Alliqua Biomedical Inc (NASDAQ:ALQA), entered into a Contribution Agreement and Plan of Merger (the “Contribution and Merger Agreement”) with Alliqua Holdings, Inc. (“Parent”), a wholly owned subsidiary of the Company, Chesapeake Merger Corp., a wholly owned subsidiary of Parent (“Merger Sub”), and Soluble Systems, LLC (“Soluble”), pursuant to which, among other things, the Company will reorganize into a new holding company by merging Merger Sub with and into the Company, with the Company continuing as the surviving corporation on the terms and conditions set forth in the Contribution and Merger Agreement (the “Merger”). As a result of the Merger, the Company will become a wholly owned subsidiary of Parent. Immediately following the effective time of the Merger, Soluble will contribute substantially all of its assets to Parent, and Parent will assume or payoff certain liabilities of Soluble (the “Contribution” and together with the Merger, the “Transactions”), in exchange for the Contribution Consideration (as defined below).
As a result of the Merger, at the effective time of the Merger: (i) each outstanding share of the Company’s common stock, par value $0.001 per share, will automatically be converted into one share of Parent’s common stock, par value $0.001 per share (“Parent Common Stock”); (ii) each outstanding option, restricted share, and restricted or phantom stock units of the Company will continue to vest or accelerate and will automatically be converted from a right to acquire the Company’s common stock to a right to acquire Parent Common Stock on the same terms; (iii) each outstanding warrant to acquire Company’s common stock will be cancelled and converted into a right to acquire Parent Common Stock on the same terms; (iv) the directors and officers of the Company immediately prior to the Merger will become the directors and officers of Parent, with Soluble having the right to appoint one additional director to Parent’s board of directors; and (v) the Company will make all necessary filings with the NASDAQ Stock Market LLC to substitute the listing of the Company’s common stock on the NASDAQ Capital Market with the listing of Parent Common Stock.
As a result of the Contribution, Soluble will receive the following consideration: (i) shares of Parent Common Stock, based on a per share price equal to $0.89, representing the trailing forty-five trading day volume weighted average price of the Company’s common stock as of the second trading day immediately prior to the date of the Contribution and Merger Agreement, with an initial aggregate value of $35,000,000, minus the value of certain indebtedness of Soluble that will be paid off or assumed by Parent at closing and subject to certain adjustments and escrow holdbacks pursuant to the terms of the Contribution and Merger Agreement (the “Equity Consideration”), (ii) warrants to purchase 4 million shares of Parent Common Stock, with an exercise price of $1.068 per share (the “Warrant Consideration”) and (iii) credit for a portion of the payments made at closing by the Company to SWK Funding, LLC and Skin and Wound Allograft Institute, LLC, which has been allocated to the Company and will not be considered an adjustment to the Equity Consideration (the “Other Consideration” and together with the Equity Consideration and Warrant Consideration, the “Contribution Consideration”). At the closing of the Transactions, the value of the Equity Consideration will be reduced by, among other things, the amount of (i) all unpaid transaction expenses of Soluble, (ii) $150,000 of transaction expenses of the Company and (iii) $3,500,000 in shares of Parent Common Stock to be deposited and held in escrow in order to secure certain post-closing adjustments to the Equity Consideration and certain indemnification obligations of Soluble for 12 months after the closing date.
In connection with the Transactions contemplated by the Contribution and Merger Agreement, the Company also provided Soluble with a bridge loan of $1,000,000 (the “Bridge Loan”) pursuant to the terms of that certain amended and restated subordinated promissory note, dated as of October 5, 2016. Pursuant to the terms of the Contribution and Merger Agreement, any outstanding amounts payable under the Bridge Loan will be deducted from the Equity Consideration at closing or repaid in full upon a termination of the Contribution and Merger Agreement.