Osiris Therapeutics : “Stipulation of Settlement” in Salley v. Osiris Theraputics, Inc. et al., in Case No. 17-cv-0377, United States District Court for the District of Maryland

Case 1:17-cv-03777-ELH Document 39-3 Filed 10/31/18 Page 2 of 83

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MARYLAND

(Baltimore Division)

TODD SALLEY

*

Plaintiff, derivatively on behalf of

Civil Action No. 17-cv-03777 *

OSIRIS THERAPEUTICS, INC.,

Nominal Defendant

v.

LODE DEBRABANDERE,et al.,

Defendants

* * * *

************************

STIPULATION OF SETTLEMENT

This Stipulation of Settlement, dated October 24, 2018 (the "Stipulation"), is made and entered into by and among the following parties, by and through their respective counsel of record: (i) Plaintiff Todd Salley ("Salley") in the above-captioned lawsuit (the "SalleyAction"); Plaintiffs Elizabeth A. Recupero ("Recupero") and Raymond Morrison in the lawsuit captionedRecupero v. Friedle, et al.,Case No. 17-cv-00381 (D. Md. 2017) (the "RecuperoAction");Plaintiff Kevin Connelly ("Connelly") in the lawsuit captionedConnelly v. Debrabandere, et al., Case No. 13-C-16106815 (Cir. Ct. Md. 2016) (the "ConnellyAction"); Plaintiff Brian C. Lee ("Lee") in the lawsuit captionedLee v. Friedli, et al., Case No. 13-C-17111441 (Cir. Ct. Md. 2017) (the "LeeAction"); and Gregory Kort (the "Plaintiffs"); (ii) Peter Friedli ("Friedli"), Lode Debrabandere ("Debrabandere"), Felix Gutzwiller ("Gutzwiller"), Philip R. Jacoby, Jr. ("Jacoby"), Hans-Georg Klingemann ("Klingemann"), Gregory I. Law ("Law"), Dwayne Montgomery ("Montgomery"), Jay Moyes ("Moyes"), and Thomas Brandt ("Brandt") (the

"Individual Defendants"); and (iii) nominaldefendant OsirisTherapeutics, Inc. ("Osiris" or the

"Company") (together with the Individual Defendants, the "Derivative Defendants," and collectively with the Plaintiffs, the "Settling Parties"). The Stipulation is intended by the Settling

Parties to fully, finally and forever resolve, discharge and settle the Released Claims, as defined below, subject to the terms and conditions set forth herein.

I.

THE LITIGATION

a. TheNallagondaAction

On November 23, 2015, the action entitledNallagonda v. Osiris Therapeutics, Inc. et al.,

Case No. 1:15-cv-03562-PX, (the "NallagondaAction") was filed in the United States District

Court for the District of Maryland, Baltimore Division, on behalf of all persons (other than defendants) who purchased or otherwise acquired Osiris securities between May 12, 2014 and

November 16, 2015, both dates inclusive. TheNallagondaAction alleges violations of the federal securities laws and seeks remedy under Sections 10(b) and 20(a) of the Securities

Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 promulgated thereunder, relating to

Osiris filing allegedly misleading statements with the United States Securities & Exchange

Commission ("SEC"). Specifically, the amended complaint in theNallagondaAction contains

allegations that material misrepresentations and omissions were made in filings with the SEC, including registration statements, prospectuses, and statements of additional information dating from as early as May 12, 2014, as well as in annual, semi-annual, and quarterly reports, written press releases, letters, and other written communications, and also in oral communications, including communications by the individual defendants to investors on conference calls and in statements to analysts.

In the Fall of 2017, Osiris and the lead plaintiff in theNallagondaAction engaged the services of Mr. Jed D. Melnick, Esq., a nationally recognized mediator with JAMS, to conduct a mediation to help the parties negotiate a potential settlement of theNallagondaAction. Counsel for lead plaintiff and for Osiris participated in the mediation with Mr. Melnick on December 19, 2017, which did not result in settlement, but which facilitated further settlement discussions between the parties that ultimately led to an agreement.

On June 12, 2018, the parties in theNallagondaAction filed a stipulation of settlement.

The parties are currently waiting for the Court to enter an order granting preliminary approval of the proposed settlement.

a. TheLeeDemand and Action

On February 16, 2016, counsel for Plaintiff Lee wrote to Osiris Chairman Friedli

demanding that the Company's Board of Directors (the "Board") initiate litigation against certain of the Company's officers and directors. In response, the Board formed an independent Special

Committee to investigate the allegations of the demand. The Special Committee retained the law firm of Saul Ewing LLP to assist it in conducting an extensive investigation into the allegations in the demand.

On May 11, 2017, Plaintiff Lee filed a complaint in the Circuit Court for Howard County,

Maryland, derivatively on behalf of Osiris, against certain current and former directors and executive officers of Osiris-Friedli, Debrabandere, Gutzwiller, Jacoby, Law and

Montgomery-alleging that those individuals breached their fiduciary duties through a lack of oversight relating to the alleged filing of misleading statements with the SEC. On or about

December 8, 2017, the Company's Special Committee informed counsel for Plaintiff Lee that his demand had been refused by the Company's Board.

b. TheConnellyAction

On March 2, 2016, Plaintiff Connelly filed a complaint in the Circuit Court for Howard

County, Maryland, derivatively on behalf of Osiris, against certain current and former directors and certain former executive officers of Osiris-Debrabandere, Jacoby, Friedli, Moyes, Yves

Huwyler("Huwyler")1and Klingemann-alleging that those individuals breached their fiduciary duties through a lack of oversight, engaged in gross mismanagement of the Company and were unjustly enriched as a result of failing to disclose that Osiris had filed misleading statements with the SEC, and that making a demand on the Board would have been futile. On March 12, 2018,

Plaintiff Connelly filed an amended complaint with substantially similar allegations.

c. The Kort Demand

By letter dated April 4, 2016, counsel for Gregory Kort, a putative stockholder of the

Company, made a demand that the Company address certain alleged breaches of fiduciary duty by

officers and directors of the Company (the "Kort Demand").On or about December 8, 2017,the

Special Committee informed counsel for Mr. Kort that his demand had been refused by the Board.

d. TheSalleyDemand and Action

On November 15, 2016, counsel for Plaintiff Salley made a demand to the Board that the

Company address certain alleged breaches of fiduciary duty by officers and directors of the

Company. The Special Committee informed counsel for Plaintiff Salley on or about December 8, 2017, that his demand had been refused by the Board.

On December 21, 2017, Plaintiff Salley filed a complaint in the above-captioned matter, derivatively on behalf of Osiris, against certain current and former directors and certain former

1Huwyler died in March 2017 and Plaintiffs in theConnellyandRecuperoActions have since agreed to dismiss Huwyler from those lawsuits.

executive officers of Osiris-Debrabandere, Montgomery, Jacoby, Law, Friedli, Gutzwiller,

Moyers and Klingemann-alleging that those individuals breached their fiduciary duties through a lack of oversight relating to the alleged filing of misleading statements filed with the SEC.

Plaintiff Salley also alleged that certain current and former directors and certain former executive officers engaged in gross mismanagement of Osiris and were unjustly enriched as a result of failing to disclose that Osiris had filed misleading statements with the SEC, and that they failed to

maintain adequate internal controls over Osiris' financial reporting. Finally, Plaintiff Salley

alleged that his demand was wrongfully refused by the Board.

e. TheRecuperoAction

On February 9, 2017, Plaintiff Recupero filed a complaint in the Recupero Action in the

United States District Court for the District of Maryland, derivatively on behalf of Osiris, against certain current and former directors of Osiris-Friedli, Moyes, Huwyler and Brandt-alleging that those individuals breached their fiduciary duties through a lack of oversight, engaged in gross mismanagement of the Company and were unjustly enriched as a result of failing to disclose that Osiris had filed misleading statements with the SEC, and that making a demand on the Board would have been futile. On April 5, 2018, an amended complaint was filed on behalf of Plaintiffs Recupero and Ray Morrison.

II.SETTLEMENT NEGOTIATIONS IN THE DERIVATIVE ACTIONS

Counsel for Osiris and for the plaintiffs in theConnelly,Recupero,LeeandSalleyActions

(collectively with the Kort Demand, the "Derivative Actions"), have engaged in extensive arm's-

length discussions and negotiations, both telephonically and in writing, concerning a possible settlement of the Derivative Actions based on certain governance changes.