NUVASIVE, INC. - Elsevier Business Intelligence

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UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

Form 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended June 30, 2013

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to

Commission file number: 000-50744

NUVASIVE, INC.(Exact name of registrant as specified in its charter)

Delaware 33-0768598(State or other jurisdiction of

incorporation or organization) (I.R.S. Employer

Identification No.) 7475 Lusk Boulevard,

San Diego, CA 92121(Address of principal executive offices)

Registrant’s telephone number, including area code:(858) 909-1800

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period than the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past90 days. YES NO ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submittedand posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant wasrequired to submit and post such files). YES NO ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of“large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨ (Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO

As of July 22, 2013, there were 44,558,136 shares of the registrant’s common stock issued and outstanding.

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NuVasive, Inc.Quarterly Report on Form 10-Q

June 30, 2013

PART IItem 1. Financial Statements 2Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 20Item 3. Quantitative and Qualitative Disclosures About Market Risk 28Item 4. Controls and Procedures 28

PART IIItem 1. Legal Proceedings 29Item 1A. Risk Factors 30Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 33Item 3. Defaults Upon Senior Securities 33Item 4. Mine Safety Disclosures 33Item 5. Other Information 33Item 6. Exhibits 33

SIGNATURES 35

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PART I. FINANCIAL INFORMATIONItem 1. Financial Statements

NUVASIVE, INC.CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par values)

June 30, December 31, 2013 2012

(Unaudited) ASSETS

Current assets: Cash and cash equivalents $ 58,880 $ 123,299Short-term marketable securities 113,779 138,405Accounts receivable, net 96,314 88,958Inventory 137,394 126,335Deferred tax assets, current 31,136 28,236Prepaid expenses and other current assets 9,016 8,516

Total current assets 446,519 513,749Property and equipment, net 130,591 125,123Long-term marketable securities 100,072 84,412Intangible assets, net 97,183 101,362Goodwill 154,846 154,106Deferred tax assets 37,677 40,575Restricted cash and investments 119,048 118,995Other assets 22,248 25,463Total assets $ 1,108,184 $ 1,163,785

LIABILITIES AND EQUITY Current liabilities:

Accounts payable and accrued liabilities $ 78,298 $ 62,048Accrued payroll and related expenses 21,936 27,916Senior Convertible Notes, current — 74,311

Total current liabilities 100,234 164,275Senior Convertible Notes 339,108 332,404Deferred tax liabilities 3,125 3,129Litigation liability 93,700 101,200Other long-term liabilities 14,838 15,199Commitments and contingencies Noncontrolling interests — 10,003Stockholders’ equity:

Preferred stock, $0.001 par value; 5,000 shares authorized, none outstanding — —Common stock, $0.001 par value; 120,000 shares authorized at June 30, 2013 and December 31, 2012,

respectively, 44,503 and 43,686 issued and outstanding at June 30, 2013 and December 31, 2012,respectively 45 44

Additional paid-in capital 734,796 714,865Accumulated other comprehensive (loss) income (3,413) 786Accumulated deficit (183,738) (178,120)

Total NuVasive, Inc. stockholders’ equity 547,690 537,575Noncontrolling interests 9,489 —Total equity 557,179 537,575Total liabilities and equity $ 1,108,184 $ 1,163,785

See accompanying notes to unaudited condensed consolidated financial statements.

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NUVASIVE, INC.UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

Three Months Ended

June 30, Six Months Ended

June 30,

2013 2012 2013 2012

Revenue $ 165,698 $ 154,419 $ 325,202 $ 306,110Cost of goods sold (excluding amortization of purchased technology) 48,744 36,534 87,840 73,467Gross profit 116,954 117,885 237,362 232,643Operating expenses:

Sales, marketing and administrative 104,272 92,615 204,158 187,293Research and development 7,712 9,335 17,407 19,323Amortization of intangible assets 4,913 2,903 9,288 5,749

Total operating expenses 116,897 104,853 230,853 212,365Interest and other expense, net:

Interest income 231 204 403 412Interest expense (6,652) (6,972) (13,685) (13,797)Other expense, net (440) (551) (199) (114)

Total interest and other expense, net (6,861) (7,319) (13,481) (13,499)(Loss) income before income taxes (6,804) 5,713 (6,972) 6,779Income tax (benefit) expense (76) 3,103 (840) 3,700Consolidated net (loss) income $ (6,728) $ 2,610 $ (6,132) $ 3,079Net loss attributable to noncontrolling interests $ (259) $ (253) $ (514) $ (457)Net (loss) income attributable to NuVasive, Inc. $ (6,469) $ 2,863 $ (5,618) $ 3,536

Net (loss) income per share attributable to NuVasive, Inc.: Basic $ (0.15) $ 0.07 $ (0.13) $ 0.08Diluted $ (0.15) $ 0.06 $ (0.13) $ 0.08

Weighted average shares outstanding: Basic 44,412 43,347 44,220 43,095Diluted 44,412 44,318 44,220 43,857


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NUVASIVE, INC.UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(In thousands)

Three Months Ended


June 30,

2013 2012 2013 2012

Consolidated net (loss) income $ (6,728) $ 2,610 $ (6,132) $ 3,079Other comprehensive loss:

Unrealized loss on marketable securities, net of tax (229) (87) (270) (145)Translation adjustments, net of tax (2,141) (978) (3,929) (297)

Other comprehensive loss (2,370) (1,065) (4,199) (442)Total consolidated comprehensive (loss) income (9,098) 1,545 (10,331) 2,637Plus: Net loss attributable to noncontrolling interests 259 253 514 457Comprehensive (loss) income attributable to NuVasive, Inc. $ (8,839) $ 1,798 $ (9,817) $ 3,094


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NUVASIVE, INC.UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Six Months Ended June 30,

2013 2012

Operating activities: Consolidated net (loss) income $ (6,132) $ 3,079Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Depreciation and amortization 30,341 25,313Amortization of debt discount 6,704 6,233Amortization of debt issuance costs 865 912Stock-based compensation 15,548 14,966Allowance for doubtful accounts and sales return reserves 379 1,622Allowance for excess and obsolete inventory, net of write-offs 1,404 1,275Other non-cash adjustments 4,175 3,541

Changes in operating assets and liabilities, net of effects from acquisitions: Accounts receivable (8,443) 671Inventory (13,680) (10,967)Prepaid expenses and other current assets (1,722) 12,185Accounts payable and accrued liabilities 8,830 8,902Accrued payroll and related expenses (5,885) (1,973)

Net cash provided by operating activities 32,384 65,759Investing activities: Cash paid for business and asset acquisitions (7,719) (7,917)Purchases of property and equipment (26,209) (23,930)Purchases of marketable securities (136,988) (110,915)Sales of marketable securities 145,014 144,427Purchases of restricted investments — (113,126)Net cash used in investing activities (25,902) (111,461)Financing activities: Principal payment of 2013 Senior Convertible Notes (74,311) —Tax benefits related to stock-based compensation awards 1,261 —Proceeds from the issuance of common stock 3,123 3,094Other assets 26 242Net cash (used in) provided by financing activities (69,901) 3,336Effect of exchange rate changes on cash (1,000) 30Decrease in cash and cash equivalents (64,419) (42,336)Cash and cash equivalents at beginning of period 123,299 163,492Cash and cash equivalents at end of period $ 58,880 $ 121,156Supplemental disclosure of non-cash transactions: Issuance of common stock in connection with asset acquisitions $ — $ 7,560


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NUVASIVE, INC.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Description of Business and Basis of Presentation

Description of Business. NuVasive, Inc. (the Company or NuVasive) was incorporated in Delaware on July 21, 1997, and began commercializingits products in 2001. The Company is focused on developing minimally disruptive surgical products and procedurally integrated solutions for the spine.NuVasive's principal product offering includes a minimally disruptive surgical platform called Maximum Access Surgery, or MAS ®, as well as an offering ofbiologics, cervical and motion preservation products. The MAS platform combines three categories of solutions that collectively minimize soft tissuedisruption during spine fusion surgery, provide maximum visualization and are designed to enable reproducible outcomes for the surgeon. The platformincludes a proprietary software-driven nerve detection and avoidance systems, NVM5 and NVJJB, and Intra-Operative Monitoring (IOM) support;MaXcess®, a unique and integrated split-blade retractor system; and a wide variety of specialized implants. When the three elements of MAS are used together,they may significantly reduce surgery time and return patients to activities of daily living much faster than conventional approaches. The individualcomponents of NuVasive's MAS platform, and many of the Company's products, can also be used in open or traditional spine surgery and mayindependently offer patient benefits to various surgical approaches dealing with a wide variety of pathologies. The Company continues to focus significantresearch and development efforts to expand its MAS product platform and advance the applications of its unique technology into procedurally integratedsurgical solutions. The Company dedicates significant resources toward training spine surgeons on its unique technology and products.

The Company’s primary business model is to loan its MAS systems to surgeons and hospitals who purchase disposables and implants for use inindividual procedures. In addition, for larger customers, the Company’s proprietary nerve monitoring systems, MaXcess and surgical instrument sets areplaced with hospitals for an extended period at no up-front cost to them. The Company also offers a range of bone allograft in patented saline packaging,disposables and spine implants, which include its branded CoRoent ® products and fixation devices such as rods, plates and screws. Implants anddisposables are shipped from the Company’s inventories. The Company sells an immaterial quantity of MAS instrument sets, MaXcess and nervemonitoring systems to hospitals.

Basis of Presentation and Principles of Consolidation. The accompanying unaudited condensed consolidated financial statements have beenprepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Pursuant to these rules and regulations, the Company hascondensed or omitted certain information and footnote disclosures it normally includes in its annual consolidated financial statements prepared in accordancewith accounting principles generally accepted in the United States (GAAP). In the opinion of management, the condensed consolidated financial statementsinclude all adjustments necessary, which are of a normal and recurring nature, for the fair presentation of the Company's financial position and of the resultsof operations and cash flows for the periods presented.

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.Additionally, the unaudited condensed consolidated financial statements for all periods presented include the accounts of a variable interest entity, ProgentixOrthobiology, B.V. (Progentix), which is consolidated pursuant to existing guidance issued by the Financial Accounting Standards Board (FASB).

As a result of the 2011 acquisition of Impulse Monitoring Inc. (Impulse Monitoring), the Company maintains a contractual relationship with severalphysician practices (PCs) whereby the PCs provide the physician oversight service associated with the IOM services. Pursuant to such contractualarrangements, the Company provides management services to the PCs. As of June 30, 2013 and December 31, 2012, the associated PCs are AmericanNeuromonitoring Associates, P.C.; Pacific Neuromonitoring Associates, Inc.; Keystone Neuromonitoring Associates, P.C.; North Pacific NeuromonitoringAssociates, P.C.; and Midwest Neuromonitoring Associates, Inc. Under the management services agreements, the Company provides all non-medical servicesto the PCs in return for a management fee that is settled on a monthly basis. The management services include management reporting, billing and collections ofall charges for medical services provided and all administrative support to the PCs. Pursuant to existing guidance issued by the FASB, these represent variableinterest entities for which the Company is the primary beneficiary, and the accompanying consolidated financial statements include the accounts of the PCsfrom the date of acquisition.

All significant intercompany balances and transactions have been eliminated in consolidation.

These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year endedDecember 31, 2012 included in NuVasive's Annual Report on Form 10-K filed with the SEC. Operating results for the three and six months ended June 30,2013 are not necessarily indicative of the results that may be expected for any other interim period or for the full year. The balance sheet at December 31, 2012has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by GAAP for completefinancial statements.

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Table of ContentsNUVASIVE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Reclassifications. Certain reclassifications have been made to the prior period condensed consolidated financial statements and notes to conform to thecurrent year presentation.

2. Recently Adopted Accounting Standards

Effective January 1, 2013, the Company adopted the FASB's requirements for presentation of reclassifications out of accumulated other comprehensiveincome (AOCI). The guidance requires companies to report, in one place, information about reclassifications out of AOCI and to present reclassifications bycomponent when reporting changes in AOCI balances. The adoption of this authoritative guidance did not have an impact on the Company's financial positionor results of operations.

3. Investment in Progentix Orthobiology, B.V.

In 2009, the Company completed the purchase of forty percent ( 40%) of the capital stock of Progentix, a company organized under the laws of theNetherlands, from existing shareholders (the Progentix Shareholders) pursuant to a Preferred Stock Purchase Agreement for $10 million in cash (the InitialInvestment). Concurrent with the Initial Investment, NuVasive and Progentix also entered into a Senior Secured Facility Agreement, whereby Progentix mayborrow up to $5.0 million from NuVasive to fund ongoing clinical and regulatory efforts (the Loan). At June 30, 2013, the Company had advanced Progentixthe full $5.0 million in accordance with the Loan Agreement. The Loan accrues interest at a rate of six percent ( 6%) per year. Other than its obligations underthe Loan Agreement, NuVasive is not obligated to provide additional funding, nor has any additional funding been provided, to Progentix.

Also concurrent with the Preferred Stock Purchase Agreement, NuVasive, Progentix and the Progentix Shareholders entered into an Option PurchaseAgreement, as amended (the Option Agreement), whereby NuVasive was obligated (the Put Option), upon the achievement of an annual sales run rate onProgentix products in excess of a specified amount between June 14, 2011 and June 13, 2013 (the Option Period), to purchase the remaining sixty percent(60%) of capital stock of Progentix from its shareholders (the Remaining Shares) for an amount up to $35.0 million, subject to certain reductions, payable in acombination of cash and NuVasive common stock, at NuVasive’s sole discretion. In accordance with the Option Agreement, NuVasive had the right topurchase the Remaining Shares (the Call Option) during the Option Period for an amount up to $35.0 million, subject to certain reductions, payable in acombination of cash and NuVasive common stock, at NuVasive’s sole discretion. The Option Agreement expired unexercised on June 13, 2013. NuVasive andProgentix also entered into a Distribution Agreement, as amended, whereby Progentix appointed NuVasive as its exclusive distributor for certain Progentixproducts. The Distribution Agreement will be in effect for a term of ten years unless terminated earlier in accordance with its terms.

In accordance with authoritative guidance, the Company has determined that Progentix is a variable interest entity as it does not have the ability tofinance its activities without additional subordinated financial support and its equity investors will not absorb their proportionate share of expected losses andwill be limited in the receipt of the potential residual returns of Progentix. Additionally, pursuant to this guidance, NuVasive is considered its primarybeneficiary as NuVasive has both (1) the power to direct the economically significant activities of Progentix and (2) the obligation to absorb losses of, or theright to receive benefits from, Progentix. Accordingly, the financial position and results of operations of Progentix have been included in the Company’sconsolidated financial statements from the date of the Initial Investment. The liabilities recognized as a result of consolidating Progentix do not representadditional claims on the Company’s general assets. The creditors of Progentix have claims only on the assets of Progentix, which are not material, and theassets of Progentix are not available to NuVasive.

Pursuant to authoritative guidance, the equity interests in Progentix not owned by the Company, which includes shares of both common and preferredstock, are reported as noncontrolling interests on the consolidated balance sheet of the Company. The preferred stock represents 18% of the noncontrollingequity interests and provides for a cumulative 8% dividend , if and when declared by Progentix’s Board of Directors. As the rights and conversion features ofthe preferred stock are substantially the same as those of the common stock, the preferred stock is classified as noncontrolling interest and shares in theallocation of the losses incurred by Progentix. Losses incurred by Progentix are charged to the Company and to the noncontrolling interest holders based ontheir ownership percentage. The Remaining Shares and the Option Agreement that was entered into between NuVasive, Progentix and the ProgentixShareholders were not considered to be freestanding financial instruments during the Option Period as defined by authoritative guidance. Therefore, during theOption Period, the Remaining Shares and the Option Agreement were accounted for as a combined unit on the condensed consolidated financial statements as aredeemable noncontrolling interest that was initially recorded at fair value and classified as mezzanine equity. Upon the expiration of the Option Agreement onJune 13, 2013, the noncontrolling interest was no longer redeemable and therefore, pursuant to the authoritative guidance, the noncontrolling interest wasreclassified out of mezzanine equity to its own component of total equity within the Company's condensed consolidated balance sheet.

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Total assets and liabilities of Progentix included in the accompanying condensed consolidated balance sheet are as follows (in thousands):

June 30, 2013 December 31, 2012Total current assets $ 488 $ 657Identifiable intangible assets, net 14,637 14,871Goodwill 12,654 12,654Other long-term assets 11 15Accounts payable & accrued expenses 341 230Deferred tax liabilities, net 2,890 2,890Noncontrolling interests 9,489 10,003

The following is a reconciliation of equity (net assets) attributable to the noncontrolling interests ( in thousands):

Six Months Ended

June 30,

2013 2012

Noncontrolling interests at beginning of period $ 10,003 $ 10,705Less: Net loss attributable to the noncontrolling interests 514 457Noncontrolling interests at end of period $ 9,489 $ 10,248

4. Balance Sheet Reserves

The balances of the reserves for accounts receivable and inventory are as follows (in thousands):

June 30, 2013 December 31, 2012Reserves for accounts receivable and sales returns $ 3,052 $ 2,780Reserves for excess and obsolete inventory $ 17,972 $ 16,856

The Company's inventory consists primarily of purchased finished goods, which includes specialized implants and disposables, and is stated at thelower of cost or market determined by a weighted average cost method. The Company reviews the components of its inventory on a periodic basis for excess,obsolete or impaired inventory, and records a reserve for the identified items.

5. Marketable Securities and Fair Value Measurements

Marketable securities consist of certificates of deposit, corporate notes, commercial paper, U.S. government treasury securities and securities ofgovernment-sponsored entities. The Company classifies all securities as available-for-sale, as the sale of such securities may be required prior to maturity toimplement management strategies. These securities are carried at fair value, with the unrealized gains and losses reported as a component of othercomprehensive income in equity until realized. A decline in the market value of any marketable security below cost that is determined to be other-than-temporary will result in a revaluation of its carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the security isestablished. No such impairment charges were recorded for any period presented.

Realized gains and losses from the sale of marketable securities, if any, are determined on a specific identification basis. Realized gains and losses anddeclines in value judged to be other-than-temporary, if any, on available-for-sale securities are included in other income or expense on the consolidatedstatements of operations. Realized gains and losses during the periods presented were immaterial. Premiums and discounts are amortized or accreted over thelife of the related security as an adjustment to yield using the straight-line method and are included in interest income on the condensed consolidated statementsof operations. Interest and dividends on securities classified as available-for-sale are included in interest income on the condensed consolidated statements ofoperations.

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The composition of marketable securities is as follows (in thousands, except years):

ContractualMaturity(in Years) Amortized Cost

GrossUnrealized

Gains

GrossUnrealized

Losses Fair ValueJune 30, 2013: Classified as current assets

Certificates of deposit Less than 1 $ 1,048 $ — $ — $ 1,048Corporate notes Less than 1 48,950 4 (21) 48,933Commercial paper Less than 1 14,989 — — 14,989U.S. government treasury securities Less than 1 16,633 9 — 16,642Securities of government-sponsored entities Less than 1 32,157 10 — 32,167

Short-term marketable securities 113,777 23 (21) 113,779Classified as non-current assets

Certificates of deposit 1 to 2 873 — — 873Corporate notes 1 to 2 34,007 — (112) 33,895U.S. government treasury securities 1 to 2 1,500 — (2) 1,498Securities of government-sponsored entities 1 to 2 63,853 2 (49) 63,806

Long-term marketable securities 100,233 2 (163) 100,072Classified as restricted investments

U.S. government treasury securities Less than 2 47,329 4 (31) 47,302Securities of government-sponsored entities Less than 2 39,184 4 (15) 39,173

Restricted investments 86,513 8 (46) 86,475Total marketable securities at June 30, 2013 $ 300,523 $ 33 $ (230) $ 300,326

December 31, 2012: Classified as current assets

Certificates of deposit Less than 1 $ 998 $ — $ — $ 998Corporate notes Less than 1 19,169 3 (1) 19,171Commercial paper Less than 1 9,995 2 — 9,997U.S. government treasury securities Less than 1 17,055 6 — 17,061Securities of government-sponsored entities Less than 1 91,151 27 — 91,178

Short-term marketable securities 138,368 38 (1) 138,405Classified as non-current assets

Corporate notes 1 to 2 23,293 — (17) 23,276U.S. government treasury securities 1 to 2 7,619 4 — 7,623Securities of government-sponsored entities 1 to 2 53,493 22 (2) 53,513

Long-term marketable securities 84,405 26 (19) 84,412Classified as restricted investments

U.S. government treasury securities Less than 2 31,784 5 (1) 31,788Securities of government-sponsored entities Less than 2 53,618 18 (1) 53,635

Restricted investments 85,402 23 (2) 85,423Total marketable securities at December 31, 2012 $ 308,175 $ 87 $ (22) $ 308,240

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As of June 30, 2013, the Company had no investments that were in a significant unrealized loss position. The Company reviews its investments toidentify and evaluate investments that have an indication of possible other-than-temporary impairment. Factors considered in determining whether a loss isother-than-temporary include the length of time and extent to which fair value has been less than the cost basis, the financial condition and near-term prospectsof the investee, and the Company’s intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in marketvalue. The Company maintains an investment portfolio of various holdings, types and maturities. The Company does not hold derivative financialinvestments. The Company places its cash investments in instruments that meet high credit quality standards, as specified in its investment policyguidelines. These guidelines also limit the amount of credit exposure to any one issue, issuer or type of instrument.

The Company measures certain assets and liabilities in accordance with authoritative guidance which requires fair value measurements be classifiedand disclosed in one of the following three categories:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities.

Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.

Level 3: Unobservable inputs are used when little or no market data is available.

Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. The Company reviews the fairvalue hierarchy classification on a quarterly basis. Changes in the ability to observe valuation inputs may result in a reclassification of levels for certain assetsor liabilities within the fair value hierarchy. The Company did not have any transfers of assets and liabilities between Level 1 and Level 2 of the fair valuemeasurement hierarchy during the three and six months ended June 30, 2013 and 2012. The Company had no transfers from Level 3 of the fair valuemeasurement hierarchy during the three and six months ended June 30, 2013 and the three months ended June 30, 2012. The Company had one transfer fromLevel 3 of the fair value measurement hierarchy during the six months ended June 30, 2012, as a result of the settlement of a milestone.

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The fair values of the Company’s assets and liabilities, which are measured at fair value on a recurring basis, were determined using the followinginputs (in thousands):

Total

Quoted Price inActive Market

(Level 1)

Significant OtherObservable Inputs

(Level 2)

SignificantUnobservable

Inputs (Level 3)

June 30, 2013: Cash Equivalents, Marketable Securities andRestricted Investments:

Money market funds $ 47,069 $ 47,069 $ — $ —Certificates of deposit 1,921 1,921 — —Corporate notes 82,828 — 82,828 —Commercial paper 14,989 — 14,989 —U.S. government treasury securities 65,442 65,442 — —Securities of government-sponsored entities 135,146 — 135,146 —

Total cash equivalents, marketable securities andrestricted investments $ 347,395 $ 114,432 $ 232,963 $ —

Contingent Consideration: Acquisition-related liabilities, current $ (535) $ — $ — $ (535)Acquisition-related liabilities, non-current $ (554) $ — $ — $ (554)

Total contingent consideration $ (1,089) $ — $ — $ (1,089)

December 31, 2012: Cash Equivalents, Marketable Securities andRestricted Investments:

Money market funds $ 89,101 $ 89,101 $ — $ —Certificates of deposit 998 998 — —Corporate notes 42,447 — 42,447 —Commercial paper 9,997 — 9,997 —U.S. government treasury securities 56,472 56,472 — —Securities of government-sponsored entities 198,326 — 198,326 —

Total cash equivalents, marketable securities andrestricted investments $ 397,341 $ 146,571 $ 250,770 $ —

Contingent Consideration: Acquisition-related liabilities, non-current $ (1,074) $ — $ — $ (1,074)

The carrying amounts of financial instruments such as cash equivalents, accounts receivable, prepaid expenses, other current assets, accounts payable,accrued expenses, and other current liabilities approximate the related fair values due to the short-term maturities of these instruments. The estimated fair valueof the Company's capital lease obligations approximated their carrying values as of June 30, 2013 and December 31, 2012. The fair and carrying value of theCompany’s Senior Convertible Notes is discussed in Note 7.

Contingent Consideration Liability

In connection with the acquisition of Cervitech, Inc. (Cervitech) in May 2009, the Company was required to pay an additional amount not to exceed$33.0 million in the event that the PCM Cervical Disc System (PCM) received FDA approval. The fair value of the contingent consideration was determinedusing a probability-weighted discounted cash flow model, the significant inputs of which were not observable in the market. The key assumptions in applyingthis approach were the interest rate, the timing of expected approval and the probability assigned to the milestone being achieved. During the fourth quarter of2012, the PCM was

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approved by the FDA. Accordingly, the contingent consideration liability was accreted to $33.0 million. Changes in fair value were recorded in the statement ofoperations as sales, marketing and administrative expenses.

In connection with an immaterial acquisition in 2012, the Company is required to pay an amount not to exceed €2.0 million in the event two specifiedrevenue-based milestones are met. The fair value of the contingent consideration was determined using a discounted cash flow model, the significant inputs ofwhich are not observable in the market. The key assumptions in applying this approach are the revenue projections, the interest rate and the probabilitiesassigned to the milestones being achieved. Based on these assumptions, the estimated fair value of the contingent consideration totaled $1.1 million at June 30,2013 and is included in accrued liabilities in the June 30, 2013 condensed consolidated balance sheet. Changes in fair value are recorded in the statements ofoperations as sales, marketing and administrative expenses.

In addition, during the six months ended June 30, 2012, approximately $0.5 million related to contingent consideration recorded in connection with animmaterial acquisition which occurred in 2010 was settled and no longer considered contingent consideration.

The following table sets forth the changes in the estimated fair value of the Company’s liabilities measured on a recurring basis using significantunobservable inputs (Level 3) ( in thousands):

Six Months Ended June 30,

2013 2012

Fair value measurement at beginning of period $ 1,074 $ 32,221Change in fair value measurement included in operating expenses 15 5 9 9Contingent consideration settled — (530)Fair value measurement at end of period $ 1,089 $ 32,290

6. Goodwill and Intangible Assets

Goodwill and intangible assets consisted of the following (in thousands, except years):

Weighted-Average

AmortizationPeriod

(in years) Gross

Amount AccumulatedAmortization

IntangibleAssets, net

June 30, 2013: Intangible Assets Subject to Amortization: Purchased technology:

Developed technology 10 $ 55,528 $ (18,070) $ 37,458Manufacturing know-how and trade secrets 12 21,942 (8,922) 13,020Trade name and trademarks 11 9,500 (2,825) 6,675

Customer relationships 8 43,852 (14,462) 29,390 10 $ 130,822 $ (44,279) $ 86,543Intangible Assets Not Subject to Amortization: In-process research and development 10,640Goodwill 154,846Total goodwill and intangible assets, net $ 252,029

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Weighted-Average

AmortizationPeriod

(in years) Gross

Amount AccumulatedAmortization

IntangibleAssets, net

December 31, 2012: Intangible Assets Subject to Amortization: Purchased technology:

Developed technology 10 $ 55,178 $ (14,966) $ 40,212Manufacturing know-how and trade secrets 12 21,712 (7,996) 13,716Trade name and trademarks 11 9,500 (2,333) 7,167Customer relationships 9 39,330 (9,703) 29,627

10 $ 125,720 $ (34,998) $ 90,722Intangible Assets Not Subject to Amortization: In-process research and development 10,640Goodwill 154,106Total goodwill and intangible assets, net $ 255,468

Total expense related to the amortization of intangible assets was $4.9 million and $2.9 million for the three months ended June 30, 2013 and 2012,respectively, and $9.3 million and $5.7 million for the six months ended June 30, 2013 and 2012, respectively. In-process research and development will beamortized beginning on the regulatory approval date of the respective acquired products and will be amortized over the estimated useful life determined at thattime.

Total future amortization expense related to intangible assets subject to amortization at June 30, 2013 is set forth in the table below (in thousands):

Remaining 2013 $ 9,8502014 13,4092015 12,3242016 11,8552017 9,5042018 9,101Thereafter through 2026 20,500Total future amortization expense $ 86,543

7. Senior Convertible Notes

The carrying values of the Company’s Senior Convertible Notes are as follows ( in thousands):

June 30, 2013 December 31, 20122.75% Senior Convertible Notes due 2017:

Principal amount $ 402,500 $ 402,500Unamortized debt discount (63,392) (70,096)

339,108 332,4042.25% Senior Convertible Notes due 2013 — 74,311Total Senior Convertible Notes $ 339,108 $ 406,715

2.75% Senior Convertible Notes due 2017

In June 2011, the Company issued $402.5 million principal amount of the 2017 Notes, which includes the issuance of $52.5 million principal amountfor the exercise of the initial purchasers’ option to purchase additional notes. The net proceeds from the offering, after deducting initial purchasers’ discountsand costs directly related to the offering, were approximately $359.2 million. The 2017 Notes have a stated interest rate of 2.75% and mature on July 1, 2017.Prior to September 28, 2011, the date on which

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stockholder approval to increase the number of the Company’s authorized shares of common stock from 70 million to 120 million was obtained, the 2017Notes were settleable only in cash. Subsequent to the receipt of this approval, the 2017 Notes may be settled in cash, stock, or a combination thereof, solely atthe Company’s election. It is the Company’s current intent and policy to settle all conversions through combination settlement, which involves repayment of anamount of cash equal to the principal amount and any excess of the conversion value over the principal amount in shares of common stock. The initialconversion rate of the 2017 Notes is 23.7344 shares per $1,000 principal amount, subject to adjustment (which represents an initial conversion price ofapproximately $42.13 per share).

Interest on the 2017 Notes began accruing in June 2011 and is payable semi-annually each January 1st and July 1st, beginning January 1, 2012. Thefair value, based on a quoted market price, or Level 1, of the outstanding 2017 Notes at June 30, 2013 and December 31, 2012 is approximately $394.8million and $361.3 million, respectively.

Prior to January 1, 2017, holders may convert their notes only under the following conditions: a) During any calendar quarter beginning October 1,2011, if the reported sale price of the Company’s common stock for at least 20 days of 30 consecutive trading days ending on the last trading day of theimmediately preceding calendar quarter is greater than 130% of the conversion price on each applicable trading day; b) During the five business day period inwhich the trading price of the 2017 Notes falls below 98% of the product of (i) the last reported sale price of the Company’s common stock and (ii) theconversion rate on that date; and c) Upon the occurrence of specified corporate events, as defined in the 2017 Notes. From January 1, 2017 and until the closeof business on the second scheduled trading day immediately preceding the July 1, 2017, holders may convert their 2017 Notes at any time, regardless of theforegoing circumstances. The Company may not redeem the 2017 Notes prior to maturity. As of June 30, 2013, the “if-converted” value of the 2017 Notes didnot exceed its principal amount and none of the conditions allowing holders of the 2017 Notes to convert had been met.

Other than restrictions relating to certain fundamental changes and consolidations, mergers or asset sales and customary anti-dilution adjustments, the2017 Notes do not contain any financial covenants and do not restrict the Company from paying dividends or issuing or repurchasing any of its othersecurities.

In accordance with authoritative guidance, the cash conversion feature of the 2017 Notes (the 2017 Notes Embedded Conversion Derivative) requiredbifurcation from the 2017 Notes and was initially accounted for as a derivative liability. The fair value of the 2017 Notes Embedded Conversion Derivative atthe time of issuance of the 2017 Notes was $88.9 million, and was recorded as the original debt discount for purposes of accounting for the debt componentof the 2017 Notes. On September 28, 2011, upon obtaining stockholder approval of the additional authorized shares of the Company’s common stock, inaccordance with authoritative literature, the derivative liability was marked to fair value and reclassified to equity. The original debt discount is beingrecognized as interest expense using an effective interest rate of 8.0% over the term of the 2017 Notes. At June 30, 2013 and December 31, 2012, the netcarrying value of the equity component is $49.3 million.

The interest expense recognized on the 2017 Notes during the three months ended June 30, 2013 includes $2.8 million and $3.4 million for thecontractual coupon interest and the accretion of the debt discount, respectively. The interest expense recognized on the 2017 Notes during the six months endedJune 30, 2013 includes $5.5 million and $6.7 million for the contractual coupon interest and the accretion of the debt discount, respectively. During the threemonths ended June 30, 2012, interest expense recognized on the 2017 Notes includes $2.8 million and $3.1 million for the contractual coupon interest and theaccretion of the debt discount, respectively. The interest expense recognized on the 2017 Notes during the six months ended June 30, 2012 includes $5.5million and $6.2 million for the contractual coupon interest and the accretion of the debt discount, respectively.

In connection with the offering of the 2017 Notes, the Company entered into convertible note hedge transaction (the 2017 Hedge) with the initialpurchasers and/or their affiliates (the 20017 Counterparties) entitling the Company to purchase up to 9,553,096 shares of the Company’s common stock atan initial stock price of $42.13 per share, each of which is subject to adjustment. Prior to obtaining the stockholder approval to increase the number of theCompany’s authorized common shares discussed above, the 2017 Hedge was settleable only in cash and was accounted for as a derivative asset. The cost ofthe 2017 Hedge was $80.1 million. On September 28, 2011, upon obtaining stockholder approval of the additional authorized shares of the Company’scommon stock, in accordance with authoritative literature, the derivative asset was marked to fair value and reclassified to stockholders’ equity. The 2017Hedge expires on July 1, 2017. The 2017 Hedge is expected to reduce the potential equity dilution upon conversion of the 2017 Notes if the daily volume-weighted average price per share of the Company’s common stock exceeds the strike price of the 2017 Hedge.

In addition, the Company sold warrants to the 2017 Counterparties to acquire up to 477,654 shares of the Company’s Series A Participating PreferredStock (the 2017 Warrants), at an initial strike price of $988.51 per share, subject to adjustment. Each share of Series A Participating Preferred Stock isinitially convertible into 20 shares of the Company’s common stock. The 2017 Warrants expire on various dates from September 2017 through January 2018and may be settled in cash or net shares. The Company

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received $47.9 million in cash proceeds from the sale of the 2017 Warrants, which has been recorded as an increase in additional paid-in-capital. The 2017Warrants could have a dilutive effect on the Company’s earnings per share to the extent that the price of the Company’s common stock during a givenmeasurement period (the quarter or year-to-date period) exceeds the strike price of the 2017 Warrants.

2.25% Senior Convertible Notes due 2013

In March 2008, the Company issued $230.0 million principal amount of 2.25% unsecured Senior Convertible Notes (the 2013 Notes). The net proceedsfrom the offering, after deducting the initial purchasers’ discounts and costs directly related to the offering, were approximately $208.4 million. During theyear ended December 31, 2011, the Company repurchased, in privately negotiated transactions, approximately $155.7 million in principal of its 2013 Notes.The remaining balance of the 2013 Notes matured on March 15, 2013 and accordingly, during the three months ended March 31, 2013, the Company repaidthe total outstanding principal amount of $74.3 million in cash.

In connection with the offering of the 2013 Notes, the Company sold to the initial purchasers and/or their affiliates warrants to acquire up to 5.1 millionshares of the Company's common stock (the 2013 Warrants), at an initial strike price of $ 49.13 per share, subject to adjustment. The 2013 Warrants couldhave a dilutive effect on the Company's earnings per share to the extent that the price of the Company's common stock during a given measurement period (thequarter or year to date period) exceeds the strike price of the 2013 Warrants. The 2013 Warrants began expiring in June 2013 and will continue to expire atvarious dates through October 8, 2013. At June 30, 2013, warrants to acquire up to 4.5 million shares of the Company's common stock remained outstanding.

8. Net (Loss) Income Per Share

The Company computes basic net (loss) income per share using the weighted-average number of common shares outstanding during the period. Dilutednet (loss) income per share assumes the conversion, exercise or issuance of all potential common stock equivalents, unless the effect of inclusion would beanti-dilutive. For purposes of this calculation, common stock equivalents include the Company’s stock options, unvested restricted stock units, includingthose with performance and market conditions, warrants, and the shares to be issued upon the conversion of the Senior Convertible Notes. No shares relatedto the assumed exercise of outstanding warrants or the conversion of the Senior Convertible Notes were included in the diluted net (loss) income per sharecalculation for the three and six months ended June 30, 2013 and 2012 because the inclusion of such shares would have had an anti-dilutive effect.

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The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data) :

Three Months Ended


June 30,

2013 2012 2013 2012

Numerator: Net (loss) income attributable to NuVasive, Inc. $ (6,469) $ 2,863 $ (5,618) $ 3,536

Denominator for basic and diluted net (loss) income per share: Weighted average common shares outstanding for basic 44,412 43,347 44,220 43,095Dilutive potential common stock outstanding:

Stock options and Employee Stock Purchase Plan (ESPP) — 231 — 164Restricted stock units — 740 — 598

Weighted average common shares outstanding for diluted 44,412 44,318 44,220 43,857Basic net (loss) income per share attributable to NuVasive, Inc. $ (0.15) $ 0.07 $ (0.13) $ 0.08Diluted net (loss) income per share attributable to NuVasive, Inc. $ (0.15) $ 0.06 $ (0.13) $ 0.08

The following weighted outstanding common stock equivalents were not included in the calculation of net (loss) income per diluted share because theireffects were anti-dilutive (in thousands):

Three Months Ended


June 30,

2013 2012 2013 2012

Stock options, ESPP shares and unvested restricted stock units 7,953 5,931 7,518 6,653Warrants 14,641 14,694 14,667 14,694Senior Convertible Notes 9,553 11,214 10,232 11,214Total 32,147 31,839 32,417 32,561

9. Stock-Based Compensation

The Company estimates the fair value of stock options and shares issued to employees under the ESPP using a Black-Scholes option-pricing model onthe date of grant. The fair value of restricted stock units is based on the stock price on the date of grant. The fair value of equity instruments that are expectedto vest are recognized and amortized on an accelerated basis over the requisite service period.

The weighted average assumptions used to estimate the fair value of stock purchase rights under the ESPP are as follows:

Three Months Ended


June 30,

2013 2012 2013 2012

ESPP Volatility 57% 5 5% 58% 5 5%Expected term (years) 1.6 1.5 1.5 1.5Risk free interest rate 0.2% 0.2% 0.2% 0.2%Expected dividend yield —% —% —% —%

The Company did not grant any stock options during the three or six months ended June 30, 2013 or 2012.

The Company issued 3,000 and 5,000 shares of common stock upon the exercise of stock options during the three and six months ended June 30, 2013,respectively, and issued 48,000 shares of common stock upon the exercise of stock options during the year ended December 31, 2012. The Company issued38,000 and 440,000 shares of common stock upon the vesting of

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RSUs during the three and six months ended June 30, 2013, respectively, and issued 339,000 shares of common stock upon the vesting of RSUs during theyear ended December 31, 2012.

In 2012, the Compensation Committee of the Board of Directors (the Compensation Committee) granted performance-based restricted stock units(PRSUs) to certain senior Company executives that were earned based on the achievement of pre-defined Company-specific performance criteria for the yearended December 31, 2012. The fair value of the PRSUs was based on the closing price of the Company's common stock on the date of grant. One-third of thePRSUs vested on March 1, 2013 and the remaining two-thirds vest equally on March 1, 2014 and March 1, 2015. The Company issued 117,000 shares ofcommon stock upon the vesting of PRSUs during the three months ended March 31, 2013.

During the first quarter of 2013, the Compensation Committee granted restricted stock units to certain senior Company executives that are earned basedon the achievement of pre-defined market conditions (total stockholder return) for the year ended December 31, 2013 (TSR PRSUs). The fair value of the TSRPRSUs was estimated on the date of grant using a Monte Carlo valuation model. The key assumptions in applying this model are the expected volatility of49% and risk free interest rate of 0.13%. The TSR PRSUs vest in two equal installments on February 1, 2014 and February 1, 2015.

The compensation cost that has been included in the statement of operations for all stock-based compensation arrangements was as follows ( inthousands):

Three Months Ended


June 30,

2013 2012 2013 2012

Sales, marketing and administrative expense $ 8,278 $ 7,737 $ 14,703 $ 13,879Research and development expense 449 592 791 1,057Cost of goods sold 34 16 54 30Total stock-based compensation expense $ 8,761 $ 8,345 $ 15,548 $ 14,966

10. Income Taxes

The Company recorded an income tax benefit of $0.1 million and income tax expense of $3.1 million for the three months ended June 30, 2013 and2012, respectively, and an income tax benefit of $0.8 million and income tax expense of $3.7 million for the six months ended June 30, 2013 and 2012,respectively. The effective income tax benefit rate for the six months ended June 30, 2013 was 12%, and reflected a discrete tax benefit of $0.9 million, or 13%of pre-tax loss, related to the 2012 federal research and development (R&D) credit which was retrospectively reinstated in the six months ended June 30, 2013.The Company updates its annual effective income tax rate each quarter and if the estimated effective income tax rate changes, a cumulative adjustment ismade.

There was no material change to the Company's unrecognized tax benefits and interest accrued related to unrecognized tax benefits during the six monthsended June 30, 2013.

11. Business Segment and Product InformationThe Company’s business operates in one segment based upon the Company’s organizational structure, the way in which the operations are managed

and evaluated and the lack of availability of separate financial results. Substantially all of the Company's assets and sales are in the United States.

The Company’s Spine Surgery Product line offerings, which include thoracolumbar product offerings, cervical offerings, and a set of motionpreservation products still under development, are primarily used to enable access to the spine and to perform restorative and fusion procedures in a minimallydisruptive fashion. The Company’s Biologic product line offerings includes allograft (donated human tissue), FormaGraft ®, a collagen synthetic product,Osteocel Plus®, an allograft cellular matrix containing viable mesenchymal stem cells, or MSCs, and AttraX ®, a synthetic bone graft material, all used to aidthe spinal fusion process. The Company’s Monitoring Service offering includes IOM services provided. Revenue by product line offerings was as follows (inthousands):

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Three Months Ended


June 30,

2013 2012 2013 2012

Spine Surgery Products $ 128,682 $ 116,513 $ 251,348 $ 231,372Biologics 27,855 27,702 55,012 55,098Monitoring Service 9,161 10,204 18,842 19,640Total Revenue $ 165,698 $ 154,419 $ 325,202 $ 306,110

12. Legal Proceedings

Medtronic Sofamor Danek USA, Inc. Litigation

In August 2008, Medtronic Sofamor Danek USA, Inc. and its related entities (Medtronic) filed suit against NuVasive in the U.S. District Court for theSouthern District of California (the Medtronic Litigation), alleging that certain of NuVasive’s products infringe, or contribute to the infringement of, twelveU.S. patents assigned or licensed to Medtronic. Three of the patents were later withdrawn by Medtronic, leaving nine patents. NuVasive brought counterclaimsagainst Medtronic alleging infringement of certain of NuVasive’s patents. The case has been administratively broken into serial phases. The first phase of thecase included three Medtronic patents and one NuVasive patent and on September 20, 2011, a jury from the U.S. District Court delivered an unfavorableverdict against NuVasive with respect to the three Medtronic patents and a favorable verdict with respect to the one NuVasive patent. The jury awardedmonetary damages of approximately $101.2 million to Medtronic, which includes lost profits and back royalties (the 2011 verdict). Medtronic’s subsequentmotion for a permanent injunction was denied by the District Court on January 26, 2012. The District Court entered judgment on March 2, 2012. Bothparties appealed the verdict. Medtronic subsequently filed a motion to dismiss its own appeal and NuVasive's cross-appeal with the Federal Circuit Court ofAppeals. On August 2, 2012, the Federal Circuit issued a ruling stating that ongoing royalties must be determined by the District Court prior to the appealgoing forward. On June 11, 2013, the District Court ruled on the ongoing royalty rates (the June 2013 ruling) and once a judgment is entered, the Companywill proceed with the appeal process. In addition, on March 19, 2012, the District Court issued an order granting prejudgment interest. The Company enteredinto an escrow arrangement in 2012 and transferred $113.3 million of cash into a restricted escrow account to secure the amount of judgment, plusprejudgment interest, during pendency of the appeal. These funds are included in restricted cash and investments on the Company's June 30, 2013 condensedconsolidated balance sheet.

In accordance with the authoritative guidance on the evaluation of loss contingencies, during the year ended December 31, 2011, the Company recordedan accrual of $101.2 million for the 2011 verdict. In addition, on sales subsequent to the 2011 verdict and through March 31, 2013, the Company accruedroyalties at the royalty rates stated in the 2011 verdict. Upon receiving the District Court ruling in June 2013, the Company began accruing ongoing royaltieson sales at the royalty rates stated in the June 2013 ruling, and recorded a charge of approximately $7.9 million to account for the difference between using theroyalty rates stated in the 2011 verdict and those in the June 2013 ruling on sales through March 31, 2013. As a result of the June 2013 ruling, the Companywill be required to escrow funds to secure accrued royalties, estimated at $20 million to date, and ongoing royalties. The Company is also accruing post-judgment interest. With respect to the prejudgment interest award, the Company, based on its own assessment, as well as that of outside counsel, believes areversal of the prejudgment interest award on appeal is probable, and therefore, in accordance with authoritative guidance on the evaluation of losscontingencies, the Company has not recorded an accrual for this amount, which is estimated to approximate $13 million. Additional damages, includinginterest may still be awarded, and at June 30, 2013, the Company cannot estimate a range of additional potential loss.

With respect to the favorable verdict delivered regarding the one NuVasive patent, the jury awarded the Company monetary damages of approximately$0.7 million for reasonable royalty damages. In accordance with the authoritative guidance on the evaluation of gain contingencies, this amount has not beenrecorded at June 30, 2013. Additionally, the June 2013 ruling determined the ongoing royalty rate to be paid to the Company by Medtronic for its post-verdictsales of the one NuVasive patent. Consistent with the treatment afforded the $0.7 million damage award; no amount has been recorded for royalty revenue asof June 30, 2013.

The second phase of the case pending in the Southern District of California involved one Medtronic cervical plate patent. On April 25, 2013, NuVasiveand Medtronic entered into a settlement agreement fully resolving the second phase of the case. The settlement also removes from the case the cervical platepatent (U.S. Patent No. 6,592,586) that was part of the first phase. As part of the settlement, NuVasive received a broad license to practice (i) the Medtronicpatent (U.S. Patent No. 6,916,320) that was the sole subject of the second phase of the litigation, (ii) the Medtronic patent (U.S. Patent No. 6,592,586) thatwas part of the first phase of the litigation, and (iii) each of the Medtronic patent families that collectively represent the vast majority of Medtronic's patentrights related to cervical plate technology. In exchange for these license rights, NuVasive made a one-time payment to

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Medtronic of $7.5 million, which amount will be fully offset against any damage award ultimately determined to be owed by NuVasive in connection with afinal resolution of the first phase of the litigation. In addition, Medtronic will receive a royalty on certain cervical plate products sold by NuVasive, includingthe Helix® and Gradient® lines of products. As a result of this settlement, all current patent disputes between the parties related to cervical plate technology havebeen resolved.

On August 17, 2012, Medtronic filed additional patent claims in the U.S. District Court for the Northern District of Indiana alleging that variousNuVasive spinal implants (including its CoRoent® XL family of spinal implants) and NuVasive's Osteocel® Plus bone graft product infringe two additionalMedtronic Patents not asserted in the Southern District of California. On August 28, 2012, Medtronic amended its complaint alleging that NuVasive's XLIFprocedure and use of MaXcess IV retractor during the XLIF procedure infringe methodology claims of another Medtronic patent. The Company deniesinfringing any valid claims of these additional patents and on September 4, 2012, the Company filed a motion to transfer the case to the Southern District ofCalifornia. The Indiana District Court granted the Company's motion and transferred the case to the Southern District of California.

On March 7, 2013, NuVasive amended its counterclaims to allege infringement by Medtronic of eight NuVasive patents not asserted in the first orsecond phases of the litigation. On March 22, 2013, NuVasive moved to stay the litigation of two of Medtronic's patents pending the U.S. Patent Officeproceedings with respect to these patents, and the motion is currently pending before the Court. A claim construction hearing is scheduled for November 7,2013 and a pre-trial conference for June 20, 2014. No trial date is set. At June 30, 2013, the probable outcome of this litigation cannot be determined, nor canthe Company estimate a range of potential loss. In accordance with the authoritative guidance on the evaluation of loss contingencies, the Company has notrecorded an accrual related to this litigation.

Trademark Infringement Litigation

In September 2009, Neurovision Medical Products, Inc. (NMP) filed suit against NuVasive in the U.S. District Court for the Central District ofCalifornia (Case No. 2:9-cv-6988-R-JEM) alleging trademark infringement and unfair competition. NMP sought cancellation of NuVasive’s “NeuroVision”trademark registrations, injunctive relief and damages based on NMP’s common law use of the “Neurovision” mark. On November 23, 2009, the Companydenied the allegations in NMP’s complaint. The matter was tried in October 2010 and an unfavorable jury verdict was delivered against the Company relatingto its use of the NeuroVision trade name. The verdict awarded damages to NMP of $60.0 million. The Company appealed the judgment and on September 10,2012, the Court of Appeals reversed and vacated the District Court judgment and ordered the case back to the District Court for a new trial before a differentjudge. On October 5, 2012, the case was reassigned to a new District Court judge and re-trial of the matter is currently scheduled to begin in the District Courtin September 2013. During pendency of the appeal, the Company was required to escrow funds totaling $62.5 million to secure the amount of the judgment,plus interest, attorneys’ fees and costs. As a result of the reversal of the judgment, the full $62.5 million was released from escrow and returned to theCompany. At June 30, 2013, the probable outcome of this litigation cannot be determined, nor can the Company estimate a range of potential loss. Inaccordance with the authoritative guidance on the evaluation of loss contingencies, the Company has not recorded an accrual related to this litigation.

Contingencies

The Company is party to certain claims and legal actions arising in the normal course of business. The Company does not expect any such claims andlegal actions to have a material adverse effect on its business, results of operations or financial condition.

13. Regulatory Matter

During the three months ended June 30, 2013, the Company received a federal administrative subpoena from the Office of the Inspector General of theU.S. Department of Health and Human Services (OIG) in connection with an investigation into possible false or otherwise improper claims submitted toMedicare and Medicaid. The subpoena seeks discovery of documents for the period January 2007 through April 2013. The Company is working with the OIGto understand the scope of the subpoena and its request for documents, but do not expect to have greater clarity regarding the request for several months. TheCompany intends to fully cooperate with the OIG's request. At June 30 2013, the Company is unable to determine the potential financial impact, if any, thatwill result from this investigation.

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Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements May Prove Inaccurate

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the unauditedcondensed consolidated financial statements and the notes to those statements included in this report. This discussion and analysis may containforward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, such as those set forth under heading “Risk Factors,” and elsewhere in this report, and similardiscussions in our other Securities and Exchange Commission filings, including our Annual Report on Form 10-K for the year ended December 31,2012. We do not intend to update these forward looking statements to reflect future events or circumstances.

Overview

We are a medical device company focused on developing minimally disruptive surgical products and procedurally integrated solutions for the spine. Ourcurrently-marketed product portfolio is focused on applications for spine fusion surgery, including biologics, a combined market estimated to approximate$8.2 billion globally in 2013. Our principal product offering includes a minimally disruptive surgical platform called Maximum Access Surgery, or MAS ®.The MAS platform combines three categories of solutions that collectively minimize soft tissue disruption during spine fusion surgery, provide maximumvisualization and are designed to enable reproducible outcomes for the surgeon. The platform includes a proprietary software-driven nerve detection andavoidance systems, NVM5 and NVJJB, and Intra-Operative Monitoring (IOM) support; MaXcess ®, a unique and integrated split-blade retractor system; anda wide variety of specialized implants. When the three elements of MAS are used together, they may significantly reduce surgery time and return patients toactivities of daily living much faster than conventional approaches. The individual components of our MAS platform, and many of our products, can also beused in open or traditional spine surgery and may independently offer patient benefits to various surgical approaches dealing with a wide variety ofpathologies. Our spine surgery product line offerings, which include products for the thoracolumbar and the cervical spine, are primarily used to enableaccess to the spine and to perform restorative and fusion procedures in a minimally disruptive fashion. Our biologic product line offerings include allograft(donated human tissue), FormaGraft ®, a collagen synthetic product, Osteocel Plus ®, an allograft cellular matrix containing viable mesenchymal stem cells, orMSCs, and AttraX®, a synthetic bone graft material, which is still in the process of U.S. regulatory clearance, all used to aid the spinal fusion process. Oursubsidiary, Impulse Monitoring, Inc. (Impulse Monitoring) provides IOM services for insight into the nervous system during spine and other surgeries. Wecontinue to focus significant research and development efforts to expand our MAS product platform and advance the applications of our unique technologyinto procedurally integrated surgical solutions. We dedicate significant resources toward training spine surgeons on our unique technology and products. Wecontinue to train surgeons who are new to our MAS product platform as well as surgeons previously trained on our MAS product platform who are attendingadvanced training courses.

Our MAS platform, with the unique advantages provided by our nerve monitoring systems, enables an innovative lateral procedure known as eXtremeLateral Interbody Fusion, or XLIF ®, in which surgeons access the spine for a fusion procedure from the side of the patient’s body, rather than from the frontor back. Our MaXcess instruments provide access to the spine in a manner that affords direct visualization and our nerve monitoring systems assist surgeonsin avoiding critical nerves.

At various times in the past, certain insurance providers have adopted policies of not providing reimbursement for the XLIF procedure or some of itscomponents. We have worked with our surgeon customers and the North American Spine Society (NASS) who, in turn, have worked with these insuranceproviders to supply the information, explanation and clinical data they require to categorize the XLIF procedure as a procedure entitled to reimbursement undertheir policies. At present, the majority of insurance companies provide reimbursement for XLIF procedures. However, certain carriers, large and small, mayhave policies significantly limiting coverage of XLIF, Instrumented Lumbar Interlaminar Fusion (ILIF), Osteocel Plus, the PCM ® Cervical Disc System, orother procedures or products we sell. We cannot offer definitive time frames or final outcomes regarding reversal of the coverage-limiting policies, as theprocess is dictated by the third-party insurance providers. To date, we have not experienced significant lack of payment for our procedures based on thesepolicies.

In addition, there is a downward pressure on reimbursement for the IOM services such as those provided by Impulse Monitoring. Significant codingchanges for IOM services took effect in 2013. New Current Procedural Terminology (CPT) codes were introduced that may lead to reduced reimbursement byprivate payers for the professional remote oversight component of the service. Medicare patients will be subject to additional coding changes imposed by CMSwhich may restrict access to care and limit Impulse Monitoring's ability to cover, bill and collect for cases performed. Private payers may also elect to adoptthese coding changes.

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Table of Contents

In recent years, we have significantly expanded our product offerings relating to procedures in the cervical spine as well as in the area of nervemonitoring. Our cervical product offerings now provide a full set of solutions for cervical fusion surgery, including both allograft tissue and CoRoent ®

implants, as well as cervical plating and posterior fixation products. In the fourth quarter of 2012, we received U.S. Food and Drug Administration (FDA)approval of the PCM Cervical Disc System, a motion preserving total disc replacement device, which further strengthens our cervical product offerings andenables us to continue our trend of increasing our market share. Our nerve monitoring offerings include both the NVM5 and NVJJB products based on ourproprietary software-driven nerve monitoring systems and our IOM services business, Impulse Monitoring.

To date, the majority of our revenues are derived from the sale of disposables and implants and we expect this trend to continue for the foreseeable future.We loan our proprietary software-driven nerve monitoring systems and surgical instrument sets at no cost to surgeons and hospitals that purchase disposablesand implants for use in individual procedures. In addition, we place our proprietary software-driven nerve monitoring systems, MaXcess ® and other MAS orcervical surgical instrument sets with hospitals for an extended period at no up-front cost to them. Our implants and disposables are currently sold andshipped from our primary distribution and warehousing operations facility located in Memphis, Tennessee. We generally recognize revenue for disposables orimplants used upon receiving acknowledgement of a purchase order from the hospital indicating product use or implantation. In addition, we sell animmaterial number of MAS instrument sets, MaXcess devices, and our proprietary software-driven nerve monitoring systems. To date, we have derived lessthan 5% of our total revenues from these sales.

We expect monitoring service revenue from IOM services to be slightly down in the current year. Monitoring service revenue consists of hospital basedrevenues and net patient service revenues and is recorded in the period the service is provided. Hospital based revenues are recorded based upon contractedbilling rates. Net patient services are billed to various payers, including Medicare, commercial insurance companies, other directly billed managed healthcareplans, employers, and individuals. We report revenues based on the amount expected to be collected.

Substantially all of our operations are located in the United States and substantially all of our sales have been generated in the United States. We sell ourproducts in the United States through a sales force comprised of exclusive independent sales agencies and directly-employed sales shareowners; both sellingonly NuVasive products. Our sales force provides a delivery and consultative service to our surgeon and hospital customers and is compensated based onsales and product placements in their territories. Sales force commissions are reflected in our statement of operations in the sales, marketing and administrativeexpense line. We expect to continue to expand our distribution channels. We are continuing our expansion of international sales efforts with the focus onEuropean, Asian and Latin American markets. Our international sales force is comprised of directly-employed sales shareowners as well as exclusivedistributors and independent sales agents.

During the three months ended June 30, 2013, we received a federal administrative subpoena from the Office of the Inspector General of the U.S.Department of Health and Human Services (OIG) in connection with an investigation into possible false or otherwise improper claims submitted to Medicareand Medicaid. The subpoena seeks discovery of documents for the period January 2007 through April 2013. We are working with the OIG to understand thescope of the subpoena and its request for ducuments, but do not expect to have greater clarity regarding the request for several months. We intend to fullycooperate with the OIG's request and will provide periodic updates as information becomes available. Responding to the subpoena will require management'sattention and may cause us to incur significant legal expense. Any adverse findings related to this investigation could result in significant financial penaltiesagainst the Company.

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Results of Operations

Revenue

June 30, 2013 2012 $ Change % Change (Dollars in thousands)

Three months ended: Spine Surgery Products $ 128,682 $ 116,513 Biologics 27,855 27,702 Monitoring Service 9,161 10,204 Total revenue $ 165,698 $ 154,419 $ 11,279 7%

Six months ended: Spine Surgery Products $ 251,348 $ 231,372 Biologics 55,012 55,098 Monitoring Service 18,842 19,640 Total revenue $ 325,202 $ 306,110 $ 19,092 6%

Our Spine Surgery Product line offerings, which include products for the thoracolumbar spine, the cervical spine, and a set of motion preservationproduct offerings, are primarily used to enable access to the spine and to perform restorative and fusion procedures in a minimally disruptive fashion. OurBiologics product line offerings include allograft (donated human tissue), FormaGraft, a collagen synthetic product, Osteocel Plus, an allograft cellular matrixcontaining viable mesenchymal stem cells, or MSCs, and AttraX, a synthetic bone graft material, all used to aid the spinal fusion process. Our MonitoringService line offering includes hospital-based revenues and net patient service revenues related to IOM services performed.

The continued adoption of minimally invasive procedures for spine has led to the continued expansion of our innovative procedures. In addition,increased market acceptance in our international markets contributed to the increase in revenues noted for the periods presented. We expect continued adoptionof our innovative minimally invasive procedures and deeper penetration into existing accounts and our newer international markets as our sales force executeson the strategy of selling the full mix of our products. However, recent changes in market dynamics, the public and private insurance markets and ongoingpolicy and legislative changes in the United States have created less predictability in the lumbar portion of the spine market and have substantially reduced theoverall spine market’s procedural growth rate. Accordingly, we believe that our growth in revenue in 2013 will come primarily from market share gains relatedto the market shift toward less invasive spinal surgery, both domestically and internationally.

Our total revenues increased $11.3 million and $19.1 million in the three and six months ended June 30, 2013, respectively, representing total revenuegrowth of 7% and 6% for the three and six months ended June 30, 2013, respectively, compared to the same periods in 2012.

Revenue from our Spine Surgery Products increased $12.2 million and $20.0 million, or 10% and 9%, in the three and six months ended June 30,2013, respectively, compared to the same periods in 2012. This increase resulted from increases in volume of approximately 12% and 10% in the three and sixmonths ended June 30, 2013, respectively, compared to the same periods in 2012, offset by small unfavorable changes in price of approximately 1% in thethree and six months ended June 30, 2013, respectively, compared to the same periods in 2012.

Revenue from Biologics remained materially consistent in the three and six months ended June 30, 2013, respectively, compared to the same periods in2012.

Revenue from Monitoring Services decreased $1.0 million and $0.8 million, or 10% and 4% in the three and six months ended June 30, 2013,respectively, compared to the same periods in 2012. This decrease resulted primarily from unfavorable changes in reimbursement rates offset by increases incase volume in the three and six months ended June 30, 2013 compared to the same periods in 2012.

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Cost of Goods Sold, excluding amortization of purchased technology


Three months ended $ 48,744 $ 36,534 $ 12,210 33%% of total revenue 29% 24% Six months ended $ 87,840 $ 73,467 $ 14,373 20%% of total revenue 27% 24%

Cost of goods sold consists primarily of purchased materials, labor and overhead associated with product manufacturing, purchased goods, inventory-related costs and royalty expense, as well as the cost of providing IOM service, which includes personnel and physician oversight costs.

Cost of goods sold as a percentage of revenue increased in the three and six months ended June 30, 2013 compared to the same periods in 2012 primarilyas a result of the June 2013 ruling related to the Medtronic litigation that determined the ongoing royalty rates, which resulted in the Company recording acharge of approximately $7.9 million during the three and six months ended June 30, 2013 to account for the difference in using the royalty rates stated in theSeptember 2011 verdict and those in the June 2013 ruling on sales through March 31, 2013. In addition, cost of goods sold as a percentage of revenueincreased in the three and six months ended June 30, 2013 compared to the same periods in 2012 as a result of the medical device excise tax effective January1, 2013.

We expect cost of goods sold, as a percentage of revenue, to approximate 26% for the remainder of 2013.

Operating Expenses

Sales, Marketing and Administrative


Three months ended $ 104,272 $ 92,615 $ 11,657 13%% of total revenue 63% 60% Six months ended $ 204,158 $ 187,293 $ 16,865 9%% of total revenue 63% 61%

Sales, marketing and administrative expenses consist primarily of compensation, commission and training costs for shareowners engaged in sales,marketing and customer support functions; distributor commissions; depreciation expense for surgical instrument sets; shipping costs; surgeon trainingcosts; shareowner (employee) related expenses for our administrative functions; and third-party professional service fees.

As a percentage of revenue, sales, marketing and administrative expenses increased in the three and six months ended June 30, 2013 compared to thesame periods in 2012, primarily as a result of our continued expansion in our international operations.

Costs that tend to vary based on revenue, which include commissions, depreciation expense for loaned surgical instrument sets, worldwide sales forceheadcount, distribution and customer support headcount, and shipping, increased $5.4 million and $8.0 million in the three and six months ended June 30,2013, respectively, compared to the same periods in 2012. This increase is primarily a result of our revenue growth during the three and six months endedJune 30, 2013 compared to the same periods in 2012, as well as increases in freight expenses and continued investment in our international markets.

Legal expenses increased $2.2 million and $3.8 million in the three and six months ended June 30, 2013, respectively, compared to the same periods in2012. Of the increase, $1.2 million and $2.1 million in the three and six months ended June 30, 2013, respectively, relates to increased legal expenses incurredin connection with the Medtronic litigation.

We continue to make significant investments in our Japanese operations. This investment, along with depreciation expense associated with certainsystem software investments, increased $1.9 million and $3.8 million in the three and six months ended June 30, 2013, respectively, compared to the sameperiods in 2012.

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Compensation and other shareowner related expenses for our marketing and administrative support functions increased $1.8 million and $1.1 millionin the three and six months ended June 30, 2013, respectively, compared to the same periods in 2012. This increase is primarily the result of an increase inheadcount as well as computer-related expenses.

For the remainder of 2013 and on a long-term basis, we expect total sales, marketing and administrative costs, as a percentage of revenue, to decreasemoderately.

Research and Development


Three months ended $ 7,712 $ 9,335 $ (1,623) (17)%% of total revenue 5% 6% Six months ended $ 17,407 $ 19,323 $ (1,916) (10)%% of total revenue 5% 6%

Research and development expense consists primarily of product research and development, clinical trial and study costs, regulatory and clinicalfunctions, and shareowner related expenses.

In the last several years, we have introduced numerous new products and product enhancements that have significantly expanded our MAS platform,enhanced the applications of the XLIF procedure, expanded our offering of cervical products, and continued to invest to further enable our entry into thegrowing motion preservation market. We have also acquired complementary and strategic assets and technology, particularly in the area of biologics. We aredeveloping total disc replacement devices for spine applications, which are currently in different phases of development, clinical trials and related studies. Weanticipate continuing to incur costs associated with patient follow-up and advancing the products through the regulatory process related to these clinical trialsand studies through at least the end of 2013.

Compensation and other shareowner related expenses, including performance-based and stock-based compensation, decreased $0.9 million and $2.1million in the three and six months ended June 30, 2013, respectively, compared to the same periods in 2012, and relates to compensation-related savings.

Research and development facilities expenses, along with depreciation expense associated with certain system software investments, decreased $0.4million and $0.8 million in the three and six months ended June 30, 2013, respectively, compared to the same periods in 2012, and is also attributable tocompensation-related savings.

Expenses incurred related to the acquisition of research and development intangible assets charged to expense in accordance with the authoritativeaccounting guidance decreased $0.4 million in the three months ended June 30, 2013 compared to the the same period in 2012. In the six months ended June 30,2013, these expenses increased $2.1 compared to the same period in 2012.

Expenses incurred in connection with clinical trials and various studies, including outside professional services, remained materially consistent in thethree months ended June 30, 2013 compared to the same period in 2012. In the six months ended June 30, 2013 compared to the same period in 2012, theseexpenses decreased approximately $0.5 million due to reduced costs as a result of the completion of enrollment in a clinical trial and ongoing study relatedactivities.

For the remainder of 2013, as a percentage of revenue, we expect total research and development costs to remain relatively consistent with current levelsin support of our ongoing development and 510k product approval efforts.

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Amortization of Intangible Assets


Three months ended $ 4,913 $ 2,903 $ 2,010 6 9%% of total revenue 3% 2% Six months ended $ 9,288 $ 5,749 $ 3,539 62%% of total revenue 3% 2%

Amortization of intangible assets relates to the amortization of finite-lived intangible assets acquired. Amortization expense increased $2.0 million and$3.5 million in the three and six months ended June 30, 2013, respectively, compared to the same periods in 2012, primarily due to the acquisition ofintangible assets acquired subsequent to June 30, 2012, and additional expense resulting from the approval of the PCM Cervical Disc System that occurredduring the fourth quarter of 2012.

We expect expenses recorded in connection with the amortization of intangible assets to continue to increase in absolute dollars for the foreseeable futureas amortization of acquired in-process research and development commences once acquired research and development projects reach technological feasibility.

Interest and Other Expense, Net


Three months ended: Interest income $ 231 $ 204 Interest expense (6,652) (6,972)

Other expense, net (440) (551) Total interest and other expense, net $ (6,861) $ (7,319) $ 458 (6)%% of total revenue (4)% (5)% Six months ended:

Interest income $ 403 $ 412 Interest expense (13,685) (13,797) Other expense, net (199) (114)

Total interest and other expense, net $ (13,481) $ (13,499) $ 18 — %% of total revenue (4)% (4)%

Interest and other expense, net, consists principally of interest expense incurred on our Senior Convertible Notes, offset by income earned on marketablesecurities and other income (expense) items. Interest and other expense, net decreased $0.5 million in the three months ended June 30, 2013, compared to thesame period in 2012, primarily from the decrease in interest expense as a result of the maturity of the 2013 Senior Convertible Notes on March 15, 2013.

Interest and other expense, net, as a percentage of revenues, is expected to moderately decrease for the remainder of the year as a result of the maturity ofthe 2013 Senior Convertible Notes on March 15, 2013.

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Income Tax (Benefit) Expense


Three months ended $ (76) $ 3,103 $ (3,179) (102)%Effective income tax (benefit) rate (1) % 54% Six months ended $ (840) $ 3,700 $ (4,540) (123)%Effective income tax (benefit) rate 12 % 5 5%

We recorded an income tax benefit of $0.1 million and income tax expense of $3.1 million for the three months ended June 30, 2013 and 2012,respectively, and an income tax benefit of $0.8 million and income tax expense of 3.7 million for the six months ended June 30, 2013 and 2012, respectively.The effective income tax benefit rate for the six months ended June 30, 2013 was 12% compared to the effective income tax expense rate of 55% for the sixmonths ended June 30, 2012. The income tax provision for the six months ended June 30, 2013 also reflected a discrete tax benefit of $0.9 million, or 13% ofpre-tax loss, related to the 2012 federal research and development (R&D) credit which was retrospectively reinstated in the six months ended June 30, 2013. Nofederal R&D credit benefit was recorded in the income tax provision for the six months ended June 30, 2012. We update our annual effective income tax rateeach quarter and if the estimated effective income tax rate changes, a cumulative adjustment is made.

Stock-Based Compensation


Three months ended: Stock-Based Compensation

Sales, Marketing & Administrative $ 8,278 $ 7,737 Research & Development 449 592 Cost of Goods Sold 34 16

Total Stock-Based Compensation $ 8,761 $ 8,345 $ 416 5%% of total revenue 5% 5% Six months ended:

Stock-Based Compensation Sales, Marketing & Administrative $ 14,703 $ 13,879 Research & Development 791 1,057 Cost of Goods Sold 54 30

Total Stock-Based Compensation $ 15,548 $ 14,966 $ 582 4%% of total revenue 5% 5%

Stock-based compensation related to stock awards is recognized and amortized on an accelerated basis in accordance with authoritative guidance. Stock-based compensation increased $0.4 million and $0.6 million in the three and six months ended June 30, 2013, respectively, compared to the same periods in2012. These increases are primarily related to the increase in the weighted average grant date fair value of 2013 grants compared to 2012 grants, slightly offsetby the timing of annual grants in the current year as compared to the prior year.

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Liquidity, Cash Flows and Capital Resources

Liquidity and Capital Resources

Our principal sources of liquidity are our existing cash, cash equivalents and marketable securities, cash generated from operations and proceeds fromour convertible debt financing issued in June 2011.

In June 2011, we issued $402.5 million principal amount of the 2.75% Convertible Senior Notes due 2017 (the 2017 Notes). The net proceeds from theoffering, after deducting initial purchasers’ discounts and costs directly related to the offering, were approximately $359.2 million. We pay 2.75% interest perannum on the principal amount of the 2017 Notes. The 2017 Notes mature on July 1, 2017 and may be settled in cash, stock, or a combination thereof,solely at our election. Interest on the 2017 Notes began accruing in June 2010 and is payable semi-annually on January 1 and July 1 of each year.

In connection with the Medtronic litigation, a jury from the U.S. District Court, Southern District of California delivered an unfavorable verdict to usand awarded monetary damages of approximately $101.2 million to Medtronic. In May 2012, in accordance with an escrow arrangement, we transferred$113.3 million of cash into a restricted escrow account to secure the amount of the judgment, plus prejudgment interest, during pendency of our appeal of thejudgment. These funds are included in restricted cash and investments in our June 30, 2013 consolidated balance sheet. Further, as a result of the June 2013District Court ruling on the ongoing royalty rates, we will be required to escrow funds to secure accrued royalties, estimated at $20 million to date, andongoing royalties.

Cash, cash equivalents and marketable securities was $272.7 million and $346.1 million at June 30, 2013 and December 31, 2012, respectively, thedecrease primarily relates to the payment of the 2013 Senior Convertible Notes on March 15, 2013. We believe that our existing cash, cash equivalents andshort-term marketable securities will be sufficient to meet our anticipated cash needs for the next 12 months. Our future capital requirements will depend onmany factors including our rate of revenue growth, the timing and extent of spending to support development efforts, the expansion of sales, marketing andadministrative activities, the timing of introductions of new products and enhancements to existing products, the continuing market acceptance of ourproducts, the expenditures associated with possible future acquisitions or other business combination transactions, and the outcome of current and futurelitigation. At June 30, 2013, we have cash and investments totaling $119.0 million in restricted accounts which are not available to us to meet any ongoingcapital requirements if and when needed. This could negatively impact our liquidity and our ability to invest in and run our business on an ongoing basis.

We expect that cash provided by operating activities may fluctuate in future periods as a result of a number of factors, including fluctuations in ouroperating results and working capital requirements. We have historically invested our cash primarily in U.S. treasuries and government agencies, corporatedebt, and money market funds. Certain of these investments are subject to general credit, liquidity and other market risks. The general condition of thefinancial markets and the economy has exacerbated those risks and may affect the value of our current investments and restrict our ability to access the capitalmarkets or even our own funds.

Cash Flows

The following table summarizes, for the periods indicated, selected items in our consolidated statements of cash flows (in thousands):

Six Months Ended June 30, 2013 2012 $ Change

Cash provided by operating activities $ 32,384 $ 65,759 $ (33,375)Cash used in investing activities (25,902) (111,461) 85,559Cash (used in) provided by financing activities (69,901) 3,336 (73,237)Effect of exchange rate changes on cash (1,000) 30 (1,030)Decrease in cash and cash equivalents $ (64,419) $ (42,336) $ (22,083)

Cash flows from operating activities

Cash provided by operating activities was $32.4 million for the six months ended June 30, 2013, compared to $65.8 million for the same period in2012. The $33.4 million decrease in cash provided by operating activities for the six months ended June 30, 2013 as compared to the six months endedJune 30, 2012 is due to an increase in amounts paid for other current assets, including a

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refund of $11.2 million in the three months ended March 31, 2012 relating to an overpayment at December 31, 2011, a small increase in days salesoutstanding which affects our accounts receivable balance, additional cash used to pay accrued payroll and related expenses and to build inventory.

Cash flows from investing activities

Cash used by investing activities was $25.9 million for the six months ended June 30, 2013, compared to $111.5 million for the same period in 2012.The $85.6 million decrease in cash used in investing activities for the six months ended June 30, 2013 as compared to the six months ended June 30, 2012 isprimarily due to a net decrease in purchases of marketable securities, including restricted investments, offset by a slight increase in purchases of property andequipment.

Cash flows from financing activities

Cash used in financing activities was $69.9 million for the six months ended June 30, 2013, compared to cash provided by financing activities of $3.3million for the same period in 2012. The $73.2 million increase in cash used by financing activities for the six months ended June 30, 2013 as compared to thesix months ended June 30, 2012 is primarily due the repayment of the 2013 Senior Convertible Notes.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations is based upon our unaudited condensed consolidated financialstatements, which have been prepared in accordance with accounting principles generally accepted in the United States (GAAP). The preparation of thesefinancial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoingbasis, we evaluate our estimates including those related to bad debts, inventories, valuation of goodwill, intangibles, other long-term assets, stock-basedcompensation, income taxes, and legal proceedings. We base our estimates on historical experience and on various other assumptions we believe to bereasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities not readilyapparent from other sources. Actual results may differ from these estimates. Our critical accounting policies and estimates are discussed in our Annual Reporton Form 10-K for the fiscal year ended December 31, 2012 and there have been no material changes during the six months ended June 30, 2013 except asfollows:

Recently adopted accounting standards

Effective January 1, 2013, the Company adopted the FASB's requirements for improved transparency of reporting reclassifications out of accumulatedother comprehensive income (AOCI). The guidance requires companies to report, in one place, information about reclassifications out of AOCI and to presentreclassifications by component when reporting changes in AOCI balances. The adoption of this authoritative guidance did not have an impact on theCompany's financial position or results of operations.

Off-Balance Sheet Arrangements

We have not engaged in any off-balance sheet activities.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There has been no material change in the Company's assessment of its sensitivity to market risk since its presentation set forth in Item 7A,"Quantitative and Qualitative Disclosures About Market Risk," in its Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

Item 4. Controls and Procedures

Disclosure Controls and Procedures. We maintain disclosure controls and procedures that are designed to ensure that information required to bedisclosed in our reports under the Securities Exchange Act of 1934, as amended (Exchange Act) is recorded, processed, summarized and reported within thetimelines specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our ChiefExecutive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating thedisclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only providereasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required toapply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

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Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we carriedout an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in SEC Rules 13a — 15(e) and 15d —15(e)) as of June 30, 2013. Based on such evaluation, our management has concluded as of June 30, 2013, the Company’s disclosure controls and proceduresare effective.

Changes in Internal Control over Financial Reporting. There has been no change to our internal control over financial reporting during our mostrecent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

There have been no changes to the Legal Proceedings discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, exceptas follows:

Medtronic Sofamor Danek USA, Inc. Litigation

As reported by us previously, Medtronic Sofamor Danek USA, Inc. and its related entities (Medtronic), on August 18, 2008, filed a patent infringementlawsuit against NuVasive in the United States District Court for the Southern District of California, alleging that certain of NuVasive’s products or methods,including the XLIF® procedure, infringe, or contribute to the infringement of, twelve U.S. patents. Three of the patents were later withdrawn by Medtronicleaving the following nine patents in the lawsuit: Nos. 5,860,973; 5,772,661; 6,936,051; 6,936,050; 6,916,320; 6,945,933; 6,969,390; 6,428,542;6,592,586 assigned or licensed to Medtronic (Medtronic Patents). Medtronic is seeking monetary damages and a court injunction against future infringementby NuVasive. NuVasive answered the complaint, denying the allegations.

Additionally, NuVasive made counterclaims against Medtronic seeking the following relief: (i) Medtronic being permanently enjoined from charging thatNuVasive has infringed or is infringing the Medtronic Patents; (ii) a declaration that the Medtronic Patents are invalid; (iii) a declaration that the 5,860,973and 5,772,661 patents are unenforceable due to inequitable conduct; and (iv) costs and reasonable attorneys’ fees.

NuVasive filed an amended counterclaim on September 4, 2009, alleging that NuVasive’s U.S. Patent Nos. 7,207,949; 7,582,058; and 7,470,236 areinfringed by Medtronic’s NIM-Eclipse System and accessories and Quadrant products, and DLIF (Direct Lateral Interbody Fusion) surgical technique.Medtronic, on June 23, 2009, filed a request for inter partes reexamination with the Patent Office on NuVasive’s U.S. Patent No. 7,207,949. On October 14,2009, Medtronic filed a request for inter partes reexamination on NuVasive’s U.S. Patent No. 7,582,058. The Patent Office granted both requests and issuedrejections of the claims. Both reexaminations are pending.

Given the number of patents asserted in the litigation, the parties agreed to proceed on a limited number of patents. The District Court determined toproceed only with patents that are not the subject of active reexamination proceedings. As a result, the first phase of the case included three Medtronic patentsand one NuVasive patent. Trial on the first phase of the case began in August 2011 and on September 20, 2011, a jury from the District Court, delivered anunfavorable verdict against NuVasive with respect to three Medtronic patents and a favorable verdict with respect to the one NuVasive patent. The juryawarded monetary damages of approximately $101.2 million to Medtronic, which includes lost profits and back royalties (the 2011 verdict). Medtronic'ssubsequent motion for a permanent injunction was denied by the District Court on January 26, 2012. The District Court entered judgment on March 2, 2012,and both parties appealed the verdict. Medtronic subsequently filed a motion to dismiss its own appeal and NuVasive's cross-appeal with the Federal CircuitCourt of Appeals. On August 2, 2012, the Federal Circuit issued a ruling stating that ongoing royalty rates must be determined by the District Court prior tothe appeal going forward. On June 11, 2013, the District Court ruled on the ongoing royalty rates (the June 2013 ruling) and once a judgment is entered, theCompany will proceed with the appeal process. In addition, on March 19, 2012, the District Court issued an order granting prejudgment interest. TheCompany entered into an escrow arrangement in 2012 and transferred $113.3 million of cash into a restricted escrow account to secure the amount ofjudgment, plus prejudgment interest, during pendency of the appeal. These funds are included in restricted cash and investments on the Company's June 30,2013 consolidated balance sheet.

In accordance with the authoritative guidance on the evaluation of loss contingencies, during the third quarter of 2011, the Company recorded an accrualof $101.2 million for the 2011 verdict. In addition, on sales subsequent to the 2011 verdict and through March 31, 2013, the Company accrued royalties atthe royalty rates stated in the 2011 verdict. Upon receiving the District Court ruling in June 2013, the Company began accruing ongoing royalties on sales atthe royalty rates stated in the June 2013 ruling, and recorded a charge of approximately $7.9 million to account for the difference between using the royaltyrates stated in the 2011 verdict and those in the June 2013 ruling on sales through March 31, 2013. As a result of the June 2013 ruling, we

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will be required to escrow funds to secure accrued royalties, estimated at $20 million to date, and ongoing royalties. NuVasive is also accruing post-judgmentinterest. With respect to the prejudgment interest award, the Company, based on its own assessment as well as that of outside counsel, believes a reversal ofthe prejudgment interest award on appeal is probable, and therefore, in accordance with the authoritative guidance on the evaluation of loss contingencies, theCompany has not recorded an accrual for this amount, which is estimated to approximate $13 million. Additional damages, including interest, may still beawarded, and at June 30, 2013, the Company cannot estimate a range of additional potential loss.

The second phase of the case pending in the Southern District of California involved one Medtronic cervical plate patent. On April 25, 2013, NuVasiveand Medtronic entered into a settlement agreement fully resolving the second phase of the case. The settlement also removes from the case the cervical platepatent (U.S. Patent No. 6,592,586) that was part of the first phase. As part of the settlement, NuVasive received a broad license to practice (i) the Medtronicpatent (U.S. Patent No. 6,916,320) that was the sole subject of the second phase of the litigation, (ii) the Medtronic patent (U.S. Patent No. 6,592,586) thatwas part of the first phase of the litigation, and (iii) each of the Medtronic patent families that collectively represent the vast majority of Medtronic's patentrights related to cervical plate technology. In exchange for these license rights, NuVasive will make a one-time payment to Medtronic of $7.5 million, whichamount will be fully offset against any damage award ultimately determined to be owed by NuVasive in connection with a final resolution of the first phase ofthe litigation. In addition, Medtronic will receive a royalty on certain cervical plate products sold by NuVasive, including the Helix ® and Gradient® lines ofproducts. As a result of this settlement, all current patent disputes between the parties related to cervical plate technology have been resolved.

On August 17, 2012, Medtronic filed additional patent claims in the U.S. District Court for the Northern District of Indiana alleging that variousNuVasive spinal implants (including its CoRoent® XL family of spinal implants) infringe U.S. Patent No. 8,021,430, and that NuVasive's Osteocel ® Plusbone graft product infringes U.S. Patent No. 5,676,146 C2. On August 28, 2012, Medtronic amended its complaint in the Northern District of Indianaalleging that NuVasive's XLIF® procedure and use of MaXcess IV retractor during the XLIF procedure infringe methodology claims of U.S. PatentNo. 8,251,997. NuVasive denies infringing any valid claims of these additional patents and on September 4, 2012, the Company filed a motion to transferthe case to the Southern District of California. The Indiana District Court granted the Company's motion and transferred the case to the Southern District ofCalifornia. On March 7, 2013, NuVasive amended its counterclaims to allege infringement by Medtronic of U.S. Patent Nos. 8,000,782 (systems and relatedmethods for performing surgical procedures), 8,005,535 (systems and related methods for performing surgical procedures), 8,016,767 (a surgical accesssystem including a tissue distraction assembly and a tissue retraction assembly), 8,192,356 (a system for accessing a surgical target site and relatedmethods, involving an initial distraction system, among other things), 8,187,334 (spinal fusion implant), 8,361,156 (spinal fusion implant), D652,922(dilator design), and D666,294 (dilator design). On March 22, 2013, NuVasive moved to stay the litigation relating to patents '430 and '997 pending thePatent Office proceedings with respect to these patents, and the motion is currently pending before the Southern District of California. A claim constructionhearing is scheduled for November 7, 2013 and a pre-trial conference for June 20, 2014. No trial date is set. At June 30, 2013, the probable outcome of thislitigation cannot be determined, nor can the Company estimate a range of potential loss. In accordance with the authoritative guidance on the evaluation of losscontingencies, the Company has not recorded an accrual related to this litigation.

Trademark Infringement Litigation

In September 2009, Neurovision Medical Products, Inc. (NMP) filed suit against NuVasive in the U.S. District Court for the Central District ofCalifornia (Case No. 2:09-cv-06988-R-JEM) alleging trademark infringement and unfair competition. NMP sought cancellation of NuVasive's “NeuroVision”trademark registrations, injunctive relief and damages based on NMP's common law use of the “Neurovision” mark. On November 23, 2009, the Companydenied the allegations in NMP's complaint. The matter was tried in October 2010 and an unfavorable jury verdict was delivered against the Company relatingto its use of the “NeuroVision” trade name. The verdict awarded damages to NMP of $60.0 million, which was upheld in a January 2011 judgment orderedby the District Court. NuVasive appealed the judgment and on September 10, 2012, the Court of Appeals reversed and vacated the District Court judgmentand ordered the case back to the District Court for a new trial before a different judge. On October 5, 2012, the case was reassigned to a new District Courtjudge and re-trial of the matter is currently scheduled to begin in the District Court in September 2013. During pendency of the appeal, NuVasive was requiredto escrow funds totaling $62.5 million to secure the amount of judgment, plus interest, attorney's fees and costs. As a result of the reversal of the judgment,the full $62.5 million was released from escrow and returned to the Company. At June 30, 2013, the probable outcome of this litigation cannot be determined,nor can the Company estimate a range of potential loss. In accordance with the authoritative guidance on the evaluation of loss contingencies, the Company hasnot recorded an accrual related to this litigation.

Item 1A. Risk Factors

An investment in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described under Item 1Aof Part I of our Annual Report on Form 10-K filed with the Securities and Exchange Commission for

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the year ended December 31, 2012 (the Risk Factors) together with all other information contained or incorporated by reference in this report before you decideto invest in our common stock. Except as set forth below, there have been no material changes to the Risk Factors. If any of the risks described in this report orin our Annual Report on Form 10-K actually occurs, our business, financial condition, results of operations and our future growth prospects could bematerially and adversely affected. Under these circumstances, the trading price of our common stock could decline, and you may lose all or part of yourinvestment.

Risks Related to Our Intellectual Property and Litigation

We are currently involved in patent litigation involving Medtronic, and, if we do not prevail in the litigation and/or on our appeal of the Medtronicverdict in phase one of the litigation, we could be liable for substantial damages and might be prevented from making, using, selling, offering tosell, importing or exporting certain of our products.

On August 18, 2008, Medtronic filed suit against us in the U.S. District Court for the Southern District of California, alleging that certain of ourproducts infringe, or contribute to the infringement of, U.S. patents owned by Medtronic. Trial in the first phase of the case began in August 2011, and inSeptember 2011, a jury delivered an unfavorable verdict against us with respect to three Medtronic patents and a favorable verdict with respect to one of ourpatents. The jury awarded monetary damages of approximately $0.7 million to us which includes back royalty payments. Additionally, the jury awardedmonetary damages of approximately $101.2 million to Medtronic which includes lost profits and back royalties. Before our appeal of the unfavorable verdictto the Federal Circuit Court of Appeals could move forward, the District Court was required to determine the ongoing royalty rates applicable to the productsduring the period of time following the verdict. On June 11, 2013, the District Court determined that the amount of ongoing royalties owed by us to Medtronicwas 13.75% on certain of NuVasive's CoRoent XL implants and 8.25% on certain of NuVasive's MaXcess III retractors and related products. As of June 30,2013 and during pendency of our appeal , we have secured the amount of judgment and as a result of the June 2013 ruling, we will be required to escrowfunds to secure accrued royalties, estimated a t $20 million to date, and ongoing royalties, plus prejudgment interest, which represents a material reduction inour cash resources available for investment.

In August 2012, Medtronic filed additional patent claims against us alleging that various NuVasive spinal implants (including our CoRoent® XL familyof spinal implants) and NuVasive's Osteocel® Plus bone graft product, along with the XLIF procedure, infringe Medtronic patents not asserted in prior phasesof the case. We deny infringing any valid claims of these additional patents and on March 7, 2013, we filed counterclaims against Medtronic asserting thatMedtronic's MAST Quadrant retractor system, the NIM-Eclipse Spinal System, the Clydesdale Spinal System, the Capstone-L products, and the DirectLateral Interbody Fusion (“DLIF”) procedure infringe eight NuVasive patents. A claim construction hearing is scheduled for the fourth quarter 2013 and a pre-trial conference is currently scheduled for June 20, 2014. No trial date is set.

If we do not prevail in the Medtronic litigation we could be required to stop selling certain of our products, pay substantial monetary amounts asdamages, and/or enter into expensive royalty or licensing arrangements. Such adverse results may limit our ability to generate profits and cash flow, and, as aconsequence, to invest in and grow our business, including investments into new and innovative technologies.

We are currently involved in a trademark litigation action involving the NeuroVision brand name and, if we do not prevail, we could be liable forsubstantial damages.

In September 2009, Neurovision Medical Products, Inc. (NMP) filed suit against us in the U.S. District Court for the Central District of Californiaalleging trademark infringement and unfair competition. NMP sought cancellation of our “NeuroVision” trademark registrations, injunctive relief and damagesbased on NMP's common law use of the “Neurovision” mark. Trial of the matter took place in October 2010, and an unfavorable jury verdict was deliveredagainst us relating to our use of the NeuroVision trade name in the amount of $60.0 million plus attorney fees and costs, as well as an injunction. Wepromptly appealed the verdict to the Ninth Circuit Court of Appeals. During the pendency of the appeal, we were required to escrow the amount of thejudgment, plus interest. In September 2012, the Circuit Court reversed and vacated the District Court's judgment against us, and also reversed and vacated theinjunction and the award of attorney fees and costs. The Circuit Court remanded the case for a new trial and instructed the District Court to assign the case toa different judge. In December 2012, the full $62.5 million was released from escrow and returned to us. A retrial on the matter is currently scheduled to beginin the District Court in September 2013.

This litigation process has been expensive, complex and lengthy and its outcome is difficult to predict. We may also be subject to additional negativepublicity due to this trademark litigation. This litigation may significantly divert the attention of our technical and management personnel. In the event that weare unsuccessful in our defense, we could be required to pay significant damages which are not covered under any of our insurance plans. In the event thisoutcome occurs, our business, liquidity, financial condition and results of operations would be materially adversely affected.

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Risks Related to our Legal and Regulatory Environment

We are subject to rigorous governmental regulations regarding the development, manufacture, and sale of our products and we may incursignificant expenses to comply with these regulations and develop products that are compatible with these regulations. In addition, failure tocomply with these regulations could subject us to substantial sanctions which could adversely affect our business, results of operations andfinancial condition.

The medical devices we manufacture and market are subject to rigorous regulation by the FDA and numerous other federal, state and foreigngovernmental authorities, including regulations that cover the composition, labeling, testing, clinical study, manufacturing, packaging, marketing anddistribution of our products.

We are required to register with the FDA as a device manufacturer and tissue bank. As a result, we are subject to periodic inspection by the FDA forcompliance with the FDA's Quality System Regulation (QSR) and Good Tissue Practices requirements, which require manufacturers of medical devices andtissue banks to adhere to certain regulations, including testing, quality control and documentation procedures. Our compliance with applicable regulatoryrequirements is subject to continual review and is rigorously monitored through periodic inspections by the FDA. In the European Community, we are requiredto maintain certain ISO certifications in order to sell our products, and are subject to periodic inspections by notified bodies to obtain and maintain thesecertifications. If we or our suppliers fail to adhere to QSR, ISO or other applicable regulations and standards, this could delay product production and lead tofines, difficulties in obtaining regulatory clearances and approvals, recalls or other consequences, which in turn could have a material adverse effect on ourfinancial condition, results of operations, or prospects.

Most medical devices must receive FDA clearance or approval before they can be commercially marketed. In addition, the FDA may require testing andsurveillance programs to monitor the effects of approved products that have been commercialized, and can prevent or limit further marketing of a productbased upon the results of post-marketing programs. In addition, the federal Medical Device Reporting regulations require us to provide information to the FDAwhenever there is evidence that reasonably suggests that a device may have caused or contributed to a death or serious injury or, if a malfunction were tooccur, could cause or contribute to a death or serious injury. Furthermore, most major markets for medical devices outside the United States require clearance,approval or compliance with certain standards before a product can be commercially marketed. The process of obtaining regulatory approvals to market amedical device, particularly from the FDA and certain foreign governmental authorities, can be costly and time-consuming, and approvals may not be grantedfor future products or product improvements on a timely basis, if at all. Delays in receipt of, or failure to obtain, approvals for future products or productimprovements could result in delayed realization of product revenues or in substantial additional costs, which could have a material adverse effect on ourbusiness or results of operations or prospects. At any time after approval of a product, the FDA may conduct periodic inspections to determine compliancewith both QSR requirements and/or current Medical Device Reporting regulations. Product clearances or approvals by the FDA can be withdrawn due tofailure to comply with regulatory standards or the occurrence of unforeseen problems following initial clearance or approval.

Pursuant to FDA regulations, we can only market our products for cleared or approved uses. Although physicians are permitted to use medical devicesfor indications other than those cleared or approved by the FDA based on their medical judgment, we are prohibited from promoting products for such off-label uses. We market our products and provide promotional materials and training programs to physicians regarding the use of our products. Although webelieve our marketing, promotional materials and training programs for physicians do not constitute promotion of unapproved uses of our products, if it isdetermined that our marketing, promotional materials or training programs constitute promotion of unapproved uses, we could be subject to significant finesin addition to regulatory enforcement actions, including the issuance of a warning letter, injunction, seizure and criminal penalty.

Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC has promulgated rules regarding disclosure of the presence in acompany's products of certain metals, known as “conflict minerals,” which are metals mined from the Democratic Republic of the Congo and adjoiningcountries, as well as procedures regarding a manufacturer's efforts to identify the sourcing of those minerals from this region. Complying with these rules willrequire investigative efforts, which will cause us to incur associated costs, and could adversely affect the sourcing, supply, and pricing of materials used inour products, or result in process or manufacturing modifications, all of which could adversely affect our results of operations.

Whenever the United States or another foreign governmental authority concludes that we are not in compliance with applicable laws or regulations, suchgovernmental authority can impose fines, delay or suspend regulatory clearances, institute proceedings to detain or seize our products, issue a recall, imposeoperating restrictions, enjoin future violations and assess civil penalties against us or our officers or employees, and can recommend criminal prosecution tothe Department of Justice (DOJ). Moreover, governmental authorities can ban or request the recall, repair, replacement or refund of the cost of any device orproduct we manufacture or distribute. Any of the foregoing actions could result in decreased sales as a result of negative publicity and product liability claims,and could have a material adverse effect on our financial condition, results of operations and prospects. In addition to the sanctions for noncompliancedescribed above, commencement of an enforcement proceeding, inspection or investigation

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could divert substantial management attention from the operation of our business and have an adverse effect on our business, results of operations andfinancial condition.

During the three months ended June 30, 2013, we received a federal administrative subpoena from the Office of Inspector General of the U.S. Departmentof Health and Human Services (OIG) in connection with an investigation into possible false or otherwise improper claims submitted to Medicare and Medicaid.The subpoena seeks discovery of documents for the period January 2007 through April 2013. We cannot control the pace or scope of any investigation, andresponding to the subpoena requests and any investigation will require the allocation of resources, including management time and attention. If we were tobecome the subject of an enforcement action, including any action resulting from the investigation by the OIG, it could result in negative publicity, penalties,fines, the exclusion of our products from reimbursement under federally-funded programs and/or prohibitions on our ability to sell our products, which couldhave an adverse effect on our results of operations and financial condition.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

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EXHIBIT INDEXExhibitNumber Description

3.1 Restated Certificate of Incorporation (incorporated by reference to our Quarterly Report on Form 10-Q filed with theCommission on August 13, 2004)

3.2

Certificate of Amendment to the Restated Certificate of Incorporation (incorporated by reference to our Quarterly Reporton Form 10-Q filed with the Commission on May 1, 2012)

3.3

Restated Bylaws (incorporated by reference to our Current Report on Form 8-K filed with the Commission on January6, 2012)

10.1# Amendment No. 1 to the 2004 Employee Stock Purchase Plan (filed herewith) 10.2†

Settlement and License Agreement, dated as of April 25, 2013, by and among the Company, Medtronic SofamorDanek USA, Inc., Warsaw Orthopedic, Inc., Medtronic Puerto Rico Operations Co. and Medtronic Sofamor DanekDeggendorf, GmbH (filed herewith)

31.1*

Certification of the Chief Executive Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, asamended, and 18 U.S.C. section 1350

31.2*

Certification of the Chief Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, asamended, and 18 U.S.C. section 1350

32*

Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101** XBRL Instance Document 101** XBRL Taxonomy Extension Schema Document 101** XBRL Taxonomy Calculation Linkbase Document 101** XBRL Taxonomy Label Linkbase Document 101** XBRL Taxonomy Presentation Linkbase Document 101** XBRL Taxonomy Definition Linkbase Document

# Indicates management contract or compensatory plan.

† Certain confidential information contained in this exhibit was omitted by means of redacting a portion of the text and replacingit with an asterisk. We have filed separately with the Commission an unredacted copy of the exhibit.

* These certifications are being furnished solely to accompany this annual report pursuant to 18 U.S.C. Section 1350, and arenot being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and are not to be incorporated by referenceinto any filing of NuVasive, Inc., whether made before or after the date hereof, regardless of any general incorporation languagein such filing.

** Pursuant to applicable securities laws and regulations, we are deemed to have complied with the reporting obligation relating tothe submission of interactive data files in such exhibits and are not subject to liability under any anti-fraud provisions of thefederal securities laws as long as we have made a good faith attempt to comply with the submission requirements and promptlyamend the interactive data files after becoming aware that the interactive data files fail to comply with the submissionrequirements. Users of this data are advised that, pursuant to Rule 406T, these interactive data files are deemed not filed andotherwise are not subject to liability.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.

NUVASIVE, INC.

Date: July 30, 2013 By: /s/ Alexis V. Lukianov

Alexis V. LukianovChairman and Chief Executive Officer(Principal Executive Officer)

Date: July 30, 2013 By: /s/ Michael J. Lambert

Michael J. LambertExecutive Vice President andChief Financial Officer(Principal Financial Officer)

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EXHIBIT INDEXExhibitNumber Description3.1

Restated Certificate of Incorporation (incorporated by reference to our Quarterly Report on Form 10-Q filed with the Commission onAugust 13, 2004)

3.2

Certificate of Amendment to the Restated Certificate of Incorporation (incorporated by reference to our Quarterly Report on Form 10-Qfiled with the Commission on May 1, 2012)

3.3 Restated Bylaws (incorporated by reference to our Current Report on Form 8-K filed with the Commission on January 6, 2012) 10.1# Amendment No. 1 to the 2004 Employee Stock Purchase Plan (filed herewith) 10.2†

Settlement and License Agreement, dated as of April 25, 2013, by and among the Company, Medtronic Sofamor Danek USA, Inc.,Warsaw Orthopedic, Inc., Medtronic Puerto Rico Operations Co. and Medtronic Sofamor Danek Deggendorf, GmbH (filed herewith)

31.1*

Certification of the Chief Executive Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and18 U.S.C. section 1350

31.2*

Certification of the Chief Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and18 U.S.C. section 1350

32*

Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant toSection 906 of the Sarbanes-Oxley Act of 2002

101** XBRL Instance Document 101** XBRL Taxonomy Extension Schema Document 101** XBRL Taxonomy Calculation Linkbase Document 101** XBRL Taxonomy Label Linkbase Document 101** XBRL Taxonomy Presentation Linkbase Document 101** XBRL Taxonomy Definition Linkbase Document

# Indicates management contract or compensatory plan.

† Certain confidential information contained in this exhibit was omitted by means of redacting a portion of the text and replacing it with an asterisk.We have filed separately with the Commission an unredacted copy of the exhibit.

* These certifications are being furnished solely to accompany this annual report pursuant to 18 U.S.C. Section 1350, and are not being filed forpurposes of Section 18 of the Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of NuVasive, Inc., whethermade before or after the date hereof, regardless of any general incorporation language in such filing.

** Pursuant to applicable securities laws and regulations, we are deemed to have complied with the reporting obligation relating to the submission ofinteractive data files in such exhibits and are not subject to liability under any anti-fraud provisions of the federal securities laws as long as we havemade a good faith attempt to comply with the submission requirements and promptly amend the interactive data files after becoming aware that theinteractive data files fail to comply with the submission requirements. Users of this data are advised that, pursuant to Rule 406T, these interactivedata files are deemed not filed and otherwise are not subject to liability.

36

Amendment # 1To the

Amended and Restated2004 Equity Incentive Plan

of NuVasive, Inc.

WHEREAS, effective as of May 23, 2013 (the “Effective Date”) the Board of Directors of NuVasive, Inc. (the “Company”) agreedto amend the 2004 Amended and Restated Equity Incentive Plan (the “ 2004 Plan”) pursuant to Section 14.1 of the 2004 Plan with respect to the 2004Plan’s provisions relating to Awards granted to Non-Employee Directors.

NOWTHEREFORE, the 2004 Plan shall be amended as of the Effective Date as follows:

1. Section 11.1(a) is amended in its entirety to read as follows:

11.1 Automatic Restricted Stock Unit Grants

(a) Grant Dates. Stock Awards in the form of restricted stock units (“RSUs”) shall be granted to Non-EmployeeDirectors on the dates specified below:

(i) Initial Grants. Each Non-Employee Director who is first elected or appointed to the Board at any time on or after theEffective Date shall automatically be granted a RSU Award for the number of shares equal to the quotient of $100,000 divided bythe Fair Market Value on the date of such individual’s appointment as Non-Employee Director (the “ Initial RSU Grant”),rounded down to the nearest whole share.

(ii) Annual Grants. As of the Effective Date, on the date of each annual stockholders meeting each individual who is tocontinue to serve as a Non-Employee Director shall automatically be granted on the date of such meeting a RSU Award for thenumber of shares equal to the quotient of $120,000 divided by the Fair Market Value on the date of such annual stockholdersmeeting (the “Annual RSU Grant”), rounded down to the nearest whole share.

(iii) Annual Grant Proration for New Non-Employee Directors. As of the Effective Date, with respect to a Non-Employee Director who is first elected or appointed after the commencement of the approximately twelve (12) month periodbeginning on the date of the annual stockholders meeting, such a Non-Employee Director shall receive a prorated Annual RSUGrant determined by multiplying the most recently granted number of RSUs pursuant to Section 11.1(a)(ii), by a fraction, thenumerator of which is the difference obtained by subtracting (A) the number of whole months that have elapsed from the date of thelast annual meeting of stockholders from (B) twelve (12), and the denominator of which is twelve (12), with the resulting productrounded down to the nearest whole share.

2. Except as amended by this Amendment, the 2004 Plan shall remain in full force and effect.

3.Except as otherwise provided in this Amendment, terms used herein shall have the meanings ascribed to such terms in the 2004 Plan.

WEST\225337230.3 1

Exhibit 10.2

***Text Omitted and Filed Separatelywith the Securities and Exchange Commission.

Confidential Treatment RequestedUnder 17 C.F.R. Sections 200.80(b)(4)

and 230.406

SETTLEMENT AND LICENSE AGREEMENT

This SETTLEMENT AND LICENSE AGREEMENT (“Agreement”), is made and entered into as of April 25, 2013 (the “Effective Date”), by and amongNuVasive, Inc., a Delaware corporation with its principal place of business in San Diego, California on the one hand, and Medtronic Sofamor Danek USA,Inc., a Tennessee corporation with its principal place of business in Memphis, Tennessee, Warsaw Orthopedic, Inc., an Indiana corporation with its principalplace of business in Warsaw, Indiana, Medtronic Puerto Rico Operations Co., a Cayman Islands corporation with its principal place of business in Humacao,Puerto Rico, and Medtronic Sofamor Danek Deggendorf, GmbH a German corporation with its principal place of business in Deggendorf, Germany on theother hand (each individually referred to as “a Party,” and collectively referred to as “the Parties”).

RECITALS

A. Medtronic has accused certain of NuVasive’s anterior cervical plate products and systems of infringing patents including U.S. Patent Nos. 6,916,320,6,592,586, 6,936,051, 6,936,050, 6,969,390, and 6,428,542 in an action filed in U.S. District Court for the Southern District of California, Case No.3:08-cv-01512 (“the Action”). Medtronic has accused NuVasive of infringing other of its patents in the Action and NuVasive has accused Medtronic ofinfringing its patents in the Action (collectively these other patents are referred to as “the Other Phase I Patents”). This Agreement does not resolve the Partiesdisputes regarding the Other Phase I Patents.

B. NuVasive has denied and continues to deny Medtronic’s infringement allegations in the Action and has challenged the validity and enforceability of thepatents asserted against it by Medtronic in the Action.

C. […***…]

D. The Parties desire to resolve a portion of the Action and to also resolve their disputes concerning NuVasive’s anterior cervical plate products and systemsaccording to the terms and conditions and the warranties, covenants and representations below, and to avoid any additional disputes between themselves andany other entity having or claiming to have rights in or to the Licensed Patents or concerning the Licensed Products in the Field (all as defined below).

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of whichis acknowledged, the Parties agree as follows:

***Confidential Treatment Requested

Page 1 of 19The Parties agree this is a Confidential document and subject to Fed. R. Evid. 408.

DEFINITIONS

A. “’ […***…] Patent Family” means, individually and collectively, all U.S. and foreign patents which have been or may be granted anywhere in theworld that claim priority to or through United States Application Serial Number […***…], which issued as U.S. Patent No. […***…] (“the ’ […***…]Patent”), or its counterpart International Application […***…].

B. “’ […***…] Patent Family” means, individually and collectively, all patents claiming priority to or through United States Application Serial Number[…***…], which is now abandoned.

C. “’ […***…] Patent Family” means, individually and collectively, all U.S. and foreign patents which have been or may be granted anywhere in theworld that claim priority to or through United States Application Serial Number […***…], which issued as U.S. Patent No. […***…] (“the ’ […***…]Patent”) or its counterpart International Application […***…].

D. “Affiliate” of a Party means any corporation, firm, partnership, joint venture or other entity which directly or indirectly owns, is owned by or is undercommon ownership of such Party. “Owned” for purposes of determining Affiliates shall mean ownership of more than fifty percent (50%) of the equity orother ownership interest of such entity, or having the power to direct the affairs of such corporation, firm, partnership, joint venture or other entity.

E. “Field” means “anterior cervical plate […***…].

F. “Licensed Patents” means, individually and collectively, the patents in the ’ […***…] Patent Family, the ’ […***…] Patent Family, and the ’ […***…] Patent Family for anterior cervical plate products and systems in any case unless and until finally determined to be invalid or unenforceable.

G. “Licensed Products” means (a) NuVasive’s Helix® ACP and Gradient® ACP products and systems including screws and tools used with suchsystems; (b) anterior cervical plate product line extensions of NuVasive’s Helix® ACP and Gradient® ACP products and systems, including screws and toolsused with such systems; and (c) any other NuVasive anterior cervical plate products or systems, including screws and tools used with such products orsystems, that are covered by any claim of a Licensed Patent, but excluding any Prohibited NuVasive Product.



H. “Medtronic” means Medtronic Sofamor Danek, Inc. or any Affiliate of Medtronic Sofamor Danek, Inc. claiming rights in or to any or all of theLicensed Patents, or that has brought suit against NuVasive, or that contends it has standing to bring suit against NuVasive relating to the Licensed Patents,including Medtronic Sofamor Danek USA, Inc., Warsaw Orthopedic, Inc., Medtronic Puerto Rico Operations Co., and Medtronic Sofamor DanekDeggendorf, GmbH, and for each such entity their respective officers, directors, stockholders, employees, attorneys, and agents, and Medtronic, Inc. or anyAffiliate of Medtronic, Inc. which has claimed, currently claims, or may in the future claim any rights in or to any of the Licensed Patents.

I. “Net Sales” means the aggregate gross amount that NuVasive invoices or charges […***…] (specifically, excluding intra-NuVasive transfers ortransactions) for sales of Licensed Products, less (i) amounts repaid or credited in the ordinary course of business by reason of defects, returns, or rebatesattributable to sales of Licensed Products, (ii) commissions paid or allowed in connection with such sales, (iii) shipping charges (including freight andinsurance) included in such gross invoice or sale price, and (iv) discounts actually allowed in connection with such sales. Net Sales exclude all revenuederived by NuVasive from the sale of other NuVasive products that may be sold by NuVasive or used by an end-user in connection with a Licensed Product,such as interbody implants or biologics. If a Licensed Product is sold in combination with a product (e.g. an interbody implant or biologic) that is not aLicensed Product (as part of a bundled package or a kit), then the computation of Net Sales shall be based on the […***…]during the applicable quarter forthe Licensed Product.

J. “NuVasive” means NuVasive, Inc. or any Affiliate of NuVasive, Inc. and for each such entity their respective officers, directors, stockholders,employees, attorneys, and agents.

K. “Phase I” means that portion of the Action concerning NuVasive’s United States Patent No. 7,470,236 and Warsaw Orthopedic, Inc.’s United StatesPatent Nos. 5,860,973, 6,945,933, and 6,592,586.

L. “Prohibited NuVasive Product” means […***…].



M. […***…]AGREEMENT

1. Compromise Only. This Agreement is entered into for purposes of settlement and compromise only. Nothing contained in this Agreement, or done oromitted in connection with this Agreement, is intended as or shall be construed as an admission of or by any of the Parties of any fault, liability, act,omission, or wrongdoing whatsoever.

2. Release. Subject to receipt of the payment described in Section 5 of this Agreement, Medtronic hereby releases all claims which Medtronic has, mayhave had, or might have asserted before the Effective Date against NuVasive and its agents, customers, suppliers, manufacturers, distributors and end-usersof the Licensed Products for any act of infringement of U.S. Patent Numbers 6,592,586 and 6,916,320 by them with respect to NuVasive’s Helix® ACPsystems or Gradient® ACP products or systems.

3. License.

3.1. License. Subject to receipt of the payment set forth in Section 5 of this Agreement and to timely receipt of and continued payments set forth in Section6 of this Agreement, Medtronic grants to NuVasive a worldwide, nonexclusive, royalty-bearing license under the Licensed Patents to make, have made, use,sell, offer for sale or import into the United States, any



Licensed Product in the Field. NuVasive may grant sublicenses under this License to customers, distributors and end-users of the Licensed Products asnecessary to enable such persons to use, resell, offer for resale or import Licensed Products purchased from NuVasive in the Field. NuVasive may grantsublicenses under this License to third party suppliers or contract manufacturers to make, have made or import Licensed Products for sale to NuVasive in theField. NuVasive may not grant sublicenses under this License to any entity for purposes other than those listed above. NuVasive may not use this License to […***…]. Licensed Products must be marketed and sold under trademarks owned by NuVasive, and the designs and regulatory approvals for LicensedProducts must be owned by or exclusively licensed to NuVasive. This License is non-transferable without prior written approval of Medtronic in its solediscretion. The above License expressly excludes any Prohibited NuVasive Products.

4 Limitations on Reexamination . NuVasive agrees that it will not initiate any reexamination proceedings as to the Licensed Patents. […***…].

5. Payment, Dismissal, Offset.

5.1. Payment and Release of Claims . In exchange for a release of all past claims by Medtronic against NuVasive for alleged infringement of U.S. PatentNumbers 6,592,586 and 6,916,320 relating to the manufacture, use, offer for sale, sale, or importation into the United States of or by NuVasive ofNuVasive’s Helix® ACP or Gradient® ACP systems, NuVasive shall pay to Medtronic seven million, five hundred thousand United States dollars($7,500,000) within 15 business days after the Effective Date. The payment by NuVasive shall be made by wire transfer, payable to Medtronic, Inc., usingthe following wire transfer instructions:Bank Name: […***…]Address: […***…]ABA: […***…]Swift: […***…]Acct #: […***…]Acct Name: […***…]

5.2. Dismissal. Within three (3) business days after receipt of the payment described by paragraph 5.1, the Parties shall file with the United States DistrictCourt for the Southern District



of California (“the Court”) in Case No. 3:08-cv-01512 a Stipulated Dismissal in the form attached to this Agreement as Exhibit A, or in such other form asrequired for approval by the Court and which is consistent with the terms and conditions of this Agreement, to dismiss with prejudice all claims,counterclaims and defenses made by each Party regarding the following United States Patents Nos.: 6,916,320; 6,592,586; 6,936,051; 6,936,050;6,969,390; and 6,428,542. Each Party shall bear its own costs and fees in connection with the litigation of these patents.

5.3. Offset. Medtronic agrees that if the damages award from Phase I against NuVasive is finally affirmed in whole or part, then the amount finallydetermined to be owed by NuVasive to Medtronic in connection with Phase I, if any, will be reduced by seven million, five hundred thousand United Statesdollars ($7,500,000), but in no instance will Medtronic have to return any of the seven million, five hundred thousand United States dollars ($7,500,000). Ifa reduction to the final, non-appealable damages award includes from the Court a clear reduction of the seven million, five hundred thousand United Statesdollars ($7,500,000) described in this section, then NuVasive will not be entitled to an additional reduction of seven million, five hundred thousand UnitedStates dollars ($7,500,000).

5.4. Taxes. Medtronic shall be solely responsible for the payment of any taxes associated with the payments contemplated by paragraphs 5.1, 6.1, and 8.3.

5.5. No Relationship Created. Nothing in this Agreement is intended as or shall be deemedto constitute a partnership, agency, employer-employee, or joint venture relationship between NuVasive and Medtronic.

6. Royalty Payments.

6.1. Computation of Royalties . For sales of Licensed Products made on or after the Effective Date, NuVasive shall pay to Medtronic as a royalty for theLicensed Patents an amount equal to 4% of Net Sales. The obligation to pay such royalties shall continue with respect to Licensed Products sold on or beforethe expiration date of the last expiring Licensed Patent. The Parties agree that, without admitting liability for infringement of any Licensed Patent and forpurposes of partial settlement of Phase I only, NuVasive’s Net Sales of […***…] shall be subject to the royalty payment commencing on and after theEffective Date. The components of the […***…]



6.2. Quarterly Payment. NuVasive shall make any payments owed under paragraph 6.1 to Medtronic on a quarterly basis, within […***…] days afterthe last day of each quarter. The first quarter is defined as January 1 through March 31, the second quarter as April 1 through June 30, the third quarter asJuly 1 through September 30, and the fourth quarter as October 1 through December 31.

6.3. Accounting Statements. NuVasive shall provide to the Auditor a statement of royalties due at the same time as it makes its quarterly payment toMedtronic. Within […***…] days of the close of each quarter as defined in paragraph 6.2, beginning with the first quarter following the Effective Date […***…] NuVasive shall make royalty payments to Medtronic on all Licensed Products sold and included in Net Sales for that quarter. The statement ofroyalties shall include:

[…***…].

This reporting obligation in paragraph 6.3 shall cease after the last royalty payment due under this Agreement has been paid.

6.4. Audit. With respect to the royalty and reporting set forth in this paragraph 6, NuVasive shall keep accurate records with respect to all LicensedProducts sold. These records shall be retained for a period of […***…] from date of reporting and payment notwithstanding the expiration or othertermination of this Agreement. Medtronic shall have the right through a mutually agreed upon independent certified public accountant (“Auditor”) and at itsexpense, to examine and audit, not more than […***…], and during normal business hours, all such records and accounts as may under recognizedaccounting practices contain information bearing upon the amount of royalty payable to Medtronic under this Agreement. Prompt adjustment shall be made byNuVasive or by Medtronic to compensate for any errors and/or omissions disclosed by such examination or audit. If such error and/or omission results in anunderpayment exceeding […***…] of the royalties due and owing, NuVasive shall pay Medtronic for the costs of the audit and an additional fee equal to […***…] of the amount of such error and/or omission. Neither such right to examine and audit nor the right to receive such additional fee shall be affected byany statement to the contrary appearing on checks or otherwise, unless



such statement appears in a letter, signed by NuVasive, and delivered to Medtronic, and Medtronic then expressly waives such right to examine and audit.

6.5. Confidentiality. The statements of royalties and proof of payment to Medtronic shall be provided by NuVasive to the Auditor contemporaneously withthe quarterly payments by NuVasive to Medtronic. The Auditor shall maintain the statements as confidential information and specifically shall not share thestatements or their content with Medtronic. The Auditor shall also not disclose to Medtronic any information considered during any audit of NuVasive otherthan whether the audited payments made by NuVasive: (1) were in the correct amount; (2) require an adjustment by NuVasive or Medtronic in a specifiedamount; or (3) reflect an underpayment by NuVasive exceeding […***…] of the correct amount.

7. Term. This Agreement shall remain in full force and effect until the expiration of the last to expire of the Licensed Patents.

8. Accrual of Ongoing Royalties Concerning Phase I :

8.1 Agreed Accrual Rates. The Parties agree that the royalty rates found by the jury in Phase I as to United States Patent Nos. 5,860,973, 6,945,933, and7,470,236 were 10%, 3%, and 5.5%, respectively. The Parties understand the District Court is in the process of deciding ongoing royalty issues. Until andafter the Court rules, the Parties will not seek or ask the Court to modify the accrual rate to a percentage above the royalty rates found by the jury in Phase 1.The Parties further understand that this Agreement to not seek or ask for an accrual modification has no bearing whatsoever on the ultimate ongoing royaltythat may or may not become due upon a final non-appealable ruling in Phase 1.

8.2. Accrued Royalties. The royalty accrual rates do not constitute an agreement by the Parties as to the amounts that may be owed as ongoing royalties orthe basis for the calculation of such royalties in Phase I. Moreover, nothing in this Agreement, or in any Order issued by the District Court, shall preclude anyParty from appealing any issue in Phase I of this case relating to United States Patent Numbers 5,860,973, 6,945,933, or 7,470,236, including the damagesawarded for alleged infringement of those patents and the appropriate ongoing royalty, if any, for that alleged infringement. The Parties further agree that thecourts will be advised that the parties have settled their dispute as to United States Patent Number 6,592,586.

8.3 Additional Payment and Offset . If the District Court sets the aggregate ongoing royalty rate attributable to United States Patent Nos. 5,860,973 and6,945,933 at or below 13%, then NuVasive shall pay to Medtronic within fifteen days of entry of such an Order an additional two million, five hundredthousand United States dollars ($2,500,000). The additional two million,



five hundred thousand United States dollars ($2,500,000) will be subject to all of the provisions of Section 5.3.

9. Miscellaneous.

9.1. […***…] attribution. NuVasive agrees that it shall comply with the […***…] Attribution requirements for any anterior cervical plate product,system or component covered by a claim of any patent in the ’ […***…] Family and/or the ’ […***…] Family […***…].

9.2. Assignment. Neither this Agreement nor any rights or obligations under this Agreement may be transferred or assigned by NuVasive, in whole or inpart, by operation of law or otherwise, without the prior written consent of Medtronic in its sole discretion. Notwithstanding the forgoing, if NuVasive isacquired by a competitor of Medtronic in the spine business such that NuVasive is legally integrated into such competitor’s spine business, NuVasive or theacquiring party shall have the option to pay to Medtronic an Assignment Fee in order for NuVasive to assign its rights under this Agreement to such acquiringparty. The Assignment Fee shall be […***…] minus the aggregate of any payments already received by Medtronic pursuant to Sections 5.3, 6.1, and 8.3 ofthis Agreement. This Agreement may be assigned by Medtronic in its sole discretion.

9.3. General Representations and Warranties. Each of the Parties, and each person signing this Agreement on behalf of a Party, represents and warrantsto the other that:

(a) It and they have not entered into this Agreement in reliance upon any promise, inducement, agreement, statement, or representation other thanthose contained in this Agreement.

(b) It and they have the full right and power to enter into this Agreement, and the person executing this Agreement has the full right and authority toenter into this Agreement on behalf of the Party and the full right and authority to bind the Party to the terms and obligations of this Agreement.



(c) Medtronic makes no representation or warranty of any kind, either express or implied, nor assumes any responsibility whatsoever with respectto the manufacture, use, import, offer for sale, sale or other disposition by NuVasive of the Licensed Products.

(d) Medtronic assumes no obligation to file any patent application, pursue any patent, maintain any patent in force or to seek reissue, re-examination or extension of any patent.

(e) Medtronic is not conferring any license or other right, by implication, estoppel or otherwise, under any patents except as expressly granted inthis Agreement.

9.4. Warranties. Medtronic represents, warrants and covenants to NuVasive that:

(a) It is the lawful and exclusive owner or licensee of the necessary rights, title, and interest in and to the Licensed Patents, has the right to sue andrecover for past, present and future infringements of the Licensed Patents, has the rights to enforce and license the Licensed Patents. Medtronic, Inc. has norights in or to the Licensed Patents.

(b) It has not entered into and shall not enter into any agreement that would interfere with, prevent, or impair the full exercise of all rights grantedthis Agreement.

(c) It has all rights necessary to grant to NuVasive the rights described in this Agreement to the Licensed Patents free of any claims for patentinfringement under the Licensed Patents with respect to the Licensed Products against NuVasive […***…].

(d) It has obtained all consents required to grant the rights and covenants described in this Agreement […***…].

(e) To the best of Medtronic’s knowledge, […***…] have no right to enforce the Licensed Patents against NuVasive.

(f) It is the appropriate recipient of the payments by NuVasive set forth in Sections 5, 6 and 8.3, and is responsible to distributing thosepayments to any third parties as required.

9.5. Notices. All notices and requests which are required or permitted to be given in connection with this Agreement shall be deemed given as of the day theyare received either by messenger, delivery service, or by United States Postal Service mail, postage prepaid, certified or registered, return receipt requested, andaddressed as follows, or to such other address as the Party to receive the notice or request provides in writing to the other Party:



To NuVasive:Jason HannonGeneral CounselNuVasive, Inc.7475 Lusk BoulevardSan Diego, CA 92121[…***…]

With a copy to:Todd G. MillerFish & Richardson P.C.12390 El Camino RealSan Diego, CA 92130[…***…]

To Medtronic:Brian EllisChief Counsel Medtronic Spine2600 Sofamor Danek Dr.Memphis, TN 38132

With a copy to:Noreen C. JohnsonChief Patent Counsel for Medtronic Spine2600 Sofamor Danek Dr.Memphis, TN 38132

9.6. Governing Law. This Agreement shall be construed in accordance with the laws of Minnesota, notwithstanding any choice-of-law principle that mightdictate a different governing law.

9.7. Consent to Arbitration. The Parties agree that enforcement of any rights arising under this Agreement or relating to any dispute arising under thisAgreement including whether the dispute itself arises under this Agreement, shall be had through binding arbitration. Such arbitration shall be governed by theFederal Arbitration Act and decided by a panel of three neutral arbitrators.



9.7.1 The arbitrators shall be a patent litigator or retired judge with substantial patent litigation experience. To the extent the parties are unable toagree upon the arbitrators, the selection of the arbitrators shall be governed by the Federal Arbitration Act.

9.7.2 Venue for any arbitration action commenced in furtherance of this Section 9.7 shall be in the County of San Diego.

9.8. Costs. Each Party shall bear its own costs, expenses and attorneys’ fees incurred in connection with the portion of the Action involving the LicensedPatents, the making of this Agreement, and its performance under this Agreement. Each Party expressly waives any claim of costs, expenses and attorneys’fees from or against the other Party to that extent.

9.9. No Construction Against Drafter . This Agreement results from negotiations between the Parties and their respective legal counsel, and each Partyacknowledges that it has had the opportunity to negotiate modifications to the language of this Agreement. Accordingly, each Party agrees that in any disputeregarding the interpretation or construction of this Agreement, no statutory, common law or other presumption shall operate in favor of or against any Party tothis Agreement by virtue of its role in drafting or not drafting its terms and conditions.

9.10. Construction. If any provision of this Agreement is held to be illegal, invalid or unenforceable or otherwise in conflict with law, the remainingprovisions shall remain in full force and effect. If any provision of this Agreement is deemed illegal, invalid or unenforceable or otherwise in conflict with law,it shall be modified to the extent necessary to make it legal, valid or enforceable or otherwise in accordance with law while effectuating the same or similarintent of the Parties.

9.11. Counterparts. This Agreement may be executed in counterparts by the Parties and each such counterpart shall be deemed to be an original, but allsuch counterparts shall together constitute but one and the same Agreement. Execution of this Agreement may be accomplished by signing this Agreement andtransmitting the signature page to the above identified principal and its outside counsel for each Party by electronic mail with receipt of delivery and openingrequested. Such receipts shall be produced to a Party on request of another Party.

9.12. Waiver. No waiver of any provision of this Agreement shall be deemed or shall constitute a waiver of any other provision, whether or not similar, norshall any waiver constitute a continuing waiver unless expressly stated in writing by the Party making the waiver. No waiver of any provision shall be bindingunless executed in writing by the Party making the waiver.

9.13. Entire Agreement. This Agreement constitutes the entire agreement between the Parties with respect to its subject matter, and supersedes all prior andcontemporaneous written or oral


agreements or communications as to such subject matter, including the […***…], which are merged and fully integrated into this Agreement. This Agreementshall not be modified except by a written agreement dated after the Effective Date and signed on behalf of NuVasive and Medtronic by their respectiveauthorized representatives.

9.14. Headings. The headings in this Agreement are for reference only and shall not control the meaning or interpretation of this Agreement.

9.15. Survival. The provisions of this Agreement relating to confidentiality and arbitration shall survive the expiration of this Agreement. The provisions ofthis Agreement relating to payment of royalties pursuant to Sections 6.1 above shall survive until such amounts have been paid, the provisions of Section 6.4regarding audit shall survive until […***…] after the expiration of this Agreement, and the provisions of Section 6.5 regarding confidentiality shall survivefor 10 years after the expiration of this Agreement.

9.16. Confidentiality. Each Party agrees that it shall keep the terms of this Agreement, […***…] and all drafts and communications of each confidential.The terms of this Agreement may be disclosed to the Parties’ respective senior management, attorneys, employees, accountants, auditors, senior lenders, andother professionals to the extent necessary for them to perform their duties to either Party, in each case who are subject to an obligation of confidentiality to suchParty. The terms of this Agreement also may be disclosed as required by law or regulation or pursuant to legal process, provided, however, that a Partyreceiving such a request for disclosure shall provide notice of said request to the other Parties sufficient to allow such Parties to make formal objection to suchdisclosure and shall cooperate with such other Parties to obtain a protective order or other confidential treatment. The terms of this Agreement also may bedisclosed to the extent necessary to comply with any other legal, accounting, or regulatory requirements. In connection with an actual or proposed merger,acquisition, financing or other transaction, subject to reasonable written confidentiality measures, the terms of this Agreement may be disclosed to a potentialcounterparty (and, in the case of any sale, assignment or other transfer of any of the Licensed Patents, the transferring Party may disclose such terms to thepotential transferee, subject to a written obligation of confidentiality to such Party).

9.17. No Use in Litigation. The Parties agree that this Agreement has been entered into in an effort to settle a portion of the Action. The parties further agreethat the terms contained in this Agreement, drafts of this Agreement, the […***…], drafts of the […***…]or any similar documents concerning or created inconnection with this Agreement do not necessarily reflect a reasonable royalty amount, reasonable royalty rate, what the Parties would have agreed to in ahypothetical negotiation concerning any or all of the Licensed Patents, or the way such royalty should be calculated or paid. The Parties further agree that theyshall not attempt to admit this



Agreement, drafts of this Agreement, the […***…], drafts of the […***…] or any similar documents concerning or created in connection with thisAgreement into evidence or rely upon the content of such documents in any pending or future litigation between the Parties or for any purposes other than anarbitration relating to the construction or enforcement of this Agreement. The Parties specifically agree that the terms recited in these documents shall not berelied upon, or used, in support of, or in opposition to, any arguments concerning any issue in the Action or any other proceeding other than an arbitrationrelating to the construction or enforcement of this Agreement.

[REMAINDER OF PAGE BLANK; SIGNATURES FOLLOW]



IN WITNESS WHEREOF, the Parties hereto have caused this Settlement and License Agreement to be made and executed by duly authorized representativesas of the Effective Date.

NuVasive, Inc.

By: /s/ Jason Hannon Name (print): Jason Hannon Title: Executive VP & GC Date: 4/25/13

The Medtronic entities

By: /s/ Brian W. Ellis Name (print): Brian W. Ellis Title: V.P., Chief Counsel Date: 4/24/13


Exhibit AStipulation of Dismissal

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

WARSAW ORTHOPEDIC, INC.,

Plaintiff,

v.

NUVASIVE, INC.,

Defendant. Case No. 3:08-CV-1512 CAB (MDD)

Judge: Hon. Cathy Ann BencivengoCourtroom: 4C, 4th floor

NUVASIVE, INC.,

Counterclaimant,

v.

MEDTRONIC SOFAMOR DANEK USA, INC.,

Counterclaim Defendant.

AND RELATED COUNTERCLAIMS.

Pursuant to Rule 41 (a)(1)(A)(ii) and (a)(1)(B) the Parties stipulate and agree that this action as it pertains to United States Patent Nos. 6,916,320,

6,592,586, 6,936,051, 6,936,050, 6,969,390, and 6,428,542, including NuVasive’s claims, defenses and counterclaims and Warsaw Orthopedic,

Inc.’s and Medtronic Sofamor Danek USA, Inc.’s claims, defenses and counterclaims are dismissed in their entirety with prejudice. It is further stipulated

that each party shall bear its own costs and attorneys’ fees relating to the ACP Patents.


Respectfully submitted.

_______________________________ ___________________________________

Dated: April 24, 2013 KIRKLAND & ELLIS LLP

By: s/

Attorneys for Plaintiff/Counterclaim Defendant/Counterclaimant

Dated: April 24, 2013 FISH & RICHARDSON P.C.

By: s/

Attorneys for Defendant/Counterclaimant /Counterclaim Defendant NUVASIVE, INC.


Schedule 1NuVasive Products Excluded as Prohibited NuVasive Product

[…***…]



Schedule 2Components of the Helix® ACP and Gradient® ACP systems

Pro Forma Royalty Calculation

[…***…]



Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TOSECTION 302 OF SARBANES-OXLEY ACT OF 2002

I, Alexis V. Lukianov, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of NuVasive, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting.

Date: July 30, 2013

/s/ Alexis V. Lukianov Alexis V. LukianovChairman and Chief Executive Officer

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TOSECTION 302 OF SARBANES-OXLEY ACT OF 2002

I, Michael J. Lambert, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of NuVasive, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us byothers within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting.

Date: July 30, 2013

/s/ Michael J. Lambert Michael J. LambertExecutive Vice President and Chief Financial Officer

Exhibit 32

CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICERPURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of NuVasive, Inc. (the Company) on Form 10-Q for the period ended June 30, 2013, as filed with the Securities andExchange Commission on the date hereof (the Quarterly Report), I, Alexis V. Lukianov, Chairman and Chief Executive Officer of the Company, certify,pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

1. The Quarterly Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. That information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of theCompany.

Date: July 30, 2013

/s/ Alexis V. Lukianov Alexis V. Lukianov Chairman and Chief Executive Officer

In connection with the Quarterly Report of NuVasive, Inc. (the Company) on Form 10-Q for the period ended June 30, 2013, as filed with the Securities andExchange Commission on the date hereof (the Quarterly Report), I, Michael J. Lambert, Executive Vice President and Chief Financial Officer of the Company,certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

1. The Quarterly Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. That information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of theCompany.

Date: July 30, 2013

/s/ Michael J. Lambert Michael J. Lambert Executive Vice President and Chief Financial Officer

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