Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
Section 6.1Proxy Statement .
(a) |
Within fifteen (15) days following the Signing Date, Parent shall prepare and file with the SEC a proxy statement soliciting Parent Stockholder Approval with respect to the Merger and the issuance of Parent Common Stock pursuant to the terms of this Agreement (together with any amendments thereof or supplements thereto, the “Proxy Statement” ), and such other proposals as approved by Parent Board. Parent shall use its reasonable best efforts to (i) cause the Proxy Statement to comply with the applicable rules and regulations promulgated by the SEC and the NYSE American and (ii) respond promptly to any comments or requests of the SEC or its staff or the NYSE American relating to the Proxy Statement and the Initial Listing Application. |
(b) |
Parent covenants and agrees that the Proxy Statement (and the letter to stockholders, notice of meeting and form of proxy included therewith) will (i) comply as to form in all material respects with the requirements of applicable U.S. federal securities laws and the DGCL, and (ii) will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. |
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(c) |
Parent shall use commercially reasonable efforts to cause the Proxy Statement to be mailed to Parent’s stockholders as promptly as practicable after the Proxy Statement has been filed with the SEC and either (i) the SEC has indicated that it does not intend to review the Proxy Statement or that its review of the Proxy Statement has been completed or (ii) at least ten (10) days shall have passed since the Proxy Statement was filed with the SEC without receiving any correspondence from the SEC commenting upon, or indicating that it intends to review, the Proxy Statement, all in compliance with applicable U.S. federal securities laws and the DGCL. If Parent, First Merger Sub, Second Merger Sub or the Company become aware of any event or information that, pursuant to the Securities Act or the Exchange Act, should be disclosed in an amendment or supplement to the Proxy Statement, as the case may be, then such party, as the case may be, shall promptly inform the other parties thereof and shall cooperate with such other parties with respect to Parent filing such amendment or supplement with the SEC and, if appropriate, in mailing such amendment or supplement to the stockholders of the Parent. |
(d) |
Parent shall use commercially reasonable efforts to (x) cause the shares of Parent Common Stock to be issued to holders of Company Common Stock and Company Notes pursuant to this Agreement, together with the Parent Common Stock underlying Assumed Options, to be approved for listing on the NYSE American, subject to official notice of issuance, including through the filing of an “Initial Listing Application,” and (y) receive all necessary approval for the Merger and the other transactions contemplated by this Agreement under Section 341 of the NYSE American Company Guide (the “Guide”), on or before the date of the Parent Stockholder Meeting, and shall further take such commercially reasonable actions or refrain from taking such actions as may be reasonably required to avoid a delisting action from the NYSE American, including but not limited to any delisting pursuant to Section 1003 of the Guide. |
Section 6.2Stockholders’ Meeting .
(a) |
Parent shall take any and all additional action necessary under applicable Law to call, give notice of and hold a meeting of the holders of Parent Common Stock to consider and vote to approve, among other matters, the Merger and the issuance of Parent Common Stock pursuant to the terms of this Agreement (collectively, the “Parent Stockholder Matters” and such meeting, the “Parent Stockholder Meeting” ). The Parent shall use commercially reasonable efforts to cause the Parent Stockholder Meeting to be held within sixty (60) days of the Signing Date. Parent shall take reasonable measures to ensure that all proxies solicited in connection with the Parent Stockholder Meeting are solicited in compliance with all applicable Law. Notwithstanding anything to the contrary contained herein, if on the date of the Parent Stockholder Meeting, or a date preceding the date on which the Parent Stockholder Meeting is scheduled, Parent reasonably believes that (i) it will not receive proxies sufficient to obtain the Parent Stockholder Approval, whether or not a quorum would be present or (ii) it will not have sufficient shares of Parent Common Stock represented (whether in person or by proxy) to constitute a quorum necessary to conduct the business of the Parent Stockholder Meeting, Parent may postpone or adjourn, or make one or more successive postponements or adjournments of, the Parent Stockholder Meeting as long as the date of the Parent Stockholder Meeting is not postponed or adjourned more than an aggregate of thirty (30) days in connection with any postponements or adjournments. |
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(b) |
Parent agrees that, subject to the Parent Board’s compliance with its fiduciary duties under applicable Law, (i) the Parent Board shall recommend that the holders of Parent Common Stock vote to approve the Parent Stockholder Matters and shall use commercially reasonable efforts to solicit such approval within the time frame set forth in Section 6.2(a) above and (ii) the Proxy Statement shall include a statement to the effect that the Parent Board recommends that Parent’s stockholders vote to approve the Parent Stockholder Matters. |
(c) |
If Parent does not obtain Parent Stockholder Approval with respect to the Parent Stockholder Matters at the first Parent Stockholder Meeting, Parent shall use commercially reasonable efforts to call a meeting every ninety (90) days thereafter to seek Parent Stockholder Approval with respect to the Parent Stockholder Matters until such Parent Stockholder Approval is obtained, unless this Agreement has been terminated pursuant to Section 8.1. |
(d) |
The Company shall use its reasonable best efforts to obtain the Company Stockholder Approval on or before October 14, 2022. |
Section 6.3Indemnification, Exculpation and Insurance .
(a) |
From the First Effective Time through the sixth anniversary of the date on which the First Effective Time occurs, each of Parent and the Surviving Company shall indemnify and hold harmless each person who is now, or has been at any time prior to the date hereof, or who becomes prior to the First Effective Time, a director or officer of Parent or the Company, respectively (the “D&O Indemnified Parties” ), against all claims, losses, liabilities, damages, judgments, fines and reasonable fees, costs and expenses, including attorneys’ fees and disbursements, incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of or pertaining to the fact that the D&O Indemnified Party is or was a director or officer of Parent or of the Company, whether asserted or claimed prior to, at or after the First Effective Time, in each case, to the fullest extent permitted under the DGCL and the DLLCA. Each D&O Indemnified Party will be entitled to advancement of expenses incurred in the defense of any such claim, action, suit, proceeding or investigation from each of Parent and the Surviving Company, jointly and severally, upon receipt by Parent or the Surviving Company from the D&O Indemnified Party of a request therefor; provided that any such person to whom expenses are advanced provides an undertaking to Parent, to the extent then required by the DGCL and the DLLCA, to repay such advances if it is ultimately determined that such person is not entitled to indemnification. |
(b) |
The provisions of the certificate of incorporation and bylaws of Parent with respect to indemnification, advancement of expenses and exculpation of present and former directors and officers of Parent that are presently set forth in the certificate of incorporation and bylaws of Parent shall not be amended, modified or repealed for a period of six years from the First Effective Time in a manner that would adversely affect the rights thereunder of individuals who, at or prior to the First Effective Time, were officers or directors of Parent, unless such modification is required by applicable Law. The certificate of formation and limited liability company agreement of the Surviving Company shall contain, and Parent shall cause the certificate of formation and limited liability company agreement of the Surviving Company to so contain, provisions no less favorable with respect to indemnification, advancement of expenses and exculpation of present and former directors and officers as those presently set forth in the certificate of incorporation and bylaws of Parent. |
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(c) |
From and after the First Effective Time through the sixth anniversary of the date on which the First Effective Time occurs, (i) the Surviving Company shall fulfill and honor in all respects the obligations of the Company to its D&O Indemnified Parties as of immediately prior to the Closing pursuant to any indemnification provisions under the Company’s Organizational Documents and pursuant to any indemnification agreements between the Company and such D&O Indemnified Parties, with respect to claims arising out of matters occurring at or prior to the First Effective Time and (ii) Parent shall fulfill and honor in all respects the obligations of Parent to its D&O Indemnified Parties as of immediately prior to the Closing pursuant to any indemnification provisions under Parent’s Organizational Documents and pursuant to any indemnification agreements between Parent and such D&O Indemnified Parties, with respect to claims arising out of matters occurring at or prior to the First Effective Time. |
(d) |
From and after the First Effective Time through the sixth anniversary of the date on which the First Effective Time occurs, Parent shall maintain directors’ and officers’ liability insurance policies, with an effective date as of the Closing Date, on commercially available terms and conditions and with coverage limits customary for U.S. public companies similarly situated to Parent. |
(e) |
From and after the First Effective Time through the sixth anniversary of the date on which the First Effective Time occurs, Parent shall pay all expenses, including reasonable attorneys’ fees, that are incurred by the persons referred to in this Section 6.3 in connection with their enforcement of the rights provided to such persons in this Section 6.3. |
(f) |
The provisions of this Section 6.3 are intended to be in addition to the rights otherwise available to the current and former officers and directors of Parent and the Company by Law, charter, statute, bylaw or agreement, and shall operate for the benefit of, and shall be enforceable by, each of the D&O Indemnified Parties, their heirs and their Representatives. |
(g) |
In the event Parent or the Surviving Company or any of their respective successors or assigns (i) consolidates with or merges into any other Person and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) transfers all or substantially all of its properties and assets to any Person, then, and in each such case, proper provision shall be made so that the successors and assigns of Parent or the Surviving Company, as the case may be, shall succeed to the obligations set forth in this Section 6.3. Parent shall cause the Surviving Company to perform all of the obligations of the Surviving Company under this Section 6.3. |
Section 6.4 |
Section 16 Matters . Prior to the First Effective Time, each of Parent and the Company shall take all such steps as may be necessary or appropriate to cause the acquisitions of Parent Common Stock (including derivative securities with respect to such Parent Common Stock) resulting from the transactions contemplated by this Agreement by each individual who will become subject to such reporting requirements with respect to Parent to be exempt under Rule 16b‑3 promulgated under the Exchange Act. |
Section 6.5 |
Employee Matters . At the First Effective Time, Parent shall assume the employment agreements or offer letters, as the case may be, for each of the employees of the Company set forth on Section 6.5 of the Company Disclosure Letter. |
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Section 6.6Tax Matters .
(a) |
Each of Parent and the Company will (and will cause its Affiliates to) (i) use all reasonable best efforts to cause the Merger to constitute as a transaction qualifying for the Intended Tax Treatment and (ii) not take any action or fail to take any action required hereby that could reasonably be expected to prevent or impede the Merger from qualifying as a transaction qualifying for the Intended Tax Treatment. Parent shall not file (or cause its Affiliates, including the Company, to file) any U.S. federal, state or local Tax Return after the Closing Date in a manner that is inconsistent with the treatment of the Merger as a transaction qualifying for the Intended Tax Treatment for U.S. federal, state income and other relevant Tax purposes, and shall not take any inconsistent position during the course of any audit, litigation or other proceeding with respect to Taxes, in each case, unless otherwise required by a determination within the meaning of Section 1313(a) of the Code. |
(b) |
All transfer, documentary, sales, use, stamp, registration, excise, recording, registration value added and other such similar Taxes and fees (including any penalties and interest) that become payable in connection with or by reason of the execution of this Agreement and the transactions contemplated hereby shall be borne and paid by the Company. Unless otherwise required by applicable law, the Company shall timely file any Tax Return or other document with respect to such Taxes or fees (and the Company shall reasonably cooperate with respect thereto as necessary). |
(c) |
On the Closing Date, the Company shall provide Parent with a certificate on behalf of the Company, prepared in a manner consistent and in accordance with the requirements of Treasury Regulations § 1.897-2(g), (h) and 1.1445-2(c)(3), certifying that no interest in the Company is, or has been during the relevant period specified in Section 897(c)(1)(A)(ii) of the Code, a “U.S. real property interest” within the meaning of Section 897(c) of the Code, and a form of notice to the Internal Revenue Service prepared in accordance with the provisions of Treasury Regulations § 1.897-2(h)(2). |
Section 6.7 |
Joint Stockholder Information Statement/Private Placement Memorandum . Promptly after the date that Company Stockholder Approval has been obtained, and no later than the earlier of (x) 48 hours prior to the Closing, or (y) 10 days following the date that Company Stockholder Approval has been obtained, the Company and Parent shall jointly prepare, and the Company shall deliver, a joint stockholder information statement/private placement memorandum (the “PPM/Joint Information Statement”) to the Company stockholders and holders of Company Notes for purposes of (i) with respect to the Company stockholders, notifying such Company stockholders as required pursuant to Section 228(e) of the DGCL that the Company stockholders have acted by written consent in lieu of a meeting and the Company Stockholder Approval is effective and that any Company stockholder who has not signed such written consent has appraisal rights pursuant to Section 262(d)(2) of the DGCL, and (ii) serving as Parent’s private placement memorandum with respect to its issuance of Parent Common Stock in the Merger. |
Section 6.8 |
Calculation of Net Cash . No later than the close of business on the last Business Day prior to the Closing Date, Parent will deliver to the Company a schedule (the “Net Cash Schedule”) setting forth, in reasonable detail, Parent’s good faith, estimated calculation of Net Cash, including each component thereof (the “Net Cash Calculation”) as of the close of |
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business on the last Business Day prior to the Closing Date (the “Parent Closing Net Cash”) prepared and certified by Parent’s principal financial or accounting officer. Parent shall make available to the Company (electronically), as requested by the Company, the work papers and back-up materials used or useful in preparing the Net Cash Schedule and, if reasonably requested by the Company, Parent’s accountants and counsel at reasonable times and upon reasonable notice. |
Section 6.9 |
Obligations of Merger Subs . Parent will take all action necessary to cause Merger Subs to (a) perform their respective obligations under this Agreement and (b) to consummate the Merger on the terms and conditions set forth in this Agreement. |
Section 6.10Registration of Parent Common Stock . Parent shall use commercially reasonable efforts to file a registration statement covering the resale of the shares of Parent Common Stock issued pursuant to this Agreement, or issuable upon the exercise of the Assumed Options, no later than sixty (60) days following the Closing Date and cause the registration statement to become effective no later than ninety (90) days after the filing of such registration statement. Subject to customary rights to suspend or delay sales from time to time in order to update the registration statement and prospectus to correct what might otherwise constitute a material development, material misstatement or omission therefrom, Parent will use its reasonable best efforts to keep such registration statement effective until the date by which all such shares have been sold.
Section 6.11Conduct of Company Business . During the period from the Signing Date and continuing until the earlier of the Closing and termination of this Agreement pursuant to its terms or the First Effective Time (the “Pre-Closing Period”), Company agrees, except: (i) to the extent that Parent consents in writing (such consent not to be unreasonably withheld, conditioned or delayed), (ii) as set forth on Section 6.11 of the Company Disclosure Letter, or (iii) as expressly permitted by this Agreement or by applicable Laws, to carry on its business in accordance with good commercial practice and in substantially the same manner as heretofore conducted, to pay its debts and Taxes when due subject to good faith disputes over such debts or Taxes, to pay or perform other material obligations when due, and use its commercially reasonable efforts consistent with past practices and policies to preserve intact its present business organization, keep available the services of its present officers and key employees and preserve its relationships with key customers, suppliers, distributors, licensors, licensees, and others with which it has business dealings. In addition, without limiting the foregoing, other than as expressly contemplated by this Agreement, without obtaining the written consent of Parent, which shall not be unreasonably withheld, conditioned or delayed (and in which event, if Parent has not objected in writing to any request for consent within three (3) calendar days of its receipt thereof, such consent shall be deemed irrevocably granted), Company will not, and will not permit its Subsidiaries to, do any of the following:
(a)amend or otherwise change its certificate of incorporation or bylaws, or otherwise alter its corporate structure through merger, liquidation, reorganization or otherwise;
(b)issue, sell, pledge, dispose of or encumber, or authorize the issuance, sale, pledge, disposition or encumbrance of, any shares of capital stock of any class, or any options, warrants, convertible securities or other rights of any kind to acquire any shares of capital stock, or any other ownership interest (including, without limitation, any phantom interest), except (i) for
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equity awards to Company employees, officers or directors pursuant to the Company Option Plan, (ii) for the issuance of shares of Company Common Stock issuable pursuant to employee stock options under the Company Option Plan, which options are outstanding on the date hereof, and (iii) as contemplated pursuant to the terms and conditions of the Debt Settlement Agreements;
(c)redeem, repurchase or otherwise acquire, directly or indirectly, any shares of Company Common Stock (other than pursuant a repurchase right in favor of the Company with respect to unvested shares at no more than cost);
(d)incur any Indebtedness or sell any debt securities or guarantee any debt securities or other obligations of others or sell, pledge, dispose of or create any Liens over any assets (except (i) for sales of assets in the ordinary course of business and in a manner consistent with past practice, (ii) for dispositions of obsolete or worthless assets, or (iii) Permitted Liens);
(e)(i) declare, set aside, make or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of any of the Company Common Stock or Company Notes, (ii) split, combine or reclassify any of the Company Common Stock or issue or authorize or propose the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or (iii) amend the terms of, repurchase, redeem or otherwise acquire, any of its securities or propose to do any of the foregoing;
(f)sell, assign, transfer, license, sublicense or otherwise dispose of any Company Registered IP or rights thereto (other than non-exclusive licenses in the ordinary course of business consistent with past practice);
(g)except as contemplated pursuant to the terms and conditions of the Debt Settlement Agreements or as contemplated pursuant to Section 6.11(b), (i) acquire (by merger, consolidation, or acquisition of stock or assets) any corporation, partnership or other business organization or division thereof or any other material property or assets; (ii) enter into or amend any material terms of any Company Contract or grant any release or relinquishment of any material rights under any Company Contract, with new material obligations or losses of material rights (with written notice provided by the Company to Parent prior to amending or entering into any such Company Contract with new material obligations or losses of material rights); (iii) authorize any material capital expenditures or material purchase of fixed assets; or (iv) enter into or amend any contract, agreement, commitment or arrangement to effect any of the matters prohibited by this Section 6.11(g);
(h)forgive any loans to any Person, including its employees, officers, directors or Affiliates;
(i)take any action, other than as required by applicable Laws or GAAP, to change accounting policies or procedures;
(j)make or change any material Tax election inconsistent with past practices, adopt or change any Tax accounting method, or settle or compromise any material federal, state, local or foreign Tax liability or agree to an extension of a statute of limitations for any assessment of any Tax;
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(k)pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business and consistent with past practice;
(l)enter into any material partnership arrangements, joint development agreements or strategic alliances;
(m)initiate any Action or settle or agree to settle any Action where the Company is claiming, or would be reasonably likely to receive or become obligated for a liability, of more than $100,000 individually; or
(n)take, or agree in writing or otherwise to take, any of the actions described in Sections 6.11(a) through (m) above.
Section 6.12Conduct of Parent Business . During the Pre-Closing Period, Parent agrees, except: (i) to the extent that Company consents in writing (such consent not to be unreasonably withheld, conditioned or delayed), (ii) as set forth on Section 6.12 of the Parent Disclosure Letter, or (iii) as expressly permitted by this Agreement or by applicable Laws, to carry on its business in accordance with good commercial practice and in substantially the same manner as heretofore conducted, to pay its debts and Taxes when due subject to good faith disputes over such debts or Taxes, to pay or perform other material obligations when due, and use its commercially reasonable efforts consistent with past practices and policies to preserve intact its present business organization, preserve its relationships with key customers, suppliers, distributors, licensors, licensees and others with which it has business dealings. In addition, without limiting the foregoing, other than as expressly contemplated by this Agreement, without obtaining the written consent of Company, which shall not be unreasonably withheld, conditioned or delayed (and in which event, if Company has not objected in writing to any request for consent within three (3) calendar days of its receipt thereof, such consent shall be deemed irrevocably granted), Parent will not, and will not permit its Subsidiaries to, do any of the following:
(a)amend or otherwise change its certificate of incorporation or bylaws, or otherwise alter its corporate structure through merger, liquidation, reorganization or otherwise, or form any subsidiary, except pursuant to the Reverse Stock Split Proposal, as such term is defined and described in the proxy statement filed with the SEC by Parent on August 29, 2022 (the “Reverse Stock Split Proposal”);
(b)issue, sell, pledge, dispose of or encumber, or authorize the issuance, sale, pledge, disposition or encumbrance of, any shares of capital stock of any class, or any options, warrants, convertible securities or other rights of any kind to acquire any shares of capital stock, or any other ownership interest (including, without limitation, any phantom interest), other than (i) equity awards to Parent employees, officers or directors pursuant to the Parent Plans, (ii) the issuance of shares of Parent Common Stock issuable pursuant to employee stock options under the Parent Plans or pursuant to currently outstanding warrants or other rights to convert into or exercise for shares of Parent Common Stock, as the case may be, which options, warrants or rights, as the case may be, are outstanding on the date hereof, or (iii) the issuance of shares of Parent Common Stock and/or securities convertible or exercisable into shares of Parent Common Stock in connection with a Parent Financing;
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(c)redeem, repurchase or otherwise acquire, directly or indirectly, any shares of Parent Common Stock;
(d)incur any Indebtedness or sell, pledge, dispose of or create any Liens over any assets (except (i) for sales of assets in the ordinary course of business and in a manner consistent with past practice, (ii) for dispositions of obsolete or worthless assets, or (iii) Permitted Liens);
(e)accelerate, amend or change the period (or permit any acceleration, amendment or change) of exercisability of options or warrants or authorize cash payments in exchange for any options, except as may be required under any Parent Plans, Contract, this Agreement or applicable Laws;
(f)(i) declare, set aside, make or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of any Parent Common Stock, except that a wholly owned Subsidiary may declare and pay a dividend to Parent, (ii) split, combine or reclassify any Parent Common Stock or issue or authorize or propose the issuance of any other securities in respect of, in lieu of or in substitution for shares of Parent Common Stock or (iii) amend the terms of, repurchase, redeem or otherwise acquire, or permit any Subsidiary to repurchase, redeem or otherwise acquire, any of its securities or any securities of its Subsidiaries, or propose to do any of the foregoing;
(g)sell, assign, transfer, license, sublicense or otherwise dispose of any Parent Registered IP or rights thereto (other than non-exclusive licenses in the ordinary course of business consistent with past practice);
(h)(i) acquire (by merger, consolidation, or acquisition of stock or assets) any corporation, partnership or other business organization or division thereof or any other material property or assets; (ii) enter into or amend any material terms of any Parent Contract or grant any release or relinquishment of any material rights under any Parent Contract, with new material obligations or losses of material rights; (iii) authorize any material capital expenditures or material purchase of fixed assets; or (iv) enter into or amend any contract, agreement, commitment or arrangement to effect any of the matters prohibited by this Section 6.12(h);
(i)forgive any loans to any Person, including its employees, officers, directors or Affiliates;
(j)(i) increase the wages, salary, commissions, fringe benefits or other compensation or remuneration payable or to become payable to its directors, officers, employees or consultants; (ii) grant any severance pay, termination pay, or change of control payments to any director, officer, employee or consultant, or amend any employment or severance agreement with any director, officer, employee or consultant;
(k)hire or terminate any directors or officers;
(l)take any action, other than as required by applicable Laws or GAAP, to change accounting policies or procedures;
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(m)make or change any material Tax election inconsistent with past practices, adopt or change any Tax accounting method, or settle or compromise any material federal, state, local or foreign Tax liability or agree to an extension of a statute of limitations for any assessment of any Tax;
(n)pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business and consistent with past practice;
(o)enter into any material partnership arrangements, joint development agreements or strategic alliances;
(p)modify Parent’s customary accounting or treatment of, any receivables outside the ordinary course of business consistent with past practice,
(q)initiate any Action or settle or agree to settle any Action where Parent is claiming, or would be reasonably likely to receive or become obligated for a liability, of more than $100,000 individually (other than as contemplated by Section 7.1(d));
(r)after the Net Cash Calculation is finalized pursuant to Section 6.8, dispose of any assets or otherwise take any actions other than in the ordinary course of business consistent with past practice so as to cause the final Net Cash Calculation to differ materially from actual Parent Closing Net Cash;
(s)take any action that would cause the representation in Section 5.6(j) to become inaccurate; or
(t)take, or agree in writing or otherwise to take, any of the actions described in Sections 6.12(a) through 6.12(s) above.
Section 6.13Additional Covenants of Parent . During the Pre-Closing Period, Parent agrees in good faith to:
(a)comply with the terms of the Corporate Integrity Agreement between the Office of Inspector General of the Department of Health and Human Services and Parent, dated December 21, 2020 (the “Corporate Integrity Agreement”); and obtain, pursuant to the Successor Liability provisions in Section IV of the Corporate Integrity Agreement, a letter agreement (the “HHS Confirmation”) from the Office of Inspector General of the Department of Health and Human Services notifying Parent that the Surviving Company will not be subject to the requirements of the Corporate Integrity Agreement; and
(b)comply with the terms of the Settlement Agreement between the Department of Justice and Parent, dated December 28, 2020 (the “DOJ Settlement Agreement”), regarding the investigations and a related civil action concerning Parent’s marketing of the DABRA laser system and DABRA-related remuneration to certain physicians, as disclosed in the Parent SEC Documents, including the provisions applicable to a Change in Control Transaction, as such term is defined in the DOJ Settlement Agreement.
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Section 6.14Reasonable Best Efforts Covenant to Obtain Financing and Deliver Net Cash . Parent and the Merger Subs covenant to use their reasonable best efforts to pursue and consummate one or more financings with respect to Parent and/or take such additional steps as shall be necessary to enable Parent to deliver Parent Closing Net Cash equal to or greater than $8,000,000, to the extent not inconsistent with applicable fiduciary duties.
Article VII
CONDITIONS TO CLOSING
Section 7.1 |
Conditions to Each Party’s Obligation to Effect the Merger . The obligation of each party to effect the Merger and otherwise consummate the transactions contemplated by this Agreement at the Closing is subject to the satisfaction at or prior to the First Effective Time of the following conditions: |
(a) |
No Injunctions or Legal Restraints; Illegality. No temporary restraining order, preliminary or permanent injunction or other judgment, order or decree issued by any court of competent jurisdiction or other legal restraint or prohibition shall be in effect, and no Law shall have been enacted, entered, promulgated, enforced or deemed applicable by any Governmental Entity that, in any such case, prohibits or makes illegal the consummation of the Merger and the transactions contemplated by this Agreement. |
(b) |
Exchange Agent Agreement. As of the Closing Date, Parent shall have entered into an exchange agent agreement with the Exchange Agent pertaining to the exchange of shares of Company Common Stock for shares of Parent Common Stock as contemplated hereby, including a form of letter of transmittal, in form and substance satisfactory to the Company. |
(c) |
Corporate Integrity Agreement. As of the Closing Date, the HHS Confirmation shall continue to be in effect. |
(d) |
Parent Cash. Parent shall have satisfied its Transaction Expenses and Parent has, as set forth in the Net Cash Schedule, Parent Closing Net Cash greater than $8,000,000. |
(e) |
Parent Board of Directors. The number of directors that comprise the full Board of Directors of Parent shall be five (5) and David Jenkins shall be appointed to the Board of Directors of Parent as the Executive Chairman, in each case effective as of the First Effective Time. |
(f) |
Executive Chairman Agreement. As of the Closing Date, Parent shall have entered into an agreement with David Jenkins with respect to his appointment to the Board of Directors of Parent, in form and substance satisfactory to David Jenkins (the “Executive Chairman Agreement”), pursuant to which Parent shall agree to provide David Jenkins with an annual salary of $300,000, among other things. |
(g) |
Price of Parent Common Stock. As of the Closing Date, each of the following shall be equal to or greater than $0.09 (as adjusted for the Reverse Stock Split (as such term is defined and described in the proxy statement filed with the SEC by Parent on August 29, 2022)): (x) the last closing sale price per share for Parent Common Stock prior to 4:00 p.m. (New York City time) on the last Trading Day prior to the Closing Date, as reported by Bloomberg; and |
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(y) the average of the last closing sale price per share for Parent Common Stock prior to 4:00 p.m. (New York City time) on each of the five (5) consecutive full Trading Days ending on the last Trading Day immediately prior to such Closing Date. |
(h) |
NYSE American Matters. As of the Closing Date, Parent shall have not received any correspondence from NYSE American or the staff thereof relating to the delisting or maintenance of listing of the Parent Common Stock on NYSE American, other than the letter dated August 31, 2022, and Company shall have received assurance in form and substance satisfactory to it that the Merger or the transactions contemplated by this Agreement will not cause Parent to be delisted from NYSE American. |
(i) |
Debt Settlement Agreements. As of the Closing Date, the Company shall have entered into a Debt Settlement Agreement with each of the holders of the Company Notes set forth on Schedule I hereto. |
(j) |
Lock-Up Agreements. As of the Closing Date, each of the Persons listed on Section A of the Company Disclosure Letter and Section B of the Parent Disclosure Letter shall have executed and delivered a Lock-Up Agreement to the Company and Parent, respectively. |
(k) |
Litigation Matters. As of the Closing Date, all threatened or pending litigation against or involving the Parent or Merger Subs shall have been addressed in a manner, and/or shall be in a litigation posture, that is acceptable to the Company. |
(l) |
Real Estate Matters. As of the Closing Date, the Parent shall have sublet or terminated the Standard Industrial/Commercial Single-Tenant Lease-Gross, dated November 24, 1987, between the Parent and Lloyd Wells Gift Trust, with respect to the Parent’s corporate headquarters and manufacturing facility in Carlsbad, California (the “Lease Modification”). |
(m) |
Company Stockholder Approval. The Company shall have obtained the Company Stockholder Approval. |
(n) |
Delivery of PPM/Joint Information Statement. The Company shall have delivered the PPM/Joint Information Statement to the Company stockholders and holders of Company Notes in accordance with Section 6.7. |
(o) |
Representations and Warranties of Parent. The representations and warranties of the Parent set forth in this Agreement shall be true and correct as of the date hereof and as of the Closing Date as though made on and as of the Closing Date (except to the extent such representations and warranties are specifically made as of a particular date, in which case such representations and warranties shall be true and correct as of such date), in each case, except where the failure to be true and correct, individually or in the aggregate, has not had, and is not reasonably likely to have a Parent Material Adverse Effect; and the Company shall have received a certificate signed on behalf of the Parent by the chief executive officer of the Parent to such effect (the “Parent Bring-Down Certificate”). |
(p) |
Representations and Warranties of Company. The representations and warranties of the Company set forth in this Agreement shall be true and correct as of the date hereof and as of the Closing Date as though made on and as of the Closing Date (except to the |
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extent such representations and warranties are specifically made as of a particular date, in which case such representations and warranties shall be true and correct as of such date), in each case, except where the failure to be true and correct, individually or in the aggregate, has not had, and is not reasonably likely to have a Material Adverse Effect; and the Parent shall have received a certificate signed on behalf of the Company by the chief executive officer of the Company to such effect (the “Company Bring-Down Certificate”). |
(q) |
Change in Control Payment and Release Agreements. As of the Closing Date, the Parent shall have entered into a Change in Control Payment and Release Agreement with each individual associated with the McGuire Payment, the Folk Payment, the Memmolo Payment and the Sessions Payment, respectively, in form and substance satisfactory to the Company (collectively, the “Payment and Release Agreements”). |
Section 7.2 |
Closing Deliveries of the Company . The obligations of Parent and Merger Subs to effect the Merger and otherwise consummate the transactions to be consummated at the Closing are subject to Parent receiving the following documents, each of which shall be in full force and effect, or the written waiver by Parent of delivery: |
(a) |
the Company Stockholder Approval certified by the Chief Executive Officer of the Company; |
(b) |
the Company Lock-Up Agreements; |
(c) |
Debt Settlement Agreements with respect to each of the Company Notes; and |
(d) |
The Company Bring-Down Certificate. |
Section 7.3 |
Closing Deliveries of Parent . The obligations of the Company to effect the Merger and otherwise consummate the transactions to be consummated at the Closing are subject to the Company receiving the following documents, each of which shall be in full force and effect, or the written waiver by the Company of delivery: |
(a) |
the Parent Lock-Up Agreements; |
(b) |
the Parent Support Agreements; |
(c) |
the HHS Confirmation; |
(d) |
the Executive Chairman Agreement; |
(e) |
the Lease Modification; |
(f) |
the Payment and Release Agreements; |
(g) |
(x) the Net Cash Schedule and (y) the Parent Closing Net Cash in excess of $8,000,000; and |
(h) |
the Parent Bring-Down Certificate. |
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Article VIII
TERMINATION
Section 8.1Termination . This Agreement may be terminated at any time prior to the Closing:
(a) |
by the mutual written consent of Parent and the Company; |
(b) |
by either Parent or the Company, by written notice from such party to the other party, if the Closing shall not have occurred by December 31, 2022; provided, however, that the right to terminate this Agreement under this Section 8.1(b) shall not be available to such party if the failure of such party to fulfill any of its obligations under this Agreement shall have been the principal cause of, or shall have resulted in, the failure of the Closing to occur on or prior to such date and such failure constitutes a breach of this Agreement by such party; |
(c) |
by the Company, by written notice from the Company to Parent, if: (i) the conditions set forth in Article VII are not capable of being satisfied or (ii) Parent, First Merger Sub or Second Merger Sub shall have breached any of the representations or warranties set forth in Article V or the covenants set forth in Article VI, and in the case of clause (ii), such breach is incapable of being cured or, if capable of being cured, is not cured by Parent, First Merger Sub or Second Merger Sub prior to the earlier of: (x) ten (10) days after receipt of written notice thereof from the Company or (y) the date of the Parent Stockholder Meeting; |
(d) |
by Parent, by written notice from Parent to the Company, if: the Company shall have breached any of the representations or warranties set forth in Article IV or the covenants set forth in Article VI, and such breach is incapable of being cured or, if capable of being cured, is not cured by the Company prior to the earlier of: (x) ten (10) days after receipt of written notice thereof from Parent or (y) the date of the Parent Stockholder Meeting; or |
(e) |
by Parent, by written notice from Parent to the Company, or the Company, by written notice from the Company to Parent, if: (i) any Governmental Entity shall have issued a judgment, order, decree or taken any other Action permanently restraining, enjoining or otherwise prohibiting the Merger or the transactions contemplated by this Agreement and such judgment, order, decree or Action shall have become final and non-appealable; or (ii) any Law shall have been enacted, issued or promulgated which has the effect of making consummation of the Merger or the transactions contemplated by this Agreement illegal or otherwise prohibits consummation of the Merger or the transactions contemplated by this Agreement. |
Section 8.2Effect of Termination . If this Agreement is terminated pursuant to this Section 8.1, this Agreement shall forthwith become null and void and have no further effect, and there shall be no liability or obligation on the part of Parent, Merger Subs, the Company, any of their respective Affiliates, or any of their respective officers, directors, equityholders, managers or partners, and all rights and obligations of the parties hereunder shall cease; provided, however, that notwithstanding the foregoing: (a) the provisions of (i) the Confidentiality Agreement dated June 15, 2022 by and between Parent and the Company (“Confidentiality Agreement”) and (ii) this Section 8.2 and Article IX (excluding Section 9.13) shall survive the termination of this Agreement and shall continue in full force and effect in accordance with their terms; and (b) nothing herein
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shall relieve any party hereto from liability for damages incurred or suffered by any other party hereto as a result of any knowing and willful misrepresentations by such party, or knowing and willful breach by such party of any of its covenants or other agreements set forth in this Agreement prior to the time of such termination.
Article IX
GENERAL PROVISIONS
Section 9.1 |
Non-survival of Representations and Warranties . None of the representations, warranties, covenants or agreements in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the First Effective Time, other than those covenants or agreements of the parties which by their terms apply, or are to be performed in whole or in part, after the First Effective Time. |
Section 9.2 |
Amendment or Supplement . This Agreement may be amended, modified or supplemented by the parties by action taken or authorized by their respective Boards of Directors at any time, whether before or after Company Stockholder Approval or the Parent Stockholder Approval has been obtained; provided, however, that after the Company Stockholder Approval or the Parent Stockholder Approval has been obtained, no amendment shall be made that pursuant to applicable Law requires further approval or adoption by the stockholders of the Company or Parent, as applicable, without such further approval or adoption. This Agreement may not be amended, modified or supplemented in any manner, whether by course of conduct or otherwise, except by an instrument in writing specifically designated as an amendment hereto, signed on behalf of each of the parties in interest at the time of the amendment. |
Section 9.3 |
Waiver . The parties may, by action taken or authorized by their respective Boards of Directors, to the extent permitted by applicable Law, waive compliance with any of the agreements or conditions of the other parties contained herein; provided, however, that after the Company Stockholder Approval or the Parent Stockholder Approval has been obtained, no waiver may be made that pursuant to applicable Law requires further approval or adoption by the stockholders of the Company or Parent, as applicable, without such further approval or adoption. Any agreement on the part of a party to any such waiver shall be valid only if set forth in a written instrument executed and delivered by a duly authorized officer on behalf of such party. No failure or delay of any party in exercising any right or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such right or power, or any course of conduct, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the parties hereunder are cumulative and are not exclusive of any rights or remedies which they would otherwise have hereunder. |
Section 9.4 |
Fees and Expenses . Except as otherwise set forth in this Agreement, all fees and expenses incurred in connection with this Agreement, the Merger and the other transactions contemplated hereby shall be paid by the party incurring such fees or expenses. |
Section 9.5 |
Notices . All notices and other communications hereunder shall be in writing and shall be deemed duly given (a) on the date of delivery if delivered personally, or if by |
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e‑mail, upon written confirmation of receipt by e‑mail or otherwise, (b) on the first Business Day following the date of dispatch if delivered utilizing a next-day service by a recognized next-day courier or (c) on the earlier of confirmed receipt or the fifth Business Day following the date of mailing if delivered by registered or certified mail, return receipt requested, postage prepaid. All notices hereunder shall be delivered to the addresses set forth below, or pursuant to such other instructions as may be designated in writing by the party to receive such notice: |
(i)if to Parent, Merger Subs or the Surviving Company, to:
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Ra Medical Systems, Inc. 2070 Las Palmas Drive Carlsbad, California 92011 Attention: |
Jonathan Will McGuire E-mail: wmcguire@ramed.com |
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with a copy (which shall not constitute notice) to:
Wilson Sonsini Goodrich & Rosati, P.C.
12235 El Camino Real
San Diego, California 92130
Attention: Martin J. Waters
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Eric Y. Hsu E-mail: mwaters@wsgr.com |
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(ii)if to Company, to:
Catheter Precision, Inc.
500 International Drive
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Mt. Olive, New Jersey Attention: |
David A. Jenkins E-mail:djenkins@catheterprecision.com |
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Sean P. Fogarty
with a copy (which shall not constitute notice) to:
Arnall Golden Gregory LLP
171 17th Street NW, Suite 2100
Atlanta, Georgia 30363
Attention: Sean P. Fogarty
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E-mail: |
sean.fogarty@agg.com |
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Section 9.6Certain Definitions . For purposes of this Agreement:
(a) |
“Affiliate” of any Person means any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first Person; |
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(b) |
“Business Day” means any day other than a Saturday, a Sunday or a day on which banks in New York, New York are authorized or required by applicable Law to be closed; |
(c) |
“Cash and Cash Equivalents” means all: (a) cash and cash equivalents (i.e., short-term, highly liquid investments that are readily convertible to known amounts of cash and which (i) are subject to an insignificant risk of changes in value, and (ii) have a short maturity of three (3) months or less from the date of acquisition (with equity investments excluded from the definition of “cash equivalents”); and (b) marketable securities, in each case determined in accordance with GAAP, excluding any equity investments. |
(d) |
“Company Owned IP” means all Intellectual Property owned by the Company or any of its Subsidiaries in whole or in part. |
(e) |
“control” (including the terms “controlled,” “controlled by” and “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. |
(f) |
“Indebtedness” means, with respect to any Person, (i) all obligations of such Person for borrowed money, or with respect to unearned advances of any kind to such Person, (ii) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (iii) all capitalized lease obligations of such Person, (iv) all obligations of such Person under installment sale contracts, (v) all guarantees and arrangements having the economic effect of a guarantee of such Person of any Indebtedness of any other Person, (vi) all obligations or undertakings of such Person to maintain or cause to be maintained the financial position of others or to purchase the obligations of others and (vii) all defined benefit pension, multiemployer pension, post-retirement health and welfare benefit, accrued annual or other bonus obligations, any unpaid severance liabilities currently being paid or payable in respect of employees and service providers of the Company or any of its Subsidiaries who terminated employment or whose services to the Company or any of its Subsidiaries have ceased (as applicable) prior to the Closing and deferred compensation liabilities of the Company or any of its Subsidiaries, together, in each case, with any associated employer payroll taxes. |
(g) |
“Intellectual Property” means all intellectual property rights of any kind or nature in any jurisdiction throughout the world, including all of the following to the extent protected by applicable law: (i) trademarks or service marks (whether registered or unregistered), trade names, domain names, social media user names, social media addresses, logos, slogans, and trade dress, including applications to register any of the foregoing, together with the goodwill symbolized by any of the foregoing; (ii) patents, utility models and any similar or equivalent statutory rights with respect to the protection of inventions, and all applications for any of the foregoing, together with all re-issuances, continuations, continuations-in-part, divisionals, revisions, extensions and reexaminations thereof; (iii) copyrights (registered and unregistered) and applications for registration; (iv) trade secrets and customer lists, in each case to the extent any of the foregoing derives economic value (actual or potential) from not being generally known to other Persons who can obtain economic value from its disclosure or use, and other confidential information (“Trade Secrets”); and (v) any other proprietary or intellectual property rights of any kind or nature. |
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(h) |
“knowledge” of any party means (i) the actual knowledge of any executive officer of such party or other officer having primary responsibility for the relevant matter or (ii) any fact or matter which any such officer of such party could be expected to discover or otherwise become aware of in the course of conducting a reasonably comprehensive investigation, consistent with such officer’s title and responsibilities, concerning the existence of the relevant matter. |
(i) |
“NYSE American” means NYSE American LLC. |
(j) |
“Net Cash” means the amount, whether positive or negative, without duplication, (i) of Parent’s Cash and Cash Equivalents determined, to the extent in accordance with GAAP, in a manner consistent with the manner in which such items were historically determined and in accordance with the financial statements (including any related notes) contained or incorporated by reference in the Parent SEC Documents and the Parent Balance Sheet, minus (ii) the sum of Parent’s consolidated short-term and long-term contractual obligations payable in cash accrued at the Closing Date (but excluding deferred revenue), minus (iii) fees and expenses of Parent incurred in connection with the transactions contemplated hereby, including for the avoidance of doubt, Transaction Expenses, to the extent unpaid as of the Closing, minus (iv) to the extent payable in cash at Closing, any and all liabilities of Parent whatsoever, including, but not limited to: (I) to any current or former Parent or any of its Subsidiaries officer, director, employee, consultant or independent contractor (including the McGuire Payment, the Folk Payment, the Memmolo Payment, the Sessions Payment, change of control payments, retention payments, severance and other employee-, consultant- or independent contractor-related termination costs, or other payments), or (II) pursuant to any Parent Plan, including deferred compensation accrued but unpaid bonuses and accrued but unpaid vacation or paid time off (including related employer employment taxes on all the foregoing), plus (vi) all prepaid expenses set forth on Section 9.6(j) of the Parent Disclosure Letter, plus (vii) any net proceeds, calculated, to the extent in accordance with GAAP, in a manner consistent with the Parent’s accounting practices, from the sale or license of Parent’s legacy assets, technology and intellectual property, as set forth on Section 9.6(j) of the Parent Disclosure Letter, minus (viii) the aggregate costs associated with obtaining the “D&O tail policy” pursuant to Section 6.3(d) hereof, minus (ix) any cash Tax liability in respect of accrued and unpaid Taxes of Parent and its Subsidiaries for the Tax periods (or pre-Closing portions thereof) ending on December 31, 2020 and December 31, 2021, in each case, taking into account overpayments, refunds, and credits, as applicable. |
(k) |
“Parent Balance Sheet” means the audited balance sheet of Parent as of December 31, 2021, included in Parent’s Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC. |
(l) |
“Parent Owned IP” means all Intellectual Property owned by Parent or any of its Subsidiaries in whole or in part; |
(m) |
“Person” means an individual, corporation, partnership, limited liability company, association, trust or other entity or organization, including any Governmental Entity; |
(n) |
“Representative” means a party’s directors, officers, employees, investment bankers, financial advisors, attorneys, accountants or other advisors, agents or representatives. |
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(o) |
“SEC” means the Securities and Exchange Commission. |
(p) |
“Subsidiary” means, with respect to any Person, any other Person of which stock or other equity interests having ordinary voting power to elect more than 50% of the board of directors or other governing body are owned, directly or indirectly, by such first Person; |
(q) |
“Tax Return” means any return, declaration, report, certificate, bill, election, claim for refund, information return, statement or other written information and any other document filed or supplied or required to be filed or supplied to any Governmental Entity or any other Person with respect to Taxes, including any schedule, attachment or supplement thereto, and including any amendment thereof; and |
(r) |
“Taxes” (i) means all federal, state, local, foreign and other net income, gross income, gross receipts, sales, use, stock, ad valorem, transfer, transaction, franchise, profits, gains, registration, license, wages, lease, service, service use, employee and other withholding, social security, unemployment, welfare, disability, payroll, employment, excise, severance, stamp, occupation, workers’ compensation, premium, real property, personal property, escheat or unclaimed property, windfall profits, net worth, capital, value-added, alternative or add-on minimum, customs duties, estimated and other taxes, fees, assessments, charges or levies of any kind whatsoever (whether imposed directly or through withholding and including taxes of any third party in respect of which a Person may have a duty to collect or withhold and remit and any amounts resulting from the failure to file any Tax Return), whether disputed or not, together with any interest and any penalties, additions to tax or additional amounts with respect thereto. |
(s) |
“Transaction Expenses” means the aggregate amount (without duplication) of all costs, fees and expenses incurred by Parent or any of its Subsidiaries (including Merger Subs), or for which Parent or any of its Subsidiaries are or may become liable in connection with the transactions contemplated hereby and the negotiation, preparation and execution of this Agreement or any other agreement, document, instrument, filing, certificate, schedule, exhibit, letter or other document prepared or executed in connection with the transactions contemplated hereby, including (a) any fees and expenses of legal counsel and accountants, the maximum amount of fees and expenses payable to financial advisors, investment bankers (including Ladenburg Thalmann & Co.), brokers, consultants, tax advisors, transfer agents, proxy solicitor and other advisors of Parent and (b) any bonus, retention payments, severance, change-in-control payments or similar payment obligations (including payments with “single-trigger” provisions triggered at and as of the consummation of the transactions contemplated hereby) that become due or payable to any director, officer, employee or consultant in connection with the consummation of the transactions contemplated hereby, including any amounts paid or payable to (i) Jonathan Will McGuire as a result of the Merger, including pursuant to his Change in Control and Severance Agreement, dated March 30, 2022, or his Offer Letter dated March 6, 2022, together with any payroll Taxes associated therewith (the “McGuire Payment”), (ii) Chris Folk as a result of the Merger, including pursuant to his Change in Control and Severance Agreement, dated January 13, 2020, together with any payroll Taxes associated therewith (the “Folk Payment”), (iii) Al Memmolo as a result of the Merger, including pursuant to his Change in Control and Severance Agreement, dated January 2, 2020, together with any payroll Taxes associated therewith (the “Memmolo Payment”), and (iv) Maria Sessions as a result of the Merger, including pursuant to her Change in Control and Severance Agreement, dated March 15, 2021, together with any payroll |
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Taxes associated therewith (the “Sessions Payment”); provided, however, that Transaction Expenses shall specifically exclude the value of any settlement or judgment that is awarded post-Closing relating to stockholder litigation arising out of or in connection with the transactions contemplated by this Agreement; provided, further, that Transaction Expenses shall specifically include any amounts paid or payable by Parent pursuant to the DOJ Settlement Agreement as a result of the Merger. |
Section 9.7 |
Interpretation . When a reference is made in this Agreement to a Section, Article, Exhibit or Schedule such reference shall be to a Section, Article, Exhibit or Schedule of this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement or in any Exhibit or Schedule are for convenience of reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. All words used in this Agreement will be construed to be of such gender or number as the circumstances require. Any capitalized terms used in any Exhibit or Schedule but not otherwise defined therein shall have the meaning as defined in this Agreement. All Exhibits and Schedules annexed hereto or referred to herein are hereby incorporated in and made a part of this Agreement as if set forth herein. The word “including” and words of similar import when used in this Agreement will mean “including, without limitation,” unless otherwise specified. The words “hereof,” “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to the Agreement as a whole and not to any particular provision in this Agreement. The term “or” is not exclusive. The word “will” shall be construed to have the same meaning and effect as the word “shall.” References to days mean calendar days unless otherwise specified. |
Section 9.8 |
Entire Agreement . This Agreement (including the Exhibits hereto), the Company Disclosure Letter, the Parent Disclosure Letter and the Confidentiality Agreement constitute the entire agreement, and supersede all prior written agreements, arrangements, communications and understandings and all prior and contemporaneous oral agreements, arrangements, communications and understandings among the parties with respect to the subject matter hereof and thereof. |
Section 9.9No Third Party Beneficiaries .
(a) |
Nothing in this Agreement, express or implied, is intended to or shall confer upon any Person other than the parties and their respective successors and permitted assigns any legal or equitable right, benefit or remedy of any nature under or by reason of this Agreement, except as provided in Section 6.3. |
(b) |
The representations and warranties in this Agreement are the product of negotiations among the parties hereto and are for the sole benefit of the parties hereto. Any inaccuracies in such representations and warranties are subject to waiver by the parties hereto in accordance with Section 9.3 without notice or liability to any other Person. In some instances, the representations and warranties in this Agreement may represent an allocation among the parties hereto of risks associated with particular matters regardless of the knowledge of any of the parties hereto. Consequently, Persons other than the parties hereto may not rely upon the representations and warranties in this Agreement as characterizations of actual facts or circumstances as of the date of this Agreement or as of any other date. |
Section 9.10 |
Governing Law . This Agreement and all disputes or controversies arising out of or relating to this Agreement or the transactions contemplated hereby shall be governed by, |
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and construed in accordance with, the internal laws of the State of Delaware, without regard to the laws of any other jurisdiction that might be applied because of the conflicts of laws principles of the State of Delaware. |
Section 9.11 |
Submission to Jurisdiction . Each of the parties irrevocably agrees that any legal action or proceeding arising out of or relating to this Agreement brought by any party or its Affiliates against any other party or its Affiliates shall be brought and determined in the Court of Chancery of the State of Delaware; provided, that if jurisdiction is not then available in the Court of Chancery of the State of Delaware, then any such legal action or proceeding may be brought in any federal court located in the State of Delaware or any other Delaware state court. Each of the parties hereby irrevocably submits to the jurisdiction of the aforesaid courts for itself and with respect to its property, generally and unconditionally, with regard to any such action or proceeding arising out of or relating to this Agreement and the transactions contemplated hereby. Each of the parties agrees not to commence any action, suit or proceeding relating thereto except in the courts described above in Delaware, other than actions in any court of competent jurisdiction to enforce any judgment, decree or award rendered by any such court in Delaware as described herein. Each of the parties further agrees that notice as provided herein shall constitute sufficient service of process and the parties further waive any argument that such service is insufficient. Each of the parties hereby irrevocably and unconditionally waives, and agrees not to assert, by way of motion or as a defense, counterclaim or otherwise, in any action or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby, (a) any claim that it is not personally subject to the jurisdiction of the courts in Delaware as described herein for any reason, (b) that it or its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such courts (whether through service of notice, attachment prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise) and (c) that (i) the suit, action or proceeding in any such court is brought in an inconvenient forum, (ii) the venue of such suit, action or proceeding is improper or (iii) this Agreement, or the subject matter hereof, may not be enforced in or by such courts. |
Section 9.12 |
Assignment; Successors . Neither this Agreement nor any of the rights, interests or obligations under this Agreement may be assigned or delegated, in whole or in part, by operation of law or otherwise, by any party without the prior written consent of the other parties, and any such assignment without such prior written consent shall be null and void. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns. |
Section 9.13 |
Specific Performance . The parties agree that irreparable damage would occur in the event that the parties hereto do not perform the provisions of this Agreement in accordance with its terms or otherwise breach such provisions. Accordingly, the parties acknowledge and agree that each party shall be entitled to an injunction, specific performance and other equitable relief to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in the Court of Chancery of the State of Delaware, provided, that if jurisdiction is not then available in the Court of Chancery of the State of Delaware, then in any federal court located in the State of Delaware or any other Delaware state court, this being in addition to any other remedy to which such party is entitled at law or in equity. Each of the parties hereby further waives (a) any defense in any action for specific performance that a remedy at law |
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would be adequate and (b) any requirement under any law to post security as a prerequisite to obtaining equitable relief. |
Section 9.14 |
Currency . All references to “dollars” or “$” or “US$” in this Agreement refer to United States dollars, which is the currency used for all purposes in this Agreement. |
Section 9.15 |
Severability . Whenever possible, each provision or portion of any provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable Law, but if any provision or portion of any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable Law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or portion of any provision in such jurisdiction, and this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision or portion of any provision had never been contained herein. |
Section 9.16 |
Waiver of Jury Trial . EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. |
Section 9.17 |
Counterparts . This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same instrument and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party. |
Section 9.18 |
Facsimile or .pdf Signature . This Agreement may be executed by facsimile or .pdf signature and a facsimile or .pdf signature shall constitute an original for all purposes. |
Section 9.19 |
No Presumption Against Drafting Party . Each of Parent, the Merger Subs and the Company acknowledges that each party to this Agreement has been represented by counsel in connection with this Agreement and the transactions contemplated by this Agreement. Accordingly, any rule of law or any legal decision that would require interpretation of any claimed ambiguities in this Agreement against the drafting party has no application and is expressly waived. |
[The remainder of this page is intentionally left blank.]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized.
RA MEDICAL SYSTEMS, INC. |
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By: |
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/s/ Jonathan Will McGuire |
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Name: Jonathan Will McGuire |
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Title: Chief Executive Officer |
RAPID MERGER SUB 1, INC. |
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By: |
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/s/ Jonathan Will McGuire |
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Name: Jonathan Will McGuire |
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Title: Chief Executive Officer |
RAPID MERGER SUB 2, LLC. |
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By: |
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Ra Medical Systems, Inc. |
Its: |
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Sole Member |
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By: |
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/s/ Jonathan Will McGuire |
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Name: Jonathan Will McGuire |
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Title: Chief Executive Officer |
CATHETER PRECISION, INC. |
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By: |
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/s/ David A. Jenkins |
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Name: David A. Jenkins |
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Title: President, Chief Executive Officer and Chairman of the Board of Directors |
[Signature Page to Agreement and Plan of Merger]
EXHIBIT A
FORM OF PARENT SUPPORT AGREEMENT
(See attached.)
EXHIBIT B
FORM OF LOCK-UP AGREEMENT
(See attached.)
EXHIBIT C
CALCULATION OF EXCHANGE RATIO
(See attached.)
EXHIBIT D
FORM OF DEBT SETTLEMENT AGREEMENT
(See attached.)
SCHEDULE I
CONVERTIBLE PROMISSORY NOTES
Noteholder: |
Principal as of June 30, 2022: |
Fatboy Capital L.P. |
$20,455,000 |
David A. Jenkins |
4,685,000 |
Daniel C. Stanzione, Sr.
Irrevocable Trust Dated December 31, 2007 |
75,000 |
[REDACTED] |
250,000 |
TOTAL: |
$25,465,000 |
Exhibit 10.1
RA MEDICAL SYSTEMS, INC.
SUPPORT AGREEMENT
THIS SUPPORT AGREEMENT (this “Agreement”), dated as of September 9, 2022, is made by and among Ra Medical Systems, Inc., a Delaware corporation (“Parent”), Catheter Precision, Inc, a Delaware corporation (the “Company”), and the undersigned holder (“Stockholder”) of shares of capital stock of Parent (the “Shares”) or Parent Equity Rights (defined below).
WHEREAS, Parent, Rapid Merger Sub 1, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“First Merger Sub”), Rapid Merger Sub 2, LLC, a Delaware limited liability company and a wholly owned subsidiary of Parent ("Second Merger Sub"), and the Company, have entered into an Agreement and Plan of Merger, dated as of September 9, 2022 (the “Merger Agreement”), providing for the merger of First Merger Sub with and into the Company (the "First Merger") and, the merger of the Company with and into Second Merger Sub (the "Second Merger" and, together with the First Merger, the "Merger");
WHEREAS, Stockholder beneficially owns and has sole or shared voting power with respect to the number of Shares, and/or holds Parent Options, Parent Restricted Stock Awards, Parent Restricted Stock Units and/or Parent Warrants (collectively, “Parent Equity Rights”) to acquire the number of Shares indicated opposite such Stockholder’s name on Schedule 1 attached hereto;
WHEREAS, as an inducement and a condition to the willingness of Parent, First Merger Sub, Second Merger Sub and the Company to enter into the Merger Agreement, Stockholder has agreed to enter into and perform this Agreement; and
WHEREAS, all capitalized terms used in this Agreement without definition herein shall have the meanings ascribed to them in the Merger Agreement.
NOW, THEREFORE, in consideration of, and as a condition to, Parent, First Merger Sub, Second Merger Sub and the Company’s entering into the Merger Agreement, Stockholder, Parent and the Company agree as follows:
1.Agreement to Vote Shares. Stockholder agrees that, prior to the Expiration Date (as defined in Section 2 below), at any meeting of the stockholders of Parent or any adjournment or postponement thereof, or in connection with any written consent of the stockholders of Parent, with respect to the Merger, the Merger Agreement, the Reverse Stock Split Proposal, and any other stockholder proposals related thereto, including proposals to approve shares for issuance pursuant to a company equity inventive plan, such Stockholder shall:
(a)appear at such meeting or otherwise cause the Shares and any New Shares (as defined in Section 3 below) to be counted as present thereat for purposes of calculating a quorum;
(b)from and after the date hereof until the Expiration Date, vote (or cause to be voted), or deliver a written consent (or cause a written consent to be delivered) covering all of the Shares and any New Shares that Stockholder shall be entitled to so vote: (i) in favor of (A) the Merger and the issuance of Parent Common Stock pursuant to the terms of the Merger Agreement, (B) the Reverse Stock Split Proposal, which approves a reverse stock split in order to allow the Parent to comply fully with initial listing standards of the NYSE American Listed Company Manual, and which may also increase Parent’s authorized common stock, (C) the amendment of Parent’s 2018 Equity Incentive Plan (the “2018 Plan”) to increase the number of shares of Parent Common Stock issuable under the 2018 Plan, and the conversion of the Assumed Options into options to purchase Parent Common Stock under the 2018 Plan, or the adoption of a new plan with similar terms (such issuance and conversion, the “Incentive Plan Proposal”) and (D) any matter that could reasonably be expected to facilitate the approval of the Merger and the issuance of Parent Common Stock pursuant to the terms of the Merger Agreement, the Reverse Stock Split Proposal, or the Incentive Plan Proposal (collectively, the “Key Proposals”); (ii) against any proposal or any agreement, transaction or other matter that is intended to, or would reasonably be expected to, impede, interfere with, delay, postpone, discourage or materially and adversely affect the consummation of the Key Proposals; and (iii) to approve any proposal to adjourn or postpone the meeting to a later date, if there are not sufficient votes for the approval of the Key Proposals on the date on which such meeting is held. Stockholder shall not take or commit or agree to take any action inconsistent with the foregoing
2.Expiration Date. As used in this Agreement, the term "Expiration Date" shall mean the earliest to occur of (a) 270 calendar days from the date of this Agreement, (b) the approval of the Key Proposals, (c) upon mutual written agreement of the parties to terminate this Agreement, and (d) termination of the Merger Agreement.
3.Additional Acquisitions. Stockholder agrees that any Shares that Stockholder acquires or with respect to which Stockholder otherwise acquires sole or shared voting power (including any proxy) after the execution of this Agreement and prior to the Expiration Date, whether by the exercise of any Parent Equity Rights or otherwise, including, without limitation, by gift, succession, in the event of a stock split or as a dividend or distribution of any Shares (“New Shares”) shall be subject to the terms and conditions of this Agreement to the same extent as if they constituted the Shares.
4.Agreement to Retain Shares. From and after the date hereof until the Expiration Date, Stockholder shall not, directly or indirectly, (a) sell, assign, transfer, tender, or otherwise dispose of (including, without limitation, by the creation of any Liens) any Shares or any New Shares, (b) deposit any Shares or New Shares into a voting trust or enter into a voting agreement or similar arrangement with respect to such Shares or New Shares or grant any proxy or power of attorney with respect thereto (other than this Agreement), (c) enter into any contract, option, commitment or other arrangement or understanding with respect to the direct or indirect sale, transfer, assignment or other disposition of (including, without limitation, by the creation of any Liens) any Shares or New Shares, or (d) take any action that would make any representation or warranty of Stockholder contained herein untrue or incorrect or have the effect of preventing or disabling Stockholder from performing Stockholder’s obligations under this Agreement.
Notwithstanding the foregoing, Stockholder may make (1) transfers by will, by operation of law (including transfers pursuant to a qualified domestic order or in connection with a divorce settlement), or other transfers for estate-planning purposes, in which case this Agreement shall bind the transferee, (2) with respect to Stockholder’s Parent Equity Rights which expire on or prior to the Expiration Date, transfers, sale, or other disposition of Shares to Parent as payment for the (i) exercise price, if applicable, of Stockholder’s Parent Equity Rights and (ii) taxes applicable to the exercise of Stockholder’s Parent Equity Rights, (3) if Stockholder is a partnership or limited liability company, a transfer to one or more partners or members of Stockholder or to an Affiliate of Stockholder, or if Stockholder is a trust, a transfer to a beneficiary, provided that (i) in each case the applicable transferee has signed a voting agreement in substantially the form hereof and (ii) such transfer will not necessitate the filing of a Form 4 reporting such transfer, (4) transfers to another holder of Shares or Parent Equity Rights that has signed a support agreement in substantially the form of this Agreement, and (5) transfers, sales or other dispositions as the Company may otherwise agree in writing in its sole discretion. If any voluntary or involuntary transfer of any Shares covered hereby shall occur (including a transfer or disposition permitted by this Section 4, sale by a Stockholder’s trustee in bankruptcy, or a sale to a purchaser at any creditor’s or court sale), the transferee (which term, as used herein, shall include any and all transferees and subsequent transferees of the initial transferee) shall take and hold such Shares subject to all of the restrictions, liabilities and rights under this Agreement, which shall continue in full force and effect, notwithstanding that such transferee is not a Stockholder and has not executed a counterpart hereof or joinder hereto.
5.Representations and Warranties of Stockholder. Stockholder hereby represents and warrants to Parent and the Company as follows:
(a)If Stockholder is an entity: (i) Stockholder is duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated, organized or constituted, (ii) Stockholder has all necessary power and authority to execute and deliver this Agreement, to perform Stockholder’s obligations hereunder and to consummate the transactions contemplated hereby, and (iii) the execution and delivery of this Agreement, performance of Stockholder’s obligations hereunder and the consummation of the transactions contemplated hereby by Stockholder have been duly authorized by all necessary action on the part of Stockholder and no other proceedings on the part of Stockholder are necessary to authorize this Agreement, or to consummate the transactions contemplated hereby. If Stockholder is an individual, Stockholder has the legal capacity to execute and deliver this Agreement, to perform Stockholder’s obligations hereunder and to consummate the transactions contemplated hereby;
(b)this Agreement has been duly executed and delivered by or on behalf of Stockholder and, to Stockholder’s knowledge and assuming this Agreement constitutes a valid and binding agreement of the Company and Parent, constitutes a valid and binding agreement with respect to Stockholder, enforceable against Stockholder in accordance with its terms, except as enforcement may be limited by general principles of equity whether applied in a court of law or a court of equity and by bankruptcy, insolvency and similar laws affecting creditors’ rights and remedies generally;
(c)Stockholder beneficially owns the number of Shares indicated opposite Stockholder’s name on Schedule 1, and will own any New Shares, free and clear of any Liens, and has sole or shared, and otherwise unrestricted, voting power with respect to such Shares or New Shares and none of the Shares or New Shares is subject to any voting trust or other agreement, arrangement or restriction with respect to the voting of the Shares or the New Shares, except as contemplated by this Agreement;
(d)to the knowledge of Stockholder, the execution and delivery of this Agreement by Stockholder does not, and the performance by Stockholder of his, her or its obligations hereunder and the compliance by Stockholder with any provisions hereof will not, violate or conflict with, result in a material breach of or constitute a default (or an event that with notice or lapse of time or both would become a material default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of any Liens on any Shares or New Shares pursuant to, any contract or other obligation, or any order, arbitration award, judgment or decree to which Stockholder is a party or by which Stockholder is bound, or any law, statute, rule or regulation to which Stockholder is subject or, in the event that Stockholder is a corporation, partnership, trust or other entity, any certificate of incorporation, bylaw or other organizational document of Stockholder; except for any of the foregoing as would not reasonably be expected to prevent or delay the performance by Stockholder of his, her or its obligations under this Agreement in any material respect;
(e)the execution and delivery of this Agreement by Stockholder does not, and the performance of this Agreement by Stockholder does not and will not, require any consent, approval, authorization or permit of, or filing with or notification to, any Governmental Entity or regulatory authority by Stockholder except for applicable requirements, if any, of the Exchange Act, and except where the failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications, would not prevent or delay the performance by Stockholder of his, her or its obligations under this Agreement in any material respect;
(f)no investment banker, broker, finder or other intermediary is entitled to a fee or commission from Parent or the Company in respect of this Agreement based upon any contract made by or on behalf of Stockholder; and
(g)as of the date of this Agreement, there is no Action pending or, to the knowledge of Stockholder, threatened against Stockholder that would reasonably be expected to prevent or delay the performance by Stockholder of his, her or its obligations under this Agreement in any material respect.
6.Irrevocable Proxy. Except as otherwise provided in this Section 6, by execution of this Agreement, Stockholder does hereby appoint the Company and any of its designees with full power of substitution and resubstitution, as Stockholder’s true and lawful attorney and irrevocable proxy, to the fullest extent of Stockholder’s rights with respect to the Shares, to vote and exercise all voting and related rights, including the right to sign Stockholder’s name (solely in its capacity as a stockholder) to any stockholder consent, if Stockholder is unable to perform or otherwise does not perform his, her or its obligations under this Agreement, with respect to such Shares solely with respect to the matters set forth in Section 1 hereof. Stockholder intends this proxy to be
irrevocable and coupled with an interest hereunder until the Expiration Date, hereby revokes any proxy previously granted by Stockholder with respect to the Shares and represents that none of such previously-granted proxies are irrevocable. Stockholder hereby affirms that: (i) the proxy set forth in this Section 6 is given in connection with, and granted in consideration of, and as an inducement to Parent and the Company to enter into the Merger Agreement and that such proxy is given to secure the obligations of the Stockholder under Section 1 and (ii) the irrevocable proxy and power of attorney granted herein shall survive the death or incapacity of Stockholder and the obligations of Stockholder shall be binding on Stockholder’s heirs, personal representatives, successors, transferees and assigns. Stockholder hereby agrees not to grant any subsequent powers of attorney or proxies with respect to any Shares with respect to the matters set forth in Section 1 until after the Expiration Date. Notwithstanding anything contained herein to the contrary, this irrevocable proxy shall automatically terminate upon the Expiration Date.
7.No Legal Actions. Stockholder will not in its capacity as a stockholder of Parent bring, commence, institute, maintain, prosecute or voluntarily aid any Action which (i) challenges the validity or seeks to enjoin the operation of any provision of this Agreement or (ii) alleges that the execution and delivery of this Agreement by such Stockholder, either alone or together with the other voting agreements and proxies to be delivered in connection with the execution of the Merger Agreement, or the approval of the Merger Agreement by the Parent Board, constitutes a breach of any fiduciary duty of the Parent Board or any member thereof.
8.Other Remedies; Specific Performance. Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with, and not exclusive of, any other remedy conferred hereby, or by law or equity upon such party, and the exercise by a party of any one remedy will not preclude the exercise of any other remedy. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in the Court of Chancery of the State of Delaware, provided that if jurisdiction is not then available in the Court of Chancery of the State of Delaware, then in any federal court located in the State of Delaware or any other Delaware state court, this being in addition to any other remedy to which such party is entitled at law or in equity. Each of the parties hereby further waives (a) any defense in any action for specific performance that a remedy at law would be adequate and (b) any requirement under any law to post security as a prerequisite to obtaining equitable relief.
9.Directors and Officers. If Stockholder is a director, officer or employee of Parent, this Agreement shall apply to Stockholder solely in Stockholder’s capacity as a stockholder of Parent and/or holder of Parent Equity Rights and not in Stockholder’s capacity as a director, officer or employee of Parent or any of its Subsidiaries or in Stockholder’s capacity as a trustee or fiduciary of any employee benefit plan or trust. Notwithstanding any provision of this Agreement to the contrary, nothing in this Agreement shall (or require Stockholder to attempt to) limit or restrict a director and/or officer of Parent in the exercise of his or her fiduciary duties consistent with the terms of the Merger Agreement as a director and/or officer of Parent or in his or her capacity as a trustee or fiduciary of any employee benefit plan or trust or prevent or be construed to create any obligation on the part of any director and/or officer of Parent or any trustee or
fiduciary of any employee benefit plan or trust from taking any action in his or her capacity as such director, officer, trustee and/or fiduciary.
10.No Ownership Interest. Nothing contained in this Agreement shall be deemed to vest in the Company any direct or indirect ownership or incidence of ownership of or with respect to any Shares. All rights, ownership and economic benefits of and relating to the Shares shall remain vested in and belong to Stockholder, and the Company does not have authority to manage, direct, superintend, restrict, regulate, govern, or administer any of the policies or operations of Parent or exercise any power or authority to direct Stockholder in the voting of any of the Shares, except as otherwise provided herein.
11.Termination. This Agreement shall terminate and shall have no further force or effect as of the Expiration Date. Notwithstanding the foregoing, upon termination or expiration of this Agreement, no party shall have any further obligations or liabilities under this Agreement; provided, however, nothing set forth in this Section 11 or elsewhere in this Agreement shall relieve any party from liability for any fraud or for any willful and material breach of this Agreement prior to termination hereof.
12.Further Assurances. Stockholder shall, from time to time, execute and deliver, or cause to be executed and delivered, such additional or further consents, documents and other instruments as the Company or Parent may reasonably request for the purpose of effectively carrying out the transactions contemplated by this Agreement and by the Merger Agreement (the “Contemplated Transactions”).
13.Disclosure. Stockholder hereby agrees that Parent and the Company may publish and disclose in the proxy statement (the “Proxy Statement”) related to any prospectus filed with any regulatory authority in connection with the Contemplated Transactions or the Key Proposals and any related documents filed with such regulatory authority and as otherwise required by law, Stockholder’s identity and ownership of Shares and the nature of Stockholder’s commitments, arrangements and understandings under this Agreement, and may further file this Agreement as an exhibit to the Proxy Statement or prospectus or in any other filing made by Parent or the Company as required by law or the terms of the Merger Agreement, including with the SEC or other regulatory authority, relating to the Contemplated Transactions, all subject to prior review and an opportunity to comment by Stockholder’s counsel. Prior to the Closing, Stockholder shall not, and shall use its reasonable best efforts to cause its representatives not to, directly or indirectly, make any press release, public announcement or other public communication that criticizes or disparages this Agreement or the Merger Agreement or any of the Contemplated Transactions, without the prior written consent of Parent and the Company, provided that the foregoing shall not limit or affect any actions taken by Stockholder (or any affiliated officer or director of Stockholder) that would be permitted to be taken by Stockholder, Parent or the Company pursuant to the Merger Agreement; provided, further, that the foregoing shall not prohibit any actions of Stockholder if such prohibition would conflict with applicable law.
14.Notice. All notices and other communications hereunder shall be in writing and shall be deemed duly given (a) on the date of delivery if delivered personally, or if by e‑mail, upon written confirmation of receipt by e‑mail or otherwise, (b) on the first Business Day following the date of dispatch if delivered utilizing a next-day service by a recognized next-day courier or (c) on
the earlier of confirmed receipt or the fifth Business Day following the date of mailing if delivered by registered or certified mail, return receipt requested, postage prepaid, to the Company or Parent, as the case may be, in accordance with Section 8.5 of the Merger Agreement, and to Stockholder at his, her or its address or email address (providing confirmation of transmission) set forth on Schedule 1 attached hereto (or at such other address for a party as shall be specified by like notice).
15.Severability. Any term or provision of this Agreement that is invalid or unenforceable in any situation or in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions of this Agreement, or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. If a final judgment of a court of competent jurisdiction declares that any term or provision of this Agreement is invalid or unenforceable, the parties hereto agree that the court making such determination shall have the power to limit such term or provision, to delete specific words or phrases or to replace such term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be valid and enforceable as so modified. In the event such court does not exercise the power granted to it in the prior sentence, the parties hereto agree to replace such invalid or unenforceable term or provision with a valid and enforceable term or provision that will achieve, to the extent possible, the economic, business and other purposes of such invalid or unenforceable term or provision.
16.Assignability. This Agreement shall be binding upon, and shall be enforceable by and inure solely to the benefit of, the parties hereto and their respective successors and assigns; provided, however, that neither this Agreement nor any of a party’s rights, interests or obligations hereunder may be assigned or delegated, in whole or in part, by operation of law or otherwise, by such party without the prior written consent of the other parties hereto, and any attempted assignment or delegation of this Agreement or any of such rights, interests or obligations by such party without the prior written consent of the other parties shall be void and of no effect. Nothing in this Agreement, express or implied, is intended to or shall confer upon any Person (other than the parties hereto) any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.
17.No Implied Waivers. No waivers of any breach of this Agreement extended by the Company or Parent to any Stockholder shall be construed as a waiver of any rights or remedies of the Company or Parent, as applicable, with respect to any other Stockholder or stockholder of Parent who has executed an agreement substantially in the form of this Agreement with respect to Shares or Parent Equity Rights held or subsequently held by such stockholder, or with respect to any subsequent breach of Stockholder or any other stockholder of Parent. No waiver of any provisions hereof by any party, or failure or delay in exercising any right or remedy hereunder, in whole or in part, shall be deemed a waiver of any other provisions hereof, or any right or remedy hereunder, by any such party, nor deemed a continuing waiver of any provision hereof, or any right or remedy hereunder, by such party. The rights and remedies of the parties hereunder are cumulative and are not exclusive of any other rights or remedies, express or implied, which they would otherwise have hereunder or under applicable law.
18.Applicable Law; Jurisdiction. This Agreement shall be governed by, and construed in accordance with, the laws of the state of Delaware, regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws. In any Action between any of the parties arising out of or relating to this Agreement, each party hereto: (i) irrevocably and unconditionally consents and submits to the exclusive jurisdiction and venue of the Delaware Court of Chancery or to the extent such court does not have subject matter jurisdiction, the Superior Court of the State of Delaware or the United States District Court for the District of Delaware, (ii) agrees that all claims in respect of such Action shall be heard and determined exclusively in accordance with clause (i) of this Section 18, (iii) waives any objection to laying venue in any such Action in such courts, (iv) waives any objection that such courts are an inconvenient forum or do not have jurisdiction over any party, and (v) agrees that service of process upon such party in any Action shall be effective if notice is given in accordance with Section 14 of this Agreement.
19.Waiver of Jury Trial. The parties hereto hereby waive any right to trial by jury with respect to any Action related to or arising out of this Agreement, any document executed in connection herewith and the matters contemplated hereby and thereby.
20.No Agreement Until Executed. Irrespective of negotiations among the parties or the exchanging of drafts of this Agreement, this Agreement shall not constitute or be deemed to evidence a contract, agreement, arrangement or understanding between the parties hereto unless and until (a) the Parent Board has approved, for purposes of any applicable anti-takeover laws and regulations and any applicable provision of the certificate of incorporation of Parent, the Merger Agreement and the Contemplated Transactions, (b) the Merger Agreement is executed by all parties thereto, and (c) this Agreement is executed by all parties hereto.
21.Entire Agreement; Counterparts; Exchanges by Facsimile. This Agreement and the other agreements referred to in this Agreement constitute the entire agreement and supersede all prior agreements and understandings, both written and oral, among or between any of the parties with respect to the subject matter hereof and thereof. This Agreement may be executed in several counterparts, each of which shall be deemed an original and all of which shall constitute one and the same instrument. The exchange of a fully executed Agreement (in counterparts or otherwise) by all parties by facsimile or electronic transmission shall be sufficient to bind the parties to the terms and conditions of this Agreement.
22.Amendment. This Agreement may not be amended, supplemented or modified, and no provisions hereof may be modified or waived, except by an instrument in writing signed on behalf of each party hereto at the time of such amendment; provided, however, that the rights or obligations of any Stockholder may be waived, amended or otherwise modified in a writing signed by Parent, the Company and Stockholder.
23.Fees and Expenses. Except as otherwise specifically provided herein, the Merger Agreement or any other agreement contemplated by the Merger Agreement to which a party hereto is a party, each party hereto shall bear its own expenses in connection with this Agreement and the transactions contemplated hereby.
24.Voluntary Execution of Agreement. This Agreement is executed voluntarily and without any duress or undue influence on the part or behalf of the parties. Each of the parties hereby acknowledges, represents and warrants that (i) it has read and fully understood this Agreement and the implications and consequences thereof; (ii) it has been represented in the
preparation, negotiation, and execution of this Agreement by legal counsel of its own choice, or it has made a voluntary and informed decision to decline to seek such counsel; and (iii) it is fully aware of the legal and binding effect of this Agreement.
25.Construction.
(a)For purposes of this Agreement, whenever the context requires: the singular number shall include the plural, and vice versa; the masculine gender shall include the feminine and neuter genders; the feminine gender shall include the masculine and neuter genders; and the neuter gender shall include masculine and feminine genders.
(b)The parties hereto agree that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be applied in the construction or interpretation of this Agreement.
(c)As used in this Agreement, the words “include” and “including,” and variations thereof, shall not be deemed to be terms of limitation, but rather shall be deemed to be followed by the words “without limitation.”
(d)As used in this Agreement, the words “hereof,” “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to the Agreement as a whole and not to any particular provision in this Agreement, unless otherwise specified.
(e)Except as otherwise indicated, all references in this Agreement to “Sections,” and “Schedules” are intended to refer to Sections of this Agreement and Schedules to this Agreement, respectively. All Schedules referenced herein are hereby incorporated into this Agreement as if set forth herein.
(f)The underlined headings contained in this Agreement are for convenience of reference only, shall not be deemed to be a part of this Agreement and shall not be referred to in connection with the construction or interpretation of this Agreement.
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EXECUTED as of the date first written above.
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EXECUTED as of the date first written above.
RA MEDICAL SYSTEMS, INC.
CATHETER PRECISION, INC
Exhibit 10.2
RA MEDICAL SYSTEMS, INC.
LOCK-UP AGREEMENT
September 9, 2022
Ra Medical Systems, Inc.
2070 Las Palmas Dr.
Carlsbad, CA 92011
Ladies and Gentlemen:
The undersigned signatory of this lock-up agreement (this “Lock-Up Agreement”) understands that Ra Medical Systems, Inc., a Delaware corporation (“Parent”), Rapid Merger Sub 1, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“First Merger Sub”), Rapid Merger Sub 2, LLC, a Delaware limited liability company and a wholly owned subsidiary of Parent ("Second Merger Sub"), and Catheter Precision, Inc., a Delaware corporation (the “Company”), have entered into an Agreement and Plan of Merger, dated as of September 9, 2022 (the “Merger Agreement”). Capitalized terms used but not otherwise defined herein shall have the respective meanings ascribed to such terms in the Merger Agreement.
As a condition and inducement to each of the parties to enter into the Merger Agreement and to consummate the transactions contemplated thereby, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the undersigned hereby irrevocably agrees that, subject to the exceptions set forth herein, without the prior written consent of Parent, the undersigned will not, during the period commencing upon the Closing and ending on the date that is 180 calendar days after the [date hereof][Closing Date]1 (the “Restricted Period”):
i.offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Parent Common Stock or any securities convertible into or exercisable or exchangeable for Parent Common Stock (including without limitation, Parent Common Stock or such other securities which may be deemed to be beneficially owned by the undersigned in accordance with the rules and regulations of the SEC, and securities of Parent which may be issued upon exercise or vesting, as applicable, of an option, warrant, restricted stock award or restricted stock unit, in each case to purchase, receive in the future or otherwise acquire Parent Common Stock (collectively, “Parent Equity Rights”)) that are currently or hereafter owned by the undersigned (collectively, the “Undersigned’s Shares”), or publicly disclose the intention to make any such offer, sale, pledge, grant, transfer or disposition;
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Signing date should be used for Parent lock-up limitations. Closing date for Company lock-up limitations. |
ii.enter into any swap, short sale, hedge or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the Undersigned’s Shares regardless of whether any such transaction described in clause (i) above or this clause (ii) is to be settled by delivery of Parent Common Stock or other securities, in cash or otherwise; or
iii.make any demand for, or exercise any right with respect to, the registration of any of the Undersigned’s Shares (other than such rights set forth in the Merger Agreement).
The restrictions and obligations contemplated by this Lock-Up Agreement shall not apply to:
a)transfers of the Undersigned’s Shares:
i.if the undersigned is a natural person, (A) to any person related to the undersigned by blood or adoption who is an immediate family member of the undersigned, or by marriage or domestic partnership (a “Family Member”), or to a trust formed for the benefit of the undersigned or any of the undersigned’s Family Members, (B) to the undersigned’s estate, following the death of the undersigned, by will, intestacy or other operation of Law, (C) as a bona fide gift or a charitable contribution, (D) by operation of Law pursuant to a qualified domestic order or in connection with a divorce settlement or (E) to any partnership, corporation or limited liability company which is controlled by the undersigned and/or by any such Family Member(s);
ii.if the undersigned is a corporation, partnership or other entity, (A) to another corporation, partnership, or other entity that is an Affiliate of the undersigned, including investment funds or other entities under common control or management with the undersigned, (B) as a distribution or dividend to equity holders, current or former general or limited partners, members or managers (or to the estates of any of the foregoing), as applicable, of the undersigned (including upon the liquidation and dissolution of the undersigned pursuant to a plan of liquidation approved by the undersigned’s equity holders), (C) as a bona fide gift or a charitable contribution or (D) transfers or dispositions not involving a change in beneficial ownership; or
iii.if the undersigned is a trust, to any grantors or beneficiaries of the trust; provided that, in the case of any transfer or distribution pursuant to this clause (a), such transfer is not for value and each donee, heir, beneficiary or other transferee or distributee shall sign and deliver to Parent a lock-up agreement in the form of this Lock-Up Agreement with respect to the shares of Parent Common Stock or such other securities that have been so transferred or distributed;
b)the exercise or settlement of any Parent Equity Rights (including a net exercise or net settlement), and any related transfer of shares of Parent Common Stock to Parent for the purpose of paying the exercise price of such Parent Equity Rights or for paying taxes (including estimated taxes or tax withholding obligations) due as a result of the exercise thereof; provided that, for the avoidance of doubt, the underlying shares of Parent Common Stock shall continue to be subject to the restrictions on transfer set forth in this Lock-Up Agreement;
c)the establishment of a trading plan pursuant to Rule 10b5-1 under the Exchange Act for the transfer of Parent Common Stock; provided that such plan does not provide for any transfers of Parent Common Stock during the Restricted Period;
d)transfers by the undersigned of shares of Parent Common Stock purchased by the undersigned on the open market or in a public offering by Parent, in each case following the Closing Date;
e)pursuant to a bona-fide third party tender offer, merger, consolidation or other similar transaction made to all holders of Parent’s capital stock involving a change of control of Parent, provided that in the event that such tender offer, merger, consolidation or other such transaction is not completed, the Undersigned’s Shares shall remain subject to the restrictions contained in this Lock-Up Agreement; or
f)pursuant to an order of a court or regulatory agency;
and provided, further, that, with respect to each of (a), (b), and (c) above, no filing by any party (including any donor, donee, transferor, transferee, distributor or distributee) under Section 16 of the Exchange Act or other public announcement shall be required or shall be made voluntarily in connection with such transfer or disposition during the Restricted Period (other than (i) any exit filings or public announcements that may be required under applicable federal and state securities Laws or (ii) in respect of a required filing under the Exchange Act in connection with the exercise of, or in connection with the net settlement of, any Parent Equity Rights, settled in Parent Common Stock, that would otherwise expire during the Restricted Period, provided that reasonable notice shall be provided to Parent prior to any such filing).
Any attempted transfer in violation of this Lock-Up Agreement will be of no effect and null and void, regardless of whether the purported transferee has any actual or constructive knowledge of the transfer restrictions set forth in this Lock-Up Agreement, and will not be recorded on the share register of Parent. In furtherance of the foregoing, the undersigned agrees that Parent and any duly appointed transfer agent for the registration or transfer of the securities described herein are hereby authorized to decline to make any transfer of securities if such transfer would constitute a violation or breach of this Lock-Up Agreement. Parent may cause the legend set forth below, or a legend substantially equivalent thereto, to be placed upon any certificate(s) or other documents, ledgers or instruments evidencing the undersigned’s ownership of Parent Common Stock:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AND MAY ONLY BE TRANSFERRED IN COMPLIANCE WITH A LOCK-UP AGREEMENT, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY.
The undersigned hereby represents and warrants that the undersigned has full power and authority to enter into this Lock-Up Agreement. All authority herein conferred or agreed to be conferred and any obligations of the undersigned shall be binding upon the successors, assigns, heirs or personal representatives of the undersigned.
The undersigned understands that if the Merger Agreement is terminated for any reason, the undersigned shall be released from all obligations under this Lock-Up Agreement. The undersigned understands that Parent and the Company are proceeding with the transactions contemplated by the Merger Agreement in reliance upon this Lock-Up Agreement.
Any and all remedies herein expressly conferred upon Parent or the Company will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by Law or equity, and the exercise by Parent or the Company of any one remedy will not preclude the exercise of any other remedy. The undersigned agrees that irreparable damage would occur to Parent and/or the Company in the event that any provision of this Lock-Up Agreement were not performed in accordance with its specific terms or were otherwise breached. It is accordingly agreed that Parent and the Company shall be entitled to an injunction or injunctions to prevent breaches of this Lock-Up Agreement and to enforce specifically the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which Parent or the Company is entitled at Law or in equity, and the undersigned waives any bond, surety or other security that might be required of Parent or the Company with respect thereto.
In the event that any holder of Parent’s securities that are subject to a substantially similar agreement entered into by such holder, other than the undersigned, is permitted by Parent to sell or otherwise transfer or dispose of shares of Parent Common Stock for value other than as permitted by this or a substantially similar agreement entered into by such holder, the same percentage of shares of Parent Common Stock held by the undersigned shall be immediately and fully released on the same terms from any remaining restrictions set forth herein (the “Pro-Rata Release”); provided, however, that such Pro-Rata Release shall not be applied unless and until permission has been granted by Parent to an equity holder or equity holders to sell or otherwise transfer or dispose of all or a portion of such equity holders shares of Parent Common Stock in an aggregate amount in excess of 1% of the number of shares of Parent Common Stock originally subject to a substantially similar agreement.
Upon the release of any of the Undersigned’s Shares from this Lock-Up Agreement, Parent will cooperate with the undersigned to facilitate the timely preparation and delivery of certificates representing the Undersigned Shares without the restrictive legend above or the withdrawal of any stop transfer instructions.
This Lock-Up Agreement and any claim, controversy or dispute arising under or related to this Lock-Up Agreement shall be governed by and construed in accordance with the Laws of the State of Delaware, without regard to the conflict of Laws principles thereof.
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This Lock-Up Agreement may be executed in several counterparts, each of which shall be deemed an original and all of which shall constitute one and the same instrument. The exchange of a fully executed Lock-Up Agreement (in counterparts or otherwise) by Parent, the Company and the undersigned by facsimile or electronic transmission in .pdf format shall be sufficient to bind such parties to the terms and conditions of this Lock-Up Agreement.
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Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the inclusion in Ra Medical Systems, Inc.’s Form 8-K and the incorporation by reference in Ra Medical Systems, Inc. Registration Statements (333-264495, 333-262195, 333-254370, 333-252432, 333-250094, 333-240187, 333-239887, 333-237701, 333-237488, 333-237096, 333-230332, 333-227696, 333-227552, and 333-226191) of our report dated April 22, 2022, which includes an explanatory paragraph relating to Catheter Precision, Inc.'s ability to continue as a going concern, relating to the financial statements of Catheter Precision, Inc., as of and for the years ended December 31, 2021 and 2020, included as Exhibit 99.4 to such Form 8-K.
/s/ WithumSmith+Brown, PC
East Brunswick, New Jersey
September 9, 2022
Exhibit 99.1
Ra Medical Systems Enters Into Definitive Merger Agreement with Catheter Precision
Combined Company Dedicated to Developing and Delivering Novel Technologies and Solutions
to Improve the Lives of Patients with Cardiac Arrhythmias
Medtech Veteran David Jenkins to Lead Merged Company
CARLSBAD, Calif. (September 12, 2022) – Ra Medical Systems, Inc. (NYSE American: RMED) (“Ra Medical” or the “Company”) announces it has entered into an Agreement and Plan of Merger (the “Definitive Merger Agreement”) with privately held Catheter Precision, Inc. (“Catheter Precision”), a medical device and technology company focused in the field of cardiac electrophysiology. Under the terms of the agreement, Catheter Precision will become a wholly owned subsidiary of Ra Medical in a stock for stock reverse merger transaction (the “Merger”). If completed, the Merger will result in a combined publicly traded company that will focus on the cardiac electrophysiology market, one of the most robust and growing areas of medical devices. Medtech veteran David Jenkins, who has extensive experience growing medical device start-ups, will act as Chief Executive Officer of the combined company. Before taking the role as CEO of Catheter Precision, Mr. Jenkins was instrumental in operating several medical device start-ups, including Transneuronix, Inc., which was acquired by Medtronic plc (NYSE:MDT) for $267 million in July 2005, and EP MedSystems, Inc., which was acquired by St. Jude Medical for $95.7 million in July 2008.
Catheter Precision 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 Precision 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 Precision has demonstrated that patient outcomes could potentially be enhanced by utilization of this device. Catheter Precision 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.
“After undertaking a comprehensive process with external advisors to explore and evaluate a range of strategic options, our board and management team believe this transaction with Catheter Precision is the best strategic alternative for Ra Medical and represents an opportunity to create substantial value for our stockholders,” said Will McGuire, Ra Medical CEO. “This business combination, if completed, will result in Ra Medical investors having an equity stake in a company that is focused on developing and commercializing novel technologies and solutions to improve the lives of patients with cardiac arrhythmias under the leadership of a world-class team with decades of medical device industry experience.”
“We look forward to welcoming Ra Medical stockholders to our combined company following the completion of the proposed merger transaction,” said Mr. Jenkins, Catheter Precision founder and CEO. “Catheter Precision is committed to producing cost-effective, user-friendly and technologically differentiated tools for use in percutaneous catheter procedures that physicians will embrace. Our VIVO non-invasive 3D imaging system enables physicians to identify the origin of arrhythmias pre-procedure, thereby streamlining workflow and reducing procedure time. We are also considering development opportunities for the Amigo remote catheter system, which incorporates the most modern technologies while remaining easy to learn and use, and we are looking forward to the launch of our vessel closure device, currently targeted for the first half of next year. We envision a significant opportunity afforded by this merger by providing access to the public capital markets.”
About the Transaction
The Merger is structured as a stock for stock reverse merger whereby all of Catheter Precision’s outstanding convertible promissory notes and equity interests are to be exchanged for shares of Ra Medical common stock and Catheter Precision options assumed by the Company. Catheter Precision stakeholders are expected to own approximately 80% of the combined company, and pre-merger Ra Medical equity holders are expected to own approximately 20% of the combined company, on a fully diluted basis calculated using the treasury stock method, subject to certain adjustments provided for in the Merger Agreement and further described in our Form 8-K filed today, including adjustment based on the amount of Ra Medical’s net cash at closing.
The boards of directors of both companies have approved the Definitive Merger Agreement. The merger is expected to close before the end of 2022, subject to satisfying certain closing conditions, including the receipt of shareholder approval by both companies. The Definitive Merger Agreement follows the signing by Ra Medical and Catheter Precision of a non-binding summary of proposed terms on June 18, 2022, which was publicly disclosed on July 22, 2022. Investors in Ra Medical are encouraged to review the Definitive Merger Agreement, which contains the definitive terms of the Merger.
The descriptions of the Merger, the Ra Medical Special Meeting of Stockholders, Catheter Precision, and the other transactions and matters contemplated thereby or referenced herein do not purport to be complete and are qualified in their entirety by reference to the Company’s Current Report on Form 8-K filed on the date hereof, the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2022, and any prior or subsequent reports on Form 10-K, Form 10-Q or Form 8-K filed with the Securities and Exchange Commission (the “SEC”) from time to time and available on the SEC website. The Company also intends to file a proxy statement with the SEC.
Ladenburg Thalmann & Co. Inc. is acting as the exclusive financial advisor to Ra Medical in connection with the proposed Merger with Catheter Precision.
Management and Organization
The combined company will be led by David Jenkins as Executive Chair and Chief Executive Officer following the Merger. Will McGuire, the current CEO, and Brian Conn, the current interim CFO, have agreed to remain with the Company through the closing of the Merger.
Immediately following the closing of the Merger, the combined company’s board of directors will consist of five directors, with David Jenkins joining the board of directors as the Executive Chair and a to-be-determined current director of Ra Medical resigning at the closing of the Merger.
Conditions of the Merger Agreement
The Company cannot provide any assurance that it will effect the Merger with Catheter Precision or, even if it is able to consummate such a Merger, that the intended benefits of the Merger will be fully realized. The Merger is also subject to specified conditions precedent that must be satisfied or waived, including certain conditions precedent that are subject to the approval or consent of third parties including, among others, (a) Catheter Precision shall have delivered the PPM/Joint Information Statement (as defined in the Definitive Merger Agreement) to Catheter Precision securityholders, (b) no law or order prevents the closing of the Merger and the related transactions, (c) conditions relating to the HHS Confirmation (as defined in the Definitive Merger Agreement) and other litigation matters shall be satisfied or waived, (d) the Company furnishing Net Cash greater than $8,000,000, (e) the entry into the Executive Chairman Agreement (as defined in the Definitive Merger Agreement) pursuant to which David Jenkins shall be appointed to the board of directors of the Company and shall be paid an annual salary of $300,000, (f) the last closing sale price of the Company’s Common Stock prior to 4:00 p.m. (New York City time) on the last Trading Day (as defined in the Definitive Merger Agreement) prior to the Closing is equal to or greater than $0.09, and the average of the last closing sale price of the Company’s Common Stock prior to 4:00 p.m. (New York City time) on each of the five (5) consecutive full Trading Days prior to the Closing is equal to or greater than $0.09, in each case as adjusted for the Reverse Stock Split (as defined in the Definitive Merger Agreement), (g) other than the letter dated August 31, 2022 from the NYSE American LLC, the Company shall not have received correspondence from the NYSE American or the staff thereof relating to the delisting, or maintenance of listing, of the Company’s Common Stock on the NYSE American, and Catheter
Precision shall have received assurance in form and substance satisfactory to Catheter Precision that the transactions contemplated by the Definitive Merger Agreement will not cause the Company to be delisted from the NYSE American, (h) Catheter Precision shall have entered into a Debt Settlement Agreement with each of the holders of Catheter Precision Notes, (i) lock-up agreements have been entered into by and among the Company, Catheter Precision, and certain persons who are directors, officers and/or significant stockholders of either Parent or the Company, (j) the Company shall have sublet or terminated the lease with respect to its corporate headquarters and manufacturing facility, (k) Catheter Precision and the Company shall have received the approval from their respective stockholders necessary to approve the Merger and the transactions contemplated by the Definitive Merger Agreement, (l) that the Company has entered into release agreements with certain of its officers and employees relating to existing change of control and severance agreements, and (m) each of the representations and warranties of the Company and Catheter Precision set forth in the Definitive Merger Agreement shall have been true as of the date of the Definitive Merger Agreement and as of the Closing Date as though made on and as of the Closing Date (except to the extent such representations and warranties are specifically made as of a particular date, in which case such representations and warranties shall be true and correct as of such date), in each case, except where the failure to be true and correct, individually or in the aggregate, has not had, and is not reasonably likely to have a Parent Material Adverse Effect (as defined in the Definitive Merger Agreement) with respect to Parent, or a Material Adverse Effect (as defined in the Definitive Merger Agreement) with respect to Catheter Precision. The Company cannot assure that all conditions precedent will be satisfied or waived, that it will receive any of the required third-party consents or approvals or that it will be able to satisfy or waive all the conditions precedent to consummate the Merger. If the conditions precedent are not satisfied or waived in a timely manner or at all, the Merger may not occur or may be delayed, and the Company may lose some or all of the intended benefits of the proposed Merger with Catheter Precision. In addition, the parties have the right to waive or modify certain key closing conditions of the Merger Agreement, including the minimum stock price condition, and these conditions should not be interpreted as representations or covenants by either or both of the parties.
The Definitive Merger Agreement also contains certain customary termination rights, including, (a) the right of the parties to terminate the Definitive Merger Agreement by mutual written consent, (b) the right of either party to terminate the Definitive Merger Agreement if the Merger has not occurred by December 31, 2022, (c) the right of either party to terminate the Definitive Merger Agreement due to a material breach by the other party of any of its representations, warranties or covenants which would result in the closing conditions not being satisfied, subject to certain conditions, (d) the right of Catheter Precision to terminate the Definitive Merger Agreement if any of the closing conditions are not capable of being satisfied, and (e) the right of either party to terminate the Definitive Merger Agreement if a court of competent jurisdiction or other governmental body issues a final and non-appealable order, decree or ruling, or has taken any other action, having the effect of permanently restraining, enjoining or otherwise prohibiting the Merger and related transactions.
About Catheter Precision
Catheter Precision is an innovative U.S.-based medical device company bringing new solutions to market to improve the treatment of cardiac arrhythmias. It is focused on developing groundbreaking technology for electrophysiology procedures by collaborating with physicians and continuously advancing its products.
About Ra Medical Systems
Ra Medical Systems, Inc. is a medical device company that owns intellectual property related to an advanced excimer laser-based platform for use in the treatment of vascular immune-mediated inflammatory diseases. Its excimer laser and single-use catheter system, together referred to as the DABRA Excimer Laser System, is used as a tool in the treatment of peripheral artery disease.
No Offer or Solicitation
This communication is not intended to and shall not constitute an offer to buy or sell or the solicitation of an offer to buy or sell any securities, or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offering of securities shall be made, except by means of a prospectus meeting the requirements of Section 10 of the U.S. Securities Act of 1933, as amended.
Additional Information and Where to Find It
The shares of Common Stock being issued in the Merger (the “Securities”) are being offered and sold in transactions exempt from registration under the Securities Act, in reliance on Section 4(a)(2) thereof. Catheter Precision and Ra Medical intend to distribute a Private Placement Memorandum/Joint Information Statement (the “PPM/Joint Information Statement”) to the stockholders of Catheter Precision, and Catheter Precision stockholders are encouraged to carefully read the PPM/Joint Information Statement, together with Ra Medical’s concurrent SEC filings, which will contain important information concerning the transaction.
The Securities have not been registered under the Securities Act and such Securities may not be offered or sold in the United States absent registration or an exemption from registration under the Securities Act and any applicable state securities laws.
The Company intends to file a proxy statement (the “Proxy”) to call, give notice of and hold a meeting of its stockholders to vote to approve, among other matters, (a) the Merger, and (b) the issuance of the shares of the Ra Medical Common Stock to be issued pursuant to the terms of the Merger Agreement. Catheter Precision also intends to furnish an information statement to its stockholders in connection with the proposed Merger as part of the PPM/Joint Information Statement. The only matters that the Company is seeking approval for at the Special Meeting of Stockholders are the matters that will be set forth in the Proxy.
The Proxy and PPM/Joint Information Statement will contain important information about Catheter Precision, the proposed Merger and related matters. In addition, the Company is filing on the date hereof a Current Report on Form 8-K that includes certain audited financial statements of Catheter Precision for the two-year period ended December 31, 2021 (the “Catheter Audited Financial Statements”), the unaudited financial statements of Catheter Precision for the periods ended June 30, 2022 and June 30, 2021 (the “Catheter Precision Unaudited Financial Statements and together with the Catheter Precision Audited Financial Statements, the “Catheter Precision Financial Statements”), and the unaudited pro forma combined financial information of the combined company as of June 30, 2022 and for the year ended December 31, 2021 and the six months ended June 30, 2022 (the “Pro Forma Financial Information,” and collectively with the Catheter Precision Financial Statements, the “Financial Information”).
Ra Medical intends to mail the Proxy to Ra Medical stockholders, and Catheter Precision intends to electronically disseminate the PPM/Joint Information Statement. INVESTORS AND SECURITYHOLDERS OF RA MEDICAL AND CATHETER PRECISION ARE URGED TO READ THESE MATERIALS WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT RA MEDICAL, CATHETER PRECISION AND THE PROPOSED MERGER. THIS COMMUNICATION IS NOT A SUBSTITUTE FOR THE PPM/JOINT INFORMATION STATEMENT, THE PROXY, THE CURRENT REPORT ON FORM 8-K BEING FILED ON THE DATE HEREOF, THE COMPANY’S QUARTERLY REPORT FOR THE PERIOD ENDED JUNE 30, 2022, OR ANY OTHER DOCUMENTS THAT RA MEDICAL AND/OR CATHETER PRECISION MAY FILE WITH THE SEC OR SEND TO THEIR RESPECTIVE SECURITYHOLDERS IN CONNECTION WITH THE PROPOSED TRANSACTIONS. INVESTORS AND SECURITYHOLDERS MAY OBTAIN FREE COPIES OF RA MEDICAL’S DOCUMENTS FILED WITH THE SEC, ONCE AVAILABLE, ON THE RA MEDICAL WEBSITE OR ON THE SEC’S WEBSITE.
The unaudited pro forma combined financial information does not purport to represent the actual results of operations that the Company and Catheter Precision would have achieved had the companies been combined during the periods presented in the unaudited pro forma combined financial statements and is not intended to project the future results of operations that the combined company may achieve after the Merger. The unaudited pro forma combined financial information does not reflect any potential cost savings that may be realized as a result of the Merger and also does not reflect any restructuring or integration-related costs to achieve those potential cost savings.
Participants in the Solicitation
Ra Medical, Catheter Precision and their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from the stockholders of Ra Medical in connection with the proposed transaction. Information about Ra Medical’s directors and executive officers is set forth in Ra Medical’s Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the SEC on March 17, 2022, as amended, and in subsequent filings made by Ra Medical with the SEC. Other information regarding the interests of such individuals, as well as information regarding Catheter Precision’s directors and executive officers
and other persons who may be deemed participants in the proposed transaction, will be set forth in the proxy statement and other relevant materials to be filed with the SEC when they become available. You may obtain free copies of these documents as described in the preceding paragraph.
Cautionary Note Regarding Forward-Looking Statements
This communication contains forward-looking statements which include, but are not limited to, statements regarding expected timing, completion and effects of the proposed Merger, future access to capital markets, and the plans and expectations of the combined company regarding Catheter Precision’s products, including its plans, strategies, projected timelines and estimated markets, for and/or related to VIVO and the Amigo and vessel closure devices described above. These forward-looking statements are subject to the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. The Company’s expectations and beliefs regarding these matters may not materialize. Actual outcomes and results may differ materially from those contemplated by these forward-looking statements as a result of uncertainties, risks and changes in circumstances, including but not limited to risks and uncertainties related to: the ability of the parties to consummate the proposed Merger, satisfaction of closing conditions precedent to the consummation of the proposed Merger, potential delays in consummating the Merger and the ability of the Company to timely and successfully achieve the anticipated benefits of the Merger, including the ability of the combined company to access the capital markets at such times and in such amounts, and on such terms, as needed to meet the Net Cash requirements of the Merger Agreement, execute its future business strategies and maintain its listing on the NYSE American or other national stock exchange, potential application of SEC and/or exchange “shall company” rules, and the ability of the combined company to successfully pursue its product lines in the manner and in the timeframe described here. The Merger Agreement contains certain closing conditions, including a minimum prevailing stock price for Ra Medical and Net Cash amount at closing, which do not constitute representations or covenants of either party, and are subject to waiver by the parties. If Ra Medical’s stock price drops below certain levels, the amount of merger consideration, if any, received by Catheter stockholders will be adversely impacted. The parties have reserved the right to waive conditions to the closing of the Merger and revise the Merger Agreement. Additional risks and uncertainties that could cause actual outcomes and results to differ materially from those contemplated by the forward-looking statements are included under the caption “Risk Factors” and elsewhere in the Company’s most recent filings with the SEC, including the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, the Current Report on Form 8-K being filed on the date hereof and any prior or subsequent reports on Form 10-K, Form 10-Q or Form 8-K filed with the SEC from time to time and available at www.sec.gov. Important business and financial information about Catheter Precision’s business and the related discussion and analysis of financial condition and results of operations of Catheter Precision is set forth in the Current Report on Form 8-K being filed on the date hereof and the exhibits thereto and should be read in conjunction with the Catheter Precision Financial Statements and the pro forma financial statements for the combined company that are attached as exhibits thereto. Risks and uncertainties related to the Merger, Catheter Precision, and the projections and estimates described above that may cause actual results to differ materially from those expressed or implied in any forward-looking statement are included “Risk Factors – Risk Related to the Merger with Catheter Precision and – Risks Related to Our Evaluation of Strategic Alternatives for our Legacy Assets,” and “Risk Factors – Risks Related to the Business of Catheter Precision,” which are filed as the exhibits to the Current Report on Form 8-K being filed on the date hereof. These documents can be accessed on the Company’s Investor Relations page at https://ir.ramed.com/ by clicking on the link titled “SEC Filings.” The risks and uncertainties may be amplified by the COVID-19 pandemic, which has caused significant economic uncertainty, and ongoing volatility in the stock markets and the U.S. economy in general. The extent to which the COVID-19 pandemic impacts the Company’s and Catheter Precision’s businesses, operations, and financial results, including the duration and magnitude of such effects, will depend on numerous factors, which are unpredictable, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume.
The forward-looking statements included in this communication are made only as of the date hereof. The Company and Catheter Precision assume no obligation and do not intend to update these forward-looking statements, except as required by law.
Disclaimer
This press release relates to a proposed business combination between the Company and Catheter Precision. This document does not constitute an offer to sell or exchange, or the solicitation of an offer to buy or exchange,
any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, sale or exchange would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.
Ra Medical Systems Contact:
LHA Investor Relations
Jody Cain
310-691-7100
jcain@lhai.com
# # #
Exhibit 99.2
SUMMARY DESCRIPTION OF BUSINESS
SEPTEMBER 9, 2022
Set forth below is a summary description of the business of Catheter Precision, Inc., a Delaware corporation (“Catheter”), which has been prepared as of the date set forth above in connection with a proposed merger (the “Merger”) with Ra Medical Systems, Inc. (“Ra”) and a Form 8-K regarding the Merger filed by Ra on or about the date hereof (the “Form 8-K”). This summary is intended to be read in conjunction with the Form 8-K and the other exhibits thereto, which include further information about the Merger, a Management’s Discussion and Analysis concerning Catheter, risk factors related to Catheter’s business and the Merger, historical financial statements of Catheter, and pro forma financial statements reflecting the proposed Merger. This summary should also be read in conjunction with Ra’s other past and future SEC filings, including its proxy statement related to the Merger when it becomes available and, to the extent relevant, registration statements filed under the Securities Act of 1933. Catheter stockholders should read this summary in conjunction with the Joint Private Placement Memorandum and Information Statement to be distributed by the two companies jointly in connection with the Merger. See also “CAUTION REGARDING FORWARD LOOKING STATEMENTS” in the Form 8-K. This summary speaks as of the date set forth above, and you should assume that the information set forth below is accurate only as of such date.
Overview
Catheter is dedicated to the design, manufacture and sale of new and innovative medical technologies focused in the field of cardiac electrophysiology (“EP”). Catheter’s primary product is the View into Ventricular Onset System or VIVO™ System (“VIVO” or “VIVO System”). Catheter is focused on the design, market development and usage adoption of Catheter’s VIVO System by cardiac electrophysiology specialists to enhance their ability to diagnose and treat cardiac arrhythmias. Catheter has completed development, received regulatory clearance and initiated sales of the VIVO System in the U.S. and Europe.
VIVO is a software based non-invasive imaging system that offers 3D cardiac mapping to help with localizing the sites of origin of idiopathic ventricular arrhythmias in patients with structurally normal hearts prior to electrophysiology studies. When using VIVO prior to the ablation procedure the physician is able to better plan the procedure resulting in reduced procedure time, increased safety for the patient and improved procedural success.
Catheter has been cleared to label the VIVO System with the CE Mark in the EU and certain other countries. The CE Mark designation allows us to market that product in countries that are members of the EU and the European Free Trade Association. Catheter has commenced limited sales of the VIVO System in Europe and the UK through independent distributors. Catheter’s international distributors are supported by two EU based full time and one part time employee.
Catheter has received United States Food and Drug Administration (“FDA”) approval to market and promote the VIVO System in the United States as a pre-procedure planning tool for patients with structurally normal hearts undergoing ablation treatment for idiopathic ventricular arrhythmias. VIVO allows for the acquisition, analysis, display and storage of cardiac electrophysiological data and maps for analysis by a physician. Catheter began a limited commercial launch of VIVO in 2021 and to date, VIVO has been utilized in more than 710 procedures in the US and EU by over 30 physicians, with no reported device-related complications.
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Prior to 2018, Catheter marketed the Amigo® Remote Catheter System (the “Amigo” or “Amigo System”), which provides for accurate positioning, manipulation, and stable control of catheters for use by electrophysiologists in the diagnosis and treatment of abnormal heart rhythms known as cardiac arrhythmias. Amigo was designed for us during the ablation procedure, to allow the physician to remotely navigate standard commercially available catheters, with stability and precision, and maintains catheter locations within the heart while decreasing radiation exposure and avoiding long periods standing bedside in heavy protective lead aprons. Amigo was used in over 2,000 procedures in the US and Europe and was well received by leading experts in the field of EP. We own the intellectual property related to Amigo, and this product is under consideration for future research and development of a generation 2 product.
Electrophysiology Market
Cardiac Electrophysiology, or EP, is one of healthcare’s largest sectors and rapidly growing. The EP market includes well known medical devices such as pacemakers, ECG systems and cardiac catheters, but also laboratory equipment such as intracardiac mapping systems and fluoroscopy systems (similar to x-ray in real time). The EP market includes large medical device companies such as Medtronic, Plc., Abbott Laboratories, Biosense-Webster (J&J) and Boston Scientific Corp. and was estimated to be $6.8 billion in 2020 and growing to $10.6 billion by 2025 (CAGR of 9.1%). Population growth, increasing rates of heart disease and the rising cost of healthcare are driving growth in the EP markets.
Within the EP market, Catheter Precision focuses its products on the catheter ablation market. The catheter ablation market was $3.2 billion in 2020 and estimated to grow to $6.4 billion in 2026. The catheter ablation market is growing at a faster rate (12.4% CAGR) than the EP market as a whole.
Within the last 10 years, ventricular ablation has become a fast-growing treatment option. Currently, there are about 80,000 ventricular ablations annually and VT ablations represent approximately 16% of ablations in the US. Currently, the market is underserved, and this number is expected to increase to over 250,000 procedures by 2026. The ventricular ablation market is growing at 21% CAGR, which is a faster rate than the global EP market and the catheter ablation market as a whole. The growth in the ventricular ablation market is driven by advances in EP technology as well as updated physician guidelines. The Heart Rhythm Society (HRS) Expert Consensus Statement on Catheter Ablation of Ventricular Arrhythmias, published in May 2019 recommends catheter ablation in preference to anti arrhythmic drugs or in the situation where anti arrhythmic therapy has failed or is not tolerated. The guidelines also recommend ablation for reducing recurrent VT and implantable cardioverter-defibrillator shocks.
Existing Treatments and Methods for Catheter Ablations
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Traditionally, the first line of treatment for cardiac arrhythmias is medication. Unfortunately, this is not a permanent fix and most patients eventually need a catheter ablation.
Catheter Ablation Procedure Overview
An electrophysiologist stands next to the patient’s bed near the patient’s groin. A catheter or catheters are inserted into the femoral vein (located at the groin) and navigated into the right side of the heart. Depending on the type of arrhythmia, the catheter is inserted into the atrium or the ventricle. Once inserted, a diagnostic catheter is used in conjunction with an invasive (traditional) mapping system to create a map of the patient’s heart. This allows the physician to see the individual patient’s cardiac structures and size. Once the map is created, the physician begins to “pace map.” This process requires the physician to move the catheter from spot to spot to determine the electrical conduction at different areas to determine if the tissue in that area is responsible for the arrhythmia. Once the area is located, the physician will provide a form of energy (radiofrequency, cryo, etc.) to ablate the tissue in that spot.
Treatment Challenges for Ventricular Arrhythmias
Treatment of ventricular ablations with cardiac ablations is a relatively new treatment option. As a result the patient population is underserved, not as well understood, and the available techniques and technologies available are limited when compared to the atrial ablation options.
Ablation locations within the ventricle are very difficult to identify. Often, patients are highly symptomatic (dizzy, breathing difficulties, etc.) but the arrhythmia is infrequent. When this happens, it is hard to predict when the patient will be having an “active” arrhythmia. Because of this, the physician may not be able to identify the location even when using medication to induce the arrhythmia. Without confirmation during invasive mapping, the patient is removed from the electrophysiology lab without the ablation procedure being performed and the patient having to return at a later date and try again for a successful outcome.
Even when a patient has frequent ventricular arrhythmias, the process of pace-mapping often takes 4 – 5 hours to identify the location for ablation, which can increase the likelihood of patient complications due to the extended time under anesthesia.
Lastly, many patients with untreated ventricular arrhythmias cannot tolerate anesthesia well, thus long invasive mapping is not an option for them.
Treatment Challenges for Atrial Arrhythmias
Catheter ablation for atrial arrhythmias is more standardized and “advanced” than for ventricular ablations, thus less pace mapping is required. Instead, a procedure called Pulmonary Vein Isolation (PVI) is performed for atrial fibrillation (AF), and a single line is ablated for atrial flutter.
Despite steady improvement in the tools available to perform effective procedures, there is clear study evidence that catheter based atrial fibrillation treatment technology can become more effective. According to a study entitled “Long Term Outcomes of Catheter Ablation of Atrial Fibrillation: A Systematic Review and Meta- Analysis” published in the Journal of American Heart Association on March 18, 2013, which looked at multiple individual studies covering over 6,000 patients, “single procedure freedom from atrial fibrillation at long term follow up was 53.1%.” The same study found “with multiple procedures performed, the long-term success rate was 79.8%.” Ineffective treatment may result in patients undergoing two or more EP procedures to achieve relief from AF at an estimated cost in the range of $20,000 or more per procedure.
Specific reasons have not been proven for the lower success rate of initial ablation procedures. However, there is growing evidence that better results occur if the treating EP physician is able to make better lesions by maintaining stable contact force of the catheter against the heart wall, thereby reliably delivering the energy required to eliminate the abnormal rhythms. Variation in catheter contact force occurs as the physician attempts
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to manually position and hold the catheter tip in a stable position during cases lasting 2 to 3 hours in order to perform typically over 100 small tissue burns (ablations) of the cardiac anatomy.
Large multi-national medical device companies, such as Medtronic, Inc., Boston Scientific Corp., Abbott Laboratories, St. Jude Medical, Inc. and the Biosense Webster division of Johnson & Johnson, among others, continue to invest heavily to develop and introduce new devices and technologies to improve patient outcomes. Included among these are force-sensing catheters, including the Biosense SmartTouch TM catheter, which provide a continuous readout of the contact force between the catheter and the heart wall. Our business is focused on the controlled delivery of these catheter technologies to enhance both the performance of ablation procedures and the ease and safety for the physicians who perform them.
A recent peer-reviewed multicenter study sponsored by Biosense Webster, entitled “Paroxysmal AF Catheter Ablation with a Contact Force Sensing Catheter” found that catheter ablation success rates can be as high as 80% when the physician is able to maintain stable contact force within investigator selected working ranges. “The increased percent of time within Investigator selected working ranges > 80% of the time during therapy, outcomes were 4.25 times more likely to be successful.” Further, “stable contact force during radiofrequency application increases the likelihood of twelve-month success.” However, it should be noted, that using manually controlled methods, the physicians in the study could only maintain optimal tissue contact in less than 30% of the patients studied.
In addition, another study, sponsored by St. Jude Medical, Inc., showed similar findings using their recently FDA-approved contact-force sensing catheter. In the TOCCASTAR study, 85.5% of ablation procedure patients were free of atrial fibrillation at one year after the procedure when optimal catheter tip contact force was maintained, versus only 67.7% when non-optimal contact force was achieved.
Catheter Precision’s Ventricular Solution – VIVO
VIVO is a non-invasive 3D imaging system that enables physicians to identify the origin of ventricular arrhythmias pre-procedure. This can reduce procedure time, patient complications and healthcare costs while improving patient outcomes.
The VIVO software is provided on an off the shelf laptop, and the system includes a 3D camera. In addition, the system can only be used with a disposable component, the VIVO Positioning Patches, which are required for each procedure.
The VIVO software contains proprietary algorithms that are based on standard EP principles. However, the accuracy of the algorithms is improved because it does not use generalized assumptions and instead, uses patient specific information. VIVO uses standard clinical inputs such as a CT or MRI and a 12 lead ECG, both of which
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are routinely gathered for most EP procedures, allowing VIVO to seamlessly integrate into the workflow. A 3D photograph is obtained of the patient’s torso after the ECG leads are in place and all of these clinical inputs are combined to generate a 3D map of the patient’s heart with a location of the earliest onset of the ventricular arrhythmia.
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VIVO Workflow
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VIVO Clinical Use and Studies
To date, VIVO has been used in more than 710 procedures, by more than 30 physicians in 7 countries. Initial clinical work was completed with the first-generation software, which resulted in FDA 510(k) Clearance in June 2019.
The US multi-center study enrolled 51 patients from 5 centers. Of note, the Principal Investigator and center to have the highest enrollment was Johns Hopkins University in Baltimore, Maryland. This study was conducted to evaluate the accuracy of VIVO as compared to invasive mapping systems (current method for determining arrhythmia origins). VIVO met all study endpoints and correctly matched the predicted arrhythmia origin in 44/44 patients (100%; primary endpoint) and correctly matched paced sites in 225/226 locations (99.56%; secondary endpoint). In some instances, this study showed that VIVO has better predictability for arrhythmia origin than a physician’s manual review of a 12 lead ECG.
While conducting the initial clinical study for FDA submission, Catheter developed generation 2 in parallel with a goal to have this version complete and ready to submit upon 510(k) clearance of generation 1. Catheter successfully achieved this goal and received CE Mark and FDA 510(k) Clearance for generation 2.
Additional clinical work has occurred with generation 2. Until recently, this data has been single center, physician-initiated research and has resulted in peer reviewed clinical science at electrophysiology conferences and in journals.
Three physicians, at different centers, in the UK conducted a feasibility study for Stereotactic Ablative Radiotherapy (SABR) and published their data on nine patients. SABR is an ablation technique utilizing non-invasive methods akin to proton therapy for cancer treatment. To do a complete non-invasive ablation, accurately predicting the ablation location non-invasively is key to procedural success, and VIVO was utilized for this purpose. Non-invasive ablation is a new technique and requires additional data, but it is showing promise and has generated excitement within the EP community. If accepted for wide-spread treatment, this would allow for previously un-ablatable patients to receive lifesaving treatments.
A currently ongoing study is being conducted at the Royal Brompton Hospital, which has enrolled 10 patients so far and examined procedure time for these 10 patients. When these initial 10 VIVO patients were compared to a historical cohort, the patients in which VIVO was utilized were found to have a reduction in procedure time of approximately 30%. This data has not yet been published.
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In April 2022, one physician from the Netherlands presented an abstract at EHRA (European Heart Rhythm Association), focused on using VIVO as a way to screen patients prior to the ablation procedure. This study of 15 patients concludes that using VIVO pre-procedurally may enable the physician to determine procedure success rates and prevent unnecessary ablation procedures. This data will need to be further studied in larger numbers but determining success in advance of the procedure would improve ablation therapy, which has a high failure rate and thus requires additional ablation procedures.
In October 2021 the first patient was enrolled in the VIVO EU Registry. This registry aims to gather data about how VIVO is used in real-world settings, outside of a rigorous clinical study. The registry will enroll 125 patients across Europe and the UK and collect information about different workflows and applications for VIVO. To date, 51 patients have been enrolled and enrollment is targeted to be complete in Q2 2023. This data serves multiple purposes including fulfilling European regulatory requirements for on-going data collection, publication of multi-center data, and future development of studies and improvements to the VIVO technology.
Government Regulations
Governmental authorities in the U.S. (at the federal, state, and local levels) and abroad extensively regulate, among other things, the research and development, testing, manufacture, quality control, clinical research, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting, marketing, and export and import of products such as those we market and are developing.
FDA Regulation
In the U.S., FDA subjects pharmaceutical and biologic products to rigorous review. If Catheter does not comply with applicable requirements, we may be fined, the government may refuse to approve our marketing applications or to allow us to manufacture or market our products, and we may be criminally prosecuted. Failure to comply with the law could result in, among other things, warning letters, civil penalties, delays in approving or refusal to approve a product, product recall, product seizure, interruption of production, operating restrictions, suspension or withdrawal of product approval, injunctions, or criminal prosecution.
United States Anti-Kickback and False Claims Laws
In the U.S., there are Federal and State anti-kickback laws that prohibit the payment or receipt of kickbacks, bribes or other remuneration intended to induce the purchase or recommendation of healthcare products and services. Violations of these laws can lead to civil and criminal penalties, including exclusion from participation in Federal healthcare programs. These laws are potentially applicable to manufacturers of products regulated by the FDA as pharmaceuticals, biologics, medical devices, and hospitals, physicians and other potential purchasers of such products. Other provisions of Federal and State laws provide civil and criminal penalties for presenting, or causing to be presented, to third-party payers for reimbursement, claims that are false or fraudulent, or which are for items or services that were not provided as claimed. In addition, certain states have implemented regulations requiring medical device and pharmaceutical companies to report all gifts and payments of over $50 to medical practitioners. This does not apply to instances involving clinical trials.
Although Catheter intends to structure its future business relationships with clinical investigators and purchasers of our products to comply with these and other applicable laws, it is possible that some of our business practices in the future could be subject to scrutiny and challenged by Federal or State enforcement officials under these laws.
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Research and Development Expense
Research and development costs and expenses consist primarily of fees paid to external service providers, laboratory testing, supplies, costs for facilities and equipment, and other costs for research and development activities. Research and development expenses are recorded in operating expenses in the period in which they are incurred.
Employees
As of the date of this Joint Information Statement/PPM, Catheter has 7 employees. Catheter does not expect material changes to this number for New Catheter immediately following the Merger.
Properties
Catheter’s administrative, manufacturing and development activities are performed in a 3,000 square foot leased facility in Mount Olive NJ. The lease had an original term of three years and is due to expire December 31, 2022. For the year ended December 31, 2021 and 2020, the amounts paid for rent to totaled $25,585 and $25,934, respectively. Catheter’s principal offices are located at 500 International Drive, Mount Olive, NJ 07828, telephone (973) 691-2000, facsimile (973) 691-7573.
Catheter believes its existing facilities are suitable to meet current and future anticipated operational needs.
Catheter Financial Statements
The following financial statements are filed as exhibits with the Form 8-K:
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Audited financial statements of Catheter for the fiscal years ended December 31, 2021 and December 31, 2020 |
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Unaudited financial statements of Catheter for the six-month periods ended June 30, 2022 and June 30, 2021 |
Unaudited pro forma combined financial information of Ra Medical Systems, Inc. and Catheter Precision, Inc. as of June 30, 2022 and for the year ended December 31, 2021 and the six months ended June 30, 2022.
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Exhibit 99.3
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 9, 2022
Set forth below is a Management’s Discussion and Analysis of the Financial Condition and Results of Operations (“MD&A”) of Catheter Precision, Inc., a Delaware corporation (“Catheter” or, for the purposes of this MD&A, the “Company”), which has been prepared as of the date set forth above in connection with a proposed merger (the “Merger”) with Ra Medical Systems, Inc. (“Ra”) and a Form 8-K regarding the Merger filed by Ra on or about the date hereof (the “Form 8-K”). This MD&A is intended to be read in conjunction with the Form 8-K and the other exhibits thereto, which include further information about the Merger, a summary description of Catheter’s business, risk factors related to Catheter’s business and the Merger, historical financial statements of Catheter, and pro forma financial statements reflecting the proposed Merger. This MD&A should also be read in conjunction with Ra’s other past and future SEC filings, including its proxy statement related to the Merger when it becomes available and, to the extent relevant, registration statements filed under the Securities Act of 1933. Catheter stockholders should read this summary in conjunction with the Joint Private Placement Memorandum and Information Statement to be distributed by the two companies jointly in connection with the Merger. This MD&A contains forward-looking statements that involve risks and uncertainties. See “CAUTION REGARDING FORWARD LOOKING STATEMENTS” in the Form 8-K, and the risk factors filed with the Form 8-K, for further information regarding the considerations which cause actual results to vary from the forward looking statements contained herein. This MD&A speaks as of the date set forth above, and you should assume that the information set forth below is accurate only as of such date.
Impact of COVID-19
COVID-19 has adversely affected Catheter’s financial condition and results of operations. The impact of the COVID-19 outbreak on businesses and the economy in the United States is expected to continue to be significant. The extent to which the COVID-19 outbreak will continue to impact businesses and the economy is highly uncertain. Accordingly, Catheter cannot predict the extent to which its financial condition and results of operation will be affected.
On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency caused by a new strain of the coronavirus and advised of the risks to the international community as the virus spread globally. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic based on the rapid increase in exposure globally. The spread of COVID-19 coronavirus has caused public health officials to recommend precautions to mitigate the spread of the virus, especially as to travel and congregating in large numbers. In addition, certain states and municipalities have enacted quarantining regulations which severely limit the ability of people to move and travel.
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In addition, Catheter is uncertain of the full effect the pandemic will have on it for the longer term since the scope and duration of the pandemic is unknown, and evolving factors such as the level and timing of the distribution of efficacious vaccines across the world and the extent of any resurgences of the virus or emergence of new variants of the virus, such as the Delta variant and the Omicron variant, will impact the stability of economic recovery and growth. Catheter may experience long-term disruptions to its operations resulting from changes in government policy or guidance; quarantines of employees, customers and suppliers in areas affected by the pandemic; and closures of businesses or manufacturing facilities critical to its business.
Overview
Catheter’s primary customers are hospitals providing cardiac electrophysiology lab procedures. Catheter believes there are 2,000 - 3,000 EP labs in the US and a similar number of labs outside of the US performing approximately 600,000 ablation procedures annually.
Currently, ventricular ablations are underserved and there are approximately 80,000 procedures annually. Due to growth drivers, such as an aging population and technological advancements in this space, this number is expected to continue to grow.
Catheter’s business model involves the one-time sale of the VIVO software on a laptop to hospitals as a capital purchase followed by the sale of Catheter’s single-use disposable patches for use in creating the 3D image. Following the initial software sale, Catheter provides customer support through training and sales of Catheter’s single-use disposable, the VIVO positioning patches. The use of the positioning patches represents opportunity for recurring revenue for each procedure using the VIVO System. Catheter also sells service contracts providing various levels of ongoing product service, support and training. Additionally, Catheter hopes to generate future revenue through upgrades and enhancements, with future generations of software.
Product Evaluations, Purchasing and Training
Before purchase, most customers choose to evaluate VIVO to learn how it works and ensure that it provides value to their practice. A product evaluation is free of charge for five patients, utilizes designated evaluation units and is supported by a clinical specialist. In general, the evaluation is completed no more than 8 weeks after the first procedure, but the goal is to complete the evaluation process in a shorter time frame. During the evaluation procedures, a VIVO clinical specialist assists the hospitals in obtaining properly formatted imaging (CT or MRI) from the radiation department and conducting training for the staff. The staff are taught how to upload CT or MRI, take a 3D image, and upload the 12 lead ECG recording into the VIVO System. The clinical specialist is on site to aide in the creation of a model of the patient heart and torso. At the end of the evaluation, case summaries are compiled and presented to the physician.
Upon receipt of a purchase order for a VIVO system, a clinical specialist will return to the hospital and conduct additional training. There are no significant installation activities for the VIVO System. The goal of training is to ensure that the hospital staff can upload data into VIVO. Catheter’s staff can login remotely to the VIVO system and provide continued support in creating the heart and torso model.
Corporate Growth Strategy
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Our goal is to establish VIVO as an integral tool used by cardiac electrophysiologists during ablation treatment of ventricular arrhythmias by reducing procedure time and patient complications and increasing procedural success.
In today’s healthcare environment, the process for new technologies to be adopted and penetrate market share has become more complex, with the need to win over multiple stakeholders within clinical, administrative and support teams in hospitals, and increasingly Catheter must target the administrators in integrated delivery networks. To accomplish this, Catheter intends to:
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Develop initial users that demonstrate clinical and economic benefits and support studies which provide evidence of tangible benefits to prospective customers, such as procedural success, patient complications and reduced procedure times. |
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Collaborate with clinical thought leaders to establish clinical techniques, evolve Catheter’s product features and demonstrate enhanced capabilities to broaden the appeal of VIVO. |
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Expand Catheter’s FDA clearance to market Catheter’s products for additional procedure types. In Europe, Catheter is cleared for pre-procedural planning in all types of hearts and procedures. In the US, Catheter will seek clearance for ischemic hearts to broaden the indications for use of our products, which can expand clinical demand. |
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Enhance the design, user utility and clinical capability of VIVO through further product development and collaboration with clinical users. |
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Seek to engage collaboration with larger market participants and their larger sales force coverage to integrate the prospecting, sale and support of Catheter’s products in conjunction with other products used in electrophysiology procedures. |
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Opportunistically identify acquisitions to enhance Catheter’s enterprise scale, sales synergy and fixed cost coverage. |
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Seek to obtain codes for reimbursement from Medicare to broaden the appeal of using VIVO in the physician’s clinic. |
Significant Investment in U.S. Sales Organization
Today, Catheter utilizes a mix of distribution partners (Europe), independent sales agents (US) specializing in EP products, and direct employees providing clinical support and product specialization. In the U.S., the VIVO System and patches are currently sold by independent sales agents who call on electrophysiologists, lab staff and hospital administrators. This sales team qualifies appropriate prospective customers, and with support from Catheter’s direct clinical specialists they conduct product demonstrations, and support customer training and case usage. In Europe, Catheter’s products are sold through distributors, supported by three full time and one part time contracted employees.
In addition, in both the US and Europe, Catheter has entered into a co-marketing agreement with Stereotaxis (“STX”). The goal is to leverage the compatibility of VIVO with their robotic system. STX customers are the same customers for VIVO, and VIVO provides their customers with an added tool to reduce procedure time.
For the immediate future, Catheter plans to continue marketing its products in the United States through regional sales agents who identify target prospective customers to educate, and demonstrate Catheter’s products, leading to adoption and purchase of Catheter’s technology. Catheter will continue to use direct clinical specialists to provide training and ongoing clinical support.
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In the future, Catheter intends to market Catheter’s products in the United States and certain International markets using a combination of a direct sales force and independent distributors. This may require Catheter to make a significant investment building Catheter’s U.S. commercial infrastructure and sales force and in recruiting and training Catheter’s sales representatives and clinical specialists for U.S. commercialization of VIVO. This is a lengthy process that requires recruiting appropriate sales representatives, establishing a commercial infrastructure in the United States, and training Catheter’s sales representatives, and will require significant ongoing investment by us. Following initial training, Catheter’s sales representatives typically require lead time in the field to grow their network of accounts, coordinate their sales efforts with each hospital’s capital budgeting and acquisition cycle and produce sales results. Successfully recruiting and training a sufficient number of productive sales representatives is required to achieve growth at the rate Catheter desires.
Marketing and market development activities will target increasing Catheter’s product usage and expanding the applications of VIVO into the physician clinic and not just hospitals by employing a reimbursement specialist to provide reimbursement for VIVO in different settings.
Outside the United States, Catheter will continue to foster additional key partner relationships with distributors who will market, sell and support its products.
In addition, Catheter believes there are opportunities to offer additional complementary products through Catheter’s sales and marketing channels that would enhance the productivity of Catheter’s sales force and provide additional scale to Catheter’s revenue, better covering fixed operating costs.
VIVO License Agreements
On May 1, 2016, Catheter entered into a certain Software and Technology license agreement with PEACS, NV, a Netherlands company (“PEACS”), for the exclusive worldwide license of the underlying technology to its VIVO product, including intellectual property rights and patent applications pertaining thereto. The license was for use of the technology for the field of use defined as “the localization of the origin of cardiac activation for the electrophysiology treatment and/or detection of cardiac arrhythmias.” In consideration for the license, Catheter issued to PEACS 300,000 shares of Catheter’s common stock. The license agreement called for Catheter to pay for the prosecution and maintenance of patents to protect the technology.
Simultaneously with the execution of the license agreement, Catheter also entered into a Consulting agreement, which called for PEACS to continue in the development of the technology, with monthly payments aggregating $1,512,000 over three years.
In May, 2021, the Software and Technology License Agreement was modified to modify the field of use specifically exclude the use of clinical applications for the implanting of atrial or ventricular pacemakers, including bi-ventricular pacemakers. As part of the modification, Catheter and PEACS agreed to settle certain differences between them, including amounts due under the consulting agreement. A final payment of $375,000 was paid by Catheter for services under the Consulting Agreement, and the Consulting Agreement was cancelled and terminated. PEACS paid Catheter $200,000 for certain intellectual property rights to methods and systems for cardiac resynchronization.
Royalty Agreements
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In February 2022 Catheter agreed to a royalty agreement for a design from a third party individual for a device which could be used for the closure of wound openings created by a physician for the insertion of catheters or other instruments into the body (the “Surgical Vessel Closing Pressure Device”). Catheter has since filed a provisional application with the US Patent and Trademark Office, covering the idea assigned to Catheter. Catheter has agreed to pay a royalty fee of 5% on net sales up to $1 million, reducing thereafter to 2% of net sales up to a total of $10 million in royalties. Royalty payments end on revenues through February 28, 2032, regardless if the total of $10 million has been paid.
If the Merger closes, additional royalty rights (the “Royalty Rights”) with respect to the Surgical Vessel Closing Pressure Device are expected to be granted to the holders (the “Noteholders”) of Catheter’s currently outstanding convertible promissory notes (the “Notes”) in exchange for forgiveness of the interest that has accrued under those notes but remains unpaid, pursuant to the terms of certain Debt Settlement Agreements expected to be entered into in connection with the Merger. The agreements provide for the Noteholders to receive, in the aggregate, 12% of the Net Sales, if any, of the Surgical Vessel Closing Pressure Device, to be allocated proportionately among the Noteholders based upon the amount of accrued but unpaid interest owing to each. David A. Jenkins, Catheter’s Chairman of the Board and CEO, and his affiliates will receive 11.77%, and a trust established by one of Catheter’s directors will receive .05%. For further information regarding the Notes, see below “Comparison of the Six Months Ended June 30, 2021 and 2022 -- Convertible Promissory Notes – Related Parties and Derivative Liability” and “Liquidity and Capital Resources.”
Investment in Research and Development
Research and development expense primarily consists of salaries, product development, third-party contractors, and materials as well as costs related to obtaining regulatory approvals.
For the years ended December 31, 2021 and 2020, Catheter recorded research and development expenses of $422,354 and $686,136, respectively. Included in research and development costs for the year ended December 31, 2020 was an accrual of approximately $250,000 related to the PEACS license. During 2020, Catheter employed one full time and one part time product development employee. During 2021, Catheter shifted its product development activities to a third party consulting group.
Catheter intends to continue investing resources in research and development in the future to facilitate the use of the VIVO System by developing product enhancements to improve product performance and patient outcomes, and enhance the physician and patient experience, and to build and maintain Catheter’s patient registry.
VIVO Manufacturing
VIVO manufacturing, inventory and product fulfillment is housed in Catheter’s 3,000 square feet headquarters office in Mt. Olive, NJ. This facility has one full time employee for fulfillment and other administrative activities and one part-time consultant who oversees manufacturing and quality objectives.
The VIVO software is installed on an off the shelf laptop which meets product specifications pertaining to graphics cards, storage, and screen size. The VIVO system also comes with an off the shelf 3D camera, RealSense™, purchased from Intel.
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The VIVO Positioning Patches are a disposable component that is single use and required to be used on each patient at the time the 3D image is taken. This product is manufactured by a third party and shipped to Catheter’s facility.
Comparison of the Six Months Ended June 30, 2021 and 2022
Revenue, Cost of Sales and Gross Profit
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For the Six Months Ended June 30, |
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2021 |
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2022 |
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Revenue |
$33,821 |
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$132,337 |
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Cost of sales |
4,874 |
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8,242 |
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Gross profit |
$28,947 |
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$124,095 |
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Revenue
Revenue is generated from the sales of our VIVO System, software upgrades and single use disposable patches directly to hospitals and to our international distributors. Revenue for the six months ended June 30, 2022 increased by $98,516 from $33,821 to $132,337 as we initiated a limited market release of VIVO in the US during 2021.
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For the Six Months Ended June 30, |
Revenue by Type |
2021 |
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2022 |
Net sales from sale of hardware |
$33,821 |
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$110,527 |
Net sales from sale of software |
- |
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21,810 |
Net sales from software upgrades |
- |
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- |
Total Net Sales |
$33,821 |
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$132,337 |
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Cost of Sales
Cost of Sales for the six months ended June 30, 2022 increased by $3,368 from $4,874 to $8,242. The principal component of cost of sales is the cost of the off the shelf computer incorporated into a VIVO System as well as the cost of disposable patches sold to customers.
Gross Profit
Gross profit for the six months ended June 30, 2022 increased by $95,148 from $28,947 to $124,095 due to increased sales. Given our limited operations and the use of outside vendors, Catheter is able to operate with low fixed overhead costs. We believe we will be able to effectively manage costs in this manner for the next 12 to 24 months.
Operating Expenses
Our operating expenses consist of research and development expense, sales and marketing expense and general and administrative expense. Personnel costs are the most significant component of operating
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expenses and consist of salaries, benefits, stock-based compensation, and sales commissions. We expect operating expenses to increase in absolute dollars as we grow our business.
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For the six months ended June 30, |
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2021 |
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2022 |
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General and Administrative Expense |
$658,922 |
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$723,525 |
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Research and Development Expense |
146,535 |
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114,829 |
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Sales and Marketing Expense |
472,242 |
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614,288 |
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Total Operating Expense |
$1,277,699 |
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$1,452,642 |
General and Administrative Expense
General and administrative expense consists primarily of personnel costs, including salary, employee benefits and stock-based compensation expenses for our administrative personnel that support our general operations, such as information technology, executive management and financial accounting. It also includes costs attributable to intellectual property and other legal fees, audit fees, general business insurance, consulting services, depreciation and facilities costs.
General and administrative expense for the six months ended June 30, 2022 increased by $64,603 from $658,922 to $723,525. The increase was attributable to higher legal, audit and professional accounting fees and by higher salary expense.
Research and Development Expense
Research and development costs are expensed as incurred. Research and development expense consist of costs of technology licenses, third-party software development consultants, engineering supplies and materials. Research and development expense also include costs related to our clinical and quality and regulatory activities, including medical advisors, contractors, research grants and all clinical study-related costs.
Research and development expense for the six months ended June 30, 2022 decreased by $31,706 from $146,535 to $114,829. During the six months ended June 30, 2021, we charged to research and development expense approximately $17,000 of costs incurred with our third-party design engineering contractor related to the VIVO which were largely non-recurring in 2022. During 2021, the Company incurred clinical study related costs of approximately $59,000 as compared to approximately $46,000 during 2022.
It is likely that we will incur increased clinical and regulatory related costs in 2022 and beyond, including costs associated with our post-market surveillance registry of our most recent FDA de novo clearance for use of the VIVO System and costs of any study undertaken as we attempt to expand our approved indications for use.
Sales and Marketing Expense
Sales and marketing expense consist primarily of personnel costs, including salary, commissions, employee benefits and stock-based compensation expenses for our sales and marketing personnel and contractors in the U.S. and Europe. It also includes costs associated with product demonstrations, trade shows, marketing materials, royalties, and travel.
27
Sales and marketing expense for the six months ended June 30, 2022 increased by $142,046 from $472,242 to $614,288. The primary cause for the increase was an increase in headcount, travel, trade show and related expenses as we achieved limited commercialization of VIVO in the US and EU.
Other Income and Expense, Income Tax Benefit
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, |
|
|
2021 |
|
2022 |
|
|
Interest income |
$25 |
|
$- |
|
|
Interest expense |
(1,361,315) |
|
(1,537,043) |
|
|
Gain on Forgiveness of PPP loan |
200,000 |
|
- |
|
|
Gain on transfer of intangible assets |
200,000 |
|
- |
|
|
Change in fair value of derivative liability |
(22,664) |
|
(57,232) |
|
|
Loss on Foreign currency transaction |
(2,146) |
|
(6,623) |
|
|
|
$(986,100) |
|
$(1,600,898) |
|
|
|
|
|
|
|
Interest Expense
The aggregate balance of the Company’s convertible promissory notes (the “Notes”), including amounts payable to officers, directors and stockholders of the Company is $25,465,000 at June 30, 2022. The notes accrue interest at a rate of 12% per year that is payable in cash upon maturity. During the six months ended June 30, 2022, the Company recorded interest expense of $1,537,043 on these notes as compared to $1,361,315 during the six months ended June 30, 2021. Interest expense increased due to increased borrowing under the notes.
Accrued but unpaid interest on the notes at June 30, 2022 was $12,546,716.
Forgiveness of PPP loan
On April 30, 2020, the Company received approximately $200,000 in loan proceeds from the Payroll Protection Program (the “PPP”) administered by the Small Business Administration (the “SBA”) of the United States government. This program was established under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). In accordance with the provisions of the PPP, the use of the proceeds is restricted by the CARES act for such expenses as payroll related costs and other allowable costs as defined by the PPP. The Company submitted the application for forgiveness of the PPP loan on November 4, 2020. During the year ended December 31, 2021 the Company received forgiveness for the entire amount of principal and accrued interest of the PPP loan. The Company recorded a gain for the loan proceeds forgiven within other income for the six months ended June 30, 2021.
Gain on transfer of intangible assets
In May 2020, the Company received a Summons to appear before the District Court of the Hague in a matter brought against the Company by PEACS B.V. The dispute concerns the ownership of one of the Company’s European patents and services provided by PEACS B.V. relating to its VIVO product. Management accrued $375,000 at December 31, 2020 representing its best estimate for the resolution of the PEACS B.V dispute.
28
In May 2021, the Company and PEACS B.V. settled the outstanding litigation. As part of the settlement, the Company agreed to pay PEACS B.V. $375,000. Additionally, PEACS B.V. agreed to pay $200,000 to the Company for the transfer of certain patents. Ultimately, the $200,000 due for the transfer of the patents was offset against the $375,000 due to PEACS B.V. Therefore, the Company paid PEACS B.V. $175,000 and recorded a gain on the transfer of intangible assets of $200,000 for the six months ended June 30, 2021.
Convertible Promissory Notes – Related Parties and Derivative Liability
In March 2017, the Company issued convertible promissory notes (the “Notes”) to four shareholders of the Company for an aggregate principal amount of $10,410,000. The notes bear interest at a rate of 12% per annum and matured on December 31, 2017 (“Maturity Date”). Upon Maturity Date, the four shareholders extended all terms related to the Notes. Any new monies provided under the Notes were also made pursuant to the same terms and, effective January 1, 2018, all monies due pursuant to the Note are due and payable on demand.
In 2020, the related party holder of Convertible Promissory Note One provided the Company with an additional $2,920,000 in cash proceeds which was received by the Company for the year ended December 31, 2020.
In 2021, the related party holder of Convertible Promissory Note One provided the Company with an additional $2,350,000 in cash proceeds which was received by the Company for the year ended December 31, 2021.
During the six months ended June 30, 2022 , the related party holder of Convertible Promissory Note One provided the Company with an additional $1,480,000 in cash proceeds which was received by the Company for the six months ended June 30, 2022. All monies due pursuant to the Note are due and payable on demand.
The Notes provide that upon the closing of the Company’s next financing in an aggregate amount greater than $8,000,000 (“Next Financing”), the outstanding principal balance of each Note shall convert into shares of stock at a conversion price per share equal to 80% of the lowest price per share paid by the investors in the Next Financing. The Notes also provide that upon a Change in Control, the Notes will either become due and payable in full prior to closing, or will convert into Company common stock or other securities on terms and conditions agreed upon by the Company and the requisite purchasers.
Upon closing, the Notes settle by providing the holder with a variable number of shares sold in the Next Financing with an aggregate fair value determined by reference to the debt principal. In this scenario, the value that the holder receives at settlement does not vary with the value of the Company's common stock, so the settlement provision was not a typical conversion option. Rather, the share settlement feature was considered a contingent redemption provision (i.e., a contingent embedded put). The Company evaluated the embedded put features in accordance with ASC 815-15-25. The embedded puts are not clearly and closely related to the debt host instrument and therefore have been separately measured at fair value, with subsequent changes in fair value recognized in the Statement of Operations.
Management used a scenario-based analysis to estimate the fair value of the embedded put features at issuance of the Convertible Notes as of June 30, 2022 and December 31, 2021. At June 30, 2022 and December 31, 2021, the fair value of the derivative liability was $1,182,000 and $1,057,000, respectively. The Company recorded a loss related to the increase in fair value of the derivative liability of $57,232 and $22,664 for the six months ended June 30, 2022 and 2021, respectively. Additionally, the Company
29
recorded debt discounts to the Notes which were fully amortized as non-cash interest expense of $67,768 and $53,336 for the six months ended June 30, 2022 and 2021, respectively.
If and when the Merger closes, the Notes are expected to be discharged pursuant to the terms of the Debt Settlement Agreements as further described below under “Liquidity and Capital Resources.”
Comparison of the Years Ended December 31, 2020 and 2021
Revenue, Cost of Revenue and Gross Loss
|
|
|
|
|
|
|
2020 |
|
2021 |
|
Revenue |
$48,103 |
|
$148,569 |
|
Cost of sales |
3,160 |
|
9,633 |
|
Gross profit |
$44,943 |
|
$138,936 |
|
|
|
|
|
Revenue
Revenue is generated from the sales of Catheter’s VIVO System and single use disposable patches directly to hospitals and to Catheter’s international distributors. Revenue for the year ended December 31, 2021 increased by $100,466 from $48,103 to $148,569 as Catheter initiated a limited market release of VIVO in the US. All of Catheter’s sales are denominated in U.S. dollars.
Cost of Sales
Cost of Sales for the year ended December 31, 2021 increased by $6,473 from $3,160 to $9,633. The principal component of cost of sales is the cost of the off the shelf computer incorporated into a VIVO System as well as the cost of disposable patches sold to customers.
Gross Profit
Gross profit for the year ended December 31, 2021 increased by $93,993 from $44,943 to $138,936. Given Catheter’s limited operations and the use of outside vendors, Catheter is able to operate with low fixed overhead costs. Catheter believes it will be able to effectively manage costs in this manner for the next 12 to 24 months.
Operating Expenses
Catheter’s operating expenses consist of research and development expense, sales and marketing expense and general and administrative expense. Personnel costs are the most significant component of operating expenses and consist of salaries, benefits, stock-based compensation, and sales commissions. Catheter expects operating expenses to increase in absolute dollars as Catheter’s business grows.
30
|
|
|
|
|
|
|
|
|
|
|
General and Administrative Expense |
$1,302,972 |
|
$1,118,565 |
|
Research and Development Expense |
686,136 |
|
422,354 |
|
Sales and Marketing Expense |
821,163 |
|
1,109,593 |
|
Total Operating Expense |
$2,810,271 |
|
$2,650,512 |
|
|
|
|
|
General and Administrative Expense
General and administrative expense consists primarily of personnel costs, including salary, employee benefits and stock-based compensation expenses for Catheter’s administrative personnel that support Catheter’s general operations, such as information technology, executive management and financial accounting. It also includes costs attributable to intellectual property and other legal fees, audit fees, general business insurance, consulting services, depreciation and facilities costs.
General and administrative expense for the year ended December 31, 2021 decreased by $184,407 from $1,302,972 to $1,118,565. The decrease was partly attributable to lower G&A salaries and lower legal and professional accounting fees.
Research and Development Expense
Research and development costs are expensed as incurred. Research and development expense consists of costs of technology licenses, third-party software development consultants, engineering supplies and materials. Research and development expense also includes costs related to Catheter’s clinical and regulatory activities, including medical advisors, contractors, research grants and all clinical study-related costs.
Research and development expense for the year ended December 31, 2021 decreased by $263,782 from $686,136 to $422,354. During 2021, Catheter charged to research and development expense approximately $87,000 of costs incurred with Catheter’s third-party design engineering contractor related to the VIVO. During 2020, Catheter employed one full time and one part time R&D engineer. Additionally, 2020 included $375,000 of expense accrued for the PEACS license which did not recur in 2021.
It is likely that Catheter will incur increased clinical and regulatory related costs in the remainder of 2022 and beyond, including costs associated with Catheter’s post-market surveillance registry of Catheter’s most recent FDA de novo clearance for use of the VIVO System and costs of any study undertaken as Catheter attempts to expand its approved indications for use.
Sales and Marketing Expense
Sales and marketing expense consist primarily of personnel costs, including salary, commissions, employee benefits and stock-based compensation expenses for Catheter’s sales and marketing personnel
31
and contractors in the U.S. and Europe. It also includes costs associated with product demonstrations, trade shows, marketing materials, royalties, and travel.
Sales and marketing expense for the year ended December 31, 2021 increased by $284,430 from $821,163 to $1,109,593. The primary cause for the increase was an increase in headcount, and travel and related expenses for Catheter’s EU based employees as Catheter achieved limited commercialization of VIVO in Europe.
Other Income and Expense, Income Tax Benefit
|
|
|
|
|
|
|
2020 |
|
2021 |
|
Interest income |
$74 |
|
$35 |
|
Interest expense |
(2,636,638) |
|
(2,828,393) |
|
Forgiveness of PPP loan |
- |
|
200,000 |
|
Gain on transfer of intangible assets |
- |
|
200,000 |
|
Change in fair value of derivative liability |
2,951,736 |
|
(43,437) |
|
Loss on Foreign currency transaction |
(623) |
|
(6,337) |
|
|
$(45,451) |
|
$(2,478,132) |
|
|
|
|
|
Interest Expense
The aggregate balance of Catheter’s convertible promissory notes, including amounts payable to officers, directors and stockholders of Catheter was $23,985,000 at December 31, 2021. The notes accrue interest at a rate of 12% per year that is payable in cash. Accrued but unpaid interest on the notes at December 31, 2021 was $11,077,041.
Forgiveness of PPP loan
On April 30, 2020, Catheter received approximately $200,000 in loan proceeds from the Payroll Protection Program (the “PPP”) administered by the Small Business Administration (the “SBA”) of the United States government. This program was established under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). In accordance with the provisions of the PPP, the use of the proceeds was restricted by the CARES act for such expenses as payroll related costs and other allowable costs as defined by the PPP. Catheter submitted the application for forgiveness of the PPP loan on November 4, 2020. During the year ended December 31, 2021 Catheter received forgiveness for the entire amount of principal and accrued interest of the PPP loan. Catheter recorded a gain for the loan proceeds forgiven within other income for the year ended December 31, 2021.
Gain on transfer of intangible assets
32
In May 2020, Catheter received a Summons to appear before the District Court of the Hague in a matter brought against Catheter by PEACS B.V. The dispute concerned the ownership of one of Catheter’s European patents and services provided by PEACS B.V. relating to its VIVO product. Management accrued $375,000 at December 31, 2020 representing its best estimate for the resolution of the PEACS B.V dispute.
In May 2021, Catheter and PEACS B.V. settled the outstanding litigation. As part of the settlement, Catheter agreed to pay PEACS B.V. $375,000. Additionally, PEACS B.V. agreed to pay $200,000 to Catheter for the transfer of certain patents. Ultimately, the $200,000 due for the transfer of the patents was offset against the $375,000 due to PEACS B.V. Therefore, Catheter paid PEACS B.V. $175,000 and recorded a gain on the transfer of intangible assets of $200,000 for the year ended December 31, 2021.
Convertible Promissory Notes – Related Parties and Derivative Liability
In March 2017, Catheter issued convertible promissory notes (the “Notes”) to four shareholders of Catheter (See Note 13) for an aggregate principal amount of $10,410,000. The notes bear interest at a rate of 12% per annum and matured on December 31, 2017 (“Maturity Date”). Upon the Maturity Date, the four shareholders extended all terms related to the Notes. Any new monies provided under the Notes were also made pursuant to the same terms and, effective January 1, 2018, all monies due pursuant to the Notes were due and payable on demand.
In 2020, the related party holder of Convertible Promissory Note One, provided Catheter with an additional $2,920,000 in cash proceeds which was received by Catheter for the year ended December 31, 2020.
In 2021, the related party holder of Convertible Promissory Note One, provided Catheter with an additional $2,350,000 in cash proceeds which was received by Catheter for the year ended December 31, 2021.
During the six months ended June 30, 2022, the related party holder of Convertible Promissory Note One provided the Company with an additional $1,480,000 in cash proceeds which was received by the Company for the six months ended June 30, 2022. All monies due pursuant to the Notes are due and payable on demand.
The Notes contain additional conversion features, including that upon the closing of Catheter’s next financing in an aggregate amount greater than $8,000,000 (“Next Financing”), the outstanding principal balance of each Note shall convert into shares of stock at a conversion price per share equal to 80% of the lowest price per share paid by the investors in the Next Financing. The Notes also provide that upon a Change in Control, the Notes will either become due and payable in full prior to closing, or will convert into Company common stock or other securities on terms and conditions agreed upon by the Company and the requisite purchasers.
Under the Next Financing conversion provision, upon closing, the Notes settle by providing the holder with a variable number of shares sold in the Next Financing with an aggregate fair value determined by reference to the debt principal. In this scenario, the value that the holder receives at settlement does not vary with the value of Catheter's common stock, so the settlement provision was not a typical conversion option. Rather, the share settlement feature was considered a contingent redemption provision (i.e., a contingent embedded put). Catheter evaluated the embedded put features in accordance with ASC 815-
33
15-25. The embedded puts are not clearly and closely related to the debt host instrument and therefore have been separately measured at fair value, with subsequent changes in fair value recognized in the Statement of Operations.
The embedded put features are separately measured at fair value, with changes in fair value recognized in current operations. Management used a scenario-based analysis to estimate the fair value of the embedded put features at issuance of the Notes and as of December 31, 2021 and December 31, 2020. The original values of the embedded put features were recorded as a debt discount to the Notes which has been fully amortized as non-cash interest expense during the year ended December 31, 2017. At December 31, 2021 and December 31, 2020, the fair value of the derivative liability was $1,057,000 and $910,000, respectively. Catheter recorded a loss related to the increase in fair value of the derivative liability of $43,437 and a gain related to the decrease in fair value of the derivative liability of $2,591,736 for the years ended December 31, 2021 and 2020, respectively. Catheter recorded a debt discount to the Notes which were fully amortized as non-cash interest expenses of $103,563 and $226,736 for the years ended December 31, 2021 and 2020, respectively.
If and when the Merger closes, the Notes are expected to be discharged pursuant to the terms of the Debt Settlement Agreements as further described below under “Liquidity and Capital Resources.”
Liquidity and Capital Resources
Since Catheter’s incorporation, Catheter has received equity financing, debt financing through stockholders and grant monies from a non-profit foundation to develop the technology and pursue the regulatory approvals necessary to commercialize Catheter’s products in the United States and European Union (“EU”). The amount of equity investment in Catheter from its incorporation through June 30, 2022 was approximately $36 million. The amount of Convertible Promissory Notes issued through June 30, 2022 was approximately $25,465,000. The amount of accrued and unpaid interest on these Notes at June 30, 2022 was approximately $12,546,000.
As of the date hereof, Catheter has incurred additional debt in the form of short-term, interest-free advances (the “Advances”) from Mr. Jenkins in the principal amount of $350,000, and expects that additional Advances will be required prior to consummating the Merger in order to continue operations.
Catheter expects to continue to incur net losses for the next several years and therefore require additional funding, which may include future equity and debt financings. There is no guarantee that this financing can be obtained.
As noted above, if and when the Merger closes, it is anticipated that under the Debt Settlement Agreements, the Notes will be discharged and the interest accrued thereon forgiven as described. Under the terms of the Debt Settlement Agreements and the Merger Agreement, at closing the principal of the Notes would be converted into a right to receive shares of Ra common stock at the price specified by the Merger Agreement and described in more detail in the Form 8-K. Outstanding interest accrued by unpaid would be forgiven in exchange for the Royalty Rights described above under “Royalty Agreements.” The Advances are not included in the Debt Settlement Agreements and will not be so discharged.
As of June 30, 2022, Catheter had approximately $76,000 in cash and cash equivalents. As of December 31, 2021, Catheter had approximately $12,000 in cash and cash equivalents.
On March 31, 2022, the holders of a majority of the then outstanding shares of Preferred Stock, voted together as a single class, and approved the conversion of all shares of Preferred Stock into a total
34
of 8,651,207 shares of Common Stock as determined in accordance with the Certificate of Incorporation. All current holders of Preferred Stock were advised of the conversion on March 31, 2022. The Company recorded its quarterly liquidation preference prior to the conversion of preferred stock to common stock, and converted the outstanding balance including the March 31, 2022 liquidation preferences to common stock.
Net cash used in operating activities was approximately $1,411,000 for the six months ended June 30, 2022. Net loss for the six months ended June 30, 2022 and 2021 was $2,929,000 and $2,235,000, respectively.
Net cash used in operating activities was approximately $2,654,000 for the year ended December 31, 2021. Net loss for the year ended December 31, 2021 and 2020 was approximately $4,990,000 and $2,811,000, respectively.
As of June 30, 2022, Catheter had an accumulated deficit of approximately $114,384,000, total outstanding convertible debt of $25,465,000, and total outstanding interest payable of approximately $12,547,000, which is due on demand. Catheter’s accumulated deficit as of December 31, 2021 was approximately $111,548,000.
Catheter has incurred substantial losses and negative cash flows from operations to date and expects to incur operating losses for the foreseeable future as it expands its commercialization efforts of its current product. Catheter is not in default of any covenants required by the lenders, however if such default should occur, the outstanding debt could become due and payable immediately. Catheter is unable to predict the extent of any future losses or when Catheter will become profitable, if at all. Catheter’s future capital requirements will depend upon many factors, including progress with developing, manufacturing and marketing its technologies, the time and costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims and other proprietary rights, its ability to establish collaborative arrangements, marketing activities and competing technological and market developments, including regulatory changes affecting medical procedure reimbursement, and overall economic conditions in our target markets.
Catheter’s strategic plans are to build on its existing business, as well as grow through buy-and-build strategic acquisitions and partnerships. Catheter will be required to raise additional capital to pursue this strategy as well as to continue to support its operations at the current cash expenditure levels; however, Catheter cannot be certain that additional funding will be available on acceptable terms, or at all. The Board has recommended approval of the Merger because it believes that the Merger will enhance Catheter’s ability to execute on these plans, and that the combined company will provide a better platform to actualize its vision.
To the extent that Catheter or the combined company raises additional funds by issuing equity securities, stockholders may experience significant dilution. Any debt financing, if available, may include potential dilutive instruments and include restrictive covenants that impact Catheter’s or any combined company’s ability to conduct business. If Catheter is unable to raise additional capital when required or on acceptable terms, Catheter may have to (i) significantly scale back its current operations and/or commercialization efforts or (ii) relinquish or otherwise dispose of rights to technologies or products on unfavorable terms. As Catheter continues to incur losses, Catheter’s transition to profitability is dependent upon achieving a level of revenues adequate to support Catheter’s cost structure. Catheter may never achieve such profitability, and unless and until doing so, it will be necessary for Catheter to attempt to raise additional capital, which may not be available or available on terms acceptable to us. Although the Board believes that the proposed Merger will enhance the Company’s ability to execute on its plans,
35
achieve profitability, and actualize its acquisition growth strategy, the combined company will remain subject to the foregoing risks.
Summary of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
For six months ended June 30, |
|
|
2020 |
|
2021 |
|
2021 |
|
2022 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash used in operating activities |
$(2,874,668) |
|
$(2,653,522) |
|
$(1,389,375) |
|
$(1,410,514) |
|
|
Cash used in investing activities |
(9,132) |
|
(24,072) |
|
(2,856) |
|
(12,431) |
|
|
Cash provided by financing activities |
3,120,000 |
|
2,350,000 |
|
1,250,000 |
|
1,480,000 |
|
|
Effect of Exchange Rate on cash |
623 |
|
6,337 |
|
2,146 |
|
6,623 |
|
|
Net increase (decrease) in cash |
$236,823 |
|
$(321,257) |
|
$(140,085) |
|
$63,676 |
|
|
|
|
|
|
|
|
|
|
|
Cash Used in Operating Activities
Net cash used in operating activities increased by $21,139 from $1,389,375 for the six months ended June 30, 2021 to $1,410,514 for the six months ended June 30, 2022. The net loss for the six months ended June 30 2021 of $2,234,852 included an unfavorable change in the derivative liability related to the conversion feature of its Notes of $22,664, while the net loss of $2,929,445 recorded in for the six months ended June 30, 2021 included a unfavorable change in the fair value of derivative liability of $57,232. During the six months ended June 30, 2021 and 2022, the Company incurred accrued but unpaid interest on its Notes Payable to related parties of $1,307,979 and $1,469,275, respectively, favorably impacting cash flow from operations.
Net cash used in operating activities decreased by $221,146 from $2,874,668 for the year ended December 31, 2020 to $2,653,522 for the year ended December 31, 2021. The net loss in 2021 of $4,989,708 included an unfavorable change in the derivative liability related to the conversion feature of its Notes of $43,437 while the net loss of $2,810,779 recorded in 2020 included a favorable change in the fair value of derivative liability of $2,591,736. The $2,591,736 non-cash variance in the change in fair value of the derivative liability represented the majority of the change in net loss for the years. During the years ended December 31, 2020 and 2021, the Company incurred accrued but unpaid interest on its Notes Payable to related parties of $2,409,903 and $2,724,830, respectively, favorably impacting cash flow from operations.
36
Cash flow from operating activities during the year ended December 31, 2021 were also impacted by the forgiveness of a $200,000 PPP loan and a $200,000 gain on the transfer of intangible assets.
Cash Used in Investing Activities
Cash used in investing activities was $2,856 and $12,431 during the six months ended June 30, 2021 and 2022, respectively. These purchases are primarily computer equipment and VIVO demo equipment purchased during the periods.
Cash used in investing activities increased by $14,940 from $9,132 during the year ended December 31, 2020 to $24,072 during the year ended December 31, 2021. These purchases are primarily computer equipment and VIVO demo equipment purchased during the periods.
Cash Provided by Financing Activities
Cash provided by financing activities of $1,480,000 and $1,250,000 during the six months ended June 30, 2022 and 2021, respectively, represented the proceeds of convertible promissory notes to related parties.
Cash provided by financing activities of $2,350,000 during the year ended December 31, 2021 represented the proceeds of a convertible promissory note to related parties of $2,350,000.
Cash provided by financing activities of $3,120,000 during the year ended December 31, 2020 represented the proceeds of a convertible promissory note to related parties of $2,920,000 and proceeds of $200,000 from a federal Paycheck Protection Program (“PPP loan”) which was subsequently forgiven in 2021.
Contractual Obligations and Commitments
Catheter has lease obligations consisting of operating leases, for Catheter’s principal offices which expire in 2022. The following table summarizes Catheter’s contractual obligations, under both leases, as of June 30, 2022:
Segment Information
Catheter operates in one business segment, which is the marketing, sales and development of medical technologies focused in the field of cardiac electrophysiology.
Effects of Inflation
During the periods for which financial information is presented, management does not believe that the business and operations were materially affected by inflation.
Foreign Currency Exchange Risk
Catheter uses the U.S. dollar as its functional currency, and initially measure the foreign currency denominated in assets and liabilities at the transaction date. Monetary assets and liabilities are then re-
37
measured at exchange rates in effect at the end of each period, and property and non-monetary assets and liabilities are converted at historical rates.
To date, Catheter has incurred minor foreign currency transaction realized gains and losses related to Catheter’s European activities. As Catheter’s international operations grow, foreign currency exchange risk may become a factor and Catheter will reassess its approach to managing the risks relating to fluctuations in currency rates at that time.
Catheter does not believe that inflation and change in prices had a significant impact on Catheter’s results of operations for any periods presented in Catheter’s financial statements.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Catheter regularly evaluates estimates and assumptions related to provisions for legal contingencies, income taxes, deferred income tax, asset valuation allowances, valuation of warrant liabilities, valuation of derivative liabilities, share based compensation, and revenues. Catheter bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by Catheter may differ materially and adversely from Catheter’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
Fair Value Measurements
ASC 820, Fair Value Measurements, provides guidance on the development and disclosure of fair value measurements. Catheter follows this authoritative guidance for fair value measurements, which defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles in the United States, and expands disclosures about fair value measurements. The guidance requires fair value measurements be classified and disclosed in one of the following three categories:
• Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities.
• Level 2: Observable prices that are based on inputs not quoted on active markets but corroborated by market data.
• Level 3: Unobservable inputs which are supported by little or no market activity and values determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.
Fair value measurements discussed herein are based upon certain market assumptions and pertinent information available to management as of and during the six months ended June 30, 2022 and 2021 and the year ended December 31, 2021 and 2020. The carrying amount of cash and accounts payable approximated fair value as they are short term in nature. The guidance in ASC 815, Derivatives and Hedging, requires that Catheter mark the value of Catheter’s preferred stock warrant liability to market
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and recognize the change in valuation in Catheter’s statements of operations each reporting period. Determining the warrant liability to be recorded requires Catheter to develop estimates to be used in calculating the fair value of the warrant. The fair value of preferred stock warrants issued were estimated based on a Black-Scholes model during the six months ended June 30, 2022 and 2021 and the year ended December 31, 2021 and 2020. The estimated fair value of the warrant and embedded put included in the convertible promissory notes – related parties, represent Level 3 measurements.
The following table details the fair value measurements within the fair value hierarchy of Catheter's financial instruments, which includes the Level 3 liabilities:
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Fair value at June 30, 2022 |
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|
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Total |
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|
Level 1 |
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|
Level 2 |
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|
Level 3 |
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Liabilities: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability |
|
|
$1,182,000 |
|
|
|
$— |
|
|
|
$— |
|
|
|
$1,182,000 |
|
Total liabilities |
|
|
$1,182,000 |
|
|
|
$— |
|
|
|
$— |
|
|
|
$1,182,000 |
|
|
|
Fair value at December 31, 2021 |
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
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Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability |
|
|
$1,057,000 |
|
|
|
$— |
|
|
|
$— |
|
|
|
$1,057,000 |
|
Total liabilities |
|
|
$1,057,000 |
|
|
|
$— |
|
|
|
$— |
|
|
|
$1,057,000 |
|
Off-Balance Sheet Arrangements
Catheter does not have any off-balance sheet arrangements as such term is used in SEC Regulation S-K Item 303 during the periods presented, investments in special-purpose entities or undisclosed borrowings or debt. Additionally, Catheter is not a party to any derivative contracts or synthetic leases.
Indemnification
Catheter has agreements whereby Catheter indemnifies its officers and directors for certain events or occurrences while the officer or director is or was serving, at Catheter’s request, in such capacity, to the maximum extent permitted under the laws of the State of Delaware.
Stock-based Compensation
In October 2009, the Board of Directors and Stockholders of the Company adopted the 2009 Equity Incentive Plan (the “Plan”), which was amended in 2011. The Plan provides for grants of stock options, restricted stock, and other stock-based awards to eligible employees of the Company as well as directors, officers, and others. The Plan is administered by the Board of Directors of the Company and was amended on September 24, 2019 to extend the term of the plan for ten more years.
Stock options are granted with an exercise price as determined by the Board of Directors, but in no event shall the exercise price be less than the fair value of a share of common stock on the date of grant. Awards generally vest over five years of continuous service and have a ten-year term from the date of grant.
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The Company lacks company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of a set of publicly traded peer companies. Due to the lack of historical exercise history, the expected term of the Company’s stock options for employees has been determined utilizing the “simplified” method for awards. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. The expected dividend yield is zero based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.
In order to determine the fair value, the Company considered, among other things, the Company’s business, financial condition and results of operations; the lack of marketability of the Company’s common stock; the market performance of comparable publicly traded companies; and U.S. and global economic and capital market conditions.
The following table summarizes stock option activity under the Catheter Plan for the years ended December 31, 2021 and 2020, and for the six months ended June 30, 2022.
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Shares Underlying Options |
|
Average Exercise Price |
|
Remaining Contractual Term (in years) |
Outstanding at January 1, 2020 |
|
590,950 |
|
$1.20 |
|
6.10 |
Granted |
|
— |
|
$— |
|
— |
Cancelled |
|
(125,980) |
|
$0.39 |
|
— |
Expired |
|
(77,000) |
|
$4.00 |
|
— |
Outstanding at December 31, 2020 |
|
387,970 |
|
$0.47 |
|
5.94 |
Granted |
|
990,000 |
|
0.39 |
|
9.31 |
Exercised |
|
(118,848) |
|
0.39 |
|
— |
Cancelled |
|
(115,122) |
|
0.43 |
|
— |
Expired |
|
(5,000) |
|
$4.00 |
|
0.00 |
Outstanding at December 31, 2021 |
|
1,139,000 |
|
$0.40 |
|
8.67 |
Vested options at December 31, 2021 |
|
499,707 |
|
$0.83 |
|
6.01 |
Granted
|
|
|
|
|
|
|
Granted
|
|
— |
|
— |
|
— |
Cancelled |
|
— |
|
— |
|
— |
Expired |
|
— |
|
— |
|
— |
Outstanding at June 30, 2022 |
|
1,139,000 |
|
$0.40 |
|
8.43 |
Vested options at June 30, 2022 |
|
1,062,814 |
|
$0.56 |
|
8.41 |
The stock-based compensation expense for stock option awards was $6,421 and $353 for the year ended December 31, 2021 and 2020, respectively, respectively, and $2,973 and $1,788 for the six months ended June 30, 2022 and 2021, respectively.
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The fair value of employee options is estimated on the date of each grant using the Black-Scholes option-pricing model. 990,000 options were granted to employees during the year ended December 31, 2021, with a grant date fair value of $9,900. There were no grants during the year ended December 31, 2020. During the six months ended June 30, 2021, Catheter granted 990,000 options with a grant date fair value of $9,900. There were no grants during the six months ended June 30, 2022.
As of December 31, 2021, there was an aggregate of approximately $3,691 of unrecognized compensation cost related to non-vested stock-based compensation arrangements. This amount will be recognized as expense over a weighted-average period of 1.13 years. As of June 30, 2022, there was an aggregate of $718 of unrecognized compensation cost related to non-vested stock-based compensation arrangements. This amount will be recognized as expense over a weighted-average period of 2.34 years.
The following assumptions were used to estimate the fair value of stock options granted using the Black-Scholes option pricing model for the years ended December 31, 2021 and 2020.
The risk-free interest rate assumption is based upon observed U.S. government security interest rates with a term that is consistent with the expected term of Catheter’s employee stock options. The expected term is based on the average of the vesting period and contractual term of Catheter’s options. Catheter does not pay a dividend, and does not expect to pay a dividend in the foreseeable future.
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June 30, 2022 |
December 31, 2021 |
|
|
|
|
|
|
Fair value of common stock |
|
$0.024 |
$0.024 |
|
Risk-free interest rate |
|
.9% - 3.0% |
.9% - 3.0% |
|
Expected life remaining in years |
|
1.83 – 6.50 |
1.83 - 6.50 |
|
Expected volatility |
|
91% - 175% |
91% - 175% |
|
Expected Dividend yield |
|
0% |
0% |
Due to a lack of a public market for Catheter’s Common Stock, Catheter utilized a public company peer group’s historical volatility to determine Catheter’s expected volatility for purposes of the Black-Scholes option pricing model. Stock-based compensation expense is trued up periodically for actual forfeitures.
Dividends
Catheter does not pay a dividend on its common stock and is unlikely to pay one in the future.
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Exhibit 99.4
CATHETER PRECISION, INC.