**Exhibit 10.5**

 

THIS PROMISSORY NOTE (THIS “NOTE”) HAS NOT BEENREGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIESACT”), OR UNDER THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION, AND MAY NOTBE OFFERED, SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSEDOF WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY U.S.PERSON, OTHER THAN DISTRIBUTORS (AS DEFINED IN REGULATION S PROMULGATED UNDERTHE SECURITIES ACT), IN THE ABSENCE OF SUCH REGISTRATION, UNLESS SUCHTRANSACTION IS EXEMPT FROM OR NOT SUBJECT TO REGISTRATION UNDER THE SECURITIESACT, AND HOLDER HAS, IF REQUIRED BY THE COMPANY, DELIVERED AN OPINION OFCOUNSEL TO THAT EFFECT.  BY ACCEPTING THIS NOTE, HOLDER REPRESENTS, AMONGOTHER THINGS, THAT IT IS AN ACCREDITED INVESTOR (AS DEFINED IN RULE 501(a) OFTHE SECURITIES ACT) AND IS NOT A U.S PERSON, AND IS ACQUIRING THIS NOTE ANDWILL ACQUIRE ANY CONVERSION SHARES (AS DEFINED HEREIN) OUTSIDE THE U.S. AND INACCORDANCE WITH REGULATION S, AND WILL NOT ENGAGE IN ANY HEDGING TRANSACTIONSWITH RESPECT TO THIS NOTE OR THE COMMON STOCK OF THE COMPANY PRIOR TO THEEXPIRATION OF THE DISTRIBUTION COMPLIANCE PERIOD (AS DEFINED HEREIN) EXCEPT INCOMPLIANCE WITH THE SECURITIES ACT.  ISSUANCE OF THE CONVERSION SHARES ISCONDITIONED UPON THE CONTINUED AVAILABILITY OF REGULATION S IN RESPECT OFHOLDER AT TIME OF CONVERSION, OR THE AVAILABILITY TO HOLDER OF ANOTHEREXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT IN RESPECT OF SUCHISSUANCE.

 

**PROMISSORY NOTE**

 
| **US  $1,500,000.00** | ** ** | **June 12,  2008** |
|-----------------------|------------|-------------------------|

 

FOR VALUE RECEIVED, **OsirisTherapeutics, Inc.** , a Delaware corporation (the “ **Company** ”), having an address of 7015Albert Einstein Drive, Columbia, MD, U.S.A., hereby promises to pay to theorder of                                              (the“ **Holder** ”), at the offices ofHolder at                                                              orsuch other place as may be designated by Holder to the Company in writing, theaggregate principal amount of **One Million Five HundredThousand****U.S. Dollars****($1,500,000.00)** (the “ **Principal** ”) together with accrued andunpaid interest, upon the terms and conditions hereinafter set forth.

 

1.             PaymentTerms.  The Company promises to pay to Holder the Final Payment Amount(as hereinafter defined) on **December 12, 2008** (the “**Maturity Date**”), unless this Note isearlier redeemed by the Company, pursuant to Section 3 hereof, asapplicable.  All accrued and unpaid interest shall be due and payable inaccordance with Section 2 hereof.  All payments hereundershall be made in lawful money of the United States of America. Payment shall becredited first to the accrued and unpaid interest then due and payable and theremainder to Principal.  “Final Payment Amount” means an amount equal tothe sum of the total unpaid Principal plus any accrued and unpaid interest.

 

2.             Interest. Intereston the outstanding portion of Principal of this Note shall accrue at a rate of **twenty percent (20%) per annum**.  Allcomputations of interest shall be made on the basis of a 360-day year foractual days elapsed.  All accrued interest shall be due and payable incash on the Maturity Date or  the Redemption Date (as hereinafter defined)as the case may be, in each case in accordance with the terms and conditions ofthis Note. Any accrued but unpaid interest will be paid in cash at the time ofconversion. If the Maturity Date or the Redemption Date be on a day that is nota business day, payment of any amounts due and payable on such date shall beeffected on the immediately following business day.

 

1

----

 

3.             Redemption of this Note.This Note may be redeemed by the Company upon anymonthly anniversary date of issuance by payment to Holder in immediatelyavailable funds of the sum of the total unpaid principal plus any accrued butunpaid interest.  The Company must provide written notice to Holder notless than 10 days prior to the effective date of such redemption (the “**Redemption Date**”).

 

4.             The indebtedness evidenced hereby rankspari passu in right of payment to the indebtedness evidenced from time to timeby the other of the Offered Notes (as defined below) and to any other debtsecurities of the Company now or hereafter existing and so providing, and theindebtedness evidenced hereby ranks senior in right of payment to all classesand series of the Company’s capital stock.  By accepting this Note theHolder does expressly consent to the aforesaid ranking in right of payment andagrees to perform, from time to time, such acts, and to execute, acknowledgeand/or deliver such other instruments, documents and agreements, as may fromtime to time be requested by the Company, or as may from time to time otherwisebe reasonably requested, necessary or required, to so confirm or provide.

 

5.             Representations and Warranties of theCompany. The Company represents and warrants to Holder as follows:

 

(a)                                           The execution and delivery by the Company of this Note(i) are within the Company’s corporate power and authority, and (ii) havebeen duly authorized by all necessary corporate action.

 

(b)                                           This Note is a legally binding obligation of theCompany, enforceable against the Company in accordance with the terms hereof,except to the extent that (i) such enforceability is limited bybankruptcy, insolvency, reorganization, moratorium or other laws relating to oraffecting generally the enforcement of creditors’ rights, and (ii) theavailability of the remedy of specific performance or in injunctive or otherequitable relief is subject to the discretion of the court before which anyproceeding therefore may be brought.

 

6.             Use of Proceeds.  The proceeds received by theCompany from the sale of this Note shall be used by the Company for workingcapital, redemption or repayment of debt or other general corporate purposes.

 

7.             No Waiver in Certain Circumstances.  No course of dealing of Holdernor any failure or delay by Holder to exercise any right, power or privilegeunder this Note shall operate as a waiver hereunder and any single or partialexercise of any such right, power or privilege shall not preclude any laterexercise thereof or any exercise of any other right, power or privilegehereunder.

 

8.             Certain Waivers by the Company.  Except as expressly providedotherwise in this Note, the Company and every endorser or guarantor, if any, ofthis Note waive presentment, demand, notice, protest and all other demands andnotices in connection with the delivery, acceptance, performance, default orenforcement of this Note, and assent to any extension or postponement of thetime of payment or any other indulgence, to any substitution, exchange orrelease of collateral available to Holder, if any, and to the addition orrelease of any other party or person primarily or secondarily liable.

 

9.             No Unlawful Interest.  Notwithstanding anything hereinto the contrary, payment of any interest or other amount hereunder shall not berequired if such payment would be unlawful.  In any such event, this Noteshall automatically be deemed amended so that interest charges and all otherpayments required hereunder, individually and in the aggregate, shall be equalto but not greater than the maximum permitted by law.  As a condition toits obligation to make any payment of interest hereunder without withholding asmay otherwise be required under applicable U.S. tax laws, the Company mayrequire that the Holder submit to the Company a properly completed IRS Form W-8or similar or successor form sufficiently demonstrating to the reasonablesatisfaction of the Company that no such withholding is required.

 

2

----

 

10.          Representations, Warranties andCovenants of Holder.  By accepting this Note, Holder represents andwarrants to the Company, and agrees, as follows:

 

(a)                                           The principal address of Holder is outside of theUnited States, and Holder is not a U.S. Person as such term is defined and usedin Regulation S.

 

(b)                                           At the time the “buy” order was originated in respectof Holder’s acquisition of this Note, Holder was outside of the U.S., andHolder is outside the U.S. as of the date of the execution and delivery of thisNote by Holder.  No offer to acquire this Note was made to Holder or itsrepresentatives inside the United States.

 

(c)                                            Holder is an “accredited investor” within the meaningof Rule 501(a) under the Securities Act.

 

(d)                                           Holder is acquiring this Note for his/her/its ownaccount, not on behalf or for the account of any U.S. Person, and the purchaseof this Note has not been pre-arranged with a purchaser in the U.S.

 

(e)                                            The Holder will make all resales of this Note onlyoutside of the United States in compliance with Regulation S, or pursuant to aregistration statement under the Securities Act, or pursuant to an availableexemption from registration under the Securities Act.  Specifically,Holder will not resell this Note to any U.S. Person or within the United Statesprior to the expiration of one year (the “Distribution **Compliance Period**”) after the closing ofthe offering to which this Note relates, except pursuant to registration underthe Securities Act or an exemption from registration under the Securities Act.

 

(f)                                             Holder will not engage in any hedging transactionswith respect to this Note or the Common Stock of the Company at any time priorto the expiration of the Distribution Compliance Period, except in compliancewith the Securities Act.

 

(g)                                            The Company is and will be relying on the truth andaccuracy of Holder’s representations, warranties, agreements, acknowledgementsand understandings as set forth herein, in order to determine the applicabilityof such exemptions and the suitability of Holder and his/her/its acquisition ofthe Note upon conversion hereof.

 

(h)                                           Holder has been furnished with, or has acquired,copies of all of the documents filed by the Company with the United StatesSecurities and Exchange Commission during the twelve months prior to the datehereof, as well as all other documents made available by the Company for publicdissemination during the same period, including, but not limited to, pressreleases, and Holder has been provided all necessary and appropriateinformation about the Company to make an informed investment decision withrespect to the acquisition of this Note.

 

(i)                                               Holder has sufficient knowledge and experience infinancial and business matters and is capable of evaluating the risks andmerits of Holder’s investment in the Company; Holder has been provided theopportunity to make all necessary and appropriate inquiries of the Companyregarding Company’s business and associated risks, and Company has compliedwith all such requests; and Holder is able financially to bear the risk oflosing Holder’s full investment in this Note.

 

(j)                                              The Note is being acquired in a transaction notinvolving a public offering within the United States within the meaning of theSecurities Act, and Holder understands that this Note has not been and will notbe registered under the Securities Act or registered or qualified under any thesecurities laws of any state or other jurisdiction, are and will be 

 

3

----

 

“restricted securities”and cannot be resold or otherwise transferred unless they are registered underthe Securities Act, and registered or qualified under any other applicable securitieslaws, or an exemption from such registration and qualification isavailable.  Prior to any proposed transfer of this Note, Holder shall,among other things, give written notice to the Company of Holder’s intention toeffect such transfer, identifying the transferee and describing the manner ofthe proposed transfer and, if requested by the Company, accompanied by (i) investmentrepresentations by the transferee similar to those made by Holder in this Section 10and (ii) an opinion of counsel satisfactory to the Company to the effectthat the proposed transfer may be effected without registration under theSecurities Act and without registration or qualification under applicable stateor other securities laws.

 

(k)                                           Holder understands that no U.S. federal or stategovernment or agency has passed on or made any recommendation or endorsement ofoffering for sale or the sale of this Note.

 

(l)                                               Holder acknowledges that this Note is one of severalsimilar notes (collectively the “Offered**Notes**”) in the aggregate principal amount of up to $10,000,000, orat the option of the Company, a greater amount; and that there is norestriction imposed hereby upon the Company in respect of the incurring by theCompany of additional debt or the issuance by the Company of additional debt orequity securities, or otherwise.

 

11.          Security Interest.  The Company’s obligations underthis Note and the other Offered Notes are secured by a grant of, and theCompany does hereby grant to the Holder (and has similarly granted or is orwill similarly grant to the other Offered Noteholders in respect of theobligations under the other Offered Notes), subject to the terms, provisionsand limitations hereof, a security interest in (the “Collateral”) all tangibleand intangible assets of the Company now existing or hereafter arising(together with products and proceeds), *otherthan and in any event excluding* :

 

(i) all tangible andintangible assets which are the subject of any security interest previouslygranted by the Company which would prohibit or conflict with a grant of asecurity interest hereunder or under the other Offered Notes, and in any eventand without regard to whether or not so prohibited or conflicting, excludingall tangible and intangible assets which are the subject of a security interestpreviously granted by the Company in favor of Boston Scientific Corporation,and

 

(ii) whether now orhereafter existing or arising, all (a) leases and other contracts, (b) licenses(including licenses to software and intellectual property), (c) rights ofthe Company under such leases, other contracts and licenses, (d) property,if any, that is or becomes the subject of such leases, other contracts orlicenses, and (e) without limiting (a) through (c), collaborativearrangements by and between the Company and any third party and any and allinterests or rights of the Company in respect of the assets related thereto.

 

The security interestgranted hereby, and any corresponding lien, is and shall be further subject andsubordinate to any security interest and lien granted by the Company in theCollateral and established at any time or from time to time in the future aspart of any financing arrangements that may be entered into by and between theCompany and any bank or financial institution, and shall rank pari passu andshall be deemed hereby and thereby to be spread with the security interestsotherwise granted and liens established or created in the Collateral pursuantto or as contemplated by the other Offered Notes or any other convertible debtsecurities of the Company as may be issued from time to time and which soexpressly provide, and the Holder by accepting this Note does hereby expresslyconsent thereto, it being the intention of the Company and the Holder that thesecurity interest hereby granted, and any corresponding lien established orcreated, shall rank in right of priority (subject in any event to the limitsand exclusions otherwise herein provided) in respect of the Collateral senioronly to the general unsecured indebtedness and other unsecured obligations ofthe Company now or hereafter existing, pari passu with the security 

 

4

----

 

interests granted and liens established or createdpursuant to or as contemplated by the other Offered Notes and any otherconvertible debt securities of the Company as may be issued from time to timeand which so expressly provide, and junior to any other lien created orsecurity interest granted by the Company.

 

In the event Companyfails to perform any of its repayment obligations under this Note, and suchdefault is continuing for a period of 10 business days after written noticefrom Holder to the Company (“Default”), Holder may accelerate repayment of thePrincipal plus any accrued interest and exercise, without further notice, allrights and remedies under this Note or enforce any rights otherwiseavailable.  In the case of such Default, Holder shall give the Company notless than 60 business days prior written notice of its intended disposition ofthe Collateral; provided, however, if Company cures such Default priorto expiration of such notice period, Default will be not deemed to haveoccurred and Holder shall have no rights to accelerate repayment or enforce theCollateral.  For the purpose of enforcing any and all rights and remediesunder this Note, Holder may (i) require the Company to, upon Holder’sreasonable request, assemble all or any part of the Collateral as directed bythe Holder and make it available to Holder during normal business hours at theCompany’s headquarters, (ii) to the extent permitted by applicable law,enter, without breach of the peace, any premises where any such Collateral isor may be located and, reasonably seize and remove such Collateral from suchpremises, (iii) direct the Company to reasonably provide relevantinformation from the Company’s books and records relating to the Collateral,and (iv) prior to the disposition of any of the Collateral, store ortransfer the Collateral, process, repair or recondition such Collateral orotherwise prepare it for disposition in any manner and to the extent Holderdeems reasonably appropriate.  Notwithstanding anything to the contraryherein, the security interest granted hereby is expressly limited to the FinalPayment Amount outstanding under this Note and Holder shall exercise theforegoing rights in such a fashion so as to minimize disruption to Company andits business operations and only to the extent necessary to recover such unpaidFinal Payment Amount.  Holder and the Company shall work in good faith toeffectuate the intent of the previous sentence.  The security interestgranted hereby and any corresponding lien created or established, shallterminate and expire upon payment in full of the Final Payment Amount or uponthe occurrence of the Conversion Date, which ever first occurs, and withoutfurther action on the part of the Company or Holder.  Holder will executeany documents or instruments the Company may reasonably request to evidencesuch expiration.  All rights and remedies of the Holder hereunder shall beexercised in a manner which recognizes rights of the other Offered Noteholdersin respect of the Collateral and in respect of the lien and payment priorityprovided for hereunder.

 

By acceptance of thisNote, Holder acknowledges and agrees that (i) certain assets of theCompany are excluded from the security interest granted hereby, (ii) thesecurity interest granted to Holder pursuant hereto, and any corresponding liencreated or established, is and shall be subject and subordinate to any lien andsecurity interest heretofore or hereafter granted by the Company or created andestablished as part of any financing arrangement that may be entered into byand between the Company and any bank or financial institution and, subject inany event to the limits and exclusions otherwise herein provided, such lien andsecurity interest shall rank senior only to the general unsecured indebtednessand other unsecured obligations of the Company now or hereafter existing, (iii) theCompany is issuing or may issue the other Offered Notes, and in additionthereto may also issue from time to time in the future other convertible debtsecurities, and has granted or may grant in connection with the issuance of theother Offered Notes or such other convertible debt securities, securityinterests in the Collateral which may, and the lien in respect of which may,rank pari passu in priority with the security interest granted hereby, andHolder does hereby consent to the grant by the Company of such securityinterests and the establishment and creation of such liens.  Holder shallperform, from time to time, such acts, and shall execute, acknowledge and/ordeliver such other instruments, documents and agreements as the Company reasonablymay request in order to consummate the transactions provided for in thisNote.  Without limiting the foregoing, by accepting this Note the Holderdoes expressly consent to the aforesaid ranking in respect of lien priority andsubordination and agrees to perform, from time to time, such acts, and toexecute, acknowledge and/or deliver such instruments, documents and agreements,as may from time to time be requested by the Company, or as may from time totime otherwise be reasonably requested, necessary or required, to so confirm orprovide.

 

5

----

 

14.          Miscellaneous.  Nomodification, rescission, waiver, forbearance, release or amendment of anyprovision of this Note shall be made, except by a written agreement dulyexecuted by each of the Company and Holder.  This Note may not beconveyed, assigned or transferred by Holder without the prior written consentof the Company.  Any permitted subsequent Holder of this Note shall bedeemed, by accepting this Note, to have made and reaffirmed to the Company eachand every of the acknowledgements, consents, agreements, representations,warranties and covenants of the original Holder hereof.  All noticeshereunder shall be in writing and be deemed given if personally delivered, sentby overnight courier (provided proof of delivery is received) or sent bytelecopy (provided a confirmation of transmission is received) at the addressesof the respective parties set forth in the initial paragraph of this Note orsuch other address as either party shall notify the other of from time totime.  The Company hereby submits to personal jurisdiction in the State ofMaryland, consents to the jurisdiction of any competent state or federaldistrict court sitting in the County of Montgomery County, Maryland, and waivesany and all rights to raise lack of personal jurisdiction as a defense in anyaction, suit or proceeding in connection with this Note or any relatedmatter.  This Note shall be governed by, and construed and interpreted inaccordance with, the laws of the State of Maryland, without reference toconflicts of law provisions of such state.

 

6

----

 

IN WITNESS WHEREOF, the undersigned have caused thisNote to be executed and delivered by a duly authorized officer as of the datefirst above written.

 
| ** **                                    | **Osiris  Therapeutics, Inc.** |
|-----------------------------------------------|-------------------------------------|
| ** **                                    | ** **                          |
| ** **                                    | By:                                 |   |
| ** **                                    | Name:                               |  Philip R.  Jacoby, Jr. |
| ** **                                    | Title:                              |  Interim Chief  Financial Officer |
| ** **                                    | ** **                          | ** ** |
| ACCEPTED as of  the date first above written: |                                |   |
|                                          |                                |   |
| **Holder:**                                   |                                |   |   |
|                                          |                                |   |
|                                          |                                |   |
| By:                                           |                                |   |   |
| Name:                                         |                                |   |   |
| Title:                                        |                                |   |   |
|                                               |                                     |  |  |  |

 

7

----