S-4/A 1 d688648ds4a.htm AMENDMENT NO. 1 TO FORM S-4 Amendment No. 1 to Form S-4
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As filed with the Securities and Exchange Commission on July 29, 2019

Registration No.333-232000

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 1

to

Form S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

RESTORATION ROBOTICS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   3841
  06-1681204

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

128 Baytech Drive

San Jose, CA 95134

(408) 883-6888

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Ryan Rhodes

President and Chief Executive Officer

Restoration Robotics, Inc.

128 Baytech Drive

San Jose, CA 95134

(408) 883-6888

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

 

 

 

Brian J. Cuneo
Jason Morelli
Latham & Watkins LLP
140 Scott Drive
Menlo Park, CA 94025
(415) 693-2000

 

Copies to:

 

Domenic Serafino
Chief Executive Officer
Venus Concept Ltd.
255 Consumers Road, Suite 110
Toronto, ON M2J 1R4

Canada
(877) 848-8430

 

 

 

Mark G. Pedretti
Danielle Carbone

Aron Izower
Reed Smith LLP
599 Lexington Avenue
New York, NY 10022
(212) 521-5400

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement and the satisfaction or waiver of all other conditions under the Merger Agreement described herein.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box:  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

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

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)  ☐

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)  ☐

 

 

CALCULATION OF REGISTRATION FEE

 

 

Title of each class of

securities to be registered

 

Amount

to be

registered (1)

 

Proposed maximum

offering price

per share

 

Proposed maximum

aggregate

offering price (2)

  Amount of
registration fee (3)

Common stock, par value $0.0001 per share

  261,637,146   N/A   $96,325,782   $11,675

 

 

(1)

Relates to common stock, $0.0001 par value per share, of Restoration Robotics, Inc., a Delaware corporation, or Restoration Robotics, issuable to holders of ordinary shares, New Israeli Shekels, or NIS, 0.001 nominal value per share, Series A preferred shares, NIS 0.001 nominal value per share, Series B preferred shares, NIS 0.001 nominal value per share, Series C preferred shares, NIS 0.001 nominal value per share, Series C-1 preferred shares, NIS 0.001 nominal value per share, Series D preferred shares, NIS 0.001 nominal value per share, options to acquire ordinary shares and warrants to purchase ordinary shares and preferred shares of Venus Concept Ltd., a company organized under the laws of Israel, or Venus Concept, in the proposed merger of Radiant Merger Sub Ltd., a company organized under the laws of Israel and a direct, wholly-owned subsidiary of Restoration Robotics, with and into Venus Concept. The amount of Restoration Robotics common stock to be registered is based on the estimated number of shares of Restoration Robotics common stock that are expected to be issued pursuant to the merger, without taking into account the effect of a reverse stock split of Restoration Robotics common stock, assuming a pre-split exchange ratio of 8.6506 shares of Restoration Robotics common stock for each outstanding ordinary share of Venus Concept and preferred share of Venus Concept and for each option to purchase Venus Concept ordinary shares and each warrant to purchase Venus Concept ordinary shares and Venus Concept preferred shares.

(2)

Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(f) of the Securities Act of 1933, as amended, or the Securities Act, based upon the estimated book value of the Venus Concept securities to be exchanged in the merger, as of immediately prior to the merger. Venus Concept is a private company and no public market exists for its securities.

(3)

Determined in accordance with Section 6(b) of the Securities Act at a rate equal to $121.20 per $1,000,000 of the proposed maximum aggregate offering price.

 

 

The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this proxy statement/prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This proxy statement/prospectus is not an offer to sell and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED JULY 29, 2019

 

LOGO   

LOGO

 

PROPOSED MERGER — YOUR VOTE IS VERY IMPORTANT

 

 

To the Stockholders of Restoration Robotics, Inc. and Venus Concept Ltd.,

Restoration Robotics, Inc., a Delaware corporation, or Restoration Robotics, and Venus Concept Ltd., a company organized under the laws of Israel, or Venus Concept, entered into an Agreement and Plan of Merger and Reorganization on March 15, 2019, or the Merger Agreement, pursuant to which a direct, wholly-owned subsidiary of Restoration Robotics, Radiant Merger Sub Ltd., or Merger Sub, will merge with and into Venus Concept, with Venus Concept surviving as a wholly-owned subsidiary of Restoration Robotics, which transaction is referred to herein as the merger. Restoration Robotics and Venus Concept believe that the combination of the companies will result in the opportunity to become a leading player in minimally invasive hair restoration with a diversified product portfolio in the global minimally invasive and non-invasive medical aesthetic market with technologies designed to address hair restoration, hair removal, skin rejuvenation, wrinkle reduction, cellulite reduction and body contouring. Restoration Robotics following the merger is referred to in this proxy statement/prospectus as the combined company.

At the effective time of the merger, each ordinary share of Venus Concept and each preferred share of Venus Concept will be converted into the right to receive 8.6506 shares of Restoration Robotics common stock, prior to giving effect to the reverse stock split to be effected in connection with the merger, and each outstanding and unexercised option or warrant to purchase ordinary or preferred shares of Venus Concept will be assumed by Restoration Robotics and will be converted into an option or warrant to purchase shares of Restoration Robotics common stock, with necessary adjustments to reflect the exchange ratio. There will be no adjustment to the total number of shares of Restoration Robotics common stock that Venus Concept shareholders will be entitled to receive in the merger for changes in the market price of Restoration Robotics common stock. Accordingly, the market value of the shares of Restoration Robotics common stock issued pursuant to the merger will depend on the market value of the shares of Restoration Robotics common stock at the time the merger closes, and could vary significantly from the market value on the date of this proxy statement/prospectus.

Each share of Restoration Robotics common stock, option to purchase Restoration Robotics common stock and share of Restoration Robotics common stock subject to a restricted stock award that is issued and outstanding at the effective time of the merger will remain issued and outstanding and such shares, subject to the reverse stock split to be effected in connection with the merger, will be unaffected by the merger. Immediately after the merger, current Restoration Robotics stockholders will own approximately 15% of the fully-diluted common stock of the combined company and current Venus Concept shareholders will own approximately 85% of the fully-diluted common stock of the combined company, without giving effect to the shares issued in the equity commitment letter financing or upon conversion of the Restoration Robotics’ convertible notes or the Venus Concept convertible notes.

Shares of Restoration Robotics common stock are currently listed on the Nasdaq Global Market under the symbol “HAIR”. Restoration Robotics intends to file an initial listing application in the near term for the combined company with the Nasdaq Global Market. After completion of the merger, Restoration Robotics will be renamed “Venus Concept Inc.” and it is expected that the common stock of the combined company will trade on the Nasdaq Global Market under the symbol “VERO.” On July 26, 2019, the last trading day before the date of the accompanying proxy statement/prospectus, the closing sale price of Restoration Robotics common stock was $0.702 per share.

Restoration Robotics is holding its 2019 annual meeting of stockholders, or the Restoration Robotics annual meeting, on            , 2019, at              a.m. Pacific Time, unless postponed or adjourned to a later date, in order to obtain the stockholder approvals necessary to complete the merger and related matters.

After careful consideration, each of the Restoration Robotics and Venus Concept boards of directors have approved the Merger Agreement and have determined that it is advisable to consummate the merger. Restoration Robotics’ board of directors has approved the proposals described in this proxy statement/prospectus and recommends that its stockholders vote “FOR” the proposals described in the accompanying proxy statement/prospectus.

More information about Restoration Robotics, Venus Concept, the Merger Agreement and the transactions contemplated thereby and the foregoing proposals is contained in the accompanying proxy statement/prospectus. Restoration Robotics urges you to read the accompanying proxy statement/prospectus carefully and in its entirety. IN PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER “RISK FACTORS” BEGINNING ON PAGE 28 OF THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS.

Restoration Robotics and Venus Concept are excited about the opportunities the merger brings to both Restoration Robotics’ and Venus Concept’s shareholders and thank you for your consideration and continued support.

Sincerely,

 

Ryan Rhodes

President and Chief Executive Officer

Restoration Robotics, Inc.

    

Domenic Serafino

Chief Executive Officer

Venus Concept Ltd.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this proxy statement/prospectus. Any representation to the contrary is a criminal offense.

The accompanying proxy statement/prospectus is dated             , 2019 and is first being mailed to Restoration Robotics stockholders on or about             , 2019.


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RESTORATION ROBOTICS, INC.

128 BAYTECH DRIVE

SAN JOSE, CALIFORNIA 95134

(408) 883-6888

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To the stockholders of Restoration Robotics, Inc.:

NOTICE IS HEREBY GIVEN that the 2019 annual meeting of stockholders, or the Restoration Robotics annual meeting, will be held on             , 2019, at              a.m. Pacific Time, unless postponed or adjourned to a later date. The Restoration Robotics annual meeting will be held entirely online to allow greater participation and improved communication and provide cost savings for Restoration Robotics’ stockholders and Restoration Robotics. You will be able to attend and participate in the Restoration Robotics annual meeting online by visiting www.virtualshareholdermeeting.com/HAIR2019 where you will be able to listen to the meeting live, submit questions and vote.

The Restoration Robotics annual meeting will be held for the following purposes:

 

1.

To approve the issuance of shares of common stock of Restoration Robotics, Inc., or Restoration Robotics, to shareholders of Venus Concept, Ltd., or Venus Concept, pursuant to the terms of the Agreement and Plan of Merger and Reorganization among Restoration Robotics, Venus Concept and Radiant Merger Sub Ltd., or Merger Sub, dated as of March 15, 2019, a copy of which is attached as Annex A, which is referred to in this Notice as the Merger Agreement;

 

2.

To approve (i) the issuance of shares of Restoration Robotics’ common stock in the financing as contemplated by the equity commitment letter among Restoration Robotics, Venus Concept and the investors named therein, or the equity commitment investors, a copy of which is attached as Annex B, referred to in this Notice as the equity commitment letter financing, pursuant to which Restoration Robotics will sell, and such equity commitment investors have agreed to purchase, immediately following the closing of the merger, $21.0 million of shares of common stock of Restoration Robotics and pursuant to which such investors have the option to purchase an additional $20.0 million of shares of common stock of Restoration Robotics, (ii) the issuance of shares of common stock of Restoration Robotics upon the conversion of the $5.0 million aggregate principal amount of convertible notes issued by Restoration Robotics in February 2019, referred to in this Notice as the Restoration Robotics note conversion, and (iii) the issuance of shares of common stock of Restoration Robotics upon the conversion of the $7.8 million aggregate principal amount of convertible notes issued by Venus Concept in June 2019, referred to in this Notice as the Venus Concept note conversion;

 

3.

To approve the amendment and restatement of the Restoration Robotics 2017 Equity Incentive Plan, or the 2017 Plan, to increase the total number of shares of Restoration Robotics common stock currently available for issuance under the 2017 Plan by 6,750,000 shares, prior to giving effect to the reverse split to be effected in connection with the merger, and certain other amendments to the 2017 Plan as more fully described herein, in the form attached as Annex C;

 

4.

To approve an amendment to the amended and restated certificate of incorporation of Restoration Robotics changing the Restoration Robotics corporate name to “Venus Concept Inc.” in the form attached as Annex D;

 

5.

To approve an amendment to the amended and restated certificate of incorporation of Restoration Robotics to effect a reverse stock split of Restoration Robotics’ issued and outstanding common stock within a range, as determined by the Restoration Robotics board of directors, of every 10 to 15 shares (or any number in between) of outstanding Restoration Robotics common stock being combined and reclassified into one share of Restoration Robotics common stock in the form attached as Annex E;

 

6.

To elect the Class II directors to the Restoration Robotics board of directors for a term of three (3) years (provided, however, that if the merger is completed, the board of directors will be reconstituted as provided in the Merger Agreement);


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Index to Financial Statements
7.

To ratify the selection of Grant Thornton LLP as Restoration Robotics’ independent registered public accounting firm for the fiscal year ending December 31, 2019 (provided, however, that it is likely that the combined company may decide to engage a new independent registered public accounting firm immediately or shortly after the merger is completed);

 

8.

To consider and vote upon an adjournment of the Restoration Robotics annual meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1, 2, 3 and 5; and

 

9.

To transact such other business as may properly come before the stockholders at the Restoration Robotics annual meeting or any adjournment or postponement thereof.

 

Record Date:    Restoration Robotics’ board of directors has fixed             , 2019 as the record date for the determination of stockholders entitled to notice of, and to vote at, the Restoration Robotics annual meeting and any adjournment or postponement thereof. Only holders of record of shares of Restoration Robotics common stock at the close of business on the record date are entitled to notice of, and to vote at, the Restoration Robotics annual meeting. At the close of business on the record date, Restoration Robotics had              shares of common stock outstanding and entitled to vote.

Your vote is important. The affirmative vote of at least a majority of the votes cast in person or by proxy at the Restoration Robotics annual meeting, assuming a quorum is present, is required for approval of Proposal Nos. 1, 2, 3, 7, 8 and 9. The affirmative vote of the holders of a majority of the outstanding shares of Restoration Robotics common stock entitled to vote at the Restoration Robotics annual meeting is required for approval of Proposal Nos. 4 and 5. With respect to Proposal No. 6, directors are elected by a plurality of the affirmative votes cast by those shares present in person or represented by proxy and entitled to vote at the Restoration Robotics annual meeting, and the nominees for director receiving the highest number of affirmative votes will be elected. Approval of each of Proposal Nos. 1, 2, 3 and 5, referred to herein collectively as the merger proposals, is a condition to the completion of the merger. Each of Proposal Nos. 1, 2 and 3 are conditioned upon the approval of each of the other merger proposals. Therefore, the merger cannot be consummated without the approval of Proposal Nos. 1, 2, 3 and 5. However, Proposal No. 5 is not conditioned upon the approvals of Proposals Nos. 1, 2 and 3. If the merger is not completed or the stockholders do not approve Proposal No. 3, the amendment and restatement of the 2017 Plan will not become effective.

Even if you plan to attend the Restoration Robotics annual meeting, Restoration Robotics requests that you sign and return the enclosed proxy to ensure that your shares will be represented at the Restoration Robotics annual meeting if you are unable to attend. You may change or revoke your proxy at any time before it is voted at the Restoration Robotics annual meeting.

RESTORATION ROBOTICS’ BOARD OF DIRECTORS HAS DETERMINED AND BELIEVES THAT EACH OF THE PROPOSALS OUTLINED ABOVE IS FAIR TO, IN THE BEST INTERESTS OF, AND ADVISABLE TO RESTORATION ROBOTICS AND ITS STOCKHOLDERS AND HAS APPROVED EACH SUCH PROPOSAL. RESTORATION ROBOTICS’ BOARD OF DIRECTORS RECOMMENDS THAT RESTORATION ROBOTICS STOCKHOLDERS VOTE “FOR” EACH SUCH PROPOSAL.

By Order of Restoration Robotics’ Board of Directors,

Ryan Rhodes

President and Chief Executive Officer

San Jose, California

            , 2019


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REFERENCES TO ADDITIONAL INFORMATION

This proxy statement/prospectus incorporates important business and financial information about Restoration Robotics that is not included in or delivered with this document. You may obtain this information without charge through the Securities and Exchange Commission website (www.sec.gov) or upon your written or oral request by contacting Mark Hair, the Chief Financial Officer of Restoration Robotics, Inc., 128 Baytech Drive, San Jose, California 95134 or by calling (408) 883-6888.

To ensure timely delivery of these documents, any request should be made no later than             , 2019 to receive them before the Restoration Robotics annual meeting.

For additional details about where you can find information about Restoration Robotics, please see the section titled “Where You Can Find More Information” beginning on page 293 of this proxy statement/prospectus.


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TABLE OF CONTENTS

 

     Page  

QUESTIONS AND ANSWERS ABOUT THE MERGER

     v  

PROSPECTUS SUMMARY

     1  

The Companies

     1  

The Merger

     2  

Reasons for the Merger

     3  

Opinion of Restoration Robotics Financial Advisor

     7  

Interests of Certain Directors, Officers and Affiliates of Restoration Robotics and Venus Concept

     7  

Management Following the Merger

     9  

Overview of the Merger Agreement and Agreements Related to the Merger Agreement

     10  

Regulatory Approvals

     15  

Material U.S. Federal Income Tax Consequences of the Merger to United States Holders of Venus Concept Capital Stock

     16  

Material Israeli Income Tax Consequences of the Merger to Israeli and non-Israeli Residents

     16  

Nasdaq Stock Market Listing

     16  

Anticipated Accounting Treatment

     17  

Appraisal Rights and Dissenters’ Rights

     17  

Comparison of Stockholder Rights

     17  

Risk Factors

     17  

SELECTED HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION AND DATA

     19  

Selected Historical Consolidated Financial Data of Restoration Robotics

     19  

Selected Historical Consolidated Financial Data of Venus Concept

     21  

Selected Unaudited Pro Forma Combined Financial Data of Restoration Robotics and Venus Concept

     24  

VENUS CONCEPT MARKET PRICE AND DIVIDEND INFORMATION

     27  

Dividends

     27  

RISK FACTORS

     28  

Risks Related to the Merger

     28  

Risks Related to the Combined Company

     34  

Risks Related to Venus Concept’s Business

     43  

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

     77  

THE ANNUAL MEETING OF RESTORATION ROBOTICS STOCKHOLDERS

     79  

Date, Time and Place

     79  

Purposes of the Restoration Robotics Annual Meeting

     79  

Recommendation of Restoration Robotics’ Board of Directors

     80  

Record Date and Voting Power

     81  

Voting and Revocation of Proxies

     81  

Required Vote

     82  

Solicitation of Proxies

     83  

Other Matters

     84  

THE MERGER

     85  

Background of the Merger

     85  

Restoration Robotics Reasons for the Merger

     93  

Venus Concept Reasons for the Merger

     97  

Opinion of Restoration Robotics Financial Advisor

     99  

Interests of Restoration Robotics’ Directors and Executive Officers in the Merger

     112  

Interests of the Venus Concept Directors and Executive Officers in the Merger

     117  

Form of the Merger

     118  

Merger Consideration

     119  

 

i


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     Page  

Stock Options and Warrants

     119  

Effective Time of the Merger

     120  

Regulatory Approvals

     120  

U.S. Federal Income Tax Treatment of the Merger

     120  

Material U.S. Federal Income Tax Consequences of the Merger to United States Holders of Venus Concept Capital Stock

     121  

Material Israeli Income Tax Consequences of the Merger to Israeli and Non-Israeli Residents

     124  

Anticipated Accounting Treatment

     125  

Nasdaq Stock Market Listing

     125  

Appraisal Rights and Dissenters’ Rights

     125  

THE MERGER AGREEMENT

     126  

Structure

     126  

Completion and Effectiveness of the Merger

     126  

Merger Consideration

     126  

Restoration Robotics Common Stock

     127  

Procedures for Exchanging Venus Concept Stock Certificates

     127  

Fractional Shares

     127  

Representations and Warranties

     128  

Covenants; Conduct of Business Pending the Merger

     131  

Non-Solicitation—Restoration Robotics

     134  

Non-Solicitation—Venus Concept

     137  

Disclosure Documents

     138  

Israeli Law Matters

     138  

Meeting of the Restoration Robotics Stockholders and Meeting of Venus Concept Shareholders

     139  

Regulatory Approvals

     139  

Venus Concept Stock Options and Venus Concept Warrants

     140  

Indemnification and Insurance for Officers and Directors

     141  

Additional Agreements

     141  

Nasdaq Stock Market Listing

     142  

Tax Matters

     142  

Conditions to the Completion of the Merger

     143  

Termination of the Merger Agreement and Termination Fee

     145  

Amendment

     147  

Expenses

     147  

Directors and Officers of Restoration Robotics Following the Merger

     147  

Amendments to the Certificate of Incorporation of Restoration Robotics

     147  

AGREEMENTS RELATED TO THE MERGER

     148  

Voting Agreements

     148  

Lock-Up Agreements

     148  

Equity Commitment Letter

     149  

Convertible Promissory Notes

     150  

VENUS CONCEPT EXECUTIVE COMPENSATION

     152  

MATTERS BEING SUBMITTED TO A VOTE OF RESTORATION ROBOTICS STOCKHOLDERS

     171  

PROPOSAL NO. 1: APPROVAL OF THE ISSUANCE OF COMMON STOCK IN THE MERGER

     171  

PROPOSAL NO. 2: APPROVAL OF THE ISSUANCE OF RESTORATION ROBOTICS COMMON STOCK IN THE EQUITY COMMITMENT LETTER FINANCING, RESTORATION ROBOTICS NOTE CONVERSION AND VENUS CONCEPT NOTE CONVERSION

     172  

PROPOSAL NO. 3: APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE RESTORATION ROBOTICS, INC. 2017 INCENTIVE AWARD PLAN

     175  

PROPOSAL NO. 4: APPROVAL OF CORPORATE NAME CHANGE

     183  

 

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     Page  

PROPOSAL NO. 5: APPROVAL OF THE AMENDMENT TO AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF RESTORATION ROBOTICS EFFECTING THE REVERSE STOCK SPLIT

     184  

PROPOSAL NO. 6: ELECTION OF DIRECTORS

     191  

PROPOSAL NO. 7: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     192  

PROPOSAL NO. 8: APPROVAL OF POSSIBLE ADJOURNMENT OF THE ANNUAL MEETING

     194  

VENUS CONCEPT BUSINESS

     195  

VENUS CONCEPT MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     231  

MANAGEMENT FOLLOWING THE MERGER

     257  

CERTAIN VENUS CONCEPT RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     265  

COMPARISON OF RIGHTS OF HOLDERS OF RESTORATION ROBOTICS CAPITAL STOCK AND VENUS CONCEPT CAPITAL STOCK

     270  

PRINCIPAL SHAREHOLDERS OF VENUS CONCEPT

     287  

LEGAL MATTERS

     291  

EXPERTS

     292  

WHERE YOU CAN FIND MORE INFORMATION

     293  

TRADEMARK NOTICE

     295  

OTHER MATTERS

     296  

Stockholder Proposals

     296  

Householding of Proxy Statement/Prospectus

     296  

INDEX TO VENUS CONCEPT CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2018, 2017, and 2016

     F-1  

Independent Auditors’ Report

     F-2  

Venus Concept Ltd. Consolidated Balance Sheets

     F-4  

Venus Concept Ltd. Consolidated Statements of Operations

     F-5  

Venus Concept Ltd. Consolidated Statements of Comprehensive (Loss) Income

     F-6  

Venus Concept Ltd. Consolidated Statements of Changes in Shareholders’ Equity (Deficit)

     F-7  

Venus Concept Ltd. Consolidated Statements of Cash Flows

     F-9  

Venus Concept Ltd. Notes to the Consolidated Financial Statements

     F-10  

INDEX TO VENUS CONCEPT CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2019 and 2018

     F-45  

Venus Concept Ltd. Condensed Consolidated Balance Sheets

     F-46  

Venus Concept Ltd. Condensed Consolidated Statements of Operations

     F-47  

Venus Concept Ltd. Condensed Consolidated Statements of Changes in Shareholders’ Equity

     F-48  

Venus Concept Ltd. Condensed Consolidated Statements of Cash Flows

     F-50  

Venus Concept Ltd. Notes to the Condensed Consolidated Financial Statements

     F-51  

INDEX TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

     F-68  

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

     F-69  

Unaudited Pro Forma Condensed Combined Balance Sheet March 31, 2019

     F-71  

Unaudited Pro Forma Condensed Combined Statement of Operations For the Three Months Ended March 31, 2019

     F-72  

Unaudited Pro Forma Condensed Statement of Operations For the Year Ended December 31, 2018

     F-73  

Notes to Unaudited Pro Forma Combined Financial Statements

     F-74  

PART II INFORMATION NOT REQUIRED IN PROXY STATEMENT/PROSPECTUS

     II-1  

EXHIBIT INDEX

     II-5  

 

iii


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Annex A—Agreement and Plan of Merger and Reorganization

Annex B—Equity Commitment Letter

Annex C—Amended and Restated Restoration Robotics 2017 Equity Incentive Plan

Annex D—Amendment to Amended and Restated Certificate of Incorporation (Corporate Name Change)

Annex E—Amendment to Amended and Restated Certificate of Incorporation (Reverse Stock Split)

Annex F—Opinion of Restoration Robotics Financial Advisor

 

iv


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QUESTIONS AND ANSWERS ABOUT THE MERGER

Except where specifically noted, the following information and all other information contained in this proxy statement/prospectus does not give effect to the proposed reverse stock split described in Proposal No. 5 of this proxy statement/prospectus.

The following section provides answers to frequently asked questions about the merger. This section, however, provides only summary information. For a more complete response to these questions and for additional information, please refer to the cross-referenced sections.

 

Q:

What is the merger?

 

A:

Restoration Robotics, Inc., or Restoration Robotics, and Venus Concept Ltd., or Venus Concept, have entered into an Agreement and Plan of Merger and Reorganization, dated as of March 15, 2019, or the Merger Agreement, a copy of which is attached as Annex A. The Merger Agreement contains the terms and conditions of the proposed business combination of Restoration Robotics and Venus Concept. Pursuant to the Merger Agreement, Radiant Merger Sub, Ltd., or Merger Sub, a direct, wholly-owned subsidiary of Restoration Robotics incorporated under the laws of Israel, will merge with and into Venus Concept, with Venus Concept continuing as the surviving corporation and a direct wholly-owned subsidiary of Restoration Robotics. This transaction is referred to in this proxy statement/prospectus as the merger. After the completion of the merger, Restoration Robotics will change its corporate name to “Venus Concept Inc.”. Restoration Robotics following the merger is referred to in this proxy statement/prospectus as the combined company.

At the effective time of the merger, other than the ordinary shares of Venus Concept or preferred shares of Venus Concept held or owned by Venus Concept, Restoration Robotics, or Merger Sub, each ordinary share of Venus Concept and each preferred share of Venus Concept will be converted into the right to receive 8.6506 shares of Restoration Robotics common stock, subject to adjustment pursuant to the Merger Agreement. Any ordinary or preferred shares of Venus Concept that are held by, or owned by, Venus Concept, Restoration Robotics, or Merger Sub, will remain or become treasury shares held by Venus Concept or continue to be held by Restoration Robotics, as applicable, and will not entitle the holder thereof to any payment.

In connection with the merger, each outstanding and unexercised option to purchase ordinary shares of Venus Concept will be assumed by Restoration Robotics and will be converted into an option to purchase shares of Restoration Robotics common stock, with the number of shares subject to and exercise price of such option being appropriately adjusted to reflect the exchange ratio. Any restriction on the exercise of such option will continue in full force and effect and the term, exercisability, vesting schedule and other provisions of such option will otherwise remain unchanged. Each outstanding warrant to purchase ordinary shares of Venus Concept or preferred shares of Venus Concept will be assumed by Restoration Robotics and will be converted into a warrant to purchase shares of Restoration Robotics common stock, with the number of shares subject to and exercise price of such warrant being appropriately adjusted to reflect the exchange ratio between Restoration Robotics common stock and Venus Concept ordinary shares and preferred shares determined in accordance with the Merger Agreement.

Each share of Restoration Robotics common stock, option to purchase Restoration Robotics common stock and share of Restoration Robotics common stock subject to a restricted stock award that is issued and outstanding at the effective time of the merger will remain issued and outstanding and such shares, subject to the reverse stock split to be effected in connection with the merger, will be unaffected by the merger. Immediately after the merger, current Restoration Robotics stockholders will own approximately 15% of the fully-diluted common stock of the combined company and current Venus Concept shareholders will own approximately 85% of the fully-diluted common stock of the combined company. If the equity commitment letter financing (as defined herein), the Restoration Robotics note conversion (as defined herein) and the Venus Concept note conversion (as defined herein) close immediately following the merger, then Restoration Robotics stockholders will be further diluted.

 

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Q:

Why are the two companies proposing to merge?

 

A:

Restoration Robotics and Venus Concept believe that the merger will result in the opportunity to become a leading player in minimally invasive hair restoration with a diversified product portfolio in the global minimally invasive and non-invasive medical aesthetic market with technologies designed to address hair restoration, hair removal, skin rejuvenation, wrinkle reduction, cellulite reduction and body contouring, among others. For a more complete description of the reasons for the merger, please see the sections titled “The Merger—Restoration Robotics Reasons for the Merger” and “The Merger—Venus Concept Reasons for the Merger” beginning on page 93 and 97, respectively, of this proxy statement/prospectus.

 

Q:

Why am I receiving this proxy statement/prospectus?

 

A:

You are receiving this proxy statement/prospectus because you have been identified as a stockholder of Restoration Robotics as of the record date, and you are entitled to vote at the Restoration Robotics annual meeting to approve the matters set forth herein. This document serves as:

 

   

a proxy statement of Restoration Robotics used to solicit proxies for the Restoration Robotics annual meeting to vote on the matters set forth herein; and

 

   

a prospectus of Restoration Robotics used to offer shares of Restoration Robotics common stock in exchange for ordinary shares and preferred shares of Venus Concept in the merger.

 

Q:

What is the equity commitment letter financing?

 

A:

Concurrent with the execution of the Merger Agreement, Restoration Robotics and Venus Concept entered into an equity commitment letter, or the equity commitment letter, a copy of which is attached as Annex B, with the investors named therein, or the equity commitment investors, pursuant to which the equity commitment investors agreed to purchase $21.0 million of shares of Restoration Robotics common stock immediately following the consummation of the merger in a private placement, at a per share purchase price of $0.825, with the option to purchase an additional $20.0 million of shares of common stock at the same per share purchase price, referred to as the equity commitment letter financing. The closing of the equity commitment letter financing is conditioned upon the closing of the merger, which requires the approval of the issuance of the shares to be issued under the equity commitment letter by the Restoration Robotics stockholders, as well as certain other conditions. However, the funding of the purchase price for the shares issued under the equity commitment letter is not a condition to the closing of the merger. Certain related parties of Restoration Robotics and Venus Concept have agreed to participate in the equity commitment letter financing. On July 26, 2019, Venus Concept agreed to use reasonable efforts to release one of the investors from its $3,500,000 commitment under the equity commitment letter. The investor has agreed to purchase $3,500,000 in the Venus Concept convertible notes. Venus Concept and Restoration Robotics expect to enter into an amendment to the equity commitment letter to release the other investors from their obligations to fund their pro rata portions of the equity commitment upon the closing of the merger, subject to the investors investing the funds they committed under the equity commitment letter in Venus Concept convertible notes that would automatically convert into common stock of Restoration Robotics upon the closing of the merger. For a more complete description of the equity commitment letter financing, please see the section titled “Agreements Related to the Merger—Equity Commitment Letter” beginning on page 149 of this proxy statement/prospectus.

 

Q:

What is the Restoration Robotics note conversion?

 

A:

On February 28, 2019, Restoration Robotics entered into a note purchase agreement pursuant to which Restoration Robotics issued an aggregate of $5.0 million of unsecured subordinated convertible promissory notes, or the converitble notes, to Frederic Moll, M.D., one of Restoration Robotics’ directors, and Interwest Partners IX, LP, a Restoration Robotics’ stockholder affiliated with Gil Kliman, M.D., one of Restoration Robotics’ directors. The convertible notes bear interest on the unpaid principal amount at a rate of eight percent (8.0%) per annum from the date of issuance. All of the outstanding principal and unpaid accrued

 

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  interest on the convertible notes will automatically be converted into shares of common stock of Restoration Robotics at the closing of the equity commitment letter financing, at a price of $0.825 per share, referred to herein as the Restoration Robotics note conversion. Certain related parties of Restoration Robotics hold the convertible notes. For a more complete description of the Restoration Robotics note conversion, please see the section titled “Agreements Related to the Merger—Convertible Promissory Notes” beginning on page 150 of this proxy statement/prospectus.

 

Q:

What is the Venus Concept note conversion?

 

A:

On June 25, 2019, Venus Concept entered into a note purchase agreement pursuant to which Venus Concept issued an aggregate of $7.8 million of unsecured senior subordinated convertible promissory notes, or the Venus convertible notes, to certain investors named therein. The Venus convertible notes bear interest on the unpaid principal amount at a rate of eight percent (8.0%) per annum from the date of issuance. All of the outstanding principal and unpaid accrued interest on the Venus convertible note will automatically be converted into shares of common stock of Restoration Robotics at the closing of the merger, at a conversion price of $0.4664 per share, referred to herein as the Venus Concept note conversion. Certain related parties of Venus Concept holder the Venus convertible notes. On July 5, 2019, Venus Concept loaned Restoration Robotics $2.5 million of the proceeds from the issuance of the Venus convertible notes pursuant to a subordinated promissory note, or the Restoration Note. The Restoration Note is subordinated to the Solar Loan Agreement pursuant to a subordination agreement between Solar and Venus Concept dated June 25, 2019. The Restoration Note accrues interest at a rate of 8% per annum and matures on November 30, 2019. For a more complete description of the Venus Concept note conversion, please see the section titled “Agreements Related to the Merger—Convertible Promissory Notes” beginning on page 148 of this proxy statement/prospectus.

 

Q:

What proposals will be voted on at the Restoration Robotics annual meeting in connection with the merger?

 

A:

Pursuant to the terms of the Merger Agreement, the following proposals must be approved by the requisite stockholder vote at the Restoration Robotics annual meeting in order for the merger to close:

 

   

Proposal No. 1 to approve the issuance of shares of Restoration Robotics common stock to Venus Concept shareholders pursuant to the Merger Agreement;

 

   

Proposal No. 2 to approve: (i) the issuance of shares in the equity commitment letter financing as contemplated by the equity commitment letter; (ii) the issuance of shares in the Restoration Robotics note conversion; and (iii) the issuance of shares in the Venus note conversion;

 

   

Proposal No. 3 to approve an amendment and restatement of the Restoration Robotics 2017 Equity Incentive Plan, or the 2017 Plan, to increase the total number of shares of Restoration Robotics common stock currently available for issuance under the 2017 Plan by 6,750,000 shares, prior to giving effect to the reverse split to be effected in connection with the merger, and certain other amendments to the 2017 Plan as more fully described herein, in the form attached as Annex C; and

 

   

Proposal No. 5 to approve an amendment to the amended and restated certificate of incorporation of Restoration Robotics to effect a reverse stock split of Restoration Robotics’ issued and outstanding common stock within a range of, as determined by the Restoration Robotics board of directors, every 10 to 15 shares (or any number in between) of outstanding Restoration Robotics common stock being combined and reclassified into one share of Restoration Robotics common stock, which is referred to herein as the reverse stock split, in the form attached as Annex E.

Proposal Nos. 1, 2, 3 and 5 are referred to herein collectively as the merger proposals and the approval of each merger proposal is a condition of the completion of the merger. Each of Proposal Nos. 1, 2 and 3 is conditioned upon the approval of each of the other merger proposals. Therefore, the merger cannot be consummated without the approval of Proposal Nos. 1, 2, 3 and 5. Proposal No. 5 is not conditioned upon

 

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the approvals of Proposal Nos. 1, 2 and 3. None of the issuance of Restoration Robotics common stock in connection with the merger, or Proposal No. 1, the issuance of Restoration Robotics common stock in the equity commitment letter financing or Restoration Robotics note conversion, Proposal No. 2, the amendment and restatement of the 2017 Plan, will take place unless all of the merger proposals are approved by Restoration Robotics stockholders and the merger is consummated.

Therefore, the merger cannot be completed without the approval of each of the merger proposals. In addition to the requirement of obtaining Restoration Robotics stockholder approval, each of the other closing conditions set forth in the Merger Agreement must be satisfied or waived. For a more complete description of the closing conditions under the Merger Agreement, please see the section titled “The Merger Agreement—Conditions to the Completion of the Merger” beginning on page 143 of this proxy statement/prospectus.

The presence, by accessing online or being represented by proxy, at the Restoration Robotics annual meeting of the holders of a majority of the shares of Restoration Robotics common stock outstanding and entitled to vote at the Restoration Robotics annual meeting is necessary to constitute a quorum at the meeting for the purpose of approving the merger proposals.

 

Q:

What proposals are to be voted on at the Restoration Robotics annual meeting, other than the merger proposals?

 

A:

At the Restoration Robotics annual meeting, the holders of Restoration Robotics common stock will also be asked to consider the following proposals, along with any other business that may properly come before the Restoration Robotics annual meeting or any adjournment or postponement thereof:

 

   

Proposal No. 4 to approve an amendment to the amended and restated certificate of incorporation of Restoration Robotics changing the Restoration Robotics corporate name to “Venus Concept Inc.” in the form attached as Annex D;

 

   

Proposal No. 6 to elect the Class II directors to the Restoration Robotics board of directors for a term of three (3) years (provided, however, that if the merger is completed, the Restoration Robotics board of directors will be reconstituted as provided in the Merger Agreement);

 

   

Proposal No. 7 to ratify the selection of Grant Thornton LLP as Restoration Robotics’ independent registered public accounting firm for the fiscal year ending December 31, 2019 (provided, however, that it is likely that the combined company may decide to engage a new independent registered public accounting firm immediately or shortly after the merger is completed); and

 

   

Proposal No. 8 to approve an adjournment of the Restoration Robotics annual meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1, 2, 3 and 5.

The approval of Proposal Nos. 4, 6, 7 and 8 are not conditions to the merger. However, Proposal No. 4 is conditioned upon the consummation of the merger. All of such proposals, together with the merger proposals, are referred to collectively in this proxy statement/prospectus as the proposals.

Restoration Robotics stockholders should understand, however, that if the merger with Venus Concept is completed, the effect of the approval of Proposal Nos. 6 and 7 will be limited since the composition of the Restoration Robotics board of directors will be changed upon completion of the merger in accordance with the Merger Agreement and it is likely that the combined company may decide to engage a new independent registered public accounting firm immediately or shortly after completion of the merger.

 

Q:

What stockholder votes are required to approve the proposals at the Restoration Robotics annual meeting?

 

A:

The affirmative vote of a majority of the votes cast in person or by proxy at the Restoration Robotics annual meeting, assuming a quorum is present, is required for approval of Proposal Nos. 1, 2, 3, 7 and 8. The

 

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  affirmative vote of the holders of a majority of the outstanding shares of Restoration Robotics common stock entitled to vote at the Restoration Robotics annual meeting is required for approval of Proposal Nos. 4 and 5. With respect to Proposal No. 6, directors are elected by a plurality of the affirmative votes cast by those shares present in person or represented by proxy and entitled to vote at the Restoration Robotics annual meeting, and the nominees for director receiving the highest number of affirmative votes will be elected.

Votes will be counted by the inspector of election appointed for the meeting, who will separately count “FOR,” “AGAINST” and “WITHHOLD” votes, abstentions and broker non-votes. “WITHHOLD” votes with respect to the election of one or more nominees for director pursuant to Proposal No. 6 will not be voted with respect to the director or directors indicated, although they will be counted for purposes of determining the presence of a quorum for the transaction of business at the Restoration Robotics annual meeting. Abstentions and broker non-votes will also be treated as shares present for the purpose of determining the presence of a quorum for the transaction of business at the annual meeting. Abstentions and broker non-votes will not, however, be considered votes cast at the Restoration Robotics annual meeting and will therefore not have any effect with respect to Proposal Nos. 1, 2, 3, 7 and 8. Abstentions and broker non-votes will have the same effect as “AGAINST” votes for Proposal Nos. 4 and 5.

The adoption of the Merger Agreement and the approval of the merger and related transactions by the Venus Concept shareholders require the affirmative votes of the holders of (i) a majority of the outstanding ordinary shares and preferred shares of Venus Concept, voting together as a single class on an as-converted to ordinary shares basis, (ii) at least 67% of the outstanding preferred shares of Venus Concept (other than the outstanding non-voting shares of the Series C-1 preferred shares of Venus Concept), voting together as a single class on an as-converted to ordinary shares basis, and (iii) at least a majority of each class of preferred shares of Venus Concept based on shares outstanding (other than the outstanding non-voting shares of the Series C-1 preferred shares of Venus Concept).

As of March 31, 2019, the directors and executive officers of Restoration Robotics owned or controlled 10.4% of the outstanding shares of Restoration Robotics common stock entitled to vote at the Restoration Robotics annual meeting. The directors and executive officers of Restoration Robotics owning these shares are subject to voting agreements pursuant to which they have agreed to vote all shares of Restoration Robotics common stock owned by them as of the record date in favor of Proposal Nos. 1, 2, 3, 4, 5 and 8 and against any competing “Restoration Robotics Acquisition Proposal” (as defined in the voting agreements).

 

Q:

What will Venus Concept shareholders, optionholders and warrant holders receive in the merger?

 

A:

Applying the exchange ratio, the former Venus Concept shareholders immediately before the merger are expected to own approximately 85% of the aggregate number of shares of the combined company’s common stock following the merger, and Restoration Robotics stockholders immediately before the merger are expected to own approximately 15% of the aggregate number of shares of the combined company common stock following the merger, in each case without giving effect to the issuance of shares of combined company common stock in the equity commitment letter financing, the Restoration Robotics note conversion and the Venus Concept note conversion.

In connection with the merger, each outstanding and unexercised option to purchase ordinary shares of Venus Concept and each warrant to purchase ordinary shares or preferred shares of Venus Concept will be converted into an option or a warrant, respectively, to purchase Restoration Robotics common stock, with the number of shares and exercise price being appropriately adjusted to reflect the exchange ratio.

For a more complete description of what Venus Concept shareholders, optionholders and warrant holders will receive in the merger, please see the section titled “The Merger Agreement—Merger Consideration” beginning on page 126 of this proxy statement/prospectus. For a description of the dilutive effect of the equity commitment letter financing and Restoration Robotics note conversion on Restoration Robotics’ and Venus Concept’s current security holders, see section titled “Agreements Related to the Merger—Equity Commitment Letter” beginning on page 149 of this proxy statement/prospectus.

 

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Q:

Will the common stock of the combined company trade on an exchange?

 

A:

Shares of Restoration Robotics common stock are currently listed on the Nasdaq Global Market, or Nasdaq, under the symbol “HAIR.” Restoration Robotics intends to file an initial listing application in the near term for the combined company with Nasdaq. After completion of the merger, Restoration Robotics will be renamed “Venus Concept Inc.” and it is expected that the common stock of the combined company will trade on Nasdaq under the symbol “VERO.” On July 26, 2019, the last trading day before the date of this proxy statement/prospectus, the closing sale price of Restoration Robotics common stock was $0.702 per share.

 

Q:

Who will be the directors of Restoration Robotics following the merger?

 

A:

Immediately following the merger, Restoration Robotics’ board of directors will be composed of nine (9) members, consisting of (i) two (2) current Restoration Robotics board members, namely Frederic Moll, M.D. and Keith Sullivan, and (ii) seven (7) current Venus Concept board members, namely Domenic Serafino, who will be the Chief Executive Officer of the combined company, Juliet Tammenoms Bakker, Scott Barry, Garheng Kong, M.D., Louise Lacchin, Fritz LaPorte and Anthony Natale, M.D. The staggered structure of the current Restoration Robotics board of directors will remain in place for the combined company following the completion of the merger.

It is anticipated the director classes of the combined company board of directors will be as follows:

 

   

Class I directors (term ending 2021):                 ;                 ; and                 .

 

   

Class II directors (term ending 2022):                 ;                 ; and                 .

 

   

Class III directors (term ending 2020):                 ;                 ; and                 .

 

Q:

Who will be the executive officers of Restoration Robotics immediately following the merger?

 

A:

Immediately following the merger, the executive management team of the combined company is expected to consist of members of the Venus Concept and Restoration Robotics executive management teams prior to the merger, including:

 

Name

  

Title

Domenic Serafino

   Chief Executive Officer and Class          Director

Domenic Della Penna

   Chief Financial Officer

Domenic Di Sisto

   General Counsel and Corporate Secretary

Anna Georgiadis

   Vice President, Global Human Resources

Yoni Iger

   Vice President, Clinical and Regulatory Affairs, Quality Assurance

Melissa Kang

   Vice President, Global Marketing

William Kelley

   President, Global Sales

Søren Maor Sinay

   Chief Operating Officer

Boris Vaynberg

   Chief Technology Officer

 

Q:

As a Restoration Robotics stockholder, how does Restoration Robotics’ board of directors recommend that I vote?

 

A:

After careful consideration, Restoration Robotics’ board of directors recommends that Restoration Robotics stockholders vote “FOR” all of the proposals.

 

Q:

What risks should I consider in deciding whether to vote in favor of the merger?

 

A:

You should carefully review the section titled “Risk Factors” beginning on page 28 of this proxy statement/prospectus and the documents incorporated by reference herein, which set forth certain risks and uncertainties related to the merger, risks and uncertainties to which the combined company’s business will

 

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  be subject, and risks and uncertainties to which each of Restoration Robotics and Venus Concept, as independent companies, are subject.

 

Q:

When do you expect the merger to be consummated?

 

A:

The merger is anticipated to close in the third quarter of 2019, after the Restoration Robotics annual meeting to be held on             , 2019, but the exact timing cannot be predicted. For more information, please see the section titled “The Merger Agreement—Conditions to the Completion of the Merger” beginning on page 143 of this proxy statement/prospectus.

 

Q:

What do I need to do now?

 

A:

Restoration Robotics urges you to read this proxy statement/prospectus carefully, including the annexes and the documents incorporated by reference herein, and to consider how the merger affects you.

If you are a Restoration Robotics stockholder of record, you may provide your proxy instructions in one of four different ways:

 

   

You can attend the Restoration Robotics annual meeting online and vote online during the annual meeting.

 

   

You can mail your signed proxy card in the enclosed return envelope.

 

   

You can provide your proxy instructions via telephone by following the instructions on your proxy card.

 

   

You can provide your proxy instructions via the Internet by following the instructions on your proxy card.

Your vote must be received by             , 2019, 11:59 p.m. Eastern Time to be counted.

If you hold your shares in “street name” (as described below), you may provide your proxy instructions via telephone or the internet by following the instructions on your vote instruction form. Please provide your proxy instructions only once, unless you are revoking a previously delivered proxy instruction, and as soon as possible so that your shares can be voted at the Restoration Robotics annual meeting.

 

Q:

What happens if I do not return a proxy card or otherwise provide proxy instructions, as applicable?

 

A:

If you are a Restoration Robotics stockholder, the failure to return your proxy card or otherwise provide proxy instructions will reduce the aggregate number of votes required to approve Proposal Nos. 1, 2, 3, 7 and 8 and to elect directors pursuant to Proposal No. 6 and will have the same effect as voting against Proposal Nos. 4 and 5. Also, your shares will not be counted for purposes of determining whether a quorum is present at the Restoration Robotics annual meeting.

 

Q:

May I attend the Restoration Robotics annual meeting and vote in person?

 

A:

The Restoration Robotics annual meeting will be held entirely online to allow greater participation and improved communication and provide cost savings for Restoration Robotics stockholders and Restoration Robotics. Stockholders of record as of             , 2019 will be able to attend and participate in the Restoration Robotics annual meeting online by accessing www.virtualshareholdermeeting.com/HAIR2019. To join the Restoration Robotics annual meeting, you will need to have your 16-digit control number which is included on your Notice of Internet Availability of Proxy Materials and your proxy card.

 

Q:

Who counts the votes?

 

A:

Broadridge Financial Solutions, Inc., or Broadridge, has been engaged as Restoration Robotics’ independent agent to tabulate stockholder votes, which Restoratin Robotics refers to as the Inspector of Election. If you are a stockholder of record, your executed Proxy Card is returned directly to Broadridge for tabulation. As

 

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  noted above, if you hold your shares through a broker, your broker returns one Proxy Card to Broadridge on behalf of all its clients.

 

Q:

If my Restoration Robotics shares are held in “street name” by my broker, will my broker vote my shares for me?

 

A:

Unless your broker has discretionary authority to vote on certain matters, your broker will not be able to vote your shares of Restoration Robotics common stock on matters requiring discretionary authority without instructions from you. If you do not give instructions to your broker, your broker can vote your Restoration Robotics shares with respect to “discretionary” items but not with respect to “non-discretionary” items. Discretionary items are proposals considered routine under the rules of Nasdaq on which your broker may vote shares held in “street name” in the absence of your voting instructions. With respect to non-discretionary items for which you do not give your broker instructions, your Restoration Robotics shares will be treated as broker non-votes. It is anticipated that all proposals other than Proposal No. 7 will be non-discretionary. To make sure that your vote is counted, you should instruct your broker to vote your shares, following the procedures provided by your broker.

 

Q:

What are broker non-votes and do they count for determining a quorum?

 

A:

Generally, broker non-votes occur when shares held by a broker in “street name” for a beneficial owner are not voted with respect to a particular proposal because the broker (1) has not received voting instructions from the beneficial owner and (2) lacks discretionary voting power to vote those shares. A broker is entitled to vote shares held for a beneficial owner on routine matters without instructions from the beneficial owner of those shares. On the other hand, absent instructions from the beneficial owner of such shares, a broker is not entitled to vote shares held for a beneficial owner on non-routine matters.

Broker non-votes will be treated as shares present for the purpose of determining the presence of a quorum for the transaction of business at the Restoration Robotics annual meeting. Broker non-votes will not, however, be considered votes cast at the Restoration Robotics annual meeting and will therefore not have any effect with respect to Proposal Nos. 1, 2, 3 and 8. Broker non-votes will have the same effect as “AGAINST” votes for Proposal Nos. 4 and 5.

 

Q:

May I change my vote after I have submitted a proxy or provided proxy instructions?

 

A:

Restoration Robotics stockholders of record, unless such stockholders’ vote is subject to a voting agreement, may change their vote at any time before their proxy is voted at the Restoration Robotics annual meeting in one of three ways:

 

   

You may submit another properly completed proxy with a later date.

 

   

You may send a written notice that you are revoking your proxy to Restoration Robotics’ Chief Financial Officer and Corporate Secretary at 128 Baytech Drive, San Jose, California 95134.

 

   

You may attend the Restoration Robotics annual meeting online and vote by following the instructions at www.proxyvote.com. Simply attending the Restoration Robotics annual meeting will not, by itself, revoke your proxy.

If a Restoration Robotics stockholder who owns Restoration Robotics shares in “street name” has instructed a broker to vote its shares of Restoration Robotics common stock, the stockholder must follow directions received from its broker to change those instructions.

 

Q:

Who is paying for this proxy solicitation?

 

A:

Restoration Robotics and Venus Concept will share equally the cost of printing and filing of this proxy statement/prospectus and the proxy card. Arrangements will also be made with brokerage firms and other custodians, nominees and fiduciaries who are record holders of Restoration Robotics common stock for the

 

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  forwarding of solicitation materials to the beneficial owners of Restoration Robotics common stock. Restoration Robotics will reimburse these brokers, custodians, nominees and fiduciaries for the reasonable out-of-pocket expenses they incur in connection with the forwarding of solicitation materials. Restoration Robotics has retained MacKenzie Partners, Inc. to assist it in soliciting proxies using the means referred to above. Restoration Robotics and Venus Concept will share equally the fees of MacKenzie Partners, Inc., which Restoration Robotics expects to be approximately $8,500, plus reimbursement of out-of-pocket expenses.

 

Q:

What are the material U.S. federal income tax consequences of the reverse stock split to United States holders of Restoration Robotics common stock?

 

A:

The reverse stock split should constitute a “recapitalization” for U.S. federal income tax purposes. As a result, a United States Holder (as defined in the section titled “Matters Being Submitted to a Vote of Restoration Robotics Stockholders—Proposal No. 5: Approval of the Amendment to Amended and Restated Certificate of Incorporation of Restoration Robotics Effecting the Reverse Stock Split—Material U.S. Federal Income Tax Consequences of the Reverse Stock Split” beginning on page 184 of this proxy statement/prospectus) of Restoration Robotics common stock generally should not recognize gain or loss upon the reverse stock split, except with respect to cash received in lieu of a fractional share of Restoration Robotics common stock, as discussed in the section titled “Matters Being Submitted to a Vote of Restoration Robotics Stockholders—Proposal No. 5: Approval of the Amendment to Amended and Restated Certificate of Incorporation of Restoration Robotics Effecting the Reverse Stock Split—Material U.S. Federal Income Tax Consequences of the Reverse Stock Split” beginning on page 181 of this proxy statement/prospectus. A United States Holder’s aggregate tax basis in the shares of Restoration Robotics common stock received pursuant to the reverse stock split should equal the aggregate tax basis of the shares of the Restoration Robotics common stock surrendered (excluding any portion of such basis that is allocated to any fractional share of Restoration Robotics common stock), and such United States Holder’s holding period in the shares of Restoration Robotics common stock received should include the holding period in the shares of Restoration Robotics common stock surrendered. Treasury Regulations provide detailed rules for allocating the tax basis and holding period of the shares of Restoration Robotics common stock surrendered to the shares of Restoration Robotics common stock received in a recapitalization pursuant to the reverse stock split. United States Holders of shares of Restoration Robotics common stock acquired on different dates and at different prices should consult their tax advisors regarding the allocation of the tax basis and holding period of such shares. For more information, please see the section titled “Matters Being Submitted to a Vote of Restoration Robotics Stockholders—Proposal No. 5: Approval of the Amendment to Amended and Restated Certificate of Incorporation of Restoration Robotics Effecting the Reverse Stock Split—Material U.S. Federal Income Tax Consequences of the Reverse Stock Split” beginning on page 184 of this proxy statement/prospectus.

 

Q:

What are the material U.S. federal income tax consequences of the merger to United States holders of Venus Concept capital stock?

 

A:

The merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, or the Code. Accordingly, except as provided in the section titled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger to United States Holders of Venus Concept Capital Stock—Passive Foreign Investment Company Rules”, the material U.S. federal income tax consequences of the merger to United States holders (as defined in “The MergerMaterial U.S. Federal Income Tax Consequences of the Merger to United States Holders of Venus Concept Capital Stock”) of Venus Concept capital stock will be as follows:

 

   

a Venus Concept shareholder will not recognize gain or loss upon the exchange of Venus Concept capital stock for Restoration Robotics common stock pursuant to the merger;

 

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a Venus Concept shareholder’s aggregate tax basis for the shares of Restoration Robotics common stock received in the merger will equal the shareholder’s aggregate tax basis in the shares of Venus Concept capital stock surrendered in the merger; and

 

   

the holding period of the shares of Restoration Robotics common stock received by a Venus Concept shareholder in the merger will include the holding period of shares of Venus Concept capital stock surrendered in exchange therefor.

The tax consequences of the merger to a particular Venus Concept shareholder will depend on that shareholder’s particular facts and circumstances. Accordingly, you are strongly urged to consult your tax advisor for a full understanding of the tax consequences of the merger to you, including the applicability and effect of federal, state, local and non-U.S. income and other tax laws.

For a more detailed discussion of the material U.S. federal income tax consequences of the merger, see “The Merger—Material U.S. Federal Income Tax Consequences of the Merger to United States Holders of Venus Concept Capital Stock” beginning on page 121 of this proxy statement/prospectus.

 

Q:

What are the material Israeli income tax consequences of the merger to Israeli and non-Israeli residents?

 

A:

In general, under the Israeli Tax Ordinance (New Version), 5721-1963, or the Ordinance, as amended, and the rules and regulations promulgated thereunder, the disposition of shares of an Israeli company is deemed to be a sale of capital assets (unless such shares are held for the purpose of trading). The Ordinance generally imposes a capital gains tax on the sale of capital assets located in Israel, including shares in an Israeli resident company, by both residents and non-residents of Israel, unless a specific exemption is available under the Ordinance or unless a treaty for the prevention of double taxation between Israel and the seller’s country of residence provides otherwise.

Venus Concept instructed its Israeli counsel to prepare and file with the Israel Tax Authority, or ITA, an application for tax rulings with respect to withholding tax from capital gain as a result of the merger, both for Israeli residents and non- Israeli residents. Assuming Venus Concept receives the Israeli tax rulings from the ITA, the Israeli income tax consequences of the merger shall be in accordance with such tax rulings (if applicable to a particular Venus Concept shareholder).

For a more detailed discussion of the material Israeli income tax consequences of the merger, see “The Merger Agreement—Tax Matters” beginning on page 142 of this proxy statement/prospectus. Venus Concept shareholders should consult their tax advisors to understand all the tax consequences of the merger to them.

 

Q:

Who can help answer my questions?

 

A:

If you are a Restoration Robotics stockholder and would like additional copies of this proxy statement/prospectus without charge or if you have questions about the merger, including the procedures for voting your shares, you should contact:

MacKenzie Partners, Inc.

1407 Broadway, 27th Floor

New York, New York 10018

+1-800-322-2885

proxy@mackenziepartners.com

 

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PROSPECTUS SUMMARY

This summary highlights selected information from this proxy statement/prospectus and may not contain all of the information that is important to you. To better understand the merger and the proposals being considered at the Restoration Robotics annual meeting, you should read this entire proxy statement/prospectus carefully, including the Merger Agreement and the other annexes to which you are referred in this proxy statement/prospectus, and the documents incorporated by reference therein. For more information, please see the section titled “Where You Can Find More Information” beginning on page 293 of this proxy statement/prospectus. Except where specifically noted, the following information and all other information contained in this proxy statement/prospectus does not give effect to the proposed reverse stock split described in Proposal No. 5 of this proxy statement/prospectus.

The Companies

Restoration Robotics, Inc.

128 Baytech Drive

San Jose, California 95134

Telephone: (408) 883-6888

Restoration Robotics is a medical technology company developing and commercializing, the ARTAS® System, a robotic device that assists physicians in performing many of the repetitive tasks that are a part of a follicular unit extraction surgery, or FUE, a type of hair restoration procedure. Restoration Robotics believes the ARTAS® System is the first and only physician-assisted robotic system that can identify and dissect hair follicular units directly from the scalp and create recipient implant sites. The ARTAS® System includes the ARTAS Hair Studio application, an interactive three-dimensional patient consultation tool that enables a physician to create a simulated hair transplant model for use in patient consultations. Restoration Robotics received clearance from the U.S. Food and Drug Administration, or FDA, in April 2011 to market the ARTAS® System in the U.S., and has sold the ARTAS® System into 37 other countries. In March 2018, Restoration Robotics received 510(k) clearance from FDA to expand the ARTAS® technology to include implantation, and in the third quarter of 2018, Restoration Robotics commercially launched the next generation ARTAS® System, called ARTAS® iX System, which incorporates the implantation functionality as well as other functionalities. As of December 31, 2018, the ARTAS® System and ARTAS Hair Studio application are protected by over 80 patents in the U.S. and over 110 international patents.

Venus Concept Ltd.

255 Consumers Road, Suite 110

Toronto, ON M2J 1R4

Canada

Telephone: (877) 848-8430

Venus Concept is an innovative global medical technology company that develops, commercializes, and delivers minimally invasive and non-invasive medical aesthetic technologies and related practice enhancement services. To address the financial barriers faced by physicians and aesthetic service providers globally, Venus Concept focuses its product sale strategy on a subscription-based business model in North America and in Venus Concept’s well-established direct global markets. Venus Concept has received FDA clearance for the combined use of multipolar radio frequency, or RF, and pulsed electromagnetic fields, or PEMF, for non-invasive treatment of facial rhytides (wrinkles) in Fitzpatrick skin types I (ivory)-IV (light brown), and temporary reduction in the appearance of cellulite, among others. In certain jurisdictions outside of the United States, Venus Concept’s products have received marketing authorizations for indications such as temporary increase of skin tightening, cellulite reduction and uses for certain soft tissue injuries, among others, and for vaginal treatment in the Israeli market. Venus Concept’s proprietary multipolar RF and PEMF technologies, also referred to as Venus Concept’s



 

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(MP)2 technology, synergistically deliver consistent homogenous treatments in a minimally invasive process. Venus Concept also uses in its systems Intense Pulsed Light, or IPL, for treatment of benign pigmented epidermal and cutaneous lesions, laser for hair removal and fractional ablative RF modality for skin resurfacing. Venus Concept designs and sells a full-suite of medical aesthetic products and markets its current products primarily to physicians interested in providing minimally invasive and non-invasive medical aesthetic procedures, and to aesthetic medical spas. Through its NeoGraft division, Venus Concept offers an automated hair restoration system that facilitates the harvesting of follicles during a FUE process, improving the accuracy and speed over commonly used manual extraction instruments. Venus Concept’s NeoGraft systems are sold primarily to plastic surgeons and dermatologists, and in the United States Venus Concept offers these doctors the services of a group of independently contracted technicians, whom Venus Concept markets as “NeoGrafters”. These technicians are certified to assist the physician during a NeoGraft hair restoration procedure.

Radiant Merger Sub Ltd.

128 Baytech Drive

San Jose, California 95134

Telephone: (408) 883-6888

Merger Sub is a direct, wholly-owned subsidiary of Restoration Robotics and was formed solely for the purpose of carrying out the merger.

The Merger (see page 85)

If the merger is completed Merger Sub will merge with and into Venus Concept, with Venus Concept surviving as a wholly-owned subsidiary of Restoration Robotics.

At the effective time of the merger, other than the ordinary shares of Venus Concept or preferred shares of Venus Concept held or owned by Venus Concept, Restoration Robotics, or Merger Sub, each ordinary share of Venus Concept and each preferred share of Venus Concept will be converted into the right to receive 8.6506 shares of Restoration Robotics common stock, subject to adjustment pursuant to the Merger Agreement referred to as the exchange ratio. Any ordinary or preferred shares of Venus Concept that are held or owned by Venus Concept, Restoration Robotics, or Merger Sub, will remain or become treasury shares held by Venus Concept or continue to be held by Restoration Robotics, as applicable, and will not entitle the holder thereof to any payment.

In connection with the merger, each outstanding and unexercised option to purchase ordinary shares of Venus Concept will be assumed by Restoration Robotics and will be converted into an option to purchase shares of Restoration Robotics common stock, with the number of shares subject to and exercise price of such option being appropriately adjusted to reflect the exchange ratio. Any restriction on the exercise of such option will continue in full force and effect and the term, exercisability, vesting schedule and other provisions of such option will otherwise remain unchanged. Each outstanding warrant to purchase ordinary shares of Venus Concept or preferred shares of Venus Concept will be assumed by Restoration Robotics and will be converted into a warrant to purchase shares of Restoration Robotics common stock, with the number of shares subject to and exercise price of such warrant being appropriately adjusted to reflect the exchange ratio between Restoration Robotics common stock and Venus Concept ordinary shares and preferred shares determined in accordance with the Merger Agreement.

Each share of Restoration Robotics common stock, option to purchase shares of Restoration Robotics common stock and share of Restoration Robotics common stock subject to a restricted stock award issued and outstanding at the time of the merger will remain issued and outstanding and those shares, subject to the reverse split to be effected in connection with the merger, will be unaffected by the merger. Please see the section titled “The Merger—Stock Options and Warrants” beginning on page 119 of this proxy statement/prospectus.



 

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The merger will be completed as promptly as practicable after all of the conditions to completion of the merger are satisfied or waived, including the approval of Restoration Robotics and Venus Concept security holders. Restoration Robotics and Venus Concept are working to complete the merger as quickly as practicable. The merger is anticipated to close as early as the third quarter of 2019, after the Restoration Robotics’ annual meeting of stockholders. However, Restoration Robotics and Venus Concept cannot predict the exact timing of the completion of the merger because it is subject to the satisfaction of various conditions. After completion of the merger, assuming that Restoration Robotics receives the required stockholder approval, Restoration Robotics will be renamed “Venus Concept Inc.”.

Reasons for the Merger (see pages 93 and 97)

Restoration Robotics and Venus Concept believe that, following the merger, the combination of the two companies will result in the opportunity to become a leading player in minimally invasive hair restoration with a diversified product portfolio in the global minimally invasive and non-invasive medical aesthetic market with technologies designed to address hair restoration, hair removal, skin rejuvenation, wrinkle reduction, cellulite reduction and body contouring. Restoration Robotics and Venus Concept believe that the combined company will have the following potential advantages:

 

   

A diversified product portfolio in the aesthetic market with nine major product platforms, including a focused effort on the hair restoration market with both Restoration Robotics’ ARTAS Robotic Hair Restoration System and Venus Concept’s NeoGraft system.

 

   

Global reach with commercial presence in over 60 countries and a direct selling presence in 29 markets.

 

   

Strong research and development capabilities with complementary teams with expertise in non-invasive, energy-based technologies (from the legacy Venus Concept team) and robotics, 3D pre-operative planning and software (from the legacy Restoration Robotics team).

 

   

An attractive financial profile.

The Restoration Robotics board of directors considered a number of factors in reaching its conclusion to approve the merger and to recommend that the Restoration Robotics stockholders approve the issuance of shares of Restoration Robotics common stock in the merger and the equity commitment letter financing, including the following:

 

   

Best Alternative for Maximizing Stockholder Value. Restoration Robotics’ board of directors believes, after a thorough review of its prospects as a stand-alone company and available strategic alternatives, that the merger with Venus Concept was more favorable to the stockholders of Restoration Robotics than the potential value that might have resulted from other options available to Restoration Robotics, including remaining a stand-alone public company.

 

   

Prospects of the Combined Company. Restoration Robotics’ board of directors believes that the merger will create a combined company with the opportunity to become a leading player in minimally invasive hair restoration with a diversified product portfolio in the global minimally invasive and non-invasive medical aesthetic markets with technologies designed to address hair restoration, hair removal, skin rejuvenation, wrinkle reduction, cellulite reduction and body contouring to benefit Restoration Robotics customers, employees and stockholders.



 

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Risks Related to Remaining a Stand-Alone Company. Restoration Robotics’ board of directors believes that the merger consideration is more favorable to its stockholders than the value of remaining an independent, stand-alone public company, after accounting for the risks and uncertainties as a stand-alone company, including:

 

   

the significant capital requirements forecasted to achieve profitability and the difficulty Restoration Robotics would have in obtaining the amount of funding necessary to achieve profitability;

 

   

risks associated with raising the forecasted capital needed to maintain compliance with the company’s liquidity covenant under its loan agreement;

 

   

the lack of viable financing alternatives following substantial efforts made over a significant period of time by Restoration Robotics’ senior management to identify potential financing sources;

 

   

the results of substantial efforts made over a significant period of time by Restoration Robotics’ senior management and financial advisors to solicit strategic alternatives for Restoration Robotics to the merger;

 

   

the risk inherent in operating a single product company;

 

   

the projected liquidation value of Restoration Robotics; and

 

   

Restoration Robotics’ potential inability to maintain its Nasdaq listing without completing the merger.

 

   

Ability to Respond to Unsolicited Acquisition Proposals. Restoration Robotics’ board of directors considered the “fiduciary out” provisions of the Merger Agreement, which, subject to the terms and conditions thereof, permit Restoration Robotics to furnish information to and conduct negotiations with third parties that make acquisition proposals under certain circumstances, to change its recommendation to stockholders regarding the Merger Agreement and to terminate the Merger Agreement in order to approve a superior proposal.

 

   

Negotiations with Venus Concept. Restoration Robotics’ board of directors believes that as a result of arm’s length negotiations with Venus Concept, Restoration Robotics and its representatives negotiated the highest exchange ratio that Venus Concept was willing to agree to, and that the terms of the Merger Agreement include the most favorable terms to Restoration Robotics in the aggregate to which Venus Concept was willing to agree.

 

   

Terms of the Merger Agreement. Restoration Robotics’ board of directors also reviewed the terms of the merger and associated transactions, including:

 

   

the exchange ratio used to establish the number of shares of Restoration Robotics common stock to be issued in the merger;

 

   

the limited number and nature of the conditions to Venus Concept’s obligation to consummate the merger and the likelihood that the merger will be consummated on a timely basis;

 

   

the respective rights of, and limitations on, Restoration Robotics and Venus Concept under the Merger Agreement to consider certain unsolicited acquisition proposals;

 

   

the reasonableness of the potential termination fee of $1,115,000;

 

   

the voting agreements covering approximately 87.6% of the outstanding shares of Venus Concept in favor of adoption of the Merger Agreement; and

 

   

the belief that the terms of the Merger Agreement are reasonable under the circumstances.



 

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Voting Agreements. Restoration Robotics’ board of directors viewed favorably the willingness of certain stockholders, who together hold approximately 36% of the shares of its common stock outstanding as of the date of the Merger Agreement, to commit to vote in favor of the merger by entry into the voting agreements.

 

   

Fairness Opinion. Restoration Robotics’ board of directors considered the financial analyses of its financial advisor, SVB Leerink LLC, or SVB Leerink, including SVB Leerink’s opinion to Restoration Robotics’ board as to the fairness to Restoration Robotics, from a financial point of view of the merger consideration to be paid by Restoration Robotics pursuant to the terms of the Merger Agreement.

 

   

Likelihood of Consummation. Restoration Robotics’ board of directors considered the likelihood that the merger will be consummated, based on, among other things, the limited number of conditions to the merger, the absence of a financing condition, and the relative likelihood of obtaining required regulatory approvals.

 

   

Stockholder Approval. Restoration Robotics’ board of directors considered that the merger would be subject to the approval of Restoration Robotics’ stockholders and that stockholders, other than those who entered into voting agreements, would be free to reject the merger.

In the course of its deliberations, the Restoration Robotics board of directors also considered a variety of risks and other countervailing factors related to entering into the merger, including:

 

   

Limited Stockholder Participation in Future Earnings or Growth. Restoration Robotics’ board of directors considered that Restoration Robotics’ stockholders will have limited participation in any future growth of the combined company.

 

   

Inability to Solicit Other Takeover Proposals. Restoration Robotics’ board of directors considered that the Merger Agreement includes a covenant prohibiting Restoration Robotics from directly or indirectly soliciting, initiating, seeking or knowingly facilitating or encouraging any inquiry, discussion, offer or request relating to, or that constitutes, or would reasonably be expected to lead to, an acquisition proposal.

 

   

Termination Fee. Restoration Robotics’ board of directors considered the fact that Restoration Robotics may be required to pay a termination fee of $1,115,000 (approximately 3.2% of Restoration Robotics’ equity value) if the Merger Agreement is terminated under certain circumstances, including to accept a superior proposal.

 

   

Expense Reimbursement Fee. Restoration Robotics’ board of directors considered the expense reimbursement fee of up to $200,000 (approximately 0.6% of Restoration Robotics equity value) if the Merger Agreement is terminated under certain circumstances.

 

   

Effect of Public Announcement. Restoration Robotics’ board of directors considered the effect of the public announcement of Restoration Robotics entering into the Merger Agreement on its operations.

 

   

Opportunity Costs and Interim Operating Covenants. Restoration Robotics’ board of directors considered that the focus and resources of its management may become diverted from other important business opportunities and operational matters while working to implement the merger, which could adversely affect its business.

 

   

Risk the Merger May Not Be Consummated. Restoration Robotics’ board of directors considered the fact that consummation of the merger is subject to the satisfaction of certain closing conditions that are not within its control, including receipt of the necessary regulatory clearances and approvals and that no material adverse effect on Restoration Robotics has occurred.

 

   

Transaction Costs. Restoration Robotics’ board of directors considered the fact that Restoration Robotics has incurred and will continue to incur significant transaction costs and expenses in connection with the merger.



 

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Potential Conflicts of Interest. Restoration Robotics’ board of directors considered the risk that certain of its directors and executive officers may have interests in the transactions contemplated by the Merger Agreement.

The Venus Concept board of directors considered a number of factors in reaching its conclusion to approve the merger:

 

   

historical and current information concerning Venus Concept’s business, including its financial performance and condition, operations, management, strategy and competitive position;

 

   

the diversification of the product portfolio in the aesthetic and medical market that will result from the merger;

 

   

the opportunity for the combined company to become a leading player in the estimated $4.1 billion minimally invasive hair restoration market;

 

   

the global reach of the combined company;

 

   

the strong research and development capabilities with complementary teams with expertise in non-invasive, energy-based technologies (from the legacy Venus Concept team) and robotics, 3D pre-operative planning and software (from the legacy Restoration Robotics team);

 

   

the expected attractive financial profile of the combined company;

 

   

the cash resources of the combined company expected to be available at the closing of the merger under the equity commitment letter relative to the anticipated cash needs of the combined company;

 

   

the potential for access to public capital markets, including sources of capital from a broader range of investors to support the development of its business than it could otherwise obtain if it continued to operate as a privately-held company;

 

   

the potential to provide its current stockholders with greater liquidity by owning stock in a public company;

 

   

the expectation that the merger would be a more time- and cost-effective means to access capital than other options considered, including an initial public offering which Venus Concept was alternatively planning to pursue;

 

   

the fact that shares of Restoration Robotics common stock issued to Venus Concept shareholders will be registered pursuant to a registration statement on Form S-4 by Restoration Robotics and will become freely tradable for Venus Concept’s shareholders who are not affiliates of Venus Concept;

 

   

the terms and conditions of the Merger Agreement, including, without limitation, the following:

 

   

the determination by Venus Concept’s board of directors that an exchange ratio that is not subject to adjustment based on trading prices is appropriate to determine relative percentage ownership of Restoration Robotics’ and Venus Concept’s security holders;

 

   

the expectation that the merger will be treated as a reorganization for U.S. federal income tax purposes;

 

   

the expectation that Venus Concept will receive favorable tax rulings from the ITA with respect to an exemption from withholding tax on capital gains for non-Israeli tax residents and the deferral of capital gains tax for Israeli tax residents, in each case on the exchange of Venus Concept capital stock and Restoration Robotics common stock, and the conversion of Venus Concept options held by Israeli option holders into Restoration Robotics options pursuant to the merger without triggering a tax event for the stockholders, all subject to the terms and conditions of applicable tax rulings;



 

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the rights of Restoration Robotics under the Merger Agreement to consider certain unsolicited competing proposals under certain circumstances should Restoration Robotics receive a superior proposal; and

 

   

the conclusion of Venus Concept’s board of directors that the potential termination fee of $1,115,000 and expense reimbursements payable by Restoration Robotics to Venus Concept and the circumstances when such fee and/or expense reimbursements may be payable were reasonable.

Opinion of Restoration Robotics Financial Advisor (see page 99)

On December 30, 2018, Restoration Robotics engaged SVB Leerink LLC, or SVB Leerink, to act as Restoration Robotics’ financial advisor in connection with consideration of potential strategic alternatives for Restoration Robotics. In connection with this engagement, Restoration Robotics’ board of directors requested that SVB Leerink evaluate the fairness, from a financial point of view, to Restoration Robotics of the merger consideration proposed to be paid by Restoration Robotics pursuant to the terms of the Merger Agreement. On March 15, 2019, at a meeting of Restoration Robotics’ board of directors, SVB Leerink rendered to Restoration Robotics’ board of directors its oral opinion, which opinion was subsequently confirmed by delivery of a written opinion dated March 15, 2019, that, as of such date and based upon and subject to the assumptions made and limitations upon the review undertaken by SVB Leerink in preparing its opinion, the merger consideration to be paid by Restoration Robotics pursuant to the terms of the Merger Agreement was fair, from a financial point of view, to Restoration Robotics.

The full text of SVB Leerink’s written opinion, dated March 15, 2019, which describes the assumptions made and limitations upon the review undertaken by SVB Leerink in preparing its opinion, is attached as Annex F and is incorporated herein by reference. Holders of Restoration Robotics common stock are urged to read this opinion carefully and in its entirety. SVB Leerink’s financial advisory services and opinion were provided for the information and assistance of Restoration Robotics’ board of directors (in their capacity as directors and not in any other capacity) in connection with and for purposes of its consideration of the merger and SVB Leerink’s opinion addressed only the fairness, from a financial point of view, as of the date thereof, to Restoration Robotics of the merger consideration to be paid by Restoration Robotics pursuant to the terms of the Merger Agreement. SVB Leerink’s opinion did not address any other term or aspect of the Merger Agreement or the merger and does not constitute a recommendation to any stockholder of Restoration Robotics as to whether or how such holder should vote with respect to the merger or otherwise act with respect to the merger or otherwise act with respect to the merger or any other matter. The merger consideration was determined through arm’s-length negotiations between Restoration Robotics and Venus Concept and not pursuant to any recommendation of SVB Leerink. The summary of the opinion set forth under the section titled “The Merger—Opinion of Restoration Robotics Financial Advisor” beginning on page 99 of this proxy statement/prospectus is qualified in its entirety by reference to the full text of the opinion.

Interests of Certain Directors, Officers and Affiliates of Restoration Robotics and Venus Concept (see pages 112 and 117)

In considering the recommendation of Restoration Robotics’ board of directors with respect to issuing shares of Restoration Robotics common stock pursuant to the Merger Agreement and the other matters to be acted upon by Restoration Robotics stockholders at the Restoration Robotics annual meeting, Restoration Robotics stockholders should be aware that certain members of Restoration Robotics’ board of directors and executive officers of Restoration Robotics have interests in the merger that may be different from, or in addition to, interests they have as Restoration Robotics stockholders. Interests of the directors and executive officers may be different from or in addition to the interests of the stockholders for the following reasons, among others:

 

   

The Merger Agreement provides, as of the effective time of the merger, that all outstanding Restoration Robotics stock options, including those held by Restoration Robotics’ executive officers and directors,



 

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shall continue to be outstanding in accordance with their terms and conditions. Restoration Robotics’ non-employee director compensation policy provides for full acceleration of all Restoration Robotics’ stock options held by non-employee directors upon the effective time of the merger. Ryan Rhodes, the Chief Executive Officer, is party to a CoC Agreement (as defined below) that provides for full acceleration of all Restoration Robotics stock options upon the effective time of the merger.

 

   

Certain directors and executive officers are entitled to awards of restricted stock units that were granted in connection with the merger and will vest in full immediately prior to the effective time of the merger.

 

   

Each of Restoration Robotics’ executive officers is party to a CoC Agreement (as defined below) that provides for severance payments and benefits in the event of certain qualifying terminations of employment within the period of time commencing at the effective time of the merger and ending 12 months after the merger.

 

   

Certain directors and executive officers are entitled to receive cash bonuses payable in connection with the merger.

 

   

Under the Merger Agreement, Restoration Robotics’ directors and executive officers are entitled to continued indemnification, expense advancement and insurance coverage.

 

   

Frederic Moll, M.D., one of Restoration Robotics’ directors, and Interwest Partners IX, LP, one of Restoration Robotics’ stockholders affiliated with Gil Kliman, M.D., one of Restoration Robotics’ directors, hold $5.0 million in unsecured subordinated convertible promissory notes. All of the outstanding principal and unpaid accrued interest on the convertible notes will automatically be converted into common stock of Restoration Robotics at the closing of the equity commitment letter financing, at a price of $0.825 per share.

 

   

Frederic Moll, M.D., one of Restoration Robotics’ directors, has entered into an equity commitment letter pursuant to which Dr. Moll has agreed to purchase $1.0 million in shares of Restoration Robotics common stock and has an option to purchase an additional $1.0 million in shares of Restoration Robotics common stock at a purchase price of $0.825 per share in the equity commitment letter financing.

These interests are discussed in more detail in the section entitled “The Merger—Interests of Restoration Robotics’ Directors and Executive Officers in the Merger” beginning on page 112 of this proxy statement/prospectus. The members of the Restoration Robotics’ board of directors were aware of the different or additional interests described in such section and considered these interests, among other matters, in evaluating and negotiating the Merger Agreement and the merger, and in recommending to the stockholders that the merger proposals be approved.

Restoration Robotics’ directors, executive officers and significant shareholders have entered into voting agreements in connection with the merger. The voting agreements are discussed in more detail in the section titled “Agreements Related to the Merger—Voting Agreements” beginning on page 148 of this proxy statement/prospectus.

In considering the recommendation of Venus Concept’s board of directors with respect to approving the adoption of the Merger Agreement and the approval of the merger and related transactions, Venus Concept’s sharheolders should be aware that certain members of Venus Concept’s board of directors and executive officers of Venus Concept have interests in the merger that may be different from, or in addition to, interests they have as Venus Concept shareholders. Interests of the directors and executive officers may be different from, or in addition to, the interests of the shareholders for the following reasons, among others:

 

   

The executive officers and directors of Venus Concept are expected to become executive officers and directors of the combined company after the closing of the merger.



 

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Certain of Venus Concept’s executive officers were granted cash-based retention awards, which entitle the recipients to receive, on the closing of the merger, a cash award if Venus Concept successfully completes the merger.

 

   

Certain of Venus Concept’s executive officers and directors have options to purchase Venus Concept ordinary shares that will convert into options to purchase that number of shares of Restoration Robotics common stock as determined pursuant to the exchange ratio described in more detail below.

 

   

Longitude, EW Healthcare, HealthQuest and Aperture, each a shareholder of Venus Concept and affiliated with Juliet Tammenoms Bakker, Scott Barry, Dr. Garheng Kong and Dr. Anthony Natale, respectively, each a director of Venus Concept, has entered into an equity commitment letter pursuant to which Longitude, EW Healthcare, HealthQuest and Aperture have agreed to purchase $1.0 million, $10.0 million, $5.0 million and $0.5 million, respectively, in shares of Restoration Robotics common stock and each has the option, but not the obligation, to purchase an additional $0.952 million, $9.524 million, $4.762 million and $0.266 million in shares of Restoration Robotics common stock at a purchase price of $0.825 per share in the equity commitment letter financing, in each case subject to rights of assignment under the equity commitment letter.

 

   

Longitude, EW Healthcare and HealthQuest, each a shareholder of Venus Concept and affiliated with Juliet Tammenoms Bakker, Scott Barry and Dr. Garheng Kong, respectively, each a director of Venus Concept, hold $0.3 million, $5.0 million and $2.5 million aggregate principal amount, respectively, of Venus convertible notes. All of the outstanding principal and unpaid accrued interest on the Venus convertible notes will automatically be converted into common stock of Restoration Robotics at the closing of the merger, at a conversion price of $0.4664 per share.

 

   

Certain of Venus Concept’s officers, directors and shareholders have entered into voting agreements in connection with the merger. The voting agreements are discussed in more detail in the section titled “Agreements Related to the Merger—Voting Agreements” beginning on page 148 of this proxy statement/prospectus.

These interests are discussed in more detail in the section entitled “The Merger—Interests of Venus Concepts’ Directors and Executive Officers in the Merger” beginning on page 117 of this proxy statement/prospectus. The members of the Venus Concept board of directors were aware of the different or additional interests described in such section and considered these interests, among other matters, in evaluating and negotiating the Merger Agreement and the merger.

Management Following the Merger (see page 257)

Effective as of the closing of the merger, the combined company’s executive officers are expected to be members of the Venus Concept and Restoration Robotics executive management teams prior to the merger, including:

 

Name

  

Title

Domenic Serafino    Chief Executive Officer and Class          Director
Domenic Della Penna    Chief Financial Officer
Domenic Di Sisto    General Counsel and Corporate Secretary
Anna Georgiadis    Vice President, Global Human Resources
Yoni Iger    Vice President, Clinical and Regulatory Affairs, Quality Assurance
Melissa Kang    Vice President, Global Marketing
William Kelley    President, Global Sales
Søren Maor Sinay    Chief Operating Officer
Boris Vaynberg    Chief Technology Officer


 

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Overview of the Merger Agreement and Agreements Related to the Merger Agreement

Merger Consideration (see page 126)

At the effective time of the merger, upon the terms and subject to the conditions set forth in the Merger Agreement:

 

   

each outstanding ordinary share of Venus Concept and each outstanding preferred share of Venus Concept will be converted into the right to receive 8.6506 shares of Restoration Robotics common stock, subject to adjustment pursuant to the Merger Agreement, other than shares held by or owned by Venus Concept, Restoration Robotics or Merger Sub, which will remain or become treasury shares held by Venus Concept or continue to be held by Restoration Robotics, as applicable, and will not entitle the holder thereof to any payment;

 

   

each outstanding and unexercised option to purchase ordinary shares of Venus Concept will be assumed by Restoration Robotics and will be converted into an option to purchase the number of shares of Restoration Robotics common stock as determined pursuant to the exchange ratio described in more detail below; and

 

   

each outstanding warrant to purchase ordinary shares of Venus Concept or preferred shares of Venus Concept will be assumed by Restoration Robotics and converted into a warrant to purchase that number of shares of Restoration Robotics common stock as determined pursuant to the exchange ratio described in more detail below.

It is anticipated that immediately after the merger, but prior to closing the equity commitment letter financing, the Restoration Robotics note conversion and the Venus note conversion, Venus Concept shareholders will own approximately 85% of the fully-diluted common stock of the combined company, with the Restoration Robotics stockholders owning approximately 15% of the fully-diluted common stock of the combined company. Upon the closing of the $21.0 million in committed financing under the equity commitment letter (and assuming the equity commitment investors exercise in full their option to purchase up to $20.0 million of additional shares under the equity commitment letter), the Restoration Robotics note conversion and the Venus Concept note conversion, it is anticipated that the combined company stockholders would own approximately 81%, of the fully-diluted common stock of the combined company post-financing, with the investors participating in the equity commitment letter financing, the Restoration note conversion and the Venus note conversion (without taking into account any existing holdings in the combined company) owning approximately 19% of the fully-diluted common stock of the combined company. See the section titled “The Merger Agreement—Merger Consideration” beginning on page 126 of this proxy statement/prospectus.

There will be no adjustment to the total number of shares of Restoration Robotics common stock that Venus Concept shareholders will be entitled to receive in the merger for changes in the market price of Restoration Robotics common stock, other than in connection with a reclassification, recapitalization, exchange, stock split (including a reverse stock split), combination or readjustment of shares or any stock dividend or stock distribution prior to the closing of the merger. Accordingly, the market value of the shares of Restoration Robotics common stock issued pursuant to the merger will depend on the market value of the shares of Restoration Robotics common stock at the time the merger closes, and could vary significantly from the market value on the date of this proxy statement/prospectus.

Treatment of the Restoration Robotics Warrants, Stock Options and Restricted Stock Awards (see page 119)

All warrants, options and restricted stock awards to purchase shares of Restoration Robotics common stock that are outstanding immediately prior to the effective time of the merger will remain outstanding following the effective time of the merger, and subject to the reverse stock split, will be unaffected by the merger.



 

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Treatment of Venus Concept Warrants and Options (see page 119)

At the effective time of the merger, each outstanding Venus Concept option to purchase ordinary shares of Venus Concept, whether or not vested, that is outstanding and unexercised immediately prior to the effective time of the merger will be converted into an option to purchase shares of Restoration Robotics common stock as determined pursuant to the exchange ratio described in more detail below. All rights with respect to each Venus Concept option will be assumed by Restoration Robotics in accordance with its terms. Accordingly, from and after the effective time of the merger, each Venus Concept option assumed by Restoration Robotics may be exercised solely for shares of Restoration Robotics common stock.

The number of shares of Restoration Robotics common stock subject to each outstanding Venus Concept option assumed by Restoration Robotics will be determined by multiplying the number of ordinary shares of Venus Concept that were subject to such option by the exchange ratio of 8.6506 and rounding the resulting number down to the nearest whole number of shares of Restoration Robotics common stock. The per share exercise price for the shares of Restoration Robotics common stock issuable upon exercise of each Venus Concept option assumed by Restoration Robotics will be determined by dividing the per share exercise price of the ordinary shares of Venus Concept subject to such option by the exchange ratio of 8.6506 and rounding the resulting exercise price up to the nearest whole cent. Any restriction on the exercise of such option will continue in full force and effect and the term, exercisability, vesting schedule and other provisions of such option will otherwise remain unchanged.

At the effective time of the merger, each outstanding Venus Concept warrant, whether or not vested, to purchase ordinary shares of Venus Concept or preferred shares of Venus Concept will be converted into a warrant to purchase shares of Restoration Robotics common stock as determined pursuant to the exchange ratio detailed below. All rights with respect to each Venus Concept warrant will be assumed by Restoration Robotics in accordance with its terms. Accordingly, from and after the effective time of the merger, each Venus Concept warrant assumed by Restoration Robotics may be exercised solely for shares of Restoration Robotics common stock.

The number of shares of Restoration Robotics common stock subject to each outstanding Venus Concept warrant assumed by Restoration Robotics will be determined by multiplying the number of ordinary shares of Venus Concept or preferred shares of Venus Concept that were subject to such warrant by 8.6506 and rounding the resulting number down to the nearest whole number of shares of Restoration Robotics common stock. The per share exercise price for the shares of Restoration Robotics common stock issuable upon exercise of each Venus Concept warrant assumed by Restoration Robotics will be determined by dividing the per share exercise price of the ordinary shares of Venus Concept or preferred shares of Venus Concept subject to such warrant by 8.6506 and rounding the resulting exercise price up to the nearest whole cent. Any restriction on the exercise of any warrant will continue in full force and effect and the term, exercisability, and other provisions of such warrant will otherwise remain unchanged.

Conditions to the Completion of the Merger (see page 143)

To complete the merger, Restoration Robotics stockholders must approve Proposal Nos. 1, 2, 3 and 5 and Venus Concept shareholders must approve the merger, the Merger Agreement and the transactions contemplated thereby. Additionally, each of the other closing conditions set forth in the Merger Agreement must be satisfied or waived.

Non-Solicitation (see pages 134 and 137)

The Merger Agreement contains provisions prohibiting Restoration Robotics and Venus Concept from inquiring about or seeking a competing transaction, subject to specified exceptions described in the Merger



 

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Agreement. Under these “non-solicitation” provisions, each of Restoration Robotics and Venus Concept has agreed that neither it nor its subsidiaries, nor any of its officers, directors, employees, representatives, affiliates, advisors or agents will directly or indirectly:

 

   

initiate, solicit, propose, seek or knowingly encourage, facilitate or support any inquiries, indications of interest, proposals or offers that constitute, or may reasonably be expected to lead to, an acquisition proposal;

 

   

engage in, continue, facilitate or otherwise participate in any discussions or negotiations regarding, or furnish any nonpublic information or data to any person in connection with, any inquiries, indications of interest, proposals or offers that constitute, or may reasonably be expected to lead to, an acquisition proposal; or

 

   

enter into any letter of intent, indication of interest, agreement in principle or other similar type of agreement relating to an acquisition proposal, or enter into any agreement or agreement in principle requiring Restoration Robotics to abandon, terminate or fail to consummate the transactions contemplated by the Merger Agreement or resolve, propose or agree to do any of the foregoing.

In addition, Restoration Robotics agreed that neither it nor its subsidiaries, nor any of its officers, directors, employees, representatives, affiliates, advisors or agents will directly or indirectly fail to include a recommendation for approval of the shareholder proposals required by the Merger Agreement, or approve, endorse or recommend any competing proposal, subject to the terms and conditions in the Merger Agreement.

Termination of the Merger Agreement (see page 145)

Either Restoration Robotics or Venus Concept may terminate the Merger Agreement under certain circumstances, which would prevent the merger from being consummated.

Termination Fee (see page 145)

The Merger Agreement provides that, upon termination of the Merger Agreement under specified circumstances, Restoration Robotics may be required to pay Venus Concept a termination fee of $1,115,000 and up to $200,000 in expense reimbursements.

Voting Agreements (see page 148)

In connection with the execution of the Merger Agreement, certain Venus Concept directors, executive officers and shareholders, who collectively beneficially owned or controlled approximately 87.6% of the voting power of Venus Concept’s outstanding capital stock as of March 15, 2019, entered into voting agreements with Restoration Robotics under which such shareholders have agreed to, among other things, vote in favor of the merger and the Merger Agreement and against any competing transaction.

In connection with the execution of the Merger Agreement, certain of Restoration Robotics’ officers, directors, and stockholders who collectively beneficially owned or controlled approximately 36% of Restoration Robotics’ outstanding common stock as of March 15, 2019, also entered into voting agreements with Venus Concept under which such shareholders have agreed to, among other things, vote in favor of Proposal Nos. 1, 2, 3, 4, 5 and 8 and against any competing acquisition transaction.

The voting agreements also obligate such stockholders to also vote in favor of any other proposal included in this proxy statement/prospectus for which the board of directors of Restoration Robotics has recommended the stockholders to vote in favor. Each stockholder executing a voting agreement has made representations and



 

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warranties to Restoration Robotics or Venus Concept, as applicable, regarding ownership and unencumbered title to the shares subject to such agreement, such stockholder’s power and authority to execute the voting agreement, due execution and enforceability of the voting agreement and power to vote the shares subject to the agreement. Unless otherwise waived, all of the voting agreements prohibit the transfer, sale, assignment, gift or other disposition by the stockholder of their respective shares of Restoration Robotics or Venus Concept capital stock, or entering into an agreement or commitment to do any of the foregoing, subject to specified exceptions.

The voting agreements will terminate at the earlier of the effective time of the merger or the termination of the Merger Agreement in accordance with its terms.

Lock-Up Agreements (see page 148)

Certain of Venus Concept’s officers, directors and shareholders have entered into lock-up agreements pursuant to which such parties have agreed not to, except in limited circumstances, offer, pledge, sell, contract to sell, sell any option to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, shares of Restoration Robotics common stock, including, as applicable, shares received in the merger or pursuant to the equity commitment letter and shares issuable upon exercise of options, warrants or convertible securities, until 90 days after the closing date of the merger.

The Venus Concept shareholders who have executed lock up agreements as of March 31, 2019 owned, in the aggregate, approximately 87.6% of the shares of Venus Concept’s outstanding capital stock.

Certain of Restoration Robotics’ officers, directors and stockholders entered into lock-up agreements, pursuant to which such parties to the lock-up have agreed not to, except in limited circumstances, offer, pledge, sell, contract to sell, sell any option to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, shares of Restoration Robotics common stock, including, as applicable, shares received in the merger or pursuant to the equity commitment letter and shares issuable upon exercise of certain options, warrants or convertible securities until 90 days after the closing date of the merger.

Restoration Robotics stockholders who have executed lock-up agreements as of March 31, 2019 owned, in the aggregate, approximately 36% of the shares of Restoration Robotics’ outstanding capital stock on an as-converted to common stock basis.

Equity Commitment Letter (see page 149)

Concurrent with the execution of the Merger Agreement, Restoration Robotics and Venus Concept entered into an equity commitment letter with certain investors pursuant to which such investors agreed to purchase $21.0 million of shares of Restoration Robotics common stock immediately following the consummation of the merger in a private placement, with an option, but not an obligation, to purchase up to an additional $20.0 million of shares of Restoration Robotics common stock.

The closing of the equity commitment letter financing is conditioned upon the closing of the merger, which requires the approval of the issuance of the shares to be issued under the equity commitment letter by the Restoration Robotics stockholders, as well as certain other conditions. However, the funding of the purchase price for the shares issued under the equity commitment letter is not a condition to the closing of the merger. In addition, the conditions to the closing of the equity commitment letter financing also include the execution of definitive securities purchase agreements and registration rights agreements as contemplated in the equity commitment letter.

The equity commitment letter financing will have a dilutive impact on Restoration Robotics and Venus Concept security holders’ ownership in the combined company. Immediately after the merger and the



 

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consummation of the equity commitment letter financing, the Restoration Robotics note conversion and the Venus Concept note conversion (assuming that the equity investors do not exercise their option to purchase an additional $20.0 million of common stock) on a fully-diluted basis, the combined company stockholders would own approximately 86.5% of the common stock of Restoration Robotics post-financing, and the investors participating in the equity commitment letter financing, the Restoration Robotics note conversion and the Venus Concept note conversion (without taking into account any existing holdings in the combined company) would own approximately 13.5%. If the investors exercise their option to purchase the full $20.0 million of common stock subject to the optional investment, then it is anticipated that immediately after the merger and the consummation of the optional investment, on a fully-diluted basis, the combined company stockholders would own approximately 81% of the common stock of Restoration Robotics post-financing, and the investors participating in the equity commitment letter financing, the Restoration Robotics note conversion and the Venus Concept note conversion (without taking into account any existing holdings in the combined company) would own approximately 19%. For more information, please see section titled “Risk Factors —Risks Related to the Merger—While Restoration Robotics and Venus Concept have received commitments for the purchase of $21.0 million shares of Restoration Robotics common stock, consummation of the equity commitment letter financing is subject to consummation of the merger.” beginning on page 29 of this proxy statement/prospectus.

Restoration Robotics and Venus Concept intend for the combined company to use the proceeds from the equity commitment letter financing and cash on hand to repay the outstanding amounts under Restoration Robotics’ Loan and Security Agreement with Solar Capital Ltd., or Solar, and certain other lenders thereunder, which is a condition to the effectiveness of Madryn’s consent to the merger. Restoration Robotics and Venus Concept intend to use any remaining proceeds for research and development, operations, manufacturing, and general administrative activities, but management will have broad discretion as to the application of its uses. For more information, please see the section titled “Risk Factors—The combined company will have broad discretion in the use of proceeds from the equity commitment letter financing and may invest or spend the proceeds in ways with which you do not agree and in ways that may not increase the value of your investment, and a significant portion of the proceeds may be used to repay Restoration Robotics’ outstanding debt.” beginning on page 41 of this proxy statement/prospectus.

The equity commitment letter requires the investors to enter into a customary securities purchase agreement for the issuance and sale of Restoration Robotics common stock. In addition, the equity commitment letter requires the combined company to provide certain registration rights to the investors in the equity commitment letter financing, including a commitment to: (i) use its best efforts to file a registration statement with the Securities and Exchange Commission, or SEC, with respect to the resale of the shares of Restoration Robotics common stock sold pursuant to equity commitment letter promptly following the closing date under the security purchase agreement; (ii) use its reasonable best efforts to have such registration statement declared effective by the SEC as soon as possible after the initial filing, and in any event no later than 75 days after the equity commitment letter financing; and (iii) keep such registration statement effective until all registrable securities thereunder may be sold pursuant to Rule 144 under the Securities Act of 1933, as amended, or the Securities Act, without the need for current public information or any other restriction, including volume limitations and manner of sale requirements, subject to customary suspension periods not exceeding 30 consecutive days during any 12-month period.

On July 26, 2019, Venus Concept agreed to use reasonable efforts to release one of the investors from its $3,500,000 commitment under the equity commitment letter. The investor has agreed to purchase $3,500,000 in the Venus Concept convertible notes. Venus Concept and Restoration Robotics expect to enter into an amendment to the equity commitment letter to release the other investors from their obligations to fund their pro rata portions of the equity commitment upon the closing of the merger, subject to the investors investing the funds they committed under the equity commitment letter in Venus Concept convertible notes that would automatically convert into common stock of Restoration Robotics upon the closing of the merger.



 

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The equity commitment letter financing will be accomplished in a private placement exempt from registration under Section 4(a)(2) and Regulation D under the Securities Act, and the rules promulgated thereunder. The securities to be sold in the equity commitment letter financing have not been registered under the Securities Act, or any state securities laws, and may not be offered or sold in the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. This proxy statement/prospectus shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful.

Convertible Promissory Notes (see page 148)

On February 28, 2019, Restoration Robotics entered into a note purchase agreement pursuant to which Restoration Robotics issued an aggregate of $5.0 million of unsecured subordinated convertible promissory notes, or the convertible notes, to Frederic Moll, M.D., one of Restoration Robotics’ directors, and Interwest Partners IX, LP, one of Restoration Robotics’ stockholders affiliated with Gil Kliman, M.D., one of Restoration Robotics’ directors. The convertible notes bear interest on the unpaid principal amount at a rate of eight percent (8.0%) per annum from the date of issuance. All of the outstanding principal and unpaid accrued interest on the convertible notes will automatically be converted into common stock of Restoration Robotics at the closing of the equity commitment letter financing, at a purchase price of $0.825 per share.

On June 25, 2019, Venus Concept entered into a note purchase agreement pursuant to which Venus Concept issued an aggregate of $7.8 million of unsecured senior subordinated convertible promissory notes, or the Venus convertible notes, to certain investors named therein. The Venus convertible notes bear interest on the unpaid principal amount at a rate of eight percent (8.0%) per annum from the date of issuance. All of the outstanding principal and unpaid accrued interest on the Venus convertible notes will automatically be converted into common stock of Restoration Robotics at the closing of the merger, at a conversion price of $0.4664 per share. In the event that the merger is not consummated, the Venus convertible notes will be convertible into equity securities of Venus Concept. On July 5, 2019, Venus Concept loaned Restoration Robotics $2.5 million of the proceeds from the issuance of the Venus convertible notes pursuant to a subordinated promissory note, or the Restoration Note. The Restoration Note is subordinated to the Solar Loan Agreement pursuant to a subordination agreement between Solar and Venus Concept dated June 25, 2019. The Restoration Note accrues interest at a rate of 8% per annum and matures on November 30, 2019.

Regulatory Approvals (see page 120)

Restoration Robotics must comply with applicable federal and state securities laws and the rules and regulations of Nasdaq in connection with the issuance of shares of Restoration Robotics common stock and the filing of this proxy statement/prospectus with the SEC. As of the date hereof, the registration statement on Form S-4 of which this proxy statement/prospectus is a part has not been declared effective. Restoration Robotics will also need to obtain an exemption under Israeli securities laws in connection with the granting of options to Israeli optionees. In order to satisfy applicable closing conditions and complete the merger, Venus Concept must obtain certain tax rulings from the ITA, which rulings must be in effect as of the closing of the merger.

The merger will become effective upon the issuance by the Companies Registrar of the Israeli Corporations Authority, or Companies Registrar, of a certificate evidencing the merger, or the Certificate of Merger, in accordance with Section 323(5) of the Israeli Companies Law—1999, or the ICL. Venus Concept and Merger Sub must comply with the process and timeline dictated by the ICL and regulations promulgated thereunder in order for the Companies Registrar to issue the Certificate of Merger upon the closing of the merger, which includes the expiration of the applicable waiting periods as further described in this proxy statement/prospectus.



 

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Material U.S. Federal Income Tax Consequences of the Merger to United States Holders of Venus Concept Capital Stock (see page 119)

The merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code. Accordingly except as provided in the section titled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger to United States Holders of Venus Concept Capital Stock—Passive Foreign Investment Company Rules,” the material U.S. federal income tax consequences of the merger to U.S. holders (as defined in “The MergerMaterial U.S. Federal Income Tax Consequences of the Merger to United States Holders of Venus Concept Capital Stock”) of Venus Concept capital stock will be as follows:

 

   

a Venus Concept shareholder will not recognize gain or loss upon the exchange of Venus Concept capital stock for Restoration Robotics common stock pursuant to the merger;

 

   

a Venus Concept shareholder’s aggregate tax basis for the shares of Restoration Robotics common stock received in the merger will equal the shareholder’s aggregate tax basis in the shares of Venus Concept capital stock surrendered in the merger; and

 

   

the holding period of the shares of Restoration Robotics common stock received by a Venus Concept shareholder in the merger will include the holding period of shares of Venus Concept capital stock surrendered in exchange therefor.

The tax consequences of the merger to a particular Venus Concept shareholder will depend on that shareholder’s particular facts and circumstances. Accordingly, you are strongly urged to consult your tax advisor for a full understanding of the tax consequences of the merger to you, including the applicability and effect of federal, state, local and non-U.S. income and other tax laws.

Material Israeli Income Tax Consequences of the Merger to Israeli and non-Israeli Residents (see page 122)

In general, under the Ordinance, as amended, and the rules and regulations promulgated thereunder, the disposition of shares of an Israeli company is deemed to be a sale of capital assets (unless such shares are held for the purpose of trading). The Ordinance generally imposes a capital gains tax on the sale of capital assets located in Israel, including shares in an Israeli resident company, by both residents and non-residents of Israel, unless a specific exemption is available under the Ordinance or unless a treaty for the prevention of double taxation between Israel and the seller’s country of residence provides otherwise.

Venus Concept instructed its Israeli counsel to prepare and file with the ITA an application for tax rulings with respect to withholding tax from capital gain as a result of the merger, both for Israeli residents and non-Israeli residents. Assuming Venus Concept receives the Israeli tax rulings from the ITA, the Israeli income tax consequences of the merger will be in accordance with such tax rulings (if applicable to a particular Venus Concept shareholder).

For more information on the material Israeli income tax consequences of the merger, see “The Merger Agreement—Tax Matters” beginning on page 140 of this proxy statement/prospectus. You are strongly urged to consult your tax advisor for a full understanding of the tax consequences of the merger to you.

Nasdaq Stock Market Listing (see page 125)

Restoration Robotics intends to file an initial listing application in the near term for the combined company common stock with Nasdaq. If such application is accepted, Restoration Robotics anticipates that the common stock of the combined company will be listed on Nasdaq following the closing of the merger under the trading symbol “VERO.”



 

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Anticipated Accounting Treatment (see page 123)

The merger will be treated by Restoration Robotics as a reverse merger under the acquisition method of accounting in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. For accounting purposes, Venus Concept is considered to be acquiring Restoration Robotics in the merger.

Appraisal Rights and Dissenters’ Rights (see page 123)

Holders of Restoration Robotics common stock and of Venus Concept ordinary shares or preferred shares are not entitled to appraisal rights in connection with the merger.

Comparison of Stockholder Rights (see page 267)

Restoration Robotics is incorporated under the laws of the State of Delaware and Venus Concept is a company organized under the laws of Israel. If the merger is completed, Venus Concept shareholders will become holders of Restoration Robotics common stock and will have different rights as holders of Restoration Robotics common stock than they had as holders of Venus Concept ordinary shares or preferred shares. The differences between the rights of these respective holders result from the differences between (1) Israeli and Delaware law and (2) the respective governing documents of Venus Concept and Restoration Robotics. For additional information, see “Comparison of Rights of Holders of Restoration Robotics Capital Stock and Venus Concept Capital Stock” beginning on page 267 of this proxy statement/prospectus.

Risk Factors (see page 28)

Both Restoration Robotics and Venus Concept are subject to various risks associated with their businesses and their industries. In addition, the merger, including the possibility that the merger may not be completed, poses a number of risks to each company and its respective security holders, including the following risks:

 

   

the exchange ratio will not be adjusted based on the market price of Restoration Robotics common stock so the merger consideration at the closing may have a greater or lesser value than at the time the Merger Agreement was signed;

 

   

failure to complete the merger may result in Restoration Robotics paying a termination fee to Venus Concept which could harm the common stock price of Restoration Robotics and its future business and operations;

 

   

if the conditions to the merger are not satisfied or waived, the merger may not occur;

 

   

the merger may be completed even though material adverse effects may result from the announcement of the merger, industry-wide changes and other causes;

 

   

while Restoration Robotics and Venus Concept have received commitments for the purchase of $21.0 million in equity securities of the combined company, consummation of the equity commitment letter financing is subject to the consummation of the merger. The optional investment under the equity commitment letter is not committed and there can be no assurance that the equity commitment investors will fund all or any portion of the optional investment. If Venus Concept and Restoration Robotics complete the merger, and the investors fund only the $21.0 million under the equity commitment letter that is committed, then the combined company will need to raise additional capital by issuing equity securities or debt, if permitted by Venus Concept’s lenders, which may be on commercial terms less favorable than the equity commitment letter financing terms and may cause significant dilution to the combined company’s stockholders or restrict the combined company’s operations;



 

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some Restoration Robotics and Venus Concept executive officers and directors have interests in the merger that are different from yours and that may influence them to support or approve the merger without regard to your interests;

 

   

the market price of Restoration Robotics common stock following the merger may decline as a result of the merger;

 

   

Restoration Robotics stockholders may not realize a benefit from the merger commensurate with the ownership dilution they will experience in connection with the merger; and

 

   

if the merger is not completed, Restoration Robotics’ stock price may decline significantly.

These risks and other risks are discussed in greater detail under the section titled “Risk Factors” beginning on page 28 of this proxy statement/prospectus. Restoration Robotics and Venus Concept both encourage you to read and consider all of these risks carefully.



 

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SELECTED HISTORICAL AND UNAUDITED PRO FORMA

COMBINED FINANCIAL INFORMATION AND DATA

The following tables present summary historical financial data for Restoration Robotics and Venus Concept, summary unaudited pro forma condensed combined financial data for Restoration Robotics and Venus Concept, and comparative historical and unaudited pro forma per share data for Restoration Robotics and Venus Concept included elsewhere herein.

Selected Historical Consolidated Financial Data of Restoration Robotics

The selected consolidated statements of operations data for the years ended December 31, 2018, 2017, and 2016 and the selected consolidated balance sheet data as of December 31, 2018, 2017, and 2016 are derived from Restoration Robotics’ audited consolidated financial statements and the selected consolidated statements of operations data for the three months ended March 31, 2019 and 2018 and the selected consolidated balance sheet dated as of March 31, 2019 are derived from Restoration Robotics unaudited consolidated financial statements. Restoration Robotics’ unaudited historical consolidated financial statements for the three months ended March 31, 2019 and 2018 are contained in its Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 and audited historical consolidated financial statements for the fiscal years ended December 31, 2018, 2017 and 2016 are contained in its Annual Report on Form 10-K for the fiscal year ended December 31, 2018, which are incorporated by reference into this proxy statement/prospectus. Restoration Robotics’ historical results are not necessarily indicative of the results that may be expected in any future period.

The selected historical consolidated financial data below should be read in conjunction with Restoration Robotics’ management’s discussion and analysis of financial condition and results of operations and Restoration Robotics’ consolidated financial statements and the notes related thereto incorporated by reference into this proxy statement/prospectus. For additional information, see the section titled “Where You Can Find More Information” beginning on page 290 of this proxy statement/prospectus.

 

     Year Ended, December 31,     Three months ended
March 31,
 
     2018     2017     2016     2019     2018  
                       (unaudited)  
     (in thousands of U.S. dollars, except share and per share data)  

Consolidated Statements of Operations Data:

          

Revenue

   $ 21,956     $ 21,297     $ 15,600     $ 5,394     $ 5,005  

Cost of revenue

     12,450       12,150       10,431       2,457       3,185  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     9,506       9,147       5,169       2,937       1,820  

Operating expenses:

          

Sales and marketing

     18,204       14,390       12,483       4,570       4,384  

Research and development

     8,374       7,135       7,474       1,488       2,125  

General and administrative

     8,834       4,904       4,144       1,992       2,351  

Merger related expenses

     —         —         —         1,501       —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     35,412       26,429       24,101       9,551       8,860  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (25,906     (17,282     (18,932     (6,614     (7,040

Other income (expense), net:

          

Interest expense

     (2,224     (2,027     (2,483     (766     (358

Gain on sale of investment

     —         1,851       —         —         —    

Other expense, net

     (549     (328     (431     (46     (20
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense), net

     (2,773     (504     (2,914     (812     (378
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss before provision for income taxes

     (28,679     (17,786     (21,846     (7,426     (7,418

Provision for income taxes

     47       56       —         14       13  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (28,726   $ (17,842   $ (21,846   $ (7,440   $ (7,431
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share, basic and diluted (1)

   $ (0.86   $ (2.42   $ (13.54   $ (0.18   $ (0.26
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares used in computing net loss per share, basic and diluted

     33,512,181       7,382,715       1,612,933       40,753,012       28,962,269  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 


 

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(1)

Basic and diluted net loss per share is computed based on the weighted-average number of shares of common stock outstanding during each period. On September 15, 2017, Restoration Robotics effected a 1-for-10 reverse stock split, or the 2017 reverse stock split, whereby (i) every 10 shares of outstanding common stock were combined into one share of common stock, (ii) the number of shares of common stock for which each outstanding option to purchase common stock is exercisable was proportionately decreased on a 1-for-10 basis, (iii) the exercise price of each outstanding option to purchase common stock was proportionally increased on a l-for-10 basis, and (iv) the conversion ratio for each share of outstanding preferred stock which is convertible into Restoration Robotics common stock was proportionately reduced on a 1-for-10 basis. All share and per share data in this table has been adjusted to reflect the 2017 reverse stock split.

 

     December 31,     As of March 31,  
     2018     2017     2016     2019      2018  
           (unaudited)  
     (in thousands)  

Consolidated Balance Sheets Data:

           

Cash and cash equivalents

   $ 16,122     $ 23,545     $ 11,906       $14,957      $ 16,530  

Working capital

     20,112       17,686       4,889       16,116        8,635  

Total assets

     30,973       32,970       19,498       29,822        25,880  

Debt, net of discount

     19,467       13,001       20,450       19,629        11,095  

Convertible promissory notes

     —         —         —         5,000        —    

Preferred stock warrant

     —         —         693       —          —    

Other long-term liabilities

     594       459       563       655        670  

Convertible preferred stock

     —         —         135,735       —          —    

Accumulated deficit

     (193,213     (164,487     (146,645     (200,653)        (171,918

Total stockholders’ equity (deficit)

     1,582       13,194       (143,544     (5,474)        6,088  


 

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Index to Financial Statements

Selected Historical Consolidated Financial Data of Venus Concept

The selected statements of operations data for the years ended December 31, 2018 and 2017 and the selected balance sheet data as of December 31, 2018 and 2017 are derived from Venus Concept’s audited financial statements included elsewhere in this proxy statement/prospectus. The selected statements of operations data for the year ended December 31, 2016 is derived from Venus Concept’s unaudited financial statements included elsewhere in this proxy statement/prospectus. The selected condensed consolidated statement of operations data for the three months ended March 31, 2018 and 2019 and the condensed consolidated balance sheet data as of March 31, 2019 is derived from the unaudited interim condensed consolidated financial statements appearing elsewhere in this proxy statement/prospectus. The unaudited interim condensed consolidated financial statements have been prepared on a basis consistent with the audited consolidated financial statements included in this proxy statement/prospectus and include, in Venus Concept’s opinion, all adjustments, consisting only of normal recurring adjustments, necessary for the fair statement of the financial information in those statements. Venus Concept’s historical results are not necessarily indicative of the results that may be expected in any future period.

The selected historical financial data below should be read in conjunction with the sections titled “Venus Concept Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 228 of this proxy statement/prospectus, and Venus Concept’s financial statements and related notes included elsewhere in this proxy statement/prospectus.

 

     Years Ended December 31,     Three Months Ended
March 31,
 
     2018     2017     2016     2019     2018  
                 (unaudited)     (unaudited)  
    

(in thousands of U.S. dollars, except share and per share data)

 

Consolidated Statements of Operation Data:

          

Revenue

   $ 102,614     $ 89,074     $ 53,142     $ 24,580     $ 21,351  

Cost of goods sold

     23,259       20,866       12,758    

 

 

 

6,515

 

 

 

 

 

 

4,982

 

 

  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     79,355       68,208       40,384    

 

 

 

18,065

 

 

 

 

 

 

16,369

 

 

Operating expenses

          

Selling and marketing

     37,315       26,759       23,471       9,532       8,112  

Research and development

     7,047       5,678       4,693       2,061       1,332  

General and administrative

     27,432       20,606       18,389    

 

 

 

7,779

 

 

   

 

5,228

 

 

 

Provision for bad debts

     10,928       2,465       303       561       542  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     82,722       55,508       46,856    

 

 

 

 

 

19,933

 

 

 

 

 

 

 

 

 

15,214

 

 

 

  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income from operations

     (3,367     12,700       (6,472  

 

 

 

(1,868

 

 

 

 

 

1,155

 

 

Foreign exchange loss (income)

     3,266       (686     1,079       697       (185

Financial expenses

     5,361       5,503       4,547    

 

 

 

1,654

 

 

 

 

 

 

1,157

 

 

  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes

     (11,994     7,883       (12,098  

 

 

 

(4,219

 

 

 

 

 

183

 

 

Income taxes expense

     2,215       479       390    

 

 

 

886

 

 

 

 

 

 

810

 

 

  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

     (14,209     7,404       (12,488  

 

$

 

(5,105

 

 

 

$

 

(627

 

  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income per share:

          

Basic

   $ (1.82   $ 0.29     $ (1.16   $ (0.64   $ (0.13

Diluted

   $ (1.82   $ 0.22     $ (1.16   $ (0.64   $ (0.13
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average number of shares used in per share calculation

          

Basic

     8,206       9,506       10,829       8,282       8,151  

Diluted

     8,206       12,705       10,829       8,282       8,151  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 


 

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     As at December 31,      As at
March 31,
 
     2018      2017      2019  
            (unaudited)  
     (in thousands)  

Consolidated Balance Sheet Data:

        

Cash and cash equivalents

   $ 6,758      $ 20,194      $ 8,304  

Working capital

     44,531        51,645        49,809  

Total assets

     125,130        101,186        131,382  

Total long-term liabilities

     58,601        40,228        68,253  

Total liabilities

     88,675        58,425        99,650  

Shareholders’ equity

     36,455        42,761        31,732  

 

     Years Ended December 31,     Three Months
Ended March 31,
 
     2018      2017      2016
(unaudited)
    2019     2018  
                         (unaudited)  

Supplemental Financial Data:

            

Adjusted EBITDA (in thousands) (1)

   $ 9,769      $ 14,310      $ (3,517   $ (1,167   $ 1,605  

 

(1)

The following table reconciles net income to Adjusted EBITDA for the periods presented:

 

     Years Ended December 31,     Three Months
Ended March 31,
 
     2018     2017     2016     2019     2018  
                 (unaudited)     (unaudited)  
     (in thousands)              

Reconciliation of Net (Loss) Income to Adjusted EBITDA:

          

Net (loss) income

   $ (14,209   $ 7,404     $ (12,488   $ (5,105   $ (627

Foreign exchange loss (income)

     3,266       (686     1,079       697       (185

Finance expenses

     5,361       5,503       4,547       1,654       1,157  

Income taxes expense

     2,215       479       390       886       810  

Depreciation and amortization

     1,340       668       520       325       196  

Stock-based compensation expense

     1,257       942       2,435       375       254  

Customer bankruptcy recorded in provision for bad debts

     8,256       —         —         —         —    

Terminated transaction costs recorded in professional fees

     2,283       —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

   $ 9,769     $ 14,310     $ (3,517   $ (1,167   $ 1,605  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

“Adjusted EBITDA” is a non-GAAP measure defined as net (loss) income before foreign exchange loss (income), financial expenses, income tax expense, depreciation and amortization, stock-based compensation and non-recurring items for a given period. Adjusted EBITDA is not a measure of Venus Concept’s financial performance under U.S. GAAP and should not be considered an alternative to net income or any other performance measures derived in accordance with U.S. GAAP. Accordingly, you should consider Adjusted EBITDA along with other financial performance measures, including net income, and Venus Concept’s financial results presented in accordance with U.S. GAAP. Other companies, including companies in Venus Concept’s industry, may calculate Adjusted EBITDA differently or not at all, which reduces its usefulness as a comparative measure. Venus Concept understands that although Adjusted EBITDA is frequently used by securities analysts, lenders and others in their evaluation of companies, Adjusted EBITDA has limitations as an analytical tool, and



 

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you should not consider it in isolation, or as a substitute for analysis of Venus Concept’s results as reported under U.S. GAAP. Some of these limitations are:

 

   

Adjusted EBITDA does not reflect Venus Concept’s cash expenditures or future requirements for capital expenditures or contractual commitments;

 

   

Adjusted EBITDA does not reflect changes in, or cash requirements for, Venus Concept’s working capital needs; and

 

   

although depreciation is a non-cash charge, the assets being depreciated will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements.

For the year ended December 31, 2018, Venus Concept had two non-recurring items totalling $10.5 million. The first item relates to a large chain account customer that filed for Chapter 11 bankruptcy protection in February of 2019. A trustee has been appointed by the court and Venus Concept is currently receiving monthly payments under the court-approved operating plan. However, as there is no guarantee that the full balance of the receivable will be collected, a provision of $8.3 million was charged to provision for bad debts for the year ended December 31, 2018. There were no system sales made to this chain account in 2018. Excluding this write-off, provision for bad debts as a percentage of revenue remained consistent with prior years. As of March 31, 2019 and December 31, 2018, no customer represented more than 2% of total outstanding accounts receivable. Accordingly, management believes this event is non-recurring in nature. The second item relates to a charge of approximately $2.3 million incurred in the fourth quarter of 2018 for professional fees related to a business combination transaction that was not completed. The circumstances around the termination of the transaction were considered unusual, and therefore, non-recurring in nature.

Venus Concept believes that Adjusted EBITDA is a useful measure for analysing the performance of Venus Concept’s core business because it facilitates operating performance comparisons from period to period and company to company by backing out potential differences caused by changes in foreign exchange rates that impact financial assets and liabilities denominated in currencies other than the U.S. dollar, tax positions (such as the impact on periods or companies of changes in effective tax rates), the age and book depreciation of fixed assets (affecting relative depreciation expense), stock-based compensation expense (because it is a non-cash expense) and non-recurring items as explained above.



 

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Selected Unaudited Pro Forma Combined Financial Data of Restoration Robotics and Venus Concept

The following selected unaudited pro forma combined financial data presents the pro forma financial position and results of operations of the combined company based on the historical consolidated financial statements of Restoration Robotics and Venus Concept, after giving effect to the merger and the issuance of $21.0 million of common stock under the equity commitment letter financing and the Restoration Robotics note conversion. The unaudited pro forma combined balance sheet data as of March 31, 2019 gives effect to the merger and the issuance of $21.0 million of common stock under the equity commitment letter financing and the Restoration Robotics note conversion as if such transactions took place on March 31, 2019. The unaudited pro forma combined statement of operations data for the year ended December 31, 2018 and the three months ended March 31, 2019 gives effect to the merger and the issuance of $21.0 million of common stock under the equity commitment letter financing and the Restoration Robotics note conversion as if it took place on January 1, 2018. In the unaudited pro forma combined financial data, the merger has been accounted for as a reverse acquisition, with Venus Concept being deemed the acquiring company for accounting purposes.

The allocation of purchase consideration reflected in the unaudited pro forma combined financial data is preliminary and will be adjusted based on the fair value of purchase consideration on the closing date of the merger and upon completion of the final valuations of the fair value of the assets acquired and liabilities assumed of Restoration Robotics on the closing date of the merger. Although Restoration Robotics and Venus Concept management believes that the fair values assigned to the assets to be acquired and liabilities to be assumed reflected in the unaudited pro forma combined financial data are based on reasonable estimates and assumptions using currently available data, the results of the final allocation could be materially different from the preliminary allocation.

The unaudited pro forma combined financial statements were prepared in accordance with Article 11 of SEC Regulation S-X. Accordingly, the historical consolidated financial data of Restoration Robotics and Venus Concept has been adjusted to give pro forma effect to events that are (i) directly attributable to the merger, (ii) factually supportable, and (iii) with respect to the unaudited pro forma combined statements of operations, expected to have a continuing impact on the combined results of operations of the combined company. In addition, the pro forma adjustments reflecting the completion of the merger are based upon the application of the acquisition method of accounting in accordance with U.S. GAAP and upon the assumptions set forth in the unaudited pro forma combined financial statements included elsewhere in this proxy statement/prospectus.

The unaudited pro forma combined financial data is presented for illustrative purposes only and is not necessarily indicative of the financial condition or results of operations of future periods or the financial condition or results of operations that would have been realized had the entities been combined during the periods presented.



 

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The following selected unaudited pro forma combined financial data have been derived from, and should be read in conjunction with, the section titled “Unaudited Pro Forma Combined Financial Statements” beginning on page F-69 of this proxy statement/prospectus, Restoration Robotics’ consolidated financial statements and the related notes incorporated by reference in this proxy statement/prospectus, Venus Concept’s consolidated financial statements and the related notes in this proxy statement/prospectus, the sections titled “Venus Concept Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 231 of this proxy statement/prospectus, and the other information contained or incorporated by reference in this proxy statement/prospectus.

 

     Year Ended December 31, 2018      Three Months Ended March 31, 2019  
     Pro Forma
Combined
     Pro Forma
Combined
Including Equity
Commitment
Letter
Financing and
the Restoration
Robotics Note
Conversion
     Pro Forma
Combined
     Pro Forma
Combined
Including Equity
Commitment

Letter
Financing and
the Restoration
Robotics Note
Conversion
 
    

(in thousands of U.S. dollars, except per share data)

 

Combined Statement of Operations Data:

           

Revenue

   $ 124,570      $ 124,570        29,974        29,974  

Cost of revenue

     37,247        37,247        9,356        9,356  
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross profit

     87,323        87,323        20,618        20,618  

Operating expenses

           

Selling and marketing

     55,519        55,519        14,102        14,102  

Research and development

     15,421        15,421        3,548        3,548  

General and administrative

     47,194        47,194        11,832        11,832  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total operating expenses

     118,134        118,134        29,482        29,482  
  

 

 

    

 

 

    

 

 

    

 

 

 

Loss from operations

     (30,811      (30,811      (8,864      (8,864

Interest expense

     (7,585      (7,585      (2,420      (2,420

Foreign exchange loss

     (3,266      (3,266      (697      (697

Other expense, net

     (549      (549      (46      (46
  

 

 

    

 

 

    

 

 

    

 

 

 

Loss before income taxes

     (42,211      (42,211      (12,027      (12,027

Provision for income taxes

     2,262        2,262        900        900  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net loss

   $ (44,473    $ (44,473    $ (12,927    $ (12,927

Non-controlling interests

     750        750        168        168  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net loss attributable to shareholders

   $ (45,223    $ (45,223    $ (13,095    $ (13,095
  

 

 

    

 

 

    

 

 

    

 

 

 

Net loss per share, basic and diluted

   $ (0.18    $ (0.16    $ (0.05    $ (0.05
  

 

 

    

 

 

    

 

 

    

 

 

 


 

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     As at March 31, 2019  
     Pro Forma
Combined
     Pro Forma
Combined
Including
Equity
Commitment
Letter
Financing
and the
Restoration
Robotics Note
Conversion
 
     (in thousands)  

Combined Balance Sheet Data:

     

Cash and cash equivalents

   $ 23,261      $ 42,761  

Working capital

     58,861        83,361  

Total assets

     194,011        213,511  

Total long-term liabilities

     91,231        86,231  

Total liabilities

     141,937        136,937  

Total shareholders’ equity

     52,074        76,574  

Comparative Historical and Unaudited Pro Forma Per Share Data

Unless otherwise indicated, the following information and all other information contained in this proxy statement/prospectus does not give effect to the proposed reverse stock split described in Proposal No. 5 of this proxy statement/prospectus.

The information below reflects the historical net loss and book value per share of Restoration Robotics common stock and the historical net loss and book value per share of Venus Concept ordinary shares in comparison with the unaudited pro forma net loss and book value per share after giving effect to the merger of Restoration Robotics with Venus Concept on a pro forma basis, without giving effect to the equity commitment letter financing and the Restoration Robotics note conversion. You should read the tables below in conjunction with the audited financial statements of Restoration Robotics for the year ended December 31, 2018 and the unaudited financial statements of Restoration Robotics for the three months ended March 31, 2019 and the audited financial statements of Venus Concept for the year ended December 31, 2018 and the unaudited financial statements of Venus Concept for the three months ended March 31, 2019, the unaudited pro forma condensed combined financial information and the notes related to such financial statements included elsewhere or incorporated by reference in this proxy statement/prospectus.

 

     Year Ended
December 31,
2018
     Three Months Ended
March 31,

2019
 

Restoration Robotics Historical Per Common Share Data:

     

Basic and diluted net loss per share

   $ (0.86    $ (0.18

Book value per share

   $ 0.05      $ (0.13

Venus Concept Historical Per Ordinary Shares Data:

     

Basic and diluted net loss per share

   $ (1.82    $ (0.64

Book value per share

   $ 4.46      $ 3.83  

Combined Company Pro Forma Per Common Share Data:

     

Basic and diluted net loss per share

   $ (0.18    $ (0.05

Book value per share

     N/A      $ 0.21  


 

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VENUS CONCEPT MARKET PRICE AND DIVIDEND INFORMATION

Venus Concept is a private company and its ordinary shares and preferred shares are not publicly traded.

Dividends

Venus Concept has never paid or declared any cash dividends on its ordinary shares or preferred shares. If the merger does not occur, Venus Concept does not anticipate paying any cash dividends on its ordinary shares or preferred shares in the foreseeable future, except as may be required under its amended and restated certificate of incorporation, and Venus Concept intends to retain all available funds and any future earnings to fund the development and expansion of its business. Any future determination to pay dividends will be at the discretion of Venus Concept’s board of directors, subject to the requirements of Venus Concept’s amended and restated certificate of incorporation, and will depend upon a number of factors, including its results of operations, financial condition, future prospects, contractual restrictions, including under its credit facilities, restrictions imposed by applicable law and other factors Venus Concept’s then-current board of directors deems relevant.

 

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RISK FACTORS

The combined company will be faced with a market environment that cannot be predicted and that involves significant risks, many of which will be beyond its control. In addition to the other information contained or incorporated by reference in this proxy statement/prospectus, you should carefully consider the material risks described below before deciding how to vote your shares of Restoration Robotics common stock. You should also read and consider the other information in this proxy statement/prospectus and additional information about Restoration Robotics set forth in its Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, as amended, and the Annual Report on Form 10-K for the fiscal year ended December 31, 2018, as amended, which are filed with the SEC and incorporated by reference into this proxy statement/prospectus. Please see the section titled “Where You Can Find More Information” beginning on page 293 of this proxy statement/prospectus for further information regarding the documents incorporated by reference into this proxy statement/prospectus.

Risks Related to the Merger

The exchange ratio will not be adjusted based on the market price of Restoration Robotics common stock so the merger consideration at the closing may have a greater or lesser value than at the time the Merger Agreement was signed.

At the effective time of the merger, outstanding ordinary shares and preferred shares of Venus Concept will be converted into shares of Restoration Robotics common stock. Applying the exchange ratio, the former Venus Concept shareholders immediately before the merger are expected to own approximately 85% of the aggregate number of shares of Restoration Robotics common stock following the merger, and Restoration Robotics stockholders immediately before the merger are expected to own approximately 15% of the aggregate number of shares of Restoration Robotics common stock following the merger, in each case without giving effect to the issuance of shares of the combined company’s common stock in the equity commitment letter financing, the Restoration Robotics note conversion and the Venus Concept note conversion.

Any changes in the market price of Restoration Robotics common stock before the completion of the merger will not affect the number of shares Venus Concept shareholders will be entitled to receive pursuant to the Merger Agreement. Therefore, if before the completion of the merger the market price of Restoration Robotics common stock declines from the market price on the date of the Merger Agreement, then Venus Concept shareholders could receive merger consideration with substantially lower value. Similarly, if before the completion of the merger, the market price of Restoration Robotics common stock increases from the market price on the date of the Merger Agreement, then Venus Concept shareholders could receive merger consideration with substantially more value for their shares of Venus Concept capital stock than the parties had negotiated when they established the exchange ratio. The Merger Agreement does not include a price-based termination right. Because the exchange ratio does not adjust as a result of changes in the value of Restoration Robotics common stock, for each one percentage point that the market value of Restoration Robotics common stock rises or declines, there is a corresponding one percentage point rise or decline, respectively, in the value of the total merger consideration issued to Venus Concept shareholders.

Failure to complete the merger may result in Restoration Robotics paying a termination fee to Venus Concept, which could harm the common stock price of Restoration Robotics and future business and operations of each company.

If the merger is not completed, Restoration Robotics and Venus Concept are subject to the following risks:

 

   

if the Merger Agreement is terminated under specified circumstances, Restoration Robotics will be required to pay Venus Concept a termination fee of $1,115,000 and up to $200,000 in expense reimbursements;

 

   

the price of Restoration Robotics common stock may decline and could fluctuate significantly; and

 

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costs related to the merger, such as financial advisor, legal and accounting fees, some of which must be paid even if the merger is not completed.

If the Merger Agreement is terminated and the board of directors of Restoration Robotics or Venus Concept determines to seek another business combination, there can be no assurance that either Restoration Robotics or Venus Concept will be able to find a partner willing to provide equivalent or more attractive consideration than the consideration to be provided under the Merger Agreement.

If the conditions to the merger are not satisfied or waived, the merger may not occur.

Even if the merger is approved by the shareholders of Venus Concept and the merger proposals are approved by the Restoration Robotics stockholders, specified conditions must be satisfied or waived to complete the merger. These conditions are set forth in the Merger Agreement and described in the section titled “The Merger Agreement—Conditions to the Completion of the Merger” beginning on page 143 of this proxy statement/prospectus. Restoration Robotics and Venus Concept cannot assure you that all of the conditions to the consummation of the merger will be satisfied or waived. If the conditions are not satisfied or waived, the merger may not occur or the closing may be delayed, and Restoration Robotics and Venus Concept each may lose some or all of the intended benefits of the merger.

The merger may be completed even though a material adverse effect may result from the announcement of the merger, industry-wide changes or other causes.

In general, neither Restoration Robotics nor Venus Concept is obligated to complete the merger if there is a material adverse effect affecting the other party between March 15, 2019, the date of the Merger Agreement, and the closing of the merger. However, certain types of changes are excluded from the concept of a “material adverse effect”. Such exclusions include, but are not limited to, changes in general economic or political conditions, industry wide changes, changes resulting from the announcement of the merger and changes in U.S. GAAP. Therefore, if any of these events were to occur adversely affecting Restoration Robotics or Venus Concept, the other party would still be obliged to consummate the closing of the merger. If any such adverse changes occur and Restoration Robotics and Venus Concept consummate the closing of the merger, the stock price of the combined company may suffer. This in turn may reduce the value of the merger to the stockholders of Restoration Robotics, Venus Concept or both. For a more complete discussion of what constitutes a material adverse effect on Restoration Robotics or Venus Concept, see the section entitled “The Merger Agreement—Representations and Warranties” beginning on page 128 of this proxy statement/prospectus.

While Restoration Robotics and Venus Concept have received commitments for the purchase of $21.0 million of shares of Restoration Robotics common stock, consummation of the equity commitment letter financing is subject to consummation of the merger. If Venus Concept and Restoration Robotics complete the merger, but the equity commitment letter financing does not close or the equity investors decide not to fund the optional additional $20.0 million in financing under the equity commitment letter, then the combined company will need to raise additional capital by issuing equity securities or additional debt, which may be on commercial terms less favorable than the equity commitment letter financing terms, cause significant dilution to the combined company’s stockholders or restrict the combined company’s operations.

Concurrent with the execution of the Merger Agreement, Restoration Robotics and Venus Concept entered into an equity commitment letter with certain equity commitment investors, pursuant to which the equity investors agreed to purchase, in the aggregate, $21.0 million of Restoration Robotics common stock immediately following the consummation of the merger in a private placement. Additionally, the equity commitment investors, subject to certain exceptions and conditions, have the option to purchase an additional $20.0 million of Restoration Robotics common stock, but they are not obligated to purchase any or all of this additional amount. The closing of the equity commitment letter financing is subject to the following conditions: (i) the satisfaction of all conditions to closing under the Merger Agreement and the occurrence of the closing of the merger in

 

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accordance with the terms of the Merger Agreement; (ii) the execution of a securities purchase agreement and registration rights agreement by Restoration Robotics and such equity investor each of which will include customary terms for such agreements; and (iii) the satisfaction and performance by Restoration Robotics of the terms of the equity commitment letter. However, the funding of the purchase price for the shares to be issued under the equity commitment letter is not a condition to the closing of the merger.

Holders of equity in the combined company immediately following the merger will experience significant dilution as a result of the consummation of the equity commitment letter financing, which, assuming the conditions to the closing of the equity commitment letter are satisfied, will take place immediately following the completion of the merger. Since the equity commitment letter financing is subject to conditions in addition to the closing of the merger, Venus Concept and Restoration Robotics may complete the merger but not the equity commitment letter financing, even if Restoration Robotics stockholders approve the issuance of the shares in the equity commitment financing. If this were to occur, the combined company would have substantially less funds than Venus Concept and Restoration Robotics currently anticipate and would be required to raise additional funds sooner than currently planned. In addition, the equity investors have no obligation under the equity commitment letter to fund any of the additional $20.0 million pursuant to the equity commitment letter.

Additional financing, may not be available to the combined company when it is needed or may not be available on favorable terms. To the extent that the combined company raises additional capital by issuing equity securities, the terms of such an issuance may be less favorable than the terms of the equity commitment letter financing and may cause more significant dilution to the combined company’s stockholders’ ownership. It is also possible that the terms of any new equity securities may have preferences over the combined company’s common stock. Any debt financing the combined company enters into may involve covenants that restrict its operations. These restrictive covenants may include limitations on additional borrowing and specific restrictions on the use of the combined company’s assets, as well as prohibitions on its ability to create liens, pay dividends, redeem its stock or make investments.

Some Restoration Robotics and Venus Concept executive officers and directors have interests in the merger that are different from yours and that may influence them to support or approve the merger without regard to your interests.

Directors and executive officers of Restoration Robotics and Venus Concept may have interests in the merger that are different from, or in addition to, the interests of other Restoration Robotics stockholders generally. These interests with respect to Restoration Robotics’ directors and executive officers may include, among others, severance payments under their employment agreements if their employment is terminated in a qualifying termination following the closing of the merger and rights to ongoing indemnification and insurance coverage for acts or omissions occurring prior to the merger. The directors and executive officers own options to purchase the shares of their respective company. Also, certain directors of Restoration Robotics and Venus Concept are participating in the equity commitment letter financing. The Restoration Robotics and Venus Concept boards were aware of and considered those interests, among other matters, in reaching their decision to approve and adopt the merger agreement, approve the merger, and recommend the approval of the merger agreement to Restoration Robotics and Venus Concept stockholders. These interests, among other factors, may have influenced the directors and executive officers of Restoration Robotics and Venus Concept to support or approve the merger.

For more information regarding the interests of Restoration Robotics and Venus Concept executive officers and directors in the merger, please see the sections titled “The Merger—Interests of Restoration RoboticsDirectors and Executive Officers in the Merger” beginning on page 112 and “The Merger—Interests of the Venus Concept Directors and Executive Officers in the Merger” beginning on page 117 of this proxy statement/prospectus.

 

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The market price of Restoration Robotics common stock following the merger may decline as a result of the merger.

The market price of Restoration Robotics common stock may decline as a result of the merger for a number of reasons, including if:

 

   

investors react negatively to the prospects for the combined company’s business;

 

   

the effect of the merger on the combined company’s business and prospects is not consistent with the expectations of financial or industry analysts;

 

   

the combined company does not achieve the perceived benefits of the merger as rapidly or to the extent anticipated by financial or industry analysts; or

 

   

the combined company fails to raise an adequate amount of capital to fund its operations and continued development of its products and services.

Restoration Robotics stockholders may not realize a benefit from the merger commensurate with the ownership dilution they will experience in connection with the merger.

If the combined company is unable to realize the full strategic and financial benefits currently anticipated from the merger, Restoration Robotics stockholders will have experienced substantial dilution of their ownership interests without receiving any commensurate benefit, or only receiving part of the commensurate benefit to the extent the combined company is able to realize only part of the strategic and financial benefits currently anticipated from the merger. Restoration Robotics and Venus Concept stockholders will experience further dilution upon the closing of the equity commitment letter financing and the Restoration Robotics note conversion, which are expected to occur immediately following the closing of the merger.

If the merger is not completed, Restoration Robotics’ stock price may decline significantly.

The market price of Restoration Robotics common stock is subject to significant fluctuations. During the 15-month period ended March 31, 2019, the closing sales price of Restoration Robotics common stock on Nasdaq ranged from a high of $7.88 on March 22, 2018 to a low of $0.35 on December 24, 2018. Market prices for securities of early-stage medical technology companies have historically been particularly volatile. In addition, the market price of Restoration Robotics common stock will likely be volatile based on whether stockholders and other investors believe that Restoration Robotics can complete the merger or otherwise raise additional capital to support Restoration Robotics’ operations if the merger is not consummated and another strategic transaction cannot be identified, negotiated and consummated in a timely manner, if at all. The volatility of the market price of Restoration Robotics common stock is exacerbated by low trading volume. Additional factors that may cause the market price of Restoration Robotics common stock to fluctuate include:

 

   

the initiation of, material developments in, or conclusion of litigation to enforce or defend its intellectual property rights or defend against claims involving the intellectual property rights of others;

 

   

the entry into, or termination of, key agreements, including commercial partner agreements;

 

   

announcements by commercial partners or competitors of new commercial products, significant contracts, commercial relationships or capital commitments;

 

   

adverse publicity relating to medical devices, including with respect to other products and potential products in the hair restoration market;

 

   

the introduction of technological innovations that compete with its current and future products;

 

   

the loss of key employees;

 

   

future sales of its common stock;

 

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general and industry-specific economic conditions that may affect its research and development expenditures;

 

   

the failure to meet industry analyst expectations; and

 

   

period-to-period fluctuations in financial results.

Volatility in the stock markets may have an adverse effect on the trading price of Restoration Robotics common stock.

The stock markets in general have experienced substantial volatility that has often been unrelated to the operating performance of individual companies. These broad market fluctuations may also adversely affect the trading price of Restoration Robotics common stock. In the past, following periods of volatility in the market price of a company’s securities, stockholders have often instituted class action securities litigation against such companies. For example, in May and June 2018, a number of purported stockholder class action complaints were filed against Restoration Robotics, the members of Restoration Robotics’ board of directors (and affiliated venture funds), as well as certain of Restoration Robotics’ current and former officers and the underwriters in Restoration Robotics’ initial public offering. The complaints all allege, among other things, that Restoration Robotics’ Registration Statement filed with the SEC on September 1, 2017 and the prospectus filed with the SEC on October 13, 2017 in connection with Restoration Robotics’ initial public offering were inaccurate and misleading, contained untrue statements of material facts, omitted to state other facts necessary to make the statements made not misleading and omitted to state material facts required to be stated therein. The complaints seek unspecified money damages, other equitable relief and attorneys’ fees and costs. Any additional litigation, if instituted, could result in substantial costs and diversion of management attention and resources, which could significantly harm Restoration Robotics’ profitability and reputation.

Venus Concept and Restoration Robotics security holders will have a reduced ownership and voting interest in, and will exercise less influence over the management of, the combined company following the completion of the merger as compared to their current ownership and voting interests in the respective companies.

After the completion of the merger, the current stockholders of Venus Concept and Restoration Robotics will own a smaller percentage of the combined company than their ownership of their respective companies prior to the merger. Immediately after the merger, Venus Concept shareholders will own approximately 85% of the fully-diluted common stock of the combined company, with Restoration Robotics stockholders, whose shares of Restoration Robotics common stock will remain outstanding after the merger, owning approximately 15% of the fully-diluted common stock of the combined company, in each case without giving effect to the issuance of shares of the combined company’s common stock in the equity commitment letter financing, the Restoration Robotics note conversion and the Venus note conversion.

During the pendency of the merger, Restoration Robotics and Venus Concept may not be able to enter into a business combination with another party on more favorable terms because of restrictions in the Merger Agreement, which could adversely affect their respective business prospects.

Covenants in the Merger Agreement impede the ability of Restoration Robotics and Venus Concept to make acquisitions during the pendency of the merger, subject to specified exceptions. As a result, if the merger is not completed, the parties may be at a disadvantage to their competitors during that period. In addition, while the Merger Agreement is in effect, each party is generally prohibited from soliciting, proposing, seeking or knowingly encouraging, facilitating or supporting any inquiries, indications of interest, proposals or offers that constitute or may reasonably be expected to lead to certain transactions involving a third-party, including a merger, sale of assets or other business combination, subject to specified exceptions. Any such transactions could be favorable to such party’s stockholders, but the parties may be unable to pursue them. For more information, see the sections entitled “The Merger Agreement—Non-Solicitation—Restoration Robotics” beginning on page 134 and “The Merger Agreement—Non-Solicitation—Venus Concept” beginning on page 137 of this proxy statement/prospectus.

 

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Certain provisions of the Merger Agreement may discourage third parties from submitting competing proposals, including proposals that may be superior to the transactions contemplated by the Merger Agreement.

The terms of the Merger Agreement prohibit each of Restoration Robotics and Venus Concept from soliciting competing proposals or cooperating with persons making unsolicited takeover proposals, except in limited circumstances as described in further detail in the sections entitled “The Merger Agreement—Non-Solicitation—Restoration Robotics” beginning on page 134 and “The Merger Agreement—Non-Solicitation—Venus Concept” beginning on page 137 of this proxy statement/prospectus. In addition, if Restoration Robotics terminates the Merger Agreement under specified circumstances, including terminating because it enters into a definitive agreement with respect to a superior competing proposal, Restoration Robotics would be required to pay Venus Concept a termination fee of $1,115,000 and reimburse up to $200,000 of expenses. This termination fee may discourage third parties from submitting competing proposals to Restoration Robotics or its stockholders, and may cause Restoration Robotics’ board of directors to be less inclined to recommend a competing proposal.

Because the lack of a public market for Venus Concept’s capital stock makes it difficult to evaluate the fair market value of Venus Concept’s capital stock, the stockholders of Venus Concept may receive consideration in the merger that is less than the fair market value of Venus Concept’s capital stock and/or Restoration Robotics may pay more than the fair market value of Venus Concept’s capital stock.

The outstanding capital stock of Venus Concept is privately held and is not traded in any public market. The lack of a public market makes it difficult to determine the fair market value of Venus Concept’s capital stock. Because the percentage of Restoration Robotics equity to be issued to Venus Concept shareholders was determined based on negotiations between the parties, it is possible that the value of the Restoration Robotics common stock to be received by Venus Concept shareholders will be less than the fair market value of Venus Concept’s capital stock, or Restoration Robotics may pay more than the aggregate fair market value for Venus Concept’s capital stock.

Obtaining required governmental approvals necessary to satisfy the conditions to the completion of the merger may delay or prevent completion of the merger.

The completion of the merger is conditioned upon the receipt of certain governmental authorizations, consents, orders, rulings or other approvals, including tax rulings from the ITA, and the expiration of the waiting periods under the Companies Registrar of the Israeli Corporations Authority. Neither Restoration Robotics nor Venus Concept can assure you that the required approvals will be obtained on a timely basis, if at all. Even if all required approvals are obtained, no assurance can be given as to the terms, conditions and timing of the approvals or whether they will satisfy the terms of the Merger Agreement. See the sections titled “The Merger Agreement—Conditions to the Completion of the Merger” beginning on page 143 of this proxy statement/prospectus for a discussion of the conditions to the completion of the merger, and “The Merger Agreement—Israeli Law Matters” beginning on page 138 of this proxy statement/prospectus.

If Venus Concept is not successful in obtaining favorable tax rulings from the ITA, or if such rulings are issued after the closing date of the merger, Venus Concept shareholders may be subject to capital gains tax in Israel.

Venus Concept intends to prepare and file with the ITA an application for tax rulings with respect to withholding tax from capital gain as a result of the merger, both for Israeli tax residents and non-Israeli tax residents. Assuming Venus Concept receives the Israeli tax rulings from the ITA, the Israeli tax consequences of the merger will be in accordance with such tax rulings (if applicable to a particular Venus Concept shareholder). Pursuant to the Merger Agreement, obtaining such rulings is a condition to the obligations of Venus Concept to consummate the merger and, therefore, Venus Concept may elect not to consummate the merger if such tax rulings are not issued or in effect.

 

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Alternatively, if Venus Concept elects to waive this condition and Venus Concept and the ITA do not agree to an alternative interim arrangement, Venus Concept shareholders may be subject to Israeli taxes on the exchange of securities in the merger. In general, under the Ordinance, the disposition of shares of an Israeli company is deemed to be a sale of capital assets (unless such shares are held for the purpose of trading). The Ordinance generally imposes a capital gains tax on the sale of capital assets located in Israel, including shares in an Israeli resident company, by both residents and non-residents of Israel, unless a specific exemption is available under the Ordinance or unless a treaty for the prevention of double taxation between Israel and the seller’s country of residence provides otherwise. In this regard, the Ordinance provides that if certain conditions are met, a non-Israeli tax resident should be exempt from capital gains tax in Israel subject to the presentation of a withholding tax certificate from the ITA.

No assurance can be given that the tax rulings will be issued to Venus Concept in a timely manner, or at all, or that an interim arrangement will be reached with the ITA. For a more detailed discussion of the material Israeli income tax consequences of the merger, see “The Merger Agreement—Tax Matters” beginning on page 142 of this proxy statement/prospectus. Venus Concept shareholders should consult their tax advisors to understand all the tax consequences of the merger to them.

Risks Related to the Combined Company

In determining whether you should approve the merger, the issuance of shares of Restoration Robotics common stock and other matters related to the merger, as applicable, you should carefully read the following risk factors in addition to the risks described above.

The market price of the combined company’s common stock is expected to be volatile, and the market price of the common stock may drop following the merger.

The market price of the combined company’s common stock following the merger could be subject to significant fluctuations. Some of the factors that may cause the market price of the combined company’s common stock to fluctuate include:

 

   

introduction of new products, services or technologies, significant contracts, commercial relationships or capital commitments by competitors;

 

   

failure to meet or exceed financial and development projections the combined company may provide to the public;

 

   

failure to meet or exceed the financial and development projections of the investment community;

 

   

announcements of significant acquisitions, strategic collaborations, joint ventures or capital commitments by the combined company or its competitors;

 

   

disputes or other developments relating to proprietary rights, including patents, litigation matters, and the combined company’s ability to obtain patent protection for its technologies;

 

   

additions or departures of key personnel;

 

   

significant lawsuits or government investigations, including patent or stockholder litigation;

 

   

if securities or industry analysts do not publish research or reports about the combined company’s business, or if they issue adverse or misleading opinions regarding its business and stock;

 

   

changes in the market valuations of similar companies;

 

   

general market or macroeconomic conditions;

 

   

sales of its common stock by the combined company or its stockholders in the future;

 

   

trading volume of the combined company’s common stock;

 

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adverse publicity relating to hair restoration or other minimally invasive or non-invasive medical aesthetic procedures generally, including with respect to other products in such markets;

 

   

the introduction of technological innovations that compete with the products and services of the combined company; and

 

   

period-to-period fluctuations in the combined company’s financial results.

Moreover, the stock markets in general, and markets for medical technology and aesthetic stocks in particular, have experienced substantial volatility that has often been unrelated to the operating performance of individual companies. These broad market fluctuations may also adversely affect the trading price of the combined company’s common stock.

In the past, following periods of volatility in the market price of a company’s securities, stockholders have often instituted class action securities litigation against those companies. Such litigation, if instituted, could result in substantial costs and diversion of management attention and resources, which could significantly harm the combined company’s profitability and reputation.

Restoration Robotics is not in compliance with the continued listing requirements of the Nasdaq and if Restoration Robotics does not use its reasonable best efforts to maintain the continuous listing of its common stock on the Nasdaq, then Venus Concept is not under any obligation to consummate the merger.

In 2019, Restoration Robotics received three letters from Nasdaq indicating that for 30 consecutive business days: (i) Restoration Robotics did not maintain a minimum market value of listed securities, or MVLS, of $50.0 million (received January 18, 2019); (ii) Restoration Robotics common stock did not maintain a minimum closing bid price of $1.00, or Minimum Bid Price Requirement (received March 14, 2019); and (iii) Restoration Robotics common stock did not maintain a minimum market value of publicly held shares, or MVPHS, of $15.0 million in each case, as required by the Nasdaq Listing Rules, or the Listing Rules (received March 15, 2019). In accordance with the Listing Rules, Restoration Robotics has 180 calendar days, or until July 17, 2019 for the MVLS deficiency, September 10, 2019 for the Minimum Bid Price Requirement deficiency, and September 11, 2019 for the MVPHS deficiency, to regain compliance with the applicable rule.

In accordance with the applicable Listing Rules, if Restoration Robotics is unable to regain compliance prior to the expiration of the other applicable grace periods, it will be required to transfer to the Nasdaq Capital Market, subject to Restoration Robotics’ ability to meet the listing standards of the Nasdaq Capital Market. If Restoration Robotics is unable to meet the listing standards of the Nasdaq Capital Market, Restoration Robotics will be delisted.

On July 18, 2019, Restoration Robotics received a letter from Nasdaq setting forth a determination to delist Restoration Robotics common stock from Nasdaq on July 29, 2019 as a result of its failure to regain compliance with the MVLS requirement by July 17. Restoration Robotics has requested a hearing with the Hearing Panel at Nasdaq to appeal the delisting determination. Nasdaq has set the hearing date for September 5, 2019. Accordingly, the delisting action referenced in the July 18, 2019 letter from Nasdaq has been stayed pending a final written decision by the Hearing Panel.

Because Restoration Robotics is required to use reasonable best efforts to maintain the continued listing of the Restoration Robotics common stock if the Restoration Robotics common stock is delisted prior to the closing, then Venus Concept may not be obligated to close the merger.

Additionally, a decrease in the stock price of the combined company may cause the combined company’s common stock to no longer satisfy the continued listing standards of the Nasdaq Capital Market. If the combined company is not able to maintain the requirements for listing on the Nasdaq Capital Market, it could be delisted, which could have a materially adverse effect on the combined company’s ability to raise additional funds as well as the price and liquidity of its common stock.

 

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Following the merger, the combined company may be unable to integrate successfully the businesses of Restoration Robotics and Venus Concept and realize the anticipated benefits of the merger.

The merger involves the combination of two companies which currently operate as independent companies. Following the merger, the combined company will be required to devote significant management attention and resources to integrating its business practices and operations. The combined company may fail to realize some or all of the anticipated benefits of the merger if the integration process takes longer than expected or is more costly than expected. Potential difficulties the combined company may encounter in the integration process include the following:

 

   

the inability to successfully combine the businesses of Restoration Robotics in a manner that permits the combined company to achieve the synergies anticipated to result from the merger, which would result in the anticipated benefits of the merger not being realized partly or wholly in the time frame currently anticipated or at all;

 

   

complexities associated with managing the combined businesses;

 

   

integrating personnel from the two companies;

 

   

creation of uniform standards, controls, procedures, policies and accounting and other information systems;

 

   

potential unknown liabilities and unforeseen increased expenses, delays or regulatory conditions associated with the merger; and

 

   

performance shortfalls at one or both of the two companies as a result of the diversion of management’s attention caused by completing the merger and integrating the companies’ operations.

In addition, Restoration Robotics and Venus Concept have operated and, until the completion of the merger, will continue to operate, independently. It is possible that the integration process also could result in the diversion of each company’s management’s attention, the disruption or interruption of, or the loss of momentum in, each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies, any of which could adversely affect the combined company’s ability to maintain relationships with customers, suppliers and employees or the ability to achieve the anticipated benefits of the merger, or could reduce the earnings or otherwise adversely affect the business and financial results of the combined company.

The combined company may need to raise additional capital in the future, and such funds may not be available on attractive terms, or at all.

The combined company expects to need to raise additional capital in the future to support its operations even if the equity commitment letter financing closes and the equity investors thereunder exercise their option to purchase an additional $20.0 million of shares of Restoration Robotics. The combined company cannot be certain that additional capital will be available as needed or on acceptable terms, or at all. If the combined company requires additional capital at a time when an investment in the combined company, in medical technology or medical aesthetic product companies or the market in general is limited, the combined company may not be able to raise additional funds at the time that it desires, or at all. If the combined company does raise additional funds through the issuance of equity or convertible securities, the percentage ownership of holders of its ordinary shares could be significantly diluted and these newly issued securities may have rights, preferences, or privileges senior to those of holders of the ordinary shares. If the combined company obtains additional debt financing, a substantial portion of its operating cash flow may be dedicated to the payment of principal and interest on such indebtedness, and the terms of any additional debt could impose significant restrictions on the combined company’s operations. The terms of the Madryn Credit Agreement and the CNB Loan Agreement limit Venus Concept’s ability to incur additional indebtedness. If the combined company raises additional funds through licensing arrangements, it could be required to relinquish significant rights to its products, and services or grant licenses on terms that are not favorable to Venus Concept.

 

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The consummation of the merger requires the consent of Madryn under the Madryn credit agreement and if Venus Concept does not satisfy the conditions of the consent, it will nonetheless be obligated to close the merger without Madryn’s consent, which will result in a default under the terms of the Madryn Credit Agreement.

On March 15, 2019, Venus Concept and the Subsidiary Obligors entered into a letter agreement with Madryn, which was amended on July 26, 2019, pursuant to which Madryn has committed to consent to the merger, subject to the satisfaction of certain conditions, including, the receipt of cash proceeds from a private placement in an aggregate amount of at least $20.0 million (excluding any investment made by Madryn or its affiliates) and the repayment of indebtedness under the Solar Loan Agreement, not later than the close of business on the merger closing date, and giving effect to the closing of the merger and the repayment of the Solar indebtedness, having $20.0 million of unrestricted cash on hand. Pursuant to the equity commitment letter, Madryn committed $3.5 million. In the event that the $20.0 million of equity financing is not consummated or the Solar debt is not repaid on or prior to the consummation of the merger, Madryn’s consent to the merger would not be effective. The effectiveness of the Madryn consent is not a condition to the closing of the merger and, assuming all other conditions to the closing of the merger were satisfied, Venus Concept nonetheless would be obligated to close the merger without Madryn’s consent, which would result in an event of default under the Madryn Credit Agreement. In the event of a default under the Madryn Credit Agreement, Madryn may foreclose on the collateral granted to collateralize the indebtedness, which will significantly affect Venus Concept’s ability to operate its business.

The combined company will incur additional costs and increased demands upon management as a result of complying with the laws and regulations affecting public companies.

The combined company will incur significant legal, accounting and other expenses as a public company that Venus Concept did not incur as a private company, including costs associated with public company reporting obligations under the Securities Exchange Act of 1934, as amended, or the Exchange Act. The combined company will also incur costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, as well. These rules and regulations are expected to increase the combined company’s legal and financial compliance costs and to make some activities more time-consuming and costly. The combined company’s management team will consist of the executive officers of Venus Concept prior to the merger, some of whom have not previously managed and operated a public company. These executive officers and other personnel will need to devote substantial time to gaining expertise related to public company reporting requirements and compliance with applicable laws and regulations to ensure that the combined company complies with all of these requirements. Any changes the combined company makes to comply with these obligations may not be sufficient to allow it to satisfy its obligations as a public company on a timely basis, or at all. These reporting requirements, rules and regulations, coupled with the increase in potential litigation exposure associated with being a public company, could also make it more difficult for the combined company to attract and retain qualified persons to serve on the board of directors or on board committees or to serve as executive officers, or to obtain certain types of insurance, including directors’ and officers’ insurance, on acceptable terms.

The unaudited pro forma condensed combined financial data for Restoration Robotics and Venus Concept included in this proxy statement/prospectus is preliminary, and Restoration Robotics’ actual financial position and operations after the merger may differ materially from the unaudited pro forma financial data included in this proxy statement/prospectus.

The unaudited pro forma financial data for Restoration Robotics and Venus Concept included in this proxy statement/prospectus is presented for illustrative purposes only and is not necessarily indicative of the combined company’s actual financial condition or results of operations of future periods, or the financial condition or results of operations that would have been realized had the entities been combined during the periods presented. The combined company’s actual results and financial position after the merger may differ materially and adversely from the unaudited pro forma financial data included in this proxy statement/prospectus. The purchase price allocation reflected in this proxy statement/prospectus is preliminary, and final allocation of the purchase

 

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price will be based upon the actual purchase price and the fair value of the assets and liabilities of Restoration Robotics as of the date of the completion of the merger. Further, the combined company expects to recognize a significant amount of additional goodwill in the merger. The goodwill will be subject to annual impairment assessments and a material change may be necessary if the results of operations and cash flows are unable to support the goodwill subsequent to the merger. For more information see the section entitled “Unaudited Pro Forma Condensed Combined Financial Information” beginning on page F-68.

Restoration Robotics is, and the combined company following the merger is expected to be, an emerging growth company and a smaller reporting company within the meaning of the Securities Act and Restoration Robotics has taken advantage of certain exemptions from disclosure requirements available to emerging growth companies and smaller reporting companies; this could make the combined company’s securities less attractive to investors and may make it more difficult to compare the combined company’s performance with other public companies.

Restoration Robotics is, and the combined company following the merger is expected to continue to qualify as, an “emerging growth company” within the meaning of the Securities Act, as modified by the JOBS Act. Restoration Robotics has taken advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies or smaller reporting companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in Restoration Robotics’ periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on certain executive compensation matters and reduced reporting periods. As a result, stockholders may not have access to certain information they may deem important. Restoration Robotics is, and the combined company is expected to be, an emerging growth company and smaller reporting company, although circumstances could cause the loss of that status earlier. Restoration Robotics cannot predict whether investors will find its (or the combined company’s) securities less attractive because Restoration Robotics (or the combined company) rely on these exemptions. If some investors find the securities less attractive as a result of reliance on these exemptions, the trading prices of the combined company’s securities may be lower than they otherwise would be, there may be a less active trading market for the combined company’s securities and the trading prices of the securities may be more volatile.

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from complying with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that an emerging growth company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. Restoration Robotics has elected not to opt out of such extended transition period. Accordingly, when a standard is issued or revised and it has different application dates for public or private companies, Restoration Robotics (or the combined company following the merger), as an emerging growth company, could adopt the new or revised standard at the time private companies adopt the new or revised standard, unless early adoption is permitted by the standard. It is expected that the combined company will continue to use private company adoption dates for ASC 606, Contracts with Customers and ASC 842, Leases. This may make comparison of Restoration Robotics and the combined company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

 

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Provisions in the combined company’s charter documents and under Delaware law could make an acquisition of the combined company more difficult and may discourage any takeover attempts the company stockholders may consider favorable, and may lead to entrenchment of management .

Provisions of the combined company’s amended and restated certificate of incorporation and amended and restated bylaws could delay or prevent changes in control or changes in management without the consent of the board of directors. These provisions will include the following:

 

   

a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of the board of directors;

 

   

no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;

 

   

the exclusive right of the board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on the board of directors;

 

   

the ability of the board of directors to authorize the issuance of shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;

 

   

the ability of the board of directors to alter its bylaws without obtaining stockholder approval;

 

   

the required approval of at least 6623% of the shares entitled to vote at an election of directors to adopt, amend or repeal its bylaws or repeal the provisions of the amended and restated certificate of incorporation regarding the election and removal of directors;

 

   

a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of the stockholders;

 

   

the requirement that a special meeting of stockholders may be called only by the chairman of the board of directors, the chief executive officer, the president or the board of directors, which may delay the ability of the stockholders to force consideration of a proposal or to act, including the removal of directors; and

 

   

advance notice procedures that stockholders must comply with in order to nominate candidates to the board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of the combined company.

In addition, these provisions would apply even if the combined company were to receive an offer that some stockholders may consider beneficial.

The combined company will also be subject to the anti-takeover provisions contained in Section 203 of the Delaware General Corporation Law (DGCL), or Section 203. Under Section 203, a corporation may not, in general, engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other exceptions, the board of directors has approved the transaction.

The certificate of incorporation of the combined company will provide that the Court of Chancery of the State of Delaware is the exclusive forum for substantially all disputes between the combined company and its stockholders, which could limit its stockholders’ ability to obtain a favorable judicial forum for disputes with the combined company or its directors, officers or other employees.

The certificate of incorporation of the combined company will provide that the Court of Chancery of the State of Delaware is the sole and exclusive forum for any derivative action or proceeding brought on the combined company’s behalf, any action asserting a breach of fiduciary duty owed by any of its directors, officers

 

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or other employees to the combined company or its stockholders, any action asserting a claim against it arising pursuant to any provisions of the DGCL, its certificate of incorporation or its bylaws, or any action asserting a claim against it that is governed by the internal affairs doctrine; provided that, the exclusive forum provision will not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. The certificate of incorporation of the combined company also provides that the federal district courts of the United States of America shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. However, the enforceability of similar federal court choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that a court could find this type of provision to be inapplicable or unenforceable. If a court were to find the federal choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions.

The choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with the combined company or its directors, officers or other employees, which may discourage such lawsuits against the combined company and its directors, officers and other employees.

Restoration Robotics and Venus Concept do not anticipate that the combined company will pay any cash dividends in the foreseeable future.

The current expectation is that the combined company will retain its future earnings, if any, to fund the growth of the combined company’s business as opposed to paying dividends. As a result, capital appreciation, if any, of the common stock of the combined company will be your sole source of gain, if any, for the foreseeable future.

An active trading market for the combined company’s common stock may not develop and its stockholders may not be able to resell their shares of common stock for a profit, if at all.

Prior to the merger, there had been no public market for Venus Concept ordinary shares. An active trading market for the combined company’s shares of common stock may never develop or be sustained. If an active market for the combined company’s common stock does not develop or is not sustained, it may be difficult for its stockholders to sell their shares at an attractive price or at all.

Future sales of shares by existing stockholders could cause the combined company’s stock price to decline.

If existing security holders of Restoration Robotics and Venus Concept sell, or indicate an intention to sell, substantial amounts of the combined company’s common stock in the public market after legal restrictions on resale discussed in this proxy statement/prospectus lapse, the trading price of the common stock of the combined company could decline. Based on shares outstanding as of             , 2019, shares expected to be issued upon completion of the merger, and assuming completion of the equity commitment letter financing and the Restoration Robotics note conversion, the combined company is expected to have outstanding a total of approximately              shares of common stock immediately following the completion of the merger. Of the              shares of common stock,              shares, will be available for sale in the public market beginning 90 days after the closing of the merger as a result of the expiration of lock-up agreements between Restoration Robotics and Venus Concept on the one hand and certain security holders of Restoration Robotics and Venus Concept on the other hand. All other outstanding shares of common stock, other than shares held by affiliates of the combined company, will be freely tradable, without restriction, in the public market. In addition, shares of common stock that are subject to outstanding options of Venus Concept will become eligible for sale in the public market to the extent permitted by the provisions of various vesting agreements and Rules 144 and 701 under the Securities Act. If these shares are sold, the trading price of the combined company’s common stock could decline.

After completion of the merger, Venus Concept’s executive officers, directors and principal shareholders will have the ability to control or significantly influence all matters submitted to the combined company’s stockholders for approval.

Upon the completion of the merger, it is anticipated that Venus Concept’s executive officers, directors and principal shareholders will, in the aggregate, beneficially own approximately 73% of Restoration Robotics’

 

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outstanding shares of common stock on a fully diluted basis, before giving effect to the equity commitment letter financing, the Restoration Robotics note conversion and the Venus note conversion. As a result, if these stockholders were to choose to act together, they would be able to control or significantly influence all matters submitted to the combined company’s stockholders for approval, as well as the combined company’s management and affairs. For example, if they choose to act together, these persons would control or significantly influence the election of directors and approval of any merger, consolidation or sale of all or substantially all of the combined company’s assets. Within this group, before giving effect to the equity commitment letter financing, the Restoration Robotics note conversion and the Venus note conversion, Longitude Venture Partners II, L.P and its affiliates will own approximately 20.8% and EW Healthcare and its affiliates will own approximately 19.9%, respectively, of Restoration Robotics outstanding shares. This concentration of voting power could delay or prevent an acquisition of the combined company on terms that other stockholders may desire.

If equity research analysts do not publish research or reports, or publish unfavorable research or reports, about the combined company, its business or its market, the combined company’s stock price and trading volume could decline.

The trading market for the combined company’s common stock will be influenced by the research and reports that equity research analysts publish about it and its business. Equity research analysts may elect not to provide research coverage of the combined company’s common stock after the completion of the merger, and such lack of research coverage may adversely affect the market price of its common stock. In the event it does have equity research analyst coverage, the combined company will not have any control over the analysts or the content and opinions included in their reports. The price of the combined company’s common stock could decline if one or more equity research analysts downgrade its stock or issue other unfavorable commentary or research. If one or more equity research analysts ceases coverage of the combined company or fails to publish reports on it regularly, demand for its common stock could decrease, which in turn could cause its stock price or trading volume to decline.

The combined company will have broad discretion in the use of proceeds from the equity commitment letter financing and may invest or spend the proceeds in ways with which you do not agree and in ways that may not increase the value of your investment, and a significant portion of the proceeds may be used to repay Restoration Robotics’ outstanding debt.

The combined company will have broad discretion over the use of proceeds from the equity commitment letter financing. You may not agree with the combined company’s decisions, and its use of the proceeds may not yield any return on your investment. The combined company’s failure to apply the net proceeds of the equity commitment letter financing effectively could compromise its ability to pursue its growth strategy and the combined company might not be able to yield a significant return, if any, on its investment of these net proceeds. You will not have the opportunity to influence its decisions on how to use the net proceeds from the equity commitment letter financing.

The outstanding aggregate principal amount and accrued and unpaid interest under Restoration Robotics loan and security agreement with Solar Capital Ltd., or Solar, and certain other lenders thereunder, or the Solar Agreement, must be paid off as a condition to Madryn’s consent to the merger. To the extent that Restoration Robotics does not have available cash to repay the borrowings under the Solar Agreement, a significant portion of the proceeds from the equity commitment letter financing will be used to repay the borrowings under the Solar Agreement. In the event that the borrowings under the Solar Agreement are not repaid, Madryn’s consent to the merger will not be effective and an event of default will occur under the Madryn Credit Agreement upon consummation of the merger. The outstanding balance on the Solar loan was $20.0 million and accrued interest totaled $180,000 as of March 31, 2019. Additionally, upon a prepayment of the Solar loan between May 10, 2019 and May 10, 2020, Restoration Robotics must also pay a final fee of $960,000 and prepayment premium of 2.00% of the amount prepaid.

 

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Because the merger will result in an ownership change under Section 382 of the Code for Restoration Robotics, Restoration Robotics’ pre-merger net operating loss carryforwards and certain other tax attributes will be subject to limitation or elimination. The net operating loss carryforwards and certain other tax attributes of Venus Concept and of the combined company may also be subject to limitations as a result of ownership changes.

If a corporation undergoes an “ownership change” within the meaning of Section 382 of the Code, the corporation’s net operating loss carryforwards and certain other tax attributes arising before the ownership change are subject to limitations on use after the ownership change. In general, an ownership change occurs if there is a cumulative change in the corporation’s equity ownership by certain stockholders that exceeds 50 percentage points by value over a rolling three-year period. Similar rules may apply under applicable state income tax laws. The merger will result in an ownership change for Restoration Robotics and, accordingly, Restoration Robotics’ net operating loss carryforwards and certain other tax attributes will be subject to limitation and possibly elimination after the merger. The merger may limit Venus Concept’s net operating loss carryforwards and certain other tax attributes. Additional ownership changes in the future could result in additional limitations on Restoration Robotics’, Venus Concept’s and the combined company’s net operating loss carryforwards and certain other tax attributes. Consequently, even if the combined company achieves profitability, it may not be able to utilize a material portion of Restoration Robotics’, Venus Concept’s or the combined company’s net operating loss carryforwards and certain other tax attributes, which could have a material adverse effect on cash flow and results of operations.

Even if the merger qualifies as a reorganization under Section 368(a) of the Code a U.S. holder may still recognize gain as a result of the merger if the U.S. holder owned Venus Concept capital stock at a time when Venus Concept was a PFIC for U.S. federal income tax purposes.

Notwithstanding that the merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Code, the merger could be a taxable event to U.S. holders of Venus Concept capital stock under the PFIC provisions of the Code, as discussed under the section entitled “The Merger—Material U.S. Federal Income Tax Consequences of the Merger to United States Holders of Venus Concept Capital Stock—Passive Foreign Investment Company Rules” beginning on page 121 of this proxy statement/prospectus. If Venus Concept was a PFIC for any taxable year during which a U.S. holder owned Venus Concept capital stock, certain adverse U.S. federal income tax consequences, including recognition of gain, could apply to such U.S. holder as a result of the merger, unless certain exceptions apply.

U.S. holders of Venus Concept capital stock should consult their tax advisors regarding the tax consequences of the merger to them if such holders owned Venus Concept capital stock at any time Venus Concept were treated as a PFIC.

If the combined company fails to maintain adequate and effective internal controls, its ability to produce accurate financial statements on a timely basis could be impaired.

The combined company will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the rules and regulations of Nasdaq. The Sarbanes-Oxley Act requires, among other things, that the combined company maintain effective disclosure controls and procedures and internal control over financial reporting. The combined company must perform system and process evaluation and testing of its internal control over financial reporting to allow management to report on the effectiveness of its internal controls over financial reporting in its Annual Report on Form 10-K filing for that year, as required by Section 404 of the Sarbanes-Oxley Act. As a private company, Venus Concept has never been required to test its internal controls within a specified period. This will require that the combined company incur substantial professional fees and internal costs to expand its accounting, finance, and compliance functions and that it expend significant management resources. The combined company may experience difficulty in meeting these reporting requirements in a timely manner.

 

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The combined company may discover weaknesses in its system of internal financial and accounting controls and procedures that could result in a material misstatement of its financial statements. The combined company’s internal control over financial reporting will not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.

If the combined company is not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act, or if it is unable to maintain proper and effective internal controls, the combined company may not be able to produce timely and accurate financial statements. If that were to happen, the market price of its common stock could decline and it could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities and could face potential stockholder litigation.

Risks Related to Venus Concept’s Business

Venus Concept’s product sale strategy is focused on a subscription-based business model, and the success of this sales strategy depends on the continued adoption and use of Venus Concept subscription-based products and services.

To address the financial barriers faced by physicians and aesthetic service providers globally, in Venus Concept’s direct operations, Venus Concept focuses its product sale strategy on a subscription-based business model. Venus Concept’s subscription model includes an up-front fee and a monthly payment schedule, typically over a period of 36 months, with approximately 40% of total contract payments collected in the first year. If economic circumstances are appropriate, Venus Concept provides customers in good standing with the opportunity to “upgrade” to new agreements for the newest available or alternative Venus Concept technology throughout the subscription period. Venus Concept’s success depends on growing market adoption by traditional and non-traditional providers and use of its subscription-based business model. Venus Concept’s subscription-based model may not be adopted by customers and potential customers at the rate Venus Concept anticipates. Venus Concept’s ability to increase the number of customers who purchase its products and services, or participate in its subscription-based programs and make its products a significant part of their practices, depends in part on the success of its direct sales and marketing programs. Before potential customers make a subscription-based purchase, they may need to recoup the cost of products that they have already purchased from competitors, and thus they may decide to delay participating in Venus Concept’s subscription-based programs, or decide not to participate at all. If Venus Concept is unable to increase market adoption and use of its products and services through its subscription-based model, the number of systems it sells may be lower than anticipated.

Venus Concept’s subscription-based model exposes Venus Concept to the credit risk of its customers over the life of the subscription agreement. In the event that Venus Concept’s customers fail to make the monthly payments under their subscription agreements, Venus Concept’s financial results may be adversely affected.

For the three months ended March 31, 2019 and the years ended December 31, 2018, 2017 and 2016, approximately 71%, 75%, 77% and 54%, respectively, of Venus Concept’s system revenues were derived from its subscription model. Venus Concept collects an up-front fee, combined with a monthly payment schedule typically over a period of 36 months, with approximately 40% of total contract payments collected in the first year. For accounting purposes, these arrangements are considered to be sales-type finance leases, where the present value of all cash flows to be received under the subscription agreement is recognized as revenue upon shipment of the system to the customer. As part of its sales and marketing effort, Venus Concept does not require its customers to undergo a credit check or register a lien or security interest under the Uniform Commercial Code or similar legislation, as is typically required with a third-party equipment leasing financing. Instead, to ensure that each monthly product payment is made on time and that the customer’s systems are serviced in accordance with the terms of the warranty, every product requires a monthly activation code, which Venus Concept provides

 

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to the customer upon receiving each monthly payment. If a customer does not timely pay a monthly installment, the customer will not receive an activation code and will be unable to use the system for any procedures. This process does not protect Venus Concept from the economic impact of a customer’s failure to make its monthly payments and as an unsecured creditor, Venus Concept is subject to a greater risk in the event of a customer default. Venus Concept cannot provide any assurance that the financial position of customers purchasing its products and services under a subscription agreement will not change adversely before Venus Concept receives all of the monthly installment payments due under the contract. In the event that there is a default by any of the customers to whom Venus Concept has sold systems under the subscription model, Venus Concept may recognize bad debt expenses in its general and administrative expenses. If this bad debt expense is material, it could negatively affect Venus Concept’s results of operations and cash flows.

One of Venus Concept’s large customers filed for bankruptcy protection in February 2019 and Venus Concept has recorded a provision for bad debts of $8.3 million against the receivable for this customer for the year ended December 31, 2018, and if Venus Concept experiences other customer defaults under its subscription agreements, its financial results may be adversely effected.

In February 2019, one of Venus Concept’s large customers filed for bankruptcy protection. Prior to the bankruptcy filing, Venus Concept had entered into numerous subscription agreements between 2015 and 2017 with this customer. Venus Concept recorded a provision for bad debts of $8.3 million against the receivable for this customer for the year ended December 31, 2018. In connection with the bankruptcy, the debtors filed an adversary action against Venus Concept (and several others) seeking to avoid any security interest of Venus Concept, to recover 89 units that had been transferred back to Venus Concept, the return of approximately $150,000 paid to Venus Concept within the 90 days before the bankruptcy filing and to disallow Venus Concept’s asserted claim of approximately $5.9 million. Venus Concept and the debtors entered into a settlement agreement, which was approved by the bankruptcy court on May 24, 2019, pursuant to which, among other things, a third-party purchaser would buy and assume certain Venus Concept units from the debtors and pay a total of approximately $2.7 million to Venus Concept over 25 months, debtors would release and waive any and all claims against Venus Concept, including the preference claim, Venus Concept would retain and have all rights to previously terminated units, and any units in possession of the debtors or that were subsequently discovered to be property of the debtor would be returned to Venus Concept without further cost to Venus Concept. Pursuant to the settlement agreement, Venus Concept agreed to waive and release the debtors from all claims (other than those specifically carved out). Venus Concept does not anticipate receiving any further distribution from this customer’s bankruptcy due to the releases provided for in the settlement agreement. Although Venus Concept is currently receiving monthly payments under the new agreement with the purchaser of Venus Concept’s customer’s assets, Venus Concept cannot assure you that it will receive the full amount. Furthermore, Venus Concept cannot assure you that it will not experience further customer defaults under its subscription agreements that could have a material adverse effect on its financial position.

Venus Concept offers credit terms to some qualified customers. In the event that any of these customers default on the amounts payable to Venus Concept, Venus Concept’s financial results may be adversely affected.

In addition to its subscription-based model, Venus Concept generally offers credit terms of 30 to 60 days to qualified customers and distributors. In the event that there is a default by any of the customers to whom Venus Concept has provided credit terms, Venus Concept may recognize bad debt expenses in its general and administrative expenses. If this bad debt expense is material, it could negatively affect Venus Concept’s future results of operations, and cash flows. Additionally, in the event of deterioration of general business conditions, Venus Concept may be subject to increased risk of non-payment of its accounts receivables. Venus Concept may also be adversely affected by bankruptcies or other business failures of its customers, distributors, and potential customers. A significant delay in the collection of accounts receivables or a reduction of accounts receivables collected may impact Venus Concept’s liquidity or result in bad debt expenses.

 

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Venus Concept’s competitors may emulate its subscription model and erode its competitive advantage.

Venus Concept’s subscription-based model allows it to penetrate new markets and access a broader customer base because it offers an alternative to traditional equipment lease financing. For the three months ended March 31, 2019 and the year ended December 31, 2018, approximately 71% and 75%, respectively, of systems revenues were derived from the subscription model. However, to the extent Venus Concept continues to be successful in growing the market adoption of its products through its subscription-based model, competitors may seek to emulate this model. Although, Venus Concept believes that its products compete effectively with the products offered by its competitors, its customers may be more willing to purchase the products of its competitors if they were offered through a subscription model. If customers decide to use the products of its competitors instead of Venus Concept’s systems, Venus Concept’s financial performance will be adversely affected.

Venus Concept’s loan and security agreements contain restrictions that limit its flexibility in operating its business.

On October 11, 2016, Venus Concept entered into a credit agreement as a guarantor with Madryn Health Partners, LP, as administrative agent, and certain of its affiliates as lenders, or collectively, Madryn, as amended, or the Madryn Credit Agreement, pursuant to which Madryn agreed to make certain loans to certain of Venus Concept’s subsidiaries, or the Subsidiary Obligors. The Madryn Credit Agreement is comprised of four tranches of debt aggregating $70.0 million. As at March 31, 2019, the Subsidiary Obligors had borrowed $60.0 million under the term A-1 and A-2 and B tranches of the Madryn Credit Agreement. Term C borrowings of $10.0 million may be made available to the Subsidiary Obligors at the discretion of Madryn on or prior to September 30, 2019, however, the Term C facility is not committed, and the proceeds of this tranche must be used to consummate a mutually agreed upon acquisition or investment. Borrowings under the Madryn Credit Agreement are secured by substantially all of the assets of Venus Concept and the Subsidiary Obligors. The outstanding principal amount of the loans and all accrued and unpaid interest are due and payable in full on September 30, 2022.

The Madryn Credit Agreement also contains various covenants that limit the ability of Venus Concept and its subsidiaries to engage in specified types of transactions. Subject to limited exceptions, these covenants limit Venus Concept’s ability, without Madryn’s consent, to, among other things:

 

   

sell, lease, transfer, exclusively license or dispose of Venus Concept’s assets;

 

   

create, incur, assume or permit to exist additional indebtedness or liens, which may limit Venus Concept’s ability to raise additional capital;

 

   

make restricted payments, including paying dividends on, repurchasing or making distributions with respect to Venus Concept’s capital stock;

 

   

pay any cash dividend or make any other cash distribution or payment in respect of Venus Concept’s capital stock;

 

   

make specified investments (including loans and advances);

 

   

make changes to certain key personnel including Venus Concept’s President and Chief Executive Officer;

 

   

merge, consolidate or liquidate; and

 

   

enter into certain transactions with affiliates.

In addition, the Madryn Credit Agreement contains certain covenants that require Venus Concept together with its subsidiaries to (a) use commercially reasonable efforts to raise an aggregate of at least $60.0 million of equity proceeds through the earlier to occur of December 31, 2019 and the termination of the merger agreement

 

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(which includes amounts raised pursuant to the equity commitment letter) and (b) achieve certain minimum revenue and liquidity thresholds. The minimum revenue and liquidity covenants require that Venus Concept and its subsidiaries, on a consolidated basis, achieve (i) minimum reported revenue targets for any four consecutive fiscal quarter period of an amount equal to the greater of (A) $100,000,000 and (B) one hundred and fifty percent (150%) of the aggregate outstanding amount of the loans as of the last day of such four consecutive fiscal quarter period, (ii) minimum levels of cash held in deposit accounts controlled by Madryn to be no less than $2,000,000 and (iii) minimum levels of cash held in all deposit accounts, plus availability under the CNB Loan Agreement, to be no less than $5,000,000. Starting on June 25, 2019, Venus Concept was not in compliance with the minimum liquidity covenant. In addition, Venus Concept failed to timely pay an interest payment due June 28, 2019, although this interest payment was subsequently made on July 10, 2019. Venus Concept received a letter from Madryn on July 5, 2019 stating that an event of default exists as a result of Venus Concept’s failure to timely pay the interest payment due June 28, 2019. On July 26, 2019, Venus Concept and Madryn executed a waiver and amendment to the Madryn Credit Agreement pursuant to which, Madryn lowered the liquidity covenant from $2,000,000 to $200,000 through the earlier of August 30, 2019 and the time Venus Concept raises $21.0 million in additional equity. Madryn waived the existing events of default. In addition, the amendment to the Madryn Credit Agreement includes, among other changes, a requirement that Venus Concept complete an equity financing with proceeds of $21.0 million no later than August 30, 2019.

If Venus Concept together with its subsidiaries fails to comply with these revised covenants, including the requirement to raise additional equity financing by August 30, 2019, or fails to use commercially reasonable efforts to raise the required amount of equity proceeds in the required time frame, such failure will result in a default and enable Madryn to require Venus Concept and the Subsidiary Obligors to repay all outstanding principal amounts and accrued interest. In the event of a default, if Venus Concept and the Subsidiary Obligors are unable to repay all outstanding amounts, Madryn may foreclose on the collateral granted to it to collateralize the indebtedness, which will significantly affect Venus Concept’s ability to operate it business.

If all or any portion of the loans under the Madryn Credit Agreement are prepaid then a prepayment premium must be paid equal to: (i) 8.00% of the loans prepaid if prepaid on or prior to August 31, 2019; (ii) 6.50% if prepaid after August 31, 2019 but on or prior to August 31, 2020; (iii) 5.00% if prepaid after August 31, 2020 but on or prior to February 28, 2021; (iv) 4.00% if prepaid after February 28, 2021 but on or prior to August 31, 2021; (v) 3.00% percent if prepaid after August 31, 2021 but on or prior to February 28, 2022; and (vi) 2.00% if prepaid after February 28, 2022.

On August 29, 2018, Venus Concept entered into an Amended and Restated Loan Agreement as a guarantor with City National Bank of Florida, or CNB, as amended, or the CNB Loan Agreement, pursuant to which CNB agreed to make certain loans and other financial accommodations to the Subsidiary Obligors. In connection with the CNB Loan Agreement, Venus Concept also entered into a Guaranty Agreement with CNB dated as of August 29, 2018, or the CNB Guaranty, pursuant to which Venus Concept agreed to guaranty the obligations of its subsidiaries under the CNB Loan Agreement. As of March 31, 2019, the CNB Loan Agreement provided for a revolving loan commitment of $7.5 million and $6.7 million was drawn thereunder. Borrowings under the CNB Loan Agreement are secured by substantially all of the assets of the Subsidiary Obligors and the CNB Guaranty.

On April 25, 2019, the revolving loan commitment under the CNB Loan Agreement was increased to $10.0 million and the CNB Loan Agreement was further amended to require the consummation on or before July 31, 2019 of both the merger and an equity financing of at least $20.0 million. If both such events are not consummated by July 31, 2019, an event of default will occur under the CNB Loan Agreement on August 30, 2019, unless by such date either (i) the outstanding principal balance of loans in excess of $7.5 million has been repaid or (ii) the merger and an equity financing of at least $20.0 million have been consummated.

The CNB Loan Agreement contains various covenants that limit Venus Concept’s and its subsidiaries’ ability to engage in specified types of transactions. Subject to limited exceptions, these covenants limit Venus Concept’s ability, without CNB’s consent, to, among other things, sell, lease, transfer, exclusively license or dispose of Venus

 

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Concept’s assets, incur, create or permit to exist additional indebtedness, or liens, to make dividends and certain other restricted payments, and to make certain changes to its management and/or ownership structure.

In addition, the CNB Loan Agreement contains certain covenants that require the Subsidiary Obligors to achieve certain minimum account balances, or a minimum debt service coverage ratio and a maximum total liability to tangible net worth ratio. If the Subsidiary Obligors fail to comply with these covenants, it will result in a default and require Venus Concept and the Subsidiary Obligors to repay all outstanding principal amounts and accrued interest. As of March 31, 2019, Venus Concept was not in compliance with the minimum debt service coverage ratio of its credit facility with CNB. In June 2019, Venus Concept received a waiver removing the requirement to meet the minimum debt service coverage ratio for the period ended March 31, 2019. As of June 30, 2019, Venus Concept was not in compliance with the minimum debt service coverage ratio under its credit facility with CNB. In July 2019, the Company received a one-time waiver removing the requirement to meet the minimum debt service coverage ratio for the period ended June 30, 2019 and agreeing that future periods will not be measured until August 30, 2019.

In the event of a default, if Venus Concept and the Subsidiary Obligors are unable to repay all outstanding amounts, CNB may foreclose on the collateral granted to it to collateralize the indebtedness, which includes the enforcement of the CNB Guaranty, which will significantly affect Venus Concept’s ability to operate its business. The occurrence of any event of default under the CNB Loan Agreement would trigger an event of default under the Madryn Credit Agreement. Additionally, the occurrence of any event of default under the Madryn Credit Agreement would trigger an event of default under the CNB Loan Agreement. CNB has provided a waiver for cross defaults arising under the Madryn Credit Agreement until August 30, 2019.

Venus Concept’s recurring losses from operations and negative cash flows raise substantial doubt about its ability to continue as a going concern.

Venus Concept has had recurring net operating losses and negative cash flows from operations, and until Venus Concept generates revenue at a level to support its cost structure, it expects to continue to incur substantial operating losses and net cash outflows. As of March 31, 2019, and December 31, 2018, Venus Concept had an accumulated deficit of $40.3 million and $35.1 million, respectively. Venus Concept’s recurring losses from operations and negative cash flows raise substantial doubt about its ability to continue as a going concern, meaning that it may be unable to continue operations for the foreseeable future or realize assets and discharge liabilities in the ordinary course of operations. In order to continue its operations, Venus Concept must achieve profitable operations and/or obtain additional equity or debt financing. There can be no assurance that Venus Concept will be successful in raising additional capital or that such capital, if available, will be on terms that are acceptable to Venus Concept. If Venus Concept is unable to raise sufficient additional capital, it may be compelled to reduce the scope of its operations and planned capital expenditures or sell certain assets, including intellectual property assets. The report of Venus Concept’s independent registered public accounting firm on its consolidated financial statements as of and for the year ended December 31, 2018 and 2017, includes an explanatory paragraph indicating that there is substantial doubt about Venus Concept’s ability to continue as a going concern. Venus Concept’s consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty.

Venus Concept may need to raise additional capital in the future, and such funds may not be available on attractive terms, or at all.

Venus Concept expects to need to raise additional capital in the future to support its operations. Venus Concept cannot be certain that additional capital will be available as needed or on acceptable terms, or at all. If Venus Concept requires additional capital at a time when an investment in Venus Concept, in medical technology or medical aesthetic product companies or the market in general is limited, Venus Concept may not be able to raise additional funds at the time that it desires, or at all. If Venus Concept does raise additional funds through the issuance of equity or convertible securities, the percentage ownership of holders of its ordinary shares could be significantly diluted and these newly issued securities may have rights, preferences, or privileges senior to

 

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those of holders of the ordinary shares. If Venus Concept obtains additional debt financing, a substantial portion of its operating cash flow may be dedicated to the payment of principal and interest on such indebtedness, and the terms of any additional debt could impose significant restrictions on Venus Concept’s operations. The terms of the Madryn Credit Agreement and CNB Loan Agreement limit Venus Concept’s ability to incur additional indebtedness. If Venus Concept raises additional funds through licensing arrangements, it could be required to relinquish significant rights to its products, and services or grant licenses on terms that are not favorable to Venus Concept.

Venus Concept competes against companies that offer alternative solutions to its systems, or have greater resources, a larger installed base of customers and broader product offerings than Venus Concept has. If Venus Concept is not able to effectively compete with these companies and alternative solutions, its business may not continue to grow.

The medical technology and aesthetic product markets are highly competitive and dynamic and are characterized by rapid and substantial technological development and product innovation. Demand for Venus Concept systems is impacted by the products and procedures offered by its competitors. Certain of Venus Concept’s systems also compete against conventional non-energy-based treatments, such as Botox and collagen injections, chemical peels, and microdermabrasion. In the United States, Venus Concept competes against companies that have developed minimally invasive and non-invasive medical aesthetic procedures. Outside of the United States, likely due to less stringent regulatory requirements, there are more aesthetic products and procedures available in international markets than are cleared for use in the United States. Sometimes, there are also fewer limitations on the claims Venus Concept’s competitors in international markets can make about the effectiveness of their products and the manner in which they can market them. As a result, Venus Concept may face a greater number of competitors in markets outside of the United States.

Venus Concept also competes generally with medical technology and aesthetic companies, including those offering products and products unrelated to skin treatment. Recently, there has been consolidation in the aesthetic industry leading to companies combining their resources, which increases competition and could result in increased downward pressure on Venus Concept’s system prices. For example, Allergan acquired Zeltiq in April 2017, Hologic acquired Cynosure in March 2017, and XIO Group acquired Lumenis in September 2015. These consolidations have created combined entities with greater financial resources, deeper sales channels and greater pricing flexibility than Venus Concept. Rumored or actual consolidation of Venus Concept’s competitors could cause uncertainty and disruption to its business. Many of Venus Concept’s competitors are larger, more experienced companies that have substantially greater resources and brand recognition than Venus Concept does. Some of these companies have a broad range of product offerings, large direct sales forces and long-term customer relationships with the physicians Venus Concept targets, which could make Venus Concept’s market penetration efforts more difficult.

Competition in the medical technology and aesthetic markets could result in price-cutting, reduced profit margins, and limited market share, any of which would harm Venus Concept’s business, financial condition and results of operations.

Venus Concept’s success depends on growing physician adoption and use of Venus Concept’s systems and adoption by physicians in non-traditional specialty areas.

Aesthetic procedures are performed primarily by physicians who practice dermatology or plastic surgery. Venus Concept’s success depends on the growth of aesthetic procedures performed by physicians in specialties other than dermatologists and plastic surgeons, including general and family practitioners and aesthetic medical spas. Venus Concept’s ability to increase the number of physicians willing to make a significant capital expenditure to purchase its systems or participate in its subscription program depends on the success of Venus Concept’s sales and marketing programs. Venus Concept must persuade physicians to purchase its systems instead of those of its competitors, many of whom already have existing relationships with its target physicians

 

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and to persuade physicians in non-traditional specialties to introduce procedures performed with Venus Concept’s systems into their practices. If Venus Concept is unable to increase adoption and use of its systems by physicians in other non-traditional specialties, its growth and prospects may be adversely affected.

Venus Concept’s success depends on customer loyalty.

The success of Venus Concept’s subscription-based model depends on customer loyalty. In order to generate recurring revenues and for customers to continue upgrading their technologies to Venus Concept’s newest technologies, customers must believe that Venus Concept systems and service offerings are superior to those of its competitors and enhance the physician’s practices and business from a professional, financial and reputational vantage point. To the extent Venus Concept fails to maintain ongoing relationships with its customers or its systems and service offerings do not satisfy its customers’ needs, including their financial goals, Venus Concept’s business will be adversely affected.

The aesthetic equipment market is characterized by rapid innovation. To compete effectively, Venus Concept must develop and/or acquire new products and services, seek regulatory clearance and maintain regulatory compliance, market new products successfully, and identify new markets for its technology.

The aesthetic energy-based treatment equipment market is subject to continuous technological development and product innovation. If Venus Concept does not continue to innovate and develop new products, services and applications, its competitive position will likely deteriorate as other companies successfully design and commercialize new products, applications and services or enhancements to current products. To continue to grow in the future, Venus Concept must continue to develop and/or acquire new and innovative aesthetic and medical products, services and applications, identify new markets, and successfully launch any newly developed or acquired product offerings.

To successfully expand Venus Concept’s product and service offerings, Venus Concept must, among other things:

 

   

develop or otherwise acquire new products that either add to, or significantly improve, its current product offerings;

 

   

obtain regulatory clearance for and adhere to regulatory requirements relating to new products;

 

   

convince existing and prospective customers that Venus Concept product offerings are an attractive revenue-generating addition to their practice;

 

   

sell Venus Concept product offerings to a broad customer base;

 

   

identify new markets and alternative applications for Venus Concept technology;

 

   

protect existing and future products with defensible intellectual property; and

 

   

satisfy and maintain all regulatory requirements for commercialization.

Historically, product introductions have been a significant component of Venus Concept’s financial performance. To be successful in the aesthetics industry, Venus Concept believes it needs to continue to innovate. Venus Concept’s business strategy is based, in part, on its expectation that it will continue to increase or enhance its product offerings. Venus Concept needs to continue to devote substantial research and development resources to introduce new products, which can be costly and time-consuming to its organization.

Venus Concept also believes that, to increase revenue from sales of new products, it needs to continue to develop its clinical support, further expand and nurture relationships with industry thought leaders, and increase market awareness of the benefits of its new products. However, even with a significant investment in research and development, Venus Concept may be unable to continue to develop, acquire or effectively launch and market

 

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new products and technologies regularly, or at all. If Venus Concept fails to successfully commercialize new products or enhancements, its business may be harmed.

While Venus Concept attempts to protect its products through patents and other intellectual property, there are few barriers to entry that would prevent new entrants or existing competitors from developing products that compete directly with Venus Concept’s systems. Venus Concept expects that any competitive advantage it may enjoy from current and future innovations may diminish over time as certain of its intellectual property expires and as companies use or create intellectual property and related products that compete with Venus Concept’s innovations. Consequently, Venus Concept believes that it will have to continuously innovate and improve its products and technology to compete successfully. If Venus Concept is unable to innovate successfully, its products could become obsolete and its revenue could decline as its customers and prospects purchase competing products.

Venus Concept’s financial results may fluctuate significantly, which makes its future performance difficult to forecast.

Given the rapid evolution of the markets for medical aesthetic products, Venus Concept’s financial results could vary significantly in the future, which makes it difficult for it to forecast its future performance. In addition, a number of additional factors, many of which are outside of its control, may contribute to fluctuations in Venus Concept’s financial results, such as:

 

   

changes in the length of the sales process;

 

   

the performance of its international distributors and local partners;

 

   

media coverage of its systems and positive or negative patient experiences, the procedures or products of its competitors, or its industry;

 

   

its ability to maintain its current or obtain further regulatory clearances, approvals or CE Certificates of Conformity;

 

   

delays in, or failure of components deliveries by third-party contract suppliers;

 

   

introduction of new medical aesthetic procedures or products and services that compete with Venus Concept’s products;

 

   

variations in market demand for its systems and services from quarter to quarter;

 

   

adverse changes in the economy that reduce patient demand for elective aesthetic procedures; and

 

   

customers operating under its subscription-based program may slow down or stop paying their monthly contractual obligations.

Venus Concept will need to continue to incur significant expenses, which could impact its future profitability.

In order to grow its business and increase its revenues, Venus Concept will need to introduce and commercialize new products, grow its sales and marketing force, implement new software systems, as well as identify and penetrate new markets. Such endeavors have in the past increased, and may continue in the future, to increase its expenses, including sales and marketing, and research and development. Venus Concept will have to continue to increase its revenue while effectively managing its expenses in order to achieve profitability and to sustain it. Venus Concept’s failure to control expenses could make it difficult to achieve profitability or to sustain profitability in the future. Moreover, Venus Concept cannot assure you that its expenditures will result in the successful development and introduction of new products in a cost-effective and timely manner or that any such new products will achieve market acceptance and generate revenues for its business.

 

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Downturns in the economy or economic uncertainty may reduce patient and customer demand for Venus Concept systems and services.

The aesthetic industry in which Venus Concept operates is particularly vulnerable to economic trends. Treatment using Venus Concept systems involves an elective procedure, the cost of which must be borne by the patient, and is not reimbursable through government or private health insurance. Economic uncertainty may reduce patient demand for the procedures performed using Venus Concept systems; if there is not sufficient patient demand for the procedures for which its systems are used, practitioner demand for these systems could drop, negatively impacting operating results. The decision to undergo a procedure using Venus Concept systems is driven by consumer demand. In times of economic uncertainty or recession, individuals generally reduce the amount of money that they spend on discretionary items, including aesthetic procedures. If its customers’ patients face economic hardships, Venus Concept’s business would be negatively impacted and its financial performance would be materially harmed in the event that any of the above factors discourage patients from seeking the procedures for which its systems are used. The impact of economic uncertainty on its industry may vary from region to region.

Venus Concept’s success depends in part upon patient satisfaction with the effectiveness of its systems and services.

In order to generate repeat and referral business, patients must be satisfied with the effectiveness of Venus Concept systems and its customers must be satisfied with the support from its sales and marketing services. Results that patients obtain from Venus Concept’s systems and services occur gradually over a period of months, and patients’ perception of their results may vary. Although Venus Concept trains its customers to identify and limit treatments to the patient candidates who will likely benefit from treatment with its systems, explain to their patients the time period over which the results from its systems will occur, and take before and after photographs of their patients, Venus Concept customers may not limit use of its systems to appropriate patient candidates or the systems may produce results that may not meet patients’ expectations. If patients are not satisfied with the aesthetic benefits or safety of Venus Concept systems, or feel that the treatments are too expensive for the results obtained, Venus Concept’s reputation and future sales will suffer.

Venus Concept may be unsuccessful in penetrating certain international markets through majority-owned subsidiary arrangements with local partners.

Venus Concept has established several majority-owned subsidiaries in international markets as part of its international growth strategy. Although Venus Concept selects its local partners based on demonstrated experience and expertise in the local aesthetic market, the nature of its arrangements with local partners requires it to share control with unaffiliated third parties. Venus Concept may not be able to identify local partners with the requisite experience and expertise in their local markets or successfully negotiate an agreement with such local partners. Moreover, the ability of these subsidiaries to execute their business plans depends on the local partners to fulfill their obligations. If local partners fail to fulfill their obligations to Venus Concept’s satisfaction, Venus Concept’s results could be adversely affected or it may be required to increase its level of commitment to the subsidiary and dedicate additional resources. Although its agreements with its local partners generally allow Venus Concept control over business operations, differences in views could also result in delayed execution of the subsidiary’s business plan. If these differences cause a subsidiary to deviate from its business plans, Venus Concept’s results of operations could be adversely affected.

Venus Concept may be unsuccessful in expanding and managing its direct sales and marketing forces effectively.

Venus Concept relies on its own direct sales force and in-house marketing organization to sell its systems and services in North America and in international markets, either through wholly-owned or majority-owned subsidiaries. In order to meet its anticipated sales objectives, Venus Concept expects to continue to grow its

 

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global sales and marketing organization over the next several years. There are significant risks involved in building and managing a sales and marketing organization, including risks related to Venus Concept’s ability to:

 

   

hire qualified individuals as needed;

 

   

generate sufficient leads within its target customer group for its sales force;

 

   

provide adequate training for the effective sale and marketing of its systems and services;

 

   

retain and motivate its direct sales and marketing professionals;

 

   

effectively oversee geographically dispersed sales and marketing teams; and

 

   

work successfully with local partners of its majority-owned subsidiaries.

Venus Concept’s failure to adequately address these risks could have a material adverse effect on its ability to increase sales and use of its systems and services, which would cause its revenues to be lower than expected and harm its results of operations. In addition, as Venus Concept transitions to direct sales in certain international markets, the transition may result in a slow-down of growth or even a reduction in sales in those markets during the transition process as its distributors anticipate losing the ability to sell its systems.

Venus Concept depends on third-party distributors to market and sell its systems in certain markets.

In addition to a direct sales and marketing force, Venus Concept currently depends on third-party distributors to sell, market and service its systems in certain markets outside of North America and to train its customers in these markets. In 2018, Venus Concept generated 5% of its systems revenues from sales made through third-party distributors. Venus Concept’s agreements with third-party distributors generally set forth minimum quarterly purchase commitments required for each distributor and provide the distributor the exclusive right to distribute its systems within a designated territory. As Venus Concept continues to expand into new markets outside of North America, Venus Concept may need to engage additional third-party distributors, which subject it to a number of risks, including:

 

   

Venus Concept lacks day-to-day control over the activities of third-party distributors;

 

   

third-party distributors may not commit the necessary resources to market, sell and service its systems to its satisfaction;

 

   

third-party distributors may terminate their arrangements with Venus Concept on limited, or no, notice or may request modifications to the terms of these arrangements in a manner unfavorable to Venus Concept; and

 

   

disagreements with third-party distributors could require or result in costly and time-consuming litigation or arbitration, which Venus Concept could be required to conduct in jurisdictions in which Venus Concept is not familiar with the governing law.

In addition, one of Venus Concept’s strategic initiatives is to directly provide marketing personnel and resources for third-party distributors. If Venus Concept fails to establish and maintain satisfactory relationships with its third-party distributors, its revenues and market share may not grow as anticipated, and Venus Concept could be subject to unexpected costs which would harm its results of operations and financial condition.

Venus Concept’s expanded use of social media platforms presents new risks and challenges, which, if not managed properly, could have a material adverse effect on Venus Concept’s business, financial condition and results of operations.

Venus Concept has implemented a robust public relations outreach strategy that incorporates both digital media and top national media in the fashion and beauty industries. In addition, as part of its practice enhancing services, Venus Concept provides customers with digital marketing services, including a social media strategy, to

 

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support the growth of their practices. Negative posts or comments about Venus Concept on any social networking website could seriously damage its reputation. In addition, the inappropriate use of certain media vehicles could cause brand damage or information leakage or could lead to legal implications from the improper collection and/or dissemination of personally identifiable information.

Economic and other risks associated with international sales and operations could adversely affect Venus Concept’s business.

Sales in markets outside of the United States accounted for approximately 61% and 55% of Venus Concept’s revenues for the three months ended March 31, 2019 and the year ended December 31, 2018, respectively. As part of its growth strategy Venus Concept intends to expand the percentage of its business that comes from sales in markets outside of North America through increased penetration in countries where Venus Concept currently markets and sells its systems through its third-party distributor network and local partners, combined with expansion into new international markets. The majority of Venus Concept’s research and development activities and the manufacture of its systems is located outside of the United States. As a result of its international business, Venus Concept is subject to a number of additional risks, including:

 

   

difficulties in staffing and managing its international operations, including the sales offices of its subsidiaries;

 

   

increased competition as a result of more products and procedures receiving regulatory approval or otherwise being free to market in international markets;

 

   

potentially adverse tax consequences, including the complexities of foreign value-added tax systems, tax inefficiencies related to its corporate structure, and restrictions on the repatriation of earnings;

 

   

the lack of protection, or reduced or varied protection, for its intellectual property rights in some countries;

 

   

longer accounts receivable payment cycles and difficulties in collecting accounts receivable;

 

   

import and export restrictions, trade regulations, and non-U.S. tax laws;

 

   

fluctuations in currency exchange rates;

 

   

foreign certification and regulatory clearance or approval requirements;

 

   

difficulties in developing effective marketing campaigns in unfamiliar foreign countries;

 

   

customs clearance and shipping delays;

 

   

political, social, and economic instability abroad, terrorist attacks, and security concerns in general;

 

   

preference for locally manufactured products;

 

   

the burdens of complying with a wide variety of foreign laws and different legal standards; and

 

   

increased financial accounting and reporting burdens and complexities.

If one or more of these risks were realized, it could require Venus Concept to dedicate significant financial and management resources which could negatively affect its financial results.

A subsidiary of Venus Concept is the subject of an investigation by the People’s Republic of China, or PRC, State Administration for Market Regulation, or SAMR, regarding the potential misclassification of one product as a non-medical device. If this subsidiary is determined to have sold the Versa platform under an improper classification, the subsidiary could face material administrative penalties, including loss of future sales, corrective actions, disgorgement of profits and fines.

Venus Concept’s Chinese subsidiary, or Venus Concept China, imports and sells registered medical devices and unregistered non-medical devices in the PRC. One of its unregistered products has recently been the subject

 

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of inquiries from two district level branches of the SAMR, Xuhui MSA and Huangpu MSA, as to whether the product was properly sold as a non-medical device. In January 2019, Venus Concept China had applied to register a version of this non-medical device as a medical device with the National Medical Products Administration of PRC, or NMPA. On June 12, 2019, Venus Concept China was informed that Xuhui MSA had opened an administrative investigation case related to whether the device is an unregistered medical device, as a result of a complaint that Xuhui MSA received from a former distributor of Venus Concept China. Huangpu MSA notified Venus Concept China that it would be suspending its separate investigation against Venus Concept China, pending the results of the Xuhui MSA investigation. Venus Concept and Venus Concept China have voluntarily stopped sales in China of this product. Venus Concept China has not yet received a determination from NMPA on its medical device application.

In addition to the product that is the subject of an administrative investigation, Venus Concept China also sells two other products in the PRC, which are not registered as medical devices with the NMPA. Venus Concept China may not be able to convince the relevant SAMR authorities that the product that is the subject of an administrative investigation was properly classified, or that any of its other products that might be the subject of future government investigations, is properly classified. If any of the products sold by Venus Concept China as unregistered products is ultimately determined to be a medical device, the registration process with the NMPA could be extensive and time-consuming, potentially resulting in Venus Concept China’s inability to sell such products in the PRC for several years. Venus Concept China’s prior sales of those products could also subject it to material administrative penalties if it is determined that the products were sold in the absence of necessary registrations with NMPA. These administrative penalties could include limitations on future sales, corrective actions, including recalls, disgorgement of profits and fines, the future imposition of which could materially adversely affect Venus Concept’s business, operations, financial condition and reputation in the market. Although the revenue generated from the product that is the subject of the investigation did not represent a material amount of Venus Concept’s total revenues for the year ended December 31, 2018 or 2017, or for the three months ended March 31, 2019, monetary penalties nonetheless could be material.

Venus Concept relies on a limited number of third-party contract manufacturers for the production of its systems and has no contracts with suppliers for the components used in its systems. The failure of these third parties to perform could adversely affect Venus Concept’s ability to meet demand for its systems in a timely and cost effective manner.

Venus Concept relies on third-party contract manufacturers in Karmiel, Israel, Nazareth, Israel, Mazet, France and Weston, Florida for the manufacture of all of its systems. The majority of the components used in its systems are available off the shelf and Venus Concept does not rely on any single supplier, and as a result it does not have any long-term supply agreements for components. Venus Concept’s reliance on third-party contract manufacturers and suppliers involves a number of risks, including, among other things:

 

   

contract manufacturers or suppliers may fail to comply with regulatory requirements or make errors in manufacturing that could negatively affect the efficacy or safety of its systems or cause delays in shipments of its systems;

 

   

Venus Concept or its contract manufacturers or suppliers may not be able to respond to unanticipated changes in customer orders, and if orders do not match forecasts, Venus Concept or its contract manufactures may have excess or inadequate inventory of materials and components;

 

   

Venus Concept or its contract manufacturers and suppliers may be subject to price fluctuations due to a lack of long-term supply arrangements for key components;

 

   

Venus Concept or its contract manufacturers and suppliers may lose access to critical services and components, resulting in an interruption in the manufacture, assembly and shipment of its systems;

 

   

Venus Concept may experience delays in delivery by its contract manufacturers and suppliers due to changes in demand from Venus Concept or their other customers;

 

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fluctuations in demand for systems that its contract manufacturers and suppliers manufacture for others may affect their ability or willingness to deliver components to Venus Concept in a timely manner;

 

   

its suppliers or those of its contract manufacturers may wish to discontinue supplying components or services to Venus Concept for risk management reasons;

 

   

Venus Concept may not be able to find new or alternative components or reconfigure its system and manufacturing processes in a timely manner if the necessary components become unavailable; and

 

   

its contract manufacturers and suppliers may encounter financial hardships unrelated to its demand, which could inhibit their ability to fulfill its orders and meet its requirements.

If any of these risks materialize, they could significantly increase Venus Concept’s costs and impact its ability to meet demand for its systems. If Venus Concept is unable to satisfy commercial demand for its systems in a timely manner, its ability to generate revenue would be impaired, market acceptance of its systems and its reputation could be adversely affected, and customers may instead purchase or use its competitors’ products. In addition, Venus Concept could be forced to secure new or alternative contract manufacturers or suppliers. Securing a replacement contract manufacturer or supplier could be difficult. The introduction of new or alternative manufacturers or suppliers also may require design changes to its medical device products that are subject to FDA and other regulatory clearances or approvals, or a new or revised CE Certificate of Conformity. Venus Concept may also be required to assess the new manufacturer’s compliance with all applicable regulations and guidelines, which could further impede its ability to manufacture its systems in a timely manner. As a result, Venus Concept could incur increased production costs, experience delays in deliveries of its systems, suffer damage to its reputation, and experience an adverse effect on its business and financial results.

Venus Concept forecasts sales to determine requirements for components and materials used in its systems, and if its forecasts are incorrect, Venus Concept may experience delays in shipments or increased inventory costs.

Venus Concept keeps limited materials, components, and finished products on hand. To manage its operations with its third-party contract manufacturers and suppliers, Venus Concept forecasts anticipated system orders and material requirements to predict its inventory needs and enter into purchase orders on the basis of these requirements. Several components of its systems require an order lead time of four months or more. If its business continues to expand and its needs for components and materials increases beyond its estimates, Venus Concept may be unable to meet the demand. In addition, if Venus Concept underestimates its component and material requirements, Venus Concept may have inadequate inventory, which could interrupt, delay, or prevent delivery of its systems. In contrast, if Venus Concept overestimates its component and material requirements, Venus Concept may have excess inventory, which would increase its expenses. Any of these occurrences would negatively affect Venus Concept’s financial performance and the level of satisfaction its customers have with its business.

Because Venus Concept incurs a substantial portion of its expenses in currencies other than the U.S. dollar, its financial condition and results of operations may be adversely affected by currency fluctuations and inflation.

In the three months ended March 31, 2019 and the year ended December 31, 2018, 49% of Venus Concept’s global revenues were denominated in U.S. dollars and its reporting currency was the U.S. dollar. Venus Concept pays a meaningful portion of its expenses in NIS, CAD, and other foreign currencies. Expenses in NIS and CAD accounted for 29% and 14%, respectively, for the three months ended March 31, 2019 and 32% and 14%, respectively, of Venus Concept’s expenses for the year ended December 31, 2018. Salaries paid to its employees, general and administrative expenses and general sales and related expenses are paid in many different currencies. As a result, Venus Concept is exposed to the currency fluctuation risks relating to the denomination of its future revenues in U.S. dollars. More specifically, if the U.S. dollar devaluates against the CAD or the NIS, its CAD

 

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and NIS denominated expenses will be greater than anticipated when reported in U.S. dollars. Inflation in Israel compounds the adverse impact of such devaluation by further increasing the amount of Venus Concept’s Israeli expenses. Israeli inflation may also in the future outweigh the positive effect of any appreciation of the U.S. dollar relative to the CAD and the NIS, if, and to the extent that, it outpaces such appreciation or precedes such appreciation. Venus Concept generally does not engage in currency hedging to protect it from fluctuations in the exchange rates of the CAD, NIS and other foreign currencies in relation to the U.S. dollar (and/or from inflation of such foreign currencies), Venus Concept may be exposed to material adverse effects from such movements. Venus Concept cannot predict any future trends in the rate of inflation in Israel or the rate of devaluation (if any) of the U.S. dollar or any other currency against the NIS or CAD.

Venus Concept’s quarterly operating results may fluctuate because of the seasonal nature and other aspects of its business.

Venus Concept believes its business is affected by seasonal and other trends. Specifically, Venus Concept believes its business is affected by seasonal trends during the summer months in the United States and Europe due to vacations taken by physician customers and their patients, as well as fluctuations in its operating results due to uneven timing of distributor and corporate account orders and marketing into new geographic regions. In addition, there is typically a substantial increase in sales in the last two months of the year. It is difficult for Venus Concept to evaluate the degree to which these factors may make its revenue unpredictable in the future, and these seasonal and other trends may continue to lead to fluctuations in quarterly operating results.

Although Venus Concept actively trains its customers on the use of its systems and post-treatment care, misuse of its systems may result in adverse results and subject Venus Concept to liability.

In the United States and certain international markets, subject to local regulations, physician customers can generally allow nurse practitioners, technicians and other non-physicians to perform aesthetic procedures using Venus Concept systems under their direct supervision. Although Venus Concept and its distributors provide training on the use of its systems as well as the proper post-treatment care, Venus Concept does not supervise the procedures performed with its systems, nor can it be certain that physicians are directly supervising procedures according to Venus Concept’s recommendations. Misusing Venus Concept systems or failing to adhere to operating guidelines can cause skin damage and underlying tissue damage, which could harm the reputation of its systems and expose Venus Concept to costly product liability litigation. In addition, patients may not comply with post-treatment guidelines, which could also lead to adverse results and subject Venus Concept to liability.

Product liability suits could be brought against Venus Concept due to the defective design, labeling, material, workmanship or software of its systems, and could result in expensive and time-consuming litigation, payment of substantial damages, an increase in insurance rates and substantial harm to its reputation.

If Venus Concept’s systems are defectively designed, manufactured or labeled, or contain defective components or software, it may become subject to substantial and costly litigation by physician customers or their patients. For example, if a patient is injured in an unexpected manner or suffers unanticipated adverse events after undergoing a procedure using one of Venus Concept’s systems, or if system operating guidelines are found to be inadequate, Venus Concept may be subject to product liability claims. Product liability claims could divert management’s attention from its core business, could be expensive to defend, and could result in sizable damage awards against Venus Concept. Venus Concept currently has product liability insurance, but it is subject to deductibles and it may not be adequate to cover Venus Concept against potential liability. In addition, Venus Concept may not be able to maintain insurance in amounts or scope sufficient to provide it with adequate coverage against all potential liabilities. Any product liability claims brought against it, with or without merit, could increase its product liability insurance rates or prevent Venus Concept from securing continuing coverage, could harm its reputation in the industry, and reduce product sales. Product liability claims in excess of insurance coverage would be paid out of cash, which could have an adverse effect on Venus Concept’s financial condition and reduce its operating results.

 

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Third parties may attempt to reverse engineer or produce counterfeit versions of Venus Concept systems which may negatively affect Venus Concept’s reputation, or harm patients and subject Venus Concept to product liability.

Third parties have sought in the past, and in the future may seek, to reverse engineer or develop counterfeit products that are substantially similar or compatible with Venus Concept systems and available to practitioners at lower prices than its own. Practitioners may be able to make unauthorized use of Venus Concept’s systems’ technology. In addition, if copies of products that have been reverse engineered or counterfeit products are used with or in place of its own, Venus Concept could be subject to product liability claims resulting from the use of damaged or defective goods and suffer damage to its reputation.

Security breaches and other disruptions could compromise Venus Concept information and expose it to liability.

In the ordinary course of its business and to the extent necessary, Venus Concept relies on software to control the ongoing use of its systems, collects and aggregates diagnostic data, and collects and stores sensitive data, including intellectual property and proprietary business information, and certain personally identifiable information of customers, distributors, consultants and employees in Venus Concept’s data centers and on its networks. The secure processing, maintenance, and transmission of this information is important to Venus Concept’s operations and business strategy. Venus Concept has established physical, electronic, and policy measures to secure its systems in an attempt to prevent a system breach and the theft of data it collects, and relies on commercially available systems, software, tools, and performs monitoring in its efforts to provide security for its information technology systems and the digital information it collects, processes, transmits and stores. The third-party providers of such information technology systems and related infrastructure may have or may obtain access to Venus Concept’s systems and data within them. Despite Venus Concept’s security measures, its information technology systems and related infrastructure may be vulnerable to attacks by computer viruses, malware, hackers or breaches due to malfeasance, employee or contractor error, telecommunication or electrical failures, terrorism or other created or natural disruptions. The risk of a cyber-attack or cyber intrusion by computer hackers from around the world, including those from foreign governments and terrorists, has greatly increased in number, intensity and sophistication. Any such access, disclosure or other loss of information could result in unexpected interruptions, delays, cessation of operations and other harm to Venus Concept’s business, its competitive position or reputation, and may further result in legal claims or proceedings or liability under laws that protect the privacy of personal information which may require notification to governmental agencies or the media or individuals pursuant such as required under various federal and state privacy and security laws or the laws, the regulations of the Federal Trade Commission, under one or more state breach notification laws, or the laws or one or more foreign jurisdictions including the European Union’s, or the EU, the General Data Protection Regulation 2016/679, or GDPR.

Venus Concept has increased the size of its company significantly over a short period, and difficulties managing its growth could adversely affect its business, operating results, and financial condition.

Venus Concept has increased its head count from a few employees in 2009 to 483 employees as of December 31, 2018, and plans to continue to hire additional employees as it increases its sales and marketing activities. This growth has placed, and may continue to place, a strain on Venus Concept’s management and its administrative, operational and financial infrastructure. Venus Concept’s ability to manage its operations and growth requires the continued improvement of its operational, financial and management controls and reporting systems and procedures. If Venus Concept is unable to manage its growth effectively or if it is unable to attract additional highly qualified personnel, its business, operating results, and financial condition may be harmed.

 

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Venus Concept depends on skilled and experienced personnel to operate its business effectively. If it is unable to recruit, hire, and retain these employees, its ability to manage and expand its business will be hampered, which could negatively affect its future revenue and profitability.

Venus Concept is highly dependent on the skills, experience, and efforts of its executive officers and other key employees. Venus Concept’s success depends in part on its continued ability to attract, retain and motivate highly qualified management, clinical and other personnel. The loss of services of any of these individuals could delay or prevent enhancement of the execution of its business and the development of future products and services. Although Venus Concept has entered into employment agreements with certain members of its senior management team, these agreements do not provide for a fixed term of service.

Competition for qualified personnel in the medical device field is intense due to the limited number of individuals who possess the skills and experience required by the industry. Venus Concept’s ability to retain skilled employees and its success in attracting and hiring new skilled employees will be a critical factor in determining whether it will be successful in the future. Venus Concept will face significant challenges and risks in hiring, training, managing, and retaining sales and marketing, product development, financial reporting, and regulatory compliance employees, many of whom may be geographically dispersed. The failure to attract and retain personnel, particularly Venus Concept’s sales and marketing and product development personnel, could materially harm Venus Concept’s ability to compete effectively and grow its business.

Venus Concept may not be able to enforce in all of the jurisdictions in which it has employees covenants not to compete and therefore may be unable to prevent its competitors from benefiting from expertise of some of its former employees.

Venus Concept currently has non-competition agreements with most of its employees. These agreements prohibit its employees, if they cease working for Venus Concept, from directly competing with Venus Concept or working for its competitors. Venus Concept may not be able to enforce in all of the jurisdictions in which it has employees covenants not to compete and therefore may be unable to prevent its competitors from benefiting from expertise of some of its former employees.

Venus Concept employees and independent contractors, including consultants, manufacturers, distributors, service providers and other vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could have an adverse effect on Venus Concept’s results of operations.

Venus Concept is exposed to the risk that its employees and independent contractors, including consultants, manufacturers, distributors, service providers and other vendors may engage in misconduct or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or other unauthorized activities that violate the laws and regulations of FDA and other similar regulatory bodies, including those laws that require the reporting of true, complete and accurate information to such regulatory bodies, manufacturing standards, U.S. federal and state healthcare fraud and abuse, data privacy laws and other similar non-U.S. laws. Activities subject to these laws also involve the improper use or misrepresentation of information obtained in the course of clinical trials, the creation of fraudulent data in Venus Concept’s nonclinical studies or clinical trials, or illegal misappropriation of product, which could result in regulatory sanctions and cause serious harm to Venus Concept’s reputation. It is not always possible to identify and deter misconduct by employees and other third-parties, and the precautions Venus Concept takes to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting it from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against Venus Concept, and it is not successful in defending itself or asserting its rights, those actions could have a significant impact on its business and financial results, including, without limitation, the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, disgorgements, individual imprisonment, other sanctions, contractual damages, reputational

 

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harm, diminished profits and future earnings and curtailment of operations, any of which could adversely affect its ability to operate Venus Concept’s business and its results of operations.

Venus Concept may seek to acquire companies or technologies, which could disrupt its ongoing business, divert the attention of its management and employees and adversely affect Venus Concept’s results of operations.

Venus Concept may, from time to time, evaluate potential strategic acquisitions of other complementary businesses, products or technologies, as well as consider joint ventures and other collaborative projects. Venus Concept may not be able to identify suitable future acquisition candidates, consummate acquisitions on favorable terms or complete otherwise favorable acquisitions because of antitrust or other regulatory concerns. Venus Concept cannot be certain that the acquisition of the NeoGraft business it completed in 2018, or any future acquisitions that it may make, will enhance its business or strengthen its competitive position. In particular, Venus Concept may encounter difficulties assimilating or integrating the acquired businesses, technologies, products, personnel or operations of the acquired companies, and in retaining and motivating key personnel from these businesses. The integration of these businesses may not result in the realization of the full benefits of synergies, cost savings, innovation and operational efficiencies that may be possible from this integration and these benefits may not be achieved within a reasonable period of time.

Venus Concept has identified material weaknesses in its internal control over financial reporting and if it fails to remediate these weaknesses and maintain proper and effective internal controls, its ability to produce accurate and timely financial statements could be impaired, which could harm its operating results, its ability to operate its business and investors’ views of Venus Concept.

As a private company, Venus Concept has not historically prepared public company level financial statements. In connection with the audit of its consolidated financial statements, Venus Concept has identified material weaknesses in its internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim consolidated financial statements will not be prevented or detected on a timely basis.

Compared to public company level processes and standards, Venus Concept did not have in place an effective control environment with formal processes and procedures or an adequate number of accounting personnel with the appropriate technical training in, and experience with, US GAAP to allow for a detailed review of complex accounting transactions that would identify errors in a timely manner, including stock based compensation and the identification and disclosure of related party transactions. In addition, Venus Concept has not adopted and implemented technology solutions that would automate lease accounting processes and given the growth of the company, enable the accurate and timely preparation of financial statements in accordance with US GAAP.

Venus Concept is taking steps to address these material weaknesses and continue to develop and implement its remediation plan, which it believes will address their underlying causes. Venus Concept is hiring personnel with requisite skills in both technical accounting and internal control over financial reporting. In addition, Venus Concept has engaged external advisors to provide financial accounting assistance in the short term and to evaluate and document the design and operating effectiveness of its internal controls and assist with the remediation and implementation of its internal controls as required. Venus Concept is evaluating the longer term resource needs of its various financial functions.

Implementing any appropriate changes to its internal controls and continuing to update and maintain internal controls may distract its officers and employees, entail substantial costs to implement new processes and modify its existing processes and take significant time to complete. If Venus Concept fails to enhance its internal control over financial reporting to meet the demands that will be placed upon it as a public company, including the

 

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requirements of the Sarbanes-Oxley Act of 2002 or the Sarbanes-Oxley Act, Venus Concept may be unable to report its financial results accurately, which could increase operating costs and harm its business, including its investors’ perception of its business. The actions Venus Concept plans to take are subject to continued management review supported by confirmation and testing, as well as audit committee oversight. While Venus Concept expects to fully remediate these material weaknesses, Venus Concept cannot assure you that it will be able to do so in a timely manner, which could impair its ability to report its financial position. For a more detailed discussion of the material weaknesses, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Internal Control Over Financial Reporting” beginning on page 251 of this proxy statement/prospectus.

Venus Concept Risks Related to Regulation

Venus Concept devices are subject to extensive and increasing pre-market and post-market international government regulations.

Venus Concept is investing in the development of new products and procedures based on its proprietary technology but its ability to commercialize these products depends on obtaining the required clearances and approvals from the regulatory authority and its notified body in the target market. Venus Concept systems are subject to various federal, state, national and international rules and regulations, which make the regulatory approval process costly, lengthy and highly uncertain. Venus Concept’s failure to comply with pre- and post-market requirements could lead to a government enforcement action, which could have an adverse effect on its business. FDA, Medical Device Single Audit Program, or MDSAP, related authorities, other foreign regulatory authorities, and their notified bodies can institute a wide variety of enforcement actions, which may include a public warning letter, fines, injunctions, civil and/or criminal penalties, recall or seizure of Venus Concept devices, and/or suspension or withdrawal of its regulatory clearances, approvals, CE Certificates of Conformity or other certificates.

If Venus Concept fails to maintain, or is unable to obtain, necessary regulatory approvals for its future products or product enhancements, Venus Concept will be unable to market such products or product enhancements.

Venus Concept systems are subject to rigorous regulation by FDA, Conformité Européenne, or CE, Health Canada, and numerous other federal, state and foreign governmental authorities. The process of obtaining regulatory clearances or approvals to market a medical device can be costly and time-consuming, and Venus Concept may not be able to obtain these clearances or approvals on a timely basis, if at all.

In particular, in the United States under the Federal Food, Drug, and Cosmetic Act, or FDCA, unless exempt, medical devices must receive 510(k) clearance or pre-market approval (PMA) before they can be commercially marketed. Venus Concept considers its Venus Glow and Neograft systems exempt from FDA’s 510(k) clearance requirement. Venus Concept has obtained 510(k) clearance from FDA for Venus Concept’s Freeze and Venus Freeze Plus, Venus Viva SR, Venus Legacy BX and Legacy CX, Venus Versa, Venus Velocity, Venus Heal and Venus Bliss systems. Although FDA seeks to complete its review of traditional 510(k) applications within 90 days, the review clock is often stopped by the agency’s request for additional information, resulting in delays.

In addition, the commercialization of future products that Venus Concept develops will likely require 510(k) notifications (i.e. substantial equivalence determinations) and certain future products may require clinical data to support the substantial equivalence decision, making the process of obtaining the 510(k) clearance even more time-consuming and difficult. In addition, one or more of Venus Concept’s future products may not be eligible for substantial equivalence 510(k) clearance and may require approval of a de novo reclassification petition or even a PMA. If there is no known predicate for a device, a company can request a de novo reclassification of the product. FDA’s de novo process allows a company to request for certain new devices marketing authorization as class I or class II devices, rather than being subject to PMA requirements as class III devices. The PMA process requires

 

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more extensive clinical testing than the 510(k) process and generally involves a significantly longer FDA review process. A PMA must be supported by extensive data, including, but not limited to, technical, preclinical, human clinical studies conducted under an IDE, and manufacturing and labeling data, to demonstrate to FDA’s satisfaction the safety and efficacy of the device for its intended use. For products subject to PMA, the regulatory process generally takes from one to three years or even longer and involves substantially greater risks and commitment of resources than either the 510(k) clearance or de novo processes. Venus Concept may not be able to obtain necessary regulatory approvals or clearances on a timely basis, if at all, for any of its products under development, and delays in receipt of, or failure to receive such approvals or clearances could have a material adverse effect on Venus Concept’s business. In addition, FDA may disagree with certain of Venus Concept’s device classifications. Such a misclassification could render the devices as misbranded and/or adulterated. See “Venus Concept Business—Government Regulation—Regulation by FDA—510(k) Clearance” and “—Regulation after FDA Clearance or Approval” beginning on pages 220 and 220 of this proxy statement/prospectus.

In Europe, the process for obtaining foreign approvals or CE Certificates of Conformity to permit a CE mark to be affixed to medical devices is becoming stricter, more time-consuming, expensive and highly uncertain. Delays in receipt of, or failure to obtain, clearances, approvals or CE Certificates of Conformity for any product enhancements or new products Venus Concept develops would require additional capital expenditures and result in delayed or no realization of revenues from such product enhancements or new products in certain markets or overall. In addition, after the device is successfully cleared, approved or CE marked, it is subject to post market regulations, such as conduction of Post Marketing Surveillance; in some markets, Venus Concept devices’ licenses are also subject to annual renewal.

The addition of MDSAP in applicable jurisdictions and the replacement of the EU’s Medical Device Directive with the new Medical Device Regulation, or MDR, further adds constraints in the go-to-market process and may further postpone marketing and commercialization of products.

Modifications to Venus Concept’s products may require new regulatory clearances or approvals or expansion of the scope of its CE Certificates of Conformity with its notified body.

Modifications to Venus Concept’s products may require new regulatory clearances or approvals from FDA or other regulatory authorities or expansion of the scope of its CE Certificates of Conformity with its notified body. Even after achieving the initial market clearance, or approval from FDA or other regulatory authorities or having affixed the CE marked to a product, modifications to Venus Concept systems during their life cycles may require new regulatory approvals or clearances, including 510(k) clearances, premarket approvals, the conduct of a new conformity assessment with its notified body, or foreign regulatory approvals. If Venus Concept makes changes or modifications to an FDA cleared or approved device, FDA requires device manufacturers to initially make and document a determination of whether or not a modification requires a new approval, supplement or clearance. A manufacturer may determine that a modification does not significantly affect safety or efficacy, and that the modification does not represent a major change in its intended use, so that no new 510(k) clearance is necessary, but rather a Letter to File is necessary. However, FDA can review a manufacturer’s decision and may disagree. FDA may determine that a traditional 510(k), an abbreviated 510(k), a special 510(k) clearance, or device approval is required for the device as modified. For products sold in the EU, Venus Concept must notify its notified body if significant changes are made to the products or if there are substantial changes to the quality assurance systems affecting those products. Venus Concept has similar obligations with Health Canada. Obtaining a new 510(k), other regulatory clearances and approvals, or a revised or new CE Certificate of Conformity can be a time-consuming process, and Venus Concept may not be able to obtain such clearances or approvals in a timely manner, or at all.

Venus Concept has made modifications to its products that have already received FDA’s marketing authorization in the past and may make additional modifications in the future that it believes do not or will not require additional clearances or approvals. If FDA disagrees and requires new clearances or approvals for the modifications, Venus Concept systems may be deemed misbranded, and/or Venus Concept may be required to

 

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recall and stop marketing its modified products, which could require it to redesign its products or could have a material adverse effect on Venus Concept’s operating results. In these circumstances, Venus Concept also may be subject to significant enforcement actions.

As part of an internal review of Venus Concept’s regulatory clearances in the United States, Venus Concept determined that Special 510(k) applications were necessary related to an earlier modification to two of Venus Concept’s FDA-cleared devices. Specifically, because Venus Concept added to two of its FDA-cleared devices additional FDA-cleared applicators not initially considered in the device clearance submissions, Venus Concept believed that Special 510(k) applications should have been filed to allow FDA to review the incorporation into the cleared devices of the separately-cleared applicators. Venus Concept already filed one of the Special 510(k) submissions with FDA. FDA declined to accept the submission as a Special 510(k) and requested that Venus Concept instead submit a Traditional 510(k) and provide additional information. Venus Concept has submitted to FDA a Traditional 510(k) application for this device, related to these modifications. Venus Concept also submitted a Traditional 510(k) for the second device and is awaiting FDA’s response. Generally, the 510(k) clearance process can exceed 90 days and may extend to a year or more. Venus Concept cannot be certain that FDA will respond to its submissions within a timely manner or that clearances will be obtained. Venus Concept believes that the modifications do not affect safety or efficacy, do not affect the intended use of the devices, and do not alter the fundamental scientific technology of the devices, however, Venus Concept cannot be certain that FDA will agree with its assessment. FDA may not clear the devices or may take other action against Venus Concept as described above, which could have a material adverse affect on its business.

Venus Concept may be required to conduct clinical trials to obtain regulatory approval of its products or following regulation approval of its products and is subject to numerous risks associated with conducting clinical trials.

Clinical trials are generally required to support a PMA and may be required for 510(k) clearance, depending on the level of equivalence for predicates, the number of predicates, and other factors. Equivalent obligations are commonly imposed by foreign regulations. Such trials, if conducted in the United States, generally require an IDE approved in advance by FDA for a specified number of patients and study sites, unless the product is deemed a nonsignificant risk device eligible for more abbreviated IDE requirements. In the EU, the positive opinion of an ethics committee and the authorization of a competent authority must be provided before clinical trials begin. Clinical trials are subject to extensive monitoring, recordkeeping and reporting requirements, must be conducted under the oversight of an institutional review board, or IRB, for the relevant clinical trial sites in the United States and an ethics committee in the EU and must comply with FDA and equivalent foreign regulations, including but not limited to those relating to good clinical practices. Venus Concept is currently conducting clinical trials involving the Venus Bliss, Venus Fiore and Venus Viva systems. If Venus Concept experiences delays in any aspect in Venus Concept’s clinical trials, from design and recruitment to termination and conclusion, its costs may increase, its time to market may be delayed, and its business may be harmed. Venus Concept does not know whether clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Events may delay or prevent Venus Concept’s ability to complete necessary clinical trials for its products, including:

 

   

delays may occur in reaching agreement on acceptable clinical trial terms with regulatory authorities or prospective sites, or obtaining IRB approval;

 

   

Venus Concept’s clinical studies may produce negative or inconclusive results, and Venus Concept may decide, or regulators may require it, to conduct additional trials or to terminate the clinical studies;

 

   

the number of patients required for Venus Concept clinical trials may be larger than it anticipates, enrollment in its clinical trials may be slower or more difficult than it expects, or patients may not participate in necessary follow-up visits to obtain required data, any of which would result in significant delays in the clinical testing process;

 

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Venus Concept may be forced to suspend or terminate its clinical trials if the participants are being exposed, or are thought to be exposed, to unacceptable health risks or if any participant experiences an unexpected serious adverse event, or if Venus Concept devices prove to be ineffective;

 

   

regulators, IRBs or ethics committees may require that Venus Concept hold, suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements;

 

   

the cost of clinical trials may be greater than Venus Concept anticipates; and

 

   

an audit of clinical studies by regulatory authorities may reveal noncompliance with applicable protocols or regulations, which could lead to disqualification of the results and the need to perform additional studies.

There can be no assurance that Venus Concept will not experience delays or such risks in its clinical trials. Any delay or suspension of clinical trials may delay regulatory approval.

Furthermore, FDA may conduct Bioresearch Monitoring inspections of Venus Concept and/or its clinical sites to assess compliance with federal regulations, Venus Concept’s procedures, and the clinical protocol. If FDA were to find that Venus Concept or its clinical investigators are not operating in compliance with applicable regulations, FDA could refuse to accept all or part of its data in support of its 510(k) or PMA and/or Venus Concept may need to conduct additional studies, or Venus Concept could be subject to FDA enforcement action.

Venus Concept’s ability to continue manufacturing and supplying its products depends on its continued adherence to ongoing FDA and other foreign regulatory authority manufacturing requirements.

Venus Concept’s manufacturing processes and facilities are required to comply with the quality management system regulations of its target markets (i.e., FDA’s Quality System Regulations, or QSR, ISO 13485:2016, and the MDSAP). Adherence to quality management system regulations and the effectiveness of its quality management control systems are periodically assessed through internal audits and inspections of manufacturing facilities by regulatory authorities. Failure to comply with applicable quality management system requirements, or later discovery of previously unknown problems with Venus Concept’s products or manufacturing processes, including its failure or the failure of its third-party manufacturer to take satisfactory corrective action in response to an adverse quality system inspection, can result in enforcement action, which could have an adverse effect on Venus Concept’s business. Venus Concept’s manufacturing process and facilities are audited annually for compliance with the last editions of ISO13485 and MDSAP requirements, and although FDA has not yet inspected its facilities, Venus Concept anticipates an FDA inspection in the future. FDA, foreign regulatory authorities, and Venus Concept’s notified body can institute a wide variety of enforcement actions, ranging from inspectional observations to more severe sanctions such as:

 

   

untitled letters or warning letters;

 

   

clinical holds;

 

   

administrative or judicially-imposed sanctions;

 

   

injunctions, fines, consent decrees, or the imposition of civil penalties;

 

   

customer notifications for repair, replacement, or refunds;

 

   

recall, detention, or seizure of products;

 

   

operating restrictions, or total or partial suspension of production or distribution;

 

   

refusal by FDA, a foreign regulatory authority or the notified body to grant pending future clearance or pre-market approval, or to issue CE Certificates of Conformity for Venus Concept devices;

 

   

debarment of Venus Concept or its employees;

 

   

withdrawal or suspension of marketing clearances, approvals, and CE Certificates of Conformity;

 

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refusal to permit the import or export of its products; and

 

   

criminal prosecution of Venus Concept or its employees.

If any of these actions were to occur, it would harm Venus Concept’s reputation and cause its system sales and profitability to suffer and may prevent Venus Concept from generating revenue. Furthermore, Venus Concept’s key component suppliers may not currently be or may not continue to be in compliance with all applicable regulatory requirements, which could result in the failure to produce Venus Concept devices on a timely basis and in the required quantities, if at all.

Venus Concept will be subject to significant liability if it is found to have improperly promoted its products for off-label uses or for unapproved uses.

Venus Concept promotional materials and training methods must comply with FDA and other applicable laws and regulations, including the prohibition of the promotion of off-label use in both the United States and in foreign countries. As an example, FDA regulates the labeling of 510(k) cleared devices to make sure that the labeling complies with the cleared indications for use and no off-label indication or claim is being promoted by the manufacturer. FDA also engages in market surveys to identify any devices whose intended uses include unapproved uses of the products. Devices are considered adulterated or misbranded when advertising or labeling creates a new intended use, indications for use or even a new claim. Federal laws prohibit the introduction into interstate commerce of adulterated or misbranded devices, and adulteration or misbranding violations can lead to a variety of enforcement activities in the United States and in foreign countries, including but not limited to large civil and criminal fines, oversight of sales and marketing practices and modifications of promotional conduct.

Venus Concept previously received an inquiry from FDA regarding off-label or unapproved uses of the Venus Fiore on August 1, 2018. Venus Fiore is not cleared or approved in the United States or in jurisdictions outside of the United States, other than Israel. Venus Fiore is marketed in Israel for aesthetic and functional treatment of the vagina, labia and mons pubis. However, Venus Concept has not marketed or promoted Venus Fiore in the United States and explained this to the agency. Venus Concept added geoblocker functionality to its website, to portray accurately what devices it is marketing in the United States.

Although Venus Concept has not received subsequent inquiries regarding off-label promotion, FDA may conclude that it is inappropriately promoting off-label or unapproved uses for its products. If the agency brings enforcement actions, Venus Concept may become subject to significant liability including criminal and civil liabilities. Off-label promotion may also be treated as racketeering in civil litigation or result in expensive and time-consuming lawsuits from physicians or their patients if a patient is injured by the off-label use.

Venus Concept systems may cause or contribute to adverse medical events that it is required to report to FDA and other foreign regulatory authorities, and if it fails to do so, it could be subject to sanctions that would materially harm its business.

FDA and foreign jurisdictions’ regulations require that Venus Concept report certain information about adverse medical events if its medical devices may have caused or contributed to those adverse events, or if its devices have malfunctioned. Although Venus Concept believes that it has adequate reporting processes in place, it may fail to accurately report within a prescribed timeframe adverse events of which it becomes aware. If Venus Concept fails to comply with its reporting obligations, FDA, foreign regulatory authorities, or its notified body could take enforcement action against it, including criminal prosecution; the imposition of civil monetary penalties; revocation, suspension or withdrawal of its device clearance, approval or CE Certificates of Conformity; seizure of its products; or delay in awarding approval, clearance, or CE Certificates of Conformity for future products. Any corrective action, whether voluntary or involuntary, as well as defending a lawsuit, may prevent Venus Concept from marketing its products and would require the dedication of its time and capital, distract management from operating its business, and may harm its reputation and financial results.

 

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Venus Concept may be affected by healthcare policy changes and evolving regulations.

Venus Concept’s global regulatory environment is becoming increasingly stringent and unpredictable, which could increase the time, cost and complexity of obtaining regulatory approvals for its products, as well as the clinical and regulatory costs of supporting those approvals. Several countries that did not have regulatory requirements for medical devices have established such requirements in recent years and other countries have expanded on existing regulations. Certain regulators are exhibiting less flexibility and are requiring local preclinical and clinical data in addition to global data. While harmonization of global regulations has been pursued, requirements continue to differ significantly among countries. Venus Concept expects this global regulatory environment will continue to evolve, which could impact its ability to obtain future approvals for Venus Concept’s products or could increase the cost and time to obtain such approvals in the future.

In addition, in the United States, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, to which we refer collectively as the Affordable Care Act, or ACA, was enacted into law in 2010. Although most of the provisions of the ACA are now in effect, in December 2018 a federal court judge in the Northern District of Texas ruled in Texas v. Azar, or the Texas Case, that the ACA’s individual mandate is unconstitutional, and that the remainder of the ACA was inseverable from the individual mandate and therefore invalid. This case was appealed to the Fifth Circuit in January 2019. Because the Texas judge issued a stay of his ruling pending the appeal, the ACA continues to be in effect at this time.

As a result of the passage of the ACA, an excise tax is imposed on the sale of certain medical devices by the U.S. manufacturer, producer, or importer of the device. This excise tax applies to sales of taxable medical devices beginning January 1, 2013. The excise tax equals 2.3% of the “constructive sale price” of the applicable medical device. As a U.S.-based manufacturer and importer of taxable medical devices, Venus Concept is responsible for remitting to the federal government the excise tax on the sales of medical devices it manufactures in, or imports into, the U.S. Although this excise tax was in effect during the years 2013-2015, there is currently in effect a moratorium on the medical device excise tax. The Consolidated Appropriations Act of 2016, enacted on December 18, 2015, included a moratorium on the medical devices tax commencing on January 1, 2016 and ending on December 31, 2017. The Federal Register Printing Savings Act of 2017 enacted on January 22, 2018 extended the moratorium through December 31, 2019. At this time it is unknown whether the moratorium will be extended beyond 2019. If it is not extended, then the excise tax on medical devices will be reinstated for sales made on or after January 1, 2020.

The EU regulatory bodies finalized a new MDR in 2017, which replaced the existing directives and provided three years for transition and compliance. The MDR will change several aspects of the existing regulatory framework, such as updating clinical data requirements and introducing new ones, such as Unique Device Identification, or UDI. Venus Concept and the notified bodies who will oversee compliance to the new MDR face uncertainties as the MDR is rolled out and enforced by the European Commission and EEA Competent Authorities, creating risks in several areas, including the CE Marking process and data transparency, in the upcoming years.

In a referendum on June 23, 2016, voters approved for the United Kingdom, or UK, to exit the EU. As it stands, the UK will depart the EU on October 31, 2019 but the terms of its withdrawal and the nature of its future relationship with the EU are still being decided after the British Parliament rejected the exit-agreement negotiated by the UK government with the European Commission. Future exit of the UK from the EU will have numerous consequences in all areas of the business, including, economic, regulatory, operational, and the actual impact depends on the ultimate deal reached and is very difficult to assess at this time. Changes in the industry regulations could have an effect on existing CE certificates being renewed and new certificates being issued which would impact the ability to trade; however, it is impossible to assess the full impact at this stage.

 

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Venus Concept operates in a heavily regulated industry that is subject to various federal, state and foreign laws pertaining to health care fraud and abuse, including anti-kickback, false claims, anti-bribery, and transparency laws, and any violations of such laws could result in fines or other penalties.

The health care industry in the United States is highly regulated. Venus Concept and its operations are subject to extensive federal, state and local laws, rules and regulations, including anti-kickback laws, fee-splitting laws, self-referral laws, civil monetary penalties laws, laws limiting the manner in which prospective patients may be solicited and professional licensing rules. The scope of these laws vary by jurisdiction. The federal anti-kickback statute prohibits the offer, solicitation, payment or receipt of any remuneration that directly or indirectly is intended to induce or is in return for the referral of patients for or the ordering of items or services reimbursable by Medicare, Medicaid or any other federal health care programs. This statute also prohibits remuneration intended to induce the purchasing of or arranging for or recommending the purchase or order of any item, good, facility or service for which payment may be made under federal health care programs. Remuneration has been defined broadly to include anything of value, including cash, improper discounts, and free or reduced price items and services.

In addition, federal and state false claims laws prohibit anyone from presenting, or causing to be presented, claims for payment to third-party payors that are false or fraudulent. Violations may result in substantial civil penalties, including treble damages, and criminal penalties, including imprisonment, fines and exclusion from participation in federal health care programs. The Federal False Claims Act also contains “whistleblower” or “qui tam” provisions that allow private individuals to bring actions on behalf of the government alleging that the defendant has defrauded the government.

Venus Concept systems are not reimbursable by Medicare, Medicaid or other federal health care programs. As a result, the federal anti-kickback statute and many federal false claims provisions do not apply to Venus Concept. However, Venus Concept may be subject to similar state anti-kickback laws that apply regardless of the payor. In addition, various states have enacted laws modeled after the Federal False Claims Act, including “qui tam” or whistleblower provisions, and some of these laws apply to claims filed with commercial insurers. Any violations of state anti-kickback and false claims laws could have a material adverse effect on Venus Concept business, financial condition and results of operations.

The Health Insurance Portability and Accountability Act of 1996, or HIPAA, created federal criminal statutes that prohibit among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Any violations of these provisions could have a material adverse effect on Venus Concept business, financial condition and results of operations.

Compliance with applicable United States and foreign laws and regulations, such as import and export requirements, anti-corruption laws such as the U.S. Foreign Corrupt Practices Act of 1997, or FCPA, and similar worldwide anti-bribery laws, tax laws, foreign exchange controls and cash repatriation restrictions, data privacy requirements, environmental laws, labor laws and anti-competition regulations, increases the costs of doing business in foreign jurisdictions. Although Venus Concept has implemented policies and procedures to comply with these laws and regulations, a violation by its employees, contractors or agents could nevertheless occur. In some cases, compliance with the laws and regulations of one country could violate the laws and regulations of another country. Violations of these laws and regulations could materially adversely affect Venus Concept’s brand, international growth efforts and business.

Many foreign countries have similar laws relating to healthcare fraud and abuse. Foreign laws and regulations may vary greatly from country to country. Violations of these laws, or allegations of such violations,

 

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could result in fines, penalties, or prosecution and have a negative impact on Venus Concept’s business, results of operations and reputation.

There has been a recent trend of increased foreign, federal, and state regulation of payments and transfers of value provided to healthcare professionals, such as physicians, and entities. As noted, Venus Concept systems are not reimbursed by Medicare, Medicaid, or federal health care programs, so the U.S. federal reporting laws, such as the federal Sunshine Act, do not apply to it. However, certain foreign countries and U.S. states also mandate implementation of commercial compliance programs, impose restrictions on device manufacturer marketing practices and require tracking and reporting of gifts, compensation and other remuneration to healthcare professionals and entities. Violations of these laws, or allegations of such violations, could result in fines, penalties, or prosecution and have a negative impact on Venus Concept business, results of operations and reputation.

Venus Concept is subject to environmental, health and safety laws and regulations, and must maintain licenses or permits, and non-compliance with these laws, regulations, licenses, or permits may expose Venus Concept to significant costs or liabilities.

Venus Concept is subject to numerous foreign, federal, state, and local environmental, health and safety laws and regulations relating to, among other matters, safe working conditions and environmental protection, including those governing the generation, storage, handling, use, transportation, and disposal of hazardous or potentially hazardous materials. Some of these laws and regulations require Venus Concept to obtain licenses or permits to conduct its operations. Environmental laws and regulations are complex, change frequently and have tended to become more stringent over time. If Venus Concept violates or fails to comply with these laws, regulations, licenses, or permits, it could be fined or otherwise sanctioned by regulators. Venus Concept cannot predict the impact on its business of new or amended laws or regulations or any changes in the way existing and future laws and regulations are interpreted or enforced, nor can Venus Concept ensure it will be able to obtain or maintain any required licenses or permits.

U.S. and international laws and regulations regarding privacy, data protection and information security are complex and rapidly changing. These laws restrict access, use and disclosure of information, and Venus Concept’s actual or perceived failure to comply with such obligations or adapt to changes in these laws could harm its business.

Venus Concept is subject to numerous U.S. and international laws and regulations regarding privacy and data protection. The regulation of data privacy and security, and the protection of the confidentiality of personal information, is increasing and continues to evolve. For example, certain aspects of Venus Concept’s business are subject to GDPR, which became effective of May 25, 2018. In addition, Venus Concept may act as a “business associate” under HIPAA and its implementing regulations (as amended by the Health Information Technology for Exonomic and Clinical Health Act), when providing health care provider customers with services that involve the use or disclosure of protected health information, requiring Venus Concept to comply with certain regulatory requirements and subjecting it to civil and criminal penalties for failure to do so.

Complying with these numerous, complex and often changing laws and regulations is expensive and difficult, and failure to comply with data privacy laws or any security incident or breach involving the misappropriation, loss or other unauthorized use or disclosure of sensitive or confidential patient or consumer information, whether by us, one of Venus Concept’s business partners or another third-party, could have a material adverse effect on Venus Concept’s business, reputation, financial condition and results of operations, including but not limited to material fines and penalties, damages, litigation, consent orders, injunctive relief, or other adverse consequences.

Furthermore, these rules are constantly changing; for example, the GDPR came into effect in May of last year reforming the European regime. The GDPR implements more stringent operational requirements than its

 

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predecessor legislation. For example, the GDPR requires Venus Concept to make more detailed disclosures to data subjects, requires disclosure of the legal basis on which it can process personal data, makes it harder for it to obtain valid consent for processing, provides more robust rights for data subjects, introduces mandatory data breach notification through the EU, imposes additional obligations on Venus Concept when contracting with service providers and requires it to adopt appropriate privacy governance including policies, procedures, training and data audit. If Venus Concept does not comply with its obligations under the GDPR, it could be exposed to fines of up to the higher of 20,000,000 Euros or up to 4% of Venus Concept’s total worldwide annual turnover in the event of a significant breach. In addition, Venus Concept may be the subject of litigation and/or adverse publicity, which could have material adverse effect on its reputation and business.

Venus Concept is also subject to evolving European laws on data export and electronic marketing. The rules on data export will apply when it transfers personal data to group companies or third parties outside of the EEA. For example, in 2015, the Court of Justice of the EU ruled that the U.S.-EU Safe Harbor framework, one compliance method by which companies could transfer personal data regarding citizens of the EU to the United States, was invalid and could no longer be relied upon. The U.S.-EU Safe Harbor framework was replaced with the U.S.-EU Privacy Shield framework, which is now under review and there is currently litigation challenging another EU mechanism for adequate data transfers, the standard contractual clauses. It is uncertain whether the privacy shield framework and/or the standard contractual clauses will be similarly invalidated by the European courts. These changes may require Venus Concept to find alternative bases for the compliant transfer of personal data from the EEA to the U.S. and it is monitoring developments in this area. The EU is also in the process of replacing the e-Privacy Directive with a new set of rules taking the form of a regulation, which will be directly implemented in the laws of each European member state, without the need for further enactment. The current draft of the e-Privacy Regulation retains strict opt-in for electronic marketing and the penalties for contravention have significantly increased with fining powers to the same levels as GDPR (i.e. the greater of 20,000,000 Euros or 4% of total global annual revenue).

In addition, new domestic and international data protection laws and regulations are being enacted and existing ones are being updated and strengthened. Venus Concept cannot predict the impact on its business of new or amended laws or regulations or how they will be interpreted or enforced.

Risks Related to Venus Concept Intellectual Property

If Venus Concept is unable to obtain, maintain, retain and enforce adequate intellectual property rights covering its products and any future products it develops, others may be able to make, use, or sell products substantially the same as Venus Concept’s, which could adversely affect its ability to compete in the market.

Venus Concept’s commercial success is dependent in part on obtaining, maintaining, retaining and enforcing its intellectual property rights, including its patents and the patents it exclusively licenses. If Venus Concept is unable to obtain, maintain, retain and enforce sufficiently broad intellectual property protection covering its products and any other products it develops, others may be able to make, use, or sell products that are substantially the same as its products without incurring the sizeable development and licensing costs that it has incurred, which would adversely affect its ability to compete effectively in the market.

Venus Concept has obtained and maintained its existing patents, seeks to diligently prosecute its existing patent applications, and seeks to file patent applications and obtain additional patents and other intellectual property rights to restrict the ability of others to market products that compete with its current and future products. As of March 31, 2019, Venus Concept’s patent portfolio is comprised of 7 issued U.S. patents (6 of which cover Venus Concept’s (MP)2 technology that are associated with two different patent families), 9 pending U.S. patent applications, 12 issued foreign counterpart patents, and 11 pending foreign counterpart patent applications. However, patents may not be issued on any pending or future patent applications it files, the claims that issue may provide limited or no coverage of its products and technologies, and, moreover, issued patents owned or licensed to Venus Concept now or in the future may be found by a court to be invalid or otherwise

 

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unenforceable at any time. Venus Concept may choose to not apply for patent protection or may fail to apply for patent protection on important technologies or product candidates in a timely fashion. In addition, Venus Concept may be unable to obtain patents necessary to protect its technology or products due to prior uses of or claims to similar processes or systems by third parties, or to blocking intellectual property owned by third parties. Even though Venus Concept has issued patents, and even if additional patents are issued to Venus Concept in the future, they may be challenged, narrowed, invalidated, held to be unenforceable or circumvented, which could limit its ability to prevent competitors from using similar technology or marketing similar products, or limit the length of time its technologies and products have patent protection. Also, even if its existing and future patents are determined to be valid and enforceable, they may not be drafted or interpreted sufficiently broadly enough to prevent others from marketing products and services similar to Venus Concept’s, easily designing products around its patents or otherwise developing competing products or technologies. In addition, the ownership of one or more of Venus Concept patents and patent applications may be challenged by one or more parties in one or more jurisdictions, including in a patent interference or a derivation proceeding in the United States Patent and Trademark Office, or USPTO, or a similar foreign governmental agency or during the course of a litigation. If a competitor were able to successfully design around its patents, Venus Concept may not be able to block such competition, and furthermore the competitor’s products may be more effective or commercially successful than its products. In addition, Venus Concept’s current patents will eventually expire or they may otherwise cease to provide meaningful competitive advantage, and it may be unable to adequately develop new technologies and obtain future patent protection to preserve its competitive advantage or avoid other adverse effects on its business.

Venus Concept has a number of foreign patent applications, and while it generally tries to pursue patent protection in the jurisdictions in which it does or intends to do significant business, the filing, prosecuting, maintaining and defending patents relating to its current or future products in all countries throughout the world would be prohibitively expensive. Furthermore, the laws of some foreign jurisdictions do not protect intellectual property rights to the same extent as laws in the United States, and many companies have encountered significant difficulties in obtaining, protecting, and defending such rights in foreign jurisdictions. As a result, Venus Concept’s intellectual property may not provide it with sufficient rights to exclude others from commercializing products similar or identical to its products in various jurisdictions. Competitors may use Venus Concept’s technologies in jurisdictions where it has not obtained patent protection to develop their own products, and Venus Concept may be unable to prevent such competitors from importing those infringing products into territories where it does not have patent protection or into territories where it does have patent protection but there is no prohibition against such importation, or even if such prohibitions exist, the law or related enforcement is not as strong as in the United States. These products may compete with Venus Concept systems and its patents and other intellectual property rights of Venus Concept may not be effective or sufficient to prevent competitors from competing in those jurisdictions. If Venus Concept encounters such difficulties or is otherwise precluded from effectively protecting and enforcing its intellectual property rights in foreign jurisdictions, its business prospects could be substantially harmed.

Venus Concept’s patents may not afford it protection against competitors with similar technology. Because the systems of obtaining patent rights in the United States and many foreign jurisdictions mandate that the first filer of a patent application is the only one that may be awarded patent rights related to the invention disclosed therein, and there may be a delay up to eighteen months after filing for the patent applications of others to become public (or, in some cases, are not published until they issue as patents), Venus Concept cannot be certain that it was the first to file for protection of the inventions set forth in such patent applications. Another party may own patents, may have filed or may in the future file patent applications which may result in issued patents, covering Venus Concept systems or technology. Third-party patent applications and patents could significantly reduce the scope of protection of patents owned by or licensed to Venus Concept and limit its ability to obtain a meaningful scope of patent protection or market and sell its products or develop, market and sell future products. In the United States, other parties may attack the validity of Venus Concept patents after they issue in a court proceeding, or in an ex-parte reexamination proceeding or one or more post-grant procedures that were authorized under the America Invents Act of 2011, or AIA, that were available commencing on March 16, 2013

 

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such as post-grant review, covered business method review or inter partes review, in front of the Patent Trial and Appeal Board of the USPTO. The costs of these proceedings could be substantial. Additionally, patents and patent applications owned by third parties may prevent Venus Concept from pursuing certain opportunities such as entering into specific markets or developing certain products. Finally, Venus Concept may choose to enter into markets in which certain competitors own patents or control patent rights to technology that may impede its ability to compete effectively.

The legal determinations relating to patent rights afforded to companies in the medical technology and aesthetic product fields can be uncertain and involve complex legal, factual and scientific questions, sometimes involving important legal principles which remain uncertain or unresolved, and such uncertainty could affect the outcome or intellectual property related legal determinations in which Venus Concept is involved.

Both the U.S. Supreme Court and the U.S. Court of Appeals for the Federal Circuit have made, and will likely continue to make, changes in how the patent laws of the United States are interpreted. Similarly, foreign courts have made, and will likely continue to make, changes in how the patent laws in their respective jurisdictions are interpreted. In addition, the U.S. Congress is currently considering legislation that would change certain provisions of U.S. federal patent law. Venus Concept cannot predict future changes U.S. and foreign courts may make in the interpretation of patent laws or changes to patent laws which might be enacted into law by U.S. and foreign legislative bodies. Those changes may materially affect Venus Concept patent rights, and its ability to obtain patents in the future.

The protection for Venus Concept’s proprietary developments is uncertain because legal means may afford only limited protection and may not adequately protect its rights or permit it to gain or keep its competitive advantage arising from its proprietary developments, which could adversely affect Venus Concept’s financial condition and results of operations. For example, any of the following could occur:

 

   

others may be able to make systems or devices that are similar to Venus Concept’s but that are not covered by the claims of its patents;

 

   

others may assert that Venus Concept was not the first to make the inventions covered by its issued patents or pending patent applications;

 

   

Venus Concept’s pending patent applications may not result in issued patents or obtain the coverage originally sought;

 

   

any of Venus Concept’s present or future patents or patent claims or other intellectual property rights may lapse or be invalidated, rendered unenforceable, circumvented, challenged or abandoned;

 

   

Venus Concept may not have, or it may fail to obtain, patents in all jurisdictions in which its products are sold or in which systems or devices that are similar to its are made or sold by third parties;

 

   

Venus Concept issued patents may not provide it with any competitive advantages;

 

   

the claims of Venus Concept’s issued patents or patent applications when issued may not cover its products or the future products it develops;

 

   

there may be dominating or blocking patents of which it is not aware that are relevant to Venus Concept technologies, including its controlled-cooling technology;

 

   

Venus Concept’s ability to assert its intellectual property rights against potential competitors or to settle current or future disputes may be limited by its agreements with third parties, financial constraints, market realities, competitive concerns or other factors;

 

   

there may be prior public disclosures of which Venus Concept is not aware that could invalidate its inventions or place some of its intellectual property in the public domain;

 

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the laws of foreign countries may not protect its proprietary rights to the same extent as the laws of the United States;

 

   

Venus Concept’s intellectual property rights may not be enforceable in jurisdictions where competition may be intense or where legal protection may be weak and the outcomes are uncertain; and

 

   

Venus Concept may not develop additional proprietary products that are patentable.

From time to time, Venus Concept analyzes its competitors’ products and services, and may in the future seek to enforce its patents or other rights to counter perceived infringement. In order to preserve and enforce its patent and other intellectual property rights, Venus Concept may need to make claims or file lawsuits against third parties. Such lawsuits can be expensive and time-consuming and could divert its efforts and attention from other aspects of its business. In addition, in an infringement proceeding, a court may decide that the patent Venus Concept seeks to enforce is invalid or unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that the patent in question does not cover products accused of infringement. An adverse result in any litigation also could put one or more of Venus Concept’s patents at risk of being interpreted more narrowly than previously thought. Similarly, some of its competitors are very large companies that may be able to devote significantly more resources to intellectual property litigation, and may have significantly broader patent portfolios to assert against Venus Concept if it asserts its rights against them. Finally, because of the substantial discovery required in connection with intellectual property litigation in the United States, substantial burden could be placed on Venus Concept relating to discovery activities and related costs associated with such intellectual property litigation.

Prosecution of patent applications, post-grant opposition proceedings, and litigation to establish the validity, enforceability, and scope of patents, assert patent infringement claims against others or defend against patent infringement claims by others are expensive and time-consuming. There can be no assurance that, in the event that claims of any of Venus Concept patents are challenged by one or more third parties, any court or patent authority ruling on such challenge will determine that such patent claims are valid and enforceable. An adverse outcome in such litigation or post grant proceeding could cause Venus Concept to lose associated patent rights and may have a material adverse effect on Venus Concept’s business.

Unauthorized use of Venus Concept intellectual property may have occurred or may occur in the future. Any failure to detect or identify unauthorized use of, and otherwise adequately protect, Venus Concept intellectual property could adversely affect its business, including by reducing the demand for its products.

Unauthorized use of Venus Concept’s intellectual property may have occurred or may occur in the future. Any reverse engineered or counterfeit products that purport to be Venus Concept systems that are currently in the market or that may be introduced in the future may harm its reputation and its sale of products. Moreover, if Venus Concept commences litigation to stop or prevent any unauthorized use of its technology that occurs from reverse engineering or counterfeiting of its products, or if it has to defend allegations of such unauthorized use of a third party’s technology, such litigation would be time-consuming, force it to incur significant costs and divert its attention and the efforts of its management and other employees.

Venus Concept may become subject to claims for remuneration for service invention rights by Venus Concept’s employees, which could result in litigation and adversely affect Venus Concept’s business.

A significant portion of Venus Concept’s intellectual property has been developed by Venus Concept’s employees based in Israel in the course of their employment for Venus Concept. Under the Israeli Patent Law, 5727-1967, or Patent Law, inventions conceived by employees during and within the scope of employment with an employer are regarded as “service inventions,” which belong to the employer, absent a specific agreement between the employee and employer giving the employee service invention rights. The Patent Law also provides that if there is no agreement between an employer and an employee with respect to the employee’s right to receive compensation for such “service inventions,” the Israeli Compensation and Royalties Committee, or the

 

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Committee, a body constituted under the Patent Law, shall determine whether the employee is entitled to remuneration for his or her service inventions and the scope and conditions for remuneration. While Venus Concept’s employees have generally explicitly waived their right to any additional compensation for their contribution to service invention rights, certain current or former employees may not have signed such waivers, and Venus Concept may face claims from current or former employees demanding remuneration in consideration for Venus Concept’s employees’ contribution to service invention rights, which may lead to future litigation, which could be costly and could divert management’s attention or Venus Concept could be required to pay such remuneration.

If Venus Concept is unable to protect the confidentiality of its proprietary information and know-how, the value of its technology and products could be adversely affected.

Venus Concept relies on trade secret protection to protect its interests in proprietary know-how and processes for which, for example, patents are difficult or impossible to obtain or enforce, or which it believes would be best protected by means that do not result in public disclosure. Venus Concept may not be able to protect its trade secrets adequately. Venus Concept has limited control over the protection of trade secrets used by its third-party manufacturers and suppliers and could lose future trade secret protection if any unauthorized disclosure of such information occurs. Although Venus Concept uses reasonable efforts to protect its trade secrets, its employees, consultants, contractors and outside scientific advisors may unintentionally or willfully disclose its information to competitors. Litigating a claim that a third-party illegally obtained and is using any of its trade secrets is expensive and time-consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets. Venus Concept relies, in part, on non-disclosure and confidentiality agreements with its employees, consultants and other parties to protect its trade secrets and other proprietary technology. These agreements generally require that all confidential information developed by the individual or made known to the individual by Venus Concept during the course of the individual’s relationship with it be kept confidential and not be disclosed to third parties. However, Venus Concept may fail to enter into the necessary agreements, and even if entered into, these agreements may be of limited duration or may be breached and Venus Concept may not have adequate remedies for any unauthorized use or disclosure of its confidential information. Moreover, others may independently and legitimately develop equivalent trade secrets or other proprietary information. In addition, if third parties are able to establish that Venus Concept is using their proprietary information without their permission, Venus Concept may be required to obtain a license to that information, or if such a license is not available, re-design Venus Concept’s products to avoid any such unauthorized use or permanently stop manufacturing and selling the related products.

Venus Concept could in the future be subject to claims that it or its employees have intentionally or inadvertently used or disclosed alleged trade secrets or other proprietary information of former employers or competitors. Although Venus Concept has procedures in place that seek to prevent its employees and consultants from using the intellectual property, proprietary information, know-how or trade secrets of others in their work for Venus Concept, Venus Concept may in the future be subject to claims that Venus Concept caused an employee to breach the terms of his or her non-disclosure obligations under one or more agreements, or that Venus Concept or these individuals have, inadvertently or intentionally used or disclosed the alleged trade secrets or other proprietary information of a former employer or competitor. Litigation may be necessary to defend against these claims. Even if Venus Concept is successful in defending against these claims, any such litigation could result in substantial costs and could be a distraction to management. If Venus Concept’s defense to those claims fails, in addition to paying monetary damages, a court could prohibit it from using technologies or functionalities that are essential to Venus Concept systems. An inability to incorporate technologies or functionalities that are important or essential to Venus Concept systems could have a material adverse effect on Venus Concept’s business and may prevent it from selling its products or from practicing its processes. In addition, Venus Concept may lose valuable intellectual property rights or personnel. Moreover, any such litigation or corresponding threat may adversely affect Venus Concept’s ability to retain or hire employees or contract with independent sales representatives. A loss of key personnel could hamper or prevent Venus

 

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Concept’s ability to commercialize Venus Concept’s products, which could have an adverse effect on its business, results of operations and financial condition.

Venus Concept also relies on physical and electronic security measures to protect its proprietary information, but these security measures may be breached or may not provide adequate protection for Venus Concept property. There is a risk that third parties may obtain and improperly utilize Venus Concept proprietary trade secrets or other proprietary information to its competitive disadvantage. Venus Concept may not be able to detect or prevent the unauthorized access or use of such information or take appropriate and timely steps to enforce its intellectual property rights.

Venus Concept depends on certain technologies that are licensed to it. Venus Concept does not control these technologies and any loss of its rights to them could prevent it from selling its products.

Venus Concept is dependent on intellectual property license agreements for certain key technology for which Venus Concept pays royalty fees. Venus Concept does not own the patents that underlie its license agreements and its rights to use any technology licensed is subject to compliance with the terms of the license agreements. Venus Concept does not control the prosecution, maintenance, or filing of the patents that are licensed under its license agreements, or the enforcement of these patents against third parties. These patents and patent applications are not written by Venus Concept or its advisors, and it did not have control over the drafting and prosecution. Venus Concept cannot be certain that drafting and/or prosecution of the licensed patents and patent applications by the licensors have been or will be conducted in compliance with applicable laws and regulations or will result in sustainable, valid and enforceable patents and other intellectual property rights.

Venus Concept’s intellectual property agreements with third parties may be subject to disagreements over contract interpretation, which could narrow the scope of its rights to the relevant intellectual property or technology or increase Venus Concept’s financial or other obligations to its licensors.

Certain provisions in Venus Concept’s intellectual property agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could affect the scope of Venus Concept’s rights to the relevant intellectual property or technology or affect financial or other obligations under the relevant agreement, either of which could have a material adverse effect on its business, financial condition, results of operations and prospects.

In addition, while it is Venus Concept’s policy to require its employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to it, Venus Concept may not execute such an agreement with each party who in fact conceives or develops intellectual property that Venus Concept regards as its own. Venus Concept’s assignment agreements may not be enforceable or may be breached, and Venus Concept may be forced to bring claims against third parties, or defend claims they may bring against it, to determine the ownership of what Venus Concept regards as its intellectual property.

If Venus Concept is unable to protect its trademarks from infringement or other violation, its business prospects may be harmed.

Venus Concept has trademark registrations and applications in the United States and also in certain foreign countries for Venus Concept, Venus Viva, Venus Versa, Venus Freeze, Venus Legacy, NeoGraft and/or (MP)2, but there can be no guarantee Venus Concept’s rights will not be subject to, or be limited or lost by, challenges or oppositions brought by third parties. Although Venus Concept takes steps to monitor the possible infringement or misuse of its trademarks, it is possible that third parties may infringe, dilute or otherwise violate Venus Concept trademark rights without notice for a substantial period of time. Any unauthorized use of Venus Concept’s trademarks could harm its reputation or commercial interests. In addition, Venus Concept’s enforcement against third-party infringers or violators may be expensive and time-consuming, and the outcome is unpredictable and may not provide an adequate remedy.

 

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Venus Concept’s products and services and any future products or services it develops could be alleged to infringe patents or other intellectual property rights of others, which may lead to litigation and, if Venus Concept is not successful, it could be required to pay substantial damages or it may be limited in its ability to commercialize its products.

Venus Concept’s commercial success depends on its ability to develop, manufacture, and market its products and use its proprietary products without infringing the patents, trade secrets and other proprietary rights of third parties. As the medical technology and aesthetic product industries expand and more patents are issued, the risk increases that there may be patents issued to third parties that relate to Venus Concept systems and technology of which it is not aware or that it must challenge to continue its operations as currently contemplated.

Venus Concept’s products may be held by a court to infringe, misappropriate or otherwise violate patents, trade secrets or other proprietary rights of others, and Venus Concept may not know whether or to what extent it may be infringing, misappropriating or otherwise violating any such third party. For example, on October 26, 2018, Edge Systems LLC filed suit against Venus Concept in the United States District Court for the District of Florida. The complaint alleges infringement of several patents by the Venus Glow system introduced into the U.S. market in the fourth quarter of 2018. Although Venus Concept believes that it does not infringe the patents and it will vigorously defend the claims asserted, intellectual property litigation can involve complex factual and legal questions, and Venus Concept cannot guaranty the outcome of this suit will be in its favor.

Venus Concept may also be subject to claims that it is infringing, misappropriating or otherwise violating other intellectual property rights, such as trademarks or copyrights. If patents containing competitive or conflicting claims are issued to third parties, Venus Concept may be enjoined from pursuing research, development or commercialization of products, or may be required to obtain licenses to these patents, or to develop or obtain alternative technologies.

There is substantial litigation involving patent and other intellectual property rights in the medical technology and aesthetic industries generally. If a third-party brings additional claims that Venus Concept infringes its intellectual property rights in the future, Venus Concept may face a number of issues relating to such claims, including, but not limited to:

 

   

allegations of infringement and violation of other intellectual property claims which, regardless of merit, may be expensive and time-consuming to defend and may divert management’s attention from Venus Concept’s business;

 

   

substantial damages for infringement may be awarded, which Venus Concept may have to pay if a court decides that the product or process at issue infringes on or otherwise violates the third party’s rights and if the court finds that the infringement was willful in a patent infringement case in the United States, Venus Concept could be ordered to pay an amount up to treble damages;

 

   

in a patent infringement case, a court in the United States could find that an exceptional case exists and that Venus Concept should be ordered to pay the patent owner’s attorney’s fees, and in several foreign jurisdictions, such attorney’s fees could be awarded to the patent owner as a matter of right if it is successful in its infringement suit;

 

   

a court could issue an injunction prohibiting Venus Concept from selling or licensing Venus Concept systems, or using processes to manufacture or use such devices unless the third-party licenses its intellectual property rights to Venus Concept, which it is not required to do at a commercially reasonable price or at all;

 

   

a requirement may arise for Venus Concept to enter into licenses for which it may have to pay substantial royalties, upfront fees or grant cross-licenses to intellectual property rights for its products and processes or which may contain other onerous terms; and

 

   

a requirement may arise for Venus Concept to redesign its products or processes so they do not infringe a third party’s intellectual property, which may not be possible at all or may require substantial

 

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monetary expenditures and time, during which Venus Concept’s products may not be available for sale and processes may not be available for use.

Some of Venus Concept’s competitors may be able to sustain the costs of complex patent litigation more effectively than Venus Concept can because they have substantially greater resources. Even if resolved in Venus Concept’s favor, litigation or other legal proceedings relating to intellectual property claims may cause it to incur significant expenses and could distract its technical and management personnel from their normal responsibilities.

If a third party is found to have rights covering Venus Concept systems or processes, Venus Concept could be forced to cease selling the products or using the processes covered by the disputed rights or be subject to significant liabilities to such third party and/or be required to license rights from such third party which may not be required to do at a commercially reasonable price or at all.

Indemnification obligations for third party intellectual property claims may increase Venus Concept’s costs or require it to cease selling certain products, which could adversely affect Venus Concept’s financial condition and results of operations.

Venus Concept may be subject to indemnification claim obligations with respect to its intellectual property rights pursuant to its agreements with its customers. Such indemnification provisions are customary in the industry. Successful claims of infringement or misappropriation by a third-party against Venus Concept or a customer or other third-party that it indemnifies could not only prevent it from distributing certain products or performing certain services, but could also require it to pay substantial damages, royalties, legal fees or other fees.

Risks Related to Venus Concept’s Operations in Israel

Venus Concept conducts a significant portion of Venus Concept’s operations in Israel and therefore Venus Concept’s business, financial condition and results of operations may be adversely affected by political, economic and military conditions in Israel.

Venus Concept’s Tel Aviv administrative corporate office, its research and development facilities and key third-party suppliers are located in Israel, and some of its key employees are residents of Israel. Accordingly, political, economic and military conditions in Israel may directly affect its business.

Since the establishment of the State of Israel in 1948, a number of armed conflicts have taken place between Israel and its neighboring countries. Any hostilities, armed conflicts, terrorist activities or political instability involving Israel or the interruption or curtailment of trade within Israel or between Israel and its trading partners could adversely affect business conditions and have a material adverse effect on Venus Concept’s business, financial condition and results of operations and could make it more difficult for Venus Concept to raise capital. In recent years, these have included hostilities between Israel and Hezbollah in Lebanon, and Israel and Hamas in the Gaza Strip, both of which resulted in rockets being fired into Israel causing casualties and disruption of economic activities. In addition, Israel faces threats from more distant neighbors, in particular, Iran.

In addition, hostilities, armed conflicts, terrorist activities or political instability involving Israel could have a material adverse effect on Venus Concept’s facilities including its corporate administrative office or on the facilities of its local suppliers, in which event all or a portion of its inventory may be damaged and its ability to deliver products to customers could be significantly delayed. Certain of Venus Concept’s executive officers and key employees reside in Israel and some may be required to perform annual military reserve duty and may be called for active duty under emergency circumstances at any time. Venus Concept operations could be disrupted by an absence for a significant period of time of one or more of these officers or key employees due to military service, which could adversely affect its business, results of operations and financial condition.

 

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Several countries, principally in the Middle East, restrict doing business with Israel and Israeli companies, and additional countries may impose restrictions on doing business with Israel and Israeli companies whether as a result of hostilities in the region or otherwise. Similarly, Israeli corporations are limited in conducting business with entities from several countries. Such restrictions may seriously limit its revenues.

Venus Concept’s commercial insurance does not cover losses that may occur as a result of events associated with the security situation in the Middle East, such as damages to Venus Concept’s facilities resulting in disruption of Venus Concept’s operations. Although the Israeli government is currently committed to covering the reinstatement value of direct damages that are caused by terrorist attacks or acts of war, there can be no assurance that this government coverage will be maintained, or if maintained, will be sufficient to compensate Venus Concept fully for damages incurred. Any losses or damages incurred by Venus Concept could have a material adverse effect on Venus Concept’s business, financial condition and results of operations. Any armed conflicts or political instability in the region would likely negatively affect business conditions and could harm Venus Concept’s business, financial condition and results of operations.

Venus Concept’s operations may be affected by negative labor conditions in Israel.

Strikes and work-stoppages occur relatively frequently in Israel. If Israeli trade unions threaten additional strikes or work-stoppages and such strikes or work-stoppages occur, those may, if prolonged, have a material adverse effect on the Israeli economy and on Venus Concept’s business, including Venus Concept’s ability to deliver products to Venus Concept’s customers and to receive raw materials from Venus Concept’s suppliers in a timely manner.

 

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This proxy statement/prospectus and the documents incorporated by reference into this proxy statement/prospectus contain forward-looking statements relating to Restoration Robotics, Venus Concept, the merger and the other proposed transactions.

These forward-looking statements are based on current expectations and beliefs and involve numerous risks and uncertainties that could cause actual results to differ materially from expectations. These forward-looking statements should not be relied upon as predictions of future events as Restoration Robotics and Venus Concept cannot assure you that the events or circumstances reflected in these statements will be achieved or will occur. You can identify forward-looking statements by the use of forward-looking terminology including “believes,” “expects,” “may,” “will,” “should,” “seeks,” “intends,” “plans,” “pro forma,” “estimates,” or “anticipates” or the negative of these words and phrases or other variations of these words and phrases or comparable terminology. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. For example, forward-looking statements include any statements regarding the strategies, prospects, plans, expectations or objectives of management of Restoration Robotics or Venus Concept for future operations of the combined company, the progress, scope or timing of the development of the combined company’s products, the benefits that may be derived from Restoration Robotics or Venus Concept products, services or technology or the commercial or market opportunity with respect to their products, the ability of Restoration Robotics or Venus Concept to protect their intellectual property rights, the anticipated operations, financial position, ability to raise capital to fund operations, revenues, costs or expenses of Restoration Robotics, Venus Concept or the combined company, statements regarding future economic conditions or performance, statements of belief and any statement of assumptions underlying any of the foregoing. Forward-looking statements may also include any statements regarding the approval and closing of the merger, including the timing of the consummation of the merger, Restoration Robotics’ ability to solicit a sufficient number of proxies to approve the merger, satisfaction of conditions to the completion of the merger, the expected benefits of the merger, the ability of Restoration Robotics and Venus Concept to complete the merger, the combined company’s ability to complete the equity commitment letter financing immediately following the merger and any statement of assumptions underlying any of the foregoing.

For a discussion of the factors that may cause Restoration Robotics, Venus Concept or the combined company’s actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied in such forward-looking statements, or for a discussion of risks associated with the ability of Restoration Robotics and Venus Concept to complete the merger and the effect of the merger on the business of Restoration Robotics, Venus Concept and the combined company, please see the section titled “Risk Factors” beginning on page 28 of this proxy statement/prospectus. Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in reports filed with the SEC by Restoration Robotics and incorporated by reference herein. See the section titled “Where You Can Find More Information” beginning on page 293 of this proxy statement/prospectus. There can be no assurance that the merger will be completed, or if it is completed, that it will be completed within the anticipated time period or that the expected benefits of the merger will be realized.

If any of these risks or uncertainties materialize or any of these assumptions prove incorrect, the results of Restoration Robotics, Venus Concept or the combined company could differ materially from the forward-looking statements. All forward-looking statements in this proxy statement/prospectus are current only as of the date on which the statements were made. Restoration Robotics and Venus Concept do not undertake any obligation to (and expressly disclaim any such obligation to) publicly update any forward-looking statement to reflect events or circumstances after the date on which any statement is made or to reflect the occurrence of unanticipated events.

Management of Venus Concept has prepared a financial forecast for purposes of the merger transaction. The financial forecast used in the discounted cash flow analysis discussed herein was not prepared with a view toward

 

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public disclosure or with a view toward complying with the guidelines established by the American Institute of Certified Public Accountants with respect to prospective financial information, but, in the view of Venus Concept’s management, was prepared on a reasonable basis, reflects the best currently available estimates and judgments, and presents, to the best of management’s knowledge and belief, the expected course of action and the expected future financial performance of Venus Concept. However, this information is not fact and should not be relied upon as being necessarily indicative of future results, and readers of this proxy statement/prospectus are cautioned not to place undue reliance on the financial forecast.

Neither Venus Concept’s independent auditors, nor any other independent accountants, have compiled, examined, or performed any procedures with respect to the financial forecast discussed herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the financial forecast.

 

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THE ANNUAL MEETING OF RESTORATION ROBOTICS STOCKHOLDERS

Date, Time and Place

The Restoration Robotics annual meeting will be held on             , 2019, at the offices of Restoration Robotics located at 128 Baytech Drive, San Jose, California 95134, commencing at              a.m., local time. Restoration Robotics is sending this proxy statement/prospectus to its stockholders in connection with the solicitation of proxies by Restoration Robotics’ board of directors for use at the Restoration Robotics annual meeting and any adjournments or postponements of the Restoration Robotics annual meeting. This proxy statement/prospectus is first being furnished to Restoration Robotics stockholders on or about             , 2019.

Purposes of the Restoration Robotics Annual Meeting

The purposes of Restoration Robotics annual meeting are:

 

  1.

To approve the issuance of shares of Restoration Robotics common stock to Venus Concept shareholders pursuant to the terms of the Merger Agreement, a copy of which is attached as Annex A;

 

  2.

To approve (i) the issuance of shares of Restoration Robotics common stock in the equity commitment letter financing, including the issuance of the optional shares, as contemplated by the equity commitment letter among Restoration Robotics, Venus Concept and the investors named therein, a copy of which is attached as Annex B; (ii) the issuance of shares of Restoration Robotics common stock upon the conversion of $5.0 million aggregate principal amount of convertible notes issued by Restoration Robotics in February 2019 into common stock of Restoration Robotics at a conversion price equal to $0.825 per share, referred to as the Restoration Robotics note conversion; and (iii) the issuance of shares of Restoration Robotics common stock upon the conversion of $7.8 million aggregate principal amount of convertible notes issued to Venus Concept in June 2019 into common stock of Restoration Robotics at a conversion price equal to $0.4664 per share, referred to as the Venus Concept note conversion;

 

  3.

To approve an amendment and restatement to the Restoration Robotics 2017 Plan to increase the total number of shares of Restoration Robotics common stock currently available for issuance under the 2017 Plan by 6,750,000 shares, prior to giving effect to the reverse split to be effected in connection with the merger, and certain other amendments to the 2017 Plan as more fully described therein, in the form attached as Annex C;

 

  4.

To approve an amendment to the amended and restated certificate of incorporation of Restoration Robotics changing the Restoration Robotics corporate name to “Venus Concept Inc.” in the form attached as Annex D;

 

  5.

To approve an amendment to the amended and restated certificate of incorporation of Restoration Robotics effecting a reverse stock split of Restoration Robotics’ issued and outstanding common stock within a range, as determined by the Restoration Robotics board of directors, of every 10 to 15 shares (or any number in between) of outstanding Restoration Robotics common stock being combined and reclassified into one share of Restoration Robotics common stock in the form attached as Annex E;

 

  6.

To elect the Class II directors to the Restoration Robotics board of directors for a term of three (3) years (provided, however, that if the merger is completed, the board of directors will be reconstituted as provided in the Merger Agreement);

 

  7.

To ratify the selection of Grant Thornton LLP as Restoration Robotics’ independent registered public accounting firm for the fiscal year ending December 31, 2019 (provided, however, that it is likely that the combined company may decide to engage a new independent registered public accounting firm immediately or shortly after the merger is completed);

 

  8.

To consider and vote upon an adjournment of the Restoration Robotics annual meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1, 2, 3 and 5; and

 

  9.

To transact such other business as may properly come before the stockholders at the Restoration Robotics annual meeting or any adjournment or postponement thereof.

 

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Proposal Nos. 1, 2, 3 and 5 are referred to herein collectively as the merger proposals. Proposal Nos. 1, 2 and 3 are conditioned upon the approval of each of the other merger proposals and the approval of each merger proposal is a condition to completion of the merger. Proposal No. 5 is not conditioned upon the approvals of Proposals Nos. 1, 2 and 3. None of the issuance of Restoration Robotics common stock in connection with the merger, or Proposal No. 1, the issuance of Restoration Robotics common stock in the equity commitment letter financing or Restoration Robotics note conversion, Proposal No. 2, the amendment and restatement of the 2017 Plan, including an increase to the number of shares available for issuance thereunder, and certain other amendments to the 2017 Plan, nor Proposal No. 3, will take place unless all of the merger proposals are approved by Restoration Robotics stockholders and the merger is consummated. Therefore, the merger cannot be consummated without the approval of Proposal Nos. 1, 2, 3 and 5.

Recommendation of Restoration Robotics’ Board of Directors

 

   

Restoration Robotics’ board of directors has determined and believes that the issuance of shares of Restoration Robotics common stock pursuant to the Merger Agreement is fair to, in the best interests of, and advisable to, Restoration Robotics and its stockholders and has approved such issuance. Restoration Robotics’ board of directors recommends that Restoration Robotics stockholders vote “FOR” Proposal No. 1 to approve the issuance of shares of Restoration Robotics common stock pursuant to the Merger Agreement.

 

   

Restoration Robotics’ board of directors has determined and believes that the issuance of shares of Restoration Robotics common stock in the equity commitment letter financing, including the issuance of the optional shares and the reissuance of shares of Restoration Robotics in the Restoration Robotics note conversion and Venus Concept note conversion, is fair to, in the best interests of, and advisable to, Restoration Robotics and its stockholders and has approved such issuances. Restoration Robotics’ board of directors recommends that Restoration Robotics stockholders vote “FOR” Proposal No. 2 to approve the issuance of shares of Restoration Robotics common stock in the equity commitment letter financing, including the issuance of the optional shares and the issuance of shares of Restoration Robotics in the Restoration Robotics note conversion.

 

   

Restoration Robotics’ board of directors has determined and believes that the approval of the amendment and restatement to the Restoration Robotics 2017 Plan to increase the number of shares of Restoration Robotics common stock reserved for issuance thereunder, and certain other amendment and restatement of the 2017 Plan as more fully described herein, is fair to, in the best interests of, and advisable to, Restoration Robotics and its stockholders and has approved and adopted such amended and restated 2017 Plan. Restoration Robotics’ board of directors recommends that Restoration Robotics stockholders vote “FOR” Proposal No. 3 to approve such amendment and restatement of the 2017 Plan.

 

   

Restoration Robotics’ board of directors has determined and believes that the amendment to the amended and restated certificate of incorporation of Restoration Robotics to change the name of Restoration Robotics to “Venus Concept Inc.” is advisable to, and in the best interests of, Restoration Robotics and its stockholders and has approved such name change. Restoration Robotics’ board of directors recommends that Restoration Robotics stockholders vote “FOR” Proposal No. 4 to approve the name change.

 

   

Restoration Robotics’ board of directors has determined and believes that it is advisable to, and in the best interests of, Restoration Robotics and its stockholders to approve the amendment to the amended and restated certificate of incorporation of Restoration Robotics effecting the reverse stock split, as described in this proxy statement/prospectus. Restoration Robotics’ board of directors recommends that Restoration Robotics stockholders vote “FOR” Proposal No. 5 to approve the reverse stock split.

 

   

Restoration Robotics’ board of directors recommends that Restoration Robotics stockholders vote “FOR” Proposal No. 6 the election of each of Frederic Moll, M.D. and Craig Taylor as Class II directors.

 

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Restoration Robotics’ board of directors recommends that Restoration Robotics stockholders vote “FOR” Proposal No. 7 to ratify the appointment of Grant Thornton LLP as Restoration Robotics’ independent registered public accounting firm for the fiscal year ending December 31, 2019.

 

   

Restoration Robotics’ board of directors has determined and believes that adjourning the Restoration Robotics annual meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1, 2, 3 and 5 is fair to, in the best interests of, and advisable to, Restoration Robotics and its stockholders and has approved and adopted the proposal. Restoration Robotics’ board of directors recommends that Restoration Robotics stockholders vote “FOR” Proposal No. 8 to adjourn the Restoration Robotics annual meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1, 2, 3 and 5.

Restoration Robotics stockholders should understand, however, that if the merger with Venus Concept is completed, the effect of the approval of Proposals No. 6 and 7 will be limited since the composition of the Restoration Robotics’ board of directors will be changed upon completion of the merger and the equity commitment letter financing in accordance with the Merger Agreement and it is likely that the combined company may decide to engage a new independent registered public accounting firm immediately or shortly after completion of the merger.

Record Date and Voting Power

Only holders of record of Restoration Robotics common stock at the close of business on the record date,             , 2019, are entitled to notice of, and to vote at, the Restoration Robotics annual meeting. At the close of business on the record date, there were holders of record of Restoration Robotics common stock and there were shares of Restoration Robotics common stock issued and outstanding. Each share of Restoration Robotics common stock entitles the holder thereof to one vote on each matter submitted for stockholder approval.

Voting and Revocation of Proxies

The Proxy Card accompanying this proxy statement/prospectus is solicited on behalf of Restoration Robotics’ board of directors for use at the Restoration Robotics annual meeting.

If, as of the record date referred to above, your shares were registered directly in your name with the transfer agent for Restoration Robotics common stock, Computershare Inc., then you are a stockholder of record. Whether or not you plan to attend the Restoration Robotics annual meeting online, Restoration Robotics urges you to fill out and return the proxy card or vote by proxy over the telephone or on the internet as instructed below to ensure your vote is counted.

The procedures for voting are as follows:

If you are a stockholder of record, you may vote at the Restoration Robotics annual meeting. Alternatively, you may vote by proxy by using the accompanying Proxy Card, over the internet or by telephone. Whether or not you plan to attend the Restoration Robotics annual meeting, Restoration Robotics encourages you to vote by proxy to ensure your vote is counted. Even if you have submitted a proxy before the Restoration Robotics annual meeting, you may still attend the Restoration Robotics annual meeting and vote in person. In such case, your previously submitted proxy will be disregarded.

 

   

To vote at the Restoration Robotics annual meeting, attend the Restoration Robotics annual meeting online and follow the instructions posted at www.virtualshareholdermeeting.com/HAIR2019.

 

   

To vote using the Proxy Card, simply complete, sign and date the accompanying Proxy Card and return it promptly in the envelope provided. If you return your signed Proxy Card before the Restoration Robotics annual meeting, Restoration Robotics will vote your shares in accordance with the Proxy Card.

 

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To vote by proxy over the internet, follow the instructions provided on the Notice of Internet Availability.

 

   

To vote by telephone, you may vote by proxy by calling the toll free number found on the Notice of Internet Availability.

If you are a beneficial owner of shares registered in the name of your broker, bank or other agent, you should have received a voting instruction card and voting instructions with these proxy materials from that organization rather than from us. Simply complete and mail the voting instruction card to ensure that your vote is counted. To vote in person at the Restoration Robotics annual meeting, you must obtain a valid proxy from your broker, bank or other agent. Follow the instructions from your broker, bank or other agent included with these proxy materials, or contact your broker, bank or other agent to request a proxy form.

We provide internet proxy voting to allow you to vote your shares online, with procedures designed to ensure the authenticity and correctness of your proxy vote instructions. However, please be aware that you must bear any costs associated with your internet access, such as usage charges from internet access providers and telephone companies.

If you do not give instructions to your broker, your broker can vote your Restoration Robotics shares with respect to “discretionary” items but not with respect to “non-discretionary” items. Discretionary items are proposals considered routine under the rules of Nasdaq on which your broker may vote shares held in “street name” in the absence of your voting instructions. On non-discretionary items for which you do not give your broker instructions, Restoration Robotics shares will be treated as broker non-votes. It is anticipated that all proposals, other than Proposal No. 7, will be non-discretionary.

All properly executed proxies that are not revoked will be voted at the Restoration Robotics annual meeting and at any adjournments or postponements of the Restoration Robotics annual meeting in accordance with the instructions contained in the proxy. If a holder of Restoration Robotics common stock executes and returns a proxy and does not specify otherwise, the shares represented by that proxy will be voted “FOR” all of the proposals in accordance with the recommendation of Restoration Robotics’ board of directors.

If you are a stockholder of record of Restoration Robotics and you have not executed a voting agreement, you may change your vote at any time before your proxy is voted at the Restoration Robotics annual meeting in any one of the following ways:

 

   

you may submit another properly completed proxy with a later date;

 

   

you may send a written notice that you are revoking your proxy to Restoration Robotics’ Chief Financial Officer and Corporate Secretary at 128 Baytech Drive, San Jose, California 95134; or

 

   

you may attend the Restoration Robotics annual meeting online and vote by following the instructions at www.virtualshareholdermeeting.com/HAIR2019. Simply attending the Restoration Robotics annual meeting will not, by itself, revoke your proxy.

If your shares are held by your broker, bank or other agent, you should follow the instructions provided by them.

Required Vote

The presence, in person or represented by proxy, at the Restoration Robotics annual meeting of the holders of a majority of the shares of Restoration Robotics common stock outstanding and entitled to vote at the Restoration Robotics annual meeting is necessary to constitute a quorum at the meeting. Abstentions and broker non-votes will be counted towards a quorum. The affirmative vote of a majority of the votes cast in person or by proxy at the Restoration Robotics annual meeting, assuming a quorum is present, is required for approval of

 

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Proposal Nos. 1, 2, 3, 7 and 8. The affirmative vote of the holders of a majority of the outstanding shares of Restoration Robotics common stock entitled to vote at the Restoration Robotics annual meeting is required for approval of Proposal Nos. 4 and 5. With respect to Proposal No. 6, directors are elected by a plurality of the affirmative votes cast by those shares present in person or represented by proxy and entitled to vote at the Restoration Robotics annual meeting, and the nominees for director receiving the highest number of affirmative votes will be elected. Each of Proposal Nos. 1, 2, 3 and 5 is a condition to the completion of the merger and they are referred to herein collectively as the merger proposals. Therefore, the merger cannot be consummated without the approval of Proposal Nos. 1, 2, 3 and 5. Proposal Nos. 1, 2 and 3 are conditioned upon the approval of each of the other merger proposals and the approval of each merger proposal is a condition to completion of the merger. Proposal No. 5 is not conditioned upon the approvals of Proposal Nos. 1, 2 and 3. None of the issuance of Restoration Robotics common stock in connection with the merger, or Proposal No. 1, the issuance of Restoration Robotics common stock in the equity commitment letter financing or Restoration Robotics note conversion, Proposal No. 2, nor the amendment and restatement of the 2017 Plan, including an increase to the number of shares available for issuance thereunder, and certain other amendments to the 2017 Plan as more fully described herein, nor Proposal No. 3, will take place unless all of the merger proposals are approved by Restoration Robotics stockholders and the merger is consummated.

Votes will be counted by the inspector of election appointed for the meeting, who will separately count “FOR,” “AGAINST” and “WITHHOLD” votes, abstentions and broker non-votes. “WITHHOLD” votes with respect to the election of one or more nominees for director pursuant to Proposal No. 6 will not be voted with respect to the director or directors indicated, although they will be counted for purposes of determining the presence of a quorum for the transaction of business at the Restoration Robotics annual meeting. Abstentions and broker non-votes will also be treated as shares present for the purpose of determining the presence of a quorum for the transaction of business at the annual meeting. Abstentions and broker non-votes will not, however, be considered votes cast at the Restoration Robotics annual meeting and will therefore not have any effect with respect to Proposal Nos. 1, 2, 3, 7 and 8. Abstentions and broker non-votes will have the same effect as “AGAINST” votes for Proposal Nos. 4 and 5.

As of March 31, 2019, the directors and executive officers of Restoration Robotics owned or controlled 10.4% of the outstanding shares of Restoration Robotics common stock entitled to vote at the Restoration Robotics annual meeting. The directors and executive officers of Restoration Robotics owning these shares are subject to voting agreements. Each stockholder that entered into a voting agreement has agreed to vote all shares of Restoration Robotics common stock owned by him or her as of the record date in favor of Proposal Nos. 1, 2, 3, 4, 5 and 8 and against any competing “Restoration Robotics acquisition proposal” (as defined in the voting agreement).

Solicitation of Proxies

In addition to solicitation by mail, the directors, officers, employees and agents of Restoration Robotics may solicit proxies from Restoration Robotics stockholders by personal interview, telephone, telegram or otherwise. Restoration Robotics and Venus Concept will share equally the costs of printing and filing this proxy statement/prospectus and proxy card. Arrangements will also be made with brokerage firms and other custodians, nominees and fiduciaries who are record holders of Restoration Robotics common stock for the forwarding of solicitation materials to the beneficial owners of Restoration Robotics common stock. Restoration Robotics will reimburse these brokers, custodians, nominees and fiduciaries for the reasonable out of pocket expenses they incur in connection with the forwarding of solicitation materials. Restoration Robotics has retained MacKenzie Partners, Inc. to assist it in soliciting proxies using the means referred to above. Restoration Robotics and Venus Concept will share equally the fees of MacKenzie Partners, Inc., which Restoration Robotics expects to be approximately $8,500, plus reimbursement of out-of-pocket expenses.

 

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Other Matters

As of the date of this proxy statement/prospectus, Restoration Robotics’ board of directors does not know of any business to be presented at the Restoration Robotics annual meeting other than as set forth in the notice accompanying this proxy statement/prospectus. If any other matters should properly come before the Restoration Robotics annual meeting, it is intended that the shares represented by proxies will be voted with respect to such matters in accordance with the judgment of the persons voting the proxies.

 

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THE MERGER

This section and the section titled “The Merger Agreement” beginning on page 126 of this proxy statement/prospectus describe the material aspects of the merger and the Merger Agreement. While Restoration Robotics and Venus Concept believe that this description covers the material terms of the merger and the Merger Agreement, it may not contain all of the information that is important to you. You should read carefully this entire proxy statement/prospectus and the Merger Agreement for a more complete understanding of the merger and the Merger Agreement and the other documents to which you are referred in this proxy statement/prospectus. See the section titled “Where You Can Find More Information” beginning on page 293 of this proxy statement/prospectus.

Background of the Merger

Historical Background for Restoration Robotics

As a matter of practice, Restoration Robotics’ board of directors and senior management, together with their legal and financial advisors, regularly review and evaluate Restoration Robotics’ operating performance, stock price, capital needs, risks, evolving industry dynamics as they may affect Restoration Robotics’ long-term strategic goals and plans, and opportunities for strategic transactions, including collaborations and partnerships, geographical sales relationships, business combinations, acquisitions and other alternatives, as well as continuing to operate as a standalone company, with a goal of maximizing stockholder value.

In the fourth quarter of 2017, Restoration Robotics completed its initial public offering raising approximately $22.1 million in net proceeds at a price to the public of $7.00 per share. As of December 31, 2017, Restoration Robotics held cash and cash equivalents of $23.5 million and completed fiscal 2017 with a net loss of $17.8 million. As a result, in connection with its 2017 annual audit, Restoration Robotics’ independent registered public accounting firm included an explanatory paragraph in its report on the company’s consolidated financial statements as of and for the year ended December 31, 2017 raising substantial doubt about Restoration Robotics’ ability to continue as a going concern. In the first quarter of 2018, the company operated at a net loss of $7.4 million and burned $7.0 million in cash. After the payoff of the debt due to Oxford Finance LLC, or the Oxford debt, the net proceeds from the Solar debt were approximately $10.0 million in May 2018, and Restoration Robotics ended the second quarter of 2018 with approximately $16.9 million in cash and cash equivalents and outstanding gross debt of approximately $20.8 million, with a net loss of approximately $13.7 million for the six months ended June 30, 2018.

In light of its financial condition and increasing operating losses, during the first and second quarters of 2018, management and the board of directors considered and discussed potential financing alternatives for the company. At a meeting of the board of directors in May 2018, multiple financial advisory and banking institutions presented to the board on financing alternatives for the company. During the course of the presentations and thereafter, the board of directors also considered exploring a strategic transaction in parallel with exploring financing alternatives. Based on the recent 510(k) clearance from the U.S. FDA for the ARTAS iX system, Restoration Robotics’ next generation hair restoration system, and the expected commercial launch in mid-2018, as well as input and feedback from the financial advisors and banking institutions, the board of directors determined the best course of action was to commence a public offering to support the commercial launch of its ARTAS iX system in mid-2018.

At the time of the announcement of the public offering in August 2018, Restoration Robotics’ common stock had last closed at $2.99 per share. The company completed a downsized public offering at a price to the public of $1.50 per share (approximately a 50% discount from its closing price prior to the transaction announcement) raising net proceeds of approximately $15.6 million. Restoration Robotics completed the third quarter of 2018 with approximately $23.6 million of cash and cash equivalents and outstanding gross debt of approximately $20.8 million with a net loss of approximately $20.7 million for the nine months ended September 30, 2018. In order to remain in compliance with the terms of its revenue and liquidity covenants under

 

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its debt facility at the completion of its third quarter, the company entered into an amendment modifying these covenants in exchange for the issuance of approximately 161,000 new warrants and a cash fee to its lender.

On November 1, 2018, Restoration Robotics’ board of directors held a meeting and representatives of multiple financial advisory and banking institutions again presented on various financing alternatives for the company. During the course of the presentations and thereafter, Restoration Robotics’ board of directors discussed the potential of a strategic transaction in parallel with its efforts to identify financing alternatives. In November 2018, Restoration Robotics filed a shelf registration statement on Form S-3 in order to be prepared for another potential financing transaction.

During the period of November and December 2018, management continued discussions with multiple potential financial advisors and banking institutions with a primary focus on developing a viable financing plan for the company. During the discussions, in addition to addressing financing structures and alternatives, management discussed with the financial advisors and bankers the potential for a strategic transaction, including a sale of the company, as well as partnerships, collaborations and geographical sales arrangements. During this period, management and Restoration Robotics’ board of directors conducted periodic telephonic meetings to discuss financing strategies and potential structures for strategic transactions under consideration. During these discussions, management and Restoration Robotics’ board of directors also discussed the company’s capital needs, timeline to profitability, various operational aspects to the business including market reception to the ARTAS iX commercial launch, potential financing windows, as well as capital raising constraints in light of Nasdaq rules and regulations resulting from its depressed trading price.

By the end of the fourth quarter of 2018, Restoration Robotics forecasted that, without a financing event or a substantial increase in revenue, it would breach certain revenue and liquidity covenants under its debt facility by the end of the first quarter of 2019.

Throughout the fourth quarter of 2018 and through February 2019, in addition to the activities described below, the senior management of Restoration Robotics met with approximately 40 various investor and financing sources to ascertain interest in a potential investment or financing opportunity for the company. Despite the number of presentations, Restoration Robotics received interest in leading a financing from a single investor. After review and negotiation with the investor through January and February 2019, Restoration Robotics’ board of directors determined that the proposed financing structure was not a viable pathway for the company based on numerous factors, including, among other things, the lack of a financial commitment by the investor as the lead, the risk of failure to syndicate the investment, the requirement of a stockholder vote to close the transaction and the risk to the vote in light of the highly dilutive terms proposed. During this period, Restoration Robotics’ board of directors and senior management regularly discussed the potential for an underwritten public offering, utilizing an “at-the-market” sale facility and other forms of registered equity transactions.

Background of Introduction, Discussions and Negotiation with Venus Concept

In December 2018, following discussions with SVB Leerink occurring in late November and early December 2018, representatives of SVB Leerink provided an introduction of Restoration Robotics’ management to the management team of Venus Concept in order for the parties to discuss the opportunity for a potential strategic transaction. In addition, during December 2018, representatives of SVB Leerink had conversations with a company in the medical device and aesthetics market on a no-names basis to understand if they were interested in pursuing any strategic transactions at the time. The party indicated that they would not be pursuing any acquisitions or strategic transactions at that time.

On December 13, 2018, Restoration Robotics and Venus Concept entered into a mutual confidentiality and non-disclosure agreement.

On December 17, 2018, members of Restoration Robotics’ board of directors and senior management team, including Jeff Bird, Keith Sullivan, Ryan Rhodes and Mark Hair, and a representative of SVB Leerink, met with

 

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members of Venus Concept’s senior management team, including Domenic Serafino, Chief Executive Officer of Venus Concept, Domenic Della Penna, Chief Financial Officer of Venus Concept, and Boris Vaynberg, Chief Technology Officer of Venus Concept, in San Francisco, California, to make introductory presentations regarding their respective companies and discuss the potential for a strategic transaction between the parties. While a potential business combination was discussed, alternative transaction structures were also considered. The meeting also included a presentation by Venus Concept of its selected financial and operating results and operating forecasts prepared by Venus Concept management.

On December 19, 2018, SVB Leerink presented a preliminary financial analysis to Restoration Robotics’ senior management based on the initial management projections prepared by Restoration Robotics’ senior management and financial and operating results information provided by Venus Concept management.

On December 20, 2018, Restoration Robotics’ board of directors held a telephonic call with senior management and representatives of Latham & Watkins LLP to discuss the results of the meeting with Venus Concept and to discuss the progress of the company’s financing activities. During the meeting, the members of senior management discussed management’s preliminary assessment of the merits of a potential transaction with Venus Concept and Venus Concept’s indication that they were interested in entering into more formal discussions regarding a potential transaction. Restoration Robotics’ board of directors also discussed the progress of the company’s financing efforts to identify sources of capital, which included an update from members of senior management on the status of ongoing discussions with potential investors. Restoration Robotics’ board of directors directed senior management to continue activities with regard to securing a potential financing transaction. Restoration Robotics’ board of directors also determined to continue its discussions with Venus Concept regarding the potential transaction, and to request SVB Leerink to identify and contact other potential parties to gauge interest in a potential strategic transaction with Restoration Robotics, including an acquisition.

On December 23, 2018, following the telephonic meeting of Restoration Robotics’ board of directors on December 20, 2018, Jeff Bird, as a representative of Restoration Robotics’ board of directors met telephonically with a representative of SVB Leerink and directed SVB Leerink to identify and contact other potential strategic parties to gauge interest in a potential strategic transaction with Restoration Robotics, including an acquisition.

Over the next several weeks, SVB Leerink made outbound calls to an additional six (6) potential strategic parties (other than Venus Concept and the party that was contacted in early December 2018) to gauge their interest in a potential strategic transaction and/or acquisition of Restoration Robotics, hereinafter referred to as Party A, Party B, Party C, Party D, Party E, and Party F. These strategic parties were identified and selected through discussions between Restoration Robotics’ board of directors and senior management and SVB Leerink on the basis of (i) presence in the aesthetics, medical device and/or health care capital equipment sectors, (ii) the perceived probability of interest in engaging in discussions regarding a strategic transaction with Restoration Robotics, (iii) the perceived financial capacity to engage in a strategic transaction with Restoration Robotics, and (iv) the perceived synergies that might be realized by engaging in a strategic transaction with such parties.

On December 24, 2018, in accordance with Restoration Robotics’ board of director’s directives, SVB Leerink contacted representatives of Party A on a confidential basis to assess Party A’s potential interest in a strategic transaction with and/or acquiring Restoration Robotics. During the telephonic meeting, Party A informed SVB Leerink that Party A had no interest in pursuing a strategic transaction with or acquisition of Restoration Robotics at that time, and Party A did not provide a specific reason as to why it was not interested.

On December 26, 2018, in accordance with Restoration Robotics’ board of directors’ directives, SVB Leerink contacted representatives of Party B on a confidential basis to assess Party B’s potential interest in a strategic transaction with and/or acquiring Restoration Robotics. The following week, Party B informed SVB Leerink that it was interested in continuing discussions and requested a meeting with Restoration Robotics’ senior management in early January 2019.

 

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On December 26, 2018, in accordance with Restoration Robotics’ board of directors’ directives, SVB Leerink contacted representatives of Party C on a confidential basis to assess Party C’s potential interest in a strategic transaction with and/or acquiring Restoration Robotics. Party C indicated it would discuss internally. Ultimately, Party C did not contact SVB Leerink to express interest in pursuing a strategic transaction with or acquisition of Restoration Robotics at that time, nor did Party C specifically decline. Party C did not provide a specific reason as to why it was not interested.

On December 26, 2018, in accordance with Restoration Robotics’ board of directors’ directives, SVB Leerink contacted representatives of Party D on a confidential basis to assess Party D’s potential interest in acquiring Restoration Robotics. During the telephonic meeting, Party D informed SVB Leerink that Party D had no interest in pursuing a strategic transaction with and/or acquiring of Restoration Robotics at that time, and Party D did not provide a specific reason as to why it was not interested.

On December 26, 2018, Restoration Robotics’ board of directors held a telephonic call with senior management and representatives of Latham & Watkins LLP to discuss the progress of the company’s financing activities and strategic transaction discussions.

On December 27, 2018, in accordance with Restoration Robotics’ board of directors’ directives, SVB Leerink contacted representatives of Party E on a confidential basis to assess Party E’s potential interest in a strategic transaction with and/or acquiring Restoration Robotics. During the telephonic meeting, Party E informed SVB Leerink that Party E had no interest in pursuing a strategic transaction with or acquisition of Restoration Robotics at that time, and Party E did not provide a specific reason as to why it was not interested.

On January 2, 2019, in accordance with Restoration Robotics’ board of directors’ directives, SVB Leerink contacted representatives of Party F on a confidential basis to assess Party F’s potential interest in a strategic transaction with and/or acquiring Restoration Robotics. Later that week, Party F informed SVB Leerink that it was interested in continuing discussions and requested a meeting with Restoration Robotics’ senior management in early January 2019.

On January 3, 2019, Restoration Robotics’ board of directors held a telephonic call with senior management and representatives of Latham & Watkins LLP to discuss the progress of the company’s financing activities and strategic transaction discussions.

On January 4, 2019, Restoration Robotics’ board of directors met telephonically with members of senior management, SVB Leerink and Latham & Watkins LLP to discuss the initial results of SVB Leerink’s strategic outreach to potentially interested parties. Restoration Robotics’ board of directors also discussed Restoration Robotics’ current financial position and market challenges and the merits of a potential transaction with Venus Concept. SVB Leerink presented a preliminary financial analysis based on the initial management projections prepared by Restoration Robotics’ senior management. Restoration Robotics’ board of directors directed senior management to continue discussions with Venus Concept regarding the potential transaction and directed SVB Leerink and senior management to continue discussions with Company C and Company G to gauge interest in a potential strategic transaction and/or acquisition of Restoration Robotics.

On January 8, 2019, members of Party B senior management held a meeting with members of Restoration Robotics’ senior management, including Ryan Rhodes and Mark Hair, in San Francisco, California. Following the meeting, Party B informed SVB Leerink that Party B had no interest in pursuing a strategic transaction with or acquisition of Restoration Robotics at that time, and Party B did not provide a specific reason as to why it was not interested.

On January 15, 2019, members of Restoration Robotics’ senior management, including Keith Sullivan and Mark Hair held a meeting in New York with Scott Barry, a member of Venus Concept’s board of directors, to discuss to discuss the merits of a potential transaction with Venus Concept. During the meeting, the parties

 

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discussed the potential merits of a business combination, and discussed the respective parties’ financial and operating results and operating projections.

On January 15, 2019, Party F had a telephonic meeting with SVB Leerink to discuss the potential acquisition. On January 16, 2019, members of Party F’s senior management held a telephonic meeting with members of Restoration Robotics’ senior management, including Mark Hair and Keith Sullivan. Following the meeting, Company F continued to express interest in pursuing an acquisition of Restoration Robotics but indicated that it would be six to twelve months before Party F would be in a position to actively pursue and sign a transaction. Representatives of Party F held two additional telephonic meetings with SVB Leerink about a potential transaction on January 20, 2019 and January 30, 2019, when Party F communicated its decision to end discussions at that point in light of the time period before it could consider a strategic transaction.

On January 18, 2019, Restoration Robotics received a letter from the listing qualifications department of Nasdaq indicating that for 30 consecutive business days it did not maintain a minimum Market Value of its Listed Securities of $50,000,000 as required by Nasdaq Listing Rule 5450(b)(2)(A) and that Restoration Robotics had until July 17, 2019, to regain compliance with rule.

On January 21, 2019, Restoration Robotics and Venus Concept entered into an amendment to the confidentiality agreement to include each party’s lenders and financing sources.

On the afternoon of January 21, 2019, Venus Concept delivered a non-binding letter of intent to Restoration Robotics reflecting a proposal for a stock-for-stock transaction that would result in current Venus Concept shareholders owning 90% of the combined company and current Restoration Robotics stockholders owning 10% of the combined company, calculated on a fully diluted basis but before giving effect to any financing that may occur immediately following the closing of the transaction. The letter of intent also proposed that a financing would occur immediately following the close of the transaction at a price of $0.70 per share and that the board of directors of the combined company would be made up of six representatives from Venus Concept and one representative from Restoration Robotics.

On January 22, 2019, Restoration Robotics’ board of directors held a telephonic call with senior management and representatives of Latham & Watkins LLP to discuss the terms of the letter of intent. During the discussion, Restoration Robotics’ board of directors and members of senior management discussed terms for negotiation and strategy, as well as determining to continue to move forward with diligence on Venus Concept.

On January 25, 2019, Restoration Robotics’ board of directors held a telephonic call with senior management and representatives of Latham & Watkins LLP to discuss the progress of the company’s financing activities, discussions with the company’s lender and to receive an update on strategic transaction discussions.

In addition, during January and February 2019, representatives of EW Healthcare Partners had conversations with Restoration Robotics and Venus Concept regarding EW Healthcare Partners potentially taking the lead on a financing of the post-transaction consummation combined company.

On January 31, 2019, Restoration Robotics’ board of directors held a telephonic call with senior management and representatives of Latham & Watkins LLP to discuss the progress of the company’s financing activities, discussions with the company’s lender and to receive an update on strategic transaction discussions. During the discussion, members of senior management also discussed upcoming diligence activities with Venus Concept.

On February 7 and 8, 2019, members of Venus Concept’s and Restoration Robotics’ senior management held a meeting at Restoration Robotics’ headquarters in San Jose, California, to discuss diligence items relating to both parties’ businesses. In attendance from Venus Concept were its CFO, Domenic Della Penna, its CTO, Boris Vanyberg and its COO, Maor Sinay. During this meeting, members of Restoration Robotics’ senior management, including Keith Sullivan and Mark Hair, conducted a demonstration of the ARTAS iX system. In addition, the parties discussed various intellectual property matters related to Restoration Robotics’ technology, as well as planned initiatives related to the manufacturing and system cost reductions for the ARTAS iX system.

 

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On February 10, 2019, Restoration Robotics’ board of directors met telephonically with members of senior management, SVB Leerink and Latham & Watkins LLP to discuss the progress of discussions with Venus Concept regarding a potential transaction. During this discussion, the board of directors and senior management directed SVB Leerink to prepare a counter proposal to the terms of the Venus Concept’s letter of intent, including a counter proposal in the ownership split of the combined company, the scope of the exclusivity provision and the minimum committed amount of the proposed post-closing financing.

On February 11, 2019, members of Venus Concept’s and Restoration Robotics’ senior management had a diligence meeting at Venus Concept’s facilities in Toronto. During this meeting, members of Restoration Robotics’ senior management, including Keith Sullivan and Mark Hair, were given tours of the Venus Concepts’ facility, and met with Venus Concept’s senior management team to discuss Venus Concept’s product offerings, organization structure and business plans, including its plans for Venus Concept’s hair restoration business. During the meeting, the parties also discussed the proposed economics of the business combination for each company’s respective shareholders, including the relative ownership splits of the combined company.

Through March 14, 2019, Restoration Robotics and Venus Concept each conducted a full diligence process on the other, including frequent calls with members of senior management and legal counsel regarding the potential transaction and the diligence items relating to both parties’ businesses.

On February 12, 2019, Venus Concept provided Restoration Robotics with updated financial projections prepared by Venus Concept management.

On February 13, 2019, in order to remain in compliance with the terms of its liquidity covenant under its debt facility, Restoration Robotics entered into an amendment modifying the covenant in exchange for an increase in the final fee payable to the lenders upon prepayment, default and maturity of the loan agreement to $960,000.

On February 14, 2019, Restoration Robotics opened an online data room containing due diligence material and provided access to Venus Concept and its representatives.

On February 16, 2019, Venus Concept opened an online data room containing due diligence material and provided access to Restoration Robotics and its representatives.

On February 16, 2019, Venus Concept provided an updated letter of intent to Restoration Robotics reflecting revised terms that had been negotiated by the parties, including that current Venus Concept shareholders would own 85% of the combined company and current Restoration Robotics stockholders would own 15% of the combined company, that an initial committee $20 million financing would occur immediately following the close of the proposed transaction at a price per share that would reflect a 5% discount to the 30-day volume-weighted average price at announcement of the transaction and refining the scope of the exclusivity provision to allow for certain alternative financing transactions. In addition, the letter reflected the removal (the provision related to the pre-determined number of directors from each company.

On February 18, 2019, Venus Concept provided Restoration Robotics with an updated financial analysis prepared by Venus Concept management.

On February 20, 2019, Restoration Robotics and SVB Leerink entered into an engagement letter memorializing the engagement of SVB Leerink as Restoration Robotics’ exclusive financial advisor in connection with the potential transaction with Venus Concept.

On February 22, 2019, Venus Concept’s outside counsel, Reed Smith LLP, provided Restoration Robotics and Latham & Watkins LLP with a draft Merger Agreement for review and comment.

 

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On February 23, 2019, the updated letter of intent was executed by both parties. The letter of intent provided for a 14-day period during which Restoration Robotics agreed to negotiate exclusively with Venus Concept regarding the proposed transaction, but providing for the ability of Restoration Robotics to pursue certain alternative financing transactions.

On February 27, 2019, Restoration Robotics’ board of directors met telephonically with members of senior management, SVB Leerink and Latham & Watkins LLP to discuss the material terms of the proposed transaction included in the draft Merger Agreement. SVB Leerink presented an updated financial analysis based on the initial management projections prepared by Restoration Robotics’ senior management, which revised the guidance presented to the board at the January 4, 2019 meeting. Restoration Robotics’ board of directors directed senior management to continue discussions with Venus Concept regarding the proposed transaction and directed Latham & Watkins LLP to negotiate with Reed Smith LLP to obtain improvements in the terms of the draft Merger Agreement, including, among other provisions, the non-solicitation provisions, the termination fee and related provisions, the expense reimbursement provisions and conditions to the merger. In addition, Restoration Robotics’ board of directors (with directors Dr. Gil Kliman and Dr. Frederic Moll abstaining) approved a $5.0 million bridge financing to be financed by Dr. Frederic Moll, a director of Restoration Robotics, and InterWest Partners (a venture capital fund over which Dr. Gil Kliman, a director of Restoration Robotics, maintains shared voting and dispositive power).

On February 28, 2019, Latham & Watkins LLP provided a revised draft Merger Agreement to Reed Smith LLP. The draft included revisions to the non-solicitation provisions, the change of board recommendation provisions, the termination provisions and termination fee and circumstances under which the payment of the termination fee would be triggered, the expense reimbursement fee and circumstances under which the payment of the expense reimbursement fee would be triggered and added fiduciary duty exceptions that would permit Restoration Robotics’ board of directors to change its recommendation to shareholders in connection with a customary “intervening event.”

On March 1, 2019, Reed Smith LLP provided Latham & Watkins LLP with drafts of a form lock-up agreement, voting agreements for stockholders of Venus Concept and Restoration Robotics, and an equity commitment letter. Between March 1, 2019 and March 14, 2019, Latham & Watkins LLP and Reed Smith LLP exchanged several revisions to these documents and held several calls to negotiate terms.

On March 3, 2019, Reed Smith LLP provided a revised draft Merger Agreement to Latham & Watkins LLP. Between March 3, 2019 and March 13, 2019, Latham & Watkins LLP and Reed Smith LLP exchanged several revisions to the Merger Agreement and held several calls to negotiate terms, including, among other provisions, the non-solicitation provisions, the termination provisions and termination fee and circumstances under which the termination fee would be triggered, the expense reimbursement fee and circumstances under which the payment of the expense reimbursement fee would be triggered, and the number of directors from each of the companies.

On March 9, 2019, the 14-day period during which Restoration Robotics agreed to negotiate exclusively with Venus Concept regarding the proposed transaction ended.

On March 9, 2019, Restoration Robotics’ board of directors held a telephonic call with senior management and representatives of Latham & Watkins LLP to discuss the status of the transaction with Venus Concept and receive an update in regards to the key points in the Merger Agreement.

On March 10, 2019, Restoration Robotics’ board of directors held a telephonic call with senior management and representatives of Latham & Watkins LLP to discuss the status of the transaction with Venus Concept and receive an update in regards to the key points in the Merger Agreement. At the meeting, Latham & Watkins LLP reviewed the fiduciary duties of directors in connection with the consideration of the proposed transaction. Latham & Watkins LLP then presented the key terms of the transaction documents, including structure and timing considerations, treatment of equity, the non-solicitation clause and fiduciary duty exceptions that would

 

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permit Restoration Robotics to negotiate and accept an unsolicited superior offer, the change of board recommendation provisions, the termination provisions and termination fee and circumstances under which the payment of the termination fee would be triggered, the expense reimbursement fee and circumstances under which the payment of the expense reimbursement fee would be triggered, the lock-up agreements, voting agreements, and the equity commitment letter. During this meeting, Restoration Robotics’ board of directors also approved an extension of the exclusivity period through March 15, 2019.

On March 13, 2019, Restoration Robotics’ board of directors met with representatives of senior management, Latham & Watkins LLP and SVB Leerink present. At the meeting, Latham & Watkins LLP presented the key terms of the transaction documents, including structure and timing considerations, treatment of equity, the non-solicitation clause and fiduciary duty exceptions that would permit Restoration Robotics to negotiate and accept an unsolicited superior offer, the change of board recommendation provisions, the termination provisions and termination fee and circumstances under which the payment of the termination fee would be triggered, the expense reimbursement fee and circumstances under which the payment of the expense reimbursement fee would be triggered, the lock-up agreements, voting agreements, and the equity commitment letter. Latham & Watkins LLP also again reviewed the fiduciary duties of directors in connection with the consideration of the proposed transaction. At this meeting, representatives of SVB Leerink presented SVB Leerink’s financial analyses of the merger consideration proposal to be paid in the merger. Restoration Robotics’ board of directors engaged in extensive discussions relating to Venus Concept, its business and the terms of the proposed transaction. After further discussion, the board directed Latham & Watkins LLP to continue negotiations with Reed Smith LLP to finalize the transaction documents.

On March 13 and 14, 2019, representatives of Restoration Robotics, Venus Concept, Latham & Watkins LLP and Reed Smith LLP finalized the outstanding terms of the Merger Agreement and ancillary agreements, including the equity commitment letter, voting agreements and lock-up agreements.

On March 14, 2019, Restoration Robotics received a notice from Nasdaq that, for the previous thirty (30) consecutive business days, the closing bid price for Restoration Robotics’ common stock was below the $1.00 per share minimum bid price requirement for continued listing on Nasdaq and that Restoration Robotics had until September 10, 2019, to regain compliance with the minimum bid price rule.

Late in the evening on March 14, 2019, Restoration Robotics’ board of directors met with representatives of senior management, with Latham & Watkins LLP and SVB Leerink present. At the meeting, Latham & Watkins LLP engaged in discussion with the board on key terms of the transaction documents that had been previously discussed at the March 13, 2019 meeting and reviewed the fiduciary duties of directors in connection with the consideration of the proposed transaction. At this meeting, which carried over past midnight to March 15, 2019, representatives of SVB Leerink also confirmed there were no material changes to SVB Leerink’s financial analyses of the merger consideration proposed to be paid in the merger. After such confirmation, a representative of SVB Leerink rendered the oral opinion of SVB Leerink that, as of the date of such opinion and based upon and subject to the assumptions made and limitations upon the review undertaken by SVB Leerink in preparing its opinion, the merger consideration to be paid by Restoration Robotics pursuant to the terms of the Merger Agreement was fair, from a financial point of view, to Restoration Robotics. SVB Leerink subsequently confirmed such opinion by delivery to the Restoration Robotics board of directors of SVB Leerink’s written opinion dated March 15, 2019. For a detailed discussion of the opinion provided by SVB Leerink, see “—Opinion of Restoration Robotics Financial Advisor” beginning on page 97 of this proxy statement/prospectus. Restoration Robotics’ board of directors engaged in extensive discussions relating to Venus Concept, its business and the terms of the proposed transaction. Following the discussion, Dr. Frederic Moll recused himself from the vote reminding Restoration Robotics’ board of directors that he had communicated his intent to invest in the combined entity following the completion of the merger transaction and had agreed to serve as a director in the combined company. The remaining members of Restoration Robotics’ board of directors then unanimously determined that it was advisable and in the best interests of Restoration Robotics and Restoration Robotics’ stockholders for Restoration Robotics to enter into the Merger Agreement, approved the Merger Agreement and

 

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declared it advisable. Early the morning of March 15, 2019, Restoration Robotics entered into the Merger Agreement with Venus Concept, and Venus Concept and Restoration Robotics entered into the equity commitment letter with EW Healthcare Partners and certain other investors. Before the opening of trading on Nasdaq, on March 15, 2019, Restoration Robotics issued a joint press release with Venus Concept announcing the execution of the Merger Agreement.

Restoration Robotics Reasons for the Merger

Restoration Robotics’ board of directors considered the following factors in reaching its conclusion to approve the Merger Agreement, the merger and to recommend that Restoration Robotics stockholders approve the issuance of shares of Restoration Robotics common stock in the merger and the equity commitment letter financing, all of which the board viewed as supporting its decision to approve the merger with Venus Concept:

 

   

Best Alternative for Maximizing Stockholder Value. Restoration Robotics’ board of directors and its financial advisor undertook a comprehensive and thorough process of reviewing and analyzing potential operational and financing strategies for the company in light of its financial position, as well as potential strategic transactions and potential merger candidates, to identify the course of action that would, in Restoration Robotics’ board of directors’ opinion, create the most value for Restoration Robotics stockholders. Restoration Robotics’ board of directors believes, after a thorough review of its prospects as a stand-alone company and available strategic alternatives, as well as a result of discussions with Restoration Robotics’ senior management, financial advisors and legal counsel, that the merger with Venus Concept was more favorable to the stockholders of Restoration Robotics than the potential value that might have resulted from other options available to Restoration Robotics, including remaining a standalone public company, considering the risks associated with such option, the lengthy process previously undertaken to identify suitable financing and the significant fundraising limitations resulting from its depressed share price.

 

   

Prospects of the Combined Company. Restoration Robotics’ board of directors believes that the merger will provide the existing Restoration Robotics stockholders a significant opportunity to participate in the potential growth of the combined company following the merger. Restoration Robotics’ board of directors believes, based in part on the judgment, advice and analysis of Restoration Robotics’ senior management with respect to the potential strategic, financial and operational benefits of the merger (which judgment, advice and analysis was informed in part on the business, technical, financial, accounting and legal due diligence investigation performed with respect to Venus Concept), that the merger will create a combined company with the opportunity to become a leading player in minimally invasive hair restoration with a diversified product portfolio in the global minimally invasive and non-invasive medical aesthetic market with technologies designed to address hair restoration, hair removal, skin rejuvenation, wrinkle reduction, cellulite reduction and body contouring to benefit Restoration Robotics customers, employees and shareholders. Restoration Robotics’ board of directors also considered that the combined company will be led by an experienced senior management team and a board of directors with representation from each of the current boards of directors of Restoration Robotics and Venus Concept. In addition, Restoration Robotics’ board of directors considered the diversified product portfolio of the combined entity and prospects for growth in the various product lines of the combined company, as well as potential synergies, which include cost savings in overhead, sales, marketing, distribution and back office administrative functions, incremental revenue opportunities as a result of cross-marketing of products in the aesthetics space across the combined company and potential to leverage the Venus Concept subscription sales model.

 

   

Risks Related to Remaining a Stand-Alone Company. Restoration Robotics’ board of directors believes that the merger consideration is more favorable to its stockholders than the value of remaining an independent, stand-alone public company, after accounting for the risks and uncertainties associated with achieving and executing upon Restoration Robotics’ business and financial plans in the short- and long-term as a stand-alone company. Restoration Robotics’ board of directors reviewed Restoration

 

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Robotics’ business, operations, assets, operating results, financial condition, prospects, business strategy, competitive position, and industry, including the potential impact (which cannot be quantified numerically) of those factors on the trading price of Restoration Robotics common stock, to assess the prospects and risks associated with remaining an independent, stand-alone public company, including:

 

   

the significant capital requirements forecasted to achieve profitability in combination with the company’s depressed stock price and financing constraints as a result thereafter;

 

   

risks associated with raising the forecasted capital needed to maintain compliance with the company’s liquidity covenant under its loan agreement;

 

   

the lack of viable financing alternatives following substantial efforts made over a significant period of time by Restoration Robotics’ senior management to identify potential financing sources;

 

   

the results of substantial efforts made over a significant period of time by Restoration Robotics’ senior management and financial advisors to solicit strategic alternatives for Restoration Robotics to the merger, including the discussions that Restoration Robotics’ senior management had with other potential merger candidates;

 

   

the risk inherent in operating a single product company;

 

   

the projected liquidation value of Restoration Robotics and the risks, costs and timing associated with liquidating compared to the value Restoration Robotics stockholders will receive in the merger; and

 

   

Restoration Robotics’ potential inability to maintain its Nasdaq listing without completing the merger.

 

   

Ability to Respond to Unsolicited Acquisition Proposals. Restoration Robotics’ board of directors considered the “fiduciary out” provisions of the Merger Agreement, which, subject to the terms and conditions thereof, permit Restoration Robotics to furnish information to and conduct negotiations with third parties that make acquisition proposals under certain circumstances, to change its recommendation to stockholders regarding the Merger Agreement and to terminate the Merger Agreement in order to approve a superior proposal, subject to payment of a termination fee to Venus Concept. Restoration Robotics’ board of directors further considered the fact that the $1,115,000 termination fee (approximately 3.2% of Restoration Robotics’ equity value) payable by Restoration Robotics is reasonable in light of the overall terms of the Merger Agreement and the benefits of the merger and would not preclude another party from making a competing proposal.

 

   

Negotiations with Venus Concept. Restoration Robotics’ board of directors believes that as a result of arm’s length negotiations with Venus Concept, Restoration Robotics and its representatives negotiated the highest exchange ratio that Venus Concept was willing to agree to, and that the terms of the Merger Agreement include the most favorable terms to Restoration Robotics in the aggregate to which Venus Concept was willing to agree.

 

   

Terms of the Merger Agreement. Restoration Robotics’ board of directors also reviewed the terms of the merger and associated transactions, including:

 

   

the exchange ratio used to establish the number of shares of Restoration Robotics common stock to be issued in the merger is fixed based on the relative valuations of the companies, and thus the relative percentage ownership of Restoration Robotics stockholders and Venus Concept shareholders immediately following the completion of the merger is similarly fixed;

 

   

the limited number and nature of the conditions to Venus Concept’s obligation to consummate the merger, the limited risk of non-satisfaction of such conditions and the likelihood that the merger will be consummated on a timely basis;

 

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the respective rights of, and limitations on, Restoration Robotics and Venus Concept under the Merger Agreement to consider certain unsolicited acquisition proposals under certain circumstances should Restoration Robotics or Venus Concept receive a superior proposal;

 

   

the reasonableness of the potential termination fee of $1,115,000 which could become payable by Restoration Robotics to Venus Concept if the Merger Agreement is terminated in certain circumstances, and the reasonableness of the related expense reimbursement fee of up to $200,000 which could become payable by Restoration Robotics if the Merger Agreement is terminated in certain circumstances;

 

   

the voting agreements, pursuant to which officers, directors and certain stockholders of Venus Concept agreed, solely in their capacity as stockholders, to vote shares of their Venus Concept capital stock covering approximately 87.6% of the outstanding shares of Venus Concept in favor of adoption of the Merger Agreement; and

 

   

the belief that the terms of the Merger Agreement, including the parties’ representations, warranties and covenants, and the conditions to their respective obligations, are reasonable under the circumstances.

 

   

Voting Agreements. Restoration Robotics’ board of directors viewed favorably the willingness of certain stockholders, who together hold approximately 36% of the shares of Restoration Robotics’ common stock outstanding as of the date of the Merger Agreement, to commit to vote in favor of the merger by entry into the voting agreements. The board also considered the fact that the voting agreement terminates upon any termination of the Merger Agreement, including upon Restoration Robotics’ termination to accept a superior proposal, such that the existence of the voting agreement would not be likely to deter or inhibit a superior proposal.

 

   

Fairness Opinion. Restoration Robotics’ board of directors considered the financial analyses of SVB Leerink, including SVB Leerink’s opinion to Restoration Robotics’ board of directors that, as of the date of such opinion and based upon and subject to the assumptions made and limitations upon the review undertaken by SVB Leerink in preparing its opinion, the merger consideration to be paid by Restoration Robotics pursuant to the terms of the Merger Agreement was fair, from a financial point of view, to Restoration Robotics. For a detailed discussion of the opinion provided by SVB Leerink, see “—Opinion of Restoration Robotics Financial Advisor” beginning on page 99 of this proxy statement/prospectus.

 

   

Likelihood of Consummation. Restoration Robotics’ board of directors considered the likelihood that the merger will be consummated, based on, among other things, the limited number of conditions to the merger, the absence of a financing condition, the relative likelihood of obtaining required regulatory approvals, the remedies available under the Merger Agreement to Restoration Robotics in the event of various breaches by Venus Concept, and Venus Concept’s reputation, its financial capacity to complete an acquisition of this size and their prior track record of successfully completing acquisitions, which the board believed supported the conclusion that a transaction with Venus Concept could be completed relatively quickly and in an orderly manner.

 

   

Stockholder Approval. Restoration Robotics’ board of directors considered that the merger would be subject to the approval of Restoration Robotics’ stockholders and that stockholders, other than those who entered into voting agreements, would be free to reject the merger.

In the course of its deliberations, Restoration Robotics’ board of directors also considered a variety of risks and other countervailing factors related to entering into the merger, including:

 

   

Limited Stockholder Participation in Future Earnings or Growth. Restoration Robotics’ board of directors considered that its stockholders will have limited participation in any future growth the combined company may experience and any potential future appreciation in the value of Restoration Robotics common stock as a result of the strategic direction of the continuing entity following the

 

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completion of the merger, which will be determined by a board of directors initially comprised of a majority of the members of the current Venus Concept board of directors.

 

   

Inability to Solicit Other Takeover Proposals. Restoration Robotics’ board of directors considered that the Merger Agreement includes a covenant prohibiting Restoration Robotics from directly or indirectly soliciting, initiating, seeking or knowingly facilitating or encouraging any inquiry, discussion, offer or request relating to, or that constitutes, or would reasonably be expected to lead to, an acquisition proposal. The board also considered, but did not consider preclusive, the fact that the right afforded to Venus Concept under the Merger Agreement to re-negotiate the terms of the Merger Agreement in response to a superior proposal may discourage other parties that might otherwise have an interest in a business combination with, or an acquisition of, Restoration Robotics.

 

   

Termination Fee. Restoration Robotics’ board of directors considered the fact that Restoration Robotics may be required to pay a termination fee of $1,115,000 (approximately 3.2% of Restoration Robotics’ equity value) if the Merger Agreement is terminated under certain circumstances, including to accept a superior proposal, and that the amount of the termination fee is comparable to termination fees in transactions of a similar size, was reasonable, would not likely deter competing bids and would not likely be required to be paid unless Restoration Robotics entered into a more favorable transaction. The board also recognized that the provisions in the Merger Agreement relating to this fee were insisted upon by Venus Concept as a condition to entering into the Merger Agreement.

 

   

Expense Reimbursement Fee. Restoration Robotics’ board of directors considered the expense reimbursement fee of up to $200,000 (approximately 0.6% of Restoration Robotics’ equity value) if the Merger Agreement is terminated under certain circumstances and that the amount of the termination fee is comparable to expense reimbursement fees in transactions of a similar size, was reasonable, would not likely deter competing bids and would not likely be required to be paid unless Restoration Robotics entered into a more favorable transaction. The board also recognized that the provisions in the Merger Agreement relating to this fee were insisted upon by Venus Concept as a condition to entering into the Merger Agreement.

 

   

Effect of Public Announcement. Restoration Robotics’ board of directors considered the effect of the public announcement of Restoration Robotics entering into the Merger Agreement on its operations, including its relationships with customers, vendors and employees, its ability to attract and retain key personnel while the proposed transaction is pending and the potential adverse effects on its financial results as a result of that disruption, the possibility of any suit, action or proceeding in respect of the Merger Agreement or the transactions contemplated thereby, including the merger, and the possible volatility, at least in the short term, of the trading price of Restoration Robotics common stock resulting from the merger announcement.

 

   

Opportunity Costs and Interim Operating Covenants. Restoration Robotics’ board of directors considered that the focus and resources of Restoration Robotics’ management may become diverted from other important business opportunities and operational matters while working to implement the merger, which could adversely affect its business. Restoration Robotics’ board of directors also considered the restrictions on the conduct of Restoration Robotics’ business during the pendency of the merger, which may delay or prevent Restoration Robotics from undertaking potential business opportunities that may arise or may negatively affect its ability to attract, retain and motivate key personnel.

 

   

Risk the Merger May Not Be Consummated. Restoration Robotics’ board of directors considered the fact that consummation of the merger is subject to the satisfaction of certain closing conditions that are not within Restoration Robotics’ control, including receipt of the necessary regulatory clearances and approvals and that no material adverse effect on Restoration Robotics has occurred. There can be no assurance that all conditions to the parties’ obligations to consummate the merger will be satisfied, and as a result, it is possible that the merger may not be consummated even if the merger is approved by Restoration Robotics stockholders. Restoration Robotics’ board of directors considered the fact that if

 

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the merger is not consummated: (i) Restoration Robotics will have incurred significant transaction and opportunity costs, including the possibility of disruption to Restoration Robotics operations, diversion of management and employee attention, employee attrition and a potentially negative effect on Resotration Robotics’ business and customer relationships; (ii) the trading price of its common stock could be adversely affected; and (iii) the market’s perceptions of its prospects could be adversely affected.

 

   

Transaction Costs. Restoration Robotics’ board of directors considered the fact that Restoration Robotics has incurred and will continue to incur significant transaction costs and expenses in connection with the merger, regardless of whether the merger is consummated, including the costs associated with any related litigation.

 

   

Potential Conflicts of Interest. Restoration Robotics’ board of directors considered the risk that certain of Restoration Robotics’ directors and executive officers may have interests in the transactions contemplated by the Merger Agreement, including the merger, as individuals that are in addition to, or that may be different from, the interests of its stockholders. See the section entitled “The Merger—Interests of Restoration Robotics’ Directors and Executive Officers in the Merger” beginning on page 112 of this proxy statement/prospectus.

The foregoing information and factors considered by Restoration Robotics’ board of directors are not intended to be exhaustive but are believed to include all of the material factors considered by the board. In view of the wide variety of factors considered in connection with its evaluation of the merger and the complexity of these matters, Restoration Robotics’ board of directors did not find it useful, and did not attempt, to quantify, rank or otherwise assign relative weights to these factors. In considering the factors described above, individual members of Restoration Robotics’ board of directors may have given different weight to different factors. Restoration Robotics’ board of directors conducted an overall analysis of the factors described above, including thorough discussions with, and questioning of, senior management and the legal and financial advisors of Restoration Robotics, and considered the factors overall to be favorable to, and to support, its determination.

Venus Concept Reasons for the Merger

The following discussion sets forth material factors considered by the Venus Concept’s board of directors in reaching its determination to authorize the Merger Agreement and approve the merger; however, it may not include all of the factors considered by the Venus Concept board of directors. In light of the number and wide variety of factors considered in connection with its evaluation of the merger and the Merger Agreement, the Venus Concept board of directors did not consider it practicable to, and did not attempt t