Business Context and Reporting Period
Company: Pavmed Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: August 5, 2020
Event: Entry into a Material Definitive Agreement (Securities Purchase Agreement) and issuance of a Senior Secured Convertible Note.
Key Financial Metrics and Transaction Details
- New Debt Issuance: Senior Secured Convertible Note with an initial principal amount of $7,750,000.
- Net Proceeds: $7,000,000 (issued with a $750,000 original issue discount).
- Interest Rate: 7.875% per annum (payable monthly in cash); increases to 18.0% per annum upon an Event of Default.
- Maturity Date: August 5, 2022 (subject to limited extensions).
- Conversion Price: $5.00 per share (subject to adjustments).
- Existing Debt: Prior Notes (November 2019 and April 2020) have an outstanding principal balance of $12,415,975.
- Liquidity Covenant: Company must maintain available cash of at least $2,000,000 at the end of each fiscal quarter.
- Security: First priority security interest in all assets of Pavmed Inc. and its subsidiary, Lucid Diagnostics, Inc.
Material Changes and Covenants
The filing details a significant increase in debt obligations and the imposition of restrictive covenants:
- Issuance Restrictions: For six months post-closing, the company cannot issue equity or equity-linked securities below $5.00 per share.
- Variable Rate Prohibition: The company is prohibited from entering into variable rate transactions while the Note is outstanding.
- Participation Rights: The investor holds rights to participate in up to 50% of future equity offerings (capped at 100% combined with Prior Notes) for three years.
- Conversion Limits: Beneficial ownership is capped at 4.99% (expandable to 9.99% with notice). Issuance upon conversion is limited to 19.99% of outstanding shares to comply with Nasdaq rules.
Redemption Rights, Risks, and Contingencies
The Note includes aggressive redemption provisions that could impact the company's cash flow and equity structure:
- Default Redemption: Upon an Event of Default (including breach of financial covenants or loss of key officers), the holder can demand redemption at 115% of principal plus accrued interest.
- Change of Control: Holder can demand redemption at 115% of principal, market value of underlying shares, or cash consideration value, whichever is greater.
- Subsequent Placement: If the company raises equity, the holder can redeem up to 100% of the net proceeds at 115% of principal.
- Optional Redemption:
- Holder: Can redeem all or part of the Note after October 30, 2020, at 115% of principal.
- Company: Can redeem the entire Note at any time at 115% of principal.
- Key Personnel Risk: An Event of Default occurs if the Chairman/CEO (Lishan Aklog, M.D.) or President/CFO (Dennis McGrath) cease to serve as officers.
Investor Verification Checklist
- Verify the company's current cash balance to ensure compliance with the $2,000,000 quarterly liquidity covenant.
- Confirm the total outstanding debt load ($7.75M new note + $12.42M prior notes) and the associated monthly interest payment obligations.
- Review the impact of the 115% redemption premium on potential future refinancing or equity raise scenarios.
- Monitor the stock price relative to the $5.00 conversion price and the 4.99% beneficial ownership cap.
- Assess the risk of an Event of Default triggered by the departure of key executives.