Item 1.01 Entry into a Definitive Agreement.
On January 29, 2013, Solta Medical, Inc., a Delaware corporation (
Solta
or the
Company
),
Argonaut Limited Liability Company, a Colorado limited liability company and a wholly-owned subsidiary of Solta (
Merger Sub
), Sound Surgical Technologies LLC, a Colorado limited liability company, (
Sound
Surgical
) and Inlign CP III, LLC, a Delaware limited liability company, acting solely in the capacity of Representative, entered into an Agreement and Plan of Merger (the
Merger Agreement
), pursuant to which, on the
terms and subject to the conditions set forth in the Merger Agreement, Solta has agreed to acquire all of the outstanding membership interests of Sound Surgical by way of a merger in which Merger Sub will be merged with and into Sound Surgical with
Sound Surgical continuing as the surviving corporation and a wholly-owned subsidiary of Solta (the
Merger
).
Under the terms of the Merger Agreement, at the closing of the Merger, Solta will (i) issue in the aggregate 9.73 million
shares of Solta common stock (the Closing Shares) to Sound Surgicals unit holders and (ii) pay $5 million in cash to such holders and in respect to certain obligations of Sound Surgical outstanding at the closing. Pursuant to
the Merger Agreement the Closing Shares have an ascribed value of $25.5 million based on the per share price equal to the volume-weighted average of the closing sales prices for Solta common stock on the NASDAQ Stock Market for a specified period
prior to the date of the Merger Agreement (the Closing Share Price). The amount of cash payable at closing is subject to adjustment to account for Sound Surgicals working capital and cash balances at closing.
In addition, Solta has agreed to issue additional shares of its common stock (the Earn-Out Shares) to unit holders of Sound
Surgical upon the achievement of certain revenue milestones in 2013 from the sale of Sound Surgical products. The Earn-Out Shares, if any, are issuable in the first quarter of 2014. The maximum number of Earn-Out Shares issuable under the Merger
Agreement is 3.63 million shares, with an aggregate value of $9.5 million in total based on the Closing Share Price.
The
Merger Agreement provides that (i) all outstanding and unexercised options to purchase Sound Surgical membership interests that are not in-the-money will be terminated and cancelled as of the effective time of the Merger, (ii) the in-the-money
options will participate in the merger consideration, net of exercise price, (iii) all issued and outstanding warrants to purchase Sound Surgical membership interests that are not in-the-money will be cancelled as of the closing of the Merger, and
(iv) all in the money warrants will participate in the merger consideration, net of exercise price. Solta will not assume or replace any options or warrants.
In connection with the Merger, the Company entered into Voting Agreements (the Voting Agreement) with holders of over a majority of the units of Sound Surgical, whereby the unit holders agree
to vote their units in favor of the Merger and against any other proposal in opposition or competition to the Merger.
The
Solta shares to be issued in the Merger will be issued in a private placement transaction to the Sound Surgical unit holders, and Solta has agreed to file a resale registration statement on Form S-3 for the sale of shares issued in the Merger. Sound
Surgical unit holders who will hold over a majority of Closing Shares have entered into lock-up agreements agreeing not to sell more than one-third of the Closing Shares received by them in the period from the effective date of the resale
registration statement until 180 days from the date of the Merger and to not sell more than an additional one-third of such shares in the period of 180 to 270 days from the date of the Merger.
Sound Surgical has made certain representations, warranties and covenants in the Merger Agreement, including, among others,
representations and warranties regarding liabilities, employee benefit matters and intellectual property, and among others, covenants to conduct its business in the ordinary course consistent with past practices during the interim period between the
execution of the Merger Agreement and the consummation of the Merger.
Under the Merger Agreement, Sound Surgical security
holders are required to indemnify Solta, Merger Sub and their related parties (collectively, the Indemnified Parties) for breaches of representations, warranties and covenants of Sound Surgical in the Merger Agreement and certain other
matters, subject to limits specified in the Merger Agreement. The Merger Agreement provides that the amount of any losses with respect to which the Indemnified Parties are entitled to indemnification under the Merger Agreement will be satisfied out
of Closing Shares that are deposited into escrow for a one year period and, to the extent applicable, may be set off against the Earn-Out Shares otherwise issuable as consideration pursuant to the Merger Agreement.
2
The completion of the Merger is subject to various customary conditions, including
(i) approval of the Sound Surgical unit holders, (ii) absence of any applicable law or order prohibiting the Merger, (iii) the accuracy of the representations and warranties of each party, and (iii) performance in all material
respects by each party of its obligations under the Merger Agreement.
The Merger Agreement provides for certain customary
termination rights by the parties, including termination if the Merger is not consummated by March 26, 2013.
The Merger
has been approved by the management committee of Sound Surgical and the board of directors of Solta.
Solta has agreed to
appoint David Holthe, Manager and Chairman of the Management Committee of Sound Surgical, to its board of directors effective on the completion of the Merger.
The Merger Agreement, which has been included to provide investors with information regarding its terms, contains representations and warranties of each of Solta and Sound Surgical. The assertions
embodied in those representations and warranties were made for purposes of the Merger Agreement and are subject to qualifications and limitations agreed by the respective parties in connection with negotiating the terms of the Merger Agreement. In
addition, certain representations and warranties were made as of a specific date, may be subject to a contractual standard of materiality different from what a stockholder might view as material, or may have been used for purposes of allocating risk
between the respective parties rather than establishing matters as facts. Investors should read the Merger Agreement when it is filed, together with the other information concerning Solta that it publicly files in reports and statements with the
Securities and Exchange Commission (the SEC).