Acquisitions

Tenaxis Medical, Inc.

On April 21, 2014, the Company entered into an Agreement and Plan of Merger (the Merger Agreement) with Tenaxis, Napa Acquisition Corp., a Delaware corporation and wholly owned subsidiary of the Company, and Fortis Advisors LLC, a Delaware limited liability company, solely in its capacity as the representative and agent of the stockholders and optionholders of Tenaxis (the Representative). On May 1, 2014, the Company completed its acquisition of Tenaxis and Tenaxis became a wholly owned subsidiary of the Company.

The Tenaxis surgical sealant, Tenaxis’s sole product, mechanically seals both human tissue and artificial grafts. In the United States, the Tenaxis surgical sealant received a premarket approval from the U.S. Food and Drug Administration in March 2013 for use as a vascular sealant, but has not yet been commercialized in the United States. In the European Union, the product is approved for sale as a surgical sealant applicable to cardiovascular, general, urological, and thoracic surgery with a European CE Mark and Tenaxis has been commercializing the product since September 2008.

Under the Merger Agreement, the Company paid to the holders of Tenaxis’s capital stock, the holders of options to purchase shares of Tenaxis’s capital stock (whether or not such capital stock or options were vested or unvested as of immediately prior to the closing) and the holders of certain warrants and side letters (collectively, the Tenaxis Equityholders) an aggregate of $58.9 million in cash, subject to customary adjustments at and after the closing. The amount paid to the Tenaxis Equityholders at the closing is subject to a post-closing purchase price adjustment process with respect to the net amount of cash, unpaid transaction expenses and specified other debt and liabilities of Tenaxis at closing. At the closing, the Company deposited approximately $5.4 million in cash from the $58.9 million purchase price into an escrow fund for the purposes of securing the indemnification obligations of the Tenaxis Equityholders to the Company for any and all losses for which the Company is entitled to indemnification pursuant to the Merger Agreement and to provide the source of recovery for any amounts payable to the Company as a result of the post-closing purchase price adjustment process. To the extent that any amounts remain in the escrow fund after October 1, 2015 and not subject to claims by the Company, such amounts will be released to the Tenaxis Equityholders, subject to certain conditions set forth in the merger agreement.

In addition, the Company has agreed to pay to the Tenaxis Equityholders milestone payments subsequent to the closing, if the Company achieves certain regulatory approval milestones and commercial net sales milestones with respect to Tenaxis’s surgical sealant product, at the times and on the conditions set forth in the merger agreement. In the event that all of the milestones set forth in the Merger Agreement are achieved in accordance with the terms of the Merger Agreement, the Company will pay the Tenaxis Equityholders up to an additional $112.0 million in cash in the aggregate.

In accordance with the acquisition method of accounting, the Company allocated the acquisition cost for the Tenaxis transaction to the underlying assets acquired and liabilities assumed by the Company, based upon estimated fair values of those assets and liabilities at the date of acquisition and plan to classify the fair value of acquired developed product right as an intangible asset with the amortization recorded through the life of the products patent.

The Company recognized as goodwill from the transaction an amount equal to the excess of the purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed by the Company. The goodwill recorded as part of the acquisition is primarily related to establishing a deferred tax liability for the developed product intangible asset which has no tax basis and, therefore, will not result in a future tax deduction. The Company does not expect any portion of this goodwill to be deductible for tax purposes. The Company has recorded the goodwill attributable to the acquisition as a non-current asset on its consolidated balance sheets. The goodwill attributable to the acquisition is not amortized, but the Company reviews its goodwill annually for impairment.

The Company accounted for the transaction as a business combination and is in the process of finalizing the valuation of intangible assets and fair value of the contingent purchase price. As a result, the preliminary measurements of intangible assets, goodwill and deferred income tax liabilities described below are subject to change. The results of Tenaxis operations have been included in the consolidated statements of income from the date of acquisition.

Acquisition related costs during 2014 of approximately $0.6 million for advisory, legal and regulatory costs incurred in connection with the Tenaxis acquisition have been expensed in selling, general and administrative expenses.

Total estimated purchase price is summarized as follows:



	(In thousands)
Upfront cash consideration	$	58,871
Fair value of contingent purchase price	38,800
Total estimated purchase price	$	97,671

Below is a summary which details the preliminary allocation of assets acquired and liabilities assumed as a result of this acquisition:



Assets Acquired:	(In thousands)

Cash and cash equivalents	$	837
Inventory	307
Developed product rights	93,900
Goodwill	26,796
Other assets	131
Total assets	$	121,971

Liabilities assumed:

Accounts payable	917
Contingent purchase price	38,800
Deferred tax liability	23,160
Other liabilities	223
Total liabilities	$	63,100

Total cash price paid upon acquisition	$	58,871

The following unaudited pro forma financial information reflects the consolidated statement of income of the Company as if the acquisition of Tenaxis had occurred as of January 1, 2013. The pro forma information includes adjustments for the amortization of intangible assets net of tax, however does not include accretion of contingent purchase price. The pro forma financial information is not necessarily indicative of the results of operations as they would have been had the transaction been effected on the assumed date.




	Three Months Ended June 30,					Six Months Ended June 30,
	2014			2013		2014			2013
	(in thousands, except per share amounts)
Net revenue	$	183,822		$	172,912	$	361,200		$	328,750
Net (loss) income	$	(5,860	)	$	16,037	$	(12,966	)	$	2,406
Basic (loss) income per common share	$	(0.09	)	$	0.29	$	(0.20	)	$	0.04
Diluted (loss) income per common share	$	(0.09	)	$	0.27	$	(0.20	)	$	0.04

Rempex Pharmaceuticals, Inc.

During the three months ended March 31, 2014, in connection with the Company’s December 2013 acquisition of Rempex, the Company finalized the post-closing purchase price adjustment process with respect to the net amount of cash, unpaid transaction expenses and other debt and liabilities of Rempex as of the date of the closing of the acquisition. The Company finalized its accounting for the acquisition of Rempex in the three months ended March 31, 2014. The post-closing purchase price adjustment process resulted in an insignificant adjustment to the purchase price for the acquisition.