Item 1.01. Entry into a Material Definitive Agreement
Definitive Merger Agreement
On September 9, 2022, Ra Medical Systems, Inc., a Delaware corporation (the “Company” or “Ra Medical”), and Catheter Precision Inc., a privately-held Delaware corporation (“Catheter”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among the Company, Catheter, Rapid Merger Sub 1, Inc., a newly-created wholly-owned subsidiary of the Company (“First Merger Sub”), and Rapid Merger Sub 2, LLC, a newly-created wholly owned subsidiary of the Company (“Second Merger Sub” and together with First Merger Sub, the “Merger Subs”), pursuant to which, subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, the First Merger Sub will merge with and into Catheter, with Catheter being the surviving corporation (the “First Merger Surviving Company”) and a wholly-owned subsidiary of the Company (the “First Effective Time”), and then, immediately following the First Effective Time, and as part of the same overall transaction, the First Merger Surviving Company will merge with and into the Second Merger Sub (the “Second Effective Time”), with the Second Merger Sub being the surviving limited liability company (the “Second Merger Surviving Company”) (such transactions collectively, the “Merger”, with the Company following the Merger being referred to herein as the “Post-Merger Combined Company”). The Boards of Directors of the Company and Catheter have both approved the Merger.
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.
Immediately upon the First Effective Time, each share of Catheter Common Stock issued and outstanding immediately prior to the First Effective Time (subject to certain exclusions set forth in the Merger Agreement) will be converted into and represent the right to receive, a number of shares of the Company’s Common Stock, par value $0.0001 per share (the “Company Common Stock”), equal to the Exchange Ratio (as defined in the Merger Agreement), following the conversion of certain Catheter indebtedness (consisting of certain convertible promissory notes (the “Catheter Notes”) representing an aggregate principal amount of $25,465,000) pursuant to the Debt Settlement Agreements (as defined in the Merger Agreement) into shares of company Common Stock, at a conversion price equal to seventy five percent (75%) of the lower of the following: (x) the last closing sale price per share for the Company’s Common Stock prior to 4:00 p.m. (New York City time) on the last Trading Day (as defined in the Merger Agreement) prior to the Closing Date (as defined in the Merger Agreement), as reported by Bloomberg (as defined in the Merger Agreement); or (y) the average of the last closing sale price per share for 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 ending on the last Trading Day immediately prior to such Closing Date, and the assumption of Catheter Options (as defined below). Because the conversion price of the Catheter Notes depends upon future stock prices for the Company’s common stock, and because the merger consideration will be used to pay down the Catheter Notes prior to any distribution to Catheter equityholders, the amount of merger consideration that will become payable to Catheter stockholders, if any, is not yet known. In exchange for the forgiveness of the interest accrued but remaining unpaid under the Catheter Notes, under the terms of the Debt Settlement Agreements the holders of Catheter Notes would also be entitled to receive certain royalty rights which would equal, in aggregate 12% per year on Net Sales, if any, of Catheter’s vessel closure device, which is currently under development by Catheter. For further information regarding the Debt Settlement Agreements, see Catheter’s Management’s Discussion and Analysis filed herewith as Exhibit 99.3. Entry into the Debt Settlement Agreements is a condition to the Merger.
As a result of the Merger, (i) Catheter would merge into Second Merger Sub and become a wholly-owned subsidiary of the Company; (ii) upon Closing of the Merger, (A) stakeholders in Catheter immediately prior to the Merger, including Catheter stockholders, the Noteholders and Option holders, would, immediately following Closing, own approximately 79.37% of the economic value of the Post-Merger Combined Company, subject to downwards adjustment as provided in the Merger Agreement to the extent that, and by the amount in which, the Company delivers Net Cash (as defined in the Merger Agreement) greater than $8,000,000; and (B) the Company’s stockholders (together with the holders of any convertible instruments including options and warrants that may be in the money at the time of Closing) immediately prior to the Merger would own approximately 20.63% of the Post-Merger Combined Company as of such time, subject to upwards adjustment as provided in the Merger Agreement to the extent that, and by the amount in which, the Company delivers Net Cash (as defined in the Merger Agreement) greater than $8,000,000; and (iii) the Second Merger Sub, to be renamed Catheter Precision LLC and which will be wholly-owned by the Post-Merger Combined Company will assume all of Catheter’s assets and liabilities and be the operating entity focused on the current business of Catheter going forward. The Merger is intended to qualify for federal income tax purposes as a tax-free reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended. The Merger will be treated by the Company as a reverse merger under the acquisition method of accounting in accordance with accounting principles generally accepted in the United States. For accounting purposes, Catheter is considered to be acquiring the Company in this transaction, and its historical financial statements will be those of the Post-Merger Combined Company following the Merger.
In connection with the Merger, the Company would assume all outstanding options to purchase Catheter Common Stock (“Catheter Options”) whereby immediately prior to the First Effective Time, Catheter Options would cease to represent a right to acquire shares of Catheter Common Stock and would be assumed and converted, at the First Effective Time, into an option to purchase shares of Company Common Stock (such options once assumed and converted, the “Assumed Options”). Certain indebtedness of Catheter that is not converted into shares of Company Common Stock as a result of the Merger will instead be assumed by the Company in connection with the Merger (the “Additional Debt”), as described in Catheter’s Management’s Discussion and Analysis filed herewith as Exhibit 99.3.
The Merger Agreement provides that the Board of Directors of the Post-Merger Combined Company will consist of David Jenkins and four other directors. Immediately following, and contingent upon the Merger, David Jenkins will join the Company as Executive Chairman and Chief Executive Officer. Messrs. Jonathan 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. It is a closing condition that Mr. Jenkins will become Executive Chair and receive a compensation package to be negotiated, which will include a base salary of $300,000. Mr. Jenkins’ appointment to the Board of Directors and his role as Executive Chairman and Chief Executive Officer, together with his compensation package, are subject to approval by the Compensation Committee of the Board of Directors and the Nominating and Corporate Governance Committee of the Board of Directors.
The closing of the Merger is subject to satisfaction or waiver of certain conditions including, among others, (a) Catheter shall have delivered the PPM/Joint Information Statement (as defined in the Merger Agreement) to any Catheter securityholders anticipated to receive shares of Company Common Stock pursuant to the Merger or who are entitled to receive notice that the Catheter stockholders have acted by written consent in lieu of a meeting to approve the Merger and the transactions contemplated by the Merger Agreement, if and when such approval is obtained, and informing all Catheter stockholders that any stockholder who has not approved the Merger is entitled to appraisal rights pursuant to Section 262(d)(2) of the Delaware General Corporate Law, (b) no law or order preventing the closing of the Merger and the related transactions, (c) the HHS Confirmation (as defined in the Merger Agreement) shall continue to be in effect and certain requirements regarding outstanding litigation shall be satisfied, (d) the Company furnishing Net Cash greater than $8,000,000, (e) the entry into the Executive Chairman Agreement (as defined in the 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 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 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 shall have received assurance in form and substance satisfactory to Catheter that the transactions contemplated by the Merger Agreement will not cause the Company to be delisted from the NYSE American, (h) Catheter shall have entered into a Debt Settlement Agreement with each of the holders of Catheter Notes, (i) lock-up agreements have been entered into by and among the Company, Catheter, 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 and the Company shall have received the approval from their respective stockholders necessary to approve the Merger and the transactions contemplated by the 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 set forth in the Merger Agreement shall have been true as of the date of the 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 Merger Agreement) with respect to Parent, or a Material Adverse Effect (as defined in the Merger Agreement) with respect to Catheter.
The Merger Agreement contains certain customary termination rights, including, (a) the right of the parties to terminate the Merger Agreement by mutual written consent, (b) the right of either party to terminate the Merger Agreement if the Merger has not occurred by December 31, 2022, (c) the right of either party to terminate the 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 to terminate the Merger Agreement if any of the closing conditions are not capable of being satisfied, and (e) the right of either party to terminate the 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.
Pursuant to the terms of the Merger Agreement, the Company is obligated to take any and all additional action necessary under applicable law to call, give notice of and hold a meeting of its stockholders, using commercially reasonable efforts to hold such stockholder meeting within sixty (60) days of the date of the Merger Agreement, to consider and vote to approve, among other matters, (a) the Merger, and (b) the issuance of the shares of Company Common Stock pursuant to the terms of the Merger Agreement (collectively, the “Parent Stockholder Matters”). In connection with the Merger, the Company intends to file a proxy statement with the Securities and Exchange Commission (“SEC”), with respect to the Parent Stockholder Matters (the “Proxy Statement”).
The Company is also obligated to use commercially reasonable efforts to file a registration statement covering the resale of the shares of the Company Common Stock issuable pursuant to the Merger Agreements 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. Furthermore, the Company is obligated to file a registration statement on Form S-8 (or any successor form, or if Form S-8 is not available, other appropriate forms) with respect to the shares of the Company’s Common Stock subject to the Assumed Options and shall use its reasonable best efforts to maintain the effectiveness of such registration statement or registration statements (and maintain the current status of the prospectus or prospectuses contained therein) for so long as the Assumed Options remain outstanding and are required to be registered. The Company is also obligated to use reasonable efforts to raise sufficient funds to enable it to satisfy the requirement that it provide Net Cash greater than $8,000,000 at Closing.
The Board of Directors of the Company has approved the Merger Agreement.
The foregoing description of the Merger and the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement, which is filed as Exhibit 2.1 to this Current Report on Form 8‑K and is incorporated herein by reference.
In connection with the Merger and transactions contemplated by the Merger Agreement, the Company is filing herewith certain information relating to Catheter and its business, including Catheter’s financial statements, business discussion and management’s discussion and analysis. Specifically: (i) further information about Catheter’s
standalone business, prospects, financial condition, results of operations and opportunities are described in “Catheter Precision Summary Description of Business” included as Exhibit 99.2 and “Catheter Precision Management’s Discussion and Analysis” included as Exhibit 99.3; (ii) certain audited financial statements of Catheter as of and for the years ended December 31, 2021 and December 31, 2020 (the “Catheter Audited Financial Statements”), the unaudited financial statements of Catheter as of and for the six-month periods ended June 30, 2022 and June 30, 2021 (the “Catheter Unaudited Financial Statements and together with the Catheter Audited Financial Statements, the “Catheter Financial Statements”), and the unaudited pro forma combined financial information of the combined company as of June 30, 2022 and for the periods ended December 31, 2021 and June 30, 2022 (the “Pro Forma Financial Information”, and collectively with the Catheter Financial Statements, the “Financial Information”) are attached hereto as Exhibit 99.4, Exhibit 99.5 and Exhibit 99.6, respectively, and incorporated herein by reference; and (iii) certain other risk factors relating to the Merger and Catheter’s standalone business, prospects and opportunities, and Catheter are set forth under “Risk Factors -- Risks Related to the Merger with Catheter Precision” and “Risk Factors – Risks Related to the Business of Catheter Precision,” which are attached hereto as Exhibit 99.7 and Exhibit 99.8, respectively, and incorporated herein by reference.
The Merger Agreement has been included to provide investors and security holders with information regarding its terms. It is not intended to provide any other factual information about the Company or Catheter. The Merger Agreement contains representations, warranties and covenants that the Company and Catheter made to each other as of specific dates. The assertions embodied in those representations, warranties and covenants were made solely for purposes of the Merger Agreement between the Company and Catheter and may be subject to important qualifications and limitations agreed to by the Company and Catheter in connection with negotiating its terms, including being qualified by confidential disclosures exchanged between the parties in connection with the execution of the Merger Agreement. Moreover, the representations and warranties may be subject to a contractual standard of materiality that may be different from what may be viewed as material to investors or security holders, or may have been used for the purpose of allocating risk between the Company and Catheter rather than establishing matters as facts. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in the Company’s public disclosures. For the foregoing reasons, no person should rely on the representations and warranties as statements of factual information at the time they were made or otherwise. 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.
Support Agreements
In connection with the execution of the Merger Agreement, the Company entered into stockholder support agreements (the “Support Agreements”) with the Company’s directors, officers and certain stockholders of the Company. The Support Agreements provide that, among other things, each of the stockholders has agreed to vote or cause to be voted all of the shares of Common Stock owned by such stockholder in favor of the Parent Stockholder Matters.
Lock-Up Agreements
Each of the directors and officers of the Company, and certain stockholders of the Company and Catheter shall have entered into Lock-Up Agreements that are continuing in effect upon the Closing of the Merger, pursuant to which such officers, directors and stockholders accepted certain restrictions on transfers of any shares of Company Common Stock or any securities convertible into or exercisable or exchangeable for Company Common Stock held by such officer, director or stockholder during the period commencing upon (i) with respect to Company stockholders, officers and directors, the execution and delivery of the Merger Agreement, and (ii) with respect to Catheter stockholders, officers and directors, the closing of the Merger, and ending on the date that is 180 days after the date of closing of the Merger.