**EXHIBIT 10.3**

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**SUPPLY AGREEMENT**

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This**SUPPLY AGREEMENT** (this “Agreement”)dated as of March 25, 2009, (“Effective Date”) is by and between **OSIRIS THERAPEUTICS, INC.**, a Delaware corporation (“Osiris”),and **ALLOSOURCE**, an Illinois not-for-profitcorporation (“AlloSource”) (any of which may be individually referred to hereinas a “Party” and collectively as the “Parties”).

 

**RECITALS**:

 

A.                                   Osiris isengaged in the business of processing and manufacture of an osteobiologicallograft material containing cancellous bone commonly known as Osteocel® and Osteocel Plus® (collectively, the “Product”) (thedevelopment, manufacturing, marketing and sale of the Product shall be referredto herein as the “Business”).

 

B.                                     Pursuant tothis Agreement, Osiris and AlloSource intend that Osiris supply to AlloSourceand that AlloSource will purchase certain of Osiris’s inventory, all on theterms and conditions contained in, and as more fully set forth in, thisAgreement.

 

**Section 1****                                            ****Purchase;No Liabilities**.

 

(a)                                  Subject to theterms and conditions set forth herein and simultaneously with the satisfactionof the conditions set forth in clauses (i), below (the “Purchase Date”),AlloSource agrees to purchase, and Osiris agrees to supply, free and clear ofall liens, all right, title and interest of Osiris in, to and under all Osiris’sProduct inventory which has been manufactured by Osiris in accordance with thespecifications, excluding any Product that has, as of the Manufacturing Closing(defined below), failed any testing requirement or any quality test andexcluding any Product that should have been discarded based on informationavailable to Osiris prior to the Manufacturing Closing (the “Inventory”).  Notwithstanding the foregoing, the Inventoryis considered donated human tissue under quarantine for which donor eligibilityand product availability for distribution determinations are not completed,prohibiting the product being transplanted until eligibility and availabilityfor distribution determinations are completed as defined in Title 21 Code ofFederal Regulations part 1271. The purchase of Inventory is subject to thefollowing:

 

(i)                                     Osiris andNuVasive, Inc. shall complete both the “Technology Closing” and the “ManufacturingClosing” (as defined in the Asset Purchase Agreement effective May 8, 2008by and between Osiris and NuVasive, as amended (collectively the “APA”)),within fifteen (15) days of the execution of this Agreement;

 

(b)                                 AlloSource and **** acknowledgethat the Amended and Restated Tissue Procurement and Processing and SupplyAgreement and dated as of February 1, 2008 by and 

 

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betweenOsiris and AlloSource shall be: (a) assigned by Osiris to NuVasive inconnection with the Manufacturing Closing; and (b) amended, modified,supplemented or terminated upon terms and conditions mutually satisfactory toeach of NuVasive and AlloSource.”

 

(c)                                  AlloSourceshall not assume by virtue of this Agreement or the transactions contemplatedhereby, and shall have no liability for, any liabilities of Osiris.

 

(d)                                 Except asexpressly specified herein, Osiris shall cease processing of any new donortissue and shall use best efforts to complete all processing of Inventorywithin five (5) days of the Effective Date.

 

**Section 2****                                            ****Purchase Price**.  The “PurchasePrice” shall be calculated by multiplying $**** times the number ofcubic centimeters of Inventory purchased hereunder;  Three business days prior to the PurchaseDate, Osiris shall provide AlloSource with an estimated listing and itemizationof the work in progress inventory, which is subject to inspection andverification by AlloSource, such inspection and verification to occur upon reasonablewritten notice by AlloSource to Osiris. AlloSource shall pay one third of the Purchase Price on each of: 45, 75,and 90 days from the Manufacturing Closing. AlloSource and Osiris shall havethe independent and bilateral right to withhold and set-off against any amountotherwise due to be paid (but not yet paid) to each other any amounts due fromthe other Party, including with respect to the indemnity provided in Section 9.

 

**Section 3****                                            ****OsirisRepresentations and Warranties**.

 

(a)                                  The Inventoryshall (a) conform with the applicable specifications therefore and withall promises, warranties or affirmations of fact set forth in regulatorydocuments or made on the container or label for the Inventory; (b) havebeen procured, processed, labeled, handled, packaged and shipped in accordancewith industry standards, the specifications, all necessary quality controlprocedures and all applicable laws and regulations; and (c) not infringeor misappropriate any patent or other intellectual property right of any thirdparty. There is no design or manufacturing defect with respect to the Inventoryother than defects found by AlloSource during its review and Release of theInventory.

 

(b)                                 Alldocumentation supplied to AlloSource in connection with the Inventory shall, tothe knowledge of the Osiris, be accurate and complete.

 

(c)                                  All permitslisted on Schedule 2.11 of the APA are in full force and effect.

 

(d)                                 Osiris is incompliance in all material respects with all applicable laws, statutes,regulations, rules, ordinances, standards, guidelines and judicial oradministrative orders issued

 

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****Portions of this page have been omitted pursuant to a request forConfidential Treatment filed separately with the Commission.

 

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bythe FDA or any other governmental agency or the American Association of TissueBanks, relating to the Inventory. To the extent appropriate for Inventory, allInventory has been processed, manufactured, packaged, labeled, stored, handled,and distributed by Osiris in compliance with Osiris quality control standardsand all applicable laws including Good Tissue Practices and the United StatesNational Organ Transplant Act. None of the Inventory has been recalled orsubject to a field safety notification, and Osiris has not received writtennotice (whether completed or pending) of any proceeding seeking recall,suspension or seizure of the Inventory.

 

**Section 4****                                            ****Cooperation**. Until all of theInventory is Released, Osiris will cooperate and assist AlloSource with theRelease thereof. Specifically, following the ManufacturingClosing, AlloSource will be fully responsible for final Release of allInventory. Osiris will cooperate with AlloSource on the Release of  Inventory; for clarity Osiris will be closingoperations and will terminate most of its employees but hereby agrees to keep aminimum of 4 employees for 6 weeks to cooperate with AlloSource. Osiris’cooperation shall include obtaining any missing or required donor information fromrecovery agencies, completing and correcting all processing records, completingall quality control testing transferred to AlloSource and cooperating withAlloSource on the planning and scheduling of the transfer of Inventory tofulfill the obligations specified in Section 5. In the event thatAlloSource requests in writing, specific services beyond the initial six weekperiod, Osiris will agree to extend the employment period for such person(s) toa mutually agreed to period of time and AlloSource will agree to reimburseOsiris, at its cost, for the extension. Osiris’s failure to comply with thiscovenant will result in the AlloSource’s withholding the final installmentpayment of the Purchase Price until such time as Osiris provides the necessarycooperation to effect a Release.  For purposes of this Agreement, “Release(d)”means that AlloSource has received all information and documentation and othercooperation described above from Osiris necessary for  AlloSource to determine that each item ofInventory is acceptable or not acceptable for distribution to a third party forhuman transplantation. In the event that AlloSource determines that Osiris isnot meeting the cooperation as defined in Section 4, AlloSource willnotify Lou Barnes (or other employees designated by Osiris) within three daysof determination of non-cooperation.

 

**Section 5****                                            ****Shipping; Transportation**.   Within thirty (30) days of the Purchase Date,the Inventory remaining in Osiris’ Columbia facility will be transferred toAlloSource to shipping location(s) specified by AlloSource,  AlloSource shall be responsible, atAlloSource’s cost, for the management, insurance, transportation costs, permitsand selection of carriers to transport the Transferred Assets.  Osiris will cooperate with AlloSource on theplanning and scheduling of the transfer(s).

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**Section 6****                                            ****Records**. Osiris shallmaintain accurate and complete records of its procurement, processing, supply,and shipment of Inventory hereunder for the period of time required byapplicable laws or regulations.  Uponreasonable prior written request of AlloSource, or whenever requested to complywith laws or regulations, Osiris shall provide AlloSource with suchinformation, including documentation, requested by AlloSource regarding theInventory,

 

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including,without limitation, quality control and quality assurance of Inventory suppliedhereunder.

 

**Section 7****                                            ****Complaints;Adverse Claims**.  Osirisshall provide written notification of any complaint or adverse claim related tothe Inventory as soon as reasonably practical after Osiris’s receipt of suchcomplaint or claim.  Each Party agrees toprovide reasonable assistance and cooperation to the other Party in theinvestigation and resolution of any such complaint or claim related to theInventory, including any recall, field correction, market withdrawal, stockrecovery or other similar action; provided that AlloSource shall have finalauthority and responsibility for all decisions concerning the Inventory andresponsibility for all communication with any non-governmental third partyrelated to Inventory.

 

**Section 8****                                            ****Insurance**.  Osiris shall carry and maintain insurancewhich shall be primary in nature and cover all risks and liability, includingwithout limitation general and products liability, associated with theInventory other than the acts and omission of AlloSource in releasing theInventory and with limits of liability equal to at least **** in theaggregate per year.  Such insurance shallbe claims made based and shall include tail coverage under the same terms for aperiod of at least ten (10) years following the Purchase Date.

 

**Section 9****                                            ****Indemnification**.  Osiris hereby agrees to indemnify,defend and save harmless AlloSource and its directors, officers, employees,affiliates, agents, advisors, representatives, members and assigns(collectively, the “AlloSource Indemnified Parties”) from, against andin respect of any and all any loss, claim, tax, demand, loss, deficiency,damage, liability, judgment, fine, penalty, fee, cost or expense (including,without limitation, reasonable attorneys’, consultants’ and experts’ fees andexpenses) incurred, paid, accrued or sustained by the AlloSource IndemnifiedParties, including, without limitation, any costs of defending any action,suit, claim, charge, cause of action or suit (whether in contract or tort orotherwise), litigation (whether at law or in equity, whether civil orcriminal), controversy, assessment, arbitration, investigation, hearing, complaint,demand or other proceeding to, from, by or before any arbitrator, court,tribunal or other governmental entity or enforcing the AlloSource IndemnifiedParty’s rights under this Agreement, incurred or suffered by any AlloSourceIndemnified Party arising out of, or related to, the following (each, a “AlloSourceClaim”):

 

(a)                                  anymisrepresentation or breach of warranty made by Osiris in this Agreement or inany document, certificate or other instrument required to be delivered byOsiris under this Agreement;

 

(b)                                 any breach ornon fulfillment by Osiris when required to be performed of any covenant oragreement made or to be performed by Osiris in this Agreement or in anyagreement or instrument entered in connection with this Agreement;

 

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(c)                                  any fraud orintentional misrepresentation with respect to, or intentional breach of, thisAgreement by Osiris; and

 

(d)                                 any liabilitiesrelated to the Business, the Product, the Inventory or Osiris, whether arisingbefore, on or after the Manufacturing Closing, including any defect in theInventory or any personal injury caused by the Inventory, but excluding any actor omission by  AlloSource in releasingthe Inventory. Furthermore, AlloSource affirms that Inventory as defined in Section 1(a) willbe Released by AlloSource and any deficiency in the Release process will voidOsiris’ Inventory indemnification.

 

**Section 10****                                     ****Miscellaneous**.

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(a)                                  Merger Clause.  This Agreement contain thefinal, complete and exclusive statement of the agreement between the partieswith respect to the transactions contemplated herein.

 

(b)                                 Amendments.  Noamendment to, or any waiver with respect to any provision of, this Agreementshall be effective unless in writing and executed by both parties.

 

(c)                                  Notices.  Allnotices, requests and demands and other communications hereunder must be inwriting and shall be deemed to have been duly given (i) if given byfacsimile, when such facsimile is transmitted to the number specified in thisAgreement, if written confirmation of receipt thereof is obtained, (ii) onthe date of delivery shown on the return receipt (or, if none shown, three daysafter deposit in the mail) if placed in the United States mails and forwardedby registered or certified mail, return receipt requested, postage prepaid, or (iii) onebusiness day after deposit in the mail, if delivered, prepaid, to an overnightcourier.  All such communications shall be addressed as follows:

 
|   | (i)    | if to Osiris:                                                 |
|--------|--------|---------------------------------------------------------------|
|   |   |                                                          |
|   |   | Osiris  Therapeutics, Inc.                               |
|   |   | 7015  Albert Einstein Avenue                                  |
|   |   | Columbia,  Maryland 21046                                     |
|   |   | Attention:   Chief Financial Officer                     |
|   |   | Facsimile:  (443) 283-4259                                    |
|   |   |                                                          |
|   |   | with  a required copy (which shall not constitute notice) to: |
|   |   |                                                          |
|   |   | McKenna Long & Aldridge LLP                          |
|   |   | 303  Peachtree St., NE, Suite 5300                       |
|   |   | Atlanta,  Georgia 30308                                       |
|   |   | Attention:   Michael Cochran, Esq.                  |
|   |   | Facsimile:  (404) 527-4198                                    |
|   |   |                                                          |
|   | (ii)   | if to AlloSource:                                             |

 

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|   |   | AlloSource                                                    |
|--------|--------|---------------------------------------------------------------|
|   |   | 6278  South Troy Circle                                       |
|   |   | Centennial,  Colorado 80111                                   |
|   |   | Attention:  Kevin J. Cmunt                                    |
|   |   | Facsimile:  (720) 873-0212                                    |
|   |   |                                                          |
|   |   | with  a required copy (which shall not constitute notice) to: |
|   |   |                                                          |
|   |   | Shipman & Goodwin LLP                                |
|   |   | One  Constitution Plaza                                       |
|   |   | Hartford,  Connecticut 06103                                  |
|   |   | David  M. Mack, Esq.                                     |
|   |   | Facsimile:  (860) 251-5211                                    |

 

Anyparty may change the address(es) to which notices to it are to be sent bygiving notice of such change to the other parties in accordance with thisSection.

 

(d)                                 Captions.  Thecaptions are for convenience of reference only and shall not be construed as apart of this Agreement.

 

(e)                                  Governing Law.  ThisAgreement shall be governed by and construed and enforced in accordance withthe laws of the State of Delaware without regard to its conflicts of lawprinciples.

 

(f)                                    Counterparts.  ThisAgreement may be executed in any number of counterparts (including thosedelivered by facsimile or other electronic means), each of which shallconstitute an original but all of which taken together shall constitute one andthe same instrument.  The parties need not sign the same counterpart.

 

(g)                                 Benefits and Binding Effect.  No partymay assign or transfer any of their respective rights, benefits or obligationsunder this Agreement without the consent in writing of the other party hereto.

 

(h)                                 SimultaneouslyExecuted Contracts: This Agreement shall be effective when all of:this Agreement, the 3rd Amendment to the NuVasive-Osiris ManufacturingAgreement, the AlloSource-NuVasive Processing and Supply Agreement and the 2nd Amendment to the NuVasive-Osiris AssetPurchase Agreement are fully executed.

 

**[Signature Page to Follow]**

 

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**IN WITNESS WHEREOF**, the parties have eachcaused this Supply Agreement to be executed by their respective duly authorizedofficers, all as of the date first above written.

 

 
| ** ** | **OSIRIS  THERAPEUTICS, INC.** |
|------------|--------------------------------|
|       |                           |
|       |                           |
|       | By:                            | /s/  Richard W. Hunt |
|       | Name:                          | Richard  W. Hunt |
|       | Title:                         | Chief  Financial Officer |
|       |                           |   |
|       |                           |   |
|       | **ALLOSOURCE**                 |
|       |                           |   |
|       |                           |   |
|       | By:                            | /s/  Thomas A. Cycyota |
|       | Name:                          | Thomas  A. Cycyota |
|       | Title:                         | President  and CEO |

 

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