BUF Minrad International

 

 

MINRAD INTERNATIONAL, INC.
50 Cobham Drive
Orchard Park, New York 14127
(716) 855-1068

 

SPECIAL MEETING OF STOCKHOLDERS
MERGER PROPOSAL — YOUR VOTE IS VERY IMPORTANT

 

To the Stockholders of Minrad International, Inc.:

 

On December 22, 2008, we entered into an agreement and plan of merger with Piramal Healthcare, Inc. (“Piramal”), Mayflower Acquisition Corp. (“Merger Sub”), a wholly-owned subsidiary of Piramal, and Piramal Healthcare Limited (“Piramal India”), a company listed in India on the National Stock Exchange. If the merger is completed, Minrad International, Inc. (“Minrad International”) will become a wholly-owned subsidiary of Piramal and holders of Minrad International common stock will receive $0.12 in cash for each share of Minrad International common stock they own at the effective time of the merger.

 

In connection with our merger agreement with Piramal, we will hold a special meeting of Minrad International stockholders on          , 2009 at           local time, at our corporate headquarters at 50 Cobham Drive, Orchard Park, New York 14127. Stockholders of Minrad International will be asked at the special meeting to consider and vote upon the adoption of the merger agreement.

 

After careful consideration, the board of directors of Minrad International has determined that the merger, the merger agreement and the transactions contemplated by the merger agreement are fair to, advisable and in the best interests of Minrad International and its stockholders. Accordingly, the board of directors of Minrad International recommends that you vote “FOR” the adoption of the merger agreement. We are also asking you to vote “FOR” any proposal by Minrad International’s board of directors to adjourn the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of adoption of the merger agreement.

 

The merger cannot be completed unless stockholders holding a majority of the outstanding shares of Minrad International common stock at the close of business on the record date for the special meeting vote “FOR” the adoption of the merger agreement. The completion of the merger is also subject to the satisfaction or waiver of other specified closing conditions. More information about the merger is contained in the accompanying proxy statement. We encourage you to read the accompanying proxy statement carefully and in its entirety, because it explains the proposed merger, the documents related to the merger and other related matters.

 

Your vote is very important, regardless of the number of shares you hold. Whether or not you plan to attend the special meeting, please take the time to submit a proxy by following the instructions on your proxy card as soon as possible. If your shares are held in an account at a brokerage firm, bank or other nominee, you should instruct your broker, bank or nominee how to vote in accordance with the voting instructions furnished by your broker, bank or nominee . If you do not vote or do not instruct your broker, bank or nominee how to vote, it will have the same effect as voting against the proposal to adopt the merger agreement.

 

Thank you for your continued support.

 

Sincerely,

 

David DiGiacinto

President and Chief Executive Officer

 

This proxy statement is dated          , 2009, and was first mailed to stockholders of Minrad International on or about          , 2009.

MINRAD INTERNATIONAL, INC.
50 Cobham Drive
Orchard Park, New York 14127
(716) 855-1068

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON          , 2009

 

To the Stockholders of Minrad International, Inc.:

 

NOTICE IS HEREBY GIVEN THAT a special meeting of stockholders of Minrad International, Inc., a Delaware corporation, will be held on          , 2009 at           local time at our corporate headquarters at 50 Cobham Drive, Orchard Park, New York 14127, for the following purposes:

 

1. To consider and vote upon a proposal to adopt the Agreement and Plan of Merger, dated as of December 22, 2008, by and among Piramal Healthcare, Inc., Mayflower Acquisition Corp., Minrad International, Inc. (“Minrad International”) and, with respect to only certain sections of the agreement, Piramal Healthcare Limited;

 

2. To consider and vote upon any proposal by Minrad International’s board of directors to adjourn the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of adoption of the merger agreement; and

 

3. To transact any other matters as may properly come before the special meeting and any adjournment or postponement of the special meeting.

 

The board of directors of Minrad International has approved the merger agreement and recommends that Minrad International stockholders vote “FOR” the adoption of the merger agreement. The board of directors of Minrad International also recommends that Minrad International stockholders vote “FOR” any proposal by Minrad International’s board of directors to adjourn the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of adoption of the merger agreement.

 

The close of business on          , 2009, is the record date for the determination of stockholders entitled to notice of, and to vote at, the special meeting and any adjournment or postponement of the special meeting. Only holders of record of shares of Minrad International common stock at the close of business on the record date are entitled to notice of, and to vote at, the special meeting or any adjournment or postponement of the special meeting. At the close of business on the record date, Minrad International had          shares of common stock outstanding and entitled to vote.

 

Your vote is very important, regardless of the number of shares you hold. The affirmative vote of the holders of a majority of the outstanding shares of Minrad International common stock at the close of business on the record date is required to adopt the merger agreement. Even if you plan to attend the special meeting in person, we request that you complete, sign, date and return the enclosed proxy card to ensure that your shares will be represented at the special meeting if you are unable to attend and that the presence of a quorum may be assured. If you do not vote or do not instruct your broker, bank or nominee how to vote, it will have the same effect as voting against the proposal to adopt the merger agreement.

 

Minrad International stockholders who do not wish to accept the merger consideration for their shares and who do not vote in favor of the adoption of the merger agreement may have appraisal rights under the General Corporation Law of the State of Delaware in connection with the merger if they meet specified conditions. See the section of this proxy statement titled “The Merger — Appraisal Rights” beginning on page 38.

 

This proxy statement contains detailed information about the merger and the other transactions contemplated by the merger agreement. Please read this proxy statement and the merger agreement attached to it as Appendix A

carefully and in their entirety. For specific instructions on how to vote your shares, please refer to the section of this proxy statement titled “The Special Meeting” beginning on page 16.

 

By Order of the Board of Directors,

 

David DiGiacinto

President and Chief Executive Officer

 

Orchard Park, New York

          , 2009

TABLE OF CONTENTS

 

 

This summary highlights selected information from this proxy statement relating to the merger. This summary may not contain all of the information that is important to you. To understand the merger fully and for a more complete description of the legal terms of the merger, you should carefully read this entire proxy statement and the documents to which we have referred you. In particular, you should read the Appendices attached to this proxy statement, including the Agreement and Plan of Merger, dated as of December 22, 2008, by and among Piramal, Merger Sub, Minrad International and, with respect to only certain sections of the agreement, Piramal India, which is attached as Appendix A to this proxy statement. We have included page references in parentheses to direct you to a more complete description of the topics presented in this summary.

 

Minrad International, Inc.

50 Cobham Drive

Orchard Park, New York 14127

Telephone: (716) 855-1068

 

Minrad International, Inc. is an interventional pain management company with real-time image guidance, anesthesia and analgesia, conscious sedation product lines. The real-time image guidance products facilitate minimally invasive surgery especially for pain management and have broad applications in orthopedics, neurosurgery, and interventional radiology. These devices enable medical professionals to improve the accuracy of interventional procedures and reduce radiation exposure. We also manufacture and market generic inhalation anesthetics for use in connection with human and veterinary surgical procedures. We are developing a drug/drug delivery system for conscious sedation, which, similar to nitrous oxide in dental surgery, provides a patient with pain relief without loss of consciousness.

 

Piramal Healthcare Limited

Piramal Tower

Ganpatrao Kadam Marg,

Lower Parel,

Mumbai 400 013

India

Telephone: 91-022-3046 6660

 

Piramal Healthcare Limited is one of India’s largest pharmaceutical companies. Piramal India is currently ranked fourth in the Indian market with a diverse product portfolio spanning nine therapeutic areas. Piramal India is also one of the largest custom manufacturing companies with a global footprint of assets across Asia, Europe and North America.

 

Piramal Healthcare, Inc.

379 Thornall Street

Edison, New Jersey 08837

Telephone: (732) 549-9451

 

Piramal Healthcare, Inc. is a Delaware corporation and a wholly-owned subsidiary of Piramal India. Piramal exists solely to facilitate the merger and has not engaged in any operations other than in connection with its formation and the negotiation and execution of the merger agreement, the senior credit agreement and related documents.

Mayflower Acquisition Corp.

c/o Piramal Healthcare, Inc.

379 Thornall Street

Edison, New Jersey 08837

Telephone: (732) 549 9451

 

Mayflower Acquisition Corp. is a Delaware corporation and a wholly-owned subsidiary of Piramal. Merger Sub exists solely to facilitate the merger and has not engaged in any operations other than in connection with its formation and the negotiation and execution of the merger agreement. Merger Sub’s principal executive offices and telephone number are the same as those of Piramal.

 

For more information about Minrad International, Piramal, Piramal India and Merger Sub, see the section titled “The Companies” beginning on page 19.

 

 

General Description of the Merger (Page 20)

 

Pursuant to the merger agreement, Merger Sub will be merged with and into Minrad International, with Minrad International continuing as the surviving company in the merger (the “surviving corporation”). Immediately following the merger, the surviving corporation will be a privately-held company and a subsidiary of Piramal. See the section titled “The Merger — General Description of the Merger” beginning on page 20.

 

Effect on Our Securities (Page 20)

 

Common Stock.   If the merger is completed, our stockholders will receive $0.12 in cash for each share of our common stock that is owned immediately prior to the effective time of the merger.

 

Stock Options.   At or immediately prior to the effective time of the merger, we are required to obtain any consents necessary to reflect the cancellation of all outstanding options to acquire our common stock that are held by any member of our board of directors or any of our officers and take all appropriate actions (which may include payment of nominal consideration) to effect the cancellation of all existing stock options that are by their terms or applicable law subject to cancellation upon the merger. With respect to existing stock options that are not held by members of our board of directors or officers, and are not subject to cancellation by their terms or applicable law, we shall use our reasonable best efforts, subject to certain limitations, to obtain the consent of the holders of such stock options to their cancellation at or immediately prior to the effective time of the merger.

 

Warrants.   At or immediately prior to the effective time of the merger, we shall use our reasonable best efforts to obtain any consents necessary so that substantially all warrants to purchase shares of our common stock that are outstanding immediately prior to the effective time of the merger shall be canceled in exchange for the right to receive an amount in cash without interest in respect thereof equal to the product of the excess, if any, of $0.12 over the per share exercise or purchase price of each such existing warrant and the number of shares subject to such existing warrant.

 

Notes.   At the effective time of the merger, Piramal shall purchase 100% of the convertible secured notes issued by Minrad International on May 6, 2008 in the original principal amount of $40 million (the “Notes”) for a purchase price of $30,840,704.56.

 

See the sections titled “Agreement and Plan of Merger — Effect on Minrad International Securities” beginning on page 20.

 

The Special Meeting (Page 16)

 

Date, Time and Place.   A special meeting of our stockholders will be held at our corporate headquarters at 50 Cobham Drive, Orchard Park, New York 14127, at          , local time, on          , 2009.

 

Purpose.   The purpose of the special meeting is to consider and vote upon:

 

 

Record Date and Voting Power.   You are entitled to vote at the special meeting if you owned shares of our common stock at the close of business on          , 2009, the record date for the special meeting. You will have one vote at the special meeting for each share of our common stock you owned at the close of business on the record date. As of the record date, there were shares of our common stock outstanding and entitled to be voted at the special meeting.

 

Quorum.   In order to constitute a quorum and to transact business at the special meeting, a majority of the outstanding shares of our common stock entitled to vote on the record date must be represented at the special meeting, either in person or by proxy. Shares represented by proxies that reflect abstentions will be counted as shares that are present and entitled to vote for purposes of determining the presence of a quorum.

 

Vote Required.   The adoption of the merger agreement requires the affirmative vote of the holders of a majority of the shares of our common stock outstanding at the close of business on the record date. The affirmative vote of the holders of a majority of the shares of our common stock present in person or represented by proxy at the special meeting and entitled to vote is required to approve any proposal by our board of directors to adjourn the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of adoption of the merger agreement.

 

Voting by Directors, Executive Officers and Certain Stockholders; Voting Agreement.   As of the record date, all of the members of our board of directors and executive officers and their affiliates owned approximately [ • ]% of the shares of our common stock entitled to vote at the special meeting. In connection with the merger agreement, certain members of our board of directors and our executive officers, in their capacities as our stockholders, have entered into a voting agreement with Piramal pursuant to which each of those stockholders agreed, among other things, to vote the shares of our common stock over which that stockholder exercises voting control in favor of adoption of the merger agreement. These stockholders exercise voting control over an aggregate of 9,900,464 shares of our common stock as of          , 2009, the record date for the special meeting, which constitutes approximately 20% of the shares of our common stock outstanding on that date. See the section titled “Other Agreements Entered into in Connection with the Merger — Voting Agreement” beginning on page 57, as well as the form of voting agreement attached hereto as Appendix B .

 

See the section titled “The Special Meeting” beginning on page 16.

 

Reasons for the Merger (Page 33)

 

In the course of reaching its decision to approve the merger and enter into the merger agreement, our board of directors consulted with our senior management, outside legal counsel and our financial advisor, and reviewed a significant amount of information and considered a number of positive factors supporting the decision to approve the merger and enter into the merger agreement, including, but not limited to, the following factors:

 

 

 

The board of directors also considered potential drawbacks or risks relating to the merger, including, but not limited to:

 

 

See the section titled “The Merger — Recommendation of our Board of Directors” beginning on page 33.

 

Recommendation of Our Board of Directors (Page 33)

 

After careful consideration of the factors described in the section titled “The Merger — Recommendation of our board of directors” beginning on page [ • ], our board of directors recommends that our stockholders adopt the merger agreement.

 

See the section titled “The Merger — Recommendation of Our Board of Directors” beginning on page 33.

 

When considering our board of directors’ recommendation that you vote in favor of the proposal to adopt the merger agreement, you should be aware that members of our board of directors and our executive officers may have interests in the merger that differ from, or that are in addition to, your interests. These interests create a potential conflict of interest and may be perceived to have affected their decision to support or approve the merger. Our board of directors was aware of these potential conflicts of interest during its deliberations on the merits of the merger and in making its decisions in approving the merger agreement, the merger and the related transactions. These interests include the receipt of payments under our Management Incentive and Retention Program (“MIRP”), possible continuation of indemnification rights and coverage under existing or new directors’ and officers’ liability insurance policies and the receipt of severance benefits in the event of certain terminations on or following the consummation of the merger. You should be aware of these interests when considering our board of directors’ recommendation to adopt the merger agreement.

 

See the section titled “The Merger — Interests of Our Directors and Executive Officers in the Merger” beginning on page 35.

 

Our common stock is listed on NYSE Alternext US LLC (“NYSE Alternext”) under the symbol “BUF.” On December 22, 2008, the last trading day prior to the public announcement of the merger (the merger was announced after the close of the market on that date), our common stock closed at a price of $0.06 per share. On          , 2009, the last trading day prior to the date of this proxy statement, our common stock closed at a price of $      per share.

 

See the section titled “The Merger — Market Price and Dividend Data” beginning on page 37.

 

If the merger is completed, our common stock will no longer be traded on NYSE Alternext and will be deregistered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and we will no longer file periodic reports with the Securities and Exchange Commission (“SEC”) with respect to shares of our capital stock.

 

See the section titled “The Merger — Delisting and Deregistration of Our Common Stock” beginning on page 41.

 

Effect on Our Securities (Page 20)

 

As of the effective time of the merger, each share of our common stock issued and outstanding immediately prior to the effective time of the merger, other than shares held in treasury or owned by Piramal, will be cancelled and converted into the right to receive $0.12 in cash.

 

We are required to obtain the consents and to take the necessary action to cancel all outstanding options to acquire our common stock held by our directors and officers, and options which are cancellable by their terms. We are required to use our reasonable best efforts to obtain the consent of the holders of other stock options to their cancellation, which may involve the payment of nominal consideration.

 

We are required to use our reasonable best efforts to obtain any consents necessary to cancel any warrants to acquire our common stock in exchange for the right to receive an amount equal to the product of the excess, if any, of $0.12 over the per share exercise price of each such warrant multiplied by the number of shares subject to such warrant.

 

At the closing of the merger, Piramal has agreed to purchase from the Noteholders our outstanding Notes, which have a current principal balance of $40 million and for which a redemption premium of $8 million would be payable as a result of the merger, for an aggregate purchase price of $30,840,704.56.

 

See the section entitled “Agreement and Plan of Merger— Effect on Our Securities” beginning on page 20.

Conditions to the Consummation of the Merger (Page 52)

 

The obligations of each of us, Piramal and Merger Sub to consummate the merger are subject to the satisfaction or waiver of certain conditions, which include but are not limited to the following conditions:

 

 

See the section titled “Agreement and Plan of Merger — Conditions to the Consummation of the Merger” beginning on page 52.

 

Termination of the Merger Agreement (Page 52)

 

The merger agreement may be terminated under specified circumstances, including, without limitation, the following circumstances and subject to certain exceptions:

 

 

by us or Piramal if:

 

 

by Piramal if:

 

 

by us if:

 

 

See the section titled “Agreement and Plan of Merger — Termination of the Merger Agreement” beginning on page 52.

Non-Solicitation Covenant; Change in Board of Directors Recommendation (Page 49)

 

We have agreed that neither we, any of our affiliates, nor any of our officers, directors, employees, investment bankers, financial advisors, attorneys, accountants, brokers and other agents (our “representatives”), will solicit, initiate or participate in any way in any discussions or negotiations with respect to, or provide any information, or afford any access to our properties, books or records or otherwise take any action to assist or facilitate any acquisition proposal.

 

Our board of directors has resolved to recommend that our stockholders approve and adopt the merger agreement. We are also required to duly call, give notice of, convene and hold as promptly as practicable a meeting of our stockholders to adopt the merger agreement. Except as described in the section “Agreement and Plan of Merger — Non-Solicitation Covenant; Change in Board of Directors Recommendation”, we have agreed that neither our board of directors nor any of its committees will withdraw or modify in a manner adverse to Piramal this recommendation or propose publicly to approve or recommend an alternative acquisition proposal.

 

See the section titled “Agreement and Plan of Merger — Non-Solicitation Covenant; Change in Board of Directors Recommendation” beginning on page 49.

 

If our board of directors decides to terminate the merger agreement to enter into a definitive agreement with respect to a superior proposal, we can terminate the merger agreement as described in the section titled “Agreement and Plan of Merger — Termination of the Merger Agreement” beginning on page 52 if we pay Piramal a termination fee of $1.2 million and its out-of-pocket expenses and fees of up to $1.2 million.

 

Termination Fees (Page 53)

 

Pursuant to the terms of the merger agreement, we are required to pay Piramal a termination fee of $1.2 million and to reimburse it for its out-of-pocket expenses of up to $1.2 million if, among other things:

 

 

If the agreement is terminated by Piramal for an unremedied breach of representation, warranty or obligation, but a termination fee is not payable, we will still be obligated to pay their out-of-pocket expenses of up to $1.2 million. We will also pay those expenses if the agreement is terminated because our stockholders fail to approve the merger agreement at the special meeting of stockholders.

 

Piramal is required to pay us a termination fee of $1.2 million and to reimburse us for our out-of-pocket printing, filing and legal and financial advisory fees of up to $1.2 million if we terminate the agreement after all of the conditions to our obligations to close the merger agreement have been satisfied and Piramal has failed to consummate the merger no later than ten calendar days after the satisfaction of those conditions.

 

We and Piramal have agreed that the termination fees described above will be the sole and exclusive remedy in the event that any of such termination fees, as applicable, are paid in connection with a termination of the merger agreement for the reasons described therein.

 

See the section titled “Agreement and Plan of Merger — Termination Fees” beginning on page 53.

 

Timing of Closing

 

We intend to work towards closing the merger as promptly as possible. In accordance with the merger agreement, the closing of the merger will occur at a time and date specified by the parties, but unless the parties agree otherwise, in no event later than the second business day following the satisfaction or waiver of all of the

conditions set forth in the merger agreement, other than those conditions that by their terms are to be satisfied on the closing date of the merger, but subject to the fulfillment or waiver of such conditions.

 

Note Purchase Agreement (Page 55)

 

In connection with the merger agreement, Piramal entered into a note purchase agreement with the Noteholders in which Piramal agreed to acquire the Notes for an aggregate purchase price of $30,840,704.56 (the “Note Purchase Agreement”). The closing of the acquisition of the Notes will occur at the earliest of:

 

 

See the section titled “Other Agreements Entered Into in Connection with the Merger — Note Purchase Agreement” beginning on page 55.

 

Credit Agreement with Piramal (Page 55)

 

Simultaneously with our entry into the merger agreement, we also entered into a credit agreement with Piramal pursuant to which it loaned us $12 million in order to fund our operations from December 22, 2008 until the effective time of the merger (the “Piramal Loan”). Interest on the loan will be payable at the six-month LIBOR rate plus six percent (6%). Principal and interest for the loan will be payable upon the maturity date, which is the earlier of the 120 ^th  day after the closing of the loan or termination of the credit agreement. We must also repay the loan if the merger is not closed. We will generally pay a fee equal to 20% of the loan amount on the maturity date or upon acceleration of the loan. The loan is secured by a lien on substantially all of our and Minrad Inc.’s assets.

 

See the section titled “Other Agreements Entered Into in Connection with the Merger — Credit Agreement with Piramal” beginning on page  55.

 

Intercreditor Agreement (Page 55)

 

As a condition of providing us with the Piramal Loan, Piramal required the Noteholders to enter into an intercreditor agreement. Under the terms of the intercreditor agreement, the Noteholders agreed to subordinate and defer their right to payment of the Notes until the Piramal Loan is paid in full, and to subordinate the liens securing the Notes to the liens securing the Piramal Loan. However, in the event Piramal or Piramal India defaults under the merger agreement in a manner which gives us a right to terminate the merger agreement and the breach is not cured or waived, or if Piramal fails to purchase the Notes in accordance with their Note Purchase Agreement with the Noteholders, the Notes will become senior and Piramal’s right to payment under the Piramal Loan will be subordinated to the rights of the Noteholders and the liens securing the Piramal Loan will be subordinated to the liens securing the Notes.

 

The Noteholders also agreed to waive certain rights which they had under the agreements relating to the Notes during the period between December 22, 2008 and the earlier of (i) the date of the purchase of the Notes in accordance with the Note Purchase Agreement or (ii) the termination of the merger agreement as a result of a default by Piramal.

 

See the section titled “Other Agreements Entered Into in Connection with the Merger — Intercreditor Agreement” beginning on page  55.

Consent, Waiver and Forbearance Agreement (Page 55)

 

Under the terms of the Notes and the security and other documents relating to the Notes, our entry into and performance of the terms of the merger agreement gave the Noteholders certain rights and violated certain covenants of those documents. In addition, we anticipate that between December 22, 2008 and the closing of the merger, certain events of default under the Notes and related documents are likely to occur. As a result, we requested and the Noteholders agreed to enter into a Consent, Waiver and Forbearance Agreement in which they consented to certain actions which we have or will undertake in connection with the merger, and agreed to forbear from exercising rights and remedies available to them as a result of the merger and as a result of events of default that have or may occur from December 22, 2008 until closing of the merger or termination of the Consent, Waiver and Forbearance Agreement.

 

We agreed, among other things, not to waive any breach of the merger agreement by Piramal or Merger Sub that would give us a right to cancel the merger agreement if such waiver would have an adverse effect on the rights of any Noteholder or to amend any provision to avoid such a breach. We also agreed that we would not terminate the merger agreement by mutual consent with Piramal except on limited and specified conditions.

 

See the section titled “Other Agreements Entered Into in Connection with the Merger— Consent, Waiver and Forbearance Agreement” beginning on page  55.

 

As reflected in the merger agreement, the merger is not conditioned upon the ability of Piramal or Merger Sub to obtain financing. Piramal has advised us that, at the effective time of the merger, Piramal and Merger Sub, intend to pay the merger consideration from funds made available by Piramal India.

 

See the section titled “The Merger — Financing of the Merger” beginning on page  34 .

 

The exchange of shares of our common stock for cash consideration pursuant to the merger will be a taxable transaction to our stockholders for U.S. federal income tax purposes and possibly state, local and foreign income tax purposes, as well. For U.S. federal income tax purposes, each holder of our common stock who surrenders shares of our common stock for cash in the merger generally will recognize a capital gain or loss equal to the difference, if any, between the cash received and such stockholder’s adjusted tax basis in the shares surrendered. Gain or loss will be determined separately for each block of shares (that is, shares acquired at the same cost in a single transaction).

 

You should read the section titled “The Merger — Material U.S. Federal Income Tax Consequences” beginning on page 40 for a more complete discussion of the federal income tax consequences of the merger.

 

Tax matters can be complicated, and the tax consequences of the merger to you will depend on the facts of your own situation. You should consult your own tax advisor as to the tax consequences of the merger to you.

 

We believe that the notification and waiting period requirements of the Hart Scott Rodino Act (the “HSR Act”) do not apply to the proposed transaction, and that we are not required to make any filings with the Antitrust Division of the Department of Justice (the “Antitrust Division”), or the Federal Trade Commission (the “FTC”). However, the FTC and the Antitrust Division frequently scrutinize the legality under the antitrust laws of transactions such as the merger. At any time before or after the consummation of the merger, the FTC or the Antitrust Division could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the transaction or seeking the divestiture of shares purchased or the divestiture of substantial assets of Piramal, Minrad International or their respective subsidiaries. Private parties, state attorneys general and/or foreign governmental entities may also bring legal action under antitrust laws under certain circumstances. Based upon an examination of information available relating to the businesses in which Piramal, Minrad International and their respective subsidiaries are engaged, the parties believe that the transaction will not violate the antitrust laws.

Nevertheless, there can be no assurance that a challenge to the transaction on antitrust grounds will not be made or, if such a challenge is made, what the result would be.

 

We believe we are not required to make any other filings nor obtain any other material governmental consents or approvals before the parties’ completion of the merger. If any such other approvals, consents or filings are required to consummate the merger, we have agreed to seek or make such consents, approvals or filings. We have been informed that Piramal intends to submit a voluntary notice of the transaction to the Committee on Foreign Investment in the Unied States under the Defense Production Act of 1950, as amended by the Foreign Investment and National Security Act of 2007.

 

Appraisal Rights (Page 38)

 

Under Delaware law, our stockholders who do not wish to accept the $0.12 per share cash consideration for each share of common stock payable pursuant to the merger may seek, under Section 262 of the General Corporation Law of the State of Delaware, judicial appraisal of the fair value of their shares by the Delaware Court of Chancery. This value could be more than, less than or equal to the merger consideration of $0.12 per share in cash for each share of common stock. This right to appraisal is subject to a number of restrictions and technical requirements. Generally, in order to properly demand appraisal, among other things:

 

 

Merely voting against the adoption of the merger agreement will not preserve your right to appraisal under Delaware law. Also, because a proxy submitted to us not marked “AGAINST” or “ABSTAIN” will be voted “FOR” the proposal to adopt the merger agreement, the submission of such a proxy will result in the waiver of appraisal rights. If you hold shares in the name of a broker, bank or other nominee, you must instruct your nominee to take the steps necessary to enable you to demand appraisal for your shares. If you or your nominee fails to follow all of the steps required by Section 262 of the General Corporation Law of the State of Delaware, you will lose your right of appraisal.

 

See the section titled “The Merger — Appraisal Rights” beginning on page 38 for a description of the procedures that you must follow in order to exercise your appraisal rights.

 

Appendix C to this proxy statement contains the full text of Section 262 of the General Corporation Law of the State of Delaware, which relates to your right to appraisal. We encourage you to read these provisions carefully and in their entirety.

 

           will act as the paying agent in connection with the merger.

 

See the section titled “Agreement and Plan of Merger — Procedures for Payment of Merger Consideration” beginning on page 44.

 

The following are some questions that you, as a stockholder of Minrad International, may have regarding the merger and the special meeting of our stockholders, and brief answers to such questions. We urge you to read carefully this entire proxy statement, because the information in this section does not provide all the information that may be important to you with respect to the adoption of the merger agreement. Additional important information is also contained in the appendices to this proxy statement.

 

 

Minrad International, Inc.

50 Cobham Drive

Orchard Park, New York 14127

Attn: David Digiacinto

Telephone Number: (610) 974-9760

 

This proxy statement contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Words such as “estimate,” “project,” “intend,” “anticipate,” “believe,” “will,” “may,” “should,” “would,” or the negative of these terms and similar expressions are intended to identify forward-looking statements. These statements are based on the current expectations and beliefs of our management and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. There may be other factors not so identified. You should not place undue reliance on our forward-looking statements. These statements are not guarantees of future performance, involve risks, uncertainties and assumptions that are difficult to predict, and are based upon assumptions as to future events that may not prove accurate. Therefore, actual outcomes and results may differ materially from what is expressed in the forward-looking statements.

 

In any forward-looking statement in which we express an expectation or belief as to future results, that expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement or expectation or belief will result or be achieved or accomplished. Any forward-looking statement speaks only as of the date on which it is made and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. Risks and uncertainties pertaining to the following factors, among others, could cause actual results to differ materially from those described in the forward-looking statements:

 

 

 

 

 

These and other important factors are detailed in various SEC filings made periodically by us, particularly our latest Annual Report on Form 10-KSB/A filed with the SEC on April 21, 2008 and subsequent Quarterly Reports on Form 10-Q. See the section titled “Where You Can Find More Information” beginning on page 61. Please review such filings and do not place undue reliance on these forward-looking statements.

 

We are furnishing this proxy statement to our stockholders as part of the solicitation of proxies by our board of directors for use at the special meeting.

 

We will hold the special meeting at our corporate headquarters at 50 Cobham Drive, Orchard Park, New York 14127, at          , local time, on          , 2009.

 

 

At the special meeting, we are asking holders of record of our common stock to consider and vote on the following proposals:

 

 

No other business is currently expected to be presented at the special meeting.

 

 

After careful consideration, a majority of our board of directors determined that the merger agreement, the merger and the other transactions contemplated by the merger agreement were advisable, fair to and in the best interests of our stockholders and has recommended that our stockholders vote in favor of the merger agreement. Director Brett Zbar abstained during the vote on the merger due to his relationship with Aisling Capital LLC, a major security holder of Minrad International and an affiliate of one of the Noteholders, and another director was unable to participate in the meeting.

 

Our board of directors recommends that Minrad International stockholders vote “FOR” the proposal to adopt the merger agreement. Our board of directors also recommends that stockholders vote “FOR” any proposal by our board of directors to adjourn the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of adoption of the merger agreement. Our board of directors will determine whether to make

such a proposal to adjourn the special meeting in accordance with its obligations under the merger agreement and its fiduciary duties to our stockholders.

 

In considering such recommendation, you should be aware that members of our board of directors and our executive officers may have interests in the merger that are different from, or in addition to, those of our stockholders generally. See the section titled “The Merger — Interests of Our Directors and Executive Officers in the Merger” beginning on page 35.

 

If your proxy card submitted to us does not specify how you want to vote your shares, your shares will be voted “FOR” the proposal to adopt the merger agreement and “FOR” any proposal by our board of directors to adjourn the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of adoption of the merger agreement.

 

Stockholders Entitled to Vote and Record Date; Quorum

 

Only holders of record of our common stock at the close of business on          , 2009, the record date, are entitled to notice of and to vote at the special meeting. At the close of business on the record date,           shares of our common stock were issued and outstanding and held by approximately           holders of record. A quorum is present at the special meeting if a majority of the shares of our common stock issued and outstanding and entitled to vote at the close of business on the record date are represented in person or by proxy.

 

In the event that a quorum is not present at the special meeting, it is expected that the meeting will be postponed to solicit additional proxies. Holders of record of our common stock at the close of business on the record date are entitled to one vote per share at the special meeting on the proposals to adopt the merger agreement and adjourn the special meeting.

 

The adoption of the merger agreement requires the affirmative vote of the holders of a majority of the shares of our common stock outstanding at the close of business on the record date. If a stockholder abstains from voting or does not vote, either in person or by proxy, it will count as a vote against the adoption of the merger agreement.

 

The affirmative vote of the holders of a majority of the shares of our common stock, present in person or represented by proxy at the special meeting and entitled to vote, is required to adjourn the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of adoption of the merger agreement. If a stockholder does not vote, either in person or by proxy, such failure will not affect the outcome of any proposal to adjourn the special meeting, but will reduce the number of votes required to approve such a proposal. If a stockholder abstains from voting, either in person or by proxy, it will count as a vote against any proposal to adjourn the special meeting.

 

At the close of business on the record date, all of the members of our board of directors and our executive officers and certain other stockholders who entered into a voting agreement with Piramal owned and were entitled to vote 9,900,464 shares of our common stock, which represented approximately 20% of the shares of our common stock outstanding on that date.

 

In connection with the parties’ entry into the merger agreement, each of the members of our board of directors and our executive officers, in their capacities as stockholders, have entered into a voting agreement with Piramal pursuant to which they have agreed, among other things, to vote all of their shares of our common stock, representing in the aggregate approximately [ • ] % of our outstanding common stock as of such date, in favor of the adoption of the merger agreement. See the section titled “The Merger — Voting Agreement” beginning on page 34.

 

All shares represented by properly executed proxies received in time for the special meeting will be voted at the special meeting in the manner specified by the holders. Properly executed proxies that do not contain voting instructions will be voted “FOR” the adoption of the merger agreement and “FOR” any proposal by our

board of directors to adjourn the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of adoption of the merger agreement.

 

Shares of our common stock represented at the special meeting but not voting, including shares of our common stock for which proxies have been received but for which stockholders have abstained, will be treated as present at the special meeting for purposes of determining the presence or absence of a quorum for the transaction of all business.

 

Only shares affirmatively voted for the adoption of the merger agreement, including properly executed proxies that do not contain voting instructions, will be counted as favorable votes for that proposal. Only shares affirmatively voted for any proposal by our board of directors to adjourn the special meeting, including properly executed proxies that do not contain voting instructions, will be counted as favorable votes for such a proposal. If a stockholder abstains from voting, it will effectively count as a vote against the adoption of the merger agreement and a vote against the adjournment of the special meeting. If a stockholder does not vote, either in person or by proxy, it will effectively count as a vote against the adoption of the merger agreement and it will not affect the outcome of any proposal to adjourn the special meeting, but will reduce the number of votes required to approve any such proposal.

 

Brokers who hold shares in “street name” for customers who are the beneficial owners of such shares may not give a proxy to vote those customers’ shares for the proposals presented for adoption at the special meeting in the absence of specific instructions from those customers. Any “broker non-votes” would be considered present for purposes of determining whether or not a quorum is present, but would not be considered entitled to vote on a particular proposal. Failing to instruct your broker on how to vote your shares on the proposal to adopt the merger agreement will have the same effect as a vote against such proposal. Failing to instruct your broker on how to vote your shares on any proposal to adjourn the special meeting will have no effect on the outcome of such a proposal, but will reduce the number of votes required to approve that proposal.

 

The grant of a proxy on the enclosed form of proxy does not preclude a stockholder from voting in person at the special meeting. A stockholder may revoke a proxy at any time prior to its exercise by:

 

 

If you have instructed your broker to vote your shares, you must follow directions received from your broker to change these instructions.

 

In addition to solicitation by use of the mail, we have engaged [ • ], a proxy solicitation firm, to solicit proxies in connection with the special meeting at a cost of approximately [ • ], plus expenses. Also, certain of our directors, officers and employees may solicit proxies by personal interview, email, telephone, facsimile or other means of communication. These persons will not be paid additional remuneration for their efforts. The extent to which these proxy soliciting efforts will be necessary depends entirely upon how promptly proxies are received. You should send in your proxy by mail without delay. We also reimburse brokerage houses and other custodians, nominees and fiduciaries for their reasonable out-of-pocket costs of forwarding proxy and solicitation materials to beneficial owners.

 

Stockholders should not send stock certificates with their proxies. A letter of transmittal with instructions for the surrender of our stock certificates will be mailed to our stockholders as soon as practicable after completion of the merger.

 

Under Delaware law, holders of our common stock who do not vote in favor of adoption of the merger agreement will have the right to seek appraisal of the fair value of their shares as determined by the Delaware Court of Chancery if the merger is completed, but only if they submit a written demand for appraisal to us prior to the vote on the adoption of the merger agreement, and they comply with the provisions of Section 262 of the General Corporation Law of the State of Delaware set forth in full at Appendix C to this proxy statement.

 

See the section titled “The Merger — Appraisal Rights” beginning on page 38.

 

If you need assistance in completing your proxy card or have questions regarding the Minrad International special meeting, please contact:

 

Minrad International, Inc.

50 Cobham Drive

Orchard Park, New York 14127

Attn: David DiGiacinto

Telephone Number: (716) 855-1068

Minrad International, Inc.

50 Cobham Drive

Orchard Park, New York 14127

Telephone: (716) 855-1068

 

Minrad International, Inc. is an interventional pain management company with real-time image guidance, anesthesia and analgesia, conscious sedation product lines. The real-time image guidance products facilitate minimally invasive surgery especially for pain management and have broad applications in orthopedics, neurosurgery, and interventional radiology. These devices enable medical professionals to improve the accuracy of interventional procedures and reduce radiation exposure. Minrad International also manufactures and markets generic inhalation anesthetics for use in connection with human and veterinary surgical procedures. The company is developing a drug/drug delivery system for conscious sedation, which, similar to nitrous oxide in dental surgery, provides a patient with pain relief without loss of consciousness. Our common stock trades on NYSE Alternext under the symbol “BUF.” Our principal executive offices are located at 50 Cobham Drive, Orchard Park, New York 14127, and our telephone number is (716) 855-1068. Additional information regarding us can be found at the company’s website, http://www.minrad.com, and is contained in our filings with the SEC. The information provided on our website is not part of this proxy statement, and is not incorporated herein by reference. See the section titled “Where You Can Find More Information” beginning on page 61.

 

Piramal Healthcare Limited

Piramal Tower

Ganpatrao Kadam Marg,

Lower Parel,

Mumbai 400 013

India

Telephone: 91-022-3046 6660

 

Piramal Healthcare Limited is one of India’s largest pharmaceutical companies. Piramal India is currently ranked fourth in the Indian market with a diverse product portfolio spanning nine therapeutic areas. Piramal India is also one of the largest custom manufacturing companies with a global footprint of assets across North America, Europe and Asia. Piramal India is listed in India on the National Stock Exchange of India Ltd. (Ticker: PIRHEALTH) and the Bombay Stock Exchange Limited (Ticker: 500302). Its principal executive offices are located at Piramal Tower, Ganpatrao Kadam Marg, Lower Parel, Mumbai 400 013, India, and its telephone number is 91-022-3046 6660. Additional information regarding Piramal India can be found on its website, http://www.piramalhealthcare.com. The information provided on its website is not part of this proxy statement and is not incorporated herein by reference.

 

Piramal Healthcare, Inc.

379 Thornall Street

Edison, New Jersey 08837

Telephone: (732) 549-9451

 

Piramal Healthcare, Inc. is a Delaware corporation and a wholly-owned subsidiary of Piramal India. Piramal exists solely to facilitate the merger and has not engaged in any operations other than in connection with its formation and the negotiation and execution of the merger agreement, the senior credit agreement and related documents.

Mayflower Acquisition Corp.

c/o Piramal Healthcare, Inc.

379 Thornall Street

Edison, New Jersey 08837

Telephone: (732) 549 9451

 

Mayflower Acquisition Corp. is a Delaware corporation and a wholly-owned subsidiary of Piramal. Merger Sub exists solely to facilitate the merger and has not engaged in any operations other than in connection with its formation and the negotiation and execution of the merger agreement. Merger Sub’s principal executive offices and telephone number are the same as those of Piramal.

 

The following discussion summarizes the material terms of the merger. Stockholders should read the merger agreement, which is attached as Appendix A to this proxy statement, carefully and in its entirety as the merger agreement, and not this proxy statement, is the legal document that governs the merger.

 

Pursuant to the merger agreement, Merger Sub will be merged with and into Minrad International, with Minrad International continuing as the surviving company in the merger (the “surviving corporation”). Immediately following the merger, the surviving corporation will be a privately-held company and a subsidiary of Piramal.

 

Common Stock

 

Pursuant to the merger agreement, at the effective time of the merger each outstanding share of common stock (other than stock held in treasury or owned by Piramal or a subsidiary of Piramal or Minrad International) will be converted into the right to receive $0.12 in cash, less any applicable tax withholding.

 

Stock Options

 

At or immediately prior to the effective time of the merger, we are required to obtain any consents necessary to reflect the cancellation of all outstanding options to acquire our common stock that are held by any member of our board of directors or any of our officers. In addition, we must obtain any consents necessary and take all appropriate actions (which may include payment of nominal consideration) to effect the cancellation of all existing stock options that are by their terms or applicable law subject to cancellation upon the merger. With respect to existing stock options that are not held by members of our board of directors or officers, and are not subject to cancellation by their terms or applicable law, we shall use our reasonable best efforts to obtain the consent of the holders of such stock options to their cancellation at or immediately prior to the effective time of the merger; provided that we must obtain the prior consent of Piramal before offering any payment of consideration for such cancellation unless the consideration being paid is equal to the excess of $0.12 over the exercise price per share of their option multiplied by the number of shares subject to the option being terminated. None of the options to acquire our stock which are outstanding have an exercise price below $0.12 per share.

 

Warrants

 

At or immediately prior to the effective time of the merger, we shall use our reasonable best efforts to obtain any consents necessary so that substantially all warrants to purchase shares of our common stock that are outstanding immediately prior to the effective time of the merger shall be canceled in exchange for the right to receive an amount in cash without interest equal to the product of the excess, if any, of $0.12 over the per share exercise or purchase price of each such existing warrant multiplied by the number of shares subject to such existing warrant. None of the outstanding warrants to acquire our common stock have an exercise price in excess of $0.12 per share.

Notes

 

At the effective time of the merger, Piramal shall purchase 100% of the Notes for a purchase price of $30,840,704.56.

 

Our management and board of directors have regularly reviewed and assessed competitive factors and market conditions affecting us, our business, and our ability to compete successfully in the inhalation anesthetic business and to develop and bring to market products in the image guidance and conscious sedation fields. As part of this ongoing process, our board of directors and management have reviewed strategic opportunities from time to time, such as acquisitions of other companies or technologies and the possible sale of us or our technology, each with the view towards maximizing stockholder value.

 

In early 2008, as a result of this activity, as well as Minrad International’s historical financial performance and the challenges associated with Minrad International’s business and status as a small, publicly-traded company, the board of directors began a more proactive review of its strategic alternatives, including the possibility of initiating a process for exploring the possible sale of Minrad International. On March 19, 2008, in response to invitations from the board of directors, representatives of certain investment banks, including Lehman, made presentations to the board of directors, including their assessment of Minrad International’s strategic options, the current market environment and each investment bank’s capabilities to serve as Minrad International’s representative in connection with a comprehensive review of strategic alternatives, including the possible sale of Minrad International. During these presentations, Lehman representatives (as well as other investment bank representatives who made presentations) advised the board of directors that, in order to maximize stockholder value and before actively seeking a buyer, Minrad International should first raise additional capital and use that capital to repay its indebtedness, improve its manufacturing productivity and attempt to achieve one or two profitable fiscal quarters.

 

On March 20, 2008, the board of directors held a regularly scheduled meeting. After considering its alternatives, the board of directors directed management to explore with Laminar Direct Capital LP (“Laminar”), Minrad International’s senior secured lender, increasing the amount of the Laminar loan by $10 million and to negotiate with Lehman (as well as with an alternative firm) the terms on which Lehman would advise Minrad International in connection with raising additional capital, likely in a private placement of securities. The board of directors also authorized an ad hoc committee of directors to approve an engagement letter with the investment bank selected by management.

 

On March 24, 2008, the board of directors held a special telephonic board meeting. At that meeting, Mr. David DiGiacinto was elected President and Chief Operating Officer, replacing William H. Burns, Jr., Minrad International’s Chairman, as President.

 

On March 31, 2008, Minrad International and Lehman executed an engagement letter pursuant to which Lehman agreed to assist Minrad International in raising additional equity and/or debt financing (the “New Financing”).

 

On April 22, 2008, Minrad International received an unsolicited letter from RxElite in which RxElite expressed its interest in acquiring Minrad International for a price per share in the range of $3.50 to $4.00. This unsolicited expression of interest was contingent upon several conditions, including satisfactory due diligence review, the execution of a mutually satisfactory definitive agreement, financing and the immediate suspension of Minrad International’s proposed New Financing.

 

On April 24, 2008, the board of directors held a special telephonic meeting to discuss RxElite’s unsolicited expression of interest. Minrad International management and representatives of Lehman and Hodgson Russ LLP, our outside legal counsel (“Hodgson”), were also present. Legal counsel advised the board of directors on its fiduciary duties to Minrad International and our stockholders. Being Minrad International’s exclusive distributor of anesthetic products for human applications in the U.S., RxElite was well known to Minrad International management, including its limited financial resources. RxElite’s ability to complete any such transaction in an acceptable timeframe was viewed as highly unlikely, given both parties’ significant cash constraints. The board

of directors reaffirmed its commitment to the New Financing and a delayed sale strategy, and directed management to inform RxElite that Minrad International was not interested in pursuing a transaction at this time.

 

On April 25, 2008, Mr. Burns sent a letter to RxElite rejecting RxElite’s April 22 proposal and indicating that Minrad International intended to proceed with the New Financing.

 

On April 29, 2008, RxElite delivered a letter to Minrad International in which it submitted a revised acquisition proposal. The RxElite April 29 proposal indicated a purchase price of $4.00 per share, that the transaction would be financed with backing and an investment from Piramal India and that RxElite would be willing to provide interim financing (as an alternative to the New Financing). The proposal stated that the offer was subject to RxElite’s due diligence review and that the price represented a premium of 69% over the closing price for Minrad International common stock of $2.37 on April 28, 2008.

 

On May 1, 2008, the board of directors held a special telephonic meeting to consider RxElite’s April 29 proposal. Management and representatives of Lehman and Hodgson were also present. Management and Lehman representatives provided background on Piramal India, an Indian pharmaceutical company whose shares are traded on the Bombay Stock Exchange Limited. After full discussion, the board of directors confirmed its strategy to proceed with the New Financing, the amount and the successful completion of which was then being scheduled for within a few days, and following completion of such financing, to pursue possible strategic alternatives, including a sale of Minrad International. Among other factors, the board of directors considered the company’s critical need for additional cash, the preliminary nature of RxElite’s proposal, the risks that failed discussions would have on our business (without having completed the New Financing), and the fact that the board of directors had not yet had the opportunity to explore other alternatives, including the possibility that an alternative strategic buyer would acquire Minrad International at a higher price.

 

On May 1, 2008, Mr. DiGiacinto sent a letter to RxElite in which Minrad International rejected RxElite’s April 29 proposal, informed RxElite that it intended to proceed with the New Financing, and also informed RxElite that it was “not shutting the door” to an appropriate transaction in the future.

 

On May 5, Minrad International entered into agreements to sell, and on May 6, 2008 Minrad International completed a private placement of the Notes to institutional investors. The Noteholders included, among other parties, Aisling Capital II, LP (“Aisling”) and LB I Group, Inc. (“LB I”). Mr. Brett Zbar, one of Minrad International’s directors, is an employee of an Aisling affiliate. LB I was, at that time, an affiliate of Lehman, and Mr. Jeffrey Ferrell was, at that time, an employee of Lehman. Pursuant to the loan documents entered into in connection with the Notes, Jeffrey Ferrell was subsequently appointed to our board of directors as a designee of LB I. From the net proceeds of the New Financing, $16.2 million was used to repay Minrad International’s indebtedness, plus interest and penalties, to Laminar and a significant amount was used to pay overdue accounts payable of Minrad International plus transaction fees.

 

On May 16, 2008, at the request of Jonathan Houssian, the Chief Executive Officer of RxElite, Mr. DiGiacinto met with Mr. A.G. Piramal, the Chairman of Piramal India, at the Marriott Hotel at the Newark International Airport. At this meeting, Mr. Piramal introduced himself and expressed Piramal India’s strategic interest in acquiring Minrad International. Mr. DiGiacinto gave Mr. Piramal Minrad International’s proposed form of confidentiality agreement (“CDA”). There were no substantive negotiations at this meeting.

 

On May 20, 2008, Mr. DiGiacinto and Donald Farley, a member of our board of directors, met Mr. Piramal at the Essex House hotel in New York City. At this follow up meeting, Mr. Piramal reiterated Piramal India’s interest in acquiring Minrad International and combining the parties’ pharmaceutical businesses. Messrs. DiGiacinto and Farley informed Mr. Piramal that the board of directors had determined, after consulting with an outside financial advisor, that the merger price in the RxElite April 29, 2008 proposal was not adequate, and that exclusive negotiations with Piramal India were unlikely.

 

On or about May 23, 2008 the executive committee of the board of directors approved, and on May 28, 2008 Minrad International executed, an engagement letter to retain Lehman as its exclusive financial advisor in connection with its review of strategic alternatives, including the possible sale of Minrad International.

On May 30, 2008, Piramal India delivered a letter to Mr. DiGiacinto in which Piramal India proposed to acquire Minrad International for between $3.65 to $4.00 per share (and to assume the Notes). Piramal India’s May 30 proposal indicated that the offer represented a premium of 75% to 91% to the closing price for Minrad International’s common stock of $2.09 on May 28, 2008. The proposal was subject to certain conditions, including satisfactory completion of due diligence and execution of a definitive merger agreement. The proposal indicated that Piramal India would finance the transaction from internal cash and existing debt facilities. The proposal also required Minrad International to agree to a 45-day exclusivity period and to confidentiality.

 

On May 30, 2008, NPIL Pharma Inc., an affiliate of Piramal India, also entered into a loan and security agreement with RxElite pursuant to which NPIL Pharma Inc. provided a $3 million term loan facility to RxElite, which agreement anticipated an additional loan of $2 million (the “Piramal RxElite Loan Agreement”). The announced purpose of the loan was for RxElite to obtain financing for the purchase of anesthetic vaporizers.

 

On June 3, 2008, the board of directors convened a special meeting to consider the May 30, 2008 Piramal India proposal. Representatives from Hodgson and Lehman were also present. Legal counsel reviewed with the board of directors their fiduciary duties to Minrad International and our stockholders. Messrs. DiGiacinto and Farley summarized the steps that had brought about Piramal India’s May 30 proposal. Lehman reviewed the process it expected to follow to identify additional parties interested in an acquisition of Minrad International, the need for management to prepare financial projections in connection therewith; and the anticipated timing. Lehman also advised that entering into an exclusivity agreement with Piramal India was not an advisable step at this early stage in the process, if the board of directors hoped to maximize the transaction value. One significant concern was that, in the absence of a credible alternative buyer, there was a risk that any offer from Piramal India would be lower than the range indicated in its May 30 proposal. During its discussion, the board of directors considered the concomitant needs to keep Piramal India interested and to be informed, through the Lehman sale process and, if possible, a managed auction that would include Piramal India, as to whether a higher price could be obtained from third parties. Following this discussion, the board of directors directed Lehman to advise UBS Securities LLC (“UBS”) (Piramal India’s investment bank) that Minrad International planned to proceed with a managed sale process and that Minrad International desired to continue discussions with Piramal India but on a non-exclusive basis.

 

On June 4, 2008, Mr. DiGiacinto informed Mr. Piramal by email that Minrad International had engaged Lehman and that Lehman would contact UBS shortly.

 

From late June through September 2008, Lehman, as part of its sale process on behalf of the board of directors, contacted a significant number of parties about their potential interest in acquiring Minrad International. Contacts by Lehman (and then by its successor, Barclays Capital) continued from time to time thereafter, as late as November 2008, and Lehman and Barlcays Capital contacted a total of 38 parties. Seven companies signed CDA’s and six companies (including Piramal India) received management presentations, either in person or by conference telephone. Piramal India was the only party to engage in any significant due diligence. From the commencement of Lehman’s engagement, no company other than Piramal India submitted any proposal to acquire Minrad International.

 

Beginning in June, 2008, via conference calls and meetings, Lehman consulted with members of the board of directors and our management to identify parties that might have an interest in a strategic transaction with Minrad International, developed preliminary procedures and timetables for considering and implementing a potential strategic transaction, and worked with Minrad International’s management in the preparation of certain written materials to be provided to parties potentially interested in a strategic transaction. Also, at the direction of the board of directors, Lehman began confidentially contacting parties regarding their potential interest in a strategic transaction involving Minrad International. On July 16, 2008, Minrad International and Lehman established an electronic or virtual data room for purposes of facilitating due diligence by parties interested in Minrad International.

 

Beginning in early June, 2008, Minrad International management began to explore the possibility of acquiring RxElite. This investigation was triggered by the concerns expressed to management by investors and vendors, as well as by parties in connection with the company’s sale process. Such concerns included Minrad International’s lack of control over its U.S. distribution, RxElite’s financial situation, and the perceived risk of payment default by

RxElite on anesthetic products purchased from Minrad International. Minrad International believed at that time that Piramal India was also interested in acquiring RxElite (and to combine it with Minrad International).

 

On July 7, 2008, the board of directors convened a special telephonic meeting. Also present were Minrad International management and representatives from Lehman and Hodgson. Management provided a report on the status of its preparation of updated financial forecasts for the remainder of 2008, and for the 2009 and 2010 fiscal years, for Lehman’s presentation materials. The board of directors also discussed the advisability of exploring the sale of Minrad International’s image guidance business and related intellectual property. In addition, the board of directors discussed the possible acquisition of RxElite’s pharmaceutical business, the reasons therefor and the problems associated with such a transaction. Lehman representatives reported on the status of their efforts to contact parties potentially interested in acquiring Minrad International, and on Piramal India’s request to schedule its onsite due diligence visit at the end of July.

 

On July 22, 2008, RxElite defaulted in the payment of $741,464 due Minrad International. By the end of July, RxElite had defaulted on an aggregate of $1,744,400 for anesthetic products sold by Minrad International. The aggregate amount of payment defaults by RxElite was approximately $7.8 million by November 2008. RxElite’s payment defaults resulted in a cash flow crisis for Minrad International and was a factor that the board of directors continuously confronted during its deliberations with respect to our strategic alternatives.

 

On July 29, 2008, Minrad International management and representatives of Lehman had a meeting with Piramal India management and representatives of UBS. The meeting was held at the offices of Hodgson in New York City. At the meeting, Minrad International and Piramal India each made management presentations regarding their respective businesses, organizations and intellectual property. There were also initial due diligence sessions at that meeting.

 

On July 29, 2008, Messrs. DiGiacinto and Burns had dinner with Mr. Piramal in New York City, at which Mr. Piramal was introduced to Mr. Burns and Piramal India’s upcoming due diligence review was discussed.

 

From July 29 through August 1, 2008, Piramal India representatives engaged in site visits to Minrad International’s Bethlehem, Pennsylvania and Orchard Park, New York facilities and in due diligence interviews at those locations with Minrad International management.

 

On August 6, 2008, Mr. DiGiacinto met with N. Santhanam, Piramal India’s executive director and chief financial officer, and Vijay Sathye, Piramal India’s President M&A and Investor Relations, at Lehman’s offices in New York City. At that meeting, Mr. DiGiacinto addressed the primary questions that had been identified during Piramal India’s initial due diligence process.

 

On August 12, 2008, the board of directors held a regularly scheduled meeting. Minrad International management and representatives of Lehman and Hodgson were also present. Legal counsel advised the board of directors regarding its fiduciary duties to Minrad International and our stockholders. After discussions regarding the process of selling a public company, the board of directors appointed the Special Committee consisting of Messrs. Farley, Ferrell, Hopper and Zbar, with authority to engage such professional advisors as it deemed necessary and to consider all potential acquisition transactions, including any proposal from Piramal India. Representatives of Lehman provided a summary of the due diligence efforts and management presentations that had been organized for the four principal potential buyers, including Piramal India, that had expressed at least preliminary interest in acquiring Minrad International. Lehman reported that a formal written proposal from Piramal India was expected within a few weeks. In addition, at the August 12 meeting, the board of directors, based on recommendations of the board of directors’ compensation committee, approved two compensation-related proposals. The first was an Employee Severance Pay Plan, which updated and replaced Minrad International’s prior, informal program. The second was the new MIRP, which was intended to ensure the continued availability of Minrad International management in the period of uncertainty in advance of any sale or other strategic transaction. The MIRP as initially adopted at this meeting provided for a bonus pool based on a percentage of the aggregate value (as reduced by Minrad International’s long-term debt) obtained in connection with any sale of Minrad International — one percent if the merger share price was below $4.00 per share and one and one-half percent if above $4.00 per share.

At the August 12 meeting, Minrad International management also presented a proposed non-binding letter of intent that outlined a proposal by Minrad International to acquire RxElite. Management summarized the reasons and background for this proposal, including RxElite’s threatened default on its accounts payable to Minrad International and the uncertainty that the RxElite distribution situation had created for possible acquirors of Minrad International, as well as the price, conditions and other terms of the proposed transaction, were discussed in detail. The board of directors authorized management and the Special Committee to finalize the letter of intent and negotiate the terms of a definitive acquisition of RxElite, with any transaction being subject to final board of directors approval.

 

On August 13, 2008, the Special Committee met by telephonic conference call. The terms of a proposed letter of intent with RxElite were discussed in detail. The Special Committee discussed numerous factors, including the importance of Minrad International regaining control over its U.S. distribution network and the risks to group purchasing organizations, or GPO, and other anesthetic customer contracts that an RxElite bankruptcy would entail. After full discussion, this letter of intent was approved.

 

On August 15, 2008, the Minrad International entered into a non-binding letter of intent (“LOI”) to acquire all of the outstanding shares of RxElite, Inc. in exchange for 12,430,000 shares of Minrad International common stock provided that, at closing, RxElite would be debt-free other than the indebtedness to NPIL Pharma Inc. (an affiliate of Piramal India). This LOI included provisions that restricted RxElite from negotiating with anyone else, and that prohibited Minrad International from negotiating with RxElite’s senior secured lender or other third parties with respect to acquiring any assets, loans or other interests of or in RxElite, but did not preclude Minrad International from discussing such matters with Piramal India.

 

In late August and early September, 2008, Minrad International engaged in a due diligence investigation of RxElite including onsite visits to RxElite’s facilities in Idaho. The due diligence process identified certain critical concerns and the contractual and other legal rights of RxElite’s senior secured lender, as well as those of RxElite’s subordinated lender (an affiliate of Piramal India). During this same period and continuing later into September, Minrad International had numerous contacts with representatives of RxElite, including management, RxElite’s senior lender, and it financial advisor, Oppenheimer & Co., as well as RxElite board members. Such contacts included telephone conference calls and face-to-face meetings, including at least three with representatives of RxElite’s senior lender. The discussions indicated that RxElite’s senior lender was unwilling to accept Minrad International common stock in exchange for forgiveness of its $10.6 million note and release of its warrants (secured by a first lien on all of RxElite’s assets). The lender’s senior secured position made any such transaction without its approval difficult or impossible. Alternative transaction structures were analyzed by the parties. Minrad International’s counsel did not submit a proposed merger agreement to RxElite. Active merger discussions with RxElite were discontinued in late September, 2008.

 

On September 9, 2008, Minrad International exercised its contractual rights under the RxElite distribution agreement and gave RxElite notice that Minrad International was making it a non-exclusive distributor under the distribution agreement.

 

On September 17, 2008, the Special Committee held a meeting by conference call. Minrad International management and representatives of Hodgson and Lehman also attended. Representatives of Lehman reported on their communications with UBS, Piramal India’s investment bank, and the three other companies identified as potential acquirors. They reported that none of the three other companies showed any indication of serious interest in acquiring Minrad International at that time. Lehman reported UBS had communicated that, in connection with preparing a formal offer, Piramal India and UBS were struggling to value Minrad International at $2.00 per share. Mr. DiGiacinto reported on his conversation with Mr. Piramal, who had indicated that Piramal India’s revised offer would be substantially lower than Piramal’s May 30, 2008 proposal. The committee members discussed the need to accelerate the process; whether RxElite’s default and the resulting uncertainty with respect to Minrad International’s distribution in the U.S. were deterring other potential strategic bidders; that a firm offer from Piramal India would be useful in conducting the overall sale process; and that management and the board of directors should actively engage and negotiate with Piramal India once any revised offer is received.

 

On September 18, 2008, Piramal India delivered a letter to Minrad International in which it made a revised proposal to acquire all of the shares of Minrad International. The letter stated that based on Piramal India’s due

diligence review of Minrad International to date and Minrad International’s management presentations and projections, Piramal India was prepared to offer $2.00 per share plus the assumption of $33.7 million in net indebtedness, which would include a redemption of the Notes and the payment of an $8 million premium due under the Notes in the event of a sale. Piramal India’s September 18 proposal was subject to certain conditions including completion of due diligence, negotiation of mutually satisfactory definitive agreements, and that Minrad International not make an offer for, or enter into any agreement to acquire, RxElite without Piramal India’s approval. The proposal indicated that there would be no financing contingency.

 

On September 18, 2008, the Special Committee held a telephonic meeting to consider Piramal India’s September 18 proposal. Members of management and representatives of Hodgson and Lehman also attended. Legal counsel reviewed with the directors their fiduciary duties to Minrad International and our stockholders. Lehman representatives and the committee members discussed the terms of Piramal India’s September 18 proposal, including the critical need for Minrad International to obtain a line of credit, from Piramal India or a third party, and whether Piramal India was expecting a period of exclusivity. It was also noted that management projected the net debt would be higher than what was assumed by Piramal India and that this would result in a reduction in the per share price being offered. They also discussed certain alternative tactics to raise the per share price or at least avoid further reductions. The committee discussed the lack of any realistic alternatives and discussed with Lehman the availability of a fairness opinion. After full discussion, the Special Committee agreed that it should move forward with Piramal India at $2.00 per share or higher; they also directed Lehman to make a counter-proposal at $2.20 per share, with the assumption of $41.8 million in net debt and a non-refundable $10-15 million deposit upon signing the definitive agreement.

 

On September 20, 2008, Mr. DiGiacinto had a telephone conference with Mr. Piramal, in which Mr. DiGiacinto summarized the counter-proposal. Mr. Piramal expressed concerns about the net debt element of the counterproposal, and about timing.

 

On September 22, 2008, representatives of UBS called Lehman, and informed Lehman that Piramal India was not willing to increase its offer above $2.00 per share or to increase the net debt it was willing to assume (any net debt over $33.7 million would reduce the total equity consideration). Piramal India did agree, however, to consider a bridge loan to Minrad International in the range of $10 million. Special Committee members and Mr. DiGiacinto conferred on September 22 and 23, 2008 by telephone and directed Lehman to request $2.05 per share with no adjustment for net debt of any kind. Lehman conveyed this request to Piramal India via UBS and Piramal India rejected the request.

 

On September 22, 2008, Barclays Capital acquired the North American investment banking business of Lehman. Lehman subsequently assigned its engagement letter with Minrad to Barclays Capital in early October. There was no change in the individuals who have advised Minrad International in connection with the sale process.

 

On September 24, 2008, after conferring with Special Committee members, Mr. DiGiacinto sent an email to Mr. Piramal accepting, in principle, the terms of Piramal India’s September 22 proposal that had been communicated by UBS and Minrad International’s willingness to negotiate toward a definitive agreement on that basis.

 

On September 26, 2008, representatives of Hodgson, Barclays Capital, Waller Lansden Dortch & Davis, LLP, Piramal India’s U.S. legal counsel (“Waller”), Ashurst LLP (additional legal counsel to Piramal India), and UBS had a conference call to discuss how to facilitate completion of Piramal India’s remaining due diligence and the negotiation of a definitive merger agreement and related documents. The parties discussed the form of merger and discussed that, as part of the merger agreement, Piramal India should include a tender offer to be effectuated as soon as practicable after the merger agreement was executed.

 

During the week of September 29, 2008, representatives of Piramal India engaged in an extensive due diligence process, which included site visits and interviews at Minrad International’s Bethlehem facility, and meetings in Orchard Park, New York with Minrad International’s regulatory affairs executive and with legal counsel regarding intellectual property matters.

 

Between September 26, 2008 and October 17, 2008, members of Minrad International’s management team and representatives of Barclays Capital and Hodgson engaged in a series of telephone conferences with representatives of Piramal India, including its legal counsel and financial advisors, to discuss and negotiate open due diligence

issues; a guaranty by Piramal India and certainty of Piramal India’s financing; the terms of a draft merger agreement prepared by Waller, including the termination fee and various terms of the merger agreement that would limit the board of directors’ ability to consider a higher offer; and the timing, amount, availability and other terms of a proposed $6.5 million bridge loan to finance Minrad International’s operations through the closing of the potential transaction (the amount of which varied but which ultimately centered at approximately $6.5 million). In addition, such representatives of Minrad International had discussions from early October through October 16, 2008 with representatives of the Noteholders regarding Piramal India’s requirement that, as a condition to a bridge loan, Piramal India’s bridge loan be secured and be senior to the Notes. Such discussions addressed issues relating to the maturity date of the bridge loan by Piramal India and the terms and conditions for forbearance and subordination by the Noteholders, in the context of a tender offer. The basis for an agreement on the terms of forbearance and subordination were outlined, but not fully resolved.

 

On October 1, 2008, the board of directors convened a special telephonic meeting. Representatives from management and Hodgson were present. Management reported on its unsuccessful efforts to obtain a line of credit (including but not limited to for the purpose of purchasing raw materials) or to identify a source of additional financing, including from the Noteholders, from one of our vendors and from certain institutional lenders, and the board of directors discussed steps that should be considered to address the cash flow crisis. Mr. DiGiacinto and Hodgson provided an update on Piramal India’s due diligence efforts.

 

At the October 1 meeting, in recognition that, given the $2.00 per share merger price in Piramal India’s September 18 proposal, most of the incentive stock options held by Minrad International’s current executive management group were underwater, the board of directors amended the MIRP to include Mr. DiGiacinto and to provide that the covered executives would receive 2% of net transaction value regardless of whether the per share merger price was over or under $4.00 per share.

 

On October 7, 2008, the board of directors held a special telephonic meeting. Minrad International management and representatives of Barclays Capital and Hodgson were also present. Minrad International management provided the board of directors with a report regarding the status of Piramal India’s due diligence efforts. The board of directors discussed the challenging negotiating position it was in with Piramal India, having no other bidders, and Barclays Capital indicated that it had not received any new or renewed interest from the parties it had contacted. The need for short and long-term financing was discussed, as well as the sources and problems of obtaining it, especially due to the requirement that any third party financing effectively required prior consent from the Noteholders. The position of the Special Committee in negotiating with the Noteholders regarding additional financing and other issues was discussed. Mr. Zbar indicated that his position with an affiliate of Aisling, a Noteholder, created a potential conflict of interest; and, Mr. Ferrell’s former position with an affiliate of a Noteholder (LB I) was also noted. The board of directors appointed a special committee (the “Notes Committee”) consisting of Messrs. Farley and Hopper from the Special Committee, and added Mr. DiGiacinto, to negotiate and resolve issues with the Noteholders.

 

On October 8, 2008, Mr. DiGiacinto had a telephone conference with Mr. Sathye from Piramal India, in which Mr. Sathye indicated that Piramal India had identified certain questions with respect to Minrad International’s projections relating to the capacity and cost structure of our Bethlehem facility, the status of our abbreviated new drug application for desflurane, as well as the capital expenditures and personnel costs that would be required to expand production at the facility and grow our business, including for the introduction of desflurane. Mr. Sathye also informed Mr. DiGiacinto that, as a result of these concerns and in consideration of Minrad International management’s revised financial projections showing lower anticipated revenues, Piramal India was lowering its proposed per share tender offer from $2.00 to a per share price of $1.50, and then further reducing it to $1.25, due in general terms to the aggregate amount of the Notes that had to be paid off in connection with the merger and proposed bridge loan.

 

On October 8, 2008, the Special Committee held a telephonic meeting. Minrad International management and representatives of Hodgson and Barclays Capital were present. The Special Committee and Barclays Capital representatives discussed the revised $1.25 per share offer and the limited alternatives available to Minrad International. A representative of Hodgson summarized certain open issues regarding the negotiations, including the bridge loan documents and, as they relate to the Noteholders, regarding forbearance and subordination by the

Noteholders and the scheduled December 31, 2008 interest payment. Mr. DiGiacinto and Barclays Capital were directed to make a counter-proposal to Piramal India.

 

On October 14, 2008, the Special Committee convened a telephonic meeting. Mr. DiGiacinto and a representative of Hodgson also attended, and they provided a report on the status of the discussions with Piramal India regarding price, the definitive merger agreement and the forbearance and subordination provisions relative to the bridge loan and the Notes. After discussion, the Special Committee approved in principle a transaction with Piramal India at $1.25 per share or higher, subject to Barclays Capital giving a fairness opinion. Mr. DiGiacinto was nonetheless directed to negotiate the best price he could with Piramal India.

 

On October 14, 2008, Mr. DiGiacinto had a telephone conversation with Mr. Santhanam and requested a price per share of $1.50. Mr. Santhanam responded by saying the Piramal India board of directors had authorized a transaction price not to exceed $1.25 per share.

 

On October 15, 2008, the board of directors held a regularly scheduled meeting. Representatives of Barclays Capital and Hodgson also attended. Legal counsel reviewed with the board of directors their fiduciary duties to Minrad International and our stockholders. There was extensive discussion regarding the proposed $1.25 per share tender offer price; the likelihood of a majority of the Minrad International stockholders accepting a tender offer at that price, which then was part of the transaction structure for the proposed merger with Piramal India; the lack of any meaningful premium to Minrad International’s current stock price; the low likelihood of any other company making a bid to acquire Minrad International; the terms of the draft merger agreement, and Minrad International’s deteriorating financial condition, given the RxElite default and credit market crisis. After full discussion, the board of directors directed the Special Committee, Barclays Capital and management to continue to negotiate for a higher price.

 

On October 15, 2008, Mr. DiGiacinto had a discussion with Mr. Murari Rajan, Executive Director-M&A of Piramal India. A revised share price of $1.40-1.45 per share was proposed and discussed, without an agreement on price being reached.

 

On October 16, 2008, Mr. DiGiacinto had a telephone conference with Mr. Piramal. The $1.40 per share merger price and financing were the primary topic of discussion.

 

On October 16, 2008, Minrad International representatives had a conference call with representatives of the Noteholders regarding the terms, if any, on which the Noteholders would consent to the bridge loan and subordinate the Notes.

 

On October 17, 2008, representatives of Hodgson, Barclays Capital and the Special Committee had a telephone conference call with representatives of Piramal India, including UBS and Waller. The parties discussed how to resolve the open issues in the transaction documents, which primarily related to the bridge financing and the consent of the Noteholders.

 

On October 17, 18, and 19, 2008, the Special Committee convened a telephonic meeting. Representatives from Hodgson attended and reported that the terms of a definitive merger agreement were close to being finalized. After full discussion, and subject to receipt of a fairness opinion from Barclays Capital, the Special Committee approved proceeding with a transaction at $1.40 per share.

 

On October 17, 2008, Mr. DiGiacinto had various telephone conferences with Messrs. Rajan and Sathye in which they indicated that the terms of Piramal India’s bank financing were onerous (and suggested that Piramal India may explore alternative financing sources).

 

On October 18, 2008, Waller advised Hodgson, UBS informed Barclays Capital and Messrs. Sathye and Rajan advised Mr. DiGiacinto that Piramal India’s lender, in response to tightening global financial markets, had informed Piramal India of a change in the terms of the lender’s financing for the transaction and the anticipated operating capital infusion that would be required post-acquisition, which would make the proposed financing significantly more expensive to Piramal India. On the revised terms being proposed by Piramal India’s bank, the economics of the proposed acquisition had become unfavorable for Piramal India. Piramal India was therefore requesting a temporary suspension of merger discussions to allow time to pursue and evaluate alternative financing sources. In the interim, Piramal India was prepared to offer a bridge loan facility to Minrad International in an amount

sufficient to fund operations for approximately six weeks to allow a new lender time to complete its diligence process on the proposed transaction. Piramal India advised that, without an executed merger agreement, any such bridge financing by Piramal India would be on a senior secured basis.

 

On October 19, 2008, the board of directors convened a special telephonic meeting. Representatives of Minrad International management and of Barclays Capital were also present. The board of directors discussed Piramal India’s notification the prior day that it was discontinuing merger discussions and, and in light of this action, the pressing need for management to forecast cash flow needs and to identify sources of short and long term financing for Minrad International. In addition, management present at the American Society of Anesthesiologists (“ASA”) convention reported possible interest in discussing a transaction from certain parties whom management had approached on a confidential basis at the ASA convention. Barclays Capital and management were directed, once appropriate CDA’s had been executed, to provide such parties with an information package.

 

On October 20, 2008, Mr. DiGiacinto had a telephone conference with Mr. Piramal in which Mr. Piramal indicated that the credit markets in India had worsened and the terms of available financing were unacceptable to Piramal India. He also suggested that in order to allow a transaction to proceed, the Noteholders should accept a redemption at a substantial discount to the face value of the Notes. Mr. Piramal also sent Mr. DiGiacinto two emails in which he proposed a transaction in which Piramal India would acquire all shares of Minrad International at $1.10 per share provided that the Noteholders accept $32 million in full redemption of the Notes (which have a $40 million face value and, upon a sale of Minrad International, require payment of an $8 million premium); and in which Piramal India would provide a bridge loan to Minrad International of approximately $6.5 million pending closing of the merger, and all other terms would be as provided in the draft merger agreement and related documents.

 

On October 20, 2008, the Special Committee held a short telephonic meeting. Representatives of Barclays Capital and Hodgson were also present. Piramal India’s proposal was reviewed. Legal counsel provided a summary of the contractual terms of the Notes (and the rights of the Noteholders under the Notes and related contracts) and also summarized the board of directors’ fiduciary duties to our stockholders, as well as to the Noteholders and other creditors of Minrad International and its subsidiaries. Numerous open issues with the Noteholders were identified and certain alternatives were outlined.

 

On or about October 22, 2008 representatives of the Notes Committee and our management had a discussion with representatives of one of the Noteholders, who indicated that Piramal India’s requirement, included in Piramal India’s October 20 proposal, that the Noteholders accept $32 million in full payment or redemption of the Notes was unacceptable.

 

On October 24, 2008, the Special Committee held a telephonic meeting. Minrad International management and representatives of Barclays Capital and Hodgson also attended. Mr. DiGiacinto and representatives of Barclays Capital provided reports concerning their efforts to identify potential acquirors for Minrad International other than Piramal India, and the fact that Piramal India had not to date submitted a new proposal after its October 20 communications. In addition to the four parties mentioned in September, three more potential buyers had executed confidentiality agreements and RxElite had contacted Mr. Ferrell regarding renewing merger discussions with RxElite. The meeting also focused on Minrad International’s critical need for additional financing, and the limited sources from which that might be arranged, in light of the senior status of the Notes, the international credit crisis and Minrad International’s extensive capital needs. The need for a cash conservation program and for Minrad International management to propose a restricted operating plan were identified, and plans for such a program, including how disclosure of such a program would be made, were discussed. The committee also considered and agreed to announce the board of directors’ engagement of Barclays Capital at the same time as any restricted operating plan was announced, in order to stimulate interest from any potential acquiror that had not been contacted. Finally, the Special Committee agreed on the need to retain special bankruptcy counsel.

 

On October 29, 2008, Mr. DiGiacinto had a telephone conference with Mr. Piramal. Both individuals expressed continuing interest in a merger between Piramal India and Minrad International, and a transaction with an aggregate transaction value of $90 million was outlined (with no discount to the face amount of the Notes implied). Mr. DiGiacinto indicated that he would recommend such a transaction to the board of directors, which would have provided a price for Minrad International’s common stock of approximately $0.86 per share, so long as

Piramal India would commit to no further share price reductions. Mr. Piramal indicated that he needed to discuss financing and committed to provide a more detailed proposal in the week of November 3, 2008.

 

On October 31, 2008, the board of directors held a special meeting. Management and representatives of Hodgson also attended. Mr. DiGiacinto reported to the board of directors on the status of merger discussions with Piramal India, including the communications with Piramal India on October 20, and October 29, and the expected revised offer from Piramal India. There were also reports from Minrad International’s management regarding discussions with two other potential merger partners. The board of directors discussion at this meeting also focused on what appeared at that time to be a growing risk that Minrad International could, in the reasonably near future, have difficulty paying all of its financial obligations. It was noted that, while Minrad International has had several cash crises in its history, the current financial and credit markets in the U.S. presented particularly difficult and unusual challenges, that additional capital or debt financing did not appear likely, and that RxElite’s continued multi-million dollar default had created a difficult cash shortfall. Legal counsel provided the board of directors with a summary of certain legal considerations. The board of directors then reviewed and approved a restructuring plan (the “RIF”) that had been prepared by our management involving, among other things, a significant reduction in work force and effectively limiting the conscious sedation and image guidance business of Minrad International to caretaker status. The board of directors also authorized the retention of Latham & Watkins (“Latham”) as special bankruptcy counsel.

 

At the October 31 meeting, the board of directors also adopted the recommendation of its compensation committee to amend the MIRP to provide that the MIRP pool would equal 2% of the aggregate transaction consideration paid by an acquiror of Minrad International (not reduced by the amount of assumed debt).

 

On November 4, 2008, Mr. Piramal notified Mr. DiGiacinto that Piramal India was not proceeding with the acquisition of Minrad International.

 

On November 6, 2008, Mr. DiGiacinto had a telephone conference with Mr. Piramal in which Mr. Piramal inquired as to the status of Minrad International’s efforts to obtain new financing from the Noteholders or from other parties.

 

On November 13, 2008, the board of directors held a regularly scheduled meeting. Minrad International management and representatives of Hodgson and Latham were also present. Minrad International management, together with members of the board of directors’ audit committee, provided a detailed review of Minrad International’s financial results for the quarter ending September 30, 2008; the going concern warning in the footnote to the financial statements to be included as part of our quarterly report on Form 10-Q filed with the SEC; and the cash flow forecast for the fourth quarter of 2008 and first quarter of 2009 (during which Minrad International would run out of cash); and the board of directors approved the corresponding November 14, 2008 earnings release. Minrad International management then summarized the terms of a proposed RIF. The board of directors and legal counsel then discussed at length the position of, and alternatives available to, Minrad International including seeking protection from creditors under applicable bankruptcy law; the cost reductions to be provided by the RIF and its impact on personnel and other aspects of Minrad International’s business; and the risks associated with the RIF. After discussion, the RIF was approved. The board of directors also directed management to instruct Barclays Capital to redouble its efforts to identify any possible acquirors of Minrad International, including parties who acquire distressed assets, to explore restructuring the Notes, and to attempt to identify other sources of financing. The board of directors agreed, in light of critical situation confronting our company, to hold another meeting and to review its position on November 21, 2008, after the earnings release and planned efforts of Barclays Capital and management.

 

From September through December, Barclays Capital continued to contact parties that had expressed interest in a strategic transaction with Minrad International and also to contact additional parties that might consider such a transaction. While some parties engaged in preliminary discussions, none performed substantive due diligence or put forth a proposal.

 

At the November 13 board of directors meeting, the board of directors also reviewed the terms of a re-structured transaction with RxElite, involving an asset purchase of RxElite’s pharmaceutical distribution business, with any consideration payable by Minrad International to be deferred and based on RxElite business

actually transferred to Minrad International. The board of directors approved this transaction and resolved that, if RxElite does not agree to this transaction, or if RxElite’s senior secured creditor does not consent to it, Minrad International will terminate its distribution agreement with RxElite for non-payment.

 

On November 14, 2008, Minrad International reported its third quarter financial results. Minrad International’s press release and Current Report on Form 8-K filed with the SEC reported a $4.6 million charge for RxElite’s payment default and noted that, without the infusion of funds from external sources or completion of a strategic alternative, it was unlikely that Minrad International would be able to continue operations beyond December 31, 2008. Minrad International also announced that it had engaged Lehman to explore strategic alternatives on May 28, 2008 and that its successor, Barclays Capital, continued to perform this role. On November 17, 2008, the next trading day following Minrad International’s announcement of its third quarter financial results, Minrad International’s share price closed at $0.19 per share on NYSE Alternext.

 

On November 16, 2008, as a result of discussions among members of the Special Committee, Mr. DiGiacinto made an overture to Piramal India asking Piramal India to make a new offer to acquire Minrad International. In that call and in a telephone call on November 17, 2008, Mr. DiGiacinto, on behalf of the Notes Committee, discussed with Piramal India representatives the terms of a possible revised offer.

 

On November 18, 2008, Piramal India delivered a revised offer to acquire Minrad International for a total consideration of $40 million, comprised of cash consideration of $0.20 per share for Minrad International’s stockholders, and the redemption of the Notes at a substantial discount.

 

On November 19, 2008, Mr. DiGiacinto had a telephone conference with representatives of two of the Noteholders and summarized the terms of Piramal India’s November 18 proposal, to which they objected.

 

On November 20, 2008, Minrad International issued a press release announcing its RIF, and subsequently filed the related Current Report on Form 8-K with the SEC.

 

On November 20, 2008, representatives of the Notes Committee and Minrad International management had a telephone conference with representatives of both Piramal India and certain of the Noteholders. In this conference call, Piramal India and the participating Noteholders stated their respective positions. Piramal India argued that Minrad International’s bankruptcy would yield them less than the approximately $0.70 on the dollar that Piramal India’s November 18 proposal would provide. The representatives of the participating Noteholders argued that they should receive a greater allocation of the $40 million consideration given that the Notes would be a senior claim to the common stock in a bankruptcy, that they had a reasonable likelihood of obtaining more value in any bankruptcy reorganization, and asked Piramal India to increase its offer to $45 million. There was no resolution on this call.

 

On November 20, 2008, the Notes Committee convened a telephonic meeting. They discussed the current status of the negotiations with Piramal India and the Noteholders. At that meeting it was agreed that Mr. DiGiacinto would request a $45 million transaction value and an allocation to the equity of $0.15 per share. On November 20, 2008, Mr. DiGiacinto called Mr. Piramal and made that request.

 

On November 21, 2008, based on RxElite’s payment default and in light of RxElite’s failure to agree to the proposed asset purchase, Minrad International sent RxElite a notice terminating its distribution agreement for U.S. anesthetic products in all respects.

 

On November 21, 2008, Piramal India delivered a letter to Mr. DiGiacinto (the “November 21 Offer”). The November 21 Offer proposed the acquisition by Piramal India of Minrad International for a total consideration of $40 million (the “Transaction Consideration”). Of the total Transaction Consideration, Piramal India indicated that not less than $0.15 per share, or approximately $7.4 million, be paid to stockholders, for the acquisition of Minrad International’s outstanding shares. The balance was for the redemption of the Notes, assumption of $1.8 million of other Minrad International debt, retention bonuses for Minrad International management, and for Minrad International transaction expenses. Piramal India’s offer was subject, among other things, to acceptance by the Noteholders. The November 21 Offer by its terms expired on November 24, 2008 and included a commitment for an interim bridge loan of $5 million to be available at the time the merger agreement is executed.

On November 21, 2008, the board of directors convened a special telephonic meeting. Representatives of Barclays Capital and Hodgson were also present. Barclays Capital reported that it had recontacted those parties who had

shown any meaningful interest in acquiring Minrad International. None of them had any current interest in acquiring or merging with Minrad International. One recent prospect had determined not to proceed, two recently identified prospects had signed a CDA, and one financial buyer in the distressed asset space had asked for a CDA (from which nothing materialized). Management representatives also reported that discussions with two prospects, one recent and one that had previously declined to participate in Minrad International’s sale process because of competition law concerns, would not result in any new bids. The November 21 Offer from Piramal India was then discussed in detail. Legal counsel provided the board of directors with a summary of its fiduciary duties to Minrad International, our stockholders and creditors. The board of directors discussed, among other considerations, the critical cash crisis that Minrad International faced, the limited alternatives available to the board of directors, and the fact that the holders of Minrad International common stock would receive some consideration for their shares (compared with zero, if Minrad International were to file for bankruptcy protection). After full discussion and with Mr. Zbar recusing himself, it was the unanimous sense of the board of directors to accept the November 21 Offer, subject to receipt of any higher offer before the end of the day on November 24 and recognition of the open issues involving negotiating a final allocation with the Noteholders of the Transaction Consideration and a reduced advisory fee with Barclays Capital in order to preserve value for the holders of Minrad International common stock. Barclays Capital representatives were excused from the meeting. The board of directors discussed how to negotiate the fee reduction with Barclays Capital and recognized, for the first time, that it may be necessary to forego a fairness opinion in order to minimize closing expenses.

 

On November 21, 2008, Mr. DiGiacinto, at the direction of the board of directors, informed representatives of the Noteholders that Piramal India had submitted a new proposal and the terms of the November 21 Offer. Over the weekend of November 22-23, representatives of certain of the Noteholders delivered to Mr. DiGiacinto an allocation of the Transaction Consideration that they would accept. This proposal allocated $5 million for the holders of Minrad International common stock and $32,107,000 for the Noteholders, which allocation would require reduction of the amounts payable to Barclays Capital ($400,000 from $2 million) and of the amount of the MIRP for Minrad management ($500,000 from $800,000). No substantive discussions were held.

 

On November 24, 2008, the board of directors held a special telephonic meeting. Minrad International management and representatives of Barclays Capital and Hodgson also attended. The board of directors renewed its consideration of the November 21 Offer and again reviewed the factors discussed at the board of directors meeting on November 21. With Mr. Zbar recusing himself, the board of directors unanimously approved moving forward with Piramal India on the terms set forth in the November 21 Offer and directed Mr. DiGiacinto to communicate this approval, as well as the need for Minrad International management to finalize terms with the Noteholders.

 

On November 24, Mr. DiGiacinto communicated to Piramal India the board of directors’ decision to accept in principle the November 21 Offer and had a telephone conversation with Mr. Piramal in which he indicated the need to negotiate the remaining allocation of the Transaction Consideration with the Noteholders and finalizing transaction expenses. Barclays Capital also communicated this to UBS.

 

On November 25, 2008, representatives from Hodgson, Waller and UBS had a conference call to discuss how to facilitate the negotiation of a definitive merger agreement and related documents. It was discussed that in light of the reduced per share merger consideration a tender offer should not be undertaken, and that a voting agreement from Minrad International’s officers, directors and certain stockholders would be required (instead of a tender and support agreement).

 

On November 26, 2008, Barclays Capital discussed with UBS the status of the financing commitments in light of the terrorist attacks in Mumbai and were informed that financing for the transaction had already been secured by Piramal India. Subsequently, UBS provided evidence to Barclays Capital, who in turn forwarded that evidence to Minrad International, that Piramal India had completed a $40 million note offering and had a credit facility of not less than $13 million.

 

On December 1, 2008, the Special Committee and the Notes Committee convened two joint telephonic meetings. Also present at the first meeting were representatives from Hodgson and from LB I, one of the Noteholders. The committees reviewed the Noteholders’ rejection of the proposed merger of Minrad International and Piramal India under the then current allocation of the aggregate Transaction Consideration. The limited alternatives available to us were reviewed. Mr. Zbar and the invited representative of LB I indicated that Aisling and

LB I would support the Piramal India transaction, and excused themselves. The remaining members of the committees agreed to request that Barclays Capital reduce its advisory fee. At the second joint meeting on December 1 of the Special Committee and the Notes Committee, representatives of Latham and Barclays Capital were also present. The Latham representative provided his views regarding Minrad International’s financial situation and the position of the Noteholders, as well as a summary of the benefits, costs and downside of Minrad International filing for bankruptcy protection. After discussion, the committees, with Mr. Zbar recusing himself, authorized Mr. DiGiacinto to make a counter-proposal to the Noteholders regarding allocation of the Transaction Consideration. The reduction of Barclays Capital’s advisory fee was discussed but not resolved.

 

On December 11, 2008, Minrad International received notice from NYSE Alternext that Minrad International’s common stock would be delisted from trading on the exchange unless Minrad International submitted a plan addressing how it intended to regain compliance with the exchange’s requirements for minimum stockholder’s equity and trading price per share.

 

From November 26 through December 11, 2008, the Notes Committee and legal counsel, representatives of the Noteholders, and representatives of Piramal India engaged in negotiations regarding how the aggregate Transaction Consideration would be allocated and the terms on which Piramal India would provide a bridge loan to Minrad International in connection with the merger agreement. Without the consent and agreement of the Noteholders to a forbearance and waiver of their contractual rights under the Notes (which included among other things the right to receive $48 million plus accrued interest in the event of a sale of Minrad International), the transaction provided for in the November 21 Offer could not be effectuated. Under the terms of the Notes, the agreement of all of the Noteholders to any compromise of their rights under the Notes was required. Accordingly, certain difficult issues had to be negotiated, the most material of which included (i) the amount of the aggregate Transaction Consideration that would be allocated to the Noteholders; (ii) the terms, if any, upon which the Noteholders would agree to subordinate their Notes and security interests to the Piramal India bridge loan to Minrad International and security interests to be granted to Piramal India; (iii) the conditions and timing of Piramal India’s purchase of the Notes; and (iv) the conditions to closing of the merger, including how a “material adverse affect” was defined and in what context the merger agreement could be amended or extended. Representatives of two of the Noteholders, were actively engaged in the negotiations, and one of the Noteholders was represented by the law firm of Schulte Roth & Zabel LLP (“Schulte”). Representatives of the Noteholders indicated that, before they would agree to give up the senior secured position of the Notes and the priority that such a position would provide in any Minrad International bankruptcy proceeding, including vis-à-vis Piramal India’s bridge loan, the conditions to closing the merger and the risks of the merger not closing had to be as limited as possible. Among key steps in the negotiations during the period were the following:

 

 

 

Between December 11 and December 16, 2008, and based on the tentative compromise reached on December 11, Hodgson, Waller and Schulte prepared and negotiated a revised merger agreement and a revised set of documents including a credit agreement for the bridge loan, an intercreditor and subordination agreement among Piramal and the Noteholders, a note purchase agreement among Piramal and the Noteholders, and a consent, waiver and forbearance agreement among Minrad International and the Noteholders (collectively, the “Intercreditor Agreements”). The major open issues that remained to be resolved in the merger agreement were the amount of the termination fee and the maximum amount of expenses that Minrad International would be obligated to pay, if the board of directors were to receive and accept a higher offer from a third party; the parties’ conditions to closing the merger, including principally the definition of material adverse effect; provisions to enhance the enforceability of any judgment against Piramal India in India; and the outside or “drop dead” date as of which, if the merger were not completed, either party could terminate the merger agreement. In addition, Hodgson on behalf of the Special Committee objected to the bridge loan being convertible into Minrad International common stock at the $0.12 per share merger price, due to the deterrent effect that this would have on the ability of the board of directors to consider and accept a superior offer subsequently received from another bidder. Piramal India agreed to give up the conversion feature of the note evidencing the bridge loan but, in return, required that a 20% payment fee would be required whenever the bridge loan is repaid.

 

On December 16, 2008, representatives of Minrad International and Piramal India reached agreement on the remaining issues in the merger agreement, subject to approval by each company’s board of directors.

 

On December 17, 2008, the Special Committee convened a telephonic meeting to consider whether the terms of the merger agreement and the transactions contemplated thereby, including the merger, were advisable, fair to, and in the best interests of our stockholders and whether to recommend that the full board of directors approve and adopt the merger and merger agreement and the transactions contemplated thereby. Representatives of Hodgson, and Barclays also attended. Legal counsel again reviewed with the Special Committee the fiduciary duties of directors in the context of a sale of a company and also the material significant terms of the merger agreement, and provided advice regarding the decision not to obtain a fairness opinion. With Mr. Zbar abstaining, the Special Committee unanimously recommended to the board of directors that it approve the merger, the merger agreement and the transactions contemplated thereby.

 

On December 17, 2008, immediately following the Special Committee meeting, the board of directors held a special telephonic meeting at which members of our management team and representatives of Hodgson and Barclays Capital were also present. Legal counsel reviewed with our board of directors their fiduciary duties to Minrad International and our stockholders. Legal counsel presented a summary of the material terms of the proposed definitive merger agreement, of the voting agreement and who would be required to execute it, and a summary of the other documents related to the merger, copies of which had been previously circulated to the board of directors in advance of the meeting. In addition, counsel reviewed the time line to closing. Barclays Capital and

our management also reviewed the extensive sale process undertaken by Barclays Capital, including the limited interest shown by third parties and the absence of any other bidders. The board of directors asked the representatives of Barclays Capital whether, taking into account the sale process and financial position of Minrad International, there were any other alternatives which the board of directors should consider at this time; no such credible alternatives were available. The Special Committee reported on its decision not to request a fairness opinion from a financial advisor so as to reduce transaction expenses, the financial predicament of Minrad International and the small allocation of the Transaction Consideration to common stock, which decision allowed for additional consideration to our stockholders. After discussion and consideration of the proposed merger and bridge financing terms, the lack of alternatives to the merger with Piramal India, the sale process managed by Barclays Capital and the advice received throughout that process, the challenge and risks of remaining as an independent company, including the risks to Minrad International of declaring bankruptcy, and considering, in each case, the value to our stockholders of such alternatives, the board of directors concluded that the merger agreement, the merger with Piramal India and the other transactions contemplated by the merger agreement were advisable, fair to and in the best interests of Minrad International stockholders. Based on this review and the other factors described in the section entitled “The Merger — Recommendations of Our Board of Directors — Reasons for the Merger” beginning on page 33, which factors were discussed at length by our board of directors in the December 17 meeting and in prior meetings and individually between members of our board of directors and management, a majority of our board of directors (with Mr. Zbar abstaining and another director unable to participate in the meeting) approved the merger agreement, the merger and the related transactions, and unanimously resolved to recommend that our stockholders vote in favor of the adoption of the merger agreement. The executive officers of Minrad International were authorized to finalize the terms of the merger agreement and related agreements. At this meeting, the board of directors also amended the MIRP to provide that the total incentive pool is $500,000 (from $800,000) and reduced the fees payable to Barclays Capital to $800,000 (from $2 million).

 

From December 16 through December 21, 2008, representatives of the Noteholders, UBS, Piramal India and Waller, and Hodgson continued to negotiate the Intercreditor Agreements. In the course of finalizing definitive Intercreditor Agreements, the Noteholders requested a right to consent to any mutual termination and any amendment of the merger agreement by Piramal India and Minrad International that would have an adverse effect on the Notes. This request resulted in a delay in executing the merger agreement with Piramal India. Hodgson’s and Waller’s principal concern with this request was that Minrad International and Piramal India needed the flexibility to enter into an amendment or waiver of the merger agreement, if necessary, to extend the time to satisfy all conditions and, if necessary, to increase the merger consideration payable to the holders of common stock without obtaining any such consent. The concerns expressed by the Noteholders’ request related primarily to the subordination and forbearance obligations of the Noteholders, when those would terminate, and the Noteholders desire to limit the risks that the merger would not occur. On December 20, 2008, after two conference calls among the parties’ representatives on December 18 and December 19, 2008 during which the Noteholders proposed certain compromises, Waller submitted, on behalf of Piramal India, proposed contractual terms setting forth the limited conditions under which the consent of a single indentified Noteholder would be required before Piramal India and Minrad International could mutually terminate or amend the merger agreement.

 

On a conference call held Monday morning, December 22, 2008, representatives of the Notes Committee, management and company counsel engaged in a short discussion with the representatives of certain of the Noteholders and Schulte regarding Piramal India’s December 20 proposal. The subject matter was the concern of the Noteholders regarding what the board of directors would do in the event of certain scenarios. The committee and counsel’s position was to the effect that, although one cannot predict all potential fact scenarios, it was difficult at that time to envision a scenario in which the board of directors would voluntarily consent to terminate the merger agreement. Shortly after that telephone call on December 22, 2008, the Noteholders communicated to Waller their agreement to the compromise proposed by Waller, as did Minrad International’s counsel. For a more detailed discussion of the terms of the Intercreditor Agreements, see “Other Agreements Entered Into in Connection with the Merger — Intercreditor Agreement” beginning on page 55.

 

On December 22, 2008, members of our management team, Hodgson, Waller and Schulte finalized the merger agreement and other documents relating to the merger, and Minrad International and the Piramal India entities executed the merger agreement on December 22, 2008.

On December 22, 2008, each of Minrad International and Piramal India issued a press release publicly announcing the entry into the merger agreement.

 

Reasons for the Merger

 

In the course of reaching its decision to approve the merger and enter into the merger agreement, our board of directors consulted with our senior management, outside legal counsel and our financial advisor, and reviewed a significant amount of information and considered a number of positive factors supporting the decision to approve the merger and enter into the merger agreement, including, but not limited to, the following factors:

 

 

The board of directors also considered potential drawbacks or risks relating to the merger, including, but not limited to:

 

 

 

Board of Directors Recommendation

 

The board of directors concluded that the merger agreement, the merger and the other transactions contemplated by the merger agreement were advisable, fair to and in the best interests of our stockholders and that the benefits of the merger to our stockholders greatly outweighed the potential drawbacks and risks.

 

After careful consideration, and taking into account all of the factors outlined above, our board of directors recommends that our stockholders vote “FOR” the adoption of the merger agreement. Our board of directors also recommends that our stockholders vote “FOR” any proposal by our board of directors to adjourn the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of adoption of the merger agreement.

 

As reflected in the Merger agreement, the merger is not conditioned upon the ability of Piramal or Merger Sub to obtain financing. Piramal has advised us that, at the effective time of the merger, Piramal and Merger Sub intend to pay the merger consideration from funds made available by Piramal India.

 

Concurrently with the execution and delivery of the merger agreement, Piramal entered into a voting agreement with our executive officers and those directors who are stockholders, in each case in their capacity as a stockholder only.

 

See the section titled “Other Agreements Entered into in Connection with the Merger — Voting Agreement” beginning on page 57.

 

When considering our board of directors’ recommendation that you vote in favor of the proposal to adopt the merger agreement, you should be aware that members of our board of directors and our executive officers may have interests in the merger that differ from, or which are in addition to, your interests. These interests may create a potential conflict of interest and may be perceived to have affected their decision to support or approve the merger. Our board of directors was aware of these potential conflicts of interest during its deliberations on the merits of the merger and in making its decisions in approving the merger agreement, the merger and the related transactions. Director Brett Zbar abstained during the vote on the merger due to his relationship with Aisling Capital LLC, a

major security holder of Minrad International and an affiliate of one of the Noteholders. You should be aware of these interests when considering our board of directors’ recommendation to adopt the merger agreement.

 

To the extent that any of our executive officers remain employed by the surviving corporation, they will be entitled to receive compensation and benefits following the merger.

 

In addition, with respect to the plans in which our employees participate, following the effective time of the merger, Piramal and the surviving corporation will:

 

 

Executive Employment Agreements

 

Certain of our executive officers also have an interest in the transaction due to their employment agreements as follows:

 

David DiGiacinto — President and Chief Executive Officer:   Mr. DiGiacinto has stock options to purchase 1,677,602 shares of our common stock that will automatically vest: (1) 180 days after completion of the merger; or (2) upon termination of Mr. DiGiacinto’s employment without cause after, or during the three months prior to, completion of the merger. Pursuant to the merger agreement, we are required to obtain his consent for the cancellation of these options.

 

Dennis Goupil — Executive Vice President and Chief Technical Officer; Kirk Kamsler — Senior Vice President of Commercial Development; Karen Sonnhalter — Vice President and Controller; and Charles Trego, Jr. — Executive Vice President and Chief Financial Officer:   If in the year following the merger, the employment of any of these executive officers is terminated without cause or if he or she terminates his or her employment for good reason, and provided he or she releases us and our employees, agents and affiliates from liability relating to his or her employment to the extent permitted by law, he or she will be entitled to receive: (1) his or her full salary for six months; (2) continued coverage of his or her medical and dental benefits under our medical and dental plans for six months; and (3) a payment equal to his or her individually accrued vacation days for the year, calculated in accordance with his or her individual salary.

 

Cancellation of Certain Stock Options of Directors and Executive Officers

 

Certain stock options of some of our directors and executive officers will be automatically cancelled upon completion of the merger in accordance with the terms of the options as follows:

 

We are required by the merger agreement to obtain the consent of our officers and directors to cancel all other options held by them as follows:

 

 

None of the options held by our officers and directors have an exercise price equal to or less than $0.12 per share.

 

Management Incentive and Retention Plan

 

Charles Trego, Jr., Kirk Kamsler, Dennis Goupil, William Rolfe, Karen Sonnhalter, William Burns and David DiGiacinto will each be entitled to receive a payment under the MIRP if (1) he or she remains employed by the surviving corporation 180 days after the merger; or (2) following the merger, his or her employment is terminated by the surviving corporation without cause, or by the employee for good reason. The aggregate amount of payments to be made under the MIRP will not exceed $500,000, and shall be allocated among these officers by the compensation

committee of our board of directors at least ten days prior to closing of the merger. Payments will be made no later than March 15 of the year in which they become entitled to the payment.

 

Non-Competition

 

David DiGiacinto — President and Chief Executive Officer and Director:   Mr. DiGiacinto’s employment agreement provides that during the term of his employment agreement and for a period of twelve months thereafter, he will not for his own account or on account for another corporation, directly or indirectly, engage or attempt to engage in a business activity which is the same, substantially the same, or competes with our business. He also agrees that during such twelve month period he will not employ or solicit to employ any of our employees.

 

William Burns — Our Chairman of the Board and Our Former Chief Executive officer:   Mr. Burns’ employment agreement provides that during the term of his employment agreement (which expired on December 31, 2008) and for a period of twelve months thereafter, he will not for his own account or on account for another corporation, directly or indirectly, engage or attempt to engage in a business activity which is the same, substantially the same, or competes with our business. He also agrees that during such twelve month period he will not employ or solicit to employ any of our employees.

 

Dennis Goupil — Executive Vice President and Chief Technical Officer; Kirk Kamsler — Senior Vice President of Commercial Development; Karen Sonnhalter — Vice President and Controller; and Charles Trego, Jr. — Executive Vice President and Chief Financial Officer: Each of these executive officers has agreed that he or she shall not, directly or indirectly, in any capacity (1) solicit business from or engage in any business with, or consult with or provide information to, any customer in any business that we engaged during the officer’s employment; (2) request or advise any customer to cancel or reduce its business with us; (3) induce or attempt to influence any of our employees to terminate his or her employment; or (4) employ, hire or engage, in any capacity, any person, who at the time of the executive officer’s termination of employment was our employee until twelve months following such person’s termination of employment with us.

 

Directors’ and Officers’ Indemnification and Insurance

 

The merger agreement provides that the obligations of Minrad International and its subsidiaries to indemnify their officers and directors pursuant to their respective charter documents shall survive for six years after the merger. In addition, Piramal shall and shall cause the surviving corporation, to the fullest extent permitted under applicable law, to indemnify, defend and hold harmless each current and former director or officer of Minrad International or its subsidiaries and each person who served as a director, officer, member, trustee or fiduciary of another entity or enterprise at the request of Minrad International or its subsidiaries against any costs or expenses (including reasonable attorneys’ fees and expenses), judgments, fines, losses, claims, damages, liabilities and amounts paid in settlement incurred in connection with any actual or threatened claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of, relating to or in connection with any action or omission occurring or alleged to have occurred whether before or after the effective time of the merger related to the fact that such person was a director or officer of Minrad International or its subsidiaries or served as a director, officer, member, trustee or fiduciary of another entity at the request of Minrad International or any of its subsidiaries.

 

Piramal is also required by the terms of the merger agreement to use its reasonable best efforts to cause the surviving corporation to maintain in effect for a period of six years from and after the merger, the current policies of directors’ and officers’ liability insurance maintained by us with respect to claims arising out of acts or omissions occurring at or prior to the effective time of the merger.

Market Price and Dividend Data

 

Our common stock is currently included in NYSE Alternext under the symbol “BUF.” The table below sets forth the high and low sales prices for our common stock as reported on NYSE Alternext, for the periods indicated:

 

 

The following table sets forth the closing per share sales price of our common stock, as reported on NYSE Alternext on December 22, 2008, the last full trading day before the public announcement of the proposed merger, and on          , 2009, the latest practicable trading day before the date of this proxy statement:

 

 

We have never declared or paid any cash dividends on our common stock and do not anticipate paying such cash dividends on our common stock in the foreseeable future. Our current policy is to retain earnings for use in our business. Following the completion of the merger, there will be no further market for our common stock.

 

We believe that the notification and waiting period requirements of the HSR Act do not apply to the proposed transaction, and that we are not required to make any filings with the Antitrust Division or the FTC. However, the FTC and the Antitrust Division frequently scrutinize the legality under the antitrust laws of transactions such as the merger. At any time before or after the consummation of the merger, the FTC or the Antitrust Division could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the transaction or seeking the divestiture of shares purchased or the divestiture of substantial assets of Piramal, Minrad International or their respective subsidiaries. Private parties, state attorneys general and/or foreign governmental entities may also bring legal action under antitrust laws under certain circumstances. Based upon an examination of information available relating to the businesses in which Piramal, Minrad International and their respective subsidiaries are engaged, the parties believe that the transaction will not violate the antitrust laws. Nevertheless, there can be no assurance that a challenge to the transaction on antitrust grounds will not be made or, if such a challenge is made, what the result would be.

 

We believe we are not required to make any other filings nor obtain any other material governmental consents or approvals before the parties’ completion of the merger. If any such other approvals, consents or filings are required to consummate the merger, we will seek or make such consents, approvals or filings. We have been informed that Piramal intends to submit a voluntary notice of the transaction to the Committee on Foreign

Investments in the United States under the Defense Production Act of 1950, as amended by the Foreign Investment and National Security Act of 2007.

 

The discussion of the provisions set forth below is not a complete summary regarding your appraisal rights under Delaware law and is qualified in its entirety by reference to the text of the relevant provisions of Delaware law, which are attached to this proxy statement as Appendix C. Stockholders intending to exercise appraisal rights should carefully review Appendix C. Failure to follow precisely any of the statutory procedures set forth in Appendix C may result in a termination or waiver of these rights.

 

If the merger is consummated, dissenting holders of our common stock who follow the procedures specified in Section 262 of the General Corporation Law of the State of Delaware (“Section 262”) within the appropriate time periods will be entitled to have their shares of our common stock appraised by a court and to receive the “fair value” of such shares in cash as determined by the Delaware Court of Chancery in lieu of the consideration that such stockholder would otherwise be entitled to receive pursuant to the merger agreement.

 

The following is a brief summary of Section 262, which sets forth the procedures for dissenting from the merger and demanding statutory appraisal rights. Failure to follow the procedures set forth in Section 262 precisely could result in the loss of appraisal rights. This proxy statement constitutes notice to holders of our common stock concerning the availability of appraisal rights under Section 262. A stockholder of record wishing to assert appraisal rights must hold the shares of our common stock on the date of making a demand for appraisal rights with respect to such shares and must continuously hold such shares through the effective time of the merger.

 

Stockholders who desire to exercise their appraisal rights must satisfy all of the conditions of Section 262. A written demand for appraisal of shares must be filed with us before the special meeting on          , 2009. This written demand for appraisal of shares must be in addition to and separate from a vote against the merger. Stockholders electing to exercise their appraisal rights must not vote “FOR” adoption of the merger agreement. Any proxy or vote against adoption of the merger agreement will not in and of itself constitute a demand for appraisal within the meaning of Section 262. Also, because a proxy submitted to us not marked “AGAINST” or “ABSTAIN” will be voted “FOR” the proposal to adopt the merger agreement, the submission of such a proxy will result in the waiver of appraisal rights.

 

A demand for appraisal must be executed by or for the stockholder of record, fully and correctly, as such stockholder’s name appears on the share certificate. If the shares are owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, this demand must be executed by or for the fiduciary. If the shares are owned by or for more than one person, as in a joint tenancy or tenancy in common, such demand must be executed by or for all joint owners. An authorized agent, including an agent for two or more joint owners, may execute the demand for appraisal for a stockholder of record; however, the agent must identify the record owner and expressly disclose the fact that, in exercising the demand, he is acting as agent for the record owner. A person having a beneficial interest in shares of our common stock held of record in the name of another person, such as a broker or nominee, must act promptly to cause the record holder to follow the steps summarized below and in a timely manner to perfect whatever appraisal rights the beneficial owners may have.

 

Any of our stockholders who elects to exercise appraisal rights should mail or deliver his, her or its written demand to us at our address at 50 Cobham Drive, Orchard Park, New York 14127, Attention: [ • ]. The written demand for appraisal should specify the stockholder’s name and mailing address, and that the stockholder is demanding appraisal of his, her or its shares of our common stock. Within ten days after the effective time of the merger, we must provide notice of the effective time of the merger to all of our stockholders who have complied with Section 262 and have not voted for adoption of the merger agreement.

 

Within 120 days after the effective time of the merger, but not thereafter, any stockholder who has satisfied the requirements of Section 262 may deliver to us a written demand for a statement listing the aggregate number of shares of our common stock not voted in favor of adoption of the merger agreement and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. We, as the surviving corporation in the merger, must mail such written statement to the stockholder no later than the later of ten days after

the stockholders’ request is received by us or ten days after the latest date for delivery of a demand for appraisal under Section 262.

 

Within 120 days after the effective time of the merger, either we or any stockholder who has complied with the required conditions of Section 262 and who is otherwise entitled to appraisal rights may file a petition in the Delaware Court of Chancery demanding a determination of the fair value of the shares of all stockholders entitled to appraisal rights. We have no obligation or present intention to file such a petition if demand for appraisal is made.

 

Upon the filing of any petition by a stockholder in accordance with Section 262, service of a copy must be made upon us, which we must, within 20 days after service, file in the office of the Register in Chancery in which the petition was filed, a duly verified list containing the names and addresses of all stockholders who have demanded payment for their shares and with whom agreements as to the value of their shares have not been reached by us. If we file a petition, the petition must be accompanied by the verified list. The Register in Chancery, if so ordered by the court, will give notice of the time and place fixed for the hearing of such petition by registered or certified mail to us and to the stockholders shown on the list at the addresses therein stated, and notice will also be given by publishing a notice at least one week before the day of the hearing in a newspaper of general circulation published in the City of Wilmington, Delaware, or such publication as the court deems advisable. The forms of the notices by mail and by publication must be approved by the court, and we will bear the costs thereof. The Delaware Court of Chancery may require the stockholders who have demanded an appraisal for their shares, and who hold stock represented by certificates, to submit their stock certificates to the Register in Chancery for notation of the pendency of the appraisal proceedings and the Delaware Court of Chancery may dismiss the proceedings as to any stockholder that fails to comply with such direction.

 

If a petition for an appraisal is filed in a timely fashion, after a hearing on the petition, the court will determine which stockholders are entitled to appraisal rights and will appraise the shares owned by these stockholders, determining the fair value of such shares, exclusive of any element of value arising from the accomplishment or expectation of the merger, together with a fair rate of interest to be paid, if any, upon the amount determined to be the fair value.

 

Any of our stockholders considering seeking appraisal of their shares should note that the fair value of their shares determined under Section 262 could be more than, the same as or less than the consideration they would receive pursuant to the merger agreement if they did not seek appraisal of their shares. The costs of the appraisal proceeding may be determined by the court and taxed against the parties as the court deems equitable under the circumstances. Upon application of a dissenting stockholder, the court may order that all or a portion of the expenses incurred by any dissenting stockholder in connection with the appraisal proceeding, including reasonable attorneys’ fees and the fees and expenses of experts, be charged pro rata against the value of all shares entitled to appraisal. In the absence of a determination or assessment, each party bears his, her or its own expenses. The exchange of shares for cash pursuant to the exercise of appraisal rights will be a taxable transaction for U.S. federal income tax purposes and possibly state, local and foreign income tax purposes, as well. Any stockholder considering seeking appraisal of their shares should consult with such stockholder’s own tax advisors regarding the tax consequences to such stockholder’s exercise of appraisal rights.

 

Any stockholder who has duly demanded appraisal in compliance with Section 262 will not, after the effective time of the merger, be entitled to vote for any purpose the shares subject to demand or to receive payment of dividends or other distributions on such shares, except for dividends or distributions payable to stockholders of record at a date prior to the effective time of the merger.

 

At any time within 60 days after the effective time of the merger, any stockholder will have the right to withdraw his demand for appraisal and to accept the terms offered in the merger agreement. After this period, a stockholder may withdraw his demand for appraisal and receive payment for his shares as provided in the merger agreement only with our consent. If no petition for appraisal is filed with the court within 120 days after the effective time of the merger, stockholders’ rights to appraisal (if available) will cease. Inasmuch as we have no obligation to file such a petition, any stockholder who desires a petition to be filed is advised to file it on a timely basis. No petition timely filed in the court demanding appraisal may be dismissed as to any stockholder without the approval of the court, which approval may be conditioned upon such terms as the court deems just.

Failure by any stockholder to comply fully with the procedures described above and set forth in Appendix C to this proxy statement may result in termination of such stockholder’s appraisal rights.

 

This section discusses the material U.S. federal income tax consequences of the merger that are generally applicable to stockholders whose shares of our stock are surrendered in the merger in exchange for cash. This discussion is included for general information purposes only and does not constitute, and is not, a tax opinion or tax advice to any particular holder of shares of our common stock. This summary is based on the provisions of the Internal Revenue Code of 1986, as amended, the Treasury Regulations promulgated thereunder, judicial decisions, administrative rulings and other legal authorities, all as of the date hereof and all of which are subject to change, possibly with retroactive effect. No ruling from the Internal Revenue Service (“IRS”) nor an opinion of counsel will be requested concerning the U.S. federal income tax consequences of the merger. The tax consequences set forth in the following discussion are not binding on the IRS or the courts, and no assurance can be given that contrary positions will not be successfully asserted by the IRS or adopted by a court.

 

The following discussion does not address all of the U.S. federal income tax consequences that may be relevant to a particular holder of our common stock, including holders who, in light of their particular circumstances, may be subject to special rules, including, without limitation:

 

 

The discussion below applies only to stockholders that hold shares of our common stock as capital assets at the time of the completion of the merger. The discussion does not include any description of the tax laws of any state, local or foreign government that may be applicable to our stockholders or any U.S. federal tax laws other than income tax laws. Finally, the discussion below does not address the tax consequences of any transaction occurring prior to or after the merger (whether or not such transactions are in connection with the merger), including without limitation, the exercise of options or rights to purchase shares of our common stock in anticipation of the merger.

 

ANY TAX STATEMENT MADE HEREIN REGARDING ANY U.S. FEDERAL TAX IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY ANY TAXPAYER FOR PURPOSES OF AVOIDING ANY PENALTIES. ANY SUCH STATEMENT HEREIN IS WRITTEN IN CONNECTION WITH THE MARKETING OR PROMOTION OF THE TRANSACTION TO WHICH THE STATEMENT RELATES. EACH TAXPAYER SHOULD SEEK ADVICE BASED ON THE TAXPAYER’S PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.

Taxable Sale

 

The exchange of shares of our common stock for cash in the merger will be a taxable transaction for U.S. federal income tax purposes. A holder of our common stock generally will recognize capital gain or capital loss equal to the difference, if any, between the amount of cash received by the stockholder pursuant to the merger and the stockholder’s adjusted tax basis in the shares of our common stock surrendered. Gain or loss will be calculated separately for each block of shares (that is, shares acquired at the same cost in a single transaction) exchanged in the merger. Holders of our common stock who own separate blocks of our common stock should consult their tax advisors with respect to these rules. If at the time of the merger a non-corporate stockholder’s holding period for the shares of our common stock is more than one year, any gain recognized will be long term capital gain, generally subject to U.S. federal income tax at a maximum rate of 15% under current law. If the non-corporate stockholder’s holding period for the shares of our common stock is one year or less at the time of the merger, any gain will be subject to U.S. federal income tax at the same graduated rates as ordinary income. For corporations, capital gain is taxed at the same rates as ordinary income. The use of capital losses is subject to limitations.

 

Federal Backup Withholding

 

To prevent federal backup income tax withholding with respect to cash received pursuant to the merger, each holder of our common stock must either provide a correct taxpayer identification number and certify under penalties of perjury that such holder is not subject to backup withholding of federal income tax by completing the substitute Form W-9 included in the letter of transmittal or establish a basis for exemption from backup withholding. Holders of our common stock who fail to provide the appropriate information will be subject to backup withholding at a tax withholding rate of 28% and may be subject to penalties imposed by the IRS. If the amount withheld on a payment to a holder of our common stock results in an overpayment of taxes, a refund generally may be obtained from the IRS, provided that such holder timely furnishes the required information to the IRS.

 

THE PRECEDING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF THE MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT THERETO. EACH HOLDER OF OUR COMMON STOCK SHOULD CONSULT HIS, HER OR ITS OWN TAX ADVISORS TO DETERMINE THE U.S. FEDERAL INCOME TAX CONSEQUENCES APPLICABLE TO SUCH HOLDER AS A RESULT OF THE MERGER, AND ANY STATE, FEDERAL, LOCAL OR FOREIGN TAX CONSEQUENCES RELEVANT TO SUCH HOLDER AS A RESULT OF THE MERGER.

 

If the merger is completed, our common stock will no longer be traded on NYSE Alternext and will be deregistered under the Exchange Act, and we will no longer file periodic reports with the SEC with respect to shares of our capital stock.

 

In the event that the merger agreement is not adopted by our stockholders or if the merger is not completed for any other reason, stockholders will not receive any payment for their shares in connection with the merger. Instead, we will remain an independent public company. Our common stock will continue to be quoted and traded on the NYSE Alternext. However, as we have previously disclosed, we received notice from NYSE Alternext informing us that a review of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2008 indicated we were not in compliance with certain provision of the NYSE Alternext’s Company Guide because of the size of our common stockholders’ equity and the losses that we have incurred. If we are not able to develop a plan to bring us into compliance with the listing standards which is acceptable to NYSE Alternext, and to implement such a plan, we will be delisted from the NYSE Alternext. It is unlikely that we will be able to develop and implement such a plan.

 

If the merger is not completed and we continue to operate the business, we will continue to be subject to the same general risks and opportunities that we are currently subject to, including, among other things, the risks associated with operations in our industry, economic and market conditions generally and our historical failure to have generated

profits. We have generated substantial operating losses since our inception and have been unable to generate positive cash flow from operating activities. No assurance can be provided that we will be able to do so in the future.

 

In addition, upon termination of the merger agreement, the $12 million line of credit which Piramal advanced to us will become due and payable, along with a payment fee of 20% under certain circumstances. We have also defaulted upon our obligations under the Notes because of our failure to make an approximately $800,000 interest payment on December 31, 2008. The Noteholders agreement to forbear exercise of their remedies arising from defaults under the Notes will expire if the merger is not closed. Under such circumstance, if we do not cure our defaults under the Notes, the Noteholders may accelerate the payment of principal, interest and other obligations under the Notes and related documents and may exercise other remedies it may have including, without limitation, the commencement of foreclosure on our assets. We will not have sufficient funds available to pay these obligations and will be required to find alternative financing in order to pay them. Such financing may not be available on acceptable terms, or at all. We would also seek other strategic alternatives; however, another acceptable transaction may no be offered. If we cannot find acceptable financing or another strategic alternative, Piramal and the Noteholders may seek to enforce the liens encumbering substantially all of our assets which secure our obligations to them. We may be forced to file a petition in bankruptcy. Accordingly, if the merger is not completed, there can be no assurance as to the effect of these risks on the future value of your shares of our common stock.

 

In addition, if the merger agreement is terminated, under certain circumstances, we will be obligated to pay up to $1.2 million of the out-of-pocket fees and expenses of Piramal. If additional circumstances exist, we will be obligated to pay a termination fee of $1.2 million to Piramal. For a description of the circumstances triggering payment of the termination fee and reimbursement of Piramal’s expenses, see “The Merger Agreement — Termination of the Merger Agreement” on page 52.

 

The following is a description of the material aspects of the Agreement and Plan of Merger dated December 22, 2008, among Piramal, Merger Sub, Minrad International and, with respect to only certain sections of the agreement, Piramal India, but does not purport to describe all of the terms of the merger agreement. While we believe that the following description covers the material terms of the merger agreement, the description may not contain all of the information that is important to you. We encourage you to read carefully this entire document, including the merger agreement attached to this proxy statement as Appendix A , for a more complete understanding of the merger. The following description is subject to, and is qualified in its entirety by reference to, the merger agreement.

 

Pursuant to the terms and conditions of the merger agreement, Merger Sub will merge with and into Minrad International, with Minrad International surviving as a wholly-owned subsidiary of Piramal. At the effective time of the merger, all of Merger Sub’s property, rights, privileges, powers and franchises before the merger will vest in the surviving corporation and all of Minrad International’s and Merger Sub’s debts, liabilities and duties before the merger will become the debts, liabilities and duties of the surviving corporation. The directors of Merger Sub will be the directors of the surviving corporation immediately after the effective time of the merger. The officers of Merger Sub will be the officers of the surviving corporation immediately after the effective time of the merger.

 

Common Stock

 

As of the effective time of the merger, each share of our common stock issued and outstanding immediately prior to the effective time of the merger will be cancelled and extinguished and will automatically be converted into

the right to receive $0.12 in cash (the per share amount of the merger consideration), except that the following shares will be cancelled and no payment made with respect thereto:

 

 

After the effective time of the merger, each holder of a certificate formerly representing shares of our common stock (other than shares of our common stock for which appraisal rights have been properly demanded and perfected) will no longer have any rights with respect to the shares of our common stock, except for the right to receive the per share merger consideration. See “The Merger — Appraisal Rights” beginning on page 38.

 

Each share of common stock, $0.01 par value, of Merger Sub outstanding immediately prior to the effective time of the merger will be converted into and become one share of common stock of the surviving corporation.

 

Stock Options

 

At or immediately prior to the effective time of the merger, we are required to obtain any consents necessary to reflect the cancellation of all outstanding options to acquire our common stock that are held by any member of our board of directors or any of our officers. In addition, we must obtain any consents necessary and take all appropriate actions (which may include payment of nominal consideration) to effect the cancellation of all existing stock options that are by their terms or applicable law subject to cancellation upon the merger. With respect to existing stock options that are not held by members of our board of directors or officers, and are not subject to cancellation by their terms or applicable law, we shall use our reasonable best efforts to obtain the consent of the holders of such stock options to their cancellation at or immediately prior to the effective time of the merger; provided that we must obtain the prior consent of Piramal before offering any payment of consideration for such cancellation unless the consideration being paid is equal to the excess of $0.12 over the exercise price per share of their option multiplied by the number of shares subject to the option being terminated. None of the options to acquire our stock which are outstanding have an exercise price equal to or below $0.12 per share.

 

Warrants

 

At or immediately prior to the effective time of the merger, we shall use our reasonable best efforts to obtain any consents necessary so that substantially all warrants to purchase shares of our common stock that are outstanding immediately prior to the effective time of the merger shall be canceled in exchange for the right to receive an amount in cash without interest in respect thereof equal to the product of the excess, if any, of $0.12 over the per share exercise or purchase price of each such existing warrant and the number of shares subject to such existing warrant. None of the outstanding warrants to acquire our common stock have an exercise price equal to or in excess of $0.12 per share.

 

Notes

 

At the effective time of the merger, Piramal shall purchase 100% of the Notes for a purchase price of $30,840,704.56.

 

[ • ] will act as the paying agent for the payment of the merger consideration. Promptly after the effective time of the merger, Piramal will instruct the paying agent to mail the following materials to each holder of record of our common stock immediately prior to the effective time of the merger:

 

 

 

Upon receipt of a letter of transmittal from the paying agent, each stockholder should complete and sign the letter of transmittal and return it to the paying agent together with such stockholder’s stock certificates (or, if such stockholder’s shares of our common stock are held in book-entry or other uncertificated form, upon the entry through a book-entry transfer agent of the surrender of such shares of our common stock on a book-entry account statement) and any other necessary documentation in accordance with the instructions. Stockholders should not return stock certificates with the enclosed proxy card.

 

Upon the effective time of the merger, each stock certificate, other than those representing shares of our common stock in respect of which appraisal rights under Delaware law have been perfected and shares of our common stock held by Minrad International, Piramal, Merger Sub or any of their respective affiliates, will represent only the right to receive the per share merger consideration.

 

From time to time after the effective time of the merger, Piramal will deposit cash sufficient to deliver the aggregate merger consideration on a timely basis to the holders of our common stock.

 

Piramal, the surviving corporation and the paying agent are entitled to deduct and withhold from the merger consideration otherwise payable such amounts as are required by applicable law, including any applicable tax withholding.

 

From and after the effective time of the merger, there will be no further registration of transfers on the records of the surviving corporation of shares of our common stock that were issued and outstanding immediately prior to the effective time of the merger, other than transfers to reflect, in accordance with customary settlement procedures, trades effective prior to the effective time of the merger. If, after such time, certificates representing shares of our common stock are presented to the surviving corporation, they will be cancelled and exchanged in accordance with the terms of the merger agreement. If any portion of the merger consideration is to be paid to a person other than the person in whose name the surrendered stock certificate is registered in our records, the paying agent will only issue such merger consideration if the certificate representing such shares and presented to the paying agent is properly endorsed or accompanied by appropriate stock powers and otherwise in proper form for transfer, and accompanied by all documents reasonably required by the paying agent to establish that any applicable taxes have been paid.

 

In the event any stock certificate has been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such stock certificate to be lost, stolen or destroyed and, if required by the surviving corporation, the posting by such person of a bond in such amount as the surviving corporation may reasonably direct and delivery by such person of an indemnity agreement, in each case as indemnity against any claim that may be made against Piramal or the surviving corporation, the paying agent will issue, in exchange for such lost, stolen or destroyed share certificate, the merger consideration, as the case may be, with respect to the shares of our common stock formerly represented by such certificate.

 

Any portion of the merger consideration which remains undistributed to our stockholders six months after the effective time of the merger will be delivered by the paying agent to the surviving corporation. Any holders of shares of our common stock that were outstanding immediately prior to the effective time of the merger who have not previously exchanged such shares for the merger consideration will only be entitled to request payment of the merger consideration from the surviving corporation, subject to abandoned property, escheat or other similar laws.

 

The merger agreement contains representations and warranties made by us to Piramal and Merger Sub and representations and warranties made by Piramal and Merger Sub to us. These representations and warranties have been made solely for the benefit of the other parties to the merger agreement and:

 

 

For the foregoing reasons, you should not rely on the representations and warranties contained in the merger agreement as statements of factual information as of the date they were made or at any other time. The representations and warranties in the merger agreement and the description of them in this document should be read in conjunction with the other information contained in the reports, statements and filings we publicly file with the SEC. This description of the representations and warranties is included solely to provide our stockholders with information regarding the terms of the merger agreement.

 

Minrad International

 

We have made a number of representations and warranties to Piramal and Merger Sub regarding aspects of our business and other matters pertinent to the merger. The topics covered by these representations and warranties include, but are not limited to, the following topics:

 

 

 

Our representations and warranties contained in the merger agreement and in any instrument delivered pursuant to the merger agreement will not survive the effective time of the merger.

 

Piramal and Merger Sub

 

Piramal and Merger Sub have made a number of representations and warranties to us regarding various matters pertinent to the merger. The topics covered by these representations and warranties include, but are not limited to, the following topics:

 

 

 

The representations and warranties of Piramal and Merger Sub contained in the merger agreement and in any instrument delivered pursuant to the merger agreement will not survive the effective time of the merger.

 

Many of our representations and warranties are qualified by a “Material Adverse Effect” standard. For purposes of the merger agreement, “Material Adverse Effect” means any change, effect, event, occurrence, circumstance or condition (each an “Effect”) that, taken individually or in the aggregate, has had or is reasonably likely to (i) have a material adverse effect on the condition (financial or otherwise), business, properties, assets, liabilities or results of operations of Minrad International and our subsidiaries taken as a whole or (ii) impair the ability of the parties to consummate the merger in accordance with the terms thereof or materially delay such consummation, provided, however, that in no event shall any of the following, alone or in combination, be deemed to constitute, nor be taken into account in determining whether there has been or will be, a Material Adverse Effect:

 

 

References in this proxy statement to Material Adverse Effect have the same meaning as that which is described above.

 

We have agreed that, during the period from December 22, 2008 until the earlier of the termination of the merger agreement pursuant to its terms or the effective time of the merger, except as expressly contemplated by the merger agreement or consented to in writing by Piramal, with certain exceptions, we and our subsidiaries will not:

 

 

 

 

Notwithstanding the foregoing, we, upon receipt of the written consent of Piramal, which consent will not be unreasonably withheld, may take such actions which our board of directors believes are in our best interest to conserve capital and reduce expenditures (whether or not such expenditures were included in any budget, forecasts or projections).

 

We have agreed that neither we, any of our affiliates, nor any of our officers, directors, employees, investment bankers, financial advisors, attorneys, accountants, brokers and other agents (our “representatives”), will solicit, initiate or participate in any way in any discussions or negotiations with respect to, or provide any information, or afford any access to our properties, books or records or otherwise take any action to assist or facilitate any acquisition proposal.

 

As used in the merger agreement and in this proxy statement, “acquisition proposal” means any offer or proposal, or any indication of interest in making an offer or proposal, made by a person, entity or group at any time which is structured to permit such person, entity or group to acquire beneficial ownership of any material portion of the assets of, or at least 20% of the equity interest in, or businesses of, Minrad International pursuant to a merger, consolidation or other business combination, sale of shares of capital stock, sale of assets, tender offer or exchange offer or similar transaction, including any single or multi-step transaction or series of related transactions.

 

The restrictions described above do not prohibit us or our representatives from furnishing information to (but only pursuant to a confidentiality agreement meeting certain specified requirements) or entering into discussions or negotiations with any third party that makes an unsolicited bona fide alternative acquisition proposal, that our board of directors determines constitutes a superior proposal, if, and only if, our board of directors determines in good faith (after consulting with outside legal counsel) that failure to do so would result in a breach of the fiduciary duty of our board of directors to our stockholders under applicable law. We agreed to immediately notify Piramal (and in any event within 24 hours) if such information is requested or any such negotiations or discussions are sought to be initiated and will keep Piramal advised on a current basis of any developments with respect thereto.

 

As used in the merger agreement and in this proxy statement, “superior proposal” means any unsolicited, bona fide acquisition proposal made in writing in respect of which our board of directors has reasonably determined in good faith (A) that the potential acquiror has the financial wherewithal to consummate such acquisition proposal without having to obtain new financing other than financing as to which it has obtained binding commitments from reputable sources, (B) after receiving the opinion of its independent financial advisors to such effect, that such acquisition proposal would involve consideration that is superior to the consideration under the merger agreement and (C) after receiving the advice of its outside counsel to such effect, that such acquisition proposal is reasonably likely to be consummated without unreasonable delay.

 

Our board of directors has resolved to recommend that our stockholders approve and adopt the merger agreement. We are also required to duly call, give notice of, convene and hold as promptly as practicable a meeting of our common stockholders to adopt the merger agreement. Except as described below, we have agreed that neither our board of directors nor any of its committees will withdraw or modify in a manner adverse to Piramal this recommendation or propose publicly to approve or recommend an alternative acquisition proposal.

 

Our board of directors may change its recommendation that our stockholders approve and adopt the merger agreement or propose publicly to approve or recommend an alternative acquisition proposal only if:

 

 

 

If our board of directors decides to terminate the merger agreement to enter into a definitive agreement with respect to a superior proposal, we can terminate the merger agreement as described under the heading “— Termination of the Merger Agreement” below if we reimburse Piramal for its out-of-pocket fees and expenses, in an amount not to exceed $1.2 million, and pay Piramal a termination fee of $1.2 million.

 

The non-solicitation covenant in the merger agreement does not prevent us from complying with Rule 14d-9 or Rule 14e-2(a) under the Exchange Act with regard to an alternative acquisition proposal, or making any other disclosure to our stockholders if, in the good faith judgment of our board of directors, after consulting with outside counsel, there is a reasonable basis to conclude that disclosure is required under applicable law.

 

From December 22, 2008 until the earlier of the effective time of the merger or the termination of the merger agreement pursuant to its terms, we have agreed to give Piramal and its representatives reasonable access during normal business hours to our employees, plants, offices, warehouses and other facilities, all of our books, contracts, commitments and records, and to cause our accountants to provide access to their work papers and to provide such other information as Piramal may reasonably request, including operating and financial data and other information with respect to our business and properties, and to provide copies of filings which we make pursuant to state and federal securities laws.

 

Piramal, Merger Sub and Minrad International agreed to use reasonable best efforts to take all actions and to do and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to fulfill all conditions applicable to such party pursuant to the merger agreement and to consummate and make effective, in the most expeditious manner practicable, the merger and the other transactions contemplated by the merger agreement.

 

The obligations of Minrad International and its subsidiaries to indemnify their officers and directors as provided in their respective charter documents shall survive for six years after the merger. In addition, Piramal shall and shall cause the surviving corporation, to the fullest extent permitted under applicable law, to indemnify, defend and hold harmless each current and former director or officer of Minrad International or its subsidiaries and each person who served as a director, officer, member, trustee or fiduciary of another entity or enterprise at the request of Minrad International or its subsidiaries against any costs or expenses (including reasonable attorneys’ fees and expenses), judgments, fines, losses, claims, damages, liabilities and amounts paid in settlement incurred in connection with any actual or threatened claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of, relating to or in connection with any action or omission occurring or alleged to have occurred whether before or after the effective time of the merger related to the fact that such person was a director or officer of Minrad International or its subsidiaries or served as a director, officer, member, trustee or fiduciary of another entity at the request of Minrad International or any of its subsidiaries. The foregoing includes an obligation of Piramal and Merger Sub to advance attorneys’ fees and expenses prior to the final disposition of any claim, action, suit, proceeding or investigation to each indemnified person to the fullest extent permitted by law.

 

The surviving corporation shall maintain in effect for a period of six years from and after the merger, the existing policies of directors’ and officers’ liability insurance maintained by us, or purchase a tail to such existing policies.

 

The surviving corporation will honor all existing severance and employment agreements with our directors and employees.

 

In addition, with respect to the plans in which our employees participate following the effective time of the merger, Piramal and the surviving corporation will:

 

 

At the closing of the merger, Piramal has agreed to purchase from the Noteholders our outstanding Notes which have a current principal balance of $40 million and for which an $8 million redemption premium would be payable as a result of the merger, for an aggregate purchase price of $30,840,704.56. See “Other Agreements Entered into in Connection with the Merger — Note Purchase Agreement” beginning on page 55.

 

From December 22, 2008 until the effective time of the merger, we and our representatives will provide Piramal and its representatives with all cooperation that may be reasonably requested by Piramal in connection with obtaining financing in order to consummate the transactions contemplated by the merger agreement.

 

We shall cooperate with Piramal and use commercially reasonable efforts to enable the delisting of our common stock from NYSE Alternext and the deregistration of our common stock under the Exchange Act as promptly as practical after closing.

 

We intend to work towards closing the merger as promptly as possible. In accordance with the merger agreement, the closing of the merger will occur on a time and date specified by the parties, but unless the parties agree otherwise, in no event later than the second business day following the satisfaction or waiver of all of the conditions set forth in the merger agreement, other than those conditions that by their terms are to be satisfied on the closing date of the merger, but subject to the fulfillment or waiver of such conditions.

 

The obligations of each of us, Piramal and Merger Sub to consummate the merger are subject to the satisfaction or waiver of each of the following conditions:

 

 

Neither Piramal nor Merger Sub will be obligated to effect the merger unless each of the following conditions is satisfied or waived:

 

 

We will not be obligated to effect the merger unless each of the following conditions is satisfied or waived:

 

 

The merger agreement may be terminated under specified circumstances, including, without limitation, the following circumstances:

 

 

 

 

 

 

 

 

Pursuant to the terms of the merger agreement, we are required to pay Piramal a termination fee of $1.2 million and to reimburse it for its out-of-pocket expenses of up to $1.2 million if:

 

 

If the agreement is terminated by Piramal for an unremedied breach of representation, warranty or obligation, but a termination fee is not payable, we will still be obligated to pay their out-of-pocket expenses of up to

$1.2 million. We will also pay those expenses if the agreement is terminated because our stockholders fail to approve the merger agreement at the special meeting of stockholders.

 

Piramal is required to pay us a termination fee of $1.2 million and to reimburse us for our out-of-pocket printing, filing and legal and financial advisory fees of up to $1.2 million if we terminate the agreement after all of the conditions to its obligations to close the merger agreement have been satisfied and Piramal has failed to consummate the merger no later than ten calendar days after the satisfaction of those conditions

 

Except as expressly set forth in the merger agreement and described above, all out-of-pocket costs and expenses incurred in connection with the merger agreement and the merger will be paid by the party incurring such costs and expenses.

 

The parties are entitled to seek an injunction to prevent breaches of the merger agreement and to enforce specifically the terms and provisions of the merger agreement, in addition to any other legal or equitable remedy to which they are entitled. However, if the agreement is terminated in accordance with the terms described under the heading “— Termination Fees” above, the payment of termination fees and reimbursement of out-of-pocket expenses as described therein shall be the sole and exclusive remedy available to each party.

 

On May 6, 2008, we issued to certain institutional accredited investors the Notes with an aggregate principal balance of $40 million. The Notes are still outstanding and the principal balance of the Notes is still $40 million. The Notes are convertible at any time into shares of our common stock, at an initial conversion price of $2.65 per share, subject to certain adjustments set forth in the notes. The Notes mature on the May 6, 2011. Interest is payable quarterly and principal will be payable in cash on the maturity date. The Notes are secured by a security interest on substantially all of our and Minrad Inc.’s assets.

 

Under the terms of the Notes, upon a change of control we are required to either cause the acquiring company to assume the obligations under the notes or to cause the notes to be paid in full at a redemption price equal to 120% of the outstanding principal balance (currently, that redemption price would be $48 million). In connection with the merger agreement, Piramal entered into the Note Purchase Agreement with the Noteholders in which Piramal has agreed to acquire the Notes for an aggregate purchase price of $30,840,704.56. The closing of the acquisition of the Notes will occur at the earliest of:

 

 

Simultaneously with our entry into the merger agreement, we also entered into a credit agreement with Piramal pursuant to which it loaned us $12 million in order to fund our operations from December 22, 2008 until the effective time of the merger. Interest on the loan will be payable at the six-month LIBOR rate plus six percent (6%). Principal and interest for the loan will be payable upon the maturity date, which is the earlier of the 120th day after the closing of the loan or the termination of the credit agreement. We will pay a fee equal to 20% of the loan amount on the maturity date or upon acceleration of the loan, provided that no fee will be payable if Piramal or Piramal India breach their obligations under the merger agreement in a manner which gives us a right to terminate the merger agreement or if they breach their obligation to purchase the Notes under their agreement with the Noteholders. The loan is secured by a lien on substantially all of our and Minrad Inc.’s assets.

 

As a condition of providing us with the Piramal Loan, Piramal required the Noteholders to enter into an intercreditor agreement. Under the terms of the intercreditor agreement, the Noteholders agreed to subordinate and defer their right to payment of the Notes until the Piramal Loan is paid in full, and to subordinate the liens securing the Notes to the liens securing the Piramal Loan. However, in the event Piramal or Piramal India defaults under the merger agreement in a manner which gives us a right to terminate the merger agreement and the breach is not cured or waived, or if Piramal fails to purchase the Notes in accordance with their Note Purchase Agreement with the Noteholders, the Notes will become senior and Piramal’s right to payment under the Piramal Loan will be subordinated to the rights of the Noteholders and the liens securing the Piramal Loan will be subordinated to the liens securing the Notes.

 

The Noteholders also agreed to waive certain rights which they had under the agreements relating to the Notes during the period between December 22, 2008 and the earlier of (i) the date of the purchase of the Notes in accordance with the Note Purchase Agreement or (ii) the termination of the merger agreement as a result of a default by Piramal.

 

Under the terms of the Notes and the security and other documents relating to the Notes, our entry into and performance of the terms of the merger agreement gave the Noteholders certain rights and violated certain covenants of those documents. In addition, we anticipate that between December 22, 2008 and the closing of the merger, certain events of default under the Notes and related documents are likely to occur. As a result, we requested and the Noteholders agreed to enter into a Consent, Waiver and Forbearance Agreement. In that agreement, each Noteholder:

 

 

In the Consent, Waiver and Forbearance Agreement we agreed not to take the following actions without the prior written consent of the holders of a majority of the principal amount of the Notes:

 

 

 

 

 

 

Concurrently with the execution and delivery of the merger agreement, Piramal entered into a voting agreement with the following individuals and entities:

 

 

Pursuant to the voting agreements, a form of which is attached hereto as Appendix B , the stockholders described above have agreed that until the termination of the merger agreement, in their capacity as a stockholder only, to vote all of their shares of our common stock:

 

 

As of the record date, an aggregate of 9,900,464 shares of our common stock were subject to the voting agreements, representing approximately 20% of the outstanding shares of our common stock.

In addition, each of these stockholders has given Piramal an irrevocable proxy to vote their shares of our common stock in this manner. Each of these stockholders also agreed that neither they, nor their affiliates or representatives or agents will directly or indirectly, encourage, solicit, initiate or participate in any discussions or negotiations or assist or facilitate an alternative acquisition proposal.

 

The voting agreements prohibit each of the parties described above from granting any proxies or entering into other arrangements with respect to the voting of their shares, or transferring any shares of our common stock during the term of the voting agreement, except to any affiliate, family member or trust for the benefit of any family member or a charitable trust and provided that the transferee executes an agreement to be bound by the terms and conditions of the applicable voting agreement.

SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table shows the common stock beneficially owned as of          , 2009 by:

 

 

Beneficial ownership is determined in accordance with SEC rules. In computing the number of shares beneficially owned by a person, we have included shares for which the named person has sole or shared power over voting or investment decisions. The number of shares beneficially owned includes common stock which the named person has the right to acquire, through conversion, option or warrant exercise, or otherwise, within 60 days after January 7, 2009. Percentage of beneficial ownership is based on 49,302,462 shares outstanding as of January 7, 2009. Beneficial ownership calculations for 5% or greater stockholders are based solely on publicly-filed Schedule 13Ds or 13Gs, which 5% or greater stockholders are required to file with the SEC. Except as otherwise noted, the address of each person listed in the table is c/o Minrad International, 50 Cobham Drive, Orchard Park, New York 14127.

 

 

 

STOCKHOLDER PROPOSALS

 

If the merger is consummated, we will be a privately-held company, and there will be no public participation in any future meeting of our stockholders. However, if the merger is not consummated or if we are otherwise required to do so under applicable law, we will hold a 2009 annual meeting of our stockholders.

 

Proposals intended to be presented by a stockholder at our 2009 Annual Meeting of Stockholders and included in our proxy materials must have been received at our principal offices in Buffalo, New York no later than December 26, 2008 for inclusion in the proxy materials for that meeting (unless the date of our 2009 Annual Meeting is changed by more than 30 days from the date of the 2008 annual meeting of our stockholders, in which case the deadline is a reasonable time before we mail our proxy materials), and must have met all of the other requirements of Rule 14a-8 of the SEC.

OTHER MATTERS

 

Our directors know of no other matters to be brought before the special meeting. If any other matters properly come before the meeting, it is intended that proxies received in response to this solicitation will be voted on such matters in the discretion of the person or persons named in the accompanying proxy form.

 

We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any document we file at the SEC’s public reference room located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our SEC filings are also available to the public at the SEC’s website at http://www.sec.gov . You also may obtain free copies of the documents we file with the SEC by going to the Investor Information page of our corporate website at http://www.minrad.com. Our website address is provided as an inactive textual reference only. The information provided on our website is not part of this proxy statement, and is not incorporated herein by reference.

 

Any person, including any beneficial owner, to whom this proxy statement is delivered may request copies of any of our filings with the SEC, without charge, by written or telephonic request directed to Minrad International, Inc., 50 Cobham Drive, Orchard Park, New York 14127, Attn: David DiGiacinto, Telephone (716) 855-1068, on the Investor Information page of our corporate website at http://www.minrad.com or from the SEC through the SEC’s website at the address provided above.

 

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROXY STATEMENT. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY STATEMENT. THIS PROXY STATEMENT IS DATED          , 2009. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE. NEITHER THE MAILING OF THIS PROXY STATEMENT TO STOCKHOLDERS NOR THE ISSUANCE OF CASH IN THE MERGER CREATES ANY IMPLICATION TO THE CONTRARY.

APPENDIX A

 

 

AGREEMENT AND PLAN OF MERGER

AMONG

PIRAMAL HEALTHCARE, INC.,

MAYFLOWER ACQUISITION CORP.

PIRAMAL HEALTHCARE LTD.

and

MINRAD INTERNATIONAL, INC.

Dated as of December 22, 2008

 

TABLE OF CONTENTS

 

Glossary of Defined Terms