Item 1.01 Entry into a Material Definitive Agreement
Business Combination Agreement
On October 18, 2020, South Mountain Merger Corp., a Delaware corporation
("SMMC") entered into a Business Combination Agreement (the "Business
Combination Agreement") by and among SMMC, BT Merger Sub I, Inc., a wholly owned
subsidiary of SMMC ("First Merger Sub"), BT Merger Sub II, LLC ("Second Merger
Sub") and Factor Systems, Inc. (d/b/a Billtrust) ("Billtrust").
Pursuant to the terms of the Business Combination Agreement, a business
combination between SMMC and Billtrust will be effected through (a) the merger
of First Merger Sub with and into Billtrust (the "First Merger"), with Billtrust
surviving the merger as a wholly owned subsidiary of SMMC (Billtrust, in its
capacity as the surviving corporation of the First Merger, is sometimes referred
to as the "Surviving Corporation") and (b) as soon as practicable, but in any
event within 10 days following the First Merger and as part of the same overall
transaction as the First Merger, a merger of the Surviving Corporation with and
into Second Merger Sub (the "Second Merger" and, together with the First Merger,
the "Mergers"), with Second Merger Sub being the surviving entity of the Second
Merger (Second Merger Sub, in its capacity as the surviving entity of the Second
Merger, is sometimes referred to herein as the "Surviving Entity").
Immediately prior to the effective time of the First Merger (the "Effective
Time"), Billtrust will cause each share of preferred stock of Billtrust, par
value $0.001 per share (each, a share of "Company Preferred Stock"), that is
issued and outstanding immediately prior to the Effective Time to be
automatically converted into (i) a number of common shares of Billtrust, par
value of $0.001 per share ("Company Common Stock"), at the then-effective
conversion rate as calculated pursuant to the Company Charter (as defined in the
Business Combination Agreement) and (ii) a number of shares of Company Common
Stock issuable with respect to any accrued dividends in accordance with the
Company Charter ((i) and (ii) collectively, the "Company Preferred Stock
Conversion"). All of the shares of Company Preferred Stock converted into shares
of Company Common Stock will no longer be outstanding and will cease to exist,
and each holder of Company Preferred Stock will thereafter cease to have any
rights with respect to such shares of Company Preferred Stock.
At the Effective Time (and, for the avoidance of doubt, following the Company
Preferred Stock Conversion), by virtue of the First Merger and without any
action on the part of SMMC, First Merger Sub, Billtrust or the holders of any of
the following securities:
(a) each share of Company Common Stock (including Company Common Stock resulting
from the Preferred Stock Conversion (as defined in the Business Combination
Agreement)) that is issued and outstanding immediately prior to the
Effective Time (other than the Dissenting Shares and the Cancelled Shares
(as defined in the Business Combination Agreement)) will be canceled and
converted into (i) the contingent right to receive a number of shares of
common stock of SMMC as further described below (such shares, the "Earnout
Shares") (which may be zero (0)) and (ii) (A) if the holder of such share of
Company Common Stock properly and timely elects to receive cash (a "Cash
Election") with respect to such share of Company Common Stock, which
election has not been revoked (each such share, as "Cash Electing Share"),
an amount in cash for such Cash Electing Share, without interest, equal to
the quotient of the Equity Value (as defined in the Business Combination
Agreement) divided by (b) the Company Outstanding Shares (as defined in the
Business Combination Agreement) (the "Per Share Merger Consideration Value")
except that if (x) the sum of the aggregate number of Dissenting Shares and
the aggregate number of Cash Electing Shares, multiplied by (y) the Per
Share Merger Consideration Value (such product, the "Aggregate Cash Election
Amount") exceeds the Cash Consideration Cap, then each Cash Electing Share
shall be converted into the right to receive (A) an amount in cash, without
interest, equal to the product of (1) the Per Share Merger Consideration
Value and (2) a fraction, the numerator of which shall be the Cash
Consideration Cap and the denominator of which shall be the Aggregate Cash
Election Amount (such fraction, the "Cash Fraction") and (B) a number of
validly issued, fully paid and nonassessable shares of SMMC Common Stock (as
defined in the Business Combination Agreement) equal to the product of (1)
the Per Share Stock Consideration and (2) one minus the Cash Fraction; and
(B) if the holder of such share of Company Common Stock makes a proper
election to receive shares of SMMC Common Stock (a "Stock Election") with
respect to such share of Company Common Stock, which election has not been
revoked, or the holder of such share fails to make a Cash Election or Stock
Election with respect to such share of Company Common Stock, the Per Share
Stock Consideration.
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(b) each share of Company Common Stock held in the treasury of the Company will
be cancelled without any conversion thereof and no payment or distribution
will be made with respect thereto;
(c) each share of common stock of First Merger Sub, par value $0.001 per share
issued and outstanding immediately prior to the Effective Time will be
converted into and exchanged for one validly issued, fully paid and
nonassessable share of common stock, par value $0.001 per share, of the
Surviving Corporation; and
(d) each option to purchase shares of Company Common Stock, whether or not
vested, that is outstanding immediately prior to the Effective Time (each, a
"Company Option") will be assumed by SMMC and converted into (i) an option
to purchase shares of SMMC Common Stock (each, a "Converted Option"), and
(ii) the contingent right to receive a number of Earnout Securities
following the closing of the First Merger (the "Closing"). Each Converted
Option will have and be subject to the same terms and conditions (including
vesting and exercisability terms) as were applicable to such Company Option
immediately before the Effective Time, except that (A) each Converted Option
will be exercisable for that number of shares of SMMC Common Stock equal to
the product (rounded down to the nearest whole number) of (1) the number of
shares of Company Common Stock subject to the Company Option immediately
before the Effective Time and (2) the Per Share Stock Consideration; and (B)
the per share exercise price for each share of SMMC Common Stock issuable
upon exercise of the Converted Option will be equal to the quotient (rounded
up to the nearest whole cent) obtained by dividing (1) the exercise price
per share of Company Common Stock of such Company Option immediately before
. . .
Item 3.02 Unregistered Sales of Equity Securities.
The information set forth above in Item 1.01 of this Report under the heading
"Subscription Agreements" is incorporated by reference herein. The shares of
SMMC Class A Common Stock to be issued in connection with each Subscription and
the transactions contemplated by the Subscription Agreements will not be
registered under the Securities Act, in reliance on the exemption from
registration provided by Section 4(a)(2) of the Securities Act and/or Regulation
D promulgated thereunder.
Item 8.01 Other Events.
Press Release
Attached as Exhibit 99.1 to this Report is a copy of the joint press release of
SMMC and Billtrust, announcing the Transactions.
IMPORTANT ADDITIONAL INFORMATION AND WHERE TO FIND IT
This communication is being made in respect of the proposed merger transaction
involving South Mountain and Billtrust. South Mountain intends to file a
registration statement on Form S-4 with the SEC, which will include a proxy
statement of South Mountain, a consent solicitation statement of Billtrust and a
prospectus of South Mountain, and each party will file other documents regarding
the proposed transaction with the SEC. A definitive proxy statement/consent
solicitation statement/prospectus will also be sent to the stockholders of South
Mountain and Billtrust, seeking any required stockholder approval. Before making
any voting or investment decision, investors and security holders of South
Mountain and Billtrust are urged to carefully read the entire registration
statement and proxy statement/consent solicitation statement/ prospectus, when
they become available, and any other relevant documents filed with the SEC, as
well as any amendments or supplements to these documents, because they will
contain important information about the proposed transaction. The documents
filed by South Mountain with the SEC may be obtained free of charge at the SEC's
website at www.sec.gov. In addition, the documents filed by South Mountain may
be obtained free of charge from South Mountain at www.SMMergerCorp.
Alternatively, these documents, when available, can be obtained free of charge
from South Mountain upon written request to South Mountain Merger Corp., 767
Fifth Avenue, 9th Floor, New York, New York 10153, Attn: Secretary, or by
calling (646) 446-2700.
South Mountain, Billtrust and certain of their respective directors and
executive officers may be deemed to be participants in the solicitation of
proxies from the stockholders of South Mountain, in favor of the approval of the
Mergers. Information regarding South Mountain's directors and executive officers
is contained in South Mountain's Annual Report on Form 10-K for the year ended
December 31, 2019, which was filed with the SEC on March 20, 2020, and its
Current Report on Form 8-K, which was filed with the SEC on June 29, 2020.
Additional information regarding the interests of those participants, the
directors and executive officers of Billtrust and other persons who may be
deemed participants in the transaction may be obtained by reading the
registration statement and the proxy statement/consent solicitation
statement/prospectus and other relevant documents filed with the SEC when they
become available. Free copies of these documents may be obtained as described in
the preceding paragraph.
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This communication does not constitute an offer to sell or the solicitation of
an offer to buy any securities or a solicitation of any vote or approval, nor
shall there be any sale of any securities in any state or jurisdiction in which
such offer, solicitation, or sale would be unlawful prior to registration or
qualification under the securities laws of such other jurisdiction.
FORWARD-LOOKING STATEMENTS
This communication contains, and oral statements made from time to time by
representatives of South Mountain and Billtrust may contain, forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 including, but not limited to, South Mountain's and Billtrust's
expectations or predictions of future financial or business performance or
conditions and of the closing of the Transactions. Forward-looking statements
are inherently subject to risks, uncertainties and assumptions. Generally,
statements that are not historical facts, including statements concerning our
possible or assumed future actions, business strategies, events or results of
operations, are forward-looking statements. These statements may be preceded by,
followed by or include the words "believes," "estimates," "expects," "projects,"
"forecasts," "may," "could," "will," "should," "seeks," "plans," "predicts,"
"potential," "scheduled," "anticipates" or "intends" or similar expressions.
Such forward-looking statements involve risks and uncertainties that may cause
actual events, results or performance to differ materially from those indicated
by such statements. Certain of these risks are identified and discussed in South
Mountain's Form 10-K for the year ended December 31, 2019 under Risk Factors in
Part I, Item 1A. These risk factors will be important to consider in determining
future results and should be reviewed in their entirety. These forward-looking
statements are expressed in good faith, and South Mountain and Billtrust believe
there is a reasonable basis for them. However, there can be no assurance that
the events, results or trends identified in these forward-looking statements
will occur or be achieved. Forward-looking statements speak only as of the date
they are made, and neither South Mountain nor Billtrust is under any obligation,
and expressly disclaim any obligation, to update, alter or otherwise revise any
forward-looking statement, whether as a result of new information, future events
or otherwise, except as required by law. Readers should carefully review the
statements set forth in the reports, which South Mountain has filed or will file
from time to time with the SEC.
In addition to factors previously disclosed in South Mountain's reports filed
with the SEC and those identified elsewhere in this communication, the following
factors, among others, could cause actual results to differ materially from
forward-looking statements or historical performance: ability to meet the
closing conditions to the Mergers, including approval by stockholders of South
Mountain and Billtrust on the expected terms and schedule and the risk that
regulatory approvals required for the Mergers are not obtained or are obtained
subject to conditions that are not anticipated; delay in closing the Mergers;
failure to realize the benefits expected from the proposed transaction; the
effects of pending and future legislation; risks related to disruption of
management time from ongoing business operations due to the proposed
transaction; business disruption following the transaction; risks related to the
impact of the COVID-19 pandemic on the financial condition and results of
operations of South Mountain and Billtrust; risks related to South Mountain's or
Billtrust's indebtedness; other consequences associated with mergers,
acquisitions and divestitures and legislative and regulatory actions and
reforms; risks related to Billtrust's history of operating losses and future
profitability; cybersecurity risks that may reduce or stop customer use of
Billtrust's products and platform and any related liabilities for Billtrust;
risks that Billtrust's quarterly results may fluctuate significantly and not
fully reflect the underlying performance of Billtrust's business; risks of
service outages for existing customers if Billtrust fails to manage its
technical operations infrastructure; risks related to fraudulent activities by
customers, employees or other third parties that would expose Billtrust to
material financial losses; risks related to reputation damage as a result of
errors in Billtrust's facilitation of the transfer of customer funds; risks
related to attracting new customers; risks relating to customer retention; risks
related to Billtrust's partnerships with financial institutions, third party
service providers, processing providers and other financial service suppliers;
risks related to Billtrust's relationship with Visa that could impact growth in
usage of the BPN; and other risks relating to the businesses of each of
Billtrust and South Mountain and the proposed transaction.
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Any financial projections in this communication are forward-looking statements
that are based on assumptions that are inherently subject to significant
uncertainties and contingencies, many of which are beyond South Mountain's and
Billtrust's control. While all projections are necessarily speculative, South
Mountain and Billtrust believe that the preparation of prospective financial
information involves increasingly higher levels of uncertainty the further out
the projection extends from the date of preparation. The assumptions and
estimates underlying the projected results are inherently uncertain and are
subject to a wide variety of significant business, economic and competitive
risks and uncertainties that could cause actual results to differ materially
from those contained in the projections. The inclusion of projections in this
communication should not be regarded as an indication that South Mountain and
Billtrust, or their representatives, considered or consider the projections to
be a reliable prediction of future events.
Annualized, pro forma, projected and estimated numbers, to the extent used, are
used for illustrative purpose only, are not forecasts and may not reflect actual
results.
This communication is not intended to be all-inclusive or to contain all the
information that a person may desire in considering an investment in South
Mountain and is not intended to form the basis of an investment decision in
South Mountain. All subsequent written and oral forward-looking statements
concerning South Mountain and Billtrust, the proposed transaction or other
matters and attributable to South Mountain and Billtrust or any person acting on
their behalf are expressly qualified in their entirety by the cautionary
statements above.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits:
Exhibit Description
2.1 * Business Combination Agreement, dated as of October 18, 2020, by and
among South Mountain Merger Corp., BT Merger Sub I, Inc., BT Merger Sub
II, LLC and Factor Systems, Inc. (d/b/a Billtrust)
99.1 Press Release issued by South Mountain Merger Corp. and Billtrust on
October 19, 2020.
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* Certain exhibits and schedules to this Exhibit have been omitted in accordance
with Regulation S-K Item 601(b)(2). South Mountain agrees to furnish
supplementally a copy of all omitted exhibits and schedules to the Securities
and Exchange Commission upon its request.
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