Item 1.01. Entry into a Material Definitive Agreement
Definitive Merger Agreement
On January 9, 2023, Ra Medical Systems, Inc., a Delaware corporation (the “Company” or “Ra Medical”), completed its acquisition of Catheter Precision, Inc., a privately-held Delaware corporation (“Catheter”), pursuant to an Amended and Restated Agreement and Plan of Merger (the “Merger Agreement”), by and among the Company, Catheter, Rapid Merger Sub 1, Inc., a newly-created wholly-owned subsidiary of the Company (“First Merger Sub”), and Rapid Merger Sub 2, LLC, a newly-created wholly owned subsidiary of the Company (“Second Merger Sub” and together with First Merger Sub, the “Merger Subs”), entered into on January 9, 2023, pursuant to which the First Merger Sub merged with and into Catheter, with Catheter being the surviving corporation (the “First Merger Surviving Company”) and a wholly-owned subsidiary of the Company (the “First Effective Time”), and then, immediately following the First Effective Time, and as part of the same overall transaction, the First Merger Surviving Company merged with and into the Second Merger Sub (the “Second Effective Time”), with the Second Merger Sub being the surviving limited liability company (the “Second Merger Surviving Company”) (such transactions collectively, the “Merger,” with the Company following the Merger being referred to herein as the “Post-Merger Combined Company”). The Merger Agreement amends and restates in its entirety the Agreement and Plan of Merger (the “Original Agreement”) entered into between the parties to the Original Agreement on September 9, 2022.
Catheter has three product areas that it intends to pursue. Its lead product, named VIVO™ (an acronym for View Into Ventricular Onset) is an FDA-cleared and CE Mark product that utilizes non-invasive inputs to locate the origin of ventricular arrhythmias, and, through its use, the physician can identify patients for invasive catheter ablation, and with those patients, reduce the amount of time in the invasive procedure. Ventricular arrhythmias include ventricular tachyarrhythmias and premature ventricular arrhythmias, diseases which affect millions of patients that are not well treated today. While much past growth in the electrophysiology market has been for atrial fibrillation, Catheter believes that ventricular arrhythmias represent a large growth area moving forward. It also intends to pursue a second generation of Amigo®, a robotic arm previously cleared by both FDA and CE, which serves as a catheter control device that can be remotely controlled outside of the procedure room. Catheter has demonstrated that patient outcomes could potentially be enhanced by utilization of this device. Catheter is working toward a third product release in the first half of 2023, which is a vessel closure device that would assist in the closure of the insertion site of the percutaneous catheter or other device used within the body. It is estimated that the worldwide market for this closure assist device is over one million procedures per year.
Immediately upon the First Effective Time, each share of common stock of Catheter, par value $0.001 (“Catheter Common Stock”) issued and outstanding immediately prior to the First Effective Time (subject to certain exclusions set forth in the Merger Agreement) was converted into the right to receive a number of shares of a new class of the Company’s preferred stock, designated Series X Convertible Preferred Stock, par value $0.0001 per share (the “Series X Preferred Stock”), calculated in the manner described below.
Each share of Catheter Common Stock previously outstanding now represents a number of shares of Series X Preferred Stock equal to approximately 0.6705 (the “Exchange Ratio”), divided by one thousand (1,000).
In addition, the principal amount owing under certain of Catheter’s convertible promissory notes (the “Converted Catheter Notes”), representing an aggregate principal amount of $25,215,000, pursuant to certain Debt Settlement Agreements (as defined in the Merger Agreement) converted into shares of Series X Preferred Stock, at a conversion price of $3.20 per one one-thousandth of a share of Series X Preferred Stock. In exchange for the forgiveness of the interest accrued but remaining unpaid under the Converted Catheter Notes, under the terms of the Debt Settlement Agreements the holders of Converted Catheter Notes also received certain royalty rights which equal, in aggregate, 11.82% per year on Net Sales (as defined in the Merger Agreement), if any, of Catheter’s vessel closure device, which is currently under development by Catheter. Certain additional of Catheter’s convertible promissory notes (the “Non-Converted Catheter Notes” and, together with the Converted Catheter Notes, the “Catheter Notes”), representing a principal amount of $250,000, plus accrued interest, were not converted and remain outstanding. The terms of the Catheter Notes are described in Catheter’s audited financial statements for the year ended December 31, 2021, which were filed in the registrant’s Preliminary Proxy Stated dated November 4, 2022.
All outstanding options to purchase Catheter Common Stock (“Catheter Options”) were assumed and converted, at the First Effective Time, into options to purchase, in the aggregate, approximately 753,694 shares of Ra Common Stock (“New Company Options”), representing a conversion at the Exchange Ratio. Each share of Series X Preferred Stock is contingently convertible into one thousand (1,000) shares of Company Common Stock, subject to shareholder approval and certain ownership blockers described below, and has no voting rights.
The shares of Series X Preferred Stock issued in the Merger were allocated as follows:
1. The total number of shares of Company Common Stock allocated to all Catheter stakeholders (including stockholders, debtholders and option holders) was approximately 15,403,255 shares. After subtracting approximately 753,694 shares of Company Common Stock allocated to underlie assumed Catheter options (which was calculated by multiplying the Exchange Ratio by the number of options assumed), the number of Ra Common Stock allocated to Catheter debtholders and stockholders, in the aggregate, was approximately 14,649,561. This number was divided by 1000, to arrive at a total of 14,649.561 shares of Series X Preferred Stock issuable to Catheter debtholders and stockholders.
2. The $25,215,000 principal amount of Converted Catheter Notes converted, pursuant to the terms of the Debt Settlement Agreements, into approximately 7,879.689 shares of Series X Preferred Stock at a conversion price (the “Conversion Price”) of $3.20 for each one one-thousandth of a share of Series X Preferred Stock, which was equal to 80% of the $4.00 per share price at which certain Company warrants were repriced, and certain of the repriced warrants were exercised, in the Warrant Repricing (as defined below), which closed concurrently with the Merger and is described in more detail below.
3. After deducting the total number of shares of Series X Preferred Stock to be issued to holders of the Converted Notes, approximately 6,769.872 shares of Series X Preferred Stock were issued to Catheter stockholders.
The Series X Preferred Stock issued in the Merger may become convertible (the “Common Conversion Feature”) into Ra Common Stock upon satisfaction of specified conditions, including subsequent approval of the Common Conversion Feature by pre-Closing holders of Company Common Stock. The Series X Preferred Stock, and any Company Common Stock issued in concurrent financings, will not be entitled to vote in connection with such approval.
Even if the Common Conversion Feature is approved by the pre-Closing holders of Company Common Stock, a significant portion of the Series X Preferred Stock held by former Catheter stakeholders will not convert to Company Common Stock and must be held as Series X Preferred Stock indefinitely, due to contractual provisions that provide that the holders of Series X Preferred Stock cannot convert into more than 40% of the outstanding Company Common Stock on the date of Ra shareholder approval of the Common Conversion Feature (the “Aggregate Ownership Blocker”). Also, the ability to convert the Series X Preferred Stock will be subject to a beneficial ownership conversion “blocker” that prevents the holder from acquiring shares of Ra Medical Common Stock by converting the Series X Preferred Stock to the extent that such shares would result in the holder having, post-conversion, beneficial ownership of Ra Common Stock above a pre-set threshold (to be set between 0.99% and 19.99% at the discretion of the holder) on the date that the Common Conversion Feature is approved by the pre-Closing holders of Company Common Stock (the “Beneficial Ownership Blocker”). The Aggregate Ownership Blocker and the Beneficial Ownership Blocker may not be removed, and the Series X Preferred Stock that is not converted into Company Common Stock upon approval of the Common Conversion Feature may not be converted into Company Common Stock, unless both of the following two conditions (the “Subsequent Conversion Conditions”) are satisfied:
|
• |
Ra Medical shall have applied for and been approved for initial listing on the NYSE American or another national securities exchange or shall have been delisted from the NYSE American, and |
|
• |
eighteen months shall have passed since the closing of the Merger. |
The Merger is intended to qualify for federal income tax purposes as a tax-free reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended. For accounting purposes, Ra Medical is
considered to be the accounting acquiror, and its historical financial statements will continue to be those of the combined company following the Merger.
Following the Merger, the Post-Merger Combined Company’s headquarters will move from California. The Post-Merger Combined Company is not expected to use the Company’s legacy assets or continue its legacy lines of business, but will shift the focus of its operations to Catheter’s product lines.
The Merger Agreement provides that Ra Medical is obligated to use commercially reasonable efforts to file a registration statement covering the resale of the shares of Company Common Stock issuable pursuant to the Merger Agreement no later than ninety (90) days following the closing of the Merger and cause the registration statement to become effective no later than one hundred twenty (120) days after the filing of such registration statement. Furthermore, Ra Medical is obligated to file a registration statement on Form S-8 (or any successor form, or if Form S-8 is not available, other appropriate forms) with respect to the shares of Company Common Stock subject to the New Company Options and shall use its reasonable best efforts to maintain the effectiveness of such registration statement or registration statements (and maintain the current status of the prospectus or prospectuses contained therein) for so long as the New Company Options remain outstanding and are required to be registered.
Pursuant to the terms of the Merger Agreement, upon the occurrence of the First Effective Time, Richard Mejia, Jr. and Joan Stafslien resigned from the Company’s board of directors the (“Board of Directors) and David Jenkins and James Caruso were appointed to the Board of Directors. Additionally, Martin Colombatto stepped down as Chairperson of the Board of Directors and Mr. Jenkins was appointed Executive Chairman of the Board of Directors of Directors. Messrs. Will McGuire, the Company’s current CEO, and Brian Conn, the Company’s current interim CFO, have agreed to remain with the Company in their current positions at least through such date that is the earlier of (i) the Parent Stockholder Meeting (as defined in the Merger Agreement) and (ii) such time following the Second Effective Time as the Board of Directors has appointed a respective successor officer.
Pursuant to the terms of the Merger Agreement, the Company is obligated to take any and all additional action necessary under applicable law to call, give notice of and hold a meeting of its stockholders, using commercially reasonable efforts to hold such stockholder meeting promptly following the date of the Merger Agreement, to consider and vote to approve, among other matters, the conversion of the Series X Preferred Stock issued in connection with the Merger (collectively, the “Parent Stockholder Matters”). In connection with the Merger, the Company intends to file or amend a proxy statement with the Securities and Exchange Commission (“SEC”), with respect to the Parent Stockholder Matters (the “Proxy Statement”).
The foregoing description of the Merger and the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement, which is filed as Exhibit 2.1 to this Current Report on Form 8‑K and is incorporated herein by reference.
Support Agreements
In connection with the execution of the Merger Agreement, the Company entered into stockholder support agreements (the “Support Agreements”) with the Company’s directors, officers and certain stockholders of the Company. The Support Agreements provide that, among other things, each of the stockholders has agreed to vote or cause to be voted all of the shares of Common Stock owned by such stockholder in favor of the Parent Stockholder Matters, including the Common Conversion Feature.
The foregoing description of the Support Agreements does not purport to be complete and is qualified in its entirety by reference to the Form of Support Agreement, which is filed as Exhibit 10.1 to this Current Report on Form 8‑K and is incorporated herein by reference.
Lock-Up Agreements
Each of the directors and officers of the Company, and certain stockholders of the Company and Catheter have entered into Lock-Up Agreements pursuant to which such officers, directors and stockholders accepted certain restrictions on transfers of any shares of Company Common Stock or any securities convertible into or exercisable
or exchangeable for Company Common Stock held by such officer, director or stockholder during the period commencing upon the date that the Post-Closing Combined Company’s stockholders approve the Parent Stockholder Matters and ending on the date that is six months after the date of closing of the Merger.
The foregoing description of the Lock Up Agreements does not purport to be complete and is qualified in its entirety by reference to the Form of Lock Up Agreement, which is filed as Exhibit 10.2 to this Current Report on Form 8‑K and is incorporated herein by reference.
Warrant Repricing
On January 9, 2023, the Company reduced the exercise price of certain existing warrants of the Company (“Existing Warrants”) exercisable for 331,608 shares of Company Common Stock, which were held by Armistice Master Fund Ltd. (“Armistice”), from exercise prices ranging from $14.00 to $526.50 per share to $4.00 per share (the “Warrant Repricing”). In connection with the Warrant Repricing, the Company entered into a warrant inducement offer letter (the “Inducement Letter”) with Armistice pursuant to which it will exercise up to all of the 331,608 Existing Warrants (the “Inducement Offer). In consideration for exercising the Existing Warrants, pursuant to the terms of the Inducement Letter, the Company will issue to Armistice a new Series E Common Stock Purchase Warrant (the “Series E Warrant”), to purchase up to a number of shares of common stock equal to 100% of the number of shares of common stock issued pursuant to the exercise of the Existing Warrants. The Series E Warrant shall have an exercise price of $4.00 and a term of five years from date of the Stockholder Approval, as defined below, and exercise of the Series E Warrant in full is subject to approval of the pre-closing holders of Company Common Stock (the “Stockholder Approval”). If the Existing Warrants are exercised in full, the Company expects to receive aggregate gross proceeds of approximately $1.3 million from the exercise of the Existing Warrants, resulting in the issuance of up to an aggregate of approximately 0.3 million shares of common stock and a pro forma shares of common stock outstanding of approximately 2,492,896 million after giving effect to the exercise of the Existing Warrants.
The Series E Warrants and the shares underlying the Series E Warrants (the “Series E Warrant Shares”) are being issued in a private placement pursuant to Section 4(a)(2) of the Securities Act and will be unregistered.
The Series E Warrants will, in the event that the aggregate number of Series E Warrant Shares (when aggregated together with the shares issued upon exercise of the Existing Warrants) exceeds 19.99% of the outstanding shares of common stock of the Company (determined as of the date of the Inducement Letter), be initially exercisable (after aggregation with the shares issued upon exercise of the Existing Warrants) with respect to up to 19.99% of the outstanding shares of common stock of the Company (determined as of the date of the Inducement Letter), with the remainder of the Series E Warrants being exercisable on the date upon which the stockholders of the Company approve a proposal allowing for the exercise of all of the Series E Warrants, pursuant to the rules and regulations of the NYSE American. In addition, the Company has agreed to file a registration statement on the appropriate form providing for the resale of the Series E Warrant Shares.
Ladenburg Thalmann & Co. Inc. (“Ladenburg”) acted as the exclusive warrant inducement agent and financial advisor to the Company in connection with the Inducement Offer. The Company agreed to pay Ladenburg an aggregate cash fee equal to 8.0% of the gross proceeds received by the Company from the Inducement Offer.
The description of terms and conditions of the Inducement Letter and the Series E Warrant set forth herein does not purport to be complete and is qualified in its entirety by reference to the full text of the form of the Series E Warrant and form of Inducement Letter attached hereto as Exhibits 4.1 and 10.3, respectively.
Securities Purchase Agreement
On January 9, 2023, the Company also entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) for a private placement (the “Private Placement”) with Armistice. Pursuant to the Securities Purchase Agreement, Armistice agreed to purchase (a) Class A Units at a price that is the lower of $3.00 per unit and 90% of the 5 day volume weighted average closing price of the Company Common Stock immediately prior to obtainment of the approval of the Company’s stockholders of conversion of the PIPE Preferred Stock and Pipe Warrants (as each are defined below), each consisting of one share of Common Stock, one Series F Common Stock Purchase Warrant (“Series F Warrant”) and one Series G Common Stock Purchase Warrant (“Series G Warrant” and together with the Series F Warrants, the “PIPE Warrants”), and (b) Class B Units at a price of $1,000.00 per unit, each
consisting of one share of a new series of the Company’s preferred stock, designated as Series A Convertible Preferred Stock, par value $0.0001 (the “PIPE Preferred Stock”), and one Series F Warrant and one Series G Warrant for each share of Company Common Stock underlying the PIPE Preferred Stock (each share of which is convertible into a number of shares of Ra Medical common stock equal to $1,000 divided by the lower of $3.00 and 90% of the 5 day volume weighted average closing price of the Company common stock immediately prior to obtainment of the approval of the Company’s stockholders of conversion of the PIPE Preferred Stock and Pipe Warrants (the “Preferred Conversion Price”)), for an aggregate purchase price of approximately $8.0 million. The allocation between Class A and Class B units will be determined by Armistice prior to their issuance. The closing under the Securities Purchase Agreement and the sale and issuance of the Class A Units and Class B Units (and the issuance of any underlying Common Stock) is subject to the approval of the Company’s stockholders. The Company has an obligation to use commercially reasonable efforts to call and hold a meeting of the Company’s stockholders to approve the exercise of the PIPE Warrants and conversion of the PIPE Preferred Stock not later than the 75th day from the date hereof; however, the Company may cancel the Private Placement at any time prior to obtaining stockholder approval.
The PIPE Warrants will be exercisable at an exercise price of $3.00 per share, subject to adjustments as provided under the terms of the PIPE Warrants. The PIPE Warrants will be exercisable at any time on or after the closing date of the Private Placement until the expiration thereof, except that the PIPE Warrants cannot be exercised if, after giving effect thereto, the Purchaser would beneficially own more than 4.99% (the “Maximum Percentage”) of the outstanding shares of common stock of the Company, which Maximum Percentage may be increased or decreased by the Purchaser with written notice to the Company to any other percentage specified not in excess of 9.99%. The Series F Warrants have a term of two years from the date stockholder approval is obtained, and the Series G Warrants have a term of six years from the date that stockholder approval is obtained.
Shares of PIPE Preferred Stock are non-convertible until the Company obtains stockholder approval. After stockholder approval is obtained, subject to certain ownership limitations as described below, shares of Pipe Preferred Stock are convertible at any time at the option of the holder into shares of Company Common Stock at the Preferred Conversion Price. The conversion price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions.
Subject to limited exceptions, holders of shares of PIPE Preferred Stock will not have the right to convert any portion of their Preferred Stock if the holder, together with its affiliates, would beneficially own in excess of 4.99% (or up to 9.99% at the election of the holder) of the number of shares of the Company’s common stock outstanding immediately after giving effect to its conversion.
Holders of Pipe Preferred Stock, if issued, will be entitled to receive dividends on shares of Pipe Preferred Stock equal, on an as-if-converted-to-Common-Stock basis, and in the same form as dividends actually paid on shares of the Common Stock. Except as otherwise required by law, the Pipe Preferred Stock does not have voting rights. However, as long as any shares of Pipe Preferred Stock are outstanding, the Company will not, without the affirmative vote of the holders of a majority of the then outstanding shares of the Pipe Preferred Stock, (a) alter or change adversely the powers, preferences or rights given to the Pipe Preferred Stock, (b) alter or amend the Certificate of Designation for the Pipe Preferred Stock, (c) amend its certificate of incorporation or other charter documents in any manner that adversely affects any rights of the holders of Pipe Preferred Stock, (d) increase the number of authorized shares of Pipe Preferred Stock, or (e) enter into any agreement with respect to any of the foregoing. The Pipe Preferred Stock does not have a preference upon any liquidation, dissolution or winding-up of the Company. The holders of Pipe Preferred Stock shall be entitled to receive out of the assets, whether capital or surplus, of the Company the same amount that a holder of Common Company Stock would receive if the Pipe Preferred Stock were fully converted (disregarding for such purposes any conversion limitations) to Company Common Stock, which amounts will be paid pari passu with all holders of Company Common Stock.
The Company also entered into a registration rights agreement (the “Registration Rights Agreement”) with the Purchasers requiring the Company to register the resale of the shares of Common Stock, the shares issuable upon exercise of the Warrants, and the shares issuable upon the conversion of the PIPE Preferred Stock.
The securities to be issued to the Purchasers under the Securities Purchase Agreement will be issued pursuant to an exemption from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”). The Company relied on this exemption from registration based in part on representations made by the Purchasers.
The sale of the securities pursuant to the Securities Purchase Agreement has not been registered under the Securities Act or any state securities laws. The securities may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. Neither this Current Report on Form 8-K, nor the exhibits attached hereto is an offer to sell or the solicitation of an offer to buy the securities described herein.
The Company intends to use the net proceeds from the Private Placement, among other things, advance the development and commercialization of the novel electrophysiology technologies and solutions of the Post-Merger Combined Company. In addition, net proceeds will be used to support general corporate purposes.
The foregoing description of the material terms of the Private Placement is qualified in its entirety by reference to the Securities Purchase Agreement attached hereto as Exhibit 10.4, the Registration Rights Agreement attached hereto as Exhibit 10.5, the Certificate of Designation for the PIPE Preferred Stock attached hereto as Exhibit 3.2, the Form of Series F Warrant attached hereto as Exhibit 4.2 and the Form of Series G Warrant attached hereto as Exhibit 4.3, each of which exhibits is incorporated by reference herein.