1037-00006 · Solstice Biomedical Devices Ltd · Pre-Signing

letter-of-intent-2024-06-03.docx DOCUMENT M&A / Corporate

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CONFIDENTIAL

CALDERWOOD & HARKNESS LLP 590 Lexington Avenue, 35th Floor New York, NY 10022 Tel: (212) 554-7000

Fax: (212) 554-7001

www.calderwoodharkness.com

June 3, 2024

CONFIDENTIAL — NON-BINDING (Except as to Sections 10, 11, 12, 13, 14, and 15, which are binding)

Dr. Marcus Ellsworth Chief Executive Officer Meridian Surgical Technologies, Inc. 780 Keystone Boulevard, Suite 200 King of Prussia, PA 19406

cc:

Jonathan Whitmore, Esq. Whitmore Crane & Pfeiffer LLP One Liberty Place 1650 Market Street, Suite 3600 Philadelphia, PA 19103

Gregory Ashford Managing Partner Pennfield Growth Partners, LP 2100 Market Street, 28th Floor Philadelphia, PA 19103

Samuel Nakamura Managing Director Arch Hill Ventures Fund II, LLC 450 Boylston Street, Suite 1200 Boston, MA 02116

Dear Dr. Ellsworth:

This letter of intent (this "Letter of Intent" or "LOI") is submitted on behalf of our client, Solstice Biomedical Devices Ltd. ("Solstice" or the "Buyer"), a private limited company organized and existing under the laws of Ireland, registered with the Companies Registration Office under CRO Number 648217, with its principal offices located at Solstice House, 14 Fitzwilliam Place, Dublin 2, D02 YF82, Ireland, to set forth the principal terms and conditions upon which Solstice proposes to acquire all of the outstanding equity interests of Meridian Surgical Technologies, Inc. ("Meridian" or the "Company"), a corporation organized and existing under the laws of the State of Delaware (Delaware File Number 5819734), with its principal offices located at 780 Keystone Boulevard, Suite 200, King of Prussia, PA 19406.

As you know, Meridian is engaged in the design, development, and manufacture of minimally invasive surgical instruments for orthopedic procedures, including its proprietary single-use arthroscopic blades, powered shaver systems, and the in-development ArthroNav robotic-assisted arthroscopy platform. The Buyer has developed a strong appreciation for Meridian's product portfolio, technology pipeline, and market position through the preliminary due diligence process commenced on May 13, 2024, and believes that a combination of the two organizations presents a compelling strategic opportunity for both parties.

This Letter of Intent is submitted in connection with, and with reference to, the Exclusivity Agreement dated May 20, 2024, by and between Solstice and Meridian (the "Exclusivity Agreement"), which remains in full force and effect in accordance with its terms. The purpose of this Letter of Intent is to set forth the principal terms and conditions upon which Solstice proposes to acquire one hundred percent (100%) of the outstanding equity interests of Meridian, including all shares of common stock of Meridian held by the stockholders of Meridian (collectively, the "Sellers") and all vested stock options issued and outstanding under the Meridian 2019 Equity Incentive Plan, on the terms described more fully below.

Except as expressly set forth in Sections 10, 11, 12, 13, 14, and 15 hereof, which provisions shall be binding and enforceable upon the parties, this Letter of Intent is intended to be non-binding and is subject in all respects to the negotiation, execution, and delivery of a definitive Stock Purchase Agreement and related ancillary documents.

The principal terms of the proposed transaction are as follows:

1. Transaction Structure

The proposed acquisition (the "Transaction") will be structured as a stock purchase. Solstice, or a wholly owned U.S. acquisition subsidiary to be formed by Solstice under the laws of the State of Delaware (the "Acquisition Subsidiary," and together with Solstice, the "Buyer"), will purchase from the Sellers one hundred percent (100%) of the issued and outstanding shares of common stock of Meridian. Solstice anticipates that the Acquisition Subsidiary will be organized as a Delaware corporation, to be named "Solstice Biomedical, Inc." or such other name as Solstice may determine prior to closing, which entity will serve as the direct purchaser of the shares and, following the closing, will be the parent entity through which Meridian's operations will be conducted within Solstice's corporate structure.

In connection with the closing of the Transaction, all vested stock options issued and outstanding under the Meridian 2019 Equity Incentive Plan (as described in Section 2.1 below) will be cancelled and converted into the right to receive a cash payment equal to the per-share consideration payable to the Sellers in respect of each share of common stock, less the applicable per-option exercise price, subject to applicable tax withholding.

The Transaction will be documented in a definitive Stock Purchase Agreement (the "SPA") to be negotiated in good faith by the parties, together with such ancillary agreements as are customary for a transaction of this nature, including but not limited to employment agreements, escrow agreements, non-competition agreements, and a sellers' representative agreement.

The parties will jointly elect, pursuant to Section 338(h)(10) of the Internal Revenue Code of 1986, as amended (the "Code"), and any corresponding provisions of applicable state and local tax law, to treat the stock purchase as a deemed asset acquisition for U.S. federal and applicable state income tax purposes. The allocation of the deemed purchase price among the Company's assets for purposes of such election shall be agreed upon by the parties prior to or promptly following the closing and shall be set forth in the SPA or in a separate tax allocation agreement to be attached as an exhibit thereto.

2. Purchase Price

2.1 Base Purchase Price

The aggregate base purchase price for one hundred percent (100%) of the outstanding shares of common stock of Meridian and all vested stock options issued under the Meridian 2019 Equity Incentive Plan shall be Two Hundred Twenty Million Dollars ($220,000,000) in cash (the "Base Purchase Price"), subject to adjustment as set forth in Section 2.3 below and deductions as set forth in Section 2.4 below. The Base Purchase Price shall be payable entirely in cash at the closing of the Transaction. No stock, promissory notes, or other non-cash consideration shall form a part of the Base Purchase Price.

The per-share and per-option allocation methodology for the distribution of the Base Purchase Price among the Sellers and option holders shall be set forth in the SPA and shall take into account the capitalization of the Company as of the closing, including the five hundred fifty thousand (550,000) vested options currently outstanding under the Meridian 2019 Equity Incentive Plan, which options have a weighted-average exercise price of $4.80 per option. Each holder of vested options shall receive, in respect of each such option, an amount equal to the excess, if any, of the per-share consideration over the per-option exercise price, less applicable tax withholdings, and the aggregate net consideration payable in respect of such options shall be deducted from the Base Purchase Price in determining the aggregate per-share consideration payable to the stockholders.

2.2 Earnout Consideration

In addition to the Base Purchase Price, the Sellers shall be eligible to receive additional earnout payments of up to Thirty-Five Million Dollars ($35,000,000) in the aggregate in cash (the "Earnout Consideration"), contingent upon the achievement of specified FDA regulatory milestones relating to the Company's ArthroNav robotic-assisted arthroscopy platform, as follows:

(a) Milestone 1 — ArthroNav Generation 1.0 FDA Clearance. An amount equal to Twenty Million Dollars ($20,000,000) shall be payable to the Sellers upon the achievement of Milestone 1, which shall be deemed achieved upon the receipt by the Company (or its successor) of clearance from the United States Food and Drug Administration (the "FDA") under Section 510(k) of the Federal Food, Drug, and Cosmetic Act for the ArthroNav Robotic-Assisted Arthroscopy System (Generation 1.0), on or before December 31, 2026. Payment of the Milestone 1 earnout shall be made within thirty (30) days following the date on which such 510(k) clearance is received.

(b) Milestone 2 — ArthroNav Generation 2.0 Software Module FDA Clearance. An amount equal to Fifteen Million Dollars ($15,000,000) shall be payable to the Sellers upon the achievement of Milestone 2, which shall be deemed achieved upon the receipt by the Company (or its successor) of clearance from the FDA under Section 510(k) of the Federal Food, Drug, and Cosmetic Act for the ArthroNav Software Module for Real-Time Cartilage Mapping (Generation 2.0 upgrade), on or before June 30, 2027. Payment of the Milestone 2 earnout shall be made within thirty (30) days following the date on which such 510(k) clearance is received.

The period commencing on the date of the closing of the Transaction (the "Closing Date") and ending on June 30, 2027 shall constitute the "Earnout Period." Any milestone that is not achieved on or before the applicable deadline set forth above shall be deemed to have been forfeited, and no Earnout Consideration shall be payable in respect of such milestone.

During the Earnout Period, the Buyer shall use commercially reasonable efforts to pursue the preparation and submission of the applicable 510(k) submissions with the FDA and to support the ArthroNav program, including by maintaining a dedicated research and development budget of no less than Six Million Dollars ($6,000,000) per year allocated to the ArthroNav program. The Buyer shall not, during the Earnout Period, reassign or divert Dr. Raj Subramanian, the Company's Chief Technology Officer and lead engineer for the ArthroNav program, from his ArthroNav responsibilities without the prior written consent of the Sellers' Representative (as defined in Section 5 below). Furthermore, the Buyer shall not discontinue or abandon the ArthroNav program during the Earnout Period without providing at least ninety (90) days' prior written notice to the Sellers' Representative, during which period the parties shall consult in good faith regarding the status of the program and the potential impact on the earnout milestones.

Any disputes between the Buyer and the Sellers' Representative regarding the achievement or non-achievement of an earnout milestone, the Buyer's compliance with its obligations under this Section 2.2, or any other matter relating to the Earnout Consideration shall be resolved by binding expert determination conducted by an independent regulatory consultant with expertise in FDA 510(k) clearance processes for Class II medical devices, to be mutually selected by the Buyer and the Sellers' Representative. If the Buyer and the Sellers' Representative are unable to agree upon such independent regulatory consultant within fifteen (15) days after a written request by either party, such consultant shall be appointed by the American Arbitration Association in accordance with its applicable rules. The determination of such independent regulatory consultant shall be final and binding upon the parties, absent manifest error. The costs and fees of such consultant shall be borne equally by the Buyer and the Sellers' Representative (on behalf of the Sellers).

Accordingly, the maximum aggregate consideration payable in connection with the Transaction (the Base Purchase Price plus the maximum Earnout Consideration, but prior to any adjustments, deductions, or escrow holdbacks) shall be Two Hundred Fifty-Five Million Dollars ($255,000,000).

2.3 Working Capital Adjustment

The cash consideration payable at closing shall be subject to a customary post-closing net working capital adjustment, the mechanics of which shall be set forth in detail in the SPA. The target net working capital for the Company shall be Eleven Million Five Hundred Thousand Dollars ($11,500,000) (the "Target NWC"), which amount has been determined based upon, and shall be defined in accordance with, Meridian's historical accounting practices and the methodology used in the preparation of the Company's recent unaudited monthly financial statements.

No later than three (3) business days prior to the anticipated Closing Date, the Company shall deliver to the Buyer a good faith estimate of the Company's net working capital as of the close of business on the day immediately preceding the Closing Date (the "Estimated Closing NWC"). At closing, the Base Purchase Price shall be adjusted upward, on a dollar-for-dollar basis, to the extent that the Estimated Closing NWC exceeds the Target NWC, or downward, on a dollar-for-dollar basis, to the extent that the Target NWC exceeds the Estimated Closing NWC.

Within ninety (90) days following the Closing Date, the Buyer shall prepare and deliver to the Sellers' Representative a statement setting forth the Buyer's determination of the Company's actual net working capital as of the close of business on the day immediately preceding the Closing Date (the "Final Closing NWC"). The Sellers' Representative shall have thirty (30) days to review and, if applicable, dispute any items in the Buyer's determination. Any amounts remaining in dispute shall be resolved by an independent accounting firm of national reputation mutually agreed upon by the Buyer and the Sellers' Representative, whose determination shall be final and binding upon the parties. Any post-closing true-up payment resulting from the difference between the Final Closing NWC and the Estimated Closing NWC shall be paid by the owing party within five (5) business days following the final determination of the Final Closing NWC, together with interest at the applicable federal rate from the Closing Date through the date of payment.

2.4 Deductions at Closing

The following amounts shall be deducted from the Base Purchase Price (as adjusted pursuant to Section 2.3) at the closing of the Transaction:

(a) The aggregate amount of the Indemnity Escrow to be deposited into the escrow account described in Section 4 below;

(b) The aggregate amount of all outstanding indebtedness of the Company as of the Closing Date that is required to be repaid at or in connection with the closing, including without limitation the Company's existing revolving credit facility with Ironclad Commercial Lending, LLC, which facility has an approximate outstanding principal balance of Twelve Million Dollars ($12,000,000) as of the date hereof, together with all accrued and unpaid interest, prepayment penalties (if any), and other amounts required to be paid in connection with the payoff and termination of such facility;

(c) The aggregate amount of all unpaid transaction expenses of the Company and the Sellers as of the Closing Date, including without limitation the fees and expenses of the Sellers' legal counsel, financial advisors, investment bankers, accountants, and other professional advisors retained in connection with the Transaction, to the extent not previously paid by the Company or the Sellers prior to the closing.

The specific mechanics for the estimation, deduction, and reconciliation of the foregoing amounts shall be set forth in the SPA.

3. Indemnification

The SPA shall contain representations, warranties, and covenants of the Sellers and the Company that are customary for transactions of this type, scope, and size, including but not limited to representations and warranties relating to corporate organization and standing, authorization, capitalization, financial statements, absence of undisclosed liabilities, compliance with laws, material contracts, intellectual property, tax matters, employee benefits, environmental matters, product liability, regulatory matters (including FDA compliance), and the absence of a material adverse effect.

The indemnification provisions of the SPA shall include the following terms:

(a) Indemnification Cap. The aggregate liability of the Sellers for indemnification claims under the SPA (other than claims for fraud or intentional misrepresentation) shall not exceed twenty-eight percent (28%) of the Base Purchase Price, equal to Sixty-One Million Six Hundred Thousand Dollars ($61,600,000) (the "Cap").

(b) Survival — General Representations and Warranties. The representations and warranties of the Sellers and the Company (other than the Fundamental Representations and the environmental representations) shall survive the closing and continue in full force and effect for a period of twenty-four (24) months following the Closing Date, and no claim for indemnification in respect thereof may be brought after such date unless written notice of such claim has been delivered to the Sellers' Representative prior to the expiration of such survival period.

(c) Survival — Fundamental Representations. Representations and warranties relating to organization, authorization, capitalization, and tax matters (collectively, the "Fundamental Representations") shall survive the closing and continue in full force and effect until the date that is sixty (60) days after the expiration of the applicable statute of limitations (including any extensions or waivers thereof).

(d) Survival — Environmental Representations. Representations and warranties relating to environmental matters shall survive the closing and continue in full force and effect for a period of thirty-six (36) months following the Closing Date.

(e) De Minimis Threshold. No individual claim for indemnification shall be counted toward the Basket (as defined below) or otherwise be payable unless such individual claim involves losses in excess of Seventy-Five Thousand Dollars ($75,000) (the "De Minimis Threshold"). Any individual claim that does not exceed the De Minimis Threshold shall be disregarded for all purposes under the indemnification provisions.

(f) Basket. The Sellers shall have no obligation to indemnify the Buyer for losses arising from breaches of non-Fundamental Representations and warranties unless and until the aggregate amount of all qualifying losses (i.e., losses in respect of individual claims exceeding the De Minimis Threshold) exceeds zero point seventy-five percent (0.75%) of the Base Purchase Price, equal to One Million Six Hundred Fifty Thousand Dollars ($1,650,000) (the "Basket"). Once the aggregate amount of qualifying losses exceeds the Basket, the Buyer shall be entitled to recover indemnification from the first dollar of losses (i.e., the Basket shall function as a tipping basket, not a true deductible).

(g) Exclusive Source of Recovery — Non-Fundamental Claims. For indemnification claims arising from breaches of non-Fundamental Representations and warranties, the Indemnity Escrow described in Section 4 below shall be the sole and exclusive source of recovery for the Buyer, subject to any applicable excess coverage available under the RWI Policy (as defined below). The Buyer shall not be entitled to seek recovery directly from the Sellers in respect of such claims, except to the extent that such claims involve fraud or intentional misrepresentation.

(h) Fundamental Representation Claims. Indemnification claims arising from breaches of Fundamental Representations shall be recoverable directly from the Sellers (subject to the Cap set forth in paragraph (a) above), without being limited to the Indemnity Escrow as the sole source of recovery.

(i) RWI Policy. The Buyer intends to procure a buy-side representations and warranties insurance policy (the "RWI Policy") from one or more nationally recognized insurance carriers to supplement the indemnification coverage available under the SPA. The cost of the premium and any applicable taxes for the RWI Policy shall be borne by the Buyer, and the existence of the RWI Policy shall not reduce or otherwise affect the Sellers' indemnification obligations under the SPA except to the extent expressly provided therein.

The specific terms, conditions, procedures, and mechanics of the indemnification provisions, including notice requirements, defense of third-party claims, and limitations on liability, shall be set forth in detail in the SPA.

4. Escrow

At the closing of the Transaction, the following escrow deposits shall be made:

(a) Indemnity Escrow. An amount equal to twelve percent (12%) of the Base Purchase Price, equal to Twenty-Six Million Four Hundred Thousand Dollars ($26,400,000) (the "Indemnity Escrow"), shall be deducted from the Base Purchase Price payable to the Sellers at closing and deposited into an escrow account established with a mutually agreed-upon escrow agent (the "Escrow Agent") pursuant to an escrow agreement to be entered into at closing by the Buyer, the Sellers' Representative, and the Escrow Agent (the "Escrow Agreement"). The Indemnity Escrow shall be available to satisfy the Sellers' indemnification obligations under the SPA for claims arising from breaches of non-Fundamental Representations and warranties. The Indemnity Escrow shall be released as follows:

(i) Fifty percent (50%) of the Indemnity Escrow (i.e., $13,200,000), less any amounts reserved for pending and unresolved indemnification claims as of such date, shall be released to the Sellers on the twelve (12)-month anniversary of the Closing Date; and

(ii) The remaining balance of the Indemnity Escrow, less any amounts reserved for pending and unresolved indemnification claims as of such date, shall be released to the Sellers on the twenty-four (24)-month anniversary of the Closing Date.

(b) Earnout Escrow Reserve. The Buyer shall fund a separate escrow sub-account in the amount of Two Million Five Hundred Thousand Dollars ($2,500,000) (the "Earnout Escrow Reserve"), which amount shall be deposited at closing with the Escrow Agent to secure the Buyer's obligation to make earnout payments to the Sellers in the event that the milestones described in Section 2.2 are achieved. The Earnout Escrow Reserve shall be released (i) to the Sellers upon payment of the applicable milestone payment, or (ii) to the Buyer in the event that none of the earnout milestones are achieved by the expiration of the Earnout Period. The terms and conditions governing the Earnout Escrow Reserve shall be set forth in the Escrow Agreement.

The aggregate escrow deposits at closing shall be Twenty-Eight Million Nine Hundred Thousand Dollars ($28,900,000). The identity of the Escrow Agent and the specific terms and conditions of the Escrow Agreement, including investment of escrowed funds, release mechanics, and dispute resolution procedures, shall be negotiated and agreed upon by the parties in connection with the preparation of the definitive SPA.

5. Sellers' Representative

Dr. Marcus Ellsworth shall be appointed as the representative of the Sellers (the "Sellers' Representative") for purposes of all post-closing matters under the SPA and the Escrow Agreement, including without limitation (a) post-closing earnout determinations and disputes, (b) the submission, negotiation, and resolution of indemnification claims, (c) escrow releases and disbursements, and (d) the net working capital adjustment process. Dr. Ellsworth's appointment as Sellers' Representative shall be approved and authorized by holders of no less than sixty-five percent (65%) of the outstanding shares of common stock of the Company, and such appointment shall be evidenced by a written consent or joinder delivered at or prior to the closing of the Transaction. The Sellers' Representative shall have full power and authority to act on behalf of all Sellers with respect to the matters described above, and all actions taken by the Sellers' Representative within the scope of such authority shall be binding upon all Sellers. The SPA shall contain customary provisions regarding the indemnification, exculpation, and expense reimbursement of the Sellers' Representative.

6. Financing

Solstice intends to finance the Transaction through a combination of (a) equity contributions from the parent entity, Solstice Biomedical Devices Ltd., funded from existing cash reserves and, if applicable, capital contributions from Solstice's existing equity investors, and (b) third-party debt financing. The Buyer anticipates obtaining a committed senior secured term loan facility and revolving credit facility from a reputable financial institution to fund a portion of the cash consideration and related transaction costs.

Notwithstanding the foregoing, the SPA will not be subject to a financing condition. The Buyer assumes the full risk of obtaining the financing necessary to consummate the Transaction, and the obligation of the Buyer to close the Transaction shall not be conditioned upon the Buyer's ability to secure debt financing or any other source of capital. The Buyer shall use its best efforts to obtain all financing necessary to consummate the Transaction on or prior to the anticipated Closing Date.

7. Key Employees / Retention

As a condition to the closing of the Transaction, each of the following individuals shall have entered into a new employment agreement with the Buyer (or the Acquisition Subsidiary) on terms and conditions to be mutually agreed upon by the applicable individual and the Buyer:

(a) Dr. Marcus Ellsworth — to be employed as Division President, Orthopedic Instruments, for an initial term of three (3) years commencing on the Closing Date, at an annual base salary of Five Hundred Twenty-Five Thousand Dollars ($525,000), plus participation in Solstice's annual bonus program and executive benefits at a level commensurate with his position;

(b) Catherine Pryor — to be employed as Senior Vice President, Operations, for an initial term of three (3) years commencing on the Closing Date, at an annual base salary of Three Hundred Seventy-Five Thousand Dollars ($375,000), plus participation in Solstice's annual bonus program and employee benefits at a level commensurate with her position;

(c) Dr. Raj Subramanian — to be employed as Senior Vice President, ArthroNav Development, for an initial term of three (3) years commencing on the Closing Date, at an annual base salary of Four Hundred Ten Thousand Dollars ($410,000), plus participation in Solstice's annual bonus program and employee benefits at a level commensurate with his position.

Each of Dr. Ellsworth, Ms. Pryor, and Dr. Subramanian shall also execute, contemporaneously with their respective employment agreements, non-competition and non-solicitation agreements in favor of the Buyer, each with a post-termination restricted period of two (2) years, on terms and conditions to be mutually agreed upon but consistent with market practice for transactions of this nature in the medical device industry.

In addition, the Buyer shall fund a retention bonus pool in the aggregate amount of Three Million Five Hundred Thousand Dollars ($3,500,000) (the "Retention Pool"), to be allocated among key employees of the Company (other than Dr. Ellsworth, Ms. Pryor, and Dr. Subramanian, unless otherwise agreed) who are identified by the Buyer in consultation with the Company's management prior to the Closing Date. The Retention Pool shall be payable in two equal installments: (i) fifty percent (50%) payable on the six (6)-month anniversary of the Closing Date, and (ii) the remaining fifty percent (50%) payable on the twelve (12)-month anniversary of the Closing Date, in each case subject to the applicable employee's continued employment with the Company or the Buyer (or any affiliate thereof) as of such payment date.

8. Due Diligence

The Buyer's obligation to enter into the definitive SPA and to consummate the Transaction is subject to the Buyer's satisfactory completion, in its sole discretion, of a comprehensive due diligence review of the Company, including without limitation a review of the Company's legal, financial, regulatory, tax, environmental, intellectual property, commercial, and operational affairs.

Meridian and its stockholders shall continue to cooperate fully with the Buyer's due diligence requests and shall provide the Buyer and its representatives (including its legal counsel, accountants, financial advisors, and other professional advisors) with reasonable access during normal business hours to the Company's books, records, contracts, files, correspondence, financial statements, tax returns, intellectual property records, regulatory filings and correspondence, and all other documents, information, and data reasonably requested by the Buyer. Such access shall include, without limitation, access to the Company's facilities, including the Company's manufacturing facility located in Exton, Pennsylvania, and reasonable access to the Company's management team, employees, customers, suppliers, and professional advisors.

The parties acknowledge that the Buyer commenced its preliminary due diligence review of the Company on May 13, 2024, and that such review is ongoing as of the date of this Letter of Intent. Meridian shall continue to make its management team and advisors available for due diligence meetings, presentations, and follow-up discussions as reasonably requested by the Buyer.

9. Conditions Precedent to Closing

The obligation of the Buyer to consummate the Transaction shall be subject to the satisfaction (or waiver by the Buyer) of the following conditions precedent on or prior to the Closing Date:

(a) The execution and delivery by all parties of the definitive SPA and all ancillary agreements contemplated thereby, including the Escrow Agreement, the employment agreements described in Section 7, the non-competition and non-solicitation agreements, and the sellers' representative agreement;

(b) The accuracy of the representations and warranties of the Sellers and the Company contained in the SPA as of the date of execution of the SPA and as of the Closing Date (subject to customary materiality and material adverse effect qualifiers and bringdown standards to be set forth in the SPA);

(c) The compliance by the Company and the Sellers with all covenants and agreements required to be performed or observed by them under the SPA on or prior to the Closing Date;

(d) The absence of any material adverse effect on the business, operations, assets, liabilities, condition (financial or otherwise), results of operations, or prospects of the Company between the date of execution of the SPA and the Closing Date;

(e) The receipt of all required third-party consents, approvals, and waivers, including without limitation any consents required under change-of-control provisions contained in the Company's material contracts, leases, licenses, and other agreements;

(f) The determination that a filing under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), is not required in connection with the Transaction; or, if such a filing is required, the expiration or early termination of the applicable waiting period under the HSR Act;

(g) The delivery of all closing certificates, secretary's certificates, good standing certificates (from the State of Delaware and the Commonwealth of Pennsylvania), officer's certificates, and other customary closing deliverables required under the SPA;

(h) The execution and delivery by Dr. Ellsworth, Ms. Pryor, and Dr. Subramanian of their respective employment agreements and non-competition and non-solicitation agreements, each effective as of the Closing Date;

(i) The payoff in full and termination of all obligations under Meridian's existing revolving credit facility with Ironclad Commercial Lending, LLC, and the receipt of customary payoff letters and UCC-3 termination statements evidencing the release of all liens and security interests held by Ironclad Commercial Lending, LLC, in the assets of the Company;

(j) The binding of the RWI Policy by the Buyer's selected insurance carrier(s), on terms and conditions reasonably acceptable to the Buyer;

(k) The absence of any pending or threatened litigation, action, proceeding, investigation, or order by any governmental authority or third party seeking to enjoin, restrain, prohibit, or materially impair the consummation of the Transaction or any material aspect thereof.

The specific conditions precedent to the obligations of the Sellers to consummate the Transaction shall be set forth in the SPA and are expected to include customary conditions relating to the accuracy of the Buyer's representations and warranties, compliance by the Buyer with its covenants, and delivery of closing consideration.

10. Exclusivity

This Section 10 is binding and enforceable upon the parties.

The parties acknowledge and confirm that the Exclusivity Agreement dated May 20, 2024, by and between Solstice and Meridian, remains in full force and effect in accordance with its terms. In furtherance of the foregoing, and during the Exclusivity Period (as defined below), Meridian and its stockholders, directors, officers, employees, agents, and representatives (including financial advisors, legal counsel, and accountants) shall not, directly or indirectly: (a) solicit, initiate, encourage, or facilitate any inquiry, proposal, or offer from any person or entity (other than the Buyer) relating to any merger, acquisition, recapitalization, sale of equity or assets, or other business combination transaction involving the Company or any material portion of its assets (an "Alternative Transaction"); (b) participate or engage in any discussions or negotiations with any person or entity (other than the Buyer) regarding an Alternative Transaction; (c) provide any non-public information or data concerning the Company to any person or entity (other than the Buyer) in connection with an Alternative Transaction; or (d) enter into any agreement, arrangement, or understanding with any person or entity (other than the Buyer) regarding an Alternative Transaction.

The "Exclusivity Period" shall continue through the earlier of (a) the execution and delivery of the definitive SPA by all parties, or (b) the termination of this Letter of Intent in accordance with Section 16 hereof. If Meridian or any of its stockholders, directors, officers, or representatives receives any unsolicited inquiry, proposal, or offer relating to an Alternative Transaction during the Exclusivity Period, Meridian shall promptly (and in any event within two (2) business days) notify the Buyer in writing of the identity of the party making such inquiry, proposal, or offer and the material terms and conditions thereof.

11. Confidentiality

This Section 11 is binding and enforceable upon the parties.

The parties acknowledge that they have previously entered into a mutual confidentiality and non-disclosure agreement (the "NDA") in connection with the Transaction. All information exchanged between the parties in connection with this Letter of Intent, the due diligence process, and the negotiation and preparation of the definitive SPA and ancillary agreements shall remain subject to the terms and conditions of the NDA, which remains in full force and effect in accordance with its terms. The existence and terms of this Letter of Intent, the identities of the parties, and the status of negotiations relating to the Transaction shall constitute "Confidential Information" as defined in the NDA.

12. Governing Law

This Section 12 is binding and enforceable upon the parties.

This Letter of Intent and any claim, controversy, or dispute arising out of or relating to this Letter of Intent, including with respect to the formation, breach, termination, validity, interpretation, or enforceability hereof, and including any claim based upon contract, tort, statute, or other legal or equitable basis, shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to any choice of law or conflict of laws rules or provisions (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware.

13. Non-Binding Nature / Binding Provisions

This Section 13 is binding and enforceable upon the parties.

This Letter of Intent is intended to provide a summary of the principal terms and conditions of the proposed Transaction for the purpose of facilitating negotiations and the preparation of a definitive SPA. Except as expressly set forth below, this Letter of Intent does not constitute a binding agreement, and no party shall have any legal obligation to consummate the Transaction or to negotiate or enter into a definitive SPA or any other agreement unless and until a definitive SPA has been negotiated, agreed upon in final form, executed, and delivered by all parties thereto.

Notwithstanding the foregoing, the following provisions of this Letter of Intent shall be binding and enforceable obligations of the parties as of the date this Letter of Intent is executed and delivered by both Solstice and Meridian:

• Section 10 (Exclusivity)

• Section 11 (Confidentiality)

• Section 12 (Governing Law)

• Section 13 (Non-Binding Nature / Binding Provisions)

• Section 14 (Expenses)

• Section 15 (Public Announcements)

Either party may terminate discussions and withdraw from the proposed Transaction at any time prior to the execution and delivery of the definitive SPA, for any reason or for no reason, without any liability to the other party, except with respect to obligations arising under the binding provisions of this Letter of Intent identified above, which shall survive any such termination.

14. Expenses

This Section 14 is binding and enforceable upon the parties.

Each party shall bear its own costs and expenses incurred in connection with the negotiation, preparation, and execution of this Letter of Intent, the due diligence process, and the proposed Transaction, including without limitation the fees, costs, and expenses of its respective legal counsel, financial advisors, investment bankers, accountants, and other professional advisors, whether or not the Transaction is ultimately consummated. For the avoidance of doubt, the Buyer shall bear the cost of the premium and any applicable taxes for the RWI Policy, and the Company's transaction expenses shall be borne by the Company or the Sellers (and shall be deducted from the Base Purchase Price at closing as described in Section 2.4).

15. Public Announcements

This Section 15 is binding and enforceable upon the parties.

No party shall issue or authorize any press release, public statement, or other public disclosure regarding the existence, terms, or status of this Letter of Intent or the proposed Transaction without the prior written consent of the other party, which consent shall not be unreasonably withheld, conditioned, or delayed; provided, however, that a party may make such disclosure as may be required by applicable law, regulation, or the rules of any stock exchange on which such party's securities are listed, in which case the disclosing party shall use reasonable efforts to provide the other party with advance notice of such required disclosure and a reasonable opportunity to review and comment upon the content thereof.

16. Expiration

This Letter of Intent shall expire and be of no further force or effect if it has not been executed and returned by Meridian to Calderwood & Harkness LLP (on behalf of Solstice) on or before June 10, 2024. If Meridian does not execute and return this Letter of Intent by such date, the terms and conditions set forth herein shall be deemed withdrawn by the Buyer.

We are enthusiastic about the opportunity to bring these two organizations together and believe that a combination of Solstice and Meridian represents a compelling platform for growth, innovation, and value creation in the orthopedic surgical instruments market. We look forward to working with you and your advisors to complete the due diligence process and to negotiate and finalize the definitive agreements on an expedited basis.

If the foregoing terms are acceptable, please execute this Letter of Intent in the space provided below and return an executed copy to the undersigned no later than June 10, 2024.

Very truly yours,

CALDERWOOD & HARKNESS LLP On behalf of Solstice Biomedical Devices Ltd.

SOLSTICE BIOMEDICAL DEVICES LTD.

By: ________

Name: Dr. Fiona Gallagher

Title: Chief Executive Officer

Address: Solstice House, 14 Fitzwilliam Place

Dublin 2, D02 YF82, Ireland

Date: ________

ACKNOWLEDGMENT AND ACCEPTANCE

The undersigned hereby acknowledges receipt of the foregoing Letter of Intent and agrees to the terms and conditions set forth therein, subject to the non-binding nature of this Letter of Intent as described in Section 13 (except with respect to Sections 10, 11, 12, 13, 14, and 15, which are binding and enforceable).

MERIDIAN SURGICAL TECHNOLOGIES, INC.

By: ________

Name: Dr. Marcus Ellsworth

Title: Chief Executive Officer

Address: 780 Keystone Boulevard, Suite 200

King of Prussia, PA 19406

Date: ________

JOINDER AND ACKNOWLEDGMENT BY MAJOR STOCKHOLDERS (Binding Provisions Only)

Each of the undersigned, in its or his/her capacity as a stockholder of Meridian Surgical Technologies, Inc., hereby acknowledges receipt of the foregoing Letter of Intent and agrees to be bound by the binding provisions of this Letter of Intent (Sections 10, 11, 12, 13, 14, and 15) to the extent applicable to such undersigned as a stockholder, director, officer, or representative of Meridian, as the case may be. This joinder does not create any obligation on the part of the undersigned to consummate the Transaction or to enter into the definitive SPA, except as and to the extent expressly set forth in the binding provisions referenced above.

PENNFIELD GROWTH PARTNERS, LP

By: ________

Name: Gregory Ashford

Title: Managing Partner

Date: ________

ARCH HILL VENTURES FUND II, LLC

By: ________

Name: Samuel Nakamura

Title: Managing Director

Date: ________

CATHERINE PRYOR, Individually

________________________________________

Catherine Pryor

Date: ________

CONFIDENTIAL
CALDERWOOD & HARKNESS LLP 590 Lexington Avenue, 35th Floor New York, NY 10022 Tel: (212) 554-7000
Fax: (212) 554-7001
www.calderwoodharkness.com
June 3, 2024
CONFIDENTIAL — NON-BINDING (Except as to Sections 10, 11, 12, 13, 14, and 15, which are binding)
Dr. Marcus Ellsworth Chief Executive Officer Meridian Surgical Technologies, Inc. 780 Keystone Boulevard, Suite 200 King of Prussia, PA 19406
cc:
Jonathan Whitmore, Esq. Whitmore Crane & Pfeiffer LLP One Liberty Place 1650 Market Street, Suite 3600 Philadelphia, PA 19103
Gregory Ashford Managing Partner Pennfield Growth Partners, LP 2100 Market Street, 28th Floor Philadelphia, PA 19103
Samuel Nakamura Managing Director Arch Hill Ventures Fund II, LLC 450 Boylston Street, Suite 1200 Boston, MA 02116
Dear Dr. Ellsworth:
This letter of intent (this "Letter of Intent" or "LOI") is submitted on behalf of our client, Solstice Biomedical Devices Ltd. ("Solstice" or the "Buyer"), a private limited company organized and existing under the laws of Ireland, registered with the Companies Registration Office under CRO Number 648217, with its principal offices located at Solstice House, 14 Fitzwilliam Place, Dublin 2, D02 YF82, Ireland, to set forth the principal terms and conditions upon which Solstice proposes to acquire all of the outstanding equity interests of Meridian Surgical Technologies, Inc. ("Meridian" or the "Company"), a corporation organized and existing under the laws of the State of Delaware (Delaware File Number 5819734), with its principal offices located at 780 Keystone Boulevard, Suite 200, King of Prussia, PA 19406.
As you know, Meridian is engaged in the design, development, and manufacture of minimally invasive surgical instruments for orthopedic procedures, including its proprietary single-use arthroscopic blades, powered shaver systems, and the in-development ArthroNav robotic-assisted arthroscopy platform. The Buyer has developed a strong appreciation for Meridian's product portfolio, technology pipeline, and market position through the preliminary due diligence process commenced on May 13, 2024, and believes that a combination of the two organizations presents a compelling strategic opportunity for both parties.
This Letter of Intent is submitted in connection with, and with reference to, the Exclusivity Agreement dated May 20, 2024, by and between Solstice and Meridian (the "Exclusivity Agreement"), which remains in full force and effect in accordance with its terms. The purpose of this Letter of Intent is to set forth the principal terms and conditions upon which Solstice proposes to acquire one hundred percent (100%) of the outstanding equity interests of Meridian, including all shares of common stock of Meridian held by the stockholders of Meridian (collectively, the "Sellers") and all vested stock options issued and outstanding under the Meridian 2019 Equity Incentive Plan, on the terms described more fully below.
Except as expressly set forth in Sections 10, 11, 12, 13, 14, and 15 hereof, which provisions shall be binding and enforceable upon the parties, this Letter of Intent is intended to be non-binding and is subject in all respects to the negotiation, execution, and delivery of a definitive Stock Purchase Agreement and related ancillary documents.
The principal terms of the proposed transaction are as follows:
1. Transaction Structure
The proposed acquisition (the "Transaction") will be structured as a stock purchase. Solstice, or a wholly owned U.S. acquisition subsidiary to be formed by Solstice under the laws of the State of Delaware (the "Acquisition Subsidiary," and together with Solstice, the "Buyer"), will purchase from the Sellers one hundred percent (100%) of the issued and outstanding shares of common stock of Meridian. Solstice anticipates that the Acquisition Subsidiary will be organized as a Delaware corporation, to be named "Solstice Biomedical, Inc." or such other name as Solstice may determine prior to closing, which entity will serve as the direct purchaser of the shares and, following the closing, will be the parent entity through which Meridian's operations will be conducted within Solstice's corporate structure.
In connection with the closing of the Transaction, all vested stock options issued and outstanding under the Meridian 2019 Equity Incentive Plan (as described in Section 2.1 below) will be cancelled and converted into the right to receive a cash payment equal to the per-share consideration payable to the Sellers in respect of each share of common stock, less the applicable per-option exercise price, subject to applicable tax withholding.
The Transaction will be documented in a definitive Stock Purchase Agreement (the "SPA") to be negotiated in good faith by the parties, together with such ancillary agreements as are customary for a transaction of this nature, including but not limited to employment agreements, escrow agreements, non-competition agreements, and a sellers' representative agreement.
The parties will jointly elect, pursuant to Section 338(h)(10) of the Internal Revenue Code of 1986, as amended (the "Code"), and any corresponding provisions of applicable state and local tax law, to treat the stock purchase as a deemed asset acquisition for U.S. federal and applicable state income tax purposes. The allocation of the deemed purchase price among the Company's assets for purposes of such election shall be agreed upon by the parties prior to or promptly following the closing and shall be set forth in the SPA or in a separate tax allocation agreement to be attached as an exhibit thereto.
2. Purchase Price
2.1 Base Purchase Price
The aggregate base purchase price for one hundred percent (100%) of the outstanding shares of common stock of Meridian and all vested stock options issued under the Meridian 2019 Equity Incentive Plan shall be Two Hundred Twenty Million Dollars ($220,000,000) in cash (the "Base Purchase Price"), subject to adjustment as set forth in Section 2.3 below and deductions as set forth in Section 2.4 below. The Base Purchase Price shall be payable entirely in cash at the closing of the Transaction. No stock, promissory notes, or other non-cash consideration shall form a part of the Base Purchase Price.
The per-share and per-option allocation methodology for the distribution of the Base Purchase Price among the Sellers and option holders shall be set forth in the SPA and shall take into account the capitalization of the Company as of the closing, including the five hundred fifty thousand (550,000) vested options currently outstanding under the Meridian 2019 Equity Incentive Plan, which options have a weighted-average exercise price of $4.80 per option. Each holder of vested options shall receive, in respect of each such option, an amount equal to the excess, if any, of the per-share consideration over the per-option exercise price, less applicable tax withholdings, and the aggregate net consideration payable in respect of such options shall be deducted from the Base Purchase Price in determining the aggregate per-share consideration payable to the stockholders.
2.2 Earnout Consideration
In addition to the Base Purchase Price, the Sellers shall be eligible to receive additional earnout payments of up to Thirty-Five Million Dollars ($35,000,000) in the aggregate in cash (the "Earnout Consideration"), contingent upon the achievement of specified FDA regulatory milestones relating to the Company's ArthroNav robotic-assisted arthroscopy platform, as follows:
(a) Milestone 1 — ArthroNav Generation 1.0 FDA Clearance. An amount equal to Twenty Million Dollars ($20,000,000) shall be payable to the Sellers upon the achievement of Milestone 1, which shall be deemed achieved upon the receipt by the Company (or its successor) of clearance from the United States Food and Drug Administration (the "FDA") under Section 510(k) of the Federal Food, Drug, and Cosmetic Act for the ArthroNav Robotic-Assisted Arthroscopy System (Generation 1.0), on or before December 31, 2026. Payment of the Milestone 1 earnout shall be made within thirty (30) days following the date on which such 510(k) clearance is received.
(b) Milestone 2 — ArthroNav Generation 2.0 Software Module FDA Clearance. An amount equal to Fifteen Million Dollars ($15,000,000) shall be payable to the Sellers upon the achievement of Milestone 2, which shall be deemed achieved upon the receipt by the Company (or its successor) of clearance from the FDA under Section 510(k) of the Federal Food, Drug, and Cosmetic Act for the ArthroNav Software Module for Real-Time Cartilage Mapping (Generation 2.0 upgrade), on or before June 30, 2027. Payment of the Milestone 2 earnout shall be made within thirty (30) days following the date on which such 510(k) clearance is received.
The period commencing on the date of the closing of the Transaction (the "Closing Date") and ending on June 30, 2027 shall constitute the "Earnout Period." Any milestone that is not achieved on or before the applicable deadline set forth above shall be deemed to have been forfeited, and no Earnout Consideration shall be payable in respect of such milestone.
During the Earnout Period, the Buyer shall use commercially reasonable efforts to pursue the preparation and submission of the applicable 510(k) submissions with the FDA and to support the ArthroNav program, including by maintaining a dedicated research and development budget of no less than Six Million Dollars ($6,000,000) per year allocated to the ArthroNav program. The Buyer shall not, during the Earnout Period, reassign or divert Dr. Raj Subramanian, the Company's Chief Technology Officer and lead engineer for the ArthroNav program, from his ArthroNav responsibilities without the prior written consent of the Sellers' Representative (as defined in Section 5 below). Furthermore, the Buyer shall not discontinue or abandon the ArthroNav program during the Earnout Period without providing at least ninety (90) days' prior written notice to the Sellers' Representative, during which period the parties shall consult in good faith regarding the status of the program and the potential impact on the earnout milestones.
Any disputes between the Buyer and the Sellers' Representative regarding the achievement or non-achievement of an earnout milestone, the Buyer's compliance with its obligations under this Section 2.2, or any other matter relating to the Earnout Consideration shall be resolved by binding expert determination conducted by an independent regulatory consultant with expertise in FDA 510(k) clearance processes for Class II medical devices, to be mutually selected by the Buyer and the Sellers' Representative. If the Buyer and the Sellers' Representative are unable to agree upon such independent regulatory consultant within fifteen (15) days after a written request by either party, such consultant shall be appointed by the American Arbitration Association in accordance with its applicable rules. The determination of such independent regulatory consultant shall be final and binding upon the parties, absent manifest error. The costs and fees of such consultant shall be borne equally by the Buyer and the Sellers' Representative (on behalf of the Sellers).
Accordingly, the maximum aggregate consideration payable in connection with the Transaction (the Base Purchase Price plus the maximum Earnout Consideration, but prior to any adjustments, deductions, or escrow holdbacks) shall be Two Hundred Fifty-Five Million Dollars ($255,000,000).
2.3 Working Capital Adjustment
The cash consideration payable at closing shall be subject to a customary post-closing net working capital adjustment, the mechanics of which shall be set forth in detail in the SPA. The target net working capital for the Company shall be Eleven Million Five Hundred Thousand Dollars ($11,500,000) (the "Target NWC"), which amount has been determined based upon, and shall be defined in accordance with, Meridian's historical accounting practices and the methodology used in the preparation of the Company's recent unaudited monthly financial statements.
No later than three (3) business days prior to the anticipated Closing Date, the Company shall deliver to the Buyer a good faith estimate of the Company's net working capital as of the close of business on the day immediately preceding the Closing Date (the "Estimated Closing NWC"). At closing, the Base Purchase Price shall be adjusted upward, on a dollar-for-dollar basis, to the extent that the Estimated Closing NWC exceeds the Target NWC, or downward, on a dollar-for-dollar basis, to the extent that the Target NWC exceeds the Estimated Closing NWC.
Within ninety (90) days following the Closing Date, the Buyer shall prepare and deliver to the Sellers' Representative a statement setting forth the Buyer's determination of the Company's actual net working capital as of the close of business on the day immediately preceding the Closing Date (the "Final Closing NWC"). The Sellers' Representative shall have thirty (30) days to review and, if applicable, dispute any items in the Buyer's determination. Any amounts remaining in dispute shall be resolved by an independent accounting firm of national reputation mutually agreed upon by the Buyer and the Sellers' Representative, whose determination shall be final and binding upon the parties. Any post-closing true-up payment resulting from the difference between the Final Closing NWC and the Estimated Closing NWC shall be paid by the owing party within five (5) business days following the final determination of the Final Closing NWC, together with interest at the applicable federal rate from the Closing Date through the date of payment.
2.4 Deductions at Closing
The following amounts shall be deducted from the Base Purchase Price (as adjusted pursuant to Section 2.3) at the closing of the Transaction:
(a) The aggregate amount of the Indemnity Escrow to be deposited into the escrow account described in Section 4 below;
(b) The aggregate amount of all outstanding indebtedness of the Company as of the Closing Date that is required to be repaid at or in connection with the closing, including without limitation the Company's existing revolving credit facility with Ironclad Commercial Lending, LLC, which facility has an approximate outstanding principal balance of Twelve Million Dollars ($12,000,000) as of the date hereof, together with all accrued and unpaid interest, prepayment penalties (if any), and other amounts required to be paid in connection with the payoff and termination of such facility;
(c) The aggregate amount of all unpaid transaction expenses of the Company and the Sellers as of the Closing Date, including without limitation the fees and expenses of the Sellers' legal counsel, financial advisors, investment bankers, accountants, and other professional advisors retained in connection with the Transaction, to the extent not previously paid by the Company or the Sellers prior to the closing.
The specific mechanics for the estimation, deduction, and reconciliation of the foregoing amounts shall be set forth in the SPA.
3. Indemnification
The SPA shall contain representations, warranties, and covenants of the Sellers and the Company that are customary for transactions of this type, scope, and size, including but not limited to representations and warranties relating to corporate organization and standing, authorization, capitalization, financial statements, absence of undisclosed liabilities, compliance with laws, material contracts, intellectual property, tax matters, employee benefits, environmental matters, product liability, regulatory matters (including FDA compliance), and the absence of a material adverse effect.
The indemnification provisions of the SPA shall include the following terms:
(a) Indemnification Cap. The aggregate liability of the Sellers for indemnification claims under the SPA (other than claims for fraud or intentional misrepresentation) shall not exceed twenty-eight percent (28%) of the Base Purchase Price, equal to Sixty-One Million Six Hundred Thousand Dollars ($61,600,000) (the "Cap").
(b) Survival — General Representations and Warranties. The representations and warranties of the Sellers and the Company (other than the Fundamental Representations and the environmental representations) shall survive the closing and continue in full force and effect for a period of twenty-four (24) months following the Closing Date, and no claim for indemnification in respect thereof may be brought after such date unless written notice of such claim has been delivered to the Sellers' Representative prior to the expiration of such survival period.
(c) Survival — Fundamental Representations. Representations and warranties relating to organization, authorization, capitalization, and tax matters (collectively, the "Fundamental Representations") shall survive the closing and continue in full force and effect until the date that is sixty (60) days after the expiration of the applicable statute of limitations (including any extensions or waivers thereof).
(d) Survival — Environmental Representations. Representations and warranties relating to environmental matters shall survive the closing and continue in full force and effect for a period of thirty-six (36) months following the Closing Date.
(e) De Minimis Threshold. No individual claim for indemnification shall be counted toward the Basket (as defined below) or otherwise be payable unless such individual claim involves losses in excess of Seventy-Five Thousand Dollars ($75,000) (the "De Minimis Threshold"). Any individual claim that does not exceed the De Minimis Threshold shall be disregarded for all purposes under the indemnification provisions.
(f) Basket. The Sellers shall have no obligation to indemnify the Buyer for losses arising from breaches of non-Fundamental Representations and warranties unless and until the aggregate amount of all qualifying losses (i.e., losses in respect of individual claims exceeding the De Minimis Threshold) exceeds zero point seventy-five percent (0.75%) of the Base Purchase Price, equal to One Million Six Hundred Fifty Thousand Dollars ($1,650,000) (the "Basket"). Once the aggregate amount of qualifying losses exceeds the Basket, the Buyer shall be entitled to recover indemnification from the first dollar of losses (i.e., the Basket shall function as a tipping basket, not a true deductible).
(g) Exclusive Source of Recovery — Non-Fundamental Claims. For indemnification claims arising from breaches of non-Fundamental Representations and warranties, the Indemnity Escrow described in Section 4 below shall be the sole and exclusive source of recovery for the Buyer, subject to any applicable excess coverage available under the RWI Policy (as defined below). The Buyer shall not be entitled to seek recovery directly from the Sellers in respect of such claims, except to the extent that such claims involve fraud or intentional misrepresentation.
(h) Fundamental Representation Claims. Indemnification claims arising from breaches of Fundamental Representations shall be recoverable directly from the Sellers (subject to the Cap set forth in paragraph (a) above), without being limited to the Indemnity Escrow as the sole source of recovery.
(i) RWI Policy. The Buyer intends to procure a buy-side representations and warranties insurance policy (the "RWI Policy") from one or more nationally recognized insurance carriers to supplement the indemnification coverage available under the SPA. The cost of the premium and any applicable taxes for the RWI Policy shall be borne by the Buyer, and the existence of the RWI Policy shall not reduce or otherwise affect the Sellers' indemnification obligations under the SPA except to the extent expressly provided therein.
The specific terms, conditions, procedures, and mechanics of the indemnification provisions, including notice requirements, defense of third-party claims, and limitations on liability, shall be set forth in detail in the SPA.
4. Escrow
At the closing of the Transaction, the following escrow deposits shall be made:
(a) Indemnity Escrow. An amount equal to twelve percent (12%) of the Base Purchase Price, equal to Twenty-Six Million Four Hundred Thousand Dollars ($26,400,000) (the "Indemnity Escrow"), shall be deducted from the Base Purchase Price payable to the Sellers at closing and deposited into an escrow account established with a mutually agreed-upon escrow agent (the "Escrow Agent") pursuant to an escrow agreement to be entered into at closing by the Buyer, the Sellers' Representative, and the Escrow Agent (the "Escrow Agreement"). The Indemnity Escrow shall be available to satisfy the Sellers' indemnification obligations under the SPA for claims arising from breaches of non-Fundamental Representations and warranties. The Indemnity Escrow shall be released as follows:
(i) Fifty percent (50%) of the Indemnity Escrow (i.e., $13,200,000), less any amounts reserved for pending and unresolved indemnification claims as of such date, shall be released to the Sellers on the twelve (12)-month anniversary of the Closing Date; and
(ii) The remaining balance of the Indemnity Escrow, less any amounts reserved for pending and unresolved indemnification claims as of such date, shall be released to the Sellers on the twenty-four (24)-month anniversary of the Closing Date.
(b) Earnout Escrow Reserve. The Buyer shall fund a separate escrow sub-account in the amount of Two Million Five Hundred Thousand Dollars ($2,500,000) (the "Earnout Escrow Reserve"), which amount shall be deposited at closing with the Escrow Agent to secure the Buyer's obligation to make earnout payments to the Sellers in the event that the milestones described in Section 2.2 are achieved. The Earnout Escrow Reserve shall be released (i) to the Sellers upon payment of the applicable milestone payment, or (ii) to the Buyer in the event that none of the earnout milestones are achieved by the expiration of the Earnout Period. The terms and conditions governing the Earnout Escrow Reserve shall be set forth in the Escrow Agreement.
The aggregate escrow deposits at closing shall be Twenty-Eight Million Nine Hundred Thousand Dollars ($28,900,000). The identity of the Escrow Agent and the specific terms and conditions of the Escrow Agreement, including investment of escrowed funds, release mechanics, and dispute resolution procedures, shall be negotiated and agreed upon by the parties in connection with the preparation of the definitive SPA.
5. Sellers' Representative
Dr. Marcus Ellsworth shall be appointed as the representative of the Sellers (the "Sellers' Representative") for purposes of all post-closing matters under the SPA and the Escrow Agreement, including without limitation (a) post-closing earnout determinations and disputes, (b) the submission, negotiation, and resolution of indemnification claims, (c) escrow releases and disbursements, and (d) the net working capital adjustment process. Dr. Ellsworth's appointment as Sellers' Representative shall be approved and authorized by holders of no less than sixty-five percent (65%) of the outstanding shares of common stock of the Company, and such appointment shall be evidenced by a written consent or joinder delivered at or prior to the closing of the Transaction. The Sellers' Representative shall have full power and authority to act on behalf of all Sellers with respect to the matters described above, and all actions taken by the Sellers' Representative within the scope of such authority shall be binding upon all Sellers. The SPA shall contain customary provisions regarding the indemnification, exculpation, and expense reimbursement of the Sellers' Representative.
6. Financing
Solstice intends to finance the Transaction through a combination of (a) equity contributions from the parent entity, Solstice Biomedical Devices Ltd., funded from existing cash reserves and, if applicable, capital contributions from Solstice's existing equity investors, and (b) third-party debt financing. The Buyer anticipates obtaining a committed senior secured term loan facility and revolving credit facility from a reputable financial institution to fund a portion of the cash consideration and related transaction costs.
Notwithstanding the foregoing, the SPA will not be subject to a financing condition. The Buyer assumes the full risk of obtaining the financing necessary to consummate the Transaction, and the obligation of the Buyer to close the Transaction shall not be conditioned upon the Buyer's ability to secure debt financing or any other source of capital. The Buyer shall use its best efforts to obtain all financing necessary to consummate the Transaction on or prior to the anticipated Closing Date.
7. Key Employees / Retention
As a condition to the closing of the Transaction, each of the following individuals shall have entered into a new employment agreement with the Buyer (or the Acquisition Subsidiary) on terms and conditions to be mutually agreed upon by the applicable individual and the Buyer:
(a) Dr. Marcus Ellsworth — to be employed as Division President, Orthopedic Instruments, for an initial term of three (3) years commencing on the Closing Date, at an annual base salary of Five Hundred Twenty-Five Thousand Dollars ($525,000), plus participation in Solstice's annual bonus program and executive benefits at a level commensurate with his position;
(b) Catherine Pryor — to be employed as Senior Vice President, Operations, for an initial term of three (3) years commencing on the Closing Date, at an annual base salary of Three Hundred Seventy-Five Thousand Dollars ($375,000), plus participation in Solstice's annual bonus program and employee benefits at a level commensurate with her position;
(c) Dr. Raj Subramanian — to be employed as Senior Vice President, ArthroNav Development, for an initial term of three (3) years commencing on the Closing Date, at an annual base salary of Four Hundred Ten Thousand Dollars ($410,000), plus participation in Solstice's annual bonus program and employee benefits at a level commensurate with his position.
Each of Dr. Ellsworth, Ms. Pryor, and Dr. Subramanian shall also execute, contemporaneously with their respective employment agreements, non-competition and non-solicitation agreements in favor of the Buyer, each with a post-termination restricted period of two (2) years, on terms and conditions to be mutually agreed upon but consistent with market practice for transactions of this nature in the medical device industry.
In addition, the Buyer shall fund a retention bonus pool in the aggregate amount of Three Million Five Hundred Thousand Dollars ($3,500,000) (the "Retention Pool"), to be allocated among key employees of the Company (other than Dr. Ellsworth, Ms. Pryor, and Dr. Subramanian, unless otherwise agreed) who are identified by the Buyer in consultation with the Company's management prior to the Closing Date. The Retention Pool shall be payable in two equal installments: (i) fifty percent (50%) payable on the six (6)-month anniversary of the Closing Date, and (ii) the remaining fifty percent (50%) payable on the twelve (12)-month anniversary of the Closing Date, in each case subject to the applicable employee's continued employment with the Company or the Buyer (or any affiliate thereof) as of such payment date.
8. Due Diligence
The Buyer's obligation to enter into the definitive SPA and to consummate the Transaction is subject to the Buyer's satisfactory completion, in its sole discretion, of a comprehensive due diligence review of the Company, including without limitation a review of the Company's legal, financial, regulatory, tax, environmental, intellectual property, commercial, and operational affairs.
Meridian and its stockholders shall continue to cooperate fully with the Buyer's due diligence requests and shall provide the Buyer and its representatives (including its legal counsel, accountants, financial advisors, and other professional advisors) with reasonable access during normal business hours to the Company's books, records, contracts, files, correspondence, financial statements, tax returns, intellectual property records, regulatory filings and correspondence, and all other documents, information, and data reasonably requested by the Buyer. Such access shall include, without limitation, access to the Company's facilities, including the Company's manufacturing facility located in Exton, Pennsylvania, and reasonable access to the Company's management team, employees, customers, suppliers, and professional advisors.
The parties acknowledge that the Buyer commenced its preliminary due diligence review of the Company on May 13, 2024, and that such review is ongoing as of the date of this Letter of Intent. Meridian shall continue to make its management team and advisors available for due diligence meetings, presentations, and follow-up discussions as reasonably requested by the Buyer.
9. Conditions Precedent to Closing
The obligation of the Buyer to consummate the Transaction shall be subject to the satisfaction (or waiver by the Buyer) of the following conditions precedent on or prior to the Closing Date:
(a) The execution and delivery by all parties of the definitive SPA and all ancillary agreements contemplated thereby, including the Escrow Agreement, the employment agreements described in Section 7, the non-competition and non-solicitation agreements, and the sellers' representative agreement;
(b) The accuracy of the representations and warranties of the Sellers and the Company contained in the SPA as of the date of execution of the SPA and as of the Closing Date (subject to customary materiality and material adverse effect qualifiers and bringdown standards to be set forth in the SPA);
(c) The compliance by the Company and the Sellers with all covenants and agreements required to be performed or observed by them under the SPA on or prior to the Closing Date;
(d) The absence of any material adverse effect on the business, operations, assets, liabilities, condition (financial or otherwise), results of operations, or prospects of the Company between the date of execution of the SPA and the Closing Date;
(e) The receipt of all required third-party consents, approvals, and waivers, including without limitation any consents required under change-of-control provisions contained in the Company's material contracts, leases, licenses, and other agreements;
(f) The determination that a filing under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), is not required in connection with the Transaction; or, if such a filing is required, the expiration or early termination of the applicable waiting period under the HSR Act;
(g) The delivery of all closing certificates, secretary's certificates, good standing certificates (from the State of Delaware and the Commonwealth of Pennsylvania), officer's certificates, and other customary closing deliverables required under the SPA;
(h) The execution and delivery by Dr. Ellsworth, Ms. Pryor, and Dr. Subramanian of their respective employment agreements and non-competition and non-solicitation agreements, each effective as of the Closing Date;
(i) The payoff in full and termination of all obligations under Meridian's existing revolving credit facility with Ironclad Commercial Lending, LLC, and the receipt of customary payoff letters and UCC-3 termination statements evidencing the release of all liens and security interests held by Ironclad Commercial Lending, LLC, in the assets of the Company;
(j) The binding of the RWI Policy by the Buyer's selected insurance carrier(s), on terms and conditions reasonably acceptable to the Buyer;
(k) The absence of any pending or threatened litigation, action, proceeding, investigation, or order by any governmental authority or third party seeking to enjoin, restrain, prohibit, or materially impair the consummation of the Transaction or any material aspect thereof.
The specific conditions precedent to the obligations of the Sellers to consummate the Transaction shall be set forth in the SPA and are expected to include customary conditions relating to the accuracy of the Buyer's representations and warranties, compliance by the Buyer with its covenants, and delivery of closing consideration.
10. Exclusivity
This Section 10 is binding and enforceable upon the parties.
The parties acknowledge and confirm that the Exclusivity Agreement dated May 20, 2024, by and between Solstice and Meridian, remains in full force and effect in accordance with its terms. In furtherance of the foregoing, and during the Exclusivity Period (as defined below), Meridian and its stockholders, directors, officers, employees, agents, and representatives (including financial advisors, legal counsel, and accountants) shall not, directly or indirectly: (a) solicit, initiate, encourage, or facilitate any inquiry, proposal, or offer from any person or entity (other than the Buyer) relating to any merger, acquisition, recapitalization, sale of equity or assets, or other business combination transaction involving the Company or any material portion of its assets (an "Alternative Transaction"); (b) participate or engage in any discussions or negotiations with any person or entity (other than the Buyer) regarding an Alternative Transaction; (c) provide any non-public information or data concerning the Company to any person or entity (other than the Buyer) in connection with an Alternative Transaction; or (d) enter into any agreement, arrangement, or understanding with any person or entity (other than the Buyer) regarding an Alternative Transaction.
The "Exclusivity Period" shall continue through the earlier of (a) the execution and delivery of the definitive SPA by all parties, or (b) the termination of this Letter of Intent in accordance with Section 16 hereof. If Meridian or any of its stockholders, directors, officers, or representatives receives any unsolicited inquiry, proposal, or offer relating to an Alternative Transaction during the Exclusivity Period, Meridian shall promptly (and in any event within two (2) business days) notify the Buyer in writing of the identity of the party making such inquiry, proposal, or offer and the material terms and conditions thereof.
11. Confidentiality
This Section 11 is binding and enforceable upon the parties.
The parties acknowledge that they have previously entered into a mutual confidentiality and non-disclosure agreement (the "NDA") in connection with the Transaction. All information exchanged between the parties in connection with this Letter of Intent, the due diligence process, and the negotiation and preparation of the definitive SPA and ancillary agreements shall remain subject to the terms and conditions of the NDA, which remains in full force and effect in accordance with its terms. The existence and terms of this Letter of Intent, the identities of the parties, and the status of negotiations relating to the Transaction shall constitute "Confidential Information" as defined in the NDA.
12. Governing Law
This Section 12 is binding and enforceable upon the parties.
This Letter of Intent and any claim, controversy, or dispute arising out of or relating to this Letter of Intent, including with respect to the formation, breach, termination, validity, interpretation, or enforceability hereof, and including any claim based upon contract, tort, statute, or other legal or equitable basis, shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to any choice of law or conflict of laws rules or provisions (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware.
13. Non-Binding Nature / Binding Provisions
This Section 13 is binding and enforceable upon the parties.
This Letter of Intent is intended to provide a summary of the principal terms and conditions of the proposed Transaction for the purpose of facilitating negotiations and the preparation of a definitive SPA. Except as expressly set forth below, this Letter of Intent does not constitute a binding agreement, and no party shall have any legal obligation to consummate the Transaction or to negotiate or enter into a definitive SPA or any other agreement unless and until a definitive SPA has been negotiated, agreed upon in final form, executed, and delivered by all parties thereto.
Notwithstanding the foregoing, the following provisions of this Letter of Intent shall be binding and enforceable obligations of the parties as of the date this Letter of Intent is executed and delivered by both Solstice and Meridian:
•  Section 10 (Exclusivity)
•  Section 11 (Confidentiality)
•  Section 12 (Governing Law)
•  Section 13 (Non-Binding Nature / Binding Provisions)
•  Section 14 (Expenses)
•  Section 15 (Public Announcements)
Either party may terminate discussions and withdraw from the proposed Transaction at any time prior to the execution and delivery of the definitive SPA, for any reason or for no reason, without any liability to the other party, except with respect to obligations arising under the binding provisions of this Letter of Intent identified above, which shall survive any such termination.
14. Expenses
This Section 14 is binding and enforceable upon the parties.
Each party shall bear its own costs and expenses incurred in connection with the negotiation, preparation, and execution of this Letter of Intent, the due diligence process, and the proposed Transaction, including without limitation the fees, costs, and expenses of its respective legal counsel, financial advisors, investment bankers, accountants, and other professional advisors, whether or not the Transaction is ultimately consummated. For the avoidance of doubt, the Buyer shall bear the cost of the premium and any applicable taxes for the RWI Policy, and the Company's transaction expenses shall be borne by the Company or the Sellers (and shall be deducted from the Base Purchase Price at closing as described in Section 2.4).
15. Public Announcements
This Section 15 is binding and enforceable upon the parties.
No party shall issue or authorize any press release, public statement, or other public disclosure regarding the existence, terms, or status of this Letter of Intent or the proposed Transaction without the prior written consent of the other party, which consent shall not be unreasonably withheld, conditioned, or delayed; provided, however, that a party may make such disclosure as may be required by applicable law, regulation, or the rules of any stock exchange on which such party's securities are listed, in which case the disclosing party shall use reasonable efforts to provide the other party with advance notice of such required disclosure and a reasonable opportunity to review and comment upon the content thereof.
16. Expiration
This Letter of Intent shall expire and be of no further force or effect if it has not been executed and returned by Meridian to Calderwood & Harkness LLP (on behalf of Solstice) on or before June 10, 2024. If Meridian does not execute and return this Letter of Intent by such date, the terms and conditions set forth herein shall be deemed withdrawn by the Buyer.
We are enthusiastic about the opportunity to bring these two organizations together and believe that a combination of Solstice and Meridian represents a compelling platform for growth, innovation, and value creation in the orthopedic surgical instruments market. We look forward to working with you and your advisors to complete the due diligence process and to negotiate and finalize the definitive agreements on an expedited basis.
If the foregoing terms are acceptable, please execute this Letter of Intent in the space provided below and return an executed copy to the undersigned no later than June 10, 2024.
Very truly yours,
CALDERWOOD & HARKNESS LLP On behalf of Solstice Biomedical Devices Ltd.
SOLSTICE BIOMEDICAL DEVICES LTD.
By: ________
Name: Dr. Fiona Gallagher
Title: Chief Executive Officer
Address: Solstice House, 14 Fitzwilliam Place
Dublin 2, D02 YF82, Ireland
Date: ________
ACKNOWLEDGMENT AND ACCEPTANCE
The undersigned hereby acknowledges receipt of the foregoing Letter of Intent and agrees to the terms and conditions set forth therein, subject to the non-binding nature of this Letter of Intent as described in Section 13 (except with respect to Sections 10, 11, 12, 13, 14, and 15, which are binding and enforceable).
MERIDIAN SURGICAL TECHNOLOGIES, INC.
By: ________
Name: Dr. Marcus Ellsworth
Title: Chief Executive Officer
Address: 780 Keystone Boulevard, Suite 200
King of Prussia, PA 19406
Date: ________
JOINDER AND ACKNOWLEDGMENT BY MAJOR STOCKHOLDERS (Binding Provisions Only)
Each of the undersigned, in its or his/her capacity as a stockholder of Meridian Surgical Technologies, Inc., hereby acknowledges receipt of the foregoing Letter of Intent and agrees to be bound by the binding provisions of this Letter of Intent (Sections 10, 11, 12, 13, 14, and 15) to the extent applicable to such undersigned as a stockholder, director, officer, or representative of Meridian, as the case may be. This joinder does not create any obligation on the part of the undersigned to consummate the Transaction or to enter into the definitive SPA, except as and to the extent expressly set forth in the binding provisions referenced above.
PENNFIELD GROWTH PARTNERS, LP
By: ________
Name: Gregory Ashford
Title: Managing Partner
Date: ________
ARCH HILL VENTURES FUND II, LLC
By: ________
Name: Samuel Nakamura
Title: Managing Director
Date: ________
CATHERINE PRYOR, Individually
________________________________________
Catherine Pryor
Date: ________

CONFIDENTIAL

SOLSTICE BIOMEDICAL DEVICES LTD.

ACKNOWLEDGMENT AND ACCEPTANCE

MERIDIAN SURGICAL TECHNOLOGIES, INC.

PENNFIELD GROWTH PARTNERS, LP

ARCH HILL VENTURES FUND II, LLC

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