Item
1.01. Entry into a Material Definitive Agreement
On
December 27, 2018, PAVmed Inc. (the “
Company
”, “
we
”, “
us
” or “
our
”)
entered into a Securities Purchase Agreement (“
SPA
”) with an institutional investor and simultaneously consummated
the sale to such institutional investor of a Senior Secured Convertible Note with an initial principal amount of $7,750,000 (the
“
Convertible Note
”) in a private placement pursuant to the SPA (the “
Private Placement
”).
Maxim Group LLC (“
Maxim Group
”) acted as the placement agent for the Private Placement.
The
Convertible Note was sold with an original issue discount of $750,000, for gross proceeds to us of $7,000,000. Maxim Group received
a fee of 6.5% of the gross proceeds of the Private Placement, or an aggregate of $455,000. After deducting the placement agent
fee and our estimated expenses associated with the Private Placement, we expect the net proceeds to be approximately $6,445,000.
Promptly
after the consummation of the sale of the Convertible Note, we repaid in full the outstanding principal balance and all accrued
but unpaid interest expense on the Senior Secured Note held by our existing lender, Scopia Holdings LLC, with such repayment consisting
of a cash payment of $5,000,000 and the issue of 600,000 shares of our common stock, with such shares of common stock referred
to herein as the “
Payoff Shares
”.
Securities
Purchase Agreement (“SPA”)
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The
SPA contains certain representations and warranties, covenants and indemnities customary for similar transactions. Under the
SPA, we also agreed to the following additional covenants:
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At
any time prior to June 28, 2019, if any Convertible Note remains outstanding, we may not consummate the sale of any equity
or equity-linked security at a price per share less than the initial conversion price of the Convertible Note. From and after
July 1, 2019, if any Convertible Note remains outstanding, we may not consummate the sale of any equity or equity-linked security
at a price per share less than the initial conversion price of the Convertible Note, unless the aggregate consideration we
receive is less than or equal to $5,000,000 and we comply with the terms and conditions of the Convertible Note as to the
acceleration of installment payments after giving effect to such issuance. See “The Convertible Note” below.
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If
at any time the number of shares of common stock authorized and reserved for issuance under the Convertible Note is not sufficient
to meet the minimum required reserve amounts specified in the SPA, the Company will promptly take all corporate action necessary
to authorize and reserve such minimum required reserve amount of shares, including, without limitation, calling a special
meeting of stockholders to obtain stockholder approval of an increase in the authorized shares.
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We
will not effect or enter an agreement to effect any variable rate transaction.
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We
granted such institutional investor participation rights in future equity and equity-linked offerings of securities during
the three years after the closing in an amount of up to 50% of the securities being sold in such offerings.
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We
agreed to hold a stockholder meeting, by no later than June 28, 2019, to approve resolutions (the “Stockholder Resolutions”)
authorizing (i) an increase in the authorized shares of our common stock from 75 million to 100 million shares, and (ii) the
issuance of shares of our common stock under the Convertible Note for the purposes of compliance with the stockholder approval
rules of The Nasdaq Stock Market (“Nasdaq”) The Company will be obligated to continue to seek stockholder approval
quarterly until such approval is obtained.
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Senior
Secured Convertible Note (“Convertible Note”)
Interest
The
Convertible Note accrues interest at the rate of 7.875% per annum. Prior to June 28, 2019 and after the maturity date, interest
will be payable bi-monthly on the 15
th
day and the last trading day of each month at our option in cash or, subject
to the satisfaction of customary equity conditions (including minimum price and volume thresholds), in shares of our common stock
at a price per share equal to the lower of (i) the conversion price then in effect, and (ii) 82.5% of the market price of our
common stock, as determined in accordance with the Convertible Note, but not less than the Floor Price (as defined in the Convertible
Note). During the period commencing on June 28, 2019 through the maturity date, interest will be payable by inclusion of
such interest in the amounts to be converted or redeemed, as applicable, on the applicable installment date. See “—
Installment
Conversions and Redemptions
” below. After the occurrence and during the continuance of an Event of Default (as defined
in the Convertible Note), the Convertible Note will accrue interest at the rate of 18.0% per annum. See “—
Events
of Default
” below.
Conversion
The
Convertible Note is convertible, at the option of the holder thereof, into shares of our common stock at an initial conversion
price of $1.60 per share. The conversion price is subject to standard adjustments in the event of any stock split, stock dividend,
stock combination, recapitalization or other similar transaction. If we enter into any agreement to issue (or issue) any variable
rate securities, the holder has the additional right to substitute such variable price (or formula) for the conversion price.
In connection with the occurrence of certain Events of Default, the holder of the Convertible Note will be entitled to convert
all or any portion of the Convertible Note as described above at an alternate conversion price equal to the lower of (i) the conversion
price then in effect, and (ii) 80% of the market price of our common stock, as determined in accordance with the Convertible Note,
but not less than the Floor Price.
Conversion
Limitation and Exchange Cap
The
holder of the Convertible Note will not have the right to convert any portion of the Convertible Note, to the extent that, after
giving effect to such conversion, the holder (together with certain related parties) would beneficially own in excess of 4.99%
of the shares of our common stock outstanding immediately after giving effect to such conversion. A holder may from time to time
increase this limit to 9.99%, provided that any such increase will not be effective until the 61st day after delivery of a notice
to us of such increase.
In
addition, unless we obtain the approval of our stockholders as required by Nasdaq, we are prohibited from issuing any shares of
common stock upon conversion of the Convertible Note or otherwise pursuant to the terms of the Convertible Note, if the issuance
of such shares of common stock would exceed 19.99% of the Company’s outstanding shares of common stock as of December 27,
2018 or otherwise exceed the aggregate number of shares of common stock which the Company may issue without breaching its obligations
under the rules and regulations of Nasdaq.
Events
of Default
The
Convertible Note includes certain customary Events of Default, including, among other things, the breach of the financial
covenant described in “—
Covenants
” below and the failure of Lishan Aklog, M.D., the Company’s
Chairman and Chief Executive Officer, and Dennis McGrath, the Company’s Chief Financial Officer, to each serve as
officers of the Company.
In connection with an Event of Default, the holder of the Convertible Note may require the
Company to redeem in cash any or all of the Convertible Note. The redemption price will equal the greater of (i) 115% of the
outstanding principal of the Convertible Note to be redeemed, and accrued and unpaid interest and unpaid late charges
thereon, and (ii) an amount equal to market value of the shares of the Company’s common stock underlying the
Convertible Note, as determined in accordance with the Convertible Note. Upon the occurrence of certain Events of Default
relating to the bankruptcy of the Company, whether occurring prior to or following the maturity date, the Company will be
required to immediately redeem the Convertible Note, in cash, for an amount equal to 115% of the outstanding principal of the
Convertible Note, and accrued and unpaid interest and unpaid late charges thereon, without the requirement for any notice or
demand or other action by any holder or any other person or entity.
Change
of Control
In
connection with a Change of Control (as defined in the Convertible Note), the holder of the Convertible Note may require us to
redeem all or any portion of the Convertible Note. The redemption price per share will equal the greatest of (i) 115% of the outstanding
principal of the Convertible Note to be redeemed, and accrued and unpaid interest and unpaid late charges thereon, (ii) 115% of
the market value of the shares of the Company’s common stock underlying the Convertible Note, as determined in accordance
with the Convertible Note, and (iii) 115% of the aggregate cash consideration that would have been payable in respect of the shares
of our common stock underlying the Convertible Note, as determined in accordance with the Convertible Note.
Other
Corporate Events
We
will not enter a Fundamental Transaction (as defined in the Convertible Note), unless the successor entity assumes all of the
obligations under the Convertible Note pursuant to written agreements satisfactory to the holder of the Convertible Note, and
the successor entity is a publicly traded corporation whose shares of common stock are quoted or listed on the New York Stock
Exchange, the NYSE American or Nasdaq. If at any time we grant any Purchase Rights (as defined in the Convertible Note) or make
any distribution of assets pro rata to all or substantially all of the holders of any class of its common stock, then the holder
of the Convertible Note will be entitled to acquire the aggregate Purchase Rights or assets which such holder could have acquired
if such holder had held the number of shares of the Company’s common stock acquirable upon complete conversion of the Convertible
Note (without taking into account any limitations on conversion) held by such holder immediately prior to the date as of which
the record holders are to be determined for such grant of purchase rights or distributions. To the extent any such grant of rights
or distribution would result in the holder exceeding the maximum percentage described in first paragraph of “—
Conversion
Limitation and Exchange Cap
” above, such rights shall be held in abeyance for up to ninety trading days.
Installment
Conversions and Redemptions
Commencing
on June 28, 2019, the Convertible Note will amortize on the 15th day of the month and the last trading day of the month for each
month thereafter, and on the maturity date (as more fully defined in the Convertible Note, an “
Installment Date
”).
On each Installment Date we will have the option to pay an amount of the Convertible Note equal to $193,750 (or $484,375 on either
of the last two Installment Dates) (the “
Installment Amount
”), together with interest and late charges, if
any, thereon, in whole, or in part, in cash (an “
Installment Redemption
”) or, subject to the satisfaction of
customary equity conditions (including minimum price and volume thresholds) in shares of our common stock (an “
Installment
Conversion
”).
If
we satisfy such equity conditions (subject to the holder’s right to waive any such condition) and elect to effect an Installment
Conversion, we will convert the portion of the Installment Amount subject to such Installment Conversion into shares of our common
stock at a price per share equal to the lower of (i) the conversion price then in effect, and (ii) 82.5% of the market price of
our common stock, as determined in accordance with the Convertible Note, but not less than the Floor Price. If we elect
to convert all or any portion of an Installment Amount in an Installment Conversion, and such Installment Conversion is not permitted
because certain equity conditions are not met, the holder may elect to either (i) have us redeem the Installment Amount in cash
at a price equal to 115% of its aggregate value or (ii) void the conversion of the Installment Amount and retain all the rights
of a holder of the Convertible Note, except that the conversion price for such Installment Amount will thereafter be the lesser
of the installment conversion price as in effect on the date the installment conversion is voided and the installment conversion
price on the date the holder delivers a subsequent notice of conversion.
If
we elected to effect an Installment Redemption, we will redeem such portion of the Installment Amount subject to such Installment
Redemption in cash at a price equal to 100% of such Installment Amount.
In
the event the Company elects to convert an Installment Amount, the holder of the Convertible Note may elect to defer conversion
until a subsequent Installment Date selected by the holder, or accelerate the conversion of future Installment Amounts to the
current Installment Date, with the amount to be accelerated subject to certain restrictions as set forth in the Convertible Note.
Covenants
The
Company will be subject to certain customary affirmative and negative covenants regarding the incurrence of indebtedness, the
existence of liens, the repayment of indebtedness, the payment of cash in respect of dividends, distributions or redemptions,
and the transfer of assets, among other matters. The Company also will be subject to a financial covenant that requires it to
maintain available cash in the amount of $1,750,000 at the end of each fiscal quarter.
Security
Interest
The
Convertible Note is secured by a first priority security interest in all of our assets and the assets of our current and future
Significant Subsidiaries (as defined in the SPA), which as of the closing date was solely Lucid Diagnostics, Inc., our majority
owned subsidiary (“
Lucid Diagnostics
”), as evidenced by a security agreement with the institutional investor
(the “
Security Agreement
”) and a guarantee by Lucid Diagnostics of the obligations underlying the Convertible
Note (the “
Guaranty
”).
Registration
Rights
We
have granted certain registration rights to the holders of the Convertible Note pursuant to a registration rights agreement (the
“
Registration Rights Agreement
”), including a requirement to file a registration statement covering the resale
of the shares underlying the Convertible Note by January 26, 2019 and to have the registration statement declared effective
by April 26, 2019, as well as customary “piggyback” registration rights. If the Company fails to file the registration
statement or have it declared effective by the deadlines above, or if certain other conditions relating to the availability of
the registration statement and current public information are not met, the Company will pay certain Registration Delay Payments
to such holders (as defined in the Registration Rights Agreement).
Other
Agreements
Voting
Agreement
We
entered into voting agreements (each, a “
Voting Agreement
”) each by and between us and certain of our stockholders
holding an aggregate of approximately 29% of our common stock (each a “
Stockholder
”), pursuant to which
each Stockholder agreed to vote the shares of the Company’s common stock now owned or hereafter acquired by him in favor
of the Stockholder Resolutions.
Leak
Out Agreement
The
Company entered into a leak-out agreement with the institutional investor (the “
Leak-Out Agreement
”), restricting
sales of shares of our common stock issued pursuant to accelerations of any Installment Amount (“
Restricted Securities
”)
on any trading day, if any such sale, together with all prior sales of Restricted Securities on such trading day, exceed 25% of
the daily average composite trading volume of our common stock; provided that (i) any such sales of Restricted Securities at a
price greater than or equal to 96% of the closing sale price as of the immediately preceding trading day shall not be included
in such calculation and (ii) any other sales of shares of our common stock on such trading day (excluding any sales of Restricted
Securities) shall not be included in such calculation.
Additional
Information
The
foregoing is only a summary of the material terms of the SPA, the Convertible Note, the Security Agreement, the Guaranty, the
Registration Rights Agreement, the Leak-Out Agreement, the Voting Agreement and the other transaction documents, and does not
purport to be a complete description of the rights and obligations of the parties thereunder, and such summary is qualified in
its entirety by reference to the SPA, the Convertible Note, the Security Agreement, the Guaranty, the Registration Rights Agreement, the Voting Agreement and the other transaction agreements, which are filed as exhibits to this Current
Report.