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Item 1.01.
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Entry into a Material Definitive Agreement.
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Merger Agreement
On July 3, 2019, Digirad Corporation (the
“
Company
”), Digirad Acquisition Corporation, a newly formed Minnesota corporation and wholly-owned subsidiary
of the Company (“
Merger Sub
”), and ATRM Holdings, Inc., a Minnesota corporation (“
ATRM
”)
entered into an Agreement and Plan of Merger (the “
Merger Agreement
”). The Merger Agreement provides for, among
other things, a business combination whereby Merger Sub will merge with and into ATRM, with ATRM as the surviving entity (the “
Merger
”).
As a result of the Merger, the separate corporate existence of Merger Sub will cease and ATRM will continue as the surviving corporation
and a wholly-owned subsidiary of the Company.
At the effective time of the Merger, (i) each
share of ATRM common stock, par value $0.001 per share (“
ATRM Common Stock
”) issued and outstanding immediately
prior to the effective time of the Merger shall be converted into the right to receive three one-hundredths (0.03) of a share of
10.0% Series A Cumulative Perpetual Preferred Stock, par value $0.0001 per share, of the Company (“
Company Preferred Stock
”)
and (ii) each share of ATRM 10.0% Series B Cumulative Preferred Stock, par value $0.001 per share (“
ATRM Preferred Stock
”),
issued and outstanding immediately prior to the effective time of the Merger shall be converted into the right to receive two and
one-half (2.5) shares of Company Preferred Stock.
The form of the Certificate of Designation for the Company Preferred Stock to be issued in the Merger is attached
as Exhibit B to the Merger Agreement filed herewith. As set forth in the Certificate of Designation, the terms of the Company Preferred
Stock include, among other things: (i) dividends will be cumulative from (but excluding) the date of issue, and will be payable
quarterly in arrears, at a rate of 10.0% per annum per $10.00 of stated liquidation preference per share (or $1.00 per share of
Company Preferred Stock per year); (ii) following the fifth anniversary of issuance, the Company may redeem (at its option, in
whole or in part) the Company Preferred Stock at a cash redemption price of $10.00 per share, plus any accumulated and unpaid dividends;
(iii) upon a Change of Control Triggering Event, as defined in the Certificate of Designation, holders of the Company Preferred
Stock may require the Company to redeem the Company Preferred Stock at a price of $10.00 per share, plus any accumulated and unpaid
dividends; (iv) the Company Preferred Stock will not be subject to any sinking fund and will not be convertible into or exchangeable
for any of other securities; and (v) holders of the Company Preferred Stock generally will have no voting rights except for certain
limited voting rights, including in circumstances where dividends payable on the outstanding Company Preferred Stock are in arrears
for six or more consecutive quarterly dividend periods and to amend the terms of the Company Preferred Stock if it would materially
and adversely alter the rights of holders of the Company Preferred Stock.
The Company and ATRM have made customary representations,
warranties and covenants in the Merger Agreement, including ATRM agreeing not to solicit alternative transactions or, subject to
certain exceptions, to enter into discussions concerning, or provide confidential information in connection with, an alternative
transaction. The Merger Agreement contains certain termination rights for both the Company and ATRM, and further provides
that, upon termination of the Merger Agreement under certain circumstances, ATRM may be obligated to pay the Company a termination
fee of up to $725,000, as well as up to $225,000 of the Company’s expenses.
The Merger is subject to various customary closing
conditions, including, but not limited to, (i) approval by ATRM’s shareholders, (ii) the absence of any order, injunction,
statute, rule, regulation or decree prohibiting, precluding, restraining, enjoining or making illegal the consummation of the Merger,
(iii) the accuracy of the representations and warranties of each party, (iv) performance, in all material respects, of all obligations
and compliance with, in all material respects, agreements and covenants to be performed or complied with by each party, (v) declaration
of effectiveness of the Registration Statement on Form S-4 to be filed by the Company, and (vi) the completion of the Private Placement
and the Issuance Option (each as defined below).
Prior to the effective time of the Merger, the Company shall have completed a private placement of Company
Preferred Stock for gross proceeds to the Company of no less than $3,000,000 (the “
Private Placement
”). The
net proceeds of the Private Placement, after the payment of any expenses incurred in connection with the negotiation and consummation
of the Private Placement, will be applied toward the costs and expenses of the Merger, including the repayment of certain ATRM
debt. In addition, prior to the effective time of the Merger, the Company shall have entered into an agreement with Jeffrey Eberwein,
the Company’s Chairman of the Board, pursuant to which the Company shall have the right to require Mr. Eberwein to acquire
100,000 shares of Company Preferred Stock at a price of $10 per share for aggregate proceeds of $1,000,000 at any time, in the
Company’s discretion, during the 12 calendar months following the effective time of the Merger (the “
Issuance Option
”).
In addition, at the effective time of the Merger,
each unvested share of restricted ATRM Common Stock or restricted ATRM Common Stock units that is outstanding under any ATRM stock
plan shall be assumed by the Company and shall be converted automatically into a restricted share of Company Preferred Stock or
restricted Company Preferred Stock units (as applicable), subject only to time-based vesting, and at an exchange ratio of three
one-hundredths (0.03) of a share of Company Preferred Stock for each applicable share of ATRM Common Stock. Each share of restricted
ATRM Common Stock or restricted ATRM Common Stock unit so adjusted shall otherwise be subject to the same terms and conditions
which were applicable to the restricted ATRM Common Stock or restricted ATRM Common Stock unit under ATRM’s stock plans and
the agreements evidencing grants thereunder, including as to vesting and settlement.
The foregoing description of the Merger Agreement
and the Company’s obligations therein does not purport to be complete and is qualified in its entirety by reference to the
full text of the Merger Agreement, a copy of which is attached hereto as Exhibit 2.1 and incorporated herein by reference.
Voting Agreement
Lone Star Value Investors GP, LLC, Lone Star Value Investors, LP, Lone Star Value Co-Invest I, LP and Jeffrey
Eberwein (collectively, the “
Shareholders
”), each of which is an affiliate of the Company, owned as of the date
of the Merger Agreement 3,005, 0, 0 and 425,012 shares of ATRM Common Stock and 0, 222,577, 374,562 and 0 shares of ATRM Preferred
Stock, respectively (representing approximately 17.4% of ATRM’s issued and outstanding common stock in the aggregate and
all of the outstanding ATRM Preferred Stock), and entered into a Voting and Support Agreement (the “
Voting Agreement
”)
with the Company on July 3, 2019. Pursuant to the Voting Agreement, the Shareholders have agreed, among other things, to vote their
shares (collectively, the “
Shareholder Shares
”) in favor of the Merger and to grant the Company an irrevocable
proxy with respect to their respective Shareholder Shares.
The foregoing description of the Voting Agreement
and the Company’s obligations therein does not purport to be complete and is qualified in its entirety by reference to the
full text of the Voting Agreement, a copy of which is attached hereto as Exhibit 10.1 and incorporated herein by reference.