Microfib Products representing a single Product Lot shall be shipped together. SeaSpine will pay for the quantity of the Microfib Products actually delivered. The quantity of the Microfib Products actually delivered will not affect the firm Order for the Microfib Products if the difference in quantity is not more than ten percent (10%). In the event that shipping Microfib Product of a single Product Lot results in a shipment in excess of ten percent (10%) of the Microfib Products in the Order, such excess shall be applied to the Order for the subsequent month.

5.6 Supplemental Orders; Changes to Orders .

 

  a. If SeaSpine desires to order additional grams of Microfib Product in excess of Orders for the Binding Forecast, including if any such proposed order would result in Orders exceeding the applicable Maximum Quarterly Order, SeaSpine shall notify Integra in writing, stating the grams of the Microfib Products requested and the date by which delivery of such Microfib Products is desired. Integra shall have no obligation to accept any such order, but if Integra accepts any such request (or any portion thereof) in writing, SeaSpine shall be obligated to purchase all such quantities as a firm Order hereunder.

 

  b. Except as otherwise expressly permitted hereunder, any Order(s) deriving herefrom or related hereto may be changed, cancelled or amended only by written agreement signed by both SeaSpine and Integra, setting forth the particular changes to be made and the effect, if any, of such changes on the Prices and time of delivery. SeaSpine may not cancel any Orders unless such cancellation is expressly agreed to in writing by Integra. In the event of a cancellation that is expressly agreed to in writing by Integra, Integra will advise SeaSpine of the total charge for such cancellation, and SeaSpine agrees to pay such charges. Certification of such costs by Integra’s independent public accountants shall be conclusive on the Parties.

5.7 Acceptance and Agreement . ALL SALES AND ORDER(S) ARE SUBJECT TO THE TERMS AND CONDITIONS OF THIS AGREEMENT. NO VARIATION OF THESE TERMS AND CONDITIONS WILL BE BINDING UPON INTEGRA UNLESS AGREED TO IN WRITING AND SIGNED BY AN OFFICER OR OTHER AUTHORIZED REPRESENTATIVE OF INTEGRA. ANY ADDITIONAL OR DIFFERENT TERMS,

 

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ADDITIONS, DELETIONS OR EXCEPTIONS PROPOSED BY SEASPINE (WHETHER IN A PURCHASE ORDER, OTHER PRINTED FORM OR ELSEWHERE) ARE OBJECTED TO AND HEREBY REJECTED, UNLESS SUCH TERMS, ADDITIONS, OR EXCEPTIONS ARE APPROVED SPECIFICALLY BY INTEGRA IN WRITING AND SIGNED BY AN OFFICER OR OTHER AUTHORIZED REPRESENTATIVE OF INTEGRA. No course of prior dealings or usage of trade shall be relevant to supplement or explain any term used herein. Any clerical errors by Integra are subject to correction.

5.8 Returns . The Microfib Products may not be returned unless resulting from a Microfib Product recall, field correction or market withdrawal for which Integra is responsible as provided in Section 8.6 or as permitted pursuant to Section 5.9(c) .

 

  5.9 Delivery; Certificate; Inspection and Acceptance .

 

  a. Terms for the shipments of the Microfib Products will be FCA (Incoterms, 2010). SeaSpine shall pay shipping and freight costs, which will be added to the invoice for each Order, and SeaSpine shall have the right to choose the carrier so long as such choice complies with the shipping validation for the Microfib Product. SeaSpine may designate the destination of Products to be delivered hereunder so long as such destination complies with applicable Law. Delivery of the Microfib Products to the carrier at Integra’s shipping point shall constitute delivery to SeaSpine; SeaSpine shall bear all risk of loss or damage in transit. However, Integra reserves the right, in its discretion, to change the exact method of shipment and to make delivery in installments, all such installments to be separately invoiced and paid for when due as provided in Section 6.1 , without regard to subsequent deliveries. Delay in delivery of any installment within the parameters set forth in this Article 5 shall not relieve SeaSpine’s obligations to accept remaining deliveries.

 

  b. Each shipment of the Microfib Products must be accompanied by final Microfib Product testing and inspection results and a certificate, substantially in the form attached as Exhibit E , signed by Integra stating that the Microfib Products comply with the Specifications; the testing, inspections results and certificate shall be set forth by Microfib Product serial number and must be signed by Integra.

 

  c.

SeaSpine, upon receipt of the Microfib Products from Integra, shall have thirty (30) days to inspect the Microfib Products with respect to whether or not they comply with the Specifications. If the Microfib Products do not comply with the Specifications, SeaSpine shall notify Integra and provide Integra with samples of the nonconforming Microfib Products (to the extent SeaSpine deems possible) along with such notice and provide Integra with the results of its inspection. If Integra’s inspection confirms the Microfib Products do not comply with the Specifications, then Integra, at its expense and at SeaSpine’s option, within thirty (30) days following the completion of Integra’s investigation, will either bring the Microfib Products in question into conformance with the Specifications or replace the Microfib Products that failed to comply with the Specifications, in either case,

 

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  at no additional charge to SeaSpine. If after inspection, Integra disagrees with SeaSpine’s determination, the Parties shall submit samples of the Microfib Product in question to a mutually acceptable independent testing laboratory for evaluation to determine whether the Microfib Product complies with the Specifications. The results of such evaluation shall be deemed conclusive of the matter, and the non-prevailing party shall bear the costs of the evaluation.

6. PAYMENT AND TAXES :

 

  6.1 Payment .

 

  a. Payment terms of an Order are net thirty (30) calendar days from the date of invoice, unless otherwise stated. SeaSpine specifically waives any right for any reason to withhold or set-off payments it owes to Integra hereunder, whether available at law, in equity or otherwise under the laws, rules, regulations, ordinances, decrees or orders of any governmental authority.

 

  b. SeaSpine agrees to pay all costs, including, but not limited to, reasonable attorneys’ fees, accounting fees and other expenses of collection resulting from any default by SeaSpine of any of the terms hereof.

6.2 Taxes and Other Charges . Any medical device tax, use tax, sales tax, excise tax, duty, custom, inspection or testing fee, or any other tax, fee or charge of any nature whatsoever imposed by any governmental authority, on or measured by the transaction between SeaSpine and Integra, except for taxes of Integra’s income, shall be paid by SeaSpine in addition to the Prices quoted or invoiced. In the event Integra is required to pay any such tax, fee or charge, SeaSpine shall reimburse Integra therefor; or SeaSpine shall provide Integra at the time the applicable Order is submitted an exemption certificate or other document acceptable to the authority imposing the tax, fee or charge.

7. SEASPINE GENERAL OBLIGATIONS :

7.1 Compliance . SeaSpine shall not (i) alter the Microfib Products other than incorporating the Microfib Products into the Mozaik Products, (ii) pay, offer or promise to pay, or authorize payment of any money, or give, offer or promise to give, or authorize the giving of anything of value to any healthcare professional in violation of any anti-kickback statutes, the AdvaMed Code, or other applicable Laws or policies described herein, (iii) incur any obligation in the name of or on behalf of Integra or (iv) make any warranty, representation or guaranty to any third party with respect to any Microfib Product.

7.2 SeaSpine’s Use of the Microfib Products; Mozaik Products . The Microfib Products are intended solely for inclusion in and subsequent resale as part of SeaSpine’s Mozaik Product, and SeaSpine shall not sell the Microfib Products in separate form. SeaSpine agrees to comply with all written instructions furnished by Integra relating to the use of the Microfib Products and not misuse the Microfib Products in any manner. SeaSpine warrants to Integra that (i) the Mozaik Product will be marketed, promoted, stored and distributed in compliance with

 

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applicable FDA regulations, applicable ISO and Current Good Manufacturing Practices, (ii) the Mozaik Product will not be adulterated or misbranded within the meaning of the Federal Food, Drug and Cosmetic Act and (iii) all facilities used for storage and distribution of the Mozaik Products are FDA compliant.

8. SEASPINE REGULATORY AND QUALITY OBLIGATIONS:

8.1 Compliance with Laws . SeaSpine agrees to comply with: (i) the AdvaMed Code, as modified from time to time and which is incorporated into SeaSpine’s compliance policies, (ii) its responsibilities under the Safe Harbor Regulations relating to program “fraud and abuse” promulgated under the Social Security Act and Medicare and Medicaid Patient and Program Protection Act, (iii) its compliance policies which are consistent with the AdvaMed Code, (iv) the U.S. Foreign Corrupt Practices Act and any other applicable anti-bribery laws, (v) all applicable laws, rules, ordinances, regulations, decrees and orders of any governmental authority, including but not limited to, those related to the advertising, promotion, sale and use of the Microfib Products or Mozaik Products, privacy, health, safety and environmental matters and record-keeping and reporting in compliance with all governmental authority regulations (collectively, the “ Laws ”) for the Microfib Products or Mozaik Products (which related records and reporting information shall be supplied to Integra promptly upon request), and (vi) all internal policies and procedures of SeaSpine, including without limitation, discount policies. SeaSpine further agrees to notify Integra immediately upon receiving any notice with respect to a violation or alleged violation of any of the above mentioned Laws and any other laws or regulations, to the extent relating to the Microfib Products or Mozaik Products.

8.2 Recordkeeping . Each Party agrees to comply with the document retention policy attached hereto as Exhibit F with respect to its activities hereunder. SeaSpine shall make such records, to the extent relating to the Microfib Products, available to Integra immediately upon request for regulatory purposes.

8.3 Review . Integra shall have the right to send its representatives to review, during regular business hours and upon reasonable prior written notice, SeaSpine’s marketing and regulatory records and files and all other records and files related to the Microfib Products and related to SeaSpine’s compliance with this Agreement. SeaSpine shall reasonably cooperate with Integra in such review and any reasonable requests of Integra that result from such review by Integra.

 

  8.4 Complaints .

 

  a. SeaSpine shall promptly (and in any event within one business day) report to Integra (i) any accident, or incident involving the Mozaik Product (of which it becomes aware) which results in personal injury or damage to property and is related to the Microfib Products; (ii) any complaint involving the Mozaik Product (of which it becomes aware), whether oral or written, that is related to the Microfib Products; (iii) any defect in or condition of the Mozaik Product (of which it becomes aware) that is related to the Microfib Products; or (iv) any other fact or circumstance (of which it becomes aware) which may result in a report to the FDA or other applicable regulatory authority or may result in a violation or alleged violation of any applicable Law, that may relate to the Microfib Product.

 

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  b. Integra shall promptly (and in any event, within one business day) report to SeaSpine (i) any complaint involving the Microfib Product, whether oral or written, that implicates the Mozaik Product and (ii) any defect in or condition of the Microfib Product that implicates the Mozaik Product, in each case of which Integra becomes aware.

 

  c. The Parties shall cooperate in the investigation and determination of the cause of any of the foregoing accidents, incidents or complaints and shall make available all statements, reports and tests made to investigate such accident or incident. Furnishing such information and any investigation of such information or incident report shall not in any way constitute any assumption of any liability for such accident or incident by either Party.

 

  d. Except as otherwise provided in the DBM and OS Supply Agreement between the parties or the Mozaik Supply Agreement between the Parties, each of even date herewith, SeaSpine will be responsible for Medical Device Reporting per Title 21 CFR Part 803 or similar vigilance reporting requirements in the U.S., the European Union and any other jurisdiction as related to the Mozaik Products and as required by Laws where the Mozaik Product is marketed. Integra may file any such reports with the FDA or other responsible regulatory authority (x) for the Microfib Products and (y) for the Mozaik Products to the extent the underlying issue may relate to the Microfib Products.

8.5 Governmental Authority . SeaSpine agrees to notify Integra within forty-eight (48) hours of any audit or inspection by, or contact with, the FDA or other regulatory authority that involves the Mozaik Product and is related to any Microfib Product. SeaSpine agrees to provide Integra with a copy of the portion of the audit or inspection report or contact document that relates to the Mozaik Product and any response provided by SeaSpine, in each case that relate to the Microfib Product.

8.6 Recall, etc . SeaSpine shall be entitled to execute a recall, field correction or market withdrawal of the Mozaik Product, and either Party shall be entitled to execute a recall, field correction or market withdrawal of the Mozaik Product if related to the Microfib Products. The Parties agree to cooperate with and reasonably assist each other in the event of a recall, field notification or market withdrawal of the Microfib Product or the Mozaik Product. SeaSpine agrees to pay for any recall, field notification and/or market withdrawal related to the Mozaik Product, unless directly resulting from a breach of the warranty set forth in Section 9.1(a)(ii) , in which case Integra agrees to pay all direct, documented, out-of-pocket costs of such recall, field notification or market withdrawal. If either Party decides to execute a recall, field notification or market withdrawal of the Mozaik Product, it shall promptly notify the other Party of such action.

8.7 No Debarment . Integra certifies that neither it nor any of its employees has been debarred under Section 306(a) or Section 306(b) of the Act and that no debarred person will in

 

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the future be employed to manufacture the Microfib Products. Integra also certifies that no person working in the manufacture of the Microfib Products has a conviction that could lead to debarment under Section 306(a) or Section 306(b) of the Act. Furthermore, Integra agrees to notify SeaSpine immediately of any action toward conviction or debarment under Section 306(a) or Section 306(b) of the Act of any person working in the manufacture of the Microfib Products.

8.8 Quality Agreement . Each Party (or an affiliate designee thereof) has entered into the Quality Agreement attached as Exhibit G as of the Effective Date.

8.9 Compliance with Laws . Integra will manufacture the Microfib Products in compliance with Laws applicable to the processing, storage, packaging, labeling and shipment of the Microfib Products, as modified from time to time.

8.10 Quality Audits . Integra shall allow SeaSpine to perform quality audits at its manufacturing facility for the Microfib Product during regular business hours and upon reasonable prior written notice if SeaSpine has reasonable cause to believe there is a quality issue affecting the Microfib Products that implicates the Mozaik Products or as required by applicable Law. SeaSpine shall provide Integra with a written report of all nonconformances to the manufacturing procedures, storage and shipping procedures and test/inspection procedures within thirty (30) days of identification, which non-conformances are identified by SeaSpine during quality audits.

 

  8.11 Additional Regulatory Matters .

 

  a. SeaSpine shall have sole responsibility for obtaining all required consents, licenses, authorizations and approvals for the manufacture, use and sale of the Mozaik Product worldwide, and such consents, licenses, authorizations and approvals shall be held in the name of SeaSpine or its designee, except as provided in the DBM and OS Supply Agreement between the Parties or the Mozaik Supply Agreement between the Parties, each of even date herewith.

 

  b. Integra shall reasonably assist SeaSpine in accordance with Section 8.11(a) by providing information related to the Microfib Products when necessary to obtain any consents, licenses, authorizations or approvals, provided that SeaSpine shall reimburse Integra for its costs and expenses associated with Integra’s assistance in providing information related to the Microfib Products in obtaining or maintaining consents, licenses, authorizations or approvals for the Mozaik Product at a per hour charge of $200. Integra will provide the FDA or other applicable regulatory authority with access to Integra’s files related to the Microfib Products, but shall not be obligated to permit SeaSpine or any foreign governmental regulatory agency to review certain confidential files, including without limitation, the design history files or processing information for the Microfib Product.

 

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9. INTEGRA LIMITED WARRANTY; CERTAIN OBLIGATIONS :

 

  9.1 Limited Warranty

 

  a. Integra warrants to SeaSpine that (i) it will convey good title to all Microfib Products delivered to SeaSpine, free from any security interest, liens or other encumbrances, and (ii) the Microfib Products manufactured hereunder shall be manufactured in compliance with the then-current Specifications at the time of shipment from Integra’s facilities. Except as set forth in Section 8.6 , SeaSpine’s sole remedy, and Integra’s sole obligation, in the event of a breach by Integra of the warranty set forth in clause (ii) above is as set forth in Section 5.9(c) .

 

  b. The limited warranty set forth in Section 9.1(a) is the sole warranty Integra makes regarding the Microfib Products. THIS WARRANTY IS EXCLUSIVE AND INTEGRA HEREBY DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, WRITTEN OR ORAL, INCLUDING WITHOUT LIMITATION, (I) ANY IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR APPLICATION, OR WARRANTY OF QUALITY, OTHER THAN THOSE EXPRESSLY SET FORTH IN THE ATTACHED WARRANTY, OR (II) ANY IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING, OR USAGE OF TRADE OR (III) WARRANTIES OF NON-INFRINGEMENT. SEASPINE UNDERSTANDS THAT NO EMPLOYEE, OFFICER, AGENT OR REPRESENTATIVE OF INTEGRA IS AUTHORIZED IN ANY WAY TO MAKE ANY STATEMENT TO THE CONTRARY WHICH SHALL BE BINDING ON INTEGRA OR TO ASSUME FOR INTEGRA ANY OTHER LIABILITY IN CONNECTION WITH THE MICROFIB PRODUCTS.

 

  c. The warranty set forth in Section  9.1(a)(ii) shall not apply to, and Integra shall not be responsible for, any loss or damages arising in connection with the purchase or use of any Microfib Product (i) which has been modified by anyone other than an authorized service representative of Integra, or (ii) which has been altered in any way so as, in Integra’s judgment, to affect its stability or reliability, or which has been subject to misuse, negligence or accident, or (iii) which has been subject to improper or negligent installation, storage or handling, or (iv) which has been subject to improper cleaning, sterilization or maintenance, or (v) which has been subject to accidental damage arising from acts of God, electrical power damage, equipment malfunction, unusual stress, unreasonable operating procedures or abnormal or extreme operating conditions or (vi) which has been used otherwise than in accordance with the instructions furnished by Integra.

9.2 Integra Non-Compete; Sale by Integra .

 

  a.

For the period from the Effective Date through the earlier of (i) the fifth anniversary of the Effective Date and (ii) one year after the effectiveness of the termination of this Agreement by Integra pursuant to Section 4.2(a) (Breach) or Section 4.2(c) (Bankruptcy, etc.) (such period, the “ Restricted Period ”), provided , that the Restricted Period shall be extended thereafter for such period as Integra is

 

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supplying Mozaik Restricted Products to SeaSpine, provided , further , that in no event shall the Restricted Period exceed seven (7) years, Integra shall and shall cause its affiliates not to manufacture, have manufactured, distribute or otherwise sell any product substantially similar to the Mozaik Restricted Products for use in spine surgery (“ Field ”) for or to any third party, including the entities set forth in Exhibit H , other than for or to SeaSpine and its affiliates and other than as set forth in Exhibit H . For purposes of this Section 9.2 , “ Mozaik Restricted Products ” means the ceramic collagen matrix products marketed under the Mozaik brand, including Mozaik Strip, Mozaik Putty, and Mozaik Moldable Morsels, and all equivalent products (x) marketed under spine brands or (y) provided to third parties on a private label basis, in each case on the Effective Date, and any next generation successor version of any of the foregoing products. Notwithstanding the foregoing, nothing contained in this Section 9.2 shall prohibit Integra or its affiliates from acquiring (through merger, stock purchase, purchase of assets or otherwise) ownership of, or any equity interest in, any entity or business that manufactures, distributes or otherwise sells any product substantially similar to the Mozaik Restricted Product for use in the Field, provided that during the Restricted Period, Integra shall not, and shall cause its affiliates not to, use any of the Licensed Intellectual Property, (as such term is defined in that certain License Agreement attached hereto as Exhibit I ) or any Confidential Information of SeaSpine in the manufacture, distribution, or sale of such acquired products.

 

  b. For clarity’s sake, (i) Integra and its affiliates may at any time manufacture, have manufactured, distribute and otherwise sell the Microfib Products and any products substantially similar thereto, (ii) Integra and its affiliates may at any time manufacture, have manufactured, distribute and otherwise sell any product substantially similar to any Mozaik Restricted Product for use in any field, including without limitation the Foot and Ankle Reconstruction Surgery Field and other uses in reconstruction surgery, other than the Field. “ Foot and Ankle Reconstruction Surgery Field ” means the design, manufacture, marketing and distribution of products and services used to modify the structural and functional characteristics of the lower extremity and small bone neuromuscular and skeletal system to control, guide, limit, heal or immobilize the lower extremity, joint or body segment for a particular medical or clinical reason.

 

  c. Except as set forth in Section 9.2(a) , Integra may itself manufacture, have manufactured, distribute, sell, distribute, license and otherwise make available to third parties products that are substantially similar to the Microfib Products, the Mozaik Restricted Products or the Mozaik Products.

10. CONFIDENTIALITY AND OWNERSHIP :

10.1 Confidential Information. Each Party agrees that it shall not during the Term and anytime thereafter, directly or indirectly, without the prior written consent of the other Party, disclose to any third party, pursuant to a press release or otherwise, any Confidential Information of the other Party. As used herein, “ Confidential Information ” of a Party means information

 

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possessed by such Party, or its affiliates, that relates to the other Party’s business or, in the case of SeaSpine as the receiving Party, the Microfib Products (which may include information of third parties as to which either Integra or SeaSpine and their respective affiliates has a confidential arrangement or understanding), whether that information is written or oral, however acquired. Notwithstanding the foregoing, Confidential Information does not include any such information that as of the date of disclosure to, or acquisition by, the receiving Party was (i) obtained by the receiving Party from a third party with no obligation of confidentiality to the disclosing Party or its affiliates, (ii) disclosed in published literature, (iii) generally available to the industry or (iv) known to the receiving Party without any obligation to keep it confidential or any restriction on its use and such knowledge can be substantiated by reasonable documentation. Confidential Information shall additionally include the existence and terms of this Agreement and the business relationship established hereunder, together with any documents or data prepared by any of the Parties that reflect such information. Each Party further agrees that it shall not, directly or indirectly, without the prior written consent of the other Party, use any of the Confidential Information of the other Party for any reason or purpose, including, in the case of SeaSpine as the receiving Party, to reverse engineer any Microfib Product, other than as contemplated by this Agreement.

10.2 Degree of Care . Notwithstanding Section 10.1 , each Party may disclose Confidential Information received pursuant to this Agreement to its directors, officers, employees, consultants, attorneys and accountants and other agents and representatives, but not to any other third party, provided , however , that all such access is limited to those that have a need-to-know in connection with the business relationship established hereunder, and further provided that such persons and entities are obligated to hold the Confidential Information in confidence in accordance with restrictions and procedures no less stringent than provided for herein. Each Party shall be responsible for any breach of this Section 10 by its directors, officers, employees, consultants, attorneys and accountants and other agents and representatives. Each Party covenants that it shall exercise the same degree of care with respect to the other Party’s Confidential Information as it would its own Confidential Information, and, in any event, shall exercise no less than a reasonable degree of care. Notwithstanding the foregoing, a Party may disclose the Confidential Information belonging to the other Party to the extent such disclosure is reasonably necessary in the context of preparation and filing of regulatory documents (including, without limitation, governmental approvals) to regulatory authorities in connection with the Microfib Products pursuant to this Agreement, provided that the disclosing Party notify the other Party in writing of such disclosure and the disclosing Party requests confidential treatment of such disclosure to the extent confidential treatment is reasonably available to such Party.

10.3 Remedies . The Parties understand and agree that this Section 10 is reasonable and necessary to protect the Parties respective business interests. The Parties further agree that the other may suffer irreparable harm from a breach of this Section 10 . Thus, in addition to any other rights or remedies, all of which shall be deemed cumulative, a Party shall be entitled to pursue injunctive relief to enforce the terms of this Section 10 without the necessity of proof of damages or the posting of a bond or other security.

 

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10.4 Disclosure Required by Law . Notwithstanding Section 10.1 , a receiving Party may disclose Confidential Information if such information is required by Law to be disclosed in response to a valid order of a court of competent jurisdiction or authorized governmental authority, provided that the receiving Party must give the other Party prompt written notice and seek to obtain or allow for and reasonably cooperate with the other Party to seek to obtain a protective order prior to such disclosure. In any event, a receiving Party shall disclose only that portion of the Confidential Information which is legally required and will use all commercially reasonable efforts to assure that confidential treatment is accorded any Confidential Information.

10.5 Return of Copies . Upon termination of this Agreement, each Party shall, upon the written request of the other Party, return all copies, whether in paper, electronic, or other format, of all Confidential Information received by it from the other Party which contain the other Party’s Confidential Information, except that one copy thereof may be retained solely for archival or regulatory compliance purposes.

 

  10.6 Intellectual Property .

 

  a. Integra, its licensors and/or their respective affiliates are and shall remain the exclusive owner(s) of all intellectual property rights related to the Microfib Products and to Integra’s business, including all intellectual property rights pertaining to inventions, developments or improvements made in the course of the manufacturing of the Microfib Products hereunder.

 

  b. SeaSpine, its licensors and/or their respective affiliates are and shall remain the exclusive owner(s) of all intellectual property rights owned or licensed by SeaSpine or any subsidiary thereof, as of the Effective Date, after giving effect to the spin-off of SeaSpine by Integra, in each case related to the Mozaik Restricted Products, excluding any trademark rights and product registrations (including 510(k) clearances) relating thereto owned by Integra or its affiliates as of the Effective Date.

 

  c. SeaSpine agrees not to, and not to authorize a third party to, infringe, misappropriate or violate any intellectual property rights of Integra, its licensors, or their respective affiliates. For purposes of this Agreement, “intellectual property rights” includes, without limitation, (i) all registered or unregistered trademarks, patents, designs or inventions; (ii) all rights in products including product registrations; (iii) copyrights, moral rights, know-how and Confidential Information; and (iv) any similar rights worldwide, or the right to apply for any such rights.

 

  d. Each Party will comply with the terms of the agreement set forth on Exhibit J hereto.

 

  e. Except as provided in the Mozaik Supply Agreement, of even date herewith, between the Parties, SeaSpine shall have no right to use any Integra trademark, except that SeaSpine shall have the right to reference Integra as the source of the Microfib Product in the Mozaik Product in SeaSpine’s regulatory filings. Any such references shall be provided to Integra in writing for review and written approval prior to their use, disclosure or publication by SeaSpine.

 

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  11. GENERAL:

11.1 Notices . All notices, approvals, and other communications required or permitted herein shall be in writing and shall be delivered personally (which shall include delivery by courier or overnight delivery service) or sent by certified or registered mail, postage prepaid, return receipt requested.

 

If to Integra: Integra LifeSciences Corporation
ATTN: David Hoffman
311 Enterprise Drive, Plainsboro, NJ 08536
With required copy to: Integra LifeSciences Corporation
ATTN: General Counsel
311 Enterprise Drive, Plainsboro, NJ 08536
If to SeaSpine: SeaSpine Orthopedics Corporation
ATTN: Brian Baker
2 Goodyear, Suite A, Irvine, CA 92618
With required copy to: SeaSpine Orthopedics Corporation
ATTN: Colin Smith
2384 La Mirada Drive, Vista, CA 92081
With required copy to: SeaSpine Orthopedics Corporation
ATTN: General Counsel
2384 La Mirada Drive, Vista, CA 92081

Either Party may change its address for notice purposes by providing written notice of the change of address to the other Party.

11.2 Insurance . Each Party will comply with the insurance obligations for such Party set forth in Exhibit K .

11.3 Limitation of Liability . INTEGRA AND ITS DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR AFFILIATES SHALL NOT IN ANY EVENT BE LIABLE FOR INCIDENTAL, EXEMPLARY, INDIRECT, CONSEQUENTIAL, PUNITIVE OR SPECIAL DAMAGES, OF ANY KIND RESULTING FROM ANY USE OR FAILURE OR ACQUISITION OF THE MICROFIB PRODUCTS, WHETHER BASED UPON A CLAIM OR ACTION OF CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY OR OTHER TORT, OR OTHERWISE, ARISING OUT OF THIS AGREEMENT (EVEN IF INTEGRA HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES) INCLUDING

 

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WITHOUT LIMITATION, LIABILITY FOR LOSS OF USE, LOSS OF WORK IN PROGRESS, DOWN TIME, LOSS OF REVENUE OR PROFITS, FAILURE TO REALIZE SAVINGS, LOSS OF PRODUCTS OF SEASPINE OR OTHER USE OR ANY LIABILITY OF SEASPINE TO A THIRD PARTY ON ACCOUNT OF SUCH LOSS, OR FOR ANY LABOR OR ANY OTHER EXPENSE, DAMAGE OR LOSS OCCASIONED BY SUCH PRODUCT. EXCEPT IN THE CASE OF A CLAIM FOR THIRD PARTY INDEMNIFICATION UNDER SECTION 11.4(B) OF THIS AGREEMENT, INTEGRA’S LIABILITY IN THE AGGREGATE INCLUDING THE LIABILITY OF INTEGRA’S DIRECTORS, OFFICERS, EMPLOYEES, AGENTS AND AFFILIATES, WITH RESPECT TO PERFORMANCE OR NON-PERFORMANCE OF THIS AGREEMENT AND ANY INTEGRA PRODUCTS OR OTHER ITEMS FURNISHED UNDER THIS AGREEMENT (WHETHER IN TORT, CONTRACT OR OTHERWISE, AND NOTWITHSTANDING ANY FAULT, NEGLIGENCE WHETHER ACTIVE, PASSIVE OR IMPUTED OR STRICT LIABILITY OF INTEGRA) SHALL IN NO EVENT EXCEED ONE MILLION DOLLARS ($1,000,000).

 

  11.4 Indemnity .

 

  a. SeaSpine shall indemnify and defend Integra and its affiliates and their respective directors, officers, members, employees, counsel, agents and representatives and the successors and permitted assigns of any of the foregoing (the “ Integra Indemnitees ”) and hold the Integra Indemnitees harmless from and against any and all claims, demands, actions, liabilities, damages, losses , judgments, costs or expenses (including interest and penalties and reasonable attorneys’ fees and professional fees and expenses of litigation) (collectively, “ Claims ”) of third parties to the extent arising out of, in connection with, or resulting from (i) the design, manufacture, marketing, sale, distribution, use or promotion of the Mozaik Product incorporating the Microfib Products, except to the extent such claims result from a breach of the warranty set forth in Section 9.1(a)(ii) ; (ii) the bodily injury, property damage or any other damages or injury caused in whole or in part, by any use of the Microfib Product in conjunction with the Mozaik Product unless such claims are a direct result of the failure of the Microfib Products to have been manufactured in compliance with the then-current Specifications at the time of shipment from Integra’s facilities; (iii) SeaSpine’s breach of any representation, warranty or covenant contained in this Agreement; (iv) the negligence or willful misconduct of SeaSpine; or (v) any claims relating to the misappropriation or infringement of a third party’s intellectual property rights related to the Mozaik Products, except to the extent such claims relate solely to the Microfib Product.

 

  b.

Integra shall indemnify, defend and hold harmless SeaSpine and its affiliates and their respective directors, officers, members, employees, counsel, agents and representatives and the successors and permitted assigns of any of the foregoing (the “ SeaSpine Indemnitees ”) and hold the SeaSpine Indemnitees harmless from and against any and all Claims of third parties to the extent arising out of, in connection with, or resulting from (i) the negligence or willful misconduct of Integra, except to the extent that SeaSpine is obligated to indemnify Integra for

 

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  any of the foregoing third party Claims as provided in Section 11.4(a) (including those third party Claims caused, in whole or in part, by the negligence or willful misconduct of SeaSpine), (ii) the failure of the Microfib Products to have been manufactured in compliance with the then-current Specifications at the time of shipment from Integra’s facilities or (iii) any claims relating to the misappropriation or infringement of a third party’s intellectual property rights to the extent solely related to the Microfib Products.

 

  c. In any case in which claims arise out of or are caused by both Integra’s negligence and SeaSpine’s negligence, a comparative negligence standard shall apply with respect to the Parties’ enumerated obligations under this Section 11.4 .

 

  d. A Party that intends to claim indemnification under this Agreement (the “ Indemnitee ”) for third party Claims shall promptly notify the other Party (the “ Indemnitor ”) in writing of such Claim in respect of which the Indemnitee or its affiliates, directors, officers, members, employees, counsel, agents or representatives intends to claim such indemnification, and the Indemnitor, at its cost and expense, shall have the right to participate in, and to the extent the Indemnitor so desires, to assume the defense thereof with counsel mutually satisfactory to the Parties; provided , however , that an Indemnitee shall have the right to retain its own counsel, with the fees and expenses to be paid by the Indemnitor, if such Indemnitee’s outside counsel advises that representation of such Indemnitee by the counsel retained by the Indemnitor would be inappropriate due to actual or potential conflicts of interests between such Indemnitee and the other Party represented by such counsel in such proceeding. The Indemnitor shall control the defense and/or settlement of any such Claims, and this indemnity agreement shall not apply to amounts paid in connection with any Claims if such payments are made by the Indemnitee without the consent of the Indemnitor; provided , however , that the Indemnitor shall not enter into any settlement that admits fault, wrongdoing or damages without the Indemnitee’s written consent, such consent not to be unreasonably withheld, delayed or conditioned. For clarity, any Claims that relate solely to the payment of monetary damages may be settled or otherwise disposed of on such terms as the Indemnitor, in its sole discretion, shall deem appropriate. The failure to deliver written notice to the Indemnitor within a reasonable time after the commencement of any Claim, if and to the extent prejudicial to its ability to defend such Claim, shall to such extent relieve such Indemnitor of any liability to the Indemnitee under this Section 11.4 . At the Indemnitor’s request and expense, the Indemnitee and its employees and agents shall reasonably cooperate with the Indemnitor and its legal representatives in the investigation of any Claims covered by this indemnification and provide full information with respect thereto.

 

    

THE PARTIES ACKNOWLEDGE THAT INTEGRA SHALL NOT HAVE CONTROL OVER THE USES TO WHICH THE MICROFIB PRODUCT WILL BE DEVOTED WITHIN THE MOZAIK PRODUCT OR OVER ITS USE, STORAGE, HANDLING, DISTRIBUTION OR APPLICATION AFTER

 

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  SHIPMENT FROM INTEGRA’S FACILITY. SEASPINE ASSUMES FULL RESPONSIBILITY WITH RESPECT TO THE USE OF THE MICROFIB PRODUCTS, AND IT IS MUTUALLY AGREED THAT INTEGRA ASSUMES NO LIABILITIES OF ANY KIND WITH RESPECT TO THE USE BY SEASPINE OR ANY THIRD PARTY OF THE MICROFIB PRODUCT IN ANY MOZAIK PRODUCT.

12. MISCELLANEOUS :

12.1 Independent Contractors . This Agreement shall not constitute, and is not intended to constitute, either Party as an employee, agent, partner or legal representative of the other Party for any purpose, or give either Party any right to supervise or direct the functions of the other Party. Neither Party shall have authority to act for or obligate the other Party in any way or to extend any representation or warranty on behalf of the other Party. Each Party agrees to perform under this Agreement solely as an independent contractor and neither Party shall have any right, power, or authority, nor shall they represent themselves as having any authority to assume, create, or incur any expense, liability or obligation, express or implied, on behalf of the other Party, or otherwise act as an agent for the other Party for any purpose. Each Party agrees not to permit its employees or agents to do anything that might be construed or interpreted as acts of the other Party.

12.2 Integration . This Agreement, including its Exhibits, sets forth all the covenants, promises, agreements, warranties, representations, conditions and understandings between the Parties and supersedes all prior discussions, negotiations and agreements between the Parties concerning the subject matter hereof. Integra and SeaSpine agree that nothing in any SeaSpine purchase order or other document submitted pursuant to this Agreement shall in any way modify or add to the terms and conditions set forth in this Agreement (except for identification of the Microfib Products, quantity and delivery date consistent with this Agreement). Except as expressly set forth in this Agreement, no subsequent modification or addition to this Agreement shall be binding upon the Parties unless reduced to writing and signed by the respective authorized officers of the Parties.

12.3 Waiver . Integra’s failure to strictly enforce any term or condition stated herein or exercise any right arising hereunder shall not constitute a waiver of Integra’s right to enforce such terms or conditions or exercise such right thereafter. All of Integra’s rights and remedies against SeaSpine with regard to this Agreement are cumulative and are in addition to any other rights and remedies Integra may have at law or in equity. No waiver by either Party of any condition or term in any one or more instances shall be construed as a continuing waiver of such condition or term or of another condition or term.

12.4 Assignment . This Agreement shall be binding upon and shall inure to the benefit of the Parties, and their respective successors and permitted assigns. Neither Party may transfer or assign this Agreement, in whole or in part, without the prior written consent of the other Party, except that either Party may transfer or assign this Agreement, in whole or in part, without the prior written consent of the other Party, to any affiliate and to any successor to substantially all of its business or assets to which this Agreement relates, whether by merger, sale of assets, sale of stock, reorganization or otherwise, without the consent of the other Party.

 

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12.5 Severability . If any provisions of this Agreement should be or become fully or partly invalid or unenforceable for any reason whatsoever or violate any applicable Law, this Agreement is to be considered divisible as to such provision and the Parties shall negotiate in good faith a valid or enforceable substitute provision that most nearly reflects the original intent of the Parties and all other provisions hereof shall remain in full force and effect. Moreover, if one or more of the provisions contained in this Agreement shall for any reason be held to be excessively broad as to scope, activity or subject so as to be unenforceable at law, such provision or provisions shall be construed by the appropriate judicial body by limiting and reducing it or them, so as to be enforceable to the maximum extent compatible with the applicable Law as it shall then appear.

12.6 Force Majeure . Except with respect to the payment of money, neither Party shall be liable for any failure or delay in performance under this Agreement if either Party is prevented from performing any of its obligations hereunder due to any cause which is beyond the non-performing Party’s reasonable control, including, without limitation, fire, explosion, earthquake, flood, acts of war, terrorism, or other acts of God; acts, regulations or laws or application thereof;, war or civil commotion; strike, lock-out or labor disturbances; or failure of public utilities or common carrier, embargo or other governmental action or request, equipment failure, shortage of raw materials or inability to obtain labor, fuel, materials supplies or power at reasonable prices (a “ Force Majeure Event ”), such non-performing Party shall promptly give notice thereof to the other Party and shall use reasonable commercial efforts to cure or correct any such Force Majeure Event and to resume performance of its affected obligations as soon as possible.

12.7 Choice of Law; Venue; Waiver of Jury Trial . This Agreement shall be governed by and construed in accordance with the internal laws of the State of New Jersey without reference to its conflict of laws provisions. In the event of a dispute arising from this Agreement the Parties agree that the state and federal courts of the State of New Jersey shall have exclusive jurisdiction over any litigation or proceeding. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

12.8 Survival . Any provision of this Agreement that contemplates performance or observance subsequent to any termination or expiration of this Agreement (in whole or in part) shall survive any termination or expiration of this Agreement (in whole or in part, as applicable) and continue in full force and effect. Without limiting the foregoing, Articles 7, 8, 10 , 11 and 12 and Sections 4.3, 4.4 , and 9.2 of this Agreement shall survive the expiration or termination of this Agreement.

12.9 Section Headings . Section headings herein are for convenience only, are not part of the terms and conditions and shall not affect their interpretation.

 

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12.10 Ambiguities . Ambiguities, if any, in this Agreement shall not be construed against any Party irrespective of which Party may be deemed to have authored the ambiguous provision.

12.11 Counterparts . This Agreement may be executed in any number of counterparts, or facsimile or .pdf scanned versions, each of which shall be considered to be an original instrument and to be effective as of the Effective Date.

(Signature Page Follows)

 

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

SEASPINE ORTHOPEDICS CORPORATION

By:  
 Name:  
 Title:  

INTEGRA LIFESCIENCES CORPORATION

By:  
 Name:  
 Title:  

Exhibit 10.5

MOZAIK SUPPLY AGREEMENT

(Integra as Supplier)

This Supply Agreement (“ Agreement ”) sets forth the terms and conditions under which Integra LifeSciences Corporation (“ Integra ”) contracts with SeaSpine Orthopedics Corporation (“ SeaSpine ” and together with Integra, the “ Parties ”) to provide the products set forth on Exhibit A (the “ Products ”) on a non-exclusive basis at the prices set forth herein.

1. MANUFACTURING AND SUPPLY RELATIONSHIP :

1.1 General; Products . Under this Agreement, SeaSpine engages Integra as a Product supplier. Integra may designate an affiliate of Integra to perform its obligations hereunder, provided that Integra shall remain liable for all such obligations. Attached hereto as Exhibit A is a complete list of the Products (as of the Effective Date (as defined in Section 3 )) and their Prices (as defined in Section 2.1(a) ). No other right or license is or shall be created or granted hereunder by implication, estoppel or otherwise, except as expressly provided in this Agreement.

1.2 Specifications . The specifications for the Products, as of the Effective Date, are set forth in Exhibits B-1 , B-2 , B-3 and B-4 . Such specifications, as the same may be modified from time to time hereunder, are referred to herein, as the “ Specifications .”

 

  1.3 Changes to Products .

 

  a. Integra shall have the right to modify the Products or their Specifications (i) as necessary to comply with changes in Law (as defined in Section 8.1 ) or (ii) for any other reason provided that such modification does not affect the form, fit, function, safety or appearance of the Products. If, however, Integra plans to modify any Product or its Specifications, Integra shall provide SeaSpine written notice at least sixty (60) days in advance of the effectiveness of such modification (unless impractical for regulatory reasons, in which case such notice shall be provided promptly after the need to modify the Products or their Specifications is determined by Integra).

 

  b. If Integra makes a modification to the Products in accordance with this Section 1.3 , Integra shall provide SeaSpine with information on the changes, and corresponding updated guidelines and instructions for use, if applicable.

2. PRODUCT PRICES AND OTHER FEES :

 

  2.1 Prices .

 

  a. SeaSpine shall pay Integra for the Products at the per unit prices listed in Exhibit A , as such prices may be modified as described in Section 2.1(b) (the “ Prices ”).

 

  b.

Integra may increase its Prices for the Products annually effective after Integra has given SeaSpine sixty (60) days prior notice of such Price increases. Price increases shall apply to all orders shipped after the effective date of such increase.

 

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  Annual price increases shall not exceed the greater of (i) three percent (3%) or (ii) the annual change in the consumer price index for all urban consumers for all cities for the twelve month period immediately preceding the notice of such price increase, as published by the United States Bureau of Labor Statistics (http://www.bls.gov); provided , however , that if at any time during the Term, Integra experiences a documented increase in its variable costs related to the Products of greater than five percent (5%) in any calendar year, the Parties will meet and confer in good faith to negotiate applicable adjustments to the Prices.

3. EFFECTIVE DATE : The effective date of this Agreement shall be [                  ], 2015 (“ Effective Date ”).

4. TERM AND TERMINATION :

4.1 Term . This Agreement shall commence on the Effective Date and expire, except as earlier terminated hereunder, on the third (3rd) anniversary of the Effective Date (the “ Term ”). The Parties may, upon mutual written agreement, extend the Term thereafter.

4.2 Termination

 

  a. Breach . Either Party may terminate this Agreement for cause upon written notice of material breach by the other Party of this Agreement (a “ Termination Notice ”), which shall include an opportunity for the breaching Party to cure. If the breaching Party does not cure the material breach identified in the Termination Notice within ninety (90) days (or if such breach is a failure of SeaSpine to make payment to Integra when due hereunder, thirty (30) days) after receipt of such Termination Notice or such longer cure period as the Parties may agree in writing, this Agreement shall terminate.

 

  b. [Reserved]

 

  c. Bankruptcy, etc . Either Party may terminate this Agreement immediately upon written notice to the other Party if proceedings in bankruptcy or insolvency are instituted by or against the other Party, or a receiver is appointed, or if any substantial part of the assets of the other Party is the object of attachment, sequestration or other type of comparable proceeding, and such proceeding is not vacated or terminated within sixty (60) days after its commencement of institution.

4.3 Effects of Termination .

 

  a.

Mutual Obligations . After either Party provides a Termination Notice and pending termination of this Agreement, the Parties shall continue to perform their respective obligations hereunder until termination or expiration of the Term is effective. Expiration of the Term or termination of this Agreement shall not relieve the Parties of any obligation accruing prior to such expiration or

 

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  termination. Each Party agrees, at the request of the other Party upon the expiration of the Term or termination of this Agreement, to return or destroy at the option of the receiving party all Confidential Information exchanged pursuant to Section 10 , except such Confidential Information it may be required to retain under applicable Laws.

 

  b. Termination by Integra . Upon termination of this Agreement by Integra pursuant to Section 4.2(a) (Breach) , Integra may, at its sole option, supply and ship any Order(s) (as defined below) submitted to Integra prior to the effective date of termination or expiration of the Term to SeaSpine and SeaSpine shall pay the applicable Prices, all in accordance with the terms and conditions of this Agreement.

 

  c. Termination by SeaSpine . Upon termination of this Agreement by SeaSpine pursuant to Section 4.2(a) (Breach) , with respect to Order(s) submitted to Integra and accepted prior to the effective date of termination, SeaSpine may at its option, either (x) cancel any unfilled Orders or (y) advise Integra that SeaSpine wishes to have such unfilled Orders filled, in which event Integra shall supply, and ship the Products pursuant to such then pending Orders for the Products for delivery after the effective date of termination or expiration. SeaSpine shall pay the applicable Prices, all in accordance with the terms and conditions of this Agreement.

4.4 Final Order . In the event of termination or expiration of this Agreement for any reason other than by Integra pursuant to Section 4.2(a) (Breach) or Section 4.2(c) (Bankruptcy, etc.) , SeaSpine shall have the right, at its discretion, to place a final order for the Products prior to or on the last day of the Term in an amount of each Product not in excess of the lesser of (A) one hundred thirty percent (130%) of the amount of such Product set forth in the last forecast (including the Binding Forecast and calendar quarters 3 and 4 included therein) provided by SeaSpine in accordance with Section 5.2 prior to the placement of such final order and (B) four (4) times the Maximum Quarterly Order (as defined in Section 5.2 ). If SeaSpine desires to order additional units of the Product in excess of such amount, SeaSpine shall notify Integra in writing and the Parties shall discuss in good faith, provided that Integra shall have no obligation to accept any such additional order. Integra may schedule delivery of the final order over four calendar quarters with the first such calendar quarter beginning at least three (3) months after the end of the Term, at Integra’s discretion, provided that Integra will make available for delivery in each such calendar quarter an amount of each Product that, when added to the amount of such Product previously made available by Integra pursuant to this Section 4.4 , equals at least (i) (A) the amount of such Product included in the final order, divided by (B) 4, multiplied by (ii) the number of such calendar quarters to date.

5. ORDERS; FORECASTS; ACCEPTANCE OF MOZIAK PRODUCTS, ETC.

5.1 Orders . SeaSpine is obligated to purchase the Products for which it has issued a firm order or orders to Integra (“ Order(s) ”), whether pursuant to a forecast that is deemed binding hereunder, or pursuant to a purchase order accepted by Integra. Integra does not stock the Products in inventory for purchase by SeaSpine. All Orders must contain delivery dates not less than ninety (90) days after the date of receipt of the Order by Integra, unless otherwise agreed upon in writing by Integra.

 

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5.2 Forecasts . No later than the first business day of each calendar quarter, SeaSpine shall provide Integra with a written rolling forecast as to SeaSpine’s requirements of the Products for the next four (4) calendar quarter period. Each calendar quarter forecast will consist of the following:

 

  a. The first two (2) calendar quarters of each forecast shall be binding on SeaSpine (“ Binding Forecast ”) and accompanied by an Order for such forecasted amount of the Products. The Order shall be in writing and shall specify the delivery date (which must be at least ninety (90) days after the receipt by Integra of the Order), quantity of each Product ordered and the Prices and total cost of the Order.

 

  b. Each forecast shall update the prior forecast by:

 

  i. dropping the previous calendar quarter 1 from the forecast;

 

  ii. moving calendar quarter 2 from the previous forecast to be calendar quarter 1 of the updated forecast;

 

  iii. updating, as appropriate and subject to clause (c) below, calendar quarters 3 and 4 of the previous forecast, which as updated will be calendar quarters 2 and 3 of updated forecast; and

 

  iv. adding a new calendar quarter 4 to the updated forecast, subject to clause (c) below.

The initial forecast for the Products is set forth on Exhibit C attached hereto.

 

  c. SeaSpine may not increase or decrease the amounts forecasted in the Binding Forecast, but may, subject to Integra’s written acceptance, issue additional Orders during such two (2) calendar quarter period as provided in Section 5.6 . In addition, SeaSpine may not increase the number of units of the Products forecasted for any calendar quarter (e.g., 2Q2016) by more than thirty percent (30%) in aggregate from the number of units first forecasted for such calendar quarter (i.e. when such calendar quarter period was calendar quarter 4 of the forecast), and SeaSpine may not reduce such number of units first forecasted for such calendar quarter by more than ten percent (10%) in the aggregate from the number of units of each Product first forecast for such calendar quarter, without the prior written consent of Integra. SeaSpine shall not order for any calendar quarter more than the number of units of each Product set forth in Exhibit D attached hereto (the “ Maximum Quarterly Order ”).

 

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  d. SeaSpine will use commercially reasonable efforts to ensure that the forecast for calendar quarters 3 and 4 is accurate, but the forecast for such calendar quarters will not constitute an Order.

 

  e. In the event that SeaSpine fails to provide a Binding Forecast for a particular calendar quarter, unless Integra otherwise notifies SeaSpine in writing, the last available forecasted amount for such calendar quarter shall become a firm Order, provided , however , that nothing contained in this Section 5.2(e) shall be deemed to affect any of Integra’s rights or limit any of Integra’s remedies as a result of such failure.

5.3 Batch Sizes . SeaSpine agrees to order the Products in whole multiples of the batch sizes set forth in Exhibit D (although SeaSpine acknowledges and agrees that the actual quantity of the Products delivered may be adjusted as set forth in Section 5.5 or as otherwise expressly provided in this Agreement).

5.4 Acceptance of Orders . Upon receipt of an Order, Integra shall review the Order and shall have ten (10) business days from the Order’s receipt to notify SeaSpine of Integra’s acceptance or rejection of the Order. Integra shall accept any Order for a Binding Forecast that complies with the terms of this Agreement. If any other Order is rejected by Integra, Integra shall use reasonable efforts to provide SeaSpine with a reason for the rejection. If Integra fails to reject an Order in such ten (10) business day period, such Order shall be deemed accepted. Integra shall use commercially reasonable efforts to fill accepted Orders with the Product not later than ninety (90) days after the receipt of the Order or on the delivery date requested, whichever date is later. However, reasonable delay in shipment (where any delay of ninety (90) days or less after scheduled shipment shall be presumed reasonable) shall not be considered a breach of this Agreement and shall not relieve SeaSpine of its obligations to accept such shipment.

5.5 Whole Lots . Due to variances in manufacturer yields of the Products (“ Product Lots ”), in filling any Order for SeaSpine, Integra has the right to deliver to SeaSpine a quantity of the Products that is larger or smaller than the Order. Within three (3) business days of notification by Integra of the quantity of the Products constituting a Product Lot, SeaSpine agrees to issue to Integra a revised purchase order matching the quantity of the Products in such Product Lot. Regardless of the size of an Order, all Products representing a single Product Lot shall be shipped together. SeaSpine will pay for the quantity of the Products actually delivered. The quantity of the Products actually delivered will not affect the firm Order for the Products if the difference in quantity is not more than ten percent (10%). In the event that shipping the Product of a single Product Lot results in a shipment in excess of ten percent (10%) of the Products in the Order, such excess shall be applied to the Order for the subsequent month.

5.6 Supplemental Orders; Changes to Orders .

 

  a.

If SeaSpine desires to order additional units of the Product in excess of Orders for the Binding Forecast, including if any such proposed order would result in Orders exceeding the applicable Maximum Quarterly Order, SeaSpine shall notify

 

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  Integra in writing, stating the units of the Products requested and the date by which delivery of such Products is desired. Integra shall have no obligation to accept any such order, but if Integra accepts any such request (or any portion thereof) in writing, SeaSpine shall be obligated to purchase all such quantities as a firm Order hereunder.

 

  b. Except as otherwise expressly permitted hereunder, any Order(s) deriving herefrom or related hereto may be changed, cancelled or amended only by written agreement signed by both SeaSpine and Integra, setting forth the particular changes to be made and the effect, if any, of such changes on the Prices and time of delivery. SeaSpine may not cancel any Orders unless such cancellation is expressly agreed to in writing by Integra. In the event of a cancellation that is expressly agreed to in writing by Integra, Integra will advise SeaSpine of the total charge for such cancellation, and SeaSpine agrees to pay such charges. Certification of such costs by Integra’s independent public accountants shall be conclusive on the Parties.

5.7 Acceptance and Agreement . ALL SALES AND ORDER(S) ARE SUBJECT TO THE TERMS AND CONDITIONS OF THIS AGREEMENT. NO VARIATION OF THESE TERMS AND CONDITIONS WILL BE BINDING UPON INTEGRA UNLESS AGREED TO IN WRITING AND SIGNED BY AN OFFICER OR OTHER AUTHORIZED REPRESENTATIVE OF INTEGRA. ANY ADDITIONAL OR DIFFERENT TERMS, ADDITIONS, DELETIONS OR EXCEPTIONS PROPOSED BY SEASPINE (WHETHER IN A PURCHASE ORDER, OTHER PRINTED FORM OR ELSEWHERE) ARE OBJECTED TO AND HEREBY REJECTED, UNLESS SUCH TERMS, ADDITIONS, OR EXCEPTIONS ARE APPROVED SPECIFICALLY BY INTEGRA IN WRITING AND SIGNED BY AN OFFICER OR OTHER AUTHORIZED REPRESENTATIVE OF INTEGRA. No course of prior dealings or usage of trade shall be relevant to supplement or explain any term used herein. Any clerical errors by Integra are subject to correction.

5.8 Returns . The Products may not be returned unless resulting from a Product recall, field correction or market withdrawal for which Integra is responsible as provided in Section 8.6 or as permitted pursuant to Section 5.9(c) .

5.9 Delivery; Certificate; Inspection and Acceptance .

 

  a. Terms for the shipments of the Products will be FCA (Incoterms, 2010). SeaSpine shall pay shipping and freight costs, which will be added to the invoice for each Order, and SeaSpine shall have the right to choose the carrier so long as such choice complies with the shipping validation for the Product. SeaSpine may designate the destination of the Products to be delivered hereunder so long as such destination complies with applicable Law. Delivery of the Products to the carrier at Integra’s shipping point shall constitute delivery to SeaSpine; SeaSpine shall bear all risk of loss or damage in transit. However, Integra reserves the right, in its discretion, to change the exact method of shipment and to make delivery in installments, all such installments to be separately invoiced and paid for when due as provided in Section 6.1 , without regard to subsequent deliveries. Delay in delivery of any installment within the parameters set forth in this Article 5 shall not relieve SeaSpine’s obligations to accept remaining deliveries.

 

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  b. Each shipment of the Product must be accompanied by final Product testing and inspection results and a certificate, substantially in the form attached hereto as Exhibit E , signed by Integra stating that the Products comply with the Specifications; the testing, inspections results and certificate shall be set forth by the Product serial number and must be signed by Integra.

 

  c. SeaSpine, upon receipt of the Products from Integra, shall have thirty (30) days to inspect the Products with respect to whether or not they comply with the Specifications. If the Products do not comply with the Specifications, SeaSpine shall notify Integra and provide Integra with samples of the nonconforming Products (to the extent SeaSpine deems possible) along with such notice and provide Integra with the results of its inspection. If Integra’s inspection confirms the Products do not comply with the Specifications, then Integra, at its expense and at SeaSpine’s option, within thirty (30) days following the completion of Integra’s investigation, will either bring the Products in question into conformance with the requirements of Section 9.1(a)(ii) or replace such nonconforming Products, in either case, at no additional charge to SeaSpine. If after inspection, Integra disagrees with SeaSpine’s determination, the Parties shall submit samples of the Product in question to a mutually acceptable independent testing laboratory for evaluation to determine whether the Product are in conformance with the requirements of Section 9.1(a)(ii ). The results of such evaluation shall be deemed conclusive of the matter, and the non-prevailing party shall bear the costs of the evaluation.

6. PAYMENT AND TAXES :

 

  6.1 Payment .

 

  a. Payment terms of an Order are net thirty (30) calendar days from the date of invoice, unless otherwise stated. SeaSpine specifically waives any right for any reason to withhold or set-off payments it owes to Integra hereunder, whether available at law, in equity or otherwise under the laws, rules, regulations, ordinances, decrees or orders of any governmental authority.

 

  b. SeaSpine agrees to pay all costs, including, but not limited to, reasonable attorneys’ fees, accounting fees and other expenses of collection resulting from any default by SeaSpine of any of the terms hereof.

6.2 Taxes and Other Charges . Any medical device tax, use tax, sales tax, excise tax, duty, custom, inspection or testing fee, or any other tax, fee or charge of any nature whatsoever imposed by any governmental authority, on or measured by the transaction between Integra and SeaSpine, except for taxes of Integra’s income, shall be paid by SeaSpine in addition to the

 

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Prices quoted or invoiced. In the event Integra is required to pay any such tax, fee or charge, SeaSpine shall reimburse Integra therefor; or SeaSpine shall provide Integra at the time the applicable Order is submitted an exemption certificate or other document acceptable to the authority imposing the tax, fee or charge.

7. SEASPINE GENERAL OBLIGATIONS :

7.1 Compliance . SeaSpine shall not (i) alter the Products, (ii) pay, offer or promise to pay, or authorize payment of any money, or give, offer or promise to give, or authorize the giving of anything of value to any healthcare professional in violation of any anti-kickback statutes, the AdvaMed Code, or other applicable Laws or policies described herein, (iii) incur any obligation in the name of or on behalf of Integra.

7.2 SeaSpine’s Use of Products . SeaSpine warrants to Integra that (i) following delivery to SeaSpine, the Products will be marketed, promoted, stored and distributed in compliance with applicable FDA regulations, applicable ISO and Current Good Manufacturing Practices and (ii) all facilities used for storage and distribution of the Products after delivery to SeaSpine hereunder are FDA compliant.

8. SEASPINE REGULATORY AND QUALITY OBLIGATIONS:

8.1 Compliance with Laws . SeaSpine agrees to comply with: (i) the AdvaMed Code, as modified from time to time and which is incorporated into SeaSpine’s compliance policies, (ii) its responsibilities under the Safe Harbor Regulations relating to program “fraud and abuse” promulgated under the Social Security Act and Medicare and Medicaid Patient and Program Protection Act, (iii) its compliance policies which are consistent with the AdvaMed Code, (iv) the U.S. Foreign Corrupt Practices Act and any other applicable anti-bribery laws, (v) all applicable laws, rules, ordinances, regulations, decrees and orders of any governmental authority, including but not limited to, those related to the advertising, promotion, sale and use of the Products, privacy, health, safety and environmental matters and record-keeping and reporting in compliance with all governmental authority regulations (collectively, the “ Laws ”) for the Products (which related records and reporting information shall be supplied to Integra promptly upon request), and (vi) all internal policies and procedures of SeaSpine, including without limitation, discount policies. SeaSpine further agrees to notify Integra immediately upon receiving any notice with respect to a violation or alleged violation of any of the above mentioned Laws and any other laws or regulations, to the extent relating to the Products.

8.2 Recordkeeping . Each Party agrees to comply with the document retention policy attached hereto as Exhibit F with respect to its activities hereunder. SeaSpine shall make such records available to Integra, immediately upon request for regulatory purposes.

8.3 Review . Integra shall have the right to send its representatives to review, during regular business hours and upon reasonable prior written notice, SeaSpine’s marketing and regulatory records and files and all other records and files related to the Products and related to SeaSpine’s compliance with this Agreement. SeaSpine shall reasonably cooperate with Integra in such review and any reasonable requests of Integra that result from such review by Integra.

 

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  8.4 Complaints .

 

  a. SeaSpine shall promptly (and in any event within one business day) report to Integra (i) any accident, or incident involving the Product (of which it becomes aware) which results in personal injury or damage to property; (ii) any complaint involving the Product (of which it becomes aware), whether oral or written; (iii) any defect in or condition of the Product (of which it becomes aware); or (iv) any other fact or circumstance (of which it becomes aware) that may result in a report to the FDA or other applicable regulatory authority or may result in a violation or alleged violation of any applicable Law relating to the Product.

 

  b. Integra shall promptly (and in any event within one business day) report to SeaSpine (i) any complaint involving the Product, whether oral or written and (ii) any defect in or condition of the Product, in each case of which Integra becomes aware.

 

  c. The Parties shall cooperate in the investigation and determination of the cause of any of the foregoing accidents, incidents or complaints and shall make available all statements, reports and tests made to investigate such accident or incident. Furnishing such information and any investigation of such information or incident report shall not in any way constitute any assumption of any liability for such accident or incident by either Party.

 

  d. Integra will be responsible for Medical Device Reporting per Title 21 CFR Part 803 or similar vigilance reporting requirements in the U.S., the European Union and any other jurisdiction as related to the Products and as required by Laws where the Products are marketed, provided that upon conclusion of the applicable Phase I Period in a jurisdiction, SeaSpine shall become responsible for such reporting responsibilities in such jurisdiction.

8.5 Governmental Authority . Each Party agrees to notify the other Party within forty-eight (48) hours of any audit or inspection by, or contact with, the FDA or other regulatory authority that involves the Product. Each Party agrees to provide the other Party with a copy of the portion of the audit or inspection report or contact document that relates to the Product and any response thereto provided by such Party.

8.6 Recall, etc . Each Party shall be entitled to execute a recall, field correction or market withdrawal of the Products. The Parties agree to cooperate with and reasonably assist each other in the event of a recall, field notification or market withdrawal of the Products. SeaSpine agrees to pay for any recall, field notification and/or market withdrawal related to the Products, unless directly resulting from a breach of the warranty set forth in Section 9.1(a)(ii) , in which case Integra agrees to pay all direct, documented, out-of-pocket costs of such recall, field notification or market withdrawal. If either Party decides to execute a recall, field notification or market withdrawal of a Product, it shall promptly notify the other Party of such action.

 

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8.7 No Debarment . Integra certifies that neither it nor any of its employees has been debarred under Section 306(a) or Section 306(b) of the Act and that no debarred person will in the future be employed to manufacture the Products. Integra also certifies that no person working in the manufacture of the Products has a conviction that could lead to debarment under Section 306(a) or Section 306(b) of the Act. Furthermore, Integra agrees to notify SeaSpine immediately of any action toward conviction or debarment under Section 306(a) or Section 306(b) of the Act of any person working in the manufacture of the Products.

8.8 Quality Agreement . Each Party (or an affiliate designee thereof) has entered into the Quality Agreement attached as Exhibit G as of the Effective Date.

8.9 Compliance with Laws . Integra will manufacture the Products in compliance with Laws applicable to the processing, storage, packaging, labeling and shipment of the Products, as modified from time to time.

8.10 Quality Audits . Integra shall allow SeaSpine to perform quality audits at its manufacturing facility for the Product during regular business hours and upon reasonable prior written notice if SeaSpine has reasonable cause to believe there is a quality issue affecting the Products or as required by applicable law. SeaSpine shall provide Integra with a written report of all nonconformances to the manufacturing procedures, storage and shipping procedures and test/inspection procedures within thirty (30) days of identification, which non-conformances are identified by SeaSpine during quality audits.

8.11 Additional Regulatory Matters .

 

  a. As of the Effective Date, Integra (or one of its affiliates) owns the 510(k) clearances, CE Marks and other regulatory consents, licenses, authorizations and approvals, including as applicable design dossiers, in other jurisdictions for the Products (the “ Product Registrations ”). The terms and conditions set forth in Exhibit H shall apply with respect to SeaSpine obtaining a “duplicate” Product Registration in each applicable jurisdiction. The period between the Effective Date and the date SeaSpine obtains a Product Registration in a jurisdiction is referred to herein as the “ Phase I Period ” for such jurisdiction.

 

  b. SeaSpine shall have sole responsibility for obtaining all required consents, licenses, authorizations and approvals for the manufacture, use and sale of the Product worldwide, and such consents, licenses, authorizations and approvals shall be held in the name of SeaSpine or its designee, except as otherwise provided herein.

 

  c.

Integra shall reasonably assist SeaSpine in accordance with Section 8.11(b) by providing information related to the Products when necessary to obtain any consents, licenses, authorizations or approvals, provided that SeaSpine shall reimburse Integra for its costs and expenses associated with Integra’s assistance in providing information related to the Products in obtaining or maintaining consents, licenses, authorizations or approvals for the Product at a per hour charge

 

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  of $200. Integra will provide the FDA or other applicable regulatory authority with access to Integra’s files related to the Products, but shall not be obligated to permit SeaSpine or any foreign governmental regulatory agency to review certain confidential files, including without limitation, the design history files or processing information for the Products.

9. INTEGRA LIMITED WARRANTY; CERTAIN OBLIGATIONS :

9.1 Limited Warranty

 

  a. Integra warrants to SeaSpine that (i) it will convey good title to each Product delivered to SeaSpine hereunder, free from any security interest, liens or other encumbrances, and (ii) each Product shall have been manufactured in compliance with the then-current Specifications and will be free from defects in materials or workmanship during the Shelf-life for such Product. “ Shelf-life ” means with respect to a Product, the shelf-life of such Product as set forth in the applicable Specifications. As of the Effective Date, the Shelf-life for each Product is as set forth in Exhibit I . Except as set forth in Section 8.6 , SeaSpine’s sole remedy, and Integra’s sole obligation, in the event of a breach by Integra of the warranty set forth in clause (ii) above is as set forth in Section 5.9(c) .

 

  b. The limited warranty set forth in Section 9.1(a) is the sole warranty Integra makes regarding the Products. THIS WARRANTY IS EXCLUSIVE AND INTEGRA HEREBY DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, WRITTEN OR ORAL, INCLUDING WITHOUT LIMITATION, (I) ANY IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR APPLICATION, OR WARRANTY OF QUALITY, OTHER THAN THOSE EXPRESSLY SET FORTH IN THE ATTACHED WARRANTY, OR (II) ANY IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING, OR USAGE OF TRADE OR (III) WARRANTIES OF NON-INFRINGEMENT. SEASPINE UNDERSTANDS THAT NO EMPLOYEE, OFFICER, AGENT OR REPRESENTATIVE OF INTEGRA IS AUTHORIZED IN ANY WAY TO MAKE ANY STATEMENT TO THE CONTRARY WHICH SHALL BE BINDING ON INTEGRA OR TO ASSUME FOR INTEGRA ANY OTHER LIABILITY IN CONNECTION WITH THE PRODUCTS.

 

  c.

The warranty set forth in Section  9.1(a)(ii) shall not apply to, and Integra shall not be responsible for, any loss or damages arising in connection with the purchase or use of any Product (i) which has been modified by anyone other than an authorized service representative of Integra or (ii) which has been altered in any way so as, in Integra’s judgment, to affect its stability or reliability, or which has been subject to misuse, negligence or accident, in each case after delivery to SeaSpine hereunder or (iii) which has been subject to improper or negligent installation, storage or handling, in each case after delivery to SeaSpine hereunder or (iv) which has been subject to improper cleaning, sterilization or maintenance,

 

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  in each case after delivery to SeaSpine hereunder or (v) which has been subject to accidental damage arising from acts of God, electrical power damage, equipment malfunction, unusual stress, unreasonable operating procedures or abnormal or extreme operating conditions, in each case after delivery to SeaSpine hereunder or (vi) which has been used otherwise than in accordance with the instructions furnished by Integra.

10. CONFIDENTIALITY AND OWNERSHIP :

10.1 Confidential Information. Each Party agrees that it shall not during the Term and anytime thereafter, directly or indirectly, without the prior written consent of the other Party, disclose to any third party, pursuant to a press release or otherwise, any Confidential Information of the other Party. As used herein, “ Confidential Information ” of a Party means information possessed by such Party, or its affiliates, that relates to the other Party’s business or the Products (which may include information of third parties as to which either SeaSpine or Integra and their respective affiliates has a confidential arrangement or understanding), whether that information is written or oral, however acquired. Notwithstanding the foregoing, Confidential Information does not include any such information that as of the date of disclosure to, or acquisition by, the receiving Party was (i) obtained by the receiving Party from a third party with no obligation of confidentiality to the disclosing Party or its affiliates, (ii) disclosed in published literature, (iii) generally available to the industry or (iv) known to the receiving Party without any obligation to keep it confidential or any restriction on its use and such knowledge can be substantiated by reasonable documentation. Confidential Information shall additionally include the existence and terms of this Agreement and the business relationship established hereunder, together with any documents or data prepared by any of the Parties that reflect such information. Each Party further agrees that it shall not, directly or indirectly, without the prior written consent of the other Party, use any of the Confidential Information of the other Party for any reason or purpose, including to reverse engineer any Product, other than as contemplated by this Agreement.

10.2 Degree of Care . Notwithstanding Section 10.1 , each Party may disclose Confidential Information received pursuant to this Agreement to its directors, officers, employees, consultants, attorneys and accountants and other agents and representatives, but not to any other third party, provided , however , that all such access is limited to those that have a need-to-know in connection with the business relationship established hereunder, and further provided that such persons and entities are obligated to hold the Confidential Information in confidence in accordance with restrictions and procedures no less stringent than provided for herein. Each Party shall be responsible for any breach of this Section 10 by its directors, officers, employees, consultants, attorneys and accountants and other agents and representatives. Each Party covenants that it shall exercise the same degree of care with respect to the other Party’s Confidential Information as it would its own Confidential Information, and, in any event, shall exercise no less than a reasonable degree of care. Notwithstanding the foregoing, a Party may disclose the Confidential Information belonging to the other Party to the extent such disclosure is reasonably necessary in the context of preparation and filing of regulatory documents (including, without limitation, governmental approvals) to regulatory authorities in connection with the Products pursuant to this Agreement; provided that the disclosing Party notify the other Party in writing of such disclosure and the disclosing Party requests confidential treatment of such disclosure to the extent confidential treatment is reasonably available to such Party.

 

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10.3 Remedies . The Parties understand and agree that this Section 10 is reasonable and necessary to protect the Parties respective business interests. The Parties further agree that the other may suffer irreparable harm from a breach of this Section 10 . Thus, in addition to any other rights or remedies, all of which shall be deemed cumulative, a Party shall be entitled to pursue injunctive relief to enforce the terms of this Section 10 without the necessity of proof of damages or the posting of a bond or other security.

10.4 Disclosure Required by Law . Notwithstanding Section 10.1 , a receiving Party may disclose Confidential Information if such information is required by Law to be disclosed in response to a valid order of a court of competent jurisdiction or authorized governmental authority, provided that the receiving Party must give the other Party prompt written notice and seek to obtain or allow for and reasonably cooperate with the other Party to seek to obtain a protective order prior to such disclosure. In any event, a receiving Party shall disclose only that portion of the Confidential Information which is legally required and will use all commercially reasonable efforts to assure that confidential treatment is accorded any Confidential Information.

10.5 Return of Copies . Upon termination of this Agreement, each Party shall, upon the written request of the other Party, return all copies, whether in paper, electronic, or other format, of all Confidential Information received by it from the other Party which contain the other Party’s Confidential Information, except that one copy thereof may be retained solely for archival or regulatory compliance purposes.

10.6 Intellectual Property .

 

  a. SeaSpine, its licensors and/or their respective affiliates are and shall remain the exclusive owner(s) of all intellectual property rights owned or licensed by SeaSpine or any subsidiary thereof, as of the Effective Date, after giving effect to the spin-off of SeaSpine by Integra, in each case related to the Specified Products, excluding any trademark rights and product registrations (including 510(k) clearances) relating thereto. “ Specified Products ” means the ceramic collagen matrix products marketed under the Mozaik brand, including Mozaik Strip, Mozaik Putty, and Mozaik Moldable Morsels, and all equivalent products (x) marketed under spine brands or (y) provided to third parties on a private label basis, in each case as of the Effective Date, and any next generation successor version of any of the foregoing products.

 

  b. Integra agrees not to, and not to authorize a third party to, infringe, misappropriate or violate any intellectual property rights of SeaSpine, its licensors, or their respective affiliates in the Products. For purposes of this Agreement, “intellectual property rights” includes, without limitation, (i) all registered or unregistered trademarks, patents, designs or inventions; (ii) all rights in products, including product registrations; (iii) copyrights, moral rights, know-how and Confidential Information; and (iv) any similar rights worldwide, or the right to apply for any such rights.

 

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  c. SeaSpine hereby grants to Integra a limited, non-exclusive, royalty-free, non-assignable, non-transferrable license to SeaSpine names, trademarks, and logos designated by SeaSpine (collectively, the “ SeaSpine Marks ”) in order for Integra to procure and affix SeaSpine -specific labels and markings, to the extent applicable, in connection with Integra’s supply obligations under this Agreement. Upon termination of this Agreement, the foregoing limited license shall automatically terminate.

 

  d. Integra hereby grants to SeaSpine an irrevocable, worldwide, nonexclusive, royalty-free, non-assignable and non-transferrable (except to the extent a sublicense to distributors and sales representatives is needed in connection with the sale and distribution of the Products) license to the rights of Integra in the trademarks set forth in Exhibit J (the “ Licensed Marks ”) to market, sell and distribute any Product supplied hereunder that carries such Licensed Marks for a period commencing as of the Effective Date and expiring on the date set forth in Exhibit J . The terms and conditions set forth in Exhibit J also shall apply to the foregoing limited license.

 

  e. Except in connection with performing its obligations hereunder, Integra shall, and shall cause its affiliates to, cease all use of the “Integra Mozaik” and “Mozaik” trademarks.

 

  f. Each Party will comply with the terms of the agreement set forth on Exhibit K .

 

11. GENERAL :

11.1 Notices . All notices, approvals, and other communications required or permitted herein shall be in writing and shall be delivered personally (which shall include delivery by courier or overnight delivery service) or sent by certified or registered mail, postage prepaid, return receipt requested.

 

If to Integra: Integra LifeSciences Corporation
ATTN: David Hoffman
311 Enterprise Drive, Plainsboro, NJ 08536
With required copy to: Integra LifeSciences Corporation
ATTN: General Counsel
311 Enterprise Drive, Plainsboro, NJ 08536
If to SeaSpine: SeaSpine Orthopedics Corporation
ATTN: Brian Baker
2 Goodyear, Suite A, Irvine, CA 92618
With required copy to: SeaSpine Orthopedics Corporation
ATTN: Colin Smith
2384 La Mirada Drive, Vista, CA 92081
With required copy to: SeaSpine Orthopedics Corporation
ATTN: General Counsel
2384 La Mirada Drive, Vista, CA 92081

 

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Either Party may change its address for notice purposes by providing written notice of the change of address to the other Party.

11.2 Insurance . Each Party will comply with the insurance obligations for such Party set forth in Exhibit L .

11.3 Limitation of Liability . INTEGRA AND ITS DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR AFFILIATES SHALL NOT IN ANY EVENT BE LIABLE FOR INCIDENTAL, EXEMPLARY, INDIRECT, CONSEQUENTIAL, PUNITIVE OR SPECIAL DAMAGES, OF ANY KIND RESULTING FROM ANY USE OR FAILURE OR ACQUISITION OF THE PRODUCTS, WHETHER BASED UPON A CLAIM OR ACTION OF CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY OR OTHER TORT, OR OTHERWISE, ARISING OUT OF THIS AGREEMENT (EVEN IF INTEGRA HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES) INCLUDING WITHOUT LIMITATION, LIABILITY FOR LOSS OF USE, LOSS OF WORK IN PROGRESS, DOWN TIME, LOSS OF REVENUE OR PROFITS, FAILURE TO REALIZE SAVINGS, LOSS OF PRODUCTS OF SEASPINE OR OTHER USE OR ANY LIABILITY OF SEASPINE TO A THIRD PARTY ON ACCOUNT OF SUCH LOSS, OR FOR ANY LABOR OR ANY OTHER EXPENSE, DAMAGE OR LOSS OCCASIONED BY SUCH PRODUCT. EXCEPT IN THE CASE OF A CLAIM FOR THIRD PARTY INDEMNIFICATION UNDER SECTION 11.4(B) OF THIS AGREEMENT, INTEGRA’S LIABILITY IN THE AGGREGATE INCLUDING THE LIABILITY OF SEASPINE’S DIRECTORS, OFFICERS, EMPLOYEES, AGENTS AND AFFILIATES, WITH RESPECT TO PERFORMANCE OR NON-PERFORMANCE OF THIS AGREEMENT AND ANY INTEGRA PRODUCTS OR OTHER ITEMS FURNISHED UNDER THIS AGREEMENT (WHETHER IN TORT, CONTRACT OR OTHERWISE, AND NOTWITHSTANDING ANY FAULT, NEGLIGENCE WHETHER ACTIVE, PASSIVE OR IMPUTED OR STRICT LIABILITY OF INTEGRA) SHALL IN NO EVENT EXCEED THREE MILLION DOLLARS ($3,000,000).

11.4 Indemnity .

 

  a.

SeaSpine shall indemnify and defend Integra and its affiliates and their respective directors, officers, members, employees, counsel, agents and representatives and the successors and permitted assigns of any of the foregoing (the “ Integra Indemnitees ”) and hold the Integra Indemnitees harmless from and against any and all claims, demands, actions, liabilities, damages, losses, judgments, costs or expenses (including interest and penalties and reasonable attorneys’ fees and professional fees and expenses of litigation) (collectively, “ Claims ”) of third

 

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  parties to the extent arising out of, in connection with, or resulting from (i) the marketing, sale, distribution, use or promotion of the Products after title has passed to SeaSpine hereunder, except to the extent such claims result from a breach of the warranty set forth in Section 9.1(a)(ii) ; (ii) the bodily injury, property damage or any other damages or injury caused in whole or in part, by any use of the Product, except to the extent such claims result from a breach of the warranty set forth in Section 9.1(a)(ii) ; (iii) SeaSpine’s breach of any representation, warranty or covenant contained in this Agreement; (iv) any claims relating to the misappropriation or infringement of third party intellectual property rights relating to the Products; or (v) the negligence or willful misconduct of SeaSpine.

 

  b. Integra shall indemnify, defend and hold harmless SeaSpine and its affiliates and their respective directors, officers, members, employees, counsel, agents and representatives and the successors and permitted assigns of any of the foregoing (the “ SeaSpine Indemnitees ”) and hold the SeaSpine Indemnitees harmless from and against any and all Claims of third parties to the extent arising out of, in connection with, or resulting from (i) the negligence or willful misconduct of Integra, except to the extent that SeaSpine is obligated to indemnify Integra for any of the foregoing third party Claims as provided in Section 11.4(a) (including those third party Claims caused, in whole or in part, by the negligence or willful misconduct of SeaSpine), or (ii) the bodily injury, property damage or any other damages or injury caused in whole or in part, by any use of the Product, to the extent resulting from a breach of the warranty set forth in Section 9.1(a)(ii) .

 

  c. In any case in which claims arise out of or are caused by both SeaSpine’s negligence and Integra’s negligence, a comparative negligence standard shall apply with respect to the Parties’ enumerated obligations under this Section 11.4 .

 

  d.

A Party that intends to claim indemnification under this Agreement (the “ Indemnitee ”) for third party Claims shall promptly notify the other Party (the “ Indemnitor ”) in writing of such Claim in respect of which the Indemnitee or its affiliates, directors, officers, members, employees, counsel, agents or representatives intends to claim such indemnification, and the Indemnitor, at its cost and expense, shall have the right to participate in, and to the extent the Indemnitor so desires, to assume the defense thereof with counsel mutually satisfactory to the Parties; provided , however , that an Indemnitee shall have the right to retain its own counsel, with the fees and expenses to be paid by the Indemnitor, if such Indemnitee’s outside counsel advises that representation of such Indemnitee by the counsel retained by the Indemnitor would be inappropriate due to actual or potential conflicts of interests between such Indemnitee and the other Party represented by such counsel in such proceeding. The Indemnitor shall control the defense and/or settlement of any such Claims, and this indemnity agreement shall not apply to amounts paid in connection with any Claims if such payments are made by the Indemnitee without the consent of the Indemnitor; provided , however , that the Indemnitor shall not enter into any

 

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  settlement that admits fault, wrongdoing or damages without the Indemnitee’s written consent, such consent not to be unreasonably withheld, delayed or conditioned. For clarity, any Claims that relate solely to the payment of monetary damages may be settled or otherwise disposed of on such terms as the Indemnitor, in its sole discretion, shall deem appropriate. The failure to deliver written notice to the Indemnitor within a reasonable time after the commencement of any Claim, if and to the extent prejudicial to its ability to defend such Claim, shall to such extent relieve such Indemnitor of any liability to the Indemnitee under this Section 11.4 . At the Indemnitor’s request and expense, the Indemnitee and its employees and agents shall reasonably cooperate with the Indemnitor and its legal representatives in the investigation of any Claims covered by this indemnification and provide full information with respect thereto.

12. MISCELLANEOUS :

12.1 Independent Contractors . This Agreement shall not constitute, and is not intended to constitute, either Party as an employee, agent, partner or legal representative of the other Party for any purpose, or give either Party any right to supervise or direct the functions of the other Party. Neither Party shall have authority to act for or obligate the other Party in any way or to extend any representation or warranty on behalf of the other Party. Each Party agrees to perform under this Agreement solely as an independent contractor and neither Party shall have any right, power, or authority, nor shall they represent themselves as having any authority to assume, create, or incur any expense, liability or obligation, express or implied, on behalf of the other Party, or otherwise act as an agent for the other Party for any purpose. Each Party agrees not to permit its employees or agents to do anything that might be construed or interpreted as acts of the other Party.

12.2 Integration . This Agreement, including its Exhibits, sets forth all the covenants, promises, agreements, warranties, representations, conditions and understandings between the Parties and supersedes all prior discussions, negotiations and agreements between the Parties concerning the subject matter hereof. SeaSpine and Integra agree that nothing in any SeaSpine purchase order or other document submitted pursuant to this Agreement shall in any way modify or add to the terms and conditions set forth in this Agreement (except for identification of Products, quantity and delivery date consistent with this Agreement). Except as expressly set forth in this Agreement, no subsequent modification or addition to this Agreement shall be binding upon the Parties unless reduced to writing and signed by the respective authorized officers of the Parties.

12.3 Waiver . Integra’s failure to strictly enforce any term or condition stated herein or exercise any right arising hereunder shall not constitute a waiver of Integra’s right to enforce such terms or conditions or exercise such right thereafter. All of Integra’s rights and remedies against SeaSpine with regard to this Agreement are cumulative and are in addition to any other rights and remedies Integra may have at law or in equity. No waiver by either Party of any condition or term in any one or more instances shall be construed as a continuing waiver of such condition or term or of another condition or term.

 

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12.4 Assignment . This Agreement shall be binding upon and shall inure to the benefit of the Parties, and their respective successors and permitted assigns. Neither Party may transfer or assign this Agreement, in whole or in part, without the prior written consent of the other Party, except that either Party may transfer or assign this Agreement, in whole or in part, without the prior written consent of the other Party, to any affiliate and to any successor to substantially all of its business or assets to which this Agreement relates, whether by merger, sale of assets, sale of stock, reorganization or otherwise, without the consent of the other Party.

12.5 Severability . If any provisions of this Agreement should be or become fully or partly invalid or unenforceable for any reason whatsoever or violate any applicable Law, this Agreement is to be considered divisible as to such provision and the Parties shall negotiate in good faith a valid or enforceable substitute provision that most nearly reflects the original intent of the Parties and all other provisions hereof shall remain in full force and effect. Moreover, if one or more of the provisions contained in this Agreement shall for any reason be held to be excessively broad as to scope, activity or subject so as to be unenforceable at law, such provision or provisions shall be construed by the appropriate judicial body by limiting and reducing it or them, so as to be enforceable to the maximum extent compatible with the applicable Law as it shall then appear.

12.6 Force Majeure . Except with respect to the payment of money, neither Party shall be liable for any failure or delay in performance under this Agreement if either Party is prevented from performing any of its obligations hereunder due to any cause which is beyond the non-performing Party’s reasonable control, including, without limitation, fire, explosion, earthquake, flood, acts of war, terrorism, or other acts of God; acts, regulations or laws or application thereof;, war or civil commotion; strike, lock-out or labor disturbances; or failure of public utilities or common carrier, embargo or other governmental action or request, equipment failure, shortage of raw materials or inability to obtain labor, fuel, materials supplies or power at reasonable prices (a “ Force Majeure Event ”), such non-performing Party shall promptly give notice thereof to the other Party and shall use reasonable commercial efforts to cure or correct any such Force Majeure Event and to resume performance of its affected obligations as soon as possible.

12.7 Choice of Law; Venue; Waiver of Jury Trial . This Agreement shall be governed by and construed in accordance with the internal laws of the State of New Jersey without reference to its conflict of laws provisions. In the event of a dispute arising from this Agreement the Parties agree that the state and federal courts of the State of New Jersey shall have exclusive jurisdiction over any litigation or proceeding. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

12.8 Survival . Any provision of this Agreement that contemplates performance or observance subsequent to any termination or expiration of this Agreement (in whole or in part) shall survive any termination or expiration of this Agreement (in whole or in part, as applicable) and continue in full force and effect. Without limiting the foregoing, Articles 7, 8, 10 , 11 and 12 and Sections 4.3 and 4.4 of this Agreement shall survive the expiration or termination of this Agreement.

 

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12.9 Section Headings . Section headings herein are for convenience only, are not part of the terms and conditions and shall not affect their interpretation.

12.10 Ambiguities . Ambiguities, if any, in this Agreement shall not be construed against any Party irrespective of which Party may be deemed to have authored the ambiguous provision.

12.11 Counterparts . This Agreement may be executed in any number of counterparts, or facsimile or .pdf scanned versions, each of which shall be considered to be an original instrument and to be effective as of the Effective Date.

(Signature Page Follows)

 

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

SEASPINE ORTHOPEDICS CORPORATION

By:  
 Name:  
 Title:  

INTEGRA LIFESCIENCES CORPORATION

By:  
 Name:  
 Title:  

Exhibit 10.6

DBM AND OS SUPPLY AGREEMENT

(SeaSpine as Supplier)

This Supply Agreement (“ Agreement ”) sets forth the terms and conditions under which SeaSpine Orthopedics Corporation (“ SeaSpine ”) contracts with Integra LifeSciences Corporation (“ Integra ” and together with SeaSpine, the “ Parties ”) to provide the products set forth on Exhibit A-1 (each an “ OS Product ” and collectively, the “ OS Products ”) and the products set forth on Exhibit A-2 (each a “ DBM Product ” and collectively, the “ DBM Products ”) on a non-exclusive basis at the prices set forth herein. Each DBM Product and OS Product is also referred to herein as a “ Product ” and collectively as the “ Products ”.

1. MANUFACTURING AND SUPPLY RELATIONSHIP :

1.1 General; Products . Under this Agreement, Integra engages SeaSpine as a Product supplier. SeaSpine may designate an affiliate of SeaSpine to perform its obligations hereunder, provided that SeaSpine shall remain liable for all such obligations. Attached hereto as Exhibit A-1 and Exhibit A-2 are a complete list of the Products (as of the Effective Date (as defined in Section 3 )) and their Prices (as defined in Section 2.1(a) ). No other right or license is or shall be created or granted hereunder by implication, estoppel or otherwise, except as expressly provided in this Agreement.

1.2 Specifications . The specifications for the OS Products as of the Effective Date are set forth in Exhibit B-1 . The specifications for the DBM Products as of the Effective Date are set forth in Exhibits B-2, B-3, B-4 and B-5 . Such specifications, as the same may be modified from time to time hereunder, are referred to herein, as the “ Specifications .”

 

  1.3 Changes to Products .

 

  a. SeaSpine shall have the right to modify the Products or their Specifications (i) as necessary to comply with changes in Law (as defined in Section 8.1 ) or (ii) for any other reason provided that such modification does not affect the form, fit, function, safety or appearance of the Products, provided , that, the foregoing right of SeaSpine shall not apply with respect to any OS Product with respect to any jurisdiction until the end of the Phase I Period (as defined in Section 8.11 ) for such OS Product in such jurisdiction. If, however, SeaSpine plans to so modify any Product or its Specifications, SeaSpine shall provide Integra written notice at least sixty (60) days in advance of the effectiveness of such modification (unless impractical for regulatory reasons, in which case such notice shall be provided promptly after the need to modify the Products or their Specifications is determined by SeaSpine).

 

  b. If SeaSpine makes a modification to the Products in accordance with this Section 1.3 , SeaSpine shall provide Integra with information on the changes, and corresponding updated guidelines and instructions for use, if applicable.

 

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1.4 Microfib . The Parties acknowledge that SeaSpine may use Microfib products (“ Microfib ”) in the manufacture of the OS Products that SeaSpine purchased from Integra under the Supply Agreement, dated as of the date hereof, between Integra, as supplier, and SeaSpine, as purchaser, relating to Microfib (the “ Microfib Supply Agreement ”).

2. PRODUCT PRICES AND OTHER FEES :

 

  2.1 Prices .

 

  a. Integra shall pay SeaSpine for the Products at the per unit prices listed in Exhibits A-1 and A-2 , as such prices may be modified as described in Section 2.1(b) (the “ Prices ”).

 

  b. SeaSpine may increase its Prices for the Products annually effective after SeaSpine has given Integra sixty (60) days prior notice of such Price increases. Price increases shall apply to all orders shipped after the effective date of such increase. Annual price increases shall not exceed the greater of (i) three percent (3%) or (ii) the annual change in the consumer price index for all urban consumers for all cities for the twelve month period immediately preceding the notice of such price increase, as published by the United States Bureau of Labor Statistics (http://www.bls.gov); provided , however , that if at any time during the Term, SeaSpine experiences a documented increase in its variable costs related to the Products of greater than five percent (5%) in any calendar year, the Parties will meet and confer in good faith to negotiate applicable adjustments to the Prices.

 

  3. EFFECTIVE DATE : The effective date of this Agreement shall be [                  ], 2015 (“ Effective Date ”).

4. TERM AND TERMINATION :

4.1 Term . This Agreement shall commence on the Effective Date and expire, except as earlier terminated hereunder, on the seventh (7th) anniversary of the Effective Date (the “ Initial Term”) . In addition, Integra may, upon written notice to SeaSpine at least one hundred eighty (180) days prior to the expiration of the Initial Term (or, if applicable, the first Term Extension) extend the Agreement for up to two additional three (3) year periods (each, a “ Term Extension ”). The Parties may, upon mutual written agreement, extend the Term thereafter. The Initial Term and any Term Extension are collectively referred to as the “ Term ”.

4.2 Termination

 

  a. Breach . Either Party may terminate this Agreement for cause upon written notice of material breach by the other Party of this Agreement (a “ Termination Notice ”), which shall include an opportunity for the breaching Party to cure. If the breaching Party does not cure the material breach identified in the Termination Notice within ninety (90) days (or if such breach is a failure of Integra to make payment to SeaSpine when due hereunder, thirty (30) days) after receipt of such Termination Notice or such longer cure period as the Parties may agree in writing, this Agreement shall terminate.

 

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  b. Convenience . After the end of the Initial Term, either Party may terminate this Agreement for convenience upon at least one hundred eighty (180) days’ written notice to the other Party.

 

  c. Bankruptcy, etc . Either Party may terminate this Agreement immediately upon written notice to the other Party if proceedings in bankruptcy or insolvency are instituted by or against the other Party, or a receiver is appointed, or if any substantial part of the assets of the other Party is the object of attachment, sequestration or other type of comparable proceeding, and such proceeding is not vacated or terminated within sixty (60) days after its commencement of institution.

4.3 Effects of Termination .

 

  a. Mutual Obligations . After either Party provides a Termination Notice and pending termination of this Agreement, the Parties shall continue to perform their respective obligations hereunder until termination or expiration of the Term is effective. Expiration of the Term or termination of this Agreement shall not relieve the Parties of any obligation accruing prior to such expiration or termination. Each Party agrees, at the request of the other Party upon the expiration of the Term or termination of this Agreement, to return or destroy at the option of the receiving party all Confidential Information exchanged pursuant to Section 10 , except such Confidential Information it may be required to retain under applicable Laws.

 

  b. Termination by SeaSpine . Upon termination of this Agreement by SeaSpine pursuant to Section 4.2(a) (Breach) , SeaSpine may, at its sole option, supply and ship any Order(s) (as defined below) submitted to SeaSpine prior to the effective date of termination or expiration of the Term to Integra and Integra shall pay the applicable Prices, all in accordance with the terms and conditions of this Agreement.

 

  c. Termination by Integra . Upon termination of this Agreement by Integra pursuant to Section 4.2(a) (Breach) , with respect to Order(s) submitted to SeaSpine and accepted prior to the effective date of termination, Integra may at its option, either (x) cancel any unfilled Orders or (y) advise SeaSpine that Integra wishes to have such unfilled Orders filled, in which event SeaSpine shall supply, and ship the Products pursuant to such then pending Orders for the Products for delivery after the effective date of termination or expiration. Integra shall pay the applicable Prices, all in accordance with the terms and conditions of this Agreement.

 

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4.4 Final Order . In the event of termination or expiration of this Agreement for any reason other than by SeaSpine pursuant to Section 4.2(a) (Breach) or Section 4.2(c) (Bankruptcy, etc.) , Integra shall have the right, at its discretion, to place a final order for the Products prior to or on the last day of the Term in an amount of each Product not in excess of the lesser of (A) one hundred thirty percent (130%) of the amount of such Product set forth in the last forecast (including the Binding Forecast and calendar quarters 3 and 4 included therein) provided by Integra in accordance with Section 5.2 prior to the placement of such final order and (B) four (4) times the Maximum Quarterly Order (as defined in Section 5.2 ). If Integra desires to order additional units of Product in excess of such amount, Integra shall notify SeaSpine in writing and the Parties shall discuss in good faith, provided that Integra shall have no obligation to accept any such additional order. SeaSpine may schedule delivery of the final order over four calendar quarters with the first such calendar quarter beginning at least three months after the end of the Term, at SeaSpine’s discretion, provided that SeaSpine will make available for delivery in each such calendar quarter an amount of each Product that, when added to the amount of such Product previously made available by SeaSpine pursuant to this Section 4.4 , equals at least (i) (A) the amount of such Product included in the final order, divided by (B) 4, multiplied by (ii) the number of such calendar quarters to date.

5. ORDERS; FORECASTS; ACCEPTANCE OF PRODUCTS, ETC.

5.1 Orders . Integra is obligated to purchase the Products for which it has issued a firm order or orders to SeaSpine (“ Order(s) ”), whether pursuant to a forecast that is deemed binding hereunder, or pursuant to a purchase order accepted by SeaSpine. SeaSpine does not stock the Products in inventory for purchase by Integra. All Orders must contain delivery dates not less than ninety (90) days after the date of receipt of the Order by SeaSpine, unless otherwise agreed upon in writing by SeaSpine.

5.2 Forecasts . No later than the first business day of each calendar quarter, Integra shall provide SeaSpine with a written rolling forecast as to Integra’s requirements of the Products for the next four (4) calendar quarter period. Each calendar quarter forecast will consist of the following:

 

  a. The first two (2) calendar quarters of each forecast shall be binding on Integra (“ Binding Forecast ”) and accompanied by an Order for such forecasted amount of the Products. The Order shall be in writing and shall specify the delivery date (which must be at least ninety (90) days after the receipt by SeaSpine of the Order), quantity of each Product ordered and the Prices and total cost of the Order.

 

  b. Each forecast shall update the prior forecast by:

 

  i. dropping the previous calendar quarter 1 from the forecast;

 

  ii. moving calendar quarter 2 from the previous forecast to be calendar quarter 1 of the updated forecast;

 

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  iii. updating, as appropriate and subject to clause (c) below, calendar quarters 3 and 4 of the previous forecast, which as updated will be calendar quarters 2 and 3 of the updated forecast; and

 

  iv. adding a new calendar quarter 4 to the updated forecast, subject to clause (c) below.

The initial forecast for the Products is set forth on Exhibit C attached hereto.

 

  c. Integra may not increase or decrease the amounts forecasted in the Binding Forecast, but may, subject to SeaSpine’s written acceptance, issue additional Orders during such two (2) calendar quarter period as provided in Section 5.6 . In addition, Integra may not increase the number of units of the Products forecasted for any calendar quarter (e.g., 2Q 2016) by more than thirty percent (30%), in aggregate from the number of units first forecast for such calendar quarter (i.e. when such calendar quarter period was calendar quarter 4 of the forecast), and Integra may not reduce such number of units first forecasted for such calendar quarter by more than ten percent (10%) in aggregate from the number of units first forecast for such calendar quarter, without the prior written consent of SeaSpine. Integra shall not order for any calendar quarter more than the number of units of Product set forth on Exhibit D attached hereto (the “ Maximum Quarterly Order ”).

 

  d. Integra will use commercially reasonable efforts to ensure that the forecast for calendar quarters 3 and 4 is accurate, but the forecast for such calendar quarters will not constitute an Order.

 

  e. In the event that Integra fails to provide a Binding Forecast for a particular calendar quarter, unless SeaSpine otherwise notifies Integra in writing, the last available forecasted amount for such calendar quarter shall become a firm Order, provided , however , that nothing contained in this Section 5.2(e) shall be deemed to affect any of SeaSpine’s rights or limit any of SeaSpine’s remedies as a result of such failure.

5.3 Batch Sizes . Integra agrees to order the Products in whole multiples of the batch sizes set forth on Exhibit D (although Integra acknowledges and agrees that the actual quantity of the Products delivered may be adjusted as set forth in Section 5.5 or as otherwise expressly provided in this Agreement).

5.4 Acceptance of Orders . Upon receipt of an Order, SeaSpine shall review the Order and shall have ten (10) business days from the Order’s receipt to notify Integra of SeaSpine’s acceptance or rejection of the Order. SeaSpine shall accept any Order for a Binding Forecast that complies with the terms of this Agreement. If any other Order is rejected by SeaSpine, SeaSpine shall use reasonable efforts to provide Integra with a reason for the rejection. If SeaSpine fails to reject an Order in such ten (10) business day period, such Order shall be deemed accepted. SeaSpine shall use commercially reasonable efforts to fill accepted Orders

 

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with Product not later than ninety (90) days after the receipt of the Order or on the delivery date requested, whichever date is later. However, reasonable delay in shipment (where any delay of ninety (90) days or less after scheduled shipment shall be presumed reasonable) shall not be considered a breach of this Agreement and shall not relieve Integra of its obligations to accept such shipment.

5.5 Whole Lots . Due to variances in manufacturer yields of the Products (“ Product Lots ”), in filling any Order for Integra, SeaSpine has the right to deliver to Integra a quantity of the Products that is larger or smaller than the Order. Within three (3) business days of notification by SeaSpine of the quantity of the Products constituting a Product Lot, Integra agrees to issue to SeaSpine a revised purchase order matching the quantity of the Products in such Product Lot. Regardless of the size of an Order, all Products representing a single Product Lot shall be shipped together. Integra will pay for the quantity of the Products actually delivered. The quantity of the Products actually delivered will not affect the firm Order for the Products if the difference in quantity is not more than ten percent (10%). In the event that shipping the Product of a single Product Lot results in a shipment in excess of ten percent (10%) of the Products in the Order, such excess shall be applied to the Order for the subsequent month.

 

  5.6 Supplemental Orders; Changes to Orders .

 

  a. If Integra desires to order additional units of Product in excess of Orders for the Binding Forecast, including if any such proposed order would result in Orders exceeding the applicable Maximum Quarterly Order, Integra shall notify SeaSpine in writing, stating the units of the Products requested and the date by which delivery of such Products is desired. SeaSpine shall have no obligation to accept any such order, but if SeaSpine accepts any such request (or any portion thereof) in writing, Integra shall be obligated to purchase all such quantities as a firm Order hereunder.

 

  b. Except as otherwise expressly permitted hereunder, any Order(s) deriving herefrom or related hereto may be changed, cancelled or amended only by written agreement signed by both Integra and SeaSpine, setting forth the particular changes to be made and the effect, if any, of such changes on the Prices and time of delivery. Integra may not cancel any Orders unless such cancellation is expressly agreed to in writing by SeaSpine. In the event of a cancellation that is expressly agreed to in writing by SeaSpine, SeaSpine will advise Integra of the total charge for such cancellation, and Integra agrees to pay such charges. Certification of such costs by SeaSpine’s independent public accountants shall be conclusive on the Parties.

5.7 Acceptance and Agreement . ALL SALES AND ORDER(S) ARE SUBJECT TO THE TERMS AND CONDITIONS OF THIS AGREEMENT. NO VARIATION OF THESE TERMS AND CONDITIONS WILL BE BINDING UPON SEASPINE UNLESS AGREED TO IN WRITING AND SIGNED BY AN OFFICER OR OTHER AUTHORIZED REPRESENTATIVE OF SEASPINE. ANY ADDITIONAL OR DIFFERENT TERMS, ADDITIONS, DELETIONS OR EXCEPTIONS PROPOSED BY INTEGRA (WHETHER IN A

 

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PURCHASE ORDER, OTHER PRINTED FORM OR ELSEWHERE) ARE OBJECTED TO AND HEREBY REJECTED, UNLESS SUCH TERMS, ADDITIONS, OR EXCEPTIONS ARE APPROVED SPECIFICALLY BY SEASPINE IN WRITING AND SIGNED BY AN OFFICER OR OTHER AUTHORIZED REPRESENTATIVE OF SEASPINE. No course of prior dealings or usage of trade shall be relevant to supplement or explain any term used herein. Any clerical errors by SeaSpine are subject to correction.

5.8 Returns . The Products may not be returned unless resulting from a Product recall, field correction or market withdrawal for which SeaSpine is responsible as provided in Section 8.6 or as permitted pursuant to Section 5.9(c) .

5.9 Delivery; Certificate; Inspection and Acceptance .

 

  a. Terms for the shipments of the Products will be FCA (Incoterms, 2010). Integra shall pay shipping and freight costs, which will be added to the invoice for each Order, and Integra shall have the right to choose the carrier so long as such choice complies with the shipping validation for the Product. Integra may designate the destination of the Products to be delivered hereunder so long as such destination complies with applicable Law. Delivery of the Products to the carrier at SeaSpine’s shipping point shall constitute delivery to Integra; Integra shall bear all risk of loss or damage in transit. However, SeaSpine reserves the right, in its discretion, to change the exact method of shipment and to make delivery in installments, all such installments to be separately invoiced and paid for when due as provided in Section 6.1 , without regard to subsequent deliveries. Delay in delivery of any installment within the parameters set forth in this Article 5 shall not relieve Integra’s obligations to accept remaining deliveries.

 

  b. Each shipment of Product must be accompanied by final Product testing and inspection results and a certificate, substantially in the form attached hereto as Exhibit E , signed by SeaSpine stating that the Products comply with the Specifications; the testing, inspections results and certificate shall be set forth by Product serial number and must be signed by SeaSpine.

 

  c.

Integra, upon receipt of the Products from SeaSpine, shall have thirty (30) days to inspect the Products with respect to whether or not they comply with the Specifications. If the Products do not comply with the Specifications, Integra shall notify SeaSpine and provide SeaSpine with samples of nonconforming Products (to the extent Integra deems possible) along with such notice and provide SeaSpine with the results of its inspection. If SeaSpine’s inspection confirms the Products do not comply with the Specifications, then SeaSpine, at its expense and at Integra’s option, within thirty (30) days following the completion of SeaSpine’s investigation, will either bring the Products in question into conformance with the requirements of Section 9.1(a)(ii) or replace such nonconforming Products, in either case, at no additional charge to Integra. If after inspection, SeaSpine disagrees with Integra’s determination, the Parties shall submit samples of the Product in question to a mutually acceptable independent

 

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  testing laboratory for evaluation to determine whether the Product are in conformance with the requirements of Section 9.1(a)(ii ). The results of such evaluation shall be deemed conclusive of the matter, and the non-prevailing party shall bear the costs of the evaluation.

6. PAYMENT AND TAXES :

 

  6.1 Payment .

 

  a. Payment terms of an Order are net thirty (30) calendar days from the date of invoice, unless otherwise stated. Integra specifically waives any right for any reason to withhold or set-off payments it owes to SeaSpine hereunder, whether available at law, in equity or otherwise under the laws, rules, regulations, ordinances, decrees or orders of any governmental authority.

 

  b. Integra agrees to pay all costs, including, but not limited to, reasonable attorneys’ fees, accounting fees and other expenses of collection resulting from any default by Integra of any of the terms hereof.

6.2 Taxes and Other Charges . Any medical device tax, use tax, sales tax, excise tax, duty, custom, inspection or testing fee, or any other tax, fee or charge of any nature whatsoever imposed by any governmental authority, on or measured by the transaction between SeaSpine and Integra except for taxes of SeaSpine’s income, shall be paid by Integra in addition to the Prices quoted or invoiced. In the event SeaSpine is required to pay any such tax, fee or charge, Integra shall reimburse SeaSpine therefor; or Integra shall provide SeaSpine at the time the applicable Order is submitted an exemption certificate or other document acceptable to the authority imposing the tax, fee or charge.

7. INTEGRA GENERAL OBLIGATIONS :

7.1 Compliance . Integra shall not (i) alter the Products, (ii) pay, offer or promise to pay, or authorize payment of any money, or give, offer or promise to give, or authorize the giving of anything of value to any healthcare professional in violation of any anti-kickback statutes, the AdvaMed Code, or other applicable Laws or policies described herein, or (iii) incur any obligation in the name of or on behalf of SeaSpine.

7.2 Integra’s Use of Products . Integra warrants to SeaSpine that (i) following delivery to Integra, the Products will be marketed, promoted, stored and distributed in compliance with applicable FDA regulations, applicable ISO and Current Good Manufacturing Practices and (ii) all facilities used for storage and distribution of the Products after delivery to Integra hereunder are FDA compliant.

 

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8. INTEGRA REGULATORY AND QUALITY OBLIGATIONS:

8.1 Compliance with Laws . Integra agrees to comply with: (i) the AdvaMed Code, as modified from time to time and which is incorporated into Integra’s compliance policies, (ii) its responsibilities under the Safe Harbor Regulations relating to program “fraud and abuse” promulgated under the Social Security Act and Medicare and Medicaid Patient and Program Protection Act, (iii) its compliance policies which are consistent with the AdvaMed Code, (iv) the U.S. Foreign Corrupt Practices Act and any other applicable anti-bribery laws, (v) all applicable laws, rules, ordinances, regulations, decrees and orders of any governmental authority, including but not limited to, those related to the advertising, promotion, sale and use of the Products, privacy, health, safety and environmental matters and record-keeping and reporting in compliance with all governmental authority regulations (collectively, the “ Laws ”) for the Products (which related records and reporting information shall be supplied to SeaSpine promptly upon request), and (vi) all internal policies and procedures of Integra, including without limitation, discount policies. Integra further agrees to notify SeaSpine immediately upon receiving any notice with respect to a violation or alleged violation of any of the above mentioned Laws and any other laws or regulations, to the extent relating to the Products.

8.2 Recordkeeping . Each Party agrees to comply with the document retention policy attached hereto as Exhibit F with respect to its activities hereunder. Integra shall make such records available to SeaSpine immediately upon request for regulatory purposes.

8.3 Review . SeaSpine shall have the right to send its representatives to review, during regular business hours and upon reasonable prior written notice, Integra’s marketing and regulatory records and files and all other records and files related to the Products and related to Integra’s compliance with this Agreement. Integra shall reasonably cooperate with SeaSpine in such review and any reasonable requests of SeaSpine that result from such review by SeaSpine.

 

  8.4 Complaints .

 

  a. Integra shall promptly (and in any event within one business day) report to SeaSpine (i) any accident, or incident involving the Product (of which it becomes aware) which results in personal injury or damage to property; (ii) any complaint involving the Product (of which it becomes aware), whether oral or written; (iii) any defect in or condition of the Product (of which it becomes aware); or (iv) any other fact or circumstance (of which it becomes aware) that may result in a report to the FDA or other applicable regulatory authority or may result in a violation or alleged violation of any applicable Law relating to the Product.

 

  b. SeaSpine shall promptly (and in any event within one business day) report to Integra (i) any complaint involving the Product, whether oral or written and (ii) any defect in or condition of the Product, in each case of which SeaSpine becomes aware).

 

  c. The Parties shall cooperate in the investigation and determination of the cause of any of the foregoing accidents, incidents or complaints and shall make available all statements, reports and tests made to investigate such accident or incident. Furnishing such information and any investigation of such information or incident report shall not in any way constitute any assumption of any liability for such accident or incident by either Party.

 

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  d. (i) SeaSpine will be responsible for Medical Device Reporting per Title 21 CFR Part 803 or similar vigilance reporting requirements in the U.S., the European Union and any other jurisdiction as related to the DBM Products and as required by Laws where the DBM Products are marketed.

 

     (ii) Integra will be responsible for Medical Device Reporting per Title 21 CFR Part 803 or similar vigilance reporting requirements in the U.S. or other applicable jurisdictions for the OS Products, provided that upon conclusion of the applicable Phase I Period, SeaSpine shall become responsible for such reporting responsibilities.

8.5 Governmental Authority . Each Party agrees to notify the other Party within forty-eight (48) hours of any audit or inspection by, or contact with, the FDA or other regulatory authority that involves a Product. Each Party agrees to provide the other Party with a copy of the portion of the audit or inspection report or contact document that relates to the Product and any response thereto provided by such Party.

8.6 Recall, etc . Each Party shall be entitled to execute a recall, field correction or market withdrawal of the Products, and either Party shall be entitled to execute a recall, field correction or market withdrawal of the Product. The Parties agree to cooperate with and reasonably assist each other in the event of a recall, field notification or market withdrawal of the Products. Integra agrees to pay for any recall, field notification and/or market withdrawal related to the Products, unless directly resulting from a breach of the warranty set forth in Section 9.1(a)(ii) , in which case SeaSpine agrees to pay all direct, documented, out-of-pocket costs of such recall, field notification or market withdrawal. If either Party decides to execute a recall, field notification or market withdrawal of a Product, it shall promptly notify the other Party of such action.

8.7 No Debarment . SeaSpine certifies that neither it nor any of its employees has been debarred under Section 306(a) or Section 306(b) of the Act and that no debarred person will in the future be employed to manufacture the Products. SeaSpine also certifies that no person working in the manufacture of the Products has a conviction that could lead to debarment under Section 306(a) or Section 306(b) of the Act. Furthermore, SeaSpine agrees to notify Integra immediately of any action toward conviction or debarment under Section 306(a) or Section 306(b) of the Act of any person working in the manufacture of the Products.

8.8 Quality Agreement . Each Party (or an affiliate designee thereof) has entered into the Quality Agreement attached as Exhibit G as of the Effective Date.

8.9 Compliance with Laws. SeaSpine will manufacture the Products in compliance with Laws applicable to the processing, storage, packaging, labeling and shipment of the Products, as modified from time to time.

8.10 Quality Audits . SeaSpine shall allow Integra to perform quality audits at its manufacturing facility for the Products during regular business hours and upon reasonable prior written notice if Integra has reasonable cause to believe there is a quality issue affecting the

 

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Products, or as required by applicable law. Integra shall provide SeaSpine with a written report of all nonconformances to the manufacturing procedures, storage and shipping procedures and test/inspection procedures within thirty (30) days of identification, which non-conformances are identified by Integra during quality audits.

 

  8.11 Additional Regulatory Matters; Distribution Rights .

 

  a. i. As of the Effective Date, Integra (or one of its affiliates) owns the 510(k) clearances for the OS Products (the “ OS Product Registrations ”). Integra hereby grants authority to SeaSpine to manufacture the OS Products under such OS Product Registrations, until, with respect to each such OS Product Registration, such time as SeaSpine has obtained a “duplicate” OS Product Registration in the applicable jurisdiction. The terms and conditions set forth on Exhibit H shall apply with respect to SeaSpine obtaining such “duplicate” OS Product Registrations. The period between the Effective Date and the date SeaSpine obtains an OS Product Registration in a jurisdiction is referred to herein as the “ Phase I Period ” for such jurisdiction.

 

     ii. SeaSpine owns the 510(k) clearances for the DBM Products (the “ DBM Product Registrations ”).

 

  b. Integra shall have sole responsibility for obtaining all required consents, licenses, authorizations and approvals for the use and sale of the Product worldwide, and such consents, licenses, authorizations and approvals shall be held in the name of Integra or its designee, except as provided in Section 8.11(d) or otherwise in this Agreement or the Mozaik Supply Agreement, of even date herewith, between the Parties. Without limiting Section 1.2 , the Products shall be labeled as determined by Integra so long as such labeling complies with applicable Law.

 

  c. SeaSpine shall reasonably assist Integra in accordance with Section 8.11(b) by providing information related to the Products when necessary to obtain any consents, licenses, authorizations or approvals, provided that Integra shall reimburse SeaSpine for its costs and expenses associated with SeaSpine’s assistance in providing information related to the Products in obtaining or maintaining consents, licenses, authorizations or approvals for the Product at a per hour charge of $200 (for clarity, such reimbursement obligations will not apply to the costs and expenses associated with activities undertaken by SeaSpine to comply with its obligations under Section 8.11(a)) . SeaSpine will provide the FDA or other applicable regulatory authority with access to SeaSpine’s files related to the Products, but shall not be obligated to permit Integra or any foreign governmental regulatory agency to review certain confidential files, including without limitation, the design history files or processing information for the Products.

 

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  d. SeaSpine hereby grants authority to Integra and its affiliates to market, distribute, and sell the DBM Products purchased from SeaSpine hereunder under the DBM Product Registrations.

9. SEASPINE LIMITED WARRANTY; CERTAIN OBLIGATIONS :

 

  9.1 Limited Warranty

 

  a. SeaSpine warrants to Integra that (i) it will convey good title to all Products delivered to Integra hereunder, free from any security interest, liens or other encumbrances, and (ii) the Products manufactured shall have been manufactured in compliance with the then-current Specifications and will be free from defects in materials (but excluding any Microfib used in the OS Products purchased under the Microfib Supply Agreement) or workmanship during the Shelf-life for such Product. “ Shelf-life ” means with respect to a Product, the shelf-life of such Product as set forth in the applicable Specifications. As of the Effective Date, the Shelf-life for each Product is as set forth in Exhibit I . Except as set forth in Section 8.6 , Integra’s sole remedy, and SeaSpine’s sole obligation, in the event of a breach by SeaSpine of the warranty set forth in clause (ii) above is as set forth in Section 5.9(c) .

 

  b. The limited warranty set forth in Section 9.1(a) is the sole warranty SeaSpine makes regarding the Products. THIS WARRANTY IS EXCLUSIVE AND SEASPINE HEREBY DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, WRITTEN OR ORAL, INCLUDING WITHOUT LIMITATION, (I) ANY IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR APPLICATION, OR WARRANTY OF QUALITY, OTHER THAN THOSE EXPRESSLY SET FORTH IN THE ATTACHED WARRANTY, OR (II) ANY IMPLIED WARRANTY ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING, OR USAGE OF TRADE OR (III) WARRANTIES OF NON-INFRINGEMENT. INTEGRA UNDERSTANDS THAT NO EMPLOYEE, OFFICER, AGENT OR REPRESENTATIVE OF SEASPINE IS AUTHORIZED IN ANY WAY TO MAKE ANY STATEMENT TO THE CONTRARY WHICH SHALL BE BINDING ON SEASPINE OR TO ASSUME FOR SEASPINE ANY OTHER LIABILITY IN CONNECTION WITH THE PRODUCTS.

 

  c.

The warranty set forth in Section  9.1(a)(ii) shall not apply to, and SeaSpine shall not be responsible for, any loss or damages arising in connection with the purchase or use of any Product (i) which has been modified by anyone other than an authorized service representative of SeaSpine, or (ii) which has been altered in any way so as, in SeaSpine’s judgment, to affect its stability or reliability, or which has been subject to misuse, negligence or accident, in each case after delivery to Integra hereunder or (iii) which has been subject to improper or negligent installation, storage or handling, in each case after delivery to Integra hereunder or (iv) which has been subject to improper cleaning, sterilization or

 

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  maintenance, in each case after delivery to Integra hereunder or (v) which has been subject to accidental damage arising from acts of God, electrical power damage, equipment malfunction, unusual stress, unreasonable operating procedures or abnormal or extreme operating conditions, in each case after delivery to Integra hereunder or (vi) which has been used otherwise than in accordance with the instructions furnished by SeaSpine.

10. CONFIDENTIALITY AND OWNERSHIP :

10.1 Confidential Information. Each Party agrees that it shall not during the Term and anytime thereafter, directly or indirectly, without the prior written consent of the other Party, disclose to any third party, pursuant to a press release or otherwise, any Confidential Information of the other Party. As used herein, “ Confidential Information ” of a Party means information possessed by such Party, or its affiliates, that relates to the other Party’s business or, or in the case of Integra as the receiving Party, the Products (which may include information of third parties as to which either Integra or SeaSpine and their respective affiliates has a confidential arrangement or understanding), whether that information is written or oral, however acquired. Notwithstanding the foregoing, Confidential Information does not include any such information that as of the date of disclosure to, or acquisition by, the receiving Party was (i) obtained by the receiving Party from a third party with no obligation of confidentiality to the disclosing Party or its affiliates, (ii) disclosed in published literature, (iii) generally available to the industry or (iv) known to the receiving Party without any obligation to keep it confidential or any restriction on its use and such knowledge can be substantiated by reasonable documentation. Confidential Information shall additionally include the existence and terms of this Agreement and the business relationship established hereunder, together with any documents or data prepared by any of the Parties that reflect such information. Each Party further agrees that it shall not, directly or indirectly, without the prior written consent of the other Party, use any of the Confidential Information of the other Party for any reason or purpose, including in the case of Integra as the receiving Party, to reverse engineer any Product, other than as contemplated by this Agreement.

10.2 Degree of Care . Notwithstanding Section 10.1 , each Party may disclose Confidential Information received pursuant to this Agreement to its directors, officers, employees, consultants, attorneys and accountants and other agents and representatives, but not to any other third party, provided , however , that all such access is limited to those that have a need-to-know in connection with the business relationship established hereunder, and further provided that such persons and entities are obligated to hold the Confidential Information in confidence in accordance with restrictions and procedures no less stringent than provided for herein. Each Party shall be responsible for any breach of this Section 10 by its directors, officers, employees, consultants, attorneys and accountants and other agents and representatives. Each Party covenants that it shall exercise the same degree of care with respect to the other Party’s Confidential Information as it would its own Confidential Information, and, in any event, shall exercise no less than a reasonable degree of care. Notwithstanding the foregoing, a Party may disclose the Confidential Information belonging to the other Party to the extent such disclosure is reasonably necessary in the context of preparation and filing of regulatory documents (including, without limitation, governmental approvals) to regulatory authorities in

 

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connection with the Products pursuant to this Agreement; provided that the disclosing Party notify the other Party in writing of such disclosure and the disclosing Party requests confidential treatment of such disclosure to the extent confidential treatment is reasonably available to such Party.

10.3 Remedies . The Parties understand and agree that this Section 10 is reasonable and necessary to protect the Parties respective business interests. The Parties further agree that the other may suffer irreparable harm from a breach of this Section 10 . Thus, in addition to any other rights or remedies, all of which shall be deemed cumulative, a Party shall be entitled to pursue injunctive relief to enforce the terms of this Section 10 without the necessity of proof of damages or the posting of a bond or other security.

10.4 Disclosure Required by Law . Notwithstanding Section 10.1 , a receiving Party may disclose Confidential Information if such information is required by Law to be disclosed in response to a valid order of a court of competent jurisdiction or authorized governmental authority, provided that the receiving Party must give the other Party prompt written notice and seek to obtain or allow for and reasonably cooperate with the other Party to seek to obtain a protective order prior to such disclosure. In any event, a receiving Party shall disclose only that portion of the Confidential Information which is legally required and will use all commercially reasonable efforts to assure that confidential treatment is accorded any Confidential Information.

10.5 Return of Copies . Upon termination of this Agreement, each Party shall, upon the written request of the other Party, return all copies, whether in paper, electronic, or other format, of all Confidential Information received by it from the other Party which contain the other Party’s Confidential Information, except that one copy thereof may be retained solely for archival or regulatory compliance purposes.

 

  10.6 Intellectual Property .

 

  a. SeaSpine, its licensors and/or their respective affiliates are and shall remain the exclusive owner(s) of (i) all intellectual property rights related to the DBM Products and (ii) all intellectual property rights owned or licensed by SeaSpine or any subsidiary thereof, as of the Effective Date, after giving effect to the spin-off of SeaSpine by Integra, in each case related to the Specified Products, excluding any trademark rights and product registrations (including 510(k) clearances) relating thereto owned by Integra or its affiliates as of the Effective Date. “ Specified Products ” means the ceramic collagen matrix products marketed under the Mozaik brand, including Mozaik Strip, Mozaik Putty, and Mozaik Moldable Morsels, and all equivalent products (x) marketed under spine brands or (y) provided to third parties on a private label basis, in each case of the Effective Date, and any next generation successor version of any of the foregoing products.

 

  b.

Integra agrees not to, and not to authorize a third party to, infringe, misappropriate or violate any intellectual property rights of SeaSpine, its licensors, or their respective affiliates in the Products. For purposes of this Agreement, “intellectual property rights” includes, without limitation, (i) all registered or unregistered

 

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  trademarks, patents, designs or inventions; (ii) all rights in products, including product registrations; (iii) copyrights, moral rights, know-how and Confidential Information; and (iv) any similar rights worldwide, or the right to apply for any such rights.

 

  c. Integra hereby grants to SeaSpine a limited, non-exclusive, royalty-free, non-assignable, non-transferrable license to Integra names, trademarks, and logos designated by Integra (collectively, the “ Integra Marks ”) in order for SeaSpine to procure and affix Integra-specific labels and markings in connection with SeaSpine’s supply obligations under this Agreement. Upon termination of this Agreement, the foregoing limited license shall automatically terminate.

 

11. GENERAL :

11.1 Notices . All notices, approvals, and other communications required or permitted herein shall be in writing and shall be delivered personally (which shall include delivery by courier or overnight delivery service) or sent by certified or registered mail, postage prepaid, return receipt requested.

 

If to Integra: Integra LifeSciences Corporation
ATTN: David Hoffman
311 Enterprise Drive, Plainsboro, NJ 08536
With required copy to: Integra LifeSciences Corporation
ATTN: General Counsel
311 Enterprise Drive, Plainsboro, NJ 08536
If to SeaSpine: SeaSpine Orthopedics Corporation
ATTN: Brian Baker
2 Goodyear, Suite A, Irvine, CA 92618
With required copy to: SeaSpine Orthopedics Corporation
ATTN: Colin Smith
2384 La Mirada Drive, Vista, CA 92081
With required copy to: SeaSpine Orthopedics Corporation
ATTN: General Counsel
2384 La Mirada Drive, Vista, CA 92081

Either Party may change its address for notice purposes by providing written notice of the change of address to the other Party.

11.2 Insurance . Each Party will comply with the insurance obligations for such Party set forth in Exhibit J .

 

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11.3 Limitation of Liability . SEASPINE AND ITS DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR AFFILIATES SHALL NOT IN ANY EVENT BE LIABLE FOR INCIDENTAL, EXEMPLARY, INDIRECT, CONSEQUENTIAL, PUNITIVE OR SPECIAL DAMAGES, OF ANY KIND RESULTING FROM ANY USE OR FAILURE OR ACQUISITION OF THE PRODUCTS, WHETHER BASED UPON A CLAIM OR ACTION OF CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY OR OTHER TORT, OR OTHERWISE, ARISING OUT OF THIS AGREEMENT (EVEN IF SEASPINE HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES) INCLUDING WITHOUT LIMITATION, LIABILITY FOR LOSS OF USE, LOSS OF WORK IN PROGRESS, DOWN TIME, LOSS OF REVENUE OR PROFITS, FAILURE TO REALIZE SAVINGS, LOSS OF PRODUCTS OF INTEGRA OR OTHER USE OR ANY LIABILITY OF INTEGRA TO A THIRD PARTY ON ACCOUNT OF SUCH LOSS, OR FOR ANY LABOR OR ANY OTHER EXPENSE, DAMAGE OR LOSS OCCASIONED BY SUCH PRODUCT. EXCEPT IN THE CASE OF A CLAIM FOR THIRD PARTY INDEMNIFICATION UNDER SECTION 11.4(B) OF THIS AGREEMENT, SEASPINE’S LIABILITY IN THE AGGREGATE INCLUDING THE LIABILITY OF SEASPINE’S DIRECTORS, OFFICERS, EMPLOYEES, AGENTS AND AFFILIATES, WITH RESPECT TO PERFORMANCE OR NON-PERFORMANCE OF THIS AGREEMENT AND ANY SEASPINE PRODUCTS OR OTHER ITEMS FURNISHED UNDER THIS AGREEMENT (WHETHER IN TORT, CONTRACT OR OTHERWISE, AND NOTWITHSTANDING ANY FAULT, NEGLIGENCE WHETHER ACTIVE, PASSIVE OR IMPUTED OR STRICT LIABILITY OF INTEGRA) SHALL IN NO EVENT EXCEED ONE MILLION DOLLARS ($1,000,000).

 

  11.4 Indemnity .

 

  a. Integra shall indemnify and defend SeaSpine and its affiliates and their respective directors, officers, members, employees, counsel, agents and representatives and the successors and permitted assigns of any of the foregoing (the “ SeaSpine Indemnitees ”) and hold the SeaSpine Indemnitees harmless from and against any and all claims, demands, actions, liabilities, damages, losses , judgments, costs or expenses (including interest and penalties and reasonable attorneys’ fees and professional fees and expenses of litigation) (collectively, “ Claims ”) of third parties to the extent arising out of, in connection with, or resulting from (i) the marketing, sale, distribution, use or promotion of the Products after title has passed to Integra hereunder, except to the extent such claims result from a breach of the warranty set forth in Section 9.1(a)(ii) ; (ii) the bodily injury, property damage or any other damages or injury caused in whole or in part, by any use of the Product, except to the extent such claims result from a breach of the warranty set forth in Section 9.1(a)(ii) ; (iii) Integra’s breach of any representation, warranty or covenant contained in this Agreement; or (iv) the negligence or willful misconduct of Integra, in each case except to the extent SeaSpine is obligated to indemnify Integra with respect to such claim under the Microfib Supply Agreement.

 

  b.

SeaSpine shall indemnify, defend and hold harmless Integra and its affiliates and their respective directors, officers, members, employees, counsel, agents and

 

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  representatives and the successors and permitted assigns of any of the foregoing (the “ Integra Indemnitees ”) and hold the Integra Indemnitees harmless from and against any and all Claims of third parties to the extent arising out of, in connection with, or resulting from (i) the negligence or willful misconduct of SeaSpine, except to the extent that Integra is obligated to indemnify SeaSpine for any of the foregoing third party Claims as provided in Section 11.4(a) (including those third party Claims caused, in whole or in part, by the negligence or willful misconduct of Integra), (ii) the bodily injury, property damage or any other damages or injury caused in whole or in part, by any use of the Product, to the extent resulting from a breach of the warranty set forth in Section 9.1(a)(ii) ; or (iii) any claims relating to the misappropriation or infringement of third party intellectual property rights relating to the Products (other than with respect to any Integra intellectual property rights licensed hereunder), in each case except to the extent Integra is obligated to indemnify SeaSpine with respect to such claim under the Microfib Supply Agreement.

 

  c. In any case in which claims arise out of or are caused by both Integra’s negligence and SeaSpine’s negligence, a comparative negligence standard shall apply with respect to the Parties’ enumerated obligations under this Section 11.4 .

 

  d.

A Party that intends to claim indemnification under this Agreement (the “ Indemnitee ”) for third party Claims shall promptly notify the other Party (the “ Indemnitor ”) in writing of such Claim in respect of which the Indemnitee or its affiliates, directors, officers, members, employees, counsel, agents or representatives intends to claim such indemnification, and the Indemnitor, at its cost and expense, shall have the right to participate in, and to the extent the Indemnitor so desires, to assume the defense thereof with counsel mutually satisfactory to the Parties; provided , however , that an Indemnitee shall have the right to retain its own counsel, with the fees and expenses to be paid by the Indemnitor, if such Indemnitee’s outside counsel advises that representation of such Indemnitee by the counsel retained by the Indemnitor would be inappropriate due to actual or potential conflicts of interests between such Indemnitee and the other Party represented by such counsel in such proceeding. The Indemnitor shall control the defense and/or settlement of any such Claims, and this indemnity agreement shall not apply to amounts paid in connection with any Claims if such payments are made by the Indemnitee without the consent of the Indemnitor; provided , however , that the Indemnitor shall not enter into any settlement that admits fault, wrongdoing or damages without the Indemnitee’s written consent, such consent not to be unreasonably withheld, delayed or conditioned. For clarity, any Claims that relate solely to the payment of monetary damages may be settled or otherwise disposed of on such terms as the Indemnitor, in its sole discretion, shall deem appropriate. The failure to deliver written notice to the Indemnitor within a reasonable time after the commencement of any Claim, if and to the extent prejudicial to its ability to defend such Claim, shall to such extent relieve such Indemnitor of any liability to the Indemnitee under this

 

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  Section 11.4 . At the Indemnitor’s request and expense, the Indemnitee and its employees and agents shall reasonably cooperate with the Indemnitor and its legal representatives in the investigation of any Claims covered by this indemnification and provide full information with respect thereto.

12. MISCELLANEOUS :

12.1 Independent Contractors . This Agreement shall not constitute, and is not intended to constitute, either Party as an employee, agent, partner or legal representative of the other Party for any purpose, or give either Party any right to supervise or direct the functions of the other Party. Neither Party shall have authority to act for or obligate the other Party in any way or to extend any representation or warranty on behalf of the other Party. Each Party agrees to perform under this Agreement solely as an independent contractor and neither Party shall have any right, power, or authority, nor shall they represent themselves as having any authority to assume, create, or incur any expense, liability or obligation, express or implied, on behalf of the other Party, or otherwise act as an agent for the other Party for any purpose. Each Party agrees not to permit its employees or agents to do anything that might be construed or interpreted as acts of the other Party.

12.2 Integration . This Agreement, including its Exhibits, sets forth all the covenants, promises, agreements, warranties, representations, conditions and understandings between the Parties and supersedes all prior discussions, negotiations and agreements between the Parties concerning the subject matter hereof. Integra and SeaSpine agree that nothing in any Integra purchase order or other document submitted pursuant to this Agreement shall in any way modify or add to the terms and conditions set forth in this Agreement (except for identification of the Products, quantity and delivery date consistent with this Agreement). Except as expressly set forth in this Agreement, no subsequent modification or addition to this Agreement shall be binding upon the Parties unless reduced to writing and signed by the respective authorized officers of the Parties.

12.3 Waiver . SeaSpine’s failure to strictly enforce any term or condition stated herein or exercise any right arising hereunder shall not constitute a waiver of SeaSpine’s right to enforce such terms or conditions or exercise such right thereafter. All of I SeaSpine’s rights and remedies against Integra with regard to this Agreement are cumulative and are in addition to any other rights and remedies Integra may have at law or in equity. No waiver by either Party of any condition or term in any one or more instances shall be construed as a continuing waiver of such condition or term or of another condition or term.

12.4 Assignment . This Agreement shall be binding upon and shall inure to the benefit of the Parties, and their respective successors and permitted assigns. Neither Party may transfer or assign this Agreement, in whole or in part, without the prior written consent of the other Party, except that either Party may transfer or assign this Agreement, in whole or in part, without the prior written consent of the other Party, to any affiliate and to any successor to substantially all of its business or assets to which this Agreement relates, whether by merger, sale of assets, sale of stock, reorganization or otherwise, without the consent of the other Party.

 

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12.5 Severability . If any provisions of this Agreement should be or become fully or partly invalid or unenforceable for any reason whatsoever or violate any applicable Law, this Agreement is to be considered divisible as to such provision and the Parties shall negotiate in good faith a valid or enforceable substitute provision that most nearly reflects the original intent of the Parties and all other provisions hereof shall remain in full force and effect. Moreover, if one or more of the provisions contained in this Agreement shall for any reason be held to be excessively broad as to scope, activity or subject so as to be unenforceable at law, such provision or provisions shall be construed by the appropriate judicial body by limiting and reducing it or them, so as to be enforceable to the maximum extent compatible with the applicable Law as it shall then appear.

12.6 Force Majeure . Except with respect to the payment of money, neither Party shall be liable for any failure or delay in performance under this Agreement if either Party is prevented from performing any of its obligations hereunder due to any cause which is beyond the non-performing Party’s reasonable control, including, without limitation, fire, explosion, earthquake, flood, acts of war, terrorism, or other acts of God; acts, regulations or laws or application thereof;, war or civil commotion; strike, lock-out or labor disturbances; or failure of public utilities or common carrier, embargo or other governmental action or request, equipment failure, shortage of raw materials or inability to obtain labor, fuel, materials supplies or power at reasonable prices (a “ Force Majeure Event ”), such non-performing Party shall promptly give notice thereof to the other Party and shall use reasonable commercial efforts to cure or correct any such Force Majeure Event and to resume performance of its affected obligations as soon as possible.

12.7 Choice of Law; Venue; Waiver of Jury Trial . This Agreement shall be governed by and construed in accordance with the internal laws of the State of New Jersey without reference to its conflict of laws provisions. In the event of a dispute arising from this Agreement the Parties agree that the state and federal courts of the State of New Jersey shall have exclusive jurisdiction over any litigation or proceeding. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

12.8 Survival . Any provision of this Agreement that contemplates performance or observance subsequent to any termination or expiration of this Agreement (in whole or in part) shall survive any termination or expiration of this Agreement (in whole or in part, as applicable) and continue in full force and effect. Without limiting the foregoing, Articles 7, 8, 10 , 11 and 12 and Sections 4.3 and 4.4 of this Agreement shall survive the expiration or termination of this Agreement.

12.9 Section Headings . Section headings herein are for convenience only, are not part of the terms and conditions and shall not affect their interpretation.

12.10 Ambiguities . Ambiguities, if any, in this Agreement shall not be construed against any Party irrespective of which Party may be deemed to have authored the ambiguous provision.

 

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12.11 Counterparts . This Agreement may be executed in any number of counterparts, or facsimile or .pdf scanned versions, each of which shall be considered to be an original instrument and to be effective as of the Effective Date.

(Signature Page Follows)

 

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

INTEGRA LIFESCIENCES CORPORATION

By:  
 Name:  
 Title:  

SEASPINE ORTHOPEDICS CORPORATION

By:  
 Name:  
 Title:  

EXHIBIT 10.7

INDEMNIFICATION AGREEMENT

This Indemnification Agreement (“ Agreement ”) is made as of                      ,              by and between SeaSpine Holdings Corporation, a Delaware corporation (the “ Company ”), and                      (“ Indemnitee ”). This Agreement supersedes and replaces any and all previous agreements between the Company and Indemnitee covering the subject matter of this Agreement.

RECITALS

WHEREAS, directors, officers, and other persons in service to publicly-held corporations and other business enterprises are being increasingly subjected to expensive and time-consuming litigation relating to, among other things, matters that traditionally would have been brought only against the corporation or business enterprise itself;

WHEREAS, highly competent persons have become more reluctant to serve publicly-held corporations as directors or in other capacities unless they are provided with adequate protection through insurance and indemnification against inordinate risks of claims and actions against them arising out of their service to and activities on behalf of the corporation;

WHEREAS, the Board of Directors of the Company (the “ Board ”) has determined that, in order to attract and retain qualified individuals to serve the Company, the Company will attempt to maintain on an ongoing basis, at its sole expense, liability insurance to protect such persons; however, the Board recognizes that although the furnishing of such insurance has been a customary and widespread practice among U.S. corporations and other business enterprises, given current market conditions and trends, such insurance may be available in the future only at higher premiums and with more exclusions;

WHEREAS, the General Corporation Law of the State of Delaware (the “ DGCL ”) permits, and the Bylaws of the Company require, indemnification of the officers and directors of the Company; each expressly provides that the indemnification provisions set forth therein are not exclusive, and thereby contemplate that contracts may be entered into between the Company and members of the Board, officers and other persons with respect to indemnification;

WHEREAS, in light of uncertainties relating to such insurance and to indemnification and the resulting difficulty of attracting and retaining persons to serve the Company, the Board has determined that the best interests of the Company and its stockholders would be served by assuring such persons that there will be increased certainty of such protection in the future;

WHEREAS, it is reasonable, prudent and necessary for the Company to obligate itself contractually to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified; and

WHEREAS, although this Agreement is a supplement to and in furtherance of the Bylaws of the Company (and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder), Indemnitee does not regard the protection available under the Company’s Bylaws and insurance as adequate in the present circumstances, and may not be willing to serve (or continue to serve) as an officer or director without adequate protection, and the Company desires Indemnitee to serve and continue to serve in such capacity.


NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:

Section 1. Services to the Company . Indemnitee agrees to serve, or continue to serve, as a director, officer, employee and Agent (as defined below) of the Company and/or, as applicable, its subsidiaries and any Enterprise (as defined below). Indemnitee may at any time and for any reason resign from any such position (subject to any other contractual obligation or any obligation imposed by operation of law), in which event the Company shall have no obligation under this Agreement to continue Indemnitee in such position. This Agreement shall not be deemed an employment contract between the Company (or any of its subsidiaries or any Enterprise) and Indemnitee. Indemnitee specifically acknowledges that Indemnitee’s employment with the Company (or any of its subsidiaries or any Enterprise), if any, is at will, and Indemnitee may be discharged at any time for any reason, with or without cause, except as may be otherwise provided in any written employment contract between Indemnitee and the Company (or any such subsidiary or Enterprise), other applicable formal severance policies duly adopted by the Board, or, with respect to service as a director or officer of the Company, by the Company’s Certificate of Incorporation, the Company’s Bylaws and the DGCL. The foregoing notwithstanding, this Agreement shall continue in force after Indemnitee has ceased to serve as a director, officer, employee and Agent of the Company or any of its subsidiaries or other Enterprise as provided in Section 16 hereof.

Section 2. Certain Definitions . As used in this Agreement:

(a) “ Agent ” shall mean any person who is or was a director, officer or employee of the Company or other person authorized by the Company to act for the Company, to include any person serving in such capacity as a director, officer, employee, fiduciary or other official of another corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or other Enterprise (including any subsidiary of the Company) at the request of, for the convenience of, or to represent the interests of the Company.

(b) A “ Change in Control ” shall be deemed to occur upon the earliest to occur after the date of this Agreement of any of the following events:

i. Acquisition of Stock by Third Party . Any Person (as defined below), other than Richard E. Caruso, Ph.D.,                      or                      , is or becomes the Beneficial Owner (as defined below), directly or indirectly, of securities of the Company representing fifteen percent (15%) or more of the combined voting power of the Company’s then outstanding securities;

ii. Change in Board of Directors . During any period of two (2) consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in Sections 2(b)(i) , 2(b)(iii) or 2(b)(iv) hereof) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the members of the Board;

iii. Corporate Transactions . The effective date of a merger or consolidation of the Company with any other entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or

 

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consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 51% of the combined voting power of the voting securities of the surviving entity outstanding immediately after such merger or consolidation and with the power to elect at least a majority of the board of directors or other governing body of such surviving entity;

iv. Liquidation . The approval by the stockholders of the Company of a complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets; or

v. Other Events . There occurs any other event of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or a response to any similar item on any similar schedule or form) promulgated under the Exchange Act (as defined below), whether or not the Company is then subject to such reporting requirement.

For purposes of this Section 2(b) , the following terms shall have the following meanings:

(A) “ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended from time to time.

(B) “ Person ” shall have the meaning as set forth in Sections 13(d) and 14(d) of the Exchange Act; provided , however , that Person shall exclude (i) the Company, (ii) any trustee or other fiduciary holding securities under an employee benefit plan of the Company, and (iii) any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.

(C) “ Beneficial Owner ” shall have the meaning given to such term in Rule 13d-3 under the Exchange Act; provided , however , that Beneficial Owner shall exclude any Person otherwise becoming a Beneficial Owner by reason of the stockholders of the Company approving a merger of the Company with another entity.

(c) “ Corporate Status ” describes the status of a person who is or was a director, officer, employee or Agent of the Company or any other corporation, limited liability company, partnership or joint venture, trust, employee benefit plan or other Enterprise, in which capacity such person is or was serving at the request of, for the convenience of, or to represent the interests of the Company.

(d) “ Disinterested Director ” shall mean a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.

(e) “ Enterprise ” shall mean the Company and any other corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise (including any subsidiary of the Company) of which Indemnitee is or was serving as a director, officer, employee or Agent at the request of, for the convenience of, or to represent the interests of the Company.

(f) “ Expenses ” shall include all reasonable attorneys’ fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, any federal, state, local or foreign taxes imposed

 

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on Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement, ERISA excise taxes and penalties, and all other disbursements or expenses of the types customarily incurred in connection with or as a result of prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a deponent or witness in, or otherwise participating in, a Proceeding. Expenses also shall include, without limitation: (i) expenses incurred in connection with any appeal resulting from any Proceeding, including without limitation the premium, security for, and other costs relating to any cost bond, supersedeas bond, or other appeal bond or its equivalent, and (ii) for purposes of Section 14(d) , expenses incurred by Indemnitee in connection with the interpretation, enforcement or defense of Indemnitee’s rights under this Agreement, by litigation or otherwise. Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.

(g) “ Independent Counsel ” shall mean a law firm, or a member of a law firm, that is experienced in matters of corporate law and neither presently is, nor in the past five (5) years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning Indemnitee’s right to indemnification under this Agreement, or of other indemnitees under similar indemnification agreements with the Company), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any law firm or member of a law firm who, under the applicable standards of professional conduct, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement. The Company agrees to pay the reasonable fees and expenses of the Independent Counsel referred to above and to indemnify such counsel fully against any and all expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.

(h) The term “ Proceeding ” shall include any threatened, pending or completed action, suit, arbitration, mediation, alternate dispute resolution process, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought by or in the right of the Company or otherwise, and whether of a civil, criminal, administrative, regulatory, legislative or investigative (formal or informal) nature, including any appeal therefrom, in which Indemnitee was, is or could be involved as a party, potential party, non-party witness or otherwise by reason of the fact that Indemnitee is or was a director, officer, employee or Agent of the Company and/or any other Enterprise, by reason of any action taken by him or of any action on his part while acting as a director, officer, employee or Agent of the Company and/or such other Enterprise, in each case whether or not serving in such capacity at the time any liability or expense is incurred for which indemnification, reimbursement, or advancement of expenses can be provided under this Agreement. If the Indemnitee believes in good faith that a given situation may lead to or culminate in the institution of a Proceeding, such situation shall be considered a Proceeding under this paragraph.

(i) References to “fines” shall include any excise tax assessed with respect to any employee benefit plan; references to “serving at the request of the Company” shall include any service as a director, officer, employee or Agent of the Company that imposes duties on, or involves services by, such director, officer, employee or Agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the best interests of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in manner “not opposed to the best interests of the Company” as referred to in this Agreement.

Section 3. Indemnity in Third-Party Proceedings . The Company shall indemnify Indemnitee in accordance with the provisions of this Section 3 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding, other than a Proceeding by or in the right of the

 

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Company to procure a judgment in its favor. Pursuant to this Section 3 , Indemnitee shall be indemnified to the fullest extent permitted by applicable law against all Expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by Indemnitee or on his behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Company and, in the case of a criminal action or proceeding, had no reasonable cause to believe that his conduct was unlawful. The parties hereto intend that this Agreement shall provide to the fullest extent permitted by law for indemnification in excess of that expressly permitted by statute, including, without limitation, any indemnification provided by the Company’s Certificate of Incorporation, its Bylaws, vote of its stockholders or Disinterested Directors (or any committee thereof), or applicable law.

Section 4. Indemnity in Proceedings by or in the Right of the Company . The Company shall indemnify Indemnitee in accordance with the provisions of this Section 4 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding by or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 4 , Indemnitee shall be indemnified to the fullest extent permitted by applicable law against all Expenses actually and reasonably incurred by him or on his behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company; provided, however , that no indemnification for Expenses shall be made under this Section 4 in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudged by a court to be liable to the Company, unless and only to the extent that the Delaware Court of Chancery or any court in which the Proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification for such Expenses that the Delaware Court of Chancery or such other court deems proper.

Section 5. Indemnification for Expenses of a Party Who is Wholly or Partially Successful . To the fullest extent permitted by applicable law and to the extent that Indemnitee is a party to (or a participant in) and is successful, on the merits or otherwise, in any Proceeding or in defense of any claim, issue or matter therein, in whole or in part, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all applicable claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or on his behalf in connection with or related to each successfully resolved claim, issue or matter to the fullest extent permitted by law. For purposes of this Section 5 and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter.

Section 6. Indemnification For Expenses of a Witness . To the fullest extent permitted by applicable law and to the extent that Indemnitee is, by reason of his Corporate Status, a witness or otherwise asked to participate in any Proceeding to which Indemnitee is not a party, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith.

Section 7. Partial Indemnification . If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of Expenses, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.

 

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Section 8. Additional Indemnification .

(a) Notwithstanding any limitation in Sections 3 , 4 , or 5 hereof, the Company shall indemnify Indemnitee to the fullest extent permitted by applicable law if Indemnitee is a party to or threatened to be made a party to any Proceeding (including a Proceeding by or in the right of the Company to procure a judgment in its favor) against all Expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by Indemnitee in connection with the Proceeding.

(b) For purposes of Section 8(a) , the meaning of the phrase “to the fullest extent permitted by applicable law” shall include, but not be limited to, the following:

i. to the fullest extent permitted by the provision of the DGCL that authorizes or contemplates additional indemnification by agreement, or the corresponding provision of any amendment to or replacement of the DGCL, and

ii. to the fullest extent authorized or permitted by any amendments to or replacements of the DGCL adopted after the date of this Agreement that increase the extent to which a Delaware corporation may indemnify its directors, officers, employees, and Agents of the Company or any of its subsidiaries.

Section 9. Exclusions . Notwithstanding any other provision in this Agreement, the Company shall not be obligated to indemnify Indemnitee in connection with any claim against Indemnitee:

(a) to the extent that payment has actually been made to or on behalf of Indemnitee under any insurance policy or other indemnity provision; or

(b) for (i) an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Exchange Act (as defined in Section 2(b) hereof) or similar provisions of state statutory law or common law, or (ii) any reimbursement of the Company by Indemnitee of any bonus or other incentive-based or equity-based compensation or of any profits realized by Indemnitee from the sale of securities of the Company, as required in each case under the Exchange Act (including any such reimbursements that arise from an accounting restatement of the Company pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 (as amended, the “ Sarbanes-Oxley Act ”), or the payment to the Company of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 306 of the Sarbanes-Oxley Act); or

(c) in connection with any Proceeding (or any part of any Proceeding) initiated by Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Company or its directors, officers, employees or other indemnitees, unless (i) the Board authorized the Proceeding (or such part of such Proceeding) prior to its initiation or (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law; provided, however , that this provision shall not apply to any claims related to the interpretation, enforcement or defense of Indemnitee’s rights under this Agreement by litigation or otherwise, including as provided in Sections 10 and 14(d) hereof.

Section 10. Advances of Expenses. In furtherance and not in limitation of the provisions of Section 6.02 of the Bylaws of the Company, and notwithstanding any other provision of this Agreement to the contrary, the Company shall advance, to the extent not prohibited by law, the Expenses incurred by Indemnitee in connection with any Proceeding, and such advancement shall be made within thirty (30) days after the receipt by the Company of a statement or statements requesting such advances from time to

 

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time, whether prior to or after final disposition of any Proceeding. Advances shall be unsecured and interest free. Advances shall be made without regard to Indemnitee’s ability to repay the Expenses and without regard to Indemnitee’s ultimate entitlement to indemnification under the other provisions of this Agreement. Advances shall include any and all reasonable Expenses incurred pursuing an action to enforce this right of advancement, including Expenses incurred preparing and forwarding statements to the Company to support the advances claimed. Indemnitee shall qualify for advances upon the execution and delivery to the Company of this Agreement, which shall constitute an undertaking by Indemnitee to repay (without interest) the amounts advanced to the extent that it is ultimately determined that Indemnitee is not entitled to be indemnified by the Company, and no other form of undertaking shall be required from Indemnitee other than the execution of this Agreement. This Section 10 shall not apply to any claim made by Indemnitee for which indemnity is otherwise excluded pursuant to Section 9 .

Section 11. Procedure for Notification and Defense of Claim.

(a) Indemnitee shall notify the Company in writing of any matter with respect to which Indemnitee intends to seek indemnification or advancement of Expenses hereunder as soon as reasonably practicable following the receipt by Indemnitee of written notice thereof or Indemnitee’s becoming aware thereof (the “ Indemnification Notice ”). The Indemnification Notice shall include a description of the nature of the Proceeding and the facts underlying the Proceeding, in each case to the extent known to Indemnitee. To obtain indemnification under this Agreement, Indemnitee shall also submit to the Company such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification following the final disposition of such Proceeding. The omission by Indemnitee to notify the Company hereunder will not relieve the Company from any liability which it may have to Indemnitee under this Agreement or otherwise, and any delay in so notifying the Company shall not constitute a waiver by Indemnitee of any rights under this Agreement. The Secretary of the Company shall, promptly upon receipt of the Indemnification Notice, advise the Board in writing that Indemnitee has requested indemnification and/or advancement of Expenses.

(b) The Company will be entitled to participate in the Proceeding at its own expense.

Section 12. Procedure Upon Application for Indemnification.

(a) Upon delivery of the Indemnification Notice by Indemnitee under Section 11(a) , a determination, if required by applicable law, with respect to Indemnitee’s entitlement thereto shall be made with respect to such request as follows: (i) by a majority vote of the Disinterested Directors, even though less than a quorum of the Board, (ii) by a committee of Disinterested Directors designated by a majority vote of the Disinterested Directors, even though less than a quorum of the Board, (iii) if there are no such Disinterested Directors or, if such Disinterested Directors so direct, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee or (iv) if so directed by the Board, by the stockholders of the Company; provided, however, that, notwithstanding the foregoing, in all cases, Indemnitee shall have the option, but not the obligation, to require, by delivery of a written request to the Company, that the determination with respect to Indemnitee’s entitlement to indemnification hereunder be made by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee (in which case such request shall be made prior to any determination by the Disinterested Directors (or any committee thereof) or prior to the submission of such matter to a vote by the stockholders of the Company).

(b) If it is determined pursuant to Section 12(a) hereof that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within ten (10) days after such determination.

 

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Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance written request any documentation or information that is not privileged or otherwise protected from disclosure and that is reasonably available to Indemnitee and reasonably necessary to such determination. Any Expenses incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.

(c) In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 12(a) hereof, the Independent Counsel shall be selected as provided in this Section 12(c) . If a Change in Control shall have occurred or if Indemnitee otherwise elects to require determination with respect to Indemnitee’s entitlement to indemnification hereunder to be made by Independent Counsel, the Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall request that such selection be made by the Board, in which event the following sentence shall apply), and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected. If a Change in Control shall not have occurred and the determination with respect to Indemnitee’s entitlement to indemnification hereunder is to be made by Independent Counsel pursuant to Section 12(a)(iii) , or if Indemnitee shall otherwise request, the Independent Counsel shall be selected by the Board, and the Company shall give written notice to Indemnitee advising him of the identity of the Independent Counsel so selected. In either event, Indemnitee or the Company, as the case may be, may, within ten (10) days after such written notice of selection shall have been given, deliver to the Company or to Indemnitee, as the case may be, a written objection to such selection; provided , however , that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of “Independent Counsel” as defined in Section 2(g) of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If such written objection is so made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit. If, within twenty (20) days after the later of (i) submission by Indemnitee of a written request for indemnification pursuant to Section 11(a) hereof and (ii) the final disposition of the Proceeding, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee may petition a court of competent jurisdiction for resolution of any objection made by the Company or Indemnitee to the other’s selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the Court or by such other person as the Court shall designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 12(a) hereof. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 14(a) of this Agreement, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).

Section 13. Presumptions and Effect of Certain Proceedings.

(a) In making a determination with respect to entitlement to indemnification hereunder, the person, persons or entity making such determination (including, without limitation, any Independent Counsel) shall, to the fullest extent not prohibited by law, presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted an Indemnification Notice in accordance with Section 11(a) of this Agreement, and the Company shall, to the fullest extent not prohibited by law, have the burden of proof to overcome that presumption in connection with the making by any person, persons or entity of any determination contrary to that presumption. Neither the failure of

 

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the Company (including by its directors or Independent Counsel) to have made a determination, at any time prior to the commencement of any action pursuant to this Agreement, as to whether indemnification is proper in the circumstances because Indemnitee has or has not met the applicable standard of conduct, nor an actual determination by the Company (including by its directors or Independent Counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.

(b) Subject to Section 14(e) (which section allows determination regarding Indemnitee’s entitlement to indemnification under this Agreement to be deferred until following the final disposition of the Proceeding), if the person, persons or entity empowered or selected under Section 12 of this Agreement to determine whether Indemnitee is entitled to indemnification shall not have made a determination within sixty (60) days after receipt by the Company of the Indemnification Notice from Indemnitee therefor, the requisite determination of entitlement to indemnification shall, to the fullest extent not prohibited by law, be deemed to have been made and Indemnitee shall be entitled to such indemnification, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law; provided , however , that such sixty (60)-day period may be extended for a reasonable time, not to exceed an additional thirty (30) days, if the person, persons or entity making the determination with respect to entitlement to indemnification in good faith requires such additional time for the obtaining or evaluating of documentation and/or information relating thereto; provided , further , that the foregoing provisions of this Section 13(b) shall not apply (i) if the determination of entitlement to indemnification is to be made by the stockholders pursuant to Section 12(a) of this Agreement and if (A) within fifteen (15) days after receipt by the Company of the request for such determination the Board has resolved to submit such determination to the stockholders for their consideration at an annual meeting thereof to be held within seventy-five (75) days after such receipt and such determination is made thereat, or (B) a special meeting of stockholders is called within fifteen (15) days after such receipt for the purpose of making such determination, such meeting is held for such purpose within sixty (60) days after having been so called and such determination is made thereat, or (ii) if the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 12(a) of this Agreement.

(c) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) in and of itself adversely affect the right of Indemnitee to indemnification or create a presumption (i) that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, or (ii) that Indemnitee had reasonable cause to believe that his conduct was unlawful.

(d) For purposes of any determination of good faith, Indemnitee shall be deemed to have acted in good faith if Indemnitee’s action is based on the records or books of account of the Enterprise, including financial statements, or on information supplied to Indemnitee by the officers of the Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise, or on information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser or other expert selected with the reasonable care by the Enterprise. The provisions of this Section 13(d) shall not be deemed to be exclusive or to limit in any way the other circumstances in which Indemnitee may be deemed to have met the applicable standard of conduct set forth in this Agreement.

 

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(e) The knowledge and/or actions, or failure to act, of any other director, officer, Agent or employee of the Company or any other Enterprise shall not be imputed to Indemnitee for purposes of determining Indemnitee’s right to indemnification under this Agreement.

Section 14. Remedies of Indemnitee.

(a) Subject to Section 14(e) (which section allows determination regarding Indemnitee’s entitlement to indemnification under this Agreement to be deferred until following the final disposition of the Proceeding), in the event that:

i. a determination is made pursuant to Section 12 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement;

ii. advancement of Expenses is not timely made pursuant to Section 10 of this Agreement;

iii. no determination of entitlement to indemnification shall have been made pursuant to Section 12(a) of this Agreement within ninety (90) days after receipt by the Company of the Indemnification Notice, as provided in Section 13(b) ;

iv. payment of indemnification is not made pursuant to Section 5 , 6 or 7 , or the last sentence of Section 12(a) of this Agreement within ten (10) days after receipt by the Company of a written request therefor;

v. payment of indemnification pursuant to Section 3 , 4 or 8 of this Agreement is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification; or

vi. the Company or any other person or Enterprise takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or other action or Proceeding designed to deny, or to recover from, Indemnitee the benefits provided or intended to be provided to Indemnitee hereunder,

then, in any such event, Indemnitee shall be entitled to an adjudication by a court of his entitlement to such indemnification or advancement of Expenses. Alternatively, Indemnitee, at his option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 14(a) ; provided , however , that the foregoing clause shall not apply in respect of a proceeding brought by Indemnitee to enforce his rights under Section 5 of this Agreement. The Company shall not oppose Indemnitee’s right to seek any such adjudication or award in arbitration.

(b) In the event that a determination shall have been made pursuant to Section 12(a) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 14 shall be conducted in all respects as a de novo trial or arbitration on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination. In any judicial proceeding or arbitration commenced pursuant to this Section 14 the Company shall have the burden of proving Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be.

 

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(c) If a determination shall have been made pursuant to Section 12(a) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 14 , absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law.

(d) The Company shall, to the fullest extent not prohibited by law, be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 14 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement. It is the intent of the Company that, to the fullest extent permitted by law, Indemnitee not be required to incur legal fees or other Expenses associated with the interpretation, enforcement or defense of Indemnitee’s rights under this Agreement by litigation or otherwise because the cost and expense thereof would substantially detract from the benefits intended to be extended to Indemnitee hereunder. The Company shall, to the fullest extent permitted by law, indemnify Indemnitee against any and all Expenses and, if requested by Indemnitee, shall (within ten (10) days after receipt by the Company of a written request therefor) advance, to the extent not prohibited by law, such Expenses to Indemnitee, which are incurred by Indemnitee in connection with any action brought by Indemnitee for indemnification or advance of Expenses from the Company under this Agreement or under any directors’ and officers’ liability insurance policies maintained by the Company, if Indemnitee is wholly successful on the underlying claims; if Indemnitee is not wholly successful on the underlying claims, then such indemnification and advancement shall be only to the extent Indemnitee is successful on such underlying claims or otherwise as permitted by law, whichever is greater.

(e) Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement of Indemnitee to indemnification under this Agreement shall be required to be made prior to the final disposition of the Proceeding.

Section 15. Non-exclusivity; Survival of Rights; Insurance; Subrogation.

(a) The rights of indemnification and to advancement of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Company’s Certificate of Incorporation, the Company’s Bylaws, any agreement, a vote of stockholders or a resolution of directors, or otherwise. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in Delaware law, whether by statute or judicial decision, permits greater indemnification or advancement of Expenses than would be afforded currently under the Company’s Bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by virtue of this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.

(b) To the extent that the Company maintains any insurance policy providing liability insurance for directors, officers, employees, or Agents of the Company or any other Enterprise, Indemnitee shall be covered by such policy in accordance with its terms to the maximum extent of the

 

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coverage available for any such director, officer, employee or Agent under such policy. If, at the time of the receipt of an Indemnification Notice pursuant to the terms hereof, the Company has director and officer liability or similar insurance (“ D&O Insurance ”) in effect, the Company shall give prompt notice of such claim or of the commencement of a Proceeding, as the case may be, to the applicable insurers in accordance with the procedures set forth in the applicable policy. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such Proceeding in accordance with the terms of each such policy.

(c) In the event (i) that the Company determines to reduce materially or not to renew its D&O Insurance coverage, the Company will purchase six (6) year tail coverage D&O Insurance, on terms and conditions substantially similar to the existing D&O Insurance (“ Comparable Coverage ”), for the benefit of the directors, officers, employees or Agents of the Company or any other Enterprise who had served in such capacity prior to the reduction, termination or expiration of the coverage (the “ Prior Directors and Officers ”); or (ii) of a Change in Control, the Company will either (A) purchase six (6) year tail coverage D&O Insurance with Comparable Coverage for the benefit of the directors, officers, employees or Agents of the Company or any other Enterprise who had served in such capacity prior to the closing of the transaction or the occurrence of the event constituting the Change in Control, and/or (B) as applicable, secure the contractual agreement by the acquiring entity or person to purchase such coverage and require the acquiring entity or person to deliver proof of the purchase of such coverage, in form and substance satisfactory to the Company, at or prior to the closing of the transaction or the occurrence of the event constituting the Change in Control; provided , however , that this clause (ii) shall not apply if, in connection with the Change in Control, there is no material reduction or non-renewal of the existing D&O Insurance coverage for the benefit of the directors, officers, employees or Agents of the Company or any other Enterprise who served in such capacity prior to the closing of the transaction or the occurrence of the event constituting the Change in Control for the six (6) year period following the date of such closing or event. Notwithstanding the foregoing, if the annual premium for any year of such tail coverage or other continuing D&O Insurance coverage would exceed 200% of the annual premium the Company paid for D&O Insurance in its last full fiscal year prior to the reduction, termination or expiration of the D&O Insurance or such Change in Control event, the Company (or the acquiror or successor, as the case may be) will be deemed to have satisfied its obligations under this Section 15(c) by purchasing as much D&O Insurance for such year as can be obtained for a premium equal to 200% of such annual premium the Company paid for D&O Insurance in its last full fiscal year.

(d) In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.

(e) The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable (including Expenses for which advancement is provided hereunder) hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.

(f) The Company’s obligation to indemnify or to advance Expenses hereunder to Indemnitee in connection with any claim related to Indemnitee’s service as a director, officer, employee or Agent of any Enterprise other than the Company shall be reduced by any amount Indemnitee has actually received as indemnification or advancement of Expenses from such other Enterprise.

Section 16. Duration of Agreement. This Agreement shall continue in full force and effect until and terminate upon the later of: (a) ten (10) years after the date that Indemnitee shall have ceased to

 

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serve as a director, officer, employee, and/or Agent of the Company or any other Enterprise, and (b) one (1) year after the final termination of any Proceeding then pending in respect of which Indemnitee is granted rights of indemnification or advancement of Expenses hereunder and of any proceeding commenced by Indemnitee pursuant to Section 14 of this Agreement relating thereto. This Agreement shall be binding upon the Company and its successors and assigns, and shall inure to the benefit of Indemnitee and his heirs, representatives, executors and administrators.

Section 17. Amendments to Bylaws . Any amendments to the Bylaws of the Company that purport to reduce or eliminate indemnification rights of Indemnitee thereunder shall have no effect with respect to this Agreement, and Indemnitee shall continue to have all of the rights and benefits of this Agreement despite any such amendments to the Bylaws. However, if the Bylaws of the Company are amended to provide for greater indemnification rights or privileges, this Agreement shall not be construed so as to limit Indemnitee’s rights and privileges to the terms hereof, and Indemnitee shall be entitled to the full benefit of any such additional rights and privileges.

Section 18. Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.

Section 19. Enforcement.

(a) The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve as a director, officer, employee and/or Agent of the Company and/or one or more other Enterprises, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director, officer, employee and/or Agent of the Company and/or any of such other Enterprises.

(b) This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof; provided , however , that this Agreement is a supplement to and in furtherance of the Certificate of Incorporation of the Company, the Bylaws of the Company, any D&O Insurance policy maintained by the Company and applicable law, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder.

Section 20. Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by the parties thereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions of this Agreement nor shall any waiver constitute a continuing waiver.

Section 21. Notice by Indemnitee. Indemnitee agrees promptly to notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter that is or may be subject to indemnification or advancement of Expenses covered hereunder. The failure of Indemnitee to so notify the Company shall not relieve the Company of any obligation which it may have to Indemnitee under this Agreement or otherwise.

 

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Section 22. Notices. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given if (a) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, (b) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed, (c) mailed by reputable overnight courier and receipted for by the party to whom said notice or other communication shall have been directed, or (d) sent by facsimile transmission, with receipt of oral confirmation that such transmission has been received:

If to Indemnitee:

at the address indicated on the signature page of this Agreement, or such other address as Indemnitee shall provide to the Company in writing.

If to the Company to:

SeaSpine Holdings Corporation

2302 La Mirada Drive

Vista, California 92081

Attention: General Counsel

or to any other address as may have been furnished to Indemnitee by the Company in writing.

Section 23. Contribution. To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or Expenses, in connection with any Proceeding or other claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding or other claim in order to reflect (a) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such Proceeding; and/or (b) the relative fault of the Company (and its directors, officers, employees and Agents) and Indemnitee in connection with such event(s) and/or transaction(s).

Section 24. Applicable Law and Consent to Jurisdiction. This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. Except with respect to any arbitration commenced by Indemnitee pursuant to Section 14(a) of this Agreement, the Company and Indemnitee hereby irrevocably and unconditionally (a) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Chancery Court of the State of Delaware (the “ Delaware Court ”), and not in any other state or federal court in the United States of America or any court in any other country, (b) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (c) appoint, to the extent such party is not otherwise subject to service of process in the State of Delaware, Corporation Service Company irrevocably as its agent in the State of Delaware as such party’s agent for acceptance of legal process in connection with any such action or proceeding against such party with the same legal force and validity as if served upon such party personally within the State of Delaware, (d) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (e) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.

 

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Section 25. Construction

(a) The section and subsection headings contained in this Agreement are solely for the purpose of reference and convenience, are not part of the agreement of the parties, and shall not in any way limit, modify or otherwise affect the meaning or interpretation of this Agreement.

(b) References to “Sections” or “Articles” refer to corresponding Sections or Articles of this Agreement unless otherwise specified.

(c) Unless the context requires otherwise, the words “include,” “including” and variations thereof mean without limitation, the words “hereof,” “hereby,” “herein,” “hereunder” and similar terms refer to this Agreement as a whole and not any particular section or article in which such words appear, and any reference to a law shall include any amendment thereof or any successor thereto and any rules and regulations promulgated thereunder.

(d) Unless the context requires otherwise, words in the singular include the plural, words in the plural include the singular, and words importing any gender shall be applicable to all genders.

Section 26. Counterparts; Facsimile Signatures. This Agreement may be executed in two or more counterparts, each of which shall for all purposes be deemed to be an original but all of which, taken together, shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement. This Agreement may be executed and delivered by facsimile or email transmission of a file in “ .pdf ” or similar format and upon such delivery, each signature shall be deemed to have the same effect as if the original signature had been delivered to the other party.

Signature page follows .

 

 

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IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as of the day and year first above written.

 

SEASPINE HOLDINGS CORPORATION

By:

 

Name:
Title:

                                                                         (INDEMNITEE)

 

Printed Name:

Address:

 

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Exhibit 10.8

SEASPINE HOLDINGS CORPORATION

2015 INCENTIVE AWARD PLAN

ARTICLE 1.

PURPOSE

The purpose of the SeaSpine Holdings Corporation 2015 Incentive Award Plan (the “ Plan ”) is to promote the success and enhance the value of SeaSpine Holdings Corporation, a Delaware corporation (the “ Company ”) by linking the individual interests of Employees, Consultants, and members of the Board to those of the Company’s stockholders and by providing such individuals with an incentive for outstanding performance to generate superior returns to the Company’s stockholders. The Plan is further intended to provide flexibility to the Company and its subsidiaries in their ability to motivate, attract, and retain the services of those individuals upon whose judgment, interest, and special effort the successful conduct of the Company’s operation is largely dependent. In addition, the Plan is intended to govern Awards granted pursuant to the adjustment of awards originally granted under the Integra LifeSciences Holdings Corporation Third Amended and Restated 2003 Equity Incentive Plan (the “ Integra Plan ”) in accordance with the terms of the Employee Matters Agreement (each, an “ Adjusted Award ”).

ARTICLE 2.

DEFINITIONS AND CONSTRUCTION

Wherever the following terms are used in the Plan they shall have the meanings specified below, unless the context clearly indicates otherwise. The singular pronoun shall include the plural where the context so indicates.

2.1 “ Administrator ” shall mean the entity that conducts the general administration of the Plan as provided in Article 11 hereof. With reference to the duties of the Administrator under the Plan which have been delegated to one or more persons pursuant to Section 11.6 hereof, or which the Board has assumed, the term “Administrator” shall refer to such person(s) or the Board, as applicable, unless the Committee or the Board has revoked such delegation or the Board has terminated the assumption of such duties.

2.2 “ Affiliate ” shall mean any Parent or any Subsidiary.

2.3 “ Applicable Accounting Standards ” shall mean Generally Accepted Accounting Principles in the United States, International Financial Reporting Standards or such other accounting principles or standards as may apply to the Company’s financial statements under United States federal securities laws from time to time.

2.4 “ Applicable Law ” shall mean any applicable law, including without limitation, (a) provisions of the Code, the Securities Act, the Exchange Act and any rules or regulations thereunder; (b) corporate, securities, tax or other laws, statutes, rules, requirements or regulations, whether federal, state, local or foreign; and (c) rules of any securities exchange, national market system or automated quotation system on which the Shares are listed, quoted or traded.


2.5 “ Award ” shall mean an Option, a Restricted Stock award, a Performance Award, a Dividend Equivalent award, a Stock Payment award, a Restricted Stock Unit award, a Performance Share award, an Other Incentive Award or a Stock Appreciation Right, which may be awarded or granted under the Plan, including any such Award which may be granted in the form of an Adjusted Award.

2.6 “ Award Agreement ” shall mean any written notice, agreement, contract or other instrument or document evidencing an Award, including through electronic medium, which shall contain such terms and conditions with respect to an Award as the Administrator shall determine, consistent with the Plan.

2.7 “ Board ” shall mean the Board of Directors of the Company.

2.8 “ Cause ” shall mean, with respect to any Participant, “Cause” as defined in such Participant’s employment agreement or severance agreement with the Company if such an agreement exists and contains a definition of Cause or, if no such agreement exists or such agreement does not contain a definition of Cause, then Cause shall mean (a) the Participant’s neglect of duties or responsibilities that he or she is required to perform for the Company or any willful failure by the Participant to obey a lawful direction of the Board or the Company; (b) the Participant’s engaging in any act of dishonesty, fraud, embezzlement, misrepresentation or other act of moral turpitude; (c) the Participant’s knowing violation of any federal or state law or regulation applicable to the Company’s business; (d) the Participant’s material breach of any confidentiality, non-compete agreement or invention assignment agreement or any other material agreement between the Participant and the Company; (e) the Participant’s conviction of, or plea of nolo contendere to, any felony or crime of moral turpitude which conviction or plea is materially and demonstrably injurious to the Company or any of its subsidiaries; (f) failure by the Participant to comply with the Company’s material written policies or rules; or (g) the Participant’s act or omission in the course of his or her employment which constitutes gross negligence or willful misconduct.

2.9 “ Change in Control ” shall mean the occurrence of any of the following events:

(a) A transaction or series of transactions (other than an offering of Shares to the general public through a registration statement filed with the Securities and Exchange Commission) whereby any “person” or related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act) (other than the Company, any Parent or any Subsidiary, an employee benefit plan maintained by any of the foregoing entities or a “person” that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company possessing more than fifty percent (50%) of the total combined voting power of the Company’s securities outstanding immediately after such acquisition; or

 

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(b) During any period of two (2) consecutive years, individuals who, at the beginning of such period, constitute the Board together with any new director(s) (other than a director designated by a person who shall have entered into an agreement with the Company to effect a transaction described in Section 2.9(a) or Section 2.9(c) hereof) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the two (2)-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or

(c) The consummation by the Company (whether directly involving the Company or indirectly involving the Company through one or more intermediaries) of (x) a merger, consolidation, reorganization, or business combination, (y) a sale or other disposition of all or substantially all of the Company’s assets in any single transaction or series of related transactions or (z) the acquisition of assets or stock of another entity, in each case, other than a transaction:

(i) Which results in the Company’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Company or the person that, as a result of the transaction, controls, directly or indirectly, the Company or owns, directly or indirectly, all or substantially all of the Company’s assets or otherwise succeeds to the business of the Company (the Company or such person, the “ Successor Entity ”)) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and

(ii) After which no person or group beneficially owns voting securities representing fifty percent (50%) or more of the combined voting power of the Successor Entity; provided , however , that no person or group shall be treated for purposes of this Section 2.9(c)(ii) as beneficially owning fifty percent (50%) or more of the combined voting power of the Successor Entity solely as a result of the voting power held in the Company prior to the consummation of the transaction; or

(d) Approval by the Company’s stockholders of a liquidation or dissolution of the Company.

Notwithstanding the foregoing, if a Change in Control constitutes a payment event with respect to any Award (or any portion of an Award) that provides for the deferral of compensation that is subject to Section 409A of the Code, to the extent required to avoid the imposition of additional taxes under Section 409A of the Code, the transaction or event described in subsection (a), (b), (c) or (d) with respect to such Award (or portion thereof) shall only constitute a Change in Control for purposes of the payment timing of such Award if such transaction also constitutes a “change in control event” (within the meaning of Code Section 409A). Consistent with the terms of this Section 2.9, the Administrator shall have full and final authority to determine conclusively whether a Change in Control of the Company has occurred pursuant to the above definition, the date of the occurrence of such Change in Control and any incidental matters relating thereto; provided that any exercise of authority in conjunction with a determination of whether a Change in Control is a “change in control event” as defined in Treasury Regulation Section 1.409A-3(i)(5) shall be consistent with such regulation.

 

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2.10 “ Code ” shall mean the Internal Revenue Code of 1986, as amended from time to time, together with the regulations and official guidance promulgated thereunder, whether issued prior or subsequent to the grant of any Award.

2.11 “ Committee ” shall mean the Compensation Committee of the Board, or another committee or subcommittee of the Board described in Article 11 hereof.

2.12 “ Common Stock ” shall mean the common stock of the Company, par value $0.01 per share.

2.13 “ Company ” shall mean SeaSpine Holdings Corporation, a Delaware corporation.

2.14 “ Consultant ” shall mean (a) any consultant or advisor of the Company or any Parent or Subsidiary who qualifies as a consultant or advisor under the applicable rules of Form S-8 Registration Statement or, prior to the Public Trading Date, under Rule 701 of the Securities Act or (b) any other individual who is determined by the Administrator to be a Consultant for purposes of the Plan.

2.15 “ Covered Employee ” shall mean any Employee who is, or could become, a “covered employee” within the meaning of Section 162(m) of the Code.

2.16 “ Director ” shall mean a member of the Board, as constituted from time to time.

2.17 “ Distribution ” shall have the meaning provided in that certain Separation and Distribution Agreement dated on or about [            ], 2015 (as amended or otherwise modified from time to time), by and between the Company and Integra.

2.18 “ Dividend Equivalent ” shall mean a right to receive the equivalent value (in cash or Shares) of dividends paid on Shares, awarded under Section 9.2 hereof.

2.19 “ DRO ” shall mean a “domestic relations order” as defined by the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended from time to time, or the rules thereunder.

2.20 “ Effective Date ” shall mean the date the Plan is adopted by the Board, subject to approval of the Plan by the Company’s sole stockholder.

2.21 “ Eligible Individual ” shall mean (a) any person who is an Employee, a Consultant or a Non-Employee Director, as determined by the Administrator and (b) with respect to Adjusted Awards, any person who receives an Adjusted Award in accordance with the terms of the Employee Matters Agreement.

2.22 “ Employee ” shall mean any officer or other employee (within the meaning of Section 3401(c) of the Code) of the Company or any Parent or Subsidiary.

 

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2.23 “ Employee Matters Agreement ” means that certain Employee Matters Agreement by and between Integra and the Company, dated on or about [            ], 2015.

2.24 “ Equity Restructuring ” shall mean a nonreciprocal transaction between the Company and its stockholders, such as a stock dividend, stock split, spin-off, rights offering or recapitalization through a large, nonrecurring cash dividend, that affects the number or kind of Shares (or other securities of the Company) or the share price of Common Stock (or other securities) and causes a change in the per share value of the Common Stock underlying outstanding stock-based Awards.

2.25 “ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended from time to time.

2.26 “ Fair Market Value ” shall mean, as of any given date, the value of a Share determined as follows:

(a) If the Common Stock is (i) listed on any established securities exchange (such as the New York Stock Exchange, the NASDAQ Capital Market, the NASDAQ Global Market and the NASDAQ Global Select Market), (ii) listed on any national market system or (iii) listed, quoted or traded on any automated quotation system, its Fair Market Value shall be the closing sales price for a Share as quoted on such exchange or system for such date or, if there is no closing sales price for a Share on the date in question, the closing sales price for a Share on the last preceding date for which such quotation exists, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

(b) If the Common Stock is not listed on an established securities exchange, national market system or automated quotation system, but the Common Stock is regularly quoted by a recognized securities dealer, its Fair Market Value shall be the mean of the high bid and low asked prices for such date or, if there are no high bid and low asked prices for a Share on such date, the high bid and low asked prices for a Share on the last preceding date for which such information exists, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or

(c) If the Common Stock is neither listed on an established securities exchange, national market system or automated quotation system nor regularly quoted by a recognized securities dealer, its Fair Market Value shall be established by the Administrator in good faith.

2.27 “ Good Reason ” shall mean, with respect to any Participant, “Good Reason” as defined in an employment, severance or applicable award agreement between such Participant and the Company if such an agreement exists and contains a definition of Good Reason or, if no such agreement exists or such agreement does not contain a definition of Good Reason, then Good Reason shall mean, without the express written consent of the Participant, the occurrence of any of the following:

(a) a material diminution in the Participant’s authority, duties or responsibilities or the assignment of duties to the Participant that are materially inconsistent with the Participant’s position with the Company;

 

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(b) a material reduction in the Participant’s base salary; and/or

(c) a change in the geographic location at which the Participant must perform services to a location more than 50 miles from the location at which the Participant normally performs such services as of the date of grant of the award,

provided, that the Participant’s resignation shall only constitute a resignation for Good Reason if (i) the Participant provides the Company with a notice of termination for Good Reason within 30 days after the initial existence of the facts or circumstances constituting Good Reason, (ii) the Company has failed to cure such facts or circumstances within 30 days after receipt of the notice of termination, and (iii) the date of termination occurs no later than 60 days after the initial occurrence of the facts or circumstances constituting Good Reason.

2.28 “ Greater Than 10% Stockholder ” shall mean an individual then-owning (within the meaning of Section 424(d) of the Code) more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any “parent corporation” or “subsidiary corporation” (as defined in Sections 424(e) and 424(f) of the Code, respectively).

2.29 “ Incentive Stock Option ” shall mean an Option that is intended to qualify as an incentive stock option and conforms to the applicable provisions of Section 422 of the Code.

2.30 “ Individual Award Limit ” shall mean the cash and share limits applicable to Awards granted under the Plan, as set forth in Section 3.3 hereof.

2.31 “ Integra ” shall mean Integra LifeSciences Holdings Corporation, a Delaware corporation.

2.32 “ Non-Employee Director ” shall mean a Director of the Company who is not an Employee.

2.33 “ Non-Qualified Stock Option ” shall mean an Option that is not an Incentive Stock Option or which is designated as an Incentive Stock Option but does not meet the applicable requirements of Section 422 of the Code.

2.34 “ Option ” shall mean a right to purchase Shares at a specified exercise price, granted under Article 6 hereof. An Option shall be either a Non-Qualified Stock Option or an Incentive Stock Option; provided , however , that Options granted to Non-Employee Directors and Consultants shall only be Non-Qualified Stock Options.

2.35 “ Organizational Documents ” shall mean, collectively, (a) the Company’s articles of incorporation, certificate of incorporation, bylaws or other similar organizational documents relating to the creation and governance of the Company, and (b) the Committee’s charter or other similar organizational documentation relating to the creation and governance of the Committee.

2.36 “ Other Incentive Award ” shall mean an Award denominated in, linked to or derived from Shares or value metrics related to Shares, granted pursuant to Section 9.6 hereof.

 

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2.37 “ Parent ” shall mean any entity (other than the Company), whether domestic or foreign, in an unbroken chain of entities ending with the Company if each of the entities other than the Company beneficially owns, at the time of the determination, securities or interests representing more than fifty percent (50%) of the total combined voting power of all classes of securities or interests in one of the other entities in such chain.

2.38 “ Participant ” shall mean an Eligible Individual who has been granted an Award pursuant to the Plan.

2.39 “ Performance Award ” shall mean an Award that is granted under Section 9.1 hereof.

2.40 “ Performance-Based Compensation ” shall mean any compensation that is intended to qualify as “performance-based compensation” as described in Section 162(m)(4)(C) of the Code.

2.41 “ Performance Criteria ” shall mean the criteria (and adjustments) that the Administrator selects for an Award for purposes of establishing the Performance Goal or Performance Goals for a Performance Period, determined as follows:

(a) The Performance Criteria that shall be used to establish Performance Goals are limited to the following: (i) net earnings or losses (either before or after one or more of the following: (A) interest, (B) taxes, (C) depreciation, (D) amortization and (E) non-cash equity-based compensation expense); (ii) gross or net sales or revenue or sales or revenue growth; (iii) net income (either before or after taxes); (iv) adjusted net income; (v) operating earnings or profit (either before or after taxes); (vi) cash flow (including, but not limited to, operating cash flow and free cash flow); (vii) year-end cash; (viii) return on assets or return on net assets; (ix) asset turnover; (x) return on capital (or invested capital) and cost of capital; (xi) return on stockholders’ equity; (xii) total stockholder return; (xiii) return on sales; (xiv) gross or net sales; (xv) return on capital; (xvi) gross or net profit or operating or income margin; (xvii) costs, reductions in costs and cost control measures; (xviii) expenses; (xix) working capital; (xx) earnings or loss per share; (xxi); (xxii) price per share or dividends per share (or appreciation in and/or maintenance of such price or dividends); (xxiii) regulatory achievements or compliance (including, without limitation, regulatory body approval for commercialization of a product); (xxiv) implementation or completion of critical projects; (xxv) market share; (xxvi) economic value or economic value added; (xxvii) asset or inventory turnover; (xxviii) cost or expenses; (xxix) mergers and acquisition integration; (xxx) financial and other capital-raising transactions; (xxxi) increase in customer base or customer retention, satisfaction and/or growth; (xxxii) employee satisfaction; (xxxiii) recruiting and maintaining personnel; (xxxiv) environmental health and safety; (xxxv) diversity; and (xxxvi) quality, any of which may be measured either in absolute terms or as compared to any incremental increase or decrease or as compared to results of a peer group or to market performance indicators or indices.

(b) The Administrator may, in its sole discretion, provide that one or more objectively determinable adjustments shall be made to one or more of the Performance Goals. Such adjustments may include, but are not limited to, one or more of the following: (i) items related to a change in Applicable Accounting Standards; (ii) items relating to financing activities;

 

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(iii) expenses for restructuring or productivity initiatives; (iv) other non-operating items; (v) items related to acquisitions; (vi) items attributable to the business operations of any entity acquired by the Company during the Performance Period; (vii) items related to the sale or disposition of a business or segment of a business; (viii) items related to discontinued operations that do not qualify as a segment of a business under Applicable Accounting Standards; (ix) items attributable to any stock dividend, stock split, combination or exchange of stock occurring during the Performance Period; (x) any other items of significant income or expense which are determined to be appropriate adjustments; (xi) items relating to unusual or extraordinary corporate transactions, events or developments; (xii) items related to amortization of acquired intangible assets; (xiii) items that are outside the scope of the Company’s core, on-going business activities; (xiv) items relating to acquired in-process research and development; (xv) items relating to changes in tax laws; (xvi) items relating to major licensing or partnership arrangements; (xvii) items relating to asset impairment charges; (xviii) items relating to gains or losses for litigation, arbitration and contractual settlements; (xi) items attributable to expenses incurred in connection with a reduction in force or early retirement initiative; or (xx) items relating to any other unusual or nonrecurring events or changes in Applicable Law, Applicable Accounting Standards or business conditions. For all Awards intended to qualify as Performance-Based Compensation, such determinations shall be made within the time prescribed by, and otherwise in compliance with, Section 162(m) of the Code.

2.42 “ Performance Goals ” shall mean, for a Performance Period, one or more goals established in writing by the Administrator for the Performance Period based upon one or more Performance Criteria. Depending on the Performance Criteria used to establish such Performance Goals, the Performance Goals may be expressed in terms of overall performance of the Company, any Parent, Subsidiary, any division or business unit thereof or an individual. The achievement of each Performance Goal shall be determined in accordance with Applicable Accounting Standards.

2.43 “ Performance Period ” shall mean one or more periods of time, which may be of varying and/or overlapping durations, as the Administrator may select, over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Participant’s right to, vesting of, and/or the payment of, a Performance Award.

2.44 “ Performance Share ” shall mean a contractual right awarded under Section 9.5 hereof to receive a number of Shares or the cash value of such number of Shares based on the attainment of specified Performance Goals or other criteria determined by the Administrator.

2.45 “ Permitted Transferee ” shall mean, with respect to a Participant, (a) prior to the Public Trading Date, any “family member” of the Participant, as defined under Rule 701 of the Securities Act and (b) on or after the Public Trading Date, any “family member” of the Participant, as defined under the General Instructions to Form S-8 Registration Statement under the Securities Act or any successor Form thereto, or any other transferee specifically approved by the Administrator, after taking into account Applicable Law.

2.46 “ Plan ” shall mean this SeaSpine Holdings Corporation 2015 Incentive Award Plan, as it may be amended from time to time.

 

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2.47 “ Program ” shall mean any program adopted by the Administrator pursuant to the Plan containing the terms and conditions intended to govern a specified type of Award granted under the Plan and pursuant to which such type of Award may be granted under the Plan.

2.48 “ Public Trading Date ” shall mean the first date upon which the Common Stock is listed (or approved for listing) upon notice of issuance on any securities exchange or designated (or approved for designation) upon notice of issuance as a national market security on an interdealer quotation system.

2.49 “ Qualifying Termination ” shall mean a termination of a Participant’s service (i) by the Company without Cause or (ii) with respect to a Participant who is party to an employment, severance or applicable award agreement that contains a definition of Good Reason, by the Participant for Good Reason.

2.50 “ Restricted Stock ” shall mean an award of Shares made under Article 8 hereof that is subject to certain restrictions and may be subject to risk of forfeiture.

2.51 “ Restricted Stock Unit ” shall mean a contractual right awarded under Section 9.4 hereof to receive in the future a Share or the cash value of a Share.

2.52 “ Securities Act ” shall mean the Securities Act of 1933, as amended.

2.53 “ Share Limit ” shall have the meaning provided in Section 3.1(a) hereof.

2.54 “ Shares ” shall mean shares of Common Stock.

2.55 “ Stock Appreciation Right ” shall mean a stock appreciation right granted under Article 6 hereof.

2.56 “ Stock Payment ” shall mean a payment in the form of Shares awarded under Section 9.3 hereof.

2.57 “ Subsidiary ” shall mean (a) a corporation, association or other business entity of which fifty percent (50%) or more of the total combined voting power of all classes of capital stock is owned, directly or indirectly, by the Company and/or by one or more Subsidiaries, (b) any partnership or limited liability company of which fifty percent (50%) or more of the equity interests are owned, directly or indirectly, by the Company and/or by one or more Subsidiaries and (c) any other entity not described in clauses (a) or (b) above of which fifty percent (50%) or more of the ownership and the power (whether voting interests or otherwise), pursuant to a written contract or agreement, to direct the policies and management or the financial and the other affairs thereof, are owned or controlled by the Company and/or by one or more Subsidiaries.

2.58 “ Substitute Award ” shall mean an Award granted under the Plan in connection with a corporate transaction, such as a merger, combination, consolidation or acquisition of property or stock, in any case, upon the assumption of, or in substitution for, an outstanding equity award previously granted by a company or other entity that is a party to such transaction; provided , however , that in no event shall the term “Substitute Award” be construed to refer to an award made in connection with the cancellation and repricing of an Option or Stock Appreciation Right.

 

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2.59 “ Successor Entity ” shall have the meaning provided in Section 2.9(c)(i) hereof.

2.60 “ Termination of Service ” shall mean:

(a) As to a Consultant, the time when the engagement of a Participant as a Consultant to the Company and its Affiliates is terminated for any reason, with or without cause, including, without limitation, by resignation, discharge, death or retirement, but excluding terminations where the Consultant simultaneously commences or remains in employment and/or service as an Employee and/or Director with the Company or any Affiliate.

(b) As to a Non-Employee Director, the time when a Participant who is a Non-Employee Director ceases to be a Director for any reason, including, without limitation, a termination by resignation, failure to be elected, death or retirement, but excluding terminations where the Participant simultaneously commences or remains in employment and/or service as an Employee and/or Consultant with the Company or any Affiliate.

(c) As to an Employee, the time when the employee-employer relationship between a Participant and the Company and its Affiliates is terminated for any reason, including, without limitation, a termination by resignation, discharge, death, disability or retirement, but excluding terminations where the Participant simultaneously commences or remains in service as a Consultant and/or Director with the Company or any Affiliate.

(d) As to an Eligible Individual employed by or providing services to Integra or any Affiliate of Integra, “Termination of Service” shall have such meaning set forth in the applicable Integra Plan pursuant to which such Eligible Individual’s Adjusted Award was originally granted.

The Administrator, in its sole discretion, shall determine the effect of all matters and questions relating to any Termination of Service, including, without limitation, whether a Termination of Service has occurred, whether any Termination of Service resulted from a discharge for cause and whether any particular leave of absence constitutes a Termination of Service; provided , however , that, with respect to Incentive Stock Options, unless the Administrator otherwise provides in the terms of any Program, Award Agreement or otherwise, or as otherwise required by Applicable Law, a leave of absence, change in status from an employee to an independent contractor or other change in the employee-employer relationship shall constitute a Termination of Service only if, and to the extent that, such leave of absence, change in status or other change interrupts employment for the purposes of Section 422(a)(2) of the Code. For purposes of the Plan, a Participant’s employee-employer relationship or consultancy relationship shall be deemed to be terminated in the event that the Affiliate employing or contracting with such Participant ceases to remain an Affiliate following any merger, sale of stock or other corporate transaction or event (including, without limitation, a spin-off).

 

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ARTICLE 3.

SHARES SUBJECT TO THE PLAN

3.1 Number of Shares .

(a) Subject to Sections 3.1(b), 12.1 and 12.2 hereof, the aggregate number of Shares which may be issued or transferred pursuant to Awards under the Plan shall be equal to the sum of (i) the number of Shares that may be issuable upon exercise or vesting of the Adjusted Awards and (ii) 2,000,000 Shares (the “ Share Limit ”). In order that the applicable regulations under the Code relating to Incentive Stock Options be satisfied, the maximum number of Shares that may be issued under the Plan upon the exercise of Incentive Stock Options shall be 2,000,000 Shares. Notwithstanding the foregoing, to the extent permitted under Applicable Law and applicable stock exchange rules, Awards that provide for the delivery of Shares subsequent to the applicable grant date may be granted in excess of the Share Limit if such Awards provide for the forfeiture or cash settlement of such Awards to the extent that insufficient Shares remain under the Share Limit at the time that Shares would otherwise be issued in respect of such Award.

(b) If any Shares subject to an Award are forfeited or expire or such Award is settled for cash (in whole or in part), the Shares subject to such Award shall, to the extent of such forfeiture, expiration or cash settlement, again be available for future grants of Awards under the Plan and shall be added back to the Share Limit in the same number of Shares as were debited from the Share Limit in respect of the grant of such Award (as may be adjusted in accordance with Section 12.2 hereof). In addition, Shares tendered by a Participant or withheld by the Company to satisfy any tax withholding obligation with respect to an Award shall be added back to the Share Limit. Notwithstanding anything to the contrary contained herein, the following Shares shall not be added back to the Share Limit and will not be available for future grants of Awards: (i) Shares tendered by a Participant or withheld by the Company in payment of the exercise price of an Option; (ii) Shares subject to a Stock Appreciation Right that are not issued in connection with the stock settlement of the Stock Appreciation Right on exercise thereof; and (iii) Shares purchased on the open market with the cash proceeds from the exercise of Options. Any Shares repurchased by the Company under Section 8.4 hereof at the same price paid by the Participant so that such Shares are returned to the Company will again be available for Awards. The payment of Dividend Equivalents in cash in conjunction with any outstanding Awards shall not be counted against the Shares available for issuance under the Plan. Notwithstanding the provisions of this Section 3.1(b), no Shares may again be optioned, granted or awarded if such action would cause an Incentive Stock Option to fail to qualify as an incentive stock option under Section 422 of the Code.

(c) Substitute Awards shall not reduce the Shares authorized for grant under the Plan. Additionally, in the event that a company acquired by the Company or any Affiliate, or with which the Company or any Affiliate combines, has shares available under a pre-existing plan approved by its stockholders and not adopted in contemplation of such acquisition or combination, the shares available for grant pursuant to the terms of such pre-existing plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio or formula used in such acquisition or combination to determine the consideration payable to the

 

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holders of common stock of the entities party to such acquisition or combination) may be used for Awards under the Plan and shall not reduce the Shares authorized for grant under the Plan; provided , however , that Awards using such available shares shall not be made after the date awards or grants could have been made under the terms of the pre-existing plan, absent the acquisition or combination, and shall only be made to individuals who were not employed by or providing services to the Company or its Affiliates immediately prior to such acquisition or combination.

3.2 Stock Distributed . Any Shares distributed pursuant to an Award may consist, in whole or in part, of authorized and unissued Common Stock, treasury Common Stock or Common Stock purchased on the open market.

3.3 Limitation on Number of Shares Subject to Awards . Notwithstanding any provision in the Plan to the contrary, and subject to Section 12.2 hereof, the maximum aggregate number of Shares with respect to one or more Awards that may be granted to any one person during any calendar year shall be 500,000 Shares and the maximum aggregate amount of cash that may be paid in cash during any calendar year with respect to one or more Awards payable in cash shall be $2,500,000 (together, the “ Individual Award Limits ”), provided , however , that Adjusted Awards shall not be subject to the limitations set forth in this Section 3.3.

ARTICLE 4.

GRANTING OF AWARDS

4.1 Participation . The Administrator may, from time to time, select from among all Eligible Individuals, those to whom one or more Awards shall be granted and shall determine the nature and amount of each Award, which shall not be inconsistent with the requirements of the Plan. No Eligible Individual shall have any right to be granted an Award pursuant to the Plan.

4.2 Award Agreement . Each Award shall be evidenced by an Award Agreement stating the terms and conditions applicable to such Award, consistent with the requirements of the Plan and any applicable Program.

4.3 Limitations Applicable to Section 16 Persons . Notwithstanding anything contained herein to the contrary, with respect to any Award granted or awarded to any individual who is then subject to Section 16 of the Exchange Act, the Plan, any applicable Program and the applicable Award Agreement shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including Rule 16b-3 of the Exchange Act and any amendments thereto) that are requirements for the application of such exemptive rule, and such additional limitations shall be deemed to be incorporated by reference into such Award to the extent permitted by Applicable Law.

4.4 At-Will Service . Nothing in the Plan or in any Program or Award Agreement hereunder shall confer upon any Participant any right to continue as an Employee, Director or Consultant of the Company or any Affiliate, or shall interfere with or restrict in any way the rights of the Company or any Affiliate, which rights are hereby expressly reserved, to discharge any Participant at any time for any reason whatsoever, with or without cause, and with or without

 

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notice, or to terminate or change all other terms and conditions of any Participant’s employment or engagement, except to the extent expressly provided otherwise in a written agreement between the Participant and the Company or any Affiliate.

4.5 Foreign Participants . Notwithstanding any provision of the Plan to the contrary, in order to comply with the laws in other countries in which the Company and its Affiliates operate or have Employees, Non-Employee Directors or Consultants, or in order to comply with the requirements of any foreign securities exchange, the Administrator, in its sole discretion, shall have the power and authority to: (a) determine which Affiliates shall be covered by the Plan; (b) determine which Eligible Individuals outside the United States are eligible to participate in the Plan; (c) modify the terms and conditions of any Program or any Award granted to Eligible Individuals outside the United States to comply with applicable foreign laws or listing requirements of any such foreign securities exchange; (d) establish subplans and modify exercise procedures and other terms and procedures, to the extent such actions may be necessary or advisable; provided , however , that no such subplans and/or modifications shall increase the Share Limit or the Individual Award Limits; and (e) take any action, before or after an Award is made, that it deems advisable to obtain approval or comply with any necessary local governmental regulatory exemptions or approvals or listing requirements of any such foreign securities exchange. Notwithstanding the foregoing, the Administrator may not take any actions hereunder, and no Awards shall be granted, that would violate Applicable Law.

4.6 Stand-Alone and Tandem Awards . Awards granted pursuant to the Plan may, in the sole discretion of the Administrator, be granted either alone, in addition to, or in tandem with, any other Award granted pursuant to the Plan. Awards granted in addition to or in tandem with other Awards may be granted either at the same time as or at a different time from the grant of such other Awards.

ARTICLE 5.

PROVISIONS APPLICABLE TO AWARDS INTENDED TO QUALIFY AS

PERFORMANCE-BASED COMPENSATION

5.1 Purpose . The Administrator, in its sole discretion, may determine whether any Award is intended to qualify as Performance-Based Compensation. If the Administrator, in its sole discretion, decides to grant an Award to an Eligible Individual that is intended to qualify as Performance-Based Compensation (other than an Option or Stock Appreciation Right), then the provisions of this Article 5 shall control over any contrary provision contained in the Plan. The Administrator may in its sole discretion grant Awards to Eligible Individuals that are based on Performance Criteria or Performance Goals but that do not satisfy the requirements of this Article 5 and that are not intended to qualify as Performance-Based Compensation. Unless otherwise specified by the Administrator at the time of grant, the Performance Criteria with respect to an Award intended to be Performance-Based Compensation payable to a Covered Employee shall be determined on the basis of Applicable Accounting Standards.

5.2 Procedures with Respect to Performance-Based Awards . To the extent necessary to comply with the requirements of Section 162(m)(4)(C) of the Code, with respect to any Award which is intended to qualify as Performance-Based Compensation, no later than

 

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ninety (90) days following the commencement of any Performance Period or any designated fiscal period or period of service (or such earlier time as may be required under Section 162(m) of the Code), the Administrator shall, in writing, (a) designate one or more Eligible Individuals; (b) select the Performance Criteria applicable to the Performance Period; (c) establish the Performance Goals, and amounts of such Awards, as applicable, which may be earned for such Performance Period based on the Performance Criteria; and (d) specify the relationship between Performance Criteria and the Performance Goals and the amounts of such Awards, as applicable, to be earned by each Covered Employee for such Performance Period. Following the completion of each Performance Period, the Administrator shall certify in writing whether and the extent to which the applicable Performance Goals have been achieved for such Performance Period. In determining the amount earned under such Awards, unless otherwise provided in an Award Agreement, the Administrator shall have the right to reduce or eliminate (but not to increase) the amount payable at a given level of performance to take into account additional factors that the Administrator may deem relevant, including the assessment of individual or corporate performance for the Performance Period.

5.3 Payment of Performance-Based Awards . Unless otherwise provided in the applicable Program or Award Agreement (and only to the extent otherwise permitted by Section 162(m)(4)(C) of the Code), the holder of an Award that is intended to qualify as Performance-Based Compensation must be employed by the Company or an Affiliate throughout the applicable Performance Period. Unless otherwise provided in the applicable Performance Goals, Program or Award Agreement, a Participant shall be eligible to receive payment pursuant to such Awards for a Performance Period only if and to the extent the Performance Goals for such Performance Period are achieved.

5.4 Additional Limitations . Notwithstanding any other provision of the Plan and except as otherwise determined by the Administrator, any Award which is granted to an Eligible Individual and is intended to qualify as Performance-Based Compensation shall be subject to any additional limitations imposed by Section 162(m) of the Code that are requirements for qualification as Performance-Based Compensation, and the Plan, the Program and the Award Agreement shall be deemed amended to the extent necessary to conform to such requirements.

ARTICLE 6.

GRANTING OF OPTIONS AND STOCK APPRECIATION RIGHTS

6.1 Granting of Options and Stock Appreciation Rights to Eligible Individuals . The Administrator is authorized to grant Options and Stock Appreciation Rights to Eligible Individuals from time to time, in its sole discretion, on such terms and conditions as it may determine which shall not be inconsistent with the Plan.

6.2 Qualification of Incentive Stock Options . No Incentive Stock Option shall be granted to any person who is not an Employee of the Company or any “parent corporation” or “subsidiary corporation” of the Company (as defined in Sections 424(e) and 424(f) of the Code, respectively). No person who qualifies as a Greater Than 10% Stockholder may be granted an Incentive Stock Option unless such Incentive Stock Option conforms to the applicable provisions of Section 422 of the Code. Any Incentive Stock Option granted under the Plan may be

 

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modified by the Administrator, with the consent of the Participant, to disqualify such Option from treatment as an “incentive stock option” under Section 422 of the Code. To the extent that the aggregate fair market value of stock with respect to which “incentive stock options” (within the meaning of Section 422 of the Code, but without regard to Section 422(d) of the Code) are exercisable for the first time by a Participant during any calendar year under the Plan and all other plans of the Company or any “parent corporation” or “subsidiary corporation” of the Company (as defined in Section 424(e) and 424(f) of the Code, respectively) exceeds one hundred thousand dollars ($100,000), the Options shall be treated as Non-Qualified Stock Options to the extent required by Section 422 of the Code. The rule set forth in the preceding sentence shall be applied by taking Options and other “incentive stock options” into account in the order in which they were granted and the fair market value of stock shall be determined as of the time the respective options were granted. In addition, to the extent that any Options otherwise fail to qualify as Incentive Stock Options, such Options shall be treated as Non-Qualified Stock Options.

6.3 Option and Stock Appreciation Right Exercise Price . Except with respect to Adjusted Awards, the exercise price per Share subject to each Option and Stock Appreciation Right shall be set by the Administrator, but shall not be less than one hundred percent (100%) of the Fair Market Value of a Share on the date the Option or Stock Appreciation Right, as applicable, is granted (or, as to Incentive Stock Options, on the date the Option is modified, extended or renewed for purposes of Section 424(h) of the Code). In addition, in the case of Incentive Stock Options granted to a Greater Than 10% Stockholder, such price shall not be less than one hundred ten percent (110%) of the Fair Market Value of a Share on the date the Option is granted (or the date the Option is modified, extended or renewed for purposes of Section 424(h) of the Code).

6.4 Option and Stock Appreciation Right Term . The term of each Option and of each Stock Appreciation Right shall be set by the Administrator in its sole discretion; provided , however , that the term shall not be more than ten (10) years from the date the Option or Stock Appreciation Right, as applicable, is granted, or five (5) years from the date an Incentive Stock Option is granted to a Greater Than 10% Stockholder. The Administrator shall determine the time period, including the time period following a Termination of Service, during which the Participant has the right to exercise the vested Options or Stock Appreciation Rights, which time period may not extend beyond the stated term of the Option or Stock Appreciation Right. Except as limited by the requirements of Section 409A or Section 422 of the Code, the Administrator may extend the term of any outstanding Option or Stock Appreciation Right, and may extend the time period during which vested Options or Stock Appreciation Rights may be exercised, in connection with any Termination of Service of the Participant, and may amend any other term or condition of such Option or Stock Appreciation Right relating to such a Termination of Service.

6.5 Option and Stock Appreciation Right Vesting .

(a) The terms and conditions pursuant to which an Option Stock or Appreciation Right vests in the Participant and becomes exercisable shall be determined by the Administrator and set forth in the applicable Award Agreement. Such vesting may be based on service with the Company or any Affiliate, any of the Performance Criteria, or any other criteria selected by the Administrator. At any time after the grant of an Option or Stock Appreciation Right, the Administrator may, in its sole discretion and subject to whatever terms and conditions it selects, accelerate the vesting of the Option or Stock Appreciation Right.

(b) No portion of an Option or Stock Appreciation Right which is unexercisable at a Participant’s Termination of Service shall thereafter become exercisable, except as may be otherwise provided by the Administrator either in an applicable Program, the applicable Award Agreement or by action of the Administrator following the grant of the Option or Stock Appreciation Right.

 

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6.6 Substitute Awards . Notwithstanding the foregoing provisions of this Article 6 to the contrary, in the case of an Option or Stock Appreciation Right that is a Substitute Award, the price per Share of the Shares subject to such Option or Stock Appreciation Right may be less than the Fair Market Value per share on the date of grant; provided , however , that the exercise price of any Substitute Award shall be determined in accordance with the applicable requirements of Sections 424 and 409A of the Code.

6.7 Substitution of Stock Appreciation Rights . The Administrator may, in its sole discretion, substitute an Award of Stock Appreciation Rights for an outstanding Option at any time prior to or upon exercise of such Option; provided , however , that such Stock Appreciation Rights shall be exercisable with respect to the same number of Shares for which such substituted Option would have been exercisable, and shall also have the same exercise price and remaining term as the substituted Option.

ARTICLE 7.

EXERCISE OF OPTIONS AND STOCK APPRECIATION RIGHTS

7.1 Partial Exercise . An exercisable Option or Stock Appreciation Right may be exercised in whole or in part. However, an Option or Stock Appreciation Right shall not be exercisable with respect to fractional shares and the Administrator may require that, by the terms of the Option or Stock Appreciation Right, a partial exercise must be with respect to a minimum number of Shares.

7.2 Manner of Exercise . All or a portion of an exercisable Option or Stock Appreciation Right shall be deemed exercised upon delivery of all of the following to the stock administrator of the Company, or such other person or entity designated by the Administrator, or his, her or its office, as applicable:

(a) A written or electronic notice complying with the applicable rules established by the Administrator stating that the Option or Stock Appreciation Right, or a portion thereof, is exercised. The notice shall be signed by the Participant or other person then-entitled to exercise the Option or Stock Appreciation Right or such portion of the Option or Stock Appreciation Right;

(b) Such representations and documents as the Administrator, in its sole discretion, deems necessary or advisable to effect compliance with Applicable Law. The Administrator may, in its sole discretion, also take such additional actions as it deems appropriate to effect such compliance including; without limitation, placing legends on share certificates and issuing stop transfer notices to agents and registrars;

 

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(c) In the event that the Option or Stock Appreciation Right shall be exercised pursuant to Section 10.3 hereof by any person or persons other than the Participant, appropriate proof of the right of such person or persons to exercise the Option or Stock Appreciation Right, as determined in the sole discretion of the Administrator; and

(d) Full payment of the exercise price and applicable withholding taxes for the Shares with respect to which the Option or Stock Appreciation Right, or portion thereof, is exercised, in a manner permitted by the Administrator in accordance with Sections 10.1 and 10.2 hereof.

7.3 Notification Regarding Disposition . The Participant shall give the Company prompt written or electronic notice of any disposition of Shares acquired by exercise of an Incentive Stock Option which occurs within (a) two (2) years after the date of granting (including the date the Option is modified, extended or renewed for purposes of Section 424(h) of the Code) of such Option to such Participant, or (b) one (1) year after the date of transfer of such Shares to such Participant.

ARTICLE 8.

RESTRICTED STOCK

8.1 Award of Restricted Stock .

(a) The Administrator is authorized to grant Restricted Stock to Eligible Individuals, and shall determine the terms and conditions, including the restrictions applicable to each award of Restricted Stock, which terms and conditions shall not be inconsistent with the Plan, and may impose such conditions on the issuance of such Restricted Stock as it deems appropriate.

(b) The Administrator shall establish the purchase price, if any, and form of payment for Restricted Stock; provided , however , that if a purchase price is charged, such purchase price shall be no less than the par value of the Shares to be purchased, unless otherwise permitted by Applicable Law. In all cases, legal consideration shall be required for each issuance of Restricted Stock to the extent required by Applicable Law.

8.2 Rights as Stockholders . Subject to Section 8.4 hereof, upon issuance of Restricted Stock, the Participant shall have, unless otherwise provided by the Administrator, all the rights of a stockholder with respect to said shares, subject to the restrictions in an applicable Program or in the applicable Award Agreement, including the right to receive all dividends and other distributions paid or made with respect to the shares; provided , however , that, in the sole discretion of the Administrator, any extraordinary distributions with respect to the shares shall be subject to the restrictions set forth in Section 8.3 hereof. In addition, with respect Restricted Stock that is subject to performance-based vesting, dividends which are paid prior to vesting shall only be paid out to the Participant to the extent that the performance-based vesting conditions are subsequently satisfied and the share of Restricted Stock vests.

 

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8.3 Restrictions . All shares of Restricted Stock (including any shares received by Participants thereof with respect to shares of Restricted Stock as a result of stock dividends, stock splits or any other form of recapitalization) shall, in the terms of an applicable Program or the applicable Award Agreement, be subject to such restrictions and vesting requirements as the Administrator shall provide. By action taken after the Restricted Stock is issued, the Administrator may, on such terms and conditions as it may determine to be appropriate, accelerate the vesting of such Restricted Stock by removing any or all of the restrictions imposed by the terms of any Program or by the applicable Award Agreement. Restricted Stock may not be sold or encumbered until all restrictions are terminated or expire.

8.4 Repurchase or Forfeiture of Restricted Stock . If no purchase price was paid by the Participant for the Restricted Stock, upon a Termination of Service, the Participant’s rights in unvested Restricted Stock then subject to restrictions shall lapse and be forfeited, and such Restricted Stock shall be surrendered to the Company and cancelled without consideration. If a purchase price was paid by the Participant for the Restricted Stock, upon a Termination of Service the Company shall have the right to repurchase from the Participant the unvested Restricted Stock then-subject to restrictions at a cash price per share equal to the price paid by the Participant for such Restricted Stock or such other amount as may be specified in an applicable Program or the applicable Award Agreement. The Administrator in its sole discretion may provide that, upon certain events, including without limitation a Change in Control, the Participant’s death, retirement or disability, any other specified Termination of Service or any other event, the Participant’s rights in unvested Restricted Stock shall not terminate, such Restricted Stock shall vest and cease to be forfeitable and, if applicable, the Company shall cease to have a right of repurchase.

8.5 Certificates for Restricted Stock . Restricted Stock granted pursuant to the Plan may be evidenced in such manner as the Administrator shall determine. Certificates or book entries evidencing shares of Restricted Stock must include an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock, and the Company may, in its sole discretion, retain physical possession of any stock certificate until such time as all applicable restrictions lapse.

8.6 Section 83(b) Election . If a Participant makes an election under Section 83(b) of the Code to be taxed with respect to the Restricted Stock as of the date of transfer of the Restricted Stock rather than as of the date or dates upon which the Participant would otherwise be taxable under Section 83(a) of the Code, the Participant shall be required to deliver a copy of such election to the Company promptly after filing such election with the Internal Revenue Service.

8.7 Except as otherwise determined by the Administrator, in the event of a Participant’s death or disability (within the meaning of a “permanent and total disability” under Section 22(e)(3) of the Code), all restrictions on such Participant’s Restricted Stock (other than Restricted Stock granted to Participants in France) shall lapse and such Restricted Stock shall become vested Shares.

 

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ARTICLE 9.

PERFORMANCE AWARDS; DIVIDEND EQUIVALENTS; STOCK PAYMENTS; RESTRICTED STOCK UNITS; PERFORMANCE SHARES; OTHER INCENTIVE AWARDS

9.1 Performance Awards .

(a) The Administrator is authorized to grant Performance Awards to any Eligible Individual and to determine whether such Performance Awards shall be Performance-Based Compensation. The value of Performance Awards may be linked to any one or more of the Performance Criteria or other specific criteria determined by the Administrator, in each case on a specified date or dates or over any period or periods determined by the Administrator.

(b) Without limiting Section 9.1(a) hereof, the Administrator may grant Performance Awards to any Eligible Individual in the form of a cash bonus payable upon the attainment of objective Performance Goals, or such other criteria, whether or not objective, which are established by the Administrator, in each case on a specified date or dates or over any period or periods determined by the Administrator. Any such bonuses paid to a Participant which are intended to be Performance-Based Compensation shall be based upon objectively determinable bonus formulas established in accordance with the provisions of Article 5 hereof.

9.2 Dividend Equivalents .

(a) Subject to Section 9.2(b) hereof, Dividend Equivalents may be granted by the Administrator, either alone or in tandem with another Award, based on dividends declared on the Common Stock, to be credited as of dividend payment dates during the period between the date the Dividend Equivalents are granted to a Participant and the date such Dividend Equivalents terminate or expire, as determined by the Administrator. Such Dividend Equivalents shall be converted to cash or additional Shares by such formula and at such time and subject to such limitations as may be determined by the Administrator. In addition, Dividend Equivalents with respect to an Award that is subject to performance-based vesting that are based on dividends paid prior to the vesting of such Award shall only be paid out to the Participant to the extent that the performance-based vesting conditions are subsequently satisfied and the Award vests.

(b) Notwithstanding the foregoing, no Dividend Equivalents shall be payable with respect to Options or Stock Appreciation Rights.

9.3 Stock Payments . The Administrator is authorized to make one or more Stock Payments to any Eligible Individual. The number or value of Shares of any Stock Payment shall be determined by the Administrator and may be based upon one or more Performance Criteria or any other specific criteria, including service to the Company or any Affiliate, determined by the Administrator. Stock Payments may, but are not required to be made in lieu of base salary, bonus, fees or other cash compensation otherwise payable to such Eligible Individual.

9.4 Restricted Stock Units . The Administrator is authorized to grant Restricted Stock Units to any Eligible Individual. The number and terms and conditions of Restricted Stock

 

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Units shall be determined by the Administrator. The Administrator shall specify the date or dates on which the Restricted Stock Units shall become fully vested and nonforfeitable, and may specify such conditions to vesting as it deems appropriate, including conditions based on one or more Performance Criteria or other specific criteria, including service to the Company or any Affiliate, in each case, on a specified date or dates or over any period or periods, as determined by the Administrator. The Administrator shall specify, or may permit the Participant to elect, the conditions and dates upon which the Shares underlying the Restricted Stock Units shall be issued, which dates shall not be earlier than the date as of which the Restricted Stock Units vest and become nonforfeitable and which conditions and dates shall be consistent with the applicable provisions of Section 409A of the Code or an exemption therefrom. On the distribution dates, the Company shall issue to the Participant one unrestricted, fully transferable Share (or the Fair Market Value of one such Share in cash) for each vested and nonforfeitable Restricted Stock Unit.

9.5 Performance Share Awards . Any Eligible Individual selected by the Administrator may be granted one or more Performance Share awards which shall be denominated in a number or range of Shares and the vesting of which may be linked to any one or more of the Performance Criteria, other specific performance criteria (in each case on a specified date or dates or over any period or periods determined by the Administrator) and/or time-vesting or other criteria, as determined by the Administrator.

9.6 Other Incentive Awards . The Administrator is authorized to grant Other Incentive Awards to any Eligible Individual, which Awards may cover Shares or the right to purchase or receive Shares or have a value derived from the value of, or an exercise or conversion privilege at a price related to, or that are otherwise payable in or based on, Shares, shareholder value or shareholder return, in each case, on a specified date or dates or over any period or periods determined by the Administrator. Other Incentive Awards may be linked to any one or more of the Performance Criteria or other specific performance criteria determined appropriate by the Administrator.

9.7 Other Terms and Conditions . All applicable terms and conditions of each Award described in this Article 9, including without limitation, as applicable, the term, vesting conditions and exercise/purchase price applicable to the Award, shall be set by the Administrator in its sole discretion, provided , however , that the value of the consideration paid by a Participant for an Award shall not be less than the par value of a Share, unless otherwise permitted by Applicable Law.

9.8 Exercise upon Termination of Service . Awards described in this Article 9 are exercisable or distributable, as applicable, only while the Participant is an Employee, Director or Consultant, as applicable. The Administrator, however, in its sole discretion may provide that such Award may be exercised or distributed subsequent to a Termination of Service as provided under an applicable Program, Award Agreement, payment deferral election and/or in certain events, including without limitation, a Change in Control, the Participant’s death, retirement or disability or any other specified Termination of Service.

 

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ARTICLE 10.

ADDITIONAL TERMS OF AWARDS

10.1 Payment . The Administrator shall determine the methods by which payments by any Participant with respect to any Awards granted under the Plan shall be made, including, without limitation: (a) cash or check, (b) Shares (including, in the case of payment of the exercise price of an Award, Shares issuable pursuant to the exercise of the Award) held for such period of time as may be required by the Administrator in order to avoid adverse accounting consequences, in each case, having a Fair Market Value on the date of delivery equal to the aggregate payments required, (c) delivery of a written or electronic notice that the Participant has placed a market sell order with a broker with respect to Shares then-issuable upon exercise or vesting of an Award, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the aggregate payments required; provided , however , that payment of such proceeds is then made to the Company upon settlement of such sale, (d) other form of legal consideration acceptable to the Administrator, or (e) any combination of the foregoing. The Administrator shall also determine the methods by which Shares shall be delivered or deemed to be delivered to Participants. Notwithstanding any other provision of the Plan to the contrary, no Participant who is a Director or an “executive officer” of the Company within the meaning of Section 13(k) of the Exchange Act shall be permitted to make payment with respect to any Awards granted under the Plan, or continue any extension of credit with respect to such payment with a loan from the Company or a loan arranged by the Company in violation of Section 13(k) of the Exchange Act.

10.2 Tax Withholding . The Company and its Affiliates shall have the authority and the right to deduct or withhold, or require a Participant to remit to the Company or an Affiliate, an amount sufficient to satisfy federal, state, local and foreign taxes (including the Participant’s social security, Medicare and any other employment tax obligation) required by Applicable Law to be withheld with respect to any taxable event concerning a Participant arising in connection with any Award. The Administrator may in its sole discretion and in satisfaction of the foregoing requirement allow a Participant to satisfy such obligations by any payment means described in Section 10.1 hereof, including without limitation, by allowing such Participant to elect to have the Company or an Affiliate withhold Shares otherwise issuable under an Award (or allow the surrender of Shares). The number of Shares which may be so withheld or surrendered shall be limited to the number of Shares which have a fair market value on the date of withholding or repurchase no greater than the aggregate amount of such liabilities based on the minimum statutory withholding rates for federal, state, local and foreign income tax and payroll tax purposes that are applicable to such supplemental taxable income. The Administrator shall determine the fair market value of the Shares, consistent with applicable provisions of the Code, for tax withholding obligations due in connection with a broker-assisted cashless Option or Stock Appreciation Right exercise involving the sale of Shares to pay the Option or Stock Appreciation Right exercise price or any tax withholding obligation.

10.3 Transferability of Awards .

(a) Except as otherwise provided in Section 10.3(b) or (c) hereof:

(i) No Award under the Plan may be sold, pledged, assigned or transferred in any manner other than by will or the laws of descent and distribution or, subject to the consent of the Administrator, pursuant to a DRO, unless and until such Award has been exercised, or the Shares underlying such Award have been issued, and all restrictions applicable to such Shares have lapsed;

 

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(ii) No Award or interest or right therein shall be subject to the debts, contracts or engagements of the Participant or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, hypothecation, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy) unless and until such Award has been exercised, or the Shares underlying such Award have been issued, and all restrictions applicable to such Shares have lapsed, and any attempted disposition of an Award prior to the satisfaction of these conditions shall be null and void and of no effect, except to the extent that such disposition is permitted by clause (i) of this provision; and

(iii) During the lifetime of the Participant, only the Participant may exercise an Award (or any portion thereof) granted to him under the Plan, unless it has been disposed of pursuant to a DRO. After the death of the Participant, any exercisable portion of an Award may, prior to the time when such portion becomes unexercisable under the Plan or the applicable Program or Award Agreement, be exercised by his personal representative or by any person empowered to do so under the deceased Participant’s will or under the then-applicable laws of descent and distribution.

(b) Notwithstanding Section 10.3(a) hereof, the Administrator, in its sole discretion, may determine to permit a Participant or a Permitted Transferee of such Participant to transfer an Award other than an Incentive Stock Option (unless such Incentive Stock Option is to become a Non-Qualified Stock Option) to any one or more Permitted Transferees of such Participant, subject to the following terms and conditions: (i) an Award transferred to a Permitted Transferee shall not be assignable or transferable by the Permitted Transferee (other than to another Permitted Transferee of the applicable Participant) other than by will or the laws of descent and distribution; (ii) an Award transferred to a Permitted Transferee shall continue to be subject to all the terms and conditions of the Award as applicable to the original Participant (other than the ability to further transfer the Award); and (iii) the Participant (or transferring Permitted Transferee) and the Permitted Transferee shall execute any and all documents requested by the Administrator, including without limitation, documents to (A) confirm the status of the transferee as a Permitted Transferee, (B) satisfy any requirements for an exemption for the transfer under Applicable Law and (C) evidence the transfer. In addition, and further notwithstanding Section 10.3(a) hereof, the Administrator, in its sole discretion, may determine to permit a Participant to transfer Incentive Stock Options to a trust that constitutes a Permitted Transferee if, under Section 671 of the Code and other Applicable Law, the Participant is considered the sole beneficial owner of the Incentive Stock Option while it is held in the trust.

(c) Notwithstanding Section 10.3(a) hereof, a Participant may, in the manner determined by the Administrator, designate a beneficiary to exercise the rights of the Participant and to receive any distribution with respect to any Award upon the Participant’s death. A

 

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beneficiary, legal guardian, legal representative, or other person claiming any rights pursuant to the Plan is subject to all terms and conditions of the Plan and any Program or Award Agreement applicable to the Participant, except to the extent the Plan, the Program and the Award Agreement otherwise provide, and to any additional restrictions deemed necessary or appropriate by the Administrator. If the Participant is married or a domestic partner in a domestic partnership qualified under Applicable Law and resides in a “community property” state, a designation of a person other than the Participant’s spouse or domestic partner, as applicable, as his or her beneficiary with respect to more than fifty percent (50%) of the Participant’s interest in the Award shall not be effective without the prior written or electronic consent of the Participant’s spouse or domestic partner. If no beneficiary has been designated or survives the Participant, payment shall be made to the person entitled thereto pursuant to the Participant’s will or the laws of descent and distribution. Subject to the foregoing, a beneficiary designation may be changed or revoked by a Participant at any time provided the change or revocation is delivered to the Administrator prior to the Participant’s death.

10.4 Conditions to Issuance of Shares .

(a) The Administrator shall determine the methods by which Shares shall be delivered or deemed to be delivered to Participants. Notwithstanding anything herein to the contrary, neither the Company nor its Affiliates shall be required to issue or deliver any certificates or make any book entries evidencing Shares pursuant to the exercise of any Award, unless and until the Administrator has determined, with advice of counsel, that the issuance of such Shares is in compliance with Applicable Law, and the Shares are covered by an effective registration statement or applicable exemption from registration. In addition to the terms and conditions provided herein, the Administrator may require that a Participant make such reasonable covenants, agreements, and representations as the Administrator, in its discretion, deems advisable in order to comply with Applicable Law.

(b) All Share certificates delivered pursuant to the Plan and all Shares issued pursuant to book entry procedures are subject to any stop-transfer orders and other restrictions as the Administrator deems necessary or advisable to comply with Applicable Law. The Administrator may place legends on any Share certificate or book entry to reference restrictions applicable to the Shares.

(c) The Administrator shall have the right to require any Participant to comply with any timing or other restrictions with respect to the settlement, distribution or exercise of any Award, including a window-period limitation, as may be imposed in the sole discretion of the Administrator.

(d) No fractional Shares shall be issued and the Administrator shall determine, in its sole discretion, whether cash shall be given in lieu of fractional Shares or whether such fractional Shares shall be eliminated by rounding down.

(e) The Company, in its sole discretion, may (i) retain physical possession of any stock certificate evidencing Shares until any restrictions thereon shall have lapsed and/or (ii) require that the stock certificates evidencing such Shares be held in custody by a designated escrow agent (which may but need not be the Company) until the restrictions thereon shall have lapsed, and that the Participant deliver a stock power, endorsed in blank, relating to such Shares.

(f) Notwithstanding any other provision of the Plan, unless otherwise determined by the Administrator or required by Applicable Law, the Company and/or its Affiliates may, in lieu of delivering to any Participant certificates evidencing Shares issued in connection with any Award, record the issuance of Shares in the books of the Company (or, as applicable, its transfer agent or stock plan administrator).

 

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10.5 Forfeiture and Claw-Back Provisions .

(a) Pursuant to its general authority to determine the terms and conditions applicable to Awards under the Plan, the Administrator shall have the right to provide, in the terms of Awards made under the Plan, or to require a Participant to agree by separate written or electronic instrument, that: (i) any proceeds, gains or other economic benefit actually or constructively received by the Participant upon any receipt or exercise of the Award, or upon the receipt or resale of any Shares underlying the Award, must be paid to the Company, and (ii) the Award shall terminate and any unexercised portion of the Award (whether or not vested) shall be forfeited, if (x) a Termination of Service occurs prior to a specified date, or within a specified time period following receipt or exercise of the Award, (y) the Participant at any time, or during a specified time period, engages in any activity in competition with the Company, or which is inimical, contrary or harmful to the interests of the Company, as further defined by the Administrator or (z) the Participant incurs a Termination of Service for cause; and

(b) All Awards (including any proceeds, gains or other economic benefit actually or constructively received by the Participant upon any receipt or exercise of any Award or upon the receipt or resale of any Shares underlying the Award) shall be subject to the applicable provisions of any claw-back policy implemented by the Company, whether implemented prior to or after the grant of such Award, including without limitation, any claw-back policy adopted to comply with the requirements of Applicable Law.

10.6 Prohibition on Repricing . Subject to Section 12.2 hereof, the Administrator shall not, without the approval of the stockholders of the Company, (a) authorize the amendment of any outstanding Option or Stock Appreciation Right to reduce its price per share, or (b) cancel any Option or Stock Appreciation Right in exchange for cash or another Award when the Option or Stock Appreciation Right price per share exceeds the Fair Market Value of the underlying Shares. Subject to Section 12.2 hereof, the Administrator shall have the authority, without the approval of the stockholders of the Company, to amend any outstanding Award to increase the price per share or to cancel and replace an Award with the grant of an Award having a price per share that is greater than or equal to the price per share of the original Award.

10.7 Settlement of Awards . Without limiting the generality of any other provision of the Plan, the Administrator may provide, in an Award Agreement or subsequent to the grant of an Award, in its discretion, that any Award may be settled in cash, Shares or a combination thereof.

 

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10.8 Leave of Absence . Unless the Administrator provides otherwise, vesting of Awards granted hereunder shall be suspended during any unpaid leave of absence. Unless otherwise determined by the Administrator, a Participant shall not cease to be considered an Employee, Non-Employee Director or Consultant, as applicable, in the case of any (a) leave of absence approved by the Company, (b) transfer between locations of the Company or between the Company and any of its Affiliates or any successor thereof, or (c) change in status (Employee to Director, Employee to Consultant, etc.), provided that such change does not affect the specific terms applying to the Participant’s Award.

10.9 Amendment of Awards . Subject to Applicable Law, the Administrator may amend, modify or terminate any outstanding Award, including but not limited to, substituting therefor another Award of the same or a different type, changing the date of exercise or settlement, and converting an Incentive Stock Option to a Non-Qualified Stock Option. The Participant’s consent to such action shall be required unless (a) the Administrator determines that the action, taking into account any related action, would not materially and adversely affect the Participant, or (b) the change is otherwise permitted under the Plan (including, without limitation, under Section 12.2 or 12.10).

10.10 Data Privacy . As a condition of receipt of any Award, each Participant explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of personal data as described in this Section 10.10 by and among, as applicable, the Company and its Affiliates for the exclusive purpose of implementing, administering and managing the Participant’s participation in the Plan. The Company and its Affiliates may hold certain personal information about a Participant, including but not limited to, the Participant’s name, home address and telephone number, date of birth, social security or insurance number or other identification number, salary, nationality, job title(s), any shares of stock held in the Company or any of its Affiliates, details of all Awards, in each case, for the purpose of implementing, managing and administering the Plan and Awards (the “ Data ”). The Company and its Affiliates may transfer the Data amongst themselves as necessary for the purpose of implementation, administration and management of a Participant’s participation in the Plan, and the Company and its Affiliates may each further transfer the Data to any third parties assisting the Company and its Affiliates in the implementation, administration and management of the Plan. These recipients may be located in the Participant’s country, or elsewhere, and the Participant’s country may have different data privacy laws and protections than the recipients’ country. Through acceptance of an Award, each Participant authorizes such recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing the Participant’s participation in the Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom the Company or any of its Affiliates or the Participant may elect to deposit any Shares. The Data related to a Participant will be held only as long as is necessary to implement, administer, and manage the Participant’s participation in the Plan. A Participant may, at any time, view the Data held by the Company with respect to such Participant, request additional information about the storage and processing of the Data with respect to such Participant, recommend any necessary corrections to the Data with respect to the Participant or refuse or withdraw the consents herein in writing, in any case without cost, by contacting his or her local human resources representative. The Company may cancel Participant’s ability to participate in the Plan and, in the Administrator’s discretion, the Participant may forfeit any outstanding Awards if the

 

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Participant refuses or withdraws his or her consents as described herein. For more information on the consequences of refusal to consent or withdrawal of consent, Participants may contact their local human resources representative.

10.11 Adjusted Awards . Notwithstanding anything to the contrary contained herein, each Adjusted Award shall be subject to terms and conditions consistent with the applicable terms and conditions set forth in the Integra Plan and the award agreement in effect for such Adjusted Award immediately prior to the Distribution, each as deemed modified in order to reflect (i) the adjustment of such Adjusted Award pursuant to Article III of the Employee Matters Agreement, (ii) that the Company is the issuer of the Common Stock subject to the Adjusted Award, and (iii) the Participant’s status as an employee, director or consultant of the Company or Integra, as applicable, following the Distribution. Without limiting the generality of the foregoing, with respect to Adjusted Awards, references to employment or service, or termination of employment or service, in this Plan (including the incorporated terms and conditions of the Integra Plan, as deemed modified by the preceding sentence) and the applicable award agreement shall be deemed to refer to employment or service, or termination of employment or service, with the Company or Integra, whichever is the applicable service recipient with respect to the Participant following the Distribution. All determinations and interpretations relating to the application of this Plan and the incorporated terms and conditions of the Integra Plan (including the deemed modifications thereto) shall be made by the Administrator and shall be final and binding upon the Participants, the Company and all other interested persons

ARTICLE 11.

ADMINISTRATION

11.1 Administrator . Unless the Board has otherwise theretofore delegated the administration of the Plan to a Committee as set forth herein, prior to the Public Trading Date, the Board shall administer the Plan. Effective as of the Public Trading Date, the Committee (or another committee or a subcommittee of the Board assuming the functions of the Committee under the Plan) shall administer the Plan (except as otherwise permitted herein) and, unless otherwise determined by the Board, shall consist solely of two or more Non-Employee Directors appointed by and holding office at the pleasure of the Board, each of whom is intended to qualify as a “non-employee director” as defined by Rule 16b-3 of the Exchange Act, an “outside director” for purposes of Section 162(m) of the Code and an “independent director” under the rules of any securities exchange or automated quotation system on which the Shares are listed, quoted or traded, in each case, to the extent required under such provision; provided , however , that any action taken by the Committee shall be valid and effective, whether or not members of the Committee at the time of such action are later determined not to have satisfied the requirements for membership set forth in this Section 11.l or otherwise provided in the Company’s charter or Bylaws or in any charter of the Committee. Except as may otherwise be provided in any charter of the Committee, appointment of Committee members shall be effective upon acceptance of appointment, Committee members may resign at any time by delivering written or electronic notice to the Board, and vacancies in the Committee may only be filled by the Board. Notwithstanding the foregoing, (a) the full Board, acting by a majority of its members in office, shall conduct the general administration of the Plan with respect to Awards granted to Non-Employee Directors and (b) the Board or Committee may delegate its authority hereunder to the extent permitted by Section 11.6 hereof.

 

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11.2 Duties and Powers of Administrator . It shall be the duty of the Administrator to conduct the general administration of the Plan in accordance with its provisions. The Administrator shall have the power to interpret the Plan and all Programs and Award Agreements, and to adopt such rules for the administration, interpretation and application of the Plan and any Program as are not inconsistent with the Plan, to interpret, amend or revoke any such rules and to amend any Program or Award Agreement provided that the rights or obligations of the holder of the Award that is the subject of any such Program or Award Agreement are not materially adversely affected by such amendment, unless the consent of the Participant is obtained or such amendment is otherwise permitted under Section 12.10 hereof. Any such grant or award under the Plan need not be the same with respect to each Participant. Any such interpretations and rules with respect to Incentive Stock Options shall be consistent with the provisions of Section 422 of the Code. In its sole discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Committee under the Plan except with respect to matters which under Rule 16b-3 under the Exchange Act, Section 162(m) of the Code, or the rules of any securities exchange or automated quotation system on which the Shares are listed, quoted or traded are required to be determined in the sole discretion of the Committee.

11.3 Action by the Administrator . Unless otherwise established by the Board, in the Company’s charter or Bylaws or in any charter of the Committee or as required by Applicable Law or, a majority of the Administrator shall constitute a quorum and the acts of a majority of the members present at any meeting at which a quorum is present, and acts approved in writing by all members of the Administrator in lieu of a meeting, shall be deemed the acts of the Administrator. To the greatest extent permitted by Applicable Law, each member of the Administrator is entitled to, in good faith, rely or act upon any report or other information furnished to that member by any officer or other employee of the Company or any Affiliate, the Company’s independent certified public accountants, or any executive compensation consultant or other professional retained by the Company to assist in the administration of the Plan.

11.4 Authority of Administrator . Subject to any specific designation in the Plan and Applicable Law, the Administrator has the exclusive power, authority and sole discretion to:

(a) Designate Eligible Individuals to receive Awards;

(b) Determine the type or types of Awards to be granted to each Eligible Individual;

(c) Determine the number of Awards to be granted and the number of Shares to which an Award will relate;

(d) Determine the terms and conditions of any Award granted pursuant to the Plan, including, but not limited to, the exercise price, grant price, or purchase price, any performance criteria, any reload provision, any restrictions or limitations on the Award, any schedule for vesting, lapse of forfeiture restrictions or restrictions on the exercisability of an Award, and accelerations or waivers thereof, and any provisions related to non-competition and recapture of gain on an Award, based in each case on such considerations as the Administrator in its sole discretion determines;

 

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(e) Determine whether, to what extent, and under what circumstances an Award may be settled in, or the exercise price of an Award may be paid in cash, Shares, other Awards, or other property, or an Award may be canceled, forfeited, or surrendered;

(f) Prescribe the form of each Award Agreement, which need not be identical for each Participant;

(g) Decide all other matters that must be determined in connection with an Award;

(h) Establish, adopt, or revise any rules and regulations as it may deem necessary or advisable to administer the Plan;

(i) Interpret the terms of, and any matter arising pursuant to, the Plan, any Program or any Award Agreement;

(j) Accelerate wholly or partially the vesting or lapse of restrictions of any Award or portion thereof at any time after the grant of an Award, subject to whatever terms and conditions it selects and Section 12.2; and

(k) Make all other decisions and determinations that may be required pursuant to the Plan or as the Administrator deems necessary or advisable to administer the Plan.

11.5 Decisions Binding . The Administrator’s interpretation of the Plan, any Awards granted pursuant to the Plan, any Program, any Award Agreement and all decisions and determinations by the Administrator with respect to the Plan are final, binding, and conclusive on all parties.

11.6 Delegation of Authority . To the extent permitted by Applicable Law, the Board or Committee may from time to time delegate to a committee of one or more members of the Board or one or more officers of the Company the authority to grant or amend Awards or to take other administrative actions pursuant to this Article 11; provided , however , that in no event shall an officer of the Company be delegated the authority to grant Awards to, or amend Awards held by, the following individuals: (a) individuals who are subject to Section 16 of the Exchange Act, (b) Covered Employees with respect to Awards intended to constitute Performance-Based Compensation, or (c) officers of the Company (or Directors) to whom authority to grant or amend Awards has been delegated hereunder; provided , further , that any delegation of administrative authority shall only be permitted to the extent it is permissible under the Organizational Documents, Section 162(m) of the Code and other Applicable Law. Any delegation hereunder shall be subject to the restrictions and limits that the Board or Committee specifies at the time of such delegation or that are otherwise included in the applicable Organizational Documents, and the Board or Committee, as applicable, may at any time rescind the authority so delegated or appoint a new delegatee. At all times, the delegatee appointed under this Section 11.6 shall serve in such capacity at the pleasure of the Board or the Committee, as applicable, and the Board or the Committee may abolish any committee at any time and re-vest in itself any previously delegated authority.

 

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ARTICLE 12.

MISCELLANEOUS PROVISIONS

12.1 Amendment, Suspension or Termination of the Plan .

(a) Except as otherwise provided in this Section 12.1, the Plan may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Board; provided that, except as provided in Section 12.10 hereof, no amendment, suspension or termination of the Plan shall, without the consent of the Participant, impair any rights or obligations under any Award theretofore granted or awarded, unless the Award itself otherwise expressly so provides.

(b) Notwithstanding Section 12.1(a) hereof, the Administrator may not, except as provided in Section 12.2 hereof, take any of the following actions without approval of the Company’s stockholders given within twelve (12) months before or after the action by the Administrator: (i) increase the Share Limit or any Individual Award Limit, (ii) reduce the price per share of any outstanding Option or Stock Appreciation Right granted under the Plan, or (iii) cancel any Option or Stock Appreciation Right in exchange for cash or another Award in violation of Section 10.6 hereof. Notwithstanding anything herein to the contrary, no Incentive Stock Option shall be granted under the Plan after the tenth (10 th ) anniversary of the date on which the Plan is adopted by the Board.

12.2 Changes in Common Stock or Assets of the Company, Acquisition or Liquidation of the Company and Other Corporate Events .

(a) In the event of any stock dividend, stock split, combination or exchange of shares, merger, consolidation or other distribution (other than normal cash dividends) of Company assets to stockholders, or any other change affecting the shares of the Company’s stock or the share price of the Company’s stock other than an Equity Restructuring, the Administrator may make equitable adjustments, if any, to reflect such change with respect to (i) the aggregate number and kind of shares that may be issued under the Plan (including, but not limited to, adjustments of the Share Limit and the Individual Award Limits); (ii) the number and kind of Shares (or other securities or property) subject to outstanding Awards; (iii) the terms and conditions of any outstanding Awards (including, without limitation, any applicable performance targets or criteria with respect thereto); and/or (iv) the grant or exercise price per share for any outstanding Awards under the Plan. Any adjustment affecting an Award intended as Performance-Based Compensation shall be made consistent with the requirements of Section 162(m) of the Code unless otherwise determined by the Administrator.

(b) In the event of any transaction or event described in Section 12.2(a) hereof or any unusual or nonrecurring transactions or events affecting the Company, any Affiliate, or the financial statements of the Company or any Affiliate, or of changes in Applicable Law or Applicable Accounting Standards, the Administrator, in its sole discretion, and on such terms

 

29


and conditions as it deems appropriate, either by the terms of the Award or by action taken prior to the occurrence of such transaction or event, is hereby authorized to take any one or more of the following actions whenever the Administrator determines that such action is appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to any Award under the Plan, to facilitate such transactions or events or to give effect to such changes Applicable Law or Applicable Accounting Standards:

(i) To provide for the termination of any such Award in exchange for an amount of cash and/or other property, if any, equal to the amount that would have been attained upon the exercise of such Award or realization of the Participant’s rights (and, for the avoidance of doubt, if as of the date of the occurrence of the transaction or event described in this Section 12.2, the Administrator determines in good faith that no amount would have been attained upon the exercise of such Award or realization of the Participant’s rights, then such Award may be terminated by the Company without payment);

(ii) To provide that such Award be assumed by the successor or survivor corporation, or a parent or subsidiary thereof, or shall be substituted for by similar options, rights or awards covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices;

(iii) To make adjustments in the number and type of securities subject to outstanding Awards and Awards which may be granted in the future and/or in the terms, conditions and criteria included in such Awards (including the grant or exercise price, as applicable);

(iv) To provide that such Award shall be exercisable or payable or fully vested with respect to all securities covered thereby, notwithstanding anything to the contrary in the Plan or an applicable Program or Award Agreement;

(v) To replace such Award with other rights or property selected by the Administrator in its sole discretion; and/or

(vi) To provide that the Award cannot vest, be exercised or become payable after such event.

(c) In connection with the occurrence of any Equity Restructuring, and notwithstanding anything to the contrary in Sections 12.2(a) and 12.2(b) hereof:

(i) The number and type of securities subject to each outstanding Award and the exercise price or grant price thereof, if applicable, shall be equitably adjusted; and/or

(ii) The Administrator shall make such equitable adjustments, if any, as the Administrator in its discretion may deem appropriate to reflect such Equity Restructuring with respect to the aggregate number and kind of shares that may be issued under the Plan (including, but not limited to, adjustments to the Share Limit and the Individual Award Limits).

 

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The adjustments provided under this Section 12.2(c) shall be nondiscretionary and shall be final and binding on the affected Participant and the Company.

(d) Change in Control .

(i) Except as may otherwise be provided in any applicable Award Agreement or other written agreement entered into between the Company (or an Affiliate) and a Participant, if a Change in Control occurs and a Participant’s outstanding Awards are not continued, converted, assumed, or replaced by the surviving or successor entity in such Change in Control, then immediately prior to the Change in Control such outstanding Awards, to the extent not continued, converted, assumed, or replaced, shall become fully vested and, as applicable, exercisable, and all forfeiture, repurchase and other restrictions on such Awards shall lapse immediately prior to such transaction. Upon, or in anticipation of, a Change in Control, the Administrator may cause any and all Awards outstanding hereunder to terminate at a specific time in the future, including but not limited to the date of such Change in Control, and shall give each Participant the right to exercise such Awards during a period of time as the Administrator, in its sole and absolute discretion, shall determine. For the avoidance of doubt, if the value of an Award that is terminated in connection with this Section 12.2(d) is zero or negative at the time of such Change in Control, such Award shall be terminated upon the Change in Control without payment of consideration therefor.

(ii) If a Change in Control occurs with respect to which a Participant’s outstanding Awards are continued, converted, assumed or replaced by the surviving or successor entity in such Change in Control and the Participant incurs a Qualifying Termination on or within 12 months following the date of such Change in Control, each outstanding Award held by a Participant, other than any Award subject to performance-vesting, shall become fully vested (and, as applicable, exercisable) and all forfeiture restrictions thereon shall lapse upon such Qualifying Termination.

(e) The Administrator may, in its sole discretion, include such further provisions and limitations in any Award, agreement or certificate, as it may deem equitable and in the best interests of the Company that are not inconsistent with the provisions of the Plan.

(f) Unless otherwise determined by the Administrator, no adjustment or action described in this Section 12.2 or in any other provision of the Plan shall be authorized to the extent it would (i) with respect to Awards which are granted to Covered Employees and are intended to qualify as Performance-Based Compensation, cause such Award to fail to so qualify as Performance-Based Compensation, (ii) cause the Plan to violate Section 422(b)(1) of the Code, (iii) result in short-swing profits liability under Section 16 of the Exchange Act or violate the exemptive conditions of Rule 16b-3 of the Exchange Act, or (iv) cause an Award to fail to be exempt from or comply with Section 409A of the Code.

(g) The existence of the Plan, any Program, any Award Agreement and/or any Award granted hereunder shall not affect or restrict in any way the right or power of the Company, the stockholders of the Company or any Affiliate to make or authorize any adjustment, recapitalization, reorganization or other change in the Company’s or such Affiliate’s capital structure or its business, any merger or consolidation of the Company or any Affiliate,

 

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any issue of stock or of options, warrants or rights to purchase stock or of bonds, debentures, preferred or prior preference stocks whose rights are superior to or affect the Common Stock, the securities of any Affiliate or the rights thereof or which are convertible into or exchangeable for Common Stock or securities of any Affiliate, or the dissolution or liquidation of the Company or any Affiliate, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.

(h) In the event of any pending stock dividend, stock split, combination or exchange of shares, merger, consolidation or other distribution (other than normal cash dividends) of Company assets to stockholders, or any other change affecting the Shares or the share price of the Common Stock including any Equity Restructuring, for reasons of administrative convenience, the Company in its sole discretion may refuse to permit the exercise of any Award during a period of up to thirty (30) days prior to the consummation of any such transaction.

12.3 Approval of Plan by Stockholders . The Plan shall be submitted for the approval of the Company’s stockholders within twelve (12) months after the date of the Board’s initial adoption of the Plan.

12.4 No Stockholders Rights . Except as otherwise provided herein or in an applicable Program or Award Agreement, a Participant shall have none of the rights of a stockholder with respect to Shares covered by any Award until the Participant becomes the record owner of such Shares.

12.5 Paperless Administration . In the event that the Company establishes, for itself or using the services of a third party, an automated system for the documentation, granting or exercise of Awards, such as a system using an internet website or interactive voice response, then the paperless documentation, granting or exercise of Awards by a Participant may be permitted through the use of such an automated system.

12.6 Effect of Plan upon Other Compensation Plans . The adoption of the Plan shall not affect any other compensation or incentive plans in effect for the Company or any Affiliate. Nothing in the Plan shall be construed to limit the right of the Company or any Affiliate: (a) to establish any other forms of incentives or compensation for Employees, Directors or Consultants of the Company or any Affiliate or (b) to grant or assume options or other rights or awards otherwise than under the Plan in connection with any proper corporate purpose including without limitation, the grant or assumption of options in connection with the acquisition by purchase, lease, merger, consolidation or otherwise, of the business, stock or assets of any corporation, partnership, limited liability company, firm or association.

12.7 Compliance with Laws . The Plan, the granting and vesting of Awards under the Plan, the issuance and delivery of Shares and the payment of money under the Plan or under Awards granted or awarded hereunder are subject to compliance with all Applicable Law and to such approvals by any listing, regulatory or governmental authority as may, in the opinion of counsel for the Company, be necessary or advisable in connection therewith. Any securities delivered under the Plan shall be subject to such restrictions, and the person acquiring such securities shall, if requested by the Company, provide such assurances and representations to the

 

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Company as the Company may deem necessary or desirable to assure compliance with all Applicable Law. To the extent permitted by Applicable Law, the Plan and Awards granted or awarded hereunder shall be deemed amended to the extent necessary to conform to such Applicable Law.

12.8 Titles and Headings, References to Sections of the Code or Exchange Act . The titles and headings of the sections in the Plan are for convenience of reference only and, in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control. References to sections of the Code or the Exchange Act shall include any amendment or successor thereto.

12.9 Governing Law . The Plan and any Programs or Award Agreements hereunder shall be administered, interpreted and enforced under the internal laws of the State of Delaware without regard to conflicts of laws thereof.

12.10 Section 409A . To the extent that the Administrator determines that any Award granted under the Plan is subject to Section 409A of the Code, the Plan, any applicable Program and the Award Agreement covering such Award shall be interpreted in accordance with Section 409A of the Code. Notwithstanding any provision of the Plan to the contrary, in the event that, following the Effective Date, the Administrator determines that any Award may be subject to Section 409A of the Code, the Administrator may adopt such amendments to the Plan, any applicable Program and the Award Agreement or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Administrator determines are necessary or appropriate to avoid the imposition of taxes on the Award under Section 409A of the Code, either through compliance with the requirements of Section 409A of the Code or with an available exemption therefrom, provided, however, that this Section 12.10 shall not create an obligation on the part of the Company to adopt any such amendment, policy or procedure or take any such other action, nor shall the Company have any liability for failing to do so.

12.11 No Rights to Awards . No Eligible Individual or other person shall have any claim to be granted any Award pursuant to the Plan, and neither the Company nor the Administrator is obligated to treat Eligible Individuals, Participants or any other persons uniformly.

12.12 Unfunded Status of Awards . The Plan is intended to be an “unfunded” plan for incentive compensation. With respect to any payments not yet made to a Participant pursuant to an Award, nothing contained in the Plan or any Program or Award Agreement shall give the Participant any rights that are greater than those of a general creditor of the Company or any Affiliate.

12.13 Indemnification . To the extent allowable pursuant to Applicable Law and the Company’s charter and Bylaws, each member of the Board and any officer or other employee to whom authority to administer any component of the Plan is delegated shall be indemnified and held harmless by the Company from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by such member in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be

 

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involved by reason of any action or failure to act pursuant to the Plan and against and from any and all amounts paid by him or her in satisfaction of judgment in such action, suit, or proceeding against him or her; provided , however , that he or she gives the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled pursuant to the Company’s Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.

12.14 Relationship to other Benefits . No payment pursuant to the Plan shall be taken into account in determining any benefits under any pension, retirement, savings, profit sharing, group insurance, welfare or other benefit plan of the Company or any Affiliate except to the extent otherwise expressly provided in writing in such other plan or an agreement thereunder.

12.15 Expenses . The expenses of administering the Plan shall be borne by the Company and its Affiliates.

*  *  *  *  *

I hereby certify that the foregoing Plan was duly adopted by the Board of Directors of SeaSpine Holdings Corporation on                  , 2015.

*  *  *  *  *

I hereby certify that the foregoing Plan was approved by the sole stockholder of SeaSpine Holdings Corporation, Integra LifeSciences Holdings Corporation, on                  , 2015.

Executed on this      day of             , 2015.

 

 

Corporate Secretary

 

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Exhibit 10.9

SEASPINE HOLDINGS CORPORATION

2015 INCENTIVE AWARD PLAN

STOCK OPTION GRANT NOTICE

SeaSpine Holdings Corporation, a Delaware corporation (the “ Company ”), pursuant to its 2015 Incentive Award Plan (as may be amended from time to time, the “ Plan ”), hereby grants to the individual listed below (the “ Optionee ”), an option to purchase the number of shares of Common Stock, par value $0.001 per share, of the Company (the “ Shares ”), set forth below (the “ Option ”). This Option is subject to all of the terms and conditions set forth herein and in the Stock Option Agreement attached hereto as Exhibit A (the “ Agreement ”) and the Plan, each of which is incorporated herein by reference. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings in this Stock Option Grant Notice (this “ Grant Notice ”) and the Agreement.

 

Optionee: [                    ]
Grant Date: [                    ]
Vesting Commencement Date: [                    ]
Exercise Price per Share:

$[ ● ] /Share

Total Number of Shares Subject to the Option: [                ] Shares
Expiration Date: [                    ]
Vesting Schedule: [                    ]
Termination: The Option shall terminate on the Expiration Date set forth above or, if earlier, in accordance with the terms of the Agreement
Type of Option: ¨   Incentive Stock Option         ¨   Non-Qualified Stock Option

By his or her signature below, the Optionee agrees to be bound by the terms and conditions of the Plan, the Agreement and this Grant Notice. The Optionee has reviewed the Agreement, the Plan and this Grant Notice in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Grant Notice and fully understands all provisions of this Grant Notice, the Agreement and the Plan. The Optionee hereby agrees to accept as binding, conclusive and final all decisions and/or interpretations of the Administrator upon any questions arising under the Plan or relating to the Option. If the Optionee lives in a community property state and either is married or has a registered domestic partner, his or her spouse has signed the Consent of Spouse attached to this Grant Notice as Exhibit B.

 

SEASPINE HOLDINGS CORPORATION OPTIONEE
By:

 

By:

 

Print Name:

 

Print Name:

 

Title:

 

Address:

 

Address:

 

Email:

 


EXHIBIT A

TO STOCK OPTION GRANT NOTICE

STOCK OPTION AGREEMENT

Pursuant to the Stock Option Grant Notice (the “ Grant Notice ”) to which this Stock Option Agreement (this “ Agreement ”) is attached, SeaSpine Holdings Corporation, a Delaware corporation (the “ Company ”), has granted to the Optionee an option (the “ Option ”) under the Company’s 2015 Incentive Award Plan (as amended from time to time, the “ Plan ”) to purchase the number of Shares indicated in the Grant Notice.

ARTICLE I.

GENERAL

1.1 Incorporation of Terms of Plan . The Option is subject to the terms and conditions of the Plan, which are incorporated herein by reference. In the event of any inconsistency between the Plan and this Agreement, the terms of the Plan shall control.

1.2 Defined Terms . Capitalized terms not specifically defined herein shall have the meanings specified in the Plan and the Grant Notice.

ARTICLE II.

GRANT OF OPTION

2.1 Grant of Option . In consideration of the Optionee’s past and/or continued employment with or service to the Company or any Affiliate and for other good and valuable consideration, effective as of the Grant Date set forth in the Grant Notice (the “ Grant Date ”), the Company irrevocably grants to the Optionee the Option to purchase any part or all of the aggregate number of Shares set forth in the Grant Notice, upon the terms and conditions set forth in the Plan and this Agreement. Unless designated as a Non-Qualified Stock Option in the Grant Notice, the Option shall be an Incentive Stock Option to the maximum extent permitted by law.

2.2 Exercise Price . The exercise price of the Shares subject to the Option shall be as set forth in the Grant Notice, without commission or other charge; provided , however , that the exercise price per share of the Shares subject to the Option shall not be less than 100% of the Fair Market Value of a Share on the Grant Date. Notwithstanding the foregoing, if this Option is an Incentive Stock Option and the Optionee is a Greater Than 10% Stockholder as of the Grant Date, the exercise price per share of the Shares subject to the Option shall not be less than 110% of the Fair Market Value of a Share on the Grant Date.

2.3 Consideration to the Company . In consideration of the grant of the Option by the Company, the Optionee agrees to render faithful and efficient services to the Company or any Affiliate.

 

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ARTICLE III.

PERIOD OF EXERCISABILITY

3.1 Commencement of Exercisability .

(a) Subject to this Article III, the Option shall become vested and exercisable in such amounts and at such times as are set forth in the Grant Notice.

(b) No portion of the Option which has not become vested and exercisable as of the date of the Optionee’s Termination of Service shall thereafter become vested and exercisable, except as may be otherwise provided by the Administrator or as set forth in a written agreement between the Company and the Optionee.

3.2 Duration of Exercisability . Any installments provided for in the vesting schedule set forth in the Grant Notice are cumulative. Each such installment which becomes vested and exercisable pursuant to the vesting schedule set forth in the Grant Notice shall remain vested and exercisable until it becomes unexercisable under Section 3.3 hereof.

3.3 Expiration of Option . The Option may not be exercised to any extent by anyone after the first to occur of the following events:

(a) The Expiration Date set forth in the Grant Notice;

(b) If this Option is designated as an Incentive Stock Option and the Optionee is a Greater Than 10% Stockholder as of the Grant Date, the expiration of five years from the Grant Date;

(c) [The date that is one year from the date of the Optionee’s Termination of Service by the Company without Cause, death or disability or by the Optionee for any reason;] or

(d) The start of business on the date of the Optionee’s Termination of Service by the Company for Cause.

The Optionee acknowledges that an Incentive Stock Option exercised more than three months after the Optionee’s Termination of Service, other than by reason of death or disability, will be taxed as a Non-Qualified Stock Option.

3.4 Special Tax Consequences . The Optionee acknowledges that, to the extent that the aggregate Fair Market Value (determined as of the time the Option is granted) of all Shares with respect to which “incentive stock options” (within the meaning of Section 422 of the Code, but without regard to Section 422(d) of the Code), including the Option, are exercisable for the first time by the Optionee in any calendar year exceeds $100,000, the Option and such other options shall be Non-Qualified Stock Options to the extent necessary to comply with the limitations imposed by Section 422(d) of the Code. The Optionee further acknowledges that the rule set forth in the preceding sentence shall be applied by taking the Option and other “incentive stock options” into account in the order in which they were granted, as determined under Section 422(d) of the Code and the Treasury Regulations thereunder.

 

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ARTICLE IV.

EXERCISE OF OPTION

4.1 Person Eligible to Exercise . Except as provided in Section 5.2 hereof, during the lifetime of the Optionee, only the Optionee may exercise the Option or any portion thereof. After the death of the Optionee, any exercisable portion of the Option may, prior to the time when the Option becomes unexercisable under Section 3.3 hereof, be exercised by the deceased Optionee’s beneficiary or by any person empowered to do so under the deceased Optionee’s will or under the then-applicable laws of descent and distribution, subject to Section 10.3(c) of the Plan.

4.2 Partial Exercise . Any exercisable portion of the Option or the entire Option, if then wholly exercisable, may be exercised in whole or in part at any time prior to the time when the Option or portion thereof becomes unexercisable under Section 3.3 hereof. However, the Option shall not be exercisable with respect to fractional shares.

4.3 Manner of Exercise . The Option, or any exercisable portion thereof, may be exercised solely by delivery to the stock administrator of the Company (or any other person or entity designated by the Company) of all of the following prior to the time when the Option or such portion thereof becomes unexercisable under Section 3.3 hereof:

(a) A written or electronic notice complying with the applicable rules established by the Administrator stating that the Option, or a portion thereof, is exercised. The notice shall be signed by the Optionee or other person then-entitled to exercise the Option or such portion of the Option;

(b) Full payment of the exercise price and applicable withholding taxes for the Shares with respect to which the Option, or portion thereof, is exercised, in a manner permitted by Section 4.4 hereof;

(c) Any other representations or documents as may be required in the Administrator’s sole discretion to effect compliance with all applicable provisions of the Securities Act, the Exchange Act, any other federal, state or foreign securities laws or regulations, the rules of any securities exchange, national market system or automated quotation system on which the Shares are listed, quoted or traded or any other applicable law; and

(d) In the event the Option or portion thereof shall be exercised pursuant to Section 4.1 hereof by any person or persons other than the Optionee, appropriate proof of the right of such person or persons to exercise the Option (as determined by the Administrator in its sole discretion).

Notwithstanding any of the foregoing, the Company shall have the right to specify all conditions of the manner of exercise, which conditions may vary by country and which may be subject to change from time to time.

4.4 Method of Payment . Payment of the exercise price and any tax withholding shall be by any of the following, or a combination thereof, at the election of the Optionee:

(a) Cash;

(b) Check;

 

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(c) [With the consent of the Administrator,] delivery of a written or electronic notice that the Optionee has placed a market sell order with a broker with respect to Shares then issuable upon exercise of the Option, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the aggregate exercise price and/or applicable tax withholding; provided , that payment of such proceeds is then made to the Company upon settlement of such sale;]

(d) With the consent of the Administrator, surrender of other Shares which have been held by the Optionee for such period of time as may be required by the Administrator in order to avoid adverse accounting consequences and having a Fair Market Value on the date of surrender equal to the aggregate exercise price, and/or applicable tax withholding, of the Shares with respect to which the Option or portion thereof is being exercised;

(e) Surrendered Shares issuable upon the exercise of the Option having a Fair Market Value on the date of exercise equal to the aggregate exercise price, and/or applicable tax withholding, of the Shares with respect to which the Option or portion thereof is being exercised; or

(f) With the consent of the Administrator, such other form of legal consideration as may be acceptable to the Administrator.

4.5 Conditions to Issuance of Stock Certificates . The Shares deliverable upon the exercise of the Option, or any portion thereof, may be either previously authorized but unissued Shares, treasury Shares or issued Shares which have been purchased on the open market. Such Shares shall be fully paid and nonassessable. The Company shall not be required to issue or deliver any certificates or make any book entries evidencing Shares purchased upon the exercise of the Option or portion thereof prior to fulfillment of the conditions set forth in Section 10.4 of the Plan.

4.6 Rights as Stockholder . The holder of the Option shall not be, nor have any of the rights or privileges of, a stockholder of the Company, including, without limitation, voting rights and rights to dividends, in respect of any Shares purchasable upon the exercise of any part of the Option unless and until such Shares shall have been issued by the Company to such holder (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). No adjustment shall be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 12.2 of the Plan.

ARTICLE V.

OTHER PROVISIONS

5.1 Administration . The Administrator shall have the power to interpret the Plan and this Agreement as provided in the Plan. All interpretations and determinations made by the Administrator in good faith shall be final and binding upon the Optionee, the Company and all other interested persons.

5.2 Transferability of Option . Without limiting the generality of any other provision hereof, the Option shall be subject to the restrictions on transferability set forth in Section 10.3 of the Plan.

5.3 Adjustments . The Optionee acknowledges that the Option is subject to modification and termination in certain events as provided in this Agreement and Article 12 of the Plan.

5.4 Tax Consultation . The Optionee understands that the Optionee may suffer adverse tax consequences as a result of the grant, vesting and/or exercise of the Option, and/or with the

 

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purchase or disposition of the Shares subject to the Option. The Optionee represents that the Optionee has consulted with any tax consultants the Optionee deems advisable in connection with the purchase or disposition of such shares and that the Optionee is not relying on the Company for any tax advice.

5.5 Notification of Disposition . If this Option is designated as an Incentive Stock Option, the Optionee shall give prompt notice to the Company of any disposition or other transfer of any Shares acquired under this Agreement if such disposition or transfer is made (a) within two (2) years from the Grant Date with respect to such Shares or (b) within one (1) year after the transfer of such Shares to the Optionee. Such notice shall specify the date of such disposition or other transfer and the amount realized, in cash, other property, assumption of indebtedness or other consideration, by the Optionee in such disposition or other transfer.

5.6 Optionee’s Representations . The Optionee shall, if required by the Company, concurrently with the exercise of all or any portion of this Option, make such written representations as are deemed necessary or appropriate by the Company and/or the Company’s counsel.

5.7 Section 409A . This Agreement and the Grant Notice shall be interpreted in accordance with the requirements of Section 409A of the Code. The Administrator may, in its discretion, adopt such amendments to the Plan, this Agreement or the Grant Notice or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, as the Administrator determines are necessary or appropriate to comply with the requirements of Section 409A of the Code or an available exemption thereof; provided , however , that the Administrator shall have no obligation to take any such action(s) or to indemnify any person from failing to do so.

5.8 Amendment, Suspension and Termination . To the extent permitted by the Plan, this Agreement may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Administrator or the Board; provided, however , that, except as may otherwise be provided by the Plan, no amendment, modification, suspension or termination of this Agreement shall adversely affect the Option in any material way without the prior written consent of the Optionee.

5.9 Not a Contract of Service Relationship . Nothing in this Agreement or in the Plan shall confer upon the Optionee any right to continue to serve as an Employee, Director, Consultant or other service provider of the Company or any of its Affiliates or shall interfere with or restrict in any way the rights of the Company and its Affiliates, which rights are hereby expressly reserved, to discharge or terminate the services of the Optionee at any time for any reason whatsoever, with or without Cause, except to the extent expressly provided otherwise in a written agreement between the Company or an Affiliate and the Optionee.

5.10 Limitations Applicable to Section 16 Persons . Notwithstanding any other provision of the Plan or this Agreement, if the Optionee is subject to Section 16 of the Exchange Act, then the Plan, the Option and this Agreement shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by applicable law, this Agreement shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.

5.11 Conformity to Securities Laws . The Optionee acknowledges that the Plan and this Agreement are intended to conform to the extent necessary with all provisions of the Securities Act and the Exchange Act, and any and all regulations and rules promulgated by the Securities and Exchange

 

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Commission thereunder, as well as all applicable state securities laws and regulations. Notwithstanding anything herein to the contrary, the Plan shall be administered, and the Option is granted and may be exercised, only in such a manner as to conform to such laws, rules and regulations. To the extent permitted by applicable law, the Plan and this Agreement shall be deemed amended to the extent necessary to conform to such laws, rules and regulations.

5.12 Limitation on the Optionee’s Rights . Participation in the Plan confers no rights or interests other than as herein provided. This Agreement creates only a contractual obligation on the part of the Company as to amounts payable and shall not be construed as creating a trust. The Plan, in and of itself, has no assets. The Optionee shall have only the rights of a general unsecured creditor of the Company and its Affiliates with respect to amounts credited and benefits payable, if any, with respect to the Option, and rights no greater than the right to receive the Common Stock as a general unsecured creditor with respect to Options, as and when payable hereunder.

5.13 Successors and Assigns . The Company or any Affiliate may assign any of its rights under this Agreement to single or multiple assignees, and this Agreement shall inure to the benefit of the successors and assigns of the Company and its Affiliates. Subject to the restrictions on transfer set forth in this Article 5, this Agreement shall be binding upon the Optionee and his or her heirs, executors, administrators, successors and assigns.

5.14 Entire Agreement . The Plan, the Grant Notice and this Agreement (including all Exhibits thereto, if any) constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the Company and its Affiliates and the Optionee with respect to the subject matter hereof.

5.15 Notices . Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of the Secretary of the Company at the Company’s principal office, and any notice to be given to the Optionee shall be addressed to the Optionee at the Optionee’s last address reflected on the Company’s records. Any notice shall be deemed duly given when sent via email or when sent by reputable overnight courier or by certified mail (return receipt requested) through the United States Postal Service.

5.16 Governing Law . The laws of the State of Delaware shall govern the interpretation, validity, administration, enforcement and performance of the terms of this Agreement regardless of the law that might be applied under principles of conflicts of laws.

5.17 Titles . Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.

 

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EXHIBIT B

TO STOCK OPTION GRANT NOTICE

CONSENT OF SPOUSE

I,                     , spouse of                     , have read and approve the Stock Option Grant Notice (the “ Grant Notice ”) to which this Consent of Spouse is attached and the Stock Option Agreement (the “ Agreement ”) attached to the Grant Notice. In consideration of issuing to my spouse the shares of the common stock of SeaSpine Holdings Corporation set forth in the Grant Notice, I hereby appoint my spouse as my attorney-in-fact in respect to the exercise of any rights under the Agreement and agree to be bound by the provisions of the Agreement insofar as I may have any rights in said Agreement or any shares of the common stock of SeaSpine Holdings Corporation issued pursuant thereto under the community property laws or similar laws relating to marital property in effect in the state of our residence as of the date of the signing of the foregoing Agreement.

 

Dated:

 

 

Signature of Spouse

 

B-1

Exhibit 10.10

SEASPINE HOLDINGS CORPORATION

2015 EMPLOYEE STOCK PURCHASE PLAN

ARTICLE I.

PURPOSE, SCOPE AND ADMINISTRATION OF THE PLAN

1.1 Purpose and Scope . The purpose of the SeaSpine Holdings Corporation 2015 Employee Stock Purchase Plan (as amended from time to time, the “ Plan ”) is to assist employees of SeaSpine Holdings Corporation, a Delaware corporation (the “ Company ”) and its Designated Subsidiaries in acquiring a stock ownership interest in the Company pursuant to a plan which is intended to qualify as an “employee stock purchase plan” under Section 423 of the Code and to help such employees provide for their future security and to encourage them to remain in the employment of the Company and its Subsidiaries.

ARTICLE II.

DEFINITIONS

Whenever the following terms are used in the Plan, they shall have the meaning specified below unless the context clearly indicates to the contrary. The singular pronoun shall include the plural where the context so indicates.

2.1 “ Agent ” means the brokerage firm, bank or other financial institution, entity or person(s), if any, engaged, retained, appointed or authorized to act as the agent of the Company or an Employee with regard to the Plan.

2.2 “ Administrator ” shall mean the Committee, or such individuals to which authority to administer the Plan has been delegated under Section 7.1 hereof.

2.3 “ Code ” shall mean the Internal Revenue Code of 1986, as amended.

2.4 “ Committee ” shall mean the Compensation Committee of the Board, or another committee or subcommittee of the Board or the Compensation Committee described in Article 7 hereof.

2.5 “ Common Stock ” shall mean common stock, par value $0.01, of the Company.

2.6 “ Compensation ” of an Employee shall mean the regular straight-time earnings, base salary, annual cash bonus or commissions paid to the Employee from the Company or any Designated Subsidiary on each Payday as compensation for services to the Company or any Designated Subsidiary, before deduction for any salary deferral contributions made by the Employee to any tax-qualified or nonqualified deferred compensation plan of the Company, any Designated Subsidiary, including prior week adjustments and overtime, but excluding vacation pay, holiday pay, jury duty pay, funeral leave pay, military pay, incentive compensation, one-time bonuses (e.g., retention or sign-on bonuses), fringe benefits, education or tuition reimbursements, imputed income arising under any Company or Designated Subsidiary group insurance or benefit program, travel expenses, business and moving reimbursements, income received in connection with any stock options, stock appreciation rights, restricted stock, restricted stock units or other compensatory equity awards and all contributions made by the Company or any Designated Subsidiary for the Employee’s benefit under any employee benefit plan now or hereafter established. Such Compensation shall be calculated before deduction of any income or employment tax withholdings, but shall be withheld from the Employee’s net income.

 

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2.7 “ Designated Subsidiary ” shall mean the Subsidiaries that have been designated by the Board or Committee from time to time in its sole discretion as eligible to participate in the Plan, including any Subsidiary in existence on the Effective Date and any Subsidiary formed or acquired following the Effective Date, in accordance with Section 7.2 hereof.

2.8 “ Effective Date ” shall mean the date the Plan is adopted by the Board, subject to approval of the Plan by the Company’s sole stockholder.

2.9 “ Eligible Employee ” means an Employee of the Company or any Designated Subsidiary who does not, immediately after an Option is granted, own (directly or through attribution) stock possessing five percent or more of the total combined voting power or value of all classes of Stock or other stock of the Company, a Parent or Subsidiary (as determined under Section 423(b)(3) of the Code). For purposes of the foregoing, the rules of Section 424(d) of the Code with regard to the attribution of stock ownership shall apply in determining the stock ownership of an individual, and stock which an Employee may purchase under outstanding options shall be treated as stock owned by the Employee. Notwithstanding the foregoing, the Committee may determine in its discretion that an Employee of the Company or any Designated Subsidiary shall not be eligible to participate in an Offering if: (a) such Employee has been in the employ of the Company or any Designated Subsidiary for less than two years (or any shorter period); (b) such Employee’s customary employment with the Company or any Designated Subsidiary is twenty (20) hours or less per week and/or not more than five (5) months per calendar year (or any lesser number of hours per week or months per calendar year); (c) such Employee is a “highly compensated employee” of the Company or any Designated Subsidiary (within the meaning of Section 414(q) of the Code), or is such a “highly compensated employee” (i) with compensation above a specified level, (ii) who is an officer and/or (iii) is subject to the disclosure requirements of Section 16(a) of the Exchange Act; and/or (d) such Employee is a citizen or resident of a foreign jurisdiction and the grant of an Option under the Plan or with respect to an Offering is prohibited under the laws of such foreign jurisdiction, or compliance with the laws of such foreign jurisdiction would cause the Plan or such Offering to violate the requirements of Section 423 of the Code; provided , that any exclusion in clauses (a), (b), (c) and (d) shall be applied in an identical manner under each Offering to all employees of the Company and all Designated Subsidiaries, in accordance with Treasury Regulation Section 1.423-2(e).

2.10 “ Employee ” shall mean any person who renders services to the Company or a Designated Subsidiary in the status of an employee within the meaning of Section 3401(c) of the Code. “Employee” shall not include any director of the Company or a Designated Subsidiary who does not render services to the Company or a Designated Subsidiary in the status of an employee within the meaning of Section 3401(c) of the Code. For purposes of the Plan, the employment relationship shall be treated as continuing intact while the individual is on military leave, sick leave or other leave of absence approved by the Company or Designated Subsidiary and meeting the requirements of Treasury Regulation Section 1.421-1(h)(2). Where the period of leave exceeds three (3) months, or such other period specified in Treasury Regulation Section 1.421-1(h)(2), and the individual’s right to reemployment is not guaranteed either by statute or by contract, the employment relationship shall be deemed to have terminated on the first day immediately following such three (3)-month period, or such other period specified in Treasury Regulation Section 1.421-1(h)(2).

2.11 “ Enrollment Date ” shall mean the first date of each Offering Period.

2.12 “ Exercise Date ” shall mean the last Trading Day of each Offering Period, except as provided in Section 5.2 hereof.

2.13 “ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended.

 

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2.14 “ Fair Market Value ” shall mean, as of any date, the value of a Share determined as follows:

(a) If the Common Stock is (i) listed on any established securities exchange (such as the New York Stock Exchange, the NASDAQ Capital Market, the NASDAQ Global Market and the NASDAQ Global Select Market), (ii) listed on any national market system or (iii) listed, quoted or traded on any automated quotation system, its Fair Market Value shall be the closing sales price for a Share as quoted on such exchange or system for such date or, if there is no closing sales price for a Share on the date in question, the closing sales price for a Share on the last preceding date for which such quotation exists, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

(b) If the Common Stock is not listed on an established securities exchange, national market system or automated quotation system, but the Common Stock is regularly quoted by a recognized securities dealer, its Fair Market Value shall be the mean of the high bid and low asked prices for such date or, if there are no high bid and low asked prices for a Share on such date, the high bid and low asked prices for a Share on the last preceding date for which such information exists, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or

(c) If the Common Stock is neither listed on an established securities exchange, national market system or automated quotation system nor regularly quoted by a recognized securities dealer, its Fair Market Value shall be established by the Administrator in good faith.

2.15 “ Grant Date ” shall mean the first Trading Day of an Offering Period.

2.16 “ New Exercise Date ” shall have such meaning as set forth in Section 5.2(b) hereof.

2.17 “ Offering ” shall mean each distinct offering of Options made under this Plan, within the meaning of Treasury Regulation 1.423-2(a).

2.18 “ Offering Period ” shall mean the 12-month period commencing on each January 1 following the Effective Date, except as otherwise provided under Section 5.3 hereof; provided , however , that the first Offering Period commencing on or after the Effective Date shall commence and end on the dates determined by the Administrator. In no event may the duration of any Offering Period exceed twenty-seven (27) months.

2.19 “ Option ” shall mean the right to purchase Shares pursuant to the Plan during each Offering.

2.20 “ Option Price ” shall mean the purchase price of a Share hereunder as provided in Section 4.2 hereof.

2.21 “ Parent ” means any entity that is a parent corporation of the Company within the meaning of Section 424 of the Code and the Treasury Regulations thereunder.

2.22 “ Participant ” shall mean any Eligible Employee who elects to participate in the Plan.

2.23 “ Payday ” shall mean the regular and recurring established day for payment of Compensation to an Employee of the Company or any Designated Subsidiary.

 

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2.24 “ Plan Account ” shall mean a bookkeeping account established and maintained by the Company in the name of each Participant.

2.25 “ Section 423 Option ” shall have such meaning as set forth in Section 3.1(b) hereof.

2.26 “ Share ” means a share of Common Stock.

2.27 “ Subsidiary ” shall mean any entity that is a subsidiary corporation of the Company within the meaning of Section 424 of the Code and the Treasury Regulations thereunder. In addition, with respect to any sub-plans adopted under Section 7.1(d) hereof which are designed to be outside the scope of Section 423 of the Code, “Subsidiary” shall include any corporate or noncorporate entity in which the Company has a direct or indirect equity interest or significant business relationship.

2.28 “ Trading Day ” shall mean a day on which the principal securities exchange on which the Common Stock is listed is open for trading or, if the Common Stock is not listed on a securities exchange, shall mean a business day, as determined by the Administrator in good faith.

2.29 “ Withdrawal Election ” shall have such meaning as set forth in Section 6.1(a) hereof.

ARTICLE III.

PARTICIPATION

3.1 Eligibility .

(a) Any Eligible Employee who shall be employed by the Company or a Designated Subsidiary on a given Enrollment Date for an Offering Period shall be eligible to participate in the Plan during such Offering Period, subject to the requirements of Articles IV and V hereof, and the limitations imposed by Section 423(b) of the Code and the Treasury Regulations thereunder.

(b) No Eligible Employee shall be granted an Option under the Plan which permits the Participant’s rights to purchase Shares under the Plan, and to purchase stock under all other employee stock purchase plans of the Company, any Parent or any Subsidiary subject to Section 423 of the Code (any such Option or other option, a “ Section 423 Option ”), to accrue at a rate which exceeds $25,000 of fair market value of such stock (determined at the time the Section 423 Option is granted) for each calendar year in which any Section 423 Option granted to the Participant is outstanding at any time. For purposes of the limitation imposed by this subsection,

(i) the right to purchase stock under a Section 423 Option accrues when the Section 423 Option (or any portion thereof) first becomes exercisable during the calendar year;

(ii) the right to purchase stock under a Section 423 Option accrues at the rate provided in the Section 423 Option, but in no case may such rate exceed $25,000 of fair market value of such stock (determined at the time such option is granted) for any one calendar year; and

(iii) a right to purchase stock which has accrued under a Section 423 Option may not be carried over to any other Section 423 Option; provided that Participants may carry forward amounts so accrued that represent a fractional share of stock and were withheld but not applied towards the purchase of Shares under an earlier Offering, and may apply such amounts towards the purchase of additional Shares under a subsequent Offering.

 

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The limitation under this Section 3.1(b) shall be applied in accordance with Section 423(b)(8) of the Code and the Treasury Regulations thereunder.

3.2 Election to Participate; Payroll Deductions

(a) Except as provided in Section 3.3 hereof, an Eligible Employee may become a Participant in the Plan only by means of payroll deduction. Each individual who is an Eligible Employee as of the Enrollment Date of the applicable Offering may elect to participate in such Offering and the Plan by delivering to the Company a payroll deduction authorization no later than the tenth (10 th ) calendar day prior to the applicable Enrollment Date.

(b) Subject to Section 3.1(b) hereof, payroll deductions with respect to an Offering Period (i) shall be equal to at least one percent (1%) of the Participant’s Compensation as of each Payday during the applicable Offering Period, but not more than fifteen percent (15%) of the Participant’s Compensation as of each Payday during the applicable Offering Period or $25,000 and (ii) may be expressed as a whole number percentage. Amounts deducted from a Participant’s Compensation with respect to an Offering Period pursuant to this Section 3.2 shall be deducted each Payday through payroll deduction and credited to the Participant’s Plan Account.

(c) Following at least one (1) payroll deduction, a Participant may decrease (to as low as 0%, which shall be considered an election to withdraw pursuant to Section 6.1 hereof) the amount deducted from such Participant’s Compensation during an Offering Period upon ten (10) calendar days’ prior written or electronic notice to the Company; provided, however, that a Participant may not decrease the amount deducted more than two (2) times per Offering Period. A Participant may not increase the amount deducted from such Participant’s Compensation during an Offering Period.

(d) Notwithstanding the foregoing, upon the termination of an Offering, each Participant in such Offering shall automatically participate in the immediately following Offering at the same payroll deduction percentage as in effect at the termination of the prior Offering, unless such Participant delivers to the Company a different election with respect to the successive Offering in accordance with Section 3.1(a) hereof, or unless such Participant becomes ineligible for participation in the Plan.

3.3 Leave of Absence . During leaves of absence approved by the Company meeting the requirements of Treasury Regulation Section 1.421-1(h)(2) under the Code, an individual shall be treated as an Employee of the Company or Designated Subsidiary that employs such individual immediately prior to such leave.

ARTICLE IV.

PURCHASE OF SHARES

4.1 Grant of Option . Each Participant shall be granted an Option with respect to an Offering on the applicable Grant Date. Subject to the limitations of Section 3.1(b) hereof, the number of Shares subject to a Participant’s Option shall be determined as of the Exercise Date by dividing (a) such Participant’s payroll deductions accumulated prior to the applicable Exercise Date and retained in the Participant’s Plan Account on such Exercise Date by (b) the applicable Option Price; provided that in no event shall a Participant be permitted to purchase with respect to each Offering more than 1,500 Shares (subject to any adjustment pursuant to Section 5.2 hereof). The Administrator may, for future Offerings,

 

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increase or decrease, in its absolute discretion, the maximum number of Shares that a Participant may purchase during such future Offerings. Each Option shall expire on the Exercise Date for the applicable Offering immediately after the automatic exercise of the Option in accordance with Section 4.3 hereof, unless such Option terminates earlier in accordance with Article 6 hereof.

4.2 Option Price . The Option Price per Share to be paid by a Participant upon exercise of the Participant’s Option on the applicable Exercise Date for an Offering shall be equal to eighty-five percent (85%) of the lesser of the Fair Market Value of a Share on (a) the applicable Grant Date and (b) the applicable Exercise Date; provided that in no event shall the Option Price per Share be less than the par value per Share.

4.3 Purchase of Shares .

(a) On the applicable Exercise Date for an Offering, each Participant shall automatically and without any action on such Participant’s part be deemed to have exercised his or her Option to purchase at the applicable Option Price the largest number of whole Shares which can be purchased with the amount in the Participant’s Plan Account, subject to Sections 4.1 and 5.3 hereof. The balance, if any, remaining in the Participant’s Plan Account (after exercise of such Participant’s Option) as of such Exercise Date shall be returned to the Participant in one (1) lump-sum payment in cash within thirty (30) days after such Exercise Date.

(b) As soon as practicable following the applicable Exercise Date, the number of Shares purchased by such Participant pursuant to Section 4.3(a) hereof shall be delivered (either in share certificate or book entry form), in the Company’s sole discretion, to either (i) the Participant or (ii) an account established in the Participant’s name at a stock brokerage or other financial services firm designated by the Company. If the Company is required to obtain from any commission or agency authority to issue any such Shares, the Company shall seek to obtain such authority. Inability of the Company to obtain from any such commission or agency authority which counsel for the Company deems necessary for the lawful issuance of any such shares shall relieve the Company from liability to any Participant except to refund to the Participant such Participant’s Plan Account balance, without interest thereon.

4.4 Transferability of Rights . An Option granted under the Plan shall not be transferable, other than by will or the applicable laws of descent and distribution, and shall be exercisable during the Participant’s lifetime only by the Participant. No Option or interest or right to the Option shall be available to pay off any debts, contracts or engagements of the Participant or his or her successors in interest or shall be subject to disposition by pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempt at disposition of the Option shall have no effect.

ARTICLE V.

PROVISIONS RELATING TO COMMON STOCK

5.1 Common Stock Reserved . Subject to adjustment as provided in Section 5.2 hereof, the maximum number of Shares that shall be made available for sale under the Plan shall be 400,000 Shares. Shares made available for sale under the Plan may be authorized but unissued shares, treasury shares of Common Stock or reacquired shares reserved for issuance under the Plan.

5.2 Adjustments Upon Changes in Capitalization, Dissolution, Liquidation, Merger or Asset Sale .

 

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(a) Changes in Capitalization . Subject to any required action by the stockholders of the Company, the number of Shares which have been authorized for issuance under the Plan but not yet placed under an Option, as well as the price per share and the number of Shares covered by each Option under the Plan which has not yet been exercised shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock or any other increase or decrease in the number of Shares effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.” Such adjustment shall be made by the Administrator, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to an Option.

(b) Dissolution or Liquidation . In the event of the proposed dissolution or liquidation of the Company, the Offering then in progress shall be shortened by setting a new Exercise Date (the “ New Exercise Date ”), and such Offering shall terminate immediately prior to the consummation of such proposed dissolution or liquidation, unless provided otherwise by the Administrator. The New Exercise Date shall be before the date of the Company’s proposed dissolution or liquidation.

(c) Merger or Asset Sale . In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, each outstanding Option shall be assumed or an equivalent Option substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the Option is not assumed or substituted, any Offerings then in progress shall be shortened by setting a New Exercise Date and any Offerings then in progress shall end on the New Exercise Date. The New Exercise Date shall be before the date of the Company’s proposed sale or merger.

5.3 Insufficient Shares . If the Administrator determines that, on a given Exercise Date, the number of Shares with respect to which Options are to be exercised may exceed the number of Shares remaining available for sale under the Plan on such Exercise Date, the Administrator shall make a pro rata allocation of the Shares available for issuance on such Exercise Date in as uniform a manner as shall be practicable and as it shall determine in its sole discretion to be equitable among all Participants exercising Options to purchase Shares on such Exercise Date, and unless additional shares are authorized for issuance under the Plan, no further Offerings shall take place and the Plan shall terminate pursuant to Section 7.5 hereof. If an Offering is so terminated, then the balance of the amount credited to the Participant’s Plan Account which has not been applied to the purchase of Shares shall be paid to such Participant in one (1) lump sum in cash within thirty (30) days after such Exercise Date, without any interest thereon.

5.4 Rights as Stockholders . With respect to Shares subject to an Option, a Participant shall not be deemed to be a stockholder of the Company and shall not have any of the rights or privileges of a stockholder. A Participant shall have the rights and privileges of a stockholder of the Company when, but not until, Shares have been deposited in the designated brokerage account following exercise of his or her Option.

 

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ARTICLE VI.

TERMINATION OF PARTICIPATION

6.1 Cessation of Contributions; Voluntary Withdrawal .

(a) A Participant may cease payroll deductions during an Offering and elect to withdraw from the Plan by delivering written or electronic notice of such election (a “ Withdrawal Election ”) to the Company in such form as may be established by the Administrator and within ten (10) days prior to the Exercise Date for such Offering (or such other period of time as may be established by the Administrator). A Participant electing to withdraw from the Plan may elect to either (i) withdraw all of the funds then credited to the Participant’s Plan Account as of the date on which the Withdrawal Election is received by the Company, in which case amounts credited to such Plan Account shall be returned to the Participant in one (1) lump-sum payment in cash within thirty (30) days after such election is received by the Company, without any interest thereon, and the Participant shall cease to participate in the Plan and the Participant’s Option for such Offering shall terminate; or (ii) exercise the Option for the maximum number of whole Shares on the applicable Exercise Date with any remaining Plan Account balance returned to the Participant in one (1) lump-sum payment in cash within thirty (30) days after such Exercise Date, without any interest thereon, and after such exercise cease to participate in the Plan. As soon as practicable following the Company’s receipt of a notice of withdrawal from the Plan, the Participant’s payroll deduction authorization and his or her Option to purchase Shares under the Plan shall terminate.

(b) A Participant’s withdrawal from the Plan shall not have any effect upon his or her eligibility to participate in any similar plan which may hereafter be adopted by the Company or in succeeding Offering which commence after the termination of the Offering from which the Participant withdraws.

(c) A Participant who ceases contributions to the Plan during any Offerings shall not be permitted to resume contributions to the Plan during such Offering.

6.2 Termination of Eligibility . Upon a Participant’s ceasing to be an Eligible Employee, for any reason, such Participant’s Option for the applicable Offering shall automatically terminate, he or she shall be deemed to have elected to withdraw from the Plan, and such Participant’s Plan Account shall be paid to such Participant or, in the case of his or her death, to the person or persons entitled thereto as set forth in an applicable beneficiary designation form (or, if there is no such applicable form, pursuant to applicable law), within thirty (30) days after such cessation of being an Eligible Employee, without any interest thereon.

ARTICLE VII.

GENERAL PROVISIONS

7.1 Administration .

(a) The Plan shall be administered by the Committee (or another committee or a subcommittee of the Board assuming the functions of the Committee under the Plan), which, unless otherwise determined by the Board, shall consist solely of two or more members of the Board, each of whom is intended to qualify as a “non-employee director” as defined by Rule 16b-3 of the Exchange Act and an “independent director” under the rules of any securities exchange or automated quotation system on which the Shares are listed, quoted or traded, in each case, to the extent required under such provision. The Committee may delegate administrative tasks under the Plan to the services of an Agent and/or Employees to assist in the administration of the Plan, including establishing and maintaining an individual securities account under the Plan for each Participant.

 

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(b) It shall be the duty of the Administrator to conduct the general administration of the Plan in accordance with the provisions of the Plan. The Administrator shall have the power, subject to, and within the limitations of, the express provisions of the Plan:

(i) To establish and terminate Offerings and Offering Periods;

(ii) To determine when and how Options shall be granted and the provisions and terms of each Offering (which need not be identical);

(iii) To select Designated Subsidiaries in accordance with Section 7.2 hereof; and

(iv) To construe and interpret the Plan, the terms of any Offering under the Plan and the terms of the Options and to adopt such rules for the administration, interpretation, and application of the Plan as are consistent therewith and to interpret, amend or revoke any such rules. The Administrator, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan, any Offering or any Option, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective, subject to Section 423 of the Code and the Treasury Regulations thereunder.

(c) The Administrator may adopt rules or procedures relating to the operation and administration of the Plan to accommodate the specific requirements of local laws and procedures. Without limiting the generality of the foregoing, the Administrator is specifically authorized to adopt rules and procedures regarding handling of participation elections, payroll deductions, payment of interest, conversion of local currency, payroll tax, withholding procedures and handling of stock certificates which vary with local requirements. In its absolute discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Administrator under the Plan.

(d) The Administrator may adopt sub-plans applicable to particular Designated Subsidiaries or locations, which sub-plans may be designed to be outside the scope of Section 423 of the Code. The rules of such sub-plans may take precedence over other provisions of this Plan, with the exception of Section 5.1 hereof, but unless otherwise superseded by the terms of such sub-plan, the provisions of this Plan shall govern the operation of such sub-plan.

(e) All expenses and liabilities incurred by the Administrator in connection with the administration of the Plan shall be borne by the Company. The Administrator may, with the approval of the Committee, employ attorneys, consultants, accountants, appraisers, brokers or other persons. The Administrator, the Company and its officers and directors shall be entitled to rely upon the advice, opinions or valuations of any such persons. All actions taken and all interpretations and determinations made by the Administrator in good faith shall be final and binding upon all Participants, the Company and all other interested persons. No member of the Board or Administrator shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or the options, and all members of the Board or Administrator shall be fully protected by the Company in respect to any such action, determination or interpretation.

7.2 Designation of Subsidiary Corporations . The Board or Committee shall designate from among the Subsidiaries, as determined from time to time, the Subsidiary or Subsidiaries that shall constitute Designated Subsidiaries. The Board or Committee may designate a Subsidiary, or terminate the designation of a Subsidiary, without the approval of the stockholders of the Company.

 

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7.3 Reports . Individual accounts shall be maintained for each Participant in the Plan. The Company shall provide each Participant whose Option is exercised with an information statement in accordance with Section 6039(a) of the Code and the regulations promulgated thereunder. The Company shall maintain a procedure for identifying certificates of shares of Stock sold upon the exercise of Options in accordance with Section 6039(b) of the Code.

7.4 No Right to Employment . Nothing in the Plan shall be construed to give any person (including any Participant) the right to remain in the employ of the Company, a Parent or a Subsidiary or to affect the right of the Company, any Parent or any Subsidiary to terminate the employment of any person (including any Participant) at any time, with or without cause, which right is expressly reserved.

7.5 Amendment, Suspension and Termination of the Plan

(a) The Board may, in its sole discretion, amend, suspend or terminate the Plan at any time and from time to time; provided, however, that without approval of the Company’s stockholders given within twelve (12) months before or after action by the Board, the Plan may not be amended to increase the maximum number of Shares subject to the Plan; and provided further that without approval of the Company’s stockholders, the Plan may not be amended in any manner that would cause the Plan to no longer be an “employee stock purchase plan” within the meaning of Section 423(b) of the Code (including without limitation extension of the term of the Plan). No Option may be granted during any period of suspension of the Plan or after termination of the Plan. For the avoidance of doubt, without the approval of the Company’s stockholders and without regard to whether any Participant rights may be considered to have been “adversely affected,” the Board or the Committee, as applicable, shall be entitled to change the terms of an Offering, limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a Participant in order to adjust for delays or mistakes in the Company’s processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Shares for each Participant properly correspond with amounts withheld from the Participant’s Compensation, and establish such other limitations or procedures as the Board or the Committee, as applicable, determines in its sole discretion advisable which are consistent with the Plan and Section 423 of the Code.

(b) In the event the Administrator determines that the ongoing operation of the Plan may result in unfavorable financial accounting consequences, the Administrator may, to the extent permitted under Section 423 of the Code, in its discretion and, to the extent necessary or desirable, modify or amend the Plan to reduce or eliminate such accounting consequence including, but not limited to:

(i) altering the Option Price for any Offering including an Offering underway at the time of the change in Option Price;

(ii) shortening any Offering so that the Offering ends on a new Exercise Date, including an Offering underway at the time of the Administrator action; and

(iii) allocating Shares.

 

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Such modifications or amendments shall not require stockholder approval or the consent of any Participant.

(c) Upon termination of the Plan, the balance in each Participant’s Plan Account shall be refunded as soon as practicable after such termination, without any interest thereon.

7.6 Use of Funds; No Interest Paid . All funds received by the Company by reason of purchase of Shares under the Plan shall be included in the general funds of the Company free of any trust or other restriction and may be used for any corporate purpose. No interest shall be paid to any Participant or credited under the Plan.

7.7 Term; Approval by Stockholders . The Plan shall be submitted for the approval of the Company’s stockholders within twelve (12) months after the date of the Board’s initial adoption of the Plan. Options may be granted prior to such stockholder approval; provided, however, that such Options shall not be exercisable prior to the time when the Plan is approved by the stockholders; provided further that if such approval has not been obtained by the end of said twelve (12)-month period, all Options previously granted under the Plan shall thereupon terminate and be canceled and become null and void without being exercised.

7.8 Effect Upon Other Plans . The adoption of the Plan shall not affect any other compensation or incentive plans in effect for the Company, any Parent or any Subsidiary. Nothing in the Plan shall be construed to limit the right of the Company, any Parent or any Subsidiary (a) to establish any other forms of incentives or compensation for Employees of the Company or any Parent or any Subsidiary or (b) to grant or assume Options otherwise than under the Plan in connection with any proper corporate purpose, including, but not by way of limitation, the grant or assumption of options in connection with the acquisition, by purchase, lease, merger, consolidation or otherwise, of the business, stock or assets of any corporation, firm or association.

7.9 Conformity to Securities Laws . Notwithstanding any other provision of the Plan, the Plan and the participation in the Plan by any individual who is then subject to Section 16 of the Exchange Act shall be subject to any additional limitations set forth in any applicable exemption rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the application of such exemptive rule. To the extent permitted by applicable law, the Plan shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.

7.10 Notice of Disposition of Shares . Each Participant shall give the Company prompt notice of any disposition or other transfer of any Shares acquired pursuant to the exercise of an Option if such disposition or transfer is made (a) within two (2) years after the applicable Grant Date or (b) within one (1) year after the transfer of such Shares to such Participant upon exercise of such Option. The Company may direct that any certificates evidencing shares acquired pursuant to the Plan refer to such requirement.

7.11 Tax Withholding . The Company or any Parent or any Subsidiary shall be entitled to require payment in cash or deduction from other compensation payable to each Participant of any sums required by federal, state or local tax law to be withheld with respect to any purchase of Shares under the Plan or any sale of such shares.

7.12 Governing Law . The Plan and all rights and obligations thereunder shall be construed and enforced in accordance with the laws of the State of Delaware.

 

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7.13 Notices . All notices or other communications by a Participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof (including without limitation the Company’s stock plan administrator).

7.14 Conditions To Issuance of Shares .

(a) Notwithstanding anything herein to the contrary, the Company shall not be required to issue or deliver any certificates or make any book entries evidencing Shares pursuant to the exercise of an Option by a Participant, unless and until the Board or the Committee has determined, with advice of counsel, that the issuance of such Shares is in compliance with all applicable laws, regulations of governmental authorities and, if applicable, the requirements of any securities exchange or automated quotation system on which the Shares are listed or traded, and the Shares are covered by an effective registration statement or applicable exemption from registration. In addition to the terms and conditions provided herein, the Board or the Committee may require that a Participant make such reasonable covenants, agreements, and representations as the Board or the Committee, in its discretion, deems advisable in order to comply with any such laws, regulations or requirements.

(b) All certificates for Shares delivered pursuant to the Plan and all Shares issued pursuant to book entry procedures are subject to any stop-transfer orders and other restrictions as the Committee deems necessary or advisable to comply with federal, state or foreign securities or other laws, rules and regulations and the rules of any securities exchange or automated quotation system on which the Shares are listed, quoted or traded. The Committee may place legends on any certificate or book entry evidencing Shares to reference restrictions applicable to the Shares.

(c) The Committee shall have the right to require any Participant to comply with any timing or other restrictions with respect to the settlement, distribution or exercise of any Option, including a window-period limitation, as may be imposed in the sole discretion of the Committee.

(d) Notwithstanding any other provision of the Plan, unless otherwise determined by the Committee or required by any applicable law, rule or regulation, the Company may, in lieu of delivering to any Participant certificates evidencing Shares issued in connection with any Option, record the issuance of Shares in the books of the Company (or, as applicable, its transfer agent or stock plan administrator).

7.15 Equal Rights and Privileges . Except with respect to sub-plans designed to be outside the scope of Section 423 of the Code, all Eligible Employees of the Company (or of any Designated Subsidiary) shall have equal rights and privileges under this Plan to the extent required under Section 423 of the Code or the regulations promulgated thereunder so that this Plan qualifies as an “employee stock purchase plan” within the meaning of Section 423 of the Code or the Treasury Regulations thereunder. Any provision of this Plan that is inconsistent with Section 423 of the Code or the Treasury Regulations thereunder shall, without further act or amendment by the Company or the Board, be reformed to comply with the equal rights and privileges requirement of Section 423 of the Code or the Treasury Regulations thereunder.

* * * * * *

 

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Exhibit 10.11

S EA S PINE H OLDINGS C ORPORATION

N ON -E MPLOYEE D IRECTOR C OMPENSATION P ROGRAM

This SeaSpine Holdings Corporation (the “ Company ”) Non-Employee Director Compensation Program (this “ Program ”) for non-employee directors (the “ Directors ”) of the board of directors of the Company (the “ Board ”) shall be effective upon the effectiveness of the distribution by Integra LifeSciences Holdings Corporation (“ Integra ”) to its stockholders of all of the outstanding shares of the Company’s common stock (the “ Effective Date ”). Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the SeaSpine Holdings Corporation 2015 Incentive Award Plan, as may be amended (the “ Plan ”).

Cash Compensation

Effective upon the Effective Date, Directors will become entitled to receive annual retainers in the following amounts, pro-rated for any partial year of service:

 

Chairman Annual Retainer:

$ 75,000   

Non-Chairman Director Annual Retainer:

$ 50,000   

Chair of Audit Committee Additional Annual Retainer:

$ 15,000   

Chair of Compensation Committee Additional Annual Retainer:

$ 15,000   

Chair of Nominating and Corporate Governance Committee Additional Annual Retainer:

$ 15,000   

Lead Director Additional Annual Retainer:

$ 25,000   

All cash annual retainers will be paid in cash quarterly in arrears promptly following the end of the applicable calendar quarter, but in no event more than thirty (30) days after the end of such quarter.

Directors may be permitted to elect to receive an Option in lieu of the Director’s aggregate annual retainer for (i) with respect to the fiscal year in which the Effective Date occurs, the remainder of such fiscal year or (ii) with respect to any subsequent fiscal year, such entire fiscal year. Such election must be made (A) with respect to the fiscal year in which the Effective Date occurs, prior to the Effective Date and (B) with respect to any subsequent fiscal year, prior to the earlier to occur of (x) the date of the annual shareholder meeting of the Company (each, an “ Annual Meeting ”) that occurs in such subsequent fiscal year or (y) the last day of the first calendar quarter of such fiscal year.

In the event a Director timely elects to receive an Option in lieu of such Director’s aggregate cash annual retainer, the Option shall be granted under the Plan or any other applicable Company equity incentive plan then-maintained by the Company on (i) with respect to the fiscal year in which the Effective Date occurs, the first day of the full calendar month that begins after the 30th day following the Effective Date (the “ Initial Grant Date ”) and (ii) with respect to any subsequent fiscal year, the date of the Annual Meeting that occurs in such fiscal year.

Any Option granted in lieu of a Director’s aggregate annual cash retainer will cover a number of Shares in an amount equal to the Director’s aggregate annual cash retainer with respect to the applicable fiscal year, divided by the per share grant date fair value of the Option on the applicable grant date.

For the avoidance of doubt, no Director will receive any annual retainer (or portion thereof, whether in the form of cash or as an Option) with respect to services provided to the Company or Integra prior to the Effective Date.


Equity Compensation

 

Post-Distribution Stock Option Grants: Each Director who is serving on the Board as of the Effective Date is hereby granted on the Initial Grant Date an Option to purchase a number of Shares under the Plan in an amount equal to $200,000 or, with respect to the Lead Independent Director and the Chairman, $400,000 and $500,000, respectively, divided by the per share grant date fair value of such Option on the Initial Grant Date.
In addition, each Director who is serving on the Board as of the Effective Date is hereby granted on the Initial Grant Date an Option to purchase a number of Shares under the Plan in an amount equal to $100,000 or, with respect to the Chairman, $150,000, divided by the per share grant date fair value of such Option on the Initial Grant Date, subject to the Director’s continued service through the Initial Grant Date.
Initial Stock Option Grant: Each Director who is initially elected or appointed to serve on the Board after the Effective Date shall be granted an Option to purchase a number of Shares under the Plan, or any other applicable Company equity incentive plan then-maintained by the Company, in an amount equal to $100,000 or, with respect to the Chairman, $150,000, divided by the per share grant date fair value of such Option on the later of the Director’s Election Date (as defined below) and the Initial Grant Date (the “ Initial Option ”), subject to the Director’s continued service through the Initial Grant Date (if applicable). The Initial Option may be pro-rated to reflect any partial year of service, as determined by the Board in its sole discretion.
An Initial Option is hereby granted on the later of the date on which such Director is initially elected or appointed to serve on the Board (the “ Election Date ”) and the Initial Grant Date.
Annual Stock Option Grant: Each Director serving on the Board as of the date of each Annual Meeting shall be granted an Option to purchase a number of Shares under the Plan or any other applicable Company equity incentive plan then-maintained by the Company in an amount equal to $100,000 or, with respect to the Chairman, $150,000, divided by the per share grant date fair value of such Option on the date of the applicable Annual Meeting (the “ Annual Option ”).
An Annual Option is hereby granted on the date of the applicable Annual Meeting.


Miscellaneous

Each Option granted under this Program shall be a Non-Qualified Stock Option, shall have an exercise price per Share equal to the Fair Market Value of a Share on the applicable grant date and shall have a term of ten years from the applicable grant date; provided, however, that if a Director experiences a Termination of Service for Cause, each Option granted to the Director under this Program may not be exercised after the start of business on the Director’s termination date.

With respect to each Option granted under this Program, the per share grant date fair value of such Option shall be computed in accordance with FASB Accounting Standards Codification Topic 18, Compensation — Stock Compensation , or any successor accounting standard.

Each Option granted under this Program shall vest with respect to 25% of the Shares subject to the Option on each quarterly anniversary of the applicable grant date, subject to continued service, and shall fully vest and become exercisable immediately prior to a Change in Control, subject to continued service until immediately prior to such Change in Control. In addition, (i) if a Director stands for reelection but is not reelected to the Board, any outstanding Annual Option(s) then-held by such Director shall fully vest and become exercisable on the date on which such Director is not reelected and (ii) if a Director experiences a Termination of Service due to such Director’s death or disability, any outstanding Option(s) granted under this Program that are then-held by such Director shall fully vest and become exercisable upon such termination.

All applicable terms of the Plan apply to this Program as if fully set forth herein, and all grants of Options are hereby subject in all respect to the terms of the Plan. The grant of any Option under this Program shall be made solely by and subject to the terms set forth in a written Award Agreement in a form approved by the Board and duly executed by an executive officer of the Company.

Effectiveness, Amendment, Modification and Termination

This Program shall become effective upon the Effective Date. This Program may be amended, modified or terminated by the Board in the future at its sole discretion. No Director shall have any rights hereunder, except with respect to any Options actually granted pursuant to the Program.

Exhibit 10.12

EXECUTION DRAFT

EMPLOYMENT AGREEMENT

This Employment Agreement (this “ Agreement ”), by and between SeaSpine Holdings Corporation a Delaware corporation (“ Holdings ”), SeaSpine Orthopedics Corporation, a Delaware corporation (“ SeaSpine ” and, together with Holdings, the “ Company ”) and Keith Valentine (“ Executive ”), is entered into and shall be effective as of April 28, 2015 (the “ Execution Date ”).

Background

WHEREAS, SeaSpine and Holdings each desire to employ Executive as its sole Chief Executive Officer, respectively, and to enter into an agreement embodying the terms of such employment, effective as of May 1, 2015 (the “ Effective Date ”); and

WHEREAS, Executive desires to accept such employment with the Company, subject to the terms and conditions of this Agreement.

NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein and intended to be legally bound hereby, the parties hereto agree as follows:

Terms

1. Definitions. The following words and phrases shall have the meanings set forth below for the purposes of this Agreement (unless the context clearly indicates otherwise):

 

  (a) Base Salary ” shall have the meaning set forth in Section 5.

 

  (b) Board ” shall mean the Board of Directors of Holdings, or any successor thereto.

 

  (c) Cause ,” as determined by the Board in good faith, shall mean Executive has –

 

  (i) willfully failed to substantially perform his duties with the Company (other than any such failure resulting from Executive’s incapacity due to physical or mental illness or any such actual or anticipated failure after his issuance of a Termination Notice for Good Reason; and for avoidance of doubt the failure by Executive or the Company to achieve specified performance results shall not constitute Cause under this Section 1(c));

 

  (ii) intentionally and materially breached any provision of this Agreement and not cured such breach within 15 days of his receipt of written notice of the breach, provided such breach is materially and demonstrably injurious to the Company;

 

  (iii) committed an act of material dishonesty resulting in reputational, economic or financial injury to the Company;

 

  (iv) engaged in a breach of fiduciary duty in connection with his employment with the Company;

 

  (v) engaged in willful misconduct that is materially and demonstrably injurious to the Company or any of its subsidiaries; or

 

  (vi) been convicted or entered a plea of guilty or nolo contendere to a felony or to any other crime involving moral turpitude which conviction or plea is materially and demonstrably injurious to the Company or any of its subsidiaries.

 

( Signature Page to Keith Valentine Employment Agreement )


The foregoing shall be an exclusive list of all acts or omissions that the Company may consider as grounds for the termination of Executive’s employment for Cause. With respect to clauses (i) through (v), the Board shall provide Executive with 30 days advance written notice detailing the basis for the termination of Executive’s employment for Cause. During such 30 day period, Executive shall have an opportunity to cure or remedy such alleged Cause events and to present his case to the full Board (with the assistance of his own counsel) before any termination for Cause is finalized. Executive shall continue to receive the compensation and benefits provided by this Agreement during the 30 day cure/remedy period.

 

  (d) Change in Control ” shall mean the occurrence of any of the following events either (x) with respect to Holdings, at any time or (y) with respect to SeaSpine, prior to (but not following) the Distribution:

 

  (i) a transaction or series of transactions (other than an offering of SeaSpine’s or Holdings’ common shares to the general public through a registration statement filed with the Securities and Exchange Commission) whereby any “person” or related “group” of “persons” (as such terms are used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”)) (other than SeaSpine or Holdings, any parent entity or any subsidiary entity, an employee benefit plan maintained by any of the foregoing entities or a “person” that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, SeaSpine or Holdings) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of SeaSpine or Holdings possessing more than fifty percent (50%) of the total combined voting power of SeaSpine’s or Holdings’ securities outstanding immediately after such acquisition;

 

  (ii) during any period of two (2) consecutive years, individuals who, at the beginning of such period, constitute the applicable Board of Directors together with any new director(s) (other than a director designated by a person who shall have entered into an agreement with SeaSpine or Holdings to effect a transaction described in Section 1(d)(i) or Section 1(d)(iv) hereof) whose election by the applicable Board of Directors or nomination for election by SeaSpine’s or Holdings’ stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the two (2)-year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof;

 

  (iii) approval by SeaSpine’s or Holdings’ stockholders of a liquidation or dissolution of SeaSpine or Holdings (as applicable);

 

  (iv) the consummation by SeaSpine or Holdings whether directly involving SeaSpine or Holdings or indirectly involving SeaSpine or Holdings through one or more intermediaries) of (A) a merger, consolidation, reorganization, or business combination, (B) a sale or other disposition of all or substantially all of SeaSpine’s or Holdings’ assets in any single transaction or series of related transactions or (C) the acquisition of assets or stock of another entity, in each case, other than a transaction:

 

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  (1) which results in SeaSpine’s or Holdings’ voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of SeaSpine or Holdings or the person that, as a result of the transaction, controls, directly or indirectly, SeaSpine or Holdings or owns, directly or indirectly, all or substantially all of SeaSpine’s or Holdings’ assets or otherwise succeeds to the business of SeaSpine or Holdings (SeaSpine or Holdings or such person, the “Successor Entity”)) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and

 

  (2) after which no person or group beneficially owns voting securities representing fifty percent (50%) or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this Section 1(d)(iv)(2) as beneficially owning fifty percent (50%) or more of the combined voting power of the Successor Entity solely as a result of the voting power held in SeaSpine or Holdings prior to the consummation of the transaction; or

 

  (v) with respect to Holdings only, a Change in Control (or similar term) as set forth in Holdings’ 2015 Incentive Award Plan, as may be amended, as such meaning is in effect on the date of the Distribution.

 

  (e) Code ” shall mean the Internal Revenue Code of 1986, as amended.

 

  (f) Disability ” shall mean Executive’s inability to perform his duties hereunder by reason of any medically determinable physical or mental impairment which is expected to result in death or which has lasted or is expected to last for a continuous period of not fewer than six months.

 

  (g) Distribution ” shall mean the effectiveness of the distribution by Integra LifeSciences Holdings Corporation (“ Integra ”) to its stockholders of all of the outstanding shares of Holdings’ common stock.

 

  (h) Good Reason ” shall mean the occurrence of any one or more of the following events, in any case, without Executive’s prior written consent, unless the Company fully corrects the circumstances constituting Good Reason (provided such circumstances are capable of correction) as provided below:

 

  (i) a material breach of this Agreement by the Company;

 

  (ii) the relocation by the Company of Executive’s office location to a location more than 45 miles from each Principal Executive Office;

 

  (iii) the Company materially reduces Executive’s Base Salary or Target Bonus or fails to timely pay Executive any compensation or benefits owed to Executive under this Agreement (including the Initial Stock Option);

 

  (iv) any action by the Company that results in a demotion or material diminution of Executive’s position, authority, duties or responsibilities (other than any insubstantial action not taken in bad faith and which is promptly remedied by the Company upon notice by Executive);

 

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  (v) Executive fails at any point to hold the titles, authorities and responsibilities set forth in Sections 2 and 4(a) hereof with the Company (or any successor or surviving corporation) and, for the avoidance of doubt, on and after the earlier of a Change in Control or the Distribution Executive must hold such title, authority and responsibilities for any ultimate parent entity of the Company; or

 

  (vi) the Distribution has not been consummated by the earlier of a Change in Control or December 31, 2015 (or Integra or its affiliate has publicly disclosed that the Distribution will not occur).

Notwithstanding the foregoing, Executive will not be deemed to have resigned for Good Reason unless (1) Executive provides the Company with written notice setting forth in reasonable detail the facts and circumstances claimed by Executive to constitute Good Reason within 60 days after the date of the occurrence of any event that Executive knows or should reasonably have known to constitute Good Reason, (2) the Company fails to cure such acts or omissions within 30 days following its receipt of such notice, and (3) the effective date of Executive’s termination for Good Reason occurs no later than 30 days after the expiration of the Company’s cure period. Provided the Good Reason event has first occurred during the Employment Period, then Executive shall still be eligible to resign for Good Reason for purposes of this Agreement even if the Employment Period has otherwise expired.

 

  (i) Principal Executive Office ” shall mean the Company’s principal office for executives, presently located in Irvine, California and Vista, California.

 

  (j) Termination Date ” shall mean the date of Executive’s “separation from service” from the Company (within the meaning of Section 409A(a)(2)(A)(i) of the Code and Treasury Regulation Section 1.409A-1(h)), as specified in the Termination Notice.

 

  (k) Termination Notice ” shall mean a dated notice which: (i) indicates the specific termination provision in this Agreement relied upon (if any); (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for the termination of Executive’s employment under such provision; (iii) specifies a Termination Date; and (iv) is given in the manner specified in Section 16(k) hereof.

2. Employment. Effective as of the Effective Date, Executive shall serve as Chief Executive Officer of Holdings and SeaSpine, and Executive hereby agrees to accept such employment and agrees to render services to the Company in such capacity (or in such other capacity in the future as the Board may reasonably deem equivalent to such position) on the terms and conditions set forth in this Agreement. Executive’s primary place of employment shall be at either Principal Executive Office and Executive shall report to the Board. During the Employment Period (as defined below), Holdings shall cause Executive to be nominated to stand for election to serve on the Board at any meeting of stockholders of Holdings during which any such election is held and Executive’s term as a director will expire if he is not reelected; provided, however, that Holdings shall not be obligated to cause such nomination if any of the events constituting Cause have occurred and not been cured. As of the Distribution and during the remainder of the Employment Period thereafter, Executive shall serve on the Board of Directors of SeaSpine.

 

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3. Term of Agreement. Unless earlier terminated by Executive or the Company as provided in Section 12 hereof, the term of Executive’s employment as the Chief Executive Officer of the Company under this Agreement (the “ Employment Period ”) shall commence on the Effective Date and terminate on the close of business on the fourth anniversary of the Effective Date.

4. Duties. Executive shall:

 

  (a) have duties, authority and responsibilities reasonably consistent with his employment hereunder as the Company’s most senior executive officer and shall faithfully and diligently do and perform all such acts and duties, and furnish such services as are assigned to Executive as of the Effective Date, and (subject to Section 2 hereof) such additional acts, duties and services as the Board may assign in the future; and

 

  (b) devote his full professional time, energy, skill and best efforts to the performance of his duties hereunder, in a manner that will faithfully and diligently further the business and interests of the Company, and shall not be employed by or participate or engage in or in any manner be a part of the management or operations of any business enterprise other than the Company without the prior consent of the Board, which consent may be granted or withheld in its sole discretion; provided , however , that notwithstanding the foregoing, Executive may serve on civic or charitable boards or committees so long as such service does not materially interfere with Executive’s obligations pursuant to this Agreement.

5. Annual Compensation. Executive’s base salary rate shall be equal to $500,000 per annum. Executive’s base salary, as determined in accordance with this Section 5 and as may be increased from time to time, is hereinafter referred to as his “ Base Salary .” Executive’s Base Salary shall be payable in periodic installments in accordance with the Company’s regular payroll practices in effect from time to time. Commencing with Executive’s Base Salary for 2016, the Base Salary shall be subject to annual review. The Base Salary may not be decreased without Executive’s express prior written consent. Any increase in the Base Salary shall be in the sole discretion of the Compensation Committee of the Board (the “ Compensation Committee ”).

6. Annual Bonus Opportunity. Executive shall have the opportunity each year to receive an annual performance cash bonus in an amount targeted at least at 85% of Executive’s Base Salary (the “ Target Bonus ”), and ranging from 50% of Executive’s Base Salary (if threshold performance objectives are achieved) to a maximum of 125% of Executive’s Base Salary. The actual amount of any such annual bonus that the Company determines to pay to Executive (the “ Annual Bonus ”) shall be based upon the satisfaction of performance objectives established and evaluated by the Compensation Committee in its sole discretion after considering input from Executive. The Annual Bonus with respect to 2015, if any, shall be pro-rated to reflect Executive’s partial year of service from the Effective Date. The Annual Bonus, if any, will be paid in cash by March 15 of the year after the applicable performance year. Subject to Section 12(c)(i) hereof, Executive shall be eligible to receive the Annual Bonus for a performance year if he is employed by the Company as of the last day of such performance year.

7. Benefit Plans. Executive shall be eligible to participate in and receive benefits under any employee benefit plan or stock-based plan of the Company or other plan or program of the Company offered to senior executives in accordance with their terms, and shall be eligible for any other plans and benefits covering executives of the Company, to the extent commensurate with his then duties and responsibilities fixed by the Board. Executive shall be entitled to indemnification by the Company in connection with his services. As soon as the Company maintains a directors and officers errors and omissions liability insurance policy for any person (“ D&O Policy ”), then thereafter through the sixth anniversary after termination of his services for any reason, Executive shall be covered as a beneficiary of such D&O Policy(ies) on no less favorable terms than what is provided to any other person.

 

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8. Equity Compensation.

 

  (a) Holdings shall grant Executive a nonqualified stock option under the Holdings 2015 Incentive Award Plan (the “ Initial Stock Option ”) to purchase 325,000 shares of Holdings’ common stock. The Initial Stock Option shall be granted on the first business day of the month subsequent to the 30th day following the date of the Distribution (such date, the “ Grant Date ”), subject to Executive’s continued service through the Grant Date. The per share exercise price of the Initial Stock Option shall be equal to the fair market value of a share of Holdings’ common stock on the Grant Date. Subject to Executive’s continued service with the Company, and further subject to Sections 12(b)—(d) hereof, the Initial Stock Option shall vest and become exercisable (i) with respect to 25% of the shares subject thereto on the first anniversary of the Effective Date (the “ First Anniversary ”) and (ii) with respect to 75% of the shares subject thereto in equal quarterly installments over the three year period following the First Anniversary with the first such installment vesting on the date that is three months after the First Anniversary and the twelfth and final installment vesting on the fourth anniversary of the Effective Date. The Initial Stock Option shall have a maximum term of eight years, subject to earlier termination in connection with Executive’s termination of service, and (subject to such maximum term) the vested portion of the Initial Stock Option shall remain exercisable for 12 months after the termination of Executive’s service for any reason other than a termination for Cause. The Initial Stock Option shall, among other ways, be exercisable by Executive pursuant to a same day exercise and sale of shares (a “ Cashless Exercise ”) and Executive may also in his discretion utilize Cashless Exercise to pay for applicable tax withholding arising upon exercise, subject to Holdings’ insider trading policy. The shares underlying the Initial Stock Option shall be covered by an effective registration statement (on Form S-8 or other form) filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended. If there is a Change in Control and the Initial Stock Option is not continued, converted, assumed or replaced by the surviving or successor entity in such Change in Control, then the unvested portion of the Initial Stock Option shall fully vest and become exercisable on an accelerated basis as of immediately before such Change in Control, subject to Executive’s continued service until at least immediately prior to such Change in Control. The provisions of the Initial Stock Option agreement shall replicate or incorporate all of the foregoing terms in this Section 8(a).

 

  (b) The parties hereby acknowledge and agree that Holdings may in its discretion grant Executive equity-based compensation awards from time to time in order to facilitate Executive receiving competitive equity compensation. Executive shall be eligible to receive a discretionary annual equity-based award (“ Annual Equity Award ”) as determined by the Compensation Committee in its discretion. Any Annual Equity Award that Holdings determines to grant Executive may be in such amount, form(s) and mix as the Compensation Committee shall determine in its sole discretion after giving consideration to annual equity-based awards granted to Chief Executive Officers in the Company’s peer group. It is currently anticipated that Annual Equity Awards will be made in the form of stock options with a target Black-Scholes or binomial value of $750,000 (for avoidance of doubt this figure does not represent either a minimum or maximum amount and the Compensation Committee shall have the discretion to award a different value) and will vest over a four-year period from the applicable grant date. Subject to Holdings’ insider trading policy, Executive may in his discretion elect to establish a trading plan for Holdings’ shares in accordance with Rule 10b5-1 of the Exchange Act.

 

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9. Vacation. Executive shall be entitled paid annual vacation in accordance with the policies established from time to time by the Board.

10. Business Expenses. The Company shall reimburse Executive or otherwise pay for all reasonable expenses incurred by Executive in furtherance of or in connection with the business of the Company, including, but not limited to, automobile and traveling expenses and all reasonable entertainment expenses, subject to such reasonable documentation and other limitations as may be established by the Company.

11. Disability. In the event Executive incurs a Disability, Executive’s obligation to perform services under this Agreement will terminate, and the Board may terminate this Agreement upon written notice to Executive.

12. Termination.

 

  (a) Termination for any Reason. If Executive’s employment with the Company terminates for any reason, the Company shall pay or provide to Executive: (i) Executive’s earned but unpaid Base Salary through the date of termination, (ii) Executive’s accrued but unpaid vacation time through the date of termination, (iii) reimbursement of any business expenses incurred by Executive on or prior to the date of termination that are reimbursable under this Agreement, and (iv) any vested amounts due to Executive under any plan, program or policy of the Company including without limitation any unpaid Annual Bonus for a prior completed year (together, the “ Accrued Obligations ”). The Accrued Obligations described in clauses (i) – (iii) of the preceding sentence shall be paid within thirty (30) days after the date of termination (or such earlier date as may be required by applicable law) and the Accrued Obligations described in clause (iv) of the preceding sentence shall be paid in accordance with the terms of the governing plan or program.

 

  (b) Certain Terminations; Death, Disability. In the event that Executive’s employment terminates for any reason other than as set forth in Section 12(c) or 12(d) below, then Executive shall have the right to receive the Accrued Obligations but, except as provided in the immediately following sentence, otherwise shall have no right to compensation or other benefits pursuant to this Agreement for any period after his last day of active employment except as set forth herein or in the applicable governing plan or agreement. In the event that Executive’s employment terminates due to his death or Disability, then immediately prior to such termination, 100% of the shares subject to the Initial Stock Option shall vest and become exercisable in full (to the extent then-unvested), subject to Executive (or Executive’s estate or beneficiaries, if applicable) timely executing and not revoking a general release attached as Exhibit A hereto. If Executive fails to timely execute or revokes the Release, any unvested shares subject to the Initial Stock Option shall be forfeited upon such failure or revocation.

 

  (c) Termination without Cause or for Good Reason (No Change in Control). In addition to the Accrued Obligations, and except as provided in Section 12(d) in the event of a Change in Control, and subject to Executive timely executing and not revoking a general release attached as Exhibit A hereto, in the event that Executive’s employment is terminated by the Company for a reason other than death, Disability or Cause or Executive terminates his employment for Good Reason (collectively, a “ Qualified Termination ”), then, subject to Section 12(f) below, the Company shall:

 

  (i)

pay Executive a severance amount (the “ Severance ”) equal to 2.99 (2.00 in the case of a termination occurring solely under Section 1(h)(vi)) times Executive’s Base

 

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  Salary (determined without regard to any reduction in violation of Section 5 hereof) as of his last day of active employment, payable in a single lump sum on the 60th day following the Termination Date, and Executive shall be eligible to receive a pro-rated Annual Bonus (based on the number of days Executive was employed during the year in which the Termination Date occurred) for the year in which the Termination Date occurs with payment of such pro-rated Annual Bonus occurring at the same time specified in Section 6 hereof;

 

  (ii) pay to Executive, for the period ending on the earliest of (A) 18 months following the Termination Date, (B) the date of Executive’s full-time employment by another employer, (C) Executive’s death, or (D) the first month in which Executive does not pay to the Company the applicable monthly premium for COBRA insurance coverage under the Company’s group health plan, a monthly cash payment, payable on the first business day of each month that follows the Termination Date, in an amount equal to Executive’s monthly premium cost for “COBRA” family health coverage under the Company’s group health plan; provided , that (x) if any plan pursuant to which such benefits are provided is not, or ceases prior to the expiration of the period of continuation coverage to be, exempt from the application of Section 409A of the Code under Treasury Regulation Section 1.409A-1(a)(5), or (y) the Company is otherwise unable to continue to cover Executive under its group health plans without penalty under applicable law (including without limitation, Section 2716 of the Public Health Service Act or the Patient Protection and Affordable Care Act), then, in either case, an amount equal to each remaining Company payment shall thereafter be paid to Executive in substantially equal monthly installments over the continuation coverage period (or the remaining portion thereof); and

 

  (iii) any Company equity awards that are outstanding immediately prior to such termination and that vest solely based on the passage of time (each such award, an “ Unvested Award ”), shall vest and become exercisable (as applicable) immediately prior to such termination; provided , however , that if Executive fails to timely execute or revokes the Release, all such Unvested Awards (and any shares received in respect of all such Unvested Awards) shall be forfeited upon such failure or revocation.

 

  (d) Qualified Termination (Change in Control). In addition to the Accrued Obligations, notwithstanding anything to the contrary set forth in Section 12(c), and subject to Executive timely executing and not revoking a general release attached as Exhibit A hereto, in the event that within 12 months following a Change in Control Executive experiences a Qualified Termination, then, subject to Section 12(f) below, the Company shall pay or provide to Executive the payments and benefits set forth in Section 12(c) hereof, provided , however , the Severance payable pursuant to Section 12(c)(i) hereof shall equal 2.99 times the sum of Executive’s Base Salary and Target Bonus (determined in each case without regard to any reduction in violation of Section 5 or 6 hereof), rather than 2.99 times Executive’s Base Salary.

 

  (e) Termination Notice. Except in the event of Executive’s death, a termination under this Agreement shall be effected by means of a Termination Notice.

 

  (f)

Payment Delay. Notwithstanding any provision to the contrary herein, no compensation or benefits, including without limitation any severance payments or benefits payable under this Section 12, shall be paid to Executive during the six-month period following Executive’s “separation from service” (within the meaning of Section 409A(a)(2)(A)(i) of the Code) to the extent that the Company determines that paying such amounts at the time or times indicated in

 

8


  this Agreement would be a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code. Any amounts delayed as a result of the previous sentence shall be paid to Executive in a lump sum on the first business day of the seventh month after Executive’s Termination Date and any amounts payable to Executive after the expiration of such six-month period under this Agreement shall continue to be paid to Executive in accordance with the terms of this Agreement. If Executive dies during such six-month period and prior to the payment of the delayed amounts hereunder, such unpaid delayed payments shall be paid to the personal representative of Executive’s estate within 30 days after the date of Executive’s death. If any of the payments payable pursuant to this Section 12 are delayed due to such requirements, there shall be added to such payments interest during the delayed period at a rate, per annum, equal to the applicable federal short-term deferral rate (compounded monthly) in effect under Section 1274(d) of the Code on Executive’s Termination Date.

 

  (g) Expiration of Employment Term. Notwithstanding anything contained herein, in no event shall the expiration of the employment term set forth in Section 3 above or the Company’s election not to renew the employment term, this Agreement or Executive’s employment constitute a termination of Executive’s employment by the Company without Cause.

13. Limitation on Payments.

 

  (a) Notwithstanding any other provision of this Agreement, in the event that any payment or benefit received or to be received by Executive (including any payment or benefit received in connection with a termination of Executive’s employment, whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement) (all such payments and benefits, including the payments and benefits under Section 12 hereof, being hereinafter referred to as the “ Total Payments ”) would be subject (in whole or part) to the excise tax imposed under Section 4999 of the Code (the “ Excise Tax ”), then, after taking into account any reduction in the Total Payments provided by reason of Section 280G of the Code in such other plan, arrangement or agreement, the Total Payments shall be reduced to the extent necessary so that no portion of the Total Payments is subject to the Excise Tax, but such reduction shall be made only if (i) the net amount of such Total Payments as so reduced (and after subtracting the net amount of federal, state and local income taxes on such reduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such reduced Total Payments), is greater than or equal to (ii) the net amount of such Total Payments without such reduction (but after subtracting the net amount of federal, state and local income taxes on such Total Payments and the amount of Excise Tax to which Executive would be subject in respect of such unreduced Total Payments and after taking into account the phase out of itemized deductions and personal exemptions attributable to such unreduced Total Payments).

 

  (b) In the event that a reduction of Total Payments is being made in accordance with this Section 13, the reduction will occur, with respect to the Total Payments considered parachute payments within the meaning of Section 280G of the Code, in the order provided by the below clauses (A) through (B) and with the objective of maximizing the after-tax value of the Total Payments that are retained by Executive. For purposes of this Section 13, the “Value” (measured as of the Change in Control) (or portion thereof) that is (ii) a cash payment is its after-tax present value and (ii) an equity award is the after-tax present value of the difference between the aggregate fair market value of the shares (or other equity interests) underlying such equity award minus the equity award’s aggregate exercise or purchase price (if any). For purposes of this Section 13, the “280G Value” of a cash payment or of an equity award is its parachute payment present value as determined under Section 280G of the Code. For purposes of this Section 13, with respect to any cash payment or equity award, the difference between its Value minus its 280G Value is the “Difference”.

 

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  (A) reduction of cash payments and equity awards in order based on the relative magnitude of their Differences (that is, cash payments and equity awards with a higher negative Differences shall be reduced first, followed by those cash payments and equity awards with lower positive Differences such that those cash payments and equity awards with the highest positive Differences shall be reduced (if at all) last); and

 

  (B) reduction of employee benefits in reverse chronological order (that is, the benefit owed on the latest date following the occurrence of the event triggering the excise tax will be the first benefit to be reduced).

 

       If two or more separate Total Payments amounts have the exact same Difference, then (x) equity awards shall be reduced before cash payments with the same Difference and (y) Total Payments of the same type that have a later in time award date shall be reduced first before other Total Payments with the same Difference. The foregoing reduction process shall be effected in a manner that does not violate Section 409A of the Code.

 

  (c) For purposes of determining whether and the extent to which the Total Payments will be subject to the Excise Tax, (i) no portion of the Total Payments the receipt or enjoyment of which Executive shall have waived at such time and in such manner as not to constitute a “payment” within the meaning of Section 280G(b) of the Code shall be taken into account; (ii) no portion of the Total Payments shall be taken into account which, in the written opinion of independent auditors of nationally recognized standing (“ Independent Advisors ”) selected by the Company, does not constitute a “parachute payment” within the meaning of Section 280G(b)(2) of the Code (including by reason of Section 280G(b)(4)(A) of the Code) and, in calculating the Excise Tax, no portion of such Total Payments shall be taken into account which, in the opinion of the Independent Advisors, constitutes reasonable compensation for services actually rendered, within the meaning of Section 280G(b)(4)(B) of the Code, in excess of the Base Amount (as defined in Section 280G(b)(3) of the Code) allocable to such reasonable compensation; and (iii) the value of any non-cash benefit or any deferred payment or benefit included in the Total Payments shall be determined by the Independent Advisors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code.

 

  (d) Unless the Executive in his sole discretion otherwise agrees in writing, the Independent Advisors may not be the same firm that is serving as accountant or auditor or valuation firm for the individual, entity or group which will control the Company upon the occurrence of a Change in Control. As expressly permitted by Q/A #32 of the final regulations of Section 280G of the Code, with respect to performing any present value calculations that are required in connection with this Section 13, the parties affirmatively elect to utilize the Applicable Federal Rates that are in effect as of the Execution Date as provided by Rev. Rul. 2015-7 (the “ April 2015 AFRs ”) and the Independent Advisors shall therefore use such April 2015 AFRs in its determinations and calculations. The Company will bear all costs (including without limitation making all payments for the Independent Advisors’ services) relating to any calculations contemplated by this Section 13.

14. Assignability. The Company may assign this Agreement and its rights and obligations hereunder in whole, but not in part, to any entity to which the Company may transfer all or substantially all of its

 

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assets, if in any such case said entity shall expressly in writing assume all obligations of the Company hereunder as fully as if it had been originally made a party hereto. The Company may not otherwise assign this Agreement or its rights and obligations hereunder. This Agreement is personal to Executive and his rights and duties hereunder shall not be assigned except as expressly agreed to in writing by the Company.

15. Restrictive Covenants.

 

  (a) Confidentiality. Executive acknowledges a duty of confidentiality owed to the Company and shall not, at any time during or after his employment by the Company, retain in writing, use, divulge, furnish, or make accessible to anyone, without the express authorization of the Board, any trade secret, private or confidential information or knowledge of the Company obtained or acquired by him while so employed, except as required by law. All computer software, business cards, telephone lists, customer lists, price lists, contract forms, catalogs, Company books, records, files and know-how acquired while an employee of the Company are acknowledged to be the property of the Company and shall not be duplicated, removed from the Company’s possession or premises or made use of other than in pursuit of the Company’s business or as may otherwise be required by law or any legal process, or as is necessary in connection with any adversarial proceeding against the Company and, upon termination of employment for any reason, Executive shall deliver to the Company, without further demand, all copies thereof which are then in his possession or under his control. No information shall be treated as “confidential information” if it is generally available public knowledge at the time of disclosure or use by Executive.

 

  (b) Inventions and Improvements. Executive shall promptly communicate to the Company all ideas, discoveries and inventions which are or may be useful to the Company or its business. Executive acknowledges that all such ideas, discoveries, inventions, and improvements which heretofore have been or are hereafter made, conceived, or reduced to practice by him at any time during his employment with the Company heretofore or hereafter gained by him at any time during his employment with the Company are the property of the Company, and Executive hereby irrevocably assigns all such ideas, discoveries, inventions, and improvements to the Company for its sole use and benefit, without additional compensation. The provisions of this Section 15(b) shall apply whether such ideas, discoveries, inventions, or improvements were or are conceived, made or gained by him alone or with others, whether during or after usual working hours, whether on or off the job, whether applicable to matters directly or indirectly related to the Company’s business interests (including potential business interests), and whether or not within the specific realm of his duties. Executive shall, upon request of the Company, but at no expense to Executive, at any time during or after his employment with the Company, sign all instruments and documents reasonably requested by the Company and otherwise cooperate with the Company to protect its right to such ideas, discoveries, inventions, or improvements including applying for, obtaining, and enforcing patents and copyrights thereon in such countries as Company shall determine.

 

  (c)

Noncompetition. While employed by the Company, Executive shall not, without the express written consent of the Company, directly or indirectly: (i) engage in any business or other activity conducted or operated in the United States, Canada and internationally which is competitive with the Company in the products or services being published, manufactured, marketed, distributed, or being actively developed by the Company as evidenced by the Company’s books and records (the “ Business ”); (ii) be or become a stockholder, partner, owner, officer, director or employee or agent of, or a consultant to or give financial or other assistance to, any person or entity engaged in the Business; (iii) seek in competition with the business of the

 

11


  Company to procure orders from or do business with any customer of the Company; (iv) solicit, or contact with a view to the engagement or employment by any person or entity of, any person who is an employee of the Company; (v) seek to contract with or engage (in such a way as to adversely affect or interfere with the business of the Company) any person or entity who has been contracted with or engaged to manufacture, assemble, supply or deliver products, goods, materials or services to the Company; or (vi) engage in or participate in any effort or act to induce any of the customers of the Company to take any action which might be disadvantageous to the Company.

 

  (d) Non-Solicitation . While employed by the Company and for a period of 18 months after the Termination Date, Executive shall not directly or indirectly solicit, induce, or encourage any employee or consultant of any member of the Company and its subsidiaries and affiliates to terminate their employment or other relationship with the Company and its subsidiaries and affiliates or to cease to render services to any member of the Company and its subsidiaries and affiliates and Executive shall not initiate discussion with any such person for any such purpose or authorize or knowingly cooperate with the taking of any such actions by any other individual or entity. During his employment with the Company and thereafter, Executive shall not use any trade secret of the Company or its subsidiaries or affiliates to solicit, induce, or encourage any customer, client, vendor, or other party doing business with any member of the Company and its subsidiaries and affiliates to terminate its relationship therewith or transfer its business from any member of the Company and its subsidiaries and affiliates and Executive shall not initiate discussion with any such person for any such purpose or authorize or knowingly cooperate with the taking of any such actions by any other individual or entity.

 

  (e) Injunctive and Other Relief .

 

  (i) Executive acknowledges and agrees that the covenants contained herein are fair and reasonable in light of the consideration paid hereunder, and that damages alone shall not be an adequate remedy for any breach by Executive of his covenants contained herein and accordingly expressly agrees that, in addition to any other remedies which Company may have, Company shall be entitled to injunctive relief in any court of competent jurisdiction for any breach or threatened breach of any such covenants by Executive. Nothing contained herein shall prevent or delay Company from seeking, in any court of competent jurisdiction, specific performance or other equitable remedies in the event of any breach or intended breach by Executive of any of its obligations hereunder.

 

  (ii) Notwithstanding the equitable relief available to the Company, Executive, in the event of a breach of his covenants contained in Section 15 hereof, understands and agrees that the uncertainties and delay inherent in the legal process would result in a continuing breach for some period of time, and therefore, continuing injury to the Company until and unless Company can obtain such equitable relief. Therefore, in addition to such equitable relief, Company shall be entitled to monetary damages for any such period of breach until the termination of such breach, in an amount up to the amount of all monies received by Executive as a result of said breach. If Executive should use or reveal to any other person or entity any confidential information, such use or revelation would be considered a continuing violation on a daily basis for as long as such confidential information is made use of by Executive.

 

  (iii) If any provision of Section 15 hereof is determined to be invalid or unenforceable by reason of its duration or scope, such duration or scope, or both, shall be deemed to be reduced to a duration or scope to the extent necessary to render such provision valid and enforceable. In such event, Executive shall negotiate in good faith to provide Company with lawful and enforceable protection that is most nearly equivalent to that found to be invalid or unenforceable.

 

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  (f) Continuing Operation. Except as specifically provided in this Section 15, the termination of Executive’s employment or of this Agreement shall have no effect on the continuing operation of this Section 15.

 

  (g) Company. For purposes of this Section 15, the term “ Company ” shall mean Holdings and any corporation, partnership or other entity owned directly or indirectly, in whole or in part, by Holdings.

16. Miscellaneous.

 

  (a) Amendment. No provision of this Agreement may be amended unless such amendment is signed by Executive and such officer as may be specifically designated by the Board to sign on the Company’s behalf.

 

  (b) Section 409A.

 

  (i) This Agreement shall be interpreted and administered to avoid any additional taxes, penalties or interest under Section 409A of the Code. If any payment or benefit cannot be provided or made at the time specified herein without incurring taxes or interest under Section 409A of the Code, then such benefit or payment shall be provided in full at the earliest time thereafter when such taxes or interest will not be imposed. All payments of nonqualified deferred compensation subject to Section 409A of the Code to be made upon a termination of employment under this Agreement may only be made upon a “separation from service” as defined under Section 409A of the Code. For purposes of Section 409A of the Code, each payment made under this Agreement shall be treated as a separate payment. In no event may Executive, directly or indirectly, designate the calendar year of payment.

 

  (ii) To the extent that any payments or reimbursements provided to Executive under this Agreement are deemed to constitute compensation to which Treasury Regulation Section 1.409A-3(i)(1)(iv) would apply, such payments or reimbursements shall be made or provided in accordance with the requirements of Section 409A of the Code, including, where applicable, the requirement that (A) any reimbursement is for expenses incurred during Executive’s lifetime (or during a shorter period of time specified in this Agreement), (B) the amount of expenses eligible for reimbursement during a calendar year may not affect the expenses eligible for reimbursement in any other calendar year, (C) the reimbursement of an eligible expense will be made on or before the last day of the calendar year following the year in which the expense is incurred, and (D) the right to reimbursement is not subject to liquidation or exchange for another benefit. If expenses are incurred in connection with litigation, any reimbursements under this Agreement shall be paid not later than the end of the calendar year following the year in which the litigation is resolved.

 

  (iii) To the extent any nonqualified deferred compensation payment to Executive could be paid in one or more of Executive’s taxable years depending upon Executive completing certain employment-related actions, then any such payments will commence or occur in the later taxable year to the extent required by Section 409A of the Code.

 

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  (c) Nature of Obligations. Nothing contained herein shall create or require the Company to create a trust of any kind to fund any benefits which may be payable hereunder, and to the extent that Executive acquires a right to receive benefits from the Company hereunder, such right shall be no greater than the right of any unsecured general creditor of the Company.

 

  (d) Withholding. The Company shall have the right to withhold from all payments made pursuant to this Agreement any federal, state, or local taxes and such other amounts as may be required by law to be withheld from such payments.

 

  (e) Representations. Executive represents and warrants, as of the Execution Date, that his acceptance of employment with the Company has not breached, and the performance of his duties hereunder will not breach, any duty owed by him to any prior employer or other person. Executive further represents and warrants to the Company that, as of the Execution Date, (i) the performance of his obligations hereunder will not violate any agreement between him and any other person, firm, organization or other entity, (ii) he is not bound by the terms of any agreement with any previous employer or other party to refrain from competing, directly or indirectly, with the business of such previous employer or other party that would be violated by him entering into this Agreement and/or providing services to the Company pursuant to the terms of this Agreement, and (iii) Executive’s performance of his duties under this Agreement will not require him to, and he shall not, rely on in the performance of his duties or disclose to the Company or any other person or entity or induce the Company in any way to use or rely on any trade secret or other confidential or proprietary information or material belonging to any previous employer of Executive. Company represents and warrants that this Agreement has been duly approved and authorized by the Board and that the Company’s execution of and performance under this Agreement has not breached and will not breach any other agreement in existence and in effect as of the Execution Date.

 

  (f) Headings. The Section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation or this Agreement. In the event of a conflict between a heading and the content of a Section, the content of the Section shall control.

 

  (g) Recoupment. To the extent required by applicable law or any applicable securities exchange listing standards, any amounts paid or payable under this Agreement (including, without limitation, amounts paid prior to the effectiveness of such law or listing standards) shall be subject to forfeiture, repayment or recapture to the extent required by such applicable law or listing standard.

 

  (h) Gender and Number. Whenever used in this Agreement, a masculine pronoun is deemed to include the feminine and a neuter pronoun is deemed to include both the masculine and the feminine, unless the context clearly indicates otherwise. The singular form, whenever used herein, shall mean or include the plural form where applicable.

 

  (i) Severability. If any provision of this Agreement or the application thereof to any person or circumstance shall be invalid or unenforceable under any applicable law, such event shall not affect or render invalid or unenforceable any other provision of this Agreement and shall not affect the application of any provision to other persons or circumstances.

 

  (j) Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, permitted assigns, heirs, executors and administrators.

 

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  (k) Notice. For purposes of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given if hand-delivered, sent by documented overnight delivery service or by certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below:

To the Company:

SeaSpine Holdings Corporation

2302 La Mirada Drive

Vista, CA 92081

Attn:  Chief Financial Officer

To Executive:   at Executive’s most recent address on the records of the Company.

 

  (l) Effectiveness; Entire Agreement. This Agreement shall become effective as of the Execution Date. As of the Execution Date, this Agreement sets forth the entire understanding of the parties and supersedes all prior agreements, arrangements and communications, whether oral or written, pertaining to the subject matter hereof. In the event of any conflict in terms between this Agreement with any other agreement by and between Executive and Holdings and/or SeaSpine, or with any Holdings or SeaSpine plan or policy, the terms of this Agreement shall prevail and govern except to the extent such other agreement, plan or policy is signed by Executive, Holdings and/or SeaSpine (as applicable) and it expressly supersedes the terms of this Agreement.

 

  (m) Governing Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the United States where applicable and otherwise by the laws of the State of California.

 

  (n) No Mitigation or Offset. Executive does not need to seek other employment or take any other action to mitigate any amounts owed to Executive under this Agreement. None of the payments or benefits owed to Executive under this Agreement shall be subject to offset or holdback.

 

  (o) Liability. With respect to any obligations owed by the Company to Executive which arise before the Distribution, Integra shall be liable for and responsible to fulfill any portion of such obligations that the Company does not timely satisfy.

 

  (p) Legal Fees. The Company shall pay all legal fees and expenses incurred by Executive in connection with the negotiation, preparation and execution of this Agreement and the Initial Stock Option agreement, up to a maximum of $35,000. The Company shall pay (or shall cause to be paid) such legal fees and expenses within 30 days after the Company’s receipt of applicable invoices and such invoices shall be provided to the Company within (i) 45 days after the Execution Date and (ii) 45 days after execution of the Initial Stock Option agreement.

[ Signature page follows ]

 

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IN WITNESS WHEREOF , this Agreement has been executed as of the Execution Date.

 

SEASPINE ORTHOPEDICS CORPORATION
/s/ Peter J. Arduini

Peter J. Arduini,

 

President and Member of the Board of Directors

SEASPINE HOLDINGS CORPORATION
/s/ Peter J. Arduini

Peter J. Arduini,

 

President and Member of the Board of Directors

“EXECUTIVE”
/s/ Keith Valentine
Keith Valentine

ACKNOWLEDGED:

 

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

/s/ Peter J. Arduini

Peter J. Arduini,

 

President and Chief Executive Officer and Member of the Board of Directors

 

( Signature Page to Keith Valentine Employment Agreement )


Exhibit A

GENERAL RELEASE

In exchange for the severance consideration set forth in that certain Employment Agreement (the “ Employment Agreement ”), dated as of April 28, 2015 between SeaSpine Holdings Corporation, SeaSpine Orthopedics Corporation (collectively, the “ Company ”) and Keith Valentine (“ Executive ”), the receipt and adequacy of which is hereby acknowledged, Executive does hereby release and forever discharge the “ Releasees ” hereunder, consisting of the Company and each of its parents, subsidiaries, affiliates, successors, partners, associates, heirs, assigns, agents, directors, officers, employees, representatives, lawyers, insurers, and all persons acting by, through, under or in concert with them, or any of them, of and from any and all manner of action or actions, cause or causes of action, in law or in equity, suits, debts, liens, contracts, agreements, promises, liability, claims, demands, damages, losses, costs, attorneys’ fees or expenses, of any nature whatsoever, known or unknown, fixed or contingent (hereinafter called “ Claims ”), which Executive now has or may hereafter have against the Releasees, or any of them, by reasons of any matter, cause, or thing whatsoever from the beginning of time to the date hereof which arise from or are related to Executive’s employment or service (or termination thereof) with the Company. The Claims released herein include, without limiting the generality of the foregoing, any Claims in any way arising out of, based upon, or related to the employment or termination of employment of Executive by the Releasees, or any of them; any alleged breach of any express or implied contract of employment; any alleged torts or other alleged legal restrictions on Releasee’s right to terminate the employment of Executive; and any alleged violation of any federal, state or local statute or ordinance including, without limitation, Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans with Disabilities Act, the California Labor Code, the employment and civil rights laws of California and the California Fair Employment and Housing Act.

Notwithstanding the foregoing, this Release shall not operate to release any Claims which Executive may have (i) to payments or benefits under the Employment Agreement, (ii) to any vested and unpaid benefits under any employee benefit plan, including but not limited to any vested and undistributed deferred compensation, (iii) to vested equity compensation awards that remain unpaid or unsettled or to rights Executive has as a Company stockholder, (iv) under any director and officer insurance policy maintained by the Company, (v) under the Company’s charter, by-laws or governing documents, (vi) to indemnification from the Company including without limitation [under that certain Indemnification Agreement dated as of                      between the Company and Executive] 1 , (vii) to any claim or right under COBRA or under the Fair Labor Standards Act, (viii) to any claim or right for unemployment insurance or workers’ compensation benefits, (ix) to any claim or right that arises after Executive signs this Agreement, and (x) any claim that cannot be waived as a matter of law, including, without limitation, whistleblower claims under the Corporate and Criminal Fraud Accountability Act of 2002 (Sarbanes-Oxley), and the Securities and Exchange Commission Whistleblower Program (the “ Unreleased Claims ”).

THE UNDERSIGNED ACKNOWLEDGES THAT HE HAS BEEN ADVISED BY LEGAL COUNSEL AND IS FAMILIAR WITH THE PROVISIONS OF CALIFORNIA CIVIL CODE SECTION 1542, WHICH PROVIDES AS FOLLOWS:

“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.”

 

1  

Include as applicable.


THE UNDERSIGNED, BEING AWARE OF SAID CODE SECTION, HEREBY EXPRESSLY WAIVES ANY RIGHTS HE MAY HAVE THEREUNDER, AS WELL AS UNDER ANY OTHER STATUTES OR COMMON LAW PRINCIPLES OF SIMILAR EFFECT.

IN ACCORDANCE WITH THE OLDER WORKERS BENEFIT PROTECTION ACT OF 1990, THE UNDERSIGNED IS HEREBY ADVISED AS FOLLOWS:

 

  (A) TO CONSULT WITH AN ATTORNEY BEFORE SIGNING THIS RELEASE;

 

  (B) HE HAS TWENTY-ONE (21) DAYS TO CONSIDER THIS RELEASE BEFORE SIGNING IT, AND IF HE SIGNS THIS RELEASE BEFORE THE EXPIRATION OF THE TWENTY-ONE (21) DAY PERIOD, HE KNOWINGLY AND VOLUNTARILY WAIVES THE BALANCE OF THAT PERIOD; AND

 

  (C) HE HAS SEVEN (7) DAYS AFTER SIGNING THIS RELEASE TO REVOKE THIS RELEASE, AND THIS RELEASE WILL BECOME EFFECTIVE UPON THE EXPIRATION OF THAT REVOCATION PERIOD.

Executive represents and warrants that there has been no assignment or other transfer of any interest in any Claim (other than Unreleased Claims) which he may have against Releasees, or any of them, and Executive agrees to indemnify and hold Releasees, and each of them, harmless from any liability, Claims, demands, damages, costs, expenses and attorneys’ fees incurred by Releasees, or any of them, as the result of any such assignment or transfer or any rights or Claims under any such assignment or transfer. It is the intention of the parties that this indemnity does not require payment as a condition precedent to recovery by the Releasees against Executive under this indemnity.

Executive agrees that if he hereafter commences any suit arising out of, based upon, or relating to any of the Claims released hereunder or in any manner asserts against Releasees, or any of them, any of the Claims released hereunder, then Executive agrees to pay to Releasees, and each of them, in addition to any other damages caused to Releasees thereby, all reasonable attorneys’ fees incurred by Releasees in defending or otherwise responding to said suit or Claim. Notwithstanding the foregoing, Executive shall not be obligated to pay to Releasees any attorneys’ fees incurred by Releasees in defending or otherwise responding to said suit or Claim to the extent such claim challenges the release of claims under the Age Discrimination in Employment Act.

Executive further understands and agrees that neither the payment of any sum of money nor the execution of this Release shall constitute or be construed as an admission of any liability whatsoever by the Releasees, or any of them.

The provisions of this Release are severable, and if any part of this Release is found to be unenforceable, the other paragraphs (or portions thereof) shall remain fully valid and enforceable.

IN WITNESS WHEREOF , Executive has executed this Release as of this      day of                       , 20      .

 

 

 

Keith Valentine

EXHIBIT 10.13

March 30, 2015

John Bostjancic

Dear John:

I am delighted to offer you the position of Chief Financial Officer of SeaSpine. As you know, at the present time, SeaSpine is operated as a business of Integra LifeSciences Corporation (“Integra”). In 2015, Integra expects to spin off SeaSpine into its own free-standing publicly traded company. Following the spinoff, this position will continue with SeaSpine, not with Integra. You will initially report to me as a member of the Office of President and Chief Executive Officer of SeaSpine. Following your acceptance, the terms stated in this letter and your new position will be effective on the spinoff date.

The salary for this position is $325,000 annually, paid in bi-weekly installments. Your position is exempt, making you ineligible for overtime. In addition, you will be granted a “Founders Award” of $200,000, which will be granted to you in the form of SeaSpine equity (which could take the form of restricted stock, stock options or some other security of SeaSpine). The Founders Award will have a vesting term of between 3 and 5 years, depending upon the policy set by SeaSpine management. In addition, as part of your 2015 annual equity award with Integra, you will be granted a SeaSpine stock option award of $52,078 as soon as administratively possible after the spin-off date. The terms of this award will be based on the policy set by SeaSpine management.

This position will be based at either SeaSpine’s Vista, California, site or SeaSpine’s Irvine, California, site, as directed by SeaSpine management. Any flexible work arrangements are subject to approval at the discretion of SeaSpine CEO and Board of Directors. Any such flexible work arrangements can be removed at any time for reasons including, but not limited to, change in business needs or unsatisfactory performance.

In 2015, based on the expectation that you will become an executive officer of SeaSpine following the spinoff, you are eligible for a target short-term cash incentive award of up to 45% of your base salary and an annual target long-term equity incentive award of up to $210,000, subject to the terms of the SeaSpine discretionary incentive program, which is currently under development. Payment of all awards is subject to SeaSpine achieving its performance targets, which shall be developed, and to you meeting your performance objectives, which will initially be established by me. Depending on the date of the spin-off, the bonus payment may be pro-rated to take into account any partial bonus payment paid by Integra prior to the spin-off.

As a SeaSpine employee, you will be eligible for a benefits package that’s comparable to Integra’s package. Until the spinoff, you will remain in all Integra benefit plans for which you are currently eligible.

In order to assist you with your move to California, Integra or SeaSpine will provide you with relocation assistance of up to $100,000 (applicable taxes will apply). Upon acceptance of this offer, you will be connected with a relocation counselor at Weichert. Details regarding the repayment agreement and eligible expenses will be provided under separate cover.

If your position is terminated prior to December 31, 2015, for reasons other than cause, you will receive a one-time payment equivalent to six months of salary in addition to any standard severance package then in effect for SeaSpine (expected to be Integra’s severance guidelines). As part of the SeaSpine severance agreement and release, Integra or SeaSpine will pay you the cash value of any unvested Integra RSA’s that are scheduled to vest within 6 months of your termination date, If you resign your position at any time, you will not be eligible for the payments described in the preceding sentences.


In addition, SeaSpine will offer you a Double Trigger Change in Control severance agreement equivalent to one year’s base salary. Terms of this agreement will follow at or shortly thereafter the spinoff.

This offer is contingent upon your signing of a Non-competition Agreement and a Confidentiality and Invention Disclosure Agreement, or comparable agreement, that SeaSpine will present to you at a later date. If you are unwilling to sign the presented agreement, this offer of employment, including all of its terms, will be rescinded or you will be terminated from your position, with cause.

The U. S. Department of Justice requires all new hires to provide identification documents that establish both identity and employment eligibility, within three days of employment A list of acceptable documents can be found on the back of the 1-9 form. You may need to present the identification documents to SeaSpine’s Human Resources department at the time of the spinoff. If these identification documents are not provided within three days of a request from SeaSpine, termination of employment, for cause, will ensue.

You will be responsible for the successful completion of your duties and responsibilities as assigned to your position. A copy of your job description, which is under development, will be provided to you. As part of the new hire process, SeaSpine may elect to evaluate your performance after 90 days. The purpose of this evaluation is to determine, for both SeaSpine and for you, whether the goals and duties of the position can be met.

Although SeaSpine anticipates a mutually rewarding employment relationship, it is expressly understood and agreed that your employment is “at will” both at Integra prior to the spinoff and, ultimately, for SeaSpine after the spinoff. Under this relationship, Integra or, after the spinoff, SeaSpine may, at any time, decide to terminate your employment with or without cause or prior notification. Accordingly, we have no agreement that your employment will continue for any particular period of time. Likewise, you have the right to terminate your employment at any time. Should you desire to terminate this relationship, you agree to use your best efforts to give SeaSpine 14 days written notice. Finally, we understand that this letter supersedes any and all previous discussions, verbal as well as written, regarding the terms of your employment with SeaSpine.

If you have any questions regarding this letter or its contents, please feel free to address them to me. If this offer is acceptable to you, please sign a copy of this letter and return it to me by February 13, 2015.

Sincerely,

/s/ Brian Larkin

Brian Larkin

Member of the Office of President and Chief Executive Officer of SeaSpine

cc: Laura Rosa

Personnel File

I accept your offer of employment.

 

Signature: /s/ John Bostjancic Date:  3/30/15      

John Bostjancic

Exhibit 10.14

 

LOGO

January 22, 2015

John Winge

Dear John:

On November 3, 2014, Integra LifeSciences (“Integra”) announced plans to spin off its Spine and Orthobiologics businesses in 2015. Shortly following that announcement, Integra established an interim leadership structure for the Spine and Orthobiologics businesses to enable those businesses to, more quickly, work as an independent group. You have been identified as a leader within that interim structure. Your continued support and commitment in making sure the activities surrounding the spinoff and in the ultimate creation of the new, free-standing SeaSpine company is critical to our collective success.

Provided your job performance continues to meet expectations, Integra intends that you will continue to serve in your current role as VP, Sales for Spine and Orthobiologics through the date of the spinoff. If before the spinoff, Integra, or, from the date of spinoff through December 31, 2015, SeaSpine terminates your employment for any reason other than for cause, you will receive from Integra or from SeaSpine, as applicable, a one-time payment equivalent to six months of your salary at the time of termination. In addition, you will also receive any standard severance package then in effect from Integra or SeaSpine, as applicable. If your employment is not terminated by SeaSpine and continues past December 31, 2015, or you choose on your own accord to resign from Integra prior to the spinoff or from SeaSpine after the spinoff, you will not be eligible for any payments and severance packages described in this paragraph.

At all times, your employment with Integra or, ultimately, with SeaSpine is and shall continue to be “at-will” and you may be terminated at any time with or without cause or notice by either Integra or SeaSpine, as applicable, or by you through resignation. This letter does not constitute an express or implied promise of continued employment with Integra or with SeaSpine for any period and does not alter your “at-will” employment status.

Regards,

Brian Larkin

President and Chief Executive Officer (interim) of SeaSpine

Receipt Acknowledged:

 

/s/ John Winge

1-28-15

John Winge Date

Exhibit 10.15

AMENDED AND RESTATED LEASE

1. Basic Provisions (“Basic Provisions”).

1.1 Parties: This Amended and Restated Lease (“ Lease ”), dated for reference purposes only May  23 , 2011, is made by and between Salma Jason Monica Limited Partnership (“ Lessor ”) and SeaSpine, Inc. (“ Lessee ”), (collectively the “ Parties ,” or individually a “ Party ”).

1.2 Premises: That certain real property, including all improvements therein or to be provided by Lessor under the terms of this Lease, and commonly known as 2384 La Mirada, Vista, California 92081, located in the County of San Diego, State of California, and generally described as 17,819 Square Foot Industrial/Office Building located in the Burke Sycamore Business Center, Vista, California, (“ Premises ”). (See also Paragraph 2)

1.3 Term: 5 years and 0 months (“ Original Term ”) commencing May  23 , 2011 (“ Commencement Date ”) and ending May  23 , 2016 (“ Expiration Date ”). (See also Paragraph 3)

1.4 Early Possession: If the Premises are available Lessee may have non-exclusive possession of the Premises commencing N/A (“ Early Possession Date ”). (See also Paragraphs 3.2 and 3.3)

1.5 Base Rent: $27,713.89 per month (“ Base Rent ”), payable on the 1st day of each month commencing June 1, 2011. (See also Paragraph 4)

There are provisions in this Lease for the Base Rent to be adjusted. See Paragraph 52

1.6 Security Deposit: $27,713.89 (“ Security Deposit ”). (See also Paragraph 5)

1.7 Agreed Use: Office/R&D/Lab/Storage/Warehouse. (See also Paragraph 6)

1.8 Insuring Party: Lessor is the Insuring Party ” unless otherwise stated herein. (See also Paragraph 8)

1.9 Real Estate Brokers: (See also Paragraph 15)

(a) Representation: The following real estate brokers (the “ Brokers ”) and brokerage relationships exist in this transaction (check applicable boxes):

N/A     represents Lessor exclusively (“ Lessor’s Broker ”);

N/A     represents Lessee exclusively (“ Lessee’s Broker ”); or

N/A     represents both Lessor and Lessee (“ Dual Agency ”).

(b) Payment to Brokers: Upon execution and delivery of this Lease by both Parties, Lessor shall pay to the Broker the fee agreed to in their separate written agreement (or if there is no such agreement, the sum of None or None % of the total Base Rent) for the brokerage services rendered by Brokers.


1.10 Guarantor. The obligations of the Lessee under this Lease are to be guaranteed by              N/A             (“ Guarantor ”). (See also Paragraph 37)

1.11 Attachments. Attached hereto are the following, all of which constitute a part of this Lease:

 

  (i) an Addendum consisting of Paragraphs 52 through 54;

 

  (ii) a current set of the Rules and Regulations;

 

  (iii) Exhibit A.

2. Premises.

2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease. Unless otherwise provided herein, any statement of size set forth in this lease, or that may have been used in calculating Rent, is an approximation which the Parties agree is reasonable and any payments based thereon are not subject to revision whether or not the actual size is more or less. Note: Lessee is advised to verify the actual size prior to executing this Lease.

2.2 Condition. Lessor shall deliver the Premises to Lessee on the Commencement Date or the Early Possession Date, whichever first occurs (“ Start Date ”), and Lessor warrants that the existing electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air conditioning systems (“ HVAC ”), loading doors, sump pumps, if any, and all other such elements in the Premises, other than those constructed by Lessee, shall be in good operating condition on said date, that the structural elements of the roof, bearing walls and foundation of any buildings on the Premises (the “ Building ”) shall be free of material defects, and that the Premises do not contain hazardous levels of any mold or fungi defined as toxic under applicable state or federal law. If a non-compliance with said warranty exists as of the Start Date, or if one of such systems or elements should malfunction or fail, Lessor shall promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, malfunction or failure, rectify same at Lessor’s cost and expense.

2.3 Compliance. Lessor warrants that as of the Commencement Date, the improvements on the Premises comply with the building codes, applicable laws, covenants or restrictions of record, regulations, and ordinances (“ Applicable Requirements ”). Said warranty does not apply to the use to which Lessee will put the Premises, modifications which may be required by the Americans with Disabilities Act or any similar laws as a result of Lessee’s use (see Paragraph 50), or to any Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to be made by Lessee. NOTE: Lessee is responsible for determining whether or not the Applicable Requirements, and especially the zoning, are appropriate for Lessee’s intended use, and acknowledges that past uses of the Premises may no longer be allowed. If the Premises do not comply with said warranty, Lessor shall, except as otherwise provided, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify the same at Lessor’s cost and expense. If the Applicable

 

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Requirements are hereafter changed so as to require during the term of this Lease the construction of an addition to or an alteration of the Premises and/or Building, the remediation of any Hazardous Substance, or the reinforcement or other physical modification of the Unit, Premises and/or Building (“ Capital Expenditure ”), Lessor and Lessee shall allocate the cost of such work as follows:

(a) Subject to Paragraph 2.3(c) below, if such Capital Expenditures are required as a result of the specific and unique use of the Premises by Lessee as compared with uses by tenants in general, Lessee shall be fully responsible for the cost thereof, provided, however that if such Capital Expenditure is required during the last year of this Lease and the cost thereof exceeds 6 months’ Base Rent, Lessee may instead terminate this Lease unless Lessor notifies Lessee, in writing, within 10 days after receipt of Lessee’s termination notice that Lessor has elected to pay the actual cost thereof. If Lessee elects termination, Lessee shall immediately cease the use of the Premises which requires such Capital Expenditure and deliver to Lessor written notice specifying a termination date at least 30 days thereafter. Such termination date shall, however, in no event be earlier than the last day that Lessee could legally utilize the Premises without commencing such Capital Expenditure.

(b) If such Capital Expenditure is not the result of the specific and unique use of the Premises by Lessee (such as, governmentally mandated seismic modifications), then Lessor shall pay for such Capital Expenditure.

(c) Notwithstanding the above, the provisions concerning Capital Expenditures are intended to apply only to non-voluntary, unexpected, and new Applicable Requirements. If the Capital Expenditures are instead triggered by Lessee as a result of an actual or proposed change in use, change in intensity of use, or modification to the Premises then, and in that event, Lessee shall either: (i) immediately cease such changed use or intensity of use and/or take such other steps as may be necessary to eliminate the requirement for such Capital Expenditure, or (ii) complete such Capital Expenditure at its own expense. Lessee shall not, however, have any right to terminate this Lease except as provided in Paragraph 2.3(b).

2.4 Acknowledgements. Lessee acknowledges that: (a) it has been advised by Lessor and/or Brokers to satisfy itself with respect to the size of the Premises and their suitability for Lessee’s intended use, (b) Lessee has made such investigation as it deems necessary with reference to such matters and subject to the representations and warranties made by Lessor in this Lease, assumes all responsibility therefor as the same relate to its occupancy of the Premises, and (c) neither Lessor, Lessor’s agents, nor Brokers have made any oral or written representations or warranties with respect to said matters other than as set forth in this Lease. In addition, Lessor acknowledges that: (i) Brokers have made no representations, promises or warranties concerning Lessee’s ability to honor the Lease or suitability to occupy the Premises, and (ii) it is Lessor’s sole responsibility to investigate the financial capability and/or suitability of all proposed tenants.

2.5 [Intentionally Omitted.]

 

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3. Term.

3.1 Term. The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3.

3.2 [Intentionally Omitted.]

3.3 [Intentionally Omitted.]

3.4 [Intentionally Omitted.]

4. Rent.

4.1 Rent Defined. All monetary obligations of Lessee to Lessor under the terms of this Lease (except for the Security Deposit) are deemed to be rent (“ Rent ”).

4.2 Payment. Lessee shall cause payment of Rent to be received by Lessor in lawful money of the United States on or before the day on which it is due, without offset or deduction (except as specifically permitted in this Lease). Rent for any period during the term hereof which is for less than one full calendar month shall be prorated based upon the actual number of days of said month. Payment of Rent shall be made to Lessor at its address stated herein or to such other persons or place as Lessor may from time to time designate in writing. Acceptance of a payment which is less than the amount then due shall not be a waiver of Lessor’s rights to the balance of such Rent, regardless of Lessor’s endorsement of any check so stating. In the event that any check, draft, or other instrument of payment given by Lessee to Lessor is dishonored for any reason, Lessee agrees to pay to Lessor the sum of $25 in addition to any Late Charge and Lessor, at its option, may require all future payments to be made by Lessee to be by cashier’s check. Payments will be applied first to accrued late charges and reasonable, out-of-pocket attorney’s fees, second to accrued interest, then to Base Rent, Insurance and Real Property Taxes, and any remaining amount to any other outstanding charges or costs.

4.3 Association Fees. In addition to the Base Rent, Lessee shall pay directly to any owner’s association each month an amount equal to any owner’s association or condominium fees levied or assessed against the Premises. Said monies shall be paid at the time required under the applicable association document.

5. Security Deposit. Lessee has deposited with Lessor the Security Deposit as security for Lessee’s faithful performance of its obligations under this Lease. If Lessee fails to pay Rent when due, or otherwise Breaches this Lease, Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount already due Lessor, and/or to reimburse or compensate Lessor for any liability, expense, loss or damage which Lessor may have suffered or incurred by reason thereof. If Lessor uses or applies all or any portion of the Security Deposit, Lessee shall within 10 days after written request therefor deposit monies with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease. Lessor shall not be required to keep the Security Deposit separate from its general accounts. Within 10 days after the expiration or termination of this Lease, Lessor shall return that portion of the Security Deposit not used or applied by Lessor. No part of the Security Deposit shall be considered to be held in trust, to bear interest or to be prepayment for any monies to be paid by Lessee under this Lease.

 

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6. Use.

6.1 Use. Lessee shall use and occupy the Premises only for the Agreed Use, or any other legal use which is reasonably comparable thereto, and for no other purpose. Lessee shall not use or permit the use of the Premises in a manner that is unlawful, creates damage, waste or a nuisance, or that disturbs occupants of or causes damage to neighboring premises or properties. Lessor shall not unreasonably withhold or delay its consent to any written request for a modification of the Agreed Use, so long as the same will not impair the structural integrity of the improvements on the Premises or the mechanical or electrical systems therein, and/or is not significantly more burdensome to the Premises. If Lessor elects to withhold consent, Lessor shall within 7 days after such request give written notification of same, which notice shall include an explanation of Lessor’s objections to the change in the Agreed Use.

6.2 Hazardous Substances.

(a) Reportable Uses Require Consent. The term “ Hazardous Substance ” as used in this Lease shall mean any product, substance, or waste whose presence, use, manufacture, disposal, transportation, or release, either by itself or in combination with other materials expected to be on the Premises, is either: (i) potentially injurious to the public health, safety or welfare, the environment or the Premises, (ii) regulated or monitored by any governmental authority, or (iii) a basis for potential liability of Lessor to any governmental agency or third party under any applicable statute or common law theory. Hazardous Substances shall include, but not be limited to, hydrocarbons, petroleum, gasoline, and/or crude oil or any products, by-products or fractions thereof. Lessee shall not engage in any activity in or on the Premises which constitutes a Reportable Use of Hazardous Substances without the express prior written consent of Lessor and timely compliance (at Lessee’s expense) with all Applicable Requirements. Notwithstanding anything to the contrary contained herein, “ Hazardous Substances ” shall not include any supplies or substances used in connection with the installation, operation, maintenance or repair of sterilization machinery or cadaver laboratories. “ Reportable Use ” shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority, and/or (iii) the presence at the Premises of a Hazardous Substance with respect to which any Applicable Requirements requires that a notice be given to persons entering or occupying the Premises or neighboring properties. Notwithstanding the foregoing, Lessee may use any ordinary and customary materials reasonably required to be used in the normal course of the Agreed Use, ordinary office supplies (copier toner, liquid paper, glue, etc.) and common household cleaning materials, so long as such use is in compliance with all Applicable Requirements, is not a Reportable Use. In addition, Lessor may condition its consent to any Reportable Use upon receiving such additional assurances as Lessor reasonably deems necessary to protect itself, the public, the Premises and/or the environment against damage, contamination, injury and/or liability, including, but not limited to, the installation (and removal on or before Lease expiration or termination) of protective modifications (such as concrete encasements) and/or increasing the Security Deposit.

 

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(b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance has come to be located in, on, under or about the Premises, other than as permitted under this Lease or as previously consented to by Lessor, Lessee shall promptly give written notice of such fact to Lessor, and provide Lessor with a copy of any report, notice, claim or other documentation which it has concerning the presence of such Hazardous Substance.

(c) Lessee Remediation. Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on, under, or about the Premises (including through the plumbing or sanitary sewer system) except as does not trigger any reporting requirement under Applicable Requirements and shall promptly, at Lessee’s expense, comply with all Applicable Requirements and take all investigatory and/or remedial action required under Applicable Requirements for the cleanup of any contamination of, and for the maintenance, security and/or monitoring of the Premises or neighboring properties, that was caused or materially contributed to by Lessee, or pertaining to or involving any Hazardous Substance brought onto the Premises during the term of this Lease, by or for Lessee, or any third party acting at the direction of Lessee.

(d) Lessee Indemnification. Lessee shall indemnify, defend and hold Lessor, its agents, employees, lenders and ground lessor, if any, harmless from and against any and all loss of rents and/or damages, liabilities, judgments, claims, expenses, penalties, and reasonable out-of-pocket attorneys’ and consultants’ fees arising out of or involving any Hazardous Substance brought onto the Premises by or for Lessee, or any third party (provided, however, that Lessee shall have no liability under this Lease with respect to underground migration of any Hazardous Substance under the Premises from adjacent properties not caused or contributed to by Lessee). Lessee’s obligations shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or suffered by Lessee, and the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease.

(e) Lessor Indemnification. Lessor and its successors and assigns shall indemnify, defend, reimburse and hold Lessee, its employees and lenders, harmless from and against any and all damages, liabilities, judgments, claims, expenses, penalties and reasonable out-of-pocket attorneys’ and consultants’ fees, including the cost of remediation, arising out of or involving any Hazardous Substances which existed on the Premises prior to the Commencement Date or which are caused by the gross negligence or willful misconduct of Lessor, its agents or employees. Lessor’s obligations shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment and the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease.

(f) Investigations and Remediations. Lessor shall retain the responsibility and pay for any investigations or remediation measures required by governmental entities having jurisdiction with respect to the existence of Hazardous Substances on the Premises prior to the Commencement Date. Lessee shall reasonably cooperate in any such activities at the request of Lessor, including allowing Lessor and Lessor’s agents to have reasonable access to the Premises at reasonable times in order to carry out Lessor’s investigative and remedial responsibilities, provided that Lessor and Lessor’s agents do not materially interfere with the conduct of Lessee’s business.

 

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(g) [Intentionally Omitted.]

6.3 Lessee’s Compliance with Applicable Requirements. Except as otherwise provided in this Lease, Lessee shall, at Lessee’s sole expense, fully, diligently and in a timely manner, materially comply with all Applicable Requirements, the requirements of any applicable fire insurance underwriter or rating bureau, without regard to whether such Requirements are now in effect or become effective after the Start Date. Lessee shall promptly after receipt, notify Lessor in writing (with copies of any documents involved) of any actual written claim, notice, citation, warning, complaint or report pertaining to or involving the failure of Lessee or the Premises to comply with any Applicable Requirements.

6.4 Inspection; Compliance. Lessor and Lessor’s “ Lender ” (as defined in Paragraph 30) and consultants shall have the right to enter into Premises at any time, in the case of an emergency, and otherwise at reasonable times after reasonable notice, for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease, provided that neither Lessor nor Lessor’s Lenders shall materially interfere with the conduct of Lessee’s business. The cost of any such inspections shall be paid by Lessor. In addition, Lessee shall provide copies of all relevant material safety data sheets ( MSDS ) to Lessor within 10 business days of the receipt of a written request therefor.

7. Maintenance; Repairs, Utility Installations; Trade Fixtures and Alterations.

7.1 Lessee’s Obligations.

(a) In General. Subject to the provisions of Paragraph 2.2 (Condition), 2.3 (Compliance), 6.3 (Lessee’s Compliance with Applicable Requirements), 7.2 (Lessor’s Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at Lessee’s sole expense, keep the Premises (other than landscaping and irrigation systems), Utility Installations (intended for Lessee’s exclusive use, no matter where located), and Alterations in good order, condition and repair (whether or not the portion of the Premises requiring repairs, or the means of repairing the same, are reasonably or readily accessible to Lessee, and whether or not the need for such repairs occurs as a result of Lessee’s use, any prior use, the elements or the age of such portion of the Premises), including, but not limited to, all equipment or facilities, such as plumbing, HVAC equipment, electrical, lighting facilities, boilers, pressure vessels, fire protection system, fixtures, walls (other than structural walls), ceilings, roof drainage systems, windows, doors, plate glass, skylights, signs; provided, however, in no event shall Lessee be responsible for any of the foregoing to the extent the need for same arises from the gross negligence or willful misconduct of Lessor; provided, further, that in no event shall Lessee be required to replace any of the foregoing or any material component thereof. Lessee, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices, specifically including the procurement and maintenance of the service contracts required by Paragraph 7.1(b) below. Lessee’s obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair in light of their condition as of the Commencement Date. Lessee shall, during the term of this Lease, keep the exterior appearance of the Building in a first-class condition (including, e.g. graffiti removal) consistent with the exterior appearance of other similar facilities of comparable age and size in the vicinity.

 

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(b) Service Contracts. Lessee shall, at Lessee’s sole expense, procure and maintain contracts, in customary form and substance for, and with contractors specializing and experienced in the maintenance of the following equipment and improvements, if any, if and when installed on the Premises: (i) HVAC equipment, (ii) boiler, and pressure vessels, (iii) fire extinguishing systems, including fire alarm and/or smoke detection, (iv) roof covering and drains, and (v) clarifiers. Upon Lessor’s written request, Lessee shall provide copies of such contracts to Lessor.

(c) [Intentionally Omitted.]

(d) Replacement. Without relieving Lessee of liability resulting from Lessee’s failure to exercise and perform good maintenance practices, if an item described in Paragraph 7.1(b) cannot be repaired other than at a cost which is in excess of 30% of the cost of replacing such item, then such item shall be replaced by Lessor, at Lessor’s cost and expense.

7.2 Lessor’s Obligations. Lessor agrees, at its cost and expense, to be responsible for repairs to, maintenance of and replacements of the roof and the structural portions of the Premises (including, but not limited to, floors, columns, structural walls, foundation, roof, building footings and retaining walls) and all fences, landscaping, parking areas, driveways, parkways, sidewalks, irrigation systems on or serving the Premises; provided, however, in no event shall Lessor be responsible for any of the foregoing to the extent the need for same arises from the gross negligence or willful misconduct or Lessee.

7.3 Utility Installations; Trade Fixtures; Alterations.

(a) Definitions. The term “ Utility Installations ” refers to all floor and window coverings, air and/or vacuum lines, power panels, electrical distribution, security and fire protection systems, communication cabling, lighting fixtures, HVAC equipment, plumbing, and fencing in or on the Premises. The term “ Trade Fixtures ” shall mean Lessee’s machinery and equipment that can be removed without doing material damage to the Premises. The term “ Alterations ” shall mean any modification of the improvements, other than Utility Installations or Trade Fixtures, whether by addition or deletion. “ Lessee Owned Alterations and/or Utility Installations ” are defined as Alterations and/or Utility Installations made by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a).

(b) Consent. Except as permitted on Exhibit A attached hereto, Lessee shall not make any Alterations or Utility Installations to the Premises without Lessor’s prior written consent. Lessee may, however, make non-structural Alterations or Utility Installations to the interior of the Premises (excluding the roof) without such consent but upon notice to Lessor, as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof or any existing walls, will not affect the electrical, plumbing, HVAC, and/or life safety systems, and the cumulative cost thereof during this Lease as extended does not exceed a sum equal to $100,000 in any one year. Notwithstanding the foregoing, Lessee shall not make or

 

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permit any roof penetrations and/or install anything on the roof without the prior written approval of Lessor. Lessor may, as a precondition to granting such approval, require Lessee to utilize a contractor chosen and/or approved by Lessor. Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with reasonably detailed plans. Consent shall be deemed conditioned upon Lessee’s: (i) acquiring all applicable governmental permits, (ii) furnishing Lessor with copies of both the permits and the plans and specifications, if any, prior to commencement of the work, and (iii) compliance with all conditions of said permits and other Applicable Requirements in a prompt and expeditious manner. Any Alterations or Utility Installations shall be performed in a workmanlike manner with good and sufficient materials. Lessee shall promptly upon completion furnish Lessor with as-built plans and specifications, if any.

(c) Liens; Bonds. Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or may be secured by any mechanic’s or materialmen’s lien against the Premises or any interest therein. Lessee shall give Lessor not less than 10 days notice prior to the commencement of any work in, on or about the Premises, and Lessor shall have the right to post notices of non-responsibility. If Lessee shall contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof.

7.4 Ownership; Removal; Surrender; and Restoration.

(a) Ownership. All Alterations and Utility Installations made by Lessee shall be the property of Lessee, but considered a part of the Premises. Lessor may, at any time, elect in writing to be the owner of all or any specified part of the Lessee Owned Alterations and Utility Installations. All Lessee Owned Alterations and Utility Installations shall, at the expiration or termination of this Lease, become the property of Lessor and be surrendered by Lessee with the Premises.

(b) [Intentionally Omitted.]

(c) Surrender; Restoration. Lessee shall surrender the Premises by the Expiration Date or any earlier termination date, with all of the improvements, parts and surfaces thereof broom clean and free of debris, and in good operating order, condition and state of repair, ordinary wear and tear excepted. “Ordinary wear and tear” shall not include any damage or deterioration that would have been prevented by good maintenance practice. Lessee shall repair any damage occasioned by the installation, maintenance or removal of Trade Fixtures, furnishings, and equipment as well as the removal of any storage tank installed by or for Lessee. Lessee shall completely remove from the Premises any and all Hazardous Substances brought onto the Premises by or for Lessee, or any third party (except Hazardous Substances which were deposited via underground migration from areas outside of the Premises) even if such removal would require Lessee to perform or pay for work that exceeds statutory requirements. Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee. Any personal property of Lessee not removed on or before the Expiration Date or any earlier termination date shall be deemed to have been abandoned by Lessee and may be disposed of or retained by Lessor as Lessor may desire. The failure by Lessee to timely vacate the Premises pursuant to this Paragraph 7.4(c) without the express written consent of Lessor shall constitute a holdover under the provisions of Paragraph 26 below.

 

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8. Insurance; Indemnity.

8.1 Payment For Insurance. Lessee shall pay for all insurance required under Paragraph 8 except for any liability insurance carried by Lessor under Paragraph 8.2(b). Premiums for policy periods commencing prior to or extending beyond the Lease term shall be prorated to correspond to the Lease term. Payment shall be made by Lessee to Lessor within 10 days following receipt of an invoice.

8.2 Liability Insurance.

(a) Carried by Lessee. Lessee shall obtain and keep in force a Commercial General Liability policy of insurance protecting Lessee and Lessor as an additional insured against claims for bodily injury, personal injury and property damage based upon or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $1,000,000 per occurrence with an annual aggregate of not less than $2,000,000. Lessee shall add Lessor as an additional insured by means of an endorsement. The policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an “ insured contract ” for the performance of Lessee’s indemnity obligations under this Lease subject to the terms, conditions and exclusions of such policy. The limits of said insurance shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. Lessee shall provide an endorsement on its liability policy(ies) which provides that its insurance shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only.

(b) Carried by Lessor. Lessor shall maintain, at Lessor’s cost and expense, liability insurance as described in Paragraph 8.2(a), in addition to, and not in lieu of, the insurance required to be maintained by Lessee. Lessee shall not be named as an additional insured therein.

8.3 Property Insurance—Building, Improvements and Rental Value.

(a) Building and Improvements. Lessor shall obtain and keep in force a policy or policies in the name of Lessor, with loss payable to Lessor, any ground-lessor, and to any Lender insuring loss or damage to the Premises. The amount of such insurance shall be equal to the full insurable replacement cost of the Premises, as the same shall exist from time to time, or the amount required by any Lender, but in no event more than the commercially reasonable and available insurable value thereof. Lessee Owned Alterations and Utility Installations, Trade Fixtures, and Lessee’s personal property shall be insured by Lessee not by Lessor. If the coverage is available and commercially appropriate, such policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood and/or earthquake unless required by a Lender), including coverage for debris removal and the

 

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enforcement of any Applicable Requirements requiring the upgrading, demolition, reconstruction or replacement of any portion of the Premises as the result of a covered loss. Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located. If such insurance coverage has a deductible clause, the deductible amount shall not exceed $5,000 per occurrence, and Lessee shall be liable for such deductible amount in the event of an Insured Loss.

(b) Rental Value. Lessee shall obtain and keep in force a policy or policies in the name of Lessee with loss payable to Lessor and any Lender, insuring the loss of the full Rent for the unexpired term of the Lease with a blanket limit of not less than $500,000.00. (“Rental Value insurance”). Said insurance shall contain an agreed valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected Rent otherwise payable by Lessee, for the next 12 month period. Lessee shall be liable for any deductible amount in the event of such loss.

8.4 Lessee’s Property; Business Interruption Insurance.

(a) Property Damage. Lessee shall obtain and maintain insurance coverage on all of Lessee’s personal property, Trade Fixtures, and Lessee Owned Alterations and Utility Installations. Such insurance shall be full replacement cost coverage. The proceeds from any such insurance shall be used by Lessee for the replacement of personal property, Trade Fixtures and Lessee Owned Alterations and Utility Installations. Lessee shall provide Lessor with written evidence that such insurance is in force.

(b) Business Interruption. Lessee shall obtain and maintain loss of income and extra expense insurance in amounts as will reimburse Lessee for direct or indirect loss of earnings attributable to all perils commonly insured against by prudent lessees in the business of Lessee or attributable to prevention of access to the Premises as a result of such perils.

(c) No Representation of Adequate Coverage. Lessor makes no representation that the limits or forms of coverage of insurance specified herein are adequate to cover Lessee’s property, business operations or obligations under this Lease.

8.5 Insurance Policies. Insurance required herein shall be by companies duly licensed or admitted to transact business in the state where the Premises are located, and maintaining during the policy term a “General Policyholders Rating” of at least A-, VII, as set forth in the most current issue of “Best’s Insurance Guide”, or such other rating as may be required by a Lender. Lessee shall not do or permit to be done anything which invalidates the required insurance policies. Lessee shall, prior to the Start Date, deliver to Lessor certificates evidencing the existence and amounts of the required insurance. No such policy shall be cancelable or subject to modification except after 30 days prior written notice to Lessor (10 days in the case of nonpayment or premiums). Lessee shall, at least 10 days prior to the expiration of such policies, furnish Lessor with evidence of renewals or “insurance binders” evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which

 

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amount shall be payable by Lessee to Lessor upon demand. Such policies shall be for a term of at least one year, or the length of the remaining term of this Lease, whichever is less. If either Party shall fail to procure and maintain the insurance required to be carried by it, the other Party may, but shall not be required to, procure and maintain the same.

8.6 Waiver of Subrogation. Without affecting any other rights or remedies, Lessee and Lessor each hereby release and relieve the other, and waive their entire right to recover damages against the other, for loss of or damage to its property arising out of or incident to the perils required to be insured against herein. The effect of such releases and waivers is not limited by the amount of insurance carried or required, or by any deductibles applicable hereto. The Parties agree to have their respective property damage insurance carriers waive any right to subrogation that such companies may have against Lessor or Lessee, as the case may be, so long as the insurance is not invalidated thereby.

8.7 Indemnity. Except for Lessor’s gross negligence or willful misconduct, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor’s master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, liens, judgments, penalties, reasonable out-of-pocket attorneys’ and consultants’ fees, expenses and/or liabilities arising out of, involving, or in connection with, the use and/or occupancy of the Premises by Lessee. If any action or proceeding is brought against Lessor by reason of any of the foregoing matters, Lessee shall upon notice defend the same at Lessee’s expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be defended or indemnified.

8.8 Exemption of Lessor and its Agents from Liability. Except as a result of Lessor’s negligence or willful misconduct, but subject to the provisions of paragraph 8.6, neither Lessor nor its agents shall be liable under any circumstances for: (i) injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessee’s employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the building of which the Premises are a part, or from other sources or places, (ii) any damages arising from any act or neglect of any other tenant of Lessor or from the failure of Lessor or its agents to enforce the provisions of any other lease, or (iii) injury to Lessee’s business or for any loss of income or profit therefrom.

8.9 [Intentionally Omitted.]

 

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9. Damage or Destruction.

9.1 Definitions.

(a) “ Premises Partial Damage ” shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, which can reasonably be repaired in 3 months or less from the date of the damage or destruction.

(b) “ Premises Total Destruction ” shall mean damage or destruction to the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which cannot reasonably be repaired in 3 months or less from the date of the damage or destruction.

(c) “ Insured Loss ” shall mean damage or destruction to improvements on the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits involved.

(d) “ Replacement Cost ” shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of Applicable Requirements, and without deduction for depreciation.

(e) “ Hazardous Substance Condition ” shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by, a Hazardous Substance , in, on, or under the Premises which requires remediation under Applicable Requirements.

9.2 Partial Damage—Insured Loss. If a Premises Partial Damage that is an Insured Loss occurs, then Lessor shall, at Lessor’s expense, repair such damage (but not Lessee’s Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect; provided, however, that Lessee shall, at Lessor’s election, make the repair of any damage or destruction the total cost to repair of which is $10,000 or less, and, in such event, Lessor shall make any applicable insurance proceeds available to Lessee on a reasonable basis for that purpose. Notwithstanding the foregoing, if the required insurance was not in force or the insurance proceeds are not sufficient to effect such repair, the Insuring Party shall promptly contribute the shortage in proceeds (except as to the deductible which is Lessee’s responsibility) as and when required to complete said repairs. Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either Party.

9.3 Partial Damage—Uninsured Loss. If a Premises Partial Damage that is not an Insured Loss occurs, unless caused by Lessee’s gross negligence or willful act (in which event Lessee shall make the repairs at Lessee’s expense), or if a Premises Partial Damage that is due to flood or earthquake occurs, Lessor shall repair such damage as soon as reasonably possible at Lessor’s expense. Upon Lessee’s written request, Lessor shall provide evidence reasonably

 

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acceptable to Lessee that Lessor has the funds necessary to pay for the costs of such repairs, and upon Lessee’s written request, Lessor shall deposit such funds into an escrow account under the terms and conditions reasonably acceptable to Lessee. If Lessor fails to provide such evidence or make such deposit, in each case within five (5) days after the applicable request, then Lessee may, by written notice to Lessor terminate this Lease, effective thirty (30) days after such termination notice.

9.4 Total Destruction. Notwithstanding any other provision hereof, if a Premises Total Destruction occurs, this Lease shall terminate 60 days following such Destruction.

9.5 Damage Near End of Term. If at any time during the last 6 months of this Lease there is damage for which the cost to repair exceeds one month’s Base Rent, whether or not an Insured Loss, Lessor or Lessee may terminate this Lease effective 60 days following the date of occurrence of such damage by giving a written termination notice to the other within 30 days after the date of occurrence of such damage. Notwithstanding the foregoing, if Lessee at that time has an exercisable option to extend this Lease or to purchase the Premises, then Lessee may preserve this Lease by, (a) exercising such option and (b) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs on or before the earlier of (i) the date which is 10 days after Lessee’s receipt of Lessor’s written notice purporting to terminate this Lease, or (ii) the day prior to the date upon which such option expires. If Lessee duly exercises such option during such period and provides Lessor with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor’s commercially reasonable expense, repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option and provide such funds or assurance during such period, then this Lease shall terminate on the date specified in the termination notice and Lessee’s option shall be extinguished.

9.6 Abatement of Rent; Lessee’s Remedies.

(a) Abatement. In the event of Premises Partial Damage or Premises Total Destruction or a Hazardous Substance Condition for which Lessee is not responsible under this Lease, the Rent payable by Lessee for the period required for the repair, remediation or restoration of such damage shall be abated in an amount bearing the same ratio to the total amount of Rent as the number of square feet in the portion of the Building that is not usable by Lessee for the conduct of its business as a result of such event bears to the total number of square feet in the Building. All other obligations of Lessee hereunder shall be performed by Lessee, and Lessor shall have no liability for any such damage, destruction, remediation, repair or restoration except as provided herein.

(b) Remedies. If Lessor is obligated to repair or restore the Premises and does not commence, in a substantial and meaningful way, such repair or restoration within 15 days after such obligation shall accrue and continue performing such repair or replacement to completion as soon as reasonably practicable, Lessee may, at any time prior to the commencement of such repair or restoration or upon the cessation by Lessor to continue performing such repair or replacement, give written notice to Lessor and to any Lenders of which Lessee has actual notice, of Lessee’s election to terminate this Lease on a date not less than 60 days following the giving of such notice. If Lessee gives such notice and such repair or

 

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restoration is not commenced (or recommenced) within 10 days thereafter, this Lease shall terminate as of the date specified in said notice. If the repair or restoration is commenced (or recommenced) within such 10 days, this Lease shall continue in full force and effect. “Commence” shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever first occurs.

9.7 Termination; Advance Payments. Upon termination of this Lease pursuant to Paragraph 9, an equitable adjustment shall be made concerning advance Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee’s Security Deposit as has not been, or is not then required to be, used by Lessor.

9.8 Waive Statutes. Lessor and Lessee agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premises with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extent inconsistent herewith.

10. Real Property Taxes.

10.1 Definition. As used herein, the term “ Real Property Taxes ” shall include any form of assessment; real estate, general, special, ordinary or extraordinary, or rental levy or tax (other than inheritance, personal or corporate income or estate taxes); improvement bond; and/or license fee imposed upon or levied against any legal or equitable interest of Lessor in the Premises, by any authority having the direct or indirect power to tax and where the funds are generated with reference to the Building address and where the proceeds so generated are to be applied by the city, county or other local taxing authority of a jurisdiction within which the Premises are located. Real Property Taxes shall also include any such tax (other than inheritance, personal or corporate income or estate taxes), fee, levy, assessment or charge, or any increase therein imposed during the term of this Lease; provided, however, that Lessee shall not be responsible for paying any increases in Real Property Taxes arising from a sale, refinancing or change in the ownership of the Premises that occurs during the initial 5-year term of this Lease, but Lessee shall be responsible for paying any increases in Real Property Taxes arising from a sale, refinancing or change in the ownership of the Premises that occurs during the First Extension Term or the Second Extension Term (if Lessee elects, in its sole discretion, to exercise either the First Extension Option or the Second Extension Option in accordance with Section 53 of Addendum A to this Lease).

10.2 Payment of Taxes. Within thirty (30) days after Lessor presents Lessee with evidence reasonably acceptable to Lessee that Lessor has paid Real Property Taxes with respect to the Premises, Lessee shall pay to Lessor the amount of such Real Property Taxes (other than amounts for which Lessee is not responsible in accordance with Section 10.1). If any installment of Real Property Taxes payable with respect to the Premises shall cover any period of time prior to the Commencement Date or after the termination of this Lease, Lessee’s share of such installment shall be prorated. Lessor or such agent of Lessor as Lessor may appoint, shall have the right, but not the obligation, to contest or appeal any assessment of Real Property Taxes with respect to the Premises. In the event that Lessor elects not to contest or appeal any assessment of Real Property Taxes with respect to the Premises, Lessee shall have the right, at Lessee’s sole cost and expense, to initiate such contest and/or appeal and conduct such reasonable actions in connection therewith until such time as resolution thereof is obtained by Lessee. Lessor shall send Lessee a copy of any assessment notice of Real property Taxes within 30 days after receipt thereof.

 

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10.3 Joint Assessment. Lessor represents and warrants that the Premises are assessed separately from all other property.

10.4 Personal Property Taxes. Lessee shall pay, prior to delinquency, all taxes assessed against and levied upon Lessee Owned Alterations, Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of Lessee. When possible, Lessee shall cause its Lessee Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor.

11. Utilities and Services. Lessee shall pay for all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon. Lessor represents and warrants that all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises are separately metered and/or billed. There shall be no abatement of rent and Lessor shall not be liable in any respect whatsoever for the inadequacy, stoppage, interruption or discontinuance of any utility or service due to riot, strike, labor dispute, breakdown, accident, repair or other cause beyond Lessor’s reasonable control or in cooperation with governmental request or directions.

12. Assignment and Subletting.

12.1 Lessor’s Consent Required.

(a) Except as set forth herein, Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or encumber (collectively, “ assign or assignment ”) or sublet all or any part of Lessee’s interest in this Lease or in the Premises without Lessor’s prior written consent.

(b) Notwithstanding anything to the contrary contained in this Lease, a change in ownership or control of the Lessee shall not constitute an assignment, transfer, mortgage, encumbrance or sublet requiring Landlord’s consent hereunder, so long as, after any such change (i) Lessee is, or is controlled by, Integra LifeSciences Holdings Corporation or Integra LifeSciences Corporation, or (ii) if clause (i) does not apply, the Lessee or person or entity controlling Lessee has a net worth equal to or greater than $10,000,000.

(c) Lessee may, without the consent of Landlord, (i) assign this Lease to any entity that controls, is controlled by, or is under common control with, Lessee or (ii) assign this Lease to any entity with a net worth greater than or equal to $10,000,000 at the time of such assignment or (y) sublease all or any portion of the Premises to any wholly-owned direct or indirect subsidiary of Lessee.

(d) An assignment or subletting without consent, if required, shall, at Lessor’s option, be a Default curable after notice per Paragraph 13.1(c), or a noncurable Breach without the necessity of any notice and grace period. If Lessor elects to treat such unapproved assignment or subletting as a noncurable Breach, Lessor may either: (i) terminate this Lease, or (ii) upon 30 days written notice, increase the monthly Base Rent to 110% of the Base Rent then in effect.

 

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(e) Lessee’s remedy for any breach of Paragraph 12.1 by Lessor shall be limited to compensatory damages and/or injunctive relief.

(f) Without limiting the foregoing, Lessor hereby consents to, and waives any right to terminate or cancel the Lease as a result of the consummation of the transactions contemplated under the Stock Purchase Agreement, dated as of May  23 , 2011, by and among Dr. Thomas Haider, the other sellers parties thereto, SeaSpine, Inc., and Integra LifeSciences Corporation.

12.2 Terms and Conditions Applicable to Assignment and Subletting.

(a) Regardless of Lessor’s consent, if required, no assignment or subletting shall: (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of any obligations hereunder, or (iii) alter the primary liability of Lessee for the payment of Rent or for the performance of any other obligations to be performed by Lessee.

(b) Lessor may accept Rent or performance of Lessee’s obligations from any person other than Lessee pending approval or disapproval of an assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of Rent or performance shall constitute a waiver or estoppel of Lessor’s right to exercise its remedies for Lessee’s Default or Breach.

(c) Lessor’s consent to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting.

(d) In the event of any Default or Breach by Lessee, Lessor may proceed directly against Lessee, any Guarantors or anyone else responsible for the performance of Lessee’s obligations under this Lease, including any assignee or sublessee, without first exhausting Lessor’s remedies against any other person or entity responsible therefor to Lessor, or any security held by Lessor.

(e) Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor’s determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises, if any, together with a fee of $500 as consideration for Lessor’s considering and processing said request. Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested. (See also Paragraph 36)

(f) Any assignee of, or sublessee under, this Lease shall, by reason of accepting such assignment, entering into such sublease, or entering into possession of the Premises or any portion thereof, be deemed to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease.

 

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(g) Lessor’s consent to any assignment or subletting shall not transfer to the assignee or sublessee any Option granted to the original Lessee by this Lease unless such transfer is specifically consented to by Lessor in writing. (See Paragraph 39.2)

12.3 Additional Terms and Conditions Applicable to Subletting. The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein:

(a) Lessee hereby assigns and transfers to Lessor all of Lessee’s interest in all Rent payable on any sublease, and Lessor may collect such Rent and apply same toward Lessee’s obligations under this Lease; provided, however, that until a Breach shall occur in the performance of Lessee’s obligations, Lessee may collect said Rent. In the event that the amount collected by Lessor exceeds Lessee’s then outstanding obligations any such excess shall be refunded to Lessee. Lessor shall not, by reason of the foregoing or any assignment of such sublease, nor by reason of the collection of Rent, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee’s obligations to such sublessee. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee’s obligations under this Lease, to pay to Lessor all Rent due and to become due under the sublease. Sublessee shall rely upon any such notice from Lessor and shall pay all Rents to Lessor without any obligation or right to inquire as to whether such Breach exists, notwithstanding any claim from Lessee to the contrary.

(b) In the event of a Breach by Lessee, Lessor may, at its option, require sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor (unless actually received by Lessor) or for any prior Defaults or Breaches of such sublessor.

(c) [Intentionally Omitted.]

(d) No sublessee shall further assign or sublet all or any part of the Premises without Lessor’s prior written consent, if required.

13. Default; Breach; Remedies.

13.1 Default; Breach. A “ Default ” is defined as a failure by the Lessee to comply with or perform any of the terms, covenants, conditions or Rules and Regulations under this Lease. A “ Breach ” is defined as the occurrence of one or more of the following Defaults, and the failure of Lessee to cure such Default within any applicable grace period:

(a) The vacating of the Premises without providing a commercially reasonable level of security, or where the coverage of the property insurance described in Paragraph 8.3 is jeopardized as a result thereof, or without providing reasonable assurances to minimize potential vandalism.

 

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(b) The failure of Lessee to make any payment of Rent or any Security Deposit required to be made by Lessee hereunder, whether to Lessor or to a third party, when due, or to provide reasonable evidence of insurance or where such failure continues for a period of 5 business days following written notice to Lessee.

(c) The failure by Lessee to provide (i) the service contracts required under Paragraph 7.1(b), (ii) the rescission of an unauthorized assignment or subletting, (iii) a requested subordination pursuant to Paragraph 30, (iv) any document requested under Paragraph 42 or (v) material safety data sheets (MSDS) as required under Paragraph 10.4 where any such failure continues for a period of 30 days following written notice to Lessee.

(d) A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof, other than those described in subparagraphs 13.1(a), (b), (c) or (d), above, where such Default continues for a period of 30 days after written notice; provided, however, that if the nature of Lessee’s Default is such that more than 30 days are reasonably required for its cure, then it shall not be deemed to be a Breach if Lessee commences such cure within said 30 day period and thereafter diligently prosecutes such cure to completion.

(e) The occurrence of any of the following events with respect to Lessee: (i) the making of any general arrangement or assignment for the benefit of creditors; (ii) becoming a “ debtor ” as defined in 11 U.S.C. §101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within 60 days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee’s assets located at the Premises or of Lessee’s interest in this Lease, where possession is not restored to Lessee within 60 days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee’s assets located at the Premises or of Lessee’s interest in this Lease, where such seizure is not discharged within 60 days; provided, however, in the event that any provision of this subparagraph is contrary to any applicable law, such provision shall be of no force or effect, and not affect the validity of the remaining provisions.

(f) [Intentionally Omitted.]

(g) [Intentionally Omitted.]

13.2 Remedies. If a Breach occurs and continues, Lessor may, at its option, perform such duty or obligation on Lessee’s behalf. Lessee shall pay to Lessor an amount equal to the costs and expenses incurred by Lessor in such performance upon receipt of an invoice therefor. In the event a Breach occurs and continues, Lessor may, with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach:

(a) Terminate Lessee’s right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender

 

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possession to Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the unpaid Rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all damages proximately caused by the Lessee’s failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, reasonable out-of-pocket attorneys’ fees, and that portion of any leasing commission paid by Lessor in connection with this Lease applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the immediately preceding sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of the District within which the Premises are located at the time of award plus one percent. Efforts by Lessor to mitigate damages caused by Lessee’s Breach of this Lease shall not waive Lessor’s right to recover damages under Paragraph 12. If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding any unpaid Rent and damages as are recoverable therein, or Lessor may reserve the right to recover all or any part thereof in a separate suit. If a notice and grace period required under Paragraph 13.1 was not previously given, a notice to pay rent or quit, or to perform or quit given to Lessee under the unlawful detainer statute shall also constitute the notice required by Paragraph 13.1. In such case, the applicable grace period required by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and the failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute.

(b) Continue the Lease and Lessee’s right to possession and recover the Rent as it becomes due, in which event Lessee may sublet or assign, subject only to the provisions of Paragraph 12. Acts of maintenance, efforts to relet, and/or the appointment of a receiver to protect the Lessor’s interests, shall not constitute a termination of the Lessee’s right to possession.

(c) Pursue any other remedy now or hereafter available under the laws or judicial decisions of the state wherein the Premises are located. The expiration or termination of this Lease and/or the termination of Lessee’s right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee’s occupancy of the Premises.

13.3 [Intentionally Omitted.]

13.4 [Intentionally Omitted.]

13.5 Interest. Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor, 5 business days after the due date as to scheduled payments (such as Base Rent) or within 30 days following the date on which it was due for non-scheduled payment,

 

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shall bear interest from the date when due, as to scheduled payments, or the 31st day after it was due as to non-scheduled payments. The interest (“ Interest ”) charged shall be computed at the rate of 10% per annum but shall not exceed the maximum rate allowed by law. Interest is payable in addition to the potential late charge provided for in Paragraph 13.4.

13.6 Breach by Lessor.

(a) Notice of Breach. Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph, a reasonable time shall in no event be more than 30 days after receipt by Lessor, and any Lender whose name and address shall have been furnished Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that if the nature of Lessor’s obligation is such that more than 30 days are reasonably required for its performance, then Lessor shall not be in breach if performance is commenced within such 30 day period and thereafter diligently pursued to completion.

(b) Performance by Lessee on Behalf of Lessor. In the event that neither Lessor nor Lender cures said breach within 30 days after receipt of said notice, or if having commenced said cure they do not diligently pursue it to completion as soon as reasonably practicable, then Lessee may elect to cure said breach at Lessee’s expense and offset from Rent the actual and reasonable cost to perform such cure reserving Lessee’s right to seek reimbursement from Lessor for any such expense in excess, if any, of the amount that Lessee offsets against Rent. Lessee shall document the cost of said cure and supply said documentation to Lessor. Notwithstanding the foregoing, if an emergency situation exists, Lessee may immediately take such actions as are required to mitigate the situation, and Lessor shall, within five (5) days after demand by Lessee, reimburse Lessee for Lessee’s costs in doing so.

14. Condemnation . If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (collectively “ Condemnation ”), this Lease shall terminate as to the part taken as of the date the condemning authority takes title or possession, whichever first occurs. If any portion of the Building or any portion of the parking area exclusively serving the Premises is taken by Condemnation, or if such taking renders the Premises unusable in Lessee’s reasonable discretion, Lessee may, at Lessee’s option, to be exercised in writing within 10 days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within 10 days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, (i) this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced by an amount bearing the same ratio to the total amount of Base Rent as the portion of the Building that is taken by such Condemnation bears to the entire Building and (ii) Lessor shall restore, at Lessor’s sole cost and expense, the portion of the Premises that have not been taken to a condition such that Lessee can reasonably conduct its business in substantially the same manner as prior to such taking. Condemnation awards and/or payments shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold, the value of the part taken, or for severance damages; provided, however, that Lessee shall be entitled to any compensation paid

 

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by the condemnor for Lessee’s relocation expenses, loss of business goodwill and/or Trade Fixtures, without regard to whether or not this Lease is terminated pursuant to the provisions of this Paragraph. All Alterations and Utility Installations made to the Premises by Lessee, for purposes of Condemnation only, shall be considered the property of the Lessee and Lessee shall be entitled to any and all compensation which is payable therefor. In the event that this Lease is not terminated by reason of the Condemnation, Lessor shall repair any damage to the Premises caused by such Condemnation.

15. Brokerage Fees.

15.1 Additional Commission. In addition to the payments owed pursuant to Paragraph 1.9 above, and unless Lessor and the Brokers otherwise agree in writing, Lessor agrees that: (a) if Lessee exercises any Option, (b) if Lessee or anyone affiliated with Lessee acquires any rights to the Premises or other premises owned by Lessor, (c) if Lessee remains in possession of the Premises, with the consent of Lessor, after the expiration of this Lease, or (d) if Base Rent is increased, whether by agreement or operation of an escalation clause herein, then, Lessor shall pay Brokers a fee in accordance with the schedule of the Brokers in effect at the time of the execution of this Lease.

15.2 Assumption of Obligations. Any buyer or transferee of Lessor’s interest in this Lease shall be deemed to have assumed Lessor’s obligation hereunder.

15.3 Representations and Indemnities of Broker Relationships. Lessee and Lessor each represent and warrant to the other that it has had no dealings with any person, firm, broker or finder (other than the Brokers, if any) in connection with this Lease, and that no one other than said named Brokers is entitled to any commission or finder’s fee in connection herewith. Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, attorneys’ fees reasonably incurred with respect thereto.

16. Estoppel Certificates.

(a) Each Party (as “ Responding Party ”) shall within 10 days after written notice from the other Party (the “ Requesting Party ”) execute, acknowledge and deliver to the Requesting Party a written certificate stating that (i) the Lease is in full force and effect without modification except as may be described in such Certificate, (ii) there are no uncured defaults in the Requesting Party’s performance except as may be described in such Certificate, (iii) if Lessor is the Requesting Party, not more than one month’s rent has been paid in advance except as may be described in such Certificate and (iv) such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party.

(b) If the Responding Party shall fail to execute or deliver the Estoppel Certificate within such 10 day period, the Requesting Party may execute an Estoppel Certificate stating that: (i) the Lease is in full force and effect without modification except as may be represented described in such Certificate, (ii) there are no uncured defaults in the Requesting Party’s performance except as may be described in such Certificate, (iii) if Lessor is the

 

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Requesting Party, not more than one month’s rent has been paid in advance except as may be described in such Certificate. Prospective purchasers and encumbrancers may rely upon the Requesting Party’s Estoppel Certificate, and the Responding Party shall be estopped from denying the truth of the facts contained in said Certificate.

(c) [Intentionally Omitted.]

17. Definition of Lessor . The term “ Lessor ” as used herein shall mean the owner or owners at the time in question of the fee title to the Premises, or, if this is a sublease, of the Lessee’s interest in the prior lease. In the event of a transfer of Lessor’s title or interest in the Premises or this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor. Upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined.

18. Severability. The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof.

19. Days. Unless otherwise specifically indicated to the contrary, the word “days” as used in this Lease shall mean and refer to calendar days.

20. Limitation on Liability. The obligations of Lessor under this Lease shall not constitute personal obligations of Lessor or its partners, members, directors, officers or shareholders, and Lessee shall look to the Premises, and to no other assets of Lessor, for the satisfaction of any liability of Lessor with respect to this Lease, and shall not seek recourse against Lessor’s partners, members, directors, officers or shareholders, or any of their personal assets for such satisfaction.

21. Time of Essence. Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease.

22. No Prior or Other Agreements; Broker Disclaimer . This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. Lessor and Lessee each represents and warrants to the Brokers that it has made, and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility of the other Party to this Lease and as to the use, nature, quality and character of the Premises. Brokers have no responsibility with respect thereto or with respect to any default or breach hereof by either Party.

23. Notices.

23.1 Notice Requirements. All notices required or permitted by this Lease or applicable law shall be in writing and may be delivered in person (by hand or by courier) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by nationally recognized overnight courier, with charges prepaid, or by facsimile transmission, and shall be deemed sufficiently given if served in a manner specified in this

 

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Paragraph 23. The addresses noted adjacent to a Party’s signature on this Lease shall be that Party’s address for delivery or mailing of notices. Either Party may by written notice to the other specify a different address for notice, except that upon Lessee’s taking possession of the Premises, the Premises shall constitute Lessee’s address for notice. A copy of all notices to Lessor shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate in writing.

23.2 Date of Notice. Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. If sent by regular mail the notice shall be deemed given 72 hours after the same is addressed as required herein and mailed with postage prepaid. Notices delivered by United States Express Mail or overnight courier that guarantees next day delivery shall be deemed given the next business day after delivery of the same to the Postal Service or courier. Notices transmitted by facsimile transmission or similar means shall be deemed delivered upon telephone confirmation of receipt (confirmation report from fax machine is sufficient), provided a copy is also delivered via delivery or mail. If notice is received on a Saturday, Sunday or legal holiday, it shall be deemed received on the next business day.

24. Waivers.

(a) No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee of the same or of any other term, covenant or condition hereof. Lessor’s consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor’s consent to, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent. The acceptance of Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any payment by Lessee may be accepted by Lessor on account of moneys or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment.

25. [Intentionally Omitted.]

26. No Right To Holdover. Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or termination of this Lease. In the event that Lessee holds over, then the Base Rent shall be increased to 150% of the Base Rent applicable immediately preceding the expiration or termination. Nothing contained herein shall be construed as consent by Lessor to any holding over by Lessee. Any holding over by Lessee shall not operate, except by written agreement, to extend or renew this Lease or to imply or create a new lease, but in case of any such holdover, Lessor’s remedies shall be limited to either the immediate termination of Lessee’s occupancy or the treatment of Lessee’s occupancy as a month to month tenancy (at the increased Rent described in this Paragraph 26), any custom or law allowing other remedies or damages or which may be to the contrary notwithstanding.

 

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27. Cumulative Remedies. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity.

28. Covenants and Conditions; Construction of Agreement. All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions. In construing this Lease, all headings and titles are for the convenience of the Parties only and shall not be considered a part of this Lease. Whenever required by the context, the singular shall include the plural and vice versa. This Lease shall not be construed as if prepared by one of the Parties, but rather according to its fair meaning as a whole, as if both Parties had prepared it.

29. Binding Effect; Choice of Law. This Lease shall be binding upon the Parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located.

30. Subordination; Attornment; Non-Disturbance.

30.1 Subordination. This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, “ Security Device ”), now or hereafter placed upon the Premises, to any and all advances made on the security thereof, and to all renewals, modifications, and extensions thereof. Lessee agrees that the holders of any such Security Devices (in this Lease together referred to as “ Lender ”) shall have no liability or obligation to perform any of the obligations of Lessor under this Lease. Any Lender may elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device by giving written notice thereof to Lessee, whereupon this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof.

30.2 [Intentionally Omitted.]

30.3 Non-Disturbance. With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee’s subordination of this Lease shall be subject to receiving a commercially reasonable non-disturbance agreement (a “ Non-Disturbance Agreement ”) from the Lender which Non-Disturbance Agreement provides that Lessee’s possession of the Premises, and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises.

30.4 Self-Executing. The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that, upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of the Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any subordination, attornment and/or Non-Disturbance Agreement provided for herein.

31. Attorneys’ Fees . If any Party or Broker brings an action or proceeding involving the Premises whether founded in tort, contract or equity, or to declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be

 

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entitled to reasonable attorneys’ fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term, “ Prevailing Party ” shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense. The attorneys’ fees award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys’ fees reasonably incurred.

32. Lessor’s Access; Showing Premises; Repairs. Lessor and Lessor’s agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times after reasonable prior notice for the purpose of showing the same to prospective purchasers, lenders, or tenants. All such activities shall be without abatement of rent or liability to Lessee.

33. Auctions. Lessee shall not conduct, nor permit to be conducted, any auction upon the Premises without Lessor’s prior written consent. Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to permit an auction.

34. Signs. Lessor may place on the Premises ordinary “For Sale” signs at any time and ordinary “For Lease” signs and any signs reflected on Exhibit A during the last 6 months of the term hereof. Except for ordinary “for sublease” signs, Lessee shall not place any sign upon the Premises without Lessor’s prior written consent. All signs must comply with all Applicable Requirements.

35. Termination; Merger. Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate in the Premises; provided, however, that Lessor may elect to continue any one or all existing subtenancies. Lessor’s failure within 10 days following any such event to elect to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor’s election to have such event constitute the termination of such interest.

36. Consents. Except as otherwise provided herein, wherever in this Lease the consent of a Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed. Lessor’s actual reasonable costs and expenses (including but not limited to architects’, attorneys’, engineers’ and other consultants’ fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor consent, including but not limited to consents to an assignment, a subletting or the presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt of an invoice and supporting documentation therefor; provided, however, that Lessor shall notify Lessee of the amount of such costs or expenses prior to incurring same, and Lessee may, after receipt thereof, modify or withdraw its request. Lessor’s consent to any act, assignment or subletting shall not constitute an acknowledgment that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent. The failure to specify herein any particular condition to Lessor’s consent shall not preclude the imposition by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given.

 

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In the event that either Party disagrees with any determination made by the other hereunder and reasonably requests the reasons for such determination, the determining party shall furnish its reasons in writing and in reasonable detail within 10 business days following such request.

37. [Intentionally Omitted.]

38. Quiet Possession . Subject to payment by Lessee of the Rent and performance of all of the covenants, conditions and provisions on Lessee’s part to be observed and performed under this Lease, Lessee shall have quiet possession and quiet enjoyment of the Premises during the term hereof.

39. Options. If Lessee is granted an Option, as defined below, then the following provisions shall apply:

39.1 Definition. Option ” shall mean: (a) the right to extend or reduce the term of or renew this Lease or to extend or reduce the term of or renew any lease that Lessee has on other property of Lessor; (b) the right of first refusal or first offer to lease either the Premises or other property of Lessor; (c) the right to purchase, the right of first offer to purchase or the right of first refusal to purchase the Premises or other property of Lessor.

39.2 Options Not Personal To Original Lessee. Any Option granted to Lessee in this Lease may be exercised by any of Lessee’s successors or assigns.

39.3 Multiple Options. In the event that Lessee has any multiple Options to extend or renew this Lease, a later Option cannot be exercised unless the prior Options have been validly exercised.

39.4 Effect of Default on Options.

(a) Lessee shall have no right to exercise an Option during the time Lessee is in Breach of this Lease.

(b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee’s inability to exercise an Option because of the provisions of Paragraph 39.4(a).

40. [Intentionally Omitted.]

41. Security Measures. Lessee hereby acknowledges that the Rent payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties.

42. Reservations. Lessor reserves to itself the right, from time to time, to grant, without the consent or joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights, dedications, maps and restrictions do not unreasonably interfere with the use of the Premises by Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate any such easement rights, dedication, map or restrictions.

 

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43. Performance Under Protest. If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment “under protest” and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay.

44. Authority; Multiple Parties; Execution.

(a) If either Party hereto is a corporation, trust, limited liability company, partnership, or similar entity, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf.

(b) If this Lease is executed by more than one person or entity as “Lessee”, each such person or entity shall be jointly and severally liable hereunder. It is agreed that any one of the named Lessees shall be empowered to execute any amendment to this Lease, or other document ancillary thereto and bind all of the named Lessees, and Lessor may rely on the same as if all of the named Lessees had executed such document.

(c) This Lease may be executed by the Parties in counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.

45. Conflict. Any conflict between the printed provisions of this Lease and typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions.

46. Offer. Preparation of this Lease by either Party or their agent and submission of same to the other Party shall not be deemed an offer to lease to the other Party. This Lease is not intended to be binding until executed and delivered by all Parties hereto.

47. Amendments. This Lease may be modified only in writing, signed by the Parties in interest at the time of the modification.

48. Waiver of Jury Trial. THE PARTIES HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING INVOLVING THE PROPERTY OR ARISING OUT OF THIS AGREEMENT.

49. [Intentionally Omitted.]

50. Americans with Disabilities Act. Lessor represents and warrants that, as of the Commencement Date, the Premises comply with the Americans with Disabilities Act, as amended (ADA).

 

28


LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES.

51. Amendment and Restatement. This Lease amends, restates and supersedes in its entirety that certain Standard Industrial/Commercial Single-Tenant Lease—Net, dated as of June 15, 2009, relating to the Premises.

ATTENTION : NO REPRESENTATION OR RECOMMENDATION IS MADE BY ANY BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO:

1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.

2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE SUITABILITY OF THE PREMISES FOR LESSEE’S INTENDED USE.

WARNING : IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE STATE IN WHICH THE PREMISES IS LOCATED.

[SIGNATURE PAGE FOLLOWS]

 

29


The parties hereto have executed this Lease at the place and on the dates specified above their respective signatures.

 

Executed at:         Executed at:    
On:   May 23, 2011     On:   May 23, 2011

By LESSOR:

Salma Jason Monica Limited Partnership

   

By LESSEE:

SeaSpine, Inc.

   
By:   /s/ Thomas T. Haider     By:   /s/ John B. Henneman
Name Printed:   Thomas T. Haider, Trustee of     Name Printed:   John B. Henneman, III
  THE HAIDER FAMILY      
  TRUST DATED      
  SEPTEMBER 3, 1999      
Title:   As General Partner     Title:   Vice President, Treasurer and Assistant Secretary

 

Address:   P.O. Box 8910     Address:   311 Enterprise Drive
  Rancho Santa Fe, CA 92067       Plainsboro, NJ 08536
Attention:         Attention:   General Counsel
Telephone:   (310) 699-8390     Telephone:   (609) 936-2238
Facsimile:   (951) 413-0206     Facsimile:   (609) 275-9006

 

S-1

(Signature Page to Lease, 2384 La Miranda)


ADDENDUM

THIS IS AN ADDENDUM TO THAT CERTAIN AMENDED AND RESTATED LEASE, DATED May 23, 2011 (THE “LEASE”), BY AND BETWEEN SALMA JASON MONICA LIMITED PARTNERSHIP (“LESSOR”) AND SEASPINE, INC. (“LESSEE”) FOR THE PROPERTY LOCATED AT 2384 LA MIRADA, VISTA, CALIFORNIA 92018.

52. Monthly Rent Amounts. The monthly Base Rent under this Lease shall be in the amounts set forth below next to the applicable month:

 

May  23 , 2011 through November 30, 2011

$ 27,713.89   

December 1, 2011 through November 30, 2012

$ 28,545.30   

December 1, 2012 through November 30, 2013

$ 29,401.66   

December 1, 2013 through November 30, 2014

$ 30,283.71   

December 1, 2014 through November 30, 2015

$ 31,192.22   

December 1, 2015 through May  23 ,2016

$ 32,127.99   

If Lessee exercises its First Extension Option, the monthly Base Rent under this Lease shall be in the amounts set forth below next to the applicable month during the First Extension Term:

 

May  23 , 2016 through November 30, 2016

$ 32,127.99   

December 1, 2016 through November 30, 2017

$ 33,091.83   

December 1, 2017 through November 30, 2018

$ 34,084.58   

December 1, 2018 through November 30, 2019

$ 35,107.12   

December 1, 2019 through November 30, 2020

$ 36,160.33   

December 1, 2020 through May  23 , 2021

$ 37,245.14   

If Lessee exercises its Second Extension Option, the monthly Base Rent under this Lease shall be in the amounts set forth below next to the applicable month during the Second Extension Term:

 

May  23 , 2021 through November 1, 2021

$ 37,245.14   

December 1, 2021 through November 30, 2022

$ 38,362.49   

December 1, 2022 through November 30, 2023

$ 39,513.36   

December 1, 2023 through November 30, 2024

$ 40,698.76   

December 1, 2024 through November 30, 2025

$ 41,919.72   

December 1, 2025 through May  23 , 2026

$ 43,177.31   

53. Options to Renew. Lessee shall have the right to renew this Lease (“First Extension Option”) for one (1) five (5) year term (the “First Extension Term”) by providing Lessor with notice of its exercise of such right at least thirty (30) days prior to the end of the Original Term. Lessee shall have the right to renew this Lease (“Second Extension Option”) for an additional five (5) year term (the “Second Extension Term”) by providing Lessor with notice of its exercise of such right at least thirty (30) days prior to the end of the First Extension Term.

54. Incorporation by Reference. The terms and conditions of this Addendum are hereby incorporated into the Lease as if set forth at length therein.

Addendum-1

(Lease)


Date: May 23, 2011                    

 

LESSOR:

Salma Jason Monica Limited Partnership

   

LESSEE:

SeaSpine, Inc.

   
By:   /s/ Thomas T. Haider     By:   /s/ John B. Henneman
Name:   Thomas T. Haider, Trustee of THE     Name:   John B. Henneman, III
  HAIDER FAMILY TRUST DATED      
  SEPTEMBER 3, 1999      
Title:   As General Partner     Title:   Vice President, Treasurer and Assistant Secretary

 

Addendum-2

(Lease)

Exhibit 10.16

AMENDED AND RESTATED LEASE

1. Basic Provisions (“Basic Provisions”).

1.1 Parties: This Amended and Restated Lease (“ Lease ”), dated for reference purposes only May  23 , 2011, is made by and between Salma Jason Monica Limited Partnership (“ Lessor ”) and SeaSpine, Inc. (“ Lessee ”), (collectively the “ Parties ,” or individually a “ Party ”).

1.2 Premises: That certain real property, including all improvements therein or to be provided by Lessor under the terms of this Lease, and commonly known as 2302 La Mirada, Vista, California 92081, located in the County of San Diego, State of California, and generally described as 22,303 Square Foot Industrial/Office Building located in the Burke Sycamore Business Center, Vista, California, (“ Premises ”). (See also Paragraph 2)

1.3 Term: 5 years and 0 months (“ Original Term ”) commencing May  23 , 2011 (“ Commencement Date ”) and ending May  23 , 2016 (“ Expiration Date ”). (See also Paragraph 3)

1.4 Early Possession: If the Premises are available Lessee may have non-exclusive possession of the Premises commencing     N/A     (“ Early Possession Date ”). (See also Paragraphs 3.2 and 3.3)

1.5 Base Rent: $34,620.24 per month (“ Base Rent ”), payable on the 1st day of each month commencing June 1, 2011. (See also Paragraph 4)

There are provisions in this Lease for the Base Rent to be adjusted. See Paragraph 52

1.6 Security Deposit: $34,620.24 (“ Security Deposit ”). (See also Paragraph 5)

1.7 Agreed Use: Office/R&D/Lab/Storage/Warehouse. (See also Paragraph 6)

1.8 Insuring Party: Lessor is the “ Insuring Party ” unless otherwise stated herein. (See also Paragraph 8)

1.9 Real Estate Brokers: (See also Paragraph 15)

(a) Representation: The following real estate brokers (the “ Brokers ”) and brokerage relationships exist in this transaction (check applicable boxes):

N/A         represents Lessor exclusively (“ Lessor’s Broker ”);

N/A         represents Lessee exclusively (“ Lessee’s Broker ”); or

N/A         represents both Lessor and Lessee (“ Dual Agency ”).

(b) Payment to Brokers: Upon execution and delivery of this Lease by both Parties, Lessor shall pay to the Broker the fee agreed to in their separate written agreement (or if there is no such agreement, the sum of None or None % of the total Base Rent) for the brokerage services rendered by Brokers.


1.10 Guarantor. The obligations of the Lessee under this Lease are to be guaranteed by     N/A     (“ Guarantor ”). (See also Paragraph 37)

1.11 Attachments. Attached hereto are the following, all of which constitute a part of this Lease:

(i) an Addendum consisting of Paragraphs 52 through 54;

(ii) a current set of the Rules and Regulations;

(iii) Exhibit A.

2. Premises.

2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease. Unless otherwise provided herein, any statement of size set forth in this lease, or that may have been used in calculating Rent, is an approximation which the Parties agree is reasonable and any payments based thereon are not subject to revision whether or not the actual size is more or less. Note: Lessee is advised to verify the actual size prior to executing this Lease.

2.2 Condition. Lessor shall deliver the Premises to Lessee on the Commencement Date or the Early Possession Date, whichever first occurs (“ Start Date ”), and Lessor warrants that the existing electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air conditioning systems (“ HVAC ”), loading doors, sump pumps, if any, and all other such elements in the Premises, other than those constructed by Lessee, shall be in good operating condition on said date, that the structural elements of the roof, bearing walls and foundation of any buildings on the Premises (the “ Building ”) shall be free of material defects, and that the Premises do not contain hazardous levels of any mold or fungi defined as toxic under applicable state or federal law. If a non-compliance with said warranty exists as of the Start Date, or if one of such systems or elements should malfunction or fail, Lessor shall promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, malfunction or failure, rectify same at Lessor’s cost and expense.

2.3 Compliance. Lessor warrants that as of the Commencement Date, the improvements on the Premises comply with the building codes, applicable laws, covenants or restrictions of record, regulations, and ordinances (“ Applicable Requirements ”). Said warranty does not apply to the use to which Lessee will put the Premises, modifications which may be required by the Americans with Disabilities Act or any similar laws as a result of Lessee’s use (see Paragraph 50), or to any Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to be made by Lessee. NOTE: Lessee is responsible for determining whether or not the Applicable Requirements, and especially the zoning, are appropriate for Lessee’s intended use, and acknowledges that past uses of the Premises may no longer be allowed. If the Premises do not comply with said warranty, Lessor shall, except as otherwise provided, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify the same at Lessor’s cost and expense. If the Applicable

 

2


Requirements are hereafter changed so as to require during the term of this Lease the construction of an addition to or an alteration of the Premises and/or Building, the remediation of any Hazardous Substance, or the reinforcement or other physical modification of the Unit, Premises and/or Building (“ Capital Expenditure ”), Lessor and Lessee shall allocate the cost of such work as follows:

(a) Subject to Paragraph 2.3(c) below, if such Capital Expenditures are required as a result of the specific and unique use of the Premises by Lessee as compared with uses by tenants in general, Lessee shall be fully responsible for the cost thereof, provided, however that if such Capital Expenditure is required during the last year of this Lease and the cost thereof exceeds 6 months’ Base Rent, Lessee may instead terminate this Lease unless Lessor notifies Lessee, in writing, within 10 days after receipt of Lessee’s termination notice that Lessor has elected to pay the actual cost thereof. If Lessee elects termination, Lessee shall immediately cease the use of the Premises which requires such Capital Expenditure and deliver to Lessor written notice specifying a termination date at least 30 days thereafter. Such termination date shall, however, in no event be earlier than the last day that Lessee could legally utilize the Premises without commencing such Capital Expenditure.

(b) If such Capital Expenditure is not the result of the specific and unique use of the Premises by Lessee (such as, governmentally mandated seismic modifications), then Lessor shall pay for such Capital Expenditure.

(c) Notwithstanding the above, the provisions concerning Capital Expenditures are intended to apply only to non-voluntary, unexpected, and new Applicable Requirements. If the Capital Expenditures are instead triggered by Lessee as a result of an actual or proposed change in use, change in intensity of use, or modification to the Premises then, and in that event, Lessee shall either: (i) immediately cease such changed use or intensity of use and/or take such other steps as may be necessary to eliminate the requirement for such Capital Expenditure, or (ii) complete such Capital Expenditure at its own expense. Lessee shall not, however, have any right to terminate this Lease except as provided in Paragraph 2.3(b).

2.4 Acknowledgements. Lessee acknowledges that: (a) it has been advised by Lessor and/or Brokers to satisfy itself with respect to the size of the Premises and their suitability for Lessee’s intended use, (b) Lessee has made such investigation as it deems necessary with reference to such matters and subject to the representations and warranties made by Lessor in this Lease, assumes all responsibility therefor as the same relate to its occupancy of the Premises, and (c) neither Lessor, Lessor’s agents, nor Brokers have made any oral or written representations or warranties with respect to said matters other than as set forth in this Lease. In addition, Lessor acknowledges that: (i) Brokers have made no representations, promises or warranties concerning Lessee’s ability to honor the Lease or suitability to occupy the Premises, and (ii) it is Lessor’s sole responsibility to investigate the financial capability and/or suitability of all proposed tenants.

2.5 [Intentionally Omitted.]

 

3


3. Term.

3.1 Term. The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3.

3.2 [Intentionally Omitted.]

3.3 [Intentionally Omitted.]

3.4 [Intentionally Omitted.]

4. Rent.

4.1 Rent Defined. All monetary obligations of Lessee to Lessor under the terms of this Lease (except for the Security Deposit) are deemed to be rent (“ Rent ”).

4.2 Payment. Lessee shall cause payment of Rent to be received by Lessor in lawful money of the United States on or before the day on which it is due, without offset or deduction (except as specifically permitted in this Lease). Rent for any period during the term hereof which is for less than one full calendar month shall be prorated based upon the actual number of days of said month. Payment of Rent shall be made to Lessor at its address stated herein or to such other persons or place as Lessor may from time to time designate in writing. Acceptance of a payment which is less than the amount then due shall not be a waiver of Lessor’s rights to the balance of such Rent, regardless of Lessor’s endorsement of any check so stating. In the event that any check, draft, or other instrument of payment given by Lessee to Lessor is dishonored for any reason, Lessee agrees to pay to Lessor the sum of $25 in addition to any Late Charge and Lessor, at its option, may require all future payments to be made by Lessee to be by cashier’s check. Payments will be applied first to accrued late charges and reasonable, out-of-pocket attorney’s fees, second to accrued interest, then to Base Rent, Insurance and Real Property Taxes, and any remaining amount to any other outstanding charges or costs.

4.3 Association Fees. In addition to the Base Rent, Lessee shall pay directly to any owner’s association each month an amount equal to any owner’s association or condominium fees levied or assessed against the Premises. Said monies shall be paid at the time required under the applicable association document.

5. Security Deposit . Lessee has deposited with Lessor the Security Deposit as security for Lessee’s faithful performance of its obligations under this Lease. If Lessee fails to pay Rent when due, or otherwise Breaches this Lease, Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount already due Lessor, and/or to reimburse or compensate Lessor for any liability, expense, loss or damage which Lessor may have suffered or incurred by reason thereof. If Lessor uses or applies all or any portion of the Security Deposit, Lessee shall within 10 days after written request therefor deposit monies with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease. Lessor shall not be required to keep the Security Deposit separate from its general accounts. Within 10 days after the expiration or termination of this Lease, Lessor shall return that portion of the Security Deposit not used or applied by Lessor. No part of the Security Deposit shall be considered to be held in trust, to bear interest or to be prepayment for any monies to be paid by Lessee under this Lease.

 

4


6. Use.

6.1 Use. Lessee shall use and occupy the Premises only for the Agreed Use, or any other legal use which is reasonably comparable thereto, and for no other purpose. Lessee shall not use or permit the use of the Premises in a manner that is unlawful, creates damage, waste or a nuisance, or that disturbs occupants of or causes damage to neighboring premises or properties. Lessor shall not unreasonably withhold or delay its consent to any written request for a modification of the Agreed Use, so long as the same will not impair the structural integrity of the improvements on the Premises or the mechanical or electrical systems therein, and/or is not significantly more burdensome to the Premises. If Lessor elects to withhold consent, Lessor shall within 7 days after such request give written notification of same, which notice shall include an explanation of Lessor’s objections to the change in the Agreed Use.

6.2 Hazardous Substances.

(a) Reportable Uses Require Consent. The term “ Hazardous Substance ” as used in this Lease shall mean any product, substance, or waste whose presence, use, manufacture, disposal, transportation, or release, either by itself or in combination with other materials expected to be on the Premises, is either: (i) potentially injurious to the public health, safety or welfare, the environment or the Premises, (ii) regulated or monitored by any governmental authority, or (iii) a basis for potential liability of Lessor to any governmental agency or third party under any applicable statute or common law theory. Hazardous Substances shall include, but not be limited to, hydrocarbons, petroleum, gasoline, and/or crude oil or any products, by-products or fractions thereof. Lessee shall not engage in any activity in or on the Premises which constitutes a Reportable Use of Hazardous Substances without the express prior written consent of Lessor and timely compliance (at Lessee’s expense) with all Applicable Requirements. Notwithstanding anything to the contrary contained herein, “ Hazardous Substances ” shall not include any supplies or substances used in connection with the installation, operation, maintenance or repair of sterilization machinery or cadaver laboratories. “ Reportable Use ” shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority, and/or (iii) the presence at the Premises of a Hazardous Substance with respect to which any Applicable Requirements requires that a notice be given to persons entering or occupying the Premises or neighboring properties. Notwithstanding the foregoing, Lessee may use any ordinary and customary materials reasonably required to be used in the normal course of the Agreed Use, ordinary office supplies (copier toner, liquid paper, glue, etc.) and common household cleaning materials, so long as such use is in compliance with all Applicable Requirements, is not a Reportable Use. In addition, Lessor may condition its consent to any Reportable Use upon receiving such additional assurances as Lessor reasonably deems necessary to protect itself, the public, the Premises and/or the environment against damage, contamination, injury and/or liability, including, but not limited to, the installation (and removal on or before Lease expiration or termination) of protective modifications (such as concrete encasements) and/or increasing the Security Deposit.

 

5


(b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance has come to be located in, on, under or about the Premises, other than as permitted under this Lease or as previously consented to by Lessor, Lessee shall promptly give written notice of such fact to Lessor, and provide Lessor with a copy of any report, notice, claim or other documentation which it has concerning the presence of such Hazardous Substance.

(c) Lessee Remediation. Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on, under, or about the Premises (including through the plumbing or sanitary sewer system) except as does not trigger any reporting requirement under Applicable Requirements and shall promptly, at Lessee’s expense, comply with all Applicable Requirements and take all investigatory and/or remedial action required under Applicable Requirements for the cleanup of any contamination of, and for the maintenance, security and/or monitoring of the Premises or neighboring properties, that was caused or materially contributed to by Lessee, or pertaining to or involving any Hazardous Substance brought onto the Premises during the term of this Lease, by or for Lessee, or any third party acting at the direction of Lessee.

(d) Lessee Indemnification. Lessee shall indemnify, defend and hold Lessor, its agents, employees, lenders and ground lessor, if any, harmless from and against any and all loss of rents and/or damages, liabilities, judgments, claims, expenses, penalties, and reasonable out-of-pocket attorneys’ and consultants’ fees arising out of or involving any Hazardous Substance brought onto the Premises by or for Lessee, or any third party (provided, however, that Lessee shall have no liability under this Lease with respect to underground migration of any Hazardous Substance under the Premises from adjacent properties not caused or contributed to by Lessee). Lessee’s obligations shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or suffered by Lessee, and the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease.

(e) Lessor Indemnification. Lessor and its successors and assigns shall indemnify, defend, reimburse and hold Lessee, its employees and lenders, harmless from and against any and all damages, liabilities, judgments, claims, expenses, penalties and reasonable out-of-pocket attorneys’ and consultants’ fees, including the cost of remediation, arising out of or involving any Hazardous Substances which existed on the Premises prior to the Commencement Date or which are caused by the gross negligence or willful misconduct of Lessor, its agents or employees. Lessor’s obligations shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment and the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease.

(f) Investigations and Remediations. Lessor shall retain the responsibility and pay for any investigations or remediation measures required by governmental entities having jurisdiction with respect to the existence of Hazardous Substances on the Premises prior to the Commencement Date. Lessee shall reasonably cooperate in any such activities at the request of Lessor, including allowing Lessor and Lessor’s agents to have reasonable access to the Premises at reasonable times in order to carry out Lessor’s investigative and remedial responsibilities, provided that Lessor and Lessor’s agents do not materially interfere with the conduct of Lessee’s business.

 

6


(g) [Intentionally Omitted.]

6.3 Lessee’s Compliance with Applicable Requirements. Except as otherwise provided in this Lease, Lessee shall, at Lessee’s sole expense, fully, diligently and in a timely manner, materially comply with all Applicable Requirements, the requirements of any applicable fire insurance underwriter or rating bureau, without regard to whether such Requirements are now in effect or become effective after the Start Date. Lessee shall promptly after receipt, notify Lessor in writing (with copies of any documents involved) of any actual written claim, notice, citation, warning, complaint or report pertaining to or involving the failure of Lessee or the Premises to comply with any Applicable Requirements.

6.4 Inspection; Compliance. Lessor and Lessor’s “ Lender ” (as defined in Paragraph 30) and consultants shall have the right to enter into Premises at any time, in the case of an emergency, and otherwise at reasonable times after reasonable notice, for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease, provided that neither Lessor nor Lessor’s Lenders shall materially interfere with the conduct of Lessee’s business. The cost of any such inspections shall be paid by Lessor. In addition, Lessee shall provide copies of all relevant material safety data sheets ( MSDS ) to Lessor within 10 business days of the receipt of a written request therefor.

7. Maintenance; Repairs, Utility Installations; Trade Fixtures and Alterations.

7.1 Lessee’s Obligations.

(a) In General. Subject to the provisions of Paragraph 2.2 (Condition), 2.3 (Compliance), 6.3 (Lessee’s Compliance with Applicable Requirements), 7.2 (Lessor’s Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at Lessee’s sole expense, keep the Premises (other than landscaping and irrigation systems), Utility Installations (intended for Lessee’s exclusive use, no matter where located), and Alterations in good order, condition and repair (whether or not the portion of the Premises requiring repairs, or the means of repairing the same, are reasonably or readily accessible to Lessee, and whether or not the need for such repairs occurs as a result of Lessee’s use, any prior use, the elements or the age of such portion of the Premises), including, but not limited to, all equipment or facilities, such as plumbing, HVAC equipment, electrical, lighting facilities, boilers, pressure vessels, fire protection system, fixtures, walls (other than structural walls), ceilings, roof drainage systems, windows, doors, plate glass, skylights, signs; provided, however, in no event shall Lessee be responsible for any of the foregoing to the extent the need for same arises from the gross negligence or willful misconduct of Lessor; provided, further, that in no event shall Lessee be required to replace any of the foregoing or any material component thereof. Lessee, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices, specifically including the procurement and maintenance of the service contracts required by Paragraph 7.1(b) below. Lessee’s obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair in light of their condition as of the

 

7


Commencement Date. Lessee shall, during the term of this Lease, keep the exterior appearance of the Building in a first-class condition (including, e.g. graffiti removal) consistent with the exterior appearance of other similar facilities of comparable age and size in the vicinity.

(b) Service Contracts. Lessee shall, at Lessee’s sole expense, procure and maintain contracts, in customary form and substance for, and with contractors specializing and experienced in the maintenance of the following equipment and improvements, if any, if and when installed on the Premises: (i) HVAC equipment, (ii) boiler, and pressure vessels, (iii) fire extinguishing systems, including fire alarm and/or smoke detection, (iv) roof covering and drains, and (v) clarifiers. Upon Lessor’s written request, Lessee shall provide copies of such contracts to Lessor.

(c) [Intentionally Omitted.]

(d) Replacement. Without relieving Lessee of liability resulting from Lessee’s failure to exercise and perform good maintenance practices, if an item described in Paragraph 7.1(b) cannot be repaired other than at a cost which is in excess of 30% of the cost of replacing such item, then such item shall be replaced by Lessor, at Lessor’s cost and expense.

7.2 Lessor’s Obligations. Lessor agrees, at its cost and expense, to be responsible for repairs to, maintenance of and replacements of the roof and the structural portions of the Premises (including, but not limited to, floors, columns, structural walls, foundation, roof, building footings and retaining walls) and all fences, landscaping, parking areas, driveways, parkways, sidewalks, irrigation systems on or serving the Premises; provided, however, in no event shall Lessor be responsible for any of the foregoing to the extent the need for same arises from the gross negligence or willful misconduct or Lessee.

7.3 Utility Installations; Trade Fixtures; Alterations.

(a) Definitions. The term “ Utility Installations ” refers to all floor and window coverings, air and/or vacuum lines, power panels, electrical distribution, security and fire protection systems, communication cabling, lighting fixtures, HVAC equipment, plumbing, and fencing in or on the Premises. The term “ Trade Fixtures ” shall mean Lessee’s machinery and equipment that can be removed without doing material damage to the Premises. The term “ Alterations ” shall mean any modification of the improvements, other than Utility Installations or Trade Fixtures, whether by addition or deletion. “ Lessee Owned Alterations and/or Utility Installations ” are defined as Alterations and/or Utility Installations made by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a).

(b) Consent. Except as permitted on Exhibit A attached hereto, Lessee shall not make any Alterations or Utility Installations to the Premises without Lessor’s prior written consent. Lessee may, however, make non-structural Alterations or Utility Installations to the interior of the Premises (excluding the roof) without such consent but upon notice to Lessor, as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof or any existing walls, will not affect the electrical, plumbing, HVAC, and/or life safety systems, and the cumulative cost thereof during this Lease as extended does not exceed a sum equal to $100,000 in any one year. Notwithstanding the foregoing, Lessee shall not make or

 

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permit any roof penetrations and/or install anything on the roof without the prior written approval of Lessor. Lessor may, as a precondition to granting such approval, require Lessee to utilize a contractor chosen and/or approved by Lessor. Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with reasonably detailed plans. Consent shall be deemed conditioned upon Lessee’s: (i) acquiring all applicable governmental permits, (ii) furnishing Lessor with copies of both the permits and the plans and specifications, if any, prior to commencement of the work, and (iii) compliance with all conditions of said permits and other Applicable Requirements in a prompt and expeditious manner. Any Alterations or Utility Installations shall be performed in a workmanlike manner with good and sufficient materials. Lessee shall promptly upon completion furnish Lessor with as-built plans and specifications, if any.

(c) Liens; Bonds. Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or may be secured by any mechanic’s or materialmen’s lien against the Premises or any interest therein. Lessee shall give Lessor not less than 10 days notice prior to the commencement of any work in, on or about the Premises, and Lessor shall have the right to post notices of non-responsibility. If Lessee shall contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof.

7.4 Ownership; Removal; Surrender; and Restoration.

(a) Ownership. All Alterations and Utility Installations made by Lessee shall be the property of Lessee, but considered a part of the Premises. Lessor may, at any time, elect in writing to be the owner of all or any specified part of the Lessee Owned Alterations and Utility Installations. All Lessee Owned Alterations and Utility Installations shall, at the expiration or termination of this Lease, become the property of Lessor and be surrendered by Lessee with the Premises.

(b) [Intentionally Omitted.]

(c) Surrender; Restoration. Lessee shall surrender the Premises by the Expiration Date or any earlier termination date, with all of the improvements, parts and surfaces thereof broom clean and free of debris, and in good operating order, condition and state of repair, ordinary wear and tear excepted. “Ordinary wear and tear” shall not include any damage or deterioration that would have been prevented by good maintenance practice. Lessee shall repair any damage occasioned by the installation, maintenance or removal of Trade Fixtures, furnishings, and equipment as well as the removal of any storage tank installed by or for Lessee. Lessee shall completely remove from the Premises any and all Hazardous Substances brought onto the Premises by or for Lessee, or any third party (except Hazardous Substances which were deposited via underground migration from areas outside of the Premises) even if such removal would require Lessee to perform or pay for work that exceeds statutory requirements. Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee. Any personal property of Lessee not removed on or before the Expiration Date or any earlier termination date shall be deemed to have been abandoned by Lessee and may be disposed of or retained by Lessor as Lessor may desire. The failure by Lessee to timely vacate the Premises pursuant to this Paragraph 7.4(c) without the express written consent of Lessor shall constitute a holdover under the provisions of Paragraph 26 below.

 

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8. Insurance; Indemnity.

8.1 Payment For Insurance. Lessee shall pay for all insurance required under Paragraph 8 except for any liability insurance carried by Lessor under Paragraph 8.2(b). Premiums for policy periods commencing prior to or extending beyond the Lease term shall be prorated to correspond to the Lease term. Payment shall be made by Lessee to Lessor within 10 days following receipt of an invoice.

8.2 Liability Insurance.

(a) Carried by Lessee. Lessee shall obtain and keep in force a Commercial General Liability policy of insurance protecting Lessee and Lessor as an additional insured against claims for bodily injury, personal injury and property damage based upon or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $1,000,000 per occurrence with an annual aggregate of not less than $2,000,000. Lessee shall add Lessor as an additional insured by means of an endorsement. The policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an “ insured contract ” for the performance of Lessee’s indemnity obligations under this Lease subject to the terms, conditions and exclusions of such policy. The limits of said insurance shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. Lessee shall provide an endorsement on its liability policy(ies) which provides that its insurance shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only.

(b) Carried by Lessor. Lessor shall maintain, at Lessor’s cost and expense, liability insurance as described in Paragraph 8.2(a), in addition to, and not in lieu of, the insurance required to be maintained by Lessee. Lessee shall not be named as an additional insured therein.

8.3 Property Insurance - Building, Improvements and Rental Value.

(a) Building and Improvements. Lessor shall obtain and keep in force a policy or policies in the name of Lessor, with loss payable to Lessor, any ground-lessor, and to any Lender insuring loss or damage to the Premises. The amount of such insurance shall be equal to the full insurable replacement cost of the Premises, as the same shall exist from time to time, or the amount required by any Lender, but in no event more than the commercially reasonable and available insurable value thereof. Lessee Owned Alterations and Utility Installations, Trade Fixtures, and Lessee’s personal property shall be insured by Lessee not by Lessor. If the coverage is available and commercially appropriate, such policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood and/or earthquake unless required by a Lender), including coverage for debris removal and the

 

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enforcement of any Applicable Requirements requiring the upgrading, demolition, reconstruction or replacement of any portion of the Premises as the result of a covered loss. Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located. If such insurance coverage has a deductible clause, the deductible amount shall not exceed $5,000 per occurrence, and Lessee shall be liable for such deductible amount in the event of an Insured Loss.

(b) Rental Value. Lessee shall obtain and keep in force a policy or policies in the name of Lessee with loss payable to Lessor and any Lender, insuring the loss of the full Rent for the unexpired term of the Lease with a blanket limit of not less than $500,000.00. (“Rental Value insurance”). Said insurance shall contain an agreed valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected Rent otherwise payable by Lessee, for the next 12 month period. Lessee shall be liable for any deductible amount in the event of such loss.

8.4 Lessee’s Property; Business Interruption Insurance.

(a) Property Damage. Lessee shall obtain and maintain insurance coverage on all of Lessee’s personal property, Trade Fixtures, and Lessee Owned Alterations and Utility Installations. Such insurance shall be full replacement cost coverage. The proceeds from any such insurance shall be used by Lessee for the replacement of personal property, Trade Fixtures and Lessee Owned Alterations and Utility Installations. Lessee shall provide Lessor with written evidence that such insurance is in force.

(b) Business Interruption. Lessee shall obtain and maintain loss of income and extra expense insurance in amounts as will reimburse Lessee for direct or indirect loss of earnings attributable to all perils commonly insured against by prudent lessees in the business of Lessee or attributable to prevention of access to the Premises as a result of such perils.

(c) No Representation of Adequate Coverage. Lessor makes no representation that the limits or forms of coverage of insurance specified herein are adequate to cover Lessee’s property, business operations or obligations under this Lease.

8.5 Insurance Policies. Insurance required herein shall be by companies duly licensed or admitted to transact business in the state where the Premises are located, and maintaining during the policy term a “General Policyholders Rating” of at least A-, VII, as set forth in the most current issue of “Best’s Insurance Guide”, or such other rating as may be required by a Lender. Lessee shall not do or permit to be done anything which invalidates the required insurance policies. Lessee shall, prior to the Start Date, deliver to Lessor certificates evidencing the existence and amounts of the required insurance. No such policy shall be cancelable or subject to modification except after 30 days prior written notice to Lessor (10 days in the case of nonpayment or premiums). Lessee shall, at least 10 days prior to the expiration of such policies, furnish Lessor with evidence of renewals or “insurance binders” evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which

 

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amount shall be payable by Lessee to Lessor upon demand. Such policies shall be for a term of at least one year, or the length of the remaining term of this Lease, whichever is less. If either Party shall fail to procure and maintain the insurance required to be carried by it, the other Party may, but shall not be required to, procure and maintain the same.

8.6 Waiver of Subrogation. Without affecting any other rights or remedies, Lessee and Lessor each hereby release and relieve the other, and waive their entire right to recover damages against the other, for loss of or damage to its property arising out of or incident to the perils required to be insured against herein. The effect of such releases and waivers is not limited by the amount of insurance carried or required, or by any deductibles applicable hereto. The Parties agree to have their respective property damage insurance carriers waive any right to subrogation that such companies may have against Lessor or Lessee, as the case may be, so long as the insurance is not invalidated thereby.

8.7 Indemnity. Except for Lessor’s gross negligence or willful misconduct, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor’s master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, liens, judgments, penalties, reasonable out-of-pocket attorneys’ and consultants’ fees, expenses and/or liabilities arising out of, involving, or in connection with, the use and/or occupancy of the Premises by Lessee. If any action or proceeding is brought against Lessor by reason of any of the foregoing matters, Lessee shall upon notice defend the same at Lessee’s expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be defended or indemnified.

8.8 Exemption of Lessor and its Agents from Liability. Except as a result of Lessor’s negligence or willful misconduct, but subject to the provisions of paragraph 8.6, neither Lessor nor its agents shall be liable under any circumstances for: (i) injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessee’s employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the building of which the Premises are a part, or from other sources or places, (ii) any damages arising from any act or neglect of any other tenant of Lessor or from the failure of Lessor or its agents to enforce the provisions of any other lease, or (iii) injury to Lessee’s business or for any loss of income or profit therefrom.

8.9 [Intentionally Omitted.]

 

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9. Damage or Destruction.

9.1 Definitions.

(a) “ Premises Partial Damage ” shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, which can reasonably be repaired in 3 months or less from the date of the damage or destruction.

(b) “ Premises Total Destruction ” shall mean damage or destruction to the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which cannot reasonably be repaired in 3 months or less from the date of the damage or destruction.

(c) “ Insured Loss ” shall mean damage or destruction to improvements on the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits involved.

(d) “ Replacement Cost ” shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of Applicable Requirements, and without deduction for depreciation.

(e) “ Hazardous Substance Condition ” shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by, a Hazardous Substance , in, on, or under the Premises which requires remediation under Applicable Requirements.

9.2 Partial Damage - Insured Loss. If a Premises Partial Damage that is an Insured Loss occurs, then Lessor shall, at Lessor’s expense, repair such damage (but not Lessee’s Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect; provided, however, that Lessee shall, at Lessor’s election, make the repair of any damage or destruction the total cost to repair of which is $10,000 or less, and, in such event, Lessor shall make any applicable insurance proceeds available to Lessee on a reasonable basis for that purpose. Notwithstanding the foregoing, if the required insurance was not in force or the insurance proceeds are not sufficient to effect such repair, the Insuring Party shall promptly contribute the shortage in proceeds (except as to the deductible which is Lessee’s responsibility) as and when required to complete said repairs. Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either Party.

9.3 Partial Damage - Uninsured Loss. If a Premises Partial Damage that is not an Insured Loss occurs, unless caused by Lessee’s gross negligence or willful act (in which event Lessee shall make the repairs at Lessee’s expense), or if a Premises Partial Damage that is due to flood or earthquake occurs, Lessor shall repair such damage as soon as reasonably possible at Lessor’s expense. Upon Lessee’s written request, Lessor shall provide evidence reasonably

 

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acceptable to Lessee that Lessor has the funds necessary to pay for the costs of such repairs, and upon Lessee’s written request, Lessor shall deposit such funds into an escrow account under the terms and conditions reasonably acceptable to Lessee. If Lessor fails to provide such evidence or make such deposit, in each case within five (5) days after the applicable request, then Lessee may, by written notice to Lessor terminate this Lease, effective thirty (30) days after such termination notice.

9.4 Total Destruction. Notwithstanding any other provision hereof, if a Premises Total Destruction occurs, this Lease shall terminate 60 days following such Destruction.

9.5 Damage Near End of Term. If at any time during the last 6 months of this Lease there is damage for which the cost to repair exceeds one month’s Base Rent, whether or not an Insured Loss, Lessor or Lessee may terminate this Lease effective 60 days following the date of occurrence of such damage by giving a written termination notice to the other within 30 days after the date of occurrence of such damage. Notwithstanding the foregoing, if Lessee at that time has an exercisable option to extend this Lease or to purchase the Premises, then Lessee may preserve this Lease by, (a) exercising such option and (b) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs on or before the earlier of (i) the date which is 10 days after Lessee’s receipt of Lessor’s written notice purporting to terminate this Lease, or (ii) the day prior to the date upon which such option expires. If Lessee duly exercises such option during such period and provides Lessor with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor’s commercially reasonable expense, repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option and provide such funds or assurance during such period, then this Lease shall terminate on the date specified in the termination notice and Lessee’s option shall be extinguished.

9.6 Abatement of Rent; Lessee’s Remedies.

(a) Abatement. In the event of Premises Partial Damage or Premises Total Destruction or a Hazardous Substance Condition for which Lessee is not responsible under this Lease, the Rent payable by Lessee for the period required for the repair, remediation or restoration of such damage shall be abated in an amount bearing the same ratio to the total amount of Rent as the number of square feet in the portion of the Building that is not usable by Lessee for the conduct of its business as a result of such event bears to the total number of square feet in the Building. All other obligations of Lessee hereunder shall be performed by Lessee, and Lessor shall have no liability for any such damage, destruction, remediation, repair or restoration except as provided herein.

(b) Remedies. If Lessor is obligated to repair or restore the Premises and does not commence, in a substantial and meaningful way, such repair or restoration within 15 days after such obligation shall accrue and continue performing such repair or replacement to completion as soon as reasonably practicable, Lessee may, at any time prior to the commencement of such repair or restoration or upon the cessation by Lessor to continue performing such repair or replacement, give written notice to Lessor and to any Lenders of which Lessee has actual notice, of Lessee’s election to terminate this Lease on a date not less than 60 days following the giving of such notice. If Lessee gives such notice and such repair or

 

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restoration is not commenced (or recommenced) within 10 days thereafter, this Lease shall terminate as of the date specified in said notice. If the repair or restoration is commenced (or recommenced) within such 10 days, this Lease shall continue in full force and effect. “Commence” shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever first occurs.

9.7 Termination; Advance Payments. Upon termination of this Lease pursuant to Paragraph 9, an equitable adjustment shall be made concerning advance Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee’s Security Deposit as has not been, or is not then required to be, used by Lessor.

9.8 Waive Statutes. Lessor and Lessee agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premises with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extent inconsistent herewith.

10. Real Property Taxes.

10.1 Definition. As used herein, the term “ Real Property Taxes ” shall include any form of assessment; real estate, general, special, ordinary or extraordinary, or rental levy or tax (other than inheritance, personal or corporate income or estate taxes); improvement bond; and/or license fee imposed upon or levied against any legal or equitable interest of Lessor in the Premises, by any authority having the direct or indirect power to tax and where the funds are generated with reference to the Building address and where the proceeds so generated are to be applied by the city, county or other local taxing authority of a jurisdiction within which the Premises are located. Real Property Taxes shall also include any such tax (other than inheritance, personal or corporate income or estate taxes), fee, levy, assessment or charge, or any increase therein imposed during the term of this Lease; provided, however, that Lessee shall not be responsible for paying any increases in Real Property Taxes arising from a sale, refinancing or change in the ownership of the Premises that occurs during the initial 5-year term of this Lease, but Lessee shall be responsible for paying any increases in Real Property Taxes arising from a sale, refinancing or change in the ownership of the Premises that occurs during the First Extension Term or the Second Extension Term (if Lessee elects, in its sole discretion, to exercise either the First Extension Option or the Second Extension Option in accordance with Section 53 of Addendum A to this Lease).

10.2 Payment of Taxes. Within thirty (30) days after Lessor presents Lessee with evidence reasonably acceptable to Lessee that Lessor has paid Real Property Taxes with respect to the Premises, Lessee shall pay to Lessor the amount of such Real Property Taxes (other than amounts for which Lessee is not responsible in accordance with Section 10.1). If any installment of Real Property Taxes payable with respect to the Premises shall cover any period of time prior to the Commencement Date or after the termination of this Lease, Lessee’s share of such installment shall be prorated. Lessor or such agent of Lessor as Lessor may appoint, shall have the right, but not the obligation, to contest or appeal any assessment of Real Property Taxes with respect to the Premises. In the event that Lessor elects not to contest or appeal any assessment of Real Property Taxes with respect to the Premises, Lessee shall have the right, at Lessee’s sole cost and expense, to initiate such contest and/or appeal and conduct such reasonable actions in connection therewith until such time as resolution thereof is obtained by Lessee. Lessor shall send Lessee a copy of any assessment notice of Real property Taxes within 30 days after receipt thereof.

 

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10.3 Joint Assessment. Lessor represents and warrants that the Premises are assessed separately from all other property.

10.4 Personal Property Taxes. Lessee shall pay, prior to delinquency, all taxes assessed against and levied upon Lessee Owned Alterations, Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of Lessee. When possible, Lessee shall cause its Lessee Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor.

11. Utilities and Services . Lessee shall pay for all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon. Lessor represents and warrants that all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises are separately metered and/or billed. There shall be no abatement of rent and Lessor shall not be liable in any respect whatsoever for the inadequacy, stoppage, interruption or discontinuance of any utility or service due to riot, strike, labor dispute, breakdown, accident, repair or other cause beyond Lessor’s reasonable control or in cooperation with governmental request or directions.

12. Assignment and Subletting.

12.1 Lessor’s Consent Required.

(a) Except as set forth herein, Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or encumber (collectively, “ assign or assignment ”) or sublet all or any part of Lessee’s interest in this Lease or in the Premises without Lessor’s prior written consent.

(b) Notwithstanding anything to the contrary contained in this Lease, a change in ownership or control of the Lessee shall not constitute an assignment, transfer, mortgage, encumbrance or sublet requiring Landlord’s consent hereunder, so long as, after any such change (i) Lessee is, or is controlled by, Integra LifeSciences Holdings Corporation or Integra LifeSciences Corporation, or (ii) if clause (i) does not apply, the Lessee or person or entity controlling Lessee has a net worth equal to or greater than $10,000,000.

(c) Lessee may, without the consent of Landlord, (i) assign this Lease to any entity that controls, is controlled by, or is under common control with, Lessee or (ii) assign this Lease to any entity with a net worth greater than or equal to $10,000,000 at the time of such assignment or (y) sublease all or any portion of the Premises to any wholly-owned direct or indirect subsidiary of Lessee.

(d) An assignment or subletting without consent, if required, shall, at Lessor’s option, be a Default curable after notice per Paragraph 13.1(c), or a noncurable Breach without the necessity of any notice and grace period. If Lessor elects to treat such unapproved assignment or subletting as a noncurable Breach, Lessor may either: (i) terminate this Lease, or (ii) upon 30 days written notice, increase the monthly Base Rent to 110% of the Base Rent then in effect.

 

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(e) Lessee’s remedy for any breach of Paragraph 12.1 by Lessor shall be limited to compensatory damages and/or injunctive relief.

(f) Without limiting the foregoing, Lessor hereby consents to, and waives any right to terminate or cancel the Lease as a result of the consummation of the transactions contemplated under the Stock Purchase Agreement, dated as of May  23 , 2011, by and among Dr. Thomas Haider, the other sellers parties thereto, SeaSpine, Inc., and Integra LifeSciences Corporation.

12.2 Terms and Conditions Applicable to Assignment and Subletting.

(a) Regardless of Lessor’s consent, if required, no assignment or subletting shall: (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of any obligations hereunder, or (iii) alter the primary liability of Lessee for the payment of Rent or for the performance of any other obligations to be performed by Lessee.

(b) Lessor may accept Rent or performance of Lessee’s obligations from any person other than Lessee pending approval or disapproval of an assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of Rent or performance shall constitute a waiver or estoppel of Lessor’s right to exercise its remedies for Lessee’s Default or Breach.

(c) Lessor’s consent to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting.

(d) In the event of any Default or Breach by Lessee, Lessor may proceed directly against Lessee, any Guarantors or anyone else responsible for the performance of Lessee’s obligations under this Lease, including any assignee or sublessee, without first exhausting Lessor’s remedies against any other person or entity responsible therefor to Lessor, or any security held by Lessor.

(e) Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor’s determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises, if any, together with a fee of $500 as consideration for Lessor’s considering and processing said request. Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested. (See also Paragraph 36)

(f) Any assignee of, or sublessee under, this Lease shall, by reason of accepting such assignment, entering into such sublease, or entering into possession of the Premises or any portion thereof, be deemed to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease.

 

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(g) Lessor’s consent to any assignment or subletting shall not transfer to the assignee or sublessee any Option granted to the original Lessee by this Lease unless such transfer is specifically consented to by Lessor in writing. (See Paragraph 39.2)

12.3 Additional Terms and Conditions Applicable to Subletting. The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein:

(a) Lessee hereby assigns and transfers to Lessor all of Lessee’s interest in all Rent payable on any sublease, and Lessor may collect such Rent and apply same toward Lessee’s obligations under this Lease; provided, however, that until a Breach shall occur in the performance of Lessee’s obligations, Lessee may collect said Rent. In the event that the amount collected by Lessor exceeds Lessee’s then outstanding obligations any such excess shall be refunded to Lessee. Lessor shall not, by reason of the foregoing or any assignment of such sublease, nor by reason of the collection of Rent, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee’s obligations to such sublessee. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee’s obligations under this Lease, to pay to Lessor all Rent due and to become due under the sublease. Sublessee shall rely upon any such notice from Lessor and shall pay all Rents to Lessor without any obligation or right to inquire as to whether such Breach exists, notwithstanding any claim from Lessee to the contrary.

(b) In the event of a Breach by Lessee, Lessor may, at its option, require sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor (unless actually received by Lessor) or for any prior Defaults or Breaches of such sublessor.

(c) [Intentionally Omitted.]

(d) No sublessee shall further assign or sublet all or any part of the Premises without Lessor’s prior written consent, if required.

13. Default; Breach; Remedies.

13.1 Default; Breach. A “ Default ” is defined as a failure by the Lessee to comply with or perform any of the terms, covenants, conditions or Rules and Regulations under this Lease. A “ Breach ” is defined as the occurrence of one or more of the following Defaults, and the failure of Lessee to cure such Default within any applicable grace period:

(a) The vacating of the Premises without providing a commercially reasonable level of security, or where the coverage of the property insurance described in Paragraph 8.3 is jeopardized as a result thereof, or without providing reasonable assurances to minimize potential vandalism.

 

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(b) The failure of Lessee to make any payment of Rent or any Security Deposit required to be made by Lessee hereunder, whether to Lessor or to a third party, when due, or to provide reasonable evidence of insurance or where such failure continues for a period of 5 business days following written notice to Lessee.

(c) The failure by Lessee to provide (i) the service contracts required under Paragraph 7.1(b), (ii) the rescission of an unauthorized assignment or subletting, (iii) a requested subordination pursuant to Paragraph 30, (iv) any document requested under Paragraph 42 or (v) material safety data sheets (MSDS) as required under Paragraph 10.4 where any such failure continues for a period of 30 days following written notice to Lessee.

(d) A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof, other than those described in subparagraphs 13.1(a), (b), (c) or (d), above, where such Default continues for a period of 30 days after written notice; provided, however, that if the nature of Lessee’s Default is such that more than 30 days are reasonably required for its cure, then it shall not be deemed to be a Breach if Lessee commences such cure within said 30 day period and thereafter diligently prosecutes such cure to completion.

(e) The occurrence of any of the following events with respect to Lessee: (i) the making of any general arrangement or assignment for the benefit of creditors; (ii) becoming a “ debtor ” as defined in 11 U.S.C. §101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within 60 days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee’s assets located at the Premises or of Lessee’s interest in this Lease, where possession is not restored to Lessee within 60 days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee’s assets located at the Premises or of Lessee’s interest in this Lease, where such seizure is not discharged within 60 days; provided, however, in the event that any provision of this subparagraph is contrary to any applicable law, such provision shall be of no force or effect, and not affect the validity of the remaining provisions.

(f) [Intentionally Omitted.]

(g) [Intentionally Omitted.]

13.2 Remedies. If a Breach occurs and continues, Lessor may, at its option, perform such duty or obligation on Lessee’s behalf. Lessee shall pay to Lessor an amount equal to the costs and expenses incurred by Lessor in such performance upon receipt of an invoice therefor. In the event a Breach occurs and continues, Lessor may, with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach:

 

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(a) Terminate Lessee’s right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession to Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the unpaid Rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all damages proximately caused by the Lessee’s failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, reasonable out-of-pocket attorneys’ fees, and that portion of any leasing commission paid by Lessor in connection with this Lease applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the immediately preceding sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of the District within which the Premises are located at the time of award plus one percent. Efforts by Lessor to mitigate damages caused by Lessee’s Breach of this Lease shall not waive Lessor’s right to recover damages under Paragraph 12. If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding any unpaid Rent and damages as are recoverable therein, or Lessor may reserve the right to recover all or any part thereof in a separate suit. If a notice and grace period required under Paragraph 13.1 was not previously given, a notice to pay rent or quit, or to perform or quit given to Lessee under the unlawful detainer statute shall also constitute the notice required by Paragraph 13.1. In such case, the applicable grace period required by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and the failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute.

(b) Continue the Lease and Lessee’s right to possession and recover the Rent as it becomes due, in which event Lessee may sublet or assign, subject only to the provisions of Paragraph 12. Acts of maintenance, efforts to relet, and/or the appointment of a receiver to protect the Lessor’s interests, shall not constitute a termination of the Lessee’s right to possession.

(c) Pursue any other remedy now or hereafter available under the laws or judicial decisions of the state wherein the Premises are located. The expiration or termination of this Lease and/or the termination of Lessee’s right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee’s occupancy of the Premises.

13.3 [Intentionally Omitted.]

13.4 [Intentionally Omitted.]

 

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13.5 Interest. Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor, 5 business days after the due date as to scheduled payments (such as Base Rent) or within 30 days following the date on which it was due for non-scheduled payment, shall bear interest from the date when due, as to scheduled payments, or the 31st day after it was due as to non-scheduled payments. The interest (“ Interest ”) charged shall be computed at the rate of 10% per annum but shall not exceed the maximum rate allowed by law. Interest is payable in addition to the potential late charge provided for in Paragraph 13.4.

13.6 Breach by Lessor.

(a) Notice of Breach. Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph, a reasonable time shall in no event be more than 30 days after receipt by Lessor, and any Lender whose name and address shall have been furnished Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that if the nature of Lessor’s obligation is such that more than 30 days are reasonably required for its performance, then Lessor shall not be in breach if performance is commenced within such 30 day period and thereafter diligently pursued to completion.

(b) Performance by Lessee on Behalf of Lessor. In the event that neither Lessor nor Lender cures said breach within 30 days after receipt of said notice, or if having commenced said cure they do not diligently pursue it to completion as soon as reasonably practicable, then Lessee may elect to cure said breach at Lessee’s expense and offset from Rent the actual and reasonable cost to perform such cure reserving Lessee’s right to seek reimbursement from Lessor for any such expense in excess, if any, of the amount that Lessee offsets against Rent. Lessee shall document the cost of said cure and supply said documentation to Lessor. Notwithstanding the foregoing, if an emergency situation exists, Lessee may immediately take such actions as are required to mitigate the situation, and Lessor shall, within five (5) days after demand by Lessee, reimburse Lessee for Lessee’s costs in doing so.

14. Condemnation . If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (collectively “ Condemnation ”), this Lease shall terminate as to the part taken as of the date the condemning authority takes title or possession, whichever first occurs. If any portion of the Building or any portion of the parking area exclusively serving the Premises is taken by Condemnation, or if such taking renders the Premises unusable in Lessee’s reasonable discretion, Lessee may, at Lessee’s option, to be exercised in writing within 10 days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within 10 days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, (i) this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced by an amount bearing the same ratio to the total amount of Base Rent as the portion of the Building that is taken by such Condemnation bears to the entire Building and (ii) Lessor shall restore, at Lessor’s sole cost and expense, the portion of the Premises that have not been taken to a condition such that Lessee can reasonably conduct its business in substantially the same manner as prior to such taking. Condemnation awards and/or payments shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold, the value of the part taken, or for severance damages; provided, however, that Lessee shall be entitled to any compensation paid

 

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by the condemnor for Lessee’s relocation expenses, loss of business goodwill and/or Trade Fixtures, without regard to whether or not this Lease is terminated pursuant to the provisions of this Paragraph. All Alterations and Utility Installations made to the Premises by Lessee, for purposes of Condemnation only, shall be considered the property of the Lessee and Lessee shall be entitled to any and all compensation which is payable therefor. In the event that this Lease is not terminated by reason of the Condemnation, Lessor shall repair any damage to the Premises caused by such Condemnation.

15. Brokerage Fees.

15.1 Additional Commission. In addition to the payments owed pursuant to Paragraph 1.9 above, and unless Lessor and the Brokers otherwise agree in writing, Lessor agrees that: (a) if Lessee exercises any Option, (b) if Lessee or anyone affiliated with Lessee acquires any rights to the Premises or other premises owned by Lessor, (c) if Lessee remains in possession of the Premises, with the consent of Lessor, after the expiration of this Lease, or (d) if Base Rent is increased, whether by agreement or operation of an escalation clause herein, then, Lessor shall pay Brokers a fee in accordance with the schedule of the Brokers in effect at the time of the execution of this Lease.

15.2 Assumption of Obligations. Any buyer or transferee of Lessor’s interest in this Lease shall be deemed to have assumed Lessor’s obligation hereunder.

15.3 Representations and Indemnities of Broker Relationships. Lessee and Lessor each represent and warrant to the other that it has had no dealings with any person, firm, broker or finder (other than the Brokers, if any) in connection with this Lease, and that no one other than said named Brokers is entitled to any commission or finder’s fee in connection herewith. Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, attorneys’ fees reasonably incurred with respect thereto.

16. Estoppel Certificates.

(a) Each Party (as “ Responding Party ”) shall within 10 days after written notice from the other Party (the “ Requesting Party ”) execute, acknowledge and deliver to the Requesting Party a written certificate stating that (i) the Lease is in full force and effect without modification except as may be described in such Certificate, (ii) there are no uncured defaults in the Requesting Party’s performance except as may be described in such Certificate, (iii) if Lessor is the Requesting Party, not more than one month’s rent has been paid in advance except as may be described in such Certificate and (iv) such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party.

(b) If the Responding Party shall fail to execute or deliver the Estoppel Certificate within such 10 day period, the Requesting Party may execute an Estoppel Certificate stating that: (i) the Lease is in full force and effect without modification except as may be represented described in such Certificate, (ii) there are no uncured defaults in the Requesting Party’s performance except as may be described in such Certificate, (iii) if Lessor is the

 

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Requesting Party, not more than one month’s rent has been paid in advance except as may be described in such Certificate. Prospective purchasers and encumbrancers may rely upon the Requesting Party’s Estoppel Certificate, and the Responding Party shall be estopped from denying the truth of the facts contained in said Certificate.

(c) [Intentionally Omitted.]

17. Definition of Lessor . The term “ Lessor ” as used herein shall mean the owner or owners at the time in question of the fee title to the Premises, or, if this is a sublease, of the Lessee’s interest in the prior lease. In the event of a transfer of Lessor’s title or interest in the Premises or this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor. Upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined.

18. Severability . The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof.

19. Days . Unless otherwise specifically indicated to the contrary, the word “days” as used in this Lease shall mean and refer to calendar days.

20. Limitation on Liability . The obligations of Lessor under this Lease shall not constitute personal obligations of Lessor or its partners, members, directors, officers or shareholders, and Lessee shall look to the Premises, and to no other assets of Lessor, for the satisfaction of any liability of Lessor with respect to this Lease, and shall not seek recourse against Lessor’s partners, members, directors, officers or shareholders, or any of their personal assets for such satisfaction.

21. Time of Essence . Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease.

22. No Prior or Other Agreements; Broker Disclaimer . This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. Lessor and Lessee each represents and warrants to the Brokers that it has made, and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility of the other Party to this Lease and as to the use, nature, quality and character of the Premises. Brokers have no responsibility with respect thereto or with respect to any default or breach hereof by either Party.

23. Notices.

23.1 Notice Requirements. All notices required or permitted by this Lease or applicable law shall be in writing and may be delivered in person (by hand or by courier) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by nationally recognized overnight courier, with charges prepaid, or by facsimile transmission, and shall be deemed sufficiently given if served in a manner specified in this

 

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Paragraph 23. The addresses noted adjacent to a Party’s signature on this Lease shall be that Party’s address for delivery or mailing of notices. Either Party may by written notice to the other specify a different address for notice, except that upon Lessee’s taking possession of the Premises, the Premises shall constitute Lessee’s address for notice. A copy of all notices to Lessor shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate in writing.

23.2 Date of Notice. Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. If sent by regular mail the notice shall be deemed given 72 hours after the same is addressed as required herein and mailed with postage prepaid. Notices delivered by United States Express Mail or overnight courier that guarantees next day delivery shall be deemed given the next business day after delivery of the same to the Postal Service or courier. Notices transmitted by facsimile transmission or similar means shall be deemed delivered upon telephone confirmation of receipt (confirmation report from fax machine is sufficient), provided a copy is also delivered via delivery or mail. If notice is received on a Saturday, Sunday or legal holiday, it shall be deemed received on the next business day.

24. Waivers.

(a) No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee of the same or of any other term, covenant or condition hereof. Lessor’s consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor’s consent to, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent. The acceptance of Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any payment by Lessee may be accepted by Lessor on account of moneys or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment.

25. [Intentionally Omitted.]

26. No Right To Holdover . Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or termination of this Lease. In the event that Lessee holds over, then the Base Rent shall be increased to 150% of the Base Rent applicable immediately preceding the expiration or termination. Nothing contained herein shall be construed as consent by Lessor to any holding over by Lessee. Any holding over by Lessee shall not operate, except by written agreement, to extend or renew this Lease or to imply or create a new lease, but in case of any such holdover, Lessor’s remedies shall be limited to either the immediate termination of Lessee’s occupancy or the treatment of Lessee’s occupancy as a month to month tenancy (at the increased Rent described in this Paragraph 26), any custom or law allowing other remedies or damages or which may be to the contrary notwithstanding.

 

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27. Cumulative Remedies . No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity.

28. Covenants and Conditions; Construction of Agreement . All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions. In construing this Lease, all headings and titles are for the convenience of the Parties only and shall not be considered a part of this Lease. Whenever required by the context, the singular shall include the plural and vice versa. This Lease shall not be construed as if prepared by one of the Parties, but rather according to its fair meaning as a whole, as if both Parties had prepared it.

29. Binding Effect; Choice of Law . This Lease shall be binding upon the Parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located.

30. Subordination; Attornment; Non-Disturbance.

30.1 Subordination. This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, “ Security Device ”), now or hereafter placed upon the Premises, to any and all advances made on the security thereof, and to all renewals, modifications, and extensions thereof. Lessee agrees that the holders of any such Security Devices (in this Lease together referred to as “ Lender ”) shall have no liability or obligation to perform any of the obligations of Lessor under this Lease. Any Lender may elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device by giving written notice thereof to Lessee, whereupon this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof.

30.2 [Intentionally Omitted.]

30.3 Non-Disturbance. With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee’s subordination of this Lease shall be subject to receiving a commercially reasonable non-disturbance agreement (a “ Non-Disturbance Agreement ”) from the Lender which Non-Disturbance Agreement provides that Lessee’s possession of the Premises, and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises.

30.4 Self-Executing. The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that, upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of the Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any subordination, attornment and/or Non-Disturbance Agreement provided for herein.

 

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31. Attorneys’ Fees . If any Party or Broker brings an action or proceeding involving the Premises whether founded in tort, contract or equity, or to declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys’ fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term, “ Prevailing Party ” shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense. The attorneys’ fees award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys’ fees reasonably incurred.

32. Lessor’s Access; Showing Premises; Repairs . Lessor and Lessor’s agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times after reasonable prior notice for the purpose of showing the same to prospective purchasers, lenders, or tenants. All such activities shall be without abatement of rent or liability to Lessee.

33. Auctions . Lessee shall not conduct, nor permit to be conducted, any auction upon the Premises without Lessor’s prior written consent. Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to permit an auction.

34. Signs . Lessor may place on the Premises ordinary “ For Sale ” signs at any time and ordinary “ For Lease ” signs and any signs reflected on Exhibit A during the last 6 months of the term hereof. Except for ordinary “for sublease” signs, Lessee shall not place any sign upon the Premises without Lessor’s prior written consent. All signs must comply with all Applicable Requirements.

35. Termination; Merger . Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate in the Premises; provided, however, that Lessor may elect to continue any one or all existing subtenancies. Lessor’s failure within 10 days following any such event to elect to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor’s election to have such event constitute the termination of such interest.

36. Consents . Except as otherwise provided herein, wherever in this Lease the consent of a Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed. Lessor’s actual reasonable costs and expenses (including but not limited to architects’, attorneys’, engineers’ and other consultants’ fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor consent, including but not limited to consents to an assignment, a subletting or the presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt of an invoice and supporting documentation therefor; provided, however, that Lessor shall notify Lessee of the amount of such costs or expenses prior to incurring same, and Lessee may, after receipt thereof, modify or withdraw its request. Lessor’s consent to any act, assignment or subletting shall not constitute an acknowledgment that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent. The failure to specify herein any particular condition to Lessor’s consent shall not preclude the imposition by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given. In the event that either Party disagrees with any determination made by the other hereunder and reasonably requests the reasons for such determination, the determining party shall furnish its reasons in writing and in reasonable detail within 10 business days following such request.

 

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37. [Intentionally Omitted.]

38. Quiet Possession . Subject to payment by Lessee of the Rent and performance of all of the covenants, conditions and provisions on Lessee’s part to be observed and performed under this Lease, Lessee shall have quiet possession and quiet enjoyment of the Premises during the term hereof.

39. Options . If Lessee is granted an Option, as defined below, then the following provisions shall apply:

39.1 Definition. Option ” shall mean: (a) the right to extend or reduce the term of or renew this Lease or to extend or reduce the term of or renew any lease that Lessee has on other property of Lessor; (b) the right of first refusal or first offer to lease either the Premises or other property of Lessor; (c) the right to purchase, the right of first offer to purchase or the right of first refusal to purchase the Premises or other property of Lessor.

39.2 Options Not Personal To Original Lessee. Any Option granted to Lessee in this Lease may be exercised by any of Lessee’s successors or assigns.

39.3 Multiple Options. In the event that Lessee has any multiple Options to extend or renew this Lease, a later Option cannot be exercised unless the prior Options have been validly exercised.

39.4 Effect of Default on Options.

(a) Lessee shall have no right to exercise an Option during the time Lessee is in Breach of this Lease.

(b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee’s inability to exercise an Option because of the provisions of Paragraph 39.4(a).

40. [Intentionally Omitted.]

41. Security Measures . Lessee hereby acknowledges that the Rent payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties.

42. Reservations . Lessor reserves to itself the right, from time to time, to grant, without the consent or joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights, dedications, maps and restrictions do not unreasonably interfere with the use of the Premises by Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate any such easement rights, dedication, map or restrictions.

 

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43. Performance Under Protest . If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment “under protest” and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay.

44. Authority; Multiple Parties; Execution.

(a) If either Party hereto is a corporation, trust, limited liability company, partnership, or similar entity, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf.

(b) If this Lease is executed by more than one person or entity as “Lessee”, each such person or entity shall be jointly and severally liable hereunder. It is agreed that any one of the named Lessees shall be empowered to execute any amendment to this Lease, or other document ancillary thereto and bind all of the named Lessees, and Lessor may rely on the same as if all of the named Lessees had executed such document.

(c) This Lease may be executed by the Parties in counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.

45. Conflict . Any conflict between the printed provisions of this Lease and typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions.

46. Offer . Preparation of this Lease by either Party or their agent and submission of same to the other Party shall not be deemed an offer to lease to the other Party. This Lease is not intended to be binding until executed and delivered by all Parties hereto.

47. Amendments . This Lease may be modified only in writing, signed by the Parties in interest at the time of the modification.

48. Waiver of Jury Trial. THE PARTIES HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING INVOLVING THE PROPERTY OR ARISING OUT OF THIS AGREEMENT.

49. [Intentionally Omitted.]

50. Americans with Disabilities Act . Lessor represents and warrants that, as of the Commencement Date, the Premises comply with the Americans with Disabilities Act, as amended (ADA).

 

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LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES.

51. Amendment and Restatement . This Lease amends, restates and supersedes in its entirety that certain Standard Industrial/Commercial Single-Tenant Lease — Net, dated as of June 11, 2004, relating to the Premises.

ATTENTION : NO REPRESENTATION OR RECOMMENDATION IS MADE BY ANY BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO:

1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.

2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE SUITABILITY OF THE PREMISES FOR LESSEE’S INTENDED USE.

WARNING : IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE STATE IN WHICH THE PREMISES IS LOCATED.

[SIGNATURE PAGE FOLLOWS]

 

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The parties hereto have executed this Lease at the place and on the dates specified above their respective signatures.

 

Executed at:   Executed at:  
On: May 23, 2011 On: May 23, 2011
By  LESSOR : By  LESSEE :
Salma Jason Monica Limited Partnership SeaSpine, Inc.
By: /s/ Thomas T. Haider By: /s/ John B. Henneman
Name Printed: Thomas T. Haider, Trustee of Name Printed: John B. Henneman, III
THE HAIDER FAMILY
TRUST DATED
SEPTEMBER 3, 1999
Title: As General Partner Title: Vice President, Treasurer and Assistant Secretary
Address: P.O. Box 8910 Address: 311 Enterprise Drive
Rancho Santa Fe, CA 92067

Plainsboro, NJ 08536

Attention:   Attention: General Counsel
Telephone: (310) 699-8390 Telephone: (609) 936-2238
Facsimile: (951) 413-0206 Facsimile: (609) 275-9006

S-1

(Signature Page to Lease, 2302 La Miranda)


ADDENDUM

THIS IS AN ADDENDUM TO THAT CERTAIN AMENDED AND RESTATED LEASE, DATED May 23, 2011 (THE “LEASE”), BY AND BETWEEN SALMA JASON MONICA LIMITED PARTNERSHIP (“LESSOR”) AND SEASPINE, INC. (“LESSEE”) FOR THE PROPERTY LOCATED AT 2302 LA MIRADA, VISTA, CALIFORNIA 92018.

52. Monthly Rent Amounts. The monthly Base Rent under this Lease shall be in the amounts set forth below next to the applicable month:

 

May  23 , 2011 through June 30, 2011

$ 34,620.24   

July 1, 2011 through June 30, 2012

$ 35,658.85   

July 1, 2012 through June 30, 2013

$ 36,728.62   

July 1, 2013 through June 30, 2014

$ 37,830.48   

July 1, 2014 through June 30, 2015

$ 38,965.39   

July 1, 2015 through May  23 , 2016

$ 40,134.35   

If Lessee exercises its First Extension Option, the monthly Base Rent under this Lease shall be in the amounts set forth below next to the applicable month during the First Extension Term:

 

May  23 , 2016 through June 30, 2016 $ 40,134.35   
July 1, 2016 through June 30, 2017 $ 41,338.38   
July 1, 2017 through June 30, 2018 $ 42,578.53   
July 1, 2018 through June 30, 2019 $ 43,855.89   
July 1, 2019 through June 30, 2020 $ 45,171.57   
July 1, 2020 through May  23 , 2021 $ 46,526.71   

If Lessee exercises its Second Extension Option, the monthly Base Rent under this Lease shall be in the amounts set forth below next to the applicable month during the Second Extension Term:

 

May  23 , 2021 through June 30, 2021 $ 46,526.71   
July 1, 2021 through June 30, 2022 $ 47,922.52   
July 1, 2022 through June 30, 2023 $ 49,360.19   
July 1, 2023 through June 30, 2024 $ 50,841.00   
July 1, 2024 through June 30, 2025 $ 52,366.23   
July 1, 2025 through May  23 , 2026 $ 53,937.21   

53. Options to Renew. Lessee shall have the right to renew this Lease (“First Extension Option”) for one (1) five (5) year term (the “First Extension Term”) by providing Lessor with notice of its exercise of such right at least thirty (30) days prior to the end of the Original Term. Lessee shall have the right to renew this Lease (“Second Extension Option”) for an additional five (5) year term (the “Second Extension Term”) by providing Lessor with notice of its exercise of such right at least thirty (30) days prior to the end of the First Extension Term.

54. Incorporation by Reference. The terms and conditions of this Addendum are hereby incorporated into the Lease as if set forth at length therein.

Addendum-1

(Lease)


Date:  May 23, 2011
LESSOR: LESSEE:
Salma Jason Monica Limited Partnership SeaSpine, Inc.

 

By:  /s/ Thomas T. Haider By:  /s/ John B. Henneman
Name:  Thomas T. Haider, Trustee of THE Name:  John B. Henneman, III
Haider Family Trust DATED
SEPTEMBER 3, 1999
Title:  As General Partner Title:  Vice President, Treasurer and Assistant Secretary

Addendum-2

(Lease)

Exhibit 10.17

INDUSTRIAL REAL ESTATE LEASE

(Multi-Tenant Facility)

AMENDED AND RESTATED LEASE .

This Lease amends and restates in its entirety that certain Industrial Real Estate Lease of even date herewith by and between the parties hereto (the “ Original Lease Document”), and this Lease, together with the other documents and instruments referred to herein (other than the Original Lease Document), shall constitute the entire agreement and understanding between the parties hereto with respect to the subject matter hereof (except as may be hereafter amended, as provided below), and the Original Lease Document shall have no further force or effect.

ARTICLE ONE: BASIC TERMS

This Article One contains the Basic Terms of this Lease between the Landlord and Tenant named below. Other Articles, Sections and Paragraphs of the Lease referred to in this Article One explain and define the Basic Terms and are to be read in conjunction with the Basic Terms.

Section 1.01. Date of Lease : February 23, 2006

Section 1.02. Landlord (include legal entity) : New Goodyear, LTD., a California Limited Partnership

Address of Landlord: 9061 SANTA MONICA BLVD., LOS ANGELES, CA 90069

Section 1.03. Tenant (include legal entity) : IsoTis OrthoBiologics, Inc., a Washington corporation

Address of Tenant: 2 Goodyear, Irvine Unit A, California

Section 1.04. Property : The Property is part of Landlord’s multi-tenant real property development known as 2 Goodyear, Irvine, California (APN #: 591-014-01) and described or depicted in Exhibit “A” (the “Project”). The Project includes the land, the buildings and all other improvements located on the land, and the common areas described in Paragraph 4.05(a). The Property is an approximate 43,538 square foot portion of the Project commonly known as 2 Goodyear, Unit A (See attached Exhibit “B”)

Section 1.05. Lease Term : Approximately 5 years and 17 days, beginning on July 15, 2006), and ending on the last day of the sixtieth (60 th ) full calendar month thereafter, which date is July 31, 2011

Section 1.06. Permitted Uses : (See Article Five) General offices, medical product manufacturing, medical product research and development and distribution of medical products and other related lawful uses, including, without limitation, warehousing needs

Section 1.07. Tenant’s Guarantor : (If none, so state) None


Section 1.08. Brokers : (See Article Fourteen) (If none, so state)

Landlord’s Broker: Voit Commercial, Trent Walker

Tenant’s Broker: CB Richard Ellis, Gregg Haly

Section 1.09. Commission Payable to Landlord’s Broker : (See Article Fourteen) Under Separate Agreement

Section 1.10. Initial Security Deposit : (See Section 3.03) $43,538.00

Section 1.11. Vehicle Parking Spaces Allocated to Tenant : (See Section 4.05) 159 spaces

Section 1.12. Rent and Other Charges Payable by Tenant :

(a) BASE RENT : Forty Three Thousand Five Hundred Thirty Eight and 00/100 Dollars ($43,538) per month for months 1-12, as provided in Section 3.01, and shall be increased on the first day of the 13 th , 25 th , 37 th , and 49 th full calendar month(s) after the Commencement Date as provided in Section 1 of Rider No. 1.

(b) OTHER PERIODIC PAYMENTS : (i) Real Property Taxes (See Section 4.02); (ii) Utilities (See Section 4.03); (iii) Insurance Premiums (See Section 4.04); (iv) Tenant’s Initial Pro Rata Share of Common Area Expenses 62.2% (See Section 4.05); (v) Impounds for Insurance Premiums and Property Taxes (See Section 4.08); (vi) Maintenance, Repairs and Alterations (See Article Six).

Section 1.13. Landlord’s Share of Profit on Assignment or Sublease : (See Section 9.05) FIFTY percent (50%) of the Profit (the “Landlord’s Share”).

Section 1.14. Riders : The following Riders are attached to and made a part of this Lease: (If none, so state) Rider No. 1; Rider No. 2 Option to Extend Lease Term; Exhibit “A” Site Plan; Exhibit “B” Tenant Space; Exhibit “C” Tenant Improvement Plan; Exhibit “D” Approved Hazardous Materials.

ARTICLE TWO: LEASE TERM

Section 2.01. Lease of Property For Lease Term . Landlord leases the Property to Tenant and Tenant leases the Property from Landlord for the Lease Term. The Lease Term is for the period stated in Section 1.05 above and shall begin and end on the dates specified in Section 1.05 above, unless the beginning or end of the Lease Term is changed under any provision of this Lease (including, without limitation, Rider No. 1). The “Commencement Date” shall be the date specified in Section 1.05 above for the beginning of the Lease Term, unless advanced or delayed under any provision of this Lease.

Section 2.02. Delay in Commencement . Landlord shall not be liable to Tenant if Landlord does not deliver possession of the Property to Tenant on the Commencement Date. Landlord’s non-delivery of the Property to Tenant on that date shall not affect this Lease or the


obligations of Tenant under this Lease except that the Commencement Date shall be delayed until Landlord delivers possession of the Property to Tenant and the Lease Term shall be extended for a period equal to the delay in delivery of possession of the Property to Tenant, plus the number of days necessary to end the Lease Term on the last day of a month. If Landlord does not deliver possession of the Property to Tenant within sixty (60) days after the Commencement Date, Tenant may elect to cancel this Lease by giving written notice to Landlord within ten (10) days after such sixty (60)-day period ends. If Tenant gives such notice, the Lease shall be canceled and neither Landlord nor Tenant shall have any further obligations to the other. If Tenant does not give such notice, Tenant’s right to cancel the Lease shall expire and the Lease Term shall commence upon the delivery of possession of the Property to Tenant. If delivery of possession of the Property to Tenant is delayed, Landlord and Tenant shall, upon such delivery, execute an amendment to this Lease setting forth the actual Commencement Date and expiration date of the Lease. Failure to execute such amendment shall not affect the actual Commencement Date and expiration date of the Lease.

Section 2.03. Delay of Possession . Upon vacancy of the Property by the Existing Tenant (anticipated to be on or about April 15 th , 2006), Landlord shall deliver possession of the Property to Tenant and Tenant hereby accepts and acknowledges such delivery.

Section 2.04. Early Occupancy . Subject to Section 5 of Rider No. 1, Landlord shall deliver the Property upon execution of the Lease, subject to the Existing Tenant vacating the Property, estimated to be on or about April 15 th , 2006. If Tenant occupies the Property prior to the Commencement Date, Tenant’s occupancy of the Property shall be subject to all of the provisions of this Lease. Early occupancy of the Property shall not advance the expiration date of this Lease. Tenant shall pay utilities charges for the early occupancy period prior to the Commencement Date, but shall not be obligated to pay Base Rent, Common Area costs or other charges during such period.

Section 2.05. Holding Over . Tenant shall vacate the Property upon the expiration or earlier termination of this Lease. Tenant shall reimburse Landlord for and indemnify Landlord against all rent loss, which Landlord incurs from Tenant’s delay in vacating the Property. If Tenant does not vacate the Property upon the expiration or earlier termination of the Lease and Landlord thereafter accepts rent from Tenant, Tenant’s occupancy of the Property shall be a “month-to-month” tenancy, subject to all of the terms of this Lease applicable to a month-to-month tenancy, except that the Base Rent then in effect shall be increased by twenty-five percent (25%).

ARTICLE THREE: BASE RENT

Section 3.01. Time and Manner of Payment . Upon commencement of the Term, Tenant shall pay Landlord $43,538.00 for the first month of the Lease Term. On the first day of the second month of the Lease Term and each month thereafter, Tenant shall pay Landlord the Base Rent in the amount stated in Paragraph 1.12(a) above, in advance, without offset, deduction or prior demand. The Base Rent shall be payable at Landlord’s address or at such other place as Landlord may designate in writing. Notwithstanding the foregoing, Commencement Date falls on a day other than the first day of a calendar month, Base Rent payable with respect to the period between the Commencement Date and the first day of the following calendar month shall be prorated.


Section 3.02. [Reserved .]

Section 3.03. Security Deposit; Increases .

(a) Upon the execution of this Lease, Tenant shall deposit with Landlord a cash Security Deposit in the amount set forth in Section 1.10 above. Tenant shall receive a credit for the amount of the existing Security Deposit on 2 Goodyear, Unit B, totaling $26,952.35. Landlord may apply all or part of the Security Deposit to any unpaid rent or other charges due from Tenant or to cure any other defaults of Tenant. If Landlord uses any part of the Security Deposit, Tenant shall restore the Security Deposit to its full amount within ten (10) days after Landlord’s written request. Tenant’s failure to do so shall be a material default under this Lease. No interest shall be paid on the Security Deposit. Landlord shall not be required to keep the Security Deposit separate from its other accounts and no trust relationship is created with respect to the Security Deposit.

(b) Each time the Base Rent is increased, Tenant shall deposit additional funds with Landlord sufficient to increase the Security Deposit to an amount which bears the same relationship to the adjusted Based Rent as the initial Security Deposit bore to the initial Base Rent.

Section 3.04. Termination; Advance Payments . Upon termination of this Lease under Article Seven (Damage or Destruction), Article Eight (Condemnation) or any other termination not resulting from Tenant’s default, and after Tenant has vacated the Property in the manner required by this Lease, Landlord shall refund or credit to Tenant (or Tenant’s successor) the unused portion of the Security Deposit, any advance rent or other advance payments made by Tenant to Landlord, and any amounts paid for real property taxes and other reserves which apply to any time periods after termination of the Lease.

ARTICLE FOUR: OTHER CHARGES PAYABLE BY TENANT

Section 4.01. Additional Rent . All charges payable by Tenant other than Base Rent are called “Additional Rent.” Unless this Lease provides otherwise, Tenant shall pay all Additional Rent then due with the next monthly installment of Base Rent. The term “rent” shall mean Base Rent and Additional Rent.

Section 4.02. Property Taxes .

(a) Real Property Taxes . Tenant shall pay all real property taxes, on the Property (including any fees, taxes or assessments against, or as a result of, any tenant improvements installed on the Property by or for the benefit of Tenant) that are attributable to the Lease Term. The limitations set forth in Paragraph 31 of Rider No. 1 attached hereto shall NOT apply to any increase in such property taxes. Subject to Paragraph 4.02(c) and Section 4.08 below, such payment shall be made at least ten (10) days prior to the delinquency date of the taxes. Within such ten (10)-day period, Tenant shall furnish Landlord with satisfactory evidence that the real property taxes have been paid. Landlord shall reimburse Tenant for any real property taxes paid by Tenant covering any period of time prior to or after the Lease Term. If Tenant fails to pay the real property taxes when due, Landlord may pay the taxes and Tenant shall reimburse Landlord for the amount of such tax payment as Additional Rent.


(b) Definition of “Real Property Tax.” “Real property tax” means: (i) any fee, license fee, license tax, business license fee, commercial rental tax, levy, charge, assessment, penalty or tax imposed by any taxing authority against the Property; (ii) any tax on the Landlord’s right to receive, or the receipt of, rent or income from the Property or against Landlord’s business of leasing the Property; (iii) any tax or charge for fire protection, streets, sidewalks, road maintenance, refuse or other services provided to the Property by any governmental agency; (iv) any tax imposed upon this transaction or based upon a re-assessment of the Property due to a change of ownership, as defined by applicable law, or other transfer of all or part of Landlord’s interest in the Property; and (v) any charge or fee replacing any tax previously included within the definition of real property tax. “Real property tax” does not, however, include Landlord’s federal or state income, gift, franchise, inheritance or estate taxes.

(c) Joint Assessment . If the Property is not separately assessed, Landlord shall reasonably determine Tenant’s share of the real property tax payable by Tenant under Paragraph 4.02(a) from the assessor’s worksheets or other reasonably available information. Tenant shall pay such share to Landlord within fifteen (15) days after receipt of Landlord’s written statement.

(d) Personal Property Taxes .

(i) Tenant shall pay all taxes charged against trade fixtures, furnishings, equipment or any other personal property belonging to Tenant. Tenant shall try to have personal property taxed separately from the Property.

(ii) If any of Tenant’s personal property is taxed with the Property, Tenant shall pay Landlord the taxes for the personal property within fifteen (15) days after Tenant receives a written statement from Landlord for such personal property taxes.

Section 4.03. Utilities . Tenant shall pay, directly to the appropriate supplier, the cost of all natural gas, heat, light, power, sewer service, telephone, water, refuse disposal and other utilities and services supplied to the Property. However, if any services or utilities are jointly metered with other property, Landlord shall make a reasonable determination of Tenant’s proportionate share of the cost of such utilities and services and Tenant shall pay such share to Landlord within fifteen (15) days after receipt of Landlord’s written statement.

Section 4.04. Insurance Policies .

(a) Liability Insurance . During the Lease Term, Tenant shall maintain a policy of commercial general liability insurance (sometimes known as broad form comprehensive general liability insurance) insuring Tenant against liability for bodily injury, property damage (including loss of use of property) and personal injury arising out of the operation, use or occupancy of the Property. Tenant shall name Landlord and property manager as an additional insured under such policy. The initial amount of such insurance shall be One Million Dollars ($1,000,000) per


occurrence and shall be subject to periodic increase based upon inflation, increased liability awards, recommendation of Landlord’s professional insurance advisers and other relevant factors. The liability insurance obtained by Tenant under this Paragraph 4.04(a) shall (i) be primary and non-contributing; (ii) contain cross-liability endorsements; and (iii) insure Landlord against Tenant’s performance under Section 5.05, if the matters giving rise to the indemnity under Section 5.05 result from the negligence of Tenant. The amount and coverage of such insurance shall not limit Tenant’s liability nor relieve Tenant of any other obligation under this Lease. Landlord and property manager may also obtain comprehensive public liability insurance in an amount and with coverage determined by Landlord insuring Landlord against liability arising out of ownership, operation, use or occupancy of the Property. The policy obtained by Landlord and property manager shall not be contributory and shall not provide primary insurance.

(b) Property and Rental Income Insurance . During the Lease Term, Landlord shall maintain policies of insurance covering loss of or damage to the Property in the full amount of its replacement value. Such policy shall contain an Inflation Guard Endorsement and shall provide protection against all perils included within the classification of fire, extended coverage, vandalism, malicious mischief, special extended perils (all risk), sprinkler leakage and any other perils which Landlord deems reasonably necessary. Landlord shall have the right to obtain flood and earthquake insurance if required by any lender holding a security interest in the Property after Landlord has attempted in a good faith and reasonable manner, to cause such Lender not to require such insurance. Otherwise, Landlord shall have no right to obtain Earthquake Insurance. In no event shall Tenant be responsible for any deductible on Earthquake Insurance. Landlord shall not obtain insurance for Tenant’s fixtures or equipment or building improvements installed by Tenant on the Property. During the Lease Term, Landlord shall also maintain a rental income insurance policy, with loss payable to Landlord, in an amount equal to one year’s Base Rent, plus estimated real property taxes and insurance premiums. Tenant shall be liable for the payment of any deductible amount under Landlord’s or Tenant’s insurance policies maintained pursuant to this Section 4.04, in an amount not to exceed Five Thousand Dollars ($5,000.00). Tenant shall not do or permit anything to be done which invalidates any such insurance policies.

(c) Payment of Premiums . Subject to Section 4.08 below and, subject to the limitations set forth in Paragraph 31 of Rider No. 1 attached hereto, Tenant shall pay all premiums for the insurance policies described in Paragraphs 4.04(a) (whether obtained by Landlord or Tenant), within fifteen (15) days after Tenant’s receipt of a copy of the premium statement or other evidence of the amount due, except Landlord shall pay all premiums for non-primary comprehensive public liability insurance which Landlord elects to obtain as provided in Paragraph 4.04(a). For insurance policies maintained by Landlord which cover improvements on the entire Project, Tenant shall pay Tenant’s prorated share of the premiums, in accordance with the formula in Paragraph 4.05(e) for determining Tenant’s share of Common Area costs. If insurance policies maintained by Landlord cover improvements on real property other than the Project, Landlord shall deliver to Tenant a statement of the premium applicable to the Property showing in reasonable detail how Tenant’s share of the premium was computed. If the Lease Term expires before the expiration of an insurance policy maintained by Landlord, Tenant shall be liable for Tenant’s prorated share of the insurance premiums. Before the Commencement Date, Tenant shall deliver to Landlord a copy of any policy of insurance, which Tenant is required to maintain under this Section 4.04. At least fifteen (15) days prior to the expiration of


any such policy, Tenant shall deliver to Landlord a renewal of such policy. As an alternative to providing a policy of insurance, Tenant shall have the right to provide Landlord a certificate of insurance, executed by an authorized officer of the insurance company, showing that the insurance which Tenant is required to maintain under this Section 4.04 is in full force and effect and containing such other information which Landlord reasonably requires.

(d) General Insurance Provisions .

(i) Any insurance which Tenant is required to maintain under this Lease shall include a provision which requires the insurance carrier to give Landlord not less than thirty (30) days’ written notice prior to any cancellation or adverse modification of such coverage.

(ii) If Tenant fails to deliver any policy, certificate or renewal to Landlord required under this Lease within the prescribed time period or if any such policy is canceled or modified during the Lease Term without Landlord’s consent, Landlord may obtain such insurance, in which case Tenant shall reimburse Landlord for the cost of such insurance within fifteen (15) days after receipt of a statement that indicates the cost of such insurance.

(iii) Tenant shall maintain all insurance required under this Lease with companies holding a “General Policy Rating” or A-12 or better, as set forth in the most current issue of “Best Key Rating Guide”. Landlord and Tenant acknowledge the insurance markets are rapidly changing and that insurance in the form and amounts described in this Section 4.04 may not be available in the future. Tenant acknowledges that the insurance described in this Section 4.04 is for the primary benefit of Landlord. If at any time during the Lease Term, Tenant is unable to maintain the insurance required under the Lease, Tenant shall nevertheless maintain insurance coverage which is customary and commercially reasonable in the insurance industry for Tenant’s type of business, as that coverage may change from time to time. Landlord makes no representation as to the adequacy of such insurance to protect Landlord’s or Tenant’s interests. Therefore, Tenant shall obtain any such additional property or liability insurance which Tenant deems necessary to protect Landlord and Tenant.

(iv) Unless prohibited under any applicable insurance policies maintained, Landlord and Tenant each hereby waive any and all rights of recovery against the other, or against the officers, employees, agents or representatives of the other, for loss of or damage to its property or the property of others under its control, if such loss or damage is covered by any insurance policy in force (whether or not described in this Lease) at the time of such loss or damage. Upon obtaining the required policies of insurance, Landlord and Tenant shall give notice to the insurance carriers of this mutual waiver of subrogation.


Section 4.05. Common Areas; Use, Maintenance and Costs .

(a) Common Areas . As used in this Lease, “Common Areas” shall mean all areas within the Project which are available for the common use of tenants of the Project and which are not leased or held for the exclusive use of Tenant or other tenants, including, but not limited to, parking areas, driveways, sidewalks, loading areas, access roads, corridors, landscaping and planted areas. Landlord, from time to time, may change the size, location, nature and use of any of the Common Areas, convert Common Areas into leaseable areas, construct additional parking facilities (including parking structures) in the Common Areas, and increase or decrease Common Area land and/or facilities. Tenant acknowledges that such activities may result in inconvenience to Tenant. Such activities and changes are permitted if they do not materially affect Tenant’s use of or access to the Property.

(b) Use of Common Areas . Tenant shall have the nonexclusive right (in common with other tenants and all others to whom Landlord has granted or may grant such rights) to use the Common Areas for the purposes intended, subject to such reasonable rules and regulations as Landlord may establish from time to time. Tenant shall abide by such rules and regulations and shall use its best effort to cause others who use the Common Areas with Tenant’s express or implied permission to abide by Landlord’s rules and regulations. At any time, Landlord may close any Common Areas to perform any acts in the Common Areas as, in Landlord’s judgment, are desirable to improve the Project. Tenant shall not interfere with the rights of Landlord, other tenants or any other person entitled to use the Common Areas.

(c) Specific Provision re: Vehicle Parking . Tenant shall be entitled to use the number of vehicle parking spaces in the Project allocated to Tenant in Section 1.11 of the Lease without paying any additional rent. Tenant’s parking shall not be reserved and shall be limited to vehicles no larger than standard size automobiles or pickup utility vehicles. Tenant shall not cause large trucks or other large vehicles to be parked within the Project or on the adjacent public streets. Temporary parking of large delivery vehicles in the Project may be permitted by the rules and regulations established by Landlord. Vehicles shall be parked only in striped parking spaces and not in driveways, loading areas or other locations not specifically designated for parking. Handicapped spaces shall only be used by those legally permitted to use them. If Tenant parks more vehicles in the parking area than the number set forth in Section 1.11 of this Lease, such conduct shall be a material breach of this Lease. In addition to Landlord’s other remedies under the Lease, Tenant shall pay a daily charge determined by Landlord for each such additional vehicle. See Rider No. 1, section 13 for additional provisions.

(d) Maintenance of Common Areas . Landlord shall maintain the Common Areas in good order, condition and repair and shall operate the Project, as a first-class industrial/commercial real property development. Subject to the limitations set forth in Paragraph 31 or Rider No. 1 attached hereto, Tenant shall pay Tenant’s pro rata share (as determined below) of all costs incurred by Landlord for the operation and maintenance of the Common Areas. Common Area costs include, but are not limited to, costs and expenses for the following: gardening and landscaping; utilities, water and sewage charges; maintenance of signs (other than tenants’ signs); premiums for liability, property damage, fire and other types of casualty insurance on the Common Areas and worker’s compensation insurance; all property taxes and assessments levied on or attributable to the Common Areas and all Common Area improvements; all personal property taxes levied on or attributable to personal property used in connection with the Common Areas; straight-line depreciation on personal property owned by Landlord which is consumed in the operation or


maintenance of the Common Areas; rental or lease payments paid by Landlord for rented or leased personal property used in the operation or maintenance of the Common Areas; fees for required licenses and permits; repairing, resurfacing, repaving, maintaining, painting, lighting, cleaning, refuse removal, security and similar items; reserves for roof replacement exterior painting, and replacement of HVAC units or major components and other appropriate reserves (the “Reserves”, which shall be established initially at $.15 per square foot per year, which amount may be subsequently increased by Landlord, subject to the limitations set forth in Paragraph 31 of Rider No. 1 attached hereto) and a reasonable allowance to Landlord for Landlord’s supervision of the Common Areas (tenant’s pro rata share of such supervision allowance shall not exceed four percent (4%) of Base Rent and all reimbursable expenses pursuant to Article 4 for the applicable period). Landlord may cause any or all of such services to be provided by third parties and the cost of such services shall be included in Common Area costs. Common Area costs shall not include depreciation of real property, which forms part of the Common Areas.

(e) Tenant’s Share and Payment . Tenant shall pay Tenant’s annual pro rata share of all Common Area costs (prorated for any fractional month) upon written notice from Landlord that such costs are due and payable, and in any event prior to delinquency. Tenant’s pro rata share shall be calculated by dividing the square foot area of the Property, as set forth in Section 1.04 of the Lease, by the aggregate square foot area of the Project which is leased or held for lease by tenants, as of the date on which the computation is made. Tenant’s initial pro rata share is set out in Paragraph 1.12(b). Any changes in the Common Area costs and/or the aggregate area of the Project leased or held for lease during the Lease Term shall be effective on the first day of the month after such change occurs. Landlord may, at Landlord’s election, estimate in advance and charge to Tenant as Common Area costs, all real property taxes for which Tenant is liable under Section 4.02 of the Lease, all insurance premiums for which Tenant is liable under Section 4.04 of the Lease, all maintenance and repair costs for which Tenant is liable under Section 6.04 of the Lease, and all other Common Area costs payable by Tenant hereunder. At Landlord’s election, such statements of estimated Common Area costs shall be delivered monthly, quarterly or at any other periodic intervals to be designated by Landlord. Landlord may adjust such estimates at any time based upon Landlord’s experience and reasonable anticipation of costs. Such adjustments shall be effective as of the next rent payment date after notice to Tenant. Within sixty (60) days after the end of each calendar year of the Lease Term, Landlord shall deliver to Tenant a statement prepared in accordance with generally accepted accounting principles setting forth, in reasonable detail, the Common Area costs paid or incurred by Landlord during the preceding calendar year and Tenant’s pro rata share. Upon receipt of such statement, there shall be an adjustment between Landlord and Tenant, with payment to or credit given by Landlord (as the case may be) so that Landlord shall receive the entire amount of Tenant’s share of such costs and expenses for such period.

(f) Audit . Tenant shall have the right to audit the operating expenses on an annual basis and if such audit reveals an aggregate overstatement greater than three percent (3%), Landlord shall reduce Tenant’s share of such operating expenses and shall pay for the cost of such audit (such cost not to exceed One Thousand Dollars ($1,000)).

Section 4.06. Late Charges . Tenant’s failure to pay rent promptly may cause Landlord to incur unanticipated costs. The exact amount of such costs are impractical or extremely difficult to ascertain. Such costs may include, but are not limited to, processing and accounting charges and late charges which may be imposed on Landlord by any ground lease, mortgage or


trust deed encumbering the Property. Therefore, if Landlord does not receive any rent payment within ten (10) days after it becomes due, Tenant shall pay Landlord a late charge equal to five percent (5%) of the over due amount. The parties agree that such late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of such late payment.

Section 4.07. Interest on Past Due Obligations . Any amount owed by Tenant to Landlord which is not paid when due shall bear interest at the rate often percent (10%) per annum from the due date of such amount. However, interest shall not be payable on late charges to be paid by Tenant under this Lease. The payment of interest on such amounts shall not excuse or cure any default by Tenant under this Lease. If the interest rate specified in this Lease is higher than the rate permitted by law, the interest rate is hereby decreased to the maximum legal interest rate permitted by law.

Section 4.08. Impounds for Insurance Premiums and Real Property Taxes . If requested by any ground lessor or lender to whom Landlord has granted a security interest in the Property, or if Tenant is more than ten (10) days late in the payment of rent more than once in any consecutive twelve (12)-month period, Tenant shall pay Landlord a sum equal to one-twelfth (1/12) of the annual real property taxes and insurance premiums payable by Tenant under this Lease, together with each payment of Base Rent. Landlord shall hold such payments in a non-interest bearing impound account. If unknown, Landlord shall reasonably estimate the amount of real property taxes and insurance premiums when due. Tenant shall pay any deficiency of funds in the impound account to Landlord upon written request. If Tenant defaults under this Lease, Landlord may apply any funds in the impound account to any obligation then due under this Lease.

ARTICLE FIVE: USE OF PROPERTY

Section 5.01. Permitted Uses . Tenant may use the Property only for the Permitted Uses set forth in Section 1.06 above.

Section 5.02. Manner of Use . Tenant shall not cause or permit the Property to be used in any way which constitutes a violation of any law, ordinance, or governmental regulation or order, which annoys or interferes with the rights of tenants of the Project, or which constitutes a nuisance or waste. Tenant shall obtain and pay for all permits, including a Certificate of Occupancy, required for Tenant’s occupancy of the Property and shall promptly take all actions necessary to comply with all applicable statutes, ordinances, rules, regulations, orders and requirements regulating the use by Tenant of the Property, including the Occupational Safety and Health Act.

Section 5.03. Hazardous Materials . As used in this Lease, the term “Hazardous Material” means any flammable items, explosives, radioactive materials, hazardous or toxic substances, material or waste or related materials, including any substances defined as or included in the definition of “hazardous substances”, “hazardous wastes”, “hazardous materials” or “toxic substances” now or subsequently regulated under any applicable federal, state or local laws or regulations, including without limitation petroleum-based products, paints, solvents, lead, cyanide, DDT, printing inks, acids, pesticides, ammonia compounds and other chemical products, asbestos, PCBs and similar compounds, and including any different products and


materials which are subsequently found to have adverse effects on the environment or the health and safety of persons. Tenant shall not cause or permit any Hazardous Material to be generated, produced, brought upon, used, stored, treated or disposed of in or about the Property by Tenant, its agents, employees, contractors, sub-lessees or invitees without the prior written consent of Landlord, excepting those Hazardous Material items listed in Exhibit D. Landlord shall be entitled to take into account such other factors or facts as Landlord may reasonably determine to be relevant in determining whether to grant or withhold consent to Tenant’s proposed activity with respect to Hazardous Material. In no event, however, shall Landlord be required to consent to the installation or use of any storage tanks on the Property.

Section 5.04. Signs and Auctions . Tenant shall not place any signs on the Property without Landlord’s prior written consent, except as provided in section 14 of Rider #No. 1. Tenant shall not conduct or permit any auctions or sheriff’s sales at the Property.

Section 5.05. Indemnity . Tenant shall indemnify Landlord against and hold Landlord harmless from any and all costs, claims or liability arising from: (a) Tenant’s use of the Property; (b) the conduct of Tenant’s business or anything else done or permitted by Tenant to be done in or about the Property, including any contamination of the Property or any other property resulting from the presence or use of Hazardous Material caused or permitted by, Tenant (c) any breach or default in the performance of Tenant’s obligations under this Lease; (d) any misrepresentation or breach of warranty by Tenant under this Lease; or (e) other acts or omissions negligence or intentional misconduct of Tenant. Tenant shall defend Landlord against any such cost, claim or liability at Tenant’s expense with counsel reasonably acceptable to Landlord or, at Landlord’s election, Tenant shall reimburse Landlord for any reasonable legal fees or costs incurred by Landlord in connection with any such claim. As a material part of the consideration to Landlord, Tenant assumes all risk of damage to property or injury to persons in or about the Property arising from any cause, and Tenant hereby waives all claims in respect thereof against Landlord, except for any claim arising out of Landlord’s negligence or willful misconduct. As used in this Section, the term “Tenant” shall include Tenant’s employees, agents’ contractors and invitees, if applicable.

Section 5.06. Landlord’s Access . Landlord or its agents may enter the Property at all reasonable times to show the Property to potential buyers, investors or tenants or other parties; to do any other act or to inspect and conduct tests in order to monitor Tenant’s compliance with all applicable environmental laws and all laws governing the presence and use of Hazardous Material; or for any other purpose Landlord deems necessary. Landlord shall give Tenant 24 hours prior notice of such entry, except in the case of an emergency. During the last six (6) months of the Lease Term or any extensions thereof, Landlord may place customary “For Sale” or “For Lease” signs on the Property (Tenant’s leased premises), however Landlord may place “For Sale” or “For Lease” signs on the Project at any time during the Lease Term or any extensions thereto.

Section 5.07. Quiet Possession . If Tenant pays the rent and complies with all other terms of this Lease, Tenant may occupy and enjoy the Property for the full Lease Term, subject to the provisions of this Lease.


ARTICLE SIX: CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS

Section 6.01. Existing Conditions . Subject to Section 2 of Rider No. 1, Tenant accepts the Property in its condition as of the execution of the Lease, subject to all recorded matters, laws, ordinances, and governmental regulations and orders. Except as provided herein, Tenant acknowledges that neither Landlord nor any agent of Landlord has made any representation as to the condition of the Property or the suitability of the Property for Tenant’s intended use. Tenant represents and warrants that Tenant has made its own inspection of and inquiry regarding the condition of the Property and is not relying on any representations of Landlord or any Broker with respect thereto.

Section 6.02. Exemption of Landlord from Liability . Subject to Section 2 of Rider No. 1, Landlord shall not be liable for any damage or injury to the person, business (or any loss of income therefrom), goods, wares, merchandise or other property of Tenant, Tenant’s employees, invitees, customers or any other person in or about the Property, whether such damage or injury is caused by or results from: (a) fire, steam, electricity, water, gas or rain; (b) the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures or any other cause; (c) conditions arising in or about the Property or upon other portions of the Project, or from other sources or places; or (d) any act or omission of any other tenant of the Project. Landlord shall not be liable for any such damage or injury even though the cause of or the means of repairing such damage or injury are not accessible to Tenant. The provisions of this Section 6.02 shall not, however, exempt Landlord from liability for Landlord’s gross negligence or willful misconduct.

Section 6.03. Landlord’s Obligations .

(a) Except as provided in Article Seven (Damage or Destruction) and Article Eight (Condemnation), Landlord shall keep the following in good order, condition and repair, at no additional cost to Tenant in excess of the Reserves charged pursuant to Section 405(d) below: the foundations, exterior walls and roof and other structural elements of the Property (including painting the exterior surface of the exterior walls of the Property not more often than once every five (5) years, if necessary) and all components of electrical, mechanical, plumbing, heating and air conditioning systems and facilities located in the Property which are concealed or used in common by tenants of the Project. However, Landlord shall not be obligated to maintain or repair windows (but shall repair any water leaks in window seals and shall wash all exterior windows at lease twice per year), doors, plate glass or the interior surfaces of exterior walls. Landlord shall make repairs under this Section 6.03 within a reasonable time after receipt of written notice from Tenant of the need for such repairs. If any portion of the Property or any system or equipment in the Property which Landlord is obligated to repair cannot be fully repaired or restored, Landlord shall promptly replace such portion of the Property or system or equipment in the Property, regardless of whether the benefit of such replacement extends beyond the Lease Term; but if the benefit or useful life of such replacement extends beyond the Lease Term (as such term may be extended by exercise of any options), the useful life of such replacement shall be prorated over the remaining portion of the Lease Term (as extended), and Tenant shall be liable only for that portion of the cost which is applicable to the Lease Term (as extended).


(b) Tenant shall pay or reimburse Landlord for all costs Landlord incurs under Paragraph 6.03(a) above as Common Area costs as provided for in Section 4.05 of the Lease. Tenant waives the benefit of any statute in effect now or in the future which might give Tenant the right to make repairs at Landlord’s expense or to terminate this Lease due to Landlord’s failure to keep the Property in good order, condition and repair.

Section 6.04. Tenant’s Obligations .

(a) Except as provided in Section 6.03, Article Seven (Damage or Destruction) and Article Eight (Condemnation), Tenant shall keep all non-structural interior portions of the Property (including systems and equipment) in good order, condition and repair (including interior repainting and refinishing, as needed). If any portion of the Property or any system or equipment in the Property which Tenant is obligated to repair cannot be fully repaired or restored, Landlord shall promptly replace such portion of the Property or system or equipment in the Property, regardless of whether the benefit of such replacement extends beyond the Lease Term; but if the benefit or useful life of such replacement extends beyond the Lease Term (as such term may be extended by exercise of any options), the useful life of such replacement shall be prorated over the remaining portion of the Lease Term (as if extended), and Tenant shall be liable only for that portion of the cost which is applicable to the Lease Term (as if extended). Tenant shall maintain a preventive maintenance contract providing for the regular inspection and maintenance of the heating and air conditioning system by a licensed heating and air conditioning contractor, unless Landlord maintains such equipment under Section 6.03 above. If any part of the Property or the Project is damaged by any act or omission of Tenant, Tenant shall pay Landlord the cost of repairing or replacing such damaged property, whether or not Landlord would otherwise be obligated to pay the cost of maintaining or repairing such property. It is the intention of Landlord and Tenant that at all times Tenant shall maintain the portions of the Property which Tenant is obligated to maintain in an attractive, first-class and fully operative condition.

(b) Tenant shall fulfill all of Tenant’s obligations under this Section 6.04 at Tenant’s sole expense. If Tenant fails to maintain, repair or replace the Property as required by this Section 6.04, Landlord may, upon ten (10) days’ prior notice to Tenant (except that no notice shall be required in the case of an emergency), enter the Property and perform such maintenance or repair (including replacement, as needed) on behalf of Tenant. In such case, Tenant shall reimburse Landlord for all costs reasonably incurred in performing such maintenance or repair immediately upon demand.

Section 6.05. Alterations, Additions, and Improvements .

(a) Except for the Tenant Improvements identified on Exhibit C attached hereto and subject to section 3 of Rider No. 1, Tenant shall not make any alterations, additions, or improvements to the Property without Landlord’s prior written consent, except for non-structural alterations which do not exceed Ten Thousand Dollars ($10,000) in cost cumulatively over the Lease Term and which are not visible from the outside of any building of which the Property is part. Landlord may require Tenant to provide demolition and/or lien and completion bonds in form and amount satisfactory to Landlord. Tenant shall promptly remove any alterations, additions, or improvements constructed in violation of this Paragraph 6.05(a) upon Landlord’s


written request. Further, unless the Landlord agrees not to requires removal at the time Landlord grants consent, Landlord may require that all alterations, additions or improvements be removed by Tenant and the Property restored to their condition prior to such alteration, addition or improvement, at no cost to Landlord, upon the expiration or earlier termination of this Lease. Except with respect to improvements so required by Landlord to be removed, all improvements will remain in the Premises. If consent is not required, Tenant has the right to request that Landlord determine the removal requirements at such time as Tenant submits a written request to Landlord. NOTE: All initial Tenant Improvements as identified on the attached Exhibit C, shall remain in the Property upon the expiration or termination of this Lease. All alterations, additions, and improvements shall be done in a good and workmanlike manner, in conformity with all-applicable laws and regulations, and by a contractor approved by Landlord. Upon completion of any such work, Tenant shall provide Landlord with “as built” plans, copies of all construction contracts, and proof of payment for all labor and materials.

(b) Tenant shall pay when due all claims for labor and material furnished to the Property. Tenant shall give Landlord at least twenty (20) days’ prior written notice of the commencement of any work on the Property, regardless of whether Landlord’s consent to such work is required. Landlord may elect to record and post notices of non-responsibility on the Property.

Section 6.06. Condition upon Termination . Upon the expiration or earlier termination of the Lease, Tenant shall surrender the Property to Landlord, broom clean and in the same condition as received (except with respect to the clean room as provided in Section 2 of Rider No. 2 attached hereto) except for ordinary wear and tear, casualty damage and condemnation, that Tenant was not otherwise obligated to remedy under any provision of this Lease. However, Tenant shall not be obligated to repair any damage which Landlord is required to repair under Section 6.03 or under Article Seven (Damage or Destruction). In addition, unless Landlord hereafter specifically agrees otherwise, in writing, Landlord may require Tenant to remove any alterations, additions or improvements made without Landlord’s consent or in violation of Section 6.05 (a) immediately prior to the expiration of the Lease and to restore the Property to its prior condition, all at Tenant’s expense. All alterations, additions and improvements which Landlord has not required Tenant to remove shall become Landlord’s property and shall be surrendered to Landlord upon the expiration or earlier termination of the Lease, except that Tenant may remove any of Tenant’s machinery or equipment which can be removed without material damage to the Property. Tenant shall repair, at Tenant’s expense, any damage to the Property caused by the removal of any such machinery or equipment. In no event, however, shall Tenant remove any of the following materials or equipment (which shall be deemed Landlord’s property) without Landlord’s prior written consent: any power wiring or power panels; lighting or lighting fixtures; wall coverings; drapes, blinds or other window coverings; carpets or other floor coverings; heaters, air conditioners or any other heating or air conditioning equipment; fencing or security gates; or other similar building operating equipment and decorations.


ARTICLE SEVEN: DAMAGE OR DESTRUCTION

Section 7.01. Partial Damage to Property .

(a) Tenant shall notify Landlord in writing immediately upon the occurrence of any damage to the Property. If the Property is only partially damaged (i.e., less than fifty percent (50%) of the Property is untenantable as a result of such damage or less than fifty percent (50%) of Tenant’s operations are materially impaired) and if the proceeds received by Landlord from the insurance policies described in Paragraph 4.04(b) are sufficient to pay for the necessary repairs, this Lease shall remain in effect and Landlord shall repair the damage as soon as reasonably possible. Except as otherwise set forth in this Lease, Landlord may elect (but is not required) to repair any damage to Tenant’s fixtures, equipment, or improvements.

(b) If the insurance proceeds received by Landlord are not sufficient to pay the entire cost of repair, or if the cause of the damage is not covered by the insurance policies which Landlord maintains under Paragraph 4.04(b), Landlord may elect either to (i) repair the damage as soon as reasonably possible, in which case this Lease shall remain in full force and effect, or (ii) terminate this Lease as of the date the damage occurred. Landlord shall notify Tenant within thirty (30) days after receipt of notice of the occurrence of the damage whether Landlord elects to repair the damage or terminate the Lease. If Landlord elects to repair the damage, Tenant shall pay Landlord the “deductible amount” (if any) under Landlord’s insurance policies, not to exceed $10,000, and, if the damage was due to an act or omission of Tenant, or Tenant’s employees, agents, contractors or invitees, the difference between the actual cost of repair and any insurance proceeds received by Landlord. If Landlord elects to terminate the Lease, Tenant may elect to continue this Lease in full force and effect, in which case Tenant shall repair any damage to the Property and any building in which the Property is located. Tenant shall pay the cost of such repairs, except that upon satisfactory completion of such repairs, Landlord shall deliver to Tenant any insurance proceeds received by Landlord for the damage repaired by Tenant. Tenant shall give Landlord written notice of such election within ten (10) days after receiving Landlord’s termination notice.

(c) If the damage to the Property occurs during the last six (6) months of the Lease Term and such damage will require more than thirty (30) days to repair, either Landlord or Tenant may elect to terminate this Lease as of the date the damage occurred, regardless of the sufficiency of any insurance proceeds. The party electing to terminate this Lease shall give written notification to the other party of such election within thirty (30) days after Tenant’s notice to Landlord of the occurrence of the damage.

Section 7.02. Substantial or Total Destruction . If the Property is substantially or totally destroyed by any cause whatsoever (i.e., the damage to the Property is greater than partial damage as described in Section 7.01), and regardless of whether Landlord receives any insurance proceeds, this Lease shall terminate as of the date the destruction occurred. Notwithstanding the preceding sentence, if the Property can be rebuilt within six (6) months after the date of destruction, Landlord may elect to rebuild the Property at Landlord’s own expense, in which case this Lease shall remain in full force and effect. Landlord shall notify Tenant of such election within thirty (30) days after Tenant’s notice of the occurrence of total or substantial destruction. If Landlord so elects, Landlord shall rebuild the Property at Landlord’s sole expense, except that if the destruction was caused by an act or omission of Tenant, Tenant shall pay Landlord the difference between the actual cost of rebuilding and any insurance proceeds received by Landlord.


Section 7.03. Temporary Reduction of Rent . If the Property is destroyed or damaged and Landlord or Tenant repairs or restores the Property pursuant to the provisions of this Article Seven, any rent payable during the period of such damage, repair and/or restoration shall be reduced according to the degree, if any, to which Tenant’s use of the Property is impaired. However, the reduction shall not exceed the sum of one year’s payment of Base Rent, insurance premiums and real property taxes. Except for such possible reduction in Base Rent, insurance premiums and real property taxes, and except for damages caused by the gross negligence or intentional misconduct of Landlord or its agents, employees and contractors, Tenant shall not be entitled to any compensation, reduction, or reimbursement from Landlord as a result of any damage, destruction, repair, or restoration of or to the Property.

Section 7.04. Waiver . Tenant waives the protection of any statute, code or judicial decision which grants a tenant the right to terminate a lease in the event of the substantial or total destruction of the leased property. Tenant agrees that the provisions of Section 7.02 above shall govern the rights and obligations of Landlord and Tenant in the event of any substantial or total destruction to the Property.

ARTICLE EIGHT: CONDEMNATION

If all or any portion of the Property is taken under the power of eminent domain or sold under the threat of that power (all of which are called “Condemnation”), this Lease shall terminate as to the part taken or sold on the date the condemning authority takes title or possession, whichever occurs first. If more than twenty percent (20%) of the floor area of the building in which the Property is located, or which is located on the Property, is taken, or if more than nineteen (19) parking spaces allocated to Tenant’s use are taken , then either Landlord or Tenant may terminate this Lease as of the date the condemning authority takes title or possession, by delivering written notice to the other within ten (10) days after receipt of written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority takes title or possession). If neither Landlord nor Tenant terminates this Lease, this Lease shall remain in effect as to the portion of the Property not taken, except that the Base Rent and Additional Rent shall be reduced in proportion to the reduction in the floor area of the Property. Any Condemnation award or payment shall be distributed in the following order: (a) first, to any ground lessor, mortgagee or beneficiary under a deed of trust encumbering the Property, the amount of its interest in the Property; (b) second, to Tenant, only the amount of any award specifically designated for loss of or damage to Tenant’s trade fixtures or removable personal property; and (c) third, to Landlord, the remainder of such award, whether as compensation for reduction in the value of the leasehold, the taking of the fee, or otherwise. If this Lease is not terminated, Landlord shall repair any damage to the Property caused by the Condemnation, except that Landlord shall not be obligated to repair any damage for which Tenant has been reimbursed by the condemning authority. If the severance damages received by Landlord are not sufficient to pay for such repair, Landlord shall have the right to either terminate this Lease or make such repair at Landlord’s expense.


ARTICLE NINE: ASSIGNMENT AND SUBLETTING

Section 9.01. Landlord’s Consent Required . No portion of the Property or of Tenant’s interest in this Lease may be acquired by any other person or entity, whether by sale, assignment, mortgage, sublease, transfer, operation of law, or act of Tenant, without Landlord’s prior written consent, except as provided in Section 9.02 below. Landlord has the right to grant or withhold its consent as provided in Section 9.05 below. Any attempted transfer without consent shall be void and shall constitute a non-curable breach of this Lease. If Tenant is a partnership, any cumulative transfer of more than twenty percent (20%) of the partnership interests shall require Landlord’s consent.

Section 9.02. Tenant Affiliate . Tenant may assign this Lease or sublease all or any portion of the Property, without Landlord’s consent, to any corporation which controls, is controlled by or is under common control with Tenant, or to any corporation resulting from the merger of or consolidation with Tenant or to any person or entity who acquires all or substantially all of Tenant’s stock or assets (“Tenant’s Affiliate”), provided that the net worth of the acquiror, as established to Landlord’s reasonable satisfaction, shall not be less than the net worth of Tenant as of the date hereof, and provided further that no such assignment may be made prior to the assignee’s execution of a lease assumption agreement in such form as Landlord may reasonably require, and provided further that there is no existing default by Tenant beyond all applicable cure periods. In such case, any Tenant’s Affiliate shall assume in writing all of Tenant’s obligations under this Lease.

Section 9.03. No Release of Tenant . No transfer permitted by this Article Nine, whether with or without Landlord’s consent, shall release Tenant or change Tenant’s primary liability to pay the rent and to perform all other obligations of Tenant under this Lease. Landlord’s acceptance of rent from any other person is not a waiver of any provision of this Article Nine. Consent to one transfer is not a consent to any subsequent transfer. If Tenant’s transferee defaults under this Lease, Landlord may proceed directly against Tenant without pursuing remedies against the transferee. Landlord may consent to subsequent assignments or modifications of this Lease by Tenant’s transferee, without notifying Tenant or obtaining its consent. Such action shall not relieve Tenant’s liability under this Lease.

Section 9.04. Offer to Terminate . If Tenant desires to assign the Lease or sublease the Property, Tenant shall have the right to offer, in writing, to terminate the Lease as of a date specified in the offer. If Landlord elects in writing to accept the offer to terminate within twenty (20) days after notice of the offer, the Lease shall terminate as of the date specified and all the terms and provisions of the Lease governing termination shall apply. If Landlord does not so elect, the Lease shall continue in effect until otherwise terminated and the provisions of Section 9.05 with respect to any proposed transfer shall continue to apply.

Section 9.05. Landlord’s Consent .

(a) Tenant’s request for consent to any transfer described in Section 9.01 shall set forth in writing the details of the proposed transfer, including the name, business and financial condition of the prospective transferee, financial details of the proposed transfer (e.g., the term of and the rent and security deposit payable under any proposed assignment or sublease), and any


other information Landlord deems relevant. Landlord shall have the right to withhold consent, if reasonable, or to grant consent, based on the following factors: (i) the business of the proposed assignee or subtenant and the proposed use of the Property; (ii) the net worth and financial reputation of the proposed assignee or subtenant; (iii) Tenant’s compliance with all of its obligations under the Lease; and (iv) such other factors as Landlord may reasonably deem relevant. If Landlord objects to a proposed assignment solely because of the net worth and/or financial reputation of the proposed assignee, Tenant may nonetheless sublease (but not assign), all or a portion of the Property to the proposed transferee, but only on the other terms of the proposed transfer.

(b) If Tenant assigns or subleases, the following shall apply:

(i) Tenant shall pay to Landlord as Additional Rent under the Lease the Landlord’s Share (stated in Section 1.13) of the Profit (defined below) on such transaction as and when received by Tenant, unless Landlord gives written notice to Tenant and the assignee or subtenant that Landlord’s Share shall be paid by the assignee or subtenant to Landlord directly. The “Profit” means (A) all amounts paid to Tenant for such assignment or sublease (as opposed to for other Tenant assets), including “key” money, monthly rent in excess of the monthly rent payable under the Lease, and all fees and other consideration paid for the assignment or sublease, including fees under any collateral agreements, less (B) costs and expenses directly incurred by Tenant in connection with the execution and performance of such assignment or sublease for real estate broker’s commissions reasonable, legal fees not to exceed $2,000.00 and costs of renovation or construction of tenant improvements required under such assignment or sublease. Tenant is entitled to recover such costs and expenses before Tenant is obligated to pay the Landlord’s Share to Landlord. The Profit in the case of a sublease of less than all the Property is the rent allocable to the subleased space as a percentage on a square footage basis.

(ii) Tenant shall provide Landlord a written statement certifying all amounts to be paid from any assignment or sublease of the Property within thirty (30) days after the transaction documentation is signed, and Landlord may inspect Tenant’s books and records to verify the accuracy of such statement. On written request, Tenant shall promptly furnish to Landlord copies of all the transaction documentation, all of which shall be certified by Tenant to be complete, true and correct. Landlord’s receipt of Landlord’s Share shall not be a consent to any further assignment or subletting. The breach of Tenant’s obligation under this Paragraph 9.05(b) shall be a material default of the Lease.

Section 9.06. No Merger . No merger shall result from Tenant’s sublease of the Property under this Article Nine, Tenant’s surrender of this Lease or the termination of this Lease in any other manner. In any such event, Landlord may terminate any or all sub-tenancies or succeed to the interest of Tenant as sub-landlord under any or all sub-tenancies.


ARTICLE TEN: DEFAULTS; REMEDIES

Section 10.01. Covenants and Conditions . Tenant’s performance of each of Tenant’s obligations under this Lease is a condition as well as a covenant. Tenant’s right to continue in possession of the Property is conditioned upon such performance. Time is of the essence in the performance of all covenants and conditions.

Section 10.02. Defaults . Tenant shall be in material default under this Lease:

(a) If Tenant abandons the Property or if Tenant’s vacation of the Property results in the cancellation of any insurance described in Section 4.04;

(b) If Tenant fails to pay rent or any other charge for a period of 5 days after written notice from Landlord which 5 day notice shall satisfy all statutory notice requirements.

(c) If Tenant fails to perform any of Tenant’s non-monetary obligations under this Lease for a period of thirty (30) days after written notice from Landlord; provided that if more than thirty (30) days are required to complete such performance, Tenant shall not be in default if Tenant commences such performance within the thirty (30)-day period and thereafter diligently pursues its completion. However, Landlord shall not be required to give such notice if Tenant’s failure to perform constitutes a non-curable breach of this Lease. The notice required by this Paragraph is intended to satisfy any and all notice requirements imposed by law on Landlord and is not in addition to any such requirement.

(d) (i) If Tenant makes a general assignment or general arrangement for the benefit of creditors; (ii) if a petition for adjudication of bankruptcy or for reorganization or rearrangement is filed by or against Tenant and is not dismissed within thirty (30) days; (iii) if a trustee or receiver is appointed to take possession of substantially all of Tenant’s assets located at the Property or of Tenant’s interest in this Lease and possession is not restored to Tenant within thirty (30) days; or (iv) if substantially all of Tenant’s assets located at the Property or of Tenant’s interest in this Lease is subjected to attachment, execution or other judicial seizure which is not discharged within thirty (30) days. If a court of competent jurisdiction determines that any of the acts described in this subparagraph (d) is not a default under this Lease, and a trustee is appointed to take possession (or if Tenant remains a debtor in possession) and such trustee or Tenant transfers Tenant’s interest hereunder, then Landlord shall receive, as Additional Rent, the excess, if any, of the rent (or any other consideration) paid in connection with such assignment or sublease over the rent payable by Tenant under this Lease.

Section 10.03. Remedies . On the occurrence of any material default by Tenant, Landlord may, at any time thereafter, with or without notice or demand and without limiting Landlord in the exercise of any right or remedy which Landlord may have:

(a) Terminate Tenant’s right to possession of the Property by any lawful means, in which case this Lease shall terminate and Tenant shall immediately surrender possession of the Property to Landlord. In such event, Landlord shall be entitled to recover from Tenant all damages incurred by Landlord by reason of Tenant’s default, including (i) the worth at the time of the award of the unpaid Base Rent, Additional Rent and other charges which Landlord had


earned at the time of the termination; (ii) the worth at the time of the award of the amount by which the unpaid Base Rent, Additional Rent and other charges which Landlord would have earned after termination until the time of the award exceeds the amount of such rental loss that Tenant proves Landlord could have reasonably avoided; (iii) the worth at the time of the award of the amount by which the unpaid Base Rent, Additional Rent and other charges which Tenant would have paid for the balance of the Lease Term after the time of award exceeds the amount of such rental loss that Tenant proves Landlord could have reasonably avoided; and (iv) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant’s failure to perform its obligations under the Lease or which in the ordinary course of things would be likely to result therefrom, including, but not limited to, any costs or expenses Landlord incurs in maintaining or preserving the Property after such default, the cost of recovering possession of the Property, expenses of reletting, including necessary renovation or alteration of the Property, Landlord’s reasonable attorneys’ fees incurred in connection therewith, and any real estate commission paid or payable. As used in subparts (i) and (ii) above, the “worth at the time of the award” is computed by allowing interest on unpaid amounts at the rate of fifteen percent (15%) per annum, or such lesser amount as may then be the maximum lawful rate. As used in subpart (iii) above, the “worth at the time of the award” is computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of the award, plus one percent (1%). If Tenant has abandoned the Property, Landlord shall have the option of (i) retaking possession of the Property and Recovering from Tenant the amount specified in this Paragraph 10.03(a), or (ii) proceeding under Paragraph 10.03(b);

(b) Maintain Tenant’s right to possession, in which case this Lease shall continue in effect whether or not Tenant has abandoned the Property. In such event, Landlord shall be entitled to enforce all of Landlord’s rights and remedies under this Lease, including the right to recover the rent as it becomes due;

(c) Pursue any other remedy now or hereafter available to Landlord under the laws or judicial decisions of the state in which the Property is located.

Section 10.04. [Reserved .]

Section 10.05. Automatic Termination . Notwithstanding any other term or provision hereof to the contrary, the Lease shall terminate on the occurrence of any act which affirms the Landlord’s intention to terminate the Lease as provided in Section 10.03 hereof, including the filing of an unlawful detainer action against Tenant. On such termination, Landlord’s damages for default shall include all costs and fees, including reasonable attorneys’ fees that Landlord incurs in connection with the filing, commencement, pursuing and/or defending of any action in any bankruptcy court or other court with respect to the Lease; the obtaining of relief from any stay in bankruptcy restraining any action to evict Tenant; or the pursuing of any action with respect to Landlord’s right to possession of the Property. All such damages suffered (apart from Base Rent and other rent payable hereunder) shall constitute pecuniary damages which must be reimbursed to Landlord prior to assumption of the Lease by Tenant or any successor to Tenant in any bankruptcy or other proceeding.

Section 10.06. Cumulative Remedies . Landlord’s exercise of any right or remedy shall not prevent it from exercising any other right or remedy.


ARTICLE ELEVEN: PROTECTION OF LENDERS

Section 11.01. Subordination . Landlord shall have the right to subordinate this Lease to any ground lease, deed of trust or mortgage encumbering the Property, any advances made on the security thereof and any renewals, modifications, consolidations, replacements or extensions thereof, whenever made or recorded. Tenant shall cooperate at no cost to Tenant with Landlord and any lender which is acquiring a security interest in the Property or the Lease. Tenant shall execute such further documents and assurances as such lender may reasonably require, provided that Tenant’s obligations under this Lease shall not be increased in any material way (the performance of ministerial acts shall not be deemed material), and Tenant shall not be deprived of its rights under this Lease. Landlord shall use commercially reasonable efforts to secure and deliver to Tenant a subordination, non-disturbance and attornment agreement to be executed by Tenant and Landlord’s mortgagee. Tenant’s right to quiet possession of the Property during the Lease Term shall not be disturbed if Tenant pays the rent and performs all of Tenant’s obligations under this Lease and is not otherwise in default. If any ground lessor, beneficiary or mortgagee elects to have this Lease prior to the lien of its ground lease, deed of trust or mortgage and gives written notice thereof to Tenant, this Lease shall be deemed prior to such ground lease, deed of trust or mortgage whether this Lease is dated prior or subsequent to the date of said ground lease, deed of trust or mortgage or the date of recording thereof.

Section 11.02. Attornment . If Landlord’s interest in the Property is acquired by any ground lessor, beneficiary under a deed of trust, mortgagee, or purchaser at a foreclosure sale, Tenant shall attorn to the transferee of or successor to Landlord’s interest in the Property and recognize such transferee or successor as Landlord under this Lease. Tenant waives the protection of any statute or rule of law which gives or purports to give Tenant any right to terminate this Lease or surrender possession of the Property upon the transfer of Landlord’s interest.

Section 11.03. Signing of Documents . Tenant shall sign and deliver, at no cost to Tenant, any instrument or documents necessary or appropriate to evidence any such attornment or subordination or agreement to do so. If Tenant fails to do so within ten (10) days after written request, Tenant hereby makes, constitutes and irrevocably appoints Landlord, or any transferee or successor of Landlord, the attorney-in-fact of Tenant to execute and deliver any such instrument or document.

Section 11.04. Estoppel Certificates .

(a) Upon Landlord’s written request, Tenant shall execute, acknowledge and deliver to Landlord a written statement certifying: (i) that none of the terms or provisions of this Lease have been changed (or if they have been changed, stating how they have been changed); (ii) that this Lease has not been canceled or terminated; (iii) the last date of payment of the Base Rent and other charges and the time period covered by such payment; (iv) that Landlord is not in default under this Lease (or, if Landlord is claimed to be in default, stating why); and (v) such other representations or information with respect to Tenant or the Lease as Landlord may reasonably request or which any prospective purchaser or encumbrancer of the Property may require. Tenant shall deliver such statement to Landlord within ten (10) days after its receipt of Landlord’s written request. Landlord may give any such statement by Tenant to any prospective purchaser or encumbrancer of the Property. Such purchaser or encumbrancer may rely conclusively upon such statement as true and correct.


(b) If Tenant does not deliver such statement to Landlord within such ten (10)-day period, Landlord, and any prospective purchaser or encumbrancer, may conclusively presume and rely upon the following facts: (i) that the terms and provisions of this Lease have not been changed except as otherwise represented by Landlord; (ii) that this Lease has not been canceled or terminated except as otherwise represented by Landlord; (iii) that not more than one month’s Base Rent or other charges have been paid in advance; and (iv) that Landlord is not in default under the Lease. In such event, Tenant shall be estopped from denying the truth of such facts.

Section 11.05. Tenant’s Financial Condition . Within ten (10) days after written request from Landlord, but in no event more than once in any calendar year. Tenant shall deliver to Landlord such financial statements regularly prepared by Tenant (or any assignee or sub-tenant) to verify the net worth of Tenant or any assignee, subtenant, or guarantor of Tenant. In addition, Tenant shall deliver to any lender designated by Landlord any financial statements required by such lender to facilitate the financing or refinancing of the Property. Tenant represents and warrants to Landlord that each such financial statement is a true and accurate statement as of the date of such statement. All financial statements shall be confidential and shall be used only for the purposes set forth in this Lease.

ARTICLE TWELVE: LEGAL COSTS

Section 12.01. Legal Proceedings . If Tenant or Landlord shall be in breach or default under this Lease, such party (the “Defaulting Party”) shall reimburse the other party (the “Nondefaulting Party”) upon demand for any costs or expenses that the Nondefaulting Party incurs in connection with any breach or default of the Defaulting Party under this Lease, whether or not suit is commenced or judgment entered. Such costs shall include legal fees and costs incurred for the negotiation of a settlement, enforcement of rights or otherwise. Furthermore, if any action for breach of or to enforce the provisions of this Lease is commenced, the court in such action shall award to the party in whose favor a judgment is entered, a reasonable sum as attorneys’ fees and costs. The losing party in such action shall pay such attorneys’ fees and costs. Except to the extent Landlord is found liable in such claim or action, Tenant shall also indemnify Landlord against and hold Landlord harmless from all costs, expenses, demands and liability Landlord may incur if Landlord becomes or is made a party to any claim or action (a) instituted by Tenant against any third party, or by any third party against Tenant, or by or against any person holding any interest under or using the Property by license of or agreement with Tenant; (b) for foreclosure of any lien for labor or material furnished to or for Tenant or such other person; (c) otherwise arising out of or resulting from any act or transaction of Tenant or such other person; or (d) necessary to protect Landlord’s interest under this Lease in a bankruptcy proceeding, or other proceeding under Title 11 of the United States Code, as amended. Except to the extent Landlord is found liable in such claim or action, Tenant shall defend Landlord against any such claim or action at Tenant’s expense with counsel reasonably acceptable to Landlord or, at Landlord’s election, Tenant shall reimburse Landlord for any legal fees or costs Landlord incurs in any such claim or action.


Section 12.02. Landlord’s Consent . Tenant shall pay Landlord’s reasonable attorneys’ fees incurred in connection with Tenant’s request for Landlord’s consent under Article Nine (Assignment and Subletting), or in connection with any other act which Tenant proposes to do and which requires Landlord’s consent. Landlord agrees to place a cap on said reasonable attorney’s fees at $2,500.00 per occurrence, unless Tenant’s request is of such a nature to substantially exceed $2,500.00 in reasonable attorney’s fees; at which time Tenant shall be given prior notice of estimated costs, and the right to proceed or withdraw such request. Any Attorney’s fees incurred as a result of a breach of any term or condition contained within this Lease shall not be subject to any cap.

ARTICLE THIRTEEN: MISCELLANEOUS PROVISIONS

Section 13.01. Non-Discrimination . Tenant promises, and it is a condition to the continuance of this Lease, that there will be no discrimination against, or segregation of, any person or group of persons on the basis of race, color, sex, creed, national origin or ancestry in the leasing, subleasing, transferring, occupancy, tenure or use of the Property or any portion thereof.

Section 13.02. Landlord’s Liability; Certain Duties .

(a) As used in this Lease, the term “Landlord” means only the current owner or owners of the fee title to the Property or Project or the leasehold estate under a ground lease of the Property or Project at the time in question. Each Landlord is obligated to perform the obligations of Landlord under this Lease only during the time such Landlord owns such interest or title. Any Landlord who transfers its title or interest is relieved of all liability with respect to the obligations of Landlord under this Lease to be performed on or after the date of transfer. However, each Landlord shall deliver to its transferee all funds that Tenant previously paid if such funds have not yet been applied under the terms of this Lease.

(b) Tenant shall give written notice of any failure by Landlord to perform any of its obligations under this Lease to Landlord and to any ground lessor, mortgagee or beneficiary under any deed of trust encumbering the Property whose name and address have been furnished to Tenant in writing. Landlord shall not be in default under this Lease unless Landlord (or such ground lessor, mortgagee or beneficiary) fails to cure such non-performance within thirty (30) days after receipt of Tenant’s notice. However, if such non-performance reasonably requires more than thirty (30) days to cure, Landlord shall not be in default if such cure is commenced within such thirty (30)-day period and thereafter diligently pursued to completion.

(c) Notwithstanding any term or provision herein to the contrary, the liability of Landlord for the performance of its duties and obligations under this Lease is limited to Landlord’s interest in the Property and the Project, and neither the Landlord nor its partners, shareholders, officers or other principals shall have any personal liability under this Lease.

Section 13.03. Severability . A determination by a court of competent jurisdiction that any provision of this Lease or any part thereof is illegal or unenforceable shall not cancel or invalidate the remainder of such provision or this Lease, which shall remain in full force and effect.


Section 13.04. Interpretation . The captions of the Articles or Sections of this Lease are to assist the parties in reading this Lease and are not a part of the terms or provisions of this Lease. Whenever required by the context of this Lease, the singular shall include the plural and the plural shall include the singular. The masculine, feminine and neuter genders shall each include the other. In any provision relating to the conduct, acts or omissions of Tenant, the term “Tenant” shall include Tenant’s agents’ employees, contractors, invitees, successors or others using the Property with Tenant’s expressed or implied permission.

Section 13.05. Incorporation of Prior Agreements; Modifications . This Lease (including the Exhibits and Riders attached hereto is the only agreement between the parties pertaining to the lease of the Property and no other agreements are effective. All amendments to this Lease shall be in writing and signed by all parties. Any other attempted amendment shall be void.

Section 13.06. Notices . All notices required or permitted under this Lease shall be in writing and shall be personally delivered or sent by certified mail, return receipt requested, postage prepaid. Notices to Tenant shall be delivered to the address specified in Section 1.03 above. Notices to Landlord shall be delivered to the address specified in Section 1.02 above. All notices shall be effective upon delivery. Either party may change its notice address upon written notice to the other party.

Section 13.07. Waivers . All waivers must be in writing and signed by the waiving party. Landlord’s failure to enforce any provision of this Lease or its acceptance of rent shall not be a waiver and shall not prevent Landlord from enforcing that provision or any other provision of this Lease in the future. No statement on a payment check from Tenant or in a letter accompanying a payment check shall be binding on Landlord. Landlord may, with or without notice to Tenant, negotiate such check without being bound to the conditions of such statement.

Section 13.08. No Recordation . Tenant shall not record this Lease without prior written consent from Landlord. However, either Landlord or Tenant may require that a “Short Form” memorandum of this Lease executed by both parties be recorded. The party requiring such recording shall pay all transfer taxes and recording fees.

Section 13.09. Binding Effect; Choice of Law . This Lease binds any party who legally acquires any rights or interest in this Lease from Landlord or Tenant. However, Landlord shall have no obligation to Tenant’s successor unless the rights of interests of Tenant’s successor are acquired in accordance with the terms of this Lease. The laws of the state in which the Property is located shall govern this Lease.

Section 13.10. Corporate Authority; Partnership Authority . If Tenant is a corporation, each person signing this Lease on behalf of Tenant represents and warrants that he has full authority to do so and that this Lease binds the corporation. Within thirty (30) days after this Lease is signed, Tenant shall deliver to Landlord a certified copy of a resolution of Tenant’s Board of Directors authorizing the execution of this Lease or other evidence of such authority reasonably acceptable to Landlord. If Tenant is a partnership, each person or entity signing this Lease for Tenant represents and warrants that he or it is a general partner of the partnership, that he or it has full authority to sign for the partnership and that this Lease binds the partnership and all general partners of the partnership. Tenant shall give written notice to Landlord of any general partner’s withdrawal or addition. Within thirty (30) days after this Lease is signed, Tenant shall deliver to Landlord a copy of Tenant’s recorded statement of partnership or certificate of limited partnership.


Section 13.11. Joint and Several Liability . All parties signing this Lease as Tenant shall be jointly and severally liable for all obligations of Tenant.

Section 13.12. Force Majeure . If Landlord cannot perform any of its obligations due to events beyond Landlord’s control, the time provided for performing such obligations shall be extended by a period of time equal to the duration of such events. Events beyond Landlord’s control include, but are not limited to, acts of God, war, civil commotion, labor disputes, strikes, fire, flood or other casualty, shortages of labor or material, government regulation or restriction and weather conditions.

Section 13.13. Execution of Lease . This Lease may be executed in counterparts and, when all counterpart documents are executed, the counterparts shall constitute a single binding instrument. Landlord’s delivery of this Lease to Tenant shall not be deemed to be an offer to lease and shall not be binding upon either party until executed and delivered by both parties.

Section 13.14. Survival . All representations and warranties of Landlord and Tenant shall survive the termination of this Lease.

ARTICLE FOURTEEN: BROKERS

Section 14.01. Broker’s Fee . When this Lease is signed by and delivered to both Landlord and Tenant and upon the Commencement Date of the Lease, Landlord shall pay a real estate commission to Landlord’s Broker named in Section 1.08 above, if any, as provided in the written agreement between Landlord and Landlord’s Broker, or the sum stated in Section 1.09 above for services rendered to Landlord by Landlord’s Broker in this transaction. Landlord shall pay Landlord’s Broker a commission if Tenant exercises any option to extend the Lease Term or to buy the Property, or any similar option or right which Landlord may grant to Tenant, or if Landlord’s Broker is the procuring cause of any other lease or sale entered into between Landlord and Tenant covering the Property. Such commission shall be the amount set forth in Landlord’s Broker’s commission schedule in effect as of the execution of this Lease. If a Tenant’s Broker is named in Section 1.08 above, Landlord’s Broker shall pay an appropriate portion of its commission to Tenant’s Broker if so provided in any agreement between Landlord’s Broker and Tenant’s Broker. Nothing contained in this Lease shall impose any obligation on Landlord to pay a commission or fee to any party other than Landlord’s Broker.

Section 14.02. Protection of Brokers . If Landlord sells the Property, or assigns Landlord’s interest in this Lease, the buyer or assignee shall, by accepting such conveyance of the Property or assignment of the Lease, be conclusively deemed to have agreed to make all payments to Landlord’s Broker thereafter required of Landlord under this Article Fourteen. Landlord’s Broker shall have the right to bring a legal action to enforce or declare rights under this provision. The prevailing party in such action shall be entitled to reasonable attorneys’ fees to be paid by the losing party. Such attorneys’ fees shall be fixed by the court in such action. This Paragraph is included in this Lease for the benefit of Landlord’s Broker.


Section 14.03. Agency Disclosure; No Other Brokers . Landlord and Tenant each warrant that they have dealt with no other real estate broker(s) in connection with this transaction except: VOIT COMMERCIAL., who represents Landlord and CB Richard Ellis who represents Tenant.

ARTICLE FIFTEEN: COMPLIANCE

The parties hereto agree to comply with all applicable federal, state and local laws, regulations, codes, ordinances and administrative orders having jurisdiction over the parties, property or the subject matter of this Agreement, including, but not limited to, the 1964 Civil Rights Act and all amendments thereto, the Foreign Investment In Real Property Tax Act, the Comprehensive Environmental Response Compensation and Liability Act, and The Americans With Disabilities Act.

ADDITIONAL PROVISIONS MAY BE SET FORTH IN A RIDER OR RIDERS ATTACHED HERETO OR IN THE BLANK SPACE BELOW. IF NO ADDITIONAL PROVISIONS ARE INSERTED, PLEASE DRAW A LINE THROUGH THE SPACE BELOW.


Landlord and Tenant have signed this Lease at the place and on the dates specified adjacent to their signatures below and have initialed all Riders which are attached to or incorporated by reference in this Lease.

 

“LANDLORD”
Signed on: 12/18/06
New Goodyear Ltd.,
a California limited partnership

 

By:

/s/

 

Its:

General Partner
“TENANT”
Signed on: 12/22/06
IsoTis OrthoBiologics, Inc.
a Washington corporation

 

By:

/s/ Pieter Wolters
Pieter Wolters

 

Its:

Chief Executive Officer

 

By:

 

/s/ Gene Reu

Gene Reu

 

Its:

Vice President Operations

IN ANY REAL ESTATE TRANSACTION, IT IS RECOMMENDED THAT YOU CONSULT WITH A PROFESSIONAL, SUCH AS A CIVIL ENGINEER, INDUSTRIAL HYGIENIST OR OTHER PERSON WITH EXPERIENCE IN EVALUATING THE CONDITION OF THE PROPERTY, INCLUDING THE POSSIBLE PRESENCE OF ASBESTOS, HAZARDOUS MATERIALS AND UNDERGROUND STORAGE TANKS.

THIS PRINTED FORM LEASE HAS BEEN DRAFTED BY LEGAL COUNSEL AT THE DIRECTION OF THE SOUTHERN CALIFORNIA CHAPTER OF THE SOCIETY OF INDUSTRIAL AND OFFICE REALTORS ® , INC. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE SOUTHERN CALIFORNIA CHAPTER OF THE SOCIETY OF INDUSTRIAL AND OFFICE REALTORS ® , INC., ITS LEGAL COUNSEL, THE REAL ESTATE BROKERS NAMED HEREIN, OR THEIR EMPLOYEES OR AGENTS, AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT OR TAX CONSEQUENCES OF THIS LEASE OR OF THIS TRANSACTION. LANDLORD AND TENANT SHOULD RETAIN LEGAL COUNSEL TO ADVISE THEM ON SUCH MATTERS AND SHOULD RELY UPON THE ADVICE OF SUCH LEGAL COUNSEL.


RIDER NO. 1

THIS RIDER NO. 1 (“RIDER NO. 1”) is dated February 23, 2006 for reference purposes as and is made between New Goodyear LTD, a California Limited Partnership (“ Landlord ”) and IsoTis OrthoBiologics, Inc., a Washington corporation, (“ Tenant ”) to be a part of that certain Industrial Real Estate Lease (Multi-Tenant Net Form) of even date herewith between Landlord and Tenant (the “ Lease ”) concerning a portion of the Project more commonly known as 2 Goodyear, Unit-A at Irvine, California ( the “ Property ”). Landlord and Tenant agree that the Lease is hereby modified and supplemented as follows:

 

1. Section 1.12(a) (Base Rent) of the Lease shall be amended by adding the following :

“The Base Rent shall be increased during the Term as follows:

 

Months 01-12

$43,538.00 (Month 1 to commence August 1, 2006)

Months 13-24

$45,714.90

Months 25-36

$47,891.80

Months 37-48

$50,068.70

Months 49-60

$52,245.60

 

2. Condition of Property :

Section 6.01 (Existing Conditions) of the Lease shall be amended by adding the following after the last sentence of Section 6.01:

Subject to paragraphs 2, 3,20 and 21 of this Rider No. 1, (i) Property is being leased in an “AS IS” condition with all faults, and (ii) Tenant has made and is relying solely on its own investigation of operative or proposed governmental laws and regulations (including, but not limited to, zoning, environmental, and land use laws and regulations) to which the Property is or may be subject, and (iii) Tenant shall rely solely upon its own investigation of the physical and environmental conditions of the Property, including subsurface conditions.

Landlord warrants that the mechanical (excepting systems associated with the existing clean room), electrical, plumbing, lighting and HVAC systems will be in good working condition at the time Tenant occupies the Property and until 180 days following initial occupancy or access by Tenant pursuant to Paragraph 5 of this Rider No. 1 unless Tenant misuses, damages or breaks any or all components of the mechanical, plumbing, lighting and HVAC Systems. Further, Landlord shall, at no expense to Tenant, perform any corrective work to the Property, other than with respect to the clean room, necessary to remedy any violations (including any existing improvement work performed without a required building permit) of the applicable building code as it existed at the time of such original work if (a) such corrective work is necessary to permit Tenant to obtain building permits for its initial tenant improvements or to receive a certificate of occupancy for the Property, and (b) such corrective work is not to be demolished or substantially altered in connection with the improvement work to be performed by Tenant as a part of its initial buildout. It is acknowledged by Tenant that Landlord does not warrant the condition or operability of the existing clean room and Tenant shall bear the cost of maintaining same and ensuring its good working order at the termination of the lease.

 

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3. Tenant Improvements :

Landlord will provide an allowance of Sixty Five Thousand Eight Hundred Fifty Five and 00/100 dollars ($65,855.00) for Tenant’s use in the construction of Tenant Improvements, subject to Landlord’s reasonable approval of proposed Tenant Improvements in accordance with the attached Exhibit C to the Lease. Tenant shall be responsible for all plans, permits and construction. The allowance shall be funded upon Tenant’s notification to Landlord that Tenant Improvements are completed in substantial conformance with the Improvements depicted in Exhibit C of the Lease Agreement, per city approved plans and specifications, signed off by the city building inspector. All as built plans reflecting the existing configuration of the space at the time MTI (“Current Tenant”) took possession of the Property will be provided to Tenant at Landlord’s cost promptly following execution of the Lease. Tenant shall have the option to hire a licensed contractor and/or subcontractors of their choosing to complete its tenant improvements. Tenant shall be responsible for the implementation and management of all Tenant Improvement construction. Tenant shall indemnify Landlord against any labor and material liens.

 

4. Clean Room :

Tenant shall be permitted to modify the existing Clean Room in the Property, subject to Landlord’s reasonable approval and Tenant agrees to diligently pursue such modifications and their approval by required governmental authorities. The Clean Room, including all mechanical equipment required to make it function shall become Landlord’s property at expiration of the Lease or upon vacancy by Tenant and Tenant shall have no right or obligation to remove same from the Property.

 

5. Early Access :

Commencing upon the date (the “Early Access Date”) upon which the Current Tenant, the Current Tenant vacated the Property, which Early Access Date occurred on April 15 th , 2006, and continuing thereafter until July 15, 2006 (the “Early Access Period”), Tenant shall have early access to the Property for purposes of construction of its Tenant Improvements installing fixtures and equipment and occupying the Property. The Early Access Period is subject to compliance with any applicable Orange County or City of Irvine occupancy codes. Tenant shall remain responsible for utilities expenses during the Early Access Period. The early access period will terminate and the Commencement Date shall occur on July 15, 2006, irrespective of the status of the tenant improvements. All terms and conditions of their Lease shall apply during the Early Access Period, except that Tenant shall have no obligation to pay Base Rent or reimbursement for insurance premiums, real property taxes or common area expenses. Following such Early Access Period, Tenant shall be fully obligated under the terms and conditions of this Lease, irrespective of whether Tenant has successfully obtained FDA or any other required governmental or regulatory approval required to legally operate the clean room and Tenant shall pay rent as if it is in full occupancy of the Property (Unit-A) in accordance with the payment schedule outlined in paragraph 1 above plus applicable expense reimbursements in accordance with Article 4 of the Lease.

 

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6. Defaults :

Section 10.02(b) of the lease shall be amended by adding the following:

“Notwithstanding Tenant’s obligation to pay rent when due and provided Tenant has been late not more than once within the previous 12 months and not more that four times during the term of the lease, Landlord shall give Tenant notice by facsimile or personal delivery of the failure to receive rent and Tenant shall not be in material default if such rent is received within five (5) business days from the date of such notice. For payment of any charge other than monthly rent, Tenant shall not be in material default for late payment unless Landlord has first given Tenant such invoices as called for herein or otherwise made demand or given Tenant notice of such payment not less than ten (10) days prior to such amount being due from Tenant.” Tenant shall have the right to assign the Lease or sublet all or a portion of the demised premises to any subsidiary or affiliate without Landlord’s consent, provided that: a) there has been no prior default beyond all applicable cure periods and, b) the financial condition of the assignee is not materially different from Tenant. Tenant shall remain liable for any rent due from a Subleasee. Any other assignment or subletting will be subject to Landlord’s prior consent, which shall not be unreasonably withheld or delayed. Landlord and Tenant shall equally share any rental profits from said sublease.

 

7. Assignment or Sublet :

Tenant shall have the right to assign the Lease or sublet all or a portion of the demised premises to any subsidiary or affiliate without Landlord’s consent, provided that: a) there has been no prior default beyond all applicable cure periods and, b) the financial condition of the assignee is not materially different from Tenant. Tenant shall remain liable for any rent due from a Subleasee. Any other assignment or subletting will be subject to Landlord’s prior consent, which shall not be unreasonably withheld or delayed. Landlord and Tenant shall equally share any rental profits from said sublease.

 

8. Hazardous Materials :

Section 6.01 (Existing Conditions) shall be amended by adding the following after the last sentence of Section 6.01:

If, subsequent to the date Tenant accepts possession of the Property, it is determined that there are any asbestos-containing materials or other Hazardous Materials that were located in, on or under the Property prior to Landlord’s delivery of the Property to Tenant, and such materials were not installed by Tenant or any affiliate of Tenant (or any party acting under Tenant) and such materials are required by applicable law, by Landlord, or by Landlord’s lender to be removed, encapsulated or otherwise treated (“Remediated”), Landlord, at Landlord’s expense, shall as soon as practicable after notice thereof from Tenant, Remediate said materials.

 

9. Multiple Defaults :

If Tenant is in default under this Lease beyond all applicable cure periods more than one (1) time within any twelve-month period, irrespective of whether or not such default is cured, then, without limiting Landlord’s other rights and remedies provided for in this Lease or at law or equity, the Security Deposit shall automatically be increased by two (2) times the original Security Deposit.

 

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10. Americans with Disabilities Act :

Tenant has been advised that Tenant may be subjected to the Americans with Disabilities Act (the “ADA”), a Federal Law codified at 42 USC Section 12101 et seq. and Tenant covenants and warrants that Tenant will comply with all ADA requirements. Among other requirements of the ADA that could apply to the property, Title III of the ADA requires a Tenant of “public services” to provide accommodations for hearing, vision and speech impaired persons. The regulations under Title III of the ADA are codified at 28 CFR Part 36. Notwithstanding the preceding language, Landlord shall be responsible for the cost of any and all ADA compliance requirements relating to the exterior of the Property, unless a change in use by Tenant is the cause of additional ADA compliance.

 

11. Common Area Section 4.05 (e) (Tenant’s Share and Payment) of the Lease shall be amended by adding the following after the last sentence of Section 4.05 (e) :

“Common Area costs shall also include, roof repairs and maintenance (which roof repairs and maintenance will be capped in the initial year at $3,000 but will be subject to the provisions of paragraph 31 below), HVAC repairs and maintenance, exterior wall repair and any other service required to keep the Property in good order, condition and repair. For clarification purposes, HVAC repairs and maintenance costs shall specifically exclude replacement of major HVAC components such as compressor units and such HVAC repairs and maintenance costs shall not exceed an annual cost in excess of 20% of the annual HVAC maintenance contract secured by Landlord or by Tenant pursuant to the provisions of the lease under Section 6.04 a.

 

12. Insurance policies. Section 4.04 (a) (Liability Insurance) of the Lease shall be amended by adding the following after the last sentence of Section 4.04 (a) :

The Landlord reserves the right to limit the deductible amount, if any, for bodily/personal injury and/or property damage liability to an amount no greater than $10,000 per occurrence. The Tenant is fully responsible for payment of any deductible regardless of its amount (up to $10,000 per occurrence).

 

13. Rules and Regulations :

 

  a) Parking or storage of vehicles overnight is prohibited, except delivery vehicles in Tenant truck wells.

 

  b) Absolutely no parking at any time in any areas designated as “No Parking” or “Fire Lane” or in any truck dock or ramp position not a part of the Property.

 

  c) Absolutely no parking of trailers, boats or any other vehicles or equipment.

 

  d) Absolutely no maintenance is to be performed on any trucks, automobiles, trailers or other equipment other than tire changes and safety checks.

 

  e) Unusual expenses created by the washing of vehicles will result in special assessment to Tenant for water and/or physical repair of the Property.

 

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  f) Absolutely no outside storage is allowed, including but not limited to pallets, equipment, work in progress, or raw materials.

 

  g) Tenant shall not do or permit anything to be done which is a nuisance or interferes with any other tenant in the Project

 

14. Surrender of Property :

At the expiration of this Lease, Tenant shall surrender the Property in the same condition as was existing upon delivery of possession, except as to tenant improvements completed by Tenant pursuant to paragraph 3 above, and except as provided in Section 6.03, 6.05, 6.06, Article 7 and Article 8 of this Lease, reasonable wear and tear excepted, and shall deliver all keys to Landlord. Before surrendering the Property, Tenant shall remove all of its Personal Property and trade fixtures and such alterations or additions to the Property made by Tenant as may be specified for removal thereof pursuant to Section 6.05 or 6.06 of the Lease. If Tenant fails to remove its personal property and fixtures upon the expiration of this Lease, the same shall be deemed abandoned and shall become the property of the Landlord.

 

15. Signage :

Tenant shall have the right to install top building signage, at its sole cost, on the building subject to the City of Irvine regulations and Irvine Spectrum CC&R’s. Tenant shall remove signage upon vacancy and restore the building surface to which the signage is affixed to its original condition. Painting of patch areas shall match existing paint.

 

16. Mechanic’s Lien :

Should any mechanics or other lien be filed against the Property or any part thereof by reason of Tenant’s acts or omissions or because of a claim against Tenant, Tenant shall cause the same to be canceled and discharged of record by bond or otherwise with ten (10) days of Tenant’s receipt of notice by Landlord.

 

17. Financial Strength :

Tenant covenants and warrants that as of the Commencement Date of the Lease, Tenant has the financial strength and assets to meet all of its obligations under the terms and conditions of the Lease. Tenant covenants and warrants, at the time of Lease signature, that neither Tenant nor any Tenant affiliate is: 1) in default under any terms and conditions of any other lease for real property, 2) in default for any monetary obligation, 3) in foreclosure on any real property, or 4) under the protection of any bankruptcy codes.

 

18. Hold Harmless :

Landlord hereby agrees to hold Tenant harmless from any injury to Landlord’s employees, agents and invitees, except to the extent caused by or arising in connection with the use of the Property by Tenant or its employees, agents or invitees, Tenant’s breach of this Lease, or any negligent or willful misconduct by Tenant or any of Tenant’s employees, agents, or invitees.

 

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19. Designated Parking :

Landlord will permit Tenant to designate up to 10 parking spaces, proximate to Tenant’s entry, as either reserved or visitor spaces by indicating such on the curb face. Curb face identification shall be removed by Tenant upon vacancy of the Project. Tenant acknowledges that Landlord has no obligation to enforce Tenant’s exclusive use of the designated spaces.

 

20. Limitations on Tenant’s Liability .

Tenant shall not have any responsibility or liability for (i) existing violations of any federal, state, or local law relating to the Property or the Project as of the date Tenant takes possession of the Property, including, but not limited to, violations of any law relating to Hazardous Materials (“Hazardous Materials Laws”), building codes, and, with respect only to the exterior portions of the Property the Americans with Disabilities Act of 1990, 42 U.S.C. § § 12101 et seq. and 47 U.S.C. § § 225 et seq. as amended from time to time, and any similar or successor federal, state, or local laws (collectively, the “ADA”) (the ADA, Hazardous Materials Laws, building codes and all of the other foregoing federal, state and local laws shall be collectively referred to as “Applicable Laws”), (ii) any Hazardous Materials present in, on, under or about any part of the Property or the Project as of the date Tenant takes possession of the Property or that are brought into, onto, about, or under any part of the Property or Project by anyone other than Tenant or Tenant’s agents, employees, invitees or contractors, or (iii) without limiting the generality of subparts (i) and (ii) above, the cleanup, remediation, or removal of any Hazardous Materials present in, on, under or about any part of the Property or Project as of the date Tenant takes possession of the Property or that are brought into, onto, about, or under any part of the Property or Project by anyone other than Tenant or Tenant’s agents, employees, invitees or contractors.

 

21. Certain Representations and Warranties of Landlord :

Notwithstanding anything in this Lease to the contrary, Landlord represents and warrants to Tenant, as of the date hereof and as of the date Tenant’s initial tenant improvements are completed, that (i) there are no liens, encumbrances, leases, mortgages, deeds of trust or other encumbrances against Landlord’s right, title or interest in or to the Property or Project other than as are of record, and (ii) to Landlord’s knowledge, there are no Hazardous Materials located in, on, under or about any part of the Property or Project.

 

22. Landlord’s Indemnity .

Landlord shall defend (with counsel reasonably acceptable to Tenant), indemnify and hold harmless Tenant and is officers, directors, shareholders, subsidiaries, employees, agents and representatives from and against any and all claims, third-party claims, actions, lawsuits (including, but not limited to, claims, actions and lawsuits brought by the government or third parties), losses, harm, costs (including, but not limited to, court costs, costs of appeal, and cleanup, removal and remediation costs associated with any Hazardous Materials) liabilities, contribution claims, damages and expenses including, but not limited to, attorneys’ fees and court costs, arising, whether before or after the expiration or earlier termination of this Lease, out of or in connection with the gross negligence or intentional misconduct of Landlord or its employees, contractors or agents.

 

6


23. Damage and Destruction .

Subject to Article Seven of this Lease, but, notwithstanding anything in this Lease to the contrary, if, within four months from receipt of building permits, Landlord does not also make substantially complete all repairs required by Article Seven of this Lease and deliver possession of the Property to Tenant in accordance with this Lease, then Tenant may terminate this Lease by giving Landlord written notice within thirty (30) days at any time after said four month period, which termination shall be effective upon delivery of such notice subject to Article Seven of this Lease. Landlord shall proceed diligently and in good faith to obtain all required building permits and to repair the Property and Project.

 

24. Tenant’s Performance Rights :

If Landlord fails to perform any of its obligations under this Lease, including but not limited to Landlord’s repair and maintenance obligations, within the applicable cure period, and such failure to perform (a) poses an immediate threat to persons or property in the interior of the Property or otherwise has a material, adverse impact on the operations or property of Tenant in the interior of the Property, and (b) continues for a period of more than fifteen (15) days after Landlord’s receipt a Final Notice (as defined below), then Tenant shall have the right (but not the obligation) to perform such Landlord obligations sufficiently to eliminate such immediate threat or other material, adverse impact and to bill Landlord for the reasonable, out-of-pocket cost thereof, which Landlord shall pay to Tenant within fifteen (15) days of receipt of Tenant’s bill and supporting documentation therefor. As used herein, “Final Notice” shall mean a written notice given by Tenant to Landlord after the lapse of all applicable cure periods, which notice must, in order to be effective. (i) identify with specificity the obligations that Landlord has failed to perform, and (ii) state with specificity the immediate threat to persons or property, or other material, adverse impact on the operations or property of Tenant that is caused by such failure by Landlord, and (iii) state Tenant’s intention to perform such obligation(s), at Landlord’s expense pursuant to this Section 28, if Landlord shall fail to do so within fifteen (15) days, and (iv) state with specificity the actions that Tenant intends to take, and the estimated cost thereof.

 

25. Binding Force :

Submission of this Rider is not an offer to lease or amend the Lease. This Rider shall become binding upon Landlord and Tenant only when this Rider is fully executed and delivered by Landlord. In the event Landlord does not execute and deliver the Rider, then the Rider shall be void and of no force or effect.

 

26. Ratification of Lease :

The terms of the Lease are amended to reflect the changes set forth herein. In all other respects the terms of the Lease shall be in full force and effect. In the event of any conflict between this Rider No. 1 and the Lease, the terms of this Rider No. 1 shall be deemed controlling.

 

7


27. Capitalized Terms :

Except as otherwise expressly provided herein, the capitalized terms and phrases in this Rider No. 1 shall have the same meanings as are given such terms in the Lease.

 

28. Authority :

If Tenant is a corporation, trust or general or limited partnership, each individual executing this Rider No. 1 on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Rider No. 1 on behalf of said entity.

 

29. Right of First Offer :

Tenant shall have an ongoing right of first offer on 2 Goodyear, Unit B, of the Project throughout the Lease Term (as extended). Tenant shall have fifteen (15) days from receipt of written notice from Landlord regarding the availability of the space (which notice may be delivered up to six (6) months prior to actual occupancy by Tenant of such space) to exercise or waive its right of first offer. All space taken under the terms of this right of first offer shall be identical to the terms and conditions (at the time such right is exercised) to those of the Lease, excepting the Tenant Improvement Allowance and early access rights.

 

30. Termination of Lease for 2 Goodyear, Unit B :

Landlord and Tenant agree that the rights and obligations of the parties under the Industrial Real Estate Lease dated December 28, 1998 with respect to 2 Goodyear, Unit B (the “Unit B Lease”), shall remain in effect until its termination on March 31 st ,2007 pursuant to the terms and conditions of the Unit B lease. Tenant shall completely vacate 2 Goodyear, Unit B, and Tenant shall surrender the property located at 2 Goodyear, Unit B, broom clean and (notwithstanding anything to the contrary in Section 6.06 of the Unit B Lease) “as-is” and Tenant shall remove the property listed on Schedule 1 to this Rider No. 1., and Tenant shall satisfy each of the other requirements set forth in Landlord’s letters dated February 23, 2006 to Tenant (Mr. Ron Maldanado).

 

31. Limitation on Certain Costs :

Notwithstanding anything to the contrary contained in the Lease, the aggregate amount that Tenant shall be obligated to reimburse pursuant to, Section 4.04(b) (insurance) and Section 4.05 (common area costs, which common area costs shall include Reserves) during any calendar year of the Lease Term shall not exceed an amount equal to the aggregate amount of such costs applicable during calendar year 2006 (annualized to reflect the costs that would have been incurred if Tenant’s Commencement Date had been January 1, 2006) increased by five percent each year, compounded annually. Thus, if Tenant’s annualized cost for calendar year 2006 were $100,000, it would not be required to reimburse an aggregate in excess of $105,000 for calendar year 2007, or $110,250 for calendar year 2008. Notwithstanding the foregoing, the limitations set forth in this Paragraph 31 shall terminate immediately upon any transfer, other than to Tenant’s Affiliate, of Tenant’s interest in the Lease or the Property, regardless of whether Landlord consents to such transfer.

 

8


LANDLORD:     TENANT:
New Goodyear LTD,     IsoTis OrthoBiologics, Inc.
a California limited partnership     a Washington corporation
By:   /s/     By:   /s/ Pieter Wolters
        Pieter Wolters
Its:   General Partner     Its:   Chief Executive Officer

 

 

 

    By:   /s/ Gene Reu
        Gene Reu

 

 

 

    Its:   Vice President Operations
Date:   12/18/06     Date:   12/22/06

 

9


RIDER NO. 2

OPTION TO EXTEND TERM LEASE

This Rider is attached to and made part of that certain Lease (the “Lease”) dated February 15, 2006 between, New Goodyear LTD as Landlord, and IsoTis Orthobiologics, Inc. as Tenant, covering the Property commonly known as 2 Goodyear Unit A at Irvine California, (the “Property”). The terms used herein shall have the same definitions as set forth in the Lease. The provisions of this Rider shall supersede any inconsistent or conflicting provisions of the Lease.

 

A. Option(s) to Extend Term.

 

  1. Grant of Option .

Landlord hereby grants to Tenant two (2) option(s) (the “Option”) to extend the Lease Term for additional term of five (5) years each (the “Extension”), on the same terms and conditions as set forth in the Lease, but at an increased rent as set forth below. Each Option shall be exercised only by written notice delivered to Landlord at least one hundred twenty (120) days, but not more than 360 days before the expiration of the Lease Term or the preceding Extension of the Lease Term, respectively. If Tenant fails to deliver to Landlord written notice of exercise of an Option within the prescribed time period, such Option and any succeeding Options shall lapse, and there shall be no further right to extend the Lease Term. Each Option shall be exercisable by Tenant on the express conditions that (a) at the time of the exercise, and at all times prior to the commencement of such Extension, Tenant shall not be in default under any of the provisions of the Lease beyond all applicable cure periods and (b) Tenant has not been ten (10) or more days late in the payment of rent more than a total of two (2) times during the preceding 12 month period.

 

  2. Personal Options .

The Option(s) are personal to the Tenant named in Section 1.03 of the Lease or any Tenant’s Affiliate described in Section 9.02 of the Lease. If Tenant subleases any portion of the Property or assigns or otherwise transfers any interest under the Lease to any entity other than a Tenant Affiliate prior to the exercise of an Option (whether with or without Landlord’s consent), such Option and any succeeding Options shall lapse. If Tenant subleases any portion of the Property or assigns or otherwise transfers any interest of Tenant under the Lease to any entity other than a Tenant Affiliate after the exercise of an Option but prior to the commencement of the respective Extension (whether with or without Landlord’s consent), such Option and any succeeding Options shall lapse and the Lease Term shall expire as if such Option were not exercised. If Tenant subleases any portion of the Property or assigns or otherwise transfers any interest of Tenant under the Lease in accordance with Article 9 of the Lease after the exercise of an Option and after the commencement of the Extension related to such Option, then the term of the Lease shall expire upon the expiration of the Extension during which such sublease or transfer occurred and only the succeeding Options shall lapse.

 

1


B. Calculation of Rent.

The Base Rent during the Extension(s) shall be determined by one or a combination of the following methods (INDICATE METHOD UPON EXECUTION OF THE LEASE):

 

  1. Fair Rental Value Adjustment (Section B.2, below) as determined by appraiser or broker

Rental Adjustment Date(s): The first day of the first month(s) of the first Extension only of the Lease Term.

On the Rental Adjustment Date, the Base Rent shall be adjusted to the “Fair Rental Value” of the Property. Three months prior to the Rental Adjustment Date, the parties shall attempt to agree upon the what the new Fair Rental Value will be on the adjustment date. If agreement cannot be reached within fifteen days, then both Landlord and Tenant shall each immediately make a reasonable determination of the Fair Rental Value of the Property and submit such determination, in writing, for appraisal in accordance with the following provisions:

(i) Within 15 days thereafter, Landlord and Tenant shall each select an appraiser of their choice. The two appraisers so appointed shall immediately select a third mutually acceptable appraiser to act as a third appraiser.

(ii) The 3 appraisers shall within 15 days of their appointment of the third appraiser reach a decision as to what the actual Fair Rental Value for the Property is, and whether Landlord’s or Tenant’s submitted Fair Rental Value is the closest thereto. The decision of a majority of the appraisers shall be binding on the parties. The submitted Fair Rental Value that is determined to be closest to the actual Fair Rental Value shall thereafter be used by the parties.

(iii) If either of the parties fails to appoint an appraiser within the specified 15 days, the appraiser timely appointed by one of them shall reach a decision on his or her own, and said decision shall be binding on the parties.

(iv) The entire cost of such appraisal(s) shall be paid equally by the party whose submitted Fair Rental Value is not selected (i.e., the one that is not the closest to the actual Fair Rental Value).

 

2


LANDLORD:     TENANT:
New Goodyear LTD,     IsoTis OrthoBiologics, Inc.
a California limited partnership     a Washington corporation
By:   /s/     By:   /s/ Pieter Wolters
        Pieter Wolters
Its:   General Partner     Its:   Chief Executive Officer

 

 

 

    By:   /s/ Gene Reu
        Gene Reu

 

 

 

    Its:   Vice President Operations
Date:   12/18/06     Date:   12/22/06

 

3

Exhibit 10.18

AMENDMENT NO. 1 TO LEASE

This Amendment No. 1 to Lease (the “Amendment” ) is dated for reference purposes as May  26 , 2011 , and is made between New Goodyear Ltd., a California limited partnership (hereinafter referred to as “Landlord” ) and IsoTis OrthoBiologics, Inc., a Washington corporation (hereinafter referred to as “Tenant” ) (collectively, the “Parties” ).

RECITALS

 

A. Landlord and Tenant entered into that certain Amended and Restated Lease dated the 23 rd day of February 2006 (the “Lease” ), covering approximately 43,538 square feet of space commonly known as 2 Goodyear, Unit A, Irvine, California 92618 (the “Property” ).

 

B. Whereas, Landlord and Tenant now desire to amend the Lease by extending Tenant’s Lease Term, and by making certain other changes pursuant to the terms and conditions hereinafter set forth.

THEREFORE , the Parties agree to amend the Lease as follows:

 

1. LEASE TERM : The Lease Term set forth in Section 1.05 is hereby amended such that: The Lease Term is extended for a period of sixty-three (63) months, to and including October 31, 2016 (“Extension Period”).

 

2. BASE RENT: Section 1.12(a) is hereby amended as follows : The monthly Base Rent for the Property during the Extension Period shall be as follows:

 

Rental Adjustment Date:

   Monthly Base Rent:  

August 1, 2011 through July 31, 2012

   $ 37,007.00, NNN   

August 1, 2012 through July 31, 2013

   $ 38,117.00, NNN   

August 1, 2013 through July 31, 2014

   $ 39,261.00, NNN   

August 1, 2014 through July 31, 2015

   $ 40,439.00, NNN   

August 1, 2015 through July 31, 2016

   $ 41,652.00, NNN   

August 1, 2016 through October 31, 2016

   $ 42,902.00, NNN   

 

3. ABATED RENT : Tenant shall receive three (3) months of abated rent, specifically months one (1), two (2), and three (3) of the Extension Period (the “Rental Abatement Months”). Tenant will be subject to all the provisions of the Lease excepting that Tenant shall not be required to pay Base Rent or Tenant’s pro rata share of expenses, per paragraph 1.12(b) of the Lease for the Rental Abatement Months.

 

4. LIMITATION ON CERTAIN COSTS : Paragraph 31 of Rider No. 1 attached to the Lease is hereby amended and restated in its entirety to read as follows:

“31. Limitation on Certain Costs:

Notwithstanding anything to the contrary contained in the Lease, the aggregate amount that Tenant shall be obligated to reimburse pursuant to, Section 4.04(b) (insurance) and Section 4.05 (common area costs, which common area costs shall include Reserves)


IsoTis OrthoBiologics, Inc.

Amendment No. 1 to Lease

May 26, 2011

Page  2

 

during any calendar year of the Lease Term shall not exceed an amount equal to $62,695 ($0.12/sf/mo.) for calendar year 2011 increased by five percent each following year, compounded annually. Thus, if Tenant’s annualized cost for calendar year 2011 were $62,695, it would not be required to reimburse an aggregate in excess of $65,830 for calendar year 2012, or $69,122 for calendar year 2013. Notwithstanding the foregoing, the limitations set forth in this Paragraph 31 shall terminate immediately upon any transfer, other than to Tenant’s Affiliate, of Tenant’s interest in the Lease or the Property, regardless of whether Landlord consents to such transfer.”

 

5. TENANT IMPROVEMENTS : Landlord shall provide Tenant a Tenant Improvement Allowance equal to Two Hundred Thousand and 00/100 Dollars ($200,000.00) (the “Allowance”) to be used for expansion of the existing clean room, construction of additional manufacturing areas, and for general refurbishment (the “Tenant’s Work”). Tenant shall be solely responsible for the completion of the Tenant’s Work. Prior to commencing construction of the Tenant’s Work, Tenant shall provide Landlord with design drawings and specifications for Landlord’s approval which shall not be unreasonably withheld. Tenant’s performance of the Tenant’s Work shall conform to all the terms and conditions stated in Section 6.05 “Alterations, Additions and improvements,” including but not limited to, the requirement that Tenant receive all required governmental and municipal permits and approvals prior to and during construction of such improvements. Landlord’s consent to such improvements, or Landlord’s approval of the plans, specifications, working drawings and construction for such improvements shall create no responsibility or liability on the part of Landlord for their completeness, design sufficiency, quality of workmanship or compliance with all laws, rules, and regulations of governmental and quasi-governmental agencies.

The Allowance will be paid to Tenant in one lump sum upon completion of all of the following: a) Tenant’s receipt of a building permit; b) Tenant’s construction of the Tenant’s Work, per city approved plans and specifications; c) Tenant’s receipt of a Certificate of Occupancy or other municipal sign-off or approval; d) copies of all as-built drawings and specifications and copies of any applicable warranties have been provided to Landlord and e) Tenant has fully paid for all of the work and has furnished Landlord with paid invoices and unconditional contractor, subcontractor and supplier releases evidencing such. Landlord shall have the right to inspect the improvements to verify their completion and inspect the quality of those improvements prior to the release of Allowance. Any unused portion of the Allowance shall be credited to Tenant in the form of rent abatement, commencing with the month the improvements are complete and ending when the credit is exhausted.

 

6. OPTION TO EXTEND TERM AMENDMENT RIDER : Tenant shall have two (2) five (5) year options to extend pursuant to the Option to Extend Term Amendment Rider attached to and made a part of this Amendment No. 1 to Lease.

 

7. HVAC UNITS : No later than July 31, 2011, the fourteen (14) existing rooftop HVAC units identified in Exhibit “A” shall be replaced by Landlord, at Landlord’s sole cost and expense, with new units of equivalent or superior specifications. All warranties for the new rooftop HVAC units shall inure to the benefit of Tenant.


IsoTis OrthoBiologics, Inc.

Amendment No. 1 to Lease

May 26, 2011

Page  3

 

8. ROOF : No later than July 31, 2011, Landlord shall install a four (4) ply build up roof system over the existing roof. This installation will be covered under a ten (10) year manufacturer’s warranty.

 

9. SECURITY DEPOSIT : The existing Security Deposit per Section 1.10 of the Lease shall remain $43,538.00 for the Extension Period.

 

10. BINDING FORCE : Submission of this Amendment is not an offer to lease or amend the Lease. This Amendment shall become binding upon Landlord and Tenant only when the Amendment is fully executed and delivered by Landlord. In the event Landlord does not execute and deliver the Amendment, then the Amendment shall be void and of no force or effect.

 

11. RATIFICATION OF THE LEASE : The terms of the Lease are amended to reflect the changes set forth above. In all other respects the terms of the Lease shall be in full force and effect. In the event of any conflict between this Amendment and the Lease, the terms of this Amendment shall be deemed controlling.

 

12. CAPITALIZED TERMS : Except as otherwise expressly provided herein, the capitalized terms and phrases in this Amendment shall have the meanings as are given such terms in the Lease.

 

13. AUTHORITY : If Tenant is a corporation, trust, general or limited partnership, each individual executing this Amendment on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Amendment on behalf of said entity.

 

14. CONFIDENTIALITY : It is understood and agreed by Tenant, that any rent or other concessions made by Landlord as specified herein are confidential. Tenant shall not disclose any of the terms of this Amendment to any third party, and shall use all reasonable efforts to preserve the confidentiality of the terms of this Amendment. Tenant agrees that the information contained herein constitutes unique, and valuable business information of Landlord, and that disclosure of such information would cause Landlord serious and irreparable harm. Tenant shall indemnify Landlord against all claims, liabilities, damages, losses, and costs of whatsoever kind or nature, including attorney’s fees and court costs, arising out of, or resulting from Tenant’s breach or violation of this Paragraph.


IsoTis OrthoBiologics, Inc.

Amendment No. 1 to Lease

May 26, 2011

Page  4

 

LANDLORD:

NEW GOODYEAR LTD,

a California limited partnership

TENANT:

ISOTIS ORTHOBIOLOGICS, INC.,

a Washington corporation

By: /s/    Jon Monkarsh By: /s/    Stuart M. Essig
Signature Signature
By: Jon Monkarsh By: Stuart M. Essig
Print name Print Name
By: Authorized Representative Its: President & CEO
Title Title
Date:   6-9-11 Date:   5/26/11


OPTION TO EXTEND TERM AMENDMENT RIDER

This Rider is attached to and made part of that certain Amendment No. 1 to Lease (the “Amendment”) dated May 26, 2011 between, New Goodyear Ltd., a California limited partnership as Landlord, and IsoTis OrthoBiologics, Inc., a Washington corporation as Tenant, covering the Property commonly known as 2 Goodyear, Unit A, Irvine, California 92618 , (the “Property”). The terms used herein shall have the same definitions as set forth in the Lease. The provisions of this Rider shall supersede any inconsistent or conflicting provisions of the Lease.

 

A. Option(s) to Extend Term.

 

  1. Grant of Option.

Landlord hereby grants to Tenant two (2) options (the “Option”) to extend the Lease Term for an additional term of five (5) years each (the “Extension Period”), on the same terms and conditions as set forth in the Lease, but at an increased rent as set forth below. Each Option shall be exercised only by written notice delivered to Landlord at least one hundred twenty (120) days, but not more than 360 days before the expiration of the Lease Term or the Extension Period respectively. If Tenant fails to deliver to Landlord written notice of exercise of an Option within the prescribed time period, such Option and any succeeding Options shall lapse, and there shall be no further right to extend the Lease Term. Each Option shall be exercisable by Tenant on the express conditions that (a) at the time of the exercise, and at all times prior to the commencement of such Extension, Tenant shall not be in default under any of the provisions of the Lease beyond all applicable cure periods and (b) Tenant has not been ten (10) or more days late in the payment of rent more than a total of two (2) times during the preceding 12 month period.

 

  2. Personal Options.

The Option(s) are personal to the Tenant named in Section 1.03 of the Lease or any Tenant’s Affiliate described in Section 9.02 of the Lease. If Tenant subleases any portion of the Property or assigns or otherwise transfers any interest under the Lease to any entity other than a Tenant Affiliate prior to the exercise of an Option (whether with or without Landlord’s consent), such Option and any succeeding Options shall lapse. If Tenant subleases any portion of the Property or assigns or otherwise transfers any interest of Tenant under the Lease to any entity other than a Tenant Affiliate after the exercise of an Option but prior to the commencement of the respective Extension (whether with or without Landlord’s consent), such Option and any succeeding Options shall lapse and the Lease Term shall expire as if such Option were not exercised. If Tenant subleases any portion of the Property or assigns or otherwise transfers any interest of Tenant under the Lease in accordance with Article 9 of the Lease after the exercise of an Option and after the commencement of the Extension related to such Option, then the term of the Lease shall expire upon the expiration of the Extension during which such sublease or transfer occurred and only the succeeding Options shall lapse.


B. Calculation of Rent.

The Base Rent during the Extension(s)shall be determined by one or a combination of the following methods (INDICATE METHOD UPON EXECUTION OF THE LEASE):

 

  1. [Reserved]

 

  2. Fair Rental Value Adjustment (Section B.2, below) as determined by broker

Rental Adjustment Date: November 1, 2016, November 1, 2021

On the Rental Adjustment Date, the Base Rent shall be adjusted to the “Fair Rental Value” of the Property. Three months prior to the Rental Adjustment Date, the parties shall attempt to agree upon what the new Fair Rental Value will be on the adjustment date. If agreement cannot be reached within fifteen days, then both Landlord and Tenant shall each immediately make a reasonable determination of the Fair Rental Value of the Property and submit such determination, in writing, for appraisal in accordance with the following provisions:

(i) Within 15 days thereafter, Landlord and Tenant shall each select an appraiser of their choice. The two appraisers so appointed shall immediately select a third mutually acceptable appraiser to act as a third appraiser.

(ii) The 3 appraisers shall within 15 days of their appointment of the third appraiser reach a decision as to what the actual Fair Rental Value for the Property is, and whether Landlord’s or Tenant’s submitted Fair Rental Value is the closest thereto. The decision of a majority of the appraisers shall be binding on the parties. The submitted Fair Rental Value that is determined to be closest to the actual Fair Rental Value shall thereafter be used by the parties.

(iii) If either of the parties fails to appoint an appraiser within the specified 15 days, the appraiser timely appointed by one of them shall reach a decision on his or her own, and said decision shall be binding on the parties.

(iv) The entire cost of such appraisal(s) shall be paid equally by the party whose submitted Fair Rental Value is not selected (i.e., the one that is not the closest to the actual Fair Rental Value).

 

  3. [Reserved]


LANDLORD:

NEW GOODYEAR LTD,

a California limited partnership

TENANT:

ISOTIS ORTHOBIOLOGICS, INC.,

a Washington corporation

By: /s/    Jon Monkarsh By: /s/    Stuart M. Essig
Signature Signature
By: Jon Monkarsh By: Stuart M. Essig
Print name Print Name
By: Authorized Representative Its: President & CEO
Title Title
Date:   6-9-11 Date:   5/26/11

Exhibit 10.19

SECOND AMENDMENT TO INDUSTRIAL REAL ESTATE LEASE

This Second Amendment to Industrial Real Estate Lease (this “Amendment” ) is made and entered into this 14 th of May, 2013, by and between KTR OC I LLC, a Delaware limited liability company ( “Landlord” ) and ISOTIS ORTHOBIOLOGICS, INC., a Washington corporation ( “Tenant” ).

RECITALS

WHEREAS , New Goodyear, Ltd. (the predecessor-in-interest to Landlord) and Tenant entered into that certain Industrial Real Estate Lease dated as of February 23, 2006 ( “Original Lease” ), as amended by that certain Rider No. 1 dated as of February 23, 2006 ( “Rider No. 1” ), by that certain Rider No. 2 dated as of February 15, 2006 ( “Rider No. 2” ), and by that certain Amendment No. 1 to Lease dated as of May 26, 2011 ( “Amendment No. 1” ; the Original Lease, as amended by the aforementioned riders and amendments is hereinafter referred to as the “Amended Lease” ), with respect to certain premises consisting of approximately 43,538 square feet (the “Original Premises” ), in the building commonly known as 2 Goodyear, Irvine, California (the “Building” ); and

WHEREAS , capitalized terms used and not otherwise defined herein shall have the meanings respectively ascribed to them in the Amended Lease; and

WHEREAS , the parties wish to amend the Amended Lease as set forth in this Amendment.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby affirm the foregoing recitals and agree as follows:

1. Recitals . The recitals set forth above are hereby incorporated into the body of this Amendment as if fully restated herein. From and after the date hereof, references to the “Lease” (including, without limitation, any and all references contained in this Amendment) shall mean the Amended Lease as amended by this Amendment.

2. Expansion of Property . From and after May 1, 2013 (the “Expansion Date” ), the Property shall be expanded to include that certain space located in the Building consisting of approximately 26,462 square feet of space (the “Expansion Premises” ), such that, from and after the Expansion Date, (a) Landlord shall lease to Tenant, and Tenant shall lease from Landlord, the Original Premises and the Expansion Premises pursuant to the Lease, (b) the term “Property” shall refer to the Original Premises and the Expansion Premises on a collective basis, and such Property shall consist of approximately 70,000 square feet, (c) the term of Tenant’s lease of the Original Premises and the Expansion Premises shall be co-terminus, and (d) Tenant’s Initial Pro Rata Share of Common Area costs and all words of similar import shall mean 100%. From and after the Expansion Date, except as otherwise expressly set forth herein, all terms and conditions of the Lease shall apply to the Property consisting of both the Original Premises and the Expansion Premises.


In the event Landlord is unable to deliver possession of the Expansion Premises to Tenant in the condition required by this Amendment on the targeted Expansion Date of May 1, 2013, for any reason (including, without limitation, any holdover by any existing tenant of the Expansion Premises), Landlord shall have no liability to Tenant on account thereof and the obligations of Tenant shall not be affected thereby, except that the (a) Expansion Date shall be extended until such time as Landlord delivers possession of the Expansion Premises to Tenant and (b) dates set forth in the below schedule of Base Rent shall be adjusted to take into account the delay in the Expansion Date. Notwithstanding the preceding sentence, in the event that the Amendment is signed after May 1, 2013, the Rent Abatement Period as defined below will not change and as such, the Landlord will reimburse the Tenant for any Rent previously paid to Landlord for the month of May 2013 within 30 days of the execution of this Amendment.

3. Lease Term; Rent . The Lease Term is hereby extended for an additional seventy-eight (78) months (the “Extension Term” ), commencing on November 1, 2016 and ending on April 30, 2023 (the “Expiration Date” ). Effective on the Expansion Date, and continuing through the Expiration Date the schedule of Base Rent set forth in Section 1.12(a) of the Amended Lease is deleted and the following schedule is inserted in lieu thereof:

 

Period

   Annual
Base Rent
     Monthly
Installment
of Base Rent
 

May 1, 2013 — August 31, 2013 (“Rent Abatement Period” )

   $ 0.00       $ 0.00   

September 1, 2013 — April 30, 2014

     N/A       $ 64,750.00   

May 1, 2014 — April 30, 2015

   $ 800,310.00       $ 66,692.50   

May 1, 2015 — April 30, 2016

   $ 824,319.30       $ 68,693.28   

May 1, 2016 — April 30, 2017

   $ 849,048.88       $ 70,754.07   

May 1, 2017 — April 30, 2018

   $ 874,520.35       $ 72,876.70   

May 1, 2018 — April 30, 2019

   $ 900,755.96       $ 75,063.00   

May 1, 2019 — April 30, 2020

   $ 927,778.63       $ 77,314.89   

May 1, 2020 — April 30, 2021

   $ 955,611.99       $ 79,634.33   

May 1, 2021 — April 30, 2022

   $ 984,280.35       $ 82,023.36   

May 1, 2022 — April 30, 2023

   $ 1,013,808.76       $ 84,484.06   

*Base Rent for the Rent Abatement Period (i.e., $64,750.00 per month, collectively, the “Abated Rent” ) shall be conditionally abated. The abatement of Abated Rent during the Rent Abatement Period provided for in this Section 3 is conditioned upon Tenant’s full and timely performance of all of its obligations under the Lease. If at any time during the Lease Term (including the Extension Term), Tenant is in material default under the Lease according to Section 10.02 of the Lease, then the abatement of Abated Rent provided for in this provision shall immediately become void, and Tenant shall promptly pay to Landlord, in addition to all other amounts due to Landlord under the Lease by reason of such default, the unamortized portion of the Abated Rent, which shall be calculated based on the number of remaining months of the Lease Term (including the Extension Term) following the termination date divided by one hundred sixteen (116).

 

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4. Additional Rent . In addition to the above monthly Base Rent amounts, Tenant shall also be responsible for payment (to Landlord or such other party as may be required under the Lease) of any and all Additional Rent, and any other amounts, due under the terms of the Lease including, without limitation, (i) Tenant’s Pro Rata Share of Common Area costs (including, without limitation, Impounds for Insurance Premiums and Property Taxes), and (ii) all utility services rendered or furnished to the Property. Tenant shall pay all of the foregoing amounts in accordance with the terms of the Lease.

5. Tenant Improvement Allowance . Landlord shall contribute up to a maximum amount of $450,000.00 (the “TI Allowance” ) towards the costs of certain alterations to the Property to be constructed by Tenant (“Tenant Improvements” ), which such payment shall be made by Landlord to Tenant within 30 days following (a) completion of such Tenant Improvements, (b) Landlord’s receipt of Tenant’s invoice substantiating the costs related thereto, (c) Landlord’s receipt of final lien waivers from all contractors and subcontractors who did work on such Tenant Improvements; and (d) Landlord’s receipt of a copy of the final permit approved by the applicable governing authority to the extent required for such Tenant Improvements. Landlord shall be under no obligation to pay for any alterations or Tenant Improvements to the Property (i) in excess of the TI Allowance or (ii) if there exists a material default under Section 10.02 of the Lease. Such Tenant Improvements hereunder shall be deemed alterations for purposes of the Lease, and, therefore, shall be governed by Section 6.05 of the Lease, and, further, notwithstanding anything to the contrary contained in the Lease, shall be subject to Landlord’s approval of the plans and specifications related thereto. Tenant shall have the right to elect by written notice to Landlord (a “Rent Application Election” ) to use up to 100% of the TI Allowance as a credit against Rent, as they become due and payable. In the event that Tenant fails to properly request the TI Allowance or make a Rent Application Election on or prior to June 30, 2014, provided no default exists, then Tenant shall be deemed to have made a Rent Application Election with respect to any remaining amount of TI Allowance, which shall be treated as a credit against Rent, up to the maximum amount of the next succeeding monthly installments of Rent until such credit is satisfied. After June 30, 2014, provided no default exists, all TI Allowances or Rent Application Elections made by Tenant will be treated as credits against Rent, up to the maximum amount of the next succeeding monthly installments of Rent until such credits are satisfied. In the event that the Lease Term ends before a credit to Rent can be applied, any remaining credit shall be paid by Landlord to Tenant within thirty (30) days after the end of the Lease Term provided that no default exists under the Lease at such time. If a material default exists under Section 10.02 of the Lease as of June 30, 2014, Tenant shall be deemed to have waived its right to any remaining portion of the TI Allowance.

6. Insurance Policies . Notwithstanding anything to the contrary contained in the Amended Lease, effective as of the date hereof, Tenant shall be liable for Tenant’s Pro Rata Share of all deductibles on the insurance maintained by Landlord under Section 4.04 of the Lease, without limitation on the amount of such deductibles, including, without limitation, Earthquake Insurance.

7. Limitation of Certain Costs . Effective as of the Expansion Date, Paragraph 31 of Rider No. 1 of the Amended Lease is deleted in its entirety.

 

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8. Maintenance of Common Areas . Effective as of the Expansion Date, Section 4.05(d) of the Amended Lease is deleted in its entirety and replaced with the following provision: Landlord shall maintain the Common Areas in good order, condition and repair and shall operate the Project, as a first-class industrial/commercial real property development. Tenant shall pay Tenant’s pro rata share (as determined below) of all costs incurred by Landlord for the operation and maintenance of the Common Areas. Common Area costs include, but are not limited to, costs and expenses for the following: gardening and landscaping; utilities, water and sewage charges; maintenance of signs (other than Tenant’s signs); premiums for liability, property damage, fire and other types of casualty insurance on the Common. Areas and worker’s compensation insurance; all property taxes and assessments levied on or attributable to the Common Areas and all Common Area improvements; all personal property taxes levied on or attributable to personal property used in connection with the Common Areas; straight-line depreciation on personal property owned by Landlord which is consumed in the operation or maintenance of the Common Areas; rental or lease payments paid by Landlord for rented or leased personal property used in the operation or maintenance-of the Common Areas; fees for required licenses and permits; repairing, resurfacing, repaving, maintaining, painting, lighting, cleaning, refuse removal, security and similar items; reasonable reserves for roof replacement and exterior painting (the “Reserves”, which shall be established initially at $0.15 per square foot per year, which amount may be subsequently increased by Landlord); replacement (when needed) of HVAC units based on a 20 year useful lifespan of an HVAC unit that will be prorated based on the number of years and months remaining on the Lease Term. (For example, if an HVAC unit is replaced when only ten (10) years of Lease Term remains, Tenant shall only be responsible for 50% of the total cost because the lifespan of an HVAC unit is agreed by both parties to be 20 years. If an HVAC unit is replaced when only five (5) years of Lease Term remains, Tenant shall only be responsible for twenty-five percent (25%) of the total cost because the useful lifespan of an HVAC unit is agreed by both parties to be 20 years and only 5 years of Lease Term remains. In the event that the Lease Term is extended by the parties, Tenant shall remain liable to reimburse Landlord for the prorated cost of any HVAC unit (using a 20 year useful life span) that falls within such extended Lease Term. By way of example, if an HVAC Unit is replaced when ten (10) years of Lease Term remains, Tenant shall only be responsible for 50% of the replacement cost of the HVAC unit replaced; however, if the Lease Term is then extended for an additional five (5) year term (such term, the “Five Year Extension Term”), during such Five Year Extension Term Tenant shall reimburse Landlord for 25% of the cost of such replaced HVAC unit); and a reasonable allowance to Landlord for Landlord’s supervision of the Common Areas (Tenant’s pro rata share of such supervision allowance (the “Supervision Allowance”) shall not exceed four percent (4%) of Base Rent and all reimbursable expenses pursuant to Article 4 for the applicable period). Landlord may cause any and or all of such services to be provided by third parties and the cost of such services shall be included in Common Area costs. Common Area costs shall not include depreciation of real property, which forms part of the Common Areas. Tenant agrees to provide Landlord with maintenance records pertaining to HVAC units, in form and substance satisfactory to Landlord, within 30 days of Landlord’s written request. Notwithstanding anything stated elsewhere in the Amended Lease, the Landlord agrees to address as well as bear the total cost of (i) resurfacing, repaving, and restriping the parking lot within the first year of the date of this Amendment, and (ii) exterior painting of the Building within the first year of the date of this Amendment.

 

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Notwithstanding anything to the contrary contained in the Amended Lease, commencing as of January 1, 2014, the aggregate amount that Tenant shall be obligated to reimburse pursuant to Section 4.05 (Common Area costs, which Common Area costs shall include Reserves), shall be limited to the actual amount of Controllable Operating Expenses (as hereinafter defined) paid or incurred by Landlord on account of or in calendar year 2013, increased on a cumulative, compounding basis at five percent (5%) per annum through the applicable calendar year. In the event that the cap applies to limit Tenant’s Pro Rata Share of Common Area costs attributable to Controllable Operating Expenses for any calendar year, the excluded amount (i.e., Controllable Operating Expenses incurred by Landlord in excess of the cap) shall be carried forward to succeeding calendar years and recaptured by Landlord so long as the foregoing limit on the increase in the portion of Common Area costs attributable to Controllable Operating Expenses is not exceeded in any such succeeding year such that amounts that could not be included in Common Area costs during such prior years may be re-captured by Landlord. The limitations on reimbursement set forth in this paragraph shall in no event apply to limit Tenant’s obligations under (i) Section 4.02 (Property Taxes), (ii) Section 4.04 (Insurance Policies) and (iii) Section 4.05(d) (with respect to utilities, water and sewage charges and the Supervision Allowance only) of the Amended Lease (all of the Common Area costs under the Lease, excluding, the costs under Sections 4.02, 4.04 and 4.05(d) (with respect to utilities, water and sewage charges and the Supervision Allowance only) of the Amended Lease, are hereinafter referred to as the “Controllable Operating Expenses.” ) Tenant shall remain fully liable to pay Landlord Tenant’s Pro Rata Share of all real property taxes on the Property and the cost of premiums for insurance maintained by Landlord under the Lease, including any deductibles in connection therewith.

9. Options to Extend Term Amendment Rider . Effective as of the date of this Amendment, (i) Rider No. 2 and (ii) the Option to Extend Term Amendment Rider attached to Amendment No. 1, are both deleted in their entirety.

10. Right of First Offer . Effective as of the date of this Amendment, Paragraph 29 of Rider No. 1 is deleted in its entirety.

11. Vehicle Parking Spaces Allocated to Tenant . Effective as of the Expansion Date, notwithstanding anything to the contrary contained in the Amended Lease, Tenant shall be entitled to use all of the parking areas allocated to the Property.

12. Tenant Improvements . Effective as of the date hereof, Section 5 of Amendment No. 1 is deleted in its entirety and Landlord has no obligations under such section.

13. Property . Tenant hereby acknowledges that other than as required in the Amended Lease including but not limited to Article 6 of the Amended Lease (i) Landlord shall have no obligation whatsoever to perform any work to the Property in connection with this Amendment, (ii) Tenant is familiar with and has inspected the Property, and (iii) Tenant shall accept the Property on an “AS-IS,” “WHERE-IS” basis.

 

5


14. Confidential Information . Tenant agrees to maintain in strict confidence, other than as required by law, (and to cause any broker representing Tenant to maintain in strict confidence, other than as required by law) all of the terms of this Amendment (including, without limitation, the economic terms contained herein) and any or all other materials, data and information delivered to, or received by, any or all of Tenant and Tenant’s agents, representatives, employees, attorneys, and consultants either prior to or after the date hereof in connection with the negotiation and execution of this Amendment. The provisions of this Section 14 shall survive the expiration or termination of the Lease.

15. Full Force and Effect . Except as otherwise expressly provided herein, the Amended Lease shall be and remain in full force and effect in accordance with its terms.

16. Counterparts and Signatures . This Amendment and any document executed in connection herewith may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute the same document. Facsimile machine or PDF copies of an original signature by either party shall be binding as if said copies were original signatures.

17. Conflicts . If any of the terms, covenants or conditions of this Amendment conflict with the terms, covenants or conditions of the Amended Lease, the terms, covenants and conditions of this Amendment shall control.

18. Brokers’ Commission . Each of the parties hereto represents and warrants to the other that it has not dealt with any broker in connection with this Amendment. Landlord shall indemnify, defend and hold harmless Tenant from and against all claims for broker’s commissions, finder’s fees or other commissions or fees made by any broker claiming through Landlord. Tenant shall indemnify, defend and hold harmless Landlord from and against all claims for broker’s commissions, finder’s fees or other commissions or fees made by any broker claiming through Tenant.

[Signature Page to Follow]

 

6


IN WITNESS WHEREOF , the parties have caused this Amendment to be executed as of the day and year first above written.

 

LANDLORD  
KTR OC I LLC , a Delaware limited liability company
By:   KTR Property Trust I, a Maryland real investment trust
Its: Sole Member
By:   /s/ Stephen J. Butte
Name:   Stephen J. Butte
Its:   Senior Vice President

 

TENANT

ISOTIS ORTHOBIOLOGICS, INC., a

Washington corporation

By:   /s/ John B. Henneman, III
Name:   John B. Henneman, III
Its:   Vice President, Treasurer & Assistant Secretary

 

A-1

Exhibit 21.1

Subsidiaries of SeaSpine Holdings Corporation

 

Name of Subsidiary

  

State or Country of Incorporation or Organization

IsoTis International SA    Switzerland
IsoTis OrthoBiologics, Inc.    Washington
IsoTis, Inc.    Delaware
SeaSpine, Inc.    Delaware
SeaSpine Sales LLC    Delaware
SeaSpine Orthopedics Corporation    Delaware
Theken Spine, LLC    Ohio
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EXHIBIT 99.1

 

Exhibit 99.1

Integra LifeSciences Holdings Corporation

311 Enterprise Drive

Plainsboro, New Jersey 08536

, 2015

Dear Integra Stockholder:

I am pleased to report that the previously announced spin-off by Integra LifeSciences Holdings Corporation (“Integra”) of its SeaSpine Holdings Corporation (“SeaSpine”) subsidiary is expected to become effective on                     , 2015 and that SeaSpine will become a stand-alone company on that date. SeaSpine is a global medical technology company focused on the design, development and commercialization of surgical solutions for the treatment of patients suffering from spinal disorders. Following the spin-off, Integra will continue to manufacture and sell its products in its Specialty Surgical Solutions and Orthopedic and Tissue Technologies segments.

SeaSpine intends to list its common stock on the NASDAQ Global Market under the symbol “SPNE.”

We believe that the spin-off, which will create two distinct companies with separate ownership and management, will enhance value for current Integra stockholders by better positioning each of Integra and SeaSpine to leverage its distinct competitive strengths, manage its operations and capital investments, obtain equity and debt financing and pursue growth strategies.

Holders of record of Integra common stock as of              p.m., New York City time, on                     , 2015, which will be the record date, will receive one share of SeaSpine common stock for every              shares of Integra common stock held by such holders. No action is required on your part to receive your SeaSpine stock. You will not be required to pay anything for the new shares or to surrender any shares of Integra stock.

Fractional shares of SeaSpine’s common stock will not be distributed. Fractional shares of SeaSpine’s common stock that would otherwise be distributed to Integra stockholders will be aggregated and sold in the public market by the transfer agent. The aggregate net proceeds of these sales will be distributed ratably as cash payments to the stockholders who would otherwise have received fractional interests. These cash payments generally will be taxable to those stockholders. In due course you will be provided with information to enable you to compute your tax basis in both the Integra and the SeaSpine stock. It is a condition to the completion of the spin-off that we receive an opinion from Latham & Watkins LLP substantially to the effect that, among other things, the distribution of the SeaSpine stock will be tax-free to Integra and to you for U.S. federal income tax purposes, except for any cash received in lieu of fractional shares.

The enclosed Information Statement describes the distribution of shares of SeaSpine stock and contains important information about SeaSpine, including financial statements. I suggest that you read it carefully. If you have any questions regarding the distribution, please contact Integra’s transfer agent, American Stock Transfer & Trust Company, LLC, at (800) 937-5449.

I believe the spin-off is a positive event for the owners of our stock, and I look forward to your continued support as a stockholder of Integra. We remain committed to working on your behalf to build long-term stockholder value.

Sincerely,

Stuart M. Essig, Ph.D.

Chairman of the Board


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Information included herein is subject to completion or amendment. A Registration Statement on Form 10 relating to these securities has been filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended.

 

PRELIMINARY INFORMATION STATEMENT

SUBJECT TO COMPLETION, DATED JUNE 1, 2015

SeaSpine Holdings Corporation

Common Stock

(par value $0.01)

 

 

Integra LifeSciences Holdings Corporation (“Integra”) is furnishing this information statement (the “Information Statement”) to its stockholders in connection with the planned distribution by Integra to its stockholders of all of the outstanding shares of common stock of its indirect, wholly owned subsidiary, SeaSpine Holdings Corporation (“SeaSpine,” the “Company,” “we,” “us” or “our”).

Integra will distribute all of the outstanding shares of common stock of SeaSpine on a pro rata basis to holders of Integra common stock, which we refer to as the “distribution.” We refer to the separation of SeaSpine from Integra as the “separation,” and the separation and distribution together as the “spin-off.” Holders of Integra common stock as of              p.m., New York City time, on                     , 2015, which will be the record date for the distribution, will be entitled to receive one share of SeaSpine common stock for every              shares of Integra common stock held by such holders. The distribution will be made in book-entry form. Immediately after the distribution is completed, SeaSpine will be an independent, publicly traded company. It is a condition to the completion of the spin-off that we receive an opinion from Latham & Watkins LLP substantially to the effect that, among other things, the distribution will be tax-free to Integra and its stockholders for U.S. federal income tax purposes (except for any cash received in lieu of fractional shares). Fractional shares of our common stock will not be distributed. Fractional shares of our common stock that would otherwise be distributed to Integra stockholders will be aggregated and sold in the public market by the transfer agent. The aggregate net proceeds of these sales will be distributed ratably as cash payments to the stockholders who would otherwise have received fractional interests. These cash payments generally will be taxable to those stockholders. See “The Spin-Off—Material U.S. Federal Income Tax Consequences.”

No action will be required of you to receive shares of SeaSpine common stock, which means that:

 

    Integra is not asking you for a proxy, and you should not send a proxy;

 

    you will not be required to pay for the shares of SeaSpine common stock that you receive in the distribution; and you do not need to surrender or exchange any of your Integra common stock in order to receive shares of SeaSpine common stock, or take any other action in connection with the spin-off.

There is currently no trading market for SeaSpine common stock. However, we expect that a limited market, commonly known as a “when-issued” trading market, for our common stock will develop shortly prior to the record date for the distribution, and we expect that “regular-way” trading of our common stock will begin the first trading day after the completion of the distribution. We have applied to list our common stock on the NASDAQ Global Market under the symbol “SPNE.”

WE ARE NOT ASKING YOU FOR A PROXY

AND YOU ARE REQUESTED NOT TO SEND US A PROXY

 

 

In reviewing this Information Statement, you should carefully consider the matters described under “ Risk Factors ” beginning on page 21 for a discussion of certain factors that should be considered by recipients of our common stock.

We are an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012, and as such, may elect to comply with certain reduced public company reporting requirements for future filings. See page 7.

Neither the Securities and Exchange Commission (the “SEC”) nor any state securities commission has approved or disapproved of these securities or determined if this Information Statement is truthful or complete. Any representation to the contrary is a criminal offense.

This Information Statement does not constitute an offer to sell or the solicitation of an offer to buy any securities.

Stockholders of Integra with inquiries related to the distribution should contact Integra’s transfer agent, American Stock Transfer & Trust Company, LLC, at (800) 937-5449.

 

 

The date of this Information Statement is                     , 2015.


Table of Contents

TABLE OF CONTENTS

 

Information Statement Summary

  2   

Questions and Answers about the Separation and Distribution

  14   

Risk Factors

  21   

Special Note Regarding Forward-Looking Statements

  58   

The Spin-Off

  60   

Material U.S. Federal Income Tax Consequences

  65   

Dividend Policy

  71   

Selected Historical Combined Financial Data

  72   

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  74   

Business

  93   

Management

  114   

Director Compensation

  121   

Executive Compensation

  122   

Security Ownership of Certain Beneficial Owners and Management

  134   

Certain Relationships and Related Party Transactions

  135   

Description of SeaSpine Capital Stock

  143   

Recent Sales of Unregistered Securities

  146   

Indemnification and Limitation of Liability of Directors and Officers

  147   

Where You Can Find More Information

  149   

Index To Financial Statements

  F-1   

 

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INFORMATION STATEMENT SUMMARY

The following is a summary of some of the information contained in this Information Statement. This summary is included for convenience only and should not be considered complete. This summary is qualified in its entirety by the more detailed information contained elsewhere in this Information Statement, which should be read in its entirety.

All references in this Information Statement to “Integra” refer to Integra LifeSciences Holdings Corporation, a Delaware corporation; all references in this Information Statement to “SeaSpine,” “the Company,” “we,” “us,” or “our” refer to SeaSpine Holdings Corporation, a Delaware corporation. Where appropriate in context, the foregoing terms also include subsidiaries. Where we describe in this Information Statement our business activities, we do so as if the transfer of Integra’s orthobiologics and spinal fusion hardware business to SeaSpine had already occurred. Throughout this Information Statement, we refer to the shares of Integra common stock, $0.01 par value per share, as Integra common stock or as Integra shares, and the shares of SeaSpine common stock, par value $0.01 per share, that will be distributed in the distribution as SeaSpine common stock, as our common stock or as SeaSpine shares.

SeaSpine

We are a global medical technology company focused on the design, development and commercialization of surgical solutions for the treatment of patients suffering from spinal disorders. We have a comprehensive portfolio of orthobiologics and spinal fusion hardware solutions to meet the varying combinations of products that neurosurgeons and orthopedic spine surgeons need to perform fusion procedures on the lumbar, thoracic and cervical spine. Our orthobiologics products consist of a broad range of advanced and traditional bone graft substitutes that are designed to improve bone fusion rates following a wide range of orthopedic surgeries, including spine, hip, and extremities procedures. Our spinal fusion hardware portfolio consists of an extensive line of products to facilitate spinal fusion in minimally invasive surgery (“MIS”), complex spine, deformity and degenerative procedures. We believe our expertise in both orthobiologic sciences and spinal fusion hardware product development allows us to offer our surgeon customers a differentiated portfolio and a “complete solution” to meet their fusion requirements.

In 2014, our total revenue was $138.7 million and our net loss was $24.5 million. During this period, our orthobiologics sales were $67.6 million, representing 48.7% of our total revenue, and our spinal fusion hardware sales were $71.1 million, representing 51.3% of our total revenue. We currently market and sell our products in the United States and in over 30 countries worldwide. International sales represented approximately 10% of our total revenue for the year ended December 31, 2014.

Our Competitive Strengths

We believe that the following are our key competitive strengths:

 

   

An extensive, scaled and differentiated offering of orthobiologics products. We offer a broad range of orthobiologics products consisting of advanced and traditional bone graft substitutes that enables us to fulfill a greater portion of the orthobiologics needs of our neurosurgeons and orthopedic spine surgeons than our competitors, who focus primarily on offering spinal fusion hardware products. Despite our relatively small size, we are a significant participant in the U.S. market for these products, with an estimated 8.6% share of the U.S. bone graft substitutes market, representing the fourth-largest position, according to iData Research, Inc. (“iData”). We believe that our orthobiologics portfolio offers differentiated products. For example, our most advanced demineralized bone matrix is formulated using our proprietary Accell ® technology and is designed to provide both immediate and sustained availability of the natural array of osteoinductive bone proteins. It also provides flexibility in handling

 

 

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as a result of its unique carrier which is more moldable at room temperature and more viscous at body temperature after implantation, resisting irrigation and minimizing graft migration. Demand for this product and our other demineralized bone products has garnered us a 12.3% market share in demineralized bone matrix products in the United States according to iData, giving us the third-largest position in the U.S. market.

 

    A comprehensive and broad portfolio of spinal fusion hardware products . We offer an extensive variety of spinal fusion hardware products for spinal fusion in MIS, complex spine, deformity and degenerative procedures to provide the varying combination of products that surgeons require. Our spinal fusion hardware portfolio includes interbody devices, rod and pedicle screw and plating systems for procedures to treat both the thoracolumbar and cervical regions of the spine.

 

    A synergistic channel strategy for orthobiologics products. We maintain a dual branding strategy that allows us to market orthobiologics into territories in which we do not maintain independent spine sales agents who currently sell our hardware products. We achieve this result by marketing these products under an alternative brand through independent orthobiologics sales agents many of whom carry competitive spinal fusion hardware products, or products for other orthopedic procedures, such as those used in large joint reconstruction.

 

    Our own orthobiologics design, development and manufacturing operations. While many of our spine competitors source their orthobiologics products from original equipment manufacturers to supplement their spinal fusion hardware portfolio, we design, develop and manufacture virtually all of our orthobiologics products at our facility in Irvine, California. By controlling our own manufacturing processes, we believe we should be able to control the cost of our products more tightly.

Our Strategy

Our goal is to continue to scale our business in order to increase our market position in orthobiologics and become a leader in the spinal fusion hardware market.

Key elements of our strategy include:

 

    Research and development to bring new products and techniques to market. Following the separation, we intend to increase our annual research and development spending as a percentage of revenue in order to drive higher revenue growth through new product sales. We plan to invest significant resources to expand our product portfolio and develop next-generation products for our existing core product lines.

 

    Commercial infrastructure to further penetrate the global orthobiologics and spinal fusion hardware markets. We intend to increase the size and geographic breadth of our sales management team and network of independent sales agents in the United States and independent stocking distributors in international markets. To support these efforts, we aim to develop comprehensive marketing support and physician training programs to communicate the strengths of our product platforms.

 

    Clinical affairs programs to generate data on product efficacy. We plan to invest in clinical development programs to generate peer-reviewed clinical data that we believe will validate the efficacy of select orthobiologics and spinal fusion hardware solutions over competing technologies.

 

    Opportunities to enhance our product offering through strategic alliances and acquisitions. We intend to continue to pursue alliances that will provide us with technologies to strengthen our market position. Our current business is the result of the acquisition of several companies, and we plan to continue to evaluate product alliances and acquisition opportunities as they arise to help grow our business.

 

 

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Risks Related to Our Business and the Spin-Off

Ownership of SeaSpine common stock is subject to a number of risks, including risks relating to the separation and distribution. The following list of risk factors is not exhaustive. Please read the information in the section captioned “Risk Factors” for a more thorough description of these and other risks.

Risks Related to Our Business

 

    We expect to incur losses for the foreseeable future and cannot assure you that we will be able to generate sufficient sales to achieve or sustain profitability.

 

    Pricing pressure from our competitors or hospitals and changes in third-party coverage and reimbursement may affect our ability to sell our products at prices necessary to support our current business strategies.

 

    We must continue to successfully demonstrate to neurosurgeons and orthopedic spine surgeons the merits of our technologies and products compared to those of our competitors.

 

    The industry and market segments in which we operate are highly competitive, and we may be unable to compete successfully with other companies.

 

    If any of our manufacturing, development or research facilities were damaged and/or our manufacturing or business processes interrupted, we could experience lost revenues and our business could be seriously harmed.

 

    The demand for our products and the prices at which we can sell our products depends upon adequate third-party coverage and reimbursement.

 

    If we are unable to maintain and expand our network of independent sales agents and stocking distributors, we may not be able to generate anticipated sales.

 

    We are dependent on a limited number of third-party suppliers for components and raw materials, and the loss of any of these suppliers, or their inability to provide us with an adequate supply of quality materials, could harm our business.

 

    We are dependent on information technology and if our information technology fails to operate adequately or fails to properly maintain the integrity of our data, our business could be materially and adversely affected.

 

    We may not be able to successfully develop new products.

Risks Related to the Spin-Off

 

    Following the separation, we will rely on Integra’s performance under various agreements, and we and Integra will continue to be dependent on each other for certain support services for each respective business.

 

    Our ability to operate our business may suffer if we do not, quickly and effectively, establish our own financial, administrative, accounting and other support functions in order to operate as an independent, publicly traded company, and we cannot assure you that the support services Integra has agreed to provide us will be sufficient for our needs.

Relationship with Integra

We were incorporated on February 12, 2015, as a direct, wholly owned subsidiary of Integra LifeSciences Corporation, a direct, wholly owned subsidiary of Integra, a NASDAQ-listed company that is a world leader in medical technology. Integra LifeSciences Corporation currently owns all of the outstanding shares of our capital

 

 

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stock. We have only one class of common stock issued and outstanding, and no preferred stock is outstanding. After giving effect to the spin-off, we will be an independent, publicly traded company, and Integra will not have continuing stock ownership in us. For more information on our relationship with Integra, see “Certain Relationships and Related Party Transactions.”

Before the spin-off, we will enter into a Separation and Distribution Agreement (the “Separation Agreement”), the form of which is filed as an exhibit to the Registration Statement on Form 10 of which this Information Statement forms a part, and several other agreements with Integra and its subsidiaries related to the spin-off. In addition, Integra provides us with certain support functions, including information technology, accounting and other financial functions, regulatory affairs and quality assurance, human resources and other administrative support. Some of these services will continue to be provided on an interim basis after the separation pursuant to the terms of a Transition Services Agreement (the “Transition Services Agreement”), which is filed as an exhibit to the Registration Statement on Form 10 of which this Information Statement forms a part. Also, we and Integra will enter into certain long-term supply agreements, for Integra to provide us with certain raw materials and to provide each other with finished product for further sale in the operation of each other’s business. Specifically, Integra will supply us with microfibrillar collagen material and collagen ceramic matrix, and we will supply Integra with demineralized bone matrix products and collagen ceramic matrix products. For a description of the Separation Agreement, Transition Services Agreement, supply agreements and other agreements we have entered or intend to enter into with Integra in connection with the separation, see “Certain Relationships and Related Party Transactions—Agreements between Integra and SeaSpine Relating to the Separation.” These agreements will govern the relationship between Integra and us after the completion of the spin-off.

The Spin-Off

We were incorporated as a Delaware corporation on February 12, 2015. Our corporate headquarters is in Vista, California. Prior to the spin-off, we and Integra expect to engage in a series of transactions that are designed to transfer ownership of Integra’s orthobiologics and spinal fusion hardware business to us. Once such business is transferred to us, Integra will distribute all of the outstanding shares of common stock of SeaSpine to its stockholders.

Following the spin-off, our cash is expected to be $47 million as a result of a contribution (referred to herein as the “cash contribution”) from Integra. The amount of the cash contribution will be finally determined as a result of (x) the estimated cash requirements needed by the Company to support its five-year business plan and (y) the amount of cash that will be necessary to settle any final liabilities related to transaction costs incurred to complete the spin-off. In addition, we are in the process of negotiating a credit facility which we expect to enter into shortly following the distribution. Although the negotiations are ongoing, we currently expect our borrowing capacity under the credit facility to be based on the amount of accounts receivable and inventory on our balance sheet from time to time.

Before the distribution, we will enter into the Separation Agreement and other agreements with Integra to effect the distribution and provide a framework for our relationship with Integra after the distribution. These agreements will govern the relationship between Integra and us up to and subsequent to the completion of the distribution. Following the distribution, we will be an independent, publicly traded company.

Reasons for the Spin-Off

On October 29, 2014, Integra’s board of directors approved the announcement of a plan to separate SeaSpine from Integra as a new, publicly traded medical technology company focused on the design, development and commercialization of surgical solutions for the treatment of patients suffering from spinal disorders. Integra’s board of directors based this determination, in part, on its belief that the tax-free distribution of SeaSpine shares to Integra stockholders is the most efficient manner to separate our business from Integra’s other medical technology

 

 

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businesses. Integra’s board of directors also believes that separating us from Integra will provide financial, operational and managerial benefits to both Integra and us, including, but not limited to, the following:

 

    Strategic Focus. We and Integra are distinct, complex enterprises with different opportunities, challenges, strategies and means of doing business. We believe the spin-off will allow each independent company to design and implement corporate strategies that are based on the industries that it serves and its specific business characteristics.

 

    Focused Management. We believe that the separation will allow executive management of each company to better allocate and focus resources on the development and implementation of corporate strategies and initiatives that are targeted to the specific business characteristics of the respective companies without the need to consider the effect that those decisions could have on the other company.

 

    Improved Management Incentive Tools. We believe that offering equity compensation tied directly to our performance will assist in attracting and retaining qualified employees, officers and directors. For Integra, separating the businesses will provide its management with the flexibility to adopt compensation policies tied to its own performance objectives.

 

    Direct Access to Capital and Tailored Capital Structure. We believe that as a stand-alone company we can better attract investors with the opportunity to invest solely in the orthobiologics and spinal fusion hardware business, which will enhance our ability to directly access the debt and equity capital markets to fund our growth strategy and to establish a capital structure tailored to our business needs.

 

    Ability to Use Equity as Consideration for Acquisitions. The spin-off will provide each of Integra and us with enhanced flexibility to use our respective stock as consideration in pursuing certain financial and strategic objectives, including mergers and acquisitions involving other companies or businesses engaged in our respective industries. We believe that we will be able to more easily facilitate future strategic transactions with businesses in our industry through the use of our stand-alone stock as consideration.

In addition, the Integra board of directors believes that public market participants may not fully understand or properly value each of Integra’s business units as the company is currently constructed, and it is more difficult to compare Integra to companies that primarily operate in only one of these business lines. As a result, the Integra board of directors believes that (i) by separating us from Integra and creating an independent company focused on orthobiologics and spinal fusion hardware products, it will be easier for investors and analysts to understand each business’s strengths and the future prospects of each company’s respective businesses; and (ii) over time, this could result in better stock price analysis and a higher aggregate value for our and Integra’s common stock on a combined basis, which could exceed the pre-spin-off value of Integra’s common stock. Additionally, Integra’s board of directors believes that a higher aggregate equity value will help facilitate some of the other business purposes of the spin-off, particularly by limiting the dilutive effect of equity issuances in connection with capital raising transactions, employee compensation arrangements, and business acquisitions.

Integra’s board of directors also considered a number of potentially negative factors in evaluating the separation, including, in the case of both companies, increased operating costs, disruptions to the businesses as a result of planning for the separation and the separation itself, the risk of being unable to achieve expected benefits from the separation, the risk of being unable to successfully complete operational transfers, including distribution activities and enterprise resource planning (“ERP”) systems and the cost to complete those activities, the risk that the separation might not be completed, the initial costs of the separation and the risk that the common stock of one or both companies may come under initial selling pressure if investors are not interested in holding an investment in one or both businesses following the separation. Notwithstanding these potentially negative factors, however, the board of directors of Integra determined that the separation was the best alternative to enhance stockholder value taking into account the factors discussed above. For more information, see the sections entitled “Risk Factors” and “The Spin-Off” included elsewhere in this information statement.

 

 

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Corporate Information

We were incorporated in the State of Delaware on February 12, 2015 and are an indirect, wholly owned subsidiary of Integra. After giving effect to the spin-off, we will be an independent, publicly traded company. Our principal executive office is located at 2302 La Mirada Drive, Vista, California 92081, and our telephone number is (760) 727-8399. Our website is www.seaspine.com. Information contained on, or connected to, our website or Integra’s website does not and will not constitute part of this Information Statement or the Registration Statement on Form 10 of which this Information Statement is a part.

Emerging Growth Company

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). For as long as we continue to be an “emerging growth company,” we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” These include, but are not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and herein, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and to obtain stockholder approval of any golden parachute payments not previously approved.

In addition, Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”) for complying with new or revised accounting standards. In other words, an “emerging growth company” can elect to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies and we have elected to do so.

We could remain an “emerging growth company” for up to five years, although circumstances could cause us to lose that status earlier. We will remain an “emerging growth company” until the earliest of: (i) the last day of the first fiscal year in which our annual gross revenue exceed $1.0 billion (subject to adjustment for inflation); (ii) the last day of the fiscal year in which we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which would occur if the market value of our common stock held by non-affiliates exceeds $700.0 million as of the last business day of our most recently completed second fiscal quarter; or (iii) the date on which we have issued more than $1.0 billion in non-convertible debt during the preceding three-year period.

 

 

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SUMMARY OF THE SPIN-OFF

 

Distributing company

Integra LifeSciences Holdings Corporation, a Delaware corporation. After the distribution, Integra will not own, directly or beneficially, any shares of SeaSpine and will continue to own and operate its other businesses.

 

Distributed company

SeaSpine Holdings Corporation, a Delaware corporation and currently a direct, wholly owned subsidiary of Integra LifeSciences Corporation, a direct, wholly owned subsidiary of Integra.

 

Primary purpose of the spin-off

The Integra board of directors believes that separating SeaSpine from Integra will (i) allow SeaSpine and Integra to design and implement corporate strategies and initiatives based on each company’s specific business characteristics; (ii) facilitate focused management of each of SeaSpine and Integra; (iii) enhance both SeaSpine’s and Integra’s ability to attract, retain, and properly incentivize key employees with equity-based compensation tied directly to the performance of the applicable company; (iv) provide SeaSpine direct and more efficient access to debt and equity capital markets, allowing for possible future stock issuances as a result of creating SeaSpine’s independent, publicly traded stock; and (v) allow Integra and SeaSpine to use equity that relates to the Integra business and SeaSpine business, respectively, to undertake desired acquisitions.

 

Record date

The record date for the distribution is             p.m., New York City time, on                     , 2015.

 

Distribution ratio

Each holder of Integra common stock as of the record date will receive a distribution of one share of our common stock for every             shares of Integra common stock held on the record date. We expect that approximately         million shares of our common stock will be distributed in the spin-off, based on the number of shares of Integra common stock we expect to be outstanding on the record date.

 

Securities to the distributed

All of the shares of SeaSpine common stock are currently owned by Integra LifeSciences Corporation, a direct, wholly owned subsidiary of Integra. The shares of our common stock to be distributed in the spin-off will constitute all of the outstanding shares of our common stock immediately after the distribution. Integra stockholders will not be required to pay for the shares of our common stock to be received by them in the distribution, or to surrender or exchange shares of Integra common stock in order to receive our common stock, or to take any other action in connection with the distribution.

 

Fractional shares

Fractional shares of our common stock will not be distributed. Fractional shares of our common stock that would otherwise be distributed to Integra stockholders will be aggregated and sold in the public market by the transfer agent. The aggregate net proceeds of these sales will be distributed ratably as cash payments to the stockholders, who would otherwise have received fractional interests. These cash payments will be taxable to those stockholders.

 

 

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Treatment of stock-based awards

In connection with the distribution, we currently expect that, subject to approval by the Integra board of directors, Integra’s outstanding equity-based compensation awards will generally be treated as follows:

 

    Stock Options . Each Integra stock option that was granted prior to 2015 will be split into two options -- an Integra stock option and a SeaSpine stock option. Following the distribution, the combined intrinsic value of the resulting Integra and SeaSpine stock options should approximately equal the intrinsic value as of immediately prior to the distribution of the underlying Integra stock option. Each Integra stock option that was granted in 2015 will be adjusted solely into an Integra stock option with an intrinsic value approximately equal to the intrinsic value of the underlying Integra stock option.

 

    Contract Stock . Each Integra contract stock award held by an individual who will continue to be employed or engaged by Integra or its affiliates following the distribution will be adjusted to cover a number of Integra shares such that the pre-distribution value of the Integra contract stock award is approximately preserved, except each contract stock award held by Peter Arduini will be split into two contract stock awards -- an Integra contract stock award and a SeaSpine contract stock award, based on the distribution ratio. Each Integra contract stock award held by an individual who will be employed or engaged by SeaSpine or its affiliates following the distribution will be converted into a SeaSpine contract stock award covering a number of SeaSpine shares such that the pre-distribution value of the underlying Integra contract stock award is approximately preserved.

 

    Restricted Stock . Each Integra restricted stock award held by an individual who will continue to be employed or engaged by Integra or its affiliates following the distribution will be adjusted to cover a number of Integra shares such that the pre-distribution value of the Integra restricted stock award is approximately preserved. Each Integra restricted award held by an individual who will be employed or engaged by SeaSpine or its affiliates following the distribution will be converted into a SeaSpine restricted stock award covering a number of SeaSpine shares such that the pre-distribution value of the underlying Integra restricted stock award is approximately preserved.

 

   

Performance Stock . Each Integra performance stock award held by an individual who will be employed or engaged by Integra or its affiliates following the distribution will be adjusted to cover a number of Integra shares such that the pre-distribution value of the Integra performance stock award is approximately preserved. Each Integra performance stock award held by an individual who will be employed or engaged by SeaSpine or its affiliates following the distribution will be converted into a time-vesting SeaSpine equity

 

 

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award covering a number of SeaSpine shares such that the pre-distribution value of the underlying Integra performance stock award is approximately preserved.

 

Distribution date

The distribution date is                     , 2015.

 

The spin-off

On the distribution date, Integra will release all of the shares of SeaSpine common stock to the transfer agent to distribute to Integra stockholders as of the record date. The distribution of shares will be made in book-entry form. It is expected that it will take the transfer agent up to ten days to electronically issue shares of SeaSpine common stock to you or your bank or brokerage firm on your behalf by way of direct registration in book-entry form. However, your ability to trade the shares of our common stock received in the distribution will not be affected during this time. You will not be required to make any payment, surrender or exchange your shares of Integra common stock or take any other action to receive your shares of SeaSpine common stock.

 

Trading market and symbol

There is not currently a public market for our common stock. We have applied to list our common stock on the NASDAQ Global Market under the ticker symbol “SPNE.” We anticipate that, shortly prior to the record date for the distribution, trading of our common stock will begin on a “when-issued” basis and will continue up to and including the distribution date. On the first trading day following the distribution date, when-issued trading in respect of our common stock will end and regular-way trading will begin. See “The Spin-Off—Manner of Effecting the Spin-Off.”

 

Dividend Policy

Holders of shares of SeaSpine common stock are entitled to receive dividends when, or if, declared by SeaSpine’s board of directors out of funds legally available for that purpose. We currently do not anticipate paying any cash dividends in the foreseeable future. See “Dividend Policy.”

 

Tax consequences to Integra stockholders

Integra expects to receive an opinion from the law firm of Latham & Watkins LLP substantially to the effect that (i) the contribution (as defined below), together with the internal spin-off (as defined below) (collectively, the “internal distribution”), will constitute a reorganization under Sections 355 and 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (the “Code”) and (ii) the cash contribution, together with the distribution, will constitute a reorganization under Sections 355 and 368(a)(1)(D) of the Code. Based on this tax treatment, Integra will not recognize any material gain or loss with respect to the internal distribution, the cash contribution and the distribution and, except with respect to cash received in lieu of a fractional share of SeaSpine common stock, you will not recognize any gain or loss, and no amount will be included in your income, upon the receipt of shares of SeaSpine common stock in the distribution. You will recognize gain or loss for U.S. federal income tax purposes with respect to cash received in lieu of a fractional share of SeaSpine common stock.

 

 

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  For more information regarding the tax opinion and the potential U.S. federal income tax consequences to you of the distribution, see “The Spin-Off—Material U.S. Federal Income Tax Consequences.”

 

Relationship with Integra after the spin-off

Following the distribution, we will be a public company and Integra will have no continuing stock ownership interest in us. We will enter into the Separation Agreement and other agreements with Integra related to the spin-off. These agreements will govern the relationship between Integra and us after the completion of the distribution. The Separation Agreement will set forth our agreement with Integra regarding the principal transactions necessary to separate us from Integra, as well as other agreements that govern certain aspects of our relationship with Integra after the completion of the spin-off. We will enter into the Transition Services Agreement with Integra pursuant to which Integra will provide to us certain functions on an interim basis following the distribution. Further, we will enter into a Tax Matters Agreement (the “Tax Matters Agreement”) with Integra that will govern the respective rights, responsibilities and obligations of Integra and us after the spin-off with respect to taxes, tax attributes, the preparation and filing of tax returns, the control of tax audits and other tax proceedings and assistance and cooperation in respect of tax matters. The Tax Matters Agreement will contain certain restrictions on our ability to take actions that could cause the distribution to fail to qualify as tax-free. We will also enter into an Employee Matters Agreement (the “Employee Matters Agreement”) that will set forth our agreements with Integra concerning certain employee compensation and benefit matters. In addition, we will enter into the Microfibrillar Collagen Supply Agreement, Collagen Ceramic Supply Agreement and the Demineralized Bone Matrix and Collagen Ceramic Products Supply Agreement (collectively, the “Supply Agreements”), that will set forth our agreements with Integra concerning the supply, in each case, on an arm’s length basis, of the materials described in such agreements. We describe these arrangements in greater detail under “Certain Relationships and Related Party Transactions—Agreements between Integra and SeaSpine Relating to the Separation” and describe some of the risks of these arrangements under “Risk Factors—Risks Relating to the Spin-Off.”

 

Transfer Agent and Registrar

American Stock Transfer & Trust Company, LLC will be the transfer agent and registrar for the shares of our common stock.

 

Risk factors

You should carefully consider the matters discussed under the section entitled “Risk Factors” in this Information Statement.

 

 

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SUMMARY HISTORICAL COMBINED FINANCIAL DATA

The following table sets forth summary historical financial information for the orthobiologics and spinal fusion hardware business of Integra which will be transferred to SeaSpine prior to the distribution, for the periods indicated below. The combined statements of operations data for the years ended December 31, 2014, 2013 and 2012 and the combined balance sheet data as of December 31, 2014 and 2013 are derived from the audited combined financial statements of the orthobiologics and spinal fusion hardware business of Integra, which are included elsewhere in this information statement. The unaudited combined balance sheet data as of December 31, 2012 has been carved out from the underlying financial records of Integra. The combined statement of operations data for the three months ended March 31, 2015 and 2014 and the combined balance sheet data as of March 31, 2015 have been derived from the unaudited combined financial statements of the orthobiologics and spinal fusion hardware business of Integra, which are included elsewhere in this information statement. The unaudited combined financial statements have been prepared on the same basis as the audited financial statements and, in the opinion of management, reflect all adjustments necessary to state fairly our results of operations for the three months ended March 31, 2015 and 2014 and our financial position as of March 31, 2015.

Our historical combined financial statements include certain expenses of Integra that were allocated to us for certain functions, including shared services and infrastructure provided by Integra to us, such as costs of information technology, including the costs of a multi-year global ERP implementation, accounting and legal services, real estate and facilities, corporate advertising, insurance services and related treasury, and other corporate and infrastructure services. These costs may not be representative of the future costs we will incur as an independent, publicly traded company. In addition, our historical combined financial statements do not reflect changes that we expect to experience in the future as a result of the spin-off, including changes in our cost structure, personnel needs, tax structure, financing and business operations. Consequently, the historical combined financial information included here may not necessarily reflect our financial position and results of operations or what our financial position and results of operations would have been had we been an independent, publicly traded company during the periods presented or be indicative of SeaSpine’s future performance as an independent company. The summary historical combined financial information should be read in conjunction with the discussion in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the audited combined financial statements and corresponding notes included elsewhere in this information statement.

 

     Three Months Ended March 31,     Year Ended December 31,  
             2015                     2014                 2014             2013             2012      
    

(In thousands)

 

Combined Statements of Operations Data:

      

Total revenue, net

   $ 32,314      $ 34,175      $ 138,695      $ 146,586      $ 147,510   

Cost of goods sold

     12,601        12,595        56,714        55,532        54,856   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

  19,713      21,580      81,981      91,054      92,654   

Operating expenses:

Selling, general and administrative

  25,051      22,008      88,213      93,009      94,747   

Research and development

  1,582      2,192      8,527      9,893      12,269   

Intangible amortization

  1,397      1,399      5,590      5,598      5,716   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

  28,030      25,599      102,330      108,500      112,732   

Operating loss

  (8,317   (4,019   (20,349   (17,446   (20,078

Other expense, net

  (721   (8   (269   (4,556   (8,194
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

  (9,038   (4,027 $ (20,618 $ (22,002 $ (28,272

Provision for income taxes

  860      1,533      3,927      3,744      2,152   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

$ (9,898 $ (5,560 $ (24,545 $ (25,746 $ (30,424

 

 

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     As of
March 31, 2015
     As of December 31,  
        2014      2013      2012  
    

(In thousands)

 

Combined Balance Sheet Data:

     

Working capital

   $ 22,628       $ 28,664       $ 37,857       $ 36,871   

Total assets

   $ 137,080       $ 139,642       $ 153,493       $ 157,387   

Total liabilities

   $ 51,157       $ 48,358       $ 41,998       $ 163,011   

Invested equity

   $ 85,923       $ 91,284       $ 111,495       $ (5,624

 

 

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QUESTIONS AND ANSWERS ABOUT THE SEPARATION AND DISTRIBUTION

Set forth below are commonly asked questions and answers about the spin-off and the transactions contemplated thereby. You should read the section entitled “The Spin-Off” elsewhere in this Information Statement for a more detailed description of the matters described below.

 

Q: Why am I receiving this document?

 

A: Integra is delivering this document to you because you were a holder of Integra common stock on the record date for the distribution of shares of our common stock. Accordingly, you are entitled to receive one share of our common stock for every             shares of Integra common stock that you held on the record date. The following table illustrates the number of shares of SeaSpine common stock you would receive based on the number of shares of Integra common stock held and the dividend ratio of 1:             .

 

Number of shares of Integra common stock

held on the record date

  

Number of shares of SeaSpine common stock

to be received

  

No action is required for you to participate in the distribution.

 

Q: What is SeaSpine?

 

A: SeaSpine is a Delaware corporation, incorporated on February 12, 2015, and is currently an indirect, wholly owned subsidiary of Integra whose shares will be distributed to Integra stockholders if the spin-off is completed. SeaSpine currently does not have any material assets or liabilities, does not engage in any business or other activities and, other than in connection with and in anticipation of the spin-off, will not acquire or incur any material assets or liabilities, nor will it separately engage in any business or other activities, in each case, prior to the spin-off. Upon completion of the spin-off, SeaSpine will be a public company and will own and operate the orthobiologics and spinal fusion hardware business that was formerly part of Integra.

 

Q: What is the spin-off?

 

A: The spin-off is the transaction of separating SeaSpine from Integra, creating two separate, publicly traded companies, which will be accomplished by distributing SeaSpine common stock pro rata to holders of Integra common stock. The spin-off will be accomplished through a series of transactions in which the assets, liabilities and operations of the orthobiologics and spinal fusion hardware business on a global basis will be transferred to SeaSpine Orthopedics Corporation. Following such transactions, the stock of SeaSpine Orthopedics Corporation will be contributed to SeaSpine (such contribution referred to herein as the “contribution”), and the common stock of SeaSpine will then be distributed in an internal spin-off to Integra (referred to herein as the “internal spin-off”) and then will be distributed by Integra to its stockholders as of the record date. If all conditions to the effectiveness of the spin-off are met (or waived by the Integra board of directors in its sole discretion), then, on the distribution date, all of the outstanding shares of SeaSpine common stock will be distributed to the holders of Integra common stock as of the record date. A holder of Integra common stock as of the record date for the distribution will be entitled to receive one share of SeaSpine common stock for every             shares of Integra common stock held by such holder. Following the spin-off, Integra will no longer hold any outstanding capital stock of SeaSpine, and SeaSpine will be an independent, publicly traded company with separate management and a separate board of directors. We have applied to list our common stock on the NASDAQ Global Market under the symbol “SPNE.”

 

Q: How does my ownership in Integra change as a result of the distribution?

 

A: The number of shares of Integra common stock that you own will not change as a direct result of the distribution.

 

 

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The treatment of outstanding Integra equity compensation awards may differ from the treatment of ordinary shares of Integra common stock. For further information regarding the treatment of outstanding Integra equity compensation awards, see “The Spin-Off—Treatment of Integra Equity Awards.”

 

Q: Why is the separation of SeaSpine structured as a distribution?

 

A: Integra believes that a distribution of shares of SeaSpine to the Integra stockholders is a tax-efficient way to separate the orthobiologics and spinal fusion hardware business from its other businesses in a manner that is intended to enhance long-term value for Integra stockholders.

 

Q: What are the material U.S. federal income tax consequences to me of the separation?

 

A: Integra expects to receive an opinion from the law firm of Latham & Watkins LLP substantially to the effect that (i) the internal distribution will constitute a reorganization under Sections 355 and Section 368(a)(1)(D) of the Code and (ii) the cash contribution, together with the distribution, will constitute a reorganization under Sections 355 and 368(a)(1)(D) of the Code. Based on this tax treatment, Integra will not recognize any material gain or loss in connection with the internal distribution, the cash contribution and the distribution and, except with respect to cash received in lieu of a fractional share of SeaSpine common stock, you will not recognize any gain or loss, and no amount will be included in your income, upon the receipt of shares of SeaSpine common stock in the distribution. You will recognize gain or loss for U.S. federal income tax purposes with respect to cash received in lieu of a fractional share of SeaSpine common stock.

The opinion will rely on certain facts and assumptions, and certain representations made by SeaSpine and Integra regarding the past and future conduct of our respective businesses and other matters.

For more information regarding the tax opinion and the potential U.S. federal income tax consequences to you of the distribution, see “The Spin-Off—Material U. S. Federal Income Tax Consequences” included elsewhere in this Information Statement.

Each Integra stockholder is encouraged to consult its own tax advisor as to the specific tax consequences of the distribution to such stockholder, including the effect of any state, local or non-U.S. tax laws and of changes in applicable tax laws.

 

Q: How will I determine my tax basis in the SeaSpine shares that I receive in the distribution?

 

A: Assuming that the distribution is tax-free to Integra’s stockholders, the tax basis in Integra’s common stock that you hold immediately prior to the distribution will be allocated between such Integra common stock and SeaSpine common stock received in the distribution in proportion to the relative fair market values of each immediately following the distribution. See the section entitled “The Spin-Off—Material U. S. Federal Income Tax Consequences” included elsewhere in this Information Statement for a more detailed description of the effects of the distribution on your tax basis in Integra common stock and SeaSpine common stock.

We encourage you to consult your tax advisor about how this allocation will work in your situation (including a situation where you have purchased Integra shares at different times or for different amounts) and regarding any particular consequences of the distribution to you, including the application of state, local and non-U.S. tax laws.

 

Q: What will I receive in the spin-off?

 

A:

A holder of Integra common stock as of the record date established for the distribution will be entitled to receive one share of SeaSpine common stock for every             shares of Integra common stock held by such

 

 

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  holder. The person in whose name the shares of Integra common stock are registered at the close of business on the record date is the person to whom shares of the SeaSpine common stock will be issued in the distribution. For a more detailed description, see “The Spin-Off.” For further information regarding the treatment of outstanding Integra equity compensation awards, see “The Spin-Off—Treatment of Integra Equity Awards.”

 

Q: What is being distributed in the spin-off?

 

A: Approximately             shares of our common stock will be distributed in the spin-off, based on the number of Integra common shares we expect to be outstanding as of the record date. The shares of our common stock to be distributed by Integra constitute all of the issued and outstanding shares of our common stock immediately prior to the distribution. For more information on the shares being distributed in the spin-off, see “Description of SeaSpine Capital Stock—Common Stock.”

 

Q: Will I receive physical certificates representing shares of SeaSpine common stock following the distribution?

 

A: No. In the distribution, stockholders will not receive any physical certificates representing shares of SeaSpine common stock. Instead, Integra, with the assistance of American Stock Transfer & Trust Company, LLC, our transfer agent, will electronically distribute shares of SeaSpine common stock either to you by way of direct registration in book-entry form or on your behalf in street name through your bank or brokerage firm. We expect that it will take the transfer agent, acting on behalf of Integra, up to ten days after the distribution date to fully distribute the shares of SeaSpine common stock to Integra stockholders. American Stock Transfer & Trust Company, LLC will mail you a book-entry account statement that reflects your shares of SeaSpine common stock, or your bank or brokerage firm will credit your account for the shares.

 

Q: How will fractional shares be treated in the distribution?

 

A: We will not distribute fractional shares of our common stock. Fractional shares of our common stock that would otherwise be distributed to Integra stockholders will be aggregated and sold in the public market by the transfer agent. The aggregate net proceeds of these sales will be distributed ratably as cash payments to the stockholders who would otherwise have received fractional interests. These cash payments generally will be taxable to those stockholders. See “The Spin-Off—Manner of Effecting the Spin-Off” for an explanation of how the cash payments will be determined and “The Spin-Off—Material U.S. Federal Income Tax Consequences” for a discussion of the tax consequences of receiving cash in lieu of fractional shares.

 

Q: What if I want to sell my Integra common stock or my SeaSpine common stock?

 

A: Neither Integra nor SeaSpine makes any recommendations on the purchase, retention or sale of shares of Integra common stock or the shares of SeaSpine common stock to be distributed. You should consult with your financial advisors, such as your stockbroker, bank or tax advisor.

If you decide to sell any shares of Integra common stock after the record date, but before the distribution date, you should make sure your stockbroker, bank or other nominee understands whether you want to sell your Integra common stock, the SeaSpine common stock you will be entitled to receive in the distribution, or both. If you sell your Integra common stock prior to the record date or sell your entitlement to receive shares of SeaSpine common stock in the distribution on or prior to the distribution date, you will not receive any shares of SeaSpine common stock in the distribution.

 

 

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Q: On what date did the Integra board of directors approve the spin-off and declare the spin-off dividend?

 

A: The Integra board of directors approved the spin-off and declared the spin-off dividend on                     , 2015.

 

Q: What is the record date for the distribution?

 

A: Record ownership will be determined as of             p.m., New York City time, on                     , 2015, which we refer to as the record date.

 

Q: When will the spin-off be completed?

 

A: The date for the distribution, which is the date on which we will distribute shares of SeaSpine common stock, is expected to be                     , 2015. The separation will be completed pursuant to the terms of the Separation Agreement between Integra and SeaSpine. We expect that it will take the transfer agent, acting on behalf of Integra, up to ten days after the distribution date to fully distribute the shares of SeaSpine common stock to Integra stockholders, which will be accomplished by directly issuing shares in book-entry form or by crediting your account at your bank or brokerage firm. However, your ability to trade our common stock received in the distribution will not be affected during this time. It is also possible that factors outside of our control, or a decision by Integra to terminate the Separation Agreement pursuant to its terms, could require us to complete the separation at a later time or not at all. See “The Spin-Off.”

 

Q: What do I have to do to participate in the distribution?

 

A: Nothing. No action will be required of Integra stockholders to receive shares of SeaSpine common stock, which means that (i) Integra is not asking you for a proxy, and you should not send a proxy; (ii) you will not be required to pay for the shares of SeaSpine common stock that you receive in the distribution; and (iii) you do not need to surrender or exchange any shares of Integra common stock in order to receive shares of SeaSpine common stock, or take any other action in connection with the spin-off.

 

Q: Can Integra decide not to complete the spin-off?

 

A: Yes. Integra’s board of directors reserves the right, in its sole discretion, to amend, modify or abandon the spin-off and related transactions at any time prior to the distribution date. In addition, the spin-off is subject to the satisfaction or waiver of certain conditions. See “The Spin-Off—Conditions to the Spin-Off.” If Integra’s board of directors amends, modifies or abandons the spin-off, Integra intends to promptly issue a press release and file a Current Report on Form 8-K to report such event.

 

Q: Is the completion of the spin-off subject to any conditions?

 

A: The spin-off is subject to a number of conditions set forth in the Separation Agreement, including, among others: (i) approval of the spin-off and declaration of the spin-off dividend by Integra’s board of directors; (ii) the SEC declaring effective the Registration Statement on Form 10 of which this Information Statement forms a part; (iii) the receipt of an opinion from Latham & Watkins LLP by Integra, in form and substance satisfactory to Integra, substantially to the effect that (a) the internal distribution will constitute a reorganization under Sections 355 and 368(a)(1)(D) of the Code and (b) the cash contribution, together with the distribution, will constitute a reorganization under Sections 355 and 368(a)(1)(D) of the Code; and (iv) the approval of SeaSpine common stock for listing, subject to official notice of issuance. For a more detailed description, see “The Spin-Off—Conditions to the Spin-Off.”

 

 

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Q: Will SeaSpine have a relationship with Integra following the spin-off?

 

A: In connection with the spin-off, we will enter into the Separation Agreement and other agreements with Integra that will govern the relationship between Integra and us after the completion of the spin-off. The Separation Agreement will set forth our agreement with Integra regarding the principal transactions necessary to separate us from Integra and will provide that on the distribution date, Integra will distribute to its stockholders one share of our common stock for every              shares of Integra common stock held by Integra stockholders as of the record date. It will also provide, among other things: (i) that each party shall use commercially reasonable efforts to remove the other party and its subsidiaries and affiliates as guarantor of any of the first party’s obligations; (ii) for the settlement or extinguishment of certain liabilities and other obligations between any of the Integra Entities and any of the SeaSpine Entities and (iii) provisions pursuant to which each of SeaSpine and Integra will release and indemnify and hold harmless the other against any claims that arise out of or relate to (x) the management of the releasing party’s respective business and affairs prior to the distribution date or (y) the releasing party’s breach of the Separation Agreement.

We will also enter into the Transition Services Agreement with Integra pursuant to which Integra will provide to us certain support functions, including information technology, accounting and other financial functions, regulatory affairs and quality assurance, human resources and other administrative support following the spin-off.

Prior to consummation of the spin-off, we will also enter into the Tax Matters Agreement, Employee Matters Agreement and Supply Agreements with Integra.

For a more detailed discussion of each of the agreements we will enter into with Integra in connection with the spin-off, see “Certain Relationships and Related Party Transactions—Agreements between Integra and SeaSpine Relating to the Separation.”

 

Q: How will Integra equity compensation awards be affected as a result of the spin-off?

 

A: In connection with the distribution, we currently expect that, subject to approval by the Integra board of directors, Integra’s outstanding equity-based compensation awards will generally be treated as follows:

 

    Stock Options . Each Integra stock option that was granted prior to 2015 will be split into two options which will include an Integra stock option and a SeaSpine stock option. Following the distribution, the combined intrinsic value of the resulting Integra and SeaSpine stock options should approximately equal the value as of immediately prior to the distribution of the underlying Integra stock option. Each Integra stock option that was granted in 2015 will be adjusted solely into an Integra stock option with an intrinsic value approximately equal to the intrinsic value of the underlying Integra stock option.

 

    Contract Stock . Each Integra contract stock award held by an individual who will continue to be employed or engaged by Integra or its affiliates following the distribution will be adjusted to cover a number of Integra shares such that the pre-distribution value of the Integra contract stock award is approximately preserved, except each contract stock award held by Peter Arduini will be split into two contract stock awards, which will include an Integra contract stock award and a SeaSpine contract stock award, based on the distribution ratio. Each Integra contract stock award held by an individual who will be employed or engaged by SeaSpine or its affiliates following the distribution will be converted into a SeaSpine contract stock award covering a number of SeaSpine shares such that the pre-distribution value of the underlying Integra contract stock award is approximately preserved.

 

   

Restricted Stock . Each Integra restricted stock award held by an individual who will continue to be employed or engaged by Integra or its affiliates following the distribution will be adjusted to cover a number of Integra shares such that the pre-distribution value of the Integra restricted stock award is approximately preserved. Each Integra restricted award held by an individual who will be employed or engaged by SeaSpine or its affiliates following the distribution will be converted into a SeaSpine

 

 

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restricted stock award covering a number of SeaSpine shares such that the pre-distribution value of the underlying Integra restricted stock award is approximately preserved.

 

    Performance Stock . Each Integra performance stock award held by an individual who will be employed or engaged by Integra or its affiliates following the distribution will be adjusted to cover a number of Integra shares such that the pre-distribution value of the Integra performance stock award is approximately preserved. Each Integra performance stock award held by an individual who will be employed or engaged by SeaSpine or its affiliates following the distribution will be converted into a time-vesting SeaSpine equity award covering a number of SeaSpine shares such that the pre-distribution value of the underlying Integra performance stock award is approximately preserved.

 

    General Terms . Except as provided above, post-distribution equity awards resulting from adjustment of underlying Integra equity awards will generally be subject to the same vesting, expiration and other terms and conditions as applied to the underlying Integra awards immediately prior to the distribution.

For additional information, see “The Spin-Off—Treatment of Integra Equity Awards.”

 

Q: Will the SeaSpine common stock be listed on a stock exchange?

 

A: Yes. Although there is currently not a public market for our common stock, we have applied to list our common stock on the NASDAQ Global Market under the symbol “SPNE.” We anticipate that trading of our common stock will commence on a “when-issued” basis shortly prior to the record date for the distribution. “When-issued trading” refers to a sale or purchase made conditionally because the security has been authorized but not yet issued. When-issued trades generally settle within four trading days after the distribution date. On the first trading day following the distribution date, when-issued trading with respect to our common stock will end and “regular-way” trading will begin. “Regular-way trading” refers to normal trading transactions, which are settled by delivery of the securities against payment on the third business day after the transaction.

 

Q: Will the distribution affect the trading price of my Integra common stock?

 

A: Yes, the trading price of Integra common stock is expected to change as a result of the distribution because it will no longer reflect the value of the orthobiologics and spinal fusion hardware business. Moreover, the trading price of Integra common stock may fluctuate significantly depending upon a number of factors, some of which may be beyond Integra’s control. Integra’s board of directors believes that the separation of SeaSpine from Integra offers its stockholders the greatest long-term value. That said, we cannot provide you with any guarantees as to the price at which the Integra common stock will trade following the distribution. We also cannot assure you that following the spin-off the aggregate value of our common stock and Integra common stock will ever exceed the pre-spin-off value of Integra common stock.

 

Q: What will happen to the listing of Integra common stock?

 

A: It is expected that, after the distribution of our common stock, Integra common stock will continue to be traded on the NASDAQ Global Select Market under the symbol “IART.” The number of shares of Integra common stock you own will not change as a result of the distribution alone.

 

Q: What are the anti-takeover effects of the spin-off?

 

A:

Some provisions of the amended and restated certificate of incorporation of SeaSpine, the amended and restated bylaws of SeaSpine and the General Corporation Law of the State of Delaware as amended, (the “DGCL”) may have the effect of making it more difficult for another company to acquire control of

 

 

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  SeaSpine in a transaction not approved by SeaSpine’s board of directors. For example, SeaSpine’s amended and restated certificate of incorporation and amended and restated bylaws provide for a classified board, require advance notice for stockholder proposals and nominations, place limitations on convening stockholder meetings, authorize SeaSpine’s board of directors to issue one or more series of preferred stock and require a 66 2/3 % vote of stockholders, voting together as a single class, to amend our amended and restated bylaws and certain provisions of our amended and restated certificate of incorporation. See “Risk Factors—Certain provisions in our charter documents and Delaware law could discourage takeover attempts and lead to management entrenchment and, therefore, may depress the trading price of our common stock” for more information.

 

Q: Do I have dissenters’ rights or appraisal rights in connection with the separation?

 

A: No. Holders of Integra common stock are not entitled to dissenters’ rights or appraisal rights in connection with the distribution.

 

Q: Who is the transfer agent for SeaSpine shares?

 

A: American Stock Transfer & Trust Company, LLC.

 

Q: Are there any risks in connection with the spin-off that I should consider?

 

A: Yes. There are certain risks associated with the separation. These risk factors are discussed in the section titled “Risk Factors.”

 

Q: Where can I get more information?

 

A: If you have any questions relating to the mechanics of the distribution, you should contact the transfer agent at:

American Stock Transfer & Trust Company, LLC

6201 15th Avenue

Brooklyn, New York 11219

Tel: (800) 937-5449

Before the spin-off, if you have any questions relating to the distribution, you should contact Integra at:

311 Enterprise Drive

Plainsboro, New Jersey 08536

Attention: Investor Relations Department

Tel: (609) 275-0500

After the spin-off, if you have any questions relating to SeaSpine, you should contact us at:

2302 La Mirada Drive

Vista, California 92081

Attention: Investor Relations

Tel: (760) 727-8399

 

 

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RISK FACTORS

You should carefully consider the risks described below, together with all of the other information included in this Information Statement, in evaluating the Company and our common stock. If any of the risks described below actually occurs, our business, financial results, financial condition and stock price could be materially and adversely affected.

Risks Relating to Our Business

We expect to incur losses for the foreseeable future and cannot assure you that we will be able to generate sufficient sales to achieve or sustain profitability.

We expect to incur losses for the foreseeable future resulting from our strategy of dedicating significant resources to our marketing and product development efforts, in addition to increased general and administrative expenses due to our operation as an independent, publicly traded company. We intend to increase our operating expenses substantially as we add independent sales agents and stocking distributors to increase our geographic sales coverage and penetration, invest in research and development programs to accelerate new product launches, expand our marketing and training programs, conduct clinical studies, and increase our general and administrative functions as a result of operating as a public company. We cannot assure you that we will ever generate sufficient revenues from our operations to achieve profitability, and even if we achieve profitability, we cannot be sure that we will remain profitable for any substantial period of time. Our failure to achieve or maintain profitability could negatively affect the value of our securities and our ability to raise capital and continue operations.

Pricing pressure from our competitors or hospitals and changes in third-party coverage and reimbursement may affect our ability to sell our products at prices necessary to support our current business strategies.

Competition in the spinal surgery industry has increased as a result of new technologies. In addition, more established companies, large hospital systems and group purchasing organizations have intensified competitive pricing pressure. As a result of these competitive forces, we believe there will be increased pricing pressure in the future. Because hospitals that typically bill various third-party payors generally purchase our products, changes in the purchasing behavior of such hospitals or the amount such payors are willing to reimburse our customers for procedures using our products, including those as a result of healthcare reform initiatives, could create additional pricing pressure on us. In addition to these competitive forces, we continue to see pricing pressure as hospitals introduce new pricing structures into their contracts and agreements, including fixed price formulas, capitated pricing and construct pricing intended to contain healthcare costs. If such trends continue to drive down the prices we are able to charge for our products, our profit margins will shrink, adversely affecting our ability to invest in and grow our business.

In addition, as new regulations, such as the Patient Protection and Affordable Care Act (the “Affordable Care Act”), alter the healthcare industry in the United States, purchasing decisions are gradually shifting to hospitals, integrated delivery networks and other hospital groups, with surgeons increasingly acting only as “employees.” We believe this shift in decision-making will necessitate greater demonstration of the clinical efficacy and cost-effectiveness of our products in order to make sales.

We must continue to successfully demonstrate to neurosurgeons and orthopedic spine surgeons the merits of our technologies and products compared to those of our competitors.

Neurosurgeons and orthopedic spine surgeons play a significant role in determining the course of treatment and, ultimately, the type of product that will be used to treat a patient. As a result, our success depends, in large part, on marketing to them. In order for us to sell our products, we, along with our independent sales agents and stocking distributors, must continue to demonstrate to surgeons the merits of our technologies and products compared to those of our competitors for use in treating patients. Acceptance of our products depends on

 

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educating surgeons as to the distinctive characteristics, perceived benefits, safety, ease of use and cost-effectiveness of our products as compared to our competitors’ products, and on training surgeons in the proper application of our products. If we are not successful in convincing surgeons of the merits of our products or educating them on the use of our products, they could elect not to use our products, and we may be unable to increase our sales, sustain our growth or achieve profitability.

Furthermore, we believe many surgeons may be hesitant to adopt certain products unless they determine, based on experience, recommendation, clinical data and published peer-reviewed journal articles, that our products provide benefits or are an attractive alternative to existing treatments of spine and neurologic disorders. Surgeons may be hesitant to change their medical treatment practices for the following reasons, among others:

 

    lack of experience with our technologies;

 

    existing relationships with competitors, distributors and sales representatives who sell competitive products;

 

    lack or perceived lack of clinical evidence supporting additional patient benefits;

 

    lack of inclusion on hospital, integrated delivery network or group purchasing organization preferred vendor lists;

 

    less attractive availability of coverage and reimbursement within healthcare payment systems compared to other products and techniques;

 

    costs associated with the purchase of new products and equipment;

 

    the time commitment that may be required for training; and

 

    perceived liability risks that could be associated with the use of new products and procedures.

We believe recommendations and support of our products by influential surgeons are essential for market acceptance and adoption. If we do not receive support from such surgeons or if long-term clinical data does not demonstrate the benefits of using our products, surgeons may elect not to use our products. In such circumstances, we may not achieve expected sales or profitability, which could have a material and adverse effect on our business, results of operations and financial condition.

The industry and market segments in which we operate are highly competitive, and we may be unable to compete successfully with other companies.

In general, there is intense competition among spinal surgery companies. We compete with established medical technology companies in our product areas. Competition also comes from early-stage companies that have alternative technological solutions for our primary clinical applications. Many of our competitors have access to greater financial, technical, research and development, marketing, manufacturing, sales, distribution, administrative, consulting and other resources than we do. Our competitors may be more effective at developing commercial products, or they may have more established distribution networks, entrenched relationships with surgeons and greater experience in launching, marketing, distributing and selling products. Our competitors may also be able to gain market share by offering lower-cost products or by offering products that enjoy greater reimbursement from third-party payors, such as Medicare, Medicaid, private and public health insurers and foreign governmental health systems.

Our competitive position will depend on our ability to achieve market acceptance for our current products, develop new products which achieve market acceptance, implement production and marketing plans, secure regulatory approval for products under development, obtain and maintain reimbursement coverage under Medicare, Medicaid and private healthcare insurance, obtain patent protection, attract and retain a network of independent sales agents and stocking distributors focused on our spine and orthopedic surgeon customers, and produce products consistently in sufficient quantities to meet demand. We may need to develop new applications for our products to remain competitive. Our research and development efforts may require a substantial

 

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investment of time and resources before we are adequately able to determine the commercial viability of a new product, technology, material or other innovation. Such efforts may not result in the development of a viable product. Technological advances by one or more of our current or future competitors or their achievement of superior reimbursement from Medicare, Medicaid and private healthcare insurance could render our present or future products obsolete or uneconomical. In addition, certain of the medical indications that our devices can treat can also be treated by other medical devices or by medical practices that do not include a device. The medical community widely accepts many alternative treatments, and certain of these other treatments have a long history of use. Our future success will depend upon our ability to compete against established treatments and current technology, as well as to respond to technological advances.

Competitive pressures could adversely affect our profitability. Additionally, purchasing decisions of our customers may be based on clinical evidence or comparative effectiveness studies. Because of our large number of products, we might not be able to fund the studies necessary or provide the required information to compete effectively or, if we are able to fund such studies, they may not be successful or accepted. Other companies may have more resources available to fund such studies. In addition, the frequent introduction by competitors of orthobiologics and spinal fusion hardware products that are or claim to be superior to our products or that are alternatives to our existing or planned products may also create market confusion that may make it difficult to differentiate the benefits of our products over competing products.

If there are negative events in the industry, whether real or perceived, there could be a negative effect on the revenues and profitability of the industry as a whole. For example, we believe that some in the medical community have lingering concerns over the risk of disease transmission through the use of natural bone graft substitutes. The industry is subject to rapid and continuous change arising from, among other things, consolidation, technological improvements, pressure on governments, third-party payors and providers to reduce healthcare costs and healthcare reform legislation and initiatives domestically and internationally. One or more of these factors may vary unpredictably, and such variations could have a material and adverse effect on our competitive position. We may not be able to adjust our contemplated plan of development to meet changing market demands.

Our primary competitors include Alphatec, Bacterin, Baxter, Biomet, DePuy Synthes Spine (a Johnson & Johnson company), Globus Medical, Medtronic, NuVasive, K2M, LDR, Orthofix, RTI Surgical, Stryker and Zimmer and several smaller, biologically focused companies. In addition, we have identified increasing efforts by the largest device companies who have multiple franchises, affording them the ability to contract broadly with customers across franchises with volume discounts and multi-year terms that could prevent our access to these customers or render us unable to compete on price. If we are unable to compete successfully with other companies in the industry and market segments in which we operate, it could have a material and adverse effect on our business, results of operations and financial condition.

If any of our manufacturing, development or research facilities were damaged and/or our manufacturing or business processes interrupted, we could experience lost revenues and our business could be seriously harmed.

Damage to our manufacturing, development or research facilities or disruption to our business operations for any reason, including because of fire, extreme weather conditions, natural disaster, power loss, communications failure, unauthorized entry or other events, such as a flu or other health epidemic, could cause us to cease development and manufacturing of some or all of our products. In particular, we manufacture our orthobiologics products in one facility located in Irvine, California and any damage to that facility could adversely affect our ability to manufacture such orthobiologics products. In addition, due to the ongoing severe drought in California, it is possible that mandatory water usage limitations will be implemented or that new, far-reaching limitations on the use of ground water on a landowner’s own property could be imposed by the State of California or by one or more local governments. To the extent that any such water usage limitations are imposed, our ability to manufacture our products could be adversely affected. We are currently developing an information

 

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technology disaster recovery plan. That said, any future natural disaster, such as a fire or an earthquake, or other catastrophic event, or other interruptions in our production based on operational malfunctions, could cause substantial delays in our operations, damage or destroy our equipment or inventory and cause us to incur additional expenses. A disaster or business interruption could seriously harm our business, financial condition and results of operations. Our facilities would be difficult to replace and would require substantial lead time to repair or replace. The property damage and business interruption insurance coverage on these facilities that we maintain might not cover all losses under such circumstances, and we may not be able to renew or obtain such insurance in the future on acceptable terms with adequate coverage or at reasonable costs, which could have a material and adverse effect on our business, results of operations and financial condition.

The demand for our products and the prices at which we can sell our products depends upon adequate third-party coverage and reimbursement.

Maintaining and growing sales of our products depends on the availability of adequate coverage and reimbursement from third-party payors, including government programs such as Medicare and Medicaid, private insurance plans and managed-care programs. Hospitals and other healthcare providers that purchase our products generally rely on third-party payors to cover all or part of the costs associated with the procedures performed with these products, including the cost to purchase the product. Both the patients’ and our customers’ access to adequate coverage and reimbursement for the procedures performed with our products by government and private insurance plans is central to the acceptance of our current and future products. We may be unable to sell our products on a profitable basis, or at all, if third-party payors deny coverage or reduce their current levels of payment. If our cost of production increases faster than increases in reimbursement levels for the products, our profitability may be negatively affected.

Future action by the Centers for Medicare and Medicaid Services (the “CMS”) (which administers the Medicare program), other government agencies or private payors may diminish payments to physicians, outpatient surgery centers and/or hospitals, which could harm our ability to sell our products. Private payors may adopt coverage decisions and payment amounts determined by the CMS as guidelines in setting their coverage and reimbursement policies. Private payors that do not follow the Medicare guidelines may adopt different coverage and reimbursement policies for procedures performed with our products. In addition, for some governmental programs, such as Medicaid, coverage and reimbursement differs from state to state. Medicaid payments to physicians and facilities are often lower than payments by other third-party payors and some state Medicaid programs may not pay an adequate amount for the procedures performed with our products, if any payment is made at all. Furthermore, the healthcare industry in the United States has experienced a trend toward cost containment as government and private insurers seek to control rising healthcare costs by imposing lower payment rates and negotiating reduced contract rates with service providers.

Third-party payors, including public and private payors, may develop coverage policies negatively affecting our products. For example, a major national third-party insurer in the United States recently changed its medical policy from coverage in all or most cases to coverage only for limited indications for biomechanical devices (e.g., spine cages) for cervical fusion procedures stating that they have not been proven more effective than bone graft for cervical fusions, which may limit demand for our products. In addition, some payors have changed their coverage policies to be more restrictive as to the criteria under which they will cover and reimburse for vertebral fusions in the lumbar spine to treat multilevel degenerative disc disease, initial primary laminectomy/discectomy for nerve root decompression or spinal stenosis. Although these coverage policy changes have not had a material effect on our business, other insurers may adopt similar coverage decisions in the future. Patients covered by these insurers may be unwilling or unable to afford lumbar fusion surgeries to treat these conditions, which could materially harm or limit our ability to sell our products designed for lumbar fusion procedures. Our business would be negatively affected if the trend by governmental agencies or third-party payors continues to reduce coverage of and/or reimbursement for procedures using our products.

We cannot be certain that under current and future payment systems, such as those utilized by Medicare and in many private managed-care systems, the cost of our products will be adequately incorporated into the overall

 

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cost of the procedure. Therefore, we cannot be certain that the procedures performed with our products will be reimbursed at a cost-effective level, or at all.

To the extent we sell our products internationally, market acceptance may depend, in part, upon the availability of coverage and reimbursement within prevailing healthcare payment systems. Reimbursement and healthcare payment systems in international markets vary significantly by country, and include both government-sponsored healthcare and private insurance. Our products may not obtain international coverage and reimbursement approvals in a timely manner, if at all. In addition, even if we are able to obtain international coverage and reimbursement approvals, we could incur considerable expense to do so. Our failure to receive such approvals would negatively affect market acceptance of our products in the international markets in which those approvals are sought and the expenses made in connection with obtaining such approvals could outweigh the benefits of obtaining them, which could have a material and adverse effect on our business, results of operations and financial condition.

If we are unable to maintain and expand our network of independent sales agents and stocking distributors, we may not be able to generate anticipated sales.

Our operating results are directly dependent upon the sales and marketing efforts of our key sales management team and our independent sales agents and stocking distributors. In the United States, we consign and loan our spinal fusion hardware sets to our independent sales agents who in turn deliver them to the hospital for a single surgical procedure or leave them with hospitals that are high volume users for use in multiple procedures. In international markets, we predominantly sell complete instrument and implant sets to our independent spine stocking distributors, who consign or loan these sets to surgeons. We expect our sales management team and independent sales agents and stocking distributors to develop long-lasting relationships with the surgeons they serve. If our independent sales agents and stocking distributors fail to adequately promote, market and sell our products, our sales could significantly decrease.

We face significant challenges and risks in managing our geographically dispersed distribution network and retaining the independent sales agents and stocking distributors who make up that network. If any of our key sales management team members were to leave us, or, since many do not exclusively sell our products, if any of our independent sales agents or stocking distributors were to cease to do business with us, our sales could be adversely affected. Some of our independent sales agents account for a significant portion of our sales volume, and if any such independent sales agent were to cease to distribute our products, our sales could be adversely affected. In such a situation, we may need to seek alternative independent sales agents, which may not prevent our sales from being adversely affected. Generally, we do not enter into exclusive relationships with our independent sales agents and stocking distributors. If an independent sales agent or stocking distributor were to depart and be retained by one of our competitors, or enter into an exclusive arrangement with a competitor, we may be unable to prevent them from helping competitors solicit business from our existing customers, which could further materially and adversely affect our sales. Because of the intense competition for their services, we may be unable to recruit or retain additional qualified independent sales agents or stocking distributors to work with us. We may not be able to enter into agreements with them on favorable or commercially reasonable terms, if at all. Failure to hire or retain qualified independent sales agents would prevent us from maintaining or expanding our business and generating sales.

As we launch new products and increase our marketing efforts with respect to existing products, we will need to expand the reach of our marketing and sales networks. Our future success will depend largely on our ability to continue to hire, train, retain and motivate skilled independent sales agents and stocking distributors with significant technical knowledge in various areas, such as spinal care practices, spine injuries and disease and spinal health. New sales agents and stocking distributors require training and take time to achieve full productivity. If we fail to train new sales agents and stocking distributors adequately, or if we experience high turnover in our sales force in the future, we cannot be certain that new sales agents and stocking distributors will become as productive as may be necessary to maintain or increase our sales.

 

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If we are unable to expand our sales and marketing capabilities domestically and internationally, we may not be able to commercialize our products, which would adversely affect our business, results of operations and financial condition.

We are dependent on a limited number of third-party suppliers for components and raw materials, and the loss of any of these suppliers, or their inability to provide us with an adequate supply of quality materials, could harm our business.

Outside suppliers, some of whom are sole-source suppliers, provide spine hardware products, and raw materials and components used in the manufacture of our orthobiologics and hardware products. If we are unable to obtain sufficient quantities of high-quality spine hardware products or raw materials to meet demand on a timely basis, we may not be able to produce sufficient quantities of our products to meet market demand and, as a result, we could lose customers, our reputation could be harmed and our business could suffer. For example, in 2013, we experienced supply shortages in collagen ceramic matrix bone void fillers, which adversely affected sales of our orthobiologics products. Although we believe that alternative sources for many of these products and raw materials are available, replacing our current suppliers may be impractical in many instances and, accordingly, any interruption in supply of a limited or sole-source product or raw material could harm our ability to deliver our products to market until a new or alternative source of supply is identified and qualified. In addition, an uncorrected defect or supplier’s variation in a component or raw material that is incompatible with our manufacturing, unknown to us, could harm our ability to manufacture products. We may not be able to find a sufficient alternative supplier in a reasonable time period or on commercially reasonable terms, if at all. In particular, we could have difficulty obtaining similar products from other suppliers that are acceptable to the U.S. Food and Drug Administration (the “FDA”) or other foreign regulatory authorities, and the failure of our suppliers to comply with strictly enforced regulatory requirements could expose us to regulatory action, including warning letters, product recalls and withdrawals, suspension or withdrawal of our regulatory clearances or CE Certificates of Conformity, termination of distribution, product seizures or civil, administrative or criminal penalties. We believe that these factors are most likely to affect (i) our products containing NanoMetalene ® coating technology; (ii) our products containing polyetheretherketone polymer (“PEEK”); and (iii) our products containing or derived from human bone tissue and bovine collagen.

In addition, some of our orthobiologics products rely on a small number of tissue banks accredited by the American Association of Tissue Banks (“AATB”), for the supply of human tissue, a crucial component of our bone graft substitutes. We cannot be certain that these tissue banks will be able to fulfill our requirements or that we will be able to successfully negotiate with other accredited tissue facilities on satisfactory terms.

While it is our policy to maintain sufficient inventory of components so that our production will not be significantly disrupted even if a particular component or material is not available for a period of time, we remain at risk that we will not be able to qualify new components or materials quickly enough to prevent a disruption if one or more of our suppliers ceases production of important components or materials, which could have a material and adverse effect on our business, results of operations and financial condition.

We are dependent on information technology and if our information technology fails to operate adequately or fails to properly maintain the integrity of our data, our business could be materially and adversely affected.

We are increasingly dependent on sophisticated information technology for our infrastructure and to support business decisions. As a result of technology initiatives, recently enacted regulations and changes in our system platforms due, in part, to the separation, we have been consolidating and integrating the number of our systems. Our information systems require an ongoing commitment of significant resources to maintain, protect and enhance existing systems and develop new systems to keep pace with continuing changes in information processing technology, evolving systems and regulatory standards, the increasing need to protect patient and customer information and changing customer patterns. In addition, we are currently developing an information technology disaster recovery plan. Any significant breakdown, intrusion, interruption, corruption or destruction

 

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of these systems, as well as any data breaches, however, could have a material and adverse effect on our business, financial condition and results of operations.

In addition, third parties may attempt to breach our systems and may obtain a wide variety of the Company’s sensitive data. To the extent such parties are successful, such breaches could have a material and adverse effect on our business, results of operations and financial condition.

The safety and efficacy of our products is not yet supported by long-term clinical data, which could limit our sales, and our products might therefore prove to be less safe and effective than initially thought.

We have obtained 510(k) clearances to manufacture, market and sell the products we market in the United States, unless exempt from premarket review by the FDA, and the right to affix the CE mark to the products we market in the European Economic Area (“EEA”). In the 510(k) clearance process, the FDA must determine that a proposed device is “substantially equivalent” to a legally marketed device, known as a “predicate” device, with respect to intended use, technology and safety and effectiveness, which sometimes requires the submission of clinical data. In the EEA, as a general rule, compliance with the Essential Requirements laid down in Annex I to the Council Directive 93/42/EEC of June 14, 1993 concerning medical devices (the “Medical Devices Directive”), must be based on clinical data, though such clinical data can originate from the literature if equivalence to the device to which the literature relates can be demonstrated. For implantable devices and devices classified as Class III in the EEA, the provisions of Annex I to the Medical Devices Directive require manufacturers to conduct clinical investigations to generate the required clinical data, unless it is justifiable to rely on the existing clinical data related to similar devices. Clinical data generated by us were not needed to support our current 510(k) clearances, CE marks, and product registrations in other countries. As such, we have not yet generated our own clinical data in support of our currently marketed products. As a result, we currently lack the breadth of published long-term clinical data supporting the quality, safety and efficacy of our products that would have been required if our U.S. products were subject to the more rigorous premarket approval (“PMA”) process, and that some of our competitors, who have been in business longer, may have collected.

To address this issue, we are currently collecting and plan to continue collecting long-term clinical data regarding the quality, safety and effectiveness of our marketed products. The clinical data collected and generated as part of these studies will further strengthen our clinical evaluation concerning safety and performance of these products. We believe that these additional data will help with the marketing of our products by providing our customers with additional confidence in their long-term safety and efficacy. That said, as we conduct clinical studies designed to generate long-term data on our products, the data we generate may not be consistent with our existing data and may demonstrate less favorable safety or efficacy. These results could reduce demand for our products and significantly reduce our ability to achieve expected revenue. We do not expect to undertake such studies for all of our products and will only do so in the future where we anticipate the benefits will outweigh the costs and risks. For these reasons, spine surgeons could be less likely to purchase our products than competing products for which longer-term clinical data are available. Also, we may not choose or be able to generate the comparative data that some of our competitors have or are generating and we may be subject to greater regulatory and product liability risks. If we are unable to or unwilling to collect sufficient long-term clinical data supporting the quality, safety and effectiveness of our marketed products, our business, results of operations and financial condition could be adversely affected.

We may not be able to successfully develop new products.

Our future success depends, in part, on our ability to develop additional products. Even if we determine that a product candidate has medical benefits, the cost of commercializing that product candidate could be too high to justify development. Competitors could develop products that are more effective, achieve or maintain more favorable reimbursement status from third-party payors both domestically and internationally, including Medicare, Medicaid, private and public health insurers and foreign governmental health systems, cost less or are ready for commercial introduction before our products. If we are unable to develop additional commercially viable products, our future prospects could be adversely affected.

 

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We are required to maintain high levels of inventory, which could consume a significant amount of our resources, reduce our cash flows and lead to inventory impairment charges.

As a result of the need to maintain substantial levels of inventory to meet the needs of our customers, we are subject to the risk of inventory excess, obsolescence or shelf life expiration. Many of our spine hardware products come in sets, which feature a significant number of components in a variety of sizes so that the appropriate spinal implant may be selected by the surgeon based on the patient’s needs. In order to market our products effectively, we often must maintain and provide hospitals and independent sales agents with consigned sets that typically consist of spinal implants and instruments, including products to ensure redundancy and products of different sizes. In a typical surgery, not all of the implants in the set are used, and therefore certain sizes of implants placed in the set or purchased for replenishment inventory may become obsolete before they can be used. In addition, the use of our orthobiologics products is limited by the sterilization expiration date, which ranges from one to five years. Therefore, the shelf life for these products may expire before they can be used. If a substantial portion of this inventory is deemed excess, becomes obsolete or expires, it could have a material and adverse effect on our earnings because of the resulting costs associated with the inventory impairment charges.

Changes in third-party payment systems and in the healthcare industry may require us to decrease the selling price for our products, may reduce the size of the market for our products, or may eliminate a market, any of which could have a negative effect on our financial performance.

Our sales may be affected by the adequacy of coverage and reimbursement for our products by governmental health care programs, including Medicare and Medicaid in the United States, as well as by private payors. Third-party payors continually review their coverage and reimbursement policies for procedures involving the use of our products and can, without notice, eliminate or reduce coverage or reimbursement for our products, as described below.

Trends toward managed care, healthcare cost containment and other changes in government and private sector initiatives in the United States and other countries in which we do business are placing increased emphasis on the delivery of more cost-effective medical therapies that could adversely affect the sale and/or the prices of our products. For example:

 

    third-party payors of hospital services and hospital outpatient services, including Medicare, Medicaid, private and public health insurers and foreign governmental health systems, annually revise their payment methodologies, which could result in stricter standards for reimbursement of hospital charges for certain medical procedures or the elimination of reimbursement;

 

    foreign governmental health systems have revised, and continue to consider whether to revise, their payment methodologies, which have resulted and could continue to result in stricter standards for reimbursement of hospital charges for certain medical procedures leading to less government reimbursement, thereby creating downward pricing pressure on our products or rendering some uneconomical;

 

    Medicare, Medicaid, private and public health insurer and foreign governmental cutbacks could create downward price pressure on our products;

 

    in the United States, local Medicare coverage as well as commercial carrier coverage determinations could reduce or eliminate reimbursement or coverage for certain of our products in many regions, negatively affecting our market for these products, and future determinations could reduce or eliminate reimbursement or coverage for these products in other regions and could reduce or eliminate reimbursement or coverage for other products;

 

   

there has been a consolidation among healthcare facilities and purchasers of medical devices, particularly in the United States, and as the healthcare industry consolidates, competition to provide products and services to industry participants will continue to become more intense, which will result

 

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in greater pricing pressures and the exclusion of certain suppliers from important market segments as group purchasing organizations, integrated delivery networks and large single accounts continue to use their market power to consolidate purchasing decisions;

 

    there has been a growing movement of physicians becoming employees of hospitals and other healthcare entities, which aligns surgeons’ product choices with their employers’ purchasing decisions, and adds to pricing pressures;

 

    similarly, some hospitals provide financial incentives to doctors for reducing hospital costs (known as gainsharing), rewarding physician efficiency (known as physician profiling) and encouraging partnerships with healthcare service and goods providers to reduce prices;

 

    in the United States, we are party to contracts with group purchasing organizations, which negotiate pricing for many member hospitals, that require us to discount our prices for certain of our products and limit our ability to raise prices for certain of our products;

 

    there is economic pressure to contain healthcare costs in domestic and international markets and, regardless of the consolidation discussed above, providers are exploring ways to cut costs by eliminating purchases or driving reductions in the prices that they pay for medical devices;

 

    there are proposed and existing laws, regulations and industry policies in domestic and international markets regulating the sales and marketing practices and the pricing and profitability of companies in the healthcare industry;

 

    the incidence of physician-owned distributorships (“PODs”) catering to the spinal surgery market may reduce our ability to compete for business from surgeons who own such distributorships; and

 

    there have been initiatives by third-party payors and foreign governmental health systems to challenge the prices charged for medical products that could affect our ability to sell products on a competitive basis.

Any and all of the above factors could materially and adversely affect our levels of revenue and our profitability.

Our business could suffer if we lose the services of key members of our senior management.

We are dependent upon the continued services of key members of our senior management. The loss of these individuals could disrupt our operations or our strategic plans. In addition, our future success will depend on, among other things, our ability to continue to hire or contract with, and retain, the necessary qualified scientific, technical and managerial personnel, for whom we compete with numerous other companies, academic institutions and organizations. The loss of members of our management team or our inability to attract or retain other qualified personnel could have a material and adverse effect on our business, results of operations and financial condition.

We are exposed to a variety of risks relating to our international sales and operations, including fluctuations in exchange rates, local economic conditions and delays in collection of accounts receivable.

We generate revenues outside the United States in multiple foreign currencies including euros, British pounds, Swiss francs and New Zealand dollars, and in U.S. dollar-denominated transactions conducted with customers who generate revenue in currencies other than the U.S. dollar. We also incur operating expenses in euros. For those foreign customers who purchase our products in U.S. dollars, currency exchange rate fluctuations between the U.S. dollar and the currencies in which those customers do business may have a negative effect on the demand for our products in foreign countries where the U.S. dollar has increased in value compared to the local currency.

We experience currency exchange risk with respect to those foreign currency-denominated revenues and expenses. We also may encounter difficulties in converting our earnings from international operations to U.S.

 

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dollars for use in the United States. These obstacles may include problems moving funds out of the countries in which the funds were earned and difficulties in collecting accounts receivable in foreign countries where the usual accounts receivable payment cycle is longer.

We cannot predict the consolidated effects of exchange rate fluctuations upon our future operating results because of the variability of currency exposure in our revenues and operating expenses and the potential volatility of currency exchange rates. Although we address currency risk management through regular operating and financing activities, those actions may not prove to be fully effective.

Our international operations also subject us to laws regarding sanctioned countries, entities and persons, customs, import-export, laws regarding transactions in foreign countries, the U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”) and local anti-bribery and other laws regarding interactions with healthcare professionals, and product registration requirements. Among other things, these laws restrict, and in some cases prohibit, U.S. companies from directly or indirectly selling goods, technology or services to people or entities in certain countries. In addition, these laws require that we exercise care in structuring our sales and marketing practices and effecting product registrations in foreign countries. Compliance with these regulations is costly and exposes us to penalties for non-compliance. Any failure to comply with applicable legal and regulatory obligations could affect us in a variety of ways that include, but are not limited to, suspension or withdrawal of our CE Certificates of Conformity, significant criminal, civil and administrative penalties, including imprisonment of individuals, fines and penalties, denial of export privileges, seizure of shipments, product recalls and withdrawals, and restrictions on certain business activities. Additionally, the failure to comply with applicable legal and regulatory obligations could result in the disruption of our shipping and sales activities.

Local economic conditions, legal, regulatory or political considerations, disruptions from strikes, the effectiveness of our independent stocking distributors, local competition, in-country reimbursement methodologies and changes in local medical practice could also affect our sales to foreign markets.

The proliferation of physician-owned distributorships could result in increased pricing pressure on our products or harm our ability to sell our products to physicians who own or are affiliated with those distributorships.

Physician-owned distributorships are medical device distributors that are owned, directly or indirectly, by physicians. These physicians derive a proportion of their revenue from selling or arranging for the sale of medical devices for use in procedures they perform on their own patients at hospitals that agree to purchase from or through the POD, or that otherwise furnish ordering physicians with income that is based directly or indirectly on those orders of medical devices.

We do not sell or distribute any of our products through PODs. The number of PODs in the spine industry may continue to grow as economic pressures increase throughout the industry and as hospitals, insurers and physicians search for ways to reduce costs and, in the case of the physicians, search for ways to increase their incomes. These companies and the physicians who own, or partially own, them have significant market knowledge and access to the surgeons who use our products and the hospitals that purchase our products and growth in this area may reduce our ability to compete effectively for business from surgeons who own such distributorships, which could have a material and adverse effect on our business, results of operations and financial condition.

We may have significant product liability exposure and our insurance may not cover all potential claims.

We are exposed to product liability and other claims if our technologies or products are alleged to have caused harm. Product liability claims are expensive to defend and could divert our management’s attention and result in substantial damages awarded against us. We may not be able to obtain insurance for the potential liability on acceptable terms with adequate coverage or at reasonable cost. Any potential product liability claims could exceed the amount of our insurance coverage or may be excluded from coverage under the terms of the policy. Our insurance may not be renewed at a cost and level of coverage comparable to that then in a material

 

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and adverse effect. If we do not have adequate insurance coverage, products liability claims could have a material and adverse effect on our ability to successfully market our products and on our financial condition and results of operations. In addition, even if a product liability claim is not successful or is not fully pursued, the adverse publicity surrounding any assertion that our products caused illness or injury could have a material and adverse effect on our reputation with existing and potential customers and on our business, financial condition and results of operations.

Our strategy could involve growth through acquisitions, which would require us to incur substantial costs and potential liabilities for which we may never realize the anticipated benefits.

Our strategy could involve growth through acquisitions, a strategy which ultimately could be unsuccessful. Any new acquisition could result in material transaction expenses, increased interest and amortization expense, increased depreciation expense, increased operating expense and possible in-process research and development charges for acquisitions that do not meet the definition of a “business,” any of which could have a material and adverse effect on our operating results.

In addition, certain businesses that we may acquire may not have adequate financial, disclosure, regulatory, quality or other compliance controls at the time we acquire them. If we grow by acquisition, we must manage and integrate the new businesses to bring them into our systems for financial, disclosure, compliance, regulatory and quality, to realize economies of scale and to control costs. In addition, acquisitions involve other risks, including diversion of management resources otherwise available for development of our business, risks associated with entering markets in which our marketing teams and sales force has limited experience or where experienced distribution alliances are not available and potential adverse effects on existing business relationships with employees, suppliers, customers and sales agents of the acquired company.

Furthermore, as a result of acquisitions of other healthcare businesses, we may be subject to the risk of unanticipated business uncertainties, regulatory and other compliance matters or legal liabilities relating to those acquired businesses for which the sellers of the acquired businesses may not indemnify us, for which we may not be able to obtain insurance (or adequate insurance) or for which the indemnification may not be sufficient to cover the ultimate liabilities. Our future profitability could depend in part upon our ability to develop further our resources to adapt to these new products or business areas and to identify and enter into or maintain satisfactory distribution networks. We may not be able to identify suitable acquisition candidates in the future, obtain acceptable financing or consummate any future acquisitions. If we cannot integrate acquired businesses, products or technologies, our business, financial conditions and results of operations could be materially adversely affected.

New regulations related to “conflict minerals” may force us to incur additional expenses, may make our supply chain more complex and may result in damage to our reputation with customers.

On August 22, 2012, the SEC adopted new disclosure regulations for public companies that manufacture products that contain certain minerals (i.e., tin, tantalum, tungsten or gold) known as conflict minerals, if these conflict minerals are necessary to the functionality or production of our products. These regulations require such companies to report annually whether or not such conflict minerals originate from the Democratic Republic of Congo (“DRC”) and adjoining countries and in some cases to perform extensive due diligence on their supply chains for such conflict minerals. The implementation of these new requirements could adversely affect the sourcing, availability and pricing of tin, tantalum, tungsten and gold used in the manufacture of medical devices, including our products. In addition, we may incur additional costs to comply with the disclosure requirements, including costs related to determining the source of any of the relevant conflict minerals used in our products. Since our supply chain is complex, the due diligence procedures that we implement may not enable us to determine the origins for these conflict minerals or determine that these conflict minerals are DRC conflict-free, which may harm our reputation. We may also face difficulties in satisfying any customers who may require that our products be certified as DRC conflict-free, which could harm our relationships with these customers and

 

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result in a loss of revenue. These new requirements also could have the effect of limiting the pool of suppliers from which we source tin, tantalum, tungsten and gold, and we may be unable to obtain conflict-free minerals at competitive prices, which could increase our costs and adversely affect our manufacturing operations and our profitability.

We are subject to requirements relating to hazardous materials which may impose significant compliance or other costs on us.

Our research, development and manufacturing processes involve the controlled use of certain hazardous materials. In addition, we lease facilities at which hazardous materials could have been used in the past. For these reasons, we are subject to federal, state, foreign and local laws and regulations governing the use, manufacture, storage, handling, treatment, remediation and disposal of hazardous materials and certain waste products (“Environmental Laws”). For example, our allograft bone tissue processing may generate waste materials, which in the United States are classified as medical waste under Environmental Laws. Although we believe that our procedures for handling and disposing of hazardous materials comply with the Environmental Laws, the Environmental Laws may be amended in ways that increase our cost of compliance, perhaps materially.

Furthermore, there is a risk that accidental contamination or injury has occurred in connection with one of our facilities or in connection with one of the companies we have purchased. If such accidental contamination or injury occurred, we could be held liable for any damages that result and any related liability could exceed the limits or fall outside the coverage of our insurance and could exceed our resources. We may not be able to maintain insurance on acceptable terms or at all, which could have a material and adverse effect on our business, results of operations and financial condition.

Risks Relating to Our Financial Results and Need for Financing

Our sales volumes and our operating results may fluctuate.

Our sales volumes and our operating results, including components of operating results such as gross margin and cost of goods sold, may fluctuate from time to time, including over the course of the year, and such fluctuations could affect our stock price. Our operating results have fluctuated in the past and can be expected to fluctuate from time to time in the future. Some of the factors that may cause these fluctuations include:

 

    economic conditions worldwide, which could affect the ability of hospitals and other customers to purchase our products and could result in a reduction in elective and non-reimbursed operative procedures;

 

    increased competition;

 

    market acceptance of our existing products, as well as products in development, and the demand for, and pricing of, our products and the products of our competitors;

 

    costs, benefits and timing of new product introductions;

 

    the timing of or failure to obtain regulatory clearances or approvals for products;

 

    potential backorders, lost sales and other expenses incurred resulting from stoppages in our or third parties’ production relating to product recalls or field corrective actions;

 

    the availability and cost of components and materials, including raw materials such as human tissue;

 

    our ability to purchase or manufacture and ship our products efficiently or in sufficient quantities to meet sales demands;

 

    the timing of our research and development expenditures;

 

    expenditures for major initiatives;

 

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    reimbursement, changes in reimbursement or denials in coverage for our products by third-party payors such as Medicare, Medicaid, private and public health insurers and foreign governmental health systems;

 

    the ability of our new independent sales agents and stocking distributors to obtain sales targets in a reasonable time frame;

 

    peer-reviewed publications discussing the clinical effectiveness of our products;

 

    inspections of our manufacturing facilities for compliance with Quality System Regulations (Good Manufacturing Practices), which could result in Form 483 observations, warning letters, injunctions or other adverse findings from the FDA or from equivalent regulatory bodies, and corrective actions, procedural changes and other actions, including product recalls, that we determine are necessary or appropriate to address the results of those inspections, any of which may affect production and our ability to supply our customers with our products;

 

    the costs to comply with new regulations from the FDA or other global regulatory bodies, such as the requirements to establish a unique device identification (“UDI”) system to adequately identify medical devices through their distribution and use;

 

    the increased regulatory scrutiny of certain of our products, including products we manufacture for others, which could result in their being removed from the market;

 

    fluctuations in foreign currency exchange rates; and

 

    the impact of acquisitions, including the impact of goodwill and intangible asset impairment charges if future operating results of the acquired businesses are significantly less than the results anticipated at the time of the acquisitions.

In addition, we may experience meaningful variability in our sales and gross profit among quarters, as well as within each quarter, as a result of a number of factors, including but not limited to (and in addition to those listed above):

 

    the number of products sold in the quarter;

 

    the unpredictability of sales of full sets of spinal implants and instruments to our international stocking distributors; and

 

    the number of selling days in the quarter.

Our future capital needs are uncertain and we may need to raise additional funds in the future, and such funds may not be available on acceptable terms or at all.

We believe that our cash following the separation and the borrowing capacity that we expect to have under the credit facility that we are currently negotiating and expect to enter into shortly following the distribution will be sufficient to meet our projected operating requirements over the next twenty-four months. That said, continued expansion of our business will be expensive, and we may seek additional funds from public and private stock offerings, borrowings under additional credit facilities or other sources which we may not be able to maintain or obtain on acceptable or commercially reasonable terms, if at all. Our capital requirements will depend on many factors, including, but not limited to:

 

    market acceptance of our products;

 

    the revenue generated by sales of our products;

 

    the costs associated with expanding our sales and marketing efforts;

 

    the expenses we incur in procuring, manufacturing and selling our products;

 

    the costs of developing and commercializing new products or technologies;

 

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    the scope, rate of progress and cost of our clinical studies;

 

    the cost of obtaining and maintaining regulatory approval or clearance of our products and products in development;

 

    the costs associated with complying with state, federal and international laws and regulations;

 

    the cost of filing and prosecuting patent applications and defending and enforcing our patent and other intellectual property rights;

 

    the cost of defending, in litigation or otherwise, any claims that we infringe third-party patent or other intellectual property rights;

 

    the cost of enforcing or defending against non-competition claims;

 

    the number and timing of acquisitions and other strategic transactions;

 

    the costs associated with increased capital expenditures, including fixed asset purchases of instrument sets which we consign to hospitals and independent sales agents to support surgeries; and

 

    anticipated and unanticipated general and administrative expenses, including insurance expenses.

As a result of these factors, we may seek to raise additional capital to:

 

    maintain, and, where necessary, increase appropriate product inventory levels;

 

    fund our operations and clinical studies;

 

    continue, and, where appropriate, increase our research and development activities;

 

    file, prosecute and defend our intellectual property rights, and defend, in litigation or otherwise, any claims that we infringe third-party patents or other intellectual property rights;

 

    address the FDA or other governmental, legal or enforcement actions and remediate underlying problems and address investigations or inquiries into sales and marketing practices from governmental agencies worldwide;

 

    commercialize our new products, if any such products receive regulatory clearance or approval for sale; and

 

    acquire companies and license products or intellectual property.

Such capital may not be available on favorable terms, or at all. Furthermore, if we issue equity securities to raise additional capital, our existing stockholders may experience dilution, and the new equity securities may have rights, preferences and privileges senior to those of our existing stockholders. In addition, if we raise additional capital through collaboration, licensing or other similar arrangements, it may be necessary to relinquish valuable rights to our products, potential products or proprietary technologies, or grant licenses on terms that are not favorable to us. If we cannot raise capital on acceptable terms, we may not be able to develop or enhance our products, execute our business plan, take advantage of future opportunities or respond to competitive pressures, changes in our supplier relationships or unanticipated customer requirements. Any of these events could adversely affect our ability to achieve our business and financial goals or to achieve or maintain profitability, and could have a material and adverse effect on our business, results of operations and financial condition.

Continuing economic instability, including challenges faced by European countries, may adversely affect the ability of hospitals and other customers to access funds or otherwise have available liquidity, which could reduce orders for our products or impede our ability to obtain new customers, particularly in European markets.

Continuing economic instability, including challenges faced by European countries, may adversely affect the ability of hospitals and other customers to access funds to enable them to fund their operating budgets. As a

 

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result, hospitals and other customers may reduce budgets or put all or part of their budgets on hold or close their operations, which could have a negative effect on our sales and could impede our ability to obtain new customers, particularly in European markets. Governmental austerity policies in Europe and other markets have reduced and could continue to reduce the amount of money available to purchase medical products, including our products. If such conditions persist, they could have a material and adverse effect on our business, financial condition and results of operations.

Our future financial results could be adversely affected by impairments or other charges.

The guidance on long-lived assets requires that we assess the impairment of our long-lived assets, including finite-lived intangible assets, whenever events or changes in circumstances indicate that the carrying value may not be recoverable as measured by the sum of the expected future undiscounted cash flows. As of December 31, 2014, we had $46.9 million of net finite-lived intangible assets, consisting of technology and customer relationships.

We may discontinue certain products in the future as we continue to assess the profitability of our product lines. As a result, we may need to record impairment charges or accelerate amortization on certain technology-related intangible assets in the future.

The value of a medical device business is often volatile, and the assumptions underlying our estimates made in connection with our assessments under the guidance may change as a result of that volatility or other factors outside our control and may result in impairment charges. The amount of any such impairment charges could be significant and could have a material and adverse effect on our reported financial results for the period in which the charge is taken and could have an adverse effect on the market price of our securities.

Risks Relating to Our Legal and Regulatory Environment

The failure to secure or maintain regulatory approvals or clearances for our products could adversely affect our business.

Our products are subject to extensive regulation in the United States by the FDA and by similar governmental authorities in other countries where we do business. The FDA regulates virtually all aspects of a medical device’s development, testing, manufacturing, labeling, promotion, distribution and marketing, as well as modifications to existing products and the marketing of existing products for new indications.

In the development of new products or new indications for, or modifications to, existing products, we may conduct or sponsor clinical research. Clinical research is expensive and may not generate the data we need to support a submission to the FDA. Clinical studies are subject to regulation by the FDA and, if federal funds are involved or if an investigator or site has signed a federal assurance, are subject to further regulation by the Office for Human Research Protections and the National Institutes of Health. Failure to comply with such regulations, including, but not limited to, failure to obtain adequate consent of subjects, failure to adequately disclose financial conflicts or failure to report data or adverse events accurately, could result in fines, penalties, suspension of studies, and the inability to use the data to support a FDA submission.

In general, unless an exemption applies, a medical device and modifications to the device or its indications must receive either premarket approval or premarket clearance from the FDA before it can be marketed in the United States. While in the past we have received such clearances, we may not be successful in the future in receiving approvals and clearances in a timely manner or at all.

Our manufacturing processes are required to comply with the FDA’s Quality System Regulation, which covers current Good Manufacturing Practice requirements concerning the design, testing, production processes, controls, quality assurance, labeling, packaging, storage and shipping of our devices. We also are subject to state

 

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requirements and licenses applicable to manufacturers of medical devices. In addition, we must engage in extensive recordkeeping and reporting and must make available our manufacturing facilities and records for periodic unscheduled inspections by governmental agencies, including the FDA, state authorities and comparable agencies in other countries. Moreover, if we fail to pass a Quality System Regulation inspection or to comply with these and other applicable regulatory requirements, we may receive a notice of a violation in the form of inspectional observations on Form FDA 483, a warning letter, or could otherwise be required to take corrective action and, in severe cases, we could suffer a disruption of our operations and manufacturing delays. If we fail to take adequate corrective actions, we could be subject to certain enforcement actions, including, among other things, significant fines, suspension of approvals, seizures or recalls of products, operating restrictions and criminal prosecutions. Any notice or communication from the FDA regarding a failure to comply with applicable requirements could adversely affect our product sales and profitability.

We are subject to stringent domestic and foreign medical device regulation and any adverse regulatory action may materially adversely affect our financial condition and business operations.

Our products, development activities and manufacturing processes are subject to extensive and rigorous regulation by numerous government agencies, including the FDA and comparable foreign agencies. To varying degrees, each of these agencies monitors and enforces our compliance with laws and regulations governing the development, testing, manufacturing, labeling, marketing and distribution of our medical devices. The process of obtaining marketing approval or clearance from the FDA and comparable foreign regulatory agencies for new products, or for enhancements or modifications to existing products, could

 

    take a significant amount of time;

 

    require the expenditure of substantial resources;

 

    involve rigorous and expensive pre-clinical and clinical testing, as well as increased post-market surveillance;

 

    involve modifications, repairs or replacements of our products; and

 

    result in limitations on the indicated uses of our products.

We cannot be certain that we will receive required approval or clearance from the FDA and foreign regulatory agencies for new products or modifications to existing products on a timely basis. The failure to receive approval or clearance for significant new products or modifications to existing products on a timely basis could have a material and adverse effect on our financial condition and results of operations.

Both before and after a product is commercially released, we have ongoing responsibilities under FDA regulations. For example, we are required to comply with the FDA’s Quality System Regulation, which mandates that manufacturers of medical devices adhere to certain quality assurance requirements pertaining to, among other things, validation of manufacturing processes, controls for purchasing product components and documentation practices. As another example, the Federal Medical Device Reporting regulation requires us to provide information to the FDA whenever there is evidence that reasonably suggests that a device may have caused or contributed to a death or serious injury or that a malfunction occurred which would be likely to cause or contribute to a death or serious injury upon recurrence. Compliance with applicable regulatory requirements is subject to continual review and is monitored rigorously through periodic inspections by the FDA, which may result in observations on Form 483, and in some cases warning letters, that require corrective action. If the FDA were to conclude that we are not in compliance with applicable laws or regulations, or that any of our medical devices are ineffective or pose an unreasonable health risk, the FDA could ban such medical devices, detain or seize such medical devices, order a recall, repair, replacement or refund of such devices or require us to notify health professionals and others that the devices present unreasonable risks of substantial harm to the public health.

The FDA has been increasing its scrutiny of the medical device industry and the government is expected to continue to scrutinize the industry closely with inspections, and possibly enforcement actions, by the FDA or

 

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other agencies. Additionally, the FDA may restrict manufacturing and impose other operating restrictions, enjoin and restrain certain violations of applicable law pertaining to medical devices and assess civil or criminal penalties against our officers, employees or us. The FDA may also recommend prosecution to the U.S. Department of Justice (the “DOJ”). Any adverse regulatory action, depending on its magnitude, may restrict us from manufacturing, marketing and selling our products. In addition, negative publicity and product liability claims resulting from any adverse regulatory action could have a material and adverse effect on our financial condition and results of operations.

The FDA Safety and Innovation Act of 2012 (the “FDASIA”), which includes the Medical Device User Fee Amendments of 2012, as well as other medical device provisions, went into effect October 1, 2012. This includes performance goals and user fees paid to the FDA by medical device companies when they register and list with the FDA and when they submit an application to market a device in the United States. This will affect the fees paid to the FDA over the five-year period that the FDASIA is in effect. The FDASIA also imposes some additional requirements regarding FDA Establishment Registration and Listing of Medical Devices. All U.S. and foreign manufacturers must have a FDA Establishment Registration and complete Medical Device listings for sales in the United States. All of our facilities materially comply with these requirements. However, we also source products from foreign contract manufacturers. From this business practice, it is possible that some of our foreign contract manufacturers will not comply with the new requirements and choose not to register with the FDA. In such an event, we will need to determine if there are alternative foreign contract manufacturers who comply with the FDA Establishment Registration requirements. If such a foreign contract manufacturer is a sole supplier of one of our products, there is a risk that we may not be able to source another supplier.

The FDA issued a final rule on September 24, 2013 to establish a system to adequately identify devices through distribution and use. This rule requires the label of medical devices to include a UDI, except where the rule provides for an exception or alternative placement. The labeler must submit product information concerning devices to the FDA’s Global Unique Device Identification Database, unless subject to an exception or alternative. The system established by this rule requires the label and device package of each medical device to include a UDI and requires that each UDI be provided in a plain-text version and in a form that uses automatic identification and data capture technology. If the device is intended to be used more than once and intended to be reprocessed before each use, then there is a requirement for the UDI to be directly marked on the device itself. The effective dates for implementation of the UDI rule are staggered based on device class. The implementation dates to comply with the labelling and product information submission requirements range from September 24, 2014 for Class III devices through September 24, 2018 for Class I devices. The implementation dates to comply with the direct marking requirement, if applicable, range from September 24, 2015 for certain Class II devices (as defined by the FDASIA) through September 24, 2020 for Class I devices. Compliance with this regulation will require significant resources and expense.

Some of our orthobiologics products are also subject to FDA and certain state regulations regarding human cells, tissues and cellular or tissue-based products (“HCT/Ps”), which include requirements for Establishment Registration and listing, donor eligibility, current good tissue practices, labeling, adverse-event reporting and inspection and enforcement. Some states have their own tissue banking regulation. We are licensed or have permits as a tissue bank in California, Florida, New York and Maryland. In addition, tissue banks may undergo voluntary accreditation by the AATB. The AATB has issued operating standards for tissue banking. Compliance with these standards is a requirement in order to become a licensed tissue bank.

Foreign governmental regulations have become increasingly stringent and more common, and we may become subject to even more rigorous regulation by foreign governmental authorities in the future. Penalties for a company’s noncompliance with foreign governmental regulation could be severe, including revocation or suspension of a company’s business license and criminal sanctions. Any domestic or foreign governmental medical device law or regulation imposed in the future may have a material and adverse effect on our financial condition and business operations.

 

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Oversight of the medical device industry might affect the manner in which we may sell medical devices and compete in the marketplace.

The U.S. Office of the Inspector General for the U.S. Department of Health and Human Services (the “OIG”), the FDA, the DOJ and other regulatory agencies actively enforce regulations prohibiting the promotion of a medical device for a use that has not been cleared or approved by the FDA. Use of a device outside its cleared or approved indications is known as “off-label” use. Physicians may prescribe our products for off-label uses, as the FDA does not restrict or regulate a physician’s choice of treatment within the practice of medicine. However, if the OIG, FDA, DOJ or another regulatory agency determines that our promotional materials, training or activities constitute improper promotion of an off-label use, the regulatory agency could request that we modify our promotional materials, training or activities, or subject us to regulatory enforcement actions, including the issuance of a warning letter, injunction, seizure, civil fine and/or criminal penalties. Although our policy is to refrain from statements and activities that could be considered off-label promotion of our products, the OIG, FDA, DOJ or another regulatory agency could disagree and conclude that we have engaged in off-label promotion and, potentially, caused the submission of false claims. In addition, the off-label use of our products may increase the risk of injury to patients, and, in turn, the risk of product liability claims. Product liability claims are expensive to defend and could divert our management’s attention and result in substantial damage awards against us. If the Company does not have adequate insurance coverage, product liability claims relating to defective products could have an adverse effect on the Company’s ability to successfully market its products and on the Company’s financial condition and results of operations. In addition, even if a product liability claim is not successful or is not fully pursued, the adverse publicity surrounding any assertion that the Company’s products caused illness or injury could have an adverse effect on the Company’s reputation with existing and potential customers and on the Company’s financial condition and results of operations.

There are also multiple other laws and regulations that govern the means by which companies in the healthcare industry may market their products to healthcare professionals and may compete by discounting the prices of their products, including, for example, the federal Anti-Kickback Statute, the federal False Claims Act, the federal Health Insurance Portability and Accountability Act of 1996, state law equivalents to these federal laws that are meant to protect against fraud and abuse, the FCPA and analogous laws in foreign countries. Violations of these laws are punishable by criminal and civil sanctions, including, but not limited to, in some instances civil and criminal penalties, damages, fines and exclusion from participation in federal and state healthcare programs, including Medicare and Medicaid. Federal and state government agencies, as well as private whistleblowers, have significantly increased investigations and enforcement activity under these laws. Although we exercise care in structuring our sales and marketing practices and customer discount arrangements to comply with those laws and regulations, we cannot assure that:

 

    government officials charged with responsibility for enforcing those laws will not assert that our sales and marketing practices or customer discount arrangements are in violation of those laws or regulations; or

 

    government regulators or courts will interpret those laws or regulations in a manner consistent with our interpretation.

Correspondingly, federal and state laws are also sometimes open to interpretation, and from time to time we may find ourselves at a competitive disadvantage if our interpretation differs from that of our competitors. AdvaMed (U.S.), EucoMed (Europe), MEDEC (Canada) and MTAA (Australia), some of the principal trade associations for the medical device industry, have promulgated model codes of ethics that set forth standards by which its members should (and non-member companies may) abide in the promotion of their products in various regions. We have implemented policies and procedures for compliance that we believe are at least as stringent as those set forth in the revised AdvaMed Code, and we regularly train our sales and marketing personnel on our policies regarding sales and marketing practices. Nevertheless, the sales and marketing practices of our industry have been the subject of increased scrutiny from federal and state government agencies. We believe that this trend will continue and that it could affect our ability to retain customers and other relationships important to our business.

 

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For example, prosecutorial scrutiny and governmental oversight, on the state and federal levels, over some major device companies regarding the retention of healthcare professionals as consultants have limited the manner in which medical device companies may retain healthcare professionals as consultants. Various hospital organizations, medical societies and trade associations are establishing their own practices that may require detailed disclosures of relationships between healthcare professionals and medical device companies or ban or restrict certain marketing and sales practices such as gifts and business meals. In addition, the Affordable Care Act, as well as certain state laws, requires detailed disclosure of certain financial relationships, gifts and other remuneration made to certain healthcare professionals and teaching hospitals, publicity surrounding which could have a negative impact on our relationships with customers and ability to seek input on product design or involvement in research.

Certain of our products are derived from human tissue and are or could be subject to additional regulations and requirements.

We manufacture medical devices derived from human bone tissue. The FDA has specific regulations governing HCT/Ps. An HCT/P is a product containing or consisting of human cells or tissue intended for transplantation into a human patient. Examples include bone, ligament, skin and cornea.

Some HCT/Ps also meet the definition of a biological product, medical device or drug regulated under the Federal Food, Drug and Cosmetic Act (the “FDCA”). Section 361 of the Public Health Service Act authorizes the FDA to issue regulations to prevent the introduction, transmission or spread of communicable disease. HCT/Ps regulated as “361 HCT/Ps” are subject to requirements relating to registering facilities and listing products with the FDA, screening and testing for tissue donor eligibility, Good Tissue Practice when processing, storing, labeling and distributing HCT/Ps, including required labeling information, stringent record keeping and adverse event reporting. These biologic, device or drug HCT/Ps must comply both with the requirements exclusively applicable to 361 HCT/Ps and, in addition, with requirements applicable to biologics, devices or drugs, including premarket clearance or approval. We have received all required approvals for our products which are regulated as 361 HCT/Ps. However, there have been occasions in the past, and could be occasions in the future, when the FDA requires us to obtain a 510(k) clearance for our products that are regulated as 361 HCT/Ps. The process of obtaining a 510(k) clearance could take time and consume resources, including, for example, the possible need to conduct clinical studies in addition to the work required to prepare and file the necessary regulatory registrations. The failure to receive such clearances would render us unable to market and sell such products, which, in turn could have a material and adverse effect on our business.

The AATB has issued operating standards for tissue banking. Compliance with these standards is a requirement in order to become a licensed tissue bank. In addition, some states have their own tissue banking regulations. We are licensed or have permits as a tissue bank in California, Florida, New York and Maryland.

In addition, procurement of certain human organs and tissue for transplantation is subject to the restrictions of the National Organ Transplant Act (“NOTA”), which prohibits the transfer of certain human organs, including skin and related tissue, for valuable consideration, but permits the reasonable payment associated with the removal, transportation, implantation, processing, preservation, quality control and storage of human tissue and skin. We reimburse tissue banks for their expenses associated with the recovery, storage and transportation of donated human tissue that they provide to us for processing. We include in our pricing structure amounts paid to tissue banks to reimburse them for their expenses associated with the recovery and transportation of the tissue, in addition to certain costs associated with processing, preservation, quality control and storage of the tissue, marketing and medical education expenses and costs associated with development of tissue processing technologies. NOTA payment allowances may be interpreted to limit the amount of costs and expenses that we can recover in our pricing for our products, thereby reducing our future revenue and profitability. If we were to be found to have violated NOTA’s prohibition on the sale or transfer of human tissue for valuable consideration, we would potentially be subject to criminal enforcement sanctions, which could materially and adversely affect our results of operations.

 

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The adoption of healthcare reform in the United States and initiatives sponsored by other governments may adversely affect our business, results of operations and/or financial condition.

Our operations may be substantially affected by potential fundamental changes in the political, economic and regulatory landscape of the healthcare industry. Government and private sector initiatives to limit the growth of healthcare costs are continuing in the United States, and in many other countries where we do business, causing the marketplace to put increased emphasis on the delivery of more cost-effective treatments. These initiatives include price regulation, competitive pricing, coverage and payment policies, comparative effectiveness of therapies, technology assessments and managed-care arrangements. Initiatives sponsored by government agencies, legislative bodies and the private sector to limit the growth of healthcare costs, including price regulation and competitive pricing, are ongoing in other markets where we do business.

In March 2010, significant reforms to the U.S. healthcare system were adopted in the form of the Affordable Care Act. The Affordable Care Act includes provisions that, among other things, reduce and/or limit Medicare reimbursement, require all individuals to have health insurance (with limited exceptions), and impose new and/or increased taxes. Specifically, the law requires the medical device industry to subsidize healthcare reform by implementing a 2.3% excise tax on the sale of certain medical devices by a manufacturer, producer or importer of such devices from the sales of medical devices in the United States starting after December 31, 2012. Because the substantial majority of our revenues are generated in the United States, the Affordable Care Act’s excise taxes have affected our financial performance.

More broadly, other provisions of the Affordable Care Act could meaningfully change the way healthcare is developed and delivered in the United States, and may adversely affect our business and results of operations. For example, the Affordable Care Act encourages hospitals and physicians to work collaboratively through shared savings programs, such as accountable care organizations, as well as other bundled payment initiatives, which may ultimately result in the reduction of medical device purchases and the consolidation of medical device suppliers used by hospitals. There are many programs and requirements for which the details have not yet been fully established or consequences not fully understood, and it is unclear what the full impact of the legislation will be. We cannot predict what healthcare programs and regulations will ultimately be implemented at the U.S. federal or state level, or the effect of any future legislation or regulation in the United States or elsewhere. However, any changes that lower reimbursements for our products or reduce medical procedure volumes could have a material and adverse effect on our business, financial condition and results of operations.

There is no guarantee that the FDA will grant 510(k) clearance or premarket approval of our future products, and failure to obtain necessary clearances or approvals for our future products would adversely affect our ability to grow our business.

Some of our new products will require the FDA 510(k) clearance or PMA approval prior to being marketed. The first step in the FDA’s review of a 510(k) or PMA submission is to determine whether the submission is acceptable for review. The FDA recently issued guidance documents intended to explain the procedures and criteria the FDA will use in assessing whether a 510(k) or PMA submission meets a minimum threshold of acceptability and should be accepted for substantive review. Under the “Refuse to Accept” guidance, the FDA conducts an early review against specific acceptance criteria to inform 510(k) and PMA applicants if the submission is administratively complete, or if not, to identify the missing element(s). Applicants are given the opportunity to provide the FDA with the identified information. If the information is not provided within a defined time, the submission will not be accepted for the FDA review.

If a submission is accepted for review, the FDA conducts a comprehensive review of the information and data included in the application. Often, the FDA will require the applicant to submit additional information to support clearance or approval. The FDA may ultimately determine that the information and data in the submission do not support clearance or approval. Significant delays in receiving clearance or approval, or the failure to receive clearance or approval for our new products would have an adverse effect on our ability to expand our business.

 

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Modifications to our products may require new 510(k) clearances, premarket approvals, or revisions to our existing CE Certificates of Conformity, or may require us to cease marketing or recall the modified products until clearances or approvals are obtained.

Any modification to a 510(k)-cleared device that could significantly affect its safety or effectiveness, including significant design and manufacturing changes, or that would constitute a major change in its intended use, design or manufacture, requires a new 510(k) clearance or, possibly, approval of a PMA. Similarly, modifications to PMA approved products may require submission and approval of a supplement PMA application (“PMA supplement”). The FDA requires every manufacturer to make the determination of whether a new 510(k) or PMA supplement is needed in the first instance, but the FDA may review any manufacturer’s decision. The FDA has issued guidance on assessing modifications to 510(k)-cleared and PMA-approved devices to assist manufacturers with making these decisions. Still, the FDA may not agree with our decisions regarding whether new clearances or approvals are necessary. We have modified some of our 510(k)-cleared products, and have determined based on our understanding of the FDA guidance that in certain instances the changes did not require new 510(k) clearances. If the FDA disagrees with our determination and requires us to seek new 510(k) clearances, or PMA approval, for modifications to our previously cleared products for which we have concluded that new clearances were unnecessary, we may be required to cease marketing or distribution of our products, we may need to recall the modified product until we obtain clearance or approval, and we may be subject to significant regulatory fines or penalties.

In the EEA, we must inform the Notified Body that carried out the conformity assessment of the medical devices we market or sell in the EEA of any planned substantial changes to our quality system or changes to our devices which could affect compliance with the Essential Requirements laid down in Annex I to the Medical Devices Directive or the devices’ intended purpose. The Notified Body will then assess the changes and verify whether they affect the products’ conformity with the Essential Requirements laid down in Annex I to the Medical Devices Directive or the conditions for the use of the device. If the assessment is favorable, the Notified Body will issue a new CE Certificate of Conformity or an addendum to the existing CE Certificate of Conformity attesting compliance with the Essential Requirements laid down in Annex I to the Medical Devices Directive. If it is not, we may not be able to continue to market and sell the product in the EEA, which could have a material and adverse effect on our business, results of operations and financial condition.

If the third parties on which we rely to conduct our clinical studies and to assist us with pre-clinical development do not perform as contractually required or expected, we may not be able to obtain regulatory clearance, approval or a CE Certificate of Conformity for or commercialize our products.

We often must rely on third parties, such as contract research organizations, medical institutions, clinical investigators and contract laboratories to assist in conducting our clinical studies. If these third parties do not successfully carry out their contractual duties, comply with applicable regulatory obligations, meet expected deadlines, or if these third parties need to be replaced, or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to clinical protocols or applicable regulatory requirements or for other reasons, our pre-clinical development activities or clinical studies may be extended, delayed, suspended or terminated. Under these circumstances we may not be able to obtain regulatory clearance/approval or a CE Certificate of Conformity for, or successfully commercialize, our products on a timely basis, if at all, and our business, operating results and prospects may be adversely affected.

The results of our clinical studies may not support our product candidate claims or may result in the discovery of adverse effects.

Our ongoing research and development, pre-clinical testing and clinical study activities are subject to extensive regulation and review by numerous governmental authorities both in the United States and abroad. We are currently conducting post-market clinical studies of some of our products to gather information about these products’ performance or optimal use. The data collected from these clinical studies may ultimately be used to support market clearance or approval for these products. Additionally, in the future we may conduct clinical

 

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studies to support clearance or approval of new products. Clinical studies must be conducted in compliance with FDA regulations, local regulations, and according to principles and standards collectively referred to as “Good Clinical Practices.” Non-compliance could result in regulatory and legal enforcement action and also could invalidate the data. Even if our clinical studies are completed as planned, we cannot be certain that their results will support our product candidates and/or proposed claims or that the FDA or foreign authorities and Notified Bodies will agree with our conclusions regarding them. Success in pre-clinical studies and early clinical studies does not ensure that later clinical studies will be successful, and we cannot be sure that the results of the later studies will replicate those of earlier or prior studies. The clinical trial process may fail to demonstrate that our product candidates are safe and effective for the proposed indicated uses, which could cause us to abandon a product candidate and may delay development of others. Any delay or termination of our clinical studies will delay the filing of our product submissions and, ultimately, our ability to commercialize our product candidates and generate revenues. It is also possible that patient subjects enrolled in our clinical studies of our marketed products will experience adverse side effects that are not currently part of the product candidate’s profile and, if so, these findings may result in lower market acceptance, which could have a material and adverse effect on our business, results of operations and financial condition.

Certain of our products contain materials derived from animal sources and may become subject to additional regulation.

Certain of our products contain material derived from bovine tissue. Products that contain materials derived from animal sources, including food, pharmaceuticals and medical devices, are subject to scrutiny in the media and by regulatory authorities. Regulatory authorities are concerned about the potential for the transmission of disease from animals to humans via those materials. This public scrutiny has been particularly acute in Japan and Western Europe with respect to products derived from animal sources, because of concern that materials infected with the agent that causes bovine spongiform encephalopathy (“BSE”), otherwise known as mad cow disease, may, if ingested or implanted, cause a variant of the human Creutzfeldt-Jakob Disease, an ultimately fatal disease with no known cure. Cases of BSE in cattle discovered in Canada and the United States have increased awareness of the issue in North America.

We take care to provide that our products are safe and free of agents that can cause disease. In particular, we obtain our collagen from Integra, which has qualified a source of collagen from a country outside the United States that is considered BSE-free. This collagen is derived only from the deep flexor tendon of cattle less than 24 months old from New Zealand, a country that has never had a reported case of BSE, or from the United States. The World Health Organization classifies different types of cattle tissue for relative risk of BSE transmission. Deep flexor tendon is in the lowest-risk category for BSE transmission (the same category as milk, for example), and is therefore considered to have a negligible risk of containing the agent that causes BSE (an improperly folded protein known as a prion). Nevertheless, products that contain materials derived from animals, including our products, could become subject to additional regulation, or even be banned in certain countries, because of concern over the potential for the transmission of prions. Significant new regulation, or a ban of our products, could have a material and adverse effect on our current business or our ability to expand our business.

Certain countries, such as Japan, China, Taiwan and Argentina, have already issued regulations that require our collagen products be processed from bovine tendon sourced from countries where no cases of BSE have occurred. Integra, our ultimate supplier of collagen raw material pursuant to the Microfibrillar Collagen Supply Agreement, has received approval in the United States, the European Union (“EU”), Japan, Taiwan, China and Argentina as well as other countries for the use of New Zealand-sourced tendon in the manufacturing of our products. If we cannot continue to obtain collagen raw material from a qualified source of tendon from New Zealand or another country that has never had a case of BSE, we will not be permitted to sell our collagen products in certain countries, which could have a material and adverse effect on our business, results of operations and financial condition.

 

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We or our suppliers may be the subject of claims of non-compliance with FDA regulations in connection with the processing, manufacturing or distribution of our proposed allograft bone tissue or other biomaterials products.

Allegations may be made against us or against our suppliers, including donor recovery groups or tissue banks, claiming that the acquisition or processing of biomaterials products does not comply with applicable FDA regulations or other relevant statutes and regulations. Allegations like these could cause regulators or other authorities to investigate or take other action against us or our suppliers, or could cause negative publicity for us or our industry generally. These actions or any negative publicity could cause us to incur substantial costs, divert the attention of our management from our business, harm our reputation, and cause customers to purchase different products, each or all of which could have a material and adverse effect on our business.

Because allograft implants used in our advanced biomaterials program may entail a risk of communicable diseases to human recipients, we may be the subject of product liability claims regarding our allograft implants.

The development of allograft implants and technologies for human tissue repair and treatment may entail particular risk of transmitting diseases to human recipients. Any such transmission could result in the assertion of substantial product liability claims against us. Any successful product liability claims against us could cause us to incur substantial costs, and cause customers to purchase different products, each or all of which could have a material and adverse effect on our business. Successful product liability claims made against one of our competitors could cause claims to be made against us or expose us to a perception that we are vulnerable to similar claims. In addition to the potential material and adverse effect discussed above, claims against us arising out of our advanced biomaterials program, regardless of their merit or potential outcome, may also hurt our reputation and ability to sell our products. If the Company does not have adequate insurance coverage, product liability claims relating to defective products could have an adverse effect on the Company’s ability to successfully market its products and on the Company’s financial condition and results of operations. In addition, even if a product liability claim is not successful or is not fully pursued, the adverse publicity surrounding any assertion that the Company’s products caused illness or injury could have an adverse effect on the Company’s reputation with existing and potential customers and on the Company’s financial condition and results of operations.

Unfavorable media reports or other negative publicity concerning both alleged improper methods of tissue recovery from donors and disease transmission from donated tissue could limit widespread acceptance of some of our advanced biomaterials products.

Unfavorable reports of improper or illegal tissue recovery practices, both in the United States and internationally, as well as incidents of improperly processed tissue leading to the transmission of disease, may broadly affect the rate of future tissue donation and market acceptance of technologies incorporating human tissue. In addition, such negative publicity could cause the families of potential donors to become reluctant to agree to donate tissue to for-profit tissue processors. For example, the media has reported examples of alleged illegal harvesting of body parts from cadavers and resulting recalls conducted by certain companies selling human tissue based products affected by the alleged illegal harvesting. These reports and others could have a negative effect on our tissue regeneration business.

In the EU, certain regulations, if applicable, may differ from one EU member state to the next.

Because of the absence of a harmonized regulatory framework and the proposed regulation for advanced therapy medicinal products in the EU, as well as for other countries, the approval process for human-derived cell or tissue-based medical products could be extensive, lengthy, expensive and unpredictable. Among others, some of our orthobiologics products are subject to EU member states’ regulations that govern the donation, procurement, testing, coding, traceability, processing, preservation, storage and distribution of HCT/Ps. These

 

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EU member states’ regulations include requirements for registration, listing, labeling, adverse-event reporting and inspection and enforcement. Some EU member states have their own tissue banking regulations. Non-compliance with various regulations governing our products in any EU member state could result in the banning of our products in such member state or enforcement actions being brought against us, which could have a material and adverse effect on our business, results of operations and financial condition.

Risks Relating to Our Intellectual Property

Our intellectual property rights may not provide meaningful commercial protection for our products, potentially enabling third parties to use our technology or very similar technology and could reduce our ability to compete in the market.

To compete effectively, we depend, in part, on our ability to maintain the proprietary nature of our technologies and manufacturing processes, which includes the ability to obtain, protect and enforce patents on our technology and to protect our trade secrets. We own or have licensed patents that cover aspects of some of our product lines. Our patents, however, may not provide us with any significant competitive advantage. Others may challenge our patents and, as a result, our patents could be narrowed, invalidated or rendered unenforceable. Competitors may develop products similar to ours that our patents do not cover. In addition, our current and future patent applications may not result in the issuance of patents in the United States or foreign countries. Further, there is a substantial backlog of patent applications at the U.S. Patent and Trademark Office, and the approval or rejection of patent applications may take several years. If we are unable to obtain, protect and enforce patents on our technology and to protect our trade secrets, such inability could have a material and adverse effect on our business, results of operations and financial condition.

Our success will depend partly on our ability to operate without infringing or misappropriating the proprietary rights of others.

We may be sued for infringing the intellectual property rights of others. In addition, we may find it necessary, if threatened, to initiate a lawsuit seeking a declaration from a court that we do not infringe the proprietary rights of others or that their rights are invalid or unenforceable. If we do not prevail in any litigation, in addition to any damages we might have to pay, we would be required to stop the infringing activity (which could include a cessation of selling the products in question) or obtain a license for the proprietary rights involved. Any required license may be unavailable to us on acceptable terms, if at all. In addition, some licenses may be nonexclusive and allow our competitors to access the same technology we license.

If we fail to obtain a required license or are unable to design our products so as not to infringe on the proprietary rights of others, we may be unable to sell some of our products, and this potential inability could have a material and adverse effect on our revenues and profitability.

Our competitive position depends, in part, upon unpatented trade secrets which we may be unable to protect.

Our competitive position also depends upon unpatented trade secrets, which are difficult to protect. We cannot assure you that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets, that our trade secrets will not be disclosed or that we can protect our rights to unpatented trade secrets.

In an effort to protect our trade secrets, we require our employees, consultants and advisors to execute confidentiality and invention assignment agreements upon commencement of employment or consulting relationships with us. These agreements provide that, except in specified circumstances, all confidential information developed or made known to the individual during the course of their relationship with us must be kept confidential. We cannot assure you, however, that these agreements will provide meaningful protection for our trade secrets or other proprietary information in the event of the unauthorized use or disclosure of

 

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confidential information. If we are unable to protect our trade secrets, such inability could have a material and adverse effect on our business, results of operations and financial condition.

We may be involved in lawsuits relating to our intellectual property rights and promotional practices, which may be expensive.

To protect or enforce our intellectual property rights, we may have to initiate or defend legal proceedings, such as infringement suits or opposition proceedings, against or by third parties. In addition, we may have to institute proceedings regarding our competitors’ promotional practices or defend proceedings regarding our promotional practices. Legal proceedings are costly and, even if we prevail, the cost of the legal proceedings could affect our profitability. In addition, litigation is time-consuming and could divert management attention and resources away from our business. Moreover, in response to our claims against other parties, those parties could assert counterclaims against us.

We may be subject to damages resulting from claims that we, our employees, or our independent sales agents or stocking distributors have wrongfully used or disclosed alleged trade secrets of our competitors or are in breach of non-competition or non-solicitation agreements with our competitors.

Many of our employees were previously employed at other medical device companies, including our competitors or potential competitors, in some cases until recently. In addition, many of our independent sales agents and stocking distributors sell, or in the past have sold, products of our competitors. We may be subject to claims that we, our employees, our independent sales agents or stocking distributors have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of these former employers or competitors. In addition, we have been and may in the future be subject to claims that we caused an employee to breach the terms of his or her non-competition or non-solicitation agreement. Litigation may be necessary to defend against these claims, which could result in substantial costs and could be a distraction to management. If our defense to those claims fails, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. There can be no assurance that this type of litigation or the threat thereof may adversely affect our ability to engage and retain additional sales agents or stocking distributors. A loss of key personnel or their work product could hamper or prevent our ability to commercialize product candidates, which could have an adverse effect on our business, results of operations and financial condition.

Risks Relating to the Spin-Off

The separation and distribution may not be completed on the terms or timeline currently contemplated, if at all.

We are actively engaged in planning for the separation and distribution. Unanticipated developments could delay or negatively affect the separation and distribution, including delays related to the filing and effectiveness of appropriate filings with the SEC, acceptance of our common stock for listing by the NASDAQ Global Market, obtaining a favorable tax opinion regarding the tax-free nature of the distribution to Integra and to Integra’s stockholders, completing further due diligence as appropriate, and changes in market conditions, among other things. Integra’s board of directors may also, in its absolute and sole discretion, decide at any time prior to the distribution not to proceed with the separation and distribution. Therefore, the separation and distribution may not be completed on the terms or in accordance with the timeline currently contemplated, if at all. Any delays in the anticipated completion of the separation and distribution may also increase the expenses we or Integra incur in connection with the transaction. Until the consummation of the distribution, Integra’s board of directors will have the sole and absolute discretion to determine and change the terms of the separation and distribution, including the establishment of the record date and distribution date.

 

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The separation and distribution require significant time and attention of our management and may distract our employees which could have an adverse effect on us.

Execution of the separation and distribution will require significant time and attention from management, which may distract management from the operation of our business and the execution of our other initiatives. Employees may also be distracted because of uncertainty about their future roles with Integra or SeaSpine, as applicable, pending the completion of the distribution. Any such difficulties could have a material and adverse effect on our financial condition, results of operations or cash flows.

Our ability to meet our capital needs may be harmed by the loss of financial support from Integra.

The loss of financial support from Integra could harm our ability to meet our capital needs. Following the spin-off, we expect that our cash, due to the cash contribution from Integra, will be approximately $47 million and that we will be able to borrow additional funds as a result of the credit facility that we are currently negotiating and expect to enter into shortly following the distribution, and we expect to obtain any funds needed in excess of the amounts generated by our operating activities through the debt and equity capital markets or additional bank financing, and not from Integra. However, given the smaller relative size of SeaSpine after the spin-off as compared to Integra, we may incur higher debt servicing and other costs than we would have otherwise incurred as a part of Integra. Further, there can be no assurances that we will be able to obtain capital market financing or additional credit on favorable terms, or at all, in the future. If we are unable to generate sufficient cash from operations or obtain adequate additional financing on commercially reasonable terms, on a timely basis or at all, our ability to invest in our business or fund our business strategy may be limited and may materially and adversely affect our ability to compete effectively in our markets.

We may be unable to achieve some or all of the benefits that we expect to achieve as an independent, publicly traded company.

By separating from Integra, we may be more susceptible to securities market fluctuations and other adverse events than we would have otherwise encountered as part of Integra. In addition, we may not be able to achieve some or all of the benefits that we expect to achieve as an independent, publicly traded company in the time in which we expect to do so, if at all. For example, the process of operating as a newly independent, public company may distract our management team from focusing on our business and strategic priorities. If we do not realize the anticipated benefits from the spin-off for any reason, our business may be adversely affected.

We may have difficulty operating as an independent, publicly traded company.

As an independent, publicly traded company, we believe that our business will benefit from, among other things, providing direct access to equity capital and a tailored capital structure, allowing us to better focus our financial and operational resources on our specific business, allowing our management to design and implement corporate strategies and policies that are based primarily on the business characteristics and strategic decisions of our business, allowing us to more effectively respond to industry dynamics and allowing the creation of effective incentives for our management and employees that are more closely tied to our business performance. However, we may not be able to achieve some or all of the benefits that we believe we can achieve as an independent company in the time we currently expect, if at all. Because our business has previously operated as part of the larger Integra organization, we may not be able to successfully implement the changes necessary to operate independently and may incur additional costs that could adversely affect our business.

We may be unable to transfer our spinal fusion hardware distribution operations from Cincinnati, Ohio to our Vista, California facility and, once transferred, we may be unable to integrate such distribution capabilities into our Vista, California facility.

Historically, we have distributed certain of our spinal fusion hardware products out of Integra’s Cincinnati, Ohio facility. Upon completion of the separation, we intend to have completed the transfer of this operation to

 

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our Vista, California facility, where the remainder of our spinal fusion hardware products are distributed. If we are unable to timely complete this transfer or, if once complete, we are unable to appropriately integrate such distribution operation into our Vista, California facility, our shipping and sales activities could be disrupted. Any such disruption could have a material and adverse effect on our business, results of operations and financial condition.

We may incur material costs, including information technology costs, and expenses as a result of our separation from Integra, which could adversely affect our profitability.

As a result of our separation from Integra, we may incur costs and expenses greater than those we currently incur. These increased costs and expenses may arise from various factors, including financial reporting, accounting and audit services, insurance, costs associated with information technology systems, complying with federal securities laws (including compliance with the Sarbanes-Oxley Act) and legal and human resources-related functions. Although Integra will continue to provide certain of these services to us under the Transition Services Agreement, this arrangement may not capture all the benefits our business has enjoyed as a result of being integrated with Integra. In addition, such services are for a limited period of time, and we will be required to establish the necessary infrastructure and systems to supply these services on an ongoing basis. We cannot assure you that these costs will not be material to our business.

In addition, there are services that Integra may not continue to provide for us following the separation. For example, following the separation, we expect that we will be operating on our own ERP system separate from Integra. To the extent that we are unable to implement our separate ERP system prior to the separation, or our ERP system does not work as effectively as Integra’s ERP system, we may incur material costs associated with implementing and repairing our ERP system. Furthermore, we may have to seek a solution which involves Integra’s providing us with access to its ERP system on a transitional basis, which may result in material costs to our business.

The combined post-distribution value of our common stock and Integra common stock following completion of the distribution may not equal or exceed the pre-distribution value of Integra common stock.

After the distribution, we expect that our common stock will be listed and traded on the NASDAQ Global Market under the symbol “SPNE.” Integra common stock will continue to be listed and traded on the NASDAQ Global Select Market. The combined trading price of our common stock and Integra common stock after the distribution, as adjusted for any changes in our capitalization or in the capitalization of Integra, could be lower than the trading price of Integra common stock prior to the distribution. The prices at which our common stock and Integra common stock trade may fluctuate significantly, depending upon a number of factors, many of which may be beyond our and Integra’s control. Further, shares of our common stock and Integra common stock will represent an investment in two smaller separate public companies. These changes may not meet some stockholders’ investment strategies or requirements, which could cause investors to sell their shares of our common stock or Integra’s common stock. Excessive selling could cause the relative market price of our common stock or Integra common stock to decrease following completion of the distribution.

Our historical financial information may not be representative of the results we would have achieved as a stand-alone public company during the periods presented and may not be a reliable indicator of our future results.

The historical financial data that we have included in this Information Statement may not necessarily reflect what our financial position, results of operations or cash flows would have been had we been an independent entity during the periods presented or those that we will achieve in the future. The costs and expenses reflected in our historical financial data include an allocation for certain corporate functions historically provided by Integra, including shared services and infrastructure provided by Integra to us, such as costs of information technology, including the costs of a multi-year global ERP implementation, accounting and legal services, real estate and

 

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facilities, corporate advertising, insurance services and related treasury, and other corporate and infrastructure services that may be different from the comparable expenses that we would have incurred had we operated as a stand-alone company. Our historical financial data does not reflect changes that will occur in our cost structure and operations as a result of our transition to becoming a stand-alone public company, including changes in our employee base, potential increased costs associated with reduced economies of scale and increased costs associated with SEC reporting and requirements. Accordingly, the historical financial data presented in this Information Statement should not be assumed to be indicative of what our financial condition or results of operations actually would have been as an independent, publicly traded company or to be a reliable indicator of what our financial condition or results of operations actually could be in the future.

If the separation and distribution are completed, our operational and financial profile will change and we will be a smaller, less diversified company than Integra was prior to the distribution and we may not enjoy the same benefits that we did as part of Integra.

If the separation and distribution are completed, we will be a smaller, less diversified company focused on the orthobiologics and spinal fusion hardware business, which represents a narrower business focus than Integra currently has. By separating from Integra, we may become more susceptible to market fluctuations and other adverse events than we would have been if we were still a part of the current Integra organizational structure, which could materially and adversely affect our business, financial condition and results of operations. As part of Integra, we have been able to enjoy certain benefits from Integra’s operating diversity and readily available capital to fund investments, as well as opportunities to pursue integrated strategies with Integra’s other businesses. As an independent, publicly traded company, we will not have similar diversity, available capital or integration opportunities and may not have similar access to debt and equity capital markets. In addition, we currently share economies of scope and scale with Integra with respect to certain costs and supplier relationships, and take advantage of Integra’s size and purchasing power in procuring certain products and services, such as insurance and healthcare benefits, and technology, such as computer software licenses. After the separation, as a separate, independent entity, we may be unable to obtain these products, services and technologies at prices or on terms as favorable to us as those we obtained prior to the separation.

Following the separation, we will rely on Integra’s performance under various agreements and we and Integra will continue to be dependent on each other for certain support services for each respective business.

We expect to enter into or have entered into various agreements with Integra in connection with the separation, including the Separation Agreement, Transition Services Agreement, Tax Matters Agreement, Employee Matters Agreement and the Supply Agreements. These agreements will govern our relationship with Integra subsequent to the separation. If Integra were to fail to fulfill its obligations under these agreements, we could suffer operational difficulties or significant losses.

If we are required to indemnify Integra for certain liabilities and related losses arising in connection with any of these agreements, or if Integra is required to indemnify us for certain liabilities and related losses arising in connection with any of these agreements and Integra does not fulfill its obligations to us, we may be subject to substantial liabilities, which could materially adversely affect our financial position.

Additionally, although Integra will be contractually obligated to provide us with certain services during the term of the Transition Services Agreement, we cannot assure you that these services will be performed as efficiently or proficiently as they were prior to the separation. The Transition Services Agreement also contains provisions that may be more favorable than terms and provisions we might have obtained in arm’s length negotiations with unaffiliated third parties. When Integra ceases to provide services pursuant to the Transition Services Agreement, our costs of procuring those services from third parties may increase. In addition, we may not be able to replace these services in a timely manner or enter into appropriate third-party agreements on terms and conditions, including cost, comparable to those under the Transition Services Agreement. To the extent that we require additional support from Integra not addressed in the Transition Services Agreement, we would need to

 

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negotiate the terms of receiving such support in future agreements. See “Certain Relationships and Related Party Transactions—Agreements between Integra and SeaSpine Relating to the Separation.”

Our ability to operate our business may suffer if we do not, quickly and effectively, establish our own financial, administrative, accounting and other support functions in order to operate as a separate, stand-alone company, and we cannot assure you that the support services Integra has agreed to provide us will be sufficient for our needs.

Historically, we have relied on financial, administrative, accounting and other resources of Integra to support the operation of our business. In conjunction with our separation from Integra, we will need to expand our financial, administrative, accounting, and other support systems or contract with third parties to replace certain systems that were previously provided by Integra. We will also need to maintain our own credit and banking relationships and perform our own financial and operational functions. We cannot assure you that we will be able to successfully put in place the financial, operational and managerial resources necessary to operate as a public company or that we will be able to be profitable doing so. Any failure or significant downtime in our financial or administrative systems could affect our results or prevent us from performing other administrative services and financial reporting on a timely basis and could materially harm our business, financial condition and results of operations.

If the internal distribution or the distribution does not qualify as a transaction that is tax-free for U.S. federal income tax purposes, we, Integra and our stockholders could be subject to significant tax liability and, in certain circumstances, we could be required to indemnify Integra for material taxes pursuant to indemnification obligations under the Tax Matters Agreement.

If the internal distribution or the distribution is determined to be taxable for U.S. federal income tax purposes, then we, Integra and/or our stockholders could be subject to significant tax liability. Integra expects to receive an opinion from the law firm of Latham & Watkins LLP substantially to the effect that for U.S. federal income tax purposes, (i) the internal distribution will constitute a reorganization under Sections 355 and 368(a)(1)(D) of the Code and (ii) the cash contribution, together with the distribution, will constitute a reorganization under Sections 355 and 368(a)(1)(D) of the Code.

Based on this tax treatment, no material gain or loss will be recognized by Integra with respect to the internal distribution, the cash contribution and the distribution and, except with respect to cash received in lieu of a fractional share of SeaSpine common stock, no gain or loss will be recognized by you, and no amount will be included in your income, upon the receipt of shares of SeaSpine common stock in the distribution. You will recognize gain or loss for U.S. federal income tax purposes with respect to cash received in lieu of a fractional share of SeaSpine common stock.

Notwithstanding the opinion, the U.S. Internal Revenue Service (the “IRS”) could determine on audit that the internal distribution, the cash contribution and the distribution should be treated as taxable transactions if it determines that any of the facts, assumptions, representations or undertakings we or Integra have made is not correct or has been violated, or that the internal distribution, the cash contribution and the distribution should be taxable for other reasons, including as a result of a significant change in stock or asset ownership after the distribution. If the distribution ultimately is determined to be taxable, the distribution could be treated as a taxable dividend or capital gain to you for U.S. federal income tax purposes, and you could incur significant U.S. federal income tax liabilities. In addition, Integra would recognize gain in an amount equal to the excess of the fair market value of shares of our common stock distributed to Integra stockholders on the distribution date over Integra’s tax basis in such shares of our common stock. Moreover, Integra could incur significant U.S. federal income tax liabilities if it is ultimately determined that the internal distribution does not qualify as a transaction that is tax-free for U.S. federal income tax purposes.

Under the terms of the Tax Matters Agreement that we intend to enter into with Integra in connection with the distribution, if the internal distribution or the distribution were determined to be taxable, we may be

 

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responsible for all taxes imposed on Integra as a result thereof if such determination was the result of actions taken after the distribution by or in respect of us, any of our affiliates or our stockholders. Our obligations under the Tax Matters Agreement are not limited in amount or subject to any cap. Further, even if we are not responsible for tax liabilities of Integra and its subsidiaries under the Tax Matters Agreement, we nonetheless could be liable under applicable tax law for such liabilities if Integra were to fail to pay them. If we are required to pay any liabilities under the circumstances set forth in the Tax Matters Agreement or pursuant to applicable tax law, the amounts may be significant. For a more detailed discussion, see “Certain Relationships and Related Party Transactions—Agreements between Integra and SeaSpine Relating to the Separation” included elsewhere in this Information Statement.

We might not be able to engage in desirable strategic transactions and equity issuances following the distribution because of certain restrictions relating to requirements for tax-free distributions.

Our ability to engage in significant equity transactions could be limited or restricted after the distribution in order to preserve, for U.S. federal income tax purposes, the tax-free nature of the internal distribution and the distribution. Even if the internal distribution and the distribution otherwise qualify for tax-free treatment under Section 355 of the Code, they may result in corporate-level taxable gain to Integra under Section 355(e) of the Code if there is a 50% or greater change in ownership, by vote or value, of shares of our stock or Integra’s stock occurring as part of a plan or series of related transactions that includes the internal distribution or the distribution. Any acquisitions or issuances of our stock or Integra’s stock within two years after the distribution are generally presumed to be part of such a plan, although we or Integra may be able to rebut that presumption.

Under the Tax Matters Agreement that we intend to enter into with Integra, we will be prohibited from taking or failing to take any action that prevents the internal distribution or the distribution from being tax-free. Further, during the two-year period following the distribution, without obtaining the consent of Integra, a private letter ruling from the IRS or an unqualified opinion of a nationally recognized law firm, we may be prohibited from taking certain specified actions that could affect the treatment of the internal distribution or the distribution.

These restrictions may limit our ability to pursue strategic transactions or engage in new business or other transactions that may maximize the value of our business. Moreover, the Tax Matters Agreement also may provide that we are responsible for any taxes imposed on Integra or any of its affiliates as a result of the failure of the internal distribution or the distribution to qualify for favorable treatment under the Code if such failure is attributable to certain actions taken after the distribution by or in respect of us, any of our affiliates or our stockholders. See “The Spin-Off—Material U.S. Federal Income Tax Consequences” included elsewhere in this Information Statement for more detail.

We will be subject to continuing contingent liabilities of Integra following the separation.

After the separation, there will be several significant areas where the liabilities of Integra may become our obligations. For example, under the Code and the related rules and regulations, each corporation that was a member of the Integra consolidated U.S. federal income tax reporting group during any taxable period or portion of any taxable period ending on or before the effective time of the distribution is jointly and severally liable for the U.S. federal income tax liability of the entire Integra consolidated tax reporting group for that taxable period. In addition, in connection with the separation, we intend to enter into the Tax Matters Agreement with Integra that will allocate the responsibility for prior period taxes of the Integra consolidated tax reporting group between us and Integra. Pursuant to this allocation, we may be responsible for taxes that we would not have otherwise incurred, or that we would have incurred but in different amounts and/or at different times, on a standalone basis outside of the Integra consolidated group, and the amount of such taxes could be significant. See “Certain Relationships and Related Party Transactions—Agreements between Integra and SeaSpine Relating to the Separation” included elsewhere in this Information Statement for more detail. However, if Integra is unable to pay any prior period taxes for which it is responsible, we could be required to pay the entire amount of such taxes.

 

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SeaSpine has overlapping board membership with Integra, which may lead to conflicting interests, and one of our directors continues to own a substantial amount of Integra common stock and equity awards covering Integra stock.

As a result of the spin-off, some of our board members will also serve as board members of Integra. Neither we nor Integra will have any ownership interest in the other; however, our directors who are members of Integra’s board of directors have fiduciary duties to Integra’s stockholders, as well as fiduciary duties to our stockholders. Therefore, such persons may have conflicts of interest or the appearance of conflicts of interest with respect to matters involving or affecting more than one of the companies to which they owe fiduciary duties. In addition, a number of our directors and officers will continue to own Integra common stock (in at least one case, a substantial amount), as well as, in some cases, equity awards covering Integra stock. The direct interests of our directors and officers and related entities in common stock of Integra could create, or appear to create, potential conflicts of interest with respect to matters involving both Integra and us that could have different implications for Integra than they do for us.

As a result of the foregoing, there may be the potential for a conflict of interest when SeaSpine or Integra consider acquisitions and other corporate opportunities that may be suitable for each of them. In addition, potential conflicts of interest could arise in connection with the resolution of any dispute that may arise between Integra and us regarding the terms of the agreements governing the internal reorganization, the separation, the distribution and the relationship thereafter between the companies, including with respect to the indemnification of certain matters. From time to time, we may enter into transactions with Integra and/or its subsidiaries or other affiliates. There can be no assurance that the terms of any such transactions will be as favorable to SeaSpine, Integra or any of our or their subsidiaries or affiliates as would be the case where there is no overlapping officer or director or ownership of both companies. See “Certain Relationships and Related Party Transactions—Policies and Procedures for Related Party Transactions” below for a discussion of certain procedures we will institute to address any such potential conflicts that may arise.

Potential indemnification obligations to Integra pursuant to the Separation Agreement could materially and adversely affect SeaSpine.

Among other things, the Separation Agreement provides for indemnification obligations designed to make SeaSpine financially responsible for substantially all of the liabilities that may exist relating to our business activities, whether incurred prior to or after the spin-off. If we are required to indemnify Integra under the circumstances set forth in the Separation Agreement, we may be subject to substantial liabilities.

The spin-off may expose us to potential liabilities arising out of state and federal fraudulent conveyance laws and legal dividend requirements.

The internal spin-off and the distribution are subject to review under various state and federal fraudulent conveyance laws. Fraudulent conveyance laws generally provide that an entity engages in a constructive fraudulent conveyance when (i) the entity transfers assets and does not receive fair consideration or reasonably equivalent value in return; and (ii) the entity: (a) is insolvent at the time of the transfer or is rendered insolvent by the transfer; (b) has unreasonably small capital with which to carry on its business; or (c) intends to incur or believes it will incur debts beyond its ability to repay its debts as they mature. An unpaid creditor or an entity acting on behalf of a creditor (including without limitation a trustee or debtor-in-possession in a bankruptcy by us or Integra or any of our respective subsidiaries) may bring an action alleging that the distribution or any of the related transactions constituted a constructive fraudulent conveyance. If a court accepts these allegations, it could impose a number of remedies, including without limitation, voiding our claims against Integra, requiring our stockholders to return to Integra some or all of the shares of our common stock issued in the distribution, or providing Integra with a claim for money damages against us in an amount equal to the difference between the consideration received by Integra and our fair market value at the time of the internal spin-off or distribution.

The measure of insolvency for purposes of the fraudulent conveyance laws will vary depending on which jurisdiction’s law is applied. Generally, an entity would be considered insolvent if (i) the present fair saleable

 

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value of its assets is less than the amount of its liabilities (including contingent liabilities); (ii) the present fair saleable value of its assets is less than its probable liabilities on its debts as such debts become absolute and matured; (iii) it cannot pay its debts and other liabilities (including contingent liabilities and other commitments) as they mature; or (iv) it has unreasonably small capital for the business in which it is engaged. We cannot assure you what standard a court would apply to determine insolvency or that a court would determine that we, Integra or any of our respective subsidiaries were solvent at the time of or after giving effect to the distribution.

The internal spin-off and distribution of our common stock is also subject to review under state corporate distribution statutes. Under the DGCL, a corporation may only pay dividends to its stockholders either (i) out of its surplus (net assets minus capital) or (ii) if there is no such surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. Although Integra intends to make the distribution of our common stock entirely from surplus, we cannot assure you that a court will not later determine that some or all of the internal spin-off or distribution to Integra stockholders was unlawful.

Risks Relating to Owning Our Common Stock

An active, liquid and orderly market for our common stock may not develop or be sustained, and the trading price of our common stock is likely to be volatile.

Prior to the separation, there has been no public market for shares of our common stock. It is anticipated that shortly prior to the record date for the distribution of our common stock, trading of shares of our common stock would begin on a “when-issued” basis and such trading would continue up to and including the distribution date. However, an active trading market for our common stock may not develop or be sustained, which could depress the market price of our common stock and could affect your ability to sell your shares. The trading price of our common stock following the distribution is likely to be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. In addition to the factors discussed in this “Risk Factors” section and elsewhere in this Information Statement, these factors include:

 

    actual or anticipated fluctuations in our quarterly financial condition and operating performance;

 

    the operating and stock price performance of similar companies;

 

    a shift in our investor base;

 

    introduction of new services by us or our competitors;

 

    success or failure of our business strategy;

 

    our ability to obtain financing as needed;

 

    changes in accounting standards, policies, guidance, interpretations or principles;

 

    the overall performance of the equity markets;

 

    the number of shares of our common stock publicly owned and available for trading;

 

    threatened or actual litigation or governmental investigations;

 

    changes in laws or regulations affecting our business, including tax legislation;

 

    announcements by us or our competitors of significant acquisitions or dispositions;

 

    any major change in our board of directors or management;

 

    changes in earnings estimates by securities analysts or our ability to meet earnings guidance;

 

    publication of research reports about us or our industry or changes in recommendations or withdrawal of research coverage by securities analysts;

 

    large volumes of sales of our shares of common stock by existing stockholders;

 

    investor perception of us and our industry; and

 

    general political and economic conditions, and other external factors.

 

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In addition, the stock market in general, and the market for medical device companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. These fluctuations could be even more pronounced in the trading market for our stock shortly following the distribution. This could limit or prevent investors from readily selling their shares of common stock and may otherwise negatively affect the liquidity of our common stock. Securities class action litigation has often been instituted against companies following periods of volatility in the overall market and in the market price of a company’s securities. This litigation, if instituted against us, could result in very substantial costs, divert our management’s attention and resources, and harm our business, financial condition and results of operation.

Your percentage of ownership in us may be diluted in the future.

As with any publicly traded company, your percentage ownership in us may be diluted in the future because of equity issuances for acquisitions, capital market transactions or otherwise, including equity awards that we expect will be granted to our directors, officers and employees.

The large number of shares eligible for public sale could depress the market price of our common stock.

The shares of our common stock that Integra will distribute to its stockholders in the distribution generally may be sold immediately in the public market. Integra stockholders could sell our common stock received in the distribution if we do not fit their investment objectives, such as minimum market capitalization requirements or specific business sector focus requirements, or, in the case of index funds, if we are not part of the index in which they invest. The market price of our common stock could decline as a result of sales of a large number of shares of our common stock in the market after the distribution, and the perception that these sales could occur may also depress the market price of our common stock. A decline in the price of shares of our common stock might impede our ability to raise capital through the issuance of additional shares of our common stock or other equity securities.

We also may issue our shares of common stock from time to time as consideration for future acquisitions and investments. If any such acquisition or investment is significant, the number of shares that we may issue may in turn be significant. In addition, we may also grant registration rights covering those shares in connection with any such acquisitions and investments.

We are an “emerging growth company” and we cannot be certain if the reduced disclosure requirements applicable to “emerging growth companies” will make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions and relief from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” In particular, while we are an “emerging growth company” (1) we will not be required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, (2) we will be exempt from any rules that may be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotations or a supplement to the auditor’s report on financial statements, (3) we will be subject to reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and (4) we will not be required to hold nonbinding advisory votes on executive compensation or stockholder approval of any golden parachute payments not previously approved.

In addition, we are eligible to delay the adoption of new or revised accounting standards applicable to public companies until those standards apply to private companies, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. As a result of this election, our financial statements may not be comparable to the financial statements of other public companies.

 

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We also currently intend to take advantage of the reduced disclosure requirements regarding executive compensation. If we remain an “emerging growth company” after fiscal 2015, we may take advantage of other exemptions, including the exemptions from the advisory vote requirements and executive compensation disclosures under the Dodd-Frank Wall Street Reform and Customer Protection Act, and the exemption from the provisions of Section 404(b) of the Sarbanes-Oxley Act. We may remain an “emerging growth company” until as late as December 31, 2020 (the fiscal year-end following the fifth anniversary of the completion of the spin-off), though we may cease to be an “emerging growth company” earlier under certain circumstances, including (1) if the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of any June 30, in which case we would cease to be an “emerging growth company” as of the following December 31, (2) if our gross revenue exceeds $1.0 billion in any fiscal year or (3) if we issue more than $1.0 billion in nonconvertible notes in any three-year period.

The exact implications of the JOBS Act are still subject to interpretations and guidance by the SEC and other regulatory agencies, and we cannot assure you that we will be able to take advantage of all of the benefits of the JOBS Act. In addition, investors may find our common stock less attractive if we rely on the exemptions and relief granted by the JOBS Act. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may decline and/or become more volatile.

As a result of becoming a public company, we will be obligated to develop and maintain proper and effective internal control over financial reporting and will be subject to other requirements that will be burdensome and costly.

We have historically operated our business as part of a larger public company. Following consummation of the spin-off, we will be required to file with the SEC annual, quarterly and current reports that are specified in Section 13 of the Exchange Act. We will also be required to ensure that we have the ability to prepare financial statements that are fully compliant with all SEC reporting requirements on a timely basis. In addition, we will become subject to other reporting and corporate governance requirements, including the requirements of the NASDAQ Global Market, and certain provisions of the Sarbanes-Oxley Act and the regulations promulgated thereunder, which will impose significant compliance obligations upon us. As a public company, we will be required to:

 

    prepare and distribute periodic public reports and other stockholder communications in compliance with our obligations under the federal securities laws and the listing rules of the NASDAQ Stock Market (“the NASDAQ Listing Rules”);

 

    create or expand the roles and duties of our board of directors and committees of the board of directors;

 

    institute more comprehensive financial reporting and disclosure compliance functions;

 

    supplement our internal accounting and auditing function, including hiring additional staff with expertise in accounting and financial reporting for a public company;

 

    establish formal closing procedures at the end of our accounting periods;

 

    develop our investor relations function;

 

    establish new internal policies, including those relating to disclosure controls and procedures; and

 

    involve and retain to a greater degree outside counsel and accountants in the activities listed above.

We expect to devote significant resources and time to comply with the internal control over financial reporting requirements of the Sarbanes-Oxley Act, including costs associated with auditing and legal fees and accounting and administrative staff. In addition, Section 404(a) under the Sarbanes-Oxley Act requires that we assess the effectiveness of our controls over financial reporting. Our future compliance with the annual internal control report requirement will depend on the effectiveness of our financial reporting and data systems and

 

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controls across our operating subsidiaries. We cannot be certain that these measures will ensure that we design, implement and maintain adequate controls over our financial processes and reporting in the future. Any failure to implement required new or improved controls, or difficulties encountered in their implementation or operation, could harm our operating results, cause us to fail to meet our financial reporting obligations, or cause us to suffer adverse regulatory consequences or violate applicable stock exchange listing rules. Inadequate internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock and our access to capital.

Because we are an “emerging growth company” under the JOBS Act, we will not be required to comply with Section 404(b) of the Sarbanes-Oxley Act, which would require our independent auditors to issue an opinion on their audit of our internal control over financial reporting, until the later of the year following our first annual report required to be filed with the SEC and the date we are no longer an “emerging growth company.” For as long as we are an “emerging growth company,” we will be exempt from certain reporting requirements, including those relating to accounting standards and disclosure about our executive compensation, that apply to other public companies, and we cannot be certain if the reduced reporting requirements applicable to “emerging growth companies” will make our common stock less attractive to investors above. If, once we are no longer an “emerging growth company,” our independent registered public accounting firm cannot provide an unqualified attestation report on the effectiveness of our internal control over financial reporting, investor confidence and, in turn, the market price of our common stock, could decline.

We may issue preferred stock with terms that could dilute the voting power or reduce the value of our common stock.

While we have no specific plan to issue preferred stock, our amended and restated certificate of incorporation authorizes us to issue, without the approval of our stockholders, one or more series of preferred stock having such designation, powers, privileges, preferences, including preferences over our common stock respecting dividends and distributions, terms of redemption and relative participation, optional, or other rights, if any, of the shares of each such series of preferred stock and any qualifications, limitations or restrictions thereof, as our board of directors may determine. The terms of one or more series of preferred stock could dilute the voting power or reduce the value of our common stock. For example, the repurchase or redemption rights or liquidation preferences we could assign to holders of preferred stock could affect the residual value of the common stock. For a more detailed description, see “Description of SeaSpine Capital Stock—Preferred Stock.”

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish research on SeaSpine. If no securities or industry analysts commence coverage of SeaSpine, the trading price for our stock would likely be negatively affected. If securities or industry analysts were to initiate coverage, if one or more of the analysts who cover us were to downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts were to cease coverage of SeaSpine or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.

We do not anticipate paying cash dividends, and accordingly, stockholders must rely on stock appreciation for any return on their investment.

We do not anticipate paying cash dividends in the future. As a result, only appreciation of the price of our common stock, which may never occur, will provide a return to stockholders. Investors seeking cash dividends should not invest in our common stock.

 

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Certain provisions in our charter documents and Delaware law could discourage takeover attempts and lead to management entrenchment and, therefore, may depress the trading price of our common stock.

Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could have the effect of delaying or preventing changes in control or changes in our management without the consent of our board of directors, including, among other things:

 

    a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of our board of directors;

 

    no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;

 

    the ability of our board of directors to determine to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;

 

    the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;

 

    limitations on the removal of directors;

 

    a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;

 

    the requirement that a special meeting of stockholders may be called only by the chairman of our board of directors, the chief executive officer, the president (in absence of a chief executive officer) or our board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors;

 

    the requirement for the affirmative vote of holders of at least 66  2 3 % of the voting power of all of the then outstanding shares of the voting stock, voting together as a single class, to amend the provisions of our amended and restated certificate of incorporation relating to the issuance of preferred stock and management of our business or our amended and restated bylaws, which may inhibit the ability of an acquirer from amending our amended and restated certificate of incorporation or amended and restated bylaws to facilitate a hostile acquisition;

 

    the ability of our board of directors, by majority vote, to amend the amended and restated bylaws, which may allow our board of directors to take additional actions to prevent a hostile acquisition and inhibit the ability of an acquirer from amending the amended and restated bylaws to facilitate a hostile acquisition; and

 

    advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us.

We believe that these provisions should protect our stockholders from coercive or harmful takeover tactics by requiring potential acquirers to negotiate with our board of directors and by providing our board of directors with adequate time to assess any acquisition proposal, and are not intended to make SeaSpine immune from takeovers. These provisions in our amended and restated certificate of incorporation and amended and restated bylaws may discourage, delay or prevent a transaction involving a change in control of SeaSpine that is in the best interest of our stockholders. Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common stock if they are viewed as discouraging future takeover attempts.

 

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We are also subject to certain anti-takeover provisions under the DGCL. Under the DGCL, a corporation may not, in general, engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other things, our board of directors has approved the transaction.

Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.

Our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf; (ii) any action asserting a claim of breach of fiduciary duty owed by any of our directors, officers or other employees or our stockholders; (iii) any action asserting a claim arising pursuant to any provision of the DGCL or our amended and restated certificate of incorporation or amended and restated bylaws; or (iv) any action asserting a claim governed by the internal affairs doctrine. Our amended and restated certificate of incorporation further provides that any person or entity purchasing or acquiring any interest in shares of our capital stock shall be deemed to have notice of and to have consented to the provisions described above. This forum selection provision in our amended and restated certificate of incorporation may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Information Statement, including the sections entitled “Information Statement Summary,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business” contains forward-looking statements. All statements other than statements of historical facts contained in this Information Statement, including statements regarding our future results of operations and financial position, business strategy and plans and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our expected future financial results and our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, cash flows, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Risk Factors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Information Statement may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Such risks or uncertainties may also give rise to future claims and increase exposure to contingent liabilities. These risks and uncertainties arise from (among other factors) the following:

 

    general economic and business conditions, both nationally and in our international markets;

 

    our expectations and estimates concerning future financial performance, financing plans and the impact of competition;

 

    anticipated trends in our business, including healthcare reform in the United States, increased pricing pressure from our competitors or hospitals and changes in third-party payment systems;

 

    physicians’ willingness to adopt our recently launched and planned products, customers’ continued willingness to pay for our products and third-party payors’ willingness to provide or continue reimbursement for any of our products and our ability to secure regulatory approval for products in development;

 

    existing and future regulations affecting our business, both in the United States and internationally, and enforcement of those regulations;

 

    anticipated demand for our products and our ability to produce our products in sufficient quantities to meet sales demands;

 

    our ability to maintain and expand our marketing and sales networks;

 

    our ability to successfully develop new products;

 

    our ability to support the safety and efficacy of our products with long-term clinical data;

 

    our ability to obtain additional debt and equity financing to fund capital expenditures and working capital requirements and acquisitions;

 

    our dependence on a limited number of third-party suppliers for components and raw materials;

 

    our ability to protect our intellectual property, including unpatented trade secrets, and to operate without infringing or misappropriating the proprietary rights of others;

 

    our ability to complete acquisitions, integrate operations post-acquisition and maintain relationships with customers of acquired entities;

 

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    consummation of the separation and distribution and our operation as a separate public company post-distribution; and

 

    other risk factors described in the section entitled “Risk Factors” in this report.

These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this Information Statement.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Information Statement to conform these statements to actual results or to changes in our expectations.

You should read this Information Statement and the documents that we reference in this Information Statement and have filed with the SEC as exhibits to the Registration Statement on Form 10 of which this Information Statement is a part with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.

 

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THE SPIN-OFF

General

The board of directors of Integra, our indirect parent company, has authorized the announcement of a plan to spin off SeaSpine as an independent, publicly traded company, to be accomplished by means of a pro rata dividend of all of our common stock to Integra’s stockholders as of the record date. Following the spin-off, Integra will no longer own any equity interest in us, and we will operate as an independent, publicly traded company. We have applied to list our common stock on the NASDAQ Global Market under the symbol “SPNE.”

We were incorporated as a Delaware corporation on February 12, 2015. We currently do not have any material assets or liabilities, nor do we engage in any business or other activities and, other than in connection with and in anticipation of the spin-off, will not acquire or incur any material assets or liabilities, nor will we separately engage in any business or other activities, in each case prior to the spin-off. The domestic and international operations associated with Integra’s orthobiologics and spinal fusion hardware businesses have historically been conducted primarily through SeaSpine, Inc., Theken Spine, LLC and IsoTis and its subsidiaries. In addition, certain of our sales and distribution activities have been conducted through Integra LifeSciences Sales LLC. In connection with and prior to the spin-off, Integra will contribute or otherwise convey to SeaSpine Orthopedics Corporation, among other things, all of the outstanding equity interests in SeaSpine, Inc., Theken Spine, LLC and IsoTis, and certain of the assets of Integra LifeSciences Sales LLC related to the orthobiologics and spinal fusion hardware businesses. Then, in the contribution, the stock of SeaSpine Orthopedics Corporation will be contributed to us. After the spin-off, Integra will continue to own and operate its orthopedic and tissue technologies and specialty surgical solutions businesses as a separate and independent, publicly traded company.

We currently have one class of authorized common stock. All of our issued and outstanding common stock is owned by Integra LifeSciences Corporation, a direct, wholly owned subsidiary of Integra and no shares of preferred stock are outstanding. All shares of our common stock currently outstanding are fully paid and non-assessable, not subject to redemption and without preemptive or other rights to subscribe for or purchase any proportionate part of any new or additional issues of stock or securities. We expect approximately              million shares of our common stock will be distributed in the spin-off based on the number of shares of Integra common stock we expect to be outstanding on the record date.

On                     , 2015, the distribution date, each stockholder holding shares of Integra common stock that were outstanding as of              p.m., New York City time, on                     , 2015, the record date, will be entitled to receive, in respect of              shares of Integra common stock, one share of SeaSpine common stock, as described below. Immediately following the distribution, Integra’s stockholders will own 100% of the outstanding common stock of SeaSpine, and Integra will not hold any of our outstanding capital stock. You will not be required to make any payment, surrender or exchange your common shares of Integra or take any other action to receive your shares of SeaSpine common stock.

Holders of Integra common stock will continue to hold their shares in Integra. We do not require and are not seeking a vote of Integra’s stockholders in connection with the spin-off, and Integra’s stockholders will not have any dissenters’ rights or appraisal rights in connection with the spin-off.

Before the distribution, we will enter into the Separation Agreement and other agreements with Integra to effect the distribution and provide a framework for our relationship with Integra after the distribution. These agreements will govern the relationship between Integra and us up to and subsequent to the completion of the distribution. We describe these arrangements in greater detail under “Certain Relationships and Related Party Transactions—Agreements between Integra and SeaSpine Relating to the Separation” and describe some of the risks of these arrangements under “Risk Factors—Risks Relating to the Spin-Off.”

The distribution of shares of our common stock as described in this Information Statement is subject to the satisfaction or waiver of certain conditions. In addition, Integra has the right not to complete the spin-off if, at

 

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any time prior to the distribution, its board of directors determines, in its sole discretion, that the spin-off is not in the best interests of Integra or its stockholders, or that it is not advisable for us to separate from Integra. For a more detailed description of these conditions, see “—Conditions to the Spin-Off” below.

Reasons for the Spin-Off

On October 29, 2014, Integra’s board of directors approved the announcement of a plan to separate SeaSpine from Integra as a new, publicly traded medical technology company focused on the design, development and commercialization of surgical solutions for the treatment of patients suffering from spinal disorders. Integra’s board of directors’ based this determination, in part, on its belief that the tax-free distribution of SeaSpine shares to Integra stockholders is the most efficient manner to separate our business from Integra’s other medical technology businesses. Integra’s board of directors also believes separating us from Integra would provide financial, operational and managerial benefits to both Integra and us, including, but not limited to, the following:

 

    Strategic Focus. We and Integra are distinct, complex enterprises with different opportunities, challenges, strategies and means of doing business. We believe the spin-off will allow each independent company to design and implement corporate strategies that are based on the industries that it serves and its specific business characteristics.

 

    Focused Management. We believe that the separation will allow executive management of each company to better allocate and focus resources on the development and implementation of corporate strategies and initiatives that are targeted to the specific business characteristics of the respective companies without the need to consider the effect that those decisions could have on the other company. The separation will provide each company with the flexibility needed to pursue its own goals and serve its own needs.

 

    Improved Management Incentive Tools . We expect to use equity-based incentive awards to compensate current and future employees. Equity-based incentive awards granted to our employees, officers and directors following the distribution will be tied directly to the performance of our orthobiologics and spinal fusion business, providing employees with incentives linked to the achievement of our performance objectives. We believe that offering equity compensation tied directly to our performance will assist in attracting and retaining qualified personnel. For Integra, separating the businesses will provide its management with the flexibility to adopt compensation policies tied to its own performance objectives.

 

    Direct Access to Capital and Tailored Capital Structure. We believe that as a stand-alone company we can better attract investors with the opportunity to invest solely in the orthobiologics and spinal fusion hardware business, which will enhance our ability to directly access the debt and equity capital markets to fund our growth strategy and to establish a capital structure tailored to our business needs. We believe that this ability will expand our investor base and increase our equity valuation. In addition, we believe that the separation will enhance our ability to raise capital needed to take advantage of growth opportunities, including possible future stock issuances as a result of creating our own independent, publicly traded stock.

 

    Ability to Use Equity as Consideration for Acquisitions. The spin-off will provide each of Integra and us with enhanced flexibility to use our respective stock as consideration in pursuing certain financial and strategic objectives, including mergers and acquisitions involving other companies or businesses engaged in our respective industries. We believe that we will be able to more easily facilitate future strategic transactions with businesses in our industry through the use of our stand-alone stock as consideration. Although we have no current plans to engage in a merger or similar transaction with any particular company, we believe that potential targets in our industry may be more interested in receiving stock of a company, the value of which is tied directly to the orthobiologics and spinal fusion hardware business, rather than stock of a more diversified company in which value is tied to a number of other businesses in addition to the orthobiologics and spinal fusion hardware business.

 

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In addition, the Integra board of directors believes that public market participants may not fully understand or properly value each of Integra’s business units as the company is currently constructed, and it is more difficult to compare Integra to companies that primarily operate in only one of these business lines. As a result, the Integra board of directors believes that (i) by separating us from Integra and creating an independent company focused on orthobiologics and spinal fusion products, it will be easier for investors and analysts to understand each business’s strengths and the future prospects of each company’s respective businesses; and (ii) over time, this could result in better stock price analysis and a higher aggregate value for our and Integra’s common stock on a combined basis, which could exceed the pre-spin-off value of Integra’s common stock. Additionally, Integra’s board of directors believes that a higher aggregate equity value will help facilitate some of the other business purposes of the spin-off, particularly by limiting the dilutive effect of equity issuances in connection with capital raising transactions, employee compensation arrangements, and business acquisitions. That said, we cannot assure you that, following the spin-off, the aggregate value of our common stock and Integra’s common stock will ever exceed the pre-spin-off value of Integra’s common stock, and it is possible that our common stock will come under initial selling pressure, which could adversely affect the value of our common stock for a period of time following the spin-off.

Integra’s board of directors also considered a number of potentially negative factors in evaluating the separation, including, in the case of both companies, increased operating costs, disruptions to the businesses as a result of planning for the separation and the separation itself, the risk of being unable to achieve expected benefits from the separation, the risk of being unable to successfully complete operational transfers, including distribution activities and ERP systems and the cost to complete those activities, the risk that the separation might not be completed, the initial costs of the separation and the risk that the common stock of one or both companies may come under initial selling pressure if investors are not interested in holding an investment in one or both businesses following the separation.

Integra’s board of directors considered several factors that could have a negative effect on Integra in particular as a result of the separation, including that the separation would eliminate from Integra the valuable businesses of SeaSpine in a transaction that produces no direct economic consideration for Integra and the limitations placed on Integra as a result of the Tax Matters Agreement and other agreements it is expected to enter into with SeaSpine in connection with the spin-off. Because we will no longer be a wholly owned subsidiary of Integra, the distribution also will affect the terms of, or limit the incentive for, or the ability of Integra to pursue, cross-company business transactions and initiatives with SeaSpine since, as separate public companies, such transactions and initiatives will need to be assessed by each company in light of its respective strategic priorities and objectives. Finally, following the distribution, Integra and its remaining businesses will need to absorb certain corporate and administrative costs previously allocated in part to the orthobiologics and spinal fusion hardware business.

Integra’s board of directors also considered certain aspects of the separation that may be adverse to SeaSpine, including the loss of the ability to obtain capital resources from Integra or pursue cross-company business transactions, the limitations placed on SeaSpine as a result of the Tax Matters Agreement and other agreements it is expected to enter into with Integra in connection with the spin-off, and the ongoing costs of our operating as a separate, publicly traded company. In addition, SeaSpine’s common stock may come under temporary selling pressure in the short-term period following the spin-off as certain Integra stockholders may sell their shares in SeaSpine because SeaSpine, as a separate business, does not fit their investment priorities, such as minimum market capitalization requirements, projected growth rates or specific business sector focus requirements. Moreover, certain other near-term factors such as a lack of historical financial and performance data as an independent company may initially limit investors’ ability to appropriately value SeaSpine’s common stock. See “Risk Factors—Risks Relating to Owning Our Common Stock—The large number of shares eligible for public sale or subject to rights requiring us to register them for public sale could depress the market price of our common stock.”

 

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Notwithstanding these potentially negative factors, however, the board of directors of Integra determined that the separation was the best alternative to enhance stockholder value taking into account the factors discussed above.

Manner of Effecting the Spin-Off

The distribution will be effective as of              New York City time, on                     , 2015, the distribution date. As a result of the spin-off, on the distribution date, each Integra stockholder will receive one share of SeaSpine common stock for every              shares of Integra common stock owned by such holder and outstanding as of the record date. In order to receive shares of our common stock in the spin-off, an Integra stockholder must be a stockholder at              p.m., New York City time, on                     , 2015. The distribution will be pro rata to stockholders holding shares of Integra common stock that are outstanding as of the record date.

INTEGRA STOCKHOLDERS WILL NOT BE REQUIRED TO PAY FOR SHARES OF OUR COMMON STOCK RECEIVED IN THE DISTRIBUTION, OR TO SURRENDER OR EXCHANGE SHARES OF INTEGRA COMMON STOCK IN ORDER TO RECEIVE OUR COMMON STOCK, OR TO TAKE ANY OTHER ACTION IN CONNECTION WITH THE DISTRIBUTION. NO VOTE OF INTEGRA STOCKHOLDERS IS REQUIRED OR SOUGHT IN CONNECTION WITH THE DISTRIBUTION, AND INTEGRA STOCKHOLDERS HAVE NO DISSENTERS’ RIGHTS OR APPRAISAL RIGHTS IN CONNECTION WITH THE DISTRIBUTION.

See “—Material U.S. Federal Income Tax Consequences” for an explanation of the material U.S. federal income tax consequences of the separation.

Fractional shares of our common stock will not be issued to Integra stockholders as part of the distribution or credited to book-entry accounts. In lieu of receiving fractional shares, each holder of Integra common stock who would otherwise be entitled to receive a fractional share of our common stock will receive cash for the fractional interest, which generally will be taxable to such holder. Each stockholder should have a maximum of less than one fractional share pursuant to this transaction. The transfer agent will, as soon as practicable after the distribution date, aggregate fractional shares of our common stock into whole shares and sell them in the open market at the prevailing market prices and distribute the aggregate proceeds, net of brokerage fees, ratably to Integra stockholders otherwise entitled to fractional interests in our common stock. The amount of such payments will depend on the prices at which the aggregated fractional shares are sold by the transfer agent in the open market shortly after the distribution date. None of Integra, SeaSpine or the transfer agent will guarantee any minimum sale price for the fractional shares of our common stock. Neither we nor Integra will pay any interest on the proceeds from the sale of fractional shares.

If you own shares of Integra common stock as of the close of business on the record date, the shares of SeaSpine common stock that you are entitled to receive will be issued electronically, as of the distribution date, to you or to your bank or brokerage firm on your behalf by way of direct registration in book-entry form. Registration in book-entry form refers to a method of recording share ownership when no physical share certificates are issued to stockholders, as is the case in the distribution. If you sell shares of Integra common stock in the market up to and including the distribution date, however, you may be selling your right to receive shares of SeaSpine common stock in the distribution.

Commencing on or shortly after the distribution date, if you hold physical share certificates that represent your shares of Integra common stock and you are the registered holder of the Integra shares represented by those certificates, the transfer agent will mail to you an account statement that indicates the number of shares of SeaSpine common stock that have been registered in book-entry form in your name. See “—Results of the Separation; Listing of SeaSpine Common Stock and Trading of Integra Common Stock.”

Most Integra stockholders hold their shares of Integra common stock through a bank or brokerage firm. In such cases, the bank or brokerage firm would be said to hold the shares in “street name” and ownership would be

 

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recorded on the bank or brokerage firm’s books. If you hold your shares of Integra common stock through a bank or brokerage firm, your bank or brokerage firm will credit your account for the shares of SeaSpine common stock that you are entitled to receive in the distribution. If you have any questions concerning the mechanics of having shares held in “street name,” we encourage you to contact your bank or brokerage firm at any time following the approval of the separation.

Assuming approximately              shares of Integra common stock are outstanding as of the record date (which was the actual number of shares outstanding as of                     , 2015), the number of shares of SeaSpine common stock to be distributed, and the number of shares of SeaSpine which will be outstanding immediately following the separation, will be approximately             . The separation will not affect the number of outstanding shares of Integra common stock or any rights of Integra’s stockholders.

Conditions to the Spin-Off

The distribution is subject to the satisfaction or waiver of a number of conditions, including the following:

 

    the board of directors of Integra, in its sole discretion, will have authorized and approved the spin-off and not withdrawn such authorization and approval, and will have declared the dividend of our common stock to Integra stockholders;

 

    the SEC will have declared effective our Registration Statement on Form 10, of which this Information Statement is a part, and no stop order relating to the Registration Statement on Form 10 shall be in effect;

 

    we will have mailed this Information Statement to the holders of record of Integra common stock on the record date;

 

    the Separation Agreement and each other agreement to be executed in connection with the spin-off will have been executed by each party thereto and no party will be in material breach of any such agreement;

 

    our common stock will have been accepted for listing on a national securities exchange approved by Integra, subject to official notice of issuance;

 

    the receipt of an opinion from Latham & Watkins LLP by Integra, in form and substance satisfactory to Integra, substantially to the effect that (i) the internal distribution will constitute a reorganization under Sections 355 and 368(a)(1)(D) of the Code and (ii) the cash contribution, together with the distribution, will constitute a reorganization under Sections 355 and 368(a)(1)(D) of the Code;

 

    SeaSpine’s amended and restated certificate of incorporation and amended and restated bylaws, each in substantially the form filed as exhibits to the Registration Statement on Form 10 of which this Information Statement is a part, are in effect;

 

    all actions and filings necessary or appropriate under applicable federal or state laws in connection with the spin-off will have been taken;

 

    no order, injunction or decree that would prevent the consummation of the distribution is threatened, pending or issued (and still in effect) by any governmental authority of competent jurisdiction, no other legal restraint or prohibition preventing consummation of the distribution is pending, threatened, issued or in effect and no other event has occurred or failed to occur that prevents the consummation of the distribution; and

 

    any material governmental approvals and other consents necessary to consummate the spin-off have been obtained.

The fulfillment of the foregoing conditions will not create any obligation on Integra’s part to effect the spin-off. Except as described in the foregoing conditions, we are not aware of any material federal or state regulatory

 

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requirements that must be complied with or any material approvals that must be obtained. Integra has the right not to complete the spin-off if, at any time prior to the distribution, the board of directors of Integra determines, in its sole discretion, that the spin-off is not in the best interests of Integra or its stockholders, or that it is not advisable for us to separate from Integra.

Results of the Separation; Listing of SeaSpine Common Stock and Trading of Integra Common Stock

There is not currently a public market for our common stock. We have applied to list SeaSpine’s common stock on the NASDAQ Global Market under the symbol “SPNE.” We expect that a “when-issued” market in SeaSpine common stock could develop shortly prior to the record date, and we will announce the when-issued trading symbol of SeaSpine when and if it becomes available. “When-issued trading” refers to a sale or purchase made conditionally because the security has been authorized but not yet issued. The when-issued trading market will be a market for the SeaSpine common stock that will be distributed to Integra stockholders on the distribution date. If you own shares of Integra common stock at the close of business on the record date, you will be entitled to shares of SeaSpine common stock distributed pursuant to the separation. You may trade this entitlement to shares of SeaSpine common stock, without the shares of Integra common stock you own, on the when-issued market. On the first trading day following the distribution date, we expect that when-issued trading with respect to SeaSpine common stock will end and regular-way trading will begin.

It is also anticipated that, shortly prior to the record date and continuing up to and including the distribution date, there will be two markets for Integra common stock: a “regular-way” market and an “ex-distribution” market. Shares of Integra common stock that trade on the regular-way market will trade with an entitlement to shares of SeaSpine common stock distributed pursuant to the distribution. Shares that trade on the ex-distribution market will trade without an entitlement to shares of SeaSpine common stock distributed pursuant to the distribution. Therefore, if you sell shares of Integra common stock in the regular-way market up to and including the distribution date, you will be selling your right to receive shares of SeaSpine common stock in the distribution. However, if you own Integra common stock at the close of business on the record date and sell those shares on the ex-distribution market up to and including the distribution date, you will still receive the shares of SeaSpine common stock that you would otherwise be entitled to receive pursuant to the distribution. If, for any reason, the distribution does not occur, “when-issued” and “ex-distribution” trades will be cancelled and, therefore, will not be settled.

We cannot assure you as to the price at which our common stock will trade before, on or after the distribution date and, depending upon a number of factors, some of which may be beyond our control, the price at which our common stock trades may fluctuate significantly. In addition, the combined trading prices of our common stock and Integra common stock held by stockholders after the distribution may be less than, equal to or greater than the pre-spin-off trading price of Integra common stock prior to the distribution.

The shares of our common stock distributed to Integra stockholders will be freely transferable, except for shares received by people who may have a special relationship or affiliation with us or shares subject to contractual restrictions. People who may be considered our affiliates after the distribution generally include individuals or entities that control, are controlled by, or are under common control with us and may include certain of our officers, directors and significant stockholders. Persons who are our affiliates will be permitted to sell their shares only pursuant to an effective registration statement under the Securities Act, or an exemption from the registration requirements of the Securities Act, or in compliance with Rule 144 under the Securities Act.

Material U.S. Federal Income Tax Consequences

The following is a summary of the material U.S. federal income tax consequences to Integra and to U.S. Holders (as defined below) of shares of Integra common stock in connection with the separation and distribution. This summary is based on the Code, the U.S. Treasury Regulations promulgated thereunder and judicial and administrative interpretations thereof, in effect as of the date hereof, and all of which are subject to change at any time, possibly with retroactive effect. Any such change could affect the tax consequences described below.

 

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For purposes of this discussion, a U.S. Holder is a beneficial owner of Integra common stock that is, for U.S. federal income tax purposes:

 

    an individual who is a citizen or resident of the United States;

 

    a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia;

 

    an estate the income of which is subject to U.S. federal income taxation regardless of its source; or

 

    a trust that (1) is subject to the primary supervision of a U.S. court and the control of one or more United States persons (within the meaning of Section 7701(a)(30) of the Code), or (2) has a valid election in effect under applicable Treasury Regulations to be treated as a United States person.

This summary also does not discuss all tax considerations that may be relevant to holders in light of their particular circumstances, nor does it address the consequences to holders subject to special treatment under the U.S. federal income tax laws, such as:

 

    dealers or brokers in securities, commodities or currencies;

 

    tax-exempt organizations;

 

    banks, insurance companies or other financial institutions;

 

    mutual funds;

 

    regulated investment companies and real estate investment trusts;

 

    a corporation that accumulates earnings to avoid U.S. federal income tax;

 

    holders who hold individual retirement or other tax-deferred accounts;

 

    holders who acquired shares of Integra common stock pursuant to the exercise of employee stock options or otherwise as compensation;

 

    holders who own, or are deemed to own, at least 10% or more, by voting power or value, of Integra equity;

 

    holders who hold Integra common stock as part of a hedge, appreciated financial position, straddle, constructive sale, conversion transaction or other risk reduction transaction;

 

    traders in securities who elect to apply a mark-to-market method of accounting;

 

    holders who have a functional currency other than the U.S. dollar;

 

    holders who are subject to the alternative minimum tax; or

 

    partnerships or other pass-through entities or investors in such entities.

This summary does not address the U.S. federal income tax consequences to Integra stockholders who do not hold shares of Integra common stock as a capital asset or to Integra stockholders who are not U.S. Holders. Moreover, this summary does not address any state, local or foreign tax consequences or any estate, gift or other non-income tax consequences.

If a partnership (or any other entity treated as a partnership for U.S. federal income tax purposes) holds shares of Integra common stock, the tax treatment of a partner in that partnership will generally depend on the status of the partner and the activities of the partnership. Partners in a partnership holding Integra common stock should consult their own tax advisors regarding the tax consequences of the distribution.

INTEGRA STOCKHOLDERS ARE ENCOURAGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE U.S. FEDERAL, STATE AND LOCAL AND NON-U.S. TAX CONSEQUENCES OF THE DISTRIBUTION.

 

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Distribution

Integra expects to receive an opinion from the law firm of Latham & Watkins LLP substantially to the effect that for U.S. federal income tax purposes, (i) the internal distribution will constitute a reorganization under Sections 355 and 368(a)(1)(D) of the Code and (ii) the cash contribution, together with the distribution, will constitute a reorganization under Sections 355 and 368(a)(1)(D) of the Code. Based on this tax treatment, for U.S. federal income tax purposes:

 

    no material gain or loss will be recognized by Integra as a result of the foregoing;

 

    no gain or loss will be recognized by, or be includible in the income of, a U.S. Holder of Integra common stock, solely as a result of the receipt of SeaSpine common stock in the distribution;

 

    the aggregate tax basis of the shares of Integra common stock and shares of SeaSpine common stock in the hands of a U.S. Holder of Integra common stock immediately after the distribution will be the same as the aggregate tax basis of the shares of Integra common stock held by the holder immediately before the distribution, allocated between the shares of Integra common stock and shares of SeaSpine common stock, including any fractional share interest for which cash is received, in proportion to their relative fair market values on the date of the distribution;

 

    the holding period with respect to shares of SeaSpine common stock received by a U.S. Holder of Integra common stock will include the holding period of its shares of Integra common stock; and

 

    a U.S. Holder of Integra common stock who receives cash in lieu of a fractional share of SeaSpine common stock in the distribution will be treated as having sold such fractional share for cash and generally will recognize capital gain or loss in an amount equal to the difference between the amount of cash received and such holder’s adjusted tax basis in the fractional share. That gain or loss will be long-term capital gain or loss if the holder’s holding period for its shares of Integra common stock exceeds one year.

Holders should note that the opinion that Integra expects to receive from Latham & Watkins LLP will be based on certain facts and assumptions, and certain representations and undertakings, from us and Integra, and is not binding on the IRS or the courts. If any of the facts, representations, assumptions or undertakings relied upon in the opinion is not correct, is incomplete or has been violated, our ability to rely on the opinion of counsel could be jeopardized. However, we are not aware of any facts or circumstances that would cause these facts, representations or assumptions to be untrue or incomplete, or that would cause any of these undertakings to fail to be complied with, in any material respect.

If, notwithstanding the conclusions that we expect to be included in the opinion, the distribution is ultimately determined to be taxable to Integra for U.S. federal income tax purposes, then Integra would recognize a gain in an amount equal to the excess of the fair market value of SeaSpine common stock distributed to Integra stockholders on the distribution date over Integra’s tax basis in such shares.

Moreover, Integra could incur significant U.S. federal income tax liabilities if it is ultimately determined that the internal distribution does not qualify as a reorganization under Sections 355 and 368(a)(1)(D) of the Code.

Even if the internal distribution and the cash contribution, together with the distribution, otherwise qualify as reorganizations under Sections 355 and 368(a)(1)(D) of the Code, the internal distribution and the distribution may result in corporate-level taxable gain to Integra under Section 355(e) of the Code if there is a 50% or greater change in ownership, by vote or value, of our stock or Integra’s stock occurring as part of a plan or series of related transactions that includes the internal distribution or the distribution. For this purpose, any acquisitions or issuances of Integra’s stock within two years before the distribution, and any acquisitions or issuances of SeaSpine’s stock or Integra’s stock within two years after the distribution, are generally presumed to be part of such a plan, although we or Integra may be able to rebut that presumption. If an acquisition or issuance of our

 

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stock or Integra stock triggers the application of Section 355(e) of the Code, Integra would recognize taxable gain as described above and such gain would be subject to U.S. federal income tax.

In addition, if the distribution is determined to be taxable to the Integra stockholders for U.S. federal income tax purposes, each U.S. Holder who receives shares of SeaSpine common stock in the distribution would be treated as receiving a taxable distribution in an amount equal to the fair market value of our common stock that was distributed to the holder. Specifically, the full value of our common stock distributed to a U.S. Holder generally would be treated first as a taxable dividend to the extent of the holder’s pro rata share of Integra’s current and accumulated earnings and profits, then as a non-taxable return of capital to the extent of the holder’s basis in the Integra stock, and finally as capital gain from the sale or exchange of Integra stock with respect to any remaining value.

U.S. Treasury regulations generally provide that if a U.S. Holder of Integra common stock holds different blocks of Integra common stock (generally shares of Integra common stock purchased or acquired on different dates or at different prices), the aggregate basis for each block of Integra common stock purchased or acquired on the same date and at the same price will be allocated, to the greatest extent possible, between the shares of SeaSpine common stock received in the distribution in respect of such block of Integra common stock and such block of Integra common stock, in proportion to their respective fair market values, and the holding period of the shares of SeaSpine common stock received in the distribution in respect of such block of Integra common stock will include the holding period of such block of Integra common stock, provided that such block of Integra common stock was held as a capital asset on the distribution date. If a U.S. Holder of Integra common stock is not able to identify which particular shares of SeaSpine common stock are received in the distribution with respect to a particular block of Integra common stock, for purposes of applying the rules described above, the U.S. Holder may designate which shares of SeaSpine common stock are received in the distribution in respect of a particular block of Integra common stock, provided that such designation is consistent with the terms of the distribution. Holders of Integra common stock are encouraged to consult their own tax advisors regarding the application of these rules to their particular circumstances.

Tax Matters Agreement

In connection with the distribution, we and Integra will enter into the Tax Matters Agreement pursuant to which we will agree to be responsible for certain liabilities and obligations following the distribution. In general, under the terms of the Tax Matters Agreement, in the event the internal distribution or the distribution were to fail to qualify as a transaction that is tax-free under Section 355 of the Code (including as a result of Section 355(e) of the Code) and if such failure were the result of actions taken after the distribution by Integra or us, the party responsible for such failure would be responsible for all taxes imposed on Integra to the extent such taxes result from such actions. For a more detailed discussion, see “Certain Relationships and Related Party Transactions—Agreements between Integra and SeaSpine Relating to the Separation—Tax Matters Agreement.” If we are required to indemnify Integra and its subsidiaries and their respective officers and directors under the circumstances set forth in the Tax Matters Agreement, we may be subject to substantial liabilities.

Information Reporting and Backup Withholding

U.S. Treasury regulations require certain stockholders who receive stock in a distribution to attach to their U.S. federal income tax return for the year in which the distribution occurs a detailed statement setting forth certain information relating to the tax-free nature of the distribution. In addition, payments of cash to an Integra stockholder in lieu of fractional shares of SeaSpine common stock in the distribution may be subject to information reporting and backup withholding (currently at a rate of 28 percent), unless the stockholder provides proof of an applicable exemption or a correct taxpayer identification number and otherwise complies with the requirements of the backup withholding rules. Backup withholding does not constitute an additional tax, but merely an advance payment, which may be refunded or credited against a stockholder’s U.S. federal income tax liability, provided the required information is timely supplied to the IRS.

 

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THE FOREGOING IS A SUMMARY OF THE MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION UNDER CURRENT LAW. THE FOREGOING DOES NOT PURPORT TO ADDRESS ALL U.S. FEDERAL INCOME TAX CONSEQUENCES OR TAX CONSEQUENCES THAT MAY ARISE UNDER THE TAX LAWS OR THAT MAY APPLY TO PARTICULAR CATEGORIES OF STOCKHOLDERS. EACH INTEGRA STOCKHOLDER IS ENCOURAGED TO CONSULT ITS OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES OF THE DISTRIBUTION TO SUCH STOCKHOLDER, INCLUDING THE APPLICATION OF U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.

Treatment of Integra Equity Awards

Stock Options

Each Integra stock option that was granted prior to 2015 will be split into two options which will include an Integra stock option and a SeaSpine stock option. Following the distribution, the combined intrinsic value of the resulting Integra and SeaSpine stock options should approximately equal the intrinsic value as of immediately prior to the distribution of the underlying Integra stock option. Integra stock options granted in 2015 are held only by individuals who will be employed or engaged by Integra or its affiliates following the distribution. Therefore, each Integra stock option that was granted in 2015 will be adjusted solely into an Integra stock option with an intrinsic value approximately equal to the intrinsic value of the underlying Integra stock option.

Contract Stock

Each outstanding Integra contract stock award held by an individual who will continue to be employed or engaged by Integra or its affiliates following the distribution will be adjusted to cover a number of Integra shares such that the pre-distribution value of the Integra contract stock award is approximately preserved. However, each contract stock award held by Peter Arduini will be split into two contract stock awards, which will include an Integra contract stock award and a SeaSpine contract stock award, based on the distribution ratio. Each Integra contract stock award held by an individual who will be employed or engaged by SeaSpine or its affiliates following the distribution will be converted into a SeaSpine contract stock award covering a number of SeaSpine shares such that the pre-distribution value of the underlying Integra contract stock award is approximately preserved.

Restricted Stock

Each Integra restricted stock award held by an individual who will continue to be employed or engaged by Integra or its affiliates following the distribution will be adjusted to cover a number of Integra shares such that the pre-distribution value of the Integra restricted stock award is approximately preserved. Each Integra restricted award held by an individual who will be employed or engaged by SeaSpine or its affiliates following the distribution will be converted into a SeaSpine restricted stock award covering a number of SeaSpine shares such that the pre-distribution value of the underlying Integra restricted stock award is approximately preserved.

Performance Stock

Each Integra performance stock award held by an individual who will be employed or engaged by Integra or its affiliates following the distribution will be adjusted to cover a number of Integra shares such that the pre-distribution value of the Integra performance stock award is approximately preserved. Each Integra performance stock award held by an individual who will be employed or engaged by SeaSpine or its affiliates following the distribution will be converted into a time-vesting SeaSpine equity award covering a number of SeaSpine shares such that the pre-distribution value of the underlying Integra performance stock award is approximately preserved.

 

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General Terms of Adjusted Awards

The adjusted Integra equity awards and SeaSpine equity awards generally will be subject to the same terms and conditions, including the same vesting and share payment timing provisions, as applied to the applicable Integra awards immediately prior to the distribution. However, Integra performance stock awards held by individuals who will be employed or engaged by SeaSpine or its affiliates following the distribution will be converted into a time-vesting only SeaSpine equity award. Following the distribution, continued employment or service at Integra or SeaSpine, as applicable, will satisfy any continued employment or other continued service requirement for purposes of both the adjusted Integra and SeaSpine equity awards.

In addition, if an individual will remain in employment or service with Integra following the distribution, and such individual’s pre-distribution Integra stock option (or, with respect to Mr. Arduini, his contract stock awards) is subject to accelerated vesting provisions triggered either (i) by reference to a termination of employment or service with Integra (or its affiliates) and/or (ii) in connection with a change in control of Integra, the SeaSpine award granted in connection with the distribution with respect to such pre-distribution Integra award will be subject to the same acceleration provisions in connection with a termination of employment or service with Integra or its affiliates and/or a change in control of Integra (as applicable).

Reason for Furnishing this Information Statement

This Information Statement is being furnished solely to provide information to Integra stockholders who will receive shares of SeaSpine common stock in the distribution. It is not, and is not to be construed as, an inducement or encouragement to buy or sell any of our securities or any securities of Integra, nor is it to be construed as a solicitation of proxies in respect of the proposed distribution or any other matter. We believe that the information contained in this Information Statement is accurate as of the date set forth on the cover. Changes to the information contained in this Information Statement may occur after that date, and neither we nor Integra undertakes any obligation to update the information except in the normal course of our respective public disclosure obligations and practices.

 

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DIVIDEND POLICY

We currently do not anticipate paying any cash dividends in the foreseeable future. Instead, we anticipate that all of our earnings will be used to provide working capital, to support our operations and to finance the growth and development of our business. Any future determination to declare cash dividends will be made at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, general business conditions and other factors that our board of directors may deem relevant. In addition, if we were to enter into a credit facility in the future, we anticipate that the terms of such facility could limit or prohibit our ability to pay dividends.

 

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SELECTED HISTORICAL COMBINED FINANCIAL DATA

The following table sets forth selected historical financial data for the orthobiologics and spinal fusion hardware business of Integra which will be transferred to SeaSpine prior to the distribution, for the periods indicated below. The combined statements of operations data for the years ended December 31, 2014, 2013 and 2012 and the combined balance sheet data as of December 31, 2014 and 2013 are derived from the audited combined financial statements of the orthobiologics and spinal fusion hardware business of Integra, which are included elsewhere in this information statement. The unaudited combined balance sheet data as of December 31, 2012 has been carved out from the underlying financials of Integra’s records. The combined statement of operations data for the three months ended March 31, 2015 and 2014 and the combined balance sheet data as of March 31, 2015 have been derived from the unaudited combined financial statements of the orthobiologics and spinal fusion hardware business of Integra, which are included elsewhere in this information statement. The unaudited combined financial statements have been prepared on the same basis as the audited financial statements and, in the opinion of management, reflect all adjustments necessary to state fairly our results of operations for the three months ended March 31, 2015 and 2014 and our financial position as of March 31, 2015.

Our historical combined financial statements include certain expenses of Integra that were allocated to us for certain functions. These include shared services and infrastructure provided by Integra to us, such as costs of information technology, including the costs of a multi-year global ERP implementation, accounting and legal services, real estate and facilities, corporate advertising, insurance services and related treasury and other corporate and infrastructure services. These costs may not be representative of the future costs we will incur as an independent, publicly traded company. In addition, our historical combined financial statements do not reflect changes that we expect to experience in the future as a result of the spin-off, including changes in our cost structure, personnel needs, tax structure, financing and business operations. Consequently, the historical combined financial information included here may not necessarily reflect our financial position and results of operations or what our financial position and results of operations would have been had we been an independent, publicly traded company during the periods presented or be indicative of SeaSpine’s future performance as an independent company. The selected historical financial data should be read in conjunction with the discussion in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the audited combined financial statements and corresponding notes included elsewhere in this information statement.

 

     Three Months Ended March 31,     Year Ended December 31,  
           2015                     2014           2014     2013     2012  
                 (In thousands)  

Combined Statements of Operations Data:

      

Total revenue, net

   $ 32,314      $ 34,175      $ 138,695      $ 146,586      $ 147,510   

Cost of goods sold

     12,601        12,595        56,714        55,532        54,856   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

  19,713      21,580      81,981      91,054      92,654   

Operating expenses:

Selling, general and administrative

  25,051      22,008      88,213      93,009      94,747   

Research and development

  1,582      2,192      8,527      9,893      12,269   

Intangible amortization

  1,397      1,399      5,590      5,598      5,716   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

  28,030      25,599      102,330      108,500      112,732   

Operating loss

  (8,317   (4,019   (20,349   (17,446   (20,078

Other expense, net

  (721   (8   (269   (4,556   (8,194
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

  (9,038   (4,027 $ (20,618 $ (22,002 $ (28,272

Provision for income taxes

  860      1,533      3,927      3,744      2,152   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

$ (9,898 $ (5,560 $ (24,545 $ (25,746 $ (30,424

 

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     As of
March 31, 2015
     As of December 31,  
        2014      2013      2012  
            (In thousands)  

Combined Balance Sheet Data:

           

Working capital

   $ 22,628       $ 28,664       $ 37,857       $ 36,871   

Total assets

   $ 137,080       $ 139,642       $ 153,493       $ 157,387   

Total liabilities

   $
51,157
  
   $ 48,358       $ 41,998       $ 163,011   

Invested equity

   $ 85,923       $ 91,284       $ 111,495       $ (5,624

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis presented below refer to and should be read in conjunction with the audited combined financial statements and the corresponding notes and the selected historical combined financial data, each included elsewhere in this information statement. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contain forward-looking statements. The matters discussed in these forward-looking statements are subject to risk, uncertainties and other factors that could cause actual results to differ materially from those made, projected or implied in the forward-looking statements. Please see the “Risk Factors” section for a discussion of the uncertainties, risks and assumptions associated with these statements.

Separation from Integra

On November 3, 2014, Integra announced its plan to spin off its orthobiologics and spinal fusion hardware business. The spin-off will create a separate, independent, publicly traded medical technology company focused on the design, development and commercialization of surgical solutions for the treatment of patients suffering from spinal disorders. As part of the separation, Integra plans to transfer the assets, liabilities and operations of its orthobiologics and spinal fusion hardware business on a global basis to SeaSpine.

Our historical combined financial statements have been prepared on a stand-alone basis and are derived from Integra’s consolidated financial statements and accounting records. Therefore, these financial statements reflect, in conformity with accounting principles generally accepted in the United States, our financial position, results of operations, comprehensive loss and cash flows as the business was historically operated as part of Integra prior to the distribution. They may not be indicative of our future performance and do not necessarily reflect what our combined results of operations, financial condition and cash flows would have been had we operated as a separate, publicly traded company during the period presented, particularly since we expect that many changes will occur in our operations and capitalization as a result of the separation from Integra.

The combined financial statements include the attribution of certain assets and liabilities that have historically been held at the Integra corporate level but which are specifically identified or attributable to us. However, cash held by Integra was not attributed to us. Integra’s debt and related interest expense also have not been allocated to us for any of the periods presented since we are not the legal obligor of the debt and Integra’s borrowings were not directly attributable to us. Integra manages cash centrally and substantially all cash generated by our business is assumed to be remitted to Integra. The total net effect of the settlement of these related-party transactions is reflected in the combined statement of cash flows as a financing activity and in the combined balance sheet as Integra net investment in us.

Our combined statement of operations includes our direct expenses for cost of goods sold, research and development, sales and marketing, distribution, and administration as well as allocations of expenses arising from shared services and infrastructure provided by Integra to us, such as costs of information technology, including the costs of a multi-year global ERP implementation, accounting and legal services, real estate and facilities, corporate advertising, insurance services and related treasury, and other corporate and infrastructure services. In addition, other costs allocated to us include restructuring costs, share-based compensation expense and retirement plan expenses related to Integra’s corporate and shared services employees. These operating expenses are allocated to us using estimates that we consider to be a reasonable reflection of the utilization of services provided to or benefits received by us. We expect, however, that the actual expenses that we would have incurred had we been operating as a separate, publicly traded company for the period presented would have been lower, in the aggregate, as they would not include the allocation of the multi-year ERP implementation and other corporate strategic initiatives of Integra in place at the time. The allocation methods include pro-rata basis of revenue, standard cost of sales or other measures.

 

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We expect that Integra will continue to provide some of these services related to these functions on a transitional basis for a fee. These services will be received under the Transition Services Agreement described in “Certain Relationships and Related Party Transactions.” In addition, certain costs associated with the Supply Agreements may be at materially different terms than those currently incurred at Integra. Also, we expect to incur costs as an independent, publicly traded company following the distribution that are different from the costs historically allocated to us by Integra. We expect these incremental costs to be lower, in the aggregate, than those historically allocated to us by Integra and estimate those to be $12.0 million to $14.0 million on an annual pre-tax basis.

We incurred $2.3 million for non-recurring transaction and pre-separation costs related to the spin-off in 2014, and $4.8 million in the three months ended March 31, 2015. We expect to recognize additional non-recurring transaction and separation costs in 2015, which in the aggregate are currently estimated to range from $17.0 million to $23.0 million. These costs are expected to include, among other things, branding, legal, accounting and other advisory fees and other costs to separate and transition from Integra.

Overview

We are a global medical technology company focused on the design, development and commercialization of surgical solutions for the treatment of patients suffering from spinal disorders. We have a comprehensive portfolio of orthobiologics and spinal fusion hardware solutions to meet the varying combinations of products that neurosurgeons and orthopedic spine surgeons need to perform fusion procedures in the lumbar, thoracic and cervical spine. We believe this broad combined portfolio of orthobiologics and spinal fusion hardware products is essential to meet the “complete solution” requirements of our neurosurgeons and orthopedic spine surgeons.

SeaSpine was formed from the Integra orthobiologics and spinal fusion hardware business which Integra created to leverage its proprietary collagen-based bone graft substitute. In February 2007, Integra’s collagen ceramic matrix branded as Integra Mozaik , an osteoconductive scaffold, was launched. It is now also marketed as OsteoStrux ® , and will be rebranded as SeaSpine ® Mozaik and IsoTis ® Mozaik following the spin-off. We subsequently expanded through a series of acquisitions, including the October 2007 acquisition of IsoTis, a developer, manufacturer and marketer of orthobiologics solutions, including the Accell technology line of demineralized bone matrix products; the August 2008 acquisition of Theken, a developer, manufacturer and marketer of spinal fusion hardware and synthetic bone graft substitute products; and the May 2011 acquisition of SeaSpine, Inc., a developer, manufacturer and marketer of spinal fusion hardware products.

We report revenue in two product categories, orthobiologics and spinal fusion hardware. Our orthobiologics products consist of a broad range of advanced and traditional bone graft substitutes that are designed to improve bone fusion rates following a wide range of orthopedic surgeries, including spine, hip, and extremities procedures. Our spinal fusion hardware portfolio consists of an extensive line of products to facilitate spinal fusion in minimally invasive surgery (“MIS”), complex spine, deformity and degenerative procedures.

Our U.S. sales organization consists of regional business managers who oversee a broad network of independent orthobiologics and spine sales agents, to whom we consign and loan our products and pay commissions based on the sales of our products that they generate. These sales are generated by building and maintaining relationships with the neurosurgeons and orthopedic spine surgeons who use our products in surgeries or from the hospitals that order our products directly. Our international sales organization is composed of a sales management team that oversees a network of independent orthobiologics and spine stocking distributors in over 30 countries that purchase our products directly from us and independently sell them. For the year ended December 31, 2014, international sales accounted for approximately 10% of our revenue. We do not sell our products through or participate in PODs.

For the year ended December 31, 2014, our total revenue, net was $138.7 million and our net loss was $24.5 million. For the same period, our orthobiologics sales were $67.6 million, representing 48.7% of our total

 

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revenue, net and our spinal fusion hardware sales were $71.1 million, representing 51.3% of our total revenue, net. We expect to incur losses as we invest in the expansion of our business, primarily in marketing and research and development, in addition to increased general and administrative expenses due to our operation as an independent, publicly traded company. As of December 31, 2014, our cash balance was $0.7 million. As of February 28, 2015, we had approximately 295 employees.

Components of Our Results of Operations

Revenue

Our net sales are derived primarily from the sale of orthobiologics and spinal fusion hardware products across North America, Europe, Asia Pacific and Latin America. Sales are reported net of returns, group purchasing organization fees and other customer allowances.

In the United States, we generate most of our revenue by consigning our orthobiologics products and consigning or loaning our spinal fusion hardware sets to hospitals and independent sales agents, who in turn deliver them to the hospital for a single surgical procedure or leave them with hospitals that are high volume users for use in multiple procedures. The spinal fusion hardware sets typically contain the instruments, including disposables, and spinal implants required to complete a surgery. We ship replacement inventory to independent sales agents to replace the consigned inventory used in surgeries and maintain and replenish the loaned sets and return them to a hospital or independent sales agent for the next procedure. We recognize revenue on these consigned or loaned products when they have been used or implanted in a surgical procedure.

For all other transactions, including sales to international stocking distributors, we recognize revenue when the products are shipped to the customer or stocking distributor and the transfer of title and risk of loss occurs. There are generally no customer acceptance or other conditions that prevent us from recognizing revenue in accordance with the delivery terms.

Sales to and from other Integra subsidiaries and affiliates have historically been transacted under cost-plus pricing arrangements, which is consistent with Integra’s global transfer pricing policies. We expect to enter into the Supply Agreements with Integra prior to the distribution, pursuant to which Integra will provide us with certain raw materials and we will provide each other with finished product for further sale in the operation of each other’s business. The Supply Agreements are expected to modify our historical intercompany arrangements and reflect new, arm’s length pricing. See “Certain Relationships and Related Party Transactions—Agreements between Integra and SeaSpine Relating to the Separation.”

Cost of Goods Sold and Gross Margin

Cost of goods sold primarily consists of the costs of finished goods purchased directly from third parties or raw materials used in the manufacture of our products, plant and equipment overhead, labor costs, packaging costs, amortization of technology-related intangible assets and freight. The majority of our orthobiologics products are designed and manufactured internally. The cost of human tissue is a significant driver of the costs of goods sold and consequently our orthobiologics products carry lower gross margins than our spinal fusion hardware products. We rely on third-party suppliers to manufacture our spinal fusion hardware products, and we assemble them into surgical sets in-house. Other related costs include royalties, shipping, inspection and expired, excess and obsolete inventory charges. We expect our cost of goods sold to continue to increase in absolute dollars due primarily to increased sales volume.

Selling, General and Administrative Expense

Our selling, general and administrative (“SG&A”) expenses consist primarily of sales commissions to independent sales agents, payroll and other headcount related expenses, instrument set depreciation, stock-based compensation, the Medical Device Excise Tax, marketing expenses, supply chain and distribution, information

 

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technology, legal, human resources, insurance, finance, facilities, management and other allocated expenses. Selling related costs also include the cost of medical education, training and corporate communications activities.

We expect the amount of our SG&A expenses, excluding allocations, to increase as we hire additional personnel to support the growth of our business, continue to expand our product portfolio and add related sales and marketing personnel, and as we incur increased expenses as a result of being an independent, publicly traded company.

Research and Development Expense

Our research and development (“R&D”) expenses primarily consist of expenses related to the headcount for engineering, product development, clinical affairs and regulatory functions as well as consulting services, third-party prototyping services, outside research activities, materials production and other costs associated with development of our products. We expense R&D costs as they are incurred. We expect to incur additional R&D costs as we increase our investment in the design and commercialization of new products. While our R&D expenses fluctuate from period to period based on the timing of specific initiatives, we expect that the amount of these costs will increase over time as we continue to expand our product portfolio, add related personnel and conduct clinical activities.

Intangible Amortization

Our intangible amortization, including the amounts reported in cost of goods sold, consists of acquisition-related amortization and impairments related to product discontinuations. We may discontinue certain products in the future as we assess the profitability of our product lines. We expect total annual amortization expense (including amounts reported in cost of goods sold) to be approximately $7.9 million in 2015, $6.9 million in 2016, $5.8 million in 2017, $5.5 million in 2018 and $4.8 million in 2019.

Other Expense, Net

Other expense, net consists of non-operating items such as interest income, related-party interest expense on related-party loan activity, and foreign exchange transaction gains and losses on intercompany transactions and balances. Future interest expense will be determined by the amount and terms of any post-distribution borrowings.

Results of Operations

 

     Three Months Ended March 31,     Year Ended December 31,  
           2015                 2014           2014     2013     2012  
                 (In thousands, except percentages)  

Total revenues, net

   $ 32,314      $ 34,175      $ 138,695      $ 146,586      $ 147,510   

Costs of goods sold

     12,601        12,595        56,714        55,532        54,856   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

  19,713      21,580      81,981      91,054      92,654   

Gross margin %

  61.0   63.1   59.1   62.1   62.8

Operating Expenses:

Selling, general and administrative

  25,051      22,008      88,213      93,009      94,747   

Research and development

  1,582      2,192      8,527      9,893      12,269   

Intangible amortization

  1,397      1,399      5,590      5,598      5,716   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

  28,030      25,599      102,330      108,500      112,732   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

  (8,317   (4,019   (20,349   (17,449   (20,078

Other expense, net

  (721   (8   (269   (4,556   (8,194
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

  (9,038   (4,027   (20,618   (22,002   (28,272
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision for income taxes

  860      1,533      3,927      3,744      2,152   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

$ (9,898 $ (5,560 $ (24,545 $ (25,746 $ (30,424
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Comparison of Years ended December 31, 2014 and 2013

Revenue

For the year ended December 31, 2014, total revenues decreased by $7.9 million, or 5.4%, to $138.7 million from $146.6 million for the year ended December 31, 2013.

 

     Year Ended
December 31,
 
     2014     2013  
     (In millions, except
percentages)
 

Net Sales

    

Orthobiologics

   $ 67.6      $ 66.7   

% of net sales

     49     45

Spinal Fusion Hardware

   $ 71.1      $ 79.9   

% of net sales

     51     55
  

 

 

   

 

 

 

Total Net Sales

$ 138.7    $ 146.6   
  

 

 

   

 

 

 

Orthobiologics revenues were $67.6 million for the year ended December 31, 2014, an increase of 1.4% from the year ended December 31, 2013. Increased sales volume in the U.S. market primarily drove revenue growth, although supply shortages in demineralized bone matrix products in the middle of 2014 and declines in international sales resulting from a product line discontinuation limited that growth. Pricing in the U.S. orthobiologics market was stable from 2013 to 2014.

Spinal fusion hardware revenues were $71.1 million for the year ended December 31, 2014, a decrease of 11.0% from the year ended December 31, 2013. Domestic sales saw decreases in both price and volume for existing products, although such decreases were partially offset by sales of new products launched in late 2013 and 2014. We expect that sales of these recently launched products and those expected to be launched in 2015 will continue to accelerate and will represent a greater proportion of our spinal fusion hardware sales in 2015. International sales decreased as a result of certain stocking orders from new stocking distributors in 2013 that did not recur in 2014.

The following table sets forth our revenue by geography for the years ended December 31, 2014 and 2013, respectively.

Net Sales by Geography

 

     Year Ended
December 31,
 
     2014      2013  
     (In millions)  

United States

   $ 124.4       $ 128.6   

International

     14.3         18.0   
  

 

 

    

 

 

 

Total Net Sales

$ 138.7    $ 146.6   
  

 

 

    

 

 

 

Cost of Goods Sold and Gross Margin

Costs of goods sold increased by $1.2 million, or 2.1%, to $56.7 million for the year ended December 31, 2014 compared to $55.5 million for the year ended December 31, 2013. Gross margin as a percentage of revenues was 59.1% for the year ended December 31, 2014 and 62.1% in the year ended December 31, 2013. The decrease in gross margin percentage from 2013 to 2014 resulted primarily from increased manufacturing costs and because our lower-margin orthobiologics products represented a greater percentage of our revenues.

 

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Cost of goods sold in 2014 and 2013 included $0.3 million and $0.8 million, respectively, in fair value inventory purchase accounting adjustments recorded in connection with acquisitions and $2.6 million of amortization for technology-based intangible assets for the years ended December 31, 2014 and 2013. Allocations from Integra accounted for $1.3 million of expense for the year ended December 31, 2014 as compared to $1.2 million for the year ended December 31, 2013.

Selling, General and Administrative

SG&A expenses decreased by $4.8 million, or 5.2%, to $88.2 million for the year ended December 31, 2014 compared to $93.0 million for the year ended December 31, 2013, driven by lower sales commissions from fewer domestic sales, decreased instrument set depreciation and the impact of costs for structural optimization incurred in 2013 arising from the closure of our facilities in northeast Ohio. Allocations from Integra accounted for $17.6 million of expense for the year ended December 31, 2014 as compared to $17.4 million for the year ended December 31, 2013.

Research and Development

R&D expenses decreased by 13.8% to $8.5 million for the year ended December 31, 2014, compared to $9.9 million for the year ended December 31, 2013. The decrease in R&D expenses from 2013 to 2014 resulted mostly from a reduction in compensation-related costs because of planned and unplanned turnover in headcount and decreased external spending and project delays, in part because Integra decided to prioritize R&D spending in other areas of its business. Allocations from Integra accounted for $0.5 million of expense in 2014 as compared to $0.4 million in 2013. We expect that our future R&D expenses will increase as a percentage of revenues as we invest in additional product development headcount and programs.

Intangible Amortization

Amortization expense, excluding amounts reported in cost of goods sold for technology-based intangible assets, in the year ended December 31, 2014 was $5.6 million, relatively unchanged compared to the year ended December 31, 2013.

Other Expense, Net

Other expense, net was $0.3 million for the year ended December 31, 2014 compared to $4.6 million for the year ended December 31, 2013. Related-party interest expense for the year ended December 31, 2014 decreased $4.6 million primarily as a result of the capitalization of related-party loan activity which occurred in July of 2013. Future interest expense will be determined by the amount and terms of any post-distribution borrowings.

Income Taxes

We recorded income tax expense of $3.9 million and $3.7 million for the years ended December 31, 2014 and 2013, respectively. Our effective income tax rate was (19.0)% and (17.0)% of loss before income taxes for the years ended December 31, 2014 and 2013, respectively. See Note 7, “Income Taxes,” in our combined financial statements for a reconciliation of the United States federal statutory rate to our effective tax rate. We reported income tax expense in 2014 and 2013, despite the fact that we reported losses before income taxes, because our legal entity structure did not permit us to offset taxable losses generated by certain U.S. subsidiaries against the taxable income generated by another of our U.S. subsidiaries. There is no future tax benefit for such losses, because we have no assurance that future taxable income will be generated to allow for the recognition of such losses. In the future, we expect to make an election that will allow all of our companies to file a joint U.S. consolidated federal income tax return, such that taxable income and losses from all of our U.S. subsidiaries will be included in a single return.

 

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We have recorded a valuation allowance of $83.5 million against the remaining $94.0 million of gross deferred tax assets recorded at December 31, 2014. This valuation allowance relates to deferred tax assets for which the Company does not believe it has satisfied the more likely than not threshold for realization. We do not anticipate additional income tax benefits through future reductions in the valuation allowance, as the valuation allowance relates largely to federal and state net operating losses that will not be available to the Company, because those losses have been recognized in the tax returns of Integra, which was profitable. However, if we determine that we would be able to realize more or less than the recorded amount of net deferred tax assets, we will record an adjustment to the deferred tax asset valuation allowance in the period such a determination is made. Our deferred tax asset valuation allowance increased $10.0 million in 2014 and $7.0 million in 2013.

At December 31, 2014 we had net operating loss carryforwards of $113.1 million for federal income tax purposes, and $57.6 million for state income tax purposes. These losses have been recognized in the tax returns of Integra, which was profitable, and will not be available to offset future taxable income after the distribution.

Comparison of Years ended December 31, 2013 and 2012

Revenue

For the year ended December 31, 2013, total revenues decreased by $1.3 million, or 0.9%, to $146.6 million from $147.5 million for the year ended December 31, 2012.

 

     Year Ended
December 31,
 
       2013         2012    
     (In millions,
except percentages)
 

Net Sales

    

Orthobiologics

   $ 66.7      $ 64.2   

% of net sales

     45     43

Spinal Fusion Hardware

   $ 79.9      $ 83.3   

% of net sales

     55     57
  

 

 

   

 

 

 

Total Net Sales

$ 146.6    $ 147.5   
  

 

 

   

 

 

 

Orthobiologics revenues were $66.7 million for the year ended December 31, 2013, an increase of 3.9% from the year ended December 31, 2012. The increase in sales primarily resulted from strong demand for demineralized bone matrix products, especially our third-generation products. Supply shortages in collagen ceramic matrix bone void fillers in the first half of 2013 adversely affected orthobiologics sales. International sales decreased slightly primarily because of slower sales in Latin American markets.

Spinal fusion hardware revenues were $79.9 million for the year ended December 31, 2013, a decrease of 4.1% from the year ended December 31, 2012. The decrease in revenues resulted from lower market demand and related pricing pressure, disruption arising from the integration of distribution activities and some independent sales agent turnover in the United States. International revenues increased primarily a result of an increase in stocking orders from new independent spinal fusion hardware stocking distributors in the Middle East and Africa and stocking orders for newly registered products in Europe.

 

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The following table sets forth our revenue by geography for the years ended December 31, 2013 and 2012, respectively.

 

     Year Ended
December 31,
 
     2013      2012  
     (In millions)  

United States

   $ 128.6       $ 134.2   

International

     18.0         13.3   
  

 

 

    

 

 

 

Total Net Sales

$ 146.6    $ 147.5   
  

 

 

    

 

 

 

Cost of Goods Sold and Gross Margin

Costs of goods sold for the year ended December 31, 2013 increased by $0.7 million, or 1.2%, to $55.5 million compared to $54.8 million for the year ended December 31, 2012. Gross margin as a percentage of revenues was 62.1% for the year ended December 31, 2013 and 62.9% in the year ended December 31, 2012. Higher proportions of orthobiologics and international sales, which have lower gross margins, and higher allocations from Integra in 2013 drove the decrease in gross margin percentage, and were partially offset by a reduction in step-up amortization related to our SeaSpine and Theken acquisitions. Cost of goods sold for the years ended December 31, 2013 and 2012 included $0.8 million and $1.7 million, respectively, in fair value inventory purchase accounting adjustments recorded in connection with acquisitions and $2.6 million of other amortization for technology-based intangible assets for each of the years ended December 31, 2013 and 2012. Allocations from Integra accounted for $1.2 million of expense for the year ended December 31, 2013 as compared to $0.2 million for the year ended December 31, 2012.

Selling, General and Administrative

SG&A expenses decreased slightly to $93.0 million for the year ended December 31, 2013 from $94.7 million for the year ended December 31, 2012. The reduction in SG&A expenses primarily resulted from the consolidation of spinal fusion hardware facilities, including the closing of our facilities in northeast Ohio, the savings from which was partially reinvested in sales and marketing activities. Allocations from Integra accounted for $17.4 million of expense for the year ended December 31, 2013, as compared to $15.5 million for the year ended December 31, 2012, primarily driven by higher costs associated with Integra’s global ERP implementation.

Research and Development

R&D expenses decreased 19.4% to $9.9 million for the year ended December 31, 2013 compared to $12.3 million for the year ended December 31, 2012. The decrease in R&D expenses from 2012 to 2013 mostly resulted from the reduction in compensation-related costs arising from the consolidation of our hardware R&D efforts to Vista, California in late 2012. Integra also shifted investments to other areas of its business. Allocations from Integra were essentially flat at $0.4 million for the years ended December 31, 2013 and 2012.

Intangible Amortization

Amortization expense, excluding amounts reported in cost of goods sold for technology-based intangible assets, in the year ended December 31, 2013 decreased slightly to $5.6 million from $5.7 million for the year ended December 31, 2012.

Other Expense, Net

Other expense, net was $4.6 million for the year ended December 31, 2013, as compared to $8.2 million for the year ended December 31, 2012. Interest expense decreased $3.3 million for the year ended December 31,

 

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2013 primarily as a result of the capitalization of related-party loan activity which occurred in July of 2013. Future interest expense will be determined by the amount and terms of any post-distribution future borrowings.

Income Taxes

We recorded income tax expense of $3.7 million and $2.2 million for the years ended December 31, 2013 and 2012, respectively. Our effective income tax rate was (17.0)% and (7.6)% of income before income taxes for the years ended December 31, 2013 and 2012, respectively. See Note 7, “Income Taxes,” in our combined financial statements for a reconciliation of the United States federal statutory rate to our effective tax rate. We reported income tax expense, despite the fact that we reported losses before income taxes, because our legal entity structure did not permit us to offset taxable losses generated by certain U.S. subsidiaries against the taxable income of another of our U.S. subsidiaries. There is no future tax benefit for such losses because we have no assurance that future taxable income will be generated to allow for the recognition of such losses. In the future, we expect to make an election that will allow all of our subsidiaries to join in the filing of a U.S. consolidated federal income tax return, such that taxable income and losses from all of our U.S. subsidiaries will be included in a single return.

We have recorded valuation allowances of $73.5 million and $66.5 million against the remaining $83.2 million and $75.4 million of gross deferred tax assets recorded at December 31, 2013 and December 31, 2012, respectively. These valuation allowances relate to deferred tax assets for which the Company does not believe it has satisfied the more likely than not threshold for realization. We do not anticipate additional income tax benefits through future reductions in the valuation allowances, as the valuation allowances relate largely to federal and state net operating losses that will not be available to the Company, due to the fact that those losses have been recognized in the tax returns of Integra, which was profitable. However, if we determine that we would be able to realize more or less than the recorded amount of net deferred tax assets, we will record an adjustment to the deferred tax asset valuation allowance in the period such a determination is made. Our deferred tax asset valuation allowance increased $7.0 million for the year ended December 31, 2013 and decreased $2.1 million for the year ended December 31, 2012 because of the expiration of foreign net operating losses.

At December 31, 2013 and December 31, 2012, we had net operating loss carryforwards of $75.4 million and $41.2 million, respectively, for federal income tax purposes, and $42.3 million and $28.9 million, respectively, for state income tax purposes. These losses have been recognized in the tax returns of Integra, which was profitable, and will not be available to offset future taxable income after the distribution.

Comparison of Three Months ended March 31, 2015 and 2014

Revenue

For the three months ended March 31, 2015, total revenues decreased by $1.9 million, or 5.4%, to $32.3 million from $34.2 million for the three months ended March 31, 2014.

 

     Three Months Ended
March 31,
 
         2015             2014      
     (In millions,
except percentages)
 

Net Sales

    

Orthobiologics

   $ 16.0      $ 16.2   

% of net sales

     50 %     48

Spinal Fusion Hardware

   $ 16.3      $ 17.9   

% of net sales

     50 %     52
  

 

 

   

 

 

 

Total Net Sales

$ 32.3    $ 34.2   
  

 

 

   

 

 

 

 

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Orthobiologics revenues were $16.0 million for the three months ended March 31, 2015, roughly flat with the three months ended March 31, 2014. We experienced strong demand for demineralized bone matrix products in the United States, especially our third-generation products. This growth was largely offset by lower international revenues, driven by lower sales in Europe and the negative impact of foreign exchange rates.

Spinal fusion hardware revenues were $16.3 million for the three months ended March 31, 2015, a decrease of 9.2% from the three months ended March 31, 2014. The U.S. hardware business continued to face pricing pressures, experienced delays in new product launches and added new independent sales agents at a slower than anticipated rate. Sales of our spinal hardware fusion products were flat in Europe year over year. We expect the performance of the spinal hardware business to improve in the second half of the year as recently launched and soon to be launched new products stimulate demand.

The following table sets forth our revenue by geography for the three months ended March 31, 2015 and 2014, respectively.

 

     Three Months
Ended March 31,
 
     2015      2014  
     (In millions)  

United States

   $ 29.4       $ 30.6   

International

     2.9         3.6   
  

 

 

    

 

 

 

Total Net Sales

$ 32.3    $ 34.2   
  

 

 

    

 

 

 

Cost of Goods Sold and Gross Margin

Costs of goods sold for the three months ended March 31, 2015 was flat at $12.6 million compared to March 31, 2014. Gross margin as a percentage of revenues was 61.0% for the three months ended March 31, 2015 and 63.1% in the three months ended March 31, 2014. Higher manufacturing costs for orthobiologics products somewhat offset by a higher percentage of domestic sales, which have higher gross margins than international sales, drove the decrease in gross margin percentage. Cost of goods sold included $0.7 million of amortization for technology-based intangible assets for each of the three months ended March 31, 2015 and 2014. Allocations from Integra accounted for $0.2 million of expense for the three months ended March 31, 2015 as compared to $0.3 million for the three months ended March 31, 2014.

Selling, General and Administrative

SG&A expenses increased to $25.1 million for the three months ended March 31, 2015 from $22.0 million for the three months ended March 31, 2014. The increase in SG&A expenses was driven by $4.8 million of separation related charges, somewhat offset by lower depreciation on instruments sets and lower commission payments. Allocations from Integra accounted for $4.3 million of expense for the three months ended March 31, 2015, as compared to $4.4 million for the three months ended March 31, 2014.

Research and Development

R&D expenses decreased 27.8% to $1.6 million for the three months ended March 31, 2015 compared to $2.2 million for the three months ended March 31, 2014. The decreases in R&D expenses from three months ended March 31, 2014 to three months ended March 31, 2015 resulted from lower outside project spending and from Integra shifting investments to other areas of its business. Allocations from Integra were essentially flat at $0.1 million for the three months ended March 31, 2015 and 2014.

 

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Intangible Amortization

Amortization expense, excluding amounts reported in cost of goods sold for technology-based intangible assets, in the three months ended March 31, 2015 was $1.4 million and essentially flat compared to the three months ended March 31, 2014.

Other Expense, Net

Other expense, net was $0.7 million for the three months ended March 31, 2015, as compared to $0.0 million for the three months ended March 31, 2014 due to the negative impact of foreign exchange rates on related party loans. Future interest expense will be determined by the amount and terms of any post-distribution future borrowings.

Income Taxes

 

     Three Months Ended
March 31,
 
         2015             2014      
     (In thousands)  

Income before income taxes

     (9,038     (4,027

Income taxes

     860        1,533   

Effective tax rate

     (9.5 )%      (38.1 )% 

The primary drivers of the overall tax rate for the three months ended March 31, 2015 were pretax losses incurred by the consolidated U.S. tax group that received no corresponding tax benefit, offset in part by the release of Federal uncertain tax positions due to statute expirations. The primary drivers of the overall tax rate for the three months ended March 31, 2014 were pretax losses incurred by the consolidated U.S. tax group that received no corresponding tax benefit.

We reported income tax expense for the three months ended March 31, 2015 and March 31, 2014, despite the fact that we reported losses before income taxes in those periods, because our legal entity structure did not permit us to offset taxable losses generated by certain U.S. subsidiaries against the taxable income generated by another of our U.S. subsidiaries. There is no future tax benefit for such losses, because we have no assurance that future taxable income will be generated to allow for the recognition of such losses. In the future, we expect to make an election that will allow all of our companies to file a joint U.S. consolidated federal income tax return, such that taxable income and losses from all of our U.S. subsidiaries will be included in a single return.

The effective tax rate may vary from period to period depending on, among other factors, the geographic and business mix of taxable earnings and losses, tax planning and settlements with various taxing authorities. We consider these factors and others, including our history of generating taxable earnings, in assessing our ability to realize deferred tax assets on a quarterly basis.

While it is often difficult to predict the final outcome or the timing of resolution of any particular matter with the various Federal, state and foreign tax authorities, we believe that our reserves reflect the most probable outcome of known tax contingencies. Settlement of any particular issue would usually require the use of cash. Favorable resolution would be recognized as a reduction to our annual effective tax rate in the year of resolution. The tax reserves are presented in the balance sheet within other liabilities, except for amounts relating to items we expect to pay in the coming year which would be classified as current income taxes payable.

Business Factors Affecting the Results of Operations

Special Charges  

We typically define special charges as items for which the amounts or timing of such expenses can vary significantly from period to period, depending upon our acquisition, integration and restructuring activities, and

 

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for which the amounts are non-cash in nature, or the amounts are not expected to recur at the same magnitude. We believe that some of the special charges discussed below could recur with similar materiality in the future.

We believe that the separate identification of these special charges provides important supplemental information to investors regarding financial and business trends relating to our financial condition and results of operations. Investors may find this information useful in assessing comparability of our operating performance from period to period, against the business model objectives that management has established, and against other companies in our industry. We provide this information to investors so that they can analyze our operating results in the same way that management does and use this information in their assessment of the core business and valuation of SeaSpine.

Loss before taxes includes the following special charges:

 

     Three Months Ended
March 31,
     Year Ended December 31,  
         2015              2014              2014              2013              2012      
                   (In thousands)  

Global ERP implementation charges

   $ 95       $ 36       $ 167       $ —         $ —     

Structural optimization charges

     —           —           —           3,462         4,895   

SeaSpine separation related charges

     4,847         —           2,310         —           —     

Discontinued product lines charges

     —           —           860         —           —     

Acquisition-related charges

     —           42         257         796         1,823   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

$ 4,942    $ 78    $ 3,594    $ 4,258    $ 6,718   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

The items reported above are reflected in the combined statements of operations as follows:

 

     Three Months Ended
March 31,
     Year Ended December 31,  
         2015              2014              2014              2013              2012      
                   (In thousands)  

Cost of goods sold

     —         $ 42       $ 1,117       $ 796       $ 2,598   

Selling, general and administrative

   $ 4,942         36         2,477         3,462         4,120   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

$ 4,942    $ 78    $ 3,594    $ 4,258    $ 6,718   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

These special charges are directly related to the SeaSpine business and do not include allocations from Integra. Global ERP implementation charges consist of the non-capitalizable portion of internal labor and outside consulting costs related to the implementation of a global ERP system for SeaSpine. We are in the final stages of that project. Structural optimization charges are related to the closing of the northeast Ohio facilities and consolidation into other facilities, and include related employee severance charges. SeaSpine separation-related transaction charges include legal, accounting, program management and outside consulting expenses incurred as part of the separation, and incremental personnel costs associated with becoming an independent, publicly traded company. Discontinued product line charges are related to the exit of one of our product lines sold internationally. Acquisition-related charges include transaction fees and the amortization of inventory fair value adjustments related to acquisitions.

Liquidity and Capital Resources

Overview

Historically, Integra has provided financing, cash management and other treasury services to us. We have transferred the majority of cash from operations to Integra and accordingly we have no significant cash. We expect this to continue until the spin-off. Cash transferred to and from Integra has been recorded as Integra net investment in the accompanying historical combined financial statements.

 

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We believe that the borrowing capacity that we expect to have under the credit facility that we are currently negotiating and expect to enter into shortly following the distribution and the expected $47 million of cash to be contributed to us by Integra prior to the separation will satisfy our liquidity requirements for at least the next twenty-four months, both globally and domestically, including the following: working capital needs, capital expenditures, strategic marketing and distribution alliances, contractual obligations, commitments, business acquisitions and other liquidity requirements associated with our operations.

Cash and Marketable Securities

We had cash totaling approximately $0.7 million and $0.6 million at December 31, 2014 and 2013, respectively.

We believe that the $47 million of cash to be contributed to us by Integra prior to the separation, and the borrowing capacity that we expect to have under the credit facility that we are currently negotiating and expect to enter into shortly following the distribution will be sufficient to satisfy our working capital and capital expenditure requirements for at least the next two years.

Cash Flows

 

     Three Months Ended March 31,     Year Ended December 31,  
               2015                         2014               2014     2013     2012  
           (In thousands)  

Net cash (used in) provided by:

          

Operating activities

   $ (92   $ 1,373      $ 806      $ (7,480     (9,635

Investing activities

     (3,571     (1,102     (3,804     (5,550     (13,855

Financing activities

     3,662        (263     3,012        13,581        21,210   

Effect of exchange rate fluctuations on cash

     (3     0        (8     4        18   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

$ (4 $ 8    $ 6    $ 555      (2,262
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Cash Provided by Operating Activities

We generated operating cash flows of $0.8 million, and used $7.5 million and $9.6 million in cash for operations for the years ended December 31, 2014, 2013 and 2012, respectively.

Operating cash flows for 2014 improved as compared to the same period in 2013. Cash generated by working capital changes increased by $8.7 million. Net loss plus items included in that loss for non-cash expenses were flat compared to the prior year. The main driver of the change in working capital was a $7.5 million reduction in inventory builds in 2014 compared to 2013. In 2013, we invested a substantial amount in inventory to support new product launches in Europe and to achieve safety stock levels more appropriate for the business.

Operating cash flows for 2013 improved from the same period in 2012. Net loss plus items included in that loss for non-cash expenses improved by $2.6 million, offset by $1.4 million in additional expenditures for working capital. The major components of the change in working capital were $7.1 million in additional inventory purchases for new product launches in Europe and building inventory for certain spine fusion hardware products and orthobiologics products to attain safety stock levels. Cash collections on accounts receivable improved by $7.0 million in 2013, largely because of delays in collection in 2012. Cash flows related to accrued expenses and other liabilities decreased by $3.1 million in 2013.

Operating cash flows for the three months ended March 31, 2015 declined by $1.5 million compared to the three months ended March 31, 2014. Net loss plus items included in that loss for non-cash expenses decreased

 

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cash flows by $5.0 million compared to the prior year, largely driven by separation related charges in the current quarter. Cash generated by working capital changes increased by $3.6 million largely driven by accrued liabilities for unpaid separation transaction costs.

Net Cash in Investing Activities

Net cash used in investing activities was $3.8 million for the year ended December 31, 2014 as compared to $5.6 million for the year ended December 31, 2013. The decrease in cash used was attributable to fewer purchases of spine hardware sets and instruments.

Net cash used in investing activities was $5.6 million for the year ended December 31, 2013 as compared to $13.9 million for the year ended December 31, 2012. The decrease primarily resulted from the payment in 2012 of our $7.5 million indemnification holdback related to a prior acquisition.

Net cash used in investing activities was $3.6 million for the three months ended March 31, 2015 as compared to $1.1 million for the three months ended March 31, 2014. The increased use of cash was primarily attributable to capitalized costs related to the implementation of the global ERP system as well as increased purchases of spinal fusion hardware sets and instruments.

Net Cash Provided by Financing Activities

Net cash provided by financing activities was $3.0 million for the year ended December 31, 2014 as compared to net cash provided by financing activities of $13.6 million for the year ended December 31, 2013. The decrease in cash resulted from a decrease in investment from Integra because of improved cash flows in 2014 as compared to 2013.

Net cash provided by financing activities was $13.6 million for the year ended December 31, 2013 as compared to $21.2 million for the year ended December 31, 2012. The decrease in cash resulted from a decrease in investment from Integra.

Net cash provided by financing activities was $3.7 million for the three months ended March 31, 2015 as compared to net cash used by financing activities of $0.3 million for the three months ended March 31, 2014. The increase in cash resulted from a higher investment from Integra.

Off-Balance Sheet Arrangements

There were no off-balance sheet arrangements during the years ended December 31, 2014 and 2013 that have or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our interests.

Contractual Obligations and Commitments

As of December 31, 2014, we were obligated to pay the following amounts under various agreements:

 

     Total      Less than 1
Year
     1-3 Years      3-5 Years      More than
5 Years
 
     (In millions)  

Operating Leases

   $ 8.8       $ 1.7       $ 2.0       $ 1.8       $ 3.3   

Purchase Obligations

     6.7         6.7         —           —           —     

Other

     2.0         0.2         0.6         0.8         0.5   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

$ 17.5    $ 8.6    $ 2.6    $ 2.6    $ 3.8   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Excluded from the contractual obligations table is the liability for uncertain tax benefits, including interest and penalties, totaling $0.1 million. This liability for uncertain tax benefits has been excluded because we cannot make a reliable estimate of the period in which the uncertain tax benefits may be realized.

Critical Accounting Policies and the Use of Estimates

Our discussion and analysis of financial condition and results of operations is based upon our combined financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities, and the reported amounts of revenues and expenses. Significant estimates affecting amounts reported or disclosed in the combined financial statements include allowances for doubtful accounts receivable and sales returns and allowances, net realizable value of inventories, valuation of intangible assets, amortization periods for acquired intangible assets, estimates of projected cash flows and discount rates used to value intangible assets and test them for impairment, estimates of projected cash flows and depreciation and amortization periods for long-lived assets, computation of taxes, computation of valuation allowances recorded against deferred tax assets, valuation of stock-based compensation and loss contingencies. These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the current circumstances. Actual results could differ from these estimates.

We believe that the following accounting policies, which form the basis for developing these estimates, are those that are most critical to the presentation of our combined financial statements and require the more difficult subjective and complex judgments:

Revenue Recognition

Our net sales are derived primarily from the sale of orthobiologics and spinal fusion hardware products across North America, Europe, Asia Pacific and Latin America. Sales are reported net of returns, group purchasing organization fees and other customer allowances.

Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, title and risk of loss have passed to the customer, there is a fixed or determinable sales price and collectability of that sales price is reasonably assured.

In the United States, we generate most of our revenue by consigning our orthobiologics products and consigning or loaning our spinal fusion hardware sets to hospitals and independent sales agents, who in turn deliver them to the hospital for a single surgical procedure or leave them with hospitals that are high volume users for use in multiple procedures. The spinal fusion hardware sets typically contain the instruments, including disposables, and spinal implants required to complete a surgery. We ship replacement inventory to independent sales agents to replace the consigned inventory used in surgeries and maintain and replenish the loaned sets and return them to a hospital or independent sales agent for the next procedure. We recognize revenue on these consigned or loaned products when they have been used or implanted in a surgical procedure.

For all other transactions, including sales to international stocking distributors, we recognize revenue when the products are shipped to the customer or stocking distributor and the transfer of title and risk of loss occurs. There are generally no customer acceptance or other conditions that prevent us from recognizing revenue in accordance with the delivery terms.

Product royalties are estimated and recognized in the same period that the royalty-based products are sold by licensees. We estimate and recognize royalty revenue based upon communication with licensees, historical information and expected sales trends. Differences between actual revenues and estimated royalty revenues are adjusted in the period in which they become known, which is typically the following quarter. Historically, such adjustments have not been significant.

 

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Allowance for Doubtful Accounts Receivable

We evaluate the collectability of accounts receivable based on a combination of factors. In circumstances where a specific customer is unable to meet its financial obligations to us, we record an allowance against amounts due to reduce the net recognized receivable to the amount that we reasonably expect to collect. For all other customers, we record allowances for doubtful accounts based on the length of time the receivables are past due, the current business environment and our historical experience. If the financial condition of customers or the length of time that receivables are past due were to change, we may change the recorded amount of allowances for doubtful accounts in the future through charges or reductions to SG&A expense.

Inventories

Inventories, consisting of purchased materials, direct labor and manufacturing overhead, are stated at the lower of cost, the value determined by the first-in, first-out method, or the market methods. At each balance sheet date, we evaluate ending inventories for excess quantities, obsolescence or shelf-life expiration. Our evaluation includes an analysis of historical sales levels by product, projections of future demand by product, the risk of technological or competitive obsolescence for our products, general market conditions, a review of the shelf-life expiration dates for our products, and the feasibility of reworking or using excess or obsolete products or components in the production or assembly of other products that are not obsolete or for which we do not have excess quantities in inventory. To the extent that we determine there are excess or obsolete quantities or quantities with a shelf life that is too near its expiration for us to reasonably expect that we can sell those products prior to their expiration, we adjust their carrying value to estimated net realizable value. If future demand or market conditions are lower than our projections, particularly as we begin to assess our international strategy and the inventory levels needed to support anticipated sales and for which we have purchased and assembled instrument and implant sets and replenishment inventory for sale to our stocking distributors, or if we are unable to rework excess or obsolete quantities into other products, we may record further adjustments to the carrying value of inventory through a charge to cost of goods sold in the period the revision is made. In addition, we capitalize inventory costs associated with certain products prior to regulatory approval, based on management’s judgment of probable economic benefit. We could be required to expense previously capitalized costs related to pre-approval inventory upon a change in such judgment, due to, among other potential factors, a denial or delay of approval by necessary regulatory bodies or a decision by management to discontinue the related development program.

Valuation of Goodwill and Identifiable Intangible Assets

We review goodwill and identifiable intangible assets with indefinite lives for impairment annually. We continually assess whether events or changes in circumstances represent a triggering event that would require us to complete an impairment assessment. Factors that we consider in determining whether a triggering event has occurred include a significant change in the business climate, legal factors, operating performance indicators, competition, sale or disposition of significant assets or products. Application of these impairment tests requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, the useful life over which cash flows will occur and determination of our weighted-average cost of capital.

Should a triggering event be deemed to occur, we are required to estimate the expected net cash flows to be realized over the life of the asset and/or the asset’s fair value. Fair values are determined by a discounted cash flow model. These estimates are also subject to significant management judgment including the determination of many factors such as revenue growth rates, cost growth rates, terminal value assumptions and discount rates. Changes in these estimates can have a significant impact on the determination of cash flows and fair value and could potentially result in future material impairments.

We initially record identifiable intangible assets at fair market value at the time of acquisition, generally using an income or cost approach. We capitalize costs incurred to renew or extend the term of recognized intangible assets and amortize those costs over their expected useful lives.

 

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Income Taxes

The income tax provision in the combined statements of operations has been calculated using the separate return method, as if we filed a separate tax return and operated as a stand-alone business. Therefore, cash tax payments and items of current and deferred taxes may not be reflective of our actual tax balances included in Integra’s historical consolidated income tax return. More specifically, the presentation of substantial net operating losses, and any related valuation allowances, presented herein do not represent actual net operating losses that have been incurred by us or that are available for carryforward to a future tax year. We reported income tax expense, despite the fact that we reported losses before income taxes, because our legal entity structure did not permit us to offset taxable losses generated by certain U.S. subsidiaries against the taxable income generated by another of our U.S. subsidiaries.

Changes in the tax rates of the various jurisdictions in which we operate affect our profits. In addition, we maintain a reserve for uncertain tax benefits, changes to which could impact our effective tax rate in the period such changes are made. The effective tax rate can also be impacted by changes in valuation allowances of deferred tax assets, and tax law changes.

Our provision for income taxes may change period-to-period based on specific events, such as the settlement of income tax audits and changes in tax laws, as well as general factors, including the geographic mix of income before taxes, state and local taxes.

We recognize a tax benefit from an uncertain tax position only if it is more likely than not to be sustained upon examination based on the technical merits of the position. The amount of the accrual for which an exposure exists is not material for any period presented.

We believe that we have identified all reasonably identifiable exposures and the reserve we have established for identifiable exposures is appropriate under the circumstances; however, it is possible that additional exposures exist and that exposures will be settled at amounts different than the amounts reserved. It is also possible that changes in facts and circumstances could cause us to either materially increase or reduce the carrying amount of our tax reserves.

Our deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their basis for income tax purposes, and also the temporary differences created by the tax effects of capital loss, net operating loss and tax credit carryforwards. We record valuation allowances to reduce deferred tax assets to the amounts that are more likely than not to be realized. We could recognize no benefit from our deferred tax assets or we could recognize some or all of the future benefit depending on the amount and timing of taxable income we generate in the future.

Loss Contingencies

We are subject to claims and lawsuits in the ordinary course of our business, including claims by employees or former employees, with respect to our products and involving commercial disputes. We accrue for loss contingencies when it is deemed probable that a loss has been incurred and that loss is estimable. The amounts accrued are based on the full amount of the estimated loss before considering insurance proceeds, if applicable, and do not include an estimate for legal fees expected to be incurred in connection with the loss contingency. We consistently accrue legal fees expected to be incurred in connection with loss contingencies as those fees are incurred by outside counsel as a period cost. Our financial statements do not reflect any material amounts related to possible unfavorable outcomes of claims and lawsuits to which we are currently a party because we currently believe that such claims and lawsuits are not expected, individually or in the aggregate, to result in a material and adverse effect on our financial condition.

 

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Recently Issued and Adopted Accounting Standards

In April 2014, the FASB issued amendments to guidance for reporting discontinued operations and disposals of components of an entity. The amended guidance requires that a disposal representing a strategic shift that has (or will have) a major effect on an entity’s financial results or a business activity classified as held for sale should be reported as discontinued operations. The amendments also expand the disclosure requirements for discontinued operations and add new disclosures for individually significant dispositions that do not qualify as discontinued operations. The amendments are effective prospectively for fiscal years, and interim reporting periods within those years, beginning after December 15, 2014 (early adoption is permitted only for disposals that have not been previously reported). The implementation of the amended guidance is not expected to have a material impact on our combined financial position or results of operations; however, it will likely increase required footnote disclosures.

In May 2014, the FASB issued Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should: 1) identify the contract(s) with a customer, 2) identify the performance obligations in the contract, 3) determine the transaction price, 4) allocate the transaction price to the performance obligations in the contract, and 5) recognize revenue when (or as) the entity satisfies a performance obligation. This update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and early adoption is not permitted. We are in the process of evaluating the impact of this standard on its financial statements.

In June 2014, the FASB issued Update No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (Topic 718). The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. This update is effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period, and early adoption is permitted. The implementation of the amended guidance is not expected to have a material impact on our combined financial position or results of operations.

In August 2014, the FASB issued Update No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The amendment requires management to evaluate, for each annual and interim reporting period, whether there are conditions and events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date the financial statements are issued or are available to be issued. If substantial doubt is raised, additional disclosures around management’s plan to alleviate these doubts are required. This update will become effective for all annual periods and interim reporting periods beginning after December 15, 2016. The implementation of the amended guidance is not expected to have an impact on current disclosures in the financial statements.

In April 2015, the FASB issued Update No. 2015-03, Simplifying the Presentation of Debt Issuance Costs . The amendment requires that all costs incurred to issue debt be presented in the balance sheet as a direct deduction from the carrying value of the debt. The new standard is limited to the presentation of debt issuance costs and does not affect the recognition or measurement of debt issuance costs. This update will become effective for all annual periods and interim reporting periods beginning after December 15, 2015. The

 

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implementation of the amended guidance is not expected to have a material impact on our consolidated results of operations and will result in a reclassification of our debt issuance costs from other long-term assets to long-term debt when adopted.

There are no other recently issued accounting pronouncements that are expected to have a material effect on our financial position, results of operations or cash flows.

Quantitative and Qualitative Disclosures About Market Risk

We are exposed to various market risks, including changes in foreign currency exchange rates and interest rates that could adversely affect our results of operations and financial condition. Although we do not have any derivative instruments for hedging purposes, to manage the volatility relating to these typical business exposures, we may consider entering into various derivative transactions when appropriate. We do not hold or issue derivative instruments for trading or other speculative purposes.

Foreign Currency Exchange and Other Rate Risks

We are exposed to various market risks which may result in potential losses arising from adverse changes in market rates, such as interest rates and foreign exchange rates. We do not believe we are exposed to material market risk with respect to our cash.

The results of operations discussed herein have not been materially affected by inflation.

Interest Rate Risk

We will be exposed to interest rate risk in connection with any future borrowings, including the $         million borrowing capacity that we expect to have under the credit facility that we intend to enter into following the distribution. We do not expect that a 1.0% change in interest rates would have a significant impact on our net loss for the period or cash flow.

 

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BUSINESS

Overview

SeaSpine is a global medical technology company focused on the design, development and commercialization of surgical solutions for the treatment of patients suffering from spinal disorders. We have a comprehensive portfolio of orthobiologics and spinal fusion hardware solutions to meet the varying combinations of products that neurosurgeons and orthopedic spine surgeons need to perform fusion procedures in the lumbar, thoracic and cervical spine. Our orthobiologics products consist of a broad range of advanced and traditional bone graft substitutes that are designed to improve bone fusion rates following a wide range of orthopedic surgeries, including spine, hip, and extremities procedures. We manufacture most of our orthobiologics products at our Irvine, California manufacturing facility. Our spinal fusion hardware portfolio consists of an extensive line of products to facilitate spinal fusion in minimally invasive surgery (“MIS”), complex spine, deformity and degenerative procedures. We believe this broad combined portfolio of orthobiologics and spinal fusion hardware products is essential to meet the “complete solution” requirements of neurosurgeons and orthopedic spine surgeons.

For the year ended December 31, 2014, our total revenue was $138.7 million and our net loss was $24.5 million. For the same period, our orthobiologics sales were $67.6 million, representing 48.7% of our total revenue and our spinal fusion hardware sales were $71.1 million, representing 51.3% of our total revenue. We expect to incur losses as we invest in the expansion of our business, primarily in marketing and research and development and as we incur additional costs related to being an independent, publicly traded company. Following the spin-off, our cash is expected to be $47 million as a result of the cash contribution from Integra. The amount of the cash contribution from Integra will be finally determined as a result of (x) the estimated cash requirements needed by the Company to support its five-year business plan and (y) the amount of cash that will be necessary to settle any final liabilities related to transaction costs incurred to complete the spin-off.

Our comprehensive offering of orthobiologics and spinal fusion hardware products has evolved to meet the complete surgical needs for our customers. Bone grafts and bone graft substitutes are frequently used to promote the bone healing process in orthopedic surgical procedures where a bone void or defect has been created. Once hardware products such as metal plates, rods and screws, and metal, polyetheretherketone (“PEEK”) or machined cadaver bone spacers, are used to restore and stabilize the bone structure, orthobiologics can be used to support the fusion of bone. Most often autograft, the patient’s own bone, is not adequate for the complete bone healing process, so bone graft substitutes are used to either replace or supplement and extend the autograft. Bone healing requires three components—osteogenic cells which build new bone, an osteoinductive signal, which stimulates the cells to build bone, and an osteoconductive scaffold, or conductive matrix, over which the cells can migrate. Our broad orthobiologics portfolio employs these principles to provide osteoinductive and/or osteoconductive properties to support the patient’s own cells in the formation of new bone. We believe our expertise in both orthobiologic sciences and spinal fusion hardware product development allows us to offer our surgeon customers a differentiated portfolio and a “complete solution” to meet their fusion requirements.

Our orthobiologics products include a variety of bone graft substitutes including demineralized bone matrices (“DBM”) and collagen ceramic matrices that have a balance of osteoinductive and osteoconductive properties. Demineralized bone matrices consist of human cadaver bone that has been processed to remove the mineral content but preserve the protein content and osteoinductive properties of the bone. Our most advanced bone graft substitute solution, marketed as Accell Evo3 ® and OsteoSurge ® 300, is our third-generation demineralized bone matrix product. Utilizing our proprietary Accell technology, this optimized formulation also incorporates a standard particulate DBM in a unique biocompatible carrier designed to provide better handling and containment characteristics as compared to competitive demineralized bone matrix products. Accell Bone Matrix is an open structured, dispersed form of DBM, which provides accessibility to bone proteins without the need to be broken down after implantation in the patient. Standard particulate DBM is dense and requires more time to break down. Until these dense particles break down, access to natural bone proteins is limited. As a result

 

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the combination of these two forms of DBM creates a favorable environment for the formation of bone over time. In addition, the carrier allows Accell Evo3 to meet the needs of challenging surgical applications where robust handling is essential. The material is considered to be a reverse-phase carrier, which means at room temperature, it is less viscous and thereby more moldable, while at body temperature after implantation, it becomes more viscous, thereby resisting irrigation and minimizing graft migration. We also offer first- and second-generation demineralized bone matrix products which also include some of the technologies in our most advanced formulation. Additional demineralized bone matrix product configurations include products designed specifically for use in spine fusion procedures. Our collagen ceramic matrix product, currently marketed as Integra Mozaik and OsteoStrux, is an engineered collagen framework with ceramic components that together provide a scaffold for bone cell migration. The ceramic components provide mineral content to foster bone formation during the healing process. This product is indicated for use in combination with a patient’s own bone marrow to allow the placement of osteogenic bone marrow cells within the product’s osteoconductive matrix. This product is offered in strip, putty and moldable morsel configurations to meet the varying needs and preferences of our surgeon customers. We also offer allograft cancellous bone in sponge, chips and crushed preparations, as well as synthetic beta-tricalcium phosphate synthetic bone void fillers.

Spinal fusion utilizes the body’s own bone growth processes to fuse two or more spinal vertebrae. Spinal fusion consists of a variety of different approaches or techniques and is used to treat a range of spinal conditions. Our spinal fusion hardware portfolio includes a broad offering of products to facilitate spinal fusion in MIS, complex spine, deformity and degenerative procedures. We offer MIS products consisting of multiblade adjustable retractors, tube retractors and mini-open and percutaneous solutions. We also offer rods, screws and instrumentation for posterior lumbar fusion and a broad range of anterior, posterior and lateral interbody devices. We recently added to our interbody portfolio with a controlled market release in December 2014 of our first expandable interbody system intended for one or two adjacent levels. This device is designed to minimize implant insertion forces while achieving the patient-specific anatomical fit needed for proper treatment and, if necessary, allows the surgeon to reposition the implant during surgery.

Our complex spine and deformity products are used to treat multilevel conditions, including traumatic injury, tumors and abnormal curvatures of the spine. These product offerings include our Vu Mesh system which features a system of cages, spacers and endplates in a modular design that provide surgeons with intraoperative flexibility for their most challenging cases such as the surgical removal of a vertebral body. Our Malibu pedicle screw system is used in complex spine cases where its specialty screws can be leveraged to extend and capture the rod, and its specialty trauma screws can be used to help realign the vertebrae before fusing. Our Daytona ® Deformity System addresses complex deformity cases by utilizing extended tab uniplanar and polyaxial screws with multiple rod options and intuitive instrumentation to create a versatile system adaptable to surgeon preference.

Our extensive line of products for degenerative cases includes devices for cervical and thoracolumbar procedures, and primarily consists of screw and plating systems and interbody devices that are typically used in open procedures. Degenerative disease refers to a variety of conditions including the degeneration of one or more of the cartilaginous discs located between the vertebral bones of the spine. We have recently launched our Hollywood NanoMetalene Interbody Device. This device is composed of PEEK-OPTIMA ® , an engineered thermoplastic polymer, which has undergone a proprietary process that creates a titanium coating around the entire implant. We believe that this coating process has significant advantages over existing materials as it allows for the surface benefits of titanium, which is believed by scientists to encourage bone growth and cell migration, without compromising the mechanical and imaging benefits of PEEK-OPTIMA. In addition, the ultrathin NanoMetalene coating does not impair postoperative imaging, allowing surgeons to view the operative area and determine the extent of fusion of the vertebral bodies. Our cervical portfolio consists of a complete line of anterior cervical screw and plating systems, a full range of anterior cervical interbody devices and posterior cervical rod, screw and hook systems.

We currently market and sell our products in the United States and in over 30 countries worldwide. Our U.S. sales organization consists of regional business managers who oversee a broad network of independent orthobiologics and

 

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spine sales agents that receive commissions from us for sales that they generate. Our international sales organization is composed of a sales management team that oversees a network of independent orthobiologics and spine stocking distributors that purchase our products directly from us and independently sell them. International sales represented approximately 10% of our total revenue for the year ended December 31, 2014.

Our History and Development

SeaSpine Holdings Corporation was incorporated in Delaware on February 12, 2015. We operate two facilities: our headquarters in Vista, California, from which our spinal fusion hardware products are designed, developed, procured, marketed and distributed, and our orthobiologics manufacturing facility in Irvine, California from which virtually all of our orthobiologics products are designed, developed, manufactured, marketed and distributed. Historically, we have also distributed our spinal fusion hardware products out of Integra’s Cincinnati, Ohio facility and continue to do so currently. We intend to complete the transfer of this operation to our Vista, California facility in connection with the spin-off. We distribute our orthobiologics and spinal fusion hardware products in certain international markets through third-party logistics provider facilities in Belgium and the Netherlands. We employed approximately 295 people as of February 28, 2015.

SeaSpine was formed from the Integra orthobiologics and spinal fusion hardware business which Integra created to leverage its proprietary collagen-based bone graft substitute. In February 2007, we launched our first product, a collagen ceramic matrix osteoconductive scaffold, branded as Integra Mozaik. It is now also marketed as OsteoStrux and will be rebranded as SeaSpine Mozaik and IsoTis Mozaik following the spin-off. In October 2007, Integra acquired IsoTis, an Irvine, California based developer, manufacturer and marketer of orthobiologics solutions, including the Accell technology line of demineralized bone matrix products. As part of the acquisition, Integra assumed IsoTis’ network of independent sales agents in the United States and independent stocking distributors in international markets.

In August 2008, Integra entered the spinal fusion hardware market with the acquisition of Theken, an Akron, Ohio based developer, manufacturer and marketer of spinal fusion hardware and synthetic bone graft substitute products. The Theken products included cervical plates, screws and spacers and other products for complex spine, deformity and degenerative procedures. As part of the transaction, Integra assumed Theken’s network of independent spine sales agents in the United States.

In May 2011, Integra completed its most recent acquisition in the spine market, SeaSpine, Inc., a Vista, California based developer, manufacturer and marketer of spinal fusion hardware products. As part of the acquisition, Integra integrated SeaSpine’s network of independent spine sales agents in the United States and independent spine stocking distributors in select markets in Europe, South America and Australia with its existing networks.

Industry Overview

The bone graft substitutes market consists of surgical procedures in which a bone graft substitute made from donated human bone tissue or a synthetic material is implanted in the patient to augment or stimulate bone growth to aid healing. According to iData, this market was estimated at $0.9 billion in 2014 in the United States and will grow at a compound annual growth rate of 3.4% through 2021. According to the same source, spinal fusion procedures are where bone graft substitutes are most commonly used, representing approximately 45% of the market, and are expected to grow faster than the other major uses with a compound annual growth rate of 4.2% through 2021. Demineralized bone matrix grafts are the largest component of the bone graft substitutes market representing approximately 43% of the overall bone graft substitute market or approximately $0.4 billion in 2014. iData estimates our share of the bone graft substitutes and demineralized bone matrices markets in the United States in 2014 to be 8.6% and 12.3%, respectively, which place us as fourth and third in market position in these markets, respectively. Orthopedic stem cell and cell therapy as well as orthopedic growth factor represent additional segments in the orthobiologics market. Products in these segments are typically used in the

 

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same surgical procedures as traditional bone graft substitutes and iData estimates these segments, collectively, at approximately $0.7 billion in 2014.

According to iData, the spinal fusion procedure market consists of products for cervical fixation, thoracolumbar fixation and interbody devices. The market for these products was $4.4 billion in 2014 in the United States and is expected to grow at a compound annual growth rate of 0.7% through 2021. The fastest growing subsegment of this market, according to iData, is the $1.6 billion interbody device market, which will grow at a compound annual growth rate of 2.9% through 2021.

Spine Anatomy

The spine is a column of bone and cartilage that consists of 33 interlocking bones, called vertebrae, which stack upon each oth e r at a slight angle to form the spine’s S-shaped curve. With the exception of the bottom nine vertebrae, the vertebrae are separated by thin regions of cartilage known as intervertebral discs, which act as shock absorbers that facilitate motion and absorb stress during movement. The spine protects the spinal cord and acts as the core of the human skeleton, extending from the pelvis to the base of skull. Soft tissues, including ligaments, tendons and muscles are attached to the vertebrae and provide stability to the vertebral segment. The spine encloses and protects the spinal cord which carries nerves that exit through openings between the vertebrae and deliver sensation and control to the body.

Lateral View of Spine

 

LOGO

The spine consists of five regions, of which the cervical, thoracic and lumbar are the three primary regions. The cervical region consists of the seven vertebrae extending from the base of the skull to the shoulders. The thoracic, or central, region of the spine consists of the next twelve vertebrae in the middle of the back. Each vertebra in the thoracic region is connected to two ribs that protect the body’s vital organs. Below the thoracic region, the lumbar region consists of five vertebrae in the lower back and is the primary load-bearing region of the spine. The thoracic and lumbar regions are commonly referred to as thoracolumbar and many of the products and procedures to treat these regions are similar. The final two regions of the spine, the sacrum and coccyx, consist of nine naturally fused vertebrae connected to the hip bones to provide support for the spine.

In spinal fusion procedures, two or more of the vertebrae in the spine are fused together to eliminate instability as a result of deformity, degeneration or trauma affecting the vertebrae and intervertebral discs. During the surgical procedure, hardware products are used to stabilize the spine and the surgeon will often remove the damaged intervertebral disc and place a bone graft substitute product in its place to allow new bone to grow and bridge the affected vertebrae together. In addition to the bone graft substitute, the surgeon may replace the disc which was removed with an interbody device (“IBD”). An IBD may be made out of machined bone or PEEK

 

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polymer and is designed to maintain spine alignment and appropriate spacing while allowing bone to grow between the vertebrae to achieve bone fusion. Procedures that include the implantation of IBDs are often referred to by the surgical approach used to place the IBD in the disc space. A Posterior Lateral Interbody Fusion (“PLIF”) uses a direct posterior approach from the patient’s back, a Transforaminal Lumbar Interbody Fusion (“TLIF”) uses an angled approach from either the left or right side of the back, and an Anterior Lumbar Interbody Fusion (“ALIF”) uses a direct anterior approach from the patient’s front (stomach) area.

Our Competitive Strengths

We provide a broad portfolio of advanced and traditional orthobiologics and spinal fusion hardware solutions to assist our surgeon customers in treating patients suffering from spinal and other orthopedic disorders. Our executive management team has over 100 years of collective experience in the spine and medical technology industries. We believe that our focused and experienced management team, combined with the following competitive strengths will enable us to grow our revenue and increase our presence in the markets that we serve.

 

    An extensive, scaled and differentiated offering of orthobiologics products. We offer a broad range of orthobiologics products consisting of advanced and traditional bone graft substitutes that enables us to fulfill a greater portion of the orthobiologics needs of neurosurgeons and orthopedic spine surgeons than our competitors who focus primarily on offering spinal fusion hardware products. Despite our relatively small size, we are a significant participant in the U.S. market for these products, with an estimated 8.6% share of the U.S. bone graft substitutes market, representing the fourth-largest position, according to iData. We believe that our orthobiologics portfolio offers differentiated products. For example, our third-generation demineralized bone matrix is formulated using our proprietary Accell technology and is designed to provide both immediate and sustained availability of the natural array of osteoinductive bone proteins It also provides flexibility in handling as a result of its carrier which is more moldable at room temperature and more viscous at body temperature after implantation, resisting irrigation and minimizing graft migration. Demand for this product and our other demineralized bone products has garnered us a 12.3% market share in demineralized bone matrix products in the United States according to iData, which is the third-largest position in the U.S. market.

 

    A comprehensive and broad portfolio of spinal fusion hardware products . We offer an extensive variety of spinal fusion hardware products for spinal fusion in MIS, complex spine, deformity and degenerative procedures to provide the varying combination of products that surgeons require. Our spinal fusion hardware portfolio includes interbody devices, rod and pedicle screw and plating systems for procedures to treat both the thoracolumbar and cervical regions of the spine.

 

    A synergistic channel strategy for orthobiologics products. We maintain a dual branding strategy that allows us to market orthobiologics into territories in which we do not maintain independent spine sales agents who currently sell our hardware products. We achieve this result by marketing these products under an alternative brand through independent orthobiologics sales agents, many of whom carry competitive spinal fusion hardware products, or products for other orthopedic procedures, such as those used in large joint reconstruction. For example, we market our third-generation demineralized bone matrix product as both Accell Evo3 and OsteoSurge300 to allow differentiation between independent sales agents who sell our spinal fusion hardware, and those that sell our orthobiologics products alongside other orthopedic hardware. We believe this dual branding strategy allows us to penetrate a greater number of customer accounts than we would otherwise serve if we marketed a single line of orthobiologics brands.

 

    Our own orthobiologics design, development and manufacturing operations. While many of our spine competitors source their orthobiologics products from original equipment manufacturers to supplement their spinal fusion hardware portfolio, we design, develop and manufacture virtually all of our orthobiologics products at our facility in Irvine, California. By controlling our own manufacturing processes, we believe we should be able to control the cost of our products more tightly.

 

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Our Strategy

Our goal is to continue to scale our business in order to enhance our market position in orthobiologics and become a leader in the spinal fusion hardware market. To achieve our goals, we are investing in the following strategies:

 

    Research and development to bring new products and techniques to market. Following the separation, we intend to increase our annual research and development spending as a percentage of revenue in order to drive higher revenue growth through new product sales. We plan to invest significant resources to expand our product portfolio and develop next-generation products for our existing core product lines. In order to achieve this goal, we intend to collaborate with our surgeon customers to innovate, design and develop new orthobiologics and spinal fusion hardware products. We plan to make investments in our infrastructure by hiring additional dedicated orthobiologics engineers and scientists with expertise in material sciences and biology and a hardware engineering team with expertise in product design and development. By promoting a corporate culture of innovation and responsiveness to our customer needs, we plan to expedite our product launch process and bring a greater number of new products to market in the next few years than we have in recent years.

 

    Commercial infrastructure to further penetrate the global orthobiologics and spinal fusion hardware markets. We intend to increase the size and geographic breadth of our sales management team and network of independent sales agents in the United States and independent stocking distributors in international markets. To support these efforts, we aim to develop comprehensive marketing support and physician training programs to communicate the strengths of our product platforms. We plan to expand the current schedule of hands-on cadaveric laboratory training opportunities for physicians, sales agents and stocking distributors at our Vista, California facility. In addition, we plan to increase our presence within teaching institutions that provide spinal surgery fellowship programs to educate new surgeons on the use of our products. These programs will aid surgeons in becoming comfortable with our spinal fusion hardware products and techniques.

 

    Clinical affairs programs to generate data on product efficacy. We plan to invest in clinical development programs to generate peer-reviewed clinical data that we believe will validate the efficacy of select orthobiologics and spinal fusion hardware solutions over competing technologies. Specifically, we believe that our third-generation demineralized bone matrix technology has benefits over other commercially available advanced bone graft substitutes in the stimulation of bone formation and bone fusion. Additionally, we plan to initiate studies to generate data on the unique surface characteristics of titanium and the mechanical properties and radiolucency of PEEK-OPTIMA as are incorporated together in a single device using our NanoMetalene technology. We believe this technology has significant advantages over existing implant materials.

 

    Opportunities to enhance our product offering through strategic alliances and acquisitions. We currently market several products under distribution agreements and licenses with third-party companies. We intend to continue to pursue alliances that will provide us with technologies to strengthen our market position. Our current business is the result of the acquisition of several companies, and we plan to continue to evaluate product alliances and acquisition opportunities as they arise to help grow our business.

Our Products

We offer a broad portfolio of orthobiologics and spinal fusion hardware products for the treatment of patients suffering from spinal and other orthopedic disorders. The tables below group our core products into key categories and provide a summary of each technology’s features. Products marked with an * were launched within the last 2 years.

 

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Orthobiologics

Our orthobiologics portfolio is used in orthopedic and dental procedures, and consists of a broad range of traditional and advanced bone graft substitutes intended to address key elements of bone regeneration, which are osteoinduction, osteoconduction and osteogenesis. Osteoinduction refers to the ability of an implant to stimulate bone forming cells based primarily on soluble growth factor signals. Osteoconduction refers to the ability of an implant to promote bone formation based primarily on a physical matrix or scaffold, when placed adjacent to viable bone tissue. Osteogenesis refers to the ability to promote new bone formation based primarily on the cells contained within the bone graft. Bone graft substitutes composed of natural biologic proteins and synthetic materials are designed to reduce the amount of autologous bone grafts needed for spinal fusion procedures. Bone graft substitutes, depending on their design, can be used entirely in place of the patient’s own bone tissue, referred to as an autograft, or by extending the volume of bone graft material from the patient by combining it with the bone graft substitute. Our products include demineralized bone matrices, collagen ceramic matrices, demineralized cancellous allograft bone and synthetic bone void fillers. We offer these products in the form of putties, pastes and strips for a range of surgical applications.

Demineralized Bone Matrix Technology

Demineralized bone matrix formulations are designed to provide proteins and other growth factors at varying stages of the bone healing process. Developed in the early 1990s, our first-generation demineralized bone matrix formulations combined particulate-demineralized bone matrix with an inert carrier engineered for easy graft handling and graft containment. The inert carrier is a highly biocompatible synthetic polymer, known as a reverse-phase medium, and has a unique property which allows the product to remain moldable at room temperature, but becomes more viscous at body temperature once implanted. In 2002, we developed a proprietary process to transform particulate-based demineralized bone matrix into a dispersed form in order to enhance the performance of the graft material. The result of this process was our second-generation demineralized bone matrix, which we refer to as Accell Bone Matrix. Accell Bone Matrix is an open structured, dispersed form of DBM, which provides accessibility to bone proteins without the need to be broken down following implantation in the surgical site. Standard particulate DBM is dense and requires more time to break down. Until these dense particles break down, access to natural bone proteins is limited. Our third-generation and most advanced demineralized bone matrix solution, marketed as Accell Evo3 and OsteoSurge 300, provides an optimized formulation of Accell Bone Matrix, particulate-based demineralized bone matrix, and our reverse-phase medium carrier. Our third-generation products have an advanced handling property for bone grafting procedures and contain three times the amount of the Accell Bone Matrix compared to our second-generation technology.

Accell Technology

Our proprietary Accell technology combines our patented highly dispersed Accell Bone Matrix with a standard particulate-based demineralized bone matrix. Using a process of demineralization during manufacturing, mineral is carefully removed from the underlying organic structure, leaving behind a framework of densely packed type-1 collagen and the natural array of osteoinductive bone proteins, including bone morphogenetic proteins (“BMPs”), such as BMP-2, BMP-7 and BMP-4, and Transforming Growth Factor Beta 1. While the demineralization process allows access to the osteoinductive bone proteins, this standard particulate-form of demineralized bone matrix structure requires the body to break down the dense collagen structure in order to gain access to osteoinductive bone proteins. By contrast, during the Accell Bone Matrix production process, normal particulate-based demineralized bone matrix is converted into Accell Bone Matrix by carefully disrupting and dispersing the dense particles. This process yields a matrix with increased surface area providing for more rapid availability of the natural array of osteoinductive bone proteins. We believe that providing both the early-stage and late-stage accessibility of osteoinductive bone proteins provided by a composite of Accell Bone Matrix and the particulate-based demineralized matrix makes our product unique compared to competitive demineralized bone matrix products.

 

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The following table sets forth our demineralized bone matrix products:

 

Selected Products   Description   Region

Demineralized Bone Matrices

   

Accell Evo3/

Accell Evo3 ® c

 

OsteoSurge 300/ OsteoSurge 300c

  An advanced third-generation demineralized bone matrix product combining standard particulate-based demineralized bone matrix with patented Accell Bone Matrix and cancellous bone. Accell Bone Matrix provides both immediate and sustained availability to bioactive bone proteins. The product contains three times more Accell Bone Matrix than the previous generation of products. The product also provides for surgeon flexibility in handling as a result of its unique biocompatible reverse-phase medium carrier, which makes the product malleable and moldable for easy extrusion from the syringe at room temperature and more viscous at body temperature to resist irrigation and minimize graft migration.   United States

 

International

Accell Connexus ® / Accell TBM ® OsteoSurge 100   Second-generation demineralized bone matrix product that combines standard particulate-based demineralized bone matrix with our patented Accell Bone Matrix and its unique biocompatible reverse-phase medium carrier. Accell Connexus is available as putty and Accell TBM is available as a dry preformed matrix that can be cut to fit the defect size. We also have private label arrangements for these products.   United States

 

International

DynaGraft ® II/ OrthoBlast ® II

 

OsteoSparx ® / OsteoSparx ® C

  First-generation demineralized bone matrix product that combines standard particulate-based demineralized bone matrix with its unique biocompatible reverse-phase medium carrier for surgeon flexibility in handling. DynaGraft II / OsteoSparx contains demineralized bone matrix and a carrier. OrthoBlast II / OsteoSparxC contains demineralized bone matrix, a carrier and cancellous bone. We also have private label arrangements for these products.   United States

 

International

Shaped Strip /
Pocket Strip*
  100% human allograft demineralized bone matrix product that provides a natural biologic scaffold with verified osteoinductive potential. The implant design features a deep recess designed to accommodate placement of additional graft material. The graft, when hydrated, is pliable, maintains integrity upon irrigation, and can be contoured to varying patient anatomy.   United States

Collagen Ceramic Matrix Technologies

Our collagen ceramic matrix technology leverages our long history of experience in regenerative technology and collagen engineering. Our leading products in this category are currently marketed as Integra Mozaik and OsteoStrux and are specifically engineered to provide a porous scaffold architecture and osteoconductivity. These products also support osteogenesis, as they are indicated for use with bone marrow aspirate, which contains osteogenic cells. They are composed of highly purified beta-tricalcium phosphate granules, which provide mineral content to foster bone formation during the healing process in a framework of type-1 collagen that provides a scaffold for bone cell migration. These products are engineered with a resorption profile consistent with the rate of natural bone formation.

 

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The following table sets forth one of our collagen ceramic matrix products:

 

Selected Products

 

Description

  Region

Collagen Ceramic Matrices

   
Integra Mozaik/ OsteoStrux   An advanced osteoconductive scaffold that blends 20% type-1 collagen and 80% highly purified beta-tricalcium phosphate into a matrix for bone regeneration. The scaffold is specifically engineered to absorb and retain fluids in its three dimensional network of pores that resembles the pore structure of human cancellous bone. The product is available in strip, putty and moldable morsels configurations to meet varying surgeon needs and preferences. We also have private label arrangements for these products.   United States

 

International

Other Bone Graft Substitutes

Our other bone graft substitutes products consist of allograft cancellous bone scaffolds and synthetic bone void fillers.

 

 

Selected Products

 

Description

  Region

Allograft Bone Products

   
Allograft Cancellous Sponge/ Compressible Bone Matrix   Allograft cancellous products that are demineralized scaffolds comprised of 100% cancellous bone. The product is a natural osteoconductive and osteoinductive scaffold with unique sponge-like properties that allow the product to compress to 30% of its original size, while allowing expansion after placement to conform to a variety of spaces and defect shapes and sizes.   United States

 

International

Allograft Cancellous Bone   A naturally osteoconductive scaffold that is used as a bone graft extender or for composite grafting for new bone formation while maintaining porosity essential for cellular and vascular ingrowth from surrounding tissue and the formation of new bone. The product packs well into any size or shape defect, for maximum surgical flexibility. The product is available in crushed or chip options to meet varying surgeon needs and preferences.   United States

 

International

 

Selected Products

 

Description

  Region  

Synthetic Beta-tricalcium Phosphate Synthetic Bone Void Filler

       
OsSatura TCP ®   A synthetic bone graft substitute consisting of pure beta-tricalcium phosphate, a combination of calcium and phosphate, similar to that found in natural bone. The product is rehydrated with blood or bone marrow aspirate which contains cells with osteogenic potential. The product is available as granules that provide a resorbable, synthetic, osteoconductive scaffold with well-defined interconnected porosity    

 

 

United States

 

International

  

 

  

Spinal Fusion Hardware

Our spinal fusion hardware portfolio consists of an extensive line of products for spinal fusion in MIS, complex spine, deformity and degenerative procedures throughout the lumbar, thoracic and cervical regions of the spine.

 

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Minimally Invasive Surgery

Our MIS products enable a surgeon to perform a procedure less invasively than traditional open surgery, which may result in reduced postoperative pain, faster rates of healing and fewer procedure complications by minimizing incision size and tissue dissection. Our surgeon customers utilize our iPassage MIS Retractors and NewPort Tube Retractors to perform MIS fusions and decompression procedures, a surgical technique used to alleviate pain caused from compression on the spinal cord or the nerves that emanate from it. During the procedure, the surgeon makes a small incision and inserts the retractor through the skin and soft tissues down to the spinal column, creating a tunnel to the spine. The retractor is kept in place to hold the muscles open throughout the procedure. Through this tunnel, the surgeon accesses the spine, using small instruments inserts any implants necessary for fusion, such as the screws and rods of our Coral ® MIS and NewPort MIS solutions. The Coral MIS product offers a mini-open muscle splitting rod delivery option for surgeons new to MIS procedures. The NewPort MIS product features extended tabs for a small incision profile and two rod delivery options for both mini-open and percutaneous approaches. Our MIS portfolio also includes interbody devices and screw systems that facilitate access to the treatment area while providing minimal anatomical disruption. These include our expandable interbody device, which is designed to minimize the amount of implant insertion force needed and an endoscopy system, which includes a complete set of decompression instruments.

 

Selected Products

  Image   

Description

   Region
iPassage MIS Retractor  

 

LOGO  

   A tissue sparing retraction system which adjusts to a variety of anatomical and surgical conditions. The retractor features multiple blade options and a wide array of angulations for transitioning from a minimally invasive surgery to an open surgery placement of devices.    United States

 

NewPort Tube Retractors

 

 

LOGO  

   A series of minimally invasive tube retractors in a variety of lengths with low reflective finish.   

 

United States

 

International

Coral MIS

 

 

LOGO  

   An extension of the Coral pedicle screw system for MIS procedures that includes a rod delivery option designed for reducing surgical steps.    United States

 

International

NewPort

 

 

LOGO  

   A low-profile, extended tab polyaxial screw implant that combines a locking cap and rod assembly and is often used in combination with the Malibu system.    United States

 

International

Expandable IBD*

 

 

LOGO  

   An expandable interbody device that can be used in either PLIF or TLIF procedures. It is designed to minimize the amount of implant insertion forces while achieving the patient-specific anatomical fit needed for proper treatment. This system provides surgeons easy implantation with continuous in situ height expansion of 50% greater than the original starting height and, if necessary, the ability to reposition intraoperatively.    United States

 

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Selected Products

  Image   

Description

   Region
Vu aPOD -L Lateral IBD  

 

LOGO  

   An anatomical-shaped implant with a D-shaped footprint, convex endplate, and a full line of access and site prep tools that can be used with multiple retractor options.    United
States
Endoscopy
System*
 

 

LOGO  

   A minimally invasive instrument system for posterior lumbar decompressions that includes a scope, radio frequency probes and a complete set of decompression instruments.    United
States

Complex Spine and Deformity

Our spinal fusion hardware products are used in complex spine and deformity procedures involving multiple spine segments, challenging anatomy, tumors, traumatic injury and revision of previous fusion surgeries. Our complex fusion hardware portfolio allows surgeons to combine various product lines and approaches, offering several treatment options for the most difficult cases. We define deformity as any variation in the natural curvature of the spine, the most common of which is scoliosis, an abnormal lateral curvature of the spine. Our deformity platform consists of several technologies to address the needs of our deformity surgeons and the various derotation techniques that they use to correct the curvature of the spine. For example, our Daytona Deformity System addresses complex deformity cases by utilizing extended tab uniplanar and polyaxial screws with multiple rod options and intuitive instrumentation to create a versatile system adaptable to surgeon preference. Our systems are provided in multiple configurations and materials to address patient requirements, including stainless steel, titanium alloy and cobalt chrome alloy rod options, as well as 5.5 millimeter and 6.35 millimeter rod diameters. The ability to offer products with varying rod diameter and materials provides the surgeon different rod stiffness to treat individual patients. We offer both implant- and instrument-based reduction capabilities with our extended tab and locking cap products as well as our uniplanar and D-planar screws and rapid sequential reduction towers.

 

Selected Products

   Image   

Description

   Region  
Daytona Deformity System   

 

LOGO  

   A comprehensive rod and screw system that enables different tool options to accommodate surgical technique and which utilizes long travel polyaxial and uniplanar screws.     

 

 

United States

 

International

  

 

  

Coral Stainless Steel   

 

LOGO  

   A stainless steel quarter inch rod system offering a variety of screw options including our D-Planar screw and our Rapid Sequential Reduction technology.      United States   

VuMesh

  

 

LOGO  

   An assembly system of cages, spacers and endplates that can be customized for the position and angulation needed to restore the anterior, middle and posterior spinal column in the absence of fusion for a prolonged period of time.     

 

 

United States

 

International

  

 

  

 

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Degenerative

Our degenerative products include systems that are typically used in open procedures. Open procedures are still the most common surgical approach and involve a midline incision followed by retraction of the skin and soft tissues. We offer an extensive portfolio of degenerative products that are designed for use in both thoracolumbar and cervical spine cases.

We have recently launched our Hollywood NanoMetalene Interbody Device for TLIF procedures that fuse the anterior column of the spine through a posterior approach that starts off to one side of the patient’s back. This device is composed of PEEK-OPTIMA ® polymer, which has undergone a proprietary process that creates a titanium coating around the entire implant. We believe that this coating process has significant advantages over existing materials as it allows for the surface benefits of titanium, which is believed by scientists to encourage bone growth and cell migration, without compromising the mechanical and imaging benefits of PEEK-OPTIMA. In addition, the ultrathin NanoMetalene coating does not impair postoperative imaging, allowing surgeons to view the operative area and determine the extent of fusion of the vertebral bodies. We will continue to introduce new products for thoracolumbar and cervical applications that incorporate this unique NanoMetalene coating technology.

Thoracolumbar

We offer a comprehensive portfolio of products for the thoracic and lumbar regions of the spine, consisting of rods, screws and instrumentation for posterior lumbar fusion and a broad range of anterior, posterior and lateral interbody devices (“IBDs”), including stand-alone, zero-profile and low-profile systems and NanoMetalene-coated devices. Our Malibu and Coral screw and plating systems are our core products used for treating one to three level degenerative thoracolumbar spine cases. Both the Malibu and Coral screw and plating systems offer a full range of screw sizes, rod materials and lengths and unique locking caps, which minimize cross-threading and fully capture the rod.

 

Selected Products

   Image   

Description

   Region  
Hollywood* NanoMetalene IBD   

 

LOGO  

   A curved TLIF device consisting of a proprietary titanium nano-topology technology that allows the titanium to fully encompass the entire PEEK-OPTIMA implant with the imaging benefits of PEEK and a graft window for visualization of the anatomy.     

 

 

United States

 

International

  

 

  

Vu aPOD / aPOD Prime IBD   

 

LOGO  

   A zero-profile interbody device exclusively for ALIF procedures as a stand-alone device with two fixation options or for supplemental fixation with SpinPlate technology.     

 

 

United States

 

International

  

 

  

Zuma IBD

  

 

LOGO  

   An integrated low-profile lumbar plate and interbody device that features a short plate which enables screw placement in dense cortical bone.     

 

 

United States

 

International

  

 

  

Malibu and Coral

  

 

LOGO  

   Screw and rod systems with unique locking cap designs and anti-splay technology for posterior thoracolumbar and sacral fusion procedures.     

 

 

United States

 

International

  

 

  

 

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Cervical

We offer a range of devices to treat disorders of the seven vertebrae and adjacent intervertebral discs in the cervical region of the spine. Our degenerative cervical portfolio includes a full range of interbody devices for the cervical spine including stand-alone, zero-profile systems, integrated plate interbody devices and traditional PEEK-OPTIMA interbody systems. In addition, we offer a variety of screw and plating systems.

 

Selected Products

   Image   

Description

   Region
Complete Cervical IBD   

 

LOGO  

   A zero-profile stand-alone device made with a PEEK-OPTIMA interbody designed for use during an anterior cervical decompression and fusion procedure.    United States

 

International

Zuma-C Anterior Cervical Fixation System   

 

LOGO  

   An anterior cervical fixation system that includes a low-profile anterior fixation plate and a radiolucent interbody spacer. The system is available in a wide variety of implant sizes and is combined with a comprehensive set of color-coded instruments.    United States

 

International

Smart Cervical* Solutions   

 

LOGO  

   A system that combines a cervical cage with a 100% synthetic bone substitute interior. The implant is pre-filled and pre-attached to a disposable inserter.    International
Atoll and Sierra Posterior Cervical Fixation System   

 

LOGO  

   Cervical fixation systems comprised of screws, hooks, rods, locking screw assemblies and connectors that can be locked together in a variety of configurations to promote fusion for a wide range of patient anatomies.    United States

 

International

Laminoplasty* System   

 

LOGO  

   A comprehensive set of implants and instruments for laminoplasty procedures focused on the lower cervical and upper thoracic spine, or the C3 to T3 vertebrae. The system incorporates several plate and screw options including in-line, side-by-side and single hole options, two mouth openings, hinge plates and primary and rescue screws.    United States
Sonoma Anterior Cervical Plate System   

 

LOGO  

   A system of low-profile pre-contoured plates that have a narrow footprint to facilitate a better anatomic fit as well as a window at each level for visualization of the end plates and disc space.    United States

 

International

Capistrano Cervical Allograft Spacer System   

 

LOGO  

   Capistrano Cervical Allograft Spacer System is a precision machined cortical and cancellous allograft with an anatomic shape with user-friendly instrumentation, creating an ideal solution for ACDF procedures.    United States

 

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Product Pipeline

We are committed to supplementing our portfolio of orthobiologics and spinal fusion hardware products through continuous innovation and bringing next-generation products to the market. We have more than a dozen products currently in our development pipeline, with a focus on MIS, complex spine, deformity and degenerative procedures, including advanced coating technology, as well as extensions of our orthobiologics products offering to further differentiate this portfolio from those of our competitors.

For example, we plan to add our NanoMetalene coating technology to additional interbody devices, starting with Cambria and Ventura and expect to roll this technology out through most of our commercialized PEEK-OPTIMA IBD products. This advanced coating technology is designed to have advantages to existing implant materials and allows us to differentiate our interbody device portfolio. In addition, we plan to introduce product line extensions of our Smart Cervical interbody device, midline MIS screw and plating systems and hyperlordotic cages, highly angled IBDs, which are used to ensure appropriate spine curvature.

Over the next 24 months, we plan to continue to build our portfolio and expect to launch a greater number of new products than we did in the past 24 months. Our product pipeline includes:

 

Cambria NanoMetalene

A PEEK-OPTIMA cervical IBD with our proprietary NanoMetalene technology.
Cabo Anterior Cervical Plate A low 2.0 millimeter profile plate with a zero-profile quarter turn locking mechanism.

MIS Facet Screw

A comprehensive facet screw system with a variable washer for more bone contact and a locking screwdriver to ensure stability.
MIS Spinous Process / Interlaminar Fixation A low-profile and small footprint clamping plate with simple insertion and locking instruments.
Next Generation Pedicle Screw Platform A versatile, modular screw platform that is configurable and scalable for domestic and international markets.
Next Generation Stand-alone IBD A platform modular PEEK-OPTIMA and titanium system with low-profile and zero-profile plating options.

Osteoinductive DBM Strip

Pre-shaped demineralized bone implants with an open matrix allowing bone ingrowth and providing exposure to a range of growth factors and BMPs. When hydrated, the implants can be contoured to the defect site.
Ventura NanoMetalene IBD A NanoMetalene-coated version of our straight TLIF device.

Research and Development

We have an established research and development organization dedicated to advancing our portfolio of orthobiologics and spinal fusion hardware products. Our clinical and regulatory personnel work in parallel with our product engineering personnel to facilitate regulatory clearances of our orthobiologics and spinal fusion hardware products. These teams work in close collaboration with our surgeon customers to design technologies that will aid us in increasing our competitive advantage in the United States and international markets. We intend to invest significant resources to increase our product development efforts by expanding the size of our current product development teams to better serve the design needs of our surgeon customers and develop market ready next-generation products.

We plan to create new, innovative orthobiologics technologies that will continue to reduce the amount of autologous bone graft needed for spinal fusion procedures by extending the volume of harvested material or replacing the need for such harvesting altogether. Therefore, we are dedicated to developing technologies that have the appropriate balance of osteoinductive, osteoconductive and osteogenic properties. Our orthobiologics

 

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research and development team has extensive experience in biomaterial sciences and bringing next generation technologies to market. In addition, we collaborate with surgeons and key opinion leaders to evaluate and design new products to ensure greater acceptance of our products.

We are also committed to developing new spinal fusion hardware products that provide next generation solutions for our existing products or extend the range of solutions that we provide. One of our primary focuses in developing new spinal fusion hardware products is to further build out our complex spine and deformity procedures platform. One particular area of effort is developing products for pediatric populations including indications in small stature pediatric deformity as well as technologies that support growth. Our organization is also committed to providing products that can improve sagittal balance, correcting the patient’s spinal alignment so that their head and shoulders are above their hips so that the patient does not lean forward, such as hyperlordotic cages and expandable technology solutions to achieve appropriate curvature of the spine. We also plan to continue to develop next generation technologies that meet global demand, particularly with respect to cost and delivery methods in a manner which supports a scalable commercial model.

Our product development efforts employ an integrated team approach that involves collaboration between surgeons, our highly skilled engineers, our machinists, as well as our regulatory personnel. Our product development team, in consultation with designing surgeons, formulates a design for the product and then our machinists build prototypes for testing in our 4,000-square-foot prototyping development and testing operation at our Vista, California facility. We utilize a broad scope of technologies to allow us to meet the complex engineering related to customer requirements. As part of the development process, spine surgeons test the implantation of the products in our in-house cadaveric laboratory to ensure that all new products meet the needs of both surgeon and patient. Our team refines or redesigns the prototype as necessary based on the results of the product testing, allowing us to perform rapid iterations of the design-prototype-test development cycle. We believe that these product development efforts allow us to provide solutions that respond to the needs of neurosurgeons and orthopedic spine surgeons and their patients.

Global Spine Community Involvement

As a key part of our strategy we continuously educate and collaborate with surgeons globally to develop and market our technologies, as well as maintain active involvement in the global spine surgeon community. We believe surgeon education on the most effective use of our products is critical to our ability to help our customers realize the value potential of our products. We provide remote and on-site cadaver training throughout the year for surgeons. Our Vista, California facility has a cadaveric laboratory which enables us to conduct hands-on training to communicate the safe and most effective use of our products.

In addition to surgeon education, we solicit feedback from surgeons throughout the product development process and during post market evaluation. We also work with healthcare professionals in the area of clinical research in order to support the necessary requirements for product clearances and registrations. Surgeons also actively support the training of sales agents and other salesforce personnel on end-user functionality of our products.

Sales and Distribution

We currently market and sell our products in the United States and in over 30 countries worldwide. Our U.S. sales organization consists of regional business managers who oversee a broad network of independent orthobiologics and spine sales agents. Our international sales organization is composed of a sales management team that oversees a network of independent orthobiologics and spine stocking distributors.

In the United States, we consign our orthobiologics products and consign or loan our spinal fusion hardware sets to hospitals and independent sales agents, who in turn deliver them to the hospital for a single surgical procedure or leave them with hospitals that are high volume users for use in multiple procedures. The spinal fusion hardware sets typically contain the instruments, including disposables, and spinal implants required to

 

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complete a surgery. These sales are generated by building and maintaining relationships with the neurosurgeons and orthopedic spine surgeons who use our products in surgeries or from the hospitals that order our products directly. In international markets, we predominantly sell complete instrument and implant sets to our independent spine stocking distributors, who consign or loan these sets to surgeons. Our international sales organization is composed of a sales management team that oversees a network of independent orthobiologics and spine stocking distributors in over 30 countries that purchase our products directly from us and independently sell them. We maintain sales and marketing personnel in Switzerland and France to manage and support our stocking distributors in Europe and use third-party distribution facilities in Belgium and The Netherlands to support international distribution efforts.

We anticipate adding additional independent sales agents and stocking distributors and plan to invest in additional instrument sets and marketing and education efforts to support this expansion. We believe the expansion of our U.S. and international sales efforts will provide us with significant opportunity for future growth as we continue to penetrate existing and new markets.

Suppliers and Raw Materials

In general, raw materials essential to our businesses are readily available from multiple sources. For reasons of quality assurance, availability or cost effectiveness, certain components and raw materials are available only from sole suppliers. Our written contracts with such suppliers that we could not replace without a material expense or delay are generally supply agreements. These agreements set forth the process by which we order components or raw materials, as applicable, from such suppliers (which process is either on a purchase order basis or based on quarterly or annual forecasts and in some cases require us to purchase minimum amounts) and the related fees for purchasing such components or raw materials. These agreements have terms from one to five years, but in most instances are terminable by us (and in limited instances the other party) for convenience, subject to a specified notice period, and are also terminable upon mutual agreement by the parties, by either party upon material breach by the other and by either party in the event the other party enters bankruptcy. These agreements also outline the rights of each party with respect to quality assurance, inspection and compliance with applicable law and contain what we believe to be customary indemnification provisions for commercial agreements. Each of these agreements is entered into in the ordinary course of our business, immaterial in amount and significance and not a contract upon which our business is substantially dependent. In addition, our policy is to maintain sufficient inventory of components and raw materials so that our production will not be significantly disrupted even if a particular component or material is not available for a period of time.

Our biomaterial products contain material derived from human or bovine tissue. We take great care to provide that our products are safe and free of agents that can cause disease. We source human bone tissue only from FDA-registered and AATB-registered and inspected tissue banks. The donors are rigorously screened, tested and processed by the tissue banks in accordance with FDA and AATB requirements. Only donated tissue from FDA- and AATB-registered and inspected non-profit tissue banks is qualified to source for our raw materials. Additionally, each donor must pass all of the FDA-specified bacterial and viral testing before the raw material is distributed to Integra for further processing. We receive with each donor lot a certification of the safety of the raw material from the tissue bank’s medical director. As an added assurance of safety, each lot of bone is released into the manufacturing process only after our staff of quality assurance microbiologists screen the incoming bone and serology test records. During our manufacturing process, the bone particles are subjected to our proprietary process and terminally sterilized. We have demonstrated through our testing that this type of rigorous processing further enhances the safety and effectiveness of our demineralized bone material products.

The collagen used in our collagen ceramic matrix products is derived only from the deep flexor tendon of cattle less than 24 months old from the United States or New Zealand. The World Health Organization classifies different types of cattle tissue for relative risk of BSE transmission. Deep flexor tendon is in the lowest-risk category for BSE transmission (the same category as milk, for example) and is therefore considered to have a negligible risk of containing the agent that causes BSE (an improperly folded protein known as a prion).

 

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Intellectual Property

We seek patent and trademark protection for our key technology, products and product improvements, both in the United States and in selected foreign countries. When determined appropriate, we plan to continue to enforce and defend our patent and trademark rights. In general, however, we do not rely solely on our patent and trademark estate to provide us with any significant competitive advantages as it relates to our existing product lines. We also rely upon trade secrets and continuing technological innovations to develop and maintain our competitive position. In an effort to protect our trade secrets, we have a policy of requiring our employees, consultants and advisors to execute proprietary information and invention assignment agreements upon commencement of employment or consulting relationships with us. These agreements also provide that all confidential information developed or made known to the individual during the course of their relationship with us must be kept confidential, except in specified circumstances.

IsoTis OrthoBiologics, Inc., an entity that will be a subsidiary of SeaSpine, owns a group of patents (6 U.S. patents and 9 foreign patents) related to reverse phase medium and the Accell process and materials. This patent group protects the Accell family of demineralized bone matrix products. The patents in this group will expire over a period of time from 2017 to 2023.

SeaSpine has licensed three U.S. patents related to certain of our pedicle screw systems from Dr. Thomas T. Haider. The license agreement, as amended, will expire when the last-to-expire licensed patent expires unless terminated earlier. The licensed patents will all expire in December, 2016. The license agreement may be terminated by either party upon any material breach by the other party, with such termination effective sixty days after giving written notice to the breaching party unless cured by the breaching party within such sixty day period. The products covered under these license agreements constitute approximately 10% of SeaSpine’s total revenue.

Our material registered and unregistered trademarks include: Accell ® , Evo3 ® , Accell Evo3 ® , Accell Evo3 ® C, DynaGraft ® II , IsoTis ® , IsoTis OrthoBiologics ® , OrthoBlast ® II , Atoll TM , Capistrano TM , Coral ® , Daytona ® , Hollywood TM , Malibu TM , NanoMetalene ® , NewPort TM , Vu a•POD TM /Vu a•POD TM Prime, OsteoSurge ® 100 (or 300), SeaSpine ® , Sierra TM and Sonoma TM .

Competition

We participate in the highly competitive global orthobiologics and spine markets. We face significant competition in both of these markets from the spine divisions of large multinational medical device companies as well as smaller, emerging spine players focused on product innovation. These competitors are focused on bringing new technologies to market and acquiring technologies and technology licenses that directly compete with our products or have potential product advantages that could render our products obsolete or noncompetitive.

Our primary competitors in the combined orthobiologics and spinal fusion hardware markets include Alphatec, Bacterin, Baxter, Biomet, DePuy Synthes Spine (a Johnson & Johnson company) Globus Medical, Medtronic, NuVasive, K2M, LDR, Orthofix, RTI Surgical, Stryker and Zimmer and several smaller, biologically focused companies.

We anticipate that our current marketed products and any future products will be subject to intense competition. Many of our current competitors have significantly greater financial, manufacturing and marketing resources than we do, which could make the ability to scale our business challenging. As a result, these competitors have more tenured relationships with distribution channels and we anticipate they will continue to dedicate significant resources to marketing and distributing their products. Our ability to compete will depend on our ability to garner strong relationships with surgeons, partner with key opinion leaders and demonstrate superior clinical outcomes. Because of the size of the spine market, we expect that companies will continue to dedicate significant resources to developing and commercializing competing products.

 

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Regulation

We are a manufacturer and marketer of medical devices, and therefore are subject to extensive regulation by the FDA and the Center for Medicare Services of the U.S. Department of Health and Human Services and other federal governmental agencies and, in some jurisdictions, by state and foreign governmental authorities. These regulations govern the introduction of new medical devices, the observance of certain standards with respect to the design, manufacture, testing, labeling (such as issuing a final rule in 2013 for a UDI for virtually all medical devices), promotion and sales of the devices, the maintenance of certain records, the ability to track devices, the reporting of potential product defects, the import and export of devices, and other matters.

The regulatory process of obtaining product approvals and clearances can be onerous and costly. The FDA requires, as a condition to marketing a medical device in the United States that we secure a Premarket Notification clearance pursuant to Section 510(k) of the FDCA or an approved PMA application (or PMA supplement). Obtaining these approvals and clearances can take up to several years and may involve preclinical studies and clinical trials. The FDA may also require a post-approval clinical trial as a condition of approval.

To perform clinical trials for significant risk devices in the United States on an unapproved product, we are required to obtain an Investigational Device Exemption from the FDA. The FDA may also require a filing for FDA approval prior to marketing products that are modifications of existing products or new indications for existing products. Moreover, after clearance/approval is given, if the product is shown to be hazardous or defective, the FDA and foreign regulatory agencies have the power to withdraw the clearance or require us to change the device, its manufacturing process or its labeling, to supply additional proof of its safety and effectiveness or to recall, repair, replace or refund the cost of the medical device.

The FDASIA, which includes the Medical Device User Fee Amendments of 2012, as well as other medical device provisions, went into effect October 1, 2012. This includes performance goals and user fees paid to the FDA by medical device companies when they register and list with the FDA and when they submit an application to market a device in the United States. This will affect the fees paid to the FDA over the five-year period that the FDASIA is in effect. The FDASIA also imposes some additional requirements regarding FDA Establishment Registration and Listing of Medical Devices. All U.S. and foreign manufacturers must have a FDA Establishment Registration and complete Medical Device listings for sales in the United States.

SeaSpine manufactures medical devices derived from human tissue (demineralized bone tissue). The FDA has specific regulations governing HCT/Ps. An HCT/P is a product containing, or consisting of, human cells or tissue intended for transplantation into a human patient. Examples include bone, ligament, skin and cornea. Some HCT/Ps fall within the definition of a biological product, medical device or drug regulated under the FDCA. These biologic, device or drug HCT/Ps must comply both with the requirements exclusively applicable to HCT/Ps and, in addition, with requirements applicable to biologics, devices or drugs, including premarket clearance or approval from the FDA.

Section 361 of the Public Health Service Act, authorizes the FDA to issue regulations to prevent the introduction, transmission or spread of communicable disease. HCT/Ps regulated as 361 HCT/Ps are subject to requirements relating to registering facilities and listing products with the FDA, screening and testing for tissue donor eligibility, Good Tissue Practice when processing, storing, labeling, and distributing HCT/Ps, including required labeling information, stringent record keeping, and adverse event reporting.

The AATB has issued operating standards for tissue banking. Compliance with these standards is a requirement in order to become an AATB-accredited tissue establishment. In addition, some states have their own tissue banking regulations. We are licensed or have permits for tissue banking in California, Florida, New York and Maryland.

National Organ Transplant Act. Procurement of certain human organs and tissue for transplantation is subject to the restrictions of the NOTA, which prohibits the transfer of certain human organs, including skin and related tissue for valuable consideration, but permits the reasonable payment associated with the removal,

 

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transportation, implantation, processing, preservation, quality control and storage of human tissue and skin. We reimburse tissue banks for their expenses associated with the recovery, storage and transportation of donated human tissue that they provide to us for processing. We include in our pricing structure amounts paid to tissue banks to reimburse them for their expenses associated with the recovery and transportation of the tissue, in addition to certain costs associated with processing, preservation, quality control and storage of the tissue, marketing and medical education expenses, and costs associated with development of tissue processing technologies. NOTA payment allowances may be interpreted to limit the amount of costs and expenses that we may recover in our pricing for our products, thereby reducing our future revenue and profitability.

Postmarket Requirements. After a device is cleared or approved for commercial distribution, numerous regulatory requirements apply. These include the FDA’s Quality System Regulations which cover the procedures and documentation of the design, testing, production processes, controls, quality assurance, labeling, packaging, storage and shipping of medical devices; the FDA’s general prohibition against promoting products for off-label uses; the Federal Medical Device Reporting regulation, which requires that manufacturers provide information to the FDA whenever there is evidence that reasonably suggests that a device may have caused or contributed to a death or serious injury or that a malfunction occurred which would be likely to cause or contribute to a death or serious injury upon recurrence; and the Reports of Corrections and Removals regulation, which requires manufacturers to report recalls and field corrective actions to the FDA if initiated to reduce a risk to health posed by the device or to remedy a violation of the FDCA.

We are also required to register with the FDA as a medical device manufacturer. As such, our manufacturing sites are subject to periodic inspection by the FDA for compliance with the FDA’s Quality System Regulations. These regulations require that we manufacture our products and maintain our documents in a prescribed manner with respect to design, manufacturing, testing and control activities. Further, we are required to comply with various FDA requirements and other legal requirements for labeling and promotion. If the FDA believes that a company is not in compliance with applicable regulations, it may issue a warning letter, institute proceedings to detain or seize products, issue a recall order, impose operating restrictions, enjoin future violations and assess civil penalties against that company, its officers or its employees and may recommend criminal prosecution to the DOJ.

Medical device regulations also are in effect in many of the countries in which we do business outside the United States. These laws range from comprehensive medical device approval and Quality System requirements for some or all of our medical device products to simpler requests for product data or certifications. The number and scope of these requirements are increasing. Under the EU Medical Devices Directive, medical devices must meet the Medical Devices Directive standards and receive CE Mark Certification prior to marketing in the EU. CE Mark Certification requires a comprehensive Quality System program, comprehensive technical documentation and data on the product, which are then reviewed by a Notified Body. A Notified Body is an organization designated by the national governments of the EU member states to make independent judgments about whether a product complies with the requirements established by each CE marking directive. The Medical Devices Directive, ISO 9000 series and ISO 13485 are recognized international quality standards that are designed to ensure that we develop and manufacture quality medical devices. Other countries are also instituting regulations regarding medical devices. Compliance with these regulations requires extensive documentation and clinical reports for all of our products, revisions to labeling, and other requirements such as facility inspections to comply with the registration requirements. A recognized Notified Body audits our facilities annually to verify our compliance with these standards.

In the EU, our products that contain human-derived tissue, including demineralized bone material, are not medical devices as defined in the Medical Devices Directive (93/42/EC). They are also not medicinal products as defined in Directive 2001/83/EC. Today, regulations, if applicable, are different from one EU member state to the next. Because of the absence of a harmonized regulatory framework and the proposed regulation for advanced therapy medicinal products in the EU, the approval process for human-derived cell or tissue-based medical products may be extensive, lengthy, expensive, and unpredictable.

 

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Certain countries, as well as the EU, have issued regulations that govern products that contain materials derived from animal sources. Regulatory authorities are particularly concerned with materials infected with the agent that causes BSE. These regulations affect our biomaterial products for the spine, which contain material derived from bovine tissue. Although we take great care to provide that our products are safe and free of agents that can cause disease, products that contain materials derived from animals, including our products, may become subject to additional regulation, or even be banned in certain countries, because of concern over the potential for prion transmission. Significant new regulations, a ban of our products, or a movement away from bovine-derived products because of an outbreak of BSE could have a material and adverse effect on our current business or our ability to expand our business. See “Risk Factors—Risks Relating to Our Legal and Regulatory Environment—Certain of our products contain materials derived from animal sources and may become subject to additional regulation.”

We are subject to laws and regulations pertaining to healthcare fraud and abuse, including anti-kickback laws and physician self-referral laws that regulate the means by which companies in the health care industry may market their products to hospitals and health care professionals and may compete by discounting the prices of their products. The delivery of our products is subject to regulation regarding reimbursement, and federal healthcare laws apply when a customer submits a claim for a product that is reimbursed under a federally funded healthcare program. These rules require that we exercise care in structuring our sales and marketing practices and customer discount arrangements. See “Risk Factors—Risks Relating to Our Legal and Regulatory Environment—Oversight of the medical device industry might affect the manner in which we may sell medical devices and compete in the marketplace.”

Our international operations subject us to laws regarding sanctioned countries, entities and persons, customs, import-export, laws regarding transactions in foreign countries, the FCPA and local anti-bribery and other laws regarding interactions with healthcare professionals. Among other things, these laws restrict, and in some cases prohibit, United States companies from directly or indirectly selling goods, technology or services to people or entities in certain countries. In addition, these laws require that we exercise care in structuring our sales and marketing practices in foreign countries.

Our research, development and manufacturing processes involve the controlled use of certain hazardous materials. We are subject to country-specific, federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of these materials and certain waste products. We believe that our environmental, health and safety (“EHS”) procedures for handling and disposing of these materials comply with the standards prescribed by the controlling laws and regulations. However, risk of accidental releases or injury from these materials is possible. These risks are managed to minimize or eliminate associated business impacts. In the event of this type of accident, we could be held liable for damages that may result, and any liability could exceed our resources. We could be subject to a regulatory shutdown of a facility that could prevent the distribution and sale of products manufactured there for a significant period of time and we could suffer a casualty loss that could require a shutdown of the facility in order to repair it, any of which could have a material and adverse effect on our business. Although we continuously strive to maintain full compliance with respect to all applicable global EHS laws and regulations, we could incur substantial costs to fully comply with future laws and regulations, and our operations, business or assets may be impacted.

In addition to the above regulations, we are and may be subject to regulation under country-specific federal and state laws, including, but not limited to, requirements regarding record keeping, and the maintenance of personal information, including personal health information. As a public company, we are subject to the securities laws and regulations, including the Sarbanes-Oxley Act. We also are subject to other present, and could be subject to possible future, local, state, federal and foreign regulations.

Reimbursement Overview

Healthcare providers that purchase medical devices generally rely on third-party payors, including the Medicare and Medicaid programs and private payors, such as indemnity insurers, employer group health insurance programs and managed care plans, to reimburse all or part of the cost of the products. As a result,

 

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demand for our products is and will continue to be dependent in part on the coverage and reimbursement policies of these payors. The manner in which reimbursement is sought and obtained varies based upon the type of payor involved and the setting in which the product is furnished and utilized. Reimbursement from Medicare, Medicaid and other third-party payors may be subject to periodic adjustments as a result of legislative, regulatory and policy changes as well as budgetary pressures. Possible reductions in, or eliminations of, coverage or reimbursement by third-party payors, or denial of, or provision of uneconomical reimbursement for new products, as a result of these changes may affect our customers’ revenue and ability to purchase our products. Any changes in the healthcare regulatory, payment or enforcement landscape relative to our customers’ healthcare services has the potential to significantly affect our operations and revenue.

Employees

As of February 28, 2015 we had approximately 295 employees, 35 of whom were engaged in research and development, 140 in manufacturing, 60 in sales and marketing and 60 in general and administrative activities.

Facilities

After giving effect to the spin-off, we will operate out of two locations in Vista and Irvine, California. Our headquarters and operations facility in Vista, from which our spinal fusion hardware products are designed, developed, procured, marketed and distributed, includes two adjacent buildings that are 22,000 and 18,000 square feet, respectively. Our orthobiologics manufacturing facility in Irvine, from which virtually all of our orthobiologics products are designed, developed, manufactured, marketed and distributed, is over 70,000 square feet. We will conduct corporate, general and administrative functions from both facilities. Both the Vista and Irvine facilities are leased, with the lease term for the Vista facility expiring in 2016, with two five-year renewals at our option, and with the lease term for the Irving facility expiring in 2023. We believe that our facilities are sufficient to meet our current needs and that renewal of this space will be available when needed on acceptable terms.

Legal Proceedings

From time to time, we are subject to legal proceedings and claims in the ordinary course of business. While management presently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not materially harm our financial position, cash flows, or overall trends in results of operations, legal proceedings are subject to inherent uncertainties, and unfavorable rulings or outcomes could occur that have individually or in aggregate, a material adverse effect on our business, financial condition or operating results.

 

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MANAGEMENT

Executive Officers and Directors Following the Spin-Off

The following table sets forth information as of June 1, 2015 regarding certain individuals who are expected to serve as our executive officers and directors following the spin-off, including their anticipated titles. All of the currently known expected executive officers are currently employees of Integra. After the spin-off, none of the executive officers will continue to be employed by Integra. Information concerning any additional directors elected by the board of directors of Integra prior to spin-off will be included in an amendment to this Information Statement.

 

Name    Age    Position

Kirtley (Kirt) C. Stephenson

   56    Non-Executive Chairman of the Board

Stuart M. Essig, Ph.D.

   53    Lead Director

Keith C. Valentine

   47    Chief Executive Officer and Director

Cheryl R. Blanchard, Ph.D.

   50    Director

Keith Bradley, Ph.D.

   70   

Director

John B. Henneman, III

   53    Director

James M. Sullivan

   71   

Director

John J. Bostjancic

   44    Chief Financial Officer

John J. Winge

   48    Vice President, Sales

Biographical Summaries of Directors and Executive Officers

Kirtley (Kirt) C. Stephenson will serve as non-executive Chairman of the SeaSpine Board of Directors. Between May 2011 and December 2013, Mr. Stephenson was President of Integra’s U.S. Spine business, where he was responsible for sales, marketing, research and development and other related functions. Mr. Stephenson served as President and CEO of SeaSpine, Inc. from 2002 until it was sold to Integra in May 2011. Mr. Stephenson has over 28 years of experience in the medical device industry with 17 years of experience in the spine market. Prior to co-founding SeaSpine, Inc. in 2002, Mr. Stephenson was Vice President of Sales & Marketing at Alphatec. Mr. Stephenson received a bachelor’s degree in Business Administration from the University of Cincinnati and an M.B.A. degree from Xavier University. Mr. Stephenson is 56 years old.

Stuart M. Essig, Ph.D. will serve as Lead Director of SeaSpine. Dr. Essig currently serves as Managing Director of Prettybrook Partners LLC, which he co-founded in 2012. He is also currently Integra’s Chairman of the Board, where he has served as Chairman since January 2012 and as a director since he joined Integra in December 1997. He was also Integra’s Chief Executive Officer from December 1997 until January 2012. Before joining Integra, Dr. Essig supervised the medical technology practice at Goldman, Sachs & Co. as a Managing Director. Dr. Essig had ten years of broad health care experience at Goldman Sachs serving as a senior merger and acquisitions advisor to a broad range of domestic and international medical technology, pharmaceutical and biotechnology clients. Dr. Essig has chaired Audit, Compensation and Nominating and Governance Committees and served on the boards of several NASDAQ- and NYSE-listed companies ranging in size from several hundred million dollars to $20 billion in market capitalization. Dr. Essig currently serves on the Board of Directors of St. Jude Medical Corporation and Owens & Minor, Inc. and as Chairman of the Board of Directors of Breg, Inc. He is a founding investor member of Tigerlabs, a Princeton-based business accelerator. He is an Executive in Residence at Cardinal Partners and a Venture Partner at Wellington Partners Advisory AG, both venture capital firms and serves as a Senior Advisor to TowerBrook Capital Partners. From March 2005 until August 2008, he served on the Board of Directors of Zimmer Holdings, Inc., and from 1998 to 2002 he served on the Board of Directors of Vital Signs, Inc. Dr. Essig has also served on the executive committee, nominating and governance committee and as treasurer of ADVAMED, the Advanced Medical Technology Association. Dr. Essig is also involved in several non-profit charitable organizations, including from time to time having served on the boards of such organizations. Dr. Essig received an A.B. degree, magna cum laude, from the Woodrow Wilson School of Public and International Affairs at Princeton University and M.B.A. and Ph.D. in Financial Economics degrees from the University of Chicago, Graduate School of Business. Dr. Essig is 53 years old.

Keith C. Valentine will serve as Chief Executive Officer and as a director of SeaSpine. Prior to joining SeaSpine, Mr. Valentine served as President and Chief Operating Officer of NuVasive, Inc. from January 2007 to

January 2015 and as President from December 2004 to January 2007, prior to which he served in various senior

 

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executive roles in Marketing, Development and Operations since joining NuVasive in 2001. Previously, Mr. Valentine served as Vice President of Marketing at ORATEC Interventions, Inc., a medical device company acquired by Smith & Nephew PLC, and spent eight years in various roles with Medtronic Sofamor Danek including, Vice President of Marketing for the Rods Division and Group Director for the BMP Biologics program, the Interbody Sales Development Effort, and International Sales and Marketing. Mr. Valentine received a B.B.A. in Management and Biomedical Sciences from Western Michigan University.

Cheryl R. Blanchard, Ph.D. will serve as a director of SeaSpine. Dr. Blanchard is a medical device and biologics executive with over 25 years of leadership experience. She is currently Chief Executive Officer of Microchips Biotech, Inc., a company developing implantable drug delivery products. Prior to that she was a corporate officer of Zimmer, Inc., a medical device company focused on musculoskeletal products, where she served as Senior Vice President, Chief Scientific Officer and general manager of Zimmer Biologics. During her 12 years with Zimmer, she operated in roles of increasing responsibility including global leadership of research and development, advanced technologies, clinical, quality and regulatory affairs, medical affairs, medical education, health economics, and reimbursement. Prior to Zimmer, Dr. Blanchard built and led the medical device practice at Southwest Research Institute while also serving as an adjunct professor at the University of Texas Health Science Center, both in San Antonio, TX. Dr. Blanchard brings experience in business management, technical leadership and a track record commercializing medical technology products. In 2015, she was elected to the National Academy of Engineering, among the highest professional distinctions accorded to an engineer. Dr. Blanchard holds a Bachelor of Science in Ceramic Engineering from Alfred University, and a Masters of Science and Ph.D. in Materials Science and Engineering, both from the University of Texas at Austin. Dr. Blanchard is 50 years old.

Keith Bradley, Ph.D. will serve as a director of SeaSpine. Since 1992, Dr. Bradley has been a director of Integra. In addition, Dr. Bradley currently serves as the chairman of the compensation committee of Integra’s board of directors and as a member of the nominating and corporate governance committee of Integra’s board of directors. Between 1996 and 2003, he was a director of Highway Insurance plc, an insurance company listed on the London Stock Exchange, and has been a consultant to a number of business, government and international organizations. Dr. Bradley was formerly a visiting professor at the Harvard Business School, Wharton and UCLA, a visiting fellow at Harvard’s Center for Business and Government and a professor of international management and management strategy at the Open University and Cass Business School, U.K. Dr. Bradley has taught at the London School of Economics and was the director of the School’s Business Performance Group for more than six years. He received B.A., M.A. and Ph.D. degrees from British universities. Dr. Bradley is an adviser to RPH Capital, Canada. He previously served as a director and chair of North Star Capital Management Limited and GRS Financial Solutions Limited. Dr. Bradley is 70 years old.

John B. Henneman, III will serve as a director of SeaSpine. Mr. Henneman has more than 20 years of combined financial and operational management experience in the life sciences industry. Since October 2014 Mr. Henneman has been the Executive Vice President and Chief Financial Officer of NewLink Genetics Corporation, a biotechnology company focused on cancer immunotherapy, where he is responsible for finance, law and administration. Prior to joining NewLink Genetics, Mr. Henneman served Integra LifeSciences in various capacities since 1998. Before becoming Integra’s Chief Financial Officer in 2007, Mr. Henneman served Integra in several capacities, including as General Counsel and Chief Administrative Officer, responsible at various times for Integra’s regulatory affairs, quality systems, clinical affairs, human resources, information systems and legal affairs functions and the management of Integra’s surgical instruments business. Mr. Henneman led Integra’s business development function during his entire tenure with Integra, and was responsible for the more than 40 acquisitions and alliances that Integra completed during that time. Mr. Henneman also serves on the board of directors of Alafair Biosciences, Inc., a privately-held medical device company based in Austin, Texas. Mr. Henneman received an A.B. degree from Princeton University and a J.D. from the University of Michigan Law School. Mr. Henneman is 53 years old.

James M. Sullivan will serve as a director of SeaSpine. Since 1992, Mr. Sullivan has been a director of Integra. In addition, Mr. Sullivan currently serves as presiding director of the Integra board of directors, as the chairman of the nominating and corporate governance committee of Integra’s board of directors and as a member

 

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of the audit committee of Integra’s board of directors. He is a Co-Founder of, and currently the Principal Advisor to, the Clover Investment Group. Between 1986 and April 2009, he held several positions with Marriott International, Inc. (and its predecessor, Marriott Corp.), including Vice President of Mergers and Acquisitions and Executive Vice President of Lodging Development. From 1983 to 1986, Mr. Sullivan was Chairman, President and Chief Executive Officer of Tenly Enterprises, Inc., a privately held company operating 105 restaurants. Prior to 1983, he held senior management positions with Marriott Corp., Harrah’s Entertainment, Inc., Holiday Inns, Inc., Kentucky Fried Chicken Corp. and Heublein, Inc. He also was employed as a senior auditor with Arthur Andersen & Co. and served as a director of Classic Vacation Group, Inc. until its acquisition by Expedia, Inc. in March 2002. Mr. Sullivan received a B.S. degree in Accounting from Boston College and an M.B.A. degree from the University of Connecticut. Mr. Sullivan is 71 years old.

John J. Bostjancic is SeaSpine’s Chief Financial Officer. Mr. Bostjancic has been Acting Chief Financial Officer of the SeaSpine business since December 2014, and is expected to continue in that role until the spin-off is completed. Prior to that, he was Integra’s Senior Vice President of Global Supply Chain from February 2012 through November 2014, where he was responsible for global planning, kitting, distribution, logistics and customer service functions and led the project team to comply with the FDA’s UDI rule in 2014. From 2008 until January 2012, Mr. Bostjancic was Senior Vice President of Financial Planning & Analysis. Since Mr. Bostjancic joined Integra in 1999, he held roles of increasing responsibility in the finance organization, including Corporate Controller from 2003 through 2006. Before joining Integra, Mr. Bostjancic was a Manager in the Accounting Standards team at Merck & Co., Inc. from 1998 through 1999 and worked in the Business Assurance organization at PricewaterhouseCoopers from 1993 through 1998. He received his bachelor’s degree in Accounting from the College of New Jersey. Mr. Bostjancic is 44 years old.

John J. Winge is SeaSpine’s Vice President, Sales. Mr. Winge has been Vice President, Sales of Integra’s U.S. Spine business since August, 2008, and is expected to continue in that role until the spin-off is completed. He was also Vice President, Marketing for the U.S. Spine division from June 2011 to September 2013. Mr. Winge joined Integra in August 2008 when Integra acquired the Theken Companies, where Mr. Winge served as Executive Vice President, Sales and played an integral role in building Theken Spine from approximately $6 million to roughly $50 million in annual revenue. Prior to joining Theken in 2004, Mr. Winge led the distribution business for REO Spine as the U.S. Distributor for Eurosurgical’s products from 1999 to 2004. Mr. Winge worked with various independent distributors from 1992 to 1998 as a spine hardware sales representative and manager. Mr. Winge began his medical device career as a sales representative for Sofamor Danek from 1992 to 1997. Mr. Winge received a B.A. degree in Economics from the University of Pittsburgh. Mr. Winge is 48 years old.

Board of Directors

Our business and affairs will be managed under the direction of our board of directors. Our amended and restated bylaws permit our board of directors to establish by resolution the authorized number of directors. Effective upon the distribution, our board of directors will consist of eight directors, with seven of the director positions filled and one vacancy. The Company expects that the vacancy will be filled as soon as reasonably practicable with a director who is considered independent under the NASDAQ Listing Rules and does not serve on the Integra board of directors.

Our amended and restated certificate of incorporation provides that our board of directors will be divided into three classes with staggered three-year terms. Only one class of directors will be elected at each annual meeting of our stockholders, with the other classes continuing for the remainder of their respective three-year terms. We anticipate that our directors will be divided among the three classes as follows:

 

    Class I consists of three directors, each with a term expiring at the 2016 annual meeting of stockholders;

 

    Class II consists of three directors, each with a term expiring at the 2017 annual meeting of stockholders; and

 

    Class III consists of two directors, each with a term expiring at the 2018 annual meeting of stockholders.

 

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Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of our directors.

The division of our board of directors into three classes with staggered three-year terms may delay or prevent a change of our management or a change in control.

Board Leadership and Structure

In accordance with our amended and restated bylaws, our board of directors will appoint our officers, including our chief executive officer. Our board of directors does not have a policy on whether the role of the chairman and chief executive officer should be separate and, if it is to be separate, whether the chairman should be selected from the non-employee directors or be an employee and if it is to be combined, whether a lead independent director should be selected.

Following the spin-off, our board of directors will have four members who are independent, as defined by the NASDAQ Listing Rules, and three non-independent members. Once the vacancy on the board of directors is filled, our board of directors will have five members who are independent, as defined by the NASDAQ Listing Rules, and three non-independent members. A number of our independent board members are currently serving or have served as members of senior management of other public companies and have served as directors of other public companies. In addition, three of our board members will also be directors of Integra. We will have three standing board committees comprised solely of directors who are considered independent under the NASDAQ Listing Rules. We believe that the number of independent, experienced directors that will make up our board of directors benefits SeaSpine and our stockholders.

In general, our board of directors will have overall responsibility for the oversight of risk management at SeaSpine. The board of directors will delegate responsibility for the oversight of certain areas of risk management to various committees of the board of directors, as described below. Each board committee will report to the full board of directors following each committee meeting.

The audit committee will oversee the accounting and financial reporting processes of SeaSpine and the audits of our financial statements. Management will meet regularly with the audit committee to discuss and review the financial risk management processes. These discussions will address compliance with the Sarbanes-Oxley Act (including discussions regarding internal controls and procedures), disclosure controls and procedures and accounting and reporting compliance, as well as tax and treasury matters. Our internal audit function’s responsibilities will include providing an annual audit assessment of the SeaSpine’s processes and controls, developing an annual audit plan using risk-based methodology, implementing the annual audit plan, coordinating with other control and monitoring functions, issuing periodic reports to the audit committee and management summarizing the results of audit activities, assisting with investigations of significant suspected fraudulent activities within the organization and notifying management and the audit committee of the results. Management will also regularly discuss with the audit committee liquidity, capital, funding needs and other financial matters.

The Compensation Committee will oversee risk relating to executive compensation programs. The Compensation Committee will consider compensation risk during its deliberations on the design of our executive compensation programs with the goal of appropriately balancing short-term objectives and long-term performance without encouraging excessive and unnecessary risk-taking behaviors.

The Nominating and Corporate Governance Committee will have oversight of corporate governance matters. These matters include evaluation of the performance of the board of directors, its committees and members, as well as establishing policies and procedures for good corporate governance.

Our President and Chief Executive Officer, who functions as our chief risk officer, has responsibility for ensuring that management provides periodic updates to the board of directors or board committees regarding risks in many areas, among them accounting, treasury, information systems, legal, governance, legislative (including reimbursement), general compliance (including sales and marketing compliance), quality, regulatory, corporate development, operations and sales and marketing. Both formal reports and less formal communications derive from

 

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a continual flow of communication throughout SeaSpine regarding risk and compliance. Our board of directors and senior management team will aim to promote a culture that actively identifies and manages risk, including effective communication throughout the entire organization and to the board of directors and its committees.

Our finance department and the internal audit function will meet with our senior executive team annually to determine whether there is a need to conduct a formal enterprise risk assessment for SeaSpine. We expect that this assessment, when conducted, would involve many members of management and solicit management’s views of all the business risks facing SeaSpine. Management will report to, and discuss with, the board of directors the results of this enterprise risk assessment. We believe that this annual discussion, along with our annual processes for creating and reviewing with the board of directors our strategic plan, our budget and our internal audit plans, as well as regular processes and communications throughout the company and periodic updates to the board of directors and committees on a broad range of risks, will combine to ensure that SeaSpine continually addresses its business risks in a disciplined fashion.

Board Committees

Audit Committee

Our audit committee will have responsibility for, among other things:

 

    overseeing management’s maintenance of the reliability and integrity of our accounting policies and financial reporting and our disclosure practices;

 

    overseeing management’s establishment and maintenance of processes to assure that an adequate system of internal control is functioning;

 

    reviewing our annual and quarterly financial statements;

 

    appointing and evaluating the independent accountants and considering and approving any non-audit services proposed to be performed by the independent accountants; and

 

    discussing with management and our board of directors our policies with respect to risk assessment and risk management, as well as our substantive financial risk exposures and the actions management has taken to limit, monitor or control such exposures, if any.

Committee Members.  The initial members of the audit committee will be determined prior to the spin-off. We may rely on the transition rules provided in the NASDAQ Listing Rules related to the independence and financial literacy of the members of our audit committee. To the extent we rely on these transition rules, by the date required by the transition provisions of the rules of the NASDAQ Global Market all members of the audit committee will be independent and financially literate and have the necessary accounting or financial management experience.

Charter.  Prior to or upon completion of the separation, it is intended that our board of directors will adopt a written charter for our audit committee, which will then be available on our corporate website at www.seaspine.com.

Compensation Committee

Our compensation committee will have responsibility for, among other things:

 

    reviewing and approving, or recommending that our board of directors approve, the compensation of our chief executive officer and our other executive officers;

 

    reviewing and recommending to our board of directors the compensation of our directors;

 

    selecting independent compensation consultants and advisors and assessing whether there are any conflicts of interest with any of the committee’s compensation advisors; and

 

    reviewing and approving, or recommending that our board of directors approve, incentive compensation and equity plans.

 

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Committee Members. The initial members of the compensation committee will be determined prior to the spin-off. We may rely on the transition rules provided in the NASDAQ Listing Rules related to the independence of the members of our compensation committee. To the extent we rely on these transition rules, by the date required by the transition provisions of the rules of the NASDAQ Global Market all members of the compensation committee will be independent.

Charter.  Prior to or upon completion of the separation, it is intended that our board of directors will adopt a written charter for our compensation committee, which will then be available on our corporate website at www.seaspine.com.

Compensation Committee Interlocks and Insider Participation

None of the members of our compensation committee will be an officer or employee of SeaSpine. None of our executive officers currently serves, or in the past year has served, as a member of the compensation committee (or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of any entity that has one or more executive officers serving on our compensation committee.

Nominating and Corporate Governance Committee

Our nominating and corporate governance committee will have responsibility for, among other things:

 

    recommending persons to be selected by our board of directors as nominees for election as directors and to fill any vacancies on our board of directors;

 

    considering and recommending to our board of directors qualifications for the position of director and policies concerning the term of office of directors and the composition of our board of directors; and

 

    considering and recommending to our board of directors other actions relating to corporate governance.

Committee Members. The initial members of the nominating and corporate governance committee will be determined prior to the spin-off. We may rely on the transition rules provided in the NASDAQ Listing Rules related to the independence of the members of our nominating and corporate governance committee. To the extent we rely on these transition rules, by the date required by the transition provisions of the rules of the NASDAQ Global Market all members of the nominating and corporate governance committee will be independent.

When recommending persons to be selected by the board of directors as nominees for election as directors, the nominating and corporate governance committee will consider such factors as the individual’s personal and professional integrity, ethics and values, experience in corporate management, experience in the Company’s industry and with relevant social policy concerns, experience as a board member of another publicly held company, academic expertise in an area of the Company’s operations and practical and mature business judgment. In addition, the nominating and corporate governance committee will consider diversity of relevant experience, expertise and background in identifying nominees for directors.

Charter.  Prior to or upon completion of the separation, it is intended that our board of directors will adopt a written charter for our nominating and corporate governance committee, which will then be available on our corporate website at www.seaspine.com.

Code of Business Conduct and Ethics

Prior to the spin-off, we will adopt a code of business conduct and ethics that will apply to all of our employees, officers and directors, including those officers responsible for financial reporting. The code of business conduct and ethics will be available on our website at www.seaspine.com upon the completion of the separation. We expect that any amendments to the code, or any waivers of its requirements, will be disclosed on our website.

 

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Executive Officers

Each of our executive officers has been appointed by our board of directors.

Indemnification of Officers and Directors

Our amended and restated certificate of incorporation and amended and restated bylaws will provide that we will indemnify our directors and officers, and may indemnify our employees and other agents, to the fullest extent permitted by the DGCL. The DGCL, however, prohibits our amended and restated certificate of incorporation from limiting the liability of our directors for the following:

 

    any breach of the director’s duty of loyalty to us or to our stockholders;

 

    acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;

 

    unlawful payment of dividends or unlawful stock repurchases or redemptions; and

 

    any transaction from which the director derived an improper personal benefit.

Our amended and restated certificate of incorporation does not eliminate a director’s duty of care and, in appropriate circumstances, equitable remedies, such as injunctive or other forms of non-monetary relief, remain available under the DGCL. This provision also does not affect a director’s responsibilities under any other laws, such as the federal securities laws or other state or federal laws.

In addition to the indemnification required in our amended and restated certificate of incorporation and amended and restated bylaws, we have entered, or will enter, into indemnification agreements with each of our current directors and officers. These agreements provide, or will provide, for the indemnification of our directors and officers for certain expenses and liabilities incurred in connection with any action, suit, proceeding or alternative dispute resolution mechanism, or hearing, inquiry or investigation that may lead to the foregoing, to which they are a party, or are threatened to be made a party, by reason of the fact that they are or were a director, officer, employee, agent or fiduciary of SeaSpine, or any of our subsidiaries, by reason of any action or inaction by them while serving as an officer, director, agent or fiduciary, or by reason of the fact that they were serving at our request as a director, officer, employee, agent or fiduciary of another entity. In the case of an action or proceeding by or in the right of SeaSpine or any of our subsidiaries, no indemnification will be provided for any claim where a court determines that the indemnified party is prohibited from receiving indemnification, including any determination that any such indemnification by us is against public policy as expressed in the Securities Act. We believe that these amended and restated bylaw provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and officers.

We intend to maintain general liability insurance covering certain liabilities of our directors and officers arising out of claims based on acts or omissions in their capacities as directors or officers, whether or not we would have the power to indemnify such person against such liability under the DGCL or the provisions of our amended and restated certificate of incorporation or amended and restated bylaws.

The limitation of liability and indemnification provisions in our amended and restated certificate of incorporation and amended and restated bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duties. They may also reduce the likelihood of derivative litigation against directors and officers, even though an action, if successful, might benefit us and our stockholders. A stockholder’s investment may be harmed to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable.

 

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DIRECTOR COMPENSATION

Prior to the distribution, SeaSpine did not compensate its directors for service in their capacity as our directors; however, in connection with the distribution we expect to adopt a compensation program for our non-employee directors that consists of a combination of cash annual retainer fees and long-term equity-based compensation. The terms of the program, as currently contemplated, are described below. We expect the program will be effective upon the completion of the distribution.

Cash Compensation

Under the program, each non-employee director will be entitled to receive annual cash retainers in the following amounts, pro-rated for any partial year of service:

 

Chairman Annual Retainer

$ 75,000   

Non-Chairman Director Annual Retainer

$ 50,000   

Chair of Audit Committee Additional Annual Retainer

$ 15,000   

Chair of Compensation Committee Additional Annual Retainer

$ 15,000   

Chair of Nominating and Corporate Governance Committee Additional Annual Retainer

$ 15,000   

Lead Director Additional Annual Retainer

$ 25,000   

Annual retainers generally will be paid in cash quarterly in arrears promptly following the end of the applicable calendar quarter, but in no event more than thirty (30) days after the end of such quarter. However, under the program non-employee directors may elect to receive a stock option in lieu of the director’s cash compensation for the applicable fiscal year. If a non-employee director timely elects to receive a stock option in lieu of cash compensation, the option will cover a number of shares equal to the aggregate cash compensation divided by the per share grant date fair value of the option on the applicable grant date.

Equity Compensation

Under the program, each non-employee director who is serving on our board of directors as of the distribution automatically will receive an option (a “Distribution Option”) to purchase a number of shares equal to the applicable dollar-denominated amount set forth in the table below, divided by the per share grant date fair value of the Distribution Option on grant date. Distribution Options will be granted on the first day of the full calendar month that begins after the 30th day following the distribution.

Each non-employee director who either is serving on our board of directors as of the distribution, or is initially elected or appointed to serve on our board of directors after the distribution, automatically will receive an option (an “Initial Option”) to purchase a number of shares equal to the applicable dollar-denominated amount set forth in the table below, divided by the per share grant date fair value of the Initial Option on applicable grant date. Initial Options granted to non-employee directors serving as of the distribution will be granted on the same day at the Distribution Options. Initial Options granted to non-employee directors who are initially elected or appointed after the distribution will be granted on the date on which the director is initially elected or appointed to service on our board.

Each non-employee director serving on our board of directors as of the date of each annual shareholder meeting automatically will receive an option (an “Annual Option”) to purchase a number of shares equal to the applicable dollar-denominated amount set forth in the table below, divided by the per share grant date fair value of the Annual Option on the date of the applicable annual shareholder meeting.

 

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The following table sets forth the dollar-denominated amount of each option described above.

 

Chairman Distribution Option

$ 500,000   

Lead Independent Director Distribution Option

$ 400,000   

Non-Chairman and Non-Lead Independent Director Distribution Option

$ 200,000   

Chairman Initial Option

$ 150,000   

Non-Chairman Initial Option

$ 100,000   

Chairman Annual Option

$ 150,000   

Non-Chairman Annual Option

$ 100,000   

Each option granted under the program (including options granted in lieu of cash compensation) will vest and become exercisable with respect to 25% of the shares underlying the option on each quarterly anniversary of the applicable grant date, subject to continued service, and generally will have a term of ten years. In addition, each option will vest and become exercisable in full immediately prior to a change in control of our company, subject to continued service until immediately prior to such change in control and will vest and become exercisable in full upon the director’s death or disability. If a director stands for reelection but is not reelected to our board of directors, any outstanding Annual Option then-held by the director will vest and become exercisable in full.

EXECUTIVE COMPENSATION

This section discusses the material components of the executive compensation program for our executive officers who are named in the “2014 Summary Compensation Table” below. These individuals, who would have been our 2014 “named executive officers” had we been a publicly listed company during 2014, as well as their positions with us following the distribution, are listed below.

 

    Brian Larkin, President;

 

    John Bostjancic, Chief Financial Officer; and

 

    John Winge, Vice President, Sales.

In 2014, Messrs. Larkin, Bostjancic and Winge were employees of Integra. Accordingly, all 2014 payments and benefits described below were provided by Integra. We expect that Mr. Larkin, the current President of the SeaSpine business, will retire following the completion of the distribution. In addition, we voluntarily included information regarding the 2014 compensation paid to John Bostjancic, our Chief Financial Officer, as we believe this information is relevant and important to our stockholders.

We recently hired Keith Valentine, who currently serves, and will continue to serve following the distribution, as our Chief Executive Officer. As Mr. Valentine was not employed by us or Integra in 2014, he is not a named executive officer for 2014; however, his employment agreement with us is summarized below.

This discussion may contain forward-looking statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs. Actual compensation programs that we adopt following the completion of the distribution may differ materially from the currently planned programs summarized in this discussion.

 

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2014 Summary Compensation Table

The following table sets forth information concerning the compensation of our named executive officers for the year ended December 31, 2014.

 

Name and Principal Position

   Salary
($)
     Stock
Awards
($)(1)
     Non-Equity
Incentive Plan
Compensation
($)
     All Other
Compensation
($)(2)
     Total ($)  

Brian Larkin

     342,210         —           —           8,520         350,730   

President

              

John Bostjancic

     295,256         146,656         109,364         2,960         554,236   

Chief Financial Officer

              

John Winge

     293,858         49,334         44,590         4,125         391,907   

Vice President, Sales

              

 

(1) Amounts reflect the full grant-date fair value of Integra stock awards granted during 2014 computed in accordance with ASC Topic 718, rather than the amounts paid to or realized by the named individual. We provide information regarding the assumptions used to calculate the value of all stock awards made to executive officers in             .
(2) Amounts under the “All Other Compensation” column consist of matching contributions made by Integra under the its 401(k) plan. In addition, with respect to Mr. Larkin includes amounts related to an annual physical examination paid by Integra.

Narrative to Summary Compensation Table

Base Salaries

Messrs. Larkin, Bostjancic and Winge received base salaries from Integra in 2014 to compensate them for services rendered to Integra. The base salary payable to each named executive officer was intended to provide a fixed component of compensation reflecting the executive’s skill set, experience, role and responsibilities, and is set forth in the Summary Compensation Table above. As of April 1, 2014, the base salaries of Messrs. Larkin, Bostjancic and Winge were increased from $338,500, $288,921, and $290,126, respectively, to $343,577, $297,590, and $295,232, respectively. In addition, as of April 1, 2015, the base salaries for Messrs. Bostjancic and Winge will be increased to $305,029 and $299,661, respectively.

Following the completion of the distribution, our named executive officers will earn annualized base salaries that are commensurate with their positions as named executive officers of a public company and which are expected to provide a steady source of income sufficient to permit these officers to focus their time and attention on their work duties and responsibilities. Following the distribution, the annual base salaries for Messrs. Bostjancic and Winge will be $325,000 and $299,661, respectively.

Annual Cash Incentive Program

In 2014, Messrs. Bostjancic and Winge participated in Integra’s 2014 bonus plan. Determination of payouts under Integra’s 2014 bonus plan were based on the funding of Integra’s bonus pool based on financial metrics for all participants, as well as divisional financial metrics and assessment of individual performance. For 2014, the company-wide incentive award pool was funded based on Integra’s achievement of pre-established targets of revenue, adjusted EBITDA and operating cash flow, which were weighted 40%, 30% and 30%, respectively. Upon funding of the company-wide incentive award pool, each Integra division was allocated a portion of the total pool based on the division’s achievement of applicable revenue and income goals.

The target cash incentive payout for Messrs. Bostjancic and Winge under Integra’s 2014 bonus plan was 35% and 20% respectively, of each executive’s annual base salary on September 30, 2014. The executives participated in Integra’s Global Operations and Spine divisions, respectively. Mr. Larkin did not participate in Integra’s 2014 bonus plan.

 

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The Integra incentive award pool funded at target, and the Global Operations and Spine divisions achieved approximately 105% and 91%, respectively, of the applicable division’s goals. The annual cash bonuses actually awarded to each named executive officer for 2014 performance equaled approximately 108% and 84% of the target bonus for Messrs. Bostjancic and Winge, respectively, and are set forth above in the 2014 Summary Compensation Table in the column entitled “Non-Equity Incentive Compensation.”

Following the completion of the distribution, we expect that our named executive officers will be eligible to earn annual cash incentive awards based on the attainment of specified performance objectives established by our compensation committee. Eligibility to receive these cash bonuses is expected to incentivize our named executive officers to strive to attain Company and/or individual performance goals that further our interests and the interests of our stockholders. The applicable terms and conditions of the cash bonuses will be determined by our compensation committee, but we currently expect the annual target bonuses for Messrs. Bostjancic and Winge to be 45% and 20%, respectively, of the executive’s base salary.

Equity Compensation

Messrs. Bostjancic and Winge currently participate in Integra’s equity compensation plan. The following table sets forth the number of shares of Integra restricted stock granted to these executives by the Integra compensation committee in 2014 and 2015. Mr. Larkin did not receive an Integra equity award in 2014 or 2015.

 

Named Executive Officer

   2014 Integra
Restricted
Shares
Granted (#)
     2015 Integra
Restricted
Shares
Granted (#)
 

John Bostjancic

     3,160         839   

John Winge

     1,063         476   

Each Integra restricted stock award vests annually over a three-year period following the applicable grant date, subject to continued employment through the applicable vesting date.

We have adopted a Plan (discussed below) in order to facilitate the grant of equity and cash incentives to directors, employees (including our named executive officers) and consultants of our Company and certain of its affiliates and to enable our Company and certain of its affiliates to obtain and retain the services of these individuals, which is essential to our long-term success. The Plan was effective on the date on which it is adopted by our board of directors. For additional information about the Plan, please see “—2015 Incentive Award Plan” below.

As described elsewhere in this Information Statement, each Integra restricted stock award held by Messrs. Bostjancic and Winge will be converted into a SeaSpine restricted stock award covering a number of SeaSpine shares such that the pre-distribution value of the underlying Integra restricted stock award is approximately preserved. The converted SeaSpine restricted stock awards generally will be subject to the same terms and conditions, including the same vesting and share payment timing provisions, as applied to the applicable Integra awards immediately prior to the distribution.

Following the distribution, we expect that Messrs. Bostjancic and Winge will receive SeaSpine stock options with an aggregate fair value of $252,078 and $29,523, respectively.

Other Elements of Compensation

Retirement Plans

In 2014, our employees, including Messrs. Larkin, Bostjancic and Winge, were eligible to participate in Integra’s 401(k) retirement savings plan. Under Integra’s 401(k) plan, eligible Integra employees could elect to contribute pre-tax amounts, up to a statutorily prescribed limit, to the 401(k) plan. For 2014, the prescribed annual limit was $17,500.

 

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We intend to establish a 401(k) retirement savings plan for our employees, including our named executive officers, who satisfy certain eligibility requirements. We expect that our named executive officers will be eligible to participate in the 401(k) plan on the same terms generally applicable to other full-time employees. We believe that providing a vehicle for tax-deferred retirement savings though our 401(k) plan, and making matching contributions, adds to the overall desirability of our executive compensation package and further incentivizes our employees, including our named executive officers, in accordance with our compensation policies.

Employee Benefits and Perquisites

Additional benefits available to our employees in 2014, including Messrs. Larkin, Bostjancic and Winge, included medical, dental, and vision benefits, medical and dependent care flexible spending accounts, short-term and long-term disability insurance, accidental death and dismemberment insurance and basic life insurance coverage. These benefits were provided to Messrs. Larkin, Bostjancic and Winge during 2014 on the same general terms as they are provided to all of Integra’s full-time U.S. employees. In addition, for 2014 Mr. Larkin was eligible to receive an annual physical medical exam paid by Integra.

Following the distribution, we expect to reimburse Mr. Bostjancic for certain moving expenses related to his relocation from New Jersey to California.

No Tax Gross-Ups

We do not expect to make gross-up payments to cover our named executive officers’ personal income taxes that may pertain to any of the compensation or perquisites paid or provided by our company.

Outstanding Equity Awards at Fiscal Year-End

The following table summarizes the number of shares of Integra common stock underlying outstanding equity incentive plan awards for each named executive officer as of December 31, 2014.

 

          Stock Awards  

Name

   Grant Date    Number of Shares
or Units of Stock
That Have Not
Vested (#)(1)
    Market Value of
Shares or Units
of Stock That
Have Not
Vested ($)(2)
     Equity Incentive
Plan Awards:
Number of
Unearned Shares,
Units or Other
Rights That Have
Not Vested (#)(3)
     Equity Incentive Plan
Awards: Market or
Payout Value of
Unearned Shares, Units
or Other Rights That
Have Not Vested ($)(2)
 

Brian Larkin

   March 25, 2013      1,111        60,250         —           —     
   March 25, 2013      547 (4)      29,664         1,110         60,195   
   April 2, 2012      1,928        104,555         —           —     
   July 1, 2011      3,200 (5)      173,536         —           —     

John Bostjancic

   March 24, 2014      3,160        171,367         —           —     
   March 25, 2013      1,503        81,508         —           —     
   April 2, 2012      1,525        82,701         —           —     
   July 1, 2011      3,200 (5)      173,536         —           —     

John Winge

   March 24, 2014      1,063        57,646         —           —     
   March 25, 2013      427        23,156         —           —     
   April 2, 2012      137        7,423         —           —     

 

(1) Unless otherwise specified, awards vest in substantially equal installments on each of the first, second and third anniversaries of the applicable grant date, subject to continued employment.
(2) The market value of restricted stock or performance stock that has not vested is calculated based on the closing trading price of Integra’s common stock as reported on NASDAQ on December 31, 2014 ($54.23), the last trading day of 2014.

 

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(3) Consists of shares of Integra common stock underlying a performance stock award that are unearned. The terms of the performance stock award provide that (i) if Integra achieves the applicable performance goal for 2013, 546 shares will vest on the later of the first anniversary of the grant date or the date that the Integra compensation committee takes the action determining that such performance goal has been achieved; (ii) if Integra achieves the applicable performance goal for 2014, 547 shares will vest on the later of the second anniversary of the grant date or the date that the Integra compensation committee takes the action determining that such performance goal has been achieved; and (iii) if Integra achieves the applicable performance goal for 2015, 564 shares will vest on the later of the third anniversary of the grant date or the date that the Integra compensation committee takes the action determining that such performance goal for 2015 has been achieved; or (iv) if Integra achieves the applicable catch-up performance goal, any shares that fail to vest in accordance with the vesting schedule described above will vest on the date that the Integra compensation committee takes the action determining that such catch-up performance goal has been achieved, as described in, and in each case subject to the requirements of, the performance stock award agreement. Integra achieved the applicable performance goal in 2014, but failed to achieve the applicable performance goal in 2013.
(4) Represents the shares of Integra common stock underlying a performance stock award that are earned but have not yet vested.
(5) These awards vest in five equal installments on the anniversary of the applicable grant date.

Executive Compensation Arrangements

In 2014, none of our named executive officers was a party to any employment arrangements, including employment agreements, severance arrangements and/or change in control arrangements with Integra. However, outstanding restricted stock awards granted pursuant to Integra’s equity compensation plans will accelerate and vest in full upon the executive’s death or disability. Following is a summary of the employment and severance arrangements entered into with our named executive officers in 2015.

Keith Valentine Employment Agreement

On April 28, 2015, we entered into an employment agreement (the “Agreement”) with Keith Valentine, pursuant to which Mr. Valentine serves as Chief Executive Officer of our company, effective May 1, 2015. Unless earlier terminated, the term of the Agreement will terminate on May 1, 2019.

Under the Agreement, Mr. Valentine is entitled to receive an annual base salary of $500,000, and he is eligible for an annual bonus opportunity targeted at 85% of his annual base salary. Mr. Valentine’s bonus opportunity will range from 50% of his annual base salary (if threshold performance goals are achieved) to a maximum of 125% of his annual base salary, and for 2015 will be pro-rated for his partial year of service. Mr. Valentine’s base salary is subject to annual review and may be increased in the discretion of the compensation committee of our board of directors.

The Agreement provides that following the distribution Mr. Valentine will receive a nonqualified stock option under the Plan (the “Initial Option”) to purchase 325,000 shares of our common stock. The Initial Option will have a maximum term of eight years and will vest with respect to 25% of the shares on May 1, 2016 and with respect to the remaining 75% of the shares, in equal quarterly installments over the following three-year period, subject to his continued service.

The Agreement also provides that Mr. Valentine is eligible to receive a discretionary annual equity award with a target Black-Scholes or binomial value of $750,000. However, the amount, form and mix of such award will be determined by the compensation committee in its discretion after giving consideration to annual equity-based awards granted to chief executive officers in our peer group.

The Agreement contains an employee non-solicitation covenant that extends for 18 months following a termination of Mr. Valentine’s employment. Further, we will reimburse Mr. Valentine for up to $35,000 in legal

 

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fees and expenses incurred in connection with the drafting, review and negotiation of the Agreement and the Initial Option agreement.

Under the Agreement, if Mr. Valentine’s employment is terminated outside the context of a change in control by us other than “cause,” death or “disability,” or by Mr. Valentine for “good reason” (each, as defined in the Agreement), then, in addition to accrued amounts, Mr. Valentine will be entitled to the following payments and benefits:

 

    A lump sum payment equal to 2.99 times Mr. Valentine’s annual base salary (or 2.00 times Mr. Valentine’s annual base salary in the case of a termination occurring solely because the distribution does not occur before the earlier of a change in control or December 31, 2015) and a pro-rated portion of his annual bonus for the year of termination, determined based on actual performance;

 

    Company-subsidized healthcare continuation coverage for Mr. Valentine and his dependents for up to eighteen months after his termination date; and

 

    Accelerated vesting of any equity awards that are outstanding immediately prior to such termination and that vest solely based on the passage of time.

If Mr. Valentine’s employment is terminated within twelve months following a change in control by us other than cause, death or disability, or by Mr. Valentine for good reason, then Mr. Valentine will be entitled to receive the same payments and benefits as in the non-change in control context, except the lump sum cash payment will instead equal 2.99 times the sum of Mr. Valentine’s annual base salary and target bonus.

If Mr. Valentine’s employment is terminated due to his death or disability, then all of the shares subject to the Initial Option will vest and become exercisable in full.

Mr. Valentine’s right to receive the severance payments pursuant to the Agreement is contingent on Mr. Valentine’s executing a general release of claims against the Company. In addition, to the extent that any payment or benefit received in connection with a change in control would be subject to an excise tax under Section 4999 of the Internal Revenue Code, such payments and/or benefits will be subject to a “best pay cap” reduction if such reduction would result in a greater net after-tax benefit to Mr. Valentine than receiving the full amount of such payments.

John Bostjancic Letter Agreement

In March 2015, we entered into an employment offer letter with Mr. Bostjancic pursuant to which he serves as Chief Financial Officer of our company.

Under the letter agreement, Mr. Bostjancic is entitled to receive an annual base salary of $325,000, and he is eligible for an annual bonus opportunity targeted at 45% of his annual base salary. In addition, Mr. Bostjancic is eligible to receive a discretionary annual equity award with value no greater than $210,000.

The letter agreement also provides that, in connection with the distribution, Mr. Bostjancic will be eligible to receive (i) one or more equity awards, including a stock option to purchase our common stock, with an aggregate fair value of $252,078 and (ii) relocation assistance of up to $100,000 in connection with his move to California.

Under the letter agreement, if Mr. Bostjancic’s employment is terminated for any reason other than cause prior to December 31, 2015, he will receive (i) a lump-sum payment equal to six months of his base salary and (ii) an additional cash amount equal to the value of any restricted stock awards held by Mr. Bostjancic as of the termination date that would have vested within six months following his termination date (had he remained employed). Mr. Bostjancic also will be eligible to receive any standard severance payments and benefits then in effect with our company. The letter agreement also provides that he will be eligible to receive up to twelve months of his base salary upon a qualifying termination in connection with a change in control, pursuant to an arrangement to be established by our company following the distribution.

 

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John Winge Letter Agreement

In January 2015, we entered into a letter agreement with Mr. Winge pursuant to which he serves as Vice President, Sales of our company. The letter agreement provides that if Mr. Winge’s employment is terminated for any reason other than cause prior to January 1, 2016, he will receive a lump-sum payment equal to six months of his base salary, in addition to any standard severance payments and benefits then in effect with our company.

2015 Incentive Award Plan

In May 2015 our board of directors adopted, and our sole shareholder approved, the 2015 Incentive Award Plan (the “Plan”), under which we may grant cash and equity incentive awards to eligible service providers in order to attract, motivate and retain the talent for which we compete. The material terms of the Plan are summarized below.

Eligibility and Administration

Employees, consultants and directors of SeaSpine and our affiliates are eligible to receive awards under the Plan. In addition, any person who received an award, originally granted under an Integra equity incentive award plan, that is adjusted into an award covering SeaSpine common stock in accordance with the terms of the Employee Matters Agreement (each, an “Adjusted Award”), is eligible to participate in the Plan. Following the completion of the spin-off, the Plan will be administered by our board of directors with respect to awards to non-employee directors and by our compensation committee with respect to other participants, each of which may delegate its duties and responsibilities to committees of our directors and/or officers (our board of directors and such committees, referred to collectively as the plan administrator below), subject to certain limitations that may be imposed under Section 162(m) of the Code, Section 16 of the Exchange Act, and/or stock exchange rules, as applicable. The plan administrator has the authority to make all determinations and interpretations under, prescribe all forms for use with, and adopt rules for the administration of, the Plan, subject to its express terms and conditions. The plan administrator also sets the terms and conditions of all awards under the Plan, including any vesting and vesting acceleration conditions.

Limitation on Awards and Shares Available

The aggregate number of shares that may be issued or transferred pursuant to awards under the Plan is the sum of (i) the number of shares that may be issuable upon exercise or vesting of the Adjusted Awards and (ii) 2,000,000 shares, which shares may be authorized but unissued shares, or shares purchased in the open market. If an award under the Plan is forfeited, expires or is settled for cash, any shares subject to such award may, to the extent of such forfeiture, expiration or cash settlement, be used again for new grants under the Plan. In addition, shares tendered or withheld to satisfy tax withholding obligations associated with an award will be used again for new grants under the Plan. However, the following shares may not be used again for grant under the Plan: (1) shares tendered by a participant or withheld by us in payment of the exercise price of an option; (2) shares subject to a stock appreciation right (a “SAR”) that are not issued in connection with the stock settlement of the SAR on its exercise; and (3) shares purchased on the open market with the cash proceeds from the exercise of options.

Awards granted under the Plan upon the assumption of, or in substitution for, awards authorized or outstanding under a qualifying equity plan maintained by an entity with which we enter into a merger or similar corporate transaction will not reduce the shares available for grant under the Plan. The maximum number of shares of our common stock that may be subject to one or more awards granted to any director pursuant to the Plan during any calendar year is 500,000 and the maximum amount that may be paid under a cash award pursuant to the Plan to any one participant during any calendar year period is $2,500,000. The maximum number of shares that may be issued under the Plan upon the exercise of incentive stock options is 2,000,000.

Awards

The Plan provides for the grant of stock options, including incentive stock options (“ISOs”) and nonqualified stock options (“NSOs”), restricted stock, dividend equivalents, stock payments, restricted stock

 

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units (“RSUs”), performance shares, other incentive awards, SARs, and cash awards. Certain awards under the Plan may constitute or provide for a deferral of compensation, subject to Section 409A of the Code, which may impose additional requirements on the terms and conditions of such awards. All awards under the Plan will be set forth in award agreements, which will detail all terms and conditions of the awards, including any applicable vesting and payment terms and post-termination exercise limitations. Awards other than cash awards generally will be settled in shares of our common stock, but the plan administrator may provide for cash settlement of any award. A brief description of each award type follows.

 

    Stock Options. Stock options provide for the purchase of shares of our common stock in the future at an exercise price set on the grant date. ISOs, by contrast to NSOs, may provide tax deferral beyond exercise and favorable capital gains tax treatment to their holders if certain holding period and other requirements of the Code are satisfied. The exercise price of a stock option may not be less than 100% of the fair market value of the underlying share on the date of grant (or 110% in the case of ISOs granted to certain significant stockholders), except with respect to certain substitute options granted in connection with a corporate transaction. The term of a stock option may not be longer than ten years (or five years in the case of ISOs granted to certain significant stockholders). Vesting conditions determined by the plan administrator may apply to stock options and may include continued service, performance and/or other conditions.

 

    SARs. SARs entitle their holder, upon exercise, to receive from us an amount equal to the appreciation of the shares subject to the award between the grant date and the exercise date. The exercise price of a SAR may not be less than 100% of the fair market value of the underlying share on the date of grant (except with respect to certain substitute SARs granted in connection with a corporate transaction) and the term of a SAR may not be longer than ten years. Vesting conditions determined by the plan administrator may apply to SARs and may include continued service, performance and/or other conditions.

 

    Restricted Stock, RSUs and Performance Shares . Restricted stock is an award of nontransferable shares of our common stock that remain forfeitable unless and until specified conditions are met, and which may be subject to a purchase price. RSUs are contractual promises to deliver shares of our common stock in the future, which may also remain forfeitable unless and until specified conditions are met. Delivery of the shares underlying RSUs may be deferred under the terms of the award or at the election of the participant, if the plan administrator permits such a deferral. Performance shares are contractual rights to receive a range of shares of our common stock in the future based on the attainment of specified performance goals, in addition to other conditions which may apply to these awards. Conditions applicable to restricted stock, RSUs and performance shares may be based on continuing service, the attainment of performance goals and/or such other conditions as the plan administrator may determine.

 

    Stock Payments, Other Incentive Awards and Cash Awards. Stock payments are awards of fully vested shares of our common stock that may, but need not, be made in lieu of base salary, bonus, fees or other cash compensation otherwise payable to any individual who is eligible to receive awards. Other incentive awards are awards other than those enumerated in this summary that are denominated in, linked to or derived from shares of our common stock or value metrics related to our shares, and may remain forfeitable unless and until specified conditions are met. Cash awards are cash incentive bonuses subject to performance goals.

 

    Dividend Equivalents. Dividend equivalents represent the right to receive the equivalent value of dividends paid on shares of our common stock and may be granted alone or in tandem with awards other than stock options or SARs. Dividend equivalents are credited as of dividend record dates during the period between the date an award is granted and the date such award vests, is exercised, is distributed or expires, as determined by the plan administrator. Dividend equivalents may not be paid on performance awards granted under the Plan unless and until such performance awards have vested.

 

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    Performance Awards. Performance awards include any of the foregoing awards that are granted subject to vesting and/or payment based on the attainment of specified performance goals. The plan administrator will determine whether performance awards are intended to constitute “qualified performance-based compensation,” or “QPBC,” within the meaning of Section 162(m) of the Code, in which case the applicable performance criteria will be selected from the list below in accordance with the requirements of Section 162(m) of the Code.

Section 162(m) of the Code imposes a $1,000,000 cap on the compensation deduction that a public company may take in respect of compensation paid to its “covered employees” (which should include its chief executive officer and its next three most highly compensated employees other than its chief financial officer), but excludes from the calculation of amounts subject to this limitation any amounts that constitute QPBC. QPBC performance criteria may be used with respect to performance awards that are not intended to constitute QPBC. In addition, the company may issue awards that are not intended to constitute QPBC even if such awards might be non-deductible as a result of Section 162(m) of the Code.

In order to constitute QPBC under Section 162(m) of the Code, in addition to certain other requirements, the relevant amounts must be payable only upon the attainment of pre-established, objective performance goals set by our compensation committee and linked to stockholder-approved performance criteria. For purposes of the Plan, one or more of the following performance criteria will be used in setting performance goals applicable to QPBC, and may be used in setting performance goals applicable to other performance awards: (i) net earnings or losses (either before or after one or more of the following: (A) interest, (B) taxes, (C) depreciation, (D) amortization and (E) non-cash equity-based compensation expense); (ii) gross or net sales or revenue or sales or revenue growth; (iii) net income (either before or after taxes); (iv) adjusted net income; (v) operating earnings or profit (either before or after taxes); (vi) cash flow (including, but not limited to, operating cash flow and free cash flow); (vii) year-end cash; (viii) return on assets or return on net assets; (ix) asset turnover; (x) return on capital (or invested capital) and cost of capital; (xi) return on stockholders’ equity; (xii) total stockholder return; (xiii) return on sales; (xiv) gross or net sales; (xv) return on capital; (xvi) gross or net profit or operating or income margin; (xvii) costs, reductions in costs and cost control measures; (xviii) expenses; (xix) working capital; (xx) earnings or loss per share; (xxi); (xxii) price per share or dividends per share (or appreciation in and/or maintenance of such price or dividends); (xxiii) regulatory achievements or compliance (including, without limitation, regulatory body approval for commercialization of a product); (xxiv) implementation or completion of critical projects; (xxv) market share; (xxvi) economic value or economic value added; (xxvii) asset or inventory turnover; (xxviii) cost or expenses; (xxix) mergers and acquisition integration; (xxx) financial and other capital-raising transactions; (xxxi) increase in customer base or customer retention, satisfaction and/or growth; (xxxii) employee satisfaction; (xxxiii) recruiting and maintaining personnel; (xxxiv) environmental health and safety; (xxxv) diversity; and (xxxvi) quality, any of which may be measured either in absolute terms for us or any operating unit of SeaSpine or as compared to any incremental increase or decrease or as compared to results of a peer group or to market performance indicators or indices. The Plan also permits the plan administrator to provide for objectively determinable adjustments to the applicable performance criteria in setting performance goals for QPBC awards.

Certain Transactions and Terminations

The plan administrator has broad discretion to take action under the Plan, as well as make adjustments to the terms and conditions of existing and future awards, to prevent the dilution or enlargement of intended benefits and facilitate necessary or desirable changes in the event of certain transactions and events affecting our common stock, such as stock dividends, stock splits, mergers, acquisitions, consolidations and other corporate transactions. In addition, in the event of certain non-reciprocal transactions with our stockholders known as “equity restructurings,” the plan administrator will make equitable adjustments to the Plan and outstanding awards. In the event of a change in control of SeaSpine (as defined in the Plan), to the extent that the surviving entity declines to continue, convert, assume or replace outstanding awards, then all such awards will become fully vested and exercisable in connection with the transaction. Upon or in anticipation of a change of control, the

 

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plan administrator may cause any outstanding awards to terminate at a specified time in the future and give the participant the right to exercise such awards during a period of time determined by the plan administrator in its sole discretion. Individual award agreements may provide for additional accelerated vesting and payment provisions.

In addition, in the event that a change in control occurs and the participant incurs a qualifying termination on or within twelve months following the date of such change in control, each outstanding award held by a participant, other than any award subject to performance vesting, will become fully vested (and, as applicable, exercisable) upon such qualifying termination.

In the event of a participant’s death or disability, all restrictions on such participant’s restricted stock award (other than restricted stock granted to participants in France) will lapse and such restricted stock will vest.

Foreign Participants, Claw-Back Provisions, Transferability, and Participant Payments

The plan administrator may modify award terms, establish sub-plans and/or adjust other terms and conditions of awards, subject to the share limits described above, in order to facilitate grants of awards subject to the laws and/or stock exchange rules of countries outside of the United States. All awards will be subject to the provisions of any claw-back policy implemented by SeaSpine to the extent set forth in such claw-back policy and/or in the applicable award agreement. With limited exceptions for estate planning, domestic relations orders, certain beneficiary designations and the laws of descent and distribution, awards under the Plan are generally non-transferable prior to vesting, and are exercisable only by the participant. With regard to tax withholding, exercise price and purchase price obligations arising in connection with awards under the Plan, the plan administrator may, in its discretion, accept cash or check, shares of our common stock that meet specified conditions, a “market sell order” or such other consideration as it deems suitable.

Plan Amendment and Termination

Our board of directors may amend or terminate the Plan at any time; however, except in connection with certain changes in our capital structure, stockholder approval will be required for any amendment that increases the number of shares available under the Plan, “reprices” any stock option or SAR, or cancels any stock option or SAR in exchange for cash or another award when the option or SAR price per share exceeds the fair market value of the underlying shares. After the tenth anniversary of the date on which we adopted the Plan, no incentive stock options may be granted; however, the Plan does not have a specified expiration and will otherwise continue in effect until terminated by SeaSpine.

2015 Employee Stock Purchase Plan

In May 2015, our board adopted, and our sole stockholder approved, the 2015 Employee Stock Purchase Plan, or the ESPP. The purpose of the ESPP is to assist our employees in acquiring stock ownership in SeaSpine and to encourage our employees to remain employed with us. The material terms of the ESPP are summarized below. In addition, we expect to adopt an initial offering period under the ESPP after the effectiveness of the distribution that will establish the terms and conditions pursuant to which participants in the ESPP will be able to purchase shares of our common stock, which we are still in the process of developing.

Administration

The ESPP is administered by the compensation committee, which has broad authority to construe the ESPP and to make determinations with respect to the terms and conditions of each offering period under the ESPP, awards, eligible participants, designated subsidiaries and other matters pertaining to plan administration.

 

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Common Stock Reserved for Issuance under the ESPP

An aggregate of 400,000 shares of our common stock are available for grant under the ESPP. The common stock made available for purchase under the ESPP may be authorized but unissued shares, treasury shares or shares reacquired in private transactions or open market purchases. In computing the number of shares of common stock available for grant, shares relating to options which terminate prior to exercise will be available for future grants of options.

Participating Subsidiaries and Sub-plans

The plan administrator may designate certain of our subsidiaries as participating subsidiaries in the ESPP and may change these designations from time to time. The plan administrator may also adopt sub-plans in order to ensure that the terms of the ESPP, as applicable to any non-U.S. participating subsidiaries, comply with applicable foreign laws.

Eligible Employees

Our employees and those of our participating subsidiaries generally will be eligible to participate in the ESPP, though employees who own 5% or more of the total combined voting power or value of all classes of our stock or the stock of one of our subsidiaries will not be allowed to participate in the ESPP. Under applicable tax rules, the plan administrator may also exclude certain categories of employees from participation in the ESPP.

Participation

Eligible employees may generally elect to contribute and apply to the purchase of shares of our common stock up to 15% their base pay and commissions during an offering period under the terms of the ESPP (though the plan administrator may set a lower maximum percentage under the initial or any subsequent offering period). Options granted under the ESPP are exercisable on specified exercise dates only through funds accumulated by an employee through payroll deductions made during the applicable offering period, and any such funds that are not used to purchase shares are returned to participants within thirty days after the end of the offering period. Participants may not accrue the right to purchase stock under the ESPP (or any other tax-qualified stock purchase plan) with a fair market value exceeding $25,000 in any calendar year. In addition, an individual participant may purchase up to 1,500 shares of our common stock during any purchase period. Participation in the ESPP is voluntary.

Offering Periods

Under the ESPP, employees are offered the option to purchase discounted shares of our common stock during offering periods designated by the plan administrator. The plan administrator may designate varying offering periods (including offering periods that overlap). We expect initial offering period will commence on January 1, 2016 and will end on December 31, 2016.

Share Purchases

Shares are purchased on the applicable exercise date(s), as designated by the plan administrator for each offering period. We expect that the exercise date(s) for the initial offering period (and thereafter unless changed by the plan administrator) will be the last trading day of the applicable purchase period. The option purchase price will be 85% of the closing price of our common stock on either the grant date or the exercise date, whichever is lower, as reported on the applicable listing exchange. The grant date generally will be the date on which the participant’s participation in the offering period commences. Unless a participant has previously canceled his or her participation in the ESPP, an amount equal to the amount credited to his or her ESPP account will be used to purchase the maximum number of whole shares of our common stock that can be purchased based

 

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on the amount credited to such participant’s account on the exercise date and subject to individual and aggregate share limitations under the applicable offering period established by the plan administrator. No fractional shares will be issued.

A participant may cancel his or her payroll deduction authorization no later than ten calendar days prior to the next applicable exercise date (or later, if permitted by the plan administrator). Upon cancellation, the participant may elect either to withdraw all of the funds then credited to his or her ESPP account and withdraw from the ESPP or have the balance of his or her account applied to the purchase of whole shares of common stock that can be purchased for the offering period in which his or her cancellation is effective (with any remaining ESPP account balance returned to the participant).

Termination of Eligibility and Transferability

If a participant dies during an offering period, the participant’s estate or beneficiary may elect to use amounts credited to the participant’s account to purchase shares at the end of the relevant offering period or may elect to have such amounts returned to the estate or beneficiary. If a participant’s employment is terminated for any reason other than death during an offering period, the participant’s participation in the ESPP will terminate, and any amounts credited to the participant’s ESPP account will be returned to the participant.

Options granted under the ESPP are generally not transferable and are exercisable only by the participant.

Adjustments

In the event of any stock dividend, stock split, combination or exchange of shares, merger, consolidation or other distribution (other than normal cash dividends) of our assets to stockholders, or any other change affecting the shares of our stock or the share price of our stock, the plan administrator has broad discretion to equitably adjust awards under the ESPP to prevent the dilution or enlargement of benefits under outstanding options as a result of such transaction. In the event of a merger or sale of all or substantially all of our assets, then outstanding options will be assumed or substituted by an acquiring company or, if the acquiror chooses to not assume or substitute the outstanding options, then a new exercise date will be established and options will remain outstanding until such date, when they will be exercised for shares.

Insufficient Shares

If the total number of shares of common stock which are to be purchased under outstanding purchase rights on any particular date exceed the number of shares then available for issuance under the ESPP, the plan administrator will make a pro rata allocation of the available shares on a uniform and equitable basis, and unless additional shares are authorized under the ESPP, no further offering periods will take place. In this event, excess payroll deductions will be refunded to participants.

Amendment or Termination of the ESPP

The plan administrator has the right to amend, suspend, or terminate the ESPP at any time and from time to time to the extent that it deems advisable. However, absent the approval of our stockholders, the plan administrator may not amend the ESPP (1) to increase the maximum number of shares that may be purchased under the ESPP or (2) in any manner that would cause the ESPP to no longer be an “employee stock purchase plan” within the meaning of Code Section 423. No further offerings will take place once all shares of common stock available for purchase thereunder have been purchased unless our stockholders approve an amendment authorizing new shares under the ESPP.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

As of the date of this Information Statement, all of the outstanding shares of our capital stock are beneficially owned by Integra LifeSciences Corporation, a direct, wholly owned subsidiary of Integra. After the spin-off, Integra will not own, directly or beneficially, any shares of our capital stock. The following table sets forth certain information with respect to the anticipated beneficial ownership of our common stock following the consummation of the distribution for:

 

    each of our stockholders who we believe (based on the assumptions described below) will beneficially own more than 5% of our outstanding shares of common stock;

 

    each person who is expected to serve on our board of directors following the spin-off;

 

    each officer named in the 2014 Summary Compensation Table; and

 

    all of our directors and executive officers following the spin-off as a group.

Except as otherwise noted below, we based the share amounts on each person’s beneficial ownership of Integra common stock on             , assuming a distribution ratio of one share of SeaSpine’s common stock for every shares of Integra common stock held by such person.

To the extent our directors and executive officers own Integra common stock on the record date, they will participate in the distribution on the same terms as other holders of Integra common stock.

Except as otherwise noted in the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the table below have sole voting and investment power with respect to all shares of common stock that they beneficially own, subject to applicable community property laws.

Immediately following the distribution, we estimate that              million shares of SeaSpine common stock would be issued and outstanding, based on the number of Integra shares expected to be outstanding as of the record date. The actual number of our outstanding shares of common stock following the distribution will be determined on the record date for the distribution.

Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o SeaSpine Holdings Corporation, 2302 La Mirada Drive, Vista, California 92081.

 

Name

   Shares
Beneficially
Owned
   Percentage
of
Outstanding
Common
Stock

5% Beneficial Owners

  

Richard E. Caruso, Ph.D.

     

Provco Leasing Corporation

     

Tru St Partnership, L.P.

     

FMR LLC and Edward C. Johnson 3d

     

BlackRock, Inc.

     

Directors and Executive Officers

     

Kirtley (Kirt) C. Stephenson

     

Stuart M. Essig, Ph.D.

     

John B. Henneman, III

     

Keith C. Valentine

     

Brian Larkin

     

John J. Bostjancic

     

John J. Winge

     

All current executive officers and directors (including nominees) as a group (7 persons)

     

 

* Represents beneficial ownership of less than 1%.

 

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Indemnification Agreements

We have entered, or will enter, into an indemnification agreement with each of our directors and officers. The indemnification agreements and our amended and restated certificate of incorporation and amended and restated bylaws will require us to indemnify our directors and officers to the fullest extent permitted by the DGCL. See “Management—Indemnification of Officers and Directors.”

Agreements between Integra and SeaSpine Relating to the Separation

Following the spin-off, Integra and SeaSpine will operate independently, and neither will have any ownership interest in the other. In order to govern certain ongoing relationships between Integra and SeaSpine after the separation and to provide mechanisms for an orderly transition, Integra and SeaSpine intend to enter into agreements pursuant to which certain services and rights will be provided for following the separation, and Integra and SeaSpine will indemnify each other against certain liabilities arising from our respective businesses, as provided for below. The following is a summary of the terms of the material agreements we expect to enter into with Integra. As is customary in spin-off transactions, the agreements between the applicable parties which serve to allocate the assets and liabilities that relate to the parties’ respective businesses do not typically expire, so that such allocation can be assured over time. Accordingly, the Separation Agreement, the Tax Matters Agreement and the Employee Matters Agreement do not terminate upon the expiration of a specified period of time.

This summary does not purport to be complete and may not contain all of the information about these agreements that is important to you. These summaries are subject to, and qualified by reference to, the agreements described below, the form of each of which will be included as an exhibit to the Registration Statement on Form 10 of which this Information Statement is a part. You are encouraged to read each of these agreements carefully and in their entirety, as they are the primary legal documents governing the relationship between Integra and SeaSpine following the separation.

Separation Agreement

We will enter into the Separation Agreement with Integra before the separation. The Separation Agreement will set forth the agreements between Integra and us regarding the principal transactions necessary to separate us from Integra. It also will set forth other agreements that govern certain aspects of our relationship with Integra after the completion of the separation.

Except for matters covered by the Separation Agreement, the Transition Services Agreement, the Tax Matters Agreement, the Employee Matters Agreement, the Supply Agreements and the other transactions entered into in the ordinary course of business, any and all agreements, arrangements, commitments and understandings, between us and our subsidiaries (the “SeaSpine Entities”), on the one hand, and Integra and its subsidiaries and other affiliates (other than us and our subsidiaries) (the “Integra Entities”), on the other hand, will terminate prior to or as of the distribution date.

In general, neither Integra nor SeaSpine will make any representations or warranties regarding the transactions contemplated by the Separation Agreement or the respective businesses, assets, liabilities, condition or prospects of Integra or SeaSpine.

Distribution.  On the distribution date, Integra will distribute to its stockholders one share of our common stock for every             shares of Integra common stock held by Integra stockholders.

Conditions.  The Separation Agreement will provide that the distribution is subject to several conditions that must be satisfied or waived by Integra in its sole discretion. For further information regarding these conditions,

 

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see “The Spin-Off—Conditions to the Spin-Off.” Even if all of the conditions have been satisfied, Integra’s board of directors may, in its sole and absolute discretion, terminate and abandon the distribution and the related transactions at any time prior to the distribution date.

Removal of Guarantees and Releases from Liabilities.  The Separation Agreement will require each party to use commercially reasonable efforts to remove as the other party and its subsidiaries and affiliates as guarantor of any of the first party’s obligations. The Separation Agreement will also provide for the settlement or extinguishment of certain liabilities and other obligations between any of the Integra Entities and any of the SeaSpine Entities.

Release of Claims.  The Separation Agreement will provide for a full and complete release and discharge of all liabilities existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed at or before the effective time of the distribution, between or among any of the Integra Entities and any of the SeaSpine Entities, except as expressly set forth in the Separation Agreement.

Indemnification.  SeaSpine and Integra will agree to indemnify each other and each of our and their respective affiliates and representatives, and each of the heirs, executors, successors and assigns of such representatives against all liabilities to the extent relating to or arising out of our or their respective business as conducted at any time, including any breach by such company of the Separation Agreement, and, with respect to information contained in the Registration Statement on Form 10 of which this Information Statement is a part, any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that Integra will agree to indemnify us solely with respect to information regarding any of the Integra Entities provided to us by any of the Integra Entities for inclusion therein.

Exchange of Information.  SeaSpine and Integra will agree to provide each other with information relating to the other party or the conduct of its business prior to the separation, and information reasonably necessary to prepare financial statements and any reports or filings to be made with any governmental authority. SeaSpine and Integra will also agree to retain such information in accordance with our and their respective record retention policies as in effect on the date of the Separation Agreement and to afford each other access to former and current representatives as witnesses or records as reasonably required in connection with any relevant litigation.

Further Assurances.  We and Integra will agree to take all actions reasonably necessary or desirable to consummate and make effective the transactions contemplated by the Separation Agreement and the ancillary agreements related thereto, including using commercially reasonable efforts to promptly obtain all consents and approvals, to enter into all agreements and to make all filings and applications that may be required for the consummation of such transactions.

Termination.  The Separation Agreement will provide that it may be terminated by Integra at any time prior to the separation by and in the sole discretion of Integra without the approval of SeaSpine or the stockholders of Integra.

Transition Services Agreement

Integra provides us with certain support functions, including information technology, accounting and other financial functions, regulatory affairs and quality assurance, human resources and other administrative support. Such services, include, among others, inspection and packaging services related to certain of our products on our behalf from Integra’s Ohio distribution facility until such distribution processes can transfer to our facility in Vista, California and certain support services for the international operations. Prior to the separation and to help ensure an orderly transition, SeaSpine and Integra will enter into the Transition Services Agreement, pursuant to which, in exchange for the fees specified in such agreement, Integra will continue to provide such services

 

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(through various separate work streams) to us on an interim basis, ranging in duration from one month to four years, with the majority of such services being provided for a duration of three to six months. We believe that the terms and conditions under the Transition Services Agreement, including the pricing, are arms’ length.

The agreed upon charges for such services are either (i) generally intended to allow Integra to recover all out-of-pocket costs and expenses, along with a pre-determined mark-up of such out-of-pocket costs and expenses or (ii) where available, a benchmark market based rate for the service. We estimate that we will pay Integra up to an aggregate of approximately $5 million over the term of the Transition Services Agreement for the services provided thereunder. In addition, we expect the vast majority of the expenses, up to approximately $4 million, to be incurred and paid during the first six months following the distribution. These costs are estimates and may vary based on need and the pace at which we transition from Integra.

Pursuant to the Transition Services Agreement, each of Integra and SeaSpine will agree to customary confidentiality agreements regarding any confidential information of the other party received in the course of performance of the services.

The Transition Services Agreement will continue in effect until the earliest of (i) the date all transition services have expired in accordance with the terms of the agreement, (ii) the date all transition services have been terminated in accordance with the terms of the agreement or (iii) the date on which the agreement is terminated as a whole. If one party defaults under the agreement, the non-defaulting party may terminate any service affected by such breach or the agreement in its entirety.

We also may incur direct fees for any additional services that we ask Integra to provide. In the event that we ask Integra to provide such additional services, we will negotiate with Integra regarding the terms and conditions for such services and the fees related thereto.

In addition, to help ensure an orderly transition, we will provide limited information technology and systems support services to Integra which are not expected to be material in either duration or amount. We will provide those services to Integra on terms that are substantially similar to the terms pursuant to which Integra provides transitional services to us pursuant to the Transition Services Agreement.

Employee Matters Agreement

Prior to the distribution, we will enter into the Employee Matters Agreement with Integra. The Employee Matters Agreement will allocate liabilities and responsibilities between Integra and SeaSpine relating to employee compensation and benefit plans and programs, including the treatment of retirement and health plans and equity incentive plans and awards.

Key provisions of the Employee Matters Agreement include the following:

 

    401(k) Plan. Our employees currently participate in the Integra 401(k) plan. Prior to or in connection with the distribution, our employees will cease to participate in the Integra 401(k) plan, and we will establish a replacement 401(k) plan for the benefit of our employees with substantially similar terms and conditions as the Integra 401(k) plan. We expect that account balances of our employees will be transferred from the Integra 401(k) plan to our 401(k) plan in connection with the transfer of their participation to our plan.

 

    Health and Welfare Plans. Our employees currently participate in health and welfare plans sponsored by Integra, including but not limited to medical, dental, prescription drug, disability and life insurance. Prior to or in connection with the distribution, our employees will cease to participate in the Integra health and welfare plans, and we will establish health and welfare plans that are substantially similar to the Integra health and welfare plans for the benefit of our employees.

 

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    Stock Options . Each Integra stock option that was granted prior to 2015 will be split into two options which will include an Integra stock option and a SeaSpine stock option. Following the distribution, the combined intrinsic value of the resulting Integra and SeaSpine stock options should approximately equal the intrinsic value as of immediately prior to the distribution of the underlying Integra stock option. Each Integra stock option that was granted in 2015 will be adjusted solely into an Integra stock option with an intrinsic value approximately equal to the intrinsic value of the underlying Integra stock option.

 

    Contract Stock . Each Integra contract stock award held by an individual who will continue to be employed or engaged by Integra or its affiliates following the distribution will be adjusted to cover a number of Integra shares such that the pre-distribution value of the Integra contract stock award is approximately preserved, except each contract stock award held by Peter Arduini will be split into two contract stock awards, which will include an Integra contract stock award and a SeaSpine contract stock award, based on the distribution ratio. Each Integra contract stock award held by an individual who will be employed or engaged by SeaSpine or its affiliates following the distribution will be converted into a SeaSpine contract stock award covering a number of SeaSpine shares such that the pre-distribution value of the underlying Integra contract stock award is approximately preserved.

 

    Restricted Stock . Each Integra restricted stock award held by an individual who will continue to be employed or engaged by Integra or its affiliates following the distribution will be adjusted to cover a number of Integra shares such that the pre-distribution value of the Integra restricted stock award is approximately preserved. Each Integra restricted award held by an individual who will be employed or engaged by SeaSpine or its affiliates following the distribution will be converted into a SeaSpine restricted stock award covering a number of SeaSpine shares such that the pre-distribution value of the underlying Integra restricted stock award is approximately preserved.

 

    Performance Stock . Each Integra performance stock award held by an individual who will be employed or engaged by Integra or its affiliates following the distribution will be adjusted to cover a number of Integra shares such that the pre-distribution value of the Integra performance stock award is approximately preserved. Each Integra performance stock award held by an individual who will be employed or engaged by SeaSpine or its affiliates following the distribution will be converted into a time-vesting SeaSpine equity award covering a number of SeaSpine shares such that the pre-distribution value of the underlying Integra performance stock award is approximately preserved.

 

    General Terms . Except as provided above, post-distribution equity awards resulting from adjustment of underlying Integra equity awards will generally be subject to the same vesting, expiration and other terms and conditions as applied to the underlying Integra awards immediately prior to the distribution.

 

    Incentive Compensation. Our employees currently participate in cash incentive, commission and similar cash plans or programs maintained by Integra. Prior to or in connection with the distribution, our employees will cease to participate in the Integra incentive compensation arrangements, and we will establish incentive compensation programs that are substantially similar to the Integra incentive compensation program for the benefit of our employees.

Tax Matters Agreement

In connection with the distribution, we and Integra will enter into the Tax Matters Agreement. The Tax Matters Agreement will generally govern the respective rights, responsibilities and obligations of us and Integra with respect to tax liabilities and benefits, tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings and certain other matters regarding taxes.

Our obligations under the Tax Matters Agreement are not limited in amount or subject to any cap. Further, even if we are not responsible for tax liabilities of Integra and its subsidiaries under the Tax Matters Agreement, we nonetheless could be liable under applicable tax law for such liabilities if Integra were to fail to pay them. If we are required to pay any liabilities under the circumstances set forth in the Tax Matters Agreement or pursuant to applicable tax law, the amounts may be significant.

 

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The Tax Matters Agreement also will require us and Integra to comply with the representations made to Latham & Watkins LLP in connection with its tax opinion, and will contain restrictions on our ability (and the ability of any member of our group) to take actions that could cause the internal distribution or the distribution to fail to qualify as a tax-free transaction for U.S. federal income tax purposes, including entering into any transaction or series of transactions as a result of which any person or group of persons would acquire or have the right to acquire from us or holders of our stock amounts of our stock greater than certain threshold amounts, or issuing our stock in an offering in amounts greater than certain threshold amounts. Certain of these restrictions will apply for the two-year period after the distribution, unless we obtain a private letter ruling from the IRS or a written opinion of a nationally recognized law firm that such action will not cause the internal distribution, the distribution or certain related transactions to fail to qualify as tax-free transactions for U.S. federal income tax purposes. Notwithstanding receipt of such ruling or opinion, in the event that such action causes the internal distribution, the distribution or certain related transactions to fail to qualify as a tax-free transaction for U.S. federal income tax purposes, we could be responsible for taxes arising therefrom.

Under the Tax Matters Agreement and subject to certain exceptions, we generally will be liable for, and will indemnify Integra against, taxes attributable to our business, and Integra generally will be liable for, and will indemnify us against, all taxes attributable to its business. Integra generally will be responsible for preparing and filing all tax returns that include taxes allocable to both Integra and us. In addition, Integra generally will be responsible for preparing and filing all tax returns that solely include taxes allocable to Integra, and we generally will be responsible for preparing and filing all tax returns that solely include taxes allocable to us.

Supply Agreements

Microfibrillar Collagen Supply Agreement

Prior to or concurrently with the separation, we expect to enter into an eight-year non-exclusive microfibrillar collagen product supply agreement with Integra for the supply of microfibrillar collagen material for use in the manufacture of our collagen ceramic matrix products. Integra will initially supply all of the microfibrillar collagen material used in the manufacture of our collagen ceramic matrix products, but we have the right to source microfibrillar collagen material from other suppliers. The specific quantities of microfibrillar collagen material supplied by Integra will be based on forecasts we provide to Integra. It is expected that the microfibrillar collagen material will be sold to us at fixed fee prices, with annual increases as set forth in the agreement. We may, at our option, extend the agreement for up to an additional six-year period. All terms and conditions under the agreement, including pricing, are expected to be arms’ length.

Under the agreement, we intend to license to Integra certain intellectual property associated with the collagen ceramic matrix product existing as of the date of separation. The agreement will restrict Integra from using such intellectual property in the spinal market, as further described in the agreement.

We will have the right to place a final order for microfibrillar collagen material upon termination or expiration of the agreement (except for terminations in certain circumstances) based on the amounts ordered in the twelve-month period immediately prior to such termination or expiration. Such material may be delivered by Integra over a twelve-month period.

The agreement may be terminated by mutual consent of the parties, or at the election of the non-defaulting party, with notice and a cure period, after an event of default specified in the agreement, which include events of non-payment, failure to comply with other obligations under the agreement, or bankruptcy related events.

Collagen Ceramic Supply Agreement

Prior to or concurrently with the separation, we expect to enter into a three-year non-exclusive collagen ceramic supply and distribution agreement with Integra to purchase (i) finished collagen ceramic matrix for supply to U.S. and international markets and (ii) finished collagen morsel products. The specific quantities of

 

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collagen ceramic matrix products supplied by Integra will be based on forecasts we provide to Integra. We currently expect that the products obtained from Integra pursuant to this agreement will represent approximately 10% of the revenue derived from all of the products that we sell. It is expected that the collagen ceramic matrix and collagen morsel products will be sold to us at fixed fee prices, with annual increases as set forth in the agreement. All terms and conditions under the agreement, including pricing, are expected to be arms’ length.

We will have the right to place a final order for collagen ceramic matrix and collagen morsel products upon termination or expiration of the agreement (except for terminations in certain circumstances) based on the amounts ordered in the twelve-month period immediately prior to such termination or expiration. Such products may be delivered by Integra over a twelve-month period.

The agreement may be terminated by mutual consent of the parties, or at the election of the non-defaulting party, with notice and a cure period, after an event of default specified in the agreement, which include events of non-payment, failure to comply with other obligations under the agreement, or bankruptcy related events.

Demineralized Bone Matrix and Collagen Ceramic Products Supply Agreement

Prior to or concurrently with the separation, we expect to enter into a seven-year non-exclusive demineralized bone matrix and collagen ceramic products supply and distribution agreement with Integra. Under this agreement, we will supply Integra with demineralized bone matrix and finished collagen ceramic matrix products for use in the global upper and lower extremities trauma and reconstruction surgery markets. The specific quantities of demineralized bone matrix and collagen ceramic matrix products supplied by us will be based on forecasts provided by Integra to us. It is expected that the demineralized bone matrix and the collagen ceramic matrix products will be sold by us at fixed fee prices, with annual increases as set forth in the agreement. Integra may, at its option, extend the agreement for up to an additional six-year period. All terms and conditions under the agreement, including pricing, are expected to be arms’ length.

Integra will have the right to place a final order for product upon termination or expiration of the agreement (except for terminations in certain circumstances) based on the amounts ordered in the twelve-month period immediately prior to such termination or expiration. Such products may be delivered by us over a twelve-month period.

The agreement may be terminated by mutual consent of the parties, or at the election of the non-defaulting party, with notice and a cure period, after an event of default specified in the agreement, which include events of non-payment, failure to comply with other obligations under the agreement, or bankruptcy related events.

Related Party Transactions

Set forth below is a description of certain relationships and related person transactions between us or our subsidiaries and our directors, executive officers and holders of more than 5% of our voting securities during the fiscal years ended December 31, 2014, 2013 and 2012. We believe that all of the following transactions were entered into with terms as favorable as could have been obtained from unaffiliated third parties in an arm’s length transaction.

Board of Directors Compensation

Following consummation of the separation, directors who are our employees will receive no cash compensation for their service as members of our board of directors. Members of our board of directors who are not our employees will be compensated as set forth under “Director Compensation.” For more information regarding these arrangements, see “Director Compensation.”

 

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Relationship with Integra

We are an indirect, wholly owned subsidiary of Integra. All of the shares of our issued and outstanding capital stock are currently owned by Integra LifeSciences Corporation, a direct, wholly owned subsidiary of Integra. Following completion of the separation, Integra will not own, directly or beneficially, any shares of our common stock.

Potential Conflicts of Interest

A number of our directors and officers continue to own Integra common stock (in at least one case, a substantial amount), as well as, in some cases, equity awards covering Integra stock. The direct interests of our directors and officers and related entities in common stock of Integra could create, or appear to create, potential conflicts of interest with respect to matters involving both Integra and us that could have different implications for Integra than they do for us. As a result, we may be precluded from pursuing certain opportunities on which we would otherwise act, including growth opportunities.

Following the spin-off, Integra and SeaSpine will operate independently, and neither will have any ownership interest in the other. Our executive officers and members of SeaSpine’s board of directors have fiduciary duties to our stockholders. Likewise, any such persons who serve in similar capacities at Integra have fiduciary duties to that company’s stockholders. Therefore, such persons may have conflicts of interest or the appearance of conflicts of interest with respect to matters involving or affecting more than one of the companies to which they owe fiduciary duties. For example, there may be the potential for a conflict of interest when SeaSpine or Integra looks at acquisitions and other corporate opportunities that may be suitable for each of them. Any potential conflicts that arise will be addressed on a case-by-case basis, keeping in mind the applicable fiduciary duties owed by the directors of each issuer. From time to time, we may enter into transactions with Integra and/or its subsidiaries or other affiliates. There can be no assurance that the terms of any such transactions will be as favorable to SeaSpine, Integra, or any of their subsidiaries or affiliates as would be the case where there is no overlapping director. See “—Policies and Procedures for Related Party Transactions” below for a discussion of certain procedures we will institute to address any such potential conflicts that may arise.

Policies and Procedures for Related Party Transactions

Our board of directors will adopt a written related person transaction policy to set forth the policies and procedures for the review and approval or ratification of related person transactions. Pursuant to this written policy, SeaSpine reviews all transactions, arrangements or relationships (or any series of similar transactions, arrangements or relationships) in which SeaSpine (including any of its subsidiaries) was, is or will be a participant and the amount involved exceeds $100,000, and in which any Related Person had, has or will have a direct or indirect interest. For purposes of the policy, a “Related Person” means:

(a) any person who is, or at any time since the beginning of SeaSpine’s last fiscal year was, a director or executive officer of SeaSpine or a nominee to become a director of SeaSpine;

(b) any person who is known to be the beneficial owner of more than 5% of any class of our voting securities;

(c) any immediate family member of any of the foregoing persons; and

(d) any firm, corporation or other entity in which any of the foregoing persons is employed or is a partner or principal or in a similar position or in which such person has a 5% or greater beneficial ownership interest.

If our legal department determines that a proposed transaction is a transaction for which approval is required under applicable rules and regulations of the SEC, the proposed transaction shall be submitted to the audit committee for consideration.

 

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The audit committee will consider all of the relevant facts and circumstances available to the committee, including (if applicable) but not limited to, the benefits to SeaSpine; the impact on a director’s independence in the event the Related Person is a director, an immediate family member of a director or an entity in which a director is a partner, stockholder or executive officer; the availability of other sources for comparable products or services; the terms of the transaction; and the terms available to unrelated third parties or to employees generally. No member of the audit committee shall participate in any review, consideration or approval of any Related Person Transaction with respect to which such member or any of his or her immediate family members is the Related Person. The audit committee shall approve only those Related Person Transactions that are in, or are not inconsistent with, the best interests of SeaSpine and its stockholders, as the audit committee determines in good faith.

The policy provides that the above determination should be made at the next audit committee meeting. In those instances in which the legal department, in consultation with the Chief Executive Officer or the Chief Financial Officer, determines that it is not practicable or desirable for SeaSpine to wait until the next audit committee meeting, the transaction shall be presented to the chair of the audit committee (who will possess delegated authority to act between audit committee meetings).

All related party transactions described in this section occurred prior to adoption of this policy, and as such, these transactions were not subject to the approval and review procedures described above. However, these transactions were reviewed and approved by our board of directors, or, for those transactions in which one or more of our directors was an interested party, by a majority of disinterested directors.

 

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DESCRIPTION OF SEASPINE CAPITAL STOCK

General

Our amended and restated certificate of incorporation authorizes us to issue up to 60,000,000 shares of common stock, $0.01 par value per share and up to 15,000,000 shares of preferred stock, $0.01 par value per share. The following description of our capital stock and provisions of our amended and restated certificate of incorporation and amended and restated bylaws are summaries and are qualified by reference to the amended and restated certificate of incorporation and the amended and restated bylaws. Copies of these documents are filed with the SEC as exhibits to our Registration Statement on Form 10 of which this Information Statement forms a part.

All of our issued and outstanding shares of common stock are duly authorized, validly issued, fully paid and nonassessable. Our shares of common stock are not redeemable and, following the distribution, will not have preemptive rights.

Common Stock

The holders of our common stock are entitled to the following rights.

Dividend Rights

Subject to preferences that may be applicable to any then outstanding preferred stock, holders of our common stock are entitled to receive dividends, if any, as may be declared from time to time by our board of directors out of legally available funds. We have never declared or paid dividends on our common stock and currently do not anticipate paying any cash dividends after the separation or in the foreseeable future.

Voting Rights

Each holder of our common stock is entitled to one vote for each share on all matters submitted to a vote of the stockholders, including the election of directors. Our stockholders do not have cumulative voting rights in the election of directors. Accordingly, holders of a majority of the voting shares are able to elect all of the directors.

Liquidation

In the event of our liquidation, dissolution or winding up, holders of our common stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all of our debts and other liabilities and the satisfaction of any liquidation preference granted to the holders of any then outstanding shares of preferred stock.

Rights and Preferences

Holders of our common stock have no preemptive, conversion, subscription or other rights, and there are no redemption or sinking fund provisions applicable to our common stock. The rights, preferences and privileges of the holders of our common stock are subject to and may be adversely affected by, the rights of the holders of shares of any series of our preferred stock that we may designate in the future.

Preferred Stock

Upon the completion of the distribution, our board of directors will have the authority, without further action by our stockholders, to issue up to 15,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof. These rights, preferences and privileges could include

 

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dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences and the number of shares constituting any series or the designation of such series, any or all of which may be greater than the rights of common stock. The issuance of our preferred stock could adversely affect the voting power of holders of common stock and the likelihood that such holders will receive dividend payments and payments upon liquidation. In addition, the issuance of preferred stock could have the effect of delaying, deferring or preventing a change of control of SeaSpine or other corporate action. Upon completion of the distribution, no shares of preferred stock will be outstanding, and we have no present plan to issue any shares of preferred stock.

Provisions of Our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws that May Have an Anti-Takeover Effect

Certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws that are summarized below may be deemed to have an anti-takeover effect and may delay, deter or prevent a tender offer or takeover attempt that a stockholder might consider to be in its best interests, including attempts that might result in a premium being paid over the market price for the shares held by stockholders.

Among other things, our amended and restated certificate of incorporation and amended and restated bylaws:

 

    establish a classified board of directors, with three classes of directors;

 

    authorize the issuance of blank check preferred stock that our board of directors could issue to increase the number of outstanding shares and to discourage a takeover attempt;

 

    limit the ability of stockholders to remove directors;

 

    prohibit our stockholders from calling a special meeting of stockholders;

 

    prohibit stockholder action by written consent, which requires all stockholder actions to be taken at a meeting of our stockholders;

 

    provide that the board of directors is expressly authorized to adopt, alter or repeal our bylaws;

 

    require a 66  2 3 % vote of stockholders, voting together as a single class, to amend the provisions of our amended and restated bylaws and certain provisions of our amended and restated certificate of incorporation; and

 

    establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.

The foregoing provisions of our amended and restated certificate of incorporation and amended and restated bylaws could discourage potential acquisition proposals and could delay or prevent a change in control. These provisions are intended to enhance the likelihood of continuity and stability in the composition of the board of directors and in the policies formulated by our board of directors and to discourage certain types of transactions that may involve an actual or threatened change of control. These provisions are designed to reduce our vulnerability to an unsolicited acquisition proposal. The provisions also are intended to discourage certain tactics that may be used in proxy fights. However, such provisions could have the effect of discouraging others from making tender offers for our shares and, as a consequence, they also may inhibit fluctuations in the market price of our common stock that could result from actual or rumored takeover attempts. Such provisions also may have the effect of preventing changes in our management.

Delaware Takeover Statute

Subject to certain exceptions, Section 203 prohibits a Delaware corporation from engaging in any “business combination” with any “interested stockholder” for a period of three years following the date that such stockholder became an interested stockholder, unless: (i) prior to such date, the board of directors of the

 

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corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; (ii) on consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned (a) by persons who are directors and also officers and (b) by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) on or subsequent to such date, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66  2 3 % of the outstanding voting stock that is not owned by the interested stockholder.

In our amended and restated certificate of incorporation, we do not elect “opt out” of being governed by Section 203 of the DGCL, as permitted under and pursuant to subsection (b)(3) of Section 203. Accordingly, we will be governed by Section 203 of the DGCL.

Acceleration of Equity Awards Upon Change of Control

We may grant equity incentive awards to eligible service providers under the Plan. In the event of a change in control (as defined in the Plan) of SeaSpine, to the extent that a surviving entity declines to continue, convert, assume or replace outstanding awards under the Plan, then all such awards will become fully vested and exercisable in connection with the transaction.

Listing

We have applied to list our common stock on the NASDAQ Global Market under the symbol “SPNE.”

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is American Stock Transfer & Trust Company, LLC. The transfer agent’s telephone number is (800) 937-5449.

 

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RECENT SALES OF UNREGISTERED SECURITIES

In connection with the initial capitalization of SeaSpine, we issued 100 shares of our common stock to Integra on or about February 12, 2015 in exchange for an aggregate capital contribution of $10.00. The shares were issued in reliance on the exemption set forth in Section 4(a)(2) of the Securities Act because the issuance did not involve any public offering of securities.

 

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INDEMNIFICATION AND LIMITATION OF LIABILITY OF DIRECTORS AND OFFICERS

Section 145(a) of the DGCL provides, in general, that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (other than an action by or in the right of the corporation), because he or she is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, against expenses (including attorneys’ fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit, or proceeding, if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.

Section 145(b) of the DGCL provides, in general, that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action or suit by or in the right of the corporation to procure a judgment in its favor because the person is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, against expenses (including attorneys’ fees) actually and reasonably incurred by the person in connection with the defense or settlement of such action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made with respect to any claim, issue, or matter as to which he or she shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or other adjudicating court determines that, despite the adjudication of liability but in view of all of the circumstances of the case, he or she is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or other adjudicating court shall deem proper.

Section 145(e) of the DGCL provides that expenses (including attorneys’ fees) incurred by an officer or director in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the corporation as authorized by Section 145 of the DGCL. Section 145(e) of the DGCL further provides that such expenses (including attorneys’ fees) incurred by former directors and officers or other employees or agents of the corporation may be so paid upon such terms and conditions as the corporation deems appropriate.

Section 145(g) of the DGCL provides, in general, that a corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify the person against such liability under Section 145 of the DGCL.

Our amended and restated bylaws that will be in effect upon completion of the distribution will provide that we will indemnify, to the fullest extent permitted by the DGCL, any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative, by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was one of our directors or officers or, while serving as one of our directors or officers, is or was serving at our request as a director, officer, employee, or agent of another corporation or of another entity, against all liability and loss suffered and expenses (including attorneys’ fees) reasonably incurred by such person, subject to limited exceptions relating to indemnity in connection with a proceeding (or part thereof) initiated by such person. Our amended and restated bylaws that will be in effect upon completion of the distribution will further provide for the advancement of expenses to each of our officers and directors.

 

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Our amended and restated certificate of incorporation provides that, to the fullest extent permitted by the DGCL, as the same exists or may be amended from time to time, our directors shall not be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director. Under Section 102(b)(7) of the DGCL, the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty can be limited or eliminated except (i) for any breach of the director’s duty of loyalty to the corporation or its stockholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) under Section 174 of the DGCL (relating to unlawful payment of dividend or unlawful stock purchase or redemption); or (iv) for any transaction from which the director derived an improper personal benefit.

We also intend to maintain a general liability insurance policy which covers certain liabilities of directors and officers of SeaSpine arising out of claims based on acts or omissions in their capacities as directors or officers, whether or not we would have the power to indemnify such person against such liability under the DGCL or the provisions of our amended and restated certificate of incorporation or amended and restated bylaws.

In connection with the distribution, we intend to enter into indemnification agreements with each of our directors and our executive officers. These agreements will provide that we will indemnify each of our directors and such officers to the fullest extent permitted by law and by our amended and restated certificate of incorporation or amended and restated bylaws.

 

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WHERE YOU CAN FIND MORE INFORMATION

We have filed a Registration Statement on Form 10 with the SEC with respect to the shares of our common stock being distributed as contemplated by this Information Statement. This Information Statement, which constitutes a part of the Registration Statement on Form 10, does not contain all of the information set forth in the Registration Statement on Form 10 or the exhibits and schedules filed therewith. For further information about us and the common stock offered hereby, we refer you to the Registration Statement on Form 10 and the exhibits and schedules filed thereto. Statements contained in this Information Statement regarding the contents of any contract or any other document that is filed as an exhibit to the Registration Statement on Form 10 are not necessarily complete, and each such statement is qualified in all respects by reference to the full text of such contract or other document filed as an exhibit to the Registration Statement on Form 10. Following the distribution, we will be required to file periodic reports, proxy statements and other information with the SEC pursuant to the Exchange Act. You may read and copy this information at the Public Reference Room of the SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at www.sec.gov that contains reports, proxy statements and other information about issuers, like us, that file electronically with the SEC. Information contained on any website referenced in this Information Statement does not and will not constitute a part of this Information Statement or the Registration Statement on Form 10 of which this Information Statement is a part.

Information that we file with the SEC after the date of this Information Statement may supersede the information in this Information Statement. You may read these reports, proxy statements and other information and obtain copies of such documents and information as described above. You should rely only on the information contained in this Information Statement or to which we have referred you. We have not authorized any person to provide you with different information or to make any representation not contained in this Information Statement. Neither the delivery of this Information Statement nor any distribution of securities made hereunder shall imply that there has been no change in the information set forth or in our affairs since the date hereof.

 

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SEASPINE

THE ORTHOBIOLOGICS AND SPINAL FUSION HARDWARE BUSINESS OF

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

INDEX TO FINANCIAL STATEMENTS

 

     Page  

Audited Annual Combined Financial Statements:

  

Report of Independent Registered Public Accounting Firm

     F-2   

Combined Statements of Operations for the Years Ended December 31, 2014, 2013 and 2012

     F-3   

Combined Statements of Comprehensive Loss for the Years Ended December 31, 2014, 2013 and 2012

     F-4   

Combined Balance Sheets at December 31, 2014 and 2013

     F-5   

Combined Statements of Cash Flows for the Years Ended December 31, 2014, 2013 and 2012

     F-6   

Combined Statements of Changes in Invested Equity for the Years Ended December 31, 2014, 2013 and 2012

     F-7   

Notes to Combined Financial Statements

     F-8   

Unaudited Interim Condensed Combined Financial Statements:

  

Condensed Combined Statements of Operations for the Three Months Ended March 31, 2015 and 2014

     F-24   

Condensed Combined Statements of Comprehensive Loss for the Three Months Ended March 31, 2015 and 2014

     F-25   

Condensed Combined Balance Sheets at March 31, 2015 and December 31, 2014

     F-26   

Condensed Combined Statements of Cash Flows for the Three Months Ended March 31, 2015, and 2014

     F-27   

Notes to Condensed Combined Financial Statements

     F-28   

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of Integra LifeSciences Holding Corporation:

In our opinion, the accompanying combined balance sheets and the related combined statements of operations, comprehensive loss, changes in invested equity and cash flows present fairly, in all material respects, the financial position of SeaSpine at December 31, 2014 and December 31, 2013 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2014 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement Schedule II—Valuation and Qualifying Accounts presents fairly, in all material respects, the information set forth therein when read in conjunction with the related combined financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements and financial statement schedule in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Florham Park, New Jersey

April 1, 2015

 

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SEASPINE

THE ORTHOBIOLOGICS AND SPINAL FUSION HARDWARE BUSINESS OF

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

COMBINED STATEMENTS OF OPERATIONS

 

     Year Ended December 31,  
             2014                     2013                     2012          
     (In thousands)  

Total revenue, net

   $ 138,695      $ 146,586      $ 147,510   

Cost of goods sold

     56,714        55,532        54,856   
  

 

 

   

 

 

   

 

 

 

Gross profit

  81,981      91,054      92,654   

Operating expenses:

Selling, general and administrative

  88,213      93,009      94,747   

Research and development

  8,527      9,893      12,269   

Intangible amortization

  5,590      5,598      5,716   
  

 

 

   

 

 

   

 

 

 

Total operating expenses

  102,330      108,500      112,732   

Operating loss

  (20,349   (17,446   (20,078

Other expense, net

  (269   (4,556   (8,194
  

 

 

   

 

 

   

 

 

 

Loss before income taxes

  (20,618   (22,002   (28,272

Provision for income taxes

  3,927      3,744      2,152   
  

 

 

   

 

 

   

 

 

 

Net loss

$ (24,545 $ (25,746 $ (30,424
  

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these combined financial statements.

 

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SEASPINE

THE ORTHOBIOLOGICS AND SPINAL FUSION HARDWARE BUSINESS OF

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

COMBINED STATEMENTS OF COMPREHENSIVE LOSS

 

     Year Ended December 31,  
     2014     2013     2012  
     (In thousands)  

Net loss

   $ (24,545   $ (25,746   $ (30,424
  

 

 

   

 

 

   

 

 

 

Other comprehensive loss

Change in foreign currency translation adjustments

  (961   256      171   
  

 

 

   

 

 

   

 

 

 

Comprehensive loss

$ (25,506 $ (25,490 $ (30,253
  

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these combined financial statements.

 

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SEASPINE

THE ORTHOBIOLOGICS AND SPINAL FUSION HARDWARE BUSINESS OF

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

COMBINED BALANCE SHEETS

 

     December 31,
2014
     December 31,
2013
 
     (In thousands)  
ASSETS      

Current Assets:

     

Cash

   $ 652       $ 646   

Trade accounts receivable, net of allowances of $558 and $1,068

     22,538         25,972   

Inventories, net

     49,862         47,842   

Deferred tax assets

     436         628   

Prepaid expenses and other current assets

     1,128         1,210   
  

 

 

    

 

 

 

Total current assets

  74,616      76,298   

Property, plant and equipment, net

  16,360      19,567   

Intangible assets, net

  46,891      55,127   

Deferred tax assets

  501      587   

Other assets

  1,274      1,914   
  

 

 

    

 

 

 

Total assets

$ 139,642    $ 153,493   
  

 

 

    

 

 

 
LIABILITIES AND INVESTED EQUITY

Current Liabilities:

Accounts payable, trade

$ 36,637    $ 30,900   

Income taxes payable

  608      101   

Accrued compensation

  6,300      5,406   

Accrued expenses and other current liabilities

  2,407      2,034   
  

 

 

    

 

 

 

Total current liabilities

  45,952      38,441   

Deferred tax liabilities

  23      944   

Long term income taxes payable

  120      198   

Other liabilities

  2,263      2,415   
  

 

 

    

 

 

 

Total liabilities

  48,358      41,998   
  

 

 

    

 

 

 

Commitments and contingencies

Invested Equity:

Integra net investment

  90,391      109,641   

Accumulated other comprehensive loss

  893      1,854   
  

 

 

    

 

 

 

Total invested equity

  91,284      111,495   
  

 

 

    

 

 

 

Total liabilities and invested equity

$ 139,642    $ 153,493   
  

 

 

    

 

 

 

The accompanying notes are an integral part of these combined financial statements.

 

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SEASPINE

THE ORTHOBIOLOGICS AND SPINAL FUSION HARDWARE BUSINESS OF

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

COMBINED STATEMENTS OF CASH FLOWS

 

     Year Ended December 31,  
     2014     2013     2012  
     (In thousands)  

OPERATING ACTIVITIES:

      

Net loss

   $ (24,545   $ (25,746   $ (30,424

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

      

Depreciation and amortization

     14,693        15,996        16,333   

Deferred income tax provision (benefit)

     (673     (697     (256

Share-based compensation

     551        706        743   

Loss on disposal of property and equipment

     292        —          370   

Amortization of inventory step-up

     258        795        1,674   

Allocation of non-cash charges from parent

     1,934        1,415        1,463   

Changes in assets and liabilities:

      

Accounts receivable

     2,997        2,314        (4,641

Inventories

     (2,685     (10,202     (3,087

Prepaid expenses and other current assets

     256        754        210   

Other non-current assets

     499        149        (469

Accounts payable

     5,797        7,944        7,119   

Income taxes payable

     507        101        (464

Accrued expenses and other current liabilities

     1,219        (1,544     1,598   

Other non-current liabilities

     (294     535        196   
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

  806      (7,480   (9,635
  

 

 

   

 

 

   

 

 

 

INVESTING ACTIVITIES:

Cash used in business acquisitions, net of cash acquired

  —        —        (7,525

Purchases of property and equipment

  (3,804   (5,550   (6,330
  

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

  (3,804   (5,550   (13,855
  

 

 

   

 

 

   

 

 

 

FINANCING ACTIVITIES:

Integra net investment

  3,012      13,581      21,210   
  

 

 

   

 

 

   

 

 

 

Net cash provided by financing activities

  3,012      13,581      21,210   
  

 

 

   

 

 

   

 

 

 

Effect of exchange rate changes on cash

  (8   4      18   
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

  6      555      (2,262

Cash at beginning of period

  646      91      2,353   
  

 

 

   

 

 

   

 

 

 

Cash at end of period

$ 652    $ 646    $ 91   
  

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these combined financial statements.

 

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SEASPINE

THE ORTHOBIOLOGICS AND SPINAL FUSION HARDWARE BUSINESS OF

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

COMBINED STATEMENTS OF CHANGES IN INVESTED EQUITY

 

     Integra Net
Investment
    Accumulated Other
Comprehensive
Income/ (Loss)
    Total Invested
Equity
 
     (In thousands)  

Invested equity, December 31, 2011

   $ 7,735      $ 1,427      $ 9,162   

Net Loss

     (30,424     —          (30,424

Other comprehensive income

     —          171        171   

Net Transfers to Integra

     15,467        —          15,467   
  

 

 

   

 

 

   

 

 

 

Invested equity, December 31, 2012

  (7,222   1,598      (5,624

Net Loss

  (25,746   —        (25,746

Other comprehensive income

  —        256      256   

Net Transfers to Integra

  142,609      —        142,609   
  

 

 

   

 

 

   

 

 

 

Invested equity, December 31, 2013

  109,641      1,854      111,495   

Net Loss

  (24,545   —        (24,545

Other comprehensive loss

  —        (961   (961

Net Transfers to Integra

  5,295      —        5,295   
  

 

 

   

 

 

   

 

 

 

Invested equity, December 31, 2014

$ 90,391    $ 893    $ 91,284   

The accompanying notes are an integral part of these combined financial statements

 

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Table of Contents

SEASPINE

THE ORTHOBIOLOGICS AND SPINAL FUSION HARDWARE BUSINESS OF

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS

1. BUSINESS

On November 3, 2014, Integra LifeSciences Holdings Corporation (“Integra”) announced its plan to spin off its orthobiologics and spinal fusion hardware business. The separation will create an independent, publicly traded medical technology company focused on the design, development and commercialization of surgical solutions for the treatment of patients suffering from spinal disorders. As part of the separation, Integra plans to transfer the assets, liabilities and operations of the orthobiologics and spinal fusion hardware business on a global basis to SeaSpine prior to the distribution.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying combined financial statements of the SeaSpine orthobiologics and spinal fusion hardware business of Integra (also referred as “we,” “us,” or “the Business”) have been prepared on a standalone basis and are derived from Integra’s consolidated financial statements and accounting records. The combined financial statements reflect the Company’s financial position, results of operations and cash flows as the business was operated as part of Integra prior to the distribution in conformity with accounting principles generally accepted in the United States (“GAAP”).

We receive significant management and shared administrative services from Integra and we and Integra engage in certain related party transactions. We rely on Integra for a significant portion of our operational and administrative support. The combined financial statements include allocation of certain Integra corporate expenses, including information technology resources and support; finance, accounting, and auditing services; real estate and facility management services; human resources activities; certain procurement activities; treasury services, and legal advisory services and costs for research and development. These costs have been allocated to us on the basis of direct usage when identifiable, with the remainder allocated on a pro-rata basis of revenue, standard cost of sales or other measures.

Integra uses a centralized approach to cash management and financing of its operations and substantially all cash generated by our Business is assumed to be remitted to Integra. Cash management and financing transactions relating to our Business are accounted for through the Integra invested equity account. Accordingly, none of the Integra cash and cash equivalents at the corporate level has been assigned to us in the combined financial statements. Integra’s debt and related interest expense have not been allocated to us for any of the periods presented since we are not the legal obligor of the debt and Integra’s borrowings were not directly attributable to us.

Management believes the assumptions and allocations underlying the combined financial statements are reasonable and appropriate. The expenses and cost allocations have been determined on a basis that Integra and we consider to be a reasonable reflection of the utilization of services provided or the benefit received by us during the periods presented.

However, the amounts recorded for these transactions and allocations are not necessarily representative of the amounts that would have been reflected in the financial statements had we been an entity that operated independently from Integra. Consequently, our future results of operations after the separation will include costs and expenses for us to operate as an independent company, and these costs and expenses may be materially different from our historical results of operations, statement of comprehensive income (loss), financial position, and cash flows. Accordingly, the financial statements for these periods are not indicative of our future results of operations, financial position, and cash flows.

 

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See Note 3, “Transactions with Integra” for further information regarding the relationships we have with Integra and other Integra businesses.

PRINCIPLES OF COMBINATION

The combined financial statements include certain assets and liabilities that have historically been held at the Integra level but are specifically identifiable or otherwise attributable to us. All significant intra-company transactions within the Business have been eliminated. All significant transactions between us and other businesses of Integra are included in these combined financial statements.

INVESTED EQUITY

This balance represents the accumulation of our net earnings over time, including share-based compensation expense recorded, cash transferred to and from Integra, and net intercompany receivable/payable between us and Integra.

USE OF ESTIMATES

The preparation of combined financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities, and the reported amounts of revenues and expenses. Significant estimates affecting amounts reported or disclosed in the combined financial statements include allowances for doubtful accounts receivable and sales returns and allowances, net realizable value of inventories, amortization periods for acquired intangible assets, discount rates and estimated projected cash flows used to value and test impairments of long-lived assets and goodwill, estimates of projected cash flows, depreciation and amortization periods for long-lived assets, computation of taxes, valuation allowances recorded against deferred tax assets, the valuation of stock-based compensation and loss contingencies. These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the current circumstances. Actual results could differ from these estimates.

CASH

Cash is managed centrally and most cash generated by our Business was remitted to Integra. Such centralized cash management transactions relating to our Business are reflected through Integra net investment in equity. Accordingly, none of the centrally managed cash at Integra’s corporate level has been reflected in our combined financial statements.

TRADE ACCOUNTS RECEIVABLE AND ALLOWANCES FOR DOUBTFUL ACCOUNTS RECEIVABLE

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company grants credit to customers in the normal course of business, but generally does not require collateral or any other security to support its receivables.

The Company evaluates the collectability of accounts receivable based on a combination of factors. In circumstances where a specific customer is unable to meet its financial obligations to the Company, a provision to the allowances for doubtful accounts is recorded against amounts due to reduce the net recognized receivable to the amount that is reasonably expected to be collected. For all other customers, a provision to the allowances for doubtful accounts is recorded based on factors including the length of time the receivables are past due, the current business environment and the Company’s historical experience. Provisions to the allowances for doubtful accounts are recorded to selling, general and administrative expenses. Account balances are charged off against the allowance when it is probable that the receivable will not be recovered.

 

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INVENTORIES

Inventories, consisting of purchased materials, direct labor and manufacturing overhead, are stated at the lower of cost, the value determined by the first-in, first-out method, or market. Inventories consisted of the following:

 

     December 31,  
     2014      2013  
     (In thousands)  

Finished goods

   $ 32,364       $ 33,080   

Work in process

     11,675         10,193   

Raw materials

     5,823         4,569   
  

 

 

    

 

 

 

Total inventories, net

$ 49,862    $ 47,842   
  

 

 

    

 

 

 

At each balance sheet date, the Company evaluates inventories for excess quantities, obsolescence or shelf life expiration. This evaluation includes analysis of historical sales levels by product, projections of future demand, the risk of technological or competitive obsolescence for products, general market conditions, a review of the shelf life expiration dates for products, as well as the feasibility of reworking or using excess or obsolete products or components in the production or assembly of other products that are not obsolete or for which there are not excess quantities in inventory. To the extent that management determines there are excess or obsolete inventory or quantities with a shelf life that is too near its expiration for the Company to reasonably expect that it can sell those products prior to their expiration, the Company adjusts the carrying value to estimated net realizable value.

The Company capitalizes inventory costs associated with certain products prior to regulatory approval, based on management’s judgment of probable economic benefit. The Company could be required to expense previously capitalized costs related to pre-approval inventory upon a change in such judgment, due to, among other potential factors, a denial or delay of approval by necessary regulatory bodies or a decision by management to discontinue the related development program. No such amounts were capitalized at December 31, 2014 or 2013.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at historical cost less accumulated depreciation and any impairment charges. The Company provides for depreciation using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the lesser of the lease term or the useful life. The cost of major additions and improvements is capitalized, while maintenance and repair costs that do not improve or extend the lives of the respective assets are charged to operations as incurred. The cost of computer software developed or obtained for internal use is accounted for in accordance with the Accounting Standards Codification 350-40, Internal-Use Software.

Property, plant and equipment balances and corresponding lives were as follows:

 

     December 31,         
     2014      2013      Useful Lives  
     (In thousands)         

Leasehold improvements

   $ 4,262       $ 4,243         1-20 years   

Machinery and production equipment

     5,810         5,781         3-20 years   

Surgical instrument kits

     22,122         21,637         4-5 years   

Information systems and hardware

     1,720         1,650         1-7 years   

Furniture, fixtures, and office equipment

     657         626         1-15 years   

Construction-in-progress

     8,789         7,913      
  

 

 

    

 

 

    

Total

  43,360      41,850   

Less: Accumulated depreciation

  (27,000   (22,283
  

 

 

    

 

 

    

Property, plant and equipment, net

$ 16,360    $ 19,567   
  

 

 

    

 

 

    

 

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Depreciation expense associated with property, plant and equipment was $6.5 million, $7.8 million and $8.0 million for the years ended December 31, 2014, 2013 and 2012, respectively.

GOODWILL AND OTHER INTANGIBLE ASSETS

The excess of the cost over the fair value of net assets of acquired businesses is recorded as goodwill. Goodwill is not subject to amortization, but is reviewed for impairment at the reporting unit level annually, or more frequently if impairment indicators arise. The Company’s assessment of the recoverability of goodwill is based upon a comparison of the carrying value of goodwill with its estimated fair value. The Company has no goodwill recorded in the combined financial statements.

Identifiable intangible assets are initially recorded at fair market value at the time of acquisition generally using an income or cost approach. The Company capitalizes costs incurred to renew or extend the term of recognized intangible assets and amortizes those costs over their expected useful lives.

The components were as follows:

 

    Weighted
Average
Life
    December 31, 2014     Weighted
Average
Life
    December 31, 2013  
      Cost     Accumulated
Amortization
    Net       Cost     Accumulated
Amortization
    Net  
    (Dollars in Thousands)  

Completed technology

    12 years      $ 30,419      $ (16,582   $ 13,837        12 years      $ 30,419      $ (13,944   $ 16,475   

Customer relationships

    12 years        56,830        (23,963     32,867        12 years        56,830        (18,840     37,990   

Trademarks/brand names

    31 years        300        (300     —          31 years        300        (300     —     

All other

    4 years        1,900        (1,713     187        4 years        1,900        (1,238     662   
   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

 
$ 89,449    $ (42,558 $ 46,891    $ 89,449    $ (34,322 $ 55,127   
   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

 

Amortization expense for the years ended December 31, 2014, 2013 and 2012 was $5.6 million, $5.6 million and $5.7 million, respectively. Annual amortization is expected to approximate $5.3 million in 2015, $4.3 million in 2016, $3.2 million in 2017, $3.2 million in 2018 and $3.2 million in 2019. Amortization of product technology based intangible assets totaled $2.6 million, for each of the years ended December 31, 2014, 2013 and 2012, and is presented by the Company within cost of goods sold.

LONG-LIVED ASSETS

Long-lived assets held and used by the Company, including property, plant and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of evaluating the recoverability of long-lived assets to be held and used, a recoverability test is performed using projected undiscounted net cash flows applicable to the long-lived assets. If an impairment exists, the amount of such impairment is calculated based on the estimated fair value of the asset. Impairments to long-lived assets to be disposed of are recorded based upon the difference between the carrying value and the fair value of the applicable assets. There was no impairment of intangible or tangible long-lived assets in any of the periods presented.

FOREIGN CURRENCY

The Company generates revenues outside the United States in multiple foreign currencies including euros, British pounds, Swiss francs and New Zealand dollars, and in U.S. dollar-denominated transactions conducted with customers who generate revenue in currencies other than the U.S. dollar. The Company also incurs operating expenses in euros. All assets and liabilities of foreign subsidiaries which have a functional currency other than the U.S. dollar are translated at the rate of exchange at year-end, while elements of the income statement are translated at the average exchange rates in effect during the year. The net effect of these translation

 

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adjustments is shown as a component of accumulated other comprehensive loss. These currency translation adjustments are not currently adjusted for income taxes as they relate to permanent investments in non-U.S. subsidiaries. Foreign currency transaction gains and losses are reported in other income (expense), net.

INCOME TAXES

In the Company’s combined financial statements, income tax expense and deferred tax balances have been calculated on a separate return basis although the Company’s operations have historically been included in the tax returns filed by the respective Integra entities of which the Company’s business is a part.

We recognize tax benefits in our financial statements when our uncertain tax positions are more likely than not to be sustained upon audit. The amount we recognize is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. We recognize deferred tax assets for deductible temporary differences, operating loss carryforwards and tax credit carryforwards. Deferred tax assets are reduced by valuation allowance if it is more likely than not that some portion, or all, of the deferred tax assets will not be realized.

The Company maintains an income taxes payable to/from account with Integra. The Company is deemed to settle current tax balances with the Integra tax paying entities in the respective jurisdictions. The Company’s current income tax balances are reflected as income taxes payable and settlements, which are deemed to occur in the year following incurrence, are reflected as changes in net Integra investment in the combined balance sheets.

REVENUE RECOGNITION

Our net sales are derived primarily from the sale of orthobiologics and spinal fusion hardware products across North America, Europe, Asia Pacific and Latin America. Sales are reported net of returns, group purchasing organization fees and other customer allowances.

Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred title and risk of loss have passed to the customer, there is a fixed or determinable sales price and collectability of that sales price is reasonably assured.

In the United States, we generate most of our revenue by consigning our orthobiologics products and consigning or loaning our spinal fusion hardware sets to hospitals and independent sales agents, who in turn deliver them to the hospital for a single surgical procedure or leave them with hospitals that are high volume users for use in multiple procedures. The spinal fusion hardware sets typically contain the instruments, including disposables, and spinal implants required to complete a surgery. We ship replacement inventory to independent sales agents to replace the consigned inventory used in surgeries and maintain and replenish the loaned sets and return them to a hospital or independent sales agent for the next procedure. We recognize revenue on these consigned or loaned products when they have been used or implanted in a surgical procedure.

For all other transactions, including sales to international stocking distributors, we recognize revenue when the products are shipped to the customer or stocking distributor and the transfer of title and risk of loss occurs. There are generally no customer acceptance or other conditions that prevent us from recognizing revenue in accordance with the delivery terms.

Product royalties are estimated and recognized in the same period that the royalty-based products are sold by licensees. The Company estimates and recognizes royalty revenue based upon communication with licensees, historical information and expected sales trends. Differences between actual revenues and estimated royalty revenues are adjusted in the period in which they become known, which is typically the following quarter. Historically, such adjustments have not been significant.

 

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SHIPPING AND HANDLING FEES AND COSTS

Amounts billed to customers for shipping and handling are included in revenues. The related shipping and freight charges incurred by the Company are included in cost of goods sold. Distribution and handling costs of $1.0 million, $1.1 million and $1.5 million were recorded in selling, general and administrative expense during the years ended December 31, 2014, 2013 and 2012, respectively.

RESEARCH AND DEVELOPMENT

Research and development costs, including salaries, depreciation, consultant and other external fees, and facility costs directly attributable to research and development activities, are expensed in the period in which they are incurred.

EMPLOYEE TERMINATION BENEFITS AND OTHER EXIT-RELATED COSTS

The Company does not have a written severance plan, and it does not offer similar termination benefits to affected employees in all restructuring initiatives. Accordingly, in situations where minimum statutory termination benefits must be paid to the affected employees, the Company records employee severance costs associated with these restructuring activities in accordance with the authoritative guidance for non-retirement post-employment benefits. Charges associated with these activities are recorded when the payment of benefits is probable and can be reasonably estimated. In all other situations where the Company pays out termination benefits, including supplemental benefits paid in excess of statutory minimum amounts and benefits offered to affected employees based on management’s discretion, the Company records these termination costs in accordance with the authoritative guidance for exit or disposal costs.

The timing of the recognition of charges for employee severance costs other than minimum statutory benefits depends on whether the affected employees are required to render service beyond their legal notification period in order to receive the benefits. If affected employees are required to render service beyond their legal notification period, charges are recognized ratably over the future service period. Otherwise, charges are recognized when management has approved a specific plan and employee communication requirements have been met.

For leased facilities and equipment that have been abandoned, the Company records estimated lease losses based on the fair value of the lease liability, as measured by the present value of future lease payments subsequent to abandonment, less the present value of any estimated sublease income on the cease-use date. For owned facilities and equipment that will be disposed of, the Company records impairment losses based on fair value less costs to sell. The Company also reviews the remaining useful life of long-lived assets following a decision to exit a facility and may accelerate depreciation or amortization of these assets, as appropriate.

STOCK-BASED COMPENSATION

Our employees have historically participated in Integra’s stock-based compensation plans. Stock-based compensation expense has been allocated to us based on the awards and terms previously granted to our employees. The stock-based compensation was initially measured at the fair value of the awards on the grant date and is recognized in the financial statements over the period the employees are required to provide services in exchange for the awards. The fair value of performance awards of restricted stock is based on the Integra’s stock price at the grant date and the assessed probability of meeting future performance targets. Stock-based compensation expense allocated to us was $1.9 million in 2014, $1.4 million in 2013 and $1.5 million in 2012.

The Company applies the authoritative guidance for stock-based compensation. This guidance requires companies to recognize the expense related to the fair value of their stock-based compensation awards. Stock-based compensation expense for stock option awards granted after January 1, 2006 was based on the fair value on the grant date using the binomial distribution model. The Company recognized compensation expense for stock

 

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option awards, restricted stock awards, performance stock awards and contract stock awards on a ratable basis over the requisite service period of the award. The long form method was used in the determination of the windfall tax benefit in accordance with the guidance.

CONCENTRATION OF CREDIT RISK

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash, which is held at major financial institutions, investment-grade marketable debt securities and trade receivables.

The Company’s products are sold on an uncollateralized basis and on credit terms based upon a credit risk assessment of each customer. A portion of the Company’s trade receivables to customers outside the United States includes sales to foreign distributors, who then sell to government owned or supported healthcare systems. The ongoing economic conditions in certain European countries, especially Greece, Ireland, Italy, Portugal and Spain remain uncertain. Accounts receivable from customers in these countries are not a material amount of the Company’s overall receivables.

None of the Company’s customers accounted for 10% or more of the combined net sales during the years ended December 31, 2014, 2013 and 2012.

RECENTLY ISSUED AND ADOPTED ACCOUNTING STANDARDS

On February 5, 2013, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (ASU) No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income . The objective of this standard is to improve the reporting of reclassifications out of accumulated other comprehensive income. The amendment requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under GAAP to be reclassified in its entirety to net income. For other amounts that are not required under GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under GAAP that provide additional detail about those amounts. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is reclassified to a balance sheet account (for example, inventory) instead of directly to income or expense in the same reporting period. This ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2012 for public entities and its adoption did not have a material impact on the Company’s financial statements.

On July 18, 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists . This updated guidance requires an unrecognized tax benefit to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, similar tax loss, or a tax credit carryforward. To the extent the tax benefit is not available at the reporting date under the governing tax law or if the entity does not intend to use the deferred tax asset for such purpose, the unrecognized tax benefit should be presented as a liability and not consolidated with deferred tax assets. This ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2013 for public entities. Early adoption is permitted. The amendments are to be applied to all unrecognized tax benefits that exist as of the effective date and may be applied retrospectively to each prior reporting period presented. The standard adoption did not have a material impact on the Company’s financial statements.

In April 2014, the FASB issued amendments to guidance for reporting discontinued operations and disposals of components of an entity. The amended guidance requires that a disposal representing a strategic shift that has (or will have) a major effect on an entity’s financial results or a business activity classified as held for sale should be reported as discontinued operations. The amendments also expand the disclosure requirements for discontinued

 

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operations and add new disclosures for individually significant dispositions that do not qualify as discontinued operations. The amendments are effective prospectively for fiscal years, and interim reporting periods within those years, beginning after December 15, 2014 (early adoption is permitted only for disposals that have not been previously reported). The implementation of the amended guidance is not expected to have a material impact on our combined financial position or results of operations.

In May 2014, the FASB issued Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) . The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should: 1) identify the contract(s) with a customer, 2) identify the performance obligations in the contract, 3) determine the transaction price, 4) allocate the transaction price to the performance obligations in the contract, and 5) recognize revenue when (or as) the entity satisfies a performance obligation. This update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and early adoption is not permitted. The Company is in the process of evaluating the impact of this standard on its financial statements.

In June 2014, the FASB issued Update No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (Topic 718). The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. This update is effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period, and early adoption is permitted. The implementation of the amended guidance is not expected to have a material impact on our combined financial position or results of operations.

There are no other recently issued accounting pronouncements that are expected to have a material effect on our financial position, results of operations or cash flows.

SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for interest during the years ended December 31, 2014, 2013 and 2012 was negligible.

Cash paid for income taxes for the years ended December 31, 2014, 2013 and 2012 was $4.2 million, $3.9 million and $2.8 million, respectively.

Property and equipment purchases included in liabilities at December 31, 2014, 2013 and 2012 were $0.3 million, $0.5 million and $0.9 million, respectively.

3. TRANSACTIONS WITH INTEGRA

Related-party Transactions

The amount of materials and services sold by us to other Integra businesses was immaterial for the years ended December 31, 2014, 2013 and 2012. The Company manufactures and distributes the Integra Mozaik family of products on behalf of Integra. Purchases of raw materials and finished goods from Integra were $6.2 million, $7.9 million and $8.9 million, respectively for the years ended December 31, 2014, 2013 and 2012, respectively.

 

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Allocated Costs

The combined statement of operations includes our direct expenses for cost of goods and services sold, research and development, sales and marketing, customer service, and administration as well as allocations of expenses arising from shared services and infrastructure provided by Integra to us, such as costs of information technology, including the costs of a multi-year global enterprise resource planning implementation, accounting and legal services, real estate and facilities, corporate advertising, insurance services and related treasury, and other corporate and infrastructure services. These allocations are included in the table below. These expenses are allocated to us using estimates that we consider to be a reasonable reflection of the utilization of services provided to or benefits received from us. The allocation methods include pro rata basis of revenue and standard cost of sales.

 

     Year Ended December 31,  
     2014      2013      2012  
     (In thousands)  

Cost of goods sold

   $ 1,304       $ 1,166       $ 184   

Selling, general and administrative

     17,602         17,408         15,461   

Research and development

     490         427         426   
  

 

 

    

 

 

    

 

 

 

Total Allocated Costs

$ 19,396    $ 19,001    $ 16,071   
  

 

 

    

 

 

    

 

 

 

Included in the above table are certain non-cash allocated costs, including stock-based compensation. Such amounts were $1.9 million, $1.4 million and $1.5 million for the years ended December 31 2014, 2013 and 2012, respectively.

All significant intercompany transactions between SeaSpine and Integra have been included in these combined financial statements and are considered to be effectively settled for cash at the time the transaction is recorded. The total net effect of the settlement of these intercompany transactions is reflected in the combined statements of cash flows as a financing activity and in the combined balance sheets as Parent company investment.

The following table summarizes the components of the net (decrease) increase in Integra investment for the years ended December 31, 2014, 2013 and 2012:

 

 

     Twelve Months Ended December 31,  
     2014      2013      2012  
     (In thousands)  

Cash pooling and general financing activities (a)

   $ (14,451    $ (4,005    $ (924

Corporate allocations (excluding non-cash adjustments)

     17,463         17,586         14,609   

Cash paid by Integra to settle contingent consideration for prior acquisition

     —           —           7,525   
  

 

 

    

 

 

    

 

 

 

Total Integra net investment in Financing activities within Cash Flow statement

  3,012      13,581      21,210   

Interest on long-term loan (b)

  —        (4,617   (7,915

Net capitalization of related-party loan

  —        131,580      —     

Non-cash adjustments (c)

  2,485      2,122      2,207   

Foreign exchange impact

  (202   (57   (35
  

 

 

    

 

 

    

 

 

 

Net (decrease) increase in Integra investment

$ 5,295    $ 142,609    $ 15,467   
  

 

 

    

 

 

    

 

 

 

 

(a) The nature of activities included in the line item ‘Cash pooling and general financing activities’ includes financing activities for capital transfers, cash sweeps and other treasury services.
(b) Interest on long-term loan capitalized in 2013.
(c) Reflects allocation of non-cash charges from Integra and share-based compensation.

 

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4. STOCK-BASED COMPENSATION

The Company’s share-based compensation has been derived from the equity awards granted by Integra to the Company’s employees. As the share-based compensation plans are Integra’s plans, the amounts have been recognized through net Integra investment on the combined balance sheets.

Stock-based compensation expense—all related to employees—recognized under the authoritative guidance was as follows:

 

     Year Ended December 31,  
     2014      2013      2012  
     (In thousands)  

Selling, general and administrative

   $ 519       $ 619       $ 638   

Research and development

     18         78         98   

Cost of goods sold

     14         9         7   
  

 

 

    

 

 

    

 

 

 

Total stock-based compensation expense

  551      706      743   

Total estimated tax benefit related to stock-based compensation expense

  203      271      291   
  

 

 

    

 

 

    

 

 

 

Net effect on net income

$ 348    $ 435    $ 452   
  

 

 

    

 

 

    

 

 

 

EQUITY AWARD PLANS

As of December 31, 2014, Integra had stock options, restricted stock awards, performance stock awards, contract stock awards and restricted stock unit awards outstanding under three plans, the 2000 Equity Incentive Plan (the “2000 Plan”), the 2001 Equity Incentive Plan (the “2001 Plan”), and the 2003 Equity Incentive Plan (the “2003 Plan,” and collectively, (the “Plans”).

In July 2008 and May 2010, the stockholders of Integra approved amendments to the 2003 Plan to increase by 750,000 and 1,750,000, respectively, the number of shares of common stock that may be issued under the 2003 Plan. Integra has reserved 2,000,000 shares under each of the 2000 Plan and the 2001 Plan, and 6,500,000 shares under the 2003 Plan. The Plans permit Integra to grant incentive and non-qualified stock options, stock appreciation rights, restricted stock, contract stock, performance stock or dividend equivalent rights to designated directors, officers, employees and associates of Integra.

Awards of Restricted Stock and Performance Stock

The following table summarizes awards of Integra restricted stock and performance stock to SeaSpine employees for the year ended December 31, 2014:

 

     Restricted Stock and Performance
Stock Awards
 
     Shares      Weighted
Average Grant
Date Fair Value
Per Share
 
     (In thousands)         

Unvested, December 31, 2013

     32       $ 36.67   

Granted

     8         46.80   

Cancellations

     (1      41.80   

Released

     (14      46.79   

Unvested, December 31, 2014

     25       $ 33.95   

The Company recognized $0.6 million, $0.7 million and $0.7 million in expense related to such awards during the years ended December 31, 2014, 2013 and 2012, respectively. The total fair market value of shares vested in 2014, 2013 and 2012 was $0.7 million, $0.6 million and $0.5 million, respectively.

 

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Performance stock awards have performance features associated with them. Performance stock and restricted stock awards generally have requisite service periods of three years. The fair value of these awards is being expensed on a straight-line basis over the vesting period. As of December 31, 2014, there was approximately $0.6 million of total unrecognized compensation costs related to unvested awards. These costs are expected to be recognized over a weighted-average period of approximately two years.

5. DEBT AND INTEREST

The Company had $132 million in related-party loans from Integra arising from a prior acquisition. During 2013, those loans and the associated accrued interest were forgiven and capitalized. The company recorded $4.6 million and $7.9 million of interest expense for the years 2013 and 2012, respectively, that is reflected as interest expense in the Company’s financials.

6. LEASES

The Company leases administrative, manufacturing, research, and distribution facilities and various manufacturing, office and transportation equipment through operating lease agreements. Future minimum lease payments under operating leases at December 31, 2014 were as follows:

 

     Total  
     (In thousands)  

2015

   $ 1,672   

2016

     1,136   

2017

     872   

2018

     898   

2019

     896   

Thereafter

     3,263   
  

 

 

 

Total minimum lease payments

$ 8,737   
  

 

 

 

Total rental expense for the years ended December 31, 2014, 2013 and 2012 and was $2.1 million, $2.1 million and $3.0 million, respectively.

7. INCOME TAXES

The income tax provision in the combined statements of operations has been calculated using the separate return method, as if we filed a separate tax return and operated as a stand-alone business. Therefore, cash tax payments and items of current and deferred taxes may not be reflective of our actual tax balances included in Integra’s historical consolidated income tax return. More specifically, the presentation of substantial net operating losses, and any related valuation allowances, presented herein do not represent actual net operating losses that have been incurred by us or that are available for carryforward to a future tax year.

We reported income tax expense, despite the fact that we reported losses before income taxes, because our legal entity structure did not permit us to offset taxable losses generated by certain U.S. subsidiaries against the taxable income generated by another of our U.S. subsidiaries.

Loss before income taxes consisted of the following:

 

     Year Ended December 31,  
     2014      2013      2012  
     (In thousands)  

United States operations

   $ (22,097    $ (22,157    $ (26,949

Foreign operations

     1,479         155         (1,323
  

 

 

    

 

 

    

 

 

 
$ (20,618 $ (22,002 $ (28,272
  

 

 

    

 

 

    

 

 

 

 

F-18


Table of Contents

A reconciliation of the U.S. federal statutory rate to the Company’s effective tax rate is as follows:

 

     Year Ended December 31,  
     2014     2013     2012  

Federal statutory rate

     35.0     35.0     35.0

Increase (decrease) in income taxes resulting from:

      

State income taxes, net of federal tax benefit

     2.3     2.0     4.0

Foreign operations

     (1.1 )%      0.5     0.1

Changes in valuation allowances

     (57.9 )%      (56.1 )%      (48.2 )% 

Uncertain tax positions

     0.4     0.4     (0.8 )% 

Research and development credit

     0.2     0.3     0.0

Return to provision

     0.6     (0.4 )%      0.7

Domestic manufacturing deduction

     2.0     1.6     0.8

Other

     (0.5 )%      (0.3 )%      0.8
  

 

 

   

 

 

   

 

 

 

Effective tax rate

  (19.0 )%    (17.0 )%    (7.6 )% 
  

 

 

   

 

 

   

 

 

 

The effective tax rate increased by (2.0) percentage points in 2014 compared with 2013 primarily due to an overall increase in valuation allowances for U.S. operations. The Company recorded an income tax benefit in 2014 of $0.1 million for the release of tax contingency reserves, offset by the establishment of new tax contingency positions during the year.

The provision for income taxes consisted of the following:

 

     Year Ended December 31,  
     2014      2013      2012  
     (In thousands)  

Current:

        

Federal

   $ 3,944       $ 3,994       $ 2,166   

State

     252         294         213   

Foreign

     404         153         29   
  

 

 

    

 

 

    

 

 

 

Total current

$ 4,600    $ 4,441    $ 2,408   

Deferred:

Federal

  (741   (744   (81

State

  (60   (54   98   

Foreign

  128      101      (273
  

 

 

    

 

 

    

 

 

 

Total deferred

$ (673 $ (697 $ (256
  

 

 

    

 

 

    

 

 

 

Provision for income taxes

$ 3,927    $ 3,744    $ 2,152   
  

 

 

    

 

 

    

 

 

 

 

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The income tax effects of significant temporary differences that give rise to deferred tax assets and liabilities, shown before jurisdictional netting, are presented below:

 

     December 31,  
     2014      2013  
     (In thousands)  

Current assets:

     

Doubtful accounts

   $ 88       $ 271   

Inventory related items

     8,435         9,440   

Tax credits

     579         563   

Accrued vacation

     374         366   

Accrued bonus

     335         63   

Other

     30         4   
  

 

 

    

 

 

 

Total current deferred tax assets

  9,841      10,707   

Less valuation allowance

  (9,185   (9,875
  

 

 

    

 

 

 

Current deferred tax assets after valuation allowance

$ 656    $ 832   
  

 

 

    

 

 

 

Current liabilities:

Other

  (60   (60
  

 

 

    

 

 

 

Total current deferred tax liabilities

$ (60 $ (60
  

 

 

    

 

 

 

Net current deferred tax assets

$ 596    $ 772   
  

 

 

    

 

 

 

 

     December 31,  
     2014      2013  
     (In thousands)  

Non-current assets:

     

Stock compensation

   $ 627       $ 602   

Net operating loss carryforwards

     44,966         32,711   

Intangible & fixed assets

     28,609         29,335   

Other

     389         437   
  

 

 

    

 

 

 

Total non-current deferred tax assets

  74,591      63,085   

Less valuation allowance

  (74,272   (63,587
  

 

 

    

 

 

 

Non-current deferred tax assets after valuation allowance

$ 319    $ (502
  

 

 

    

 

 

 

Non-current liabilities:

Other

  0      0   
  

 

 

    

 

 

 

Total non-current deferred tax liabilities

$ 0    $ 0   
  

 

 

    

 

 

 

Net non-current deferred tax assets

$ 319    $ (502
  

 

 

    

 

 

 

Total net deferred tax assets

$ 915    $ 270   
  

 

 

    

 

 

 

At December 31, 2014 we had net operating loss carryforwards of $113.1 million for federal income tax purposes, and $57.6 million for state income tax purposes. These losses have been recognized in the Integra tax returns and are not available to offset future taxable income.

A valuation allowance of $83.5 million, $73.5 million and $66.5 million is recorded against the Company’s gross deferred tax assets of $94.0 million, $83.2 million and $75.4 million recorded at December 31, 2014, 2013 and 2012, respectively.

 

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The valuation allowance relates to deferred tax assets for certain items that will be deductible for income tax purposes under very limited circumstances and for which the Company believes it is not more likely than not that it will realize the associated tax benefit. The Company does not anticipate additional income tax benefits through future reductions in the valuation allowance, as the valuation allowance relates largely to losses that will not be available to the Company to offset future taxable income, as those losses were recognized in the Integra tax returns. However, in the event that the Company determines that it would be able to realize more or less than the recorded amount of net deferred tax assets, an adjustment to the deferred tax asset valuation allowance would be recorded in the period such a determination is made.

A reconciliation of the Company’s uncertain tax benefits is as follows:

 

     Year Ended December 31,  
         2014              2013              2012      
     (In thousands)  

Balance, beginning of year

   $ 187       $ 262       $ 38   

Gross increases:

        

Prior years’ tax positions

     13         100         274   

Gross decreases:

        

Settlements

     0         0         (30

Statute of limitations lapses

     (87      (175      (20
  

 

 

    

 

 

    

 

 

 

Balance, end of year

$ 113    $ 187    $ 262   
  

 

 

    

 

 

    

 

 

 

Approximately $0.1 million of the balance at December 31, 2014 relates to uncertain tax positions that, if recognized, would affect the annual effective tax rate. Included in the balance of uncertain tax positions at December 31, 2014 is $0.1 million related to tax positions for which it is reasonably possible that the total amounts could be reduced during the twelve months following December 31, 2014, as a result of expiring statutes of limitations.

Integra recognizes interest and penalties relating to uncertain tax positions in income tax expense. The amounts recorded in 2014, 2013 and 2012 were not significant.

Integra files federal income tax returns, as well as multiple state, local and foreign jurisdiction tax returns. Integra is no longer subject to examinations of its federal income tax returns by the U.S. Internal Revenue Service through fiscal year 2010. All significant state and local matters have been concluded through fiscal year 2005. All significant foreign matters have been settled through fiscal 2007. The Company does not expect to incur any material adjustments as a result of settling open tax audits within the next twelve months.

8. COMMITMENTS AND CONTINGENCIES

In consideration for certain technology, manufacturing, distribution, and selling rights and licenses granted to the Company, we have agreed to pay royalties on sales of certain products that we sell. The royalty payments that the Company made under these agreements were not significant for any of the periods presented.

The Company is subject to various claims, lawsuits and proceedings in the ordinary course of the Company’s business, including claims by current or former employees, distributors and competitors and with respect to its products and product liability claims, lawsuits and proceedings, some of which have been settled by the Company. In the opinion of management, such claims are either adequately covered by insurance or otherwise indemnified, or are not expected, individually or in the aggregate, to result in a material adverse effect on our financial condition. However, it is possible that the Company’s results of operations, financial position and cash flows in a particular period could be materially affected by these contingencies.

 

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The Company accrues for loss contingencies when it is deemed probable that a loss has been incurred and that loss is estimable. The amounts accrued are based on the full amount of the estimated loss before considering insurance proceeds, and do not include an estimate for legal fees expected to be incurred in connection with the loss contingency. The Company consistently accrues legal fees expected to be incurred in connection with loss contingencies as those fees are incurred by outside counsel as a period cost. The Company does not believe there are any pending legal proceedings that would have a material impact on the Company’s financial position, liquidity or results of operations.

9. SEGMENT AND GEOGRAPHIC INFORMATION

The Company’s management reviews financial results and manages the business on an aggregate basis. Therefore, financial results are reported in a single operating segment, the development, manufacture and marketing of orthobiologics and spinal fusion hardware. We report revenue in two product categories, orthobiologics and spinal fusion hardware. Our orthobiologics products consist of a broad range of advanced and traditional bone graft substitutes that are designed to improve bone fusion rates following surgery. Our spinal fusion hardware portfolio consists of an extensive line of products for minimally invasive surgery, complex spine, deformity and degenerative procedures.

Revenue consisted of the following:

 

     Year Ended December 31,  
     2014      2013      2012  
     (In thousands)  

Orthobiologics

   $ 67,594       $ 66,669       $ 64,167   

Spinal fusion hardware

     71,101         79,917         83,343   
  

 

 

    

 

 

    

 

 

 

Total revenue, net

$ 138,695    $ 146,586    $ 147,510   
  

 

 

    

 

 

    

 

 

 

The Company attributes revenue to geographic areas based on the location of the customer. Total revenue, net and long-lived assets (tangible) by major geographic area are summarized below:

 

     United States      International      Combined  
     (In thousands)  

Total revenue, net:

        

2014

   $ 124,365       $ 14,330       $ 138,695   

2013

     128,653         17,933         146,586   

2012

     134,186         13,324         147,510   

Long-lived assets:

        

December 31, 2014

   $ 16,185       $ 1,450       $ 17,635   

December 31, 2013

     19,241         2,240         21,481   

10. SUBSEQUENT EVENTS

The financial statements of the orthobiologics and spinal fusion hardware business of Integra are derived from the financial statements of Integra which issued its annual financial statements for the year ended December 31, 2014 on February 27, 2015. Accordingly, the orthobiologics and spinal fusion hardware business of Integra has evaluated transactions or other events for consideration as recognized subsequent events in the annual financial statements through the date of April 1, 2015. Additionally, the orthobiologics and spinal fusion hardware business of Integra has evaluated transactions and other events that occurred through the issuance of these financial statements, April 1, 2015, for purposes of disclosure of unrecognized subsequent events.

 

F-22


Table of Contents

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

 

Description

  Balance at
Beginning
of Period
    Charged to
Costs and
Expenses
    Charged to
Other
Accounts
    Deductions     Balance at End
of Period
 
    (In thousands)  

Year ended December 31, 2014:

         

Allowance for doubtful accounts and sales returns and allowances

  $ 1,068      $ (267   $ —        $ (238   $ 563   

Deferred tax asset valuation allowance

    73,461        10,483        (487     —          83,457   

Year ended December 31, 2013:

         

Allowance for doubtful accounts and sales returns and allowances

  $ 2,384      $ (691   $ —        $ (625   $ 1,068   

Deferred tax asset valuation allowance

    66,497        6,569        395        —          73,461   

Year ended December 31, 2012:

         

Allowance for doubtful accounts and sales returns and allowances

  $ 1,095      $ 1,666      $ —        $ (377   $ 2,384   

Deferred tax asset valuation allowance

    68,642        (6,729     4,584        —          66,497   

 

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Table of Contents

SEASPINE

THE ORTHOBIOLOGICS AND SPINAL FUSION HARDWARE BUSINESS OF

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

CONDENSED COMBINED STATEMENTS OF OPERATIONS

(Unaudited)

 

     Three Months Ended March 31,  
             2015                     2014          
     (In thousands)  

Total revenue, net

   $ 32,314      $ 34,175   

Cost of goods sold

     12,601        12,595   
  

 

 

   

 

 

 

Gross profit

  19,713      21,580   

Operating expenses:

Selling, general and administrative

  25,051      22,008   

Research and development

  1,582      2,192   

Intangible amortization

  1,397      1,399   
  

 

 

   

 

 

 

Total operating expenses

  28,030      25,599   

Operating loss

  (8,317   (4,019

Other expense, net

  (721   (8
  

 

 

   

 

 

 

Loss before income taxes

  (9,038   (4,027

Provision for income taxes

  860      1,533   
  

 

 

   

 

 

 

Net loss

$ (9,898 $ (5,560
  

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed combined financial statements.

 

F-24


Table of Contents

SEASPINE

THE ORTHOBIOLOGICS AND SPINAL FUSION HARDWARE BUSINESS OF

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

CONDENSED COMBINED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

 

     Three Months Ended March 31,  
             2015                     2014          
     (In thousands)  

Net loss

   $ (9,898   $ (5,560
  

 

 

   

 

 

 

Other comprehensive loss

Change in foreign currency translation adjustments

  63      84   
  

 

 

   

 

 

 

Comprehensive loss

$ (9,835 $ (5,476
  

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed combined financial statements.

 

F-25


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SEASPINE

THE ORTHOBIOLOGICS AND SPINAL FUSION HARDWARE BUSINESS OF

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

CONDENSED COMBINED BALANCE SHEETS

(Unaudited)

     March 31,
2015
     December 31,
2014
 
     (In thousands)  
ASSETS      

Current Assets:

     

Cash

   $ 648       $ 652   

Trade accounts receivable, net of allowances of $819 and $558

     20,033         22,538   

Inventories, net

     49,561         49,862   

Deferred tax assets

     436         436   

Prepaid expenses and other current assets

     767         1,128   
  

 

 

    

 

 

 

Total current assets

  71,445      74,616   

Property, plant and equipment, net

  18,984      16,360   

Intangible assets, net

  44,832      46,891   

Deferred tax assets

  509      501   

Other assets

  1,310      1,274   
  

 

 

    

 

 

 

Total assets

$ 137,080    $ 139,642   
  

 

 

    

 

 

 
LIABILITIES AND INVESTED EQUITY

Current Liabilities:

Accounts payable, trade

$ 37,333    $ 36,637   

Income taxes payable

  451      608   

Accrued compensation

  5,675      6,300   

Accrued expenses and other current liabilities

  5,358      2,407   
  

 

 

    

 

 

 

Total current liabilities

  48,817      45,952   

Deferred tax liabilities

  23      23   

Long term income taxes payable

  28      120   

Other liabilities

  2,289      2,263   
  

 

 

    

 

 

 

Total liabilities

  51,157      48,358   
  

 

 

    

 

 

 

Commitments and contingencies

Invested Equity:

Integra net investment

  84,966      90,391   

Accumulated other comprehensive loss

  957      893   
  

 

 

    

 

 

 

Total invested equity

  85,923      91,284   
  

 

 

    

 

 

 

Total liabilities and invested equity

$ 137,080    $ 139,642   
  

 

 

    

 

 

 

The accompanying notes are an integral part of these condensed combined financial statements.

 

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Table of Contents

SEASPINE

THE ORTHOBIOLOGICS AND SPINAL FUSION HARDWARE BUSINESS OF

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

CONDENSED COMBINED STATEMENTS OF CASH FLOWS

(Unaudited)

 

     Three Months Ended March 31,  
          2015               2014       
     (In thousands)  

OPERATING ACTIVITIES:

    

Net loss

   $ (9,898 )   $ (5,560

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

    

Depreciation and amortization

     3,205        3,736   

Share-based compensation

     89        141   

Amortization of inventory step-up

     —          42   

Allocation of non-cash charges from parent

     247        285   

Changes in assets and liabilities:

    

Accounts receivable

     2,525        3,497   

Inventories

     576        (78

Prepaid expenses and other current assets

     362        649   

Other non-current assets

     (4     (17

Accounts payable

     676        (1,168

Income taxes payable

     (157     109   

Accrued expenses and other current liabilities

     2,388        (271

Other non-current liabilities

     (101     8   
  

 

 

   

 

 

 

Net cash provided by (used in) operating activities

  (92   1,373   
  

 

 

   

 

 

 

INVESTING ACTIVITIES:

Purchases of property and equipment

  (3,571 )   (1,102
  

 

 

   

 

 

 

Net cash used in investing activities

  (3,571 )   (1,102
  

 

 

   

 

 

 

FINANCING ACTIVITIES:

Integra net investment

  3,662      (263
  

 

 

   

 

 

 

Net cash provided by financing activities

  3,662      (263
  

 

 

   

 

 

 

Effect of exchange rate changes on cash

  (3   0   
  

 

 

   

 

 

 

Net increase (decrease) in cash

  (4   8   

Cash at beginning of period

  652      646   
  

 

 

   

 

 

 

Cash at end of period

$ 648    $ 654   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed combined financial statements.

 

F-27


Table of Contents

SEASPINE

THE ORTHOBIOLOGICS AND SPINAL FUSION HARDWARE BUSINESS OF

INTEGRA LIFESCIENCES HOLDINGS CORPORATION

NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS

1. BUSINESS

On November 3, 2014, Integra LifeSciences Holdings Corporation (“Integra”) announced its plan to spin off its orthobiologics and spinal fusion hardware business. The separation will create an independent, publicly traded medical technology company focused on the design, development and commercialization of surgical solutions for the treatment of patients suffering from spinal disorders. As part of the separation, Integra plans to transfer the assets, liabilities and operations of the orthobiologics and spinal fusion hardware business on a global basis to SeaSpine prior to the distribution.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying unaudited condensed combined financial statements of the SeaSpine orthobiologics and spinal fusion hardware business of Integra (also referred as “we,” “us,” or “the Business”) have been prepared on a standalone basis and are derived from Integra’s consolidated financial statements and accounting records. The combined financial statements reflect the Company’s financial position, results of operations and cash flows as the business was operated as part of Integra prior to the distribution in conformity with accounting principles generally accepted in the United States (“GAAP”).

We receive significant management and shared administrative services from Integra and we and Integra engage in certain related party transactions. We rely on Integra for a significant portion of our operational and administrative support. The combined financial statements include allocation of certain Integra corporate expenses, including information technology resources and support; finance, accounting, and auditing services; real estate and facility management services; human resources activities; certain procurement activities; treasury services, and legal advisory services and costs for research and development. These costs have been allocated to us on the basis of direct usage when identifiable, with the remainder allocated on a pro-rata basis of revenue, headcount or other measures.

Integra uses a centralized approach to cash management and financing of its operations and substantially all cash generated by our Business is assumed to be remitted to Integra. Cash management and financing transactions relating to our Business are accounted for through the Integra invested equity account. Accordingly, none of the Integra cash and cash equivalents at the corporate level has been assigned to us in the combined financial statements. Integra’s debt and related interest expense have not been allocated to us for any of the periods presented since we are not the legal obligor of the debt and Integra’s borrowings were not directly attributable to us.

Management believes the assumptions and allocations underlying the combined financial statements are reasonable and appropriate. The expenses and cost allocations have been determined on a basis that Integra and we consider to be a reasonable reflection of the utilization of services provided or the benefit received by us during the periods presented.

However, the amounts recorded for these transactions and allocations are not necessarily representative of the amounts that would have been reflected in the financial statements had we been an entity that operated independently from Integra. Consequently, our future results of operations after the separation will include costs and expenses for us to operate as an independent company, and these costs and expenses may be materially different from our historical results of operations, statement of comprehensive (loss), financial position, and cash flows. Accordingly, the financial statements for these periods are not indicative of our future results of operations, financial position, and cash flows.

 

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See Note 3, “Transactions with Integra” for further information regarding the relationships we have with Integra and other Integra businesses.

PRINCIPLES OF COMBINATION

The combined financial statements include certain assets and liabilities that have historically been held at the Integra level but are specifically identifiable or otherwise attributable to us. All significant intra-company transactions within the Business have been eliminated. All significant transactions between us and other businesses of Integra are included in these combined financial statements.

RECENTLY ISSUED AND ADOPTED ACCOUNTING STANDARDS

In April 2014, the FASB issued amendments to guidance for reporting discontinued operations and disposals of components of an entity. The amended guidance requires that a disposal representing a strategic shift that has (or will have) a major effect on an entity’s financial results or a business activity classified as held for sale should be reported as discontinued operations. The amendments also expand the disclosure requirements for discontinued operations and add new disclosures for individually significant dispositions that do not qualify as discontinued operations. The amendments are effective prospectively for fiscal years, and interim reporting periods within those years, beginning after December 15, 2014 (early adoption is permitted only for disposals that have not been previously reported). The implementation of the amended guidance is not expected to have a material impact on our combined financial position or results of operations.

In May 2014, the FASB issued Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) . The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should: 1) identify the contract(s) with a customer, 2) identify the performance obligations in the contract, 3) determine the transaction price, 4) allocate the transaction price to the performance obligations in the contract, and 5) recognize revenue when (or as) the entity satisfies a performance obligation. This update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, and early adoption is not permitted. The Company is in the process of evaluating the impact of this standard on its financial statements.

In June 2014, the FASB issued Update No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (Topic 718). The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. This update is effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period, and early adoption is permitted. The implementation of the amended guidance is not expected to have a material impact on our combined financial position or results of operations.

In August 2014, the FASB issued Update No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The amendment requires management to evaluate, for each annual and interim reporting period, whether there are conditions and events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date the financial statements are

 

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issued or are available to be issued. If substantial doubt is raised, additional disclosures around management’s plan to alleviate these doubts are required. This update will become effective for all annual periods and interim reporting periods beginning after December 15, 2016. The implementation of the amended guidance is not expected to have an impact on current disclosures in the financial statements.

In April 2015, the FASB issued Update No. 2015-03, Simplifying the Presentation of Debt Issuance Costs . The amendment requires that all costs incurred to issue debt be presented in the balance sheet as a direct deduction from the carrying value of the debt. The new standard is limited to the presentation of debt issuance costs and does not affect the recognition or measurement of debt issuance costs. This update will become effective for all annual periods and interim reporting periods beginning after December 15, 2015. The implementation of the amended guidance is not expected to have a material impact on our consolidated results of operations and will result in a reclassification of our debt issuance costs from other long-term assets to long-term debt when adopted.

There are no other recently issued accounting pronouncements that are expected to have a material effect on our financial position, results of operations or cash flows.

3. TRANSACTIONS WITH INTEGRA

Related-party Transactions

The amount of materials and services sold by us to other Integra businesses was immaterial for the three months ended March 31, 2015 and 2014. The Company manufactures and distributes the Integra Mozaik family of products on behalf of Integra. Purchases of raw materials and finished goods from Integra were $1.2 million and $0.6 million, respectively for the three months years ended March 31, 2015 and 2014, respectively.

Allocated Costs

The combined statement of operations includes our direct expenses for cost of goods and services sold, research and development, sales and marketing, customer service, and administration as well as allocations of expenses arising from shared services and infrastructure provided by Integra to us, such as costs of information technology, including the costs of a multi-year global enterprise resource planning implementation, accounting and legal services, real estate and facilities, corporate advertising, insurance services and related treasury, and other corporate and infrastructure services. These allocations are included in the table below. These expenses are allocated to us using estimates that we consider to be a reasonable reflection of the utilization of services provided to or benefits received from us. The allocation methods include pro rata basis of revenue and standard cost of sales.

 

     Three Months Ended March 31,  
         2015              2014      
     (In thousands)  

Cost of goods sold

   $ 244       $ 321   

Selling, general and administrative

     4,249         4,435   

Research and development

     105         109   
  

 

 

    

 

 

 

Total Allocated Costs

$ 4,598    $ 4,865   
  

 

 

    

 

 

 

Included in the above table are certain non-cash allocated costs, including stock-based compensation. Such amounts were $0.2 million and $0.3 million for the three months ended March 31, 2015 and 2014, respectively.

All significant intercompany transactions between SeaSpine and Integra have been included in these combined financial statements and are considered to be effectively settled for cash at the time the transaction is recorded. The total net effect of the settlement of these intercompany transactions is reflected in the combined statements of cash flows as a financing activity and in the combined balance sheets as Parent company investment.

 

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The following table summarizes the components of the net (decrease) increase in Integra investment for the three months ended March 31, 2015 and 2014:

 

     Three Months Ended March 31,  
         2015              2014      
     (In thousands)  

Cash pooling and general financing activities (a)

   $ (690    $ (4,843

Corporate allocations (excluding non-cash adjustments)

     4,351         4,580   
  

 

 

    

 

 

 

Total Integra net investment in financing activities within cash flow statement

  3,661      (263

Non-cash adjustments (b)

  336      426   

Foreign exchange impact

  475      12   
  

 

 

    

 

 

 

Net (decrease) increase in Integra investment

$ 4,472    $ 175   
  

 

 

    

 

 

 

 

(a) The nature of activities included in the line item ‘Cash pooling and general financing activities’ includes financing activities for capital transfers, cash sweeps and other treasury services.
(b) Reflects allocation of non-cash charges from Integra and share-based compensation.

4. INVENTORIES

Inventories consisted of the following:

 

     March 31,
2015
     December 31,
2014
 
     (In thousands)  

Finished goods

   $ 32,854       $ 32,364   

Work in process

     10,343         11,675   

Raw materials

     6,364         5,823   
  

 

 

    

 

 

 

Total inventories, net

$ 49,561    $ 49,862   
  

 

 

    

 

 

 

5. GOODWILL AND OTHER INTANGIBLE ASSETS

The excess of the cost over the fair value of net assets of acquired businesses is recorded as goodwill. Goodwill is not subject to amortization, but is reviewed for impairment at the reporting unit level annually, or more frequently if impairment indicators arise. The Company’s assessment of the recoverability of goodwill is based upon a comparison of the carrying value of goodwill with its estimated fair value. The Company has no goodwill recorded in the combined financial statements.

Identifiable intangible assets are initially recorded at fair market value at the time of acquisition generally using an income or cost approach. The Company capitalizes costs incurred to renew or extend the term of recognized intangible assets and amortizes those costs over their expected useful lives.

The components were as follows:

 

    Weighted
Average
Life
    March 31, 2015     Weighted
Average
Life
    December 31, 2014  
      Cost     Accumulated
Amortization
    Net       Cost     Accumulated
Amortization
    Net  
    (Dollars in Thousands)  

Completed technology

    12 years      $ 30,419      $ (17,242   $ 13,177        12 years      $ 30,419      $ (16,582   $ 13,837   

Customer relationships

    12 years        56,830        (25,244     31,586        12 years        56,830        (23,963     32,867   

Trademarks/brand names

    31 years        300        (300     —          31 years        300        (300     —     

All other

    4 years        1,900        (1,831     69        4 years        1,900        (1,713     187   
   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

 
$ 89,449    $ (44,617 $ 44,832    $ 89,449    $ (42,558 $ 46,891   
   

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

 

 

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Annual amortization is expected to approximate $5.3 million in 2015, $4.3 million in 2016, $3.2 million in 2017, $3.2 million in 2018 and $3.2 million in 2019. Amortization of product technology based intangible assets totaled $2.6 million, for each of the years ended December 31, 2014, 2013 and 2012, and is presented by the Company within cost of goods sold.

6. STOCK-BASED COMPENSATION

The Company’s share-based compensation has been derived from the equity awards granted by Integra to the Company’s employees. As the share-based compensation plans are Integra’s plans, the amounts have been recognized through net Integra investment on the combined balance sheets.

Stock-based compensation expense—all related to employees—recognized under the authoritative guidance was as follows:

 

     Three Months Ended
March 31,
 
         2015              2014      
     (In thousands)  

Selling, general and administrative

   $ 84       $ 136   

Research and development

     5         3   

Cost of goods sold

     —           2   
  

 

 

    

 

 

 

Total stock-based compensation expense

  89      141   

Total estimated tax benefit related to stock-based compensation expense

  34      52   
  

 

 

    

 

 

 

Net effect on net income

$ 55    $ 89   
  

 

 

    

 

 

 

EQUITY AWARD PLANS

As of December 31, 2014, Integra had stock options, restricted stock awards, performance stock awards, contract stock awards and restricted stock unit awards outstanding under three plans, the 2000 Equity Incentive Plan (the “2000 Plan”), the 2001 Equity Incentive Plan (the “2001 Plan”), and the 2003 Equity Incentive Plan (the “2003 Plan,” and collectively, (the “Plans”).

Awards of Restricted Stock and Performance Stock

Performance stock awards have performance features associated with them. Performance stock and restricted stock awards generally have requisite service periods of three years. The fair value of these awards is being expensed on a straight-line basis over the vesting period. As of March 31, 2015, there was approximately $0.8 million of total unrecognized compensation costs related to unvested awards. These costs are expected to be recognized over a weighted-average period of approximately two years.

7. INCOME TAXES

The following table provides a summary of the Company’s effective tax rate:

 

     Three Months Ended
March 31,
 
     2015     2014  

Reported tax rate

     (9.5 %)      (38.1 %) 

The Company’s effective income tax rates for the three months ended March 31, 2015 and 2014 were (9.5%) and (38.1%) respectively. The primary drivers of the overall tax rate for the three months ended March 31, 2015 were pretax losses incurred by the consolidated U.S. tax group that received no corresponding tax benefit, offset in part by the release of Federal uncertain tax positions due to statute expirations. The primary drivers of the

 

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overall tax rate for the three months ended March 31, 2014 were pretax losses incurred by the consolidated U.S. tax group that received no corresponding tax benefit.

We reported income tax expense for the three months ended March 31, 2015 and March 31, 2014, despite the fact that we reported losses before income taxes in those periods, because our legal entity structure did not permit us to offset taxable losses generated by certain U.S. subsidiaries against the taxable income generated by another of our U.S. subsidiaries.

8. COMMITMENTS AND CONTINGENCIES

In consideration for certain technology, manufacturing, distribution, and selling rights and licenses granted to the Company, we have agreed to pay royalties on sales of certain products that we sell. The royalty payments that the Company made under these agreements were not significant for any of the periods presented.

The Company is subject to various claims, lawsuits and proceedings in the ordinary course of the Company’s business, including claims by current or former employees, distributors and competitors and with respect to its products and product liability claims, lawsuits and proceedings, some of which have been settled by the Company. In the opinion of management, such claims are either adequately covered by insurance or otherwise indemnified, or are not expected, individually or in the aggregate, to result in a material adverse effect on our financial condition. However, it is possible that the Company’s results of operations, financial position and cash flows in a particular period could be materially affected by these contingencies.

The Company accrues for loss contingencies when it is deemed probable that a loss has been incurred and that loss is estimable. The amounts accrued are based on the full amount of the estimated loss before considering insurance proceeds, and do not include an estimate for legal fees expected to be incurred in connection with the loss contingency. The Company consistently accrues legal fees expected to be incurred in connection with loss contingencies as those fees are incurred by outside counsel as a period cost. The Company does not believe there are any pending legal proceedings that would have a material impact on the Company’s financial position, liquidity or results of operations.

9. SEGMENT AND GEOGRAPHIC INFORMATION

The Company’s management reviews financial results and manages the business on an aggregate basis. Therefore, financial results are reported in a single operating segment, the development, manufacture and marketing of orthobiologics and spinal fusion hardware. We report revenue in two product categories, orthobiologics and spinal fusion hardware. Our orthobiologics products consist of a broad range of advanced and traditional bone graft substitutes that are designed to improve bone fusion rates following surgery. Our spinal fusion hardware portfolio consists of an extensive line of products for minimally invasive surgery, complex spine, deformity and degenerative procedures.

Revenue consisted of the following:

 

     Three Months Ended
March 31,
 
     2015      2014  
     (In thousands)  

Orthobiologics

   $ 16,028       $ 16,237   

Spinal fusion hardware

     16,286         17,938   
  

 

 

    

 

 

 

Total revenue, net

$ 32,314    $ 34,175   
  

 

 

    

 

 

 

 

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The Company attributes revenue to geographic areas based on the location of the customer. Total revenue, net and long-lived assets (tangible) by major geographic area are summarized below:

 

     United States      International      Combined  
     (In thousands)  

Total revenue, net:

        

Three months ended March 31, 2015

   $ 29,362       $ 2,952       $ 32,314   

Three months ended March 31, 2014

     30,555         3,620         34,175   

Long-lived assets:

        

March 31, 2015

   $ 16,711       $ 1,437       $ 18,148   

December 31, 2014

     16,185         1,450         17,635   

10. SUBSEQUENT EVENTS

The financial statements of the orthobiologics and spinal fusion hardware business of Integra are derived from the financial statements of Integra which issued its unaudited interim financial statements for the three months ended March 31, 2015 on May 1, 2015. Accordingly, the orthobiologics and spinal fusion hardware business of Integra has evaluated transactions or other events for consideration as recognized subsequent events in the financial statements through the date of June 1, 2015. Additionally, the orthobiologics and spinal fusion hardware business of Integra has evaluated transactions and other events that occurred through the issuance of these financial statements, June 1, 2015, for purposes of disclosure of unrecognized subsequent events.

 

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