Contract analysis

From: Beatrice Holloway <bholloway@calderwoodharkness.com> To: Patrick Lennox <plennox@solsticebiomedical.com> Cc: Helena Byrne <hbyrne@solsticebiomedical.com> Date: Tue, 20 Aug 2024 06:47:00 -0000 Subject: Meridian Acquisition — Stock Purchase Agreement Executed

I am pleased to confirm that the Stock Purchase Agreement governing Solstice Biomedical, Inc.'s acquisition of Meridian Surgical Technologies, Inc. was fully executed today, August 20, 2024, by all parties. Signatures were obtained from Solstice Biomedical, Inc. (as Buyer), Meridian Surgical Technologies, Inc. (the Company), and all Sellers, including Dr. Marcus Ellsworth (in his individual capacity and in his capaci

Natasha Grier on our team is compiling the fully executed signature pages and will circulate a conformed copy of the SPA and Disclosure Schedules to the full deal team tomorrow, August 21.

This is a significant milestone, and congratulations are in order. Before turning to next steps, I want to provide a concise summary of the principal terms as finally agreed, for the record and for the benefit of anyone on the distribution who may find it useful to have these in one place.

The base purchase price is $220,000,000 in all-cash consideration for 100% of Meridian's outstanding common stock (7,450,000 shares) and the cancellation of all 550,000 vested stock options outstanding under the Meridian 2019 Equity Incentive Plan. There is no stock component. Per-share merger consideration is calculated on a fully diluted share count of 8,000,000 shares, yielding $27.50 per share. Net option cancell

Up to $35,000,000 in additional cash consideration is payable upon the achievement of FDA 510(k) regulatory milestones for the ArthroNav robotic-assisted arthroscopy platform:

- **Milestone 1:** $20,000,000 upon FDA 510(k) clearance of ArthroNav Generation 1.0 on or before December 31, 2026. - **Milestone 2:** $15,000,000 upon FDA 510(k) clearance of the ArthroNav Software Module for Real-Time Cartilage Mapping (Generation 2.0 upgrade) on or before June 30, 2027.

Maximum aggregate consideration (base plus earnout) is $255,000,000.

Buyer has covenanted to use commercially reasonable efforts to pursue 510(k) submissions; to maintain a minimum $6,000,000 annual R&D budget for ArthroNav during the Earnout Period; not to divert Dr. Raj Subramanian from ArthroNav development without the prior consent of the Sellers' Representative; and to provide 90 days' prior written notice before any discontinuation or abandonment of the ArthroNav program. Disput

- **Cap:** 28% of the base purchase price = $61,600,000. - **Survival:** 24 months for general representations (through October 31, 2026); Fundamental Representations survive until 60 days after expiration of the applicable statute of limitations; Environmental representations survive 36 months (through October 31, 2027). - **Basket:** $1,650,000 (0.75% of the base purchase price), structured as a tipping basket — on

- **Indemnity Escrow:** $26,400,000 (12% of the base purchase price), held by Keystone Escrow Services, Inc. - **Earnout Escrow Reserve:** $2,500,000 (funded by Buyer), securing Buyer's earnout payment obligations. - **Total Escrow at Closing:** $28,900,000. - **Release Schedule:** 50% of the indemnity escrow releases on October 31, 2025; the remainder releases on October 31, 2026, less amounts reserved for pending c

The parties have agreed to a joint Section 338(h)(10) election to treat the stock purchase as a deemed asset acquisition for U.S. federal and applicable state income tax purposes.

Target net working capital is $11,500,000, with estimated closing NWC of $12,175,000. The SPA provides for a 90-day post-closing true-up period, with Hargrove Bennett LLP designated as the independent accounting referee for disputes.

Closing deductions include the payoff of Meridian's existing revolving credit facility with Ironclad Commercial Lending, LLC (outstanding balance to be confirmed by payoff letter closer to closing) and Sellers' transaction expenses, estimated at $4,825,000 (comprising Whitmore Crane & Pfeiffer legal fees, Pennfield advisory fees, Dunfield consent fees, and miscellaneous costs).

**II. Final Negotiation Points Resolved**

For context, the final round of negotiations with Whitmore Crane & Pfeiffer resolved several key open points. The indemnification cap settled at 28% — Sellers had initially proposed 20%, and we had opened at 35%. The tipping basket mechanism was a compromise; Sellers had advocated for a true deductible. The earnout covenants regarding the non-diversion of Dr. Subramanian and the 90-day discontinuation notice provisio

The Disclosure Schedules were finalized and delivered in the form reviewed and approved by the Solstice team last Friday. I would note specifically the disclosure of the pending litigation captioned *Hartwell Orthopedic Solutions, Inc. v. Meridian Surgical Technologies, Inc.*, Civil Action No. 2:23-cv-04817 (E.D. Pa.), which is the subject of a specific indemnification provision in the SPA.

**III. Ancillary Documents Executed Concurrently**

The following ancillary documents were executed and delivered concurrently with the SPA:

- **Non-Competition and Non-Solicitation Agreements** for Dr. Marcus Ellsworth, Catherine Pryor, and Dr. Raj Subramanian, each containing 2-year post-termination covenants. - **Employment Agreements** for: - Dr. Marcus Ellsworth — Division President, Orthopedic Instruments; $525,000 base salary; 3-year term. - Catherine Pryor — SVP Operations; $375,000 base salary; 3-year term. - Dr. Raj Subramanian — SVP, ArthroNav

As a reminder, the buy-side representations and warranties insurance policy from Ridgeline Mutual Insurance Company (Policy No. RMI-RWI-2024-08172) was bound on August 14, 2024. The policy provides $40,000,000 in aggregate coverage with a $4,400,000 retention (split 50/50 between Buyer and Sellers) and a $1,232,000 premium payable by Buyer at closing.

Separately, the D&O tail policy from Northbridge Specialty Insurance Co. (placed through Caldwell Risk Advisors) — $10,000,000 aggregate limit, $385,000 premium — is to be bound and prepaid by Buyer at closing pursuant to Solstice's obligations under the SPA.

The Tidewater Atlantic Bank commitment letter dated July 15, 2024 remains in effect, providing for a $130,000,000 Term Loan A facility (5-year term, SOFR + 2.25%) and a $50,000,000 revolving credit facility (5-year term, SOFR + 2.00%). We are actively working with Margaret Chu's team at Tidewater to finalize the definitive Credit Agreement, targeting execution at or prior to closing. The revolver will be undrawn at c

We are targeting an October 31, 2024 closing. The key workstreams between signing and closing are as follows:

1. **HSR Act.** Based on our size-of-person test analysis, no HSR filing is required for this transaction. No regulatory waiting period applies.

2. **Third-Party Consents.** The Titanium Precision Components consent was obtained on August 5, 2024, and the OrthoLink Distribution notice was delivered on August 12, 2024. We are not aware of any other material consents remaining outstanding.

3. **Financing.** Finalize and execute the definitive Credit Agreement with Tidewater Atlantic Bank.

4. **Ironclad Payoff.** Obtain a payoff letter from Ironclad Commercial Lending, LLC for Meridian's existing $12,000,000 revolving credit facility, timed to closing.

5. **Closing Deliverables.** Prepare the following closing certificates and documents: - Secretary's Certificates for both Meridian Surgical Technologies, Inc. and Solstice Biomedical, Inc. - Officer bring-down certificates. - FIRPTA certificates. - Section 338(h)(10) election forms (IRS Form 8023). - Good standing certificates from the Delaware Secretary of State and the Pennsylvania Department of State.

6. **Escrow Agreement.** Finalize the Escrow Agreement with Keystone Escrow Services, Inc. (Patricia Langford) for execution at closing.

7. **Closing Statement and Funds Flow.** Andrew Fitzpatrick and Tiffany Rosenthal will prepare the detailed closing statement and funds flow memorandum as we approach the closing date.

8. **Retention Pool.** Confirm Buyer's arrangements for the $3,500,000 retention bonus pool for key Meridian employees, payable in two equal installments at 6 and 12 months post-closing.

9. **Closing Binder.** A full closing binder and index will be prepared and circulated following closing.

Looking beyond closing, I want to flag several post-closing workstreams that will require prompt attention: (a) the net working capital true-up, which must be completed within 90 days of closing; (b) earnout compliance tracking and milestone monitoring; (c) indemnity escrow administration and claims management with Keystone; and (d) the Section 338(h)(10) election tax filings. We will prepare a comprehensive Post-Clo

Patrick, please extend our congratulations to Helena and the broader Solstice team on reaching this significant milestone. The Meridian acquisition represents a transformative transaction for Solstice's orthopedic instruments platform, and it has been a privilege to work alongside your team throughout these negotiations.

I would welcome the opportunity to schedule a call with you and Helena later this week to walk through the closing timeline in greater detail and ensure we are aligned on responsibilities and deadlines. Please let me know what works on your end.

The full Calderwood & Harkness team — James Prentice, Tiffany Rosenthal, Andrew Fitzpatrick, Meredith Cross, David Shen, Lauren Wainwright, and Natasha Grier — remains at your disposal as we move toward closing. Please do not hesitate to reach out to any of us at any time.

As noted above, Natasha will circulate the conformed fully executed SPA and Disclosure Schedules to the deal team tomorrow.

**Beatrice R. Holloway** Partner, Mergers & Acquisitions Calderwood & Harkness LLP 590 Lexington Avenue, 35th Floor New York, NY 10022 Direct: (212) 554-7100 Mobile: (917) 482-3319 bholloway@calderwoodharkness.com

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