Registration No. 333-251962
AMENDMENT NO. 1
TO
_______________________
LMF Acquisition Opportunities, Inc.
Delaware | 6770 | 85-3681132 | ||
(State or Incorporation or | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification | ||
| No. |
___________________________
Curt P. Creely, Esq.Barry I. Grossman,
Carolyn T. Long, Esq.Jeffrey Rubin, Esq.
Foley
100 North Tampa Street, Suite 2700Ellenoff Grossman & ScholeBockius LLP
Tampa, Florida 336021345 Avenue of the Americas
(813) 229-2300New York, New York 10105
212-370-1300
☒
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
Emerging growth company | ☒ |
Title of Each Class of Security Being Registered |
| Amount |
| Proposed |
| Proposed |
| Amount of | ||||
Units, each consisting of one share of Class A common stock, $0.0001 par value, and one redeemable Warrant entitling the holder to purchase one share of Class A common stock(2) |
| 8,625,000 Units |
| $ | 10.00 |
| $ | 86,250,000 |
| $ | 9,409.88 |
|
Shares of Class A common stock included as part of the units(3) |
| 8,625,000 Shares |
|
| — |
|
| — |
|
| — | (4) |
Redeemable warrants included as part of the units(3) |
| 8,625,000 Warrants |
|
| — |
|
| — |
|
| — | (4) |
Total |
|
|
|
|
|
| $ | 86,250,000 |
| $ | 9,409.88 | (5) |
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Includes 1,125,000 units, consisting of 1,125,000 shares of Class A common stock and 1,125,000 redeemable warrants, which may be issued upon exercise of a 45-day option granted to the underwriters to cover over-allotments, if any.
(3) Pursuant to Rule 416, there are also being registered an indeterminable number of additional securities as may be issued to prevent dilution resulting from stock splits, stock dividends, or similar transactions.
(4) No fee pursuant to Rule 457(g).
(5) Previously paid.
The information in this preliminary prospectus is not complete and may be changed. WeNeither we nor the Selling Stockholder may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION — DATED January 19, 2021JANUARY 20, 2023
PRELIMINARY PROSPECTUS
$75,000,000
LMF Acquisition Opportunities, Inc.
7,500,000 Units
____________________________
LMF Acquisition Opportunities, Inc. is a newly organized blank check company formed for the purpose6,718,842 Shares of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similar business combination with one or more businesses, which we refer to as our initial business combination. While we may pursue an initial business combination target in any business, industry or geographical location, we intend to focus initially on transactions with companies and/or assets within the financial services industry, including potentially the financial technology (“FinTech”) sector, and related sectors. We have not selected any specific business combination target and we have not, nor has anyone on our behalf, initiated any substantive discussions, directly or indirectly, with any business combination target.Common Stock
This is an initial public offeringprospectus relates to the offer and resale of our securities. Each unit has an offering price of $10.00 and consists of one share of our Class A common stock and one redeemable warrant. Every warrant entitles the holder thereof to purchase one share of our Class A common stock at a price of $11.50 per share, subject to adjustment as described in this prospectus. The warrants will become exercisable on the later of 30 days after the completion of our initial business combination or 12 months from the closing of this offering, and will expire five years after the completion of our initial business combination or earlier upon redemption or liquidation, as described in this prospectus. The underwriters have a 45-day option from the date of this prospectus to purchase up to an additional 1,125,000 units to cover over-allotments, if any. We will provide our public stockholders with the opportunity to redeem all or a portion of their6,718,842 shares of our Class A common stock, upon$0.0001 par value per share (the “Common Stock”), by Tumim Stone Capital LLC, (“Tumim” or the completion“Selling Stockholder”).
The shares of Common Stock being offered by Tumim have been and may be issued pursuant to the purchase agreement dated August 23, 2022 that we entered into with Tumim (the “Purchase Agreement”). We are not selling any securities under this prospectus and will not receive any of the proceeds from the sale of our initial business combination, subjectCommon Stock by Tumim. However, we may receive up to $100.0 million in aggregate gross proceeds from sales of our Common Stock to Tumim that we may make under the limitations described herein. If we are unable to complete our initial business combination within 18 monthsPurchase Agreement, from the closing of this offering (or 21 months from the closing of this offering, if we extend the period of time to consummate a business combination, as described in more detail in this prospectus), we will redeem 100% of the public shares for cash, subject to applicable law and certain conditions as further described herein.
Our sponsor, LMFAO Sponsor, LLC, a Florida limited liability company, has agreed to purchase an aggregate of 4,598,000 warrants (or 5,048,000 warrants if the over-allotment option is exercised in full) at a price of $1.00 per warrant, for an aggregate purchase price of $4,598,000 (or $5,048,000 if the over-allotment option is exercised in full), in a private placement that will close simultaneously with the closing of this offering. The private placement warrants are identical to the warrants sold in this offering, subject to certain limited exceptions as described in this prospectus.
Our sponsor owns an aggregate of 2,156,250 shares of our Class B common stock (up to 281,250 shares of which are subject to forfeiture depending on the extent to which the underwriters’ over-allotment option is exercised), which will automatically convert into shares of Class A common stock at the time of our initial business combination, or earlier at the option of the holder, as described herein.
Currently, there is no public market for our units, Class A common stock or warrants. We have applied to list our units on The Nasdaq Capital Market, or Nasdaq, under the symbol “LMAOU.” We expect that our units will be listed on Nasdaq on or promptly after the date of this prospectus. On January 20, 2023, we issued 218,842 shares of our Common Stock, or the Commitment Shares, to Tumim as partial consideration for its irrevocable commitment to purchase shares of our Common Stock under the Purchase Agreement. See the sections titled “The Tumim Transaction” for a description of the transaction contemplated by the Purchase Agreement and “Selling Stockholder” for additional information regarding Tumim.
Tumim may sell the shares of our Common Stock included in this prospectus in a number of different ways and at varying prices. We cannot guarantee that our securitiesprovide more information about how Tumim may sell the shares in the section titled “Plan of Distribution.” Tumim is an “underwriter” within the meaning of Section 2(a)(11) of the Securities Act of 1933, as amended (the “Securities Act”).
Tumim will be approved for listing on Nasdaq.pay all brokerage fees and commissions and similar expenses in connection with the offer and resale of the shares by Tumim pursuant to this prospectus. We expectwill pay the expenses (except brokerage fees and commissions and similar expenses) incurred in registering under the Securities Act the offer and resale of the shares included in this prospectus by Tumim, including legal and accounting fees. See “Plan of Distribution.”
In connection with the Business Combination (as defined herein), holders of 8,878,960 shares of Class A common stockCommon Stock, or 85.8% of the shares with redemption rights, exercised their right to redeem their shares for cash at a redemption price of $10.377 per share, for an aggregate redemption amount of approximately $92.1 million. The shares of Common Stock being offered for resale pursuant to this prospectus by the Selling Stockholder represent approximately 34.6% of shares outstanding on a fully diluted basis and approximately 71.4% of the total number of outstanding shares held by non-affiliates as of January 20, 2023. Given the substantial number of shares of Common Stock being registered for potential resale by Selling Stockholder pursuant to this prospectus, the sale of shares by the Selling Stockholder, or the perception in the market that the Selling Stockholder of a large number of shares intend to sell shares, could increase the volatility of the market price of our Common Stock or result in a significant decline in the public trading price of our Common Stock. Even if our trading price is significantly below $10.00, the offering price for the units offered in the LMAO IPO, the Selling Stockholder, may still have an incentive to sell shares of our Common Stock because it may purchase the shares at prices lower than the public investors or the current trading price of our Common Stock. While the Selling Stockholder may experience a positive rate of return based on the trading price of the Company’s securities, the public holders of the Company’s securities may not experience a similar rate of return on the securities they purchase due to differences in the applicable purchase price and trading price. See “Risk Factors—The Selling Stockholder purchased securities in the Company at a price below the current trading price of such securities, and may experience a positive rate of return based on the current trading price. Future investors in the Company may not experience a similar rate of return.”
Our Common Stock and warrants comprising the units will begin separate tradingare traded on the 52nd business day following the date of this prospectus unless Maxim Group LLC, the representative of the underwriters, informs us of its decision to allow earlier separate trading, subject to our satisfaction of certain conditions. Once the securities comprising the units begin separate trading, we expect that the Class A common stock and warrants will be listed on Nasdaq Stock Market under the symbols “LMAO”“ICU” and “LMAOW,“ICUCW,” respectively. On January 19, 2023, the closing price of our Common Stock was $4.30 per share, and the closing price of our warrants, was $0.11 per warrant.
We are an “emerging growth company” under applicable federal securities laws and will beare subject to reduced public company reporting requirements. Investing in our securitiesCommon Stock or Warrants involves a high degree of risk. See “Risk Factors”the section titled “Risk Factors” beginning on page 33 for a discussion8 of information thatthis prospectus to read about factors you should be considered in connection with an investment inconsider before buying our securities. Investors will not be entitled to protections normally afforded to investors in Rule 419 blank check offerings.
Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
|
| Per Unit |
| Total | ||
Public offering price |
| $ | 10.00 |
| $ | 75,000,000 |
Underwriting discounts and commissions(1) |
| $ | 0.55 |
| $ | 4,125,000 |
Proceeds, before expenses, to LMF Acquisition Opportunities, Inc. |
| $ | 9.45 |
| $ | 70,875,000 |
____________
(1) Includes $0.35 per unit, or $2,625,000 (or up to $3,018,750 if the underwriters’ over-allotment option is exercised in full) in the aggregate payable to the underwriters for deferred underwriting commissions to be placed in a trust account located in the United States as described herein. The deferred commissions will be released to the underwriters only on completiondate of an initial business combination, as described in this prospectus. The underwriters will receive compensation in addition to the underwriting discounts and commissions. See “Underwriting” beginning on page 133 for a description of compensation and other items of value payable to the underwriters.
Of the proceeds we receive from this offering and the sale of the private placement warrants described in this prospectus $76,500,000 or $87,975,000 if the underwriters’ over-allotment option is exercised in full ($10.20 per unit, in either case) will be deposited into a trust account in the United States, with Continental Stock Transfer & Trust Company acting as trustee, and $1,598,000 will be available to pay fees and expenses in connection with the closing__, 2023.
Table of this offering and for working capital following the closing of this offering.
The underwriters are offering the units for sale on a firm commitment basis. The underwriters expect to deliver the units to the purchasers on or about , 2021.
Sole Manager
Maxim Group LLC
, 2021Contents
We have not, and the Selling Stockholder has not, authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any prospectuses supplement prepared by or on behalf of us or to which we have referred you. We and the Selling Stockholder take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares of Common Stock offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus or in any prospectus supplement is current only as of its date, regardless of its time of delivery or any sale of our shares of Common Stock. Our business, financial condition, results of operations and prospects may have changed since that date.
For investors outside of the United States: we have not, and the Selling Stockholder has not, done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside of the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of our shares of Common Stock and the distribution of this prospectus outside of the United States.
We are responsiblei
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement on Form S-1 that we filed with the Securities and Exchange Commission (the “SEC”) using a “shelf” registration process. The Selling Stockholder may use the shelf registration statement to sell up to an aggregate of 6,718,842 shares of Common Stock from time to time through any means described in the section titled “Plan of Distribution.”
A prospectus supplement may also add, update or change information included in this prospectus. Any statement contained in this prospectus will be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained in such prospectus supplement modifies or supersedes such statement. Any statement so modified will be deemed to constitute a part of this prospectus only as so modified, and any statement so superseded will be deemed not to constitute a part of this prospectus. You should rely only on the information contained in this prospectus. Weprospectus or any applicable prospectus supplement. See section titled “Where You Can Find More Information.”
Neither we nor the Selling Stockholder have not authorized anyone to provide you with differentany information or to make any representations other than those contained in this prospectus or any accompanying prospectus supplement we have prepared. We and wethe Selling Stockholder take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give to you. We are not, and the underwriters are not, makingThis prospectus is an offer to sell only the securities offered hereby and only under circumstances and in jurisdictions where it is lawful to do so. No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus or any applicable prospectus supplement. This prospectus is not an offer to sell securities, and it is not soliciting an offer to buy securities, in any jurisdiction where the offer or sale is not permitted. You should not assume that the information containedappearing in this prospectus or any prospectus supplement is accurate only as of any date other than the date on the front of those documents only, regardless of the time of delivery of this prospectus.prospectus or any applicable prospectus supplement, or any sale of a security. Our business, financial condition, results of operations and prospects may have changed since those dates.
TRADEMARKSThis prospectus contains summaries of certain provisions contained in some of the documents described herein, but reference is made to the actual documents for complete information. All of the summaries are qualified in their entirety by the actual documents. Copies of some of the documents referred to herein have been filed, will be filed or will be incorporated by reference as exhibits to the registration statement of which this prospectus is a part, and you may obtain copies of those documents as described below under “Where You Can Find More Information.”
This prospectus contains references to trademarks and service marks belonging to other entities. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that the applicable licensor will not assert, to the fullest extent under applicable law, its rights to these trademarks and trade names. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of usit by, any other companies.
On October 28, 2022 (the “Closing Date”), LMAO consummated its business combination pursuant to that certain Agreement and Plan of Merger, dated as of April 21, 2022 (“Merger Agreement”), by and among LMAO, LMF Merger Sub, Inc., a Delaware corporation and direct wholly owned subsidiary of LMAO (“Merger Sub”), and SeaStar Medical, Inc., a Delaware corporation (“SeaStar Medical”). As contemplated by the Merger Agreement, SeaStar Medical merged with and into Merger Sub, with SeaStar Medical continuing as the surviving entity in the merger as a wholly-owned subsidiary of LMAO (the “Business Combination”). In connection with the closing of the Business Combination (the “Closing”), LMAO changed its name to “SeaStar Medical Holding Corporation” (the “Company”).
Unless the context indicates otherwise, references to the “Company,” “we,” “us” and “our” refer to the business of SeaStar Medical Holding Corporation, a Delaware corporation, and its consolidated subsidiaries following the Business Combination. “LMAO” refers to LMF Acquisition Opportunities, Inc. prior to the Business Combination.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, any accompanying prospectus supplement and the documents incorporated by reference herein and therein may contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These statements are based on the beliefs and assumptions of management. Although the Company believes that its plans, intentions, and expectations reflected in or suggested by these forward-looking statements are reasonable, the Company cannot assure you that it will achieve or realize these plans, intentions, or expectations. Forward-looking statements are inherently subject to risks, uncertainties, and assumptions. Generally, statements that are not historical facts, including statements concerning the Company’s possible or assumed future actions, business strategies, events, or results of operations, are forward-looking statements. In some instances, these statements may be preceded by, followed by or include the words “believes,” “estimates,” “expects,” “projects,” “forecasts,” “may,” “will,” “should,” “seeks,” “plans,” “scheduled,” “anticipates” or “intends” or the negatives of these terms or variations of them or similar terminology.
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Forward-looking statements are not guarantees of performance. You should not put undue reliance on these statements which speak only as of the date hereof. You should understand that the following important factors, among others, could affect the Company’s future results and could cause those results or other outcomes to differ materially from those expressed or implied in the Company’s forward-looking statements:
the Company’s future capital requirements and sources and uses of cash;
the Company’s ability to obtain funding or raise capital for its operations and future growth;
any delays or challenges in obtaining FDA approval of the Company’s SCD product candidates;
economic downturns and the possibility of rapid change in the highly competitive industry in which the Company operates;
the ability to develop and commercialize its products or services following regulatory approval of the Company’s product candidates;
the failure of third-party suppliers and manufacturers to fully and timely meet their obligations;
product liability or regulatory lawsuits or proceedings relating to the Company’s products and services;
inability to secure or protect its intellectual property;
dispute or deterioration of relationship with the Company’s major partners and collaborators;
the outcome of any legal proceedings that may be instituted against the Company following completion of the Business Combination and transactions contemplated thereby;
the ability to maintain the listing of its Common Stock on Nasdaq;
the risk that the Business Combination disrupts current plans and operations;
the ability to recognize the anticipated benefits of the Business Combination, which may be affected by, among other things, competition, and the ability of the Company to grow and manage growth profitably;
costs related to the Business Combination; and
• | other risks and uncertainties indicated in this prospectus, including those under “Risk Factors” herein, and other filings that have been made or will be made with the SEC. |
These and other factors that could cause actual results to differ from those implied by the forward-looking statements in this prospectus are more fully described in the “Risk Factors” section. The risks described in “Risk Factors” are not exhaustive. New risk factors emerge from time to time and it is not possible for us to predict all such risk factors, nor can the Company assess the impact of all such risk factors on its business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the foregoing cautionary statements. The Company undertakes no obligations to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
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SUMMARY
This summary only highlights the more detailedselected information appearing elsewhere in this prospectus. As thisprospectus or the documents incorporated by reference herein. Because it is a summary, it doesmay not contain all of the information that may be important to you. To understand this offering fully, you should consider in making an investment decision. You should read this entire prospectus, carefully, including the information under the section of this prospectus entitled “Risk Factors” and our financial statements and the related notes included elsewhere in this prospectus, before investing.
Unless otherwise stated in this prospectus, or the context otherwise requires, references to:
“certificate of incorporation” are to our certificate of incorporation, as may be amended or restated from time to time;
“common stock” are to our Class A common stock and our Class B common stock, collectively;
“founder shares” are to shares of our Class B common stock initially purchased by our sponsor in a private placement prior to this offering, and the shares of our Class A common stock issuable upon the conversion thereof as provided herein;
“initial stockholders” are to our sponsor and any other holders of our founder shares prior to this offering (or their permitted transferees);
“LMFA” are to LM Funding America, Inc., a Delaware corporation that is publicly traded on the Nasdaq Capital Market under the trading symbol “LMFA”;
“management” or our “management team” are to our officers and directors;
“Maxim” are to Maxim Group LLC, the representative of the underwriters in this offering;
“private placement warrants” are to the warrants issued to our sponsor in a private placement simultaneously with the closing of this offering, which private placement warrants are identical to the warrants sold in this offering, subject to certain limited exceptions as described in this prospectus;
“public shares” are to shares of our Class A common stock sold as part of the units in this offering (whether they are purchased in this offering or thereafter in the open market);
“public stockholders” are to the holders of our public shares, including our initial stockholders and management team to the extent our initial stockholders and/or members of our management team purchase public shares, provided that each initial stockholder’s and member of our management team’s status as a “public stockholder” shall only exist with respect to such public shares;
“public warrants” are to our redeemable warrants sold as part of the units in this offering (whether they are purchased in this offering or thereafter in the open market), to the private placement warrants if held by third parties other than our sponsor (or permitted transferees), and to any private placement warrants issued upon conversion of working capital loans that are sold to third parties that are not initial purchasers or executive officers or directors (or permitted transferees), in each case, following the consummation of our initial business combination;
“sponsor” are to LMFAO Sponsor, LLC, a Florida limited liability company;
“warrants” are to our redeemable warrants, which includes the public warrants as well as the private placement warrants; and
“we,” “us,” “company” or “our company” are to LMF Acquisition Opportunities, Inc..
Each unit consists of one share of Class A common stock and one redeemable warrant, each entitling the holder thereof to purchase one share of our Class A common stock at a price of $11.50 per share, subject to adjustment as described in this prospectus. Unless we tell you otherwise, the information in this prospectus assumes that the underwriters will not exercise their over-allotment option.
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We are a newly organized blank check company formed as a Delaware corporation for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses, which we refer to throughout this prospectus as our initial business combination. We have not selected any specific business combination target and we have not, nor has anyone on our behalf, initiated any substantive discussions, directly or indirectly, with any business combination target. We may pursue an initial business combination target in any industry or sector, but we expect to focus on acquiring a business combination target within the financial services industry and related sectors, including potentially the FinTech sector, with an enterprise value of approximately $250 million to $500 million. Management believes that this relative size of target opportunities will enable the Company to pursue companies that are the most attractive from a return standpoint and are less pursued by larger, more established sources of capital.
We intend to capitalize on the seasoned operating experience of our management team, including Bruce Rodgers, our President and Chief Executive Officer, and Richard Russell, our Chief Financial Officer, Treasurer, Secretary, and a director. Our management team has extensive experience in leadership roles and financial services-related entrepreneurship, venture capital, and private equity. Mr. Rodgers spent several years as a business transactions lawyer for several prominent firms and businesses, including in management positions, and he has a background in engineering as well as military service in the United States Navy. Mr. Russell serves and has served in several executive management positions, including CEO and CFO positions, as well as corporate boards, leveraging his advanced degrees and certifications in tax and accounting. While we may pursue an initial business combination target in any industry, our investment strategy will focus our efforts in the financial services industry, specifically within alternative lending, asset management, business process outsourcing, housing and commercial real estate finance, insurance, and tech-enabled business opportunities.
Our sponsor, LMFAO Sponsor, LLC, is a majority-owned and controlled subsidiary of LMFA. LMFA is a specialty finance company that provides funding to nonprofit community associations primarily located in the state of Florida.
Past performance by the members of our management team in their other endeavors or the other entities with which they are or have been affiliated is not a guarantee of future success. We cannot assure you that we will be able to locate a suitable candidate for our initial business combination or that any business combination we consummate will be successful. You should not rely on the historical record of our management team’s performance, or the performance of any other entities with which our management team is or has been affiliated, as indicative of our future performance or how an investment in our company will perform or the returns our company will, or is likely to, generate going forward.
Business and Investment Strategies
Our initial business combination and value creation strategy will be to identify, acquire and, after our initial business combination, implement an operating strategy with a view of creating value for our stockholders through operational improvements, capital infusion, or future acquisitions. We intend to source initial business combination opportunities through our management team’s broad network of investors in the financial services industry, board members, company executives, lawyers, accountants, and brokers.
With respect to our investment strategy, we intend to focus our efforts on assets and businesses with the following aspects, or within the following sectors, of the financial services industry, in search of value-oriented and opportunistic transaction opportunities:
Asset Management: non-correlated asset classes and non-traditional asset management models; innovative manufacturers of financial assets; administrators, servicers, and special servicers;
Bankruptcy and Distressed Real Estate: businesses that are either in financial distress or have completed and emerged from a financial restructuring, which may have included a Chapter 11 bankruptcy court protection filing; fundamentally sound businesses handling or investing in real estate that have become distressed, including due to COVID-19’s impact on the economy or due to pre-existing financial troubles, which can often occur through excessive leverage, challenging industry conditions, material litigation, regulatory shifts, macroeconomic events, performance disruptions, lack of management execution, or any combination thereof;
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Consumer and Business Lending: businesses with advanced capabilities in data modeling, risk management, and asset management; differentiated and defendable customer acquisition and risk management strategies; consumer finance and commercial finance businesses with responsible lending models;
FinTech and Business Process Outsourcing: businesses providing critical workflow to financial institutions, including data aggregation and analytics, risk management, and compliance, as well as open banking, including third-party providers and account service information providers;
“InsurTech” and Insurance Services: business models with unique products and/or customer acquisition strategies, including, but not limited to, businesses with specialized product design focused on regulatory capital arbitrage, with roll-up opportunities among niche brokerage and agencies;
Mortgage Origination, Housing Services, and Technology: businesses with disruptive and scalable mortgage platforms, with competitive advantages in customer acquisition, origination, and servicing cost; businesses providing housing-related lead generation, alternative home ownership and rental models, and community association property management (and other ancillary services providers to community associations); businesses leveraging technology to offer contemporary and cutting-edge home-purchase and home-sale options, such as iBuyer investment models, as well as other opportunities for equity monetization; and
Regulated Industries: businesses in certain regulated industries that may presently have less, or no, options for lending or financial services, including the cannabis industry.
Business Combination Criteria
Our business combination criteria will not be limited to a particular industry or geographic sector, but given the experience of our management team, we expect to focus on acquiring a business combination target within the financial services industry, like the FinTech sector or a related sector, with an enterprise value of approximately $250 million to $500 million. Our management team will look to identify business combination targets which are in need of strategic growth capital, will benefit from becoming a publicly listed company, may require creative business approaches to unlock additional value, or may need to repurchase debt, target strategic acquisitions or require working capital.
Aligned with our business and investment strategies, we have identified the following criteria that we believe are important and that we intend to use in evaluating initial business combination opportunities. While we intend to utilize these criteria in evaluating business combination opportunities, we expect that no individual criterion will entirely determine a decision to pursue a particular opportunity. Further, any particular initial business combination opportunity that we ultimately determine to pursue may not meet one or more of these criteria. In assessing prospective target companies, we may consider various criteria, including whether such prospects:
are fundamentally sound businesses that have a sustainable business model with the ability to successfully navigate the ebbs and flows of an economic downturn, and changes in the industry landscape and regulatory environment;
can benefit from the vast network, experience, and guidance of our management team;
have a defensible market position and demonstrate differentiated competitive advantages with high barriers to entry against new competitors;
have recurring, predictable revenues and the history of, or the near-term potential to, generate stable and sustainable free cash flow;
exhibit unrecognized value, desirable returns on capital, and a need for capital to achieve the company’s growth strategy;
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have the potential for strong and continued growth both organically and through add-on acquisitions;
are at an inflection point and would benefit from a catalyst such as incremental capital, innovation through new operational practices, and application of innovative FinTech, product creation, or additional management expertise;
have publicly traded comparable companies that operate in a similar industry sector or which have similar operating metrics which may help establish that the valuation of our initial business combination is attractive relative to such public peers; and
are positioned to be publicly traded and can benefit from being publicly traded, with access to broader and more efficient capital markets, to drive improved financial performance and achieve key business strategies.
These criteria are not intended to be exhaustive. Any evaluation relating to the merits of a particular initial business combination may be based, to the extent relevant, on these general guidelines as well as other considerations, factors, and criteria that our management may deem relevant. In the event that we decide to enter into our initial business combination with a target business that does not meet the above criteria and guidelines, we will disclose that the target business does not meet the above criteria in our stockholder communications related to our initial business combination, which, as discussed in this prospectus, would be in the form of proxy solicitation materials or tender offer documents that we would file with the U.S. Securities and Exchange Commission (the “SEC”).
Competitive Strengths
We believe the sourcing, valuation, diligence, and execution capabilities of our management team will provide us with a significant pipeline of opportunities from which to evaluate and select a business that will benefit from our expertise.
Strong Management Team. We will leverage the extensive experience of our management team, all of whom have been involved at various levels in acquisitions, financings, and advisory transactions, totaling millions in transaction value, and have significant experience investing in a variety of economic cycles, with a track record of identifying high-quality assets with opportunities for optimization. We believe our management team’s ability to originate, effectively diligence, and creatively and thoughtfully structure transactions will generate attractive risk-adjusted returns for investors. We believe we will benefit from our management team’s successful track record in corporate finance, including Mr. Rodgers’s and Mr. Russell’s experiences serving as corporate executives and board members for various companies, both public and private, as well as their respective backgrounds in transactional law practice and tax and accounting practice.
Broad Sourcing Channels and Leading Industry Relationships. We believe the capabilities and relationships associated with our management team will provide us with a differentiated pipeline of attractive business combination opportunities that would be difficult for other market participants to replicate.
Underwriting, Execution, and Structuring Capabilities. Our management team will apply to our acquisition targets a rigorous analytical review and diligence process that its individual members apply or have applied in their current or past professional experiences. The sensitivity of financial and operational drivers to external factors is a key component of evaluating investment opportunities and pricing risk. Our investment discipline will allow us to identify opportunities where our management team can create stockholder value, which may include operational or capital structure improvements, as well as the introduction of new technologies and/or products to drive growth.
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Initial Business Combination
Nasdaq rules require that we must complete one or more business combinations having an aggregate fair market value of at least 80% of the value of the assets held in the trust account (excluding the deferred underwriting commissions and taxes payable on the interest earned on the trust account) at the time of our signing a definitive agreement in connection with our initial business combination. Our board of directors will make the determination as to the fair market value of our initial business combination. If our board of directors is not able to independently determine the fair market value of our initial business combination, we will obtain an opinion from an independent investment banking firm that is a member of FINRA or an independent accounting firm with respect to the satisfaction of such criteria. While we consider it unlikely that our board of directors will not be able to make an independent determination of the fair market value of our initial business combination, it may be unable to do so if it is less familiar or experienced with the business of a particular target or if there is a significant amount of uncertainty as to the value of a target’s assets or prospects. Additionally, pursuant to Nasdaq rules, any initial business combination must be approved by a majority of our independent directors.
We will have until 18 months from the closing of this offering to consummate an initial business combination. However, if we anticipate that we may not be able to consummate our initial business combination within 18 months, we will, by resolution of our board if requested by our sponsor, extend the period of time to consummate a business combination by an additional three months (for a total of 21 months to complete a business combination), subject to the sponsor depositing additional funds into the trust account as set out below. Pursuant to the terms of our certificate of incorporation and the trust agreement to be entered into between us and Continental Stock Transfer & Trust Company on the date of this prospectus, in order to extend the time available for us to consummate our initial business combination, our sponsor or its affiliates or designees must deposit into the trust account $750,000, or up to $862,500 if the underwriters’ over-allotment option is exercised in full ($0.10 per share in either case) on or prior to the date of the deadline. We will issue a press release announcing the extension, at least three days prior to the deadline. In addition, we will issue a press release the day after the deadline, announcing whether the funds have been timely deposited. Our sponsor and its affiliates or designees are obligated to fund the trust account in order to extend the time for us to complete our initial business combination, but our sponsor will not be obligated to extend such time.
We anticipate structuring our initial business combination either: (i) in such a way so that the post-transaction company in which our public stockholders own shares will own or acquire 100% of the equity interests or assets of the target business or businesses; or (ii) in such a way so that the post-transaction company owns or acquires less than 100% of such interests or assets of the target business in order to meet certain objectives of the target management team or stockholders, or for other reasons. However, we will only complete an initial business combination if the post-transaction company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act of 1940, as amended, or the “Investment Company Act.” Even if the post-transaction company owns or acquires 50% or more of the voting securities of the target, our stockholders prior to the initial business combination may collectively own a minority interest in the post-transaction company, depending on valuations ascribed to the target and us in the initial business combination. For example, we could pursue a transaction in which we issue a substantial number of new shares in exchange for all of the outstanding capital stock of a target. In this case, we would acquire a 100% controlling interest in the target. However, as a result of the issuance of a substantial number of new shares, our stockholders immediately prior to our initial business combination could own less than a majority of our outstanding shares subsequent to our initial business combination. If less than 100% of the equity interests or assets of a target business or businesses are owned or acquired by the post-transaction company, the portion of such business or businesses that is owned or acquired is what will be taken into account for purposes of Nasdaq’s 80% of net assets test. If the initial business combination involves more than one target business, the 80% of net assets test will be based on the aggregate value of all of the transactions and we will treat the target businesses together as the initial business combination for purposes of a tender offer or for seeking stockholder approval, as applicable.
Our Initial Business Combination Process
In evaluating prospective business combinations, we expect to conduct a thorough due diligence review process that will encompass, among other things, a review of historical and projected financial and operating data, meetings with management and their advisors (if applicable), on-site inspection of facilities and assets, discussion with customers and suppliers, legal reviews and other reviews as we deem appropriate.
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We are not prohibited from pursuing an initial business combination with a company that is affiliated with our sponsor, officers or directors. In the event we seek to complete our initial business combination with a company that is affiliated with our sponsor, officers or directors, we, or a committee of independent directors, will obtain an opinion from an independent investment banking firm that is a member of FINRA or an independent accounting firm that our initial business combination is fair to our company from a financial point of view.
Members of our management team will directly or indirectly own founder shares and/or private placement warrants following this offering and, accordingly, may have a conflict of interest in determining whether a particular target business is an appropriate business with which to effectuate our initial business combination. Further, each of our officers and directors may have a conflict of interest with respect to evaluating a particular business combination if the retention or resignation of any such officers and directors were to be included by a target business as a condition to any agreement with respect to our initial business combination.
Members of our management team are employed by or otherwise work with LMFAO Sponsor, LLC or with entities affiliated with it or with other entities. LMFAO Sponsor, LLC and these other entities and their respective affiliates are continuously made aware of potential business opportunities, one or more of which we may desire to pursue for an initial business combination; we have not, however, selected any specific business combination target and we have not, nor has anyone on our behalf, initiated any substantive discussions, directly or indirectly, with any business combination target.
LMFAO Sponsor, LLC and each of our officers and directors presently has, and any of them and our sponsor in the future may have additional, fiduciary or contractual obligations to other entities pursuant to which such officer or director is or will be required to present a business combination opportunity. Accordingly, if any of our officers or directors becomes aware of a business combination opportunity which is suitable for an entity to which he or she has then-current fiduciary or contractual obligations, he or she will honor his or her fiduciary or contractual obligations to present such business combination opportunity to such other entity. We do not believe, however, that any fiduciary duties or contractual obligations of our sponsor, LMFAO Sponsor, LLC and our officers or directors will materially affect our ability to complete our initial business combination. Our certificate of incorporation will provide that we renounce our interest in any corporate opportunity offered to any director or officer unless such opportunity is expressly offered to such person solely in his or her capacity as a director or officer of our company and such opportunity is one we are legally and contractually permitted to undertake and would otherwise be reasonable for us to pursue, and to the extent the director or officer is permitted to refer that opportunity to us without violating another legal obligation. Please see the section of this prospectus entitled “Management—Conflicts of Interest” for additional information.
Summary Risk Factors
An investment in shares of our units involves a high degree of risk. If any of the factors enumerated below or in the section entitled "Risk Factors" occurs, our business, financial condition, liquidity, results of operations and prospects could be materially and adversely affected. In that case, the market price of our securities could decline, and you may lose some or all of your investment. Some of the more significant risks relating to this offering and an investment in our units include:
Our search for a business combination, and any target business with which we ultimately consummate a business combination, may be materially adversely affected by the COVID-19 pandemic.
Our public stockholders may not be afforded an opportunity to vote on our proposed initial business combination, which means we may complete our initial business combination even though a majority of our public stockholders do not support such a combination.
If we seek stockholder approval of our initial business combination, our sponsor, directors, officers, advisors, and their affiliates may elect to purchase shares from public stockholders, which may influence a vote on a proposed initial business combination and reduce the public “float” of our Class A common stock.
Your only opportunity to affect the investment decision regarding a potential business combination will be limited to the exercise of your right to redeem your shares from us for cash, unless we seek stockholder approval of the initial business combination.
If third parties bring claims against us, the proceeds held in the trust account could be reduced and the per-share redemption amount received by stockholders may be less than $10.20 per share.
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We may seek business combination opportunities in industries outside of our management’s area of expertise.
Resources could be wasted in researching business combinations that are not completed, which could materially adversely affect subsequent attempts to locate and acquire or merge with another business. If we are unable to complete our initial business combination, our public stockholders may receive only approximately $10.20 per share, or less than such amount in certain circumstances, on the liquidation of our trust account and our warrants will expire worthless.
Our ability to successfully effect our initial business combination and to be successful thereafter will be totally dependent upon the efforts of our key personnel, some of whom may join us following our initial business combination. The loss of key personnel could negatively impact the operations and profitability of our post-combination business.
We may attempt to complete our initial business combination with a private company about which little information is available, which may result in an initial business combination with a company that is not as profitable as we suspected, if at all.
We may be unable to obtain additional financing to complete our initial business combination or to fund the operations and growth of a target business, which could compel us to restructure or abandon a particular business combination.
The requirement that we complete our initial business combination within the prescribed time frame may give potential target businesses leverage over us in negotiating an initial business combination and may decrease our ability to conduct due diligence on potential business combination targets as we approach our dissolution deadline, which could undermine our ability to complete our initial business combination on terms that would produce value for our stockholders.
Our key personnel may negotiate employment or consulting agreements with a target business in connection with a particular business combination. These agreements may provide for them to receive compensation following our initial business combination and as a result, may cause them to have conflicts of interest in determining whether a particular business combination is the most advantageous.
Since our sponsor, officers and directors will lose their entire investment in us if our initial business combination is not completed, a conflict of interest may arise in determining whether a particular business combination target is appropriate for our initial business combination.
Our sponsor paid an aggregate of $25,000, or approximately $0.012 per founder share, and, accordingly, you will experience immediate and substantial dilution from the purchase of our Class B common stock.
The determination of the offering price of our units and the size of this offering is more arbitrary than the pricing of securities and size of an offering of an operating company in a particular industry. You may have less assurance, therefore, that the offering price of our units properly reflects the value of such units than you would have in a typical offering of an operating company.
Corporate Information
Our executive offices are located at 1200 W. Platt St., Suite 100, Tampa, FL 33606, and our telephone number is (813) 222-8996.
We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies
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that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. If some investors find our securities less attractive as a result, there may be a less active trading market for our securities and the prices of our securities may be more volatile.
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We intend to take advantage of the benefits of this extended transition period.
We will remain an emerging growth company until the earlier of: (1) the last day of the fiscal year: (a) following the fifth anniversary of the completion of this offering; (b) in which we have total annual gross revenue of at least $1.07 billion; or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Class A common stock that is held by non-affiliates exceeds $700 million as of the prior June 30; and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. References herein to emerging growth company will have the meaning associated with it in the JOBS Act.
Additionally, we are a “smaller reporting company” as defined in Rule 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which: (1) the market value of our common stock held by non-affiliates equals or exceeds $250 million as of the end of the prior June 30th; or (2) our annual revenues equaled or exceeded $100 million during such completed fiscal year and the market value of our common stock held by non-affiliates equals or exceeds $700 million as of the prior June 30th.
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In deciding whether to invest in our securities, you should take into account not only the backgrounds of the members of our management team, but also the special risks we face as a blank check company and the fact that this offering is not being conducted in compliance with Rule 419 promulgated under the Securities Act. You will not be entitled to protections normally afforded to investors in Rule 419 blank check offerings. You should carefully consider these and the other risks set forth in the section of this prospectus entitled “Risk Factors.”
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We are a newly formed company that has conducted no operations and has generated no revenues. Until we complete our initial business combination, we will have no operations and will generate no operating revenues. In making your decision whether to invest in our securities, you should take into account not only the background of our management team, but also the special risks we face as a blank check company. This offering is not being conducted in compliance with Rule 419 promulgated under the Securities Act. Accordingly, you will not be entitled to protections normally afforded to investors in Rule 419 blank check offerings. For additional information concerning how Rule 419 blank check offerings differ from this offering, please see the section of this prospectus entitled “Proposed Business — Comparison of This Offering to Those of Blank Check Companies Subject to Rule 419.” You should carefully consider these and the other risks set forth in the section of this prospectus entitled “Risk Factors” beginning on page 33 of this prospectus.
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The following table summarizes the relevant financial data for our business and should be read with our financial statements, which are included in this prospectus. We have not had any significant operations to date, so only balance sheet data is presented.
| November 6, 2020 | ||||
| Actual | As Adjusted | |||
Balance Sheet Data: |
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Working capital(1) | $ | (48,000) | $ | 74,650,000 | |
Total assets(2) | $ | 98,000 | $ | 77,275,000 | |
Total liabilities(3) | $ | 73,000 | $ | 2,698,000 | |
Value of common stock subject to possible conversion/tender(4) |
| - | $ | 69,649,999 | |
Stockholder’s equity(5) | $ | 25,000 | $ | 5,000,001 | |
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(1)The “as adjusted” calculation includes $76,500,000 of cash held in trust from the proceeds of this offering and the sale of the private placement warrants, plus $750,000 of cash held outside the trust account, plus $25,000 of actual stockholders’ equity on November 6, 2020, less $2,625,000 of deferred underwriting commissions. (2)The “as adjusted” calculation equals $76,500,000 of cash held in trust from the proceeds of this offering and the sale of the private placement warrants, plus $750,000 in cash held outside the trust account, plus $25,000 of actual stockholders’ equity on November 6, 2020. (3)The “as adjusted” calculation equals $2,625,000 of deferred underwriting commissions, assuming the over-allotment option is not exercised plus $73,000 of accounts payable. (4)The “as adjusted” calculation equals the “as adjusted” total assets, less the “as adjusted” total liabilities, less the “as adjusted” stockholders’ equity, which is set to approximate the minimum net tangible assets threshold of at least $5,000,001 either immediately prior to or upon consummation of our initial business combination. (5)The “as adjusted” calculation equals the “as adjusted” total assets, less the “as adjusted” total liabilities, less the value of shares of common stock that may be redeemed in connection with our initial business combination ($10.20 per share). |
The “as adjusted” information gives effect to the issuance of the units we are offering and the sale of the private placement warrants described in this prospectus, including the application of the related gross proceeds and the payment of the estimated remaining costs from such sale and the repayment of the accrued and other liabilities required to be repaid.
The “as adjusted” total assets amount includes $76,500,000 to be held in the trust account (or $87,975,000 if the over-allotment option is exercised in full) which, except for limited situations described in this prospectus, will be available to us only upon the consummation of a business combination within the time period described in this prospectus. If a business combination is not so consummated, the trust account, less amounts we are permitted to withdraw from interest earned on the funds in the trust account as described in this prospectus, will be distributed solely to our public stockholders (subject to our obligations under Delaware law to provide for claims of creditors).
We will consummate our initial business combination only if we have net tangible assets of at least $5,000,001 either immediately prior to or upon such consummation and, solely if we seek stockholder approval, a majority of the outstanding shares of common stock voted are voted in favor of the business combination.
If no initial business combination is completed within 18 months from the closing of this offering (or 21 months from the closing of this offering, if we extend the period of time to consummate a business combination, as described in more detail in this prospectus), the proceeds then on deposit in the trust account including interest earned on the funds held in the trust account and not previously released to us to pay our franchise and income taxes (less up to $100,000 of interest to pay dissolution expenses), will be used to fund the redemption of our public shares. Our sponsor, officers, and directors have entered into a letter agreement with us, pursuant to which they have agreed to waive their rights to liquidating distributions from the trust account with respect to any founder shares held by them if we fail to complete our initial business combination within such 18-month time period (or 21-month period).
An investment in our securities involves a high degree of risk. You should consider carefully all of the risks described below, together with the other information contained in this prospectus, before making a decision to invest in our units. If any of the following events occur, our business, financial condition and operating results may be materially adversely affected. In that event, the trading price of our securities could decline, and you could lose all or part of your investment.
RISKS RELATED TO THE CORONAVIRUS (“COVID-19”) PANDEMIC
Our search for a business combination, and any target business with which we ultimately consummate a business combination, may be materially adversely affected by the COVID-19 pandemic.
The significant outbreak of COVID-19 has resulted in a widespread health crisis that could adversely affect the economies and financial markets worldwide, and the business of any potential target business with which we consummate a business combination could be materially and adversely affected. We may be unable to complete a business combination if continued concerns relating to COVID-19 restrict travel, limit the ability to have meetings with potential investors, or the target company’s personnel, vendors, and services providers are unavailable to negotiate and consummate a transaction in a timely manner. The extent to which COVID-19 impacts our search for a business combination will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. If the disruptions posed by COVID-19 or other matters of global concern continue for an extensive period of time, our ability to consummate a business combination, or the operations of a target business with which we ultimately consummate a business combination, may be materially adversely affected.
RISKS RELATED TO VOTING ON THE INITIAL BUSINESS COMBINATION
Our public stockholders may not be afforded an opportunity to vote on our proposed initial business combination, which means we may complete our initial business combination even though a majority of our public stockholders do not support such a combination.
We may choose not to hold a stockholder vote to approve our initial business combination unless the initial business combination would require stockholder approval under applicable law or stock exchange listing requirements or if we decide to hold a stockholder vote for business or other legal reasons. Except as required by law, the decision as to whether we will seek stockholder approval of a proposed initial business combination or will allow stockholders to sell their shares to us in a tender offer will be made by us, solely in our discretion, and will be based on a variety of factors, such as the timing of the transaction and whether the terms of the transaction would otherwise require us to seek stockholder approval. Accordingly, we may complete our initial business combination even if holders of a majority of our public shares do not approve of the initial business combination we complete. Please see the section of this prospectus entitled “Proposed Business—Stockholders May Not Have the Ability to Approve Our Initial Business Combination” for additional information.
If we seek stockholder approval of our initial business combination, our initial stockholders have agreed to vote in favor of such initial business combination, regardless of how our public stockholders vote.
Pursuant to the letter agreement, our sponsor, officers and directors have agreed to vote their founder shares, as well as any public shares purchased during or after this offering (including in open market and privately negotiated transactions), in favor of our initial business combination. As a result, in addition to our initial stockholders’ founder shares, we would need only 2,850,001, or approximately 30.2%, (assuming all outstanding shares are voted and the over-allotment option is not exercised) or 487,501, or approximately 5.2% (assuming only the minimum number of shares representing a quorum are voted and the over-allotment option is not exercised), of the 7,500,000 public shares sold in this offering to be voted in favor of an initial business combination. Our initial stockholders will own shares representing 20% of our outstanding shares of common stock immediately following the completion of this offering (or 19.8% including the shares of Class A common stock issuable to the underwriters upon the closing of this offering). Accordingly, if we seek stockholder approval of our initial business combination, the agreement by our initial stockholders to vote in favor of our initial business combination will increase the likelihood that we will receive the requisite stockholder approval for such initial business combination.
If we seek stockholder approval of our initial business combination, our sponsor, directors, officers, advisors, and their affiliates may elect to purchase shares from public stockholders, which may influence a vote on a proposed initial business combination and reduce the public “float” of our Class A common stock.
If we seek stockholder approval of our initial business combination and we do not conduct redemptions in connection with our initial business combination pursuant to the tender offer rules, our sponsor, directors, officers, advisors, or their affiliates may purchase shares or public warrants or a combination thereof in privately negotiated transactions or in the open market either prior to or following the completion of our initial business combination, although they are under no obligation to do so. However, they have no current commitments, plans, or intentions to engage in such transactions and have not formulated any terms or conditions for any such transactions. None of the funds in the trust account will be used to purchase shares or public warrants in such transactions.
Such a purchase may include a contractual acknowledgement that such stockholder, although still the record holder of our shares is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights. In the event that our sponsor, directors, officers, advisors, or their affiliates purchase shares in privately negotiated transactions from public stockholders who have already elected to exercise their redemption rights, such selling stockholders would be required to revoke their prior elections to redeem their shares. The purpose of such purchases could be to vote such shares in favor of the initial business combination and thereby increase the likelihood of obtaining stockholder approval of the initial business combination, or to satisfy a closing condition in an agreement with a target that requires us to have a minimum net worth or a certain amount of cash at the closing of our initial business combination, where it appears that such requirement would otherwise not be met. The purpose of any such purchases of public warrants could be to reduce the number of public warrants outstanding or to vote such warrants on any matters submitted to the warrant holders for approval in connection with our initial business combination. Any such purchases of our securities may result in the completion of our initial business combination that may not otherwise have been possible. Any such purchases will be reported pursuant to Section 13 and Section 16 of the Exchange Act to the extent such purchasers are subject to such reporting requirements.
In addition, if such purchases are made, the public “float” of our Class A common stock or public warrants and the number of beneficial holders of our securities may be reduced, possibly making it difficult to obtain or maintain the quotation, listing, or trading of our securities on a national securities exchange.
Our initial stockholders may exert a substantial influence on actions requiring a stockholder vote, potentially in a manner that you do not support.
Upon the closing of this offering, our initial stockholders will own shares representing approximately 20% of our issued and outstanding shares of common stock (assuming they do not purchase any units in this offering and excluding shares of Class A common stock issuable to the underwriters upon the closing of this offering). Accordingly, they may exert a substantial influence on actions requiring a stockholder vote, potentially in a manner that you do not support, including amendments to our certificate of incorporation and approval of major corporate transactions. If our initial stockholders purchase any units in this offering or if our initial stockholders purchase any additional shares of common stock in the aftermarket or in privately negotiated transactions, this would increase their control. Factors that would be considered in making such additional purchases would include consideration of the current trading price of our Class A common stock. In addition, our board of directors, whose members were elected by our initial stockholders, is and will be divided into two classes, each of which will generally serve for a term of two years with only one class of directors being elected in each year. We may not hold an annual meeting of stockholders to elect new directors prior to the completion of our initial business combination, in which case all of the current directors will continue in office until at least the completion of the initial business combination. If there is an annual meeting, as a consequence of our “staggered” board of directors, only a minority of the board of directors will be considered for election and our initial stockholders, because of their ownership position, will have considerable influence regarding the outcome. Accordingly, our initial stockholders will continue to exert control at least until the completion of our initial business combination.
RISKS RELATED TO THE REDEMPTION OF SHARES
Your only opportunity to affect the investment decision regarding a potential business combination will be limited to the exercise of your right to redeem your shares from us for cash, unless we seek stockholder approval of the initial business combination.
At the time of your investment in us, you will not be provided with an opportunity to evaluate the specific merits or risks of our initial business combination. Since our board of directors may complete an initial business combination without seeking stockholder approval, public stockholders may not have the right or opportunity to vote on the initial business combination, unless we seek such stockholder vote. Accordingly, if we do not seek stockholder approval, your only
opportunity to affect the investment decision regarding a potential business combination may be limited to exercising your redemption rights within the period of time (which will be at least 20 business days) set forth in our tender offer documents mailed to our public stockholders in which we describe our initial business combination.
The ability of our public stockholders to redeem their shares for cash may make our financial condition unattractive to potential business combination targets, which may make it difficult for us to enter into an initial business combination with a target.
We may seek to enter into an initial business combination agreement with a prospective target that requires as a closing condition that we have a minimum net worth or a certain amount of cash. If too many public stockholders exercise their redemption rights, we would not be able to meet such closing condition and, as a result, would not be able to proceed with the initial business combination. Furthermore, in no event will we redeem our public shares in an amount that would cause our net tangible assets to be less than $5,000,001 immediately prior to or upon consummation of our initial business combination and after payment of the underwriters’ fees and commissions (so that we are not subject to the SEC’s “penny stock” rules) or any greater net tangible asset or cash requirement which may be contained in the agreement relating to our initial business combination. Consequently, if accepting all properly submitted redemption requests would cause our net tangible assets to be less than $5,000,001 immediately prior to or upon consummation of our initial business combination and after payment of the underwriters’ fees and commissions or such greater amount necessary to satisfy a closing condition as described above, we would not proceed with such redemption and the related business combination and may instead search for an alternate business combination. Prospective targets will be aware of these risks and, thus, may be reluctant to enter into an initial business combination with us.
The ability of our public stockholders to exercise redemption rights with respect to a large number of our shares may not allow us to complete the most desirable business combination or optimize our capital structure.
At the time we enter into an agreement for our initial business combination, we will not know how many stockholders may exercise their redemption rights, and therefore will need to structure the transaction based on our expectations as to the number of shares that will be submitted for redemption. If our initial business combination agreement requires us to use a portion of the cash in the trust account to pay the purchase price, or requires us to have a minimum amount of cash at closing, we will need to reserve a portion of the cash in the trust account to meet such requirements, or arrange for third party financing. In addition, if a larger number of shares are submitted for redemption than we initially expected, we may need to restructure the transaction to reserve a greater portion of the cash in the trust account or arrange for third party financing. Raising additional third party financing may involve dilutive equity issuances or the incurrence of indebtedness at higher than desirable levels. The above considerations may limit our ability to complete the most desirable business combination available to us or optimize our capital structure. The amount of the deferred underwriting commissions payable to the underwriters will not be adjusted for any shares that are redeemed in connection with an initial business combination. The per-share amount we will distribute to stockholders who properly exercise their redemption rights will not be reduced by the deferred underwriting commission and after such redemptions, the per-share value of shares held by non-redeeming stockholders will reflect our obligation to pay the deferred underwriting commissions.
The ability of our public stockholders to exercise redemption rights with respect to a large number of our shares could increase the probability that our initial business combination would be unsuccessful and that you would have to wait for liquidation in order to redeem your stock.
If our initial business combination agreement requires us to use a portion of the cash in the trust account to pay the purchase price, or requires us to have a minimum amount of cash at closing, the probability that our initial business combination would be unsuccessful is increased. If our initial business combination is unsuccessful, you would not receive your pro rata portion of the trust account until we liquidate the trust account. If you are in need of immediate liquidity, you could attempt to sell your stock in the open market; however, at such time our stock may trade at a discount to the pro rata amount per share in the trust account. In either situation, you may suffer a material loss on your investment or lose the benefit of funds expected in connection with our redemption until we liquidate or you are able to sell your stock in the open market.
If a stockholder fails to receive notice of our offer to redeem our public shares in connection with our initial business combination, or fails to comply with the procedures for tendering its shares, such shares may not be redeemed.
We will comply with the tender offer rules or proxy rules, as applicable, when conducting redemptions in connection with our initial business combination. Despite our compliance with these rules, if a stockholder fails to receive our tender offer or proxy materials, as applicable, such stockholder may not become aware of the opportunity to redeem its shares. In addition, proxy materials or tender offer documents, as applicable, that we will furnish to holders of our public shares in connection with our initial business combination will describe the various procedures that must be complied with in
order to validly tender or redeem public shares. For example, we may require our public stockholders seeking to exercise their redemption rights, whether they are record holders or hold their shares in “street name,” to either tender their certificates to our transfer agent prior to the date set forth in the tender offer documents mailed to such holders, or up to two business days prior to the vote on the proposal to approve the initial business combination in the event we distribute proxy materials, or to deliver their shares to the transfer agent electronically. In the event that a stockholder fails to comply with these or any other procedures, its shares may not be redeemed. See the section of this prospectus entitled “Proposed Business—Business Strategy—Tendering Stock Certificates in Connection with a Tender Offer or Redemption Rights.”
You will not have any rights or interests in funds from the trust account, except under certain limited circumstances. To liquidate your investment, therefore, you may be forced to sell your public shares or warrants, potentially at a loss.
Our public stockholders will be entitled to receive funds from the trust account only upon the earliest to occur of: (i) our completion of an initial business combination, and then only in connection with those shares of Class A common stock that such stockholder properly elected to redeem, subject to the limitations described herein; (ii) the redemption of any public shares properly submitted in connection with a stockholder vote to amend our certificate of incorporation to modify the substance or timing of our obligation to redeem 100% of our public shares if we do not complete our initial business combination within 18 months from the closing of this offering (or 21 months from the closing of this offering, if we extend the period of time to consummate a business combination, as described in more detail in this prospectus); and (iii) the redemption of our public shares if we are unable to complete an initial business combination within 18 months from the closing of this offering (or 21 months from the closing of this offering, if we extend the period of time to consummate a business combination, as described in more detail in this prospectus), subject to applicable law and as further described herein. In no other circumstances will a public stockholder have any right or interest of any kind in the trust account. Holders of warrants will not have any right to the proceeds held in the trust account with respect to the warrants. Accordingly, to liquidate your investment, you may be forced to sell your public shares or warrants, potentially at a loss.
If we seek stockholder approval of our initial business combination and we do not conduct redemptions pursuant to the tender offer rules, and if you or a “group” of stockholders are deemed to hold in excess of 15% of our Class A common stock, you will lose the ability to redeem all such shares in excess of 15% of our Class A common stock.
If we seek stockholder approval of our initial business combination and we do not conduct redemptions in connection with our initial business combination pursuant to the tender offer rules, our certificate of incorporation will provide that a public stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Exchange Act), will be restricted from seeking redemption rights with respect to more than an aggregate of 15% of the shares sold in this offering without our prior consent, which we refer to as the “Excess Shares.” However, we would not be restricting our stockholders’ ability to vote all of their shares (including Excess Shares) for or against our initial business combination. Your inability to redeem the Excess Shares will reduce your influence over our ability to complete our initial business combination and you could suffer a material loss on your investment in us if you sell Excess Shares in open market transactions. Additionally, you will not receive redemption distributions with respect to the Excess Shares if we complete our initial business combination. And as a result, you will continue to hold that number of shares exceeding 15% and, in order to dispose of such shares, would be required to sell your stock in open market transactions, potentially at a loss.
If third parties bring claims against us, the proceeds held in the trust account could be reduced and the per-share redemption amount received by stockholders may be less than $10.20 per share.
Our placing of funds in the trust account may not protect those funds from third-party claims against us. Although we will seek to have all vendors, service providers (other than certain of our service providers, including, for example, our independent registered public accounting firm), prospective target businesses, and other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the trust account for the benefit of our public stockholders, such parties may not execute such agreements, or even if they execute such agreements they may not be prevented from bringing claims against the trust account, including, but not limited to, fraudulent inducement, breach of fiduciary responsibility or other similar claims, as well as claims challenging the enforceability of the waiver, in each case in order to gain advantage with respect to a claim against our assets, including the funds held in the trust account. If any third party refuses to execute an agreement waiving such claims to the monies held in the trust account, our management will perform an analysis of the alternatives available to it and will only enter into an agreement with a third party that has not executed a waiver if management believes that such third party’s engagement would be significantly more beneficial to us than any alternative.
Examples of possible instances where we may engage a third party that refuses to execute a waiver include the engagement of a third party consultant whose particular expertise or skills are believed by management to be significantly superior to those of other consultants that would agree to execute a waiver or in cases where management is unable to find a service provider willing to execute a waiver. In addition, there is no guarantee that such entities will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with us and will not seek recourse against the trust account for any reason. Upon redemption of our public shares, if we are unable to complete our initial business combination within the prescribed timeframe, or upon the exercise of a redemption right in connection with our initial business combination, we will be required to provide for payment of claims of creditors that were not waived that may be brought against us within the 10 years following redemption. Accordingly, the per-share redemption amount received by public stockholders could be less than the $10.20 per share initially held in the trust account, due to claims of such creditors. Pursuant to the letter agreement, the form of which is filed as Exhibit 10.1 to the registration statement of which this prospectus formsis a part and the documents incorporated by reference herein carefully, including the information set forth under the heading “Risk Factors” and our sponsor has agreedfinancial statements.
Business Summary
Company Overview
We are a medical technology company focused primarily on developing and commercializing our lead product candidate, the Selective Cytopheretic Device (“SCD”), for pediatric and adult acute kidney injury (“AKI”) indications. We recently submitted an application for a Humanitarian Device Exemption (“HDE”) for SCD for the treatment of pediatric patients with AKI on continuous renal replacement therapy (“CRRT”). In addition, we are currently finalizing the design of a pivotal trial of SCD for adult patients with AKI on CRRT based on a previously approved investigative device exemption (“IDE”) protocol. The SCD received a Breakthrough Device Designation from the U.S. Food and Drug Administration (“FDA”) on April 29, 2022 for the proposed use in the treatment of immunomodulatory dysregulation in adult patients who are 18 years and older with AKI. There is no guarantee that itwe will complete the AKI adult trial in a timely manner, or at all, nor will there be any assurance that positive data will be liablegenerated from such trial. Even if we are able to generate positive results from this trial, the FDA and other regulatory agencies may require us if and to conduct additional trials to support the extent any claims by a third party for services renderedstudy or products sold to us, or a prospective target businessdisagree with which we have entered into a written letter of intent, confidentiality or similar agreement or business combination agreement, reduce the amount of funds in the trust account to below the lesser of: (i) $10.20 per public share; and (ii) the actual amount per public share held in the trust account asdesign of the date of the liquidation of the trust account, if less than $10.20 per share duetrial and request changes or improvements to reductions in the value of the trust assets, less taxes payable, provided that such liability will not apply to any claims by a third party or prospective target business who executed a waiver of any and all rights to the monies held in the trust account (whether or not such waiver is enforceable) nor will it apply to any claims under our indemnity of the underwriters of this offering against certain liabilities, including liabilities under the Securities Act. However,design. To date, we have not asked our sponsorobtained regulatory approval to reserve for such indemnification obligations, nor have we independently verified whether our sponsor has sufficient funds to satisfy its indemnity obligations and believe that our sponsor’s only assets are securitiescommercialize or sell any of our company. Therefore, we cannot assure you that our sponsor would be able to satisfy those obligations. None of our officers or directors will indemnify us for claims by third parties including, without limitation, claims by vendors and prospective target businesses.products candidates.
Corporate Information
Our stockholders may be held liable for claims by third parties against us toprincipal executive offices are located at 3513 Brighton Boulevard, Suite #410, Denver, Colorado 80216, and our phone number is 844-427-8100.
Business Combination
On the extentClosing Date, LMAO, consummated a series of distributions received by them upon redemption of their shares.
Under the DGCL, stockholders may be held liable for claims by third parties against a corporation to the extent of distributions received by them in a dissolution. The pro rata portion of our trust account distributed to our public stockholders upon the redemption of our public sharestransactions that resulted in the event we do not complete our initial business combination within 18 months from the closing of this offering (or 21 months from the closing of this offering, if we extend the period of time to consummate a business combination, as described in more detail in this prospectus) may be considered a liquidating distribution under Delaware law. If a corporation complies with certain procedures set forth in Section 280 of the DGCL intended to ensure that it makes reasonable provision for all claims against it, including a 60-day notice period during which any third-party claims can be brought against the corporation, a 90-day period during which the corporation may reject any claims brought,Merger Sub and an additional 150-day waiting period before any liquidating distributions are made to stockholders, any liability of stockholders with respect to a liquidating distribution is limited to the lesser of such stockholder’s pro rata share of the claim or the amount distributed to the stockholder, and any liability of the stockholder would be barred after the third anniversary of the dissolution. However, it is our intention to redeem our public shares as soon as reasonably possible following the 18th month from the closing of this offering in the event we do not complete our initial business combination and, therefore, we do not intend to comply with the foregoing procedures.
Because we will not be complying with Section 280, Section 281(b) of the DGCL requires us to adopt a plan, based on facts known to us at such time that will provide for our payment of all existing and pending claims or claims that may be potentially brought against us within the 10 years following our dissolution. However, because we are a blank check company, rather than an operating company, and our operations will be limited to searching for prospective target businesses to acquire, the only likely claims to arise would be from our vendors (such as lawyers, investment bankers, etc.) or prospective target businesses. If our plan of distribution complies with Section 281(b) of the DGCL, any liability of stockholders with respect to a liquidating distribution is limited to the lesser of such stockholder’s pro rata share of the claim or the amount distributed to the stockholder, and any liability of the stockholder would likely be barred after the third anniversary of the dissolution. We cannot assure you that we will properly assess all claims that may be potentially brought against us. As such, our stockholders could potentially be liable for any claims to the extent of distributions received by them (but no more) and any liability of our stockholders may extend beyond the third anniversary of such date. Furthermore, if the pro rata portion of our trust account distributed to our public stockholders upon the redemption of our public shares in the event we do not complete our initial business combination within 18 months from the closing of this offering (or 21 months from the closing of this offering, if we extend the period of time to consummate a business combination, as described in more detail in this prospectus) is not considered a liquidating distribution under Delaware law and such redemption distribution is
deemed to be unlawful, then pursuant to Section 174 of the DGCL, the statute of limitations for claims of creditors could then be six years after the unlawful redemption distribution, instead of three years, as in the case of a liquidating distribution.
We do not have a specified maximum redemption threshold. The absence of such a redemption threshold may make it possible for us to complete an initial business combination with which a substantial majority of our stockholders do not agree.
Our certificate of incorporation will not provide a specified maximum redemption threshold, except that in no event will we redeem our public shares in an amount that would cause our net tangible assets to be less than $5,000,001 immediately prior to or upon consummation of our initial business combination and after payment of the underwriters’ fees and commissions (such that we are not subject to the SEC’s “penny stock” rules) or any greater net tangible asset or cash requirement which may be contained in the agreement relating to our initial business combination. As a result, we may be able to complete our initial business combination even though a substantial majority of our public stockholders do not agree with the transaction and have redeemed their shares or, if we seek stockholder approval of our initial business combination and do not conduct redemptions in connection with our initial business combinationSeaStar Medical, pursuant to the tender offer rules, have entered into privately negotiated agreements to sell their shares to our sponsor, officers, directors, advisors or their affiliates. In the event the aggregate cash consideration we would be required to pay for all shares of Class A common stock that are validly submitted for redemption plus any amount required to satisfy cash conditions pursuantMerger Agreement, by and among LMAO, Merger Sub and SeaStar Medical. Pursuant to the terms of the proposed initialMerger Agreement, a business combination exceedbetween LMAO and SeaStar Medical was effected through the merger of Merger Sub with and into SeaStar Medical, with SeaStar Medical surviving the merger as a wholly-owned subsidiary of LMAO, following the approval by shareholders of LMAO at the special meeting of the stockholders of LMAO held on October 18, 2022, 2022 (the “Special Meeting”). Following the Closing, LMAO was renamed “SeaStar Medical Holding Corporation”.
The aggregate consideration payable to the stockholders of SeaStar Medical at the Closing was $85,408,328, which consisted of an aggregate equity value of SeaStar Medical of $85,000,000, minus deductions for indebtedness of SeaStar Medical and SeaStar Medical transaction expenses in excess of $800,000, plus the aggregate amountexercise price of cash available to us, we will not complete the initial business combination or redeem any shares, all shares of Class A common stock submitted for redemption will be returned(1) SeaStar Medical warrants issued and outstanding immediately prior to the holders thereof,Closing and we instead may search for an alternate business combination.
RISKS RELATED TO PROCESS OF IDENTIFYING A TARGET AND CONSUMMATING AN INITIAL BUSINESS COMBINATION
Due to our limited resources(2) SeaStar Medical options issued and the significant competition for business combination opportunities, it may be more difficult for us to complete our initial business combination. If we are unable to complete our initial business combination, our public stockholders may receive only approximately $10.20 per share on our redemption of our public shares, or less than such amount in certain circumstances, and our warrants will expire worthless.
We expect to encounter intense competition from other entities having a business objective similar to ours, including private investors (which may be individuals or investment partnerships), other blank check companies and other entities competing for the types of businesses we intend to acquire. Many of these individuals and entities are well-established and have extensive experience in identifying and effecting, directly or indirectly, acquisitions of companies operating in or providing services to various industries. Many of these competitors possess greater technical, human and other resources or more industry knowledge than we do, and our financial resources will be relatively limited when contrasted with those of many of these competitors. While we believe there are numerous target businesses we could potentially acquire with the net proceeds of this offering and the sale of the private placement warrants, our ability to compete with respectoutstanding immediately prior to the acquisition of certain target businesses that are sizable will be limited by our available financial resources. This inherent competitive limitation gives others an advantage in pursuing the acquisition of certain target businesses. Furthermore, because we are obligated to pay cash for the shares of Class A common stock which our public stockholders redeem in connection with our initial business combination, target companies will be aware that this may reduce the resources available to us for our initial business combination. This may place us at a competitive disadvantage in successfully negotiating an initial business combination. If we are unable to complete our initial business combination, our public stockholders may receive only approximately $10.20 per share on the liquidation of our trust account and our warrants will expire worthless. In certain circumstances, our public stockholders may receiveClosing, less than $10.20 per share upon our liquidation. See “— If third parties bring claims against us, the proceeds held in the trust account could be reduced and the per-share redemption amount received by stockholders may be less than $10.20 per share.”
If the net proceeds of this offering and the sale of the private placement warrants not being held in the trust account are insufficient to allow us to operate for at least the next 18 months (or 21 months), we may be unable to complete our initial business combination, in which case our public stockholders may only receive $10.20 per share, or less than such amount in certain circumstances, and our warrants will expire worthless.
The funds available to us outside of the trust account may not be sufficient to allow us to operate for at least the next 18 months (or 21 months), assuming that our initial business combination is not completed during that time. We believe that, upon the closing of this offering, the funds available to us outside of the trust account will be sufficient to allow us to operate for at least the next 18 months (or 21 months); however, we cannot assure you that our estimate is accurate. Of the funds available to us, we could use a portion of the funds available to us to pay fees to consultants to assist us with our search for a target business. We could also use a portion of the funds as a down payment or to fund a “no-shop” provision (a provision in
letters of intent or merger agreements designed to keep target businesses from “shopping” around for transactions with other companies on terms more favorable to such target businesses) with respect to a particular proposed initial business combination, although we do not have any current intention to do so. If we entered into a letter of intent or merger agreement where we paid for the right to receive exclusivity from a target business and were subsequently required to forfeit such funds (whether as a result of our breach or otherwise), we might not have sufficient funds to continue searching for, or conduct due diligence with respect to, a target business. If we are unable to complete our initial business combination, our public stockholders may receive only approximately $10.20 per share on the liquidation of our trust account and our warrants will expire worthless. In certain circumstances, our public stockholders may receive less than $10.20 per share upon our liquidation. See “— If third parties bring claims against us, the proceeds held in the trust account could be reduced and the per-share redemption amount received by stockholders may be less than $10.20 per share” and other risk factors below.
If the net proceeds of this offering and the sale of the private placement warrants not being held in the trust account are insufficient, it could limit the amount available to fund our search for a target business or businesses and complete our initial business combination and we will depend on loans from our sponsor or management team to fund our search for an initial business combination, to pay our franchise and income taxes and to complete our initial business combination. If we are unable to obtain these loans, we may be unable to complete our initial business combination.
Of the net proceeds of this offering and the sale of the private placement warrants, only approximately $750,000 will be available to us initially outside the trust account to fund our working capital requirements. In the event that our offering expenses exceed our estimate of $848,000, we may fund such excess with funds not to be held in the trust account. In such case, the amount of funds we intend to be held outside the trust account would decrease by a corresponding amount. The amount held in the trust account will not be impacted as a result of such increase or decrease. Conversely, in the event that the offering expenses are less than our estimate of $848,000, the amount of funds we intend to be held outside the trust account would increase by a corresponding amount. If we are required to seek additional capital, we would need to borrow funds from our sponsor, management team, or other third parties to operate or may be forced to liquidate. None of our sponsor, members of our management team, nor any of their affiliates is under any obligation to advance funds to us in such circumstances. Any such advances would be repaid only from funds held outside the trust account or from funds released to us upon completion of our initial business combination. Up to $1,500,000 of such working capital loans may be convertible into private placement-equivalent warrants at a price of $1.00 per warrant (which, for example, would result in the holders being issued 1,500,000 warrants if $1,500,000 of notes were so converted), at the option of the lender. Prior to the completion of our initial business combination, we do not expect to seek loans from parties other than our sponsor or an affiliate of our sponsor, as we do not believe third parties will be willing to loan such funds and provide a waiver against any and all rights to seek access to funds in our trust account. If we are unable to obtain these loans, we may be unable to complete our initial business combination. If we are unable to complete our initial business combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the trust account. Consequently, our public stockholders may only receive approximately $10.20 per share on our redemption of our public shares, and our warrants will expire worthless. In certain circumstances, our public stockholders may receive less than $10.20 per share on the redemption of their shares. See “— If third parties bring claims against us, the proceeds held in the trust account could be reduced and the per-share redemption amount received by stockholders may be less than $10.20 per share” and other risk factors below.
The securities in which we invest the proceeds held in the trust account could bear a negative rate of interest, which could reduce the interest income available for payment of taxes or reduce the value of the assets heldshares of Common Stock underlying the Assumed Equity (as defined in trust such that the Merger Agreement) (the “Closing Merger Consideration”). The Closing Merger Consideration was payable solely in shares of Common Stock, valued at $10.00 per share, redemption amount received by shareholders may be less than $10.20 per share.
The net proceeds of this offering and certain proceeds from the sale of the private placement warrants,resulting in the amount of $76,500,000, will be held in an interest-bearing trust account. The proceeds held in the trust account may only be invested in U.S. Treasury obligations having a maturity of 180 days or less or in certain money market funds which invest only in direct U.S. Treasury obligations. While short-term U.S. Treasury obligations currently yield a positive rate of interest, they have briefly yielded negative interest rates in recent years. Central banks in Europe and Japan pursued interest rates below zero in recent years, and the Open Market Committee of the Federal Reserve has not ruled out the possibility that it may in the future adopt similar policies in the United States. In the event of very low or negative yields, the amount of interest of income (which we are permitted to use to pay our taxes and up to $100,000 of dissolution expenses) would be reduced. In the event that we are unable to complete our initial business combination, our public shareholders are entitled to receive their pro-rata share of the proceeds held in the trust account, plus any interest income. If the balance of the trust account is reduced below $76,500,000 as a result of negative interest rates, the amount of funds in the trust account available for distribution to our public shareholders may be reduced below $10.20 per share.
Subsequent to the completion of our initial business combination, we may be required to take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on our financial condition, results of operations, and our stock price, which could cause you to lose some or all of your investment.
Even if we conduct extensive due diligence on a target business with which we combine, we cannot assure you that this diligence will surface all material issues that may be present inside a particular target business, that it would be possible to uncover all material issues through a customary amount of due diligence, or that factors outside of the target business and outside of our control will not later arise. As a result of these factors, we may be forced to later write down or write off assets, restructure our operations, or incur impairment or other charges that could result in our reporting losses. Even if our due diligence successfully identifies certain risks, unexpected risks may arise and previously known risks may materialize in a manner not consistent with our preliminary risk analysis. Even though these charges may be non-cash items and not have an immediate impact on our liquidity, the fact that we report charges of this nature could contribute to negative market perceptions about us or our securities. In addition, charges of this nature may cause us to violate net worth or other covenants to which we may be subject as a result of assuming pre-existing debt held by a target business or by virtue of our obtaining debt financing to partially finance the initial business combination. Accordingly, any stockholders who choose to remain stockholders following the initial business combination could suffer a reduction in the value of their shares. Such stockholders are unlikely to have a remedy for such reduction in value unless they are successfully able to claim that the reduction was due to the breach by our officers or directors of a duty of care or other fiduciary duty owed to them, or if they are successfully able to bring a private claim under securities laws that the proxy solicitation or tender offer materials, as applicable, relating to the initial business combination constituted an actionable material misstatement or omission.
Since we are neither limited to evaluating a target business in a particular industry sector nor have we selected any specific target businesses with which to pursue our initial business combination, you will be unable to ascertain the merits or risks of any particular target business’s operations.
While we intend to seek to complete an initial business combination with an attractive company or business within the financial services industry, including potentially the FinTech sector, we are not obligated to do so and may also pursue business combination opportunities in other industries, except that we will not, under our certificate of incorporation, be permitted to effectuate our initial business combination with another blank check company or similar company with nominal operations. Since we have not yet selected or approached any specific target business with respect to a business combination, there is no basis to evaluate the possible merits or risks of any particular target business’s operations, results of operations, cash flows, liquidity, financial condition, or prospects. To the extent we complete our initial business combination, we may be affected by numerous risks inherent in the business operations with which we combine. For example, if we combine with a financially unstable business or an entity lacking an established record of sales or earnings, we may be affected by the risks inherent in the business and operations of a financially unstable or a development-stage entity. Although our officers and directors will endeavor to evaluate the risks inherent in a particular target business, we cannot assure you that we will properly ascertain or assess all of the significant risk factors or that we will have adequate time to complete due diligence. Furthermore, some of these risks may be outside of our control and leave us with no ability to control or reduce the chances that those risks will adversely impact a target business. We also cannot assure you that an investment in our units will ultimately prove to be more favorable to investors than a direct investment, if such opportunity were available, in a business combination target. Accordingly, any stockholders who choose to remain stockholders following our initial business combination could suffer a reduction in the value of their securities. Such stockholders are unlikely to have a remedy for such reduction in value unless they are able to successfully claim that the reduction was due to the breach by our officers or directors of a duty of care or other fiduciary duty owed to them, or if they are able to successfully bring a private claim under securities laws that the proxy solicitation or tender offer materials, as applicable, relating to the business combination contained an actionable material misstatement or material omission.
We may seek business combination opportunities in industries outside of our management’s area of expertise.
Although we intend to focus on identifying an operating company or business within the financial services industry, including possibly the FinTech sector, we will consider an initial business combination outside of our management’s area of expertise if an initial business combination candidate is presented to us and we determine that such candidate offers an attractive business combination opportunity for our company or we are unable to identify a suitable candidate in this sector after having expanded a reasonable amount of time and effort in an attempt to do so. Although our management will endeavor to evaluate the risks inherent in any particular business combination candidate, we cannot assure you that we will adequately ascertain or assess all of the significant risk factors. We also cannot assure you that an investment in our units will not ultimately prove to be less favorable to investors in this offering than a direct investment, if an opportunity were available, in an initial business combination candidate. In the event we elect to pursue a business combination outside of the areas of our management’s expertise, our management’s expertise may not be directly applicable to its evaluation or operation, and the information contained in this prospectus regarding the areas of our management’s expertise would not be relevant to an understanding of the business that we elect to acquire. As a result, our management may not be able to adequately ascertain or assess all of the significant risk factors. Accordingly, any stockholders who choose to remain stockholders following our initial business combination could suffer a reduction in the value of their shares. Such stockholders are unlikely to have a remedy for such reduction in value.
Although we have identified general criteria and guidelines that we believe are important in evaluating prospective target businesses, we may enter into our initial business combination with a target that does not meet such criteria and guidelines, and as a result, the target business with which we enter into our initial business combination may not have attributes entirely consistent with our general criteria and guidelines.
Although we have identified general criteria and guidelines for evaluating prospective target businesses, it is possible that a target business with which we enter into our initial business combination will not have all of these positive attributes. If we complete our initial business combination with a target that does not meet some or all of these guidelines, such combination may not be as successful as a combination with a business that does meet all of our general criteria and guidelines. In addition, if we announce a prospective business combination with a target that does not meet our general criteria and guidelines, a greater number of stockholders may exercise their redemption rights, which may make it difficult for us to meet any closing condition with a target business that requires us to have a minimum net worth or a certain amount of cash. In addition, if stockholder approval of the transaction is required by law, or we decide to obtain stockholder approval for business or other legal reasons, it may be more difficult for us to attain stockholder approval of our initial business combination if the target business does not meet our general criteria and guidelines. If we are unable to complete our initial business combination, our public stockholders may receive only approximately $10.20 per share on the liquidation of our trust account and our warrants will expire worthless. In certain circumstances, our public stockholders may receive less than $10.20 per share on the redemption of their shares. See “— If third parties bring claims against us, the proceeds held in the trust account could be reduced and the per-share redemption amount received by stockholders may be less than $10.20 per share” and related risk factors.
We may seek business combination opportunities with a financially unstable business or an entity lacking an established record of revenue, cash flow, or earnings, which could subject us to volatile revenues, cash flows, or earnings, and/or difficulty in retaining key personnel.
To the extent we complete our initial business combination with a financially unstable business or an entity lacking an established record of revenues or earnings, we may be affected by numerous risks inherent in the operations of the business with which we combine. These risks include volatile revenues or earnings and difficulties in obtaining and retaining key personnel. Although our officers and directors will endeavor to evaluate the risks inherent in a particular target business, we may not be able to properly ascertain or assess all of the significant risk factors and we may not have adequate time to complete due diligence. Furthermore, some of these risks may be outside of our control and leave us with no ability to control or reduce the chances that those risks will adversely impact a target business.
We are not required to obtain an opinion from an independent investment banking firm or from an independent accounting firm, and consequently, you may have no assurance from an independent source that the price we are paying for the business is fair to our company from a financial point of view.
Unless we complete our initial business combination with an affiliated entity or our board cannot independently determine the fair market value of the target business or businesses, we are not required to obtain an opinion from an independent investment banking firm that is a member of FINRA or from an independent accounting firm that the price we are paying is fair to our company from a financial point of view. If no opinion is obtained, our stockholders will be relying on the judgment of our board of directors, who will determine fair market value based on standards generally accepted by the financial community. Such standards used will be disclosed in our proxy materials or tender offer documents, as applicable, related to our initial business combination.
Resources could be wasted in researching business combinations that are not completed, which could materially adversely affect subsequent attempts to locate and acquire or merge with another business. If we are unable to complete our initial business combination, our public stockholders may receive only approximately $10.20 per share, or less than such amount in certain circumstances, on the liquidation of our trust account and our warrants will expire worthless.
We anticipate that the investigation of each specific target business and the negotiation, drafting and execution of relevant agreements, disclosure documents and other instruments will require substantial management time and attention and substantial costs for accountants, attorneys, consultants and others. If we decide not to complete a specific initial business combination, the costs incurred up to that point for the proposed transaction likely would not be recoverable. Furthermore, if we reach an agreement relating to a specific target business, we may fail to complete our initial business combination for any number of reasons including those beyond our control. Any such event will result in a loss to us of the related costs incurred which could materially adversely affect subsequent attempts to locate and acquire or merge with another business. If we are unable to complete our initial business combination, our public stockholders may receive only approximately $10.20 per share on the liquidation of our trust account and our warrants will expire worthless. In certain circumstances, our public stockholders may receive less than $10.20 per share on the redemption of their shares. See “— If third parties bring claims
against us, the proceeds held in the trust account could be reduced and the per-share redemption amount received by stockholders may be less than $10.20 per share” and related risk factors.
Our ability to successfully effect our initial business combination and to be successful thereafter will be totally dependent upon the efforts of our key personnel, some of whom may join us following our initial business combination. The loss of key personnel could negatively impact the operations and profitability of our post-combination business.
Our ability to successfully effect our initial business combination is dependent upon the efforts of our key personnel, particularly Bruce Rodgers. The role of our key personnel in the target business, however, cannot presently be ascertained. Although some of our key personnel may remain with the target business in senior management or advisory positions following our initial business combination, it is likely that some or all of the management of the target business will remain in place. While we intend to closely scrutinize any individuals we employ after our initial business combination, we cannot assure you that our assessment of these individuals will prove to be correct. These individuals may be unfamiliar with the requirements of operating a company regulated by the SEC, which could cause us to have to expend time and resources helping them become familiar with such requirements. In addition, the officers and directors of an initial business combination candidate may resign upon completion of our initial business combination. The departure of an initial business combination target’s key personnel could negatively impact the operations and profitability of our post-combination business. The role of an initial business combination candidate’s key personnel upon the completion of our initial business combination cannot be ascertained at this time. Although we contemplate that certain members of an initial business combination candidate’s management team will remain associated with the initial business combination candidate following our initial business combination, it is possible that members of the management of an initial business combination candidate will not wish to remain in place. The loss of key personnel could negatively impact the operations and profitability of our post-combination business.
The grant of registration rights to our initial stockholders may make it more difficult to complete our initial business combination, and the future exercise of such rights may adversely affect the market price of our Class A common stock.
Pursuant to an agreement to be entered into concurrently with the issuance and sale of the securities in this offering, our initial stockholders and their permitted transferees can demand that we register the private placement warrants and the shares of Class A common stock issuable upon conversion of the founder shares and exercise of the private placement warrants held by them and holders of warrants that may be issued upon conversion of working capital loans may demand that we register such warrants or the Class A common stock issuable upon exercise of such warrants. We will bear the cost of registering these securities. The registration and availability of such a significant number of securities for trading in the public market may have an adverse effect on the market price of our Class A common stock. In addition, the existence of the registration rights may make our initial business combination more costly or difficult to conclude. This is because the stockholders of the target business may increase the equity stake they seek in the combined entity or ask for more cash consideration to offset the negative impact on the market price of our Class A common stock that is expected when the securities owned by our initial stockholders or holders of working capital loans or their respective permitted transferees are registered.
We may issue additional common stock or preferred stock to complete our initial business combination or under an employee incentive plan after completion of our initial business combination. We may also issue shares of Class A common stock upon the conversion of the Class B common stock at a ratio greater than one-to-one at the time of our initial business combination as a result of the anti-dilution provisions contained in our certificate of incorporation. Any such issuances would dilute the interest of our stockholders and likely present other risks.
Our certificate of incorporation authorizes the issuance of up to 100,000,0007,837,628 shares of Class A common stock, par value $0.0001 per share, 20,000,000of Common Stock to holders of stock of SeaStar Medical immediately prior to the Closing. At the Closing, shares of Classclass B common stock, par value $0.0001$0.001 per share, and 1,000,000of LMAO (“Class B Common Stock”) automatically converted into shares of preferredclass A common stock, par value $0.0001$0.001 per share. Immediately after this offering, there will be 80,327,000 and 18,125,000 (assuming, in each case, that the underwriters have not exercised their over-allotment option) authorized but unissued sharesshare, of LMAO (“Class A common stockCommon Stock”) on a one-to-one basis, and pursuant to the charter of LMAO after the Business Combination (the “Charter”), Class A Common Stock and Class B common stock, respectively, available for issuance, which amount takes into account theCommon Stock was reclassified as Common Stock.
As of October 26, 2022, holders of an aggregate of 8,878,960 shares of Class A common stock reserved for issuance upon exerciseCommon Stock exercised their right to redeem their Shares, after giving effect to any redemption reversals requested by stockholders to reverse their election to have their shares redeemed.
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On October 17 and October 25, 2022, LMAO and SeaStar Medical entered into certain prepaid forward agreements with two institutional investors. For a more detailed description of outstanding warrants, includingsuch agreements, see the private placement warrants, but notCompany’s current reports on Form 8-K filed with the issuanceSEC on October 17, 2022 and October 27, 2022.
Immediately prior to the Closing, each of the shares of Class A common stock issuable upon conversion of Class B common stock. Immediately after the consummation of this offering, there will be no shares of preferred stockSeaStar Medical’s issued and outstanding. Shares of Class B common stock areoutstanding convertible notes automatically converted into shares of our Class ASeaStar Medical common stock initially at(the “Note Conversion”). Immediately prior to the effectiveness of the Business Combination, each share of SeaStar Medical’s issued and outstanding preferred stock automatically converted into shares of SeaStar Medical common stock (the “Preferred Conversion”). At Closing, the (i) SeaStar Medical warrants that would not be exercised or exchanged in connection with the Business Combination were assumed by LMAO and converted into warrants to purchase Common Stock, (ii) outstanding options for shares of SeaStar Medical common stock under SeaStar Medical’s equity plan were assumed by LMAO and converted into options to purchase Common Stock, and (iii) issued and outstanding restricted stock unit awards under SeaStar Medical’s current equity plan were assumed by LMAO and converted into LMAO restricted stock units
Summary of Risks
You should consider all the information contained in this prospectus before investing in our securities. These risks are discussed more fully in the section titled “Risk Factors”. If any of these risks actually occur, our business, financial condition or results of operations would likely be materially adversely affected. These risks include, but are not limited to, the following:
Risks Related to the Company’s Financial Condition
SeaStar Medical has incurred significant losses since its inception and anticipates that it will continue to incur significant losses for the foreseeable future.
SeaStar Medical has not generated any significant revenue and may never be profitable and SeaStar Medical has a one-for-one ratio butlimited operating history, which makes it difficult to forecast its future results of operations.
If SeaStar Medical fails to obtain additional financing, it would be forced to delay, reduce or eliminate its product development program, which may result in the cessation of its operations.
The Company’s ability to use its net operating losses to offset future taxable income may be subject to adjustment as set forth herein,certain limitations.
Risks Related to the Company’s Business Operations
SeaStar Medical has not received, and may never receive, approval from the FDA to market its product in the United States or abroad and SeaStar Medical is subject to certain risks relating to pursuing an FDA approval via the HDE pathway, including in certain circumstances in which we issue Class A common stock or equity-linked securities relatedlimitations on the ability to our initial business combination. Shares of Class B common stock are also convertible at the optionprofit from sales of the holder atproduct.
SeaStar Medical will initially depend on revenue generated from a single product and in the foreseeable future will be significantly dependent on a limited number of products.
If SeaStar Medical fails to comply with extensive regulations of United States and foreign regulatory agencies, the commercialization of its products could be delayed or prevented entirely.
Delays in successfully completing SeaStar Medical’s planned clinical trials could jeopardize its ability to obtain regulatory approval and delays, interruptions or the cessation of production by its third-party suppliers of important materials or delays in qualifying new materials, may prevent or delay SeaStar Medical’s ability to manufacture or process its SCD device.
Difficulties in manufacturing SeaStar Medical’s SCD could have an adverse effect upon its revenue and expenses.
SeaStar Medical faces intense competition in the medical device industry and its SCD technology may become obsolete.
If SeaStar Medical or its contractors or service providers fail to comply with laws and regulations, it or they could be subject to regulatory actions, which could affect its ability to develop, market and sell its product candidates and any time.other future product candidates and may harm its reputation.
2
SeaStar Medical intends to outsource and rely on third parties for the clinical development and manufacturing, sales and marketing of its SCD or any future product candidates that it may develop, and its future success will be dependent on the timeliness and effectiveness of the efforts of these third parties.
We may issueSeaStar Medical is and will be exposed to product liability risks, and clinical and preclinical liability risks, which could place a substantial financial burden upon it should it be sued.
Should SeaStar Medical’s products be approved for commercialization, a lack of third-party coverage and reimbursement for SeaStar Medical’s devices could delay or limit their adoption or adverse changes in reimbursement policies and procedures by payors may impact SeaStar Medical’s ability to market and sell its products.
A small number of additional shares of commonthe Company’s stockholders, including its major stockholders, the Dow Pension Funds, could significantly influence its business.
Risks Related to the Company’s Intellectual Property
SeaStar Medical relies upon exclusively licensed patent rights from third parties which are subject to termination or preferred stockexpiration. If licensors terminate the licenses or fail to complete our initial business combinationmaintain or under an employee incentive plan after completion of our initial business combination (although our certificate of incorporation will provide that we may not issue securities that can vote with common stockholders on matters relatedenforce the underlying patents, SeaStar Medical’s competitive position could be materially harmed.
If SeaStar Medical is unable to our pre-initial business combination activity). We may also issue shares of Class A common stock upon conversionobtain and maintain sufficient patent protection for its products, if the scope of the Class B common stock at a ratio greater than one-to-one atpatent protection is not sufficiently broad, or if the timecombination of our initial business combination as a result of the anti-dilutionpatents, trade secrets and contractual provisions contained in our certificate of incorporation. However, our certificate of incorporation will provide, among other things, that priorupon which it relies to our initial business combination, we may not issue additional shares of capital stock that would entitle the holders thereof to: (i) receive funds from the trust account;protect its intellectual property are inadequate, its competitors could develop and commercialize similar or (ii) vote on any initial business combination. These provisions of our certificate of incorporation, like all provisions of our certificate of incorporation,identical products, and SeaStar Medical’s ability to commercialize such products successfully may be amendedadversely affected.
The United States government may exercise certain rights with the approval of our stockholders. However, our executive officers, directors and director nominees have agreed, pursuantregard to a written agreement with us, that they will not propose any amendment to our certificate of incorporation: (A) to modify the substanceSeaStar Medical’s inventions, or timing of our obligation to redeem 100% of our public shares if welicensors’ inventions, developed using federal government funding.
Intellectual property rights do not complete our initial business combination within 18 months from the closing of this offering (or 21 months from the closing of this offering, if we extend the period of timenecessarily address all potential threats to consummate a business combination, as described in more detail in this prospectus); or (B)SeaStar Medical’s competitive advantage.
SeaStar Medical may obtain only limited geographical protection with respect to any other provision relating to stockholders’certain patent rights, or pre-initial business combination activity, unless we provide our public stockholders with the opportunity to redeem their shares of common stock upon approval of any such amendment at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, including interest (which interest shall be net of taxes payable), divided by the number of then outstanding public shares.
The issuance of additional shares of common or preferred stock:
may significantly dilute the equity interest of investors in this offering;
may subordinate the rights of holders of common stock if preferred stock is issued with rights senior to those afforded our common stock;
could cause a change of control if a substantial number of shares of our common stock are issued, which may affect, among other things, our abilitydiminish the value of its intellectual property rights in those jurisdictions and prevent it from enforcing its intellectual property rights throughout the world.
Risks Related to use our netBeing a Public Company
The Company does not have experience operating loss carry forwards, if any, and could result in the resignation or removal of our present officers and directors; and
may adversely affect prevailing market prices for our units, Class A common stock and/or warrants.
If we effect our initial business combination withas a company with operations or opportunities outside of the United States we would be subject to a variety of additional risks that may negatively impact our operations.
If we effect our initial business combination with apublic company with operations or opportunities outside of the United States, we would be subject to any special considerations or risks associated with companies operating in an international setting, including any of the following:
higher costs and difficulties inherent in managing cross-border business operations and complying with different commercial and legal requirements of overseas markets;
rules and regulations regarding currency redemption;
complex corporate withholding taxes on individuals;
laws governing the manner in which future business combinations may be effected;
tariffs and trade barriers;
regulations related to customs and import/export matters;
longer payment cycles and challenges in collecting accounts receivable;
tax issues, such as tax law changes and variations in tax laws as compared to the United States;
currency fluctuations and exchange controls;
rates of inflation;
employment regulations;
crime, strikes, riots, civil disturbances, terrorist attacks, natural disasters and wars;
deterioration of political relations with the United States; and
government appropriations of assets.
We may not be able to adequately address these additional risks.develop and implement the governance, compliance, risk management and control infrastructure and culture required for a public company, including compliance with the Sarbanes Oxley Act.
The Company may not be able to consistently comply with all of Nasdaq’s Listing Rules.
SeaStar Medical identified a material weakness in its internal control over financial reporting. If we werethe Company is unable to do so, our operations might suffer,develop and maintain an effective system of internal controls over financial reporting, the Company may not be able to accurately report its financial results in a timely manner, which may materially and adversely impact ouraffect the Company’s business, results of operations and financial condition.
We may issue notes or other debt securities, or otherwise incur substantial debt, to complete an initial business combination, which may adversely affect our leverage and financial condition and thus negatively impact the value of our stockholders’ investment in us.
Although we have no commitments as of the date of this prospectus to issue any notes or other debt securities, or to otherwise incur outstanding debt following this offering, we may choose to incur substantial debt to complete our initial business combination. We have agreed that we will not incur any indebtedness unless we have obtained from the lender a waiver of any right, title, interest or claim of any kind in or to the monies held in the trust account. As such, no issuance of debt will affect the per-share amount available for redemption from the trust account. Nevertheless, the incurrence of debt could have a variety of negative effects, including:
default and foreclosure on our assets if our operating revenues after an initial business combination are insufficient to repay our debt obligations;
acceleration of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant;
our immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand;
our inability to obtain necessary additional financing if the debt security contains covenants restricting our ability to obtain such financing while the debt security is outstanding;
our inability to pay dividends on our common stock;
using a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends on our common stock if declared, our ability to pay expenses, make capital expenditures and acquisitions, and fund other general corporate purposes;
limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate;
increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation;
limitations on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, and execution of our strategy; and
other disadvantages compared to our competitors who have less debt.
We may be able to complete only one business combination with the proceeds of this offering and the sale of the private placement warrants, which will cause us to be solely dependent on a single business which may have a limited number of services and limited operating activities. This lack of diversification may negatively impact our operating results and profitability.
Of the net proceeds from this offering and the sale of the private placement warrants, $76,500,000 (or $87,975,000 if the underwriters’ over-allotment option is exercised in full) will be available to complete our initial business combination and
pay related fees and expenses (which includes up to $2,625,000, or up to $3,018,750 if the over-allotment option is exercised in full, for the payment of deferred underwriting commissions).
We may effectuate our initial business combination with a single target business or multiple target businesses simultaneously or within a short period of time. However, we may not be able to effectuate our initial business combination with more than one target business because of various factors, including the existence of complex accounting issues and the requirement that we prepare and file pro forma financial statements with the SEC that present operating results and the financial condition of several target businesses as if they had been operated on a combined basis. By completing our initial business combination with only a single entity, our lack of diversification may subject us to numerous economic, competitive and regulatory developments. Further, we would not be able to diversify our operations or benefit from the possible spreading of risks or offsetting of losses, unlike other entities which may have the resources to complete several business combinations in different industries or different areas of a single industry. In addition, we intend to focus our search for an initial business combination in a single industry. Accordingly, the prospects for our success may be:
solely dependent upon the performance of a single business, property or asset, or
dependent upon the development or market acceptance of a single or limited number of products, processes or services.
This lack of diversification may subject us to numerous economic, competitive and regulatory risks, any or all of which may have a substantial adverse impact upon the particular industry in which we may operate subsequent to our initial business combination.
We may attempt to simultaneously complete business combinations with multiple prospective targets, which may hinder our ability to complete our initial business combination and give rise to increased costs and risks that could negatively impact our operations and profitability.
If we determine to simultaneously acquire several businesses that are owned by different sellers, we will need for each of such sellers to agree that our purchase of its business is contingent on the simultaneous closings of the other business combinations, which may make it more difficult for us, and delay our ability, to complete our initial business combination. We do not, however, intend to purchase multiple businesses in unrelated industries in conjunction with our initial business combination. With multiple business combinations, we could also face additional risks, including additional burdens and costs with respect to possible multiple negotiations and due diligence investigations (if there are multiple sellers) and the additional risks associated with the subsequent assimilation of the operations and services or products of the acquired companies in a single operating business. If we are unable to adequately address these risks, it could negatively impact our profitability and results of operations.
We may attempt to complete our initial business combination with a private company about which little information is available, which may result in an initial business combination with a company that is not as profitable as we suspected, if at all.
In pursuing our initial business combination strategy, we may seek to effectuate our initial business combination with a privately held company. Very little public information generally exists about private companies, and we could be required to make our decision on whether to pursue a potential initial business combination on the basis of limited information, which may result in an initial business combination with a company that is not as profitable as we suspected, if at all.
If we have inadequate cash simultaneously to meet the closing requirements of an initial business combination and redeem all shares of Class A common stock submitted for redemption, we will return all shares submitted for redemption and continue to pursue an alternative transaction.
In the event the aggregate cash consideration we would be required to pay for all shares of Class A common stock that are validly submitted for redemption plus any amount required to satisfy cash conditions pursuant to the terms of the proposed initial business combination exceed the aggregate amount of cash available to us, we would not be able to complete the business combination or redeem any such shares, all shares of Class A common stock submitted for redemption would be returned to the holders thereof, and we instead will search for an alternate initial business combination.
In order to effectuate an initial business combination, blank check companies have, in the recent past, amended various provisions of their charters and other governing instruments, including their warrant agreements. We cannot
assure you that we will not seek to amend our certificate of incorporation or governing instruments in a manner that will make it easier for us to complete our initial business combination that our stockholders may not support.
In order to effectuate an initial business combination, blank check companies have, in the recent past, amended various provisions of their charters and modified governing instruments, including their warrant agreements. For example, blank check companies have amended the definition of business combination, increased redemption thresholds and extended the time to consummate an initial business combination and, with respect to their warrants, amended their warrant agreements to require the warrants to be exchanged for cash and/or other securities. Amending our certificate of incorporation will require the approval of holders of 65% of our common stock and amending our warrant agreement will require a vote of holders of at least 65% of the public warrants. In addition, our certificate of incorporation requires us to provide our public stockholders with the opportunity to redeem their public shares for cash if we propose an amendment to our certificate of incorporation to modify the substance or timing of our obligation to redeem 100% of our public shares if we do not complete an initial business combination within 18 months from the closing of this offering (or 21 months from the closing of this offering, if we extend the period of time to consummate a business combination, as described in more detail in this prospectus). To the extent any such amendments would be deemed to fundamentally change the nature of any securities offered through this registration statement, we would register, or seek an exemption from registration for, the affected securities. We cannot assure you that we will not seek to amend our charter or governing instruments or extend the time to consummate an initial business combination in order to effectuate our initial business combination.
The provisions of our certificate of incorporation that relate to our pre-business combination activity (and corresponding provisions of the agreement governing the release of funds from our trust account) may be amended with the approval of holders of 65% of our common stock, which is a lower amendment threshold than that of some other blank check companies. It may be easier for us, therefore, to amend our certificate of incorporation and the trust agreement to facilitate the completion of an initial business combination that some of our stockholders may not support.
Our certificate of incorporation will provide that any of its provisions related to pre-business combination activity (including the requirement to deposit proceeds of this offering and the private placement of warrants into the trust account and not release such amounts except in specified circumstances, and to provide redemption rights to public stockholders as described herein) may be amended if approved by holders of 65% of our common stock entitled to vote thereon, and corresponding provisions of the trust agreement governing the release of funds from our trust account may be amended if approved by holders of 65% of our common stock entitled to vote thereon. In all other instances, our certificate of incorporation may be amended by holders of a majority of our outstanding common stock entitled to vote thereon, subject to applicable provisions of the DGCL or applicable stock exchange rules. Our initial stockholders will own shares representing approximately 20% of our issued and outstanding shares of common stock (assuming they do not purchase any units in this offering and excluding shares of Class A common stock issuable to the underwriters upon the closing of this offering), will participate in any vote to amend our certificate of incorporation and/or trust agreement and will have the discretion to vote in any manner they choose. As a result, we may be able to amend the provisions of our certificate of incorporation which govern our pre-business combination behavior more easily than some other blank check companies, and this may increase our ability to complete an initial business combination with which you do not agree. Our stockholders may pursue remedies against us for any breach of our certificate of incorporation.
Our sponsor, officers and directors have agreed, pursuant to a written agreement with us, that they will not propose any amendment to our certificate of incorporation: (i) to modify the substance or timing of our obligation to redeem 100% of our public shares if we do not complete our initial business combination within 18 months from the closing of this offering (or 21 months from the closing of this offering, if we extend the period of time to consummate a business combination, as described in more detail in this prospectus); or (ii) with respect to any other provision relating to stockholders’ rights or pre-business combination activity, unless we provide our public stockholders with the opportunity to redeem their shares of Class A common stock upon approval of any such amendment at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, divided by the number of then outstanding public shares. These agreements are contained in a letter agreement that we have entered into with our sponsor, officers and directors. Our stockholders are not parties to, or third-party beneficiaries of, these agreements and, as a result, will not have the ability to pursue remedies against our sponsor, officers or directors for any breach of these agreements. As a result, in the event of a breach, our stockholders would need to pursue a stockholder derivative action, subject to applicable law.
We may be unable to obtain additional financing to complete our initial business combination or to fund the operations and growth of a target business, which could compel us to restructure or abandon a particular business combination.
We have not selected any specific business combination target, but intend to target businesses larger than we could acquire with the net proceeds of this offering and the sale of the private placement warrants. As a result, we may be required
to seek additional financing to complete such proposed initial business combination. We cannot assure you that such financing will be available on acceptable terms, if at all. To the extent that additional financing proves to be unavailable when needed to complete our initial business combination, we would be compelled to either restructure the transaction or abandon that particular business combination and seek an alternative target business candidate. Further, the amount of additional financing we may be required to obtain could increase as a result of future growth capital needs for any particular transaction, the depletion of the available net proceeds in search of a target business, the obligation to repurchase for cash a significant number of shares from stockholders who elect redemption in connection with our initial business combination and/or the terms of negotiated transactions to purchase shares in connection with our initial business combination. If we are unable to complete our initial business combination, our public stockholders may receive only approximately $10.20 per share plus any pro rata interest earned on the funds held in the trust account and not previously released to us to pay our franchise and income taxes on the liquidation of our trust account and our warrants will expire worthless. In addition, even if we do not need additional financing to complete our initial business combination, we may require such financing to fund the operations or growth of the target business. The failure to secure additional financing could have a material adverse effect on the continued development or growth of the target business. None of our officers, directors or stockholders is required to provide any financing to us in connection with or after our initial business combination. If we are unable to complete our initial business combination, our public stockholders may receive only approximately $10.20 per share on the liquidation of our trust account, and our warrants will expire worthless. Furthermore, as described in the risk factor entitled “If third parties bring claims against us, the proceeds held in the trust account could be reduced and the per-share redemption amount received by stockholders may be less than $10.20 per share,” under certain circumstances our public stockholders may receive less than $10.20 per share upon the liquidation of the trust account.
Because we must furnish our stockholders with target business financial statements, we may lose the ability to complete an otherwise advantageous initial business combination with some prospective target businesses.
The federal proxy rules require that a proxy statement with respect to a vote on an initial business combination meeting certain financial significance tests include historical and/or pro forma financial statement disclosure in periodic reports. We will include the same financial statement disclosure in connection with our tender offer documents, whether or not they are required under the tender offer rules. These financial statements may be required to be prepared in accordance with, or be reconciled to, accounting principles generally accepted in the United States of America, or GAAP, or international financial reporting standards as issued by the International Accounting Standards Board, or IFRS, depending on the circumstances and the historical financial statements may be required to be audited in accordance with the standards of the Public Company Accounting Oversight Board (United States), or PCAOB. These financial statement requirements may limit the pool of potential target businesses we may acquire because some targets may be unable to provide such financial statements in time for us to disclose such statements in accordance with federal proxy rules and complete our initial business combination within the prescribed time frame.
Changes in the market for directors and officers liability insurance could make it more difficult and more expensive for us to negotiate and complete an initial business combination.
In recent months, the market for directors and officers liability insurance for special purpose acquisition companies has changed. Fewer insurance companies are offering quotes for directors and officers liability coverage, the premiums charged for such policies have generally increased and the terms of such policies have generally become less favorable. There can be no assurance that these trends will not continue.
The increased cost and decreased availability of directors and officers liability insurance could make it more difficult and more expensive for us to negotiate an initial business combination. In order to obtain directors and officers liability insurance or modify its coverage as a result of becoming a public company, the post-business combination entity might need to incur greater expense, accept less favorable terms or both. However, any failure to obtain adequate directors and officers liability insurance could have an adverse impact on the post-business combination’s ability to attract and retain qualified officers and directors.
In addition, even after we were to complete an initial business combination, our directors and officers could still be subject to potential liability from claims arising from conduct alleged to have occurred prior to the initial business combination. As a result, in order to protect our directors and officers, the post-business combination entity may need to purchase additional insurance with respect to any such claims (“run-off insurance”). The need for run-off insurance would be an added expense for the post-business combination entity, and could interfere with or frustrate our ability to consummate an initial business combination on terms favorable to our investors.
As the number of special purpose acquisition companies evaluating targets increases, attractive targets may become scarcer and there may be more competition for attractive targets. This could increase the cost of our initial business combination and could even result in our inability to find a target or to consummate an initial business combination.
In recent years, the number of special purpose acquisition companies that have been formed has increased substantially. Many potential targets for special purpose acquisition companies have already entered into an initial business combination, and there are still many special purpose acquisition companies seeking targets for their initial business combination, as well as many such companies currently in registration. As a result, at times, fewer attractive targets may be available, and it may require more time, more effort and more resources to identify a suitable target and to consummate an initial business combination.
In addition, because there are more special purpose acquisition companies seeking to enter into an initial business combination with available targets, the competition for available targets with attractive fundamentals or business models may increase, which could cause targets companies to demand improved financial terms. Attractive deals could also become scarcer for other reasons, such as economic or industry sector downturns, geopolitical tensions, or increases in the cost of additional capital needed to close business combinations or operate targets post-business combination. This could increase the cost of, delay or otherwise complicate or frustrate our ability to find and consummate an initial business combination, and may result in our inability to consummate an initial business combination on terms favorable to our investors altogether.
RISKS RELATED TO THE TIMING OF COMPLETING AN INITIAL BUSINESS COMBINATION
The requirement that we complete our initial business combination within the prescribed time frame may give potential target businesses leverage over us in negotiating an initial business combination and may decrease our ability to conduct due diligence on potential business combination targets as we approach our dissolution deadline, which could undermine our ability to complete our initial business combination on terms that would produce value for our stockholders.
Any potential target business with which we enter into negotiations concerning an initial business combination will be aware that we must complete our initial business combination within 18 months from the closing of this offering (or 21 months from the closing of this offering, if we extend the period of time to consummate a business combination, as described in more detail in this prospectus). Consequently, such target business may obtain leverage over us in negotiating an initial business combination, knowing that if we do not complete our initial business combination with that particular target business, we may be unable to complete our initial business combination with any target business. This risk will increase as we get closer to the timeframe described above. In addition, we may have limited time to conduct due diligence and may enter into our initial business combination on terms that we would have rejected upon a more comprehensive investigation.
We may not be able to complete our initial business combination within the prescribed time frame, in which case we would cease all operations except for the purpose of winding up and we would redeem our public shares and liquidate, in which case our public stockholders may only receive $10.20 per share, or less than such amount in certain circumstances, and our warrants will expire worthless.
Our certificate of incorporation will provide that we must complete our initial business combination within 18 months from the closing of this offering (or 21 months from the closing of this offering, if we extend the period of time to consummate a business combination, as described in more detail in this prospectus). We may not be able to find a suitable target business and complete our initial business combination within such time period. If we have not completed our initial business combination within such time period, we will: (i) cease all operations except for the purpose of winding up; (ii) as promptly as reasonably possible, but not more than ten business days thereafter, redeem the public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account including interest earned on the funds held in the trust account and not previously released to us to pay our franchise and income taxes (less up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding public shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any), subject to applicable law; and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders and our board of directors, dissolve and liquidate, subject in each case to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. In such case, our public stockholders may only receive $10.20 per share, and our warrants will expire worthless. In certain circumstances, our public stockholders may receive less than $10.20 per share on the redemption of their shares. See “— If third parties bring claims against us, the proceeds held in the trust account could be reduced and the per-share redemption amount received by stockholders may be less than $10.20 per share” and other risk factors below.
We may not hold an annual meeting of stockholders until after the consummation of our initial business combination, which could delay the opportunity for our stockholders to elect directors.
In accordance with Nasdaq corporate governance requirements, we are not required to hold an annual meeting until no later than one year after our first fiscal year end following our listing on Nasdaq. Under Section 211(b) of the DGCL, we are, however, required to hold an annual meeting of stockholders for the purposes of electing directors in accordance with our bylaws unless such election is made by written consent in lieu of such a meeting. We may not hold an annual meeting of stockholders to elect new directors prior to the consummation of our initial business combination, and thus we may not be in compliance with Section 211(b) of the DGCL, which requires an annual meeting. Therefore, if our stockholders want us to hold an annual meeting prior to the consummation of our initial business combination, they may attempt to force us to hold one by submitting an application to the Delaware Court of Chancery in accordance with Section 211(c) of the DGCL.
RISKS RELATED TO OUR BOARD, MANAGEMENT TEAM, AND SPONSOR
Our directors may decide not to enforce the indemnification obligations of our sponsor, resulting in a reduction in the amount of funds in the trust account available for distribution to our public stockholders.
In the event that the proceeds in the trust account are reduced below the lesser of: (i) $10.20 per share; and (ii) the actual amount per share held in the trust account, as of the date of the liquidation of the trust account, if less than $10.20 per share due to reductions in the value of the trust assets, in each case net of the interest that may be withdrawn to pay taxes, and our sponsor asserts that it is unable to satisfy its obligations or that it has no indemnification obligations related to a particular claim, our independent directors would determine whether to take legal action against our sponsor to enforce its indemnification obligations.
While we currently expect that our independent directors would take legal action on our behalf against our sponsor to enforce its indemnification obligations to us, it is possible that our independent directors in exercising their business judgment and subject to their fiduciary duties may choose not to do so in any particular instance if, for example, the cost of such legal action is deemed by the independent directors to be too high relative to the amount recoverable or if the independent directors determine that a favorable outcome is not likely. If our independent directors choose not to enforce these indemnification obligations, the amount of funds in the trust account available for distribution to our public stockholders may be reduced below $10.20 per share.
We may not have sufficient funds to satisfy indemnification claims of our directors and executive officers.
We have agreed to indemnify our officers and directors to the fullest extent permitted by law. However, our officers and directors have agreed to waive any right, title, interest, or claim of any kind in or to any monies in the trust account and to not seek recourse against the trust account for any reason whatsoever. Accordingly, any indemnification provided will be able to be satisfied by us only if: (i) we have sufficient funds outside of the trust account; or (ii) we consummate an initial business combination. Our obligation to indemnify our officers and directors may discourage stockholders from bringing a lawsuit against our officers or directors for breach of their fiduciary duty. These provisions also may have the effect of reducing the likelihood of derivative litigation against our officers and directors, even though such an action, if successful, might otherwise benefit us and our stockholders. Furthermore, a stockholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage awards against our officers and directors pursuant to these indemnification provisions.
Past performance by the members of our management team or entities with which they are or have been affiliated may not be indicative of future performance of an investment in the Company.
Past performance by the members of our management team in their other endeavors or the other entities with which they are or have been affiliated is not a guarantee of future success. We cannot assure you that we will be able to locate a suitable candidate for our initial business combination or that any business combination we consummate will be successful. You should not rely on the historical record of our management team’s performance, or the performance of any other entities with which our management team is or has been affiliated, as indicative of our future performance or how an investment in our company will perform or the returns our company will, or is likely to, generate going forward. None of our management team has had experience with blank check companies or special purpose acquisition companies in the past.
We are dependent upon our executive officers and directors and their departure could adversely affect our ability to operate.
Our operations are dependent upon a relatively small group of individuals and, in particular, our executive officers and directors. We believe that our success depends on the continued service of our executive officers and directors, at least until we have completed our initial business combination. We do not have an employment agreement with, or key-man insurance on the life of, any of our directors or executive officers. The unexpected loss of the services of one or more of our directors or executive officers could have a detrimental effect on us.
Our key personnel may negotiate employment or consulting agreements with a target business in connection with a particular business combination. These agreements may provide for them to receive compensation following our initial business combination and as a result, may cause them to have conflicts of interest in determining whether a particular business combination is the most advantageous.
Our key personnel may be able to remain with the company after the completion of our initial business combination only if they are able to negotiate employment or consulting agreements in connection with the initial business combination. Such negotiations would take place simultaneously with the negotiation of the initial business combination and could provide for such individuals to receive compensation in the form of cash payments and/or our securities for services they would render to us after the completion of the initial business combination. The personal and financial interests of such individuals may influence their motivation in identifying and selecting a target business. However, we believe the ability of such individuals to remain with us after the completion of our initial business combination will not be the determining factor in our decision as to whether or not we will proceed with any potential business combination. There is no certainty, however, that any of our key personnel will remain with us after the completion of our initial business combination. We cannot assure you that any of our key personnel will remain in senior management or advisory positions with us. The determination as to whether any of our key personnel will remain with us will be made at the time of our initial business combination.
We may have a limited ability to assess the management of a prospective target business and, as a result, may affect our initial business combination with a target business whose management may not have the skills, qualifications or abilities to manage a public company, which could, in turn, negatively impact the value of our stockholders’ investment in us.
When evaluating the desirability of effecting our initial business combination with a prospective target business, our ability to assess the target business’s management may be limited due to a lack of time, resources or information. Our assessment of the capabilities of the target’s management, therefore, may prove to be incorrect and such management may lack the skills, qualifications or abilities we suspected. Should the target’s management not possess the skills, qualifications or abilities necessary to manage a public company, the operations and profitability of the post-combination business may be negatively impacted. Accordingly, any stockholders who choose to remain stockholders following the initial business combination could suffer a reduction in the value of their shares. Such stockholders are unlikely to have a remedy for such reduction in value.
Our officers and directors will allocate their time to other businesses thereby causing conflicts of interest in their determination as to how much time to devote to our affairs. This conflict of interest could have a negative impact on our ability to complete our initial business combination.
Our officers and directors are not required to, and will not, commit their full time to our affairs, which may result in a conflict of interest in allocating their time between our operations and our search for an initial business combination and their other businesses. We do not intend to have any full-time employees prior to the completion of our initial business combination. Each of our officers is engaged in other business endeavors for which he may be entitled to substantial compensation and our officers are not obligated to contribute any specific number of hours per week to our affairs. In particular, our officers and directors may be employed by or otherwise work with LMFAO Sponsor, LLC or other entities that are investment managers to various public and private investment funds, which make investments in securities or other interests of or relating to companies in industries we may target for our initial business combination. Our officers and directors may also serve as officers or board members for other entities. If our officers’ and directors’ other business affairs require them to devote substantial amounts of time to such affairs in excess of their current commitment levels, it could limit their ability to devote time to our affairs which may have a negative impact on our ability to complete our initial business combination. For a complete discussion of our officers’ and directors’ other business affairs, please see the section of this prospectus entitled “Management—Directors and Officers.”
Certain of our officers and directors are now, and all of them may in the future become, affiliated with entities engaged in business activities similar to those intended to be conducted by us and, accordingly, may have conflicts of interest in allocating their time and determining to which entity a particular business opportunity should be presented.
Following the completion of this offering and until we consummate our initial business combination, we intend to engage in the business of identifying and combining with one or more businesses. Our sponsor and officers and directors are, and may in the future become, affiliated with entities that are engaged in a similar business. Subject to any pre-existing contractual or fiduciary obligations, our sponsor and officers and directors shall offer all suitable business combination opportunities within the financial services industry (and other related sectors, as discussed elsewhere in this prospectus) to us before any other person or company until we have entered into a definitive agreement regarding our initial business combination or we have failed to complete our initial business combination within 18 months from the closing of this offering (or 21 months from the closing of this offering, if we extend the period of time to consummate a business combination, as described in more detail in this prospectus).
Our officers and directors also may become aware of business opportunities which may be appropriate for presentation to us and the other entities to which they owe certain fiduciary or contractual duties.
Accordingly, our officers and directors may have conflicts of interest in determining to which entity a particular business opportunity should be presented. These conflicts may not be resolved in our favor and a potential target business may be presented to another entity prior to its presentation to us. Our certificate of incorporation will provide that we renounce our interest in any corporate opportunity offered to any director or officer unless such opportunity is expressly offered to such person solely in his or her capacity as a director or officer of our company and such opportunity is one we are legally and contractually permitted to undertake and would otherwise be reasonable for us to pursue, and to the extent the director or officer is permitted to refer that opportunity to us without violating another legal obligation.
For a complete discussion of our officers’ and directors’ business affiliations and the potential conflicts of interest that you should be aware of, please see the sections of this prospectus entitled “Management—Directors and Officers,” “Management—Conflicts of Interest” and “Certain Relationships and Related Party Transactions.”
Our officers, directors, security holders and their respective affiliates may have competitive pecuniary interests that conflict with our interests.
We have not adopted a policy that expressly prohibits our directors, officers, security holders or affiliates from having a direct or indirect pecuniary or financial interest in any investment to be acquired or disposed of by us or in any transaction to which we are a party or have an interest. In fact, we may enter into an initial business combination with a target business that is affiliated with our sponsor, our directors or officers, although we do not intend to do so. We do not have a policy that expressly prohibits any such persons from engaging for their own account in business activities of the types conducted by us. Accordingly, such persons or entities may have a conflict between their interests and ours.
In particular, LMFAO Sponsor, LLC and its affiliates, as well as other entities affiliated with our officers and directors, may also invest in companies or businesses within the financial services industry, including the FinTech sector. As a result, there may be substantial overlap between companies that would be a suitable business combination for us and companies that would make an attractive target for such other affiliates.
We may engage in an initial business combination with one or more target businesses that have relationships with entities that may be affiliated with our sponsor, officers, directors or existing holders which may raise potential conflicts of interest.
In light of the involvement of our sponsor, officers and directors with other entities, we may decide to acquire one or more businesses affiliated with our sponsor, officers or directors. Our directors also serve as officers and board members for other entities, including, without limitation, those described under the section of this prospectus entitled “Management–Conflicts of Interest.” Such entities may compete with us for business combination opportunities. Our sponsor, officers and directors are not currently aware of any specific opportunities for us to complete our initial business combination with any entities with which they are affiliated, and there have been no preliminary discussions concerning an initial business combination with any such entity or entities. Although we will not be specifically focusing on, or targeting, any transaction with any affiliated entities, we would pursue such a transaction if we determined that such affiliated entity met our criteria for an initial business combination as set forth in the section of this prospectus entitled “Proposed Business–Selection of a Target Business and Structuring of our Initial Business Combination” and such transaction was approved by a majority of our disinterested directors. Despite our agreement to obtain an opinion from an independent investment banking firm that is a member of FINRA, or from an independent accounting firm, regarding the fairness to our stockholders from a financial point of view of an initial business combination with one or more domestic or international businesses affiliated with our officers, directors or existing holders, potential conflicts of interest still may exist and, as a result, the terms of the initial business combination may not be as advantageous to our public stockholders as they would be absent any conflicts of interest.
Since our sponsor, officers and directors will lose their entire investment in us if our initial business combination is not completed, a conflict of interest may arise in determining whether a particular business combination target is appropriate for our initial business combination.
On November 6, 2020, our sponsor purchased an aggregate of 2,156,250 founder shares (up to 281,250 shares of which are subject to forfeiture depending on the extent to which the underwriters’ over-allotment option is exercised) for an aggregate purchase price of $25,000, or approximately $0.012 per share. The founder shares will be worthless if we do not complete an initial business combination. In addition, our sponsor has agreed to purchase an aggregate of 4,598,000 warrants (or 5,048,000 warrants if the underwriters’ over-allotment option is exercised in full) at a price of $1.00 per warrant, for an aggregate purchase price of $4,598,000, or $5,048,000 if the underwriters’ over-allotment option is exercised in full, that will also be worthless if we do not complete an initial business combination. Holders of founder shares have agreed (A) to vote any shares owned by them in favor of any proposed initial business combination and (B) not to redeem any founder shares in connection with a stockholder vote to approve a proposed initial business combination or in connection with a tender offer. In addition, we may obtain loans from our sponsor, affiliates of our sponsor or an officer or director. The personal and financial interests of our officers and directors may influence their motivation in identifying and selecting a target business combination, completing an initial business combination and influencing the operation of the business following the initial business combination.
Our management may not be able to maintain control of a target business after our initial business combination.
We may structure an initial business combination so that the post-transaction company in which our public stockholders own shares will own less than 100% of the equity interests or assets of a target business, but we will only complete such business combination if the post-transaction company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for us not to be required to register as an investment company under the Investment Company Act. We will not consider any transaction that does not meet such criteria. Even if the post-transaction company owns 50% or more of the voting securities of the target, our stockholders prior to the initial business combination may collectively own a minority interest in the post business combination company, depending on valuations ascribed to the target and us in the initial business combination. For example, we could pursue a transaction in which we issue a substantial number of new shares of Class A common stock in exchange for all of the outstanding capital stock of a target. In this case, we would acquire a 100% interest in the target. However, as a result of the issuance of a substantial number of new shares of common stock, our stockholders immediately prior to such transaction could own less than a majority of our outstanding shares of common stock subsequent to such transaction. In addition, other minority stockholders may subsequently combine their holdings resulting in a single person or group obtaining a larger share of the company’s stock than we initially acquired. Accordingly, this may make it more likely that our management will not be able to maintain our control of the target business. We cannot provide assurance that, upon loss of control of a target business, new management will possess the skills, qualifications or abilities necessary to profitably operate such business.
Provisions in our certificate of incorporation and Delaware law may inhibit a takeover of us, which could limit the price investors might be willing to pay in the future for our Class A common stock and could entrench management.
Our certificate of incorporation will contain provisions that may discourage unsolicited takeover proposals that stockholders may consider to be in their best interests. These provisions include a staggered board of directors and the ability of the board of directors to designate the terms of and issue new series of preferred shares, which may make the removal of management more difficult and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities.
We are also subject to anti-takeover provisions under Delaware law, which could delay or prevent a change of control. Together these provisions may make the removal of management more difficult and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities.
Our certificate of incorporation will require, to the fullest extent permitted by law, that derivative actions brought in our name, actions against our directors, officers, other employees or stockholders for breach of fiduciary duty and other similar actions may be brought only in the Court of Chancery in the State of Delaware and, if brought outside of Delaware, the stockholder bringing the suit will be deemed to have consented to service of process on such stockholder’s counsel, which may have the effect of discouraging lawsuits against our directors, officers, other employees or stockholders.
Our certificate of incorporation will require, to the fullest extent permitted by law, that derivative actions brought in our name, actions against our directors, officers, other employees or stockholders for breach of fiduciary duty and other similar actions may be brought only in the Court of Chancery in the State of Delaware and, if brought outside of Delaware,
the stockholder bringing the suit will be deemed to have consented to service of process on such stockholder’s counsel except any action: (A) as to which the Court of Chancery in the State of Delaware determines that there is an indispensable party not subject to the jurisdiction of the Court of Chancery (and the indispensable party does not consent to the personal jurisdiction of the Court of Chancery within ten days following such determination); (B) which is vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery; (C) for which the Court of Chancery does not have subject matter jurisdiction; or (D) any action arising under the Securities Act, as to which the Court of Chancery and the federal district court for the District of Delaware shall have concurrent jurisdiction. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented to the forum provisions in our certificate of incorporation. This choice of forum provision may make it more costly for a stockholder to bring a claim, and it may also limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, other employees or stockholders, which may discourage lawsuits with respect to such claims, although our stockholders cannot waive our compliance with federal securities laws and the rules and regulations thereunder. Alternatively, if a court were to find the choice of forum provision contained in our certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results and financial condition.
Our certificate of incorporation will provide that the exclusive forum provision will be applicable to the fullest extent permitted by applicable law. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. As a result, the exclusive forum provision will not apply to suits brought to enforce any duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. In addition, our certificate of incorporation will provide that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States of America shall, to the fullest extent permitted by law, be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended, or the rules and regulations promulgated thereunder. We note, however, that there is uncertainty as to whether a court would enforce this provision and that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Section 22 of the Securities Act creates concurrent jurisdiction for state and federal courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder.
RISKS RELATED TO SPECIAL PURPOSE ACQUISITION COMPANIES (“SPACS”), GENERALLY
Our sponsor paid an aggregate of $25,000, or approximately $0.012 per founder share, and, accordingly, you will experience immediate and substantial dilution from the purchase of our Class B common stock.
The difference between the public offering price per share (allocating all of the unit purchase price to the Class A common stock and none to the warrant included in the unit) and the pro forma net tangible book value per share of our Class A common stock after this offering constitutes the dilution to you and the other investors in this offering. Our sponsor acquired the founder shares at a nominal price, significantly contributing to this dilution. Upon the closing of this offering, and assuming no value is ascribed to the warrants included in the units, you and the other public stockholders will incur an immediate and substantial dilution of approximately 80% (or $(8.04) per share, assuming no exercise of the underwriters’ over-allotment option), the difference between the pro forma net tangible book value per share of $(1.96) and the initial offering price of $10.00 per unit. In addition, because of the anti-dilution rights of the founder shares, any equity or equity-linked securities issued in connection with our initial business combination would be disproportionately dilutive to our Class A common stock.
We are a newly formed company with no operating history and no revenues, and you have no basis on which to evaluate our ability to achieve our business objective.
We are a newly formed company with no operating results, and we will not commence operations until obtaining funding through this offering. Because we lack an operating history, you have no basis upon which to evaluate our ability to achieve our business objective of completing our initial business combination with one or more target businesses. We have no plans, arrangements or understandings with any prospective target business concerning an initial business combination and may be unable to complete our initial business combination. If we fail to complete our initial business combination, we will never generate any operating revenues.
Our independent registered public accounting firm’s report contains an explanatory paragraph that expresses substantial doubt about our ability to continue as a “going concern.”
As of November 6, 2020, we had cash of $25,000 and a working capital deficiency of $48,000. Further, we expect to incur significant costs in pursuit of financing plans and our initial business combination. Management’s plans to address this
need for capital through this offering are discussed in the section of this prospectus titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our plans to raise capital and to consummate our initial business combination may not be successful. These factors, among others, raise substantial doubt about our ability to continue as a going concern. The financial statements contained elsewhere in this prospectus do not include any adjustments that might result from our inability to consummate this offering or our inability to continue as a going concern.
You will not be entitled to protections normally afforded to investors of many other blank check companies.
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If, after we distribute the proceeds in the trust account to our public stockholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, a bankruptcy court may seek to recover such proceeds, and we and our board may be exposed to claims of punitive damages.
If, after we distribute the proceeds in the trust account to our public stockholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, any distributions received by stockholders could be viewed under applicable debtor/creditor and/or bankruptcy laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy court could seek to recover all amounts received by our stockholders. In addition, our board of directors may be viewed as having breached its fiduciary duty to our creditors and/or having acted in bad faith, thereby exposing itself and us to claims of punitive damages, by paying public stockholders from the trust account prior to addressing the claims of creditors.
If, before distributing the proceeds in the trust account to our public stockholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, the claims of creditors in such proceeding may have priority over the claims of our stockholders and the per-share amount that would otherwise be received by our stockholders in connection with our liquidation may be reduced.
If, before distributing the proceeds in the trust account to our public stockholders, we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, the proceeds held in the trust account could be subject to applicable bankruptcy law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the claims of our stockholders. To the extent any bankruptcy claims deplete the trust account, the per-share amount that would otherwise be received by our stockholders in connection with our liquidation may be reduced.
Cyber incidents or attacks directed at us could result in information theft, data corruption, operational disruption and/or financial loss.
We depend on digital technologies, including information systems, infrastructure and cloud applications and services, including those of third parties with which we may deal. Sophisticated and deliberate attacks on, or security breaches in, our systems or infrastructure, or the systems or infrastructure of third parties or the cloud, could lead to corruption or misappropriation of our assets, proprietary information and sensitive or confidential data. As an early stage company without significant investments in data security protection, we may not be sufficiently protected against such occurrences. We may not have sufficient resources to adequately protect against, or to investigate and remediate any vulnerability to, cyber incidents. It is possible that any of these occurrences, or a combination of them, could have adverse consequences on our business and lead to financial loss.
RISKS RELATED TO BEING PUBLICLY TRADED
Nasdaq may delist our securities from trading on its exchange, which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions.
We have applied to have our units listed on Nasdaq. We expect that our units will be listed on Nasdaq on or promptly after the date of this prospectus. Following the date the shares of our Class A common stock and warrants are eligible to trade separately, we anticipate that the shares of our Class A common stock and warrants will be separately listed on Nasdaq. We cannot guarantee that our securities will be approved for listing on Nasdaq. Although after giving effect to this offering we expect to meet, on a pro forma basis, the minimum initial listing standards set forth in the Nasdaq listing standards, we cannot assure you that our securities will be, or will continue to be, listed on Nasdaq in the future or prior to our initial business combination. In order to continue listing our securities on Nasdaq prior to our initial business combination, we must maintain certain financial, distribution and stock price levels. Generally, we must maintain a minimum amount in stockholders’ equity (generally $2,500,000) and a minimum number of holders of our securities (generally 300 public holders). Additionally, in connection with our initial business combination, we will be required to demonstrate compliance with Nasdaq’s initial listing requirements, which are more rigorous than Nasdaq’s continued listing requirements, in order to continue to maintain the listing of our securities on Nasdaq. For instance, our stock price would generally be required to be at least $4.00 per share, our stockholders’ equity would generally be required to be at least $5.0 million and we would be required to have a minimum of 300 round lot holders of our securities. We cannot assure you that we will be able to meet those initial listing requirements at that time.
If Nasdaq delists our securities from trading on its exchange and we are not able to list our securities on another national securities exchange, we expect our securities could be quoted on an over-the-counter market. If this were to occur, we could face significant material adverse consequences, including:
a limited availability of market quotations for our securities;
reduced liquidity for our securities;
a determination that our Class A common stock is a “penny stock” which will require brokers trading in our Class A common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities;
a limited amount of news and analyst coverage; and
a decreased ability to issue additional securities or obtain additional financing in the future.
The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Because we expect that our units and eventually our Class A common stock and warrants will be listed on Nasdaq, our units, Class A common stock and warrants will be covered securities. Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. While we are not aware of a state having used these powers to prohibit or restrict the sale of securities issued by blank check companies, other than the State of Idaho, certain state securities regulators view blank check companies unfavorably and might use these powers, or threaten to use these powers, to hinder the sale of securities of blank check companies in their states. Further, if we were no longer listed on Nasdaq, our securities would not be covered securities and we would be subject to regulation in each state in which we offer our securities, including in connection with our initial business combination.
RISKS RELATED TO CERTAIN LAWS AND REGULATIONS
If we are deemed to be an investment company under the Investment Company Act, we may be required to institute burdensome compliance requirements and our activities may be restricted, which may make it difficult for us to complete our initial business combination.
If we are deemed to be an investment company under the Investment Company Act, our activities may be restricted, including:
restrictions on the nature of our investments; and
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In addition, we may have imposed upon us burdensome requirements, including:
registration as an investment company;
adoption of a specific form of corporate structure; and
reporting, record keeping, voting, proxy and disclosure requirements and other rules and regulations.
In order not to be regulated as an investment company under the Investment Company Act, unless we can qualify for an exclusion, we must ensure that we are engaged primarily in a business other than investing, reinvesting or trading in securities and that our activities do not include investing, reinvesting, owning, holding or trading “investment securities” constituting more than 40% of our total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. Our business will be to identify and complete an initial business combination and thereafter to operate the post-transaction business or assets for the long term. We do not plan to buy businesses or assets with a view to resale or profit from their resale. We do not plan to buy unrelated businesses or assets or to be a passive investor.
We do not believe that our anticipated principal activities will subject us to the Investment Company Act. To this end, the proceeds held in the trust account may only be invested in United States “government securities” within the meaning of Section 2(a)(16) of the Investment Company Act having a maturity of 180 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act which invest only in direct U.S. government treasury obligations. Pursuant to the trust agreement, the trustee is not permitted to invest in other securities or assets. By restricting the investment of the proceeds to these instruments, and by having a business plan targeted at acquiring and growing businesses for the long term (rather than on buying and selling businesses in the manner of a merchant bank or private equity fund), we intend to avoid being deemed an “investment company” within the meaning of the Investment Company Act. This offering is not intended for persons who are seeking a return on investments in government securities or investment securities. The trust account is intended as a holding place for funds pending the earliest to occur of: (i) the completion of our initial business combination; (ii) the redemption of any public shares properly submitted in connection with a stockholder vote to amend our certificate of incorporation: (A) to modify the substance or timing of our obligation to redeem 100% of our public shares if we do not complete our initial business combination within 18 months from the closing of this offering (or 21 months from the closing of this offering, if we extend the period of time to consummate a business combination, as described in more detail in this prospectus); or (B) with respect to any other provision relating to stockholders’ rights or pre-initial business combination activity; or (iii) absent an initial business combination within 18 months from the closing of this offering (or 21 months from the closing of this offering, if we extend the period of time to consummate a business combination, as described in more detail in this prospectus), our return of the funds held in the trust account to our public stockholders as part of our redemption of the public shares. If we do not invest the proceeds as discussed above, we may be deemed to be subject to the Investment Company Act. If we were deemed to be subject to the Investment Company Act, compliance with these additional regulatory burdens would require additional expenses for which we have not allotted funds and may hinder our ability to complete an initial business combination or may result in our liquidation. If we are unable to complete our initial business combination, our public stockholders may receive only approximately $10.20 per share on the liquidation of our trust account and our warrants will expire worthless.
We are an emerging growth company within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure requirements available to emerging growth companies, this could make our securities less attractive to investors and may make it more difficult to compare our performance with other public companies.
We are an “emerging growth company” within the meaning of the Securities Act, as modified by the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. As a result, our stockholders may not have access to certain information they may deem important. We could be an emerging growth company for up to five years, although circumstances could cause us to lose that status earlier, including if the market value of our Class A common stock held by non-affiliates exceeds $700 million as of any June 30 before that time, in which case we would no longer be an emerging growth company as of the following December 31. We cannot predict whether investors will find our securities less attractive because we will rely on these exemptions. If some investors find our securities less attractive as a result of our reliance on these exemptions, the trading prices of our securities
may be lower than they otherwise would be, there may be a less active trading market for our securities and the trading prices of our securities may be more volatile.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accountant standards used. Additionally, we are a “smaller reporting company” as defined in Rule 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which: (1) the market value of our common stock held by non-affiliates equals or exceeds $250 million as of the end of the prior June 30th; or (2) our annual revenues equaled or exceeded $100 million during such completed fiscal year and the market value of our common stock held by non-affiliates equals or exceeds $700 million as of the prior June 30th. To the extent we take advantage of such reduced disclosure obligations, it may also make comparison of our financial statements with other public companies difficult or impossible.
Compliance obligations under the Sarbanes-Oxley Act may make it more difficult for us to effectuate our initial business combination, require substantial financial and management resources, and increase the time and costs of completing an initial business combination.
Section 404 of the Sarbanes-Oxley Act requires that we evaluate and report on our system of internal controls beginning with our Annual Report on Form 10-K for the year ending December 31, 2021. Only in the event we are deemed to be a large accelerated filer or an accelerated filer will we be required to comply with the independent registered public accounting firm attestation requirement on our internal control over financial reporting. Further, for as long as we remain an emerging growth company, we will not be required to comply with the independent registered public accounting firm attestation requirement on our internal control over financial reporting. The fact that we are a blank check company makes compliance with the requirements of the Sarbanes-Oxley Act particularly burdensome on us as compared to other public companies because a target company with which we seek to complete our initial business combination may not be in compliance with the provisions of the Sarbanes-Oxley Act regarding adequacy of its internal controls. The development of the internal control of any such entity to achieve compliance with the Sarbanes-Oxley Act may increase the time and costs necessary to complete any such business combination.
RISKS RELATED TO TAX CONSIDERATIONS
An investment in this offering involves uncertain U.S. federal income tax consequences.
An investment in this offering involves uncertain U.S. federal income tax consequences. For instance, the Internal Revenue Service could challenge the allocation an investor makes with respect to allocating the purchase price of a unit between the share of Class A common stock and one warrant to purchase one share of Class A common stock included in each unit. Furthermore, the U.S. federal income tax consequences of a cashless exercise of warrants included in the units is unclear under current law. Finally, it is unclear whether the redemption rights with respect to our shares of Class A common stock suspend the running of a U.S. Holder’s (as defined in “U.S. Federal Income Tax Considerations”) holding period for purposes of determining whether any gain or loss realized by such holder on the sale or exchange of Class A common stock is long-term capital gain or loss and for determining whether any dividend we pay would be considered a “qualified dividend” for U.S. federal income tax purposes.
We may reincorporate in another jurisdiction in connection with our initial business combination and such reincorporation may result in taxes imposed on stockholders.
We may, in connection with our initial business combination and subject to requisite stockholder approval under Delaware law, reincorporate in the jurisdiction in which the target company or business is located or in another jurisdiction. The transaction may require a stockholder to recognize taxable income in the jurisdiction in which the stockholder is a tax resident or in which its members are resident if it is a tax transparent entity. We do not intend to make any cash distributions
to stockholders to pay such taxes. Stockholders may be subject to withholding taxes or other taxes with respect to their ownership of us after the reincorporation.
RISKS RELATED TO OUR SECURITIES
We are not registering the shares of Class A common stock issuable upon exercise of the warrants under the Securities Act or any state securities laws at this time, and such registration may not be in place when an investor desires to exercise warrants, thus precluding such investor from being able to exercise its warrants except on a cashless basis. If the issuance of the shares upon exercise of warrants is not registered, qualified or exempt from registration or qualification, the holder of such warrant will not be entitled to exercise such warrant and such warrant may have no value and expire worthless.
We are not registering the shares of Class A common stock issuable upon exercise of the warrants under the Securities Act or any state securities laws at this time. However, under the terms of the warrant agreement, we have agreed that as soon as practicable, but in no event later than 15 business days after the closing of our initial business combination, we will use our reasonable best efforts to file with the SEC a registration statement for the registration under the Securities Act of the shares of Class A common stock issuable upon exercise of the warrants and thereafter will use our reasonable best efforts to cause the same to become effective within 60 business days following our initial business combination and to maintain a current prospectus relating to the Class A common stock issuable upon exercise of the warrants, until the expiration of the warrants in accordance with the provisions of the warrant agreement. We cannot assure you that we will be able to do so if, for example, any facts or events arise which represent a fundamental change in the information set forth in the registration statement or prospectus, the financial statements contained or incorporated by reference therein are not current or correct or the SEC issues a stop order. If the shares issuable upon exercise of the warrants are not registered under the Securities Act, we will be required to permit holders to exercise their warrants on a cashless basis. However, no warrant will be exercisable for cash or on a cashless basis, and we will not be obligated to issue any shares to holders seeking to exercise their warrants, unless the issuance of the shares upon such exercise is registered or qualified under the securities laws of the state of the exercising holder, or an exemption from registration is available. Notwithstanding the above, if our Class A common stock is at the time of any exercise of a warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, we may, at our option, require holders of public warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event we so elect, we will not be required to file or maintain in effect a registration statement, but we will be required to use our reasonable best efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available. In no event will we be required to net cash settle any warrant, or issue securities or other compensation in exchange for the warrants in the event that we are unable to register or qualify the shares underlying the warrants under applicable state securities laws and there is no exemption available. If the issuance of the shares upon exercise of the warrants is not so registered or qualified or exempt from registration or qualification, the holder of such warrant will not be entitled to exercise such warrant and such warrant may have no value and expire worthless. In such event, holders who acquired their warrants as part of a purchase of units will have paid the full unit purchase price solely for the shares of Class A common stock included in the units. If and when the warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying shares of Class A common stock for sale under all applicable state securities laws.
If you exercise your public warrants on a “cashless basis,” you will receive fewer shares of Class A common stock from such exercise than if you were to exercise such warrants for cash.
There are circumstances in which the exercise of the public warrants may be required or permitted to be made on a cashless basis. First, if a registration statement covering the shares of Class A common stock issuable upon exercise of the warrants is not effective by the 60th business day after the closing of our initial business combination, warrant holders may, until such time as there is an effective registration statement, exercise warrants on a cashless basis in accordance with Section 3(a)(9) of the Securities Act or another exemption. Second, if our Class A common stock is at any time of any exercise of a warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, we may, at our option, require holders of public warrants who exercise their warrants to do so on a cashless basis in accordance with Section 3(a)(9) of the Securities Act and, in the event we so elect, we will not be required to file or maintain in effect a registration statement, and in the event we do not so elect, we will use our reasonable best efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available. Third, if we call the public warrants for redemption, our management will have the option to require all holders that wish to exercise warrants to do so on a cashless basis. In the event of an exercise on a cashless basis, a holder would pay the warrant exercise price by surrendering the warrants for that number of shares of Class A common stock equal to the quotient obtained by dividing (x) the product of the number of shares of Class A common stock underlying the warrants, multiplied by the difference between the exercise price of the warrants and the “fair market value” (as defined in the next sentence) by (y) the
fair market value. The “fair market value” is the average reported last sale price of the Class A common stock for the 10 trading days ending on the third trading day prior to the date on which the notice of exercise is received by the warrant agent or on which the notice of redemption is sent to the holders of warrants, as applicable. As a result, you would receive fewer shares of Class A common stock from such exercise than if you were to exercise such warrants for cash.
We may amend the terms of the warrants in a manner that may be adverse to holders of public warrants with the approval by the holders of at least 65% of the then outstanding public warrants. As a result, the exercise price of your warrants could be increased, the exercise period could be shortened and the number of shares of our Class A common stock purchasable upon exercise of a warrant could be decreased, all without your approval.
Our warrants will be issued in registered form under a warrant agreement between Continental Stock Transfer & Trust Company, as warrant agent, and us. The warrant agreement provides that the terms of the warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision, but requires the approval by the holders of at least 65% of the then outstanding public warrants to make any change that adversely affects the interests of the registered holders of public warrants. Accordingly, we may amend the terms of the public warrants in a manner adverse to a holder if holders of at least 65% of the then outstanding public warrants approve of such amendment. Although our ability to amend the terms of the public warrants with the consent of at least 65% of the then outstanding public warrants is unlimited, examples of such amendments could be amendments to, among other things, increase the exercise price of the warrants, convert the warrants into cash or stock, shorten the exercise period or decrease the number of shares of our Class A common stock purchasable upon exercise of a warrant.
Our warrant agreement will designate the courts of the State of New York or the United States District Court for the Southern District of New York as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by holders of our warrants, which could limit the ability of warrant holders to obtain a favorable judicial forum for disputes with our company.
Our warrant agreement will provide that, subject to applicable law, (i) any action, proceeding or claim against us arising out of or relating in any way to the warrant agreement, including under the Securities Act, will be brought and enforced in the courts of the State of New York or the United States District Court for the Southern District of New York, and (ii) that we irrevocably submit to such jurisdiction, which jurisdiction shall be the exclusive forum for any such action, proceeding or claim. We will waive any objection to such exclusive jurisdiction and that such courts represent an inconvenient forum.
Notwithstanding the foregoing, these provisions of the warrant agreement will not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal district courts of the United States of America are the sole and exclusive forum. Any person or entity purchasing or otherwise acquiring any interest in any of our warrants shall be deemed to have notice of and to have consented to the forum provisions in our warrant agreement. If any action, the subject matter of which is within the scope the forum provisions of the warrant agreement, is filed in a court other than a court of the State of New York or the United States District Court for the Southern District of New York (a “foreign action”) in the name of any holder of our warrants, such holder shall be deemed to have consented to: (x) the personal jurisdiction of the state and federal courts located in the State of New York in connection with any action brought in any such court to enforce the forum provisions (an “enforcement action”), and (y) having service of process made upon such warrant holder in any such enforcement action by service upon such warrant holder’s counsel in the foreign action as agent for such warrant holder.
This choice-of-forum provision may limit a warrant holder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with our company, which may discourage such lawsuits. Alternatively, if a court were to find this provision of our warrant agreement inapplicable or unenforceable with respect to one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could materially and adversely affect our business, financial condition and results of operations and result in a diversion of the time and resources of our management and board of directors.
We may redeem your unexpired warrants prior to their exercise at a time that is disadvantageous to you, thereby making your warrants worthless. The Company has the ability to redeem outstanding warrants at any time after they become exercisable and prior to their expiration if certain conditions are met, but none of the private placement warrants will be redeemable so long as they are held by the Sponsor or its permitted transferees.
THE OFFERING
On August 23, 2022, we entered into the Purchase Agreement with Tumim, pursuant to which Tumim has committed to purchase up to $100.0 million of our Common Stock, or the Total Commitment, at our direction from time to time over the term of the Purchase Agreement, subject to certain terms, conditions and limitations in the Purchase Agreement. We entered into the Amendment No. 1 to the Purchase Agreement with Tumim on November 9, 2022, to, among other things, amend certain definitions in the Purchase Agreement to include certain information that was not available at the time when the Purhcase Agreement was executed on August 23, 2022. Also on August 23, 2022, we entered into a registration rights agreement with Tumim (the “Registration Rights Agreement”), pursuant to which we have filed with the SEC the registration statement that includes this prospectus to register for resale under the Securities Act, the shares of our Common Stock that have been and may be issued to Tumim under the Purchase Agreement. Pursuant to the terms of the Purchase Agreement, as amended, we issued 218,842 Commitment Shares to Tumim as partial consideration for its irrevocable commitment to purchase shares of our Common Stock under the Purchase Agreement, which are also covered by this prospectus.
The sale of our Common Stock by us to Tumim under the Purchase Agreement, if any, will be subject to certain limitations and may occur, from time to time at our sole discretion, over the approximately 24-month period commencing on the date of initial satisfaction of certain conditions as set forth in the Purchase Agreement, including but are not limited to the following: (i) a registration statement that includes this prospectus covering the resale by Tumim of shares of our Common Stock that have been and may be issued under the Purchase Agreement is declared effective by the SEC; (ii) a final prospectus in connection therewith is filed, (iii) the Commitment Shares have been issued to Tumim; and (iv) satisfaction of other customary conditions as set forth in the Purchase Agreement. From and after the satisfaction of all conditions to Tumim’s purchase obligations set forth in the Purchase Agreement, or the Commencement, and the date on which the Commencement occurs, or the Commencement Date, we will have the right, but not the obligation, from time to time at our sole discretion, to direct Tumim to purchase certain amounts of our Common Stock, subject to certain limitations in the Purchase Agreement, that we specify in purchase notices that we deliver to Tumim under the Purchase Agreement, or each such purchase, a Purchase. The purchase price of the shares of our Common Stock that we may direct Tumim to purchase in a Purchase will be equal to 97% of the lowest daily VWAP during the three (3) consecutive trading day period ending on (and including) the trading day immediately prior to the date on which Tumim receives notice, the applicable purchase notice for such Purchase, or each such period, a Purchase Valuation Period. There is no upper limit on the price per share that Tumim could be obligated to pay for our Common Stock under the Purchase Agreement. The purchase price per share of our Common Stock to be sold in a Purchase will be equitably adjusted for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction occurring during the applicable Purchase Valuation Period for such Purchase. As set forth in the Purchase Agreement, the closing sale price of the Common Stock on the trading day immediately preceding such Purchase Date (as defined in the Purchase Agreement) is not less than $0.50, which shall be appropriately adjusted for any reorganization, recapitalization, non-cash dividend, stock split or other similar transaction and, effective upon the consummation of any such reorganization, recapitalization, non-cash dividend, stock split or other similar transaction.
Tumim has no right to require us to sell any shares of our Common Stock to Tumim, but Tumim is obligated to make purchases as directed by us, subject to the satisfaction of conditions set forth in the Purchase Agreement at Commencement and thereafter at each time that we may direct Tumim to purchase shares of our common stock under the Purchase Agreement. Actual sales of shares of our common stock to Tumim will depend on a variety of factors to be determined by us from time to time, including, among others, market conditions, the trading price of our common stock and determinations by us as to the appropriate sources of funding for us and our operations.
Under the applicable rules of The Nasdaq Stock Market LLC, or the Nasdaq listing rules, in no event may we issue or sell to Tumim under the Purchase Agreement and the transactions contemplated thereby, shares of our Common Stock in excess of 2,538,663 shares, or the Exchange Cap, which is 19.99% of the shares of our Common Stock outstanding immediately prior to the execution of the Purchase Agreement. We will need to obtain stockholder approval to issue shares of our Common Stock in excess of the Exchange Cap, unless the average price of all applicable sales of our common stock to Tumim under the Purchase Agreement equals or exceeds $7.18 (which is the official closing price of the Common Stock on Nasdaq on the trading day immediately preceding the date of the Purchase Agreement, plus an incremental amount to take into account our issuance of the Commitment Shares to Tumim as consideration for its commitment to purchase shares of our Common Stock under the Purchase Agreement rather than in exchange for cash), in which case, under the Nasdaq listing rules, the Exchange Cap limitation will not apply to issuances and sales of our Common Stock under the Purchase Agreement. In any event, the Purchase Agreement specifically provides that we may not issue or sell any shares of our Common Stock under the Purchase Agreement if such issuance or sale would breach any Nasdaq listing rule.
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The Purchase Agreement also prohibits us from directing Tumim to purchase any shares of our Common Stock if those shares, when aggregated with all other shares of our Common Stock then beneficially owned by Tumim (as calculated pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended, and Rule 13d-3 thereunder), would result in Tumim beneficially owning more than 4.99% of the outstanding Common Stock, or the Beneficial Ownership Limitation.
The net proceeds under the Purchase Agreement to us will depend on the frequency and prices at which we sell shares of our stock to Tumim. We expect that any proceeds received by us from such sales to Tumim will be used for working capital and general corporate purposes.
Subject to specified exceptions included in the Purchase Agreement, we are limited in our ability to enter into specified variable rate transactions during the term of the Purchase Agreement. Such transactions include, among others, the issuance of convertible securities with a conversion or exercise price that is based upon or varies with the trading price of our common stock after the date of issuance, the issuance of securities with embedded anti-dilution provisions, the issuance of securities with an embedded put or call right or at a price subject to being reset after the initial issuance contingent on our business or market performance or entry into any new “equity line of credit” transaction or similar continuous equity offering where we may issue common equity at a price that is tied to future market prices of our common equity.
The Purchase Agreement will automatically terminate upon the earliest of (i) the first day of the month next following the 24-month anniversary of November 9, 2022 (the “Closing Date”), (ii) the date on which Tumim shall have purchased the Total Commitment worth of shares pursuant to the Purchase Agreement, (iii) the date on which the Common Stock shall have failed to be listed or quoted on the Nasdaq Global Market or any eligible market, (iv) the thirtieth (30th) trading day next following the date on which, pursuant to or within the meaning of any Bankruptcy Law, the Company commences a voluntary case or any person commences a proceeding against the Company, in each case that is not discharged or dismissed prior to such thirtieth (30th) trading day, and (v) the date on which, pursuant to or within the meaning of any Bankruptcy Law, a custodian is appointed for the Company or for all or substantially all of its property, or the Company makes a general assignment for the benefit of its creditors. Neither we nor Tumim may assign or transfer its rights and obligations under the Purchase Agreement, and no provision of the Purchase Agreement or the Registration Rights Agreement may be modified or waived by the parties.
As consideration for Tumim’s commitment to purchase shares of our Common Stock upon the terms of and subject to satisfaction of the conditions set forth in the Purchase Agreement, on January 20, 2023, we issued 218,842 Commitment Shares as partial consideration to Tumim.
The Purchase Agreement and the Registration Rights Agreement contain customary representations, warranties, conditions and indemnification obligations of the parties. The representations, warranties and covenants contained in such agreements were made only for purposes of such agreements and as of specific dates, were solely for the benefit of the parties to such agreements and may be subject to limitations agreed upon by the contracting parties.
We do not know what the purchase price for our Common Stock will be and therefore cannot be certain as to the number of shares we might issue to Tumim under the Purchase Agreement after the Commencement Date. Although the Purchase Agreement provides that we may sell up to $100 million of our Common Stock to Tumim, only 6,718,842 shares of our Common Stock are being registered for resale by the Selling Stockholder under this prospectus, which represents (i) the 218,842 Commitment Shares that we issued as partial consideration to Tumim on January 20, 2023 under the Purchase Agreement and (ii) up to 6,500,000 shares of Common Stock that may be issued to Tumim from and after the Commencement Date, if and when we elect to sell shares to Tumim under the Purchase Agreement. Depending on the market prices of our Common Stock at the time we elect to issue and sell shares to Tumim under the Purchase Agreement, we may need to register for resale under the Securities Act additional shares of our Common Stock in order to receive aggregate gross proceeds equal to the $100,000,000 Total Commitment available to us under the Purchase Agreement.
As of January 19, 2023, there were 12,699,668 shares of our Common Stock outstanding, of which 10,003,896 shares were held by non-affiliates. If all of the 6,718,842 shares offered by Tumim for resale under this prospectus were issued and outstanding as of the date hereof (without taking into account the 19.99% Exchange Cap limitation), such shares would represent approximately 34.6% of the total number of shares of our Common Stock outstanding and approximately 71.4% of the
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total number of outstanding shares held by non-affiliates, in each case as of the date hereof. If we elect to issue and sell more than the 6,718,842 shares offered under this prospectus to Tumim, which we have the right, but not the obligation, to do, we must first register for resale under the Securities Act any such additional shares, which could cause additional substantial dilution to our stockholders. The number of shares ultimately offered for resale by Tumim is dependent upon the number of shares we may elect to sell to Tumim under the Purchase Agreement from and after the Commencement Date.
There are substantial risks to our stockholders as a result of the sale and issuance of our Common Stock to Tumim under the Purchase Agreement. These risks include substantial dilution, significant declines in our stock price and our inability to draw sufficient funds when needed. See “Risk Factors.” Issuances of our Common Stock in this offering will not affect the rights or privileges of our existing stockholders, except that the economic and voting interests of each of our existing stockholders will be diluted as a result of any such issuance. Although the number of shares of our Common Stock that our existing stockholders own will not decrease, the shares owned by our existing stockholders will represent a smaller percentage of our total outstanding shares after any such issuances to Tumim.
Resale of Common Stock
Common Stock offered by the Selling Securityholder | Up to 6,718,842 shares of our Common Stock. | |
Common Stock outstanding prior to this offering | 12,918,510 | |
Common Stock outstanding after this offering | 12,699,668, assuming the sale of a total of 6,718,842 shares of our Common Stock. The actual number of shares issued will vary depending upon the actual sales prices under this offering. | |
Use of proceeds | We will not receive any proceeds from the resale of the Common Stock to be offered by the Selling Stockholder. We expect to receive up to $100 million in aggregate gross proceeds under the Purchase Agreement from sale of our Common Stock that we elected or may elect to issue to Tumim from time to time in our sole discretion, from and after the Commencement Date. Any proceeds that we receive from sales of our Common Stock to Tumim under the Purchase Agreement will be used for working capital and general corporate purposes. See “Use of Proceeds.” | |
Risk Factors | Investing in our Common Stock involves a high degree of risk. See the section titled “Risk Factors” of this prospectus and the section titled “Risk Factors” in the documents incorporated by reference herein for a discussion of factors you should carefully consider before investing in our Common Stock. | |
Nasdaq Ticker-Symbol | Common Stock: “ICU” Warrants: “ICUCW” |
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SELECTED HISTORICAL FINANCIAL INFORMATION
The following summary statement of operations data for the years ended December 31, 2021 and 2020 and balance sheet data as of December 31, 2021 and December 31, 2020 are derived from SeaStar Medical’s audited financial statements included elsewhere in this prospectus. SeaStar Medical’s statement of operations data for the nine months ended September 30, 2022 and 2021 and balance sheet data as of September 30, 2022 are derived from SeaStar Medical’s unaudited financial statements included elsewhere in this prospectus.
SeaStar Medical’s historical results are not necessarily indicative of the results that may be expected in the future. The information below is only a summary and should be read in conjunction with the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” and the SeaStar Medical financial statements, and the notes and schedules related thereto, which are included elsewhere in this prospectus.
Year Ended December 31, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2021 | 2021 | 2022 | |||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | $ | 4,025,172 | $ | 2,766,394 | $ | 2,267,220 | $ | 1,678,083 | ||||||||
General and administrative | 2,427,725 | 1,682,279 | 1,138,642 | 2,213,590 | ||||||||||||
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Total operating expenses | 6,452,897 | 4,448,673 | 3,405,862 | 3,891,673 | ||||||||||||
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Loss from operations | (6,452,897 | ) | (4,448,673 | ) | (3,405,862 | ) | (3,891,673 | ) | ||||||||
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Other income (expense), net: | ||||||||||||||||
Other income | 84,450 | 91,402 | 91,364 | 631 | ||||||||||||
Interest expense | (3,308,635 | ) | (212,436 | ) | (64,506 | ) | (484,030 | ) | ||||||||
Change in fair value of derivative liability | — | (26,961 | ) | 578,107 | ||||||||||||
Gain on sale of assets and liabilities held for sale | 71,114 | — | — | |||||||||||||
Loss on disposal of other assets | (5,658 | ) | — | — | ||||||||||||
Gain on early extinguishment of convertible notes | 6,344,993 | — | — | |||||||||||||
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Total other income (expense), net | 3,186,263 | (147,995 | ) | 26,857 | 94,708 | |||||||||||
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Loss before income tax provision | (3,266,634 | ) | (4,596,668 | ) | (3,379,005 | ) | (3,796,965 | ) | ||||||||
Income tax provision (benefit) | 9,000 | (787 | ) | (787 | ) | 800 | ||||||||||
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Net loss | $ | (3,275,634 | ) | $ | (4,595,882 | ) | $ | (3,378,218 | ) | $ | (3,797,765 | ) | ||||
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Net loss per common stock, basic and diluted | $ | — | $ | — | $ | — | $ | — | ||||||||
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Weighted-average shares outstanding, basic and diluted | — | — | — | — | ||||||||||||
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As of December 31, 2020 | As of December 31, 2021 | As of September 30, 2022 | ||||||||||
Balance Sheet Data: | ||||||||||||
Cash | $ | 2,806,585 | $ | 509,874 | $ | 48,807 | ||||||
Total assets | 2,909,196 | 603,384 | 1,091,817 | |||||||||
Accumulated deficit | (71,716,455 | ) | (76,311,857 | ) | (80,109,594 | ) | ||||||
Total stockholders’ deficit | (71,583,884 | ) | (76,164,540 | ) | (79,257,690 | ) |
7
RISK FACTORS
Investing in our securities involves risks. Before you make a decision to buy our securities, in addition to the risks and uncertainties discussed above under “Cautionary Note Regarding Forward-Looking Statements,” you should carefully consider the specific risks set forth herein. If any of these risks actually occur, it may materially harm our business, financial condition, liquidity and results of operations. As a result, the market price of our securities could decline, and you could lose all or part of your investment. Additionally, the risks and uncertainties described in this prospectus, any prospectus supplement or in any document incorporated by reference herein or therein are not the only risks and uncertainties that we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may become material and adversely affect our business.
Risks Relating to the Company’s Financial Condition
The Company has incurred significant losses since its inception and anticipates that it will continue to incur significant losses for the foreseeable future.
The Company is a medical technology company focused primarily on developing and commercializing its lead product candidate, the SCD, for pediatric and adult AKI indications. The Company recently submitted an HDE application with the FDA for pediatric patients with AKI on CRRT. In addition, The Company is finalizing the design of a pivotal trial with AKI on CRRT. It received a Breakthrough Device Designation from the FDA on April 29, 2022 for the proposed treatment of immunomodulatory dysregulation in adult patients who are 18 years and older with AKI. There is no guarantee that the Company will complete any planned clinical trial in a timely manner, or at all, nor will there be any assurance that positive data will be generated from such trial. Even if the Company is able to generate positive results from this trial, the FDA and other regulatory agencies may require the Company to conduct additional trials to support the study or disagree with the design of the trial and request changes or improvements to such design. To date, the Company has not obtained regulatory approval to commercialize or sell any of its SCD product candidates, and it does not expect to generate any significant revenue for the foreseeable future. The Company has incurred significant net losses since its inception and had an accumulated deficit of approximately $80.1 million, $76.3 million and $71.7 million, as of September 30, 2022, December 31, 2021 and 2020, respectively.
The Company has devoted most of its financial resources to research and development, including clinical trials and non-clinical development activities, and to obtain regulatory approval of its SCD product candidates. To date, the Company has financed its operations primarily through the sale of equity and debt securities, including issuance of convertible promissory notes. The size of its future net losses will depend, in part, on the rate of future expenditures and its ability to generate revenues. To date, none of its product candidates have generated significant revenue, and if its product candidates are not successfully developed or commercialized, or if revenues are insufficient following marketing approval, it will not achieve profitability and its business may fail. Even if the Company successfully obtains regulatory approval to market its product candidates in the United States, its revenues are also dependent upon the size of the markets outside of the United States, regulatory approval outside of the United States, and its ability to obtain market approval and achieve commercial success.
The Company expects to continue to incur substantial and increased expenses as it expands research and development activities and advances clinical programs through the regulatory approval process. The Company also expects an increase in its expenses associated with preparing for the potential commercialization of its products and creating additional infrastructure to support operations as a public company. As a result of the foregoing, it expects to continue to incur significant and increasing losses and negative cash flows for the foreseeable future.
The Company has not generated any significant revenue and may never be profitable.
The Company’s ability to generate revenue and achieve profitability depends on its ability, alone or with collaborators, to successfully complete the development, obtain the necessary regulatory approvals of and commercialize its lead product candidate, the SCD. It does not anticipate generating revenues from its product
8
candidates’ sales for the foreseeable future. Its ability to generate future revenues from product sales depends heavily on its success with the following items:
completing the clinical development of its SCD, initially for the treatment of adult AKI in the hospital setting;
obtaining regulatory approval for its SCD for the designated indication, including the HDE in pediatrics and PMA for adults;
launching and commercializing its SCD, including building a hospital-directed sales force and collaborating with third parties;
obtaining third party reimbursement status from government agencies and insurance carriers; and
entering into collaboration agreement and partnerships to commercialize its products.
Because of the numerous risks and uncertainties associated with medical device product development, the Company is unable to predict the timing or amount of increased expenses, when, or if, it will be able to achieve or maintain profitability. In addition, its expenses could increase beyond expectations if it is required by the FDA to perform additional, unanticipated studies.
Even if its product candidates are approved for commercial sale, the Company anticipates incurring significant costs associated with commercializing any approved product candidate. In the case of its SCD product candidate for the treatment of pediatric AKI, even if the Company receives approval from the FDA for its HDE application, the Company will be limited in its ability to sell and distribute its SCD units due to certain restrictions under the HDE requirements that limit the number of units that can be sold on an annual basis, which will further limit the amount of revenue that could be generated by the Company. Even if it is able to generate revenues from the sale of its products, the Company may not become profitable and may need to obtain additional funding to continue operations.
The Company has a limited operating history, which makes it difficult to forecast its future results of operations.
The Company has not received approval from the FDA and other regulatory authorities to sell its SCD product candidates and therefore it has a limited commercial operating history. According, the Company’s ability to accurately forecast future results of its operations is limited and subject to a number of uncertainties and risks, including its ability to plan for and model future growth. If the Company receives regulatory approval to market and sell its SCD product candidates, its revenue growth could slow in the future, or its revenue could decline or fluctuate for a number of reasons, including slowing demand for its products, increasing competition, changing demand in the markets, new scientific or technological developments, a decrease in the growth of its overall market, its failure to attract more customers, the inability to obtain reimbursement for its products by government agencies and insurers, or its failure, for any reason, to continue to take advantage of growth opportunities. If its assumptions regarding these risks and uncertainties and its future revenue growth are incorrect or change, or if it does not address these risks successfully or forecast its results accurately, the Company’s operating and financial results could differ materially from its expectations, and its business could suffer.
If the Company fails to obtain additional financing, it would be forced to delay, reduce or eliminate its product development program, which may result in the cessation of its operations.
Developing medical device products, including conducting preclinical studies and clinical trials, is expensive. The Company expects its research and development expenses to substantially increase in connection with its ongoing activities, particularly as it advances its clinical programs. As of September 30, 2022 and December 31, 2021, SeaStar Medical had negative working capital of approximately $1.8 million and $2.5 million, respectively, and its audit report in its 2021 financial statements contains an emphasis-of-matter paragraph, stating that its recurring losses from operations and cash used in operating activities raise substantial doubt as to the Company’s ability to continue as a going concern. The Company currently does not have sufficient capital to support its operations and complete its planned regulatory approval process, and it will need to secure
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additional capital to continue its operation, and such funding may not be available on acceptable terms, or at all. In addition, the Company incurred significant amount of debt in connection with the Closing, including the issuance of unsecured and secured promissory notes to LM Funding America, Inc. (“LMFA”), the Sponsor and Maxim, and the Company may not have sufficient funds to repay these loans. Even if the Company obtains additional funding, the Company will be required to make certain mandatory payments under such promissory notes, which will reduce the amount of proceeds available for the Company to operate its business.
On August 23, 2022, LMAO and SeaStar Medical entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) with Tumim Stone Capital LLC (“Tumim”) for the purchase of up to $100.0 million in shares of the Common Stock after the consummation of the Business Combination. There are certain conditions and limitations on the Company’s ability to utilize the $100.0 million equity line with Tumim. The Company will be required to satisfy various conditions, which include, among others: (1) delivery of a compliance certificate; (2) filing of an initial registration statement; and (3) customary bring-down opinions and negative assurances, in order to commence the selling of Common Stock to Tumim under the Purchase Agreement. Once such conditions are satisfied, Tumim’s purchases are subject to various restrictions and other limitations, including a cap on the number of shares of Common Stock that we can sell based on the trading volume of our Common Stock, as well as certain beneficial ownership restrictions of Tumim. If any of these conditions are not satisfied or limitations are in effect, the Company may not be able to utilize all or part of the Tumim equity line, which would have an adverse impact on the Company’s ability to satisfy its capital needs and could have a material adverse impact on its business.
Even if the Company receives sufficient capital in the future, the Company will be required to raise additional funds to support its own operations and complete its planned regulatory approval process, and such funding may not be available in sufficient amounts or on acceptable terms to the Company, or at all. If it is unable to raise additional capital when required or on acceptable terms, the Company may be required to:
significantly delay, scale back or discontinue the development or commercialization of its product candidates;
seek corporate partners on terms that are less favorable than might otherwise be available;
relinquish or license on unfavorable terms, its rights to technologies or product candidates that it otherwise would seek to develop or commercialize itself.
If it is unable to raise additional capital in sufficient amounts or on acceptable terms, the Company will be prevented from pursuing development and commercialization efforts, including completing the clinical trials and regulatory approval process for its SCD product candidates, which would have a material adverse impact on its business, results of operations and financial condition.
The Company’s ability to use its net operating losses to offset future taxable income may be subject to certain limitations.
As of September 30, 2022, the Company had net operating loss (“NOL”) carryforwards for federal and California state income tax purposes of approximately $78.1 million and $23.1 million, respectively, which may be available to offset taxable income in the future. Under the Tax Cuts and Jobs Act of 2017, as modified by the Coronavirus Aid, Relief, and Economic Security Act, federal NOLs incurred in tax years beginning after December 31, 2017 may be carried forward indefinitely, but the deductibility of such federal net operating losses in tax years beginning after December 31, 2020, is limited to 80% of taxable income. Federal NOLs incurred before 2018 may be carried forward 20 years but are not subject to the taxable income limitation. Under current law, California NOLs generally may be carried forward 20 years (with a limited extension for California NOLs incurred in 2020-2021) without a taxable income limitation. The Company’s federal NOLs include $25.2 million that can also be carried forward indefinitely, and the remaining $52.9 million of federal NOLs expire in various years beginning in 2027 for federal purposes. The California NOLs expire beginning in 2039 if not utilized. A lack of future taxable income would adversely affect the Company’s ability to utilize these NOLs before they expire.
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In general, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an “ownership change” (as defined in Section 382 of the Code and applicable Treasury Regulations) is subject to limitations on its ability to utilize its pre-change NOLs to offset future taxable income. The Company may experience a future ownership change (including, potentially, in connection with the Business Combination) under Section 382 of the Code that could affect its ability to utilize the NOLs to offset its income. Furthermore, the Company’s ability to utilize NOLs of companies that it may acquire in the future may be subject to limitations. There is also a risk that due to legislative or regulatory changes, such as suspensions on the use of NOLs or other unforeseen reasons, the Company’s existing NOLs could expire or otherwise be unavailable to reduce future income tax liabilities, including for state tax purposes. For these reasons, the Company may not be able to utilize a material portion of the NOLs reflected on its balance sheet, even if it attains profitability, which could potentially result in increased future tax liability to the Company and could adversely affect its business, results of operations and financial condition.
Risks Related to the Company’s Business Operations
The Company has not received, and may never receive, approval from the FDA to market its product in the United States or abroad.
The Company may encounter various challenges and difficulties in its application to seek approval from the FDA to sell and market its SCD product candidates, including the application for HDE for pediatric AKI indication and the pivotal trial for adult AKI indication. The Company is required to submit a substantial amount of supporting documentation for its HDE application to demonstrate the eligibility of the SCD to treat pediatric patients. There is no guarantee that the FDA will approve the Company’s application or agree with its position that its SCD meets all regulatory criteria for HDE. In addition, there is no guarantee that the Company will be able to complete the AKI adult pivotal trial in a timely manner, or at all, nor will there be any assurance that positive data will be generated from such trials. Even if the Company is able to generate positive results from this trial, the FDA and other regulatory agencies may require the Company to conduct additional trials to support the study or disagree with the design of the trial and request changes or improvements to such design. The Company is also subject to numerous other risks relating to the regulatory approval process, which include but are not limited to:
an inability to secure and obtain support and references from collaborators and suppliers required by the FDA;
a disagreement with the FDA regarding the design of the trial, including the number of clinical study subjects and other data, which may require SeaStar Medical to conduct additional testing or increase the size and complexity of its pivotal study;
a failure to obtain a sufficient supply of filters to conduct its trial;
an inability to enroll a sufficient number of subjects;
a shortage of necessary raw materials, such as calcium; and
delays and failures to train qualified personnel to operate the SCD therapy.
Even if the Company obtains approval, the FDA or other regulatory authorities may require expensive or burdensome post-market testing or controls. Any delay in, or failure to receive or maintain, clearance or approval for its future products could prevent the Company from generating revenue from these products or achieving profitability. Additionally, the FDA and other regulatory authorities have broad enforcement powers. Regulatory enforcement or inquiries, or other increased scrutiny on the Company, could dissuade some physicians from using its products and adversely affect its reputation and the perceived safety and efficacy of its products.
Delays or rejections may occur based on changes in governmental policies for medical devices during the period of product development. The FDA can delay, limit or deny approval of a PMA application for many reasons, including:
the Company’s inability to demonstrate the safety or effectiveness of the SCD or any other product it develops to the FDA’s satisfaction;
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insufficient data from its preclinical studies and clinical trials, including for its SCD, to support approval;
failure of the facilities of its third-party manufacturers or suppliers to meet applicable requirements;
inadequate compliance with preclinical, clinical or other regulations;
its failure to meet the FDA’s statistical requirements for approval; and
changes in the FDA’s approval policies, or the adoption of new regulations that require additional data or additional clinical studies.
If the Company is not able to obtain regulatory approval of its SCD in a timely manner or at all, it may not be able to continue to operate its business and may be forced to shut down its operations.
The Company is subject to certain risks relating to pursuing an FDA approval via the HDE pathway, including limitations on the ability to profit from sales of the product.
Except in certain circumstances, products approved under an HDE cannot be sold for an amount that exceeds the costs of the research and development, fabrication, and distribution of the device (i.e., for profit). Currently, under section 520(m)(6)(A)(i) of the Food, Drug, and Cosmetic Act, as amended (the “FD&C Act”) by the Food and Drug Administration Safety and Innovation Act, a Humanitarian Use Device (“HUD”) is only eligible to be sold for profit after receiving HDE approval if the device (1) is intended for the treatment or diagnosis of a disease or condition that occurs in pediatric patients or in a pediatric subpopulation, and such device is labeled for use in pediatric patients or in a pediatric subpopulation in which the disease or condition occurs; or (2) is intended for the treatment or diagnosis of a disease or condition that does not occur in pediatric patients or that occurs in pediatric patients in such numbers that the development of the device for such patients is impossible, highly impracticable, or unsafe. If an HDE-approved device does not meet this eligibility criteria, the device cannot be sold for profit. With enactment of the FDA Reauthorization Act of 2017, Congress provided that the exemption for the HUD/HDE profitability is available as long as the request for an exemption is submitted on or before October 1, 2022. Not receiving an exemption for the HUD/HDE profitability would have a material adverse effect on the Company’s business, results of operations and financial condition.
In addition, if the FDA subsequently approves a PMA or clears a 510(k) for the HUD or another comparable device with the same indication, the FDA may withdraw the HDE. Once a comparable device becomes legally marketed through PMA approval or 510(k) clearance to treat or diagnose the disease or condition in question, there may no longer be a need for the HUD and so the HUD may no longer meet the requirements of section 520(m)(2)(B) of the FD&C Act.
The Company plans to expand its operations and it may not be able to manage its growth effectively, which could strain its resources and delay or derail implementation of its business objectives.
The Company will need to significantly expand its operations to implement its longer-term business plan and growth strategies, including building and expanding its internal organizational infrastructure to complete the regulatory approval process with the FDA. The Company will also be required to manage and form new relationships with various strategic partners, technology licensors, customers, manufacturers and suppliers, consultants and other third parties. This expansion and these new relationships will require the Company to significantly improve or replace its existing managerial, operational and financial systems, and procedures and controls; to improve the coordination between its various corporate functions; and to manage, train, motivate and maintain a growing employee base. The time and costs to effectuate these steps may place a significant strain on its management personnel, systems and resources, particularly if there are limited financial resources and skilled employees available at the time. The Company cannot assure that it will institute, in a timely manner or at all, the improvements to its managerial, operational and financial systems, procedures and controls necessary to support its anticipated increased levels of operations and to coordinate its various corporate functions, or that it will be able to properly manage, train, motivate and retain its anticipated increased employee base. If it cannot manage its growth initiatives, the Company will be unable to commercialize its products on a large-scale in a timely manner, if at all, and its business could fail.
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The Company will initially depend on revenue generated from a single product and in the foreseeable future will be significantly dependent on a limited number of products.
If the Company receives approval from the FDA and other regulatory authorities, the Company will initially depend on revenue generated from its SCD product candidate for pediatric and adult patients with AKI and in the foreseeable future will be significantly dependent on a single or limited number of products. Given that, for the foreseeable future, the Company’s business will depend on a single or limited number of products, to the extent a particular product is not well-received by the market, the Company’s sales volume, prospects, business, results of operations and financial condition could be materially and adversely affected.
If the Company fails to comply with extensive regulations of United States and foreign regulatory agencies, the commercialization of its products could be delayed or prevented entirely.
The Company’s SCD product candidate and research and development activities are subject to extensive government regulations related to its development, testing, manufacturing and commercialization in the United States and other countries. The determination of when and whether a product is ready for large-scale purchase and potential use in the United States will be made by the United States government through consultation with a number of governmental agencies, including the FDA, the National Institutes of Health and the Centers for Disease Control and Prevention. The Company’s SCD has not received regulatory approval from the FDA, or any foreign regulatory agencies, to be commercially marketed and sold. The process of obtaining and complying with FDA and other governmental regulatory approvals and regulations in the United States and in foreign countries is costly, time consuming, uncertain and subject to unanticipated delays. Obtaining such regulatory approvals, if any, can take several years. Despite the time and expense exerted, regulatory approval is never guaranteed. The Company is also subject to the following risks and obligations, among others:
the FDA may refuse to approve an application if it believes that applicable regulatory criteria are not satisfied;
the FDA may require additional testing for safety and effectiveness;
• | the FDA may interpret data from pre-clinical testing and clinical trials in different ways than the Company interprets them; |
if regulatory approval of a product is granted, the approval may be limited to specific indications or limited with respect to its distribution; and
the FDA may change its approval policies and/or adopt new regulations.
Failure to comply with these or other regulatory requirements of the FDA may subject the Company to administrative or judicially imposed sanctions, including:
warning letters, untitled letters or other written notice of violations;
civil penalties;
criminal penalties;
injunctions;
product seizure or detention;
product recalls; and
total or partial suspension of productions.
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Delays in successfully completing the Company’s planned clinical trials could jeopardize its ability to obtain regulatory approval.
The Company’s business prospects will depend on its ability to complete studies, clinical trials, including its planned pivotal trials of its SCD for adult AKI indication, obtain satisfactory results, obtain required regulatory approvals and successfully commercialize its SCD product candidate. The completion of the Company’s clinical trials, the announcement of results of the trials and its ability to obtain regulatory approvals could be delayed for a variety of reasons, including:
slow patient enrollment;
serious adverse events related to its medical device candidates;
unsatisfactory results of any clinical trial;
the failure of principal third-party investigators to perform clinical trials on the Company’s anticipated schedules;
• | different interpretations of the Company’s pre-clinical and clinical data, which could initially lead to inconclusive results; and |
• | delays resulting from the COVID-19 pandemic. |
The Company’s development costs will increase if it has material delays in any clinical trial or if it needs to perform more or larger clinical trials than planned. If the delays are significant, or if any of its product candidates do not prove to be safe or effective or do not receive regulatory approvals, the Company’s financial results and the commercial prospects for its product candidates would be harmed. Furthermore, the Company’s inability to complete its clinical trials in a timely manner could jeopardize its ability to obtain regulatory approval.
The approval requirements for medical products used to fight pandemics, including the COVID-19 pandemic, are still evolving, and the Company’s product for such uses may not meet these requirements.
The Company intends to pursue FDA market clearance to treat infectious pandemic threats, including applications to treat patients with COVID-19 diseases, although it is often not feasible to conduct human studies against these deadly, high-threatening pathogens. The Company continues to investigate the potential uses of the SCD in viral diseases under an open IDE. Based on its studies to date, the SCD can potentially modulate the immune system from proinflammatory conditions to reparative conditions in COVID-19 patients, and the Company has generated clinical data suggesting that it could reduce mortality rates in critically ill COVID-19 patients. However, such preliminary data is based on a small group of patients and the Company currently does not have the resources and capabilities to conduct additional studies and tests to establish proof of concept for COVID-19 treatments. Even if the Company is able to perform such studies, there is not guarantee that it will produce positive results and enhance the benefits of its SCD platform.
Thus, the Company may not be able to demonstrate the effectiveness of its treatment through controlled human efficacy studies. Moreover, a change in government policies could impair the Company’s ability to obtain regulatory approval and the FDA may not approve any of its product candidates.
Delays, interruptions or the cessation of production by its third-party suppliers of important materials or delays in qualifying new materials, may prevent or delay the Company’s ability to manufacture or process its SCD device.
The Company currently relies on a single supplier for the filters used in the SCD device for the pediatric AKI indications pursuant to a supply agreement. In the event the current supplier is unable to provide filters for the SCD device or otherwise fails to meet its obligations under the agreement, the Company may not be able to obtain a sufficient amount of filters to conduct its trials and commercialize its products. In addition, the supplier may decide to discontinue or terminate the specific type of filters that are required for its SCD for reasons beyond the Company’s control, in which case the Company will be forced to identify and secure an alternative source that may not be available immediately or at all. FDA review and approval of a new supplier may be required if these materials become unavailable from the Company’s current suppliers. Although there may be other suppliers that have equivalent materials that would be available to the Company, FDA review of any alternate suppliers, if required, could take several months or more to obtain, if it is able to be obtained at all. Any delay, interruption or cessation of production by the Company’s third-party suppliers of important materials, or any delay in qualifying new materials, if necessary, would prevent or delay SeaStar Medical’s ability to manufacture its SCD.
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The Company believes that it has sufficient access to the SCD inventory to conduct its current and near future clinical trials, but it is possible that the need for its SCD could increase that may require the Company to acquire more filters than it is currently able to purchase under its agreement with its supplier, and the Company may not be able to negotiate a new supply agreement successfully. If the Company is unable to find alternative sources of supply in a timely manner, any such delay could limit the Company’s ability to meet demand for the SCD and delay its ongoing clinical trials, which would have a material adverse impact on its business, results of operations and financial condition.
The Company has limited experience in identifying and working with large-scale contracts with medical device manufacturers.
To achieve the levels of production necessary to commercialize its SCD and any other future products, the Company will need to secure large-scale manufacturing agreements with contract manufacturers that comply with the manufacturing standards prescribed by various federal, state and local regulatory agencies in the United States and any other country of use. The Company has limited experience coordinating and overseeing the manufacturing of medical device products on a large-scale. Manufacturing and control problems could arise as the Company attempts to commercialize its products and manufacturing may not be completed in a timely manner or at a commercially reasonable cost. In addition, the Company may not be able to adequately finance the manufacturing and distribution of its products on terms acceptable to the Company, if at all. If the Company cannot successfully oversee and finance the manufacturing of its products after receiving regulatory approval, it may not generate sufficient revenue to become profitable.
Difficulties in manufacturing the Company’s SCD could have an adverse effect upon its revenue and expenses.
The Company currently outsources all of the manufacturing of its SCD. The manufacturing of its SCD is difficult and complex. To support its current clinical trial needs, the Company complies with and intends to continue to comply with current Good Manufacturing Practice (“cGMP”) in the manufacturing of its products. The Company’s ability to adequately manufacture and supply its SCD in a timely matter is dependent on the uninterrupted and efficient operation of its third-party manufacturers, and those of the third parties producing raw materials and supplies upon which it relies on for the manufacturing of its products. The manufacturing of the Company’s products may be impacted by:
the availability or contamination of raw materials and components used in the manufacturing process, particularly those for which it has no other supplier;
its ability to comply with new regulatory requirements and cGMP;
potential facility contamination by microorganisms or viruses;
updating of its manufacturing specifications;
product quality success rates and yields; and
• | global viruses and pandemics, including the current COVID-19 pandemic. |
If efficient manufacture and supply of its SCD is interrupted, the Company may experience delayed shipments or supply constraints. If it is at any time unable to provide an uninterrupted supply of its products, the Company’s ongoing clinical trials may be delayed, which could materially and adversely affect its business, results of operations and financial condition.
The Company’s SCD technology may become obsolete.
The Company’s SCD product candidates may become obsolete prior to commercialization by new scientific or technological developments, or by others with new treatment modalities that are more efficacious and/or more economical than the Company’s products. Any one of the Company’s competitors could develop a
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more effective product which would render the Company’s technology obsolete. In addition, it is possible that competitors may use similar technologies, equipment or devices, including using certain “off-the-shelf” filters unauthorized by the FDA, to attempt to create a similar treatment mechanism as the SCD. Further, new technological and scientific developments within the hospital setting could cause the Company’s SCD product candidates to become obsolete. For example, the SCD relies on the existing footprint of CRRT pump systems in ICUs, as well as the growing use and adoption of regional citrate as an anticoagulant. Further developments in these areas could require the Company to reconfigure its SCD product candidates, which may not be commercially feasible, or cause them to become obsolete. Lastly, the Company’s ability to achieve significant and sustained growth in its key target markets will depend upon its success in hospital penetration, utilization, publication, its SCD’s reimbursement status and medical education. The Company’s products may not remain competitive with products based on new technologies. If it fails to sell products that satisfy its customers’ demands, or respond effectively to new product announcements by its competitors, then market acceptance of the Company’s products could be reduced and its business, results of operations and financial condition could be adversely affected.
The Company faces intense competition in the medical device industry.
The Company competes with numerous United States and foreign companies in the medical device industry, and many of its competitors have greater financial, personnel, operational and research and development resources than the Company. The Company believes that multiple competitors are or will be developing competing technologies to address cytokine storms. Progress is constant in the treatment of the immune system, which may reduce opportunities for the SCD. The Company’s commercial opportunities will be reduced or eliminated if its competitors develop and market products for any of the diseases it targets that:
are more effective;
have fewer or less severe adverse side effects;
are better tolerated;
are easier to administer; or
are less expensive than SeaStar Medical’s products or its product candidates.
Even if the Company is successful in developing the SCD and any other future products and obtains FDA and other regulatory approvals necessary for commercializing them, its products may not compete effectively with other products. Researchers are continually learning more about diseases, which may lead to new technologies for treatment. The Company’s competitors may succeed in developing and marketing products that are either more effective than those that it may develop or that are marketed before any SeaStar products. The Company’s competitors include fully integrated pharmaceutical & medical device companies and biotechnology companies, universities, and public and private research institutions. Many of the organizations competing with the Company have substantially greater capital resources, larger research and development staffs and facilities, greater experience in product development and in obtaining regulatory approvals, and greater marketing capabilities. If the Company’s competitors develop more effective treatments for infectious disease or hyperinflammation or bring those treatments to market before the Company can commercialize the SCD for such uses, it may be unable to obtain any market traction for its products, or the diseases it seeks to treat may be substantially addressed by competing treatments. If the Company is unable to successfully compete against larger companies in the pharmaceutical industry, it may never generate significant revenue or be profitable.
If the Company’s products, or the malfunction of its products, cause or contribute to a death or a serious injury, the Company will be subject to medical device reporting regulations, which can result in voluntary corrective actions or agency enforcement actions.
Under the FDA medical device reporting regulations, medical device manufacturers are required to report to the FDA that a device has or may have caused or contributed to a death or serious injury or has malfunctioned in a way that would likely cause or contribute to a death or serious injury. If the Company fails to report these events to the FDA within the required timeframes, or at all, the FDA could take enforcement action against the Company. Any such adverse event involving the Company’s products could also result in future voluntary corrective actions, such as recalls or customer notifications, or agency action, such as inspection or enforcement action. Any corrective action, whether voluntary or involuntary, as well as defending against potential lawsuits, will require the dedication of the Company’s time and capital, distract management from operating its business, and may harm the Company’s reputation and financial results.
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The Company outsources many of its operational and development activities for which it may not have full control.
The Company relies on third-party consultants or other vendors to manage and implement much of the day-to-day responsibilities of conducting clinical trials and manufacturing its current product candidates. Accordingly, the Company is and will continue to be dependent on the timeliness and effectiveness of the efforts of these third parties. The Company’s dependence on third parties includes key suppliers and third-party service providers supporting the development, manufacturing and regulatory approval of its SCD, as well as support for its information technology systems and other infrastructure. While its management team oversees these vendors, the failure of any of these third parties to meet their contractual, regulatory and other obligations, or the development of factors that materially disrupt the performance of these third parties, could have a material adverse effect on the Company’s business, results of operations and financial condition. It is possible that the current COVID-19 pandemic might constrain the ability of third-party vendors to provide services that the Company requires.
If a clinical research organization that the Company utilizes is unable to allocate sufficient qualified personnel to its studies in a timely manner or if the work performed by it does not fully satisfy the requirements of the FDA or other regulatory agencies, the Company may encounter substantial delays and increased costs in completing its development efforts. Any manufacturer of the Company’s products may encounter difficulties in the manufacturing of enough new product to meet demand, including problems with product yields, product stability or shelf life, quality control, adequacy of control procedures and policies, compliance with FDA regulations and the need for FDA approval of new manufacturing processes and facilities. If any of these occur, the development and commercialization of the Company ’s product candidates could be delayed, curtailed or terminated because the Company may not have sufficient financial resources or capabilities to continue such development and commercialization on its own.
If the Company or its contractors or service providers fail to comply with laws and regulations, it or they could be subject to regulatory actions, which could affect its ability to develop, market and sell its product candidates and any other future product candidates and may harm its reputation.
If the Company or its manufacturers or other third-party contractors fail to comply with applicable federal, state or foreign laws or regulations, the Company could be subject to regulatory actions, which could affect its ability to successfully develop, market and sell its SCD product candidate or any future product candidates under development and could harm its reputation and lead to reduced or non-acceptance of its proposed product candidates by the market. Even technical recommendations or evidence by the FDA through letters, site visits, and overall recommendations to academia or biotechnology companies may make the manufacturing of a clinical product extremely labor intensive or expensive, making the product candidate no longer viable to manufacture in a cost-efficient manner. The mode of administration or the required testing of the product candidate may make that candidate no longer commercially viable. The conduct of clinical trials may be critiqued by the FDA, or a clinical trial site’s Institutional Review Board or Institutional Biosafety Committee, which may delay or make impossible the clinical testing of a product candidate. For example, the Institutional Review Board for a clinical trial may stop a trial or deem a product candidate unsafe to continue testing. This would have a material adverse effect on the value of the product candidate and the Company’s business, results of operations and financial condition.
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If the Company obtains approval for its products, SeaStar Medical may still be subject to enforcement action if it engages in improper marketing or promotion of its products.
The Company is not permitted to promote or market its product candidates until FDA approval is obtained. After approval, its promotional materials and training methods must comply with the FDA and other applicable laws and regulations, including the prohibition of the promotion of unapproved or off-label use. Practitioners may use the Company’s products off-label, as the FDA does not restrict or regulate a practitioner’s choice of treatment within the practice of medicine. However, if the FDA determines that the Company’s promotional materials or training constitutes promotion of an off-label use, it could request that the Company modify its training or promotional materials or subject the Company to regulatory or enforcement actions, including the issuance of an untitled letter, a warning letter, injunction, seizure, civil fine, or criminal penalties. Other federal, state, or foreign enforcement authorities might also take action if they consider the Company’s promotional or training materials to constitute promotion of an off-label use, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement. In that event, the Company’s reputation could be damaged, which may lead to reduced or non-acceptance of its proposed product candidates by the market. In addition, the off-label use of the Company’s products may increase the risk of product liability claims. Product liability claims are expensive to defend and could divert the attention of the Company’s management, result in substantial damage awards against the Company, and harm its reputation.
The Company intends to outsource and rely on third parties for the clinical development and manufacture, sales and marketing of its SCD or any future product candidates that it may develop, and its future success will be dependent on the timeliness and effectiveness of the efforts of these third parties.
The Company does not have the required financial and human resources to carry out on its own all the pre-clinical and clinical development for its SCD product candidate or any other or future product candidates that it may develop, and do not have the capability and resources to manufacture, market or sell its SCD product candidate or any future product candidates that it may develop. The Company’s business model calls for the partial or full outsourcing of the clinical, development, manufacturing, sales and marketing of its product candidates in order to reduce its capital and infrastructure costs as a means of potentially improving its financial position. The Company’s success will depend on the performance of these outsourced providers. If these providers fail to perform adequately, the Company’s development of product candidates may be delayed and any delay in the development of the Company’s product candidates may have a material and adverse effect on its business, results of operations and financial condition.
The Company is and will be exposed to product liability risks, and clinical and preclinical liability risks, which could place a substantial financial burden upon it should it be sued.
The Company’s business exposes it to potential product liability and other liability risks that are inherent in the testing, manufacturing and marketing of medical devices. Claims may be asserted against it. A successful liability claim or series of claims brought against it could have a material adverse effect on the Company’s business, results of operations and financial condition. The Company may not be able to continue to obtain or maintain adequate product liability insurance on acceptable terms, if at all, and such insurance may not provide adequate coverage against potential liabilities. Claims or losses in excess of any product liability insurance coverage that the Company may obtain could have a material adverse effect on its business, results of operations and financial condition.
The Company’s SCD product candidate may be used in connection with medical procedures where those products must function with precision and accuracy. If medical personnel or their patients suffer injury as a result of any failure of the Company’s products to function as designed, or its products are designed inappropriately, the Company may be subject to lawsuits seeking significant compensatory and punitive damages. The risk of product liability claims, product recalls and associated adverse publicity is inherent in the testing, manufacturing, marketing and sale of medical products. The Company intends to obtain general clinical trial liability insurance coverage; however, its insurance coverage may not be adequate or available. In addition, the Company may not be able to obtain or maintain adequate product liability insurance on acceptable terms, if at all, and such insurance may not provide adequate coverage against potential liabilities. Any product recall or lawsuit in excess of any product liability insurance coverage that the Company may obtain could have a material adverse effect on its business, results of operations and financial condition. Moreover, a product recall could generate substantial negative publicity about the Company’s products and business and inhibit or prevent commercialization of other future product candidates.
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United States legislative or FDA regulatory reforms may make it more difficult and costly for the Company to obtain regulatory approval of its product candidates and to manufacture, market and distribute its products after approval is obtained.
From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing the regulatory approval, manufacture and marketing of regulated products or the reimbursement thereof. In addition, FDA regulations and guidance are often revised or reinterpreted by the FDA in ways that may significantly affect the Company’s business and its products. Any new regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times of future products. It is impossible to predict whether legislative changes will be enacted, or FDA regulations, guidance or interpretations will be changed, and what the impact of such changes, if any, may be on the Company’s new product development efforts.
The Company is subject to stringent and changing privacy laws, regulations and standards as well as policies, contracts and other obligations related to data privacy and security.
The Company collects, receives, stores, processes, uses, generates, transfers, discloses, makes accessible, protects and shares personal information and other information (“Process” or “Processing”), including information it collects in connection with clinical trials, as necessary to operate its business, for legal and marketing purposes, and for other business-related purposes.
There are numerous federal, state, local and international laws, regulations and guidance regarding privacy, information security and Processing, the number and scope of which is changing, subject to differing applications and interpretations, and which may be inconsistent. The Company is subject, and may become subject in the future, to certain of these laws, regulations, and guidance, and it is also subject to the terms of its external and internal privacy and security policies, representations, certifications, standards, publications, frameworks, and contractual obligations to third parties related to privacy, information security and Processing.
If the Company fails, or is perceived to have failed, to address or comply with such obligations, it could:
increase its compliance and operational costs;
expose it to regulatory scrutiny, actions, fines and penalties;
result in reputational harm; interrupt or stop its clinical trials;
result in litigation and liability; result in an inability to process personal data or to operate in certain jurisdictions; or
harm its business operations or financial results or otherwise result in a material harm to its business.
Additionally, given that these obligations impose complex and burdensome obligations and that there is substantial uncertainty over the interpretation and application of these obligations, the Company may be required to incur material costs, divert management attention, and change its business operations, including its clinical trials, in an effort to comply, which could materially adversely affect its business, results of operations and financial condition.
The California Consumer Privacy Act of 2018 (“CCPA”) is an example of the increasingly stringent data protection legislation in the United States. The CCPA gives California residents expanded rights to access and require deletion of their personal information, opt-out of certain personal information sharing, and receive detailed information about how their personal information is used. The CCPA created civil penalties for violations, as well as a private right of action for data breaches and statutory damages ranging from $100 to $750 per violation, which is expected to increase data breach class action litigation and result in significant exposure to costly legal judgements and settlements. Although there are limited exemptions for clinical trial data under the CCPA, the CCPA and other similar laws could impact the Company’s business activities depending on how they are interpreted.
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The Company’s business operations will be adversely affected if its security measures, or those maintained on its behalf, are compromised, limited or fails.
In the ordinary course of its business, the Company handles and processes proprietary, confidential and sensitive information, including personal data, intellectual property, trade secrets, and proprietary business information owned or controlled by ourselves or other third parties, or collectively. The Company may use and share such sensitive information with service providers and other third parties. If the Company, its service providers, partners, or other relevant third parties have experienced, or in the future experience, any security incident or incidents that result in any data loss; deletion or destruction; unauthorized access to; loss, unauthorized acquisition, disclosure, or exposure of, confidential and sensitive information, it may adversely affect SeaStar Medical’s business, results of operations and financial condition, including the diversion of funds to address the breach, and interruptions, delays, or outages in its operations and development programs.
Cyberattacks, malicious internet-based activity and online and offline fraud are prevalent and continue to increase, including the possibility that the ongoing conflict between Russia and Ukraine could result in cyber-attacks or cybersecurity incidents that may have a direct or indirect impact on our operations. In addition to threats from traditional computer “hackers,” threat actors, software bugs, malicious code (such as viruses and worms), employee theft or misuse, denial-of-service attacks (such as credential stuffing) and ransomware attacks, sophisticated nation-state and nation-state supported actors now engage in attacks (including advanced persistent threat intrusions). The Company may also be the subject of phishing attacks, viruses, malware installation, server malfunction, software or hardware failures, loss of data or other computer assets, or other similar issues any of which could have a material and adverse effect on its business, results of operations and financial condition.
Should the Company’s products be approved for commercialization, a lack of third-party coverage and reimbursement for the Company’s devices could delay or limit their adoption.
In both the United States and international markets, the use and success of medical devices is dependent in part on the availability of reimbursement from third-party payors, such as government and private insurance plans. Healthcare providers that use medical devices generally rely on third-party payors to pay for all or part of the costs and fees associated with the medical procedures being performed or to compensate them for their patient care services. Should the Company’s products under development be approved for commercialization by the FDA, reimbursement may not be available in the United States or other countries or, even if approved, the amount of reimbursement may not be sufficient to allow sales of the Company’s future products, including the SCD, on a profitable basis. The coverage decisions of third-party payors will be significantly influenced by the assessment of the Company’s future products by health technology assessment bodies. These assessments are outside the Company’s control, and any such evaluations may not be conducted or have a favorable outcome.
If approved for use in the United States, the Company expects that any products that it develops, including the SCD, will be purchased primarily by medical institutions through their operations budget. Payors may include the Centers for Medicare & Medicaid Services (“CMS”), which administers the Medicare program and works in partnership with state governments to administer Medicaid, other government programs and private insurance plans. The process involved in applying for coverage and incremental reimbursement from CMS is lengthy and expensive. Further, Medicare coverage is based on the Company’s ability to demonstrate that the treatment is “reasonable and necessary” for Medicare beneficiaries. Even if products utilizing the Company’s SCD technology receive FDA and other regulatory clearance or approval, they may not be granted coverage and reimbursement by any payor, including by CMS. For some governmental programs, such as Medicaid, coverage and adequate reimbursement differ from state to state and some state Medicaid programs may not pay adequate amounts for the procedure products utilizing the Company’s technology system, or any payment at all. Moreover, many private payors use coverage decisions and payment amounts determined by CMS as guidelines in setting their coverage and reimbursement policies and amounts. However, no uniform policy for coverage and reimbursement of medical devices exists among third-party payors in the United States. Therefore, coverage and reimbursement can differ significantly from payor to payor. If CMS or other agencies limit coverage or decrease or limit reimbursement payments for doctors and hospitals, this may affect coverage and reimbursement determinations by many private payors for any future SeaStar Medical products.
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Should any of its future products, including the SCD, be approved for commercialization, adverse changes in reimbursement policies and procedures by payors may impact the Company’s ability to market and sell its products.
Healthcare costs have risen significantly over the past decade, and there have been and continue to be proposals by legislators, regulators and third-party payors to decrease costs. Third-party payors are increasingly challenging the prices charged for medical products and services and instituting cost containment measures to control or significantly influence the purchase of medical products and services.
For example, in the United States, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “ACA”), among other things, reduced and/or limited Medicare reimbursement to certain providers. However, on December 14, 2018, a Texas United States District Court Judge ruled that the Affordable Care Act is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of legislation enacted in 2017, informally titled the Tax Cuts and Jobs Act of 2017. Additionally, on June 17, 2021, the United States Supreme Court dismissed a challenge on procedural grounds that argued the ACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress. Thus, the ACA remains in effect without the “individual mandate.”
Further, prior to the United States Supreme Court ruling, on January 28, 2021, President Biden issued an executive order that initiated a special enrollment period for purposes of obtaining health insurance coverage through the ACA marketplace, which began on February 15, 2021 and remained open through August 15, 2021. The executive order also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA. It is possible that the ACA will be subject to judicial or Congressional challenges in the future. It is unclear how any such challenges and litigation, and the healthcare reform measures of the Biden administration will impact the ACA and the Company’s business. The Budget Control Act of 2011, as amended by subsequent legislation, further reduces Medicare’s payments to providers by two percent through fiscal year 2031. However, COVID-19 relief legislation suspended the 2% Medicare sequester from May 1, 2020 through March 31, 2022. Under current legislation, the actual reduction in Medicare payments will vary from 1% in 2022 to up to 3% in the final fiscal year of this sequester. These reductions may reduce providers’ revenues or profits, which could affect their ability to purchase new technologies.
Furthermore, the healthcare industry in the United States has experienced a trend toward cost containment as government and private insurers seek to control healthcare costs by imposing lower payment rates and negotiating reduced contract rates with service providers. In addition, Congress is considering additional health reform measures. Legislation could be adopted in the future that limits payments for the Company’s products from governmental payors. It is also possible that additional governmental action is taken in response to the COVID-19 pandemic. Furthermore, commercial payors such as insurance companies, could adopt similar policies that limit reimbursement for medical device manufacturers’ products. Therefore, it is possible that SeaStar Medical’s products or the procedures or patient care performed using its products will not be reimbursed at a cost-effective level.
The Company faces similar risks relating to adverse changes in reimbursement procedures and policies in other countries where it may market its products. Reimbursement and healthcare payment systems vary significantly among international markets. The Company’s inability to obtain international reimbursement approval, or any adverse changes in the reimbursement policies of foreign payors, could negatively affect its ability to sell its products in foreign markets and have a material adverse effect on its business, results of operations and financial condition.
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The Company depends on key personnel and its inability to attract and retain qualified personnel could impede its ability to achieve its business objectives.
The Company’s success depends on the continuing service of key employees, especially its Chief Executive Officer, Eric Schlorff. The loss of any of these individuals could have a material and adverse effect on the Company’s business, results of operations and financial condition. The Company will also be required to hire and recruit highly skilled managerial, scientific and administrative personnel to fully implement its business plan and growth strategies. Due to the specialized scientific nature of its business, the Company is highly dependent upon its ability to attract and retain qualified scientific, technical and managerial personnel. Competition for these individuals is intense and the Company may not be able to attract, assimilate or retain additional highly qualified personnel in the future. The Company may not be able to engage the services of qualified personnel at competitive prices or at all, particularly given the risks of employment attributable to its limited financial resources and lack of an established track record. Also, if the Company is required to attract personnel from other parts of the United States or abroad, it may have significant difficulty doing so because of the costs associated with moving personnel to the area. If the Company cannot attract and retain qualified staff and executives, it may be unable to develop its products and achieve regulatory clearance, and its business could fail.
The Company’s products may in the future be subject to product recalls.
The FDA and similar foreign governmental authorities have the authority to require the recall of commercialized products in the event of material deficiencies or defects in their design or manufacture. For the FDA, the authority to require a recall must be based on a finding that there is reasonable probability that the device would cause serious injury or death. Manufacturers may, under their own initiative, recall a product if any material deficiency in a device is found. The FDA requires that certain classifications of recalls be reported to the FDA within ten working days after the recall is initiated. A government-mandated or voluntary recall could occur as a result of an unacceptable risk to health, component failures, malfunctions, manufacturing errors, design or labeling defects or other deficiencies and issues. Recalls of any of the Company’s products would divert managerial and financial resources and have an adverse effect on the Company’s reputation, business, results of operations and financial condition, which could impair its ability to produce its products in a cost-effective and timely manner in order to meet its customers’ demands.
The Company may also be subject to liability claims, be required to bear other costs, or take other actions that may have a negative impact on its future sales and its ability to generate profits. Companies are required to maintain certain records of recalls, even if they are not reportable to the FDA or the competent authority of another country. The Company may initiate voluntary recalls involving its products in the future that it determines do not require notification of the FDA or the competent authority of another country. If the FDA disagrees with the Company’s determinations, they could require the Company to report those actions as recalls. A future recall announcement could harm the Company’s reputation with customers and negatively affect its sales. Moreover, the FDA could take enforcement action for failing to report recalls. The Company is also required to follow detailed recordkeeping requirements for all firm-initiated medical device corrections and removals.
The Company’s business is subject to risks arising from the recent COVID-19 pandemic.
The current COVID-19 worldwide pandemic has presented substantial public health and economic challenges and has affected the Company’s employees, patients, communities and business operations, as well as the United States and global economy and financial markets. International and United States governmental authorities in impacted regions have taken actions in an effort to slow the spread of COVID-19.
The Company expects that COVID-19 precautions may directly or indirectly impact the timeline for the launch of its SCD product candidate. As the COVID-19 pandemic continues, the Company may experience disruptions that could severely impact its business, clinical trials, and manufacturing and supply chains, including:
further delays or difficulties in enrolling patients in its clinical trials;
delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff;
the diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospital staff supporting the conduct of its clinical trials;
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the interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others or interruption of clinical trial subject visits and study procedures, which may impact the integrity of subject data and clinical study endpoints;
the interruption of, or delays in receiving, supplies of its product candidates from its contract manufacturing organizations due to staffing shortages, production slowdowns or stoppages and disruptions in delivery systems;
delays in clinical sites receiving the supplies and materials needed to conduct its clinical trials and interruptions in global shipping may affect the transport of clinical trial materials;
limitations on employee resources that would otherwise be focused on the conduct of its clinical trials, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people;
delays in receiving feedback or approvals from the FDA or other regulatory authorities with respect to future clinical trials or regulatory submissions;
• | changes in local regulations as part of a response to the COVID-19 pandemic, which may require it to change the ways in which its clinical trials are conducted, resulting in unexpected costs, or discontinuing the clinical trials altogether; |
delays in necessary interactions with local regulators, ethics committees and other important agencies and contractors due to limitations on employee resources or the forced furlough of government employees;
the refusal of the FDA to accept data from clinical trials in affected geographies; and
difficulties launching or commercializing products, including due to reduced access to doctors as a result of social distancing protocols.
In addition, the spread of COVID-19 may negatively impact the Company’s ability to raise additional capital on a timely basis or at all.
The COVID-19 pandemic continues to rapidly evolve. The extent to which the COVID-19 pandemic may impact the Company’s business, including its clinical trials, manufacturing and supply chains and financial condition will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the continued geographic spread of the disease, the duration of the pandemic, travel restrictions and social distancing in the United States and other countries, continued business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.
A small number of the Company’s stockholders, including its major stockholders, the Dow Pension Funds, could significantly influence its business.
The Company has a few significant stockholders who own a substantial percentage of its outstanding shares of common stock, including Dow Employees’ Pension Plan Trust and Union Carbide Employees’ Pension Plan Trust, which we refer to herein as the Dow Pension Funds, which beneficially owned approximately 79 % of the voting power of SeaStar Medical (or approximately 65% on a fully diluted basis) prior to the Business Combination, and are the largest stockholders of the Company following the Business Combination. These few significant shareholders, either individually or acting together, may be able to exercise significant influence over matters requiring shareholder approval, including the election of directors and approval of significant corporate transactions, such as a merger or other sale of the Company or its assets. This concentration of ownership may make it more difficult for other shareholders to effect substantial changes in the Company, may have the effect of delaying, preventing or expediting, as the case may be, a change in control of the Company and may adversely affect the market price of the Common Stock. Further, the possibility that one or more of these significant shareholders may sell all or a large portion of their Common Stock in a short period of time could adversely affect the trading price of our Common Stock.
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The Company’s forecasted operating and financial results rely in large part upon assumptions and analyses developed by the Company. If these assumptions and analyses prove to be incorrect, the Company’s actual operating and financial results may be significantly below its forecasts.
The Company’s projected financial and operating information reflect then current estimates of future performance. Whether actual operating and financial results and business developments will be consistent with the Company’s expectations and assumptions as reflected in its forecast depends on a number of factors, many of which are outside the Company’s control, including, but not limited to:
whether the Company can obtain sufficient capital to develop and commercialize its SCD product candidate and grow its business;
whether the Company can manage relationships with key suppliers;
the ability to obtain necessary regulatory approvals;
demand for the Company’s products;
the timing and costs of new and existing marketing and promotional efforts;
competition, including from established and future competitors;
the Company’s ability to retain existing key management, to integrate recent hires and to attract, retain and motivate qualified personnel;
the overall strength and stability of the economies in the markets in which it operates or intends to operate in the future; and
regulatory, legislative and political changes.
Unfavorable changes in any of these or other factors, most of which are beyond the Company’s control, could materially and adversely affect its business, results of operations and financial condition.
The Company’s estimates of market opportunity, industry projections and forecasts of market growth may prove to be inaccurate.
The market opportunity estimates and growth forecasts included in this prospectus, including information concerning the Company’s industry and the markets in which the Company intends to operate, are obtained from publicly available information released by independent industry and research organizations and other third party sources. Although the Company is responsible for the disclosure provided in the prospectus and believes such third-party information is reliable, the Company has not independently verified any such third-party information. In addition, projections, assumptions and estimates of the future performance of the industry in which the Company operates are subject to uncertainty and risk due to a variety of factors. As a result, inaccuracies in third-party information, or in the projections, may adversely impact the assumptions that are relied upon for the Company’s internal business planning and in the analysis of investors.
Risks Relating to the Company’s Intellectual Property
The Company relies upon exclusively licensed patent rights from third parties which are subject to termination or expiration. If licensors terminate the licenses or fail to maintain or enforce the underlying patents, the Company’s competitive position could be materially harmed.
The Company relies in part upon exclusively licensed patent rights for the development of its SCD technology. For example, the Company co-owns with, and exclusively licenses from, the University of Michigan (“UOM”) patents related to the SCD technology. If UOM were to terminate its license with the Company, it would no longer have exclusive rights to the co-owned patents and UOM would be free to license UOM’s interest in the co-owned patents to a competitor of the Company.
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The Company may become reliant in the future upon licenses to certain third-party patent rights and proprietary technologies necessary to develop and commercialize its SCD technology or other technologies. If the Company is unable to timely obtain these licenses on commercially reasonable terms, if at all, its ability to commercially exploit such products may be inhibited or prevented. If these licenses do not provide exclusive rights to use the subject intellectual property in all relevant fields of use and all territories in which the Company chooses to develop or commercialize its technology and products, it may not be able to prevent competitors from developing and commercializing competitive products in such territories. Even if the Company is able to obtain necessary licenses, it may be required to pay significant licensing fees in order to market its products.
Should any of the Company’s current or future licenses be prematurely terminated for any reason, or if the patents and intellectual property owned by its licensors are challenged or defeated by third parties, the Company’s research and commercialization efforts could be materially and adversely affected. The Company’s licenses may not continue in force for as long as is required to fully develop and market its products. It is possible that if the licenses are terminated or the underlying patents and intellectual property are challenged or defeated, suitable replacements may not be obtained or developed on terms acceptable to the Company, if at all. There is also the related risk that the Company may not be able to make the required payments under any patent license, in which case the licensor may terminate the license.
Further, the Company’s licensors may not successfully prosecute the patent applications which it has licensed and on which the Company’s business depends or may prosecute them in a manner not in the best interests of the Company. Further, licensors may fail to maintain licensed patents, may decide not to pursue litigation against third-party infringers, may fail to prove infringement or may fail to defend against counterclaims of patent invalidity or unenforceability.
In addition, in spite of the Company’s best efforts, a licensor could claim that the Company has materially breached a license agreement and terminate the license, thereby removing the Company’s ability to obtain regulatory approval for and to market any product covered by such license. If the Company’s licenses are terminated, or if the underlying patents fail to provide the intended market exclusivity, competitors would have the freedom to seek regulatory approval of, and to market, identical products.
Disputes may arise regarding intellectual property subject to a licensing agreement, including:
the scope of rights granted under the license agreement and other interpretation related issues;
the extent to which the Company’s technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement;
the sublicensing of patent and other rights under any collaboration relationships the Company might enter into in the future;
the Company’s diligence obligations under the license agreement and what activities satisfy those diligence obligations;
the ownership of inventions and know how resulting from the joint creation or use of intellectual property by the Company and its licensors; and
the priority of invention of patented technology.
If disputes over intellectual property that the Company has licensed prevent or impair its ability to maintain its current licensing arrangements on acceptable terms, it may be unable to successfully develop and commercialize the affected product candidates.
If the Company is unable to obtain and maintain sufficient patent protection for its products, if the scope of the patent protection is not sufficiently broad, or if the combination of patents, trade secrets and contractual provisions upon which it relies to protect its intellectual property are inadequate, its competitors could develop and commercialize similar or identical products, and the Company’s ability to commercialize such products successfully may be adversely affected.
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The Company’s success depends in large part on its ability to protect its proprietary rights to the technologies incorporated into its products, including its ability to obtain and maintain patent protection in the United States and other countries related to its SCD technology and other technologies that it deems important to its business. The Company relies on a combination of patent protection, trade secret laws and nondisclosure, confidentiality and other contractual restrictions to protect its proprietary technology. If the Company does not adequately protect its intellectual property, competitors may be able to erode or negate any competitive advantage it may have, which could harm its business, result of operations and financial condition. To protect the Company’s proprietary technologies, it has pursued patent protection in the United States and abroad related to its SCD technology and other technologies that are important to its business. The patent application and approval process is expensive and time-consuming. The Company may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. Failure to protect, obtain, maintain or extend adequate patent and other intellectual property rights could materially adversely affect the Company’s ability to develop and market its products. The enforcement, defense and maintenance of such patents and other intellectual property rights may be challenging and costly.
The Company cannot be certain that any patents that it has been issued or granted will not later be found to be invalid and/or unenforceable. The Company cannot be certain that pending patent applications will be issued in a form that provides it with adequate protection to prevent competitors from developing competing products. As a medical device technology company, the Company’s patent position is uncertain because it involves complex legal and factual considerations. The standards applied by United States Patent and Trademark Office (“USPTO”), and foreign patent offices in granting patents are not always applied uniformly or predictably. For example, there is no uniform worldwide policy regarding patentable subject matter or the scope of claims allowable as methods of medical treatment. Consequently, patents may not be issued from any applications that are currently pending or that are filed in the future. As such, the Company does not know the degree of future protection that it will have for its technology. As a result, the issuance, scope, validity, enforceability and commercial value of the Company’s patent rights are highly uncertain.
Only issued patents can be enforced against third parties practicing the technology claimed in such patents. Pending patent applications cannot be enforced unless and until patents get issued from such applications. Assuming the other requirements for patentability are met, currently, patents are granted to the party who was the first to file a patent application. However, prior to March 16, 2013, in the United States, patents were granted to the party who was the first to invent the claimed subject matter. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, the Company cannot be certain that it was the first to make the inventions claimed in its patents or pending patent applications, or that it was the first to file for patent protection of such inventions.
Moreover, because the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, the Company patents or pending patent applications may be challenged in the courts or by the USPTO or by foreign patent offices. For example, the Company may be subject to a third party pre-issuance submission of prior art to the USPTO, or become involved in post-grant review procedures such as oppositions, derivations, reexaminations, inter partes review or interference proceedings, in the United States or elsewhere, challenging its patent rights or the patent rights of third parties. An adverse determination in any such challenges may result in the loss of exclusivity or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit the Company’s ability to stop others from using or commercializing similar products, or limit the duration of the Company’s patent protection. In addition, given the amount of time required for the development, testing and regulatory review of medical devices, the Company’s patents might expire before or shortly after such products receive FDA approval and are commercialized, or before it receives approval to market its products in a foreign country.
Patent applications may not result in patents being issued which protect any current and future product candidates, in whole or in part, or which effectively prevent others from commercializing competitive products. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of the Company’s patents or narrow the scope of its patent protection. In addition, the laws of foreign countries may not protect the Company’s rights to the same extent or in the same manner as the laws of the United States. For example, European patent law restricts the patentability of methods of treatment of the human body more than United States patent law.
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Although the Company believes that certain of its patents and applications, if they are granted, will help protect the proprietary nature of its SCD technology, this protection may not be sufficient to protect the Company during the development of that technology. Even if the Company’s patent applications are issued as patents, they may not be issued in a form that will provide it with any meaningful protection, prevent competitors from competing with it or otherwise provide it with any competitive advantage. The Company’s competitors may be able to circumvent its patents by developing similar or alternative technologies or products in a non-infringing manner. The Company’s competitors may also seek approval to market their own products similar to or otherwise competitive with any of the Company’s products. Thus, even if the Company has valid and enforceable patents, these patents still may not provide protection against competing products or technologies sufficient to achieve its business objectives.
If the Company does not obtain protection under the Hatch-Waxman Act and similar non-United States legislation for extending the term of patents covering its products, its business, results of operations and financial condition may be materially harmed.
Patents have a limited duration. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest United States non-provisional filing date. Various extensions may be available, but the life of a patent, and the protection it affords, is limited. Even if patents related to the Company’s products, or their uses are obtained, once the patent life has expired, the Company may be open to competition from competitive products. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting the Company’s products might expire before or shortly after such products received FDA approval and are commercialized. As a result, the Company’s patent portfolio may not provide the company with sufficient rights to exclude others from commercializing similar or identical products.
Depending upon the timing, duration and requirements of FDA marketing approval of the Company’s product candidates, its United States patents, if issued, may be eligible for a limited patent term extension under the Hatch-Waxman Act, or under similar legislation in other countries. However, the Company’s patent and patent applications are only eligible for a patent term extension under the Hatch Waxman Act if they relate to a medical device classified by the FDA as a Class III device. Therefore, if the Company’s product candidates are not classified as Class III devices, it will not be able to apply for an extension of term for any patents covering such approved products. If eligible, the Hatch-Waxman Act permits a patent term extension of up to five years for a patent covering an approved product as compensation for effective patent term lost during product development and the FDA regulatory review process. The patent term extension cannot extend the remaining term of a patent beyond 14 years from the date of product candidate approval, and only one patent related to an approved product candidate may be extended. However, the Company may not receive an extension if it fails to apply within applicable deadlines, fails to apply prior to expiration of relevant patents or otherwise fails to satisfy applicable requirements. Moreover, the length of the extension could be less than requested.
Accordingly, if the Company is unable to obtain a patent term extension or the term of any such extension is less than requested, the period during which the Company can enforce its patent rights for that product will be shortened and competitors may obtain approval to market competing products sooner than expected. As a result, the Company’s business, results of operations and financial condition could be adversely and materially affected.
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The Company could become involved in intellectual property litigation that could be costly, result in the diversion of management’s time and efforts, require the Company to pay damages, prevent it from selling its commercially available products and/or reduce the margins it may realize from its products.
The Company’s commercial success depends, in part, on its ability to develop and market its SCD technology, as well as any future technologies that it develops, without infringing the intellectual property and other proprietary rights of third parties.
The medical device industry is characterized by extensive litigation and administrative proceedings over patent and other intellectual property rights. Whether a product infringes a patent involves complex legal and factual issues, and the determination is often uncertain. There may be existing patents of which the Company is unaware that its products under development may inadvertently infringe. The likelihood that patent infringement claims may be brought against the Company increases as the number of competitors increases, as it introduces new products and achieves more visibility in the marketplace.
Any infringement claim against the Company, even if without merit, may cause the Company to incur substantial costs, and would place a significant strain on its financial resources, divert the attention of management from its core business, and harm its reputation. In some cases, litigation may be threatened or brought by a patent holding company or other adverse patent owner who has no relevant product revenues and against whom the Company’s patents may provide little or no deterrence. If the Company is found to infringe any patents, the Company could be required to pay substantial damages, including triple damages if an infringement is found to be willful. The Company also could be forced, including by court order, to cease developing, manufacturing, or commercializing infringing products. The Company also could be required to pay royalties and could be prevented from selling its products unless it obtains a license or is able to redesign its products to avoid infringement. The Company may not be able to obtain a license enabling it to sell its products on reasonable terms, or at all. If the Company fails to obtain any required licenses or makes any necessary changes to its technologies or the products, the Company may be unable to commercialize one or more of its products or may have to withdraw products from the market, either of which would have a material adverse effect on its business, results of operations and financial condition.
In the event a competitor infringes upon any of the Company’s patents or other intellectual property rights, enforcing its rights may be difficult, time consuming and expensive, and would divert management’s attention from managing its business. The Company may not be successful on the merits in any enforcement effort. In addition, the Company may not have sufficient resources to litigate, enforce or defend its intellectual property rights.
Issued patents covering one or more of the Company’s products could be found invalid or unenforceable if challenged in patent office proceedings, or in court.
Competitors may infringe the Company’s patents, trademarks or other intellectual property. To counter infringement or unauthorized use of its intellectual property, the Company may be required to initiate legal proceedings against a third party to enforce its intellectual property rights. If the Company were to file a claim against a third party to enforce a patent covering one of its products, the defendant could counterclaim that the Company’s patent rights are invalid and/or unenforceable (a common practice in the United States).
Grounds for a validity challenge could be an alleged failure to meet one or more statutory requirements for patentability, including, for example, lack of novelty, obviousness, lack of written description or non-enablement. In addition, patent validity challenges may, under certain circumstances, be based upon non-statutory obviousness-type double patenting, which, if successful, could result in a finding that the claims are invalid for obviousness-type double patenting or the loss of patent term, including a patent term adjustment granted by the USPTO, if a terminal disclaimer is filed to obviate a finding of obviousness-type double patenting. Grounds for an unenforceability assertion could be based on an allegation that someone connected with prosecution of the patent intentionally withheld relevant information from the USPTO or made a misleading statement, during prosecution.
In any patent infringement proceeding, there is a risk that a court will decide that a Company patent is invalid or unenforceable, in whole or in part. There is also a risk that, even if the validity of such patents is upheld, the court will construe the patent’s claims narrowly or decide that the Company does not have the right to stop
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the other party from using the invention at issue on the grounds that the Company’s patent claims do not cover the invention at issue. An adverse outcome in a litigation or proceeding involving the Company’s patents could limit its ability to assert its patents against those other parties and other competitors, which may curtail or preclude its ability to exclude third parties from selling similar products. Any of these occurrences could adversely and materially affect the Company’s business, results of operations and financial condition.
Even if the Company establishes infringement, the court may decide not to grant an injunction against further infringing activity and instead award only monetary damages, which may or may not be an adequate remedy. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of the Company’s confidential information could be compromised by disclosure during litigation.
Additionally, third parties are able to challenge the validity of issued patents through administrative proceedings in the patent offices of certain countries, including the USPTO and the European Patent Office.
Although the Company believes that it has conducted its patent prosecution in accordance with the duty of candor and in good faith, the outcome following legal assertions of invalidity and unenforceability during patent litigation is unpredictable. With respect to the validity question, for example, the Company cannot be certain that there is no invalidating prior art, of which it and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, the Company would lose some or all of the patent protection for one or more of its products. Such a loss of patent protection could have a material adverse impact on its business, results of operations and financial condition. Further, intellectual property litigation could lead to unfavorable publicity that could harm the Company’s reputation.
Other parties may challenge certain of the Company’s foreign patent applications. If any such parties are successful in opposing its foreign patent applications, the Company may not gain the protection afforded by those patent applications in particular jurisdictions and may face additional proceedings with respect to similar patents in other jurisdictions, as well as related patents. The loss of patent protection in one jurisdiction may influence the Company’s ability to maintain patent protection for the same technology in other jurisdictions.
Further, disputes may arise regarding the ownership or inventorship of the Company’s patents. While the Company has entered into assignment of intellectual property agreements with its employees, consultants, and collaborators and believes that it owns its patents and applications, the assignment and other ownership agreements that it relies on could be challenged. If a court or administrative body determined that the Company’s does not own certain of its patents or patent applications, or that inventorship of certain of its patents its incorrect, the Company’s title to its patents could be invalidated and its ability to develop and commercialize its technology could be materially harmed.
If the Company is unable to protect the confidentiality of its trade secrets, the value of its technology could be adversely and materially affected and its business could be harmed.
The Company has also entered into non-disclosure and confidentiality agreements with all of its employees, advisors, consultants, contract manufacturers, clinical investigators and other third parties involved in the development and commercialization of its technology in order to protect its intellectual property and other proprietary technologies some of which may not be amenable to patent protection. However, these agreements may not be enforceable or may not provide meaningful protection for the Company’s trade secrets or other proprietary information in the event of unauthorized use or disclosure or other breaches of the agreements. For example, trade secrets and confidential know-how can be difficult to maintain as confidential. Although the Company uses reasonable efforts to protect its trade secrets, any party with whom it has executed a confidentiality agreement could breach that agreement and disclose the Company’s confidential information.
Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive, and time consuming, and the outcome is unpredictable. Accordingly, the Company may not be able to obtain adequate remedies for such breaches, despite any legal action it might take against persons making such unauthorized disclosure. In addition, courts outside the United States sometimes are less willing than in the United States to protect trade secrets.
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If any of the Company’s trade secrets were to be lawfully obtained or independently developed by a competitor, it would have no right to prevent such third party, or those to whom the third party communicates such technology or information, from using that technology or information to compete with the Company. If any of its trade secrets were to be disclosed to or independently developed by a competitor, its business, results of operations and financial condition.
Those with whom the Company collaborates on research and development related to current and future technologies and products may have rights to publish data and other information to which the Company has rights. In addition, the Company sometimes engages individuals or entities to conduct research relevant to its business. The ability of these individuals or entities to publish or otherwise publicly disclose data and other information generated during the course of their research is subject to certain contractual limitations. But these contractual provisions may be insufficient or inadequate to protect the Company’s confidential information. If the Company does not apply for patent protection prior to such publication, or if it cannot otherwise maintain the confidentiality of its proprietary technology and other confidential information, then its ability to obtain patent protection or to protect its trade secret information may be jeopardized.
New technology may lead to the Company’s competitors developing superior products which would reduce demand for its products regardless of any patent protection it may have.
Research into technologies similar to the Company’s technologies is proceeding at a rapid pace, and companies and research institutions are actively engaged in the development of products similar to the Company’s products. These new technologies may, if successfully developed, offer significant performance or price advantages when compared with the Company’s technologies. The Company’s existing patents or its pending and proposed patent applications may not offer meaningful protection if a competitor develops a novel product based on a new technology.
The United States government may exercise certain rights with regard to the Company’s inventions, or licensors’ inventions, developed using federal government funding.
The United States federal government retains certain rights in inventions produced with its financial assistance under the Patent and Trademark Law Amendments Act (as amended, the “Bayh-Dole Act”). Certain of the Company’s exclusively owned patents and patent applications and those patents and applications that it co-owns with and exclusively licenses from the University of Michigan were developed using federal funding from the National Institutes of Health, the U.S. Department of Defense, and/or the U.S. Army Medical Research and Materiel Command. Consequently, pursuant to the Bayh-Dole Act, the U.S. government has certain rights in patents and applications that cover SeaStar Medical’s SCD technology, in particular, to those patents and applications identified in the section of this prospectus titled “Business – Intellectual Property” belonging to Patent Families 1-4.
The U.S. federal government has certain rights, including so-called “march-in rights,” to any patent rights that were funded in part by the U.S. government and any products or technology developed from such patent rights. When new technologies are developed with U.S. government funding, the U.S. government generally obtains certain rights in any resulting patents, including a non-exclusive license authorizing the U.S. government to use the invention for non-commercial purposes. These rights may permit the U.S. government to disclose the Company’s confidential information to third parties and to exercise march-in rights to use or to allow third parties to use the Company’s licensed patents, including certain patents relating to SCD product candidates. The U.S. government can exercise its march-in rights if it determines that action is necessary because the Company fails to achieve the practical application of government-funded technology, because action is necessary to alleviate health or safety needs, to meet requirements of federal regulations, or to give preference to U.S. industry. In addition, the Company’s rights in such inventions may be subject to certain requirements to manufacture products embodying such inventions in the United States. Furthermore, the U.S. government may have the right to take title to government-funded inventions if the Company fails to disclose the inventions to the government in a timely manner or fails to file a patent application within specified time limits.
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If the U.S. government exercises such march-in rights, the Company may not be able to develop or commercialize its product candidates effectively or profitably, or at all, which could harm the Company’s business, results of operations and financial condition. In addition, if any intellectual property owned or licensed by the Company becomes subject to any of the rights or remedies available to the U.S. government or third parties pursuant to the Bayh-Dole Act, this could impair the value of the Company’s intellectual property and could adversely affect its business.
The Company also sometimes collaborates with academic institutions to accelerate its research or development. While the Company tries to avoid engaging its academic partners in projects in which there is a risk that federal funds may be co-mingled, it cannot be sure that any co-developed intellectual property will be free from government rights pursuant to the Bayh-Dole Act. If, in the future, the Company co-owns or licenses technology which is critical to its business that is developed in whole or in part with federal funds subject to the Bayh-Dole Act, its ability to enforce or otherwise exploit patents covering such technology may be adversely and materially affected.
Changes to the patent law in the United States and other jurisdictions could diminish the value of patents in general, thereby impairing the Company’s ability to protect its products.
As is the case with other medical device companies, the Company’s success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the medical device industry involves both technological and legal complexity and is therefore costly, time consuming and inherently uncertain. Patent reform legislation in the United States and other countries, including the Leahy-Smith America Invents Act, or the Leahy-Smith Act, signed into law in September 2011, could increase those uncertainties and costs. The Leahy-Smith Act included a number of significant changes to United States patent law. These include provisions that affect the way patent applications are prosecuted, redefine prior art and provide more efficient and cost-effective avenues for competitors to challenge the validity of patents, such as through post grant and inter partes review proceedings at the USPTO. In addition, the Leahy-Smith Act transformed the United States patent system into a “first to file” system effective March 2013. The Leahy-Smith Act and its implementation could make it more difficult for the Company to obtain patent protection for its inventions and increases the uncertainties and costs surrounding the prosecution of the Company’s patent applications and the enforcement or defense of its issued patents, all of which could harm its business, results of operations and financial condition.
The United States Supreme Court has ruled on several patent cases, either narrowing the scope of patent protection available or weakening the rights of patent owners in certain circumstances. Additionally, there have been proposals for additional changes to the patent laws of the United States and other countries that, if adopted, could impact the Company’s ability to enforce its proprietary technology. Depending on future actions by Congress, the United States courts, the USPTO and the relevant law-making bodies in other countries, the laws and regulations governing patents could change in ways that would weaken the Company’s ability to obtain new patents or to enforce its existing and future patents.
Intellectual property rights do not necessarily address all potential threats to the Company’s competitive advantage.
The degree of future protection afforded by the Company’s intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect its business, or permit it to maintain its competitive advantage. The following examples are illustrative:
others may be able to make products that are the same as or similar to the Company’s products but that are not covered by the claims of patents that it owns or has rights to;
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the Company or its licensors or any current or future strategic partners might not have been the first to conceive or reduce to practice the inventions covered by its patents or pending patent applications;
the Company or its licensors or any future strategic partners might not have been the first to file patent applications covering the inventions in the Company’s patents or applications;
others may independently develop similar or alternative technologies or duplicate any of the Company’s technologies without infringing the Company’s intellectual property rights;
the Company’s pending patent rights may not lead to issued patents, or the patents, if granted, may not provide it with any competitive advantage, or may be held invalid or unenforceable, as a result of legal challenges by its competitors;
the Company’s competitors might conduct research and development activities in countries where it does not have patent rights and then use the information learned from such activities to develop competitive products for sale in the Company’s major commercial markets;
third parties manufacturing or testing the Company’s products or technologies could use the intellectual property of others without obtaining a proper license;
the Company may not develop additional technologies that are patentable; and
third parties may allege that the Company’s development and commercialization of its products infringe their intellectual property rights, the outcome of any related litigation may have an adverse effect on the Company’s business, result of operations and financial condition.
Obtaining and maintaining the Company’s patent protection depends on compliance with various procedural, document submissions, fee payment and other requirements imposed by governmental patent agencies, and its patent protection could be reduced or eliminated for noncompliance with these requirements.
Periodic maintenance fees on any issued patent are owed to the USPTO and foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies also require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or the lapse of a patent or patent application, resulting in the partial or complete loss of patent rights in the relevant jurisdiction. Noncompliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If the Company or its licensors fail to maintain the patents and patent applications covering the Company’s products, its competitive position would be adversely affected.
The Company may obtain only limited geographical protection with respect to certain patent rights, which may diminish the value of its intellectual property rights in those jurisdictions and prevent it from enforcing its intellectual property rights throughout the world.
Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive. Accordingly, the Company has not and in the future may not file for patent protection in all national and regional jurisdictions where such protection may be available. In addition, it may decide to abandon national and regional patent applications before grant, or to not pay maintenance fees on granted patents in certain jurisdictions. Finally, the grant proceeding of each national/regional patent office is an independent proceeding that may lead to situations in which applications in some jurisdictions are refused by the relevant patent offices, while other applications are granted. It is also quite common that depending on the country, the scope of patent protection may vary for the same product candidate or technology.
Competitors may use the Company’s technologies to develop their own products in jurisdictions where the Company has not obtained patent protection and, further, may export otherwise infringing products to territories where the Company has patent protection, but where patent enforcement is not as strong as that in the United States. These products may also compete with the Company’s products in jurisdictions where it does not have any issued or licensed patents or where the Company’s patent or other intellectual property rights are not effective or sufficient to prevent these products from competing with the Company.
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Additionally, some countries do not afford intellectual property protection to the same extent as the laws of the United States and Europe. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries do not favor the enforcement of patents and other intellectual property rights. This could make it difficult for the Company to stop the infringement of its patents or the misappropriation of its other intellectual property rights in these countries. For example, many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In these countries, the patent owner may have limited remedies, which could materially diminish the value of such patent. If the Company or any of its licensors is forced to grant a license to third parties with respect to any patents relevant to its business, its competitive position may be impaired and its business, results of operations and financial condition may be adversely affected. Consequently, the Company may not be able to prevent third parties from practicing its inventions in certain countries outside the United States and Europe. Competitors may use the Company’s technologies to develop their own products in jurisdictions where the Company has not obtained patent protection. Furthermore, they may export otherwise infringing products to jurisdictions where the Company has patent protection, if the Company’s ability to enforce its patents to stop the infringing activities in those jurisdictions is inadequate.
Proceedings to enforce the Company’s patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert its efforts and resources from other aspects of its business. Furthermore, while the Company intends to protect its intellectual property rights in major markets for its products, it may not be able to initiate or maintain similar efforts in all jurisdictions in which it wishes to market its products. Accordingly, the Company’s efforts to protect its intellectual property rights in such countries may be inadequate.
Risks Related to Being a Public Company
The Company does not have experience operating as a United States public company and may not be able to adequately implement the governance, compliance, risk management and control infrastructure and culture required for a public company, including compliance with the Sarbanes Oxley Act.
The Company does not have experience operating as a United States public company. None of the Company’s executive officers have experience in managing a United States public company, which makes their ability to comply with applicable laws, rules and regulations uncertain. The Company’s failure to comply with all laws, rules and regulations applicable to United States public companies could subject the Company and its management to regulatory scrutiny or sanction, which could harm its reputation and share price.
SeaStar Medical has not previously been required to prepare or file periodic or other reports with the SEC or to comply with the other requirements of United States federal securities laws applicable to public companies. SeaStar Medical has not previously been required to establish and maintain the disclosure controls and procedures, and internal controls over financial reporting applicable to a public company in the United States, including the Sarbanes-Oxley Act. Although the Company has developed and implemented its governance, compliance, risk management and control framework and culture required for a public company, the Company may not be able to meet the requisite standards expected by the SEC and/or its investors. The Company may also encounter errors, mistakes and lapses in processes and controls resulting in failures to meet the requisite standards expected of a public company.
As a United States public reporting company, the Company incurs significant legal, accounting, insurance, compliance, and other expenses. The Company cannot predict or estimate the amount of additional costs it may incur or the timing of such costs. Compliance with reporting, internal control over financial reporting and corporate governance obligations may require members of its management and its finance and accounting staff to divert time and resources from other responsibilities to ensure these new regulatory requirements are fulfilled.
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If it fails to adequately implement the required governance and control framework, the Company could be at greater risk of failing to comply with the rules or requirements associated with being a public company. Such failure could result in the loss of investor confidence, could harm the Company’s reputation, and cause the market price of the Company’s securities to decline. Other challenges in complying with these regulatory requirements may arise because the Company may not be able to complete its evaluation of compliance and any required remediation in a timely fashion. Furthermore, any current or future controls may be considered as inadequate due to changes or increased complexity in regulations, the Company’s operating environment or other reasons.
Due to inadequate governance and internal control policies, misstatements or omissions due to error or fraud may occur and may not be detected, which could result in failures to make required filings in a timely manner and make filings containing incorrect or misleading information. Any of these outcomes could result in SEC enforcement actions, monetary fines or other penalties, as well as damage to the Company’s reputation, business, financial condition, operating results and share price.
The Company may not be able to consistently comply with all of Nasdaq’s Listing Rules.
As a public company, the Company is subject to Nasdaq listing rules. If it fails to meet the requirements of the applicable listing rules, such failure may result in the Company not being listed by Nasdaq, a suspension of the trading of its shares or delisting in the future. This may further result in legal or regulatory proceedings, fines and other penalties, legal liability for the Company, the inability for the Company’s stockholders to trade their shares and negatively impact theCompany’s share price, reputation, operations and financial position, as well as its ability to conduct future fundraising activities.
SeaStar Medical identified a material weakness in its internal control over financial reporting. If the Company is unable to develop and maintain an effective system of internal controls over financial reporting, the Company may not be able to accurately report its financial results in a timely manner, which may materially and adversely affect the Company’s business, results of operations and financial condition.
As a private company, SeaStar Medical was not required to document and test its internal controls over financial reporting nor has its management been required to certify the effectiveness of its internal controls and its auditors were not required to opine on the effectiveness of its internal controls over financial reporting.
The Company’s management is responsible for establishing and maintaining adequate internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. The Company’s management also evaluates the effectiveness of its internal controls and the Company discloses any changes and material weaknesses identified through such evaluation of its internal controls. A material weakness is a deficiency, or a combination of deficiencies, in the internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
In the course of preparing the financial statements that are included in this prospectus, SeaStar Medical has identified a material weakness in its internal controls over financial reporting as of December 31, 2021, which relates to a deficiency in the design and operation of its financial accounting and reporting controls. Specifically, the material weakness resulted from a lack of segregation of duties within the financial accounting and reporting processes, including the absence of an independent review and approval process in recording transactions to the financial statements and inappropriate access to the general ledger, disbursement and payroll systems. While the Company intends to implement measures to remediate the material weakness including hiring additional accounting staff with requisite experiences and skills, there is no guarantee that it can be remediated in a timely fashion or at all. The Company’s failure to correct this material weakness could result in inaccurate financial statements and could also impair its ability to comply with the applicable financial reporting requirements on a timely basis. These compliance issues could cause investors to lose confidence in the Company’s reported financial information and may result in volatility in and a decline in the market price of the Company’s securities.
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Upon completion of this Business Combination, SeaStar Medical became a wholly owned subsidiary of the Company, and the Company was renamed as “SeaStar Medical Holding Corporation.” SeaStar Medical was not subject to the Sarbanes-Oxley Act, and Section 404 thereof requires that the Company include a report from management on the effectiveness of its internal control over financial reporting in its annual report on Form 10-K. It may take the Company time to develop the requisite internal control framework. The Company’s management may conclude that its internal control over financial reporting is not effective, or the level at which the Company’s controls are documented, designed, or reviewed is not adequate, and may result in the Company’s independent registered public accounting firm issuing a report that is qualified. In addition, the reporting obligations may place a significant strain on the Company’s management, operational and financial resources and systems for the foreseeable future. The Company may be unable to complete its evaluation testing and any required remediation in a timely manner.
During the course of documenting and testing the Company’s internal control procedures, in order to satisfy the requirements of Section 404, the Company may subsequently identify deficiencies in its internal control over financial reporting. Moreover, if the Company fails to maintain the adequacy of its internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, it may not be able to conclude on an ongoing basis that it has effective internal control over financial reporting in accordance with Section 404. If the Company fails to achieve and maintain an effective internal controls environment, it could result in material misstatements in its financial statements and a failure to meet its reporting obligations, which may cause investors to lose confidence in its reported financial information. This could in turn limit the Company’s access to capital markets and harm its results of operations. The Company may also be required to restate its financial statements from prior periods if such deficiencies are identified. Additionally, ineffective internal control over financial reporting could expose it to increased risk of fraud or misuse of corporate assets and subject it to potential delisting from Nasdaq, regulatory investigations and civil or criminal sanctions. All of these consequences could adversely impact the Company’s reputation, business, results of operations, financial condition and share price.
The Company may redeem your unexpired warrants prior to their exercise at a time that is disadvantageous to you, thereby making your warrants worthless.
The Company has the ability to redeem outstanding warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per warrant, provided that the last reported sales price of our Class A common stockCommon Stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30 trading-day period ending on the third trading day prior to the date on which we give proper notice of such redemption and provided certain other conditions are met. If and when the warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all
applicable state securities laws. Redemption of the outstanding warrants could force you (i) to exercise your warrants and pay the exercise price therefor at a time when it may be disadvantageous for you to do so, (ii) to sell your warrants at the then-current market price when you might otherwise wish to hold your warrants or (iii) to accept the nominal redemption price which, at the time the outstanding warrants are called for redemption, is likely to be substantially less than the market value of your warrants. None of the private placement warrantsPrivate Placement Warrants will be redeemable by us so long as they are held by the sponsorSponsor or its permitted transferees.
We may suffer from lack of availability of additional funds.
We expect to have ongoing needs for working capital in order to fund operations, continue to expand our operations and recruit experienced personnel. To that end, we will be required to raise additional funds through equity or debt financing. However, there can be no assurance that we will be successful in securing additional capital on favorable terms, if at all. If we are successful, whether the terms are favorable or unfavorable, there is a potential that we will fail to comply with the terms of such financing, which could result in severe liability for us. If we are unsuccessful, we may need to (a) initiate cost reductions; (b) forego business development opportunities; (c) seek extensions of time to fund liabilities, or (d) seek protection from creditors. In
35
addition, any future sale of our equity securities would dilute the ownership and control of your shares and could be at prices substantially below prices at which our shares currently trade. Our warrantsinability to raise capital could require us to significantly curtail or terminate our operations altogether. We may seek to increase our cash reserves through the sale of additional equity or debt securities. The sale of convertible debt securities or additional equity securities could result in additional and founderpotentially substantial dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations and liquidity. In addition, our ability to obtain additional capital on acceptable terms is subject to a variety of uncertainties.
In addition, if we are unable to generate adequate cash from operations, and if we are unable to find sources of funding, it may be necessary for us to sell all or a portion of our assets, enter into a business combination, or reduce or eliminate operations. These possibilities, to the extent available, may be on terms that result in significant dilution to our shareholders or that result in our shareholders losing all of their investment in our Company.
Our management team has limited experience managing a public company.
Most members of our management team have limited experience managing a publicly traded company, interacting with public company investors and complying with the increasingly complex laws pertaining to public companies. Our management team may not successfully or efficiently manage our transition to being a public company subject to significant regulatory oversight and reporting obligations under the federal securities laws and the continuous scrutiny of securities analysts and investors. These new obligations and constituents will require significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could adversely affect our business, results of operations, cash flows and financial condition.
Risks Related to the Offering
It is not possible to predict the actual number of shares we will sell under the Purchase Agreement to the Selling Stockholder, or the actual gross proceeds resulting from those sales.
On August 23, 2022, we entered into the Purchase Agreement with Tumim, pursuant to which Tumim has committed to purchase up to $100 million in shares of our Common Stock, subject to certain limitations and conditions set forth in the Purchase Agreement. The shares of our Common Stock that may be issued under the Purchase Agreement may be sold by us to Tumim at our discretion from time to time over a 24-month period commencing on the Commencement Date. We entered into the Amendment No. 1 to the Purchase Agreement with Tumim on November 9, 2022, to, among other things, amend certain definitions in the Purchase Agreement to include certain information that was not available at the time when the Purhcase Agreement was executed on August 23, 2022.
The shares of our Common Stock that may be issued under the Tumim Purchase Agreements may be sold by us to Tumim at our discretion from time to time over an approximately 24-month period commencing on the Commencement Date of the Purchase Agreement, provided that a registration statement covering the resale of shares of Common Stock that have been and may be issued under the Purchase Agreement is declared effective by the SEC, a final prospectus in connection therewith is filed, and the other conditions set forth in the Purchase Agreements are satisfied. We generally have the right to control the timing and amount of any sales of our shares of Common Stock to Tumim under the Purchase Agreement. Sales of our Common Stock, if any, to Tumim under the Purchase Agreement will depend upon market conditions and other factors to be determined by us. We may ultimately decide to sell to Tumim all, some or none of the shares of our Common Stock that may be available for us to sell to Tumim pursuant to the Purchase Agreement.
Because the purchase price per share to be paid by Tumim for the shares of Common Stock that we may elect to sell to Tumim under the Purchase Agreement, if any, will fluctuate based on the market prices of our Common Stock during the applicable Purchase Valuation Period for each Purchase made pursuant to the Purchase Agreement, if any, it is not possible for us to predict, as of the date of this prospectus and prior to any such sales, the number of shares of Common Stock that we will sell to Tumim under the Purchase Agreement, the purchase price per share that Tumim will pay for shares purchased from us under the Purchase Agreement, or the aggregate gross proceeds that we will receive from those purchases by Tumim under the Purchase Agreement, if any.
36
Moreover, although the Purchase Agreement provides that we may sell up to an aggregate of $100 million of our Common Stock to Tumim, only 6,718,842 shares of our Common Stock are being registered for resale by Tumim under the registration statement that includes this prospectus, consisting of (i) the 218,842 Commitment Shares that we previously issued to Tumim as partial consideration for its commitment to purchase our Common Stock under the Purchase Agreement and (ii) up to 6,500,000 shares of Common Stock that we may elect to sell to Tumim, in our sole discretion, from time to time from and after the Commencement Date under the Purchase Agreement. If after the Commencement Date we elect to sell to Tumim all of the 218,842 shares of Common Stock being registered for resale under this prospectus that are available for sale by us to Tumim in Purchases under the Purchase Agreement, depending on the market prices of our Common Stock during the applicable Purchase Valuation Period for each Purchase made pursuant to the Purchase Agreement, the actual gross proceeds from the sale of all such shares may be substantially less than the $100 million Total Commitment available to us under the Purchase Agreement, which could materially adversely affect our liquidity.
If it becomes necessary for us to issue and sell to Tumim under the Purchase Agreement more than the 6,718,842 shares being registered for resale under the registration statement that includes this prospectus in order to receive aggregate gross proceeds equal to the Total Commitment of $100 million under the Purchase Agreement, we must file with the SEC one or more additional registration statements to register under the Securities Act the resale by Tumim of any such additional shares of our Common Stock we wish to sell from time to time under the Purchase Agreement, which the SEC must declare effective and we will need to obtain stockholder approval to issue shares of Common Stock in excess of the Exchange Cap under the Purchase Agreement in accordance with applicable Nasdaq rules, unless the average per share purchase price paid by Tumim for all shares of Common Stock sold under the Purchase Agreement equals or exceeds $7.18, in which case, under applicable Nasdaq rules, the Exchange Cap limitation will not apply to issuances and sales of Common Stock under the Purchase Agreement, in each case, before we may elect to sell any additional shares of our Common Stock to Tumim under the Purchase Agreement. In addition, Tumim will not be required to purchase any shares of our Common Stock if such sale would result in Tumim’s beneficial ownership exceeding 4.99% of the then outstanding shares of our Common Stock.
Any issuance and sale by us under the Purchase Agreement of a substantial amount of shares of Common Stock in addition to the 6,718,842 shares of Common Stock being registered for resale by Tumim under this prospectus could cause additional substantial dilution to our stockholders. The number of shares of our Common Stock ultimately offered for sale by Tumim is dependent upon the number of shares of Common Stock, if any, we ultimately sell to Tumim under the Purchase Agreement.
Our inability to access a portion or the full amount available under the Purchase Agreements, in the absence of any other financing sources, could have ana material adverse effect on our business. The extent to which we rely on Tumim as a source of funding will depend on a number of factors including the prevailing market price of our Class A common stockCommon Stock and make it more difficult to effectuate our initial business combination.
We will be issuing warrants to purchase 7,500,000 shares of our Class A common stock (or up to 8,625,000 shares of Class A common stock, if the underwriters’ over-allotment option is exercised in full) as part of the units offered by this prospectus and, simultaneously with the closing of this offering, we will be issuing in a private placement, private placement warrants to purchase an aggregate of 4,598,000 shares of Class A common stock (or up to 5,048,000 shares if the underwriters’ over-allotment option is exercised in full), at $11.50 per share. Our initial stockholders currently own an aggregate of 2,156,250 founder shares (up to 281,250 shares of which are subject to forfeiture depending on the extent to which we are able to secure working capital from other sources. If obtaining sufficient funding from Tumim were to prove unavailable or prohibitively dilutive, we will need to secure another source of funding in order to satisfy our working capital needs. Even if we were to receive all $100.0 million in gross proceeds under the underwriters’ over-allotment option is exercised). Purchase Agreement, we may still need additional capital to fully implement our business, operating and development plans. Should the financing we require to sustain our working capital needs be unavailable or prohibitively expensive when we require it, the consequences could be a material adverse effect on our business, operating results, financial condition and prospects.
The founder shares are convertible intosale of the shares of Class A common stockCommon Stock acquired by the Selling Stockholder, or the perception that such sales may occur, could cause the price of our Common Stock to fall.
Depending on market liquidity at the time, issuances and any subsequent sales of our Common Stock may cause the trading price of our Common Stock to fall.
The 6,718,842 shares of Common Stock being registered for resale by the Selling Stockholder in this prospectus currently represent 34.6% of shares outstanding on a one-for-onefully diluted basis subject to adjustment as set forth herein. In addition, if our sponsor or its affiliates, or any of our officers or directors, makes any working capital loans, up to $1,500,000 of such loans may be converted into private placement-equivalent warrants at a price of $1.00 per warrant (which, for example, would result in the holders being issued 1,500,000 warrants if $1,500,000 of notes were so converted), at the optionand approximately 71.4% of the lender. Such warrants would be identicaltotal number of outstanding shares held by non-affiliates. The Selling Stockholder may resell all, some, or none of those shares at any time or from time to time in its discretion. Even though the private placement warrants, including ascurrent trading price is significantly below the LMAO IPO price, the Selling Stockholder may have an incentive to exercisesell because it will still profit because of the lower price exercisability and exercise period.
Tothat it purchased its shares than the extent we issue shares of Class A common stock to effectuate an initial business combination, the potential forpublic investors. Additionally, the issuance of a substantial number of additional shares of Class A common stockour Common Stock to the Selling Stockholder, or the anticipation of such issuances, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales.
Investors who buy shares at different times will likely pay different prices and may experience different levels of dilution.
If and when the Selling Stockholder elect to sell shares of our Common Stock upon exercise of these warrants could make usthe Warrants, the Selling Stockholder may resell all, some or none of such shares at any time or from time to time in its discretion and at different prices. As a less attractive business combination vehicle toresult, investors who purchase shares from the Selling Stockholder in this offering at different times will likely pay different prices for those shares, and so may experience different levels of dilution and in some cases substantial dilution and different outcomes in their investment results. Investors may experience a target business. Any such issuance will increase the number of issued and outstanding shares of our Class A common stock and reducedecline in the value of the shares they purchase from the Selling Stockholder in
37
this offering as a result of Class A common stock issuedfuture sales made by us to complete the initial business combination. Therefore,Selling Stockholder at prices lower than the prices such investors paid for their shares in this offering. In addition, if we sell a substantial number of shares to the Selling Stockholder, or if investors expect that we will do so, the actual sales of shares or the mere existence of our warrantsarrangement with the Selling Stockholder may make it more difficult for us to effectuatesell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect such sales.
We may require additional financing to sustain our operations and without it we will not be able to continue operations.
Subject to the terms and conditions of the Purchase Agreement, we may, at our discretion, direct Tumim to purchase up to an initial business combinationaggregate of up to $100.0 million of our Common Stock under the Purchase Agreement from time-to-time over an approximately 24-month period beginning on the Commencement Date, provided that a registration statement covering the resale of shares of Common Stock that have been and may be issued under the Purchase Agreement is declared effective by the SEC, a final prospectus in connection therewith is filed, and the other conditions set forth in the Purchase Agreement are satisfied. Although the Purchase Agreement provides that we may sell up to an aggregate of $100.0 million of our Common Stock to Tumim, only 6,500,000 shares of our Common Stock that we may elect to sell to Tumim under the Purchase Agreement are being registered. The purchase price per share for the shares of our common stock that we may elect to sell to Tumim under the Purchase Agreement will fluctuate based on the market prices of our Common Stock during the applicable Purchase Valuation Period for each purchase made pursuant to the Purchase Agreement. Accordingly, it is not currently possible to predict the number of shares that will be sold to Tumim, the actual purchase price per share to be paid by Tumim for those shares, the actual gross proceeds to be raised in connection with those sales, and whether or increasenot we will need to register additional shares for resale by Tumim under the cost of acquiring the target business.Purchase Agreement.
The private placement warrantsextent to which we rely on Tumim as a source of funding will depend on a number of factors, including the prevailing market price of our Common Stock and the extent to which we are identicalable to secure working capital from other sources. If obtaining sufficient funding from Tumim were to prove unavailable or prohibitively dilutive, we may need to secure another source of funding in order to satisfy our working capital needs. Even if we were to sell to Tumim all of the shares of our Common Stock available for sale to Tumim under the Purchase Agreement, we will still need additional capital to fully implement our business plan. Should the financing we require to sustain our working capital needs be unavailable or prohibitively expensive when we require it, the consequences would be a material adverse effect on our business, operating results, financial condition and prospects.
Our management team will have broad discretion over the use of the net proceeds from shares of Common Stock issued to the warrants soldSelling Stockholder under the Purchase Agreement, if any, and you may not agree with how we use the proceeds and the proceeds may not be invested successfully.
Our management team will have broad discretion as to the use of the net proceeds from shares of Common Stock issued to the Selling Stockholder under the Purchase Agreement, and we could use such proceeds for purposes other than those contemplated at the time of commencement of this offering. Accordingly, you will be relying on the judgment of our management team with regard to the use of those net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. It is possible that, pending their use, we may invest those net proceeds in a way that does not yield a favorable, or any, return for us. The failure of our management team to use such funds effectively could have a material adverse effect on our business, financial condition, operating results and cash flows.
The Selling Stockholder purchased securities in the Company at a price below the current trading price of such securities, and may experience a positive rate of return based on the current trading price, but other public investors may not experience a similar rate of return.
The shares of Common Stock being registered for resale pursuant to this prospectus include shares that were purchased at prices that may be significantly below the trading price of our Common Stock and the sale of which would result in the Selling Stockholder realizing a significant gain. The shares of Common Stock being offered for resale pursuant to this prospectus by the Selling Stockholder represent approximately 34.6% of shares outstanding on a fully diluted basis and approximately 71.4% of the total number of outstanding shares held by non-affiliates as of January 20, 2023. Given the substantial number of shares of Common Stock being registered for potential resale by Selling Stockholder pursuant to this prospectus, the sale of shares by the Selling Stockholder, or the perception in the market that the Selling Stockholder of a large number of shares intend to sell shares, could increase the volatility of the market price of our Common Stock or result in a significant decline in the public trading price of our Common Stock. Even if our trading price is significantly below $10.00, the offering price for the units offered in this offering except that, so long as they are held bythe LMAO IPO, the Selling Stockholder may still have an incentive to sell shares of our sponsorCommon Stock because it may purchase the shares at prices lower than the public investors or its permitted transferees, (i) they will not be redeemable by us, (ii) they (including the Class A common stock issuable upon exercisecurrent trading price of these warrants)our Common Stock. Accordingly, while the Selling Stockholder may experience a positive rate of return based on the trading price of the Company’s securities, the public holders of the Company’s securities may not experience a similar rate of return on the securities they purchase due to differences in the applicable purchase price and trading price.
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THE TUMIM TRANSACTION
On August 23, 2022, we entered into the Purchase Agreement with Tumim, pursuant to which Tumim has committed to purchase up to $100.0 million of our Common Stock, at our direction from time to time over the term of the Purchase Agreement, subject to certain limited exceptions, be transferred, assigned or sold by our sponsor until 30 days afterterms, conditions and limitations in the completionPurchase Agreement. We also entered into the Registration Rights Agreement with Tumim, pursuant to which we have filed with the SEC the registration statement that includes this prospectus to register for resale under the Securities Act, the shares of our initial business combinationCommon Stock that have been and (iii) they may be exercisedissued to Tumim under the Purchase Agreement.
Under the terms and subject to the conditions of the Purchase Agreement, we have the right, but not the obligation, to sell to Tumim, and Tumim is obligated to purchase up to $100.0 million of our Common Stock. Such sales of our Common Stock, if any, will be subject to certain limitations, and may occur from time to time at our sole discretion, over the approximately 24-month period commencing on the Commencement Date, provided that a registration statement that includes this prospectus covering the resale by Tumim of shares of our Common Stock that have been and may be issued under the Purchase Agreement is declared effective by the holdersSEC, a final prospectus in connection therewith is filed and the other conditions set forth in the Purchase Agreement are satisfied.
Tumim has no right to require us to sell any shares of our Common Stock to Tumim, but Tumim is obligated to make purchases at our direction subject to certain conditions. There is no upper limit on the price per share that Tumim could be obligated to pay for the Common Stock under the Purchase Agreement. Actual sales of shares of our Common Stock to Tumim will depend on a cashless basis.
The determinationvariety of factors to be determined by us from time to time, including, among others, market conditions, the offeringtrading price of our unitsCommon Stock and determinations by us as to the sizeappropriate sources of this offering is more arbitrary thanfunding for us and our operations.
We do not know what the pricingpurchase price for our Common Stock will be and therefore cannot be certain as to the number of securities and size of an offering of an operating company in a particular industry. Youshares we might issue to Tumim under the Purchase Agreement after the Commencement Date. Although the Purchase Agreement provides that we may have less assurance, therefore, that the offering pricesell up to $100.0 million of our units properly reflectscommon stock to Tumim, only 6,718,842 shares of our Common Stock are being registered under the valueSecurities Act for resale by Tumim under this prospectus, which represent the (i) 218,842 Commitment Shares that we issued to Tumim on January 20, 2023 as partial consideration of such units than you wouldits irrevocable commitment to purchase shares of our Common Stock under the Purchase Agreement and (ii) up to 6,500,000 shares of Common Stock that may be issued to Tumim from and after the Commencement Date, if and when we elect to sell shares which have been or may be issued to Tumim in a typical offering of an operating company.the future under the Purchase Agreement, if and when we sell shares to Tumim under the Purchase Agreement.
Prior to this offeringthe issuance of the Commitment Shares, there has been no public market for anywere 12,699,668 shares of our securities.Common Stock outstanding. If all of the 6,718,842 shares offered by Tumim for resale under this prospectus were issued and outstanding as of the date hereof (without taking into account the 19.99% Exchange Cap limitation), such shares would represent approximately 34.6% of the total number of shares of our Common Stock outstanding and approximately 71.4% of the total number of outstanding shares held by non-affiliates as of the date hereof. If we elect to issue and sell more than the 6,718,842 shares offered under this prospectus to Tumim, which we have the right, but not the obligation, to do, we must first register for resale under the Securities Act any such additional shares, which could cause additional substantial dilution to our stockholders. The public offeringnumber of shares ultimately offered for resale by Tumim is dependent upon the number of shares we may elect to sell to Tumim under the Purchase Agreement from and after the Commencement Date.
Under the Nasdaq listing rules, in no event may we issue or sell to Tumim under the Purchase Agreement shares of our Common Stock in excess of the Exchange Cap. We will need to obtain stockholder approval to issue shares of our Common Stock in excess of the Exchange Cap, unless the average price of all applicable sales of our common stock to Tumim under the Purchase Agreement equals or exceeds $7.18 (which is the official closing price of the unitsCommon Stock on Nasdaq on the trading day immediately preceding the date of the Prior Purchase Agreement, plus an incremental amount to take into account our issuance of the Commitment Shares to Tumim as consideration for its commitment to purchase shares of our Common Stock under the Purchase Agreement rather than in exchange for cash), such that issuances and sales of our Common Stock to Tumim under the Purchase Agreement would be exempt from the Exchange Cap limitation under the Nasdaq listing rules. In any event, the Purchase Agreement specifically provides that we may not issue or sell any shares of our common stock under the Purchase Agreement if such issuance or sale would breach any Nasdaq listing rule.
The Purchase Agreement also prohibits us from directing Tumim to purchase any shares of our Common Stock if those shares, when aggregated with all other shares of our Common Stock then beneficially owned by Tumim and its affiliates, would result in Tumim and its affiliates having beneficial ownership, at any single point in time, of more than the Beneficial Ownership Limitation.
The net proceeds under the Purchase Agreement to us will depend on the frequency and prices at which we sell shares of our stock to Tumim. We expect that any proceeds received by us from such sales to Tumim will be used for working capital and general corporate purposes.
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As consideration for Tumim’s irrevocable commitment to purchase shares of our common stock upon the terms of the warrants were negotiated between us and the underwriters. In determining the size of this offering, management held customary organizational meetings with representativessubject to satisfaction of the underwriters, bothconditions set forth in the Purchase Agreement, on January 20, 2023, we issued, as partial consideration, 218,842 Commitment Shares to Tumim.
Purchase of Shares Under the Purchase Agreement
Upon the Commencement and subject to the conditions set forth in the Purchase Agreement, we have the right, but not the obligation, from time to time at our sole discretion over the approximately 24-month period commencing on the Commencement Date, to direct Tumim to purchase amounts of our Common Stock under the Purchase Agreement, that we specify in purchase notices that we deliver to Tumim under the Purchase Agreement on any trading day. The maximum number of shares that may be purchased pursuant to a Purchase is equal to a number of shares of our common stock equal to the lowest of, or the Purchase Maximum Amount:
(i) | 100% of the average daily trading volume in the Common Stock on the Trading Market (or, in the event the Common Stock is then listed on an Eligible Market, 100% of the average daily trading volume in the Common Stock on such Eligible Market) for the five (5) consecutive Trading Day period ending on (and including) the Trading Day immediately preceding the applicable VWAP Purchase Exercise Date for such VWAP Purchase; |
(ii) | the product (rounded up or down to the nearest whole number) obtained by multiplying (A) the daily trading volume in the Common Stock on the Trading Market (or Eligible Market, as applicable) on the applicable VWAP Purchase Exercise Date for such VWAP Purchase by (B) 0.25; and |
(iii) | the quotient (rounded up or down to the nearest whole number) obtained by dividing (A) $15,000,000 by (B) the VWAP on the Trading Market (or Eligible Market, as applicable) on the Trading Day immediately preceding the applicable VWAP Purchase Exercise Date for such VWAP Purchase (in each case to be appropriately adjusted for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction during the applicable period). |
As set forth in the Purchase Agreement, the closing sale price of the Common Stock on the trading day immediately preceding such Purchase Date (as defined in the Purchase Agreement) is not less than $0.50, which shall be appropriately adjusted for any reorganization, recapitalization, non-cash dividend, stock split or other similar transaction and, effective upon the consummation of any such reorganization, recapitalization, non-cash dividend, stock split or other similar transaction.
Tumim is obligated to accept each purchase notice prepared and timely delivered on or prior to 8:30 am, New York City time, on the trading day of the applicable Purchase Valuation Period, or each, a Purchase Exercise Date, by us in accordance with the terms of and subject to the satisfaction of the conditions contained in the Purchase Agreement; provided that, Tumim is not obligated to purchase any shares of our Common stock set forth in a valid purchase notice in excess of the Purchase Maximum Amount. We may deliver a purchase notice on a Purchase Exercise Date, provided that (i) we may not deliver more than one purchase notice to Tumim on any single trading day, (ii) we may not deliver a purchase notice to Tumim on any trading day during the period commencing on the Purchase Exercise Date on which a prior purchase notice has previously been delivered by us to Tumim under the Purchase Agreement, and ending on the applicable trading day immediately following the last trading day of the applicable Purchase Valuation Period, or each such date, a Purchase Settlement Date, or such later trading day on which Tumim has received all of the Purchase Shares subject to such prior purchase notice in electronic form as “DWAC Shares” (as defined in the Purchase Agreement), and (iii) all Purchase Shares subject to all prior purchase notices previously delivered by us to Tumim have in fact been received by Tumim as DWAC Shares prior to our inception and thereafter, with respectdelivery of such purchase notice to the state of capital markets, generally, and the amount the underwriters believed they reasonably could raiseTumim on our behalf. Factors considered in determining the size of this offering, prices and termssuch Purchase Exercise Date.
The purchase price of the units, including the Class A common stock and warrants underlying the units, include:
the history and prospects of companies whose principal business is the acquisition of other companies;
prior offerings of those companies;
our prospects for acquiring an operating business;
a review of debt to equity ratios in leveraged transactions;
our capital structure;
an assessmentshares of our management and their experience in identifying operating companies;
other factors as were deemed relevant.
Although these factors were considered,Common Stock that we may direct Tumim to purchase pursuant to a Purchase under the determination of our offering price is more arbitrary than the pricing of securities of an operating company in a particular industry since we have no historical operations or financial results.
There is currently no market for our securities and a market for our securities may not develop, which would adversely affect the liquidity and price of our securities.
There is currently no market for our securities. Stockholders therefore have no accessPurchase Agreement will be equal to information about prior market history on which to base their investment decision. Following this offering, the price of our securities may vary significantly due to one or more potential business combinations and general market or economic conditions. Furthermore, an active trading market for our securities may never develop or, if developed, it may not be sustained. You may be unable to sell your securities unless a market can be established and sustained.
Cautionary Note Regarding Forward-Looking Statements
Certain statements in this prospectus may constitute “forward-looking statements” for purposes97% of the federal securities laws. Our forward-looking statements include, but are not limited to, statements regarding our or our management team’s expectations, hopes, beliefs, intentions or strategies regardinglowest daily VWAPs during the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this prospectus may include, for example, statements about:
our ability to select an appropriate target business or businesses;
our ability to complete our initial business combination;
our expectations around the performance of the prospective target business or businesses;
our success in retaining or recruiting, or changes required in, our officers, key employees or directors following our initial business combination;
our officers and directors allocating their time to other businesses and potentially having conflicts of interest with our business or in approving our initial business combination, as a result of which they would then receive expense reimbursements;
our potential ability to obtain additional financing to complete our initial business combination;
our pool of prospective target businesses;
the ability of our officers and directors to generate a number of potential acquisition opportunities;
our public securities’ potential liquidity and trading;
the lack of a market for our securities;
the use of proceeds not held in the trust account or available to us from interest income on the trust account balance;
the trust account not being subject to claims of third parties; or
our financial performance following this offering.
The forward-looking statements contained in this prospectus are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the section of this prospectus entitled “Risk Factors.” Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
We are offering 7,500,000 units at an offering price of $10.00 per unit. We estimate that the net proceeds of this offering together with the funds we will receive from the sale of the private placement warrants will be usedPurchase Valuation Period as set forth in the Purchase Agreement.
The payment for, against simultaneous delivery of, shares in respect of each purchase under the Purchase Agreement will be settled on the applicable Purchase Settlement Date immediately following table. the applicable Purchase Valuation Period for such Purchase, as set forth in the Purchase Agreement.
| Without Over-Allotment Option | Over-Allotment Option | |||||
Gross proceeds |
|
|
|
|
|
| |
Gross proceeds from units offered to public(1) | $ | 75,000,000 |
| $ | 86,250,000 |
| |
Gross proceeds from private placement warrants offered in the private placement |
| 4,598,000 |
|
| 5,048,000 |
| |
Total gross proceeds | $ | 79,598,000 |
| $ | 91,298,000 |
| |
Offering expenses(2) |
|
|
|
|
|
| |
Underwriting commissions (2.0% of gross proceeds from units offered to public, excluding deferred underwriting commissions)(3) | $ | 1,500,000 |
| $ | 1,725,000 |
| |
Legal fees and expenses |
| 275,000 |
|
| 275,000 |
| |
Printing and road show expenses |
| 65,000 |
|
| 65,000 |
| |
Accounting fees and expenses |
| 45,000 |
|
| 45,000 |
| |
SEC/FINRA expenses |
| 23,000 |
|
| 23,000 |
| |
Directors’ and officers’ insurance premiums |
| 200,000 |
|
| 200,000 |
| |
Nasdaq listing and filing fees |
| 75,000 |
|
| 75,000 |
| |
Reimbursement to underwriters for expenses |
| 125,000 |
|
| 125,000 |
| |
Miscellaneous expenses |
| 40,000 |
|
| 40,000 |
| |
Total offering expenses (excluding underwriting commission) | $ | 848,000 |
| $ | 848,000 |
| |
Proceeds after offering expenses | $ | 77,250,000 |
| $ | 88,725,000 |
| |
Total proceeds held in trust (including deferred underwriting commissions)(3) | $ | 76,500,000 |
| $ | 87,975,000 |
| |
Percentage of public offering proceeds held in trust |
| 102.00 | % |
| 102.00 | % | |
Net offering proceeds not held in trust account | $ | 750,000 |
| $ | 750,000 |
| |
The following table shows the use of the approximately $750,000 of net proceeds not held in the trust account.(4) | |||||||
| Amount | % of Total | |||||
Legal, accounting, due diligence, travel, and other expenses in connection with any business combination(5) | $ | 150,000 |
|
| 20.00 | % | |
Legal and accounting fees related to regulatory reporting requirements |
| 50,000 |
|
| 6.67 | % | |
Working capital to cover miscellaneous expenses (including franchise taxes net of anticipated interest income) |
| 550,000 |
|
| 73.33 | % | |
Total | $ | 750,000 |
|
| 100.0 | % | |
|
|
Of the net proceeds of this offering and the sale of the private placement warrants, $76,500,000 (or $87,975,000 if the underwriters’ over-allotment option is exercised in full), including $2,625,000 (or $3,018,750 if the underwriters’ over-allotment option is exercised in full) of deferred underwriting commissions, will be placed in a trust account in the United States, with Continental Stock Transfer & Trust Company acting as trustee, and will be invested only in U.S. government treasury bills with a maturity of 180 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act which invest only in direct U.S. government treasury obligations.
We will have until 18 months from the closing of this offering to consummate an initial business combination. However, if we anticipate that we may not be able to consummate our initial business combination within 18 months, we will, by resolution of our board if requested by our sponsor, extend the period of time to consummate a business combination by an additional three months (for a total of 21 months to complete a business combination), subject to the sponsor depositing additional funds intosatisfaction of certain conditions, all of which are entirely outside of Tumim’s control, including, among other things, the trust account as set out below. Pursuantfollowing:
the accuracy in all material respects of our representations and warranties included in the Purchase Agreement;
us having performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by the Purchase Agreement to be performed, satisfied or complied with by us;
the effectiveness of this registration statement that includes this prospectus;
the SEC shall not have issued any stop order suspending the effectiveness, prohibiting or suspending the use of the registration statement that includes this prospectus;
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there shall not have occurred any event and there shall not exist any condition or state of facts, which makes any statement of a material fact made in the registration statement that includes this prospectus untrue or which requires the making of any additions to or changes to the terms of our certificate of incorporation andstatements contained therein in order to state a material fact required by the trust agreementSecurities Act to be entered into between us and Continental Stock Transfer & Trust Company onstated therein or necessary in order to make the datestatements then made therein, in light of the circumstances under which they were made not misleading;
this prospectus, in final form, shall have been filed with the SEC under the Securities Act, and all reports, schedules, registrations, forms, statements, information and other documents required to have been filed by the Company with the SEC pursuant to the reporting requirements of the Exchange Act, shall have been filed with the SEC;
• | trading in our Common Stock shall not have been suspended by the SEC, Nasdaq or the Financial Industry Regulatory Authority, or FINRA, we shall not have received any final and non-appealable notice that the listing or quotation of the Common Stock on Nasdaq shall be terminated on a date certain (unless, prior to such date, the common stock is listed or quoted on the Nasdaq Global Market, the Nasdaq Capital Market, the New York Stock Exchange or the NYSE American (or any nationally recognized successor to any of the foregoing), or each, an Eligible Market), and there shall be no suspension of, or restriction on, accepting additional deposits of the Common Stock, electronic trading or book-entry services by DTC with respect to the Common Stock; |
we shall have complied with all applicable federal, state and local governmental laws, rules, regulations and ordinances in connection with the execution, delivery and performance of the Purchase Agreement and the Registration Rights Agreement;
the absence of any statute, regulation, order, decree, writ, ruling or injunction by any court or governmental authority of competent jurisdiction which prohibits the consummation of or that would materially modify or delay any of the transactions contemplated by the Purchase Agreement or the Registration Rights Agreement;
the absence of any action, suit or proceeding before any arbitrator or any court or governmental authority seeking to extendrestrain, prevent or change the time availabletransactions contemplated by the Purchase Agreement or the Registration Rights Agreement, or seeking material damages in connection with such transactions;
all of the shares of our Common Stock that may be issued pursuant to the Purchase Agreement shall have been approved for us to consummate our initial business combination, our sponsorlisting or its affiliates or designees must deposit intoquotation on the trust account $750,000, or up to $862,500Nasdaq Global Market (or if the underwriters’ over-allotment optionCommon Stock is exercisednot then listed on the Nasdaq Global Market, on any Eligible Market);
no condition, occurrence, state of facts or event constituting a material adverse effect shall have occurred and be continuing;
any voluntary or involuntary participation or threatened participation in full ($0.10 per shareinsolvency or bankruptcy proceedings by or against us;
Tumim has received the Commitment Shares as DWAC Shares;
the delivery to the Company’s transfer agent of instructions and a notice of effectiveness relating to this registration statement directing the Company’s transfer agent to issue to Tumim all the Commitment Shares and Purchase Shares as DWAC Shares;
the Company having reserved 6,500,000 shares of our Common Stock for the purpose of issuing Purchase Shares; and
the receipt by Tumim of the opinions, bring-down opinions and negative assurances from outside counsel to us in either case) on orthe forms mutually agreed to by us and Tumim prior to the date of the deadline.Purchase Agreement.
Our ability to deliver Purchase notices to Tumim under the Purchase Agreement is subject to the satisfaction of certain conditions at time of each delivery of a Purchase notice, all of which are entirely outside of Tumim’s control, including, among other things, the following:
We estimate that the interest earned on the trust account will be approximately $191,000 per year, assuming an interest rateaccuracy in all material respects of 0.25% per year; however, we can provide no assurance regarding this amount. Except with respect to interest earned on the funds heldour representations and warranties included in the trust accountPurchase Agreement;
us having performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by the Purchase Agreement to be performed, satisfied or complied with by us;
we shall have complied with all applicable federal, state and local governmental laws, rules, regulations and ordinances in connection with the execution, delivery and performance of the Purchase Agreement and the Registration Rights Agreement;
the absence of any statute, regulation, order, decree, writ, ruling or injunction by any court or governmental authority of competent jurisdiction which prohibits the consummation of or that would materially modify or delay any of the transactions contemplated by the Purchase Agreement or the Registration Rights Agreement;
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the absence of any action, suit or proceeding before any arbitrator or any court or governmental authority seeking to restrain, prevent or change the transactions contemplated by the Purchase Agreement or the Registration Rights Agreement, or seeking material damages in connection with such transactions;
all of the shares of our Common Stock that may be releasedissued pursuant to the Purchase Agreement shall have been approved for listing or quotation on the Nasdaq Global Market (or if the Common Stock is not then listed on the Nasdaq Global Market, on any Eligible Market);
no condition, occurrence, state of facts or event constituting a material adverse effect shall have occurred and be continuing;
any voluntary or involuntary participation or threatened participation in insolvency or bankruptcy proceedings by or against us;
the effectiveness of this registration statement that includes this prospectus (and any one or more additional registration statements filed with the SEC that include shares of our common stock that may be issued and sold by us to payTumim under the Purchase Agreement);
the delivery to the Company’s transfer agent of instructions and a notice of effectiveness relating to any other additional registration statement filed with the SEC that includes shares of our franchisecommon stock that may be issued and income tax obligations,sold by us to Tumim under the proceeds fromPurchase Agreement directing the Company’s transfer agent to issue to Tumim all the Purchase Shares as DWAC Shares;
the SEC shall not have issued any stop order suspending the effectiveness, prohibiting or suspending the use of the registration statement that includes this offeringprospectus (or any one or more additional registration statements filed with the SEC that include shares of our common stock that may be issued and sold by us to Tumim under the Purchase Agreement);
there shall not have occurred any event and there shall not exist any condition or state of facts, which makes any statement of a material fact made in the registration statement that includes this prospectus (or in any one or more additional registration statements filed with the SEC that include shares of our common stock that may be issued and sold by us to Tumim under the Purchase Agreement) untrue or which requires the making of any additions to or changes to the statements contained therein in order to state a material fact required by the Securities Act to be stated therein or necessary in order to make the statements then made therein (in the case of this prospectus or the prospectus included in any one or more additional registration statements filed with the SEC under the Registration Rights Agreement, in light of the circumstances under which they were made) not misleading;
this prospectus (or any one or more additional registration statements filed with the SEC that include shares of our common stock that may be issued and sold by us to Tumim under the Purchase Agreement), in final form, shall have been filed with the SEC under the Securities Act, and all reports, schedules, registrations, forms, statements, information and other documents required to have been filed by the Company with the SEC pursuant to the reporting requirements of the Exchange Act, shall have been filed with the SEC;
• | trading in our Common Stock shall not have been suspended by the SEC, Nasdaq or FINRA, we shall not have received any final and non-appealable notice that the listing or quotation of the common stock on Nasdaq shall be terminated on a date certain (unless, prior to such date, the common stock is listed or quoted on the Nasdaq Global Market, the Nasdaq Capital Market, the New York Stock Exchange or the NYSE American (or any nationally recognized successor to any of the foregoing), or each, an Eligible Market), and there shall be no suspension of, or restriction on, accepting additional deposits of the common stock, electronic trading or book-entry services by DTC with respect to the Common Stock; |
the issuance and sale of the private placement warrants willPurchase Shares subject to a Purchase notice shall not exceed the Purchase Maximum Amount or cause the Total Commitment, Beneficial Ownership Limitation or Exchange Cap to be releasedexceeded;
the Purchase Shares shall have been duly authorized and all Purchase Shares issued under prior Purchase notices shall have been delivered as DWAC Shares; and
the receipt by Tumim of the opinions, bring-down opinions and negative assurances from outside counsel to us in the trust account untilforms mutually agreed to by us and Tumim prior to the date of the Purchase Agreement.
No Short-Selling or Hedging by Tumim
Tumim has covenanted not to cause or engage in any manner whatsoever, any direct or indirect short selling or hedging of our shares.
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Prohibition on Variable Rate Transactions
Subject to specified exceptions included in the Purchase Agreement, we are limited in our ability to enter into specified variable rate transactions during the term of the Purchase Agreement. Such transactions include, among others, the issuance of convertible securities with a conversion or exercise price that is based upon or varies with the trading price of our common stock after the date of issuance, the issuance of securities with embedded antidilution provisions, the issuance of securities with an embedded put or call right or at a price subject to being reset after the initial issuance contingent on our business or market performance or entry into any new “equity line of credit” transaction or similar continuous equity offering where we may issue common equity at a price that is tied to future market prices of our common equity.
Termination of the Purchase Agreement
Unless earlier terminated as provided hereunder, the Purchase Agreement shall terminate automatically on the earliest to occur of: (a)
(i) | the first day of the month next following the 24-month anniversary of the Closing Date of the Purchase Agreement, |
(ii) | the date on which Tumim shall have purchased the Total Commitment worth of shares pursuant to the Purchase Agreement, |
(iii) | the date on which the Common Stock shall have failed to be listed or quoted on the Trading Market or any Eligible Market, |
(iv) | the thirtieth (30th) Trading Day next following the date on which, pursuant to or within the meaning of any Bankruptcy Law, the Company commences a voluntary case or any person commences a proceeding against the Company, in each case that is not discharged or dismissed prior to such thirtieth (30th) Trading Day, and |
(v) | the date on which, pursuant to or within the meaning of any Bankruptcy Law, a custodian is appointed for the Company or for all or substantially all of its property, or the Company makes a general assignment for the benefit of its creditors. |
We have the completionright to terminate the Purchase Agreement at any time after the Commencement Date, at no cost or penalty, upon one trading day’s prior written notice to Tumim. We and Tumim may also terminate the Purchase Agreement at any time by mutual written consent.
Tumim also has the right to terminate the Purchase Agreement upon 10 trading days’ prior written notice to us, but only upon the occurrence of certain events, including:
the occurrence of a Material Adverse Effect (as defined in the Purchase Agreement);
the occurrence of a Fundamental Transaction (as defined in the Purchase Agreement) involving us;
our failure to file with the SEC the registration statement that includes this prospectus or any additional registration statement we are required to file with the SEC pursuant to the Registration Rights Agreement, within the time periods set forth in the Registration Rights Agreement;
• | while the registration statement that includes this prospectus or any additional registration statement or any post-effective amendments thereto are required to be maintained effective pursuant to the Registration Rights Agreement, the effectiveness of such registration statements or post-effective amendments lapse for any reason (including the issuance of a stop order by the SEC), or this prospectus or the prospectus included in any additional registration statement we file with the SEC pursuant to the Registration Rights Agreement otherwise becomes unavailable to Tumim for the resale of all of the shares of common stock included therein, and such lapse or unavailability continues for a period of 20 consecutive Trading Days or for more than an aggregate of 60 Trading Days in any 365-day period, other than due to acts of Tumim; or |
trading in the common stock on the Nasdaq Global Market (or if the common stock is then listed on an Eligible Market, trading in the common stock on such Eligible Market) has been suspended for a period of three consecutive trading days.
No termination of the Purchase Agreement by us or by Tumim will become effective prior to the first Trading Day immediately following the applicable settlement date related to any pending purchase notice that has not been fully settled in accordance with the terms and conditions of the Purchase Agreement, and will not affect any of our initial business combination,respective rights and obligations under the Purchase Agreement with respect to any pending purchase notice, and both we and Tumim have agreed to complete our respective obligations with respect to any such pending purchase notice under the Purchase Agreement. Furthermore, no termination of the Purchase Agreement will affect the Registration Rights Agreement, which will survive any termination of the Purchase Agreement.
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Effect of Performance of the Purchase Agreement on our Stockholders
All shares of our Common Stock that have been or may be issued or sold by us to Tumim under the Purchase Agreement that are being registered under the Securities Act for resale by Tumim in this offering are expected to be freely tradable. The shares of our Common Stock being registered for resale in this offering (excluding the 218,842 Commitment Shares we already issued to Tumim as partial consideration) may be issued and sold by us to Tumim from time to time at our discretion over a period of up to approximately 24 months commencing on the Commencement Date, provided that the conditions precedent to Commencement have occurred. The resale by Tumim of a significant amount of shares registered for resale in this offering at any given time, or the perception that these sales may occur, could cause the market price of our Common Stock to decline and to be highly volatile. Sales of our Common Stock, if any, to Tumim under the Purchase Agreement will depend upon market conditions and other factors to be determined by us. We may ultimately decide to sell to Tumim all, some or none of the shares of our Common Stock that may be available for us to sell to Tumim pursuant to the Purchase Agreement. If and when we do sell shares to Tumim, after Tumim has acquired the shares, Tumim may resell all, some or none of those shares at any time or from time to time in its discretion. Therefore, sales to Tumim by us under the Purchase Agreement may result in substantial dilution to the interests of other holders of our Common Stock. In addition, if we sell a substantial number of shares to Tumim under the Purchase Agreement, or if investors expect that we will do so, the actual sales of shares or the mere existence of our arrangement with Tumim may make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect such sales. However, we have the right to control the timing and amount of any additional sales of our shares to Tumim and the Purchase Agreement may be terminated by us at any time at our discretion without any cost to us.
Pursuant to the terms of the Purchase Agreement, we have the right, but not the obligation, to direct Tumim to purchase up to $100.0 million of our Common Stock, subject to certain limitations. We have registered only a portion of the shares that may be issuable under the Purchase Agreement and, therefore, we may seek to issue and sell to Tumim under the Purchase Agreement more shares of our Common Stock than are offered under this prospectus in order to receive the aggregate gross proceeds equal to the $100.0 million Total Commitment available to us under the Purchase Agreement. If we choose to do so, we must first register for resale under the Securities Act any such additional shares, which could cause additional substantial dilution to our stockholders. The number of shares ultimately offered for resale under this prospectus is dependent upon the number of shares we direct Tumim to purchase under the Purchase Agreement.
The following table sets forth the amount of gross proceeds we would receive from Tumim from our sale of Common Stock to Tumim under the Purchase Agreement at varying purchase prices:
Assumed Average Purchase Price Per Share | Number of Registered Shares to be Issued if Full Purchase (1) | Percentage of Outstanding Shares After Giving Effect to the Issuance to Tumim (2) | Gross Proceeds from the Sale of Shares to Tumim Under the Purchase Agreement (4) | |||||||||
$3.00 | 6,500,000 | 34.6 | % | $ | 19,500,000 | |||||||
$4.00 | 6,500,000 | 34.6 | % | $ | 26,000,000 | |||||||
$4.30 (3) | 6,500,000 | 34.6 | % | $ | 27,950,000 | |||||||
$5.00 | 6,500,000 | 34.6 | % | $ | 32,500,000 | |||||||
$6.00 | 6,500,000 | 34.6 | % | $ | 39,000,000 |
(1) | Although the Purchase Agreement provides that we may sell up to $100.0 million of our common stock to Tumim, we are only registering 6,500,000 shares under this prospectus which represents: (i) 218,842 Commitment Shares that we already issued as partial consideration to Tumim as a commitment fee for making the irrevocable commitment under the Purchase Agreement; and (ii) an additional 6,500,000 shares which may be issued to Tumim in the future under the Purchase Agreement, if and when we sell shares to Tumim under the Purchase Agreement, and which may or may not cover all the shares we ultimately sell to Tumim under the Purchase Agreement, depending on the purchase price per share. As a result, we have included in this column only those shares that we are registering in this offering. If we seek to issue under the Purchase Agreement, the Prior Purchase Agreement, and the transactions contemplated thereby, shares of our common stock in excess of 2,538,663 shares, or 19.99% of the total common stock outstanding immediately prior to the execution of the Purchase Agreement, we may be required to seek stockholder approval in order to be in compliance with the Nasdaq listing rules. |
(2) | The denominator is based on 12,918,510 shares outstanding as of January 20, 2023, which includes the 218,842 Commitment Shares issued to Tumim as parital consideration upon execution of the Purchase Agreement and adjusted to include the number of shares set forth in the adjacent column which we would have sold to Tumim, assuming the purchase price in the first column. The numerator is based on the number of shares issuable under the Purchase Agreement at the corresponding assumed purchase price set forth in the first column. |
(3) | The closing sale price of our Common Stock on January 19, 2023. |
(4) | For illustration purposes only. Gross proceeds from the sale of shares to Tumim under the Purchase Agreement cannot exceed $100.0 million in the aggregate. |
44
Letter Agreement
On October 28, 2022, LMAO, SeaStar Medical, and Tumim entered into a letter agreement (the “Tumim Letter Agreement”) to amend certain terms of the Purchase Agreement following the consummation of the Business Combination (“Business Combination Closing Date”). Pursuant to the Tumim Letter Agreement, among other things, the parties agreed to the following amendments with respect to the Commitment Fee and Commitment Shares: (a) LMAO, or the Company from and after the Closing Date, is required to pay to Tumim $1,000,000 of the Commitment Fee in cash on the Business Combination Closing Date; (b) the redemptionCompany is required to pay to Tumim $500,000 of any public shares properly submittedthe Commitment Fee in connection with a stockholder votecash no later than the earliest of (i) the 30th calendar day immediately following the Effective Date of the Initial Registration Statement (each as defined in the Purchase Agreement), (ii) the 30th calendar day immediately following the Effectiveness Deadline (as defined in the Purchase Agreement) of the Initial Registration Statement, and (iii) not later than the second trading date immediately after the date on which written notice of termination is delivered by the Company or Tumim pursuant to amend our certificatethe terms of incorporation to modify the substance or timing of our obligation to redeem 100% of our public shares if we do not complete our initial business combination within 18 months from the closing of this offering (or 21 months from the closing of this offering, if we extend the period of time to consummate a business combination, as described in more detail in this prospectus)Purchase Agreement; and (c) the redemption of our public shares if we are unableCompany shall pay to complete our initial business combination within 18 months from the closing of this offering (or 21 months from the closing of this offering, if we extend the period of time to consummate a business combination, as described in more detail in this prospectus), subject to applicable law.
The net proceeds held in the trust account may be used as consideration to pay the sellers of a target business with which we ultimately complete our initial business combination. If our initial business combination is paid for using equity or debt securities, or not all of the funds released from the trust account are used for payment of the consideration in connection with our initial business combination, we may applyTumim the balance of the Commitment Fee, or $1,000,000, as Commitment Shares as set forth under the terms in the Purchase Agreement.
Amendment No.1 to Purchase Agreement
On November 9, 2022, the Company, SeaStar, and Tumim entered into Amendment No. 1 to the Purchase Agreement (the “Purchase Agreement Amendment”), pursuant to which, among other things, the parties agreed to the following with respect to the Company’s obligation to pay Tumim a $2.5 million commitment fee, as follows: (a) the Company would have paid Tumim $1,000,000 of the commitment fee in cash releasedon the Business Combination Closing Date, which amount was paid on such day on October 28, 2022; (b) the Company will pay Tumim $500,000 of the commitment fee in cash no later than the earliest of (i) the 30th calendar day immediately following the Effective Date of the Initial Registration Statement, (ii) the 30th calendar day immediately following the Effectiveness Deadline (as defined in the Registration Rights Agreement) of the Initial Registration Statement, and (iii) not later than the second trading date immediately after the date on which written notice of termination is delivered by the Company or Tumim pursuant to the terms of the Purchase Agreement; and (c) the Company will pay Tumim the balance of the commitment fee, or $1,000,000, in newly issued shares of common stock, the per share value of which will be determined by reference to the volume weighted average prices of the common stock immediately prior to the filing of the Initial Registration Statement. In addition, the Purchase Agreement Amendment provided certain price and share information and amended certain definitions in the Purchase Agreement to include certain information that was not available at the time when the Purchase Agreement was executed on August 23, 2022, including the definitions of “Base Price,” “Commitment Fee,” “Commitment Shares,” “Common Stock,” “Minimum Price,” “VWAP Purchase Maximum Amount,” and “VWAP Purchase Price”.
On November 9, 2022, the Company, SeaStar Medical, and Tumim entered into the Amendment No. 1 to Registration Rights Agreement (the “RRA Amendment”) to make certain amendments to the filing deadline prior to which the Company shall file the Initial Registration Statement and to conform the terms of the Registration Rights Agreement to those of the Purchase Agreement (where applicable), as amended by the Purchase Agreement Amendment.
Following the execution of the Purchase Agreement Amendment and the RRA Amendment on November 9, 2022, the closing under the Purchase Agreement occurred, at which time the Purchase Agreement and the Registration Rights Agreement, each as amended, became fully effective in all respects.
45
USE OF PROCEEDS
All of the securities offered by the Selling Securityholder pursuant to this prospectus will be sold by the Selling Securityholder for their respective accounts. We will not receive any of the proceeds from these sales. Unless we inform you otherwise in a prospectus supplement or free writing prospectus, we intend to use the trust accountnet proceeds that we receive under the Purchase Agreement for general corporate purposes, including, for maintenance or expansion of operations of the post-transaction company, the payment of principal or interest due on indebtedness incurred in completing our initial business combination, to fund the purchase of other companies or for working capital. There is no limitation on our ability to raise funds privately or through loans in connection with our initial business combination, including pursuant to forward purchase agreements we may enter into following consummation of this offering.
We believe that amounts not held in trust will be sufficient to pay the costs and expenses to which such proceeds are allocated. This belief is based on the fact that while we may begin preliminary due diligence of a target business in connection with an indication of interest, we intend to undertake in-depth due diligence, depending on the circumstances of
the relevant prospective business combination, only after we have negotiated and signed a letter of intent or other preliminary agreement that addresses the terms of an initial business combination. However, if our estimate of the costs of undertaking in-depth due diligence and negotiating an initial business combination is less than the actual amount necessary to do so, we may be required to raise additional capital, the amount, availability and cost of which is currently unascertainable. If we are required to seek additional capital, we could seek such additional capital through loans or additional investments from our sponsor, members of our management team or their affiliates, but such persons are not under any obligation to advance funds to, or invest in, us.
Prior to the closing of this offering, our sponsor will agree to loan us up to $300,000 to be used for a portion of the expenses of this offering. As of January 15, 2021, we had borrowed $100,000 under the promissory note with our sponsor to be used for a portion of the expenses of this offering. These loans are non-interest bearing, unsecured and are due at the earlier of June 30, 2021 or the closing of this offering. The loan will be repaid upon the closing of this offering out of the $750,000 of offering proceeds not held in the trust account.
In addition, in order to finance transaction costs in connection with an intended initial business combination, our sponsor or an affiliate of our sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required. If we complete our initial business combination, we would repay such loaned amounts out of the proceeds of the trust account released to us. Otherwise, such loans would be repaid only out of funds held outside the trust account. In the event that our initial business combination does not close, we may use a portion of the working capital held outside the trust account to repay such loaned amounts but no proceeds from our trust account would be used to repay such loaned amounts. Up to $1,500,000 of such loans may be convertible into warrants, at a price of $1.00 per warrant at the option of the lender. The warrants would be identical to the private placement warrants, including as to exercise price, exercisability and exercise period. The terms of such loans by our officers and directors, if any, have not been determined and no written agreements exist with respect to such loans. We do not expect to seek loans from parties other than our sponsor or an affiliate of our sponsor as we do not believe third parties will be willing to loan such funds and provide a waiver against any and all rights to seek access to funds in our trust account.
If we seek stockholder approval of our initial business combination and we do not conduct redemptions in connection with our initial business combination pursuant to the tender offer rules, our sponsor, initial stockholders, directors, officers, advisors or their affiliates may purchase shares or public warrants in privately negotiated transactions or in the open market either prior to or following the completion of our initial business combination. There is no limit on the number of shares our initial stockholders, directors, officers, advisors or their affiliates may purchase in such transactions, subject to compliance with applicable law and Nasdaq rules. However, they have no current commitments, plans or intentions to engage in such transactions and have not formulated any terms or conditions for any such transactions. If they engage in such transactions, they will not make any such purchases when they are in possession of any material nonpublic information not disclosed to the seller or if such purchases are prohibited by Regulation M under the Exchange Act. We do not currently anticipate that such purchases, if any, would constitute a tender offer subject to the tender offer rules under the Exchange Act or a going-private transaction subject to the going-private rules under the Exchange Act; however, if the purchasers determine at the time of any such purchases that the purchases are subject to such rules, the purchasers will comply with such rules. Any such purchases will be reported pursuant to Section 13 and Section 16 of the Exchange Act to the extent such purchasers are subject to such reporting requirements. None of the funds held in the trust account will be used to purchase shares or public warrants in such transactions prior to completion of our initial business combination. See “Proposed Business—Permitted purchases of our securities” for a description of how our sponsor, initial stockholders, directors, officers, advisors or any of their affiliates will select which stockholders to purchase securities from in any private transaction.
The purpose of any such purchases of shares could be to vote such shares in favor of the initial business combination and thereby increase the likelihood of obtaining stockholder approval of the initial business combination or to satisfy a closing condition in an agreement with a target that requires us to have a minimum net worth or a certain amount of cash at the closing of our initial business combination, where it appears that such requirement would otherwise not be met. The purpose of any such purchases of public warrants could be to reduce the number of public warrants outstanding or to vote such warrants on any matters submitted to the warrant holders for approval in connection with our initial business combination. Any such purchases of our securities may result in the completion of our initial business combination that may not otherwise have been possible. In addition, if such purchases are made, the public “float” of our shares of Class A common stock or warrants may be reduced and the number of beneficial holders of our securities may be reduced, which may make it difficult to maintain or obtain the quotation, listing or trading of our securities on a national securities exchange.
We may not redeem our public shares in an amount that would cause our net tangible assets to be less than $5,000,001 immediately prior to or upon consummation of our initial business combination and after payment of the underwriters’ fees and commissions (so that we are not subject to the SEC’s “penny stock” rules) and the agreement for our
initial business combination may require as a closing condition that we have a minimum net worth or a certain amount of cash. If too many public stockholders exercise their redemption rights so that we cannot satisfy the net tangible asset requirement or any net worth or cash requirements, we would not proceed with the redemption of our public shares or the initial business combination, and instead may search for an alternate business combination.
A public stockholder will be entitled to receive funds from the trust account only upon the earliest to occur of: (i) our completion of an initial business combination, (ii) the redemption of any public shares properly submitted in connection with a stockholder vote to amend our certificate of incorporation to modify the substance or timing of our obligation to redeem 100% of our public shares if we do not complete our initial business combination within 18 months from the closing of this offering (or 21 months from the closing of this offering, if we extend the period of time to consummate a business combination, as described in more detail in this prospectus) and (iii) the redemption of our public shares if we are unable to complete our initial business combination within 18 months from the closing of this offering (or 21 months from the closing of this offering, if we extend the period of time to consummate a business combination, as described in more detail in this prospectus), subject to applicable law and as further described herein and any limitations (including but not limited to, cash requirements) createdworking capital for operations, capital expenditures and future acquisitions.
The Selling Securityholder will pay any underwriting commissions and discounts, and expenses incurred by the termsSelling Securityholder for brokerage, marketing costs, or legal services (other than those detailed below). We will bear the costs, fees and expenses incurred in effecting the registration of the proposed initial business combination. In no other circumstances will a public stockholder have any rightsecurities covered by this prospectus, including all registration and filing fees, securities or interest of any kind to or in the trust account.
Our sponsor, officersblue sky law compliance fees, fees and directors have entered into a letter agreement with us, pursuant to which they have agreed to waive their redemption rights with respect to any founder shares and any public shares held by them in connection with the completionexpenses of our initial business combination. In addition,counsel and our initial stockholders have agreedindependent registered public accounting firm, and fees and expenses of legal counsel (subject to waive their rights to liquidating distributions from the trust account with respect to any founder shares held by them if we fail to complete our initial business combination within the prescribed time frame. However, if our sponsor or any of our officers, directors or affiliates acquires public shares in or after this offering, they will be entitled to liquidating distributions from the trust account with respect to such public shares if we fail to complete our initial business combination within the prescribed time frame.certain dollar limitations).
46
DIVIDEND POLICY
We have not paid any cash dividends on Common Stock to date. Our Board of Directors (the “Board”) may from time to time consider whether or not to institute a dividend policy. It is our common stockpresent intention to dateretain any earnings for use in our business operations and accordingly, we do not intend to pay cashanticipate the Board declaring any dividends prior toin the completion of our initial business combination.foreseeable future. The payment of cash dividends in the future will be dependent upon our revenues and earnings, if any, capital requirements and general financial condition subsequent to completioncondition. The payment of any cash dividends will be within the discretion of our initial business combination. If we increaseBoard.
47
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The unaudited pro forma condensed combined statement of operations for the sizenine months ended September 30, 2022 and year ended December 31, 2021 give pro forma effect to the Business Combination as if it had occurred on January 1, 2021. The unaudited pro forma condensed combined balance sheet as of September 30, 2022 gives pro forma effect to the Business Combination as if it was completed on September 30, 2022.
The unaudited pro forma condensed combined financial information is based on and should be read in conjunction with:
the accompanying notes to the unaudited pro forma condensed combined financial information;
the historical financial statements of LMAO as of and for the three and nine months ended September 30, 2022 and for the year ended December 31, 2021, and the related notes, included elsewhere in this prospectus; and
the historical financial statements of SeaStar Medical as of and for the three and nine months ended September 30, 2022 and for the year ended December 31, 2021, and the related notes, included elsewhere in this prospectus.
The pro forma financial information has been prepared in accordance with Regulation S-X Article 11, Pro Forma Financial Information, as amended by the final rule, Amendments to Financial Disclosures about Acquired and Disposed Businesses, as adopted by the SEC in May 2020 (“Article 11”). The amended Article 11 became effective on January 1, 2021. The unaudited pro forma condensed combined financial statements have been presented for illustrative purposes only and do not necessarily reflect what the Company’s financial condition or results of operations would have been had the Business Combination occurred on the dates indicated. Further, the unaudited pro forma condensed combined financial information also may not be useful in predicting the future financial condition and results of operations of the offering, weCompany. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. The unaudited pro forma transaction accounting adjustments represent management’s estimates based on information available as of the date of these unaudited pro forma condensed combined financial statements and are subject to change as additional information becomes available and analyses are performed.
On April 21, 2022, LMAO, Merger Sub, and SeaStar Medical entered into the Merger Agreement pursuant to which Merger Sub will effectbe merged with and into SeaStar Medical, with SeaStar Medical surviving the Merger as a stock dividend or other appropriate mechanism with respect to ourdirect wholly-owned subsidiary of LMAO.
The unaudited pro forma condensed combined financial information has been prepared using actual redemption of shares of Class B common stock immediately priorA Common Stock into cash.
As a result of the Business Combination, the former stockholders of SeaStar Medical (which does not include the Class A Common Stock that will be issued to the consummationDow Pension Funds, an existing stockholder of this offering in such amountSeaStar Medical, as to maintain the ownership of our initial stockholders at 20%PIPE Investors) will own approximately 58.4% of the issued and outstanding shares of our common stock upon the consummation of this offering. Further, if we incur any indebtedness in connection with our initial business combination, our ability to declare dividends may be limited by restrictive covenants we may agree to in connection therewith.
The difference betweenCompany’s Common Stock immediately following the Closing, LMAO’s public offering price per share of Class A common stock, assuming no value is attributed to the warrants includedstockholders will hold, in the units we are offering pursuant to this prospectus oraggregate, 12.4% of the private placement warrants,issued and the pro forma net tangible book value per share of our Class A common stock after this offering constitutes the dilution to investors in this offering. Such calculation does not reflect any dilution associated with the sale and exercise of warrants, including the private placement warrants, which would cause the actual dilution to the public stockholders to be higher, particularly where a cashless exercise is utilized. Net tangible book value per share is determined by dividing our net tangible book value, which is our total tangible assets less total liabilities (including the value of Class A common stock which may be redeemed for cash), by the number of outstanding shares of our Class A common stock.
At November 6, 2020, our net tangible book value deficit was $48,000, orthe Company’s Common Stock, the PIPE Investors (which includes the Dow Pension Funds and Tumim) will hold, in the aggregate, 5.5% of the issued and outstanding shares of the Company’s Common Stock, Tumim will hold approximately <1% of the Company (which represents the shares of Common Stock issuable to Tumim for the Commitment Fee assuming a net tangible book value deficitprice of $0.03$10 per share and does not include the Common Stock that will be issued to Tumim as a PIPE Investor; including shares acquired as a PIPE Investor, Tumim will own approximately 1.6% of common stock. After giving effect to the saleCompany), and the Sponsor will hold 12.4% of 7,500,000the issued and outstanding shares of Class A common stock includedthe Company’s Common Stock.
48
The unaudited pro forma condensed combined financial information contained herein does not include any assumption of future drawdowns, if available, from the Common Stock Investment and therefore excludes any adjustment for the future issuance of shares of Common Stock under the Common Stock Investment.
49
Unaudited Pro Forma Condensed Combined Balance Sheet
As of September 30, 2022
(in thousands except share and per share amounts)
Actual Redemption | ||||||||||||||||||||
LMF Acquisition Opportunities Inc. | Sea Star Medical Inc. | Pro Forma Adjustments | Notes to Pro Forma Adjustments | Pro Forma Combined | ||||||||||||||||
Assets | ||||||||||||||||||||
Current Assets | ||||||||||||||||||||
Cash | $ | 117 | $ | 49 | 108,437 | A | $ | 480 | ||||||||||||
2,000 | J | |||||||||||||||||||
5,000 | J | |||||||||||||||||||
(1,000 | ) | K | ||||||||||||||||||
(1,700 | ) | B | ||||||||||||||||||
(6,128 | ) | C | ||||||||||||||||||
200 | C | |||||||||||||||||||
(14,358 | ) | O | ||||||||||||||||||
— | L | |||||||||||||||||||
(92,137 | ) | I | ||||||||||||||||||
Other receivables | — | — | ||||||||||||||||||
Inventory | — | — | ||||||||||||||||||
Prepaid expenses | 174 | 36 | 2,274 | C | 5,124 | |||||||||||||||
140 | M | |||||||||||||||||||
2,500 | K | |||||||||||||||||||
Cash and marketable securities held in trust | 107,048 | (108,437 | ) | A | — | |||||||||||||||
1,035 | L | |||||||||||||||||||
354 | A | |||||||||||||||||||
Capitalized merger costs | 1,005 | 1,000 | C | 2,005 | ||||||||||||||||
|
|
|
|
|
| |||||||||||||||
Total current assets | 107,339 | 1,090 | 7,609 | |||||||||||||||||
Other long-term assets | — | 2 | 14,358 | O | 14,360 | |||||||||||||||
|
|
|
|
|
| |||||||||||||||
Total Long Term Assets | — | 2 | 14,360 | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||
Total Assets | $ | 107,339 | $ | 1,092 | $ | 21,969 | ||||||||||||||
|
|
|
|
|
|
Actual Redemption | ||||||||||||||||||||
LMF Acquisition Opportunities Inc. | Sea Star Medical Inc. | Pro Forma Adjustments | Notes to Pro Forma Adjustments | Pro Forma Combined | ||||||||||||||||
Liabilities | ||||||||||||||||||||
Short Term Liabilities | ||||||||||||||||||||
Accounts payable and accrued expenses | 1,866 | 2,127 | (1,866 | ) | C | 2,827 | ||||||||||||||
200 | C | |||||||||||||||||||
500 | K | |||||||||||||||||||
LMFA note payable | — | 350 | 350 | |||||||||||||||||
Convertible notes, less discount, related party | — | 413 | (413 | ) | G | — | ||||||||||||||
Due to related parties Working Capital | 2,768 | (1,018 | ) | L | 2,785 | |||||||||||||||
Extension | 1,035 | L | ||||||||||||||||||
Deferred underwriting commissions in connection with the initial public offering | 3,623 | (1,700 | ) | B | — | |||||||||||||||
50 | M | |||||||||||||||||||
(1,973 | ) | M | ||||||||||||||||||
Loan LMFA | 353 | N | 353 |
50
Maxim | 1,973 | M | 4,183 | |||||||||||||||||
Maxim | 140 | M | ||||||||||||||||||
Maxim | 2,070 | M | ||||||||||||||||||
Warrant liability | 1,129 | (727 | ) | H | 402 | |||||||||||||||
Derivative liability | — | — | — | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||
Total Short Term Liabilities | 9,386 | 2,890 | 10,900 | |||||||||||||||||
Long Term Liabilities | ||||||||||||||||||||
Notes payable—government loans, net of current portion | 63 | 63 | ||||||||||||||||||
Note Payable—3i or L1 | — | |||||||||||||||||||
Convertible notes, less discount, related party, net of current portion | 4,047 | (4,047 | ) | G | — | |||||||||||||||
Derivative liability | — | — | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||
Total Long Term Liabilities | — | 4,110 | 63 | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||
Total Liabilities | 9,386 | 7,000 | 10,963 | |||||||||||||||||
Class A common stock subject to possible redemption 10,350,000 shares at redemption value of $10.32 and $10.20 per share at September 30, 2022 and December 31, 2021, respectively | 106,849 | (1,471 | ) | E | 105,378 | |||||||||||||||
Convertible Preferred Stock | — | 73,349 | (73,349 | ) | F | — | ||||||||||||||
Stockholders’ Deficit | ||||||||||||||||||||
Common Stock | — | — | — | D | 1 | |||||||||||||||
1 | E | |||||||||||||||||||
1 | F | |||||||||||||||||||
(1 | ) | I | ||||||||||||||||||
Additional Paid in Capital | — | 853 | (15,108 | ) | ||||||||||||||||
(864 | ) | C | ||||||||||||||||||
(2,070 | ) | M | ||||||||||||||||||
1,470 | E | |||||||||||||||||||
(8,896 | ) | F | ||||||||||||||||||
73,348 | F | |||||||||||||||||||
4,460 | G | |||||||||||||||||||
727 | H | |||||||||||||||||||
5,000 | J | |||||||||||||||||||
2,000 | J | |||||||||||||||||||
1,000 | K | |||||||||||||||||||
(92,136 | ) | I | ||||||||||||||||||
Accumulated Deficit | (8,896 | ) | (80,110 | ) | 8,896 | F | (79,265 | ) | ||||||||||||
(124 | ) | C | ||||||||||||||||||
354 | A | |||||||||||||||||||
(50 | ) | M | ||||||||||||||||||
1,018 | L | |||||||||||||||||||
(353 | ) | N | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||
Total Stockholder’s Deficit | (8,896 | ) | (79,257 | ) | (94,372 | ) | ||||||||||||||
|
|
|
|
|
| |||||||||||||||
Total Liabilities and Stockholders’ Deficit | 107,339 | $ | 1,092 | $ | 21,969 | |||||||||||||||
|
|
|
|
|
|
51
Unaudited Pro Forma Condensed Combined Statement of Operations
for the Nine Months Ended September 30, 2022
(in thousands except share and per share amounts)
Actual Redemption | ||||||||||||||||||||
LMF Acquisition Opportunities Inc. | Sea Star Medical Inc. | Pro Forma Adjustments | Notes to Pro Forma Adjustments | Pro Forma Combined | ||||||||||||||||
Operating Expenses | ||||||||||||||||||||
Research and Development | $ | — | $ | 1,678 | $ | 1,678 | ||||||||||||||
Merger costs | 2,454 | 2,454 | ||||||||||||||||||
General and Administrative | 831 | 2,215 | 3,046 | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||
Total Operating Expenses | 3,285 | 3,893 | $ | 7,178 | ||||||||||||||||
|
|
|
|
|
| |||||||||||||||
Loss from Operations | (3,285 | ) | (3,893 | ) | (7,178 | ) | ||||||||||||||
Change in fair value of derivative liability | 578 | 578 | ||||||||||||||||||
Interest Expense | (483 | ) | (483 | ) | ||||||||||||||||
Gain on warrant liability revaluation | 5,801 | 5,801 | ||||||||||||||||||
Investment income earned on marketable securities held in Trust Account | 432 | $ | (432 | ) | — | |||||||||||||||
Other income | — | 1 | 1 | |||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Total Other Income (Loss) | 6,233 | 96 | (432 | ) | 5,897 | |||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Income (loss) before taxes | 2,948 | (3,797 | ) | (432 | ) | (1,281 | ) | |||||||||||||
Taxes | 1 | 1 | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Net Income (loss) | $ | 2,948 | $ | (3,798 | ) | $ | (432 | ) | $ | (1,282 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||||||
Income (loss) per share: | ||||||||||||||||||||
Basic weighted average shares outstanding of redeemable Class A common stock | 10,453,500 | — | 12,699,668 | |||||||||||||||||
Diluted weighted average shares outstanding of redeemable Class A common stock | 10,453,500 | — | 12,699,668 | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||
Basic net income (loss) per share, redeemable Class A common stock | $ | 0.23 | $ | — | $ | (0.10 | ) | |||||||||||||
|
|
|
|
|
| |||||||||||||||
Diluted net income (loss) per share, redeemable Class A common stock | $ | 0.23 | $ | — | $ | (0.10 | ) | |||||||||||||
|
|
|
|
|
| |||||||||||||||
Basic and diluted weighted average shares outstanding of non-redeemable common stock | 2,587,500 | — | ||||||||||||||||||
|
|
|
| |||||||||||||||||
Basic and diluted net income per share, non-redeemable common stock | $ | 0.04 | $ | — | ||||||||||||||||
|
|
|
| |||||||||||||||||
Weighted-average number of common shares used in computing net loss per share attributable to common stockholders—basic and diluted | — | — | ||||||||||||||||||
|
|
|
| |||||||||||||||||
Net loss per share attributable to common stockholders—basic and diluted | $ | — | $ | — | ||||||||||||||||
|
|
|
|
52
Unaudited Pro Forma Condensed Combined Statement of Operations
for the Year Ended December 31, 2021
($ in thousands, except share and per share amounts) | Actual Redemption | |||||||||||||||||||
LMF Acquisition Opportunities Inc. | Sea Star Medical Inc. | Pro Forma Adjustments | Notes to Pro Forma Adjustments | Pro Forma Combined | ||||||||||||||||
Operating Expenses | ||||||||||||||||||||
Research and Development | $ | — | $ | 2,766 | $ | 2,766 | ||||||||||||||
General and Administrative | 1,122 | 1,683 | 2,805 | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||
Total Operating Expenses | 1,122 | 4,449 | $ | 5,571 | ||||||||||||||||
|
|
|
|
|
| |||||||||||||||
Loss from Operations | (1,122 | ) | (4,449 | ) | (5,571 | ) | ||||||||||||||
Change in fair value of derivative liability | (27 | ) | (27 | ) | ||||||||||||||||
Interest Expense | (212 | ) | (212 | ) | ||||||||||||||||
Gain on warrant liability revaluation | 1,186 | 1,186 | ||||||||||||||||||
Investment Income Earned on Marketable Securities Held in Trust Account | 12 | $ | (12 | ) | aa | — | ||||||||||||||
Other income | — | 91 | 91 | |||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Total Other Income (Loss) | 1,198 | (148 | ) | (12 | ) | 1,038 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Income (loss) before taxes | 76 | (4,597 | ) | (12 | ) | (4,533 | ) | |||||||||||||
Taxes | (1 | ) | (1 | ) | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Net Income (loss) | $ | 76 | $ | (4,596 | ) | $ | (12 | ) | $ | (4,532 | ) | |||||||||
|
|
|
|
|
|
|
| |||||||||||||
Income (loss) per share: | ||||||||||||||||||||
Basic weighted average share outstanding of redeemable Class A Common Stock | 9,651,587 | — | 12,800,000 | |||||||||||||||||
Diluted weighted average share outstanding of redeemable Class A Common Stock | 9,651,587 | — | 12,800,000 | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||
Basic net income (loss) per share, redeemable Class A Common Stock | $ | 0.02 | $ | — | $ | (0.35 | ) | |||||||||||||
|
|
|
|
|
| |||||||||||||||
Diluted net income (loss) per share, redeemable Class A Common Stock | $ | 0.02 | $ | — | $ | (0.35 | ) | |||||||||||||
|
|
|
|
|
| |||||||||||||||
Basic and diluted weighted average shares outstanding of non-redeemable Class B Common Stock | 2,554,418 | — | — | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||
Basic and diluted net income per share, non-redeemable Class B Common Stock | $ | 0.02 | $ | — | $ | — | ||||||||||||||
|
|
|
|
|
| |||||||||||||||
Weighted-average number of common shares used in computing net loss per share attributable to common stockholders—basic and diluted | — | — | — | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||
Net loss per share attributable to common stockholders—basic and diluted | $ | — | $ | — | $ | — | ||||||||||||||
|
|
|
|
|
|
53
Notes to Unaudited Pro Forma Condensed Combined Financial Information
1. | Description of the Business Combination |
On April 21, 2022, LMAO, Merger Sub and SeaStar Medical entered into the Merger Agreement, pursuant to which Merger Sub will be merged with and into SeaStar Medical, with SeaStar Medical surviving the merger as a direct wholly-owned subsidiary of LMAO.
As a result of the Merger Agreement and application of the Exchange Ratio (as defined in the units we are offering by this prospectus (or 8,625,000Merger Agreement), former stockholders of SeaStar Medical will receive an aggregate number of 7,837,628 shares of Class A common stock if the underwriters’ over-allotment option is exercised in full), the saleCommon Stock. The issuance of the private placement warrants and the deduction of underwriting commissions and estimated expenses of this offering, our pro forma net tangible book value at November 6, 2020 would have been $5,000,001, or approximately $1.96 per share (or $1.74 per share if the underwriters’ over-allotment option is exercised in full), representing an immediate increase in net tangible book value (as decreased by the value of the approximately 6,896,0407,837,628 shares of Class A common stock that may be redeemed for cash, or 7,931,529 shares of Class A common stock if the underwriters’ over-allotment option is exercised in full) of $1.96 per share (or $1.74 per share if the underwriters’ over-allotment option is exercised in full) to our initial stockholders as of the date of this prospectus and an immediate dilution of $8.04 per share (or $8.26 per share if the underwriters’ over-allotment option is exercised in full) to our public shareholdersCommon Stock does not exercising their redemption rights.
The following table illustrates the dilution to the public stockholders on a per-share basis, assuming no value is attributed to the warrants included in the units or the private placement warrants:
| No exercise of over-allotment option | Exercise of over-allotment option in full | ||||||||
Public offering price |
|
| $ | 10.00 |
|
|
| $ | 10.00 |
|
Net tangible book value before this offering | $ | (0.03) |
|
|
| $ | (0.03) |
|
|
|
Increase attributable to public stockholders and sale of the private placement warrants | $ | 1.98 |
|
|
| $ | 1.76 |
|
|
|
Pro forma net tangible book value after this offering |
|
| $ | 1.96 |
|
|
| $ | 1.74 |
|
Dilution to public stockholders |
|
| $ | 8.04 |
|
|
| $ | 8.26 |
|
Percentage of dilution to public stockholders |
|
|
| 80.42 | % |
|
|
| 82.60 | % |
For purposes of presentation, we have reduced our pro forma net tangible book value after this offering (assuming no exercise of the underwriters’ over-allotment option) by $5,000,001 because holders of up to approximately 91.9% of our public shares may redeem their shares for a pro rata share of the aggregate amount then on deposit in the trusttake into account at a per share redemption price equal to the amount in the trust account as set forth in our tender offer or proxy materials (initially anticipated to be the aggregate amount held in trust two days prior to the commencement of our tender offer or stockholders meeting, including interest earned on the funds held in the trust account and not previously released to us to pay our franchise and income taxes), divided by the number of shares of Class A commonCommon Stock that will be withheld at closing of the Business Combination for future issuance in connection with the exercise of the SeaStar Medical warrants and the SeaStar Medical options assumed by LMAO and the settlement of the SeaStar Medical restricted stock sold in this offering.units assumed by LMAO.
The following table sets forth information with respectsummarizes the pro forma shares of the Company’s Common Stock to our initial stockholdersbe outstanding after giving effect to the Business Combination and the public stockholders:PIPE Investment.
2. | Basis of Presentation |
The unaudited pro forma condensed combined financial information has been prepared in accordance with SEC Regulation S-X Article 11, as amended by the final rule, Amendments to Financial Disclosures About Acquired and Disposed Businesses, as adopted by the SEC on May 21, 2020. The historical financial information of LMAO and SeaStar Medical have been adjusted in the unaudited pro forma condensed combined financial information to reflect transaction accounting adjustments related to the Business Combination, in accordance with GAAP.
The Business Combination will be accounted for as a reverse recapitalization because SeaStar Medical has been determined to be the accounting acquirer under FASB ASC Topic 805, Business Combinations. The determination is primarily based on the evaluation of the following facts and circumstances taken into consideration:
• | The pre-Business Combination stockholders of SeaStar Medical are generally expected to hold majority of voting rights in the Company; |
• | The pre-Business Combination stockholders of SeaStar Medical have the right to appoint the majority of directors to the Company’s Board; |
| Shares Purchased | Total Consideration | Average Price Per Share | |||||||
| Number | Percentage | Amount | Percentage | ||||||
Initial Stockholders(1) | 1,875,000 | 19.84 | % | $ | 25,000 | 0.03 | % | $ | 0.01 | |
Representative’s Shares (2) | 75,000 | 0.79 | % |
| 750,000 | 0.99 | % | $ | 10.00 | |
Public Stockholders | 7,500,000 | 79.37 | % | $ | 75,000,000 | 98.98 | % | $ | 10.00 | |
| 9,450,000 | 100.0 | % | $ | 75,775,000 | 100.000 | % |
|
| |
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|
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|
|
|
|
| |
(1)Assumes no exercise of the underwriters’ over-allotment option. | ||||||||||
(2) Assumes the issuance of 75,000 shares of Class A common stock to the representative. |
Senior management of SeaStar Medical comprise the senior management of the Company; and
The operations of SeaStar Medical comprise the only ongoing operations of the Company.
Under the reverse recapitalization model, the Business Combination will be treated as SeaStar Medical issuing equity for the net assets of LMAO, with no goodwill or intangible assets recorded.
3. | Transaction Accounting Adjustments |
Adjustments to the Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30, 2022
The transaction accounting adjustments included in the unaudited pro forma net tangible book value per share after the offering is calculatedcondensed combined balance sheet as of September 30, 2022 are as follows:
A | Cash released from Trust Account |
Adjustment to transfer $108.4 million of marketable securities held by LMAO in its Trust Account and converted into cash resources upon close of the Business Combination. Represents the impact of the Business Combination on the cash balance of the Company.
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| Without Over-allotment | With Over-allotment | |||
Numerator: |
|
|
|
| |
Net tangible book value deficit before this offering | $ | (48,000) | $ | (48,000) | |
Net proceeds from this offering and sale of the private placement warrants, net of expenses(1) |
| 77,250,000 |
| 88,725,000 | |
Plus: Offering costs paid in advance, excluded from tangible book value |
| 73,000 |
| 73,000 | |
Less: Deferred underwriting commissions |
| (2,625,000) |
| (3,018,750) | |
Less: Proceeds held in trust subject to redemption to maintain net tangible assets of $5,000,001(2) |
| (69,649,999) |
| (80,731,249) | |
| $ | 5,000,001 | $ | 5,000,001 | |
Denominator: |
|
|
|
| |
Shares of Class B common stock outstanding prior to this offering |
| 2,156,250 |
| 2,156,250 | |
Shares of Class B common stock forfeited if over-allotment is not exercised |
| (281,250) |
| - | |
Shares of Class A common stock issuable to representative |
| 75,000 |
| 86,250 | |
Shares of Class A common stock included in the units offered |
| 7,500,000 |
| 8,625,000 | |
Less: Shares subject to redemption |
| (6,896,039) |
| (7,993,192) | |
|
| 2,553,961 |
| 2,874,308 | |
|
|
B | Deferred underwriter fee |
A payment of $1.7 million of the $3.6 million deferred underwriting fee related to LMAO’s initial public offering of 10,350,000 units consummated on January 28, 2021 (the “IPO”) that will be paid upon closing of the Business Combination. The remaining amount will be converted into a Note.
C | Transaction costs |
Adjustment to decrease cash by $6.1 million and additional paid-in capital. The adjustment relates to direct and incremental transaction costs that will be comprised of legal, D&O tail, accounting, industry diligence and miscellaneous fees in addition to the fee for the Tumim equity line.
D | Automatic conversion of LMAO Class B common stock into Class A common stock |
Adjustment of $0.2 relates to the conversion of 2,587,500 shares of Class B Common Stock with a par value of $0.0001 into Class A Common Stock with a par value of $0.0001 on a one-to-one basis.
E | Reclassification of LMAO Class A common stock to reflect actual redemptions |
F | Conversion of SeaStar’s convertible preferred stock (Series A and Series B) and common stock into LMAO Class A common stock |
Represents an exchange of convertible preferred stock (Series A and Series B) and common stock in SeaStar Medical.
An adjustment to eliminate LMAO’s accumulated deficit of approximately $7.00 million.
Using an Exchange Ratio of approximately 1.203-for-1 the total number of shares of the Company’s Common Stock to be issued to SeaStar Medical stockholders will be 7,837,628 shares. Based on a par value of $0.0001.
G | Conversion of |
The related party note payable will convert into 497,732 common shares of SeaStar Medical as of October 28, 2022, which will convert into 598,861 shares of Common Stock.
H | Reclassification of LMAO Public Warrants from liability to equity |
Adjustment related to the reclassification of the LMAO public warrants from liability. Reduction of warrant liability balance by $0.7 million, which represents the fair value of the LMAO public warrants at September 30, 2022, with an offsetting increase to additional paid-in-capital for the same amount.
Upon the Closing, shares underlying the LMAO public warrants are not redeemable and the Company will have one single class of voting stock, which does not preclude the LMAO public warrants from being considered indexed to the Company’s equity and allows the LMAO public warrants to meet the criteria for equity classification per ASC 815-40, Contracts on an Entity’s Own Equity.
The LMAO private warrants and PIPE Warrants would continue to be classified as liabilities following the Business Combination because their settlement amount differs depending on the identity of the holder.
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I | Reclassification of Class A Common Stock reflecting actual number of redemptions |
To record the actual number of Class A Common Stock redemptions, 8,878,960 shares of the Class A Common Stock redeemed at a redemption price of $10.377. The adjustment will reduce cash by $92.1 million, additional paid in capital by $92.1 million, and the Common Stock by $1,000 for the par value of the shares.
J | PIPE Investment—$7.0 million |
Represents the issuance of 700,000 shares of Common Stock and PIPE Warrants representing the $7 million PIPE Investment by the PIPE Investors.
K | Equity Line Fee |
Borrowing Costs for Equity Line. Includes $2.5 million fee for line of which $1 million is paid at closing, $0.5 million within 45 days and $1 million in stock.
L | Related Party LMAO Working Capital Loan of $1.035 million |
Represents the advance of approximately $1.035 million of additional working capital loan from LMAO that will convert to a Note at closing.
M | Loans |
Payment for $0.14 million for PIPE fee, $2.070 million for M&A fee and the remaining Underwriting fee of $1.923 million will convert into a Note at closing. Includes $0.15 million for EGS legal of which $0.05 million was not previously expensed.
N | SeaStar Medical Working Capital Loan |
Funding of SeaStar Medical working capital loan for $0.353 million.
O | FPA |
Payment under FPA agreements.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is intended to help you understand our business, financial condition, results of operations, liquidity and capital resources. You should read this discussion in conjunction with the Company’s consolidated financial statements and related notes thereto included elsewhere in this prospectus. In connection with the Business Combination, SeaStar Medical was determined to be the accounting acquirer.
In addition to historical financial analysis, this discussion and analysis contains forward-looking statements based upon current expectations that involve risks, uncertainties and assumptions, as described under the heading “Cautionary Note Regarding Forward-Looking Statements.” Actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of various factors, risks and uncertainties, including those set forth under “Risk Factors” included elsewhere (or incorporated by reference) in this prospectus. Unless the context otherwise requires, references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to “we,” “us,” “our,” and “the Company” are intended to mean the business and operations of SeaStar Medical Holding Corporation and its consolidated subsidiaries following the Business Combination, and references to “SeaStar Medical” refers to SeaStar Medical Inc.
Overview
The Company is a medical technology company developing a platform therapy to reduce the consequences of hyperinflammation on vital organs. In a normal inflammatory response, neutrophils are the first immune cells to arrive at the site and are key to the entire immune response that kills pathogens and promotes tissue repair. If the inflammatory response becomes excessive and dysregulated, normal neutrophil die off may be delayed, altering feedback mechanisms that regulate the immune system. This results in damaging hyperinflammation spreading uncontrollably to other parts of the body, often leading to acute chronic solid organ dysfunction or failure, including heart, lung, kidney and liver diseases. This hyperinflammatory response is also known as the cytokine storm, referring to the body’s reaction to the category of small-secreted proteins released by hyperinflammatory cells that affect communication between cells. The cytokine storm, when left uncontrolled, can lead to organ damage and even death.
We are initially using our proprietary SCD technology platform to clinically validate several acute organ injury indications, including kidneys and lungs. Our investigational SCD is an extracorporeal synthetic membrane device designed to be easily integrated into existing CRRT systems that are commonly installed in hospitals, including in ICUs throughout the United States. Once approved and commercialized, the SCD would initially target acute kidney injury in both the pediatric CRRT population as well as adults on CRRT. In addition, we are developing our SCD to address inflammation associated with chronic dialysis and chronic heart failure.
We have incurred net losses in each year since our inception in 2007. As of December 31, 2021 and 2020, we had an accumulated deficit of $76.3 million and $71.7 million, respectively. Our net losses were $4.6 million and $3.3 million for the years ended December 31, 2021 and 2020, respectively. Substantially all of our net losses resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations.
As of September 30, 2022, we had an accumulated deficit of $80.1 million. Our net losses were $3.8 million for the nine months ended September 30, 2022. Substantially all of our net losses resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations.
As of September 30, 2022 and December 31, 2021, we had cash of $0.05 million and $0.5 million, respectively. Since January 1, 2022, we have raised an aggregate of $1.7 million through the issuance of convertible promissory notes to certain existing stockholders of SeaStar Medical, and $0.35 from LMFA.
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Our accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liabilities in the normal course of business. Our financial statements do not include any adjustments relating to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
The recurring losses, working capital deficiency, the need for capital to fund our operations, including clinical trial and regulatory approval expenses, the amount of cash reserve and the dependency of closing the Business Combination are factors that raise substantial doubt about our ability to continue as a going concern for the twelve-month period from the date the financial statements included herein were made available. See Note 1 to our interim unaudited financial statements for the period ended September 30, 2022 included elsewhere in this Form S-1 for additional information on our assessment.
Our need for additional capital will depend in part on the scope and costs of our development activities. To date, we have not generated any significant revenue from the sale of commercialized products. Our ability to generate product revenue will depend on the successful development and eventual commercialization of our products. Until such time, if ever, we expect to finance our operations through the sale of equity or debt, borrowings under credit facilities, potential collaborations, other strategic transactions or government and other grants. Adequate capital may not be available to us when needed or on acceptable terms. If we are unable to raise capital, we could be forced to delay, reduce, suspend or cease our research and development programs or any future commercialization efforts, which would have a negative impact on our business, prospects, operating results and financial condition. See the section titled “Risk Factors” contained in the final prospectus and definitive proxy statement (the “Proxy Statement/Prospectus”) filed with the SEC on September 28, 2022 by LMAO for additional information.
The shares of Common Stock being offered for resale pursuant to this prospectus by the Selling Stockholder represent approximately 34.6% of shares outstanding on a fully diluted basis and approximately 71.4% of the total number of outstanding shares held by non-affiliates as of January 20, 2023. Given the substantial number of shares of Common Stock being registered for potential resale by Selling Stockholder pursuant to this prospectus, the sale of shares by the Selling Stockholder, or the perception in the market that the Selling Stockholder of a large number of shares intend to sell shares, could increase the volatility of the market price of our Common Stock or result in a significant decline in the public trading price of our Common Stock. These sales, or the possibility that these sales may occur, and any related volatility or decrease in market price of our Common Stock, might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. See “Risk Factors— The sale of the shares of Common Stock acquired by the Selling Stockholder, or the perception that such sales may occur, could cause the price of our Common Stock to fall.”
On October 17 and October 25, 2022, LMAO and SeaStar Medical entered into prepaid forward agreements (the “Prepaid Forward Agreements”) with Vellar Opportunity Fund SPV LLC—Series 4 (“Vellar”) and HB Strategies LLC (“HB Strategies” and together with Vellar, the “PFA Sellers”), respectively. Pursuant to the terms of the Prepaid Forward Agreements, the PFA Sellers may purchase, through a broker in the open market, shares of Class A Common Stock from holders other than LMAO or affiliates of LMAO, including from holders who have previously elected to redeem shares pursuant to the redemption rights in connection with the Business Combination (such purchased shares, the “Recycled Shares”). While the PFA Sellers have no obligation to purchase any shares under the Prepaid Forward Agreements, the aggregate total Recycled Shares that may be purchased under the Prepaid Forward Agreements shall be no more than 2,200,000 shares (the “Maximum Number of Shares”), exclusive of the Additional Shares (as defined below), and the actual number of Recycled Shares that will be purchased under the Prepaid Forward Agreement is referred to as the “Number of Shares”. The PFA Sellers have agreed to hold the Recycled Shares in a bankruptcy remote special purpose vehicle for the benefit of the Company. Each PFA Seller also may not beneficially own greater than 9.9% of issued and outstanding shares following the Business Combination.
The Prepaid Forward Agreements provide that, no later than the earlier of (a) one (1) local business day after the Closing and (b) the date any assets from LMAO’s trust account are disbursed in connection with the Business Combination, the PFA Sellers shall be paid directly, out of the funds held in LMAO’s trust account, a cash amount (the “Prepayment Amount”) equal to the Number of Shares multiplied by the Per-Share Redemption Price (the “Redemption Price”).
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In addition to the Prepayment Amount, the PFA Sellers shall be paid directly from LMAO’s trust account an amount equal to the product of 150,000 multiplied by the Redemption Price (the “Share Consideration”), for the purpose of repayment of the PFA Sellers purchasing, prior to the Closing, an aggregate of 150,000 additional Shares (the “Additional Shares”) from third parties in the open market through a broker, which Shares shall not be included in the Number of Shares under the Prepaid Forward Agreements, and which Additional Shares will be free and clear of all obligations of the PFA Seller in connection with the Prepaid Forward Agreement.
At the time of the Closing, the Company paid, from LMAO’s trust account, (i) an aggregate of $6,570,828.00 to Vellar as Prepayment Amount, Share Consideration and reimbursement of certain expenses incurred by Vellar in connection with the Prepaid Forward Agreement, and (ii)) an aggregate of $7,787,500.00 to HB Strategies as Prepayment Amount, Share Consideration and reimbursemenet of certain expenses incurred by HB in connection with the Prepaid Forward Agreement.
The PFA Sellers may in its discretion sell Recycled Shares that they purchase, the effect of which is to terminate the Prepaid Forward Agreements in respect of such Recycled Shares sold (the “Terminated Shares”). The Company shall be entitled to proceeds from such sales of Terminated Shares equal to the product of (x) the number of Terminated Shares multiplied by (y) the Reset Price. Following the Closing, the “Reset Price” will initially be $10.00 per Share, but will be adjusted on the last scheduled trading day of each month (each a “Reset Date”) commencing on the first calendar month following the Closing to the lowest of (a) the then-current Reset Price, (b) $10.00 and (c) the volume weighted average price (“VWAP Price”) of the Shares of the last ten (10) trading days of the prior calendar month, but not lower than $5.00; provided, however, that to the extent the Company sells, enters any agreement to sell or grants any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any shares or any securities of the Company or any of its subsidiaries which would entitle the holder thereof to acquire at any time shares, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, shares, at an effective price per share less than the then existing Reset Price, then the Reset Price shall be adjusted to equal such reduced price.
The maturity date of the prepaid forward transaction (the “Maturity Date”) will be the earliest to occur of (a) the third anniversary of the Closing and (b) the date following the effective date specified by the PFA Sellers in a written notice to be delivered at each PFA Seller’s discretion (not earlier than the day such notice is effective) after any occurrence wherein during any 30 consecutive trading-day period, the VWAP Price for 20 trading days is less than $3.00 per Share (a “VWAP Trigger Event”). Upon the occurrence of the Maturity Date, the Company is obligated to pay to Seller an amount equal to the product of (a) (x) the Maximum Number of Shares less (y) the number of Terminated Shares multiplied by (b) $2.50 (the “Maturity Consideration”). The Maturity Consideration shall be payable by the Company, in cash or, at the option of Company, shares based on the daily VWAP Price over 30 trading days ending on (i) the Maturity Date to the extent the shares used to pay the Maturity Consideration are freely tradable by the PFA Sellers, or (ii) if not freely tradeable by the PFA Sellers, the date on which the shares used to pay the Maturity Consideration are registered under the Securities Act of 1933, as amended, and delivered to the PFA Sellers. If the Company pays the Maturity Consideration in shares, then the Company shall pay the Maturity Consideration on a net basis such that the PFA Sellers retain a Number of Shares due to the Company upon such Maturity Date equal to the number of Maturity Consideration Shares payable to the PFA Sellers, only to the extent the Number of Shares due to the Company upon the Maturity Date are equal to or more than the number of Maturity Consideration Shares payable to the PFA Sellers, with any Maturity Consideration remaining due to be paid to the PFA Sellers in newly issued shares. In addition to the Maturity Consideration, at the Maturity Date, the PFA Sellers will be entitled to retain a cash amount equal to the product of (y) the Number of Shares remaining in the prepaid forward transaction multiplied by (z) the Redemption Price, and the PFA Sellers will deliver to the Company the Number of Shares that remain in the prepaid forward transaction.
The Prepaid Forward Agreements may be terminated if any of the following events occurs (a) failure to consummate the Business Combination on or before the October 29, 2022, as such date may be amended or extended from time to time, (b) termination of the Merger Agreement prior to the Closing and (c) the shares of Common Stock are involved in a delisting on the relevant exchange and are not immediately re-listed, save for any transactions contemplated by the Merger Agreement. Upon such a termination event, a break-up fee equal to (i) all of the PFA Sellers’ actual out-of-pocket reasonable fees, costs and expenses relating to the Business Combination (without a cap) plus (ii) $1,000,000 is payable by SeaStar Medical to each PFA Seller in the event
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the prepaid forward ransaction is terminated by (a) the Company and the Business Combination closes or (b) the Company following the Closing (collectively, the “Break-Up Fee”); provided that the Break-Up Fee is not payable if the Business Combination does not close by reason of failure of PFA Sellers to purchase the Maximum Number of Shares or the PFA Sellers’ beach of the Prepaid Forward Agreements. However, the PFA Sellers have waived any and all right, title and interest, or any claim of any kind it has or may have in the future, in or to any monies held in LMAO’s trust account.
As of January 20, 2023, the PFA Sellers have paid the Company proceeds from sales of Terminated Shares of $701,885. While the Company may receive cash proceeds from sales of Terminated Shares by PFA Sellers, the PFA Sellers may not have any incentive to sell Terminated Shares unless the trading price of our Common Stock is above the Reset Price. The current Reset Price is $5.00 per share, and there is no guarantee that the trading price of our Common Stock will equal or exceed the current Reset Price, or that the future trading price of our Common Stock may equal or exceed the Reset Prices in subsequent applicable periods. In such a case, the PFA Sellers may not sell Terminated Shares, in which case we will not able to receive any cash proceeds from the forward purchase agreements. In addition, if PFA Sellers decide to sell their shares into the market, it may cause the trading price of our Common Stock to decline significantly.
Impact of COVID-19 Pandemic
While the broader economic implications remain uncertain, the COVID-19 pandemic has, to date, not had any significant impact on our operations or the timeline of our development activities and regulatory approval process. However, our SCD products have been used in pilot studies in patients developing AKI or acute respiratory distress syndrome associated with COVID-19 infection, and these studies were designed to assess the safety and efficacy of our SCD in treating critically ill patients infected by COVID-19. We believe that the COVID-19 pandemic has increased the awareness in the medical community of the devastating consequences of hyperinflammatory reactions, and such awareness may allow us to expand the market opportunities of SCD.
Key Components of Results of Operations
Revenue
To date, we have not generated any revenue from the sale of commercialized products. Revenue has been primarily derived from government and other grants. We may generate revenue in the future based on payments from future license or collaboration agreements and government and other grants, and, if our products receive regulatory approval for commercialization, from product sales. We expect that any revenue we generate will fluctuate from quarter to quarter. If we fail to complete the development of or obtain regulatory approval for commercialization of our products in a timely manner, our ability to generate future revenue, and our results of operations and financial position, would be materially adversely affected.
Research and Development Expenses
Since our inception, we have focused our resources on our research and development activities, including conducting preclinical studies and clinical trials, and developing our process and activities related to regulatory filings for our products. Subject to the availability of additional funding, we plan to further increase our research and development expenses for the foreseeable future as we continue the development of our products.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related costs for employees in executive and finance roles, which also include stock-based compensation expenses and benefits for such employees.
Other significant general and administrative expenses include facilities costs, professional fees for accounting and legal services and expenses associated with obtaining and maintaining patents. As we continue to expand and grow our operations, we expect that our general and administrative expenses will increase, including for additional expenses relating to new hires, travel, new enterprise resource planning platform, and branding.
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Other Income (Expenses), Net
Total other income (expense), net primarily consists of interest expense relating to interest incurred on our convertible notes, gains from the forgiveness of Paycheck Protection Program (“PPP”) loans under the CARES Act, gains from early extinguishment of convertible notes and changes in fair value of the derivative liability related to the conversion option of convertible notes.
Income from Operations and Operating Margin
Income from operations consists of the Company’s gross profit less its operating expenses. Operating margin is income from the Company’s operations as a percentage of its net sales.
Other Expense
Other expense consists primarily of the Company’s interest expense net of interest income.
Net Income
Net income consists of the Company’s income from operations, less other expense.
Factors Affecting the Company’s Operating Results
We believe that our performance and future success depend on a number of factors that present significant opportunities for us but also pose risks and challenges. Please see the factors discussed elsewhere in this prospectus, including those discussed in “Risk Factors,” for additional information.
Results of Operations
Comparison of Three and Nine Months Ended September 30, 2022 to Three and Nine Months Ended September 30, 2021
The following table sets forth a summary of our capitalization at November 6, 2020,results of operations. This information should be read together with our financial statements and as adjustedrelated notes included elsewhere in this Form S-1.
Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | |||||||||||||||||||||||||||||
($ in thousands) | 2022 | 2021 | $ | % | 2022 | 2021 | $ | % | ||||||||||||||||||||||||
Revenue | $ | — | $ | — | $ | — | — | |||||||||||||||||||||||||
Operating expenses | ||||||||||||||||||||||||||||||||
Research and development | 727 | 985 | (258 | ) | (26 | %) | 1,678 | 2,267 | (589 | ) | (26 | %) | ||||||||||||||||||||
General and administrative | 1,042 | 170 | 872 | 513 | % | 2,215 | 1,138 | 1,077 | 95 | % | ||||||||||||||||||||||
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Total operating expenses | 1,769 | 1,155 | 614 | 53 | % | 3,893 | 3,405 | 488 | 14 | % | ||||||||||||||||||||||
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Loss from operations | (1,769 | ) | (1,155 | ) | (614 | ) | 53 | % | (3,893 | ) | (3,405 | ) | (488 | ) | 14 | % | ||||||||||||||||
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Total other income (expense) | (122 | ) | (54 | ) | (68 | ) | 126 | % | 96 | 26 | 70 | 269 | % | |||||||||||||||||||
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Loss before income tax provision | (1,891 | ) | (1,209 | ) | (682 | ) | 56 | % | (3,797 | ) | (3,379 | ) | (418 | ) | 12 | % | ||||||||||||||||
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| |||||||||||||||||||||
Income tax provision (benefit) | 1 | (2 | ) | 3 | (150 | %) | 1 | (1 | ) | 2 | (200 | %) | ||||||||||||||||||||
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| |||||||||||||||||||||
Net loss | $ | (1,892 | ) | $ | (1,207 | ) | (685 | ) | 57 | % | $ | (3,798 | ) | $ | (3,378 | ) | (420 | ) | 12 | % | ||||||||||||
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Research and Development Expenses
The following table discloses the breakdown of research and development expenses:
Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | |||||||||||||||||||||||||||||
($ in thousands) | 2022 | 2021 | $ | % | 2022 | 2021 | $ | % | ||||||||||||||||||||||||
Clinical trials | $ | — | $ | 326 | $ | (326 | ) | (100 | %) | $ | 4 | $ | 965 | $ | (961 | ) | (100 | %) | ||||||||||||||
External services | 578 | 570 | 8 | 1 | % | 1,236 | 992 | 244 | 25 | % | ||||||||||||||||||||||
Payroll and personnel expenses | 110 | 88 | 22 | 25 | % | 279 | 254 | 25 | 10 | % | ||||||||||||||||||||||
Other research and development expenses | 39 | 1 | 38 | 3,800 | % | 159 | 56 | 103 | 184 | % | ||||||||||||||||||||||
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$ | 727 | $ | 985 | $ | (258 | ) | -26 | % | $ | 1,678 | $ | 2,267 | $ | (589 | ) | (26 | %) | |||||||||||||||
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Research and development expenses during the three months ended September 30, 2022 and 2021 were $0.7 million and $1.0 million, respectively. The $0.3 decrease, or 26%, was primarily related to give effectfewer activities in clinical trials in progress during the three months ended September 30, 2022.
Research and development expenses during the nine months ended September 30, 2022 and 2021 were $1.7 million and $2.3 million, respectively. The decrease of $0.6 million, or 26%, was primarily related to fewer activities in clinical trials in progress during the nine months ended September 30, 2022, partially offset by increases in legal fees and costs in laboratory testing.
General and Administrative Expenses
General and administrative expenses and development expenses during the three months ended September 30, 2022 and 2021 were $1.0 million and $0.2 million, respectively. The increase in general and administrative expenses of $0.8 million, or 513%, was driven primarily by the recording of employee stock expense related to the salegrant of ourrestricted stock units in this offering and the sale of the private placement warrants and the application of the estimated net proceeds derived from the sale of such securities, assuming no exercise by the underwriters of their over-allotment option:
| November 6, 2020 | ||||
| Actual | As Adjusted | |||
Advances from related party(1) | $ | - | $ | - | |
Deferred underwriting commissions |
| - |
| 2,625,000 | |
Class A common stock, $0.0001 par value subject to redemption, 0 and 6,896,040 shares are subject to possible redemption, actual and as adjusted, respectively(2) |
|
|
| 69,649,999 | |
Preferred stock, $0.0001 par value, 1,000,000 and 1,000,000 shares authorized; none issued or outstanding |
| - |
| - | |
Class A common stock, $0.0001 par value, 100,000,000 shares authorized; 0 and 753,218 shares issued and outstanding (excluding 0 and 6,896,040 shares subject to possible redemption), actual and as adjusted, respectively(3) |
| - |
| 68 | |
Class B common stock, $0.0001 par value, 20,000,000 shares authorized, 2,156,250 and 2,156,250 shares issued and outstanding, actual and as adjusted, respectively |
| 216 |
| 188 | |
Additional paid-in capital |
| 24,784 |
| 4,999,745 | |
Accumulated deficit |
| - |
|
| |
Total stockholders’ equity | $ | 25,000 | $ | 5,000,001 | |
Total capitalization | $ | 25,000 | $ | 77,275,000 | |
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(1)Our sponsor is anticipated to loan us up to $300,000 to be used for a portion of the expenses of this offering. The “as adjusted” information gives effect to the repayment of any loans made under this note out of the proceeds from this offering and the sale of the private placement warrants. However, as of January 15, 2021, we had borrowed $100,000 under the promissory note with our sponsor to be used for a portion of the expenses of this offering. (2)Upon the completion of our initial business combination, we will provide our stockholders with the opportunity to redeem their public shares for cash equal to their pro rata share of the aggregate amount then on deposit in the trust account as of two business days prior to the consummation of the initial business combination including interest earned on the funds held in the trust account and not previously released to us to pay our franchise and income taxes, subject to the limitations described herein whereby our net tangible assets will be maintained at a minimum of $5,000,001 and any limitations (including, but not limited to, cash requirements) created by the terms of the proposed initial business combination. (3)Actual share amount is prior to any forfeiture of founder shares by our sponsor and as adjusted amount assumes no exercise of the underwriters’ over-allotment option. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
We are a blank check company incorporated as a Delaware corporation and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. We have not selected any specific business combination target and we have not, nor has anyone on our behalf, initiated any substantive discussions, directly or indirectly, with any business combination target. We intend to effectuate our initial business combination using cash from the proceeds of this offering and the private placement of the private placement warrants, the proceeds of the sale of our shares in connection with our initial business combination (including pursuant to forward purchase agreements or backstop agreements we may enter into following the consummation of this offering or otherwise), shares issued to the owners of the target, debt issued to bank or other lenders or the owners of the target, or a combination of the foregoing.
The issuance of additional shares in connection with an initial business combination to the owners of the target or other investors:
may significantly dilute the equity interest of investors in this offering, which dilution would increase if the anti-dilution provisions in the Class B common stock resulted in the issuance of Class A shares on a greater than one-to-one basis upon conversion of the Class B common stock;
may subordinate the rights of holders of our common stock if preferred stock is issued with rights senior to those afforded our common stock;
could cause a change in control if a substantial number of shares of our common stock is issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present officers and directors;
may have the effect of delaying or preventing a change of control of us by diluting the stock ownership or voting rights of a person seeking to obtain control of us; and
may adversely affect prevailing market prices for our Class A common stock and/or warrants.
Similarly, if we issue debt securities or otherwise incur significant debt to bank or other lenders or the owners of a target, it could result in:
default and foreclosure on our assets if our operating revenues after an initial business combination are insufficient to repay our debt obligations;
acceleration of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant;
our immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand;
our inability to obtain necessary additional financing if the debt security contains covenants restricting our ability to obtain such financing while the debt security is outstanding;
our inability to pay dividends on our common stock;
using a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends on our common stock if declared, our ability to pay expenses, make capital expenditures and acquisitions, and fund other general corporate purposes;
limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate;
increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation;
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other purposes and other disadvantages compared to our competitors who have less debt.
As indicated in the accompanying financial statements, at November 6, 2020, we had $25,000 in cash and $73,000 in deferred offering costs. Further, we expect to continue to incur significant costs in the pursuit of our initial business combination plans. We cannot assure you that our plans to raise capital or to complete our initial business combination will be successful.
Results of Operations and Known Trends or Future Events
We have neither engaged in any operations nor generated any revenues to date. Our only activities since inception have been organizational activities and those necessary to prepare for this offering. Following this offering, we will not generate any operating revenues until after completion of our initial business combination. We will generate non-operating income in the form of interest income on cash and cash equivalents after this offering. There has been no significant change in our financial or trading position and no material adverse change has occurred since the date of our audited financial statements. After this offering, we expect to incur increased expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance)(“RSUs”), as well as increases in bonus accruals, Directors’ compensation, costs related to hiring new employees, travel, and consulting services.
General and administrative expenses and development expenses during the nine months ended September 30, 2022 and 2021 were $2.2 million and $1.1 million, respectively. The increase in general and administrative expenses of $1.1 million, or 95%, was driven primarily by an increase of employee stock expense related to the grant of RSUs, as well as increases in bonus accruals, Directors’ compensation, and costs related to hiring new employees, travel, and consulting services.
Other Income (Expense)
Other income (expense) during the three months ended September 30, 2022 and 2021 were $0.1 million and $0.0 million, respectively. The increase in other expense of $0.1 million, or 126%, related to the increase in interest expense due to additional convertible notes and the issuance of the LMFA Note (as defined below).
Other income (expense) during the nine months ended September 30, 2022 and 2021 were $0.1 million and $0.0 million, respectively. The increase in other income of $0.1 million, or 269%, related to the change in fair value of the derivative liability related to the convertible notes, which was partially offset by an increase in interest expense due to the issuance of additional convertible notes and the issuance of the LMFA Note.
Income Tax Provision (Benefit)
We recorded an income tax provision (benefit) of approximately $0.0 million and $0.0 million for the three months ended September 30, 2022 and 2021, respectively.
We recorded an income tax provision (benefit) of approximately $0.0 million and $0.0 million for the nine months ended September 30, 2022 and 2021, respectively.
Under ASC 740-10-30-5,Income Taxes, deferred tax assets should be reduced by a valuation allowance if, based on the weight of available evidence, it is more-likely-than-not (i.e., a likelihood of more than 50%) that some portion or all of the deferred tax assets will not be realized. We consider all positive and negative evidence available in determining the potential realization of deferred tax assets including, primarily, the recent history of taxable earnings or losses. Based on operating losses reported by us during 2021 and 2020, we conductconcluded there was not sufficient positive evidence to overcome this recent operating history. As a result, we believe that a valuation allowance continues to be necessary based on the more-likely-than-not threshold noted above.
Net Loss
During the three months ended September 30, 2022, SeaStar Medical had a net loss of $1.9 million as compared to a net loss of $1.2 million for the three months ended September 30, 2021. The increased net loss of $0.7 million primarily resulted from the recording of employee stock expense related to the grant of RSUs, as well as increases in bonus accruals, Directors’ compensation, costs related to hiring new employees, travel and consulting expenses, partially offset by the reduction in costs related to clinical trials.
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During the nine months ended September 30, 2022, SeaStar Medical had a net loss of $3.8 million as compared to a net loss of $3.4 million for the nine months ended September 30, 2021. The increased net loss of $0.4 million primarily resulted from the recording of employee stock compensation expense related to the granting of RSUs and increases in interest expense, which was partially offset by the reduction in costs related to the clinical trial and the change in fair value of the derivative liability.
Comparison of Year Ended December 31, 2021 to Year Ended December 31, 2020
The following table sets forth a summary of our results of operations. This information should be read together with our financial statements and related notes included elsewhere in the Current Report on Form 8-K of which this exhibit is a part.
Year Ended December 31, | Change | |||||||||||||||
($ in thousands) | 2021 | 2020 | $ | % | ||||||||||||
Revenue | $ | — | $ | — | $ | — | — | |||||||||
Operating expenses | ||||||||||||||||
Research and development | 2,766 | 4,025 | (1,259 | ) | (31 | )% | ||||||||||
General and administrative | 1,683 | 2,428 | (745 | ) | (31 | )% | ||||||||||
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Total operating expenses | 4,449 | 6,453 | (2,004 | ) | (31 | )% | ||||||||||
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Loss from operations | (4,449 | ) | (6,453 | ) | (2,004 | ) | (31 | )% | ||||||||
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Total other income (expense) | (148 | ) | 3,186 | (3,334 | ) | (105 | )% | |||||||||
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Loss before income tax provision | (4,597 | ) | (3,267 | ) | (1,330 | ) | 41 | % | ||||||||
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Income tax provision (benefit) | (1 | ) | 9 | (10 | ) | (111 | )% | |||||||||
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Net loss | $ | (4,596 | ) | $ | (3,276 | ) | $ | (1,320 | ) | 40 | % | |||||
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Research and Development Expenses
The following table discloses the breakdown of research and development expenses:
Year Ended December 31, | Change | |||||||||||||||
($ in thousands) | 2021 | 2020 | $ | % | ||||||||||||
Clinical trials | $ | 989 | $ | 1,703 | $ | (714 | ) | (42 | )% | |||||||
External services | 1,278 | 1,384 | (106 | ) | (8 | )% | ||||||||||
Payroll and personnel expenses | 353 | 291 | 62 | 21 | % | |||||||||||
Other research and development expenses | 146 | 647 | (501 | ) | (77 | )% | ||||||||||
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$ | 2,766 | $ | 4,025 | $ | (1,259 | ) | (31 | )% | ||||||||
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Research and development expenses for the year ended December 31, 2021 and 2020 were $2.8 million and $4.0 million, respectively. The decrease of $1.2 million, or 31%, was primarily due diligenceto the suspension of our development efforts on prospective business combination candidates. We expectan additional product offering.
General and Administrative Expenses
General and administrative expenses for the year ended December 31, 2021 and 2020 were $1.7 million and $2.4 million, respectively. The decrease in general and administrative expenses of $0.7 million, or 31%, was driven by a reduction in travel during the COVID-19 pandemic and our adoption of a lower operating budget in 2021. Additionally, we relocated to Colorado from California, reducing our facilities costs and other overhead.
Other Income (Expense)
Other income (expense) for the year ended December 31, 2021 and 2020 were $(0.1) million and $3.2 million, respectively. The decrease of $3.3 million primarily resulted from a gain on the early extinguishment of convertible notes of $6.3 million during the year ended December 31, 2020, partially offset by a $3.1 million decrease in interest expense.
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Income Tax Provision (Benefit)
SeaStar Medical recorded an income tax provision (benefit) of approximately $0.0 million and $0.0 million for the years ended December 31, 2021 and 2020, respectively.
Under ASC 740-10-30-5,Income Taxes, deferred tax assets should be reduced by a valuation allowance if, based on the weight of available evidence, it is more-likely-than-not (i.e., a likelihood of more than 50%) that some portion or all of the deferred tax assets will not be realized. SeaStar Medical considers all positive and negative evidence available in determining the potential realization of deferred tax assets including, primarily, the recent history of taxable earnings or losses. Based on operating losses reported by SeaStar Medical during 2021 and 2020, SeaStar Medical concluded there was not sufficient positive evidence to overcome this recent operating history. As a result, SeaStar Medical believes that a valuation allowance continues to be necessary based on the more-likely-than-not threshold noted above. SeaStar Medical recorded a valuation allowance of approximately $18.2 million and $17.3 million for the year ended December 31, 2021 and 2020, respectively.
Net Loss
During the year ended December 31, 2021, SeaStar Medical had a net loss of $4.6 million as compared to a net loss of $3.3 million for the year ended December 31, 2020. The increased net loss of $1.3 million primarily resulted from a gain on early extinguishment of convertible notes of $6.3 million during the year ended December 31, 2020, partially offset by the decreases in operating expenses to increase substantially after the closing of this offering.and interest expense mentioned above.
Liquidity and Capital Resources
Sources of Liquidity
To date, we have financed our operations primarily through the sale of equity securities and convertible debt and, to a lesser extent, through grants from governmental and other agencies. Since our inception, we have incurred significant operating losses and negative cash flows. As indicated in the accompanying financial statements, at November 6,of September 30, 2022, we had an accumulated deficit of $80.1 million. As of December 31, 2021 and December 31, 2020, we had $38,000 inan accumulated deficit of $76.3 million and $71.7 million, respectively.
As of September 30, 2022, we had cash and a workingcash equivalents of $0.05 million. As of December 31, 2021 and December 31, 2020, we had cash of $0.5 million and $2.8 million, respectively. Without giving effect to the anticipated net proceeds from the Business Combination, we expect that our existing cash will be insufficient to fund our operations, including clinical trial expenses and capital deficit of $48,000. Further, we have incurred and expect to continue to incur significant costs in pursuitexpenditure requirements, for 12 months from the issuance date of our financinginterim unaudited financial statements and acquisition plans.beyond. We cannot assure youbelieve that our plans to raise capital or to consummate an initial business combination will be successful. These factors, among others, raise substantialthis raises doubt about our ability to continue as a going concern. To finance our operations beyond that point, we would need to raise additional capital, which cannot be assured. We have concluded that these circumstances raise doubt about our ability to continue as a going concern within one year after the issuance date of our interim unaudited financial statements. See Note 1 to our interim unaudited financial statements for the period ended September 30, 2022 included elsewhere in the Form S-1. We believe that the estimated net proceeds from the Business Combination will be insufficient to meet our capital requirements and fund our operations for the next 12 months. We expect to require additional funding to continue our operations following the first 12-month period after the Closing. For a more detailed discussion of various financing transactions that were completed in connection with the Closing, please see the Company’s Current Report on Form 8-K filed with the SEC on November 4, 2022.
In April 2021 and 2020, we received loan proceeds in the amount of approximately $0.1 million and $0.1 million, respectively, under the PPP as established under the CARES Act. The loans and accrued interest were forgivable as long as we used the loan proceeds for eligible purposes, including payroll, employee benefits, rent and utilities, and maintained its payroll levels. During the year ended December 31, 2021, $0.1 million of our PPP loans were forgiven.
In June 2020, we received a loan in the amount of $0.1 million from the U.S. Small Business Administration (“SBA”) under the Economic Injury Disaster Loan assistance program as part of the CARES Act. The loan has a maturity date of May 2050 and bears interest at 3.8%. As of September 30, 2022, principal of $0.1 million was outstanding under the loan agreement.
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Our liquidity needs have been satisfied
During the year ended December 31, 2021, we issued convertible notes totaling $2.9 million pursuant to certain note purchase agreements, including notes issued to our major stockholders, the Dow Pension Funds. The maturity dates for the convertible notes range from one to three years from their respective issuance dates. These notes are unsecured obligations of SeaStar Medical and borrowings on the convertible notes bear interest at 8.0%. Upon the occurrence of a qualified financing event, prior to the completion of this offering through a capital contribution from our sponsor of $25,000 formaturity dates, the founder sharesprincipal and up to $300,000 in loans available from our sponsor under an unsecured promissory note. We estimate that the net proceeds from: (i) the sale of the units in this offering, after deducting offering expenses of approximately $848,000 and underwriting commissions of $1,500,000 ($1,725,000 if the underwriters’ over-allotment option is exercised in full) (excluding deferred underwriting commissions of $2,625,000 (or $3,018,750 if the underwriters’ over-allotment option is exercised in full)); and (ii) the sale of the private placement warrants for a purchase price of $4,598,000 (or $5,048,000 if the over-allotment option is exercised in full),accrued interest will be $77,250,000 (or $88,725,000 if the underwriters’ over-allotment option is exercised in full). Of this amount, $76,500,000 (or $87,975,000 if the underwriters’ over-allotment option is exercised in full) will be held in the trust account, which includes $2,625,000 (or $3,018,750 if the underwriters’ over-allotment option is exercised in full) of deferred underwriting commissions. The proceeds held in the trust account will be invested only in U.S. government treasury obligations with a maturity of 180 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act which invest only in direct U.S. government treasury obligations. The remaining approximately $750,000 will not be held in the trust account. In the event that our offering expenses exceed our estimate of $848,000, we may fund such excess with funds not to be held in the trust account. In such case, the amount of funds we intend to be held outside the trust account would decrease by a corresponding amount. Conversely, in the event that the offering expenses are less than our estimate of $848,000, the amount of funds we intend to be held outside the trust account would increase by a corresponding amount.
We intend to use substantially all of the funds held in the trust account, including any amounts representing interest earned on the trust account (less deferred underwriting commissions) to complete our initial business combination. We may withdraw interest to pay franchise and income taxes. We estimate our annual franchise tax obligations, based on the number ofconvert into shares of our common stock authorizedat a specified discount. In addition, immediately prior to Closing, all principal amount and accrued interest under such convertible notes will be converted automatically into shares of our common stock at a conversion price of $10.00 per share. As of December 31, 2021, a total principal of $2.9 million was outstanding under the convertible notes. See “Certain Relationships and Related Party Transactions – SeaStar Medical Related Party Transactions”.
During the nine months ended September 30, 2022, we issued convertible notes totaling approximately $1.7 million to certain existing holders of our issued and outstanding afterpreferred stock, including six convertible notes in the completion of this offering, to be $200,000, which is the maximumaggregate principal amount of annual franchise taxes payable by us as$1.2 million to the Dow Pension Funds. The maturity dates for such convertible notes range from two to three years from their respective issuance dates. These notes are unsecured obligations of SeaStar Medical and borrowings under the convertible notes bear interest at 8.0%. Upon the occurrence of a Delaware corporation per annum, whichqualified financing event, prior to the maturity dates, the principal and accrued interest will convert into shares of our common stock at a specified discount.
Upon consummation of the Business Combination, we may payreceived approximately $22 million in cash, primarily due to $7 million in gross proceeds from fundsthe PIPE Investment and $15 million in proceeds from this offering held outside of the trust account, partially offset by cash payments that were disbursed at the Closing which included Maxim’s deferred fee, professional service fees for the legal counsels, transfer agent, consultants, and auditors, the Commitment Fee, director and officer insurances, and prepayments to the PFA Sellers. Certain other transaction costs associated with and liabilities assumed as a result of the Business Combination totaling approximately $7.9 million as of October 28, 2022 have been deferred until later in 2022 or 2023.
In connection with the Business Combination, over 8 million shares were submitted for redemption for an aggregate redemption amount of approximately $92 million. The proceeds we received in connection with the Business Combination were significantly less than the originally expected proceeds of $103.5 million (assuming no redemptions). As discussed elsewhere in this prospectus, the reduction in available cash upon closing of the Business Combination due to share redemptions has negatively impacted our growth initiatives, our revenue and net loss projections prepared in connection with LMAO’s evaluation of the Business Combination, and our liquidity, including the likelihood that holders of Warrants will exercise their Warrants and the Company will receive cash proceeds from interest earnedthe Warrants.
Warrant Proceeds
We would receive the proceeds from any exercise of any warrants that are exercised for cash pursuant to their terms. Assuming the exercise in full of all of the warrants for cash, we would receive an aggregate of approximately $185 million, but would not receive any proceeds from the sale of the shares of Common Stock issuable upon such exercise. To the extent any warrants are issued on the funds held in our trust account and released to us for this purpose. Our annual income tax obligations will depend ona “cashless basis,” the amount of interestcash we would receive from the exercise of the warrants will decrease. We would expect to use any such proceeds received from warrants that are exercised for cash in the future for general corporate and other income earnedworking capital purposes, which would increase our liquidity. However, we will only receive such proceeds if and when the warrant holders exercise the warrants. The exercise of the warrants, and any proceeds we may receive from their exercise, are highly dependent on the amounts held inprice of our Common Stock and the trust account. We expectspread between the interest earned on the amount in the trust account will be sufficient to pay our income taxes. To the extent that our capital stock or debt is used, in whole or in part, as consideration to complete our initial business combination, the remaining proceeds held in the trust account will be used as working capital to finance the operationsexercise price of the target business or businesses, make other acquisitionswarrant and pursue our growth strategies.
Prior to the completionprice of our initial business combination,Common Stock at the time of exercise. There is no assurance that the warrant holders will elect to exercise for cash any or all of such warrants, and we willbelieve that any such exercise currently is unlikely to occur as described below. As of the date of this prospectus, we have availableneither included nor intend to usinclude any potential cash proceeds from the approximately $750,000exercise of proceeds held outside the trust account.our warrants in our short-term or long-term liquidity projections. We will use these fundscontinue to identifyevaluate the probability of warrant exercise over the life of our warrants and evaluate target businesses, perform business due diligence on prospective target businesses, travel to andthe merit of including potential cash proceeds from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete an initial business combination.exercise thereof in our liquidity projections.
In order to fund working capital deficiencies or finance transaction costs in connection with an intended initial business combination, our sponsor or an affiliate of our sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required. If we complete our initial business combination, we would repay such loaned amounts. In the event that our initial business combination does not close, we may use a portion of the working capital held outside the trust account to repay such loaned amounts but no proceeds from our trust account would be used for such repayment. Up to $1,500,000 of such working capital loans may be convertible into private placement-equivalent warrants at a price of $1.00 per warrant (which, for example, would result in the holders being issued 1,500,000 warrants if $1,500,000 of notes were so converted), at the option of the lender. Such warrants would be identical to the private placement warrants, including as to exercise price, exercisability and exercise period. The terms of such working capital loans by our sponsor or its affiliates, or our officers and directors, if any, have not been determined and no written agreements exist with respect to such loans. We do not expect to seek loans from parties other thanrely on the cash exercise of warrants to fund our sponsor or an affiliateoperations. Instead, we intend to rely on our primary sources of cash discussed elsewhere in this prospectus to continue to support our operations. The exercise price of the warrants is $11.50 per share and the closing price of our sponsorCommon Stock was $4.10 as of December 30, 2022. Accordingly, we believe that it is currently unlikely that warrant holders will exercise their warrants. The likelihood that warrant holders will exercise the warrants, and therefore the amount of cash proceeds
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that we would receive, is dependent upon the trading price of our Common Stock. If the trading price for our Common Stock remains less than $11.50 per share, we believe our warrant holders will be unlikely to exercise their warrants. There is no guarantee that the warrants will be in the money following the time they become exercisable and prior to their expiration, and as such, the warrants may expire worthless and we may not receive any proceeds from the exercise of the warrants. To the extent that any of the warrants are exercised on a “cashless basis,” the amount of cash we would receive from the exercise of the warrants will decrease.
Future Funding Requirements
We expect to incur significant expenses in connection with our ongoing activities as we seek to (i) continue clinical development of our SCD product for FDA approval, and (ii) if regulatory approval is obtained, to launch and commercialize our product in the U.S. market, including subsequent launches in key international markets. We will need additional funding in connection with these activities. Our future funding requirements, both short- term and long-term, will depend on many factors, including:
our ability to receive cash proceeds from our existing funding sources, including equity line of credit and prepaid forward agreements;
the progress and results of our clinical trials and interpretation of those results by the FDA and other regulatory authorities;
the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims; and
the costs of operating as a public company, including hiring additional personnel as well as increased director and officer insurance premiums, audit and legal fees, investor relations fees and expenses related to compliance with public company reporting requirements under the Exchange Act, and rules implemented by the SEC and Nasdaq.
Until such time, if ever, as we are able to successfully develop and commercialize our products, we expect to continue financing our operations through the sale of equity, debt, borrowings under credit facilities or through potential collaborations with other companies, other strategic transactions or government or other grants. Adequate capital may not be available to us when needed or on acceptable terms.
Based on our results of operations and liquidity as of September 30, 2022, we believe our cash and cash equivalents, including the cash we obtained from the Business Combination and the PIPE Investment, as well as potential proceeds available under the Purchase Agreement with Tumim and from the Prepaid Forward Agreements, are not sufficient to meet our working capital and capital expenditure requirements for a period of at least twelve months from the date of our unaudited condensed consolidated financial statements for the nine months ended September 30, 2022. In addition, as discussed above, we do not believe third partiesexpect to receive any cash proceeds from the exercise of warrants in the near term, because the trading price of our Common Stock is currently below the exercise price of such warrants. We are seeking additional cash to fund our growth through future debt or equity financing transactions; however, there can be no assurance that we will be willingable to loan such fundsobtain additional capital on terms acceptable to us, if at all, or that we will generate sufficient future revenues and provide a waiver against any and all rightscash flows to seek access to funds infund our trust account.
We expectoperations. Our estimates of our primary liquidity requirements during that period to include approximately $150,000 for legal, accounting, due diligence, travel and other expenses associated with structuring, negotiating and documenting successful business combinations; $50,000 for legal and accounting fees related to regulatory reporting requirements; $55,000 for Nasdaq continued listing fees; and approximately $550,000 forresults of operations, working capital and capital expenditure requirements may be different than our actual needs, and those estimates may need to be revised if, for example, our actual revenue is lower, and our net operating losses are higher, than we project and our cash and cash equivalents position is reduced faster than anticipated. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be used for miscellaneous expensesdiluted, and reserves (including taxes net of anticipated interest income).
These amounts are estimates and may differ materially from our actual expenses. In addition, we could use a portion of the funds not being placed in trust to pay commitment fees for financing, fees to consultants to assist us with our search for a target business or as a down payment or to fund a “no-shop” provision (a provision designed to keep target businesses from “shopping” around for transactions with other companies on terms more favorable to such target businesses) with respect to a particular proposed initial business combination, although we do not have any current intention to do so. If we entered into an agreement where we paid for the right to receive exclusivity from a target business, the amount that would be used as a down payment or to fund a “no-shop” provision would be determined based on the terms of these securities may include liquidation or other preferences that adversely affect the rights of stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific business combination and the amount of our available funds at the time. Our forfeiture ofactions, such funds (whether as a result of our breachincurring additional debt, making acquisitions or otherwise) couldcapital expenditures. Debt financing would also result in our not having sufficient funds to continue searching for, or conducting due diligence with respect to, prospective target businesses.
We do not believe we will need to raise additional funds following this offering in order to meet the expenditures required for operating our business. However, if our estimates of the costs of identifying a target business, undertaking in-depth due diligence and negotiating an initial business combination are less than the actual amount necessary to do so, we may have insufficient funds available to operate our business prior to our initial business combination. Moreover, we may need to obtain additional financing either to complete our initial business combination or because we become obligated to redeem a significant number of our public shares upon completion of our initial business combination, in which case we may issue additional securities or incur debt in connection with such business combination. In addition, we intend to target businesses larger than we could acquire with the net proceeds of this offering and the sale of the private placement warrants, and may as a result be required to seek additional financing to complete such proposed initial business combination. Subject to compliance with applicable securities laws, we would only complete such financing simultaneously with the completion of our initial business combination.fixed payment obligations. If we are unable to complete our initial business combination becauseraise additional funds through equity or debt financings or other arrangements when needed, we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the trust account. In addition, following our initial business combination, if cash on hand is insufficient, we may need to obtain additional financing in order to meet our obligations.
Controls and Procedures
We are not currently required to maintain an effective system of internal controls as defined by Section 404 of the Sarbanes-Oxley Act. We will be required to complydelay, reduce, suspend or cease our research and development programs or any future commercialization efforts, which would have a negative impact on our business, prospects, operating results and financial condition. See the section titled “Risk Factors” for additional risks associated with our substantial capital requirements.
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In addition, we currently do not expect that this offering by Selling Securityholder will have a significant impact on our ability to raise additional capital because this offering involves resales of shares of our Common Stock for which we will not receive any proceeds. In the internal control requirementsevent the Selling Securityholder decide to sell shares of our Common Stock in a public offering pursuant to this registration statement, it may increase the public float or trading volumes of our Common Stock, which may facilitate our ability to negotiate and execute equity financing transactions. However, there is no guarantee that the Selling Securityholder will decide to resell any shares or that our public float or trading volume will increase even if Selling Securityholder complete any resales.
Cash Flows
The following table shows a summary of our cash flows for each of the Sarbanes-Oxley Actperiods shown below:
Year Ended December 31, | Nine Months Ended September 30, | |||||||||||||||
($ in thousands) | 2021 | 2020 | 2022 | 2021 | ||||||||||||
Statement of cash flow data: | ||||||||||||||||
Total cash (used in)/provided by: | ||||||||||||||||
Operating activites | $ | (5,114 | ) | $ | (5,572 | ) | $ | (2,492 | ) | $ | (4,019 | ) | ||||
Investing activites | — | — | — | — | ||||||||||||
Financing activities | 2,817 | 4,892 | 2,031 | 1,880 | ||||||||||||
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$(2,297 ) | $(680 ) | $(461 ) | $(2,139 ) | |||||||||||||
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Cash Flow from Operating Activities
Net cash used in operating activities for the fiscalnine months ended September 30, 2022 was $2.5 million as compared to $4.0 million for the nine months ended September 30, 2021. The change of $1.5 million is primarily due to the decrease of research and development activities and other clinical trial costs.
Net cash used in operating activities for the year endingended December 31, 2021 was $5.1 million as compared to $5.6 million for the year ended December 31, 2020. The change of $0.5 million is due to the decrease of research and development activities.
Cash Flow from Financing Activities
Net cash provided by financing activities for the nine months ended September 30, 2022 was $2.0 million as compared to $1.9 million for the nine months ended September 30, 2021. OnlyThe change of $0.1 million is related to proceeds from borrowings on the LMFA Note, partially offset by less proceeds from the issuance of convertible notes during the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.
Net cash provided by financing activities for the year ended December 31, 2021 was $2.8 million as compared to $4.9 million provided for the year ended December 31, 2020. The change of $2.1 million is primarily due to proceeds from the issuance of convertible notes in 2021 and the proceeds from the issuance of Series B preferred stock in 2020.
Contractual Obligations and Commitments
The following table summarizes our contractual obligations as of September 30, 2022:
($ in thousands) | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | |||||||||||||||
Contractual Obligations: | ||||||||||||||||||||
Convertible notes | $ | 4,460 | $ | 413 | $ | 2,529 | $ | 1,518 | $ | — | ||||||||||
LMFA note | 350 | 350 | — | — | — | |||||||||||||||
SBA loan | 63 | — | 2 | 2 | 59 | |||||||||||||||
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Total contractual obligations | $ | 4,873 | $ | 763 | $ | 2,531 | $ | 1,520 | $ | 59 | ||||||||||
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67
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with Generally Accepted Accounting Principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. A summary of our significant accounting policies is set forth in Note 2 to our financial statements.
Recent Accounting Pronouncements
See Note 2 to our financial statements contained elsewhere in the event that weForm S-1 for a description of recent accounting pronouncements applicable to our financial statements.
Emerging Growth Company Status
We are deemed to be a large accelerated filer or an accelerated filer would we be required to comply with the independent registered public accounting firm attestation requirement. Further, for as long as we remain an emerging growth company (“EGC”), as defined in the JOBS Act. The JOBS Act we intendpermits companies with EGC status to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth
companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirement.
Prior to the closing of this offering, we have not completed an assessment, nor has our independent registered public accounting firm tested our systems, of internal controls. We expect to assess the internal controls of our target business or businesses prior to the completion of our initial business combination and, if necessary, to implement and test additional controls as we may determine are necessary in order to state that we maintain an effective system of internal controls. A target business may not be in compliance with the provisions of the Sarbanes-Oxley Act regarding the adequacy of internal controls. Many small and mid-sized target businesses we may consider for our initial business combination may have internal controls that need improvement in areas such as:
staffing for financial, accounting and external reporting areas, including segregation of duties;
reconciliation of accounts;
proper recording of expenses and liabilities in theextended transition period to which they relate;
evidence of internal review and approval of accounting transactions;
documentation of processes, assumptions and conclusions underlying significant estimates; and
documentation of accounting policies and procedures.
Because it will take time, management involvement and perhaps outside resources to determine what internal control improvements are necessary for us to meet regulatory requirements and market expectations for our operation of a target business, we may incur significant expense in meeting our public reporting responsibilities, particularly in the areas of designing, enhancing, or remediating internal and disclosure controls. Doing so effectively may also take longer than we expect, thus increasing our exposure to financial fraud or erroneous financing reporting.
Once our management’s report on internal controls is complete, we will retain our independent registered public accounting firm to audit and render an opinion on such report when required by Section 404 of the Sarbanes-Oxley Act. The independent registered public accounting firm may identify additional issues concerning a target business’s internal controls while performing their audit of internal control over financial reporting.
Quantitative and Qualitative Disclosures about Market Risk
The net proceeds of this offering and the sale of the private placement warrants held in the trust account will be invested in U.S. government treasury bills with a maturity of 180 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act which invest only in direct U.S. government treasury obligations. Due to the short-term nature of these investments, we believe there will be no associated material exposure to interest rate risk.
Related Party Transactions
On November 6, 2020, our sponsor purchased 2,156,250 founder shares (up to 281,250 shares of which are subject to forfeiture depending on the extent to which the underwriters’ over-allotment option is exercised) for an aggregate purchase price of $25,000, or approximately $0.012 per share. The number of founder shares issued was determined based on the expectation that such founder shares would represent 20% of the outstanding shares upon completion of this offering. The per share purchase price of the founder shares was determined by dividing the amount of cash contributed to the company by the aggregate number of founder shares issued. If we increase or decrease the size of the offering we will effect a stock dividend or a share contribution back to capital or other appropriate mechanism, as applicable, with respect to our Class B common stock immediately prior to the consummation of the offering in such amount as to maintain the ownership of our initial stockholders at 20.0% of the issued and outstanding shares of our common stock upon the consummation of this offering (excluding shares of Class A common stock issuable to the underwriters upon the closing of this offering).
Our sponsor, officers and directors, or any of their respective affiliates, will be reimbursed for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable business combinations. Our audit committee will review on a quarterly basis all payments that were made to our sponsor, officers, directors or our or their affiliates and will determine which expenses and the amount of
expenses that will be reimbursed. There is no cap or ceiling on the reimbursement of out-of-pocket expenses incurred by such persons in connection with activities on our behalf.
Prior to the consummation of this offering, our sponsor is anticipated to loan us up to $300,000 to be used for a portion of the expenses of this offering. These loans will be non-interest bearing, unsecured and will be due at the earlier of June 30, 2021 or the closing of this offering. The loan will be repaid upon the closing of this offering out of the $750,000 of offering proceeds not held in the trust account.
In addition, in order to finance transaction costs in connection with an intended initial business combination, our sponsor or an affiliate of our sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required. If we complete our initial business combination, we would repay such loaned amounts. In the event that our initial business combination does not close, we may use a portion of the working capital held outside the trust account to repay such loaned amounts but no proceeds from our trust account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into warrants, at a price of $1.00 per warrant at the option of the lender. Such warrants would be identical to the private placement warrants, including as to exercise price, exercisability and exercise period. The terms of such loans by our officers and directors, if any, have not been determined and no written agreements exist with respect to such loans. We do not expect to seek loans from parties other than our sponsor or an affiliate of our sponsor as we do not believe third parties will be willing to loan such funds and provide a waiver against any and all rights to seek access to funds in our trust account.
Our sponsor has agreed to purchase an aggregate of 4,598,000 warrants (or 5,048,000 warrants if the over-allotment option is exercised in full) at a price of $1.00 per warrant, for an aggregate purchase price of $4,598,000, or $5,048,000 if the over-allotment option is exercised in full. The private placement warrants will be identical to the units sold in this offering except that the private placement warrants, so long as they are held by our sponsor or its permitted transferees, (i) will not be redeemable by us, (ii) may not (including the Class A common stock issuable upon exercise of these warrants), subject to certain limited exceptions, be transferred, assigned or sold by the holders until 30 days after the completion of our initial business combination, (iii) may be exercised by the holders on a cashless basis and (iv) will be entitled to registration rights. The holders will be permitted to transfer the private placement warrants held by them to certain permitted transferees, including our officers and directors and other persons or entities affiliated with or related to them, but the transferees receiving such securities will be subject to the same agreements with respect to such securities as our sponsor. Otherwise, the private placement warrants have terms and provisions that are identical to those of the warrants being sold as part of the units in this offering, including as to exercise price, exercisability and exercise period.
Pursuant to a registration rights agreement we will enter into with our initial stockholders on or prior to the closing of this offering, we may be required to register certain securities for sale under the Securities Act. These holders, and holders of units issued upon conversion of working capital loans, if any, are entitled under the registration rights agreement to make up to three demands that we register certain of our securities held by them for sale under the Securities Act and to have the securities covered thereby registered for resale pursuant to Rule 415 under the Securities Act. In addition, these holders have the right to include their securities in other registration statements filed by us. We will bear the costs and expenses of filing any such registration statements. See the section of this prospectus entitled “Certain Relationships and Related Party Transactions.”
Off-Balance Sheet Arrangements; Commitments and Contractual Obligations; Quarterly Results
As of November 6, 2020, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K and did not have any commitments or contractual obligations. No unaudited quarterly operating data is included in this prospectus, as we have conducted no operations to date.
JOBS Act
On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We will qualify as an “emerging growth company” and under the JOBS Act will be allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. We are electing to delaystandards, delaying the adoption of new or revisedthese accounting standards and as a result, we may notuntil they would apply to private companies. We have elected to use this extended transition period to enable us to comply with new or revised accounting standards onthat have different effective dates for public and private companies until the relevant dates on which adoptionearlier of such standards is required for non-emergingthe date we (i) are no longer an emerging growth companies.company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with the new or revised accounting pronouncementsstandards as of public company effective dates.
Additionally,In addition, we are in the process of evaluating the benefits of relyingintend to rely on the other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if, as an “emerging growth company,”EGC, we
choose intend to rely on such exemptions, we mayare not be required to, among other things,things: (i) provide an independent registered public accounting firm’sauditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404,404(b) of the Sarbanes-Oxley Act; (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act,Act; (iii) comply with any requirement that may be adopted by the PCAOBPublic Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis),; and (iv) disclose certain executive compensation relatedcompensation-related items such as the correlation between executive compensation and performance and comparisons of the CEO’sChief Executive Officer’s compensation to median employee compensation. These exemptions will apply for a period of five years following the completion of this offering or until we are no longer an “emerging growth company,” whichever is earlier.
Our Company
We are a newly organized blank check company formed as a Delaware corporation for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses, which we refer to throughout this prospectus as our initial business combination. We have not selected any specific business combination target and we have not, nor has anyone on our behalf, initiated any substantive discussions, directly or indirectly, with any business combination target. We may pursue an initial business combination target in any industry or sector, but given the experience of our management team, we expect to focus on acquiring a business combination target within the financial services industry and related sectors, including potentially the FinTech sector, with an enterprise value of approximately $250 million to $500 million. Management believes that this relative size of target opportunities will enable the Company to pursue companies that are the most attractive from a return standpoint and are less pursued by larger, more established sources of capital.
Our management team has extensive experience in leadership roles and financial services-related entrepreneurship, venture capital, and private equity. Mr. Rodgers spent several years as a business transactions lawyer for several prominent firms and businesses, including in management positions, and he has a background in engineering as well as military service in the United States Navy. Mr. Russell serves and has served in several executive management positions, including CEO and CFO positions, as well as corporate boards, leveraging his advanced degrees and certifications in tax and accounting. While we may pursue an initial business combination target in any industry, our investment strategy will focus our efforts in the financial services industry, specifically within alternative lending, asset management, business process outsourcing, housing and commercial real estate finance, insurance, and tech-enabled business opportunities.
Our operations will be spearheaded by Bruce Rodgers, who serves as Chairman of the Board, Chief Executive Officer and President of our company. Mr. Rodgers also serves as Chairman, Chief Executive Officer, and President of LMFA, an affiliate of our sponsor and publicly traded company on the Nasdaq Capital Market. Mr. Rodgers was instrumental in developing LMFA’s business model prior to its inception and was one of its primary investors. As LMFA’s Chief Executive Officer, Mr. Rodgers has guided LMFA through its initial public offering, subsequent public offerings, and acquisitions of complementary businesses. Mr. Rodgers is a former business transactions attorney counseling numerous businesses with respect to mergers, acquisitions and capital raising transactions. In this capacity, Mr. Rodgers was an associate of Macfarlane, Ferguson, & McMullen, P.A. from 1991 to 1995 and a partner from 1995-1998 and was an equity partner of Foley & Lardner LLP from 1998 to 2003. Originally from Bowling Green, Kentucky, Mr. Rodgers holds an engineering degree from Vanderbilt University (1985) and a Juris Doctor, with honors, from the University of Florida (1991). Mr. Rodgers also served as an officer in the United States Navy from 1985-1989 rising to the rank of Lieutenant, Surface Warfare Officer. Mr. Rodgers is a member of the Florida Bar and holds an AV-Preeminent rating from Martindale Hubbell.
Richard Russell serves as our Chief Financial Officer, Treasurer, Secretary and a director. He has served as Chief Financial Officer of LMFA, an affiliate of our sponsor and publicly traded company on the Nasdaq Capital Market since 2017. Since 2016, he has provided financial and accounting consulting services with a focus on technical and external reporting, internal auditing, mergers & acquisitions, risk management, and CFO and controller services. Mr. Russell also served as Chief Financial Officer for Mission Health Communities from 2013 to 2016 and, before that, Mr. Russell served in a variety of roles for Cott Corporation from 2007 to 2013, including Senior Director Finance, Senior Director of Internal Auditing, and Assistant Corporate Controller. Mr. Russell’s extensive professional experience with public companies includes his position as Director of Financial Reporting for Quality Distribution, a transportation and logistics company, from 2004 – 2007, and as Director of Financial Reporting for Danka Business Systems PLC, a supplier of photocopiers and office imaging equipment, from 2001 – 2004. Mr. Russell also serves as Chief Financial Officer of Generation Income Properties, Inc., which is a publicly traded real estate company that has been trading on the OTCQB Venture Market since March 2019. Mr. Russell earned his bachelor of science in accounting and a master’s in tax accounting from the University of Alabama, a bachelor of arts in international studies from the University of South Florida, and a master’s in business administration from the University of Tampa. On March 1, 2020, Mr. Russell was appointed to the board of directors for Trident Brands Inc. (“TDNT”), a publicly held consumer products company that has been trading on the OTCQB Venture Market since April 2015. Mr. Russell is also Chairman of the Hillsborough County Internal Audit Committee since January 2020 and has been a board member since August 2016.
Our initial business combination and value creation strategy will be to identify, acquire and, after our initial business combination, implement an operating strategy with a view of creating value for our stockholders through operational improvements, capital infusion or future acquisitions.
We intend to source initial business combination opportunities through our management team’s broad network of owners of and investors in businesses in the financial services industry, board members, company executives, lawyers, accountants and brokers.
Business Combination Criteria
Our business combination criteria will not be limited to a particular industry or geographic sector, but given the experience of our management team, we expect to focus on acquiring a business combination target within the financial services industry, including potentially the FinTech sector. Our management team will look to identify combination targets which are in need of strategic growth capital, will benefit from becoming a publicly listed company, may require creative business approaches to unlock additional value, or may need to repurchase debt, target strategic acquisitions or require working capital.
We have identified the following criteria that we believe are important and that we intend to use in evaluating initial business combination opportunities. While we intend to utilize these criteria in evaluating business combination opportunities, we expect that no individual criterion will entirely determine a decision to pursue a particular opportunity. Further, any particular initial business combination opportunity which we ultimately determine to pursue may not meet one or more of these criteria. We are seeking business targets that meet some or all of the following criteria:
are fundamentally sound businesses that have a sustainable business model with the ability to successfully navigate the ebbs and flows of an economic downturn, and changes in the industry landscape and regulatory environment;
can benefit from the vast network, experience, and guidance of our management team;
have a defensible market position and demonstrate differentiated competitive advantages with high barriers to entry against new competitors;
have recurring, predictable revenues and the history of, or the near-term potential to, generate stable and sustainable free cash flow;
exhibit unrecognized value, desirable returns on capital, and a need for capital to achieve the company’s growth strategy;
are able to structure around or ring fence exposure to legacy assets to the extent desirable to enhance stockholder returns or reduce volatility of such returns;
have the potential for strong and continued growth both organically and through add-on acquisitions;
are at an inflection point and would benefit from a catalyst such as incremental capital, innovation through new operational practices, and application of innovative FinTech, product creation, or additional management expertise;
have publicly traded comparable companies that operate in a similar industry sector or which have similar operating metrics which may help establish that the valuation of our initial business combination is attractive relative to such public peers; and
are positioned to be publicly traded and can benefit from being publicly traded, with access to broader and more efficient capital markets, to drive improved financial performance and achieve key business strategies.
To the extent we pursue a business combination target within the financial services industry, we intend to focus our efforts on assets and businesses with the following aspects, or within the following sectors, of the financial services industry, in search of value-oriented and opportunistic transaction opportunities:
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Bankruptcy and Distressed Real Estate: businesses that are either in financial distress or have completed and emerged from a financial restructuring, which may have included a Chapter 11 bankruptcy court protection filing; fundamentally sound businesses handling or investing in real estate that have become distressed, including due to COVID-19’s impact on the economy or due to pre-existing financial troubles, which can often occur through excessive leverage, challenging industry conditions, material litigation, regulatory shifts, macroeconomic events, performance disruptions, lack of management execution, or any combination thereof;
Commercial Real Estate Tech and Services: fee-based services creating efficiency to the burdensome and expensive transaction life cycle; businesses focused on property management, operational efficiency, and tenant experience;
Consumer and Business Lending: businesses with advanced capabilities in data modeling, risk management, and asset management; differentiated and defendable customer acquisition and risk management strategies; consumer finance and commercial finance businesses with responsible lending models;
FinTech and Business Process Outsourcing: businesses providing critical workflow to financial institutions, including data aggregation and analytics, risk management, and compliance, as well as open banking, including third-party providers and account service information providers;
“InsurTech” and Insurance Services: business models with unique products and/or customer acquisition strategies, including, but not limited to, businesses with specialized product design focused on regulatory capital arbitrage, with roll-up opportunities among niche brokerage and agencies;
Mortgage Origination, Housing Services, and Technology: businesses with disruptive and scalable mortgage platforms with competitive advantage in customer acquisition, origination and servicing cost, businesses providing housing-related lead generation, alternative home ownership and rental models, community association property management (and other ancillary services providers to community associations), iBuyer investment models, and other opportunities for equity monetization; and
Regulated Industries: businesses in certain regulated industries that may presently have less, or no, options for lending or financial services, including the cannabis industry.
In evaluating prospective acquisitions, the Company expects, but is not required, to consider primarily the criteria and guidelines set forth above. In addition, the Company expects to consider, among other factors, the following with respect to any potential candidates:
The target’s historical operating and financial performance;
The target’s financial condition;
The target’s growth potential;
The experience and skill of existing personnel and availability of additional personnel;
The target’s brand recognition and potential;
The target’s capital requirements;
The target’s internal structure and corporate governance;
The regulatory environment with respect to the target and its market, and the impact of regulation and potential future regulation on the target’s business;
Seasonality associated with the target’s business and the ability to offset seasonal fluctuations; and
The ability to grow the target’s business both organically and through acquisitions.
These criteria are not intended to be exhaustive. Any evaluation relating to the merits of a particular initial business combination may be based, to the extent relevant, on these general guidelines as well as other considerations, factors and criteria that our management may deem relevant. In the event that we decide to enter into our initial business combination with a target business that does not meet the above criteria and guidelines, we will disclose that the target business does not meet the above criteria in our stockholder communications related to our initial business combination, which, as discussed in this prospectus, would be in the form of proxy solicitation materials or tender offer documents that we would file with the SEC.
Initial Business Combination
Nasdaq rules require that we must complete one or more business combinations having an aggregate fair market value of at least 80% of the value of the assets held in the trust account (excluding the deferred underwriting commissions and taxes payable on the interest earned on the trust account) at the time of our signing a definitive agreement in connection with our initial business combination. Our board of directors will make the determination as to the fair market value of our initial business combination. If our board of directors is not able to independently determine the fair market value of our initial business combination, we will obtain an opinion from an independent investment banking firm that is a member of FINRA or an independent accounting firm with respect to the satisfaction of such criteria. While we consider it unlikely that our board of directors will not be able to make an independent determination of the fair market value of our initial business combination, it may be unable to do so if it is less familiar or experienced with the business of a particular target or if there is a significant amount of uncertainty as to the value of a target’s assets or prospects. Additionally, pursuant to Nasdaq rules, any initial business combination must be approved by a majority of our independent directors.
We anticipate structuring our initial business combination either (i) in such a way so that the post-transaction company in which our public stockholders own shares will own or acquire 100% of the equity interests or assets of the target business or businesses, or (ii) in such a way so that the post-transaction company owns or acquires less than 100% of such interests or assets of the target business in order to meet certain objectives of the target management team or stockholders, or for other reasons. However, we will only complete an initial business combination if the post-transaction company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act. Even if the post-transaction company owns or acquires 50% or more of the voting securities of the target, our stockholders prior to the initial business combination may collectively own a minority interest in the post-transaction company, depending on valuations ascribed to the target and us in the initial business combination. For example, we could pursue a transaction in which we issue a substantial number of new shares in exchange for all of the outstanding capital stock of a target. In this case, we would acquire a 100% controlling interest in the target. However, as a result of the issuance of a substantial number of new shares, our stockholders immediately prior to our initial business combination could own less than a majority of our outstanding shares subsequent to our initial business combination. If less than 100% of the equity interests or assets of a target business or businesses are owned or acquired by the post-transaction company, the portion of such business or businesses that is owned or acquired is what will be taken into account for purposes of Nasdaq’s 80% of net assets test. If the initial business combination involves more than one target business, the 80% of net assets test will be based on the aggregate value of all of the transactions and we will treat the target businesses together as the initial business combination for purposes of a tender offer or for seeking stockholder approval, as applicable.
Our Initial Business Combination Process
In evaluating prospective business combinations, we expect to conduct a thorough due diligence review process that will encompass, among other things, meetings with incumbent management and employees, document reviews and inspection of facilities, as applicable, as well as a review of financial and other information that will be made available to us.
We are not prohibited from pursuing an initial business combination with a company that is affiliated with our sponsor, LMFAO Sponsor, LLC or any of our officers or directors. In the event we seek to complete our initial business combination with a company that is affiliated with our sponsor, LMFAO Sponsor, LLC or any of our officers or directors, we, or a committee of independent directors, will obtain an opinion from an independent investment banking firm which is a member of FINRA or an independent accounting firm that our initial business combination is fair to our company from a financial point of view.
Members of our management team will directly or indirectly own founder shares and/or private placement warrants following this offering and, accordingly, may have a conflict of interest in determining whether a particular target business is an appropriate business with which to effectuate our initial business combination. Further, each of our officers and directors may have a conflict of interest with respect to evaluating a particular business combination if the retention or resignation of any such officers and directors were to be included by a target business as a condition to any agreement with respect to our
initial business combination. However, subject to any pre-existing contractual or fiduciary obligations, our sponsor and officers and directors will offer all suitable business combination opportunities within the financial services industry (and other related sectors, as discussed elsewhere in this prospectus) to us before any other person or company until we have entered into a definitive agreement regarding our initial business combination or we have failed to complete our initial business combination within 18 months from the closing of this offering (or 21 months from the closing of this offering, if we extend the period of time to consummate a business combination, as described in more detail in this prospectus).
Members of our management team are employed by or otherwise work with LMFAO Sponsor, LLC or with entities affiliated with it or with other entities. LMFAO Sponsor, LLC and these other entities and their respective affiliates are continuously made aware of potential business opportunities, one or more of which we may desire to pursue for an initial business combination; we have not, however, selected any specific business combination target and we have not, nor has anyone on our behalf, initiated any substantive discussions, directly or indirectly, with any business combination target.
LMFAO Sponsor, LLC and each of our officers and directors presently have, and any of them in the future may have additional, fiduciary or contractual obligations to other entities pursuant to which such officer or director is or will be required to present a business combination opportunity. Accordingly, if any of our officers or directors becomes aware of a business combination opportunity which is suitable for an entity to which he or she has then-current fiduciary or contractual obligations, he or she will honor his or her fiduciary or contractual obligations to present such business combination opportunity to such other entity. We do not believe, however, that any fiduciary duties or contractual obligations of our sponsor and our officers or directors will materially affect our ability to complete our initial business combination. Our certificate of incorporation will provide that we renounce our interest in any corporate opportunity offered to any director or officer unless such opportunity is expressly offered to such person solely in his or her capacity as a director or officer of our company and such opportunity is one we are legally and contractually permitted to undertake and would otherwise be reasonable for us to pursue, and to the extent the director or officer is permitted to refer that opportunity to us without violating another legal obligation.
Our Management Team
Members of our management team are not obligated to devote any specific number of hours to our matters but they intend to devote as much of their time as they deem necessary to our affairs until we have completed our initial business combination. The amount of time that any member of our management team will devote in any time period will vary based on whether a target business has been selected for our initial business combination and the current stage of the initial business combination process.
We believe our management team’s operating and transaction experience and relationships with companies will provide us with a substantial number of potential business combination targets. Over the course of their careers, the members of our management team have developed a broad network of contacts and corporate relationships. This network has grown through the activities of our management team sourcing, acquiring and financing businesses, our management team’s relationships with sellers, financing sources and target management teams and the experience of our management team in executing transactions under varying economic and financial market conditions. See the section of this prospectus entitled “Management” for a more complete description of our management team’s experience.
Status as a Public Company
We believe our structure will make us an attractive business combination partner to target businesses. As a public company, we offer a target business an alternative to the traditional initial public offering through a merger or other business combination with us. In a business combination transaction with us, the owners of the target business may, for example, exchange their shares of stock in the target business for our shares of Class A common stock (or shares of a new holding company) or for a combination of our shares of Class A common stock and cash, allowing us to tailor the consideration to the specific needs of the sellers. Although there are various costs and obligations associated with being a public company, we believe target businesses will find this method a more expeditious and cost effective method to becoming a public company than the typical initial public offering. The typical initial public offering process takes a significantly longer period of time than the typical business combination transaction process, and there are significant expenses in the initial public offering process, including underwriting discounts and commissions, marketing and road show efforts that may not be present to the same extent in connection with an initial business combination with us.
Furthermore, once a proposed initial business combination is completed, the target business will have effectively become public, whereas an initial public offering is always subject to the underwriters’ ability to complete the offering, as well as general market conditions, which could delay or prevent the offering from occurring or could have negative valuation consequences. Following an initial business combination, we believe the target business would then have greater access to
capital and an additional means of providing management incentives consistent with stockholders’ interests and the ability to use its shares as currency for acquisitions. Being a public company can offer further benefits by augmenting a company’s profile among potential new customers and vendors and aid in attracting talented employees.
While we believe that our structure and our management team’s backgrounds will make us an attractive business partner, some potential target businesses may view our status as a blank check company, such as our lack of an operating history and our ability to seek stockholder approval of any proposed initial business combination, negatively.
We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act. As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. If some investors find our securities less attractive as a result, there may be a less active trading market for our securities and the prices of our securities may be more volatile.
In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We intend to take advantage of the benefits of this extended transition period.
We will remain an emerging growth companyEGC under the JOBS Act until the earlierearliest of (1)(i) the last day of theour first fiscal year (a) following the fifth anniversary of the completionclosing of this offering, (b)(ii) the last date of our fiscal year in which we have total annual gross revenue of at least $1.07 billion, or (c) in(iii) the date on which we are deemed to be a large accelerated filer, which means“large-accelerated filer” under the market valuerules of our Class A common stock that isthe SEC with at least $700.0 million of outstanding securities held by non-affiliates, exceeds $700 million as of the prior June 30th, and (2) or (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the previous three-years.
Recent Developments
Business Combination
On October 28, 2022, we closed the Business Combination and LMAO was renamed “SeaStar Medical Holding Corporation”. The aggregate consideration payable to the stockholders of SeaStar Medical at the Closing was $85,408,328, which consisted of an aggregate equity value of SeaStar Medical of $85,000,000, minus deductions for indebtedness of SeaStar Medical and SeaStar Medical transaction expenses in excess of $800,000, plus the aggregate exercise price of (1) SeaStar Medical warrants issued and outstanding immediately prior three-year period.
Additionally, we are a “smaller reporting company” asto the Closing and (2) SeaStar Medical options issued and outstanding immediately prior to the Closing, less the value of the shares of Common Stock underlying the Assumed Equity (as defined in Rule 10(f)(1)the Merger Agreement). The Closing Merger Consideration was payable solely in shares of Regulation S-K. Smaller reporting companies may take advantageCommon Stock, valued at $10.00 per share, resulting in the issuance of certain reduced disclosure obligations, including, among other things, providing only two years7,837,628 shares of audited financial statements. We will remaincommon stock, par value $0.0001 per share, of Common Stock to holders of stock of SeaStar Medical immediately prior to the Closing. At the Closing, shares of Class B Common Stock automatically converted into shares of Class A Common Stock on a smaller reporting company untilone-to-one basis, and pursuant to the last dayCharter, Class A Common Stock and Class B Common Stock was reclassified as Common Stock.
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At the Closing, each of SeaStar Medical’s issued and outstanding convertible notes automatically converted into shares of SeaStar Medical common stock. Immediately prior to the effectiveness of the fiscal year in which: (1) the market valueBusiness Combination, each share of our ordinarySeaStar Medical’s issued and outstanding preferred stock automatically converted into shares held by non-affiliates equaledof SeaStar Medical common stock and those SeaStar Medical warrants that would be exercised or exceeded $250 million as of the end of the prior June 30th; or (2) our annual revenues equaled or exceeded $100 million during such completed fiscal year and the market value of our ordinary shares held by non-affiliates equaled or exceeded $700 million as of the prior June 30th.
Financial Position
With funds available for an initial business combination initially in the amount of $74,625,000, after payment of $2,625,000 of deferred underwriting commissions (or $85,706,250 after payment of up to $3,018,750 of deferred underwriting commissions if the underwriters’ over-allotment option is exercised in full), in each case before fees and expenses associated with our initial business combination, we offer a target business a variety of options such as creating a liquidity event for its owners, providing capital for the potential growth and expansion of its operations or strengthening its balance sheet by reducing its debt or leverage ratio. Because we are able to complete our initial business combination using our cash, debt or equity securities, or a combination of the foregoing, we have the flexibility to use the most efficient combination that will allow us to tailor the consideration to be paid to the target business to fit its needs and desires. However, we have not taken any steps to secure third party financing and there can be no assurance it will be available to us.
Effecting Our Initial Business Combination
We are not presently engaged in, and we will not engage in, any operations for an indefinite period of time following this offering. We intend to effectuate our initial business combination using cash from the proceeds of this offering and the private placement of the private placement warrants, the proceeds of the sale of our sharesexchanged in connection with our initial business combination (includingthe Business Combination pursuant to forwardthe terms thereof were exercised for shares of SeaStar Medical common stock. At Closing, the (i) SeaStar Medical warrants that would not be exercised or exchanged in connection with the Business Combination were assumed by LMAO and converted into warrants to purchase agreementsCommon Stock, (ii) outstanding options for shares of SeaStar Medical common stock under SeaStar Medical’s equity plan were assumed by LMAO and converted into options to purchase Common Stock, and (iii) issued and outstanding restricted stock unit awards under SeaStar Medical’s current equity plan were assumed by LMAO and converted into LMAO restricted stock units.
Amended and Restated Registration Rights Agreement
As previously disclosed, on April 21, 2022 and in connection with the execution of the Merger Agreement, certain stockholders of SeaStar Medical and LMAO entered into the Amended and Restated Registration Statement with LMAO (the “Amended and Restated Registration Rights Agreement”), pursuant to which the Company is required to file, not later than 30 days after the Closing, a registration statement covering the shares of Common Stock issued or backstop agreements we may enter intoissuable to such stockholders (the “Registration Rights Stockholders”). The material features of the Amended and Restated Registration Rights Agreement are described in the Proxy Statement/Prospectus in the section titled “Shareholder Proposal 1: The Business Combination Proposal – Certain Related Agreements – Amended and Restated Registration Rights Agreement” and that information is incorporated herein by reference. In addition, the Amended and Restated Registration Rights Agreement imposes certain lockup restrictions on shares of common stock of the Company held by Registration Rights Stockholders following the consummation of this offeringthe Business Combination.
On or otherwise), shares issuedabout October 25, 2022, LMAO and SeaStar Medical agreed to waive the owners of the target, debt issued to bank or other lenders or the owners of the target, or a combination of the foregoing. We may seek to complete our initial business combination with a company or business that may be financially unstable or in its early stages of development or growth, which would subject us to the numerous risks inherent in such companies and businesses.
If our initial business combination is paid for using equity or debt securities, or not all of the funds released from the trust account are used for payment of the consideration in connection with our initial business combination or used for redemptions of our Class A common stock, we may apply the balance of the cash released to us from the trust account for general corporate purposes, including for maintenance or expansion of operations of the post-transaction company, the payment of principal or interest due on indebtedness incurred in completing our initial business combination, to fund the purchase of other companies or for working capital.
We may seek to raise additional funds through a private offering of debt or equity securities in connection with the completion of our initial business combination (which may include a specified future issuance), and we may effectuate our initial business combination using the proceeds of such offering rather than using the amounts held in the trust account. In addition, we intend to target businesses larger than we could acquire with the net proceeds of this offering and the sale of the private placement warrants, and may as a result be required to seek additional financing to complete such proposed initial business combination. Subject to compliance with applicable securities laws, we would expect to complete such financing only simultaneously with the completion of our initial business combination. In the case of an initial business combination funded with assets other than the trust account assets, our proxy materials or tender offer documents disclosing the initial business combination would disclose the terms of the financing and, only if required by law, we would seek stockholder approval of such financing. There are no prohibitions on our ability to raise funds privately, including pursuant to any specified future issuance, or through loans in connection with our initial business combination. At this time, we are not a party to any arrangement or understanding with any third partylockup restrictions with respect to raising any additional funds throughshares of Common Stock held by two Registration Rights Stockholders, Mr. David Humes and Mr. Michael Humes (“Humes Lockup Release”). Also on October 25, 2022, LMAO and Registration Rights Stockholders entered into an Amendment No. 1 to the saleAmended and Restated Registration Rights Agreement and Waiver of securities or otherwise.
SourcesLock-Up Period, pursuant to which, among other things, LMAO and certain Registration Rights Stockholders agreed to waive their right to require the Company to release of Target Businesses
We anticipate that target business candidates will be brought to our attention from various unaffiliated sources, including investment bankers and investment professionals. Target businesses may be brought to our attention by such unaffiliated sources as a result of being solicited by us by calls or mailings. These sources may also introduce us to target businesses in which they think we may be interested on an unsolicited basis, since many of these sources will have read this prospectus and know what types of businesses we are targeting. Our officers and directors, as well as our sponsor and their affiliates, may also bring to our attention target business candidates that they become aware of through their business contacts as a result of formal or informal inquiries or discussions they may have, as well as attending trade shows or conventions. In addition, we expect to receive a number of proprietary deal flow opportunities that would not otherwise necessarily be available to uslockup restrictions as a result of the business relationshipsHumes Lockup Release.
Director Nomination Agreement
On the Closing Date, the Sponsor and LMAO entered into the Director Nomination Agreement, providing the Sponsor certain director nomination rights, including the right to appoint or nominate for election to the Board, as applicable, two individuals, to serve as Class II directors of our officers and directors and our sponsor and their affiliates. While we do not presently anticipate engaging the servicesCompany, for a certain period following the Closing (the “Director Nomination Agreement”) The material features of professional firms or other individuals that specialize in business acquisitions on any formal basis, we may engage these firms or other individualsthe Director Nomination Agreement are described in the future,Proxy Statement/Prospectus in the section titled “Shareholder Proposal 1: The Business Combination Proposal – Certain Related Agreements – Director Nomination Agreement” and that information is incorporated herein by reference.
Letter Agreements
On October 28, 2022, LMAO, SeaStar Medical, and Tumim entered into a letter agreement (the “Tumim Letter Agreement”) to amend certain terms of the Purchase Agreement, dated August 23, 2022 (the “Purchase Agreement”), by and among Tumim, LMAO, and SeaStar Medical, or the Company following the consummation of the Business Combination. Pursuant to the Tumim Letter Agreement, among other things, the parties agreed to the following amendments with respect to the Commitment Fee and Commitment Shares (each as defined in the Purchase Agreement): (a) LMAO, or the Company from and after the Closing Date shall pay to Tumim $1,000,000 of the Commitment Fee in cash on the Closing Date; (b) the Company shall pay to Tumim $500,000 of the Commitment Fee in cash no later than the earliest of (i) the 30th calendar day immediately following the Effective Date of the Initial Registration Statement (each as defined in the Purchase Agreement), (ii) the 30th calendar day immediately following the Effectiveness Deadline (as defined in the Purchase Agreement) of the Initial Registration Statement, and (iii) not later than the second trading date immediately after the date on which event we may pay a finder’s fee, consulting fee, advisory feewritten notice of termination is delivered by the Company or other compensationTumim pursuant to be determined in an arm’s length negotiation based on the terms of the transaction. We will engagePurchase Agreement; and (c) the Company shall pay to Tumim the balance of the Commitment Fee, or $1,000,000, as Commitment Shares as set forth under the terms in the Purchase Agreement. For a finder onlymore detailed description of the Purchase Agreement, see the Company’s Current Report on Form 8-K filed with the SEC on August 24, 2022.
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Amendment to Credit Agreement with LMFA and Amended Promissory Note
On October 28, 2022, SeaStar Medical and LMFA entered into the First Amendment to Credit Agreement, dated September 9, 2022 between LMFA and SeaStar Medical (the “First Amendment to Credit Agreement”), pursuant to which the parties amended the Credit Agreement and entered into an Amended and Restated Promissory Note (the “LMFA Note”) to (i) extend the maturity date of the loan under the Credit Agreement to October 30, 2023; (ii) permit the LMFA Note be prepaid without premium or penalty; (iii) require the Company to use 5.0% of the gross cash proceeds received from any future debt and equity financing to pay outstanding balance of LMFA Note, provided that such repayment is not required for the first $500,000 of cash proceeds; (iv) reduce the interest rate of the LMFA Note from 15% to 7% per annum; and (iv) reduce the default interest rate from 18% to 15%. The LMFA Note contains customary representations and warranties, affirmative and negative covenants and events of default. In addition, on October 28, 2022, the parties entered into a Security Agreement (the “LMFA Security Agreement”), pursuant to which the Company granted LMFA a security interest in substantially all of the assets and property of the Company, subject to certain exceptions, as collateral to secure the Company’s obligations under the amended Credit Agreement. In addition, the Company entered into a Guaranty, dated October 28, 2022 (the “LMFA Guaranty”), pursuant to which the Company unconditionally guarantees and promises to pay to LMFA the outstanding principal amount under the LMFA Note.
Sponsor Promissory Note
On October 28, 2022, the Company entered into a Consolidated Amended and Restated Promissory Note with Sponsor as the lender, for an aggregate principal amount of $2,785,000 (the “Sponsor Note”) to amend and restate in their entirety (i) the Promissory Note, dated July 29, 2022, for $1,035,000 in aggregate principal amount issued by LMAO to the extent our management determinesSponsor and (ii) the Amended and Restated Promissory Note, dated July 28, 2022, for $1,750,000 in aggregate principal amount, issued by LMAO to the Sponsor (collectively, the “Original Notes”). The Sponsor Note amended the Original Notes to: (i) extend maturity dates of the Original Notes to October 30, 2023; (ii) permit outstanding amount due under the Sponsor Note be prepaid without premium or penalty; and (iii) require the Company to use 5.0% of the gross cash proceeds received from any future debt and equity financing to pay outstanding balance of Sponsor Note, provided that such repayment is not required for the usefirst $500,000 of cash proceeds. The Sponsor Note carries an interest rate of 7% per annum and contains customary representations and warranties and affirmative and negative covenants. The Sponsor Note is also subject to customary events of default, the occurrence of which may result in the Sponsor Promissory Note then outstanding becoming immediately due and payable, with interest being increased to 15.0% per annum. In addition, on October 28, 2022, the parties entered into a Security Agreement (the “Sponsor Security Agreement”), pursuant to which the Company granted Sponsor a security interest in substantially all of the assets and property of the Company, subject to certain exceptions, as collateral to secure the Company’s obligations under the Sponsor Note. In addition, the Company entered into a Guaranty, dated October 28, 2022 (the “Sponsor Guaranty”), pursuant to which the Company unconditionally guarantees and promises to pay to LMFA the outstanding principal amount under the Sponsor Note.
Maxim Promissory Note
Pursuant to an engagement letter between SeaStar Medical and Maxim dated October 28, 2022, SeaStar Medical, or the Company following the consummation of the Business Combination, was required to pay Maxim, as its financial advisor, an amount equal to $4,182,353 in cash as professional fees. Upon the Closing, the parties agreed that such amount would be paid in the form of a finderpromissory note. Accordingly, on October 28, 2022, the Company entered into a Promissory Note with Maxim as the lender, for an aggregate principal amount of $4,182,353 (the “Maxim Note”). The Maxim Note has a maturity date of October 30, 2023 and outstanding amount may bring opportunitiesbe prepaid without premium or penalty. If the Company receives any cash proceeds from a debt or equity financing transaction prior to us that may not otherwise be availablethe maturity date, then the Company is required to us or if finders approach us on an unsolicited basis with a potential transaction that our management determines is in our best interestprepay the indebtedness equal to pursue. Payment of finder’s fees is customarily tied to completion of a transaction, in which case any such fee will be paid out25.0% of the funds heldgross amount of the cash proceeds, provided that such repayment obligation shall not apply to the first $500,000 of the cash proceeds received by the Company. Interest on the Maxim Note is due at 7.0% per annum. The Maxim Note contains customary representations and warranties, and affirmative and negative covenants. The Maxim Note is also subject to customary events of default, the occurrence of which may result in the trust account. In no event, however, will our sponsor or any of our existing officers or directors, or any entityMaxim Promissory Note then outstanding becoming immediately due and payable, with which they are affiliated, be paid any finder’s fee, consulting fee or other compensation byinterest being increased to 15.0% per annum.
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Intercreditor Agreement
On October 28, 2022, Maxim, LMFA, Sponsor (collectively, the company prior to, or for any services they render“Creditors”), SeaStar Medical and the Company entered into the Intercreditor Agreement (the “Intercreditor Agreement”) in order to effectuate,set forth their relative rights under the completionLMFA Note, Sponsor Note and Maxim Note, including the payments of our initial business combination (regardlessamounts by the Company upon an event of default under such notes. Pursuant to the typeIntercreditor Agreement, each Creditor agrees and acknowledges that LMFA and Sponsor have been granted liens on the collateral as set forth in the applicable LMFA Security Agreement and Sponsor Security Agreement. Each Creditor also agrees and acknowledges that Maxim’s indebtedness under the Maxim Promissory Note is unsecured.
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BUSINESS COMBINATION
This subsection describes the material provisions of transaction that it is). None of our sponsor, executive officers or directors, or any of their respective affiliates, will be allowed to receive any compensation, finder’s fees or consulting fees from a prospective business combination targetcertain agreements entered into in connection with the Business Combination, but does not purport to describe all of the terms of such agreements. The following summary is qualified in its entirety by reference to the complete text of such agreements, copies of which are included as exhibits to the registration statement of which this prospectus is a contemplated initialpart.
Summary of the Business Combination
On the Closing Date, LMAO, consummated a series of transactions that resulted in the combination of Merger Sub and SeaStar Medical, pursuant to the Merger Agreement, by and among LMAO, Merger Sub and SeaStar Medical, as described further below. Pursuant to the terms of the Merger Agreement, a business combination. Somecombination between LMAO and SeaStar Medical was effected through the merger of our officersMerger Sub with and directors may enter into employment or consulting agreementsSeaStar Medical, with SeaStar Medical surviving the post-transaction company following our initial business combination. The presence or absence of any such fees or arrangements will not be usedmerger as a criterion in our selection processwholly-owned subsidiary of LMAO, following the approval by shareholders of LMAO at the Special Meeting. Following the consummation of the Business Combination, LMAO was renamed “SeaStar Medical Holding Corporation.”
The aggregate consideration payable to the stockholders of SeaStar Medical at the Closing was $85,408,328, which consisted of an initial business combination candidate.
We are not prohibited from pursuing an initial business combination with an initial business combination target that is affiliated with our sponsor, officers or directors or makingaggregate equity value of SeaStar Medical of $85,000,000, minus deductions for indebtedness of SeaStar Medical and SeaStar Medical transaction expenses in excess of $800,000, plus the initial business combination through a joint venture or other formaggregate exercise price of shared ownership with our sponsor, officers or directors. In the event we seek to complete our initial business combination with an initial business combination target that is affiliated with our sponsor, officers or directors, we, or a committee of independent directors, would obtain an opinion from an independent investment banking firm which is a member of FINRA or an independent accounting firm that such an initial business combination is fair to our company from a financial point of view. We are not required to obtain such an opinion in any other context.
As more fully discussed in the section of this prospectus entitled “Management—Conflicts of Interest,” if any of our officers or directors becomes aware of an initial business combination opportunity that falls within the line of business of any entity to which he or she has pre-existing fiduciary or contractual obligations, he or she may be required to present such business combination opportunity to such entity(1) SeaStar Medical warrants issued and outstanding immediately prior to presenting such business combination opportunitythe Closing and (2) SeaStar Medical options issued and outstanding immediately prior to us. Our officers
and directors currently have certain relevant fiduciary duties or contractual obligations that may take priority over their duties to us.
Selection of a Target Business and Structuring of our Initial Business Combination
Nasdaq rules require that we must complete one or more business combinations having an aggregate fair market value of at least 80% ofthe Closing, less the value of the assets heldshares of Common Stock underlying the Assumed Equity (as defined in the trust account (excludingMerger Agreement). The Closing Merger Consideration was payable solely in shares of Common Stock, valued at $10.00 per share, resulting in the deferred underwriting commissionsissuance of 7,837,628 shares of common stock, par value $0.0001 per share, of Common Stock to holders of stock of SeaStar Medical immediately prior to the Closing. At the Closing, shares of Class B Common Stock automatically converted into shares of Class A Common Stock on a one-to-one basis, and taxes payable onpursuant to the interest earned onCharter, Class A Common Stock and Class B Common Stock was reclassified as Common Stock.
As of October 26, 2022, holders of an aggregate of 8,878,960 shares of Common Stock exercised their right to redeem their Shares, after giving effect to any redemption reversals requested by stockholders to reverse their election to have their shares redeemed.
On October 17 and October 25, 2022, LMAO and SeaStar Medical entered into certain prepaid forward agreements with two institutional investors.
Immediately prior to the trust account) atClosing, each of SeaStar Medical’s issued and outstanding convertible notes automatically converted into shares of SeaStar Medical common stock. Immediately prior to the timeeffectiveness of our signing a definitive agreementthe Business Combination, each share of SeaStar Medical’s issued and outstanding preferred stock automatically converted into shares of SeaStar Medical common stock. At Closing, the (i) SeaStar Medical warrants that would not be exercised or exchanged in connection with our initial business combination.the Business Combination were assumed by LMAO and converted into warrants to purchase Common Stock, (ii) outstanding options for shares of SeaStar Medical common stock under SeaStar Medical’s equity plan were assumed by LMAO and converted into options to purchase Common Stock, and (iii) issued and outstanding restricted stock unit awards under SeaStar Medical’s current equity plan were assumed by LMAO and converted into LMAO restricted stock units.
In connection with the Business Combination, we entered into certain related agreements including the Support Agreements, Subscription Agreements/PIPE Investment, Amended and Restated Registration Rights Agreement, Director Nomination Agreement, Letter Agreement, Amendment to Credit Agreement with LM Funding America, Inc. and Amended Promissory Note, Sponsor Promissory Note, Maxim Promissory Note, Intercreditor Agreement and Equity Line Financing Agreements (each of which is described below).
Related Agreements
Support Agreements
In connection with the execution of the Merger Agreement, the Sponsor entered into the Sponsor Support Agreement with LMAO and SeaStar Medical pursuant to which the Sponsor has agreed, among other things, to vote or cause to be voted (or express consent or dissent in writing, as applicable) all its shares of Common Stock that are entitled to vote to approve and adopt the Merger Agreement and the Business Combination.
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In addition, in connection with the execution of the Merger Agreement, the Requisite Stockholders entered into the Support Agreements with LMAO and SeaStar Medical pursuant to which the Requisite Stockholders agreed to, among other things, (i) consent to, and vote to approve and adopt, the Merger Agreement and the Business Combination, (ii) waive any dissenters’ or approval rights under applicable law in connection with the Business Combination, and (iii) not transfer, subject to certain permitted exceptions, any of such Requisite Stockholder’s SeaStar Medical shares until expiration of the Support Agreements.
Subscription Agreements/PIPE Investment
On August 23, 2022, LMAO entered into Subscription Agreements with the PIPE Investors pursuant to which the PIPE Investors have agreed to purchase, and LMAO has agreed to issue and sell, an aggregate of 700,000 shares of Common Stock at $10.00 per share and the PIPE Warrants for an aggregate purchase price of $7,000,000. The fair marketobligations to consummate the transaction contemplated by the Subscription Agreements are conditioned upon, among other things, customary closing conditions and the consummation of the transactions contemplated by the Merger Agreement. The transactions contemplated by the Subscription Agreements were consummated immediately after the Closing.
Amended and Restated Registration Rights Agreement
As previously disclosed, on April 21, 2022 and in connection with the execution of the Merger Agreement, certain stockholders of SeaStar Medical and LMAO entered into the Amended and Restated Registration Rights Agreement, pursuant to which the Company is required to file, not later than 30 days after the Closing, a registration statement covering the shares of Common Stock issued or issuable to the Registration Rights Stockholders. In addition, the Amended and Restated Registration Rights Agreement imposes certain lock-up restrictions on shares of Common Stock held by Registration Rights Stockholders following the consummation of the Business Combination.
On October 25, 2022, LMAO and SeaStar Medical agreed to waive the lock-up restrictions with respect to shares of Common Stock held by two Registration Rights Stockholders, Mr. David Humes and Mr. Michael Humes (“Humes Lock-up Release”). Also on October 25, 2022, LMAO and Registration Rights Stockholders entered into an Amendment No. 1 to Amended and Restated Registration Rights Agreement and Waiver of Lock-Up Period (the “Lock-Up Waiver”), pursuant to which, among other things, LMAO and certain Registration Rights Stockholders agreed to waive their right to require the Company to the release of their lock-up restrictions as a result of the Humes Lock-up Release.
Director Nomination Agreement
On the Closing Date, the Sponsor and LMAO entered into the Director Nomination Agreement, providing the Sponsor with certain director nomination rights, including the right to appoint or nominate for election to the Board, as applicable, two individuals, to serve as Class II directors of the Company, for a certain period following the Closing.
Letter Agreement
On October 28, 2022, LMAO, SeaStar Medical, and Tumim entered into the Tumim Letter Agreement to amend certain terms of the Purchase Agreement, by and among Tumim, LMAO, and SeaStar Medical following the consummation of the Business Combination. Pursuant to the Tumim Letter Agreement, among other things, the parties agreed to the following amendments with respect to the Commitment Fee and Commitment Shares (each as defined in the Purchase Agreement): (a) LMAO, or the Company from and after the Closing Date, was required to pay to Tumim $1,000,000 of the Commitment Fee in cash on the Closing Date; (b) the Company is required to pay to Tumim $500,000 of the Commitment Fee in cash no later than the earliest of (i) the 30th calendar day immediately following the Effective Date of the Initial Registration Statement (each as defined in the Purchase Agreement), (ii) the 30th calendar day immediately following the Effectiveness Deadline (as defined in the Purchase Agreement) of the Initial Registration Statement, and (iii) not later than the second trading date immediately after the date on which written notice of termination is delivered by the Company or Tumim pursuant to the terms of the Purchase Agreement; and (c) the Company shall pay to Tumim the balance of the Commitment Fee, or $1,000,000, as Commitment Shares as set forth under the terms in the Purchase Agreement.
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Amendment to Credit Agreement with LMFA and Amended Promissory Note
On October 28, 2022, SeaStar Medical and LMFA entered into the First Amendment to Credit Agreement, pursuant to which the parties amended the Credit Agreement and entered into the LMFA Note to (i) extend the maturity date of the loan under the Credit Agreement to October 30, 2023; (ii) permit the LMFA Note be prepaid without premium or penalty; (iii) require the Company to use 5.0% of the gross cash proceeds received from any future debt and equity financing to pay outstanding balance of LMFA Note, provided that such repayment is not required for the first $500,000 of cash proceeds; (iv) reduce the interest rate of the LMFA Note from 15% to 7% per annum; and (iv) reduce the default interest rate from 18% to 15%. The LMFA Note contains customary representations and warranties, affirmative and negative covenants and events of default. In addition, on October 28, 2022, the parties entered into the LMFA Security Agreement, pursuant to which the Company and SeaStar Medical granted LMFA a security interest in substantially all of the assets and property of the Company and SeaStar Medical, subject to certain exceptions, as collateral to secure the Company’s obligations under the amended Credit Agreement. In addition, SeaStar Medical entered into the LMFA Guaranty, pursuant to which SeaStar Medical unconditionally guarantees and promises to pay to Sponsor the outstanding principal amount under the LMFA Note.
Sponsor Promissory Note
On October 28, 2022, the Company entered into the Sponsor Note with Sponsor as the lender, for an aggregate principal amount of $2,785,000 to amend and restate in their entirety the Original Notes. The Sponsor Note amended and consolidated the Original Notes to: (i) extend maturity dates of the Original Notes to October 30, 2023; (ii) permit outstanding amounts due under the Sponsor Note to be prepaid without premium or penalty; and (iii) require the Company to use 5.0% of the gross cash proceeds received from any future debt and equity financing to pay outstanding balance of Sponsor Note, provided that such repayment is not required for the first $500,000 of cash proceeds. The Sponsor Note carries an interest rate of 7% per annum and contains customary representations and warranties and affirmative and negative covenants. The Sponsor Note is also subject to customary events of default, the occurrence of which may result in the Sponsor Promissory Note then outstanding becoming immediately due and payable, with interest being increased to 15.0% per annum. In addition, on October 28, 2022, the parties entered into the Sponsor Security Agreement, pursuant to which the Company and SeaStar Medical granted Sponsor a security interest in substantially all of the assets and property of the Company and SeaStar Medical, subject to certain exceptions, as collateral to secure the Company’s obligations under the Sponsor Note. In addition, SeaStar Medical entered into the Sponsor Guaranty, pursuant to which SeaStar Medical unconditionally guarantees and promises to pay to Sponsor the outstanding principal amount under the LMFA Note.
Maxim Promissory Note
Pursuant to an engagement letter between SeaStar Medical and Maxim dated October 28, 2022, SeaStar Medical, or the Company following the consummation of the Business Combination, was required to pay Maxim, as its financial advisor and/or placement agent, certain professional fees. Upon the Closing, the parties agreed that $4,182,353 of such amount would be paid in the form of a promissory note. Accordingly, on October 28, 2022, the Company entered into the Maxim Note for an aggregate principal amount of $4,182,353. The Maxim Note has a maturity date of October 30, 2023 and outstanding amount may be prepaid without premium or penalty. If the Company receives any cash proceeds from a debt or equity financing transaction prior to the maturity date, then the Company is required to prepay the indebtedness equal to 25.0% of the gross amount of the cash proceeds, provided that such repayment obligation shall not apply to the first $500,000 of the cash proceeds received by the Company. Interest on the Maxim Note is due at 7.0% per annum. The Maxim Note contains customary representations and warranties, and affirmative and negative covenants. The Maxim Note is also subject to customary events of default, the occurrence of which may result in the Maxim Note then outstanding becoming immediately due and payable, with interest being increased to 15.0% per annum.
Intercreditor Agreement
On October 28, 2022, the Creditors, SeaStar Medical and the Company entered into the Intercreditor Agreement in order to set forth their relative rights under the LMFA Note, Sponsor Note and Maxim Note, including the payments of amounts by the Company upon an event of default under such notes. Pursuant to the Intercreditor Agreement, each Creditor agrees and acknowledges that LMFA and Sponsor have been granted liens on the collateral as set forth in the applicable LMFA Security Agreement and Sponsor Security Agreement. Each Creditor also agrees and acknowledges that Maxim’s indebtedness under the Maxim Promissory Note is unsecured.
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Equity Line Financing Agreements
On August 23, 2022, SeaStar Medical and LMAO entered into the Purchase Agreement with Tumim. Pursuant to the Purchase Agreement and subject to the satisfaction of the conditions set forth in the Purchase Agreement, the Company has the right, after the Closing Date from time to time, to sell to Tumim up to $100.0 million worth of shares of Common Stock subject to certain limitations and conditions set forth in the Purchase Agreement. SeaStar Medical, LMAO and Tumim also simultaneously entered into a registration rights agreement, pursuant to which, within 30 days following the Closing Date, the Company is obligated to file the Initial Registration Statement (as defined in the Amended and Restated Registration Rights Agreement) with the SEC under the Securities Act to register the resale by Tumim of the Commitment Shares and the shares of Common Stock that may be sold to it by the Company under the Purchase Agreement. The Purchase Agreement provides for a Commitment Fee in the amount of $2.5 million payable to Tumim, and such Commitment Fee shall be paid in the form of the Commitment Shares.
On November 9, 2022, the Company, SeaStar, and Tumim entered into Amendment No. 1 to the Common Stock Purchase Agreement (the “Purchase Agreement Amendment”), pursuant to which, among other things, the parties agreed to the following with respect to the Company’s obligation to pay Tumim a $2.5 million commitment fee, as follows: (a) the Company would have paid Tumim $1,000,000 of the commitment fee in cash on the Business Combination Closing Date (as defined in the Purchase Agreement), which amount was paid on such day on October 28, 2022; (b) the Company will pay Tumim $500,000 of the commitment fee in cash no later than the earliest of (i) the 30th calendar day immediately following the Effective Date of the Initial Registration Statement (each as defined in the Registration Rights Agreement), (ii) the 30th calendar day immediately following the Effectiveness Deadline (as defined in the Registration Rights Agreement) of the Initial Registration Statement, and (iii) not later than the second trading date immediately after the date on which written notice of termination is delivered by the Company or Tumim pursuant to the terms of the Purchase Agreement; and (c) the Company will pay Tumim the balance of the commitment fee, or $1,000,000, in newly issued shares of common stock, the per share value of our initial business combinationwhich will be determined by our board of directors based upon one or more standards generally accepted by the financial community, such as discounted cash flow valuation, a valuation based on trading multiples of comparable public businesses or a valuation based on the financial metrics of M&A transactions of comparable businesses. If our board of directors is not able to independently determine the fair market value of our initial business combination, we will obtain an opinion from an independent investment banking firm that is a member of FINRA or an independent accounting firm with respectreference to the satisfaction of such criteria. While we consider it unlikely that our board of directors will not be able to make an independent determinationvolume weighted average prices of the fair market valuecommon stock immediately prior to the filing of our initial business combination, it may be unablethe Initial Registration Statement. In addition, the Purchase Agreement Amendment provided certain price and share information and amended certain definitions in the Purchase Agreement to do so if it is less familiarinclude certain information that was not available at the time when the Purchase Agreement was executed on August 23, 2022, including the definitions of “Base Price,” “Commitment Fee,” “Commitment Shares,” “Common Stock,” “Minimum Price,” “VWAP Purchase Maximum Amount,” and “VWAP Purchase Price”.
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BUSINESS
Unless the context otherwise requires, all references in this subsection to the “Company,” “we,” “us” or experienced with“our” refer to SeaStar Medical Holding Corporation and its consolidated subsidiaries following the Business Combination, other than certain historical information that refers to the business of SeaStar Medical prior to the consummation of the Business Combination.
Overview
The Company is a particularmedical technology company developing a platform therapy to reduce the consequences of hyperinflammation on vital organs. The inflammatory response is critical to fend off infections and repair damaged tissue in the body. Central to inflammation are the cells within blood and lymph circulatory systems, called white blood cells (primarily neutrophils and monocytes) or also referred to commonly as “pus” cells. In a normal inflammatory response, neutrophils are the first immune cells to arrive at the site and are key to the entire immune response that kills pathogens and promotes tissue repair. If the inflammatory response becomes excessive and dysregulated (referred as proinflammatory), normal neutrophil die off (“apoptosis”) may be delayed, altering feedback mechanisms that regulate the immune system. This results in damaging hyperinflammation spreading uncontrollably to other parts of the body, often leading to acute chronic solid organ dysfunction or failure, including heart, lung, kidney and liver diseases. This hyperinflammatory response is also known as the “cytokine storm,” referring to the body’s reaction to the category of small-secreted proteins released by hyperinflammatory cells that affect communication between cells. The cytokine storm, when left uncontrolled, can lead to organ damage and even death.
Based on clinical and preclinical studies conducted over the last 15 years, the Company’s technology has shown promise in modulating the degree of activity of proinflammatory cells to help reduce tissue damage and speed the repair and recovery of organ function. We believe this approach, if successful, will transform the ability of clinicians to treat acute organ failure in the intensive care unit (“ICU”) and to improve chronic organ function in hospitalized patients. Currently few therapeutics are available to clinicians to address the issue of hyperinflammation and for those options that do exist, such options are either immunosuppressive or only target one cytokine. We believe our technology has the potential to overcome limitations in existing anti-inflammatory treatments and address the challenge in selectively targeting activated neutrophils and monocytes. We are leveraging our patent protected and scalable technology platform to develop proprietary therapies that are organ agnostic and target both acute and chronic indications.
We are initially using our proprietary SCD technology platform to clinically validate several acute organ injury indications, including kidneys and lungs. Our investigational SCD is an extracorporeal synthetic membrane device designed to be easily integrated into existing CRRT systems that are commonly installed in hospitals, including in ICUs throughout the U.S. Once approved and commercialized, our SCD would initially target acute kidney injury in both the pediatric CRRT population as well as adults on CRRT. In addition, we are developing our SCD to address inflammation associated with chronic dialysis and chronic heart failure.
Preclinically, our SCD was tested in various animal models, which include acute myocardial infarction, intracranial hemorrhage, chronic heart failure, sepsis and acute respiratory distress syndrome. We will continue to explore the application of our SCD technology across a broad range of markets and indications where proinflammatory activated neutrophils and monocytes may contribute to disease progression or ifseverity in both acute and chronic indications.
There is substantial clinical demand for safe and effective control of hyperinflammation. Existing treatment options in hyperinflammation include the use of corticosteroids (immunosuppression) and absorbent technologies that either directly absorb cytokines, viruses, bacteria or endotoxins and pharmaceuticals that target cytokines and the immune cascade. None selectively addresses activated neutrophils or monocytes. The use of our SCD to reverse the cytokine storm in pediatric and adult patients with acute kidney injury on CRRT in clinical studies with more than 140 patients reduced mortality rates by 50%, and, of those patients who survive 60 days, none have required dialysis. The unique mechanism of action (modulation of neutrophils and monocytes) has exhibited consistent clinical outcomes in both adults as well as children. Given the competitive advantages of our SCD, we believe our SCD has the potential to become a preferred course of treatment by clinicians for hyperinflammatory indications based on its potential to improve patient outcomes, increase survival rates, reduce dialysis dependence, and ultimately lower healthcare costs.
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As of September 15, 2022, our SCD has been used in approximately 170 adult and pediatric patients on an investigational basis. In June 2022, we submitted a HDE application with the FDA for pediatric patients with AKI on CRRT. Based on the current timeline of the HDE, we expect the FDA to complete its substantive review of our HDE application during the first quarter of 2023; however, there is no guarantee that the FDA will approve our HDE application. In addition, we are finalizing the design of a significant amountpivotal trial for adult patients with AKI on CRRT. On April 29, 2022, we received a Breakthrough Device Designation for the use of uncertainty asour SCD in the treatment of immunomodulatory dysregulation in adult patients (18 and older) with AKI, which is expected to accelerate the regulatory approval process for such trial. We currently anticipate generating interim results from this trial in late 2023 and final results in 2024. Upon completion of our pivotal trial in adults, we intend to submit a PMA to the value of a target’s assets or prospects. We do not intend to purchase multiple businessesFDA for indications in unrelated industries in conjunction with our initial business combination. Subject to this requirement, our management will have virtually unrestricted flexibility in identifying and selecting one or more prospective target businesses, although we will not be permitted to effectuate our initial business combination with another blank check company or a similar company with nominal operations.
In any case, we will only complete an initial business combination in which we own or acquire 50% or more of the outstanding voting securities of the target or otherwise acquire a controlling interestAKI patients on CRRT in the target sufficient for it not to be required to register as an investment company under the Investment Company Act. If we own or acquire less than 100%second half of the equity interests or assets of a target business or businesses, the portion of such business or businesses that are owned or acquired by the post-transaction company is what will be taken into account for purposes of Nasdaq’s 80% of net assets test.2024. There is no basis for investors in this offering to evaluate the possible merits or risks of any target business with which we may ultimately complete our initial business combination.
To the extent we effect our initial business combination with a company or business that may be financially unstable or in its early stages of development or growth we may be affected by numerous risks inherent in such company or business. Although our management will endeavor to evaluate the risks inherent in a particular target business, we cannot assure youguarantee that we will properly ascertaincomplete the AKI adult trial in a timely manner, or assessat all, significant risk factors.
In evaluating a prospective business target,nor will there be any assurance that positive data will be generated from such trial. Even if we expectare able to generate positive results from these trials, the FDA may require us to conduct a thorough due diligence review, which may encompass, among other things, meetingsadditional trials to support the study or disagree with incumbent management and employees, document reviews, interviews of customers and suppliers, inspection of facilities, as well as a review of financial and other information that will be made available to us.
The time required to select and evaluate a target business and to structure and complete our initial business combination, and the costs associated with this process, are not currently ascertainable with any degree of certainty. Any costs incurred with respect to the identification and evaluation of a prospective target business with which our initial business combination is not ultimately completed will result in our incurring losses and will reduce the funds we can use to complete another business combination.
Lack of Business Diversification
For an indefinite period of time after the completion of our initial business combination, the prospects for our success may depend entirely on the future performance of a single business. Unlike other entities that have the resources to complete business combinations with multiple entities in one or several industries, it is probable that we will not have the resources to diversify our operations and mitigate the risks of being in a single line of business. In addition, we intend to focus our search for an initial business combination in a single industry. By completing our initial business combination with only a single entity, our lack of diversification may:
subject us to negative economic, competitive and regulatory developments, any or all of which may have a substantial adverse impact on the particular industry in which we operate after our initial business combination, and
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Limited Ability to Evaluate the Target’s Management Team
Although we intend to closely scrutinize the management of a prospective target business when evaluating the desirability of effecting our initial business combination with that business, our assessmentdesign of the target business’ management may not provetrials and request changes or improvements to be correct. In addition, the future management may not have the necessary skills, qualifications or abilities to manage a public company. Furthermore, the future role of members of our management team, if any, in the target business cannot presently be stated with any certainty. The determination as to whether any of the members of our management team will remain with the combined company will be made at the time of our initial business combination. While it is possible that one or more of our directors will remain associated in some capacity with us following our initial business combination, it is unlikely that any of them will devote their full efforts to our affairs subsequent to our initial business combination. Moreover, we cannot assure you that members of our management team will have significant experience or knowledge relating to the operations of the particular target business.such design.
We cannot assure youbelieve that any of our key personnel will remainnovel therapeutic device is readily scalable for use in senior management or advisory positions with the combined company. The determination asother indications. As we continue our work to whether any of our key personnel will remain with the combined company will be made at the time of our initial business combination.
Following an initial business combination,expand indications, we may seek to recruit additional managers to supplement the incumbent management of the target business. We cannot assure you thatbelieve we will have the ability to recruit additional managers, or that additional managers will havetake advantage of economies of scale to reduce costs of production. We believe our established manufacturing process demonstrates a significant competitive advantage in the requisite skills, knowledge or experience necessary to enhance the incumbent management.
Stockholders May Not Have the Ability to Approve Our Initial Business Combinationhyperinflammatory market.
We may conduct redemptions without a stockholder vote pursuanthave pursued patent protection for our SCD technology as well as other technologies, which consists of 39 patents and 11 pending patent applications in the U.S. and certain foreign jurisdictions. Of these patents and patent applications 33 are owned exclusively by us, and 17 are co-owned with the UOM. UOM has granted to the tender offer rulesus an exclusive worldwide, royalty bearing license to UOM’s interest in all of the SEC. However, we will seek stockholder approval if it is required by law or applicable stock exchange rule, or we may decide to seek stockholder approval for business or other legal reasons. Presented in the table below is a graphic explanation of the types of initial business combinations we may considerco-owned patents and whether stockholder approval is currently required under Delaware law for each such transaction.
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Under Nasdaq’s listing rules, stockholder approval would be required for our initial business combination if, for example:
we issue shares of Class A common stock that will be equal to or in excess of 20% of the number of shares of our Class A common stock then outstanding;
any of our directors, officers or substantial stockholders (as defined by Nasdaq rules) has a 5% or greater interest (or such persons collectively have a 10% or greater interest), directly or indirectly, in the target business or assets to be acquired or otherwise and the present or potential issuance of common stock could result in an increase in outstanding common shares or voting power of 5% or more; or
the issuance or potential issuance of common stock will result in our undergoing a change of control.
Permitted Purchases of our Securities
If we seek stockholder approval of our initial business combination and we do not conduct redemptions in connection with our initial business combination pursuant to the tender offer rules, our sponsor, initial stockholders, directors, officers, advisors or their affiliates may purchase shares or public warrants in privately negotiated transactions or in the open market either prior to or following the completion of our initial business combination. There is no limit on the number of shares our initial stockholders, directors, officers, advisors or their affiliates may purchase in such transactions, subject to compliance with applicable law and Nasdaq rules. However, they have no current commitments, plans or intentions to engage
in such transactions and have not formulated any terms or conditions for any such transactions. If they engage in such transactions, they will not make any such purchases when they are in possession of any material nonpublic information not disclosed to the seller or if such purchases are prohibited by Regulation M under the Exchange Act. We do not currently anticipate that such purchases, if any, would constitute a tender offer subject to the tender offer rules under the Exchange Act or a going-private transaction subject to the going-private rules under the Exchange Act; however, if the purchasers determine at the time of any such purchases that the purchases are subject to such rules, the purchasers will comply with such rules. Any such purchases will be reported pursuant to Section 13 and Section 16 of the Exchange Act to the extent such purchasers are subject to such reporting requirements. None of the funds held in the trust account will be used to purchase shares or public warrants in such transactions prior to completion of our initial business combination.
The purpose of any such purchases of shares could be to vote such shares in favor of the initial business combination and thereby increase the likelihood of obtaining stockholder approval of the initial business combination or to satisfy a closing condition in an agreement with a target that requiresapplications. This license permits us to have a minimum net worth or a certain amount of cash at the closing ofcommercialize our initial business combination, where it appears that such requirement would otherwise not be met. The purpose of any such purchases of public warrants could be to reduce the number of public warrants outstanding or to vote such warrants on any matters submitted to the warrant holders for approvalSCD in connection with our initial business combination. Any such purchases of our securities may result in the completion of our initial business combination that may not otherwise have been possible. In addition, if such purchases are made, the public “float” of our shares of Class A common stock or warrants may be reduced and the number of beneficial holders of our securities may be reduced, which may make it difficult to maintain or obtain the quotation, listing or trading of our securities on a national securities exchange.
Our sponsor, officers, directors and/or their affiliates anticipate that they may identify the stockholders with whom our sponsor, officers, directors or their affiliates may pursue privately negotiated purchases by either the stockholders contacting us directly or by our receipt of redemption requests submitted by stockholders following our mailing of proxy materials in connection with our initial business combination. To the extent that our sponsor, officers, directors, advisors or their affiliates enter into a private purchase, they would identify and contact only potential selling stockholders who have expressed their election to redeem their shares for a pro rata share of the trust account or vote against our initial business combination, whether or not such stockholder has already submitted a proxy with respect to our initial business combination. Our sponsor, officers, directors, advisors or their affiliates will only purchase shares if such purchases comply with Regulation M under the Exchange Act and the other federal securities laws.
Any purchases by our sponsor, officers, directors and/or their affiliates who are affiliated purchasers under Rule 10b-18 under the Exchange Act will only be made to the extent such purchases are able to be made in compliance with Rule 10b-18, which is a safe harbor from liability for manipulation under Section 9(a)(2) and Rule 10b-5 of the Exchange Act. Rule 10b-18 has certain technical requirements that must be complied with in order for the safe harbor to be available to the purchaser. Our sponsor, officers, directors and/or their affiliates will not make purchases of common stock if the purchases would violate Section 9(a)(2) or Rule 10b-5 of the Exchange Act. Any such purchases will be reported pursuant to Section 13 and Section 16 of the Exchange Act to the extent such purchases are subject to such reporting requirements.
Redemption Rights for Public Stockholders upon Completion of our Initial Business Combinationall human therapeutic indications. For more information, see “ — Intellectual Property” below.
We willintend to continue to shape our commercial and distribution strategy by expanding indications and pursue collaborations with partners in markets where such partners provide strategic opportunities in launching our public stockholders with the opportunityproduct candidates and enabling access to redeem all or a portion of their shares of Class A common stock upon the completion of our initial business combination at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account as of two business days prior to the consummation of the initial business combination including interest earned on the funds held in the trust account and not previously released to us to pay our franchise and income taxes, divided by the number of then outstanding public shares, subject to the limitations described herein. The amount in the trust account is initially anticipated to be approximately $10.20 per public share. The per-share amountspecific patient populations. On December 27, 2022, we will distribute to investors who properly redeem their shares will not be reduced by the deferred underwriting commissions we will pay to the underwriters. Our sponsor, officers and directors have entered into a letterlicense and distribution agreement (the “Distribution Agreement”) with us,Nuwellis, Inc. (“Nuwellis”), pursuant to which they have agreed to waive their redemption rights with respect to any founder shareswe appointed Nuwellis as our exclusive distributor for the sale and any public shares held by them in connection withdistribution of SCD product throughout the completion of our initial business combination.
Manner of Conducting Redemptions
We will provide our public stockholders withUnited States once we receive from the opportunity to redeem all or a portion of their shares of Class A common stock upon the completion of our initial business combination either (i) in connection with a stockholder meeting called to approve the initial business combination or (ii) by meansFDA of a tender offer. The decision aswritten authorization to whether we will seek stockholder approval of a proposed initial business combination or conduct a tender offer will be made by us, solely in our discretion, and will be based on a variety of factorsmarket such as the timing of the transaction and whether the terms of the transaction would require us to seek stockholder approval under the law or stock exchange listing requirement. Asset
acquisitions and stock purchases would not typically require stockholder approval while direct mergers with our company where we do not survive and any transactions where we issue more than 20% of our outstanding common stock or seek to amend our certificate of incorporation would require stockholder approval. If we structure an initial business combination with a target company in a manner that requires stockholder approval, we will not have discretion as to whether to seek a stockholder vote to approve the proposed initial business combination. We may conduct redemptions without a stockholder vote pursuant to the tender offer rules of the SEC unless stockholder approval is required by law or stock exchange listing requirements or we choose to seek stockholder approvalproduct for business or other legal reasons. So long as we obtain and maintain a listing for our securities on Nasdaq, we will be required to comply with such rules.
If a stockholder vote is not required and we do not decide to hold a stockholder vote for business or other legal reasons, we will,pediatric use pursuant to our certificateHDE application. Pursuant to the Distribution Agreement, we will receive an upfront payment, milestone payments upon achievement of incorporation:
conduct the redemptions pursuant to Rule 13e-4certain milestones and Regulation 14Eroyalties on gross sales of the Exchange Act, which regulate issuer tender offers,SCD product. The Distribution Agreement has an initial term commencing on December 27, 2022 and
file tender offer documents with shall end on the SEC priorthree (3) year anniversary from the date that is the earlier of (a) ninety (90) days after we receive FDA authorization to completing our initial business combination which contain substantiallymarket such SCD product for pediatric use and (b) the same financial and other information about the initial business combination and the redemption rights as is required under Regulation 14Afirst commercial sale of the Exchange Act, which regulatesSCD product. The term of the solicitationDistribution Agreement may be automatically extended for additional terms of proxies.
Upon(1) year and for a total of two (2) extensions. Each party has the public announcement of our initial business combination,right to terminate the Distribution Agreement for material breach if such breach is not cured within ninety (90) days after written notice and we or our sponsor willhave additional rights to terminate any plan establishedthe Distribution Agreement in accordance with Rule 10b5-1 to purchase shares of our Class A common stock in the open market if we elect to redeem our public shares through a tender offer, to comply with Rule 14e-5 under the Exchange Act.
In the event we conduct redemptions pursuant to the tender offer rules, our offer to redeem will remain open for at least 20 business days, in accordance with Rule 14e-1(a) under the Exchange Act, and we will not be permitted to complete our initial business combination until the expiration of the tender offer period. In addition, the tender offer will be conditioned on public stockholders not tendering more than a specified number of public shares which are not purchased by our sponsor, which number will be based on the requirement that we may not redeem public shares in an amount that would cause our net tangible assets to be less than $5,000,001 immediately prior to or upon consummation of our initial business combination and after payment of the underwriters’ fees and commissions (so that we are not subject to the SEC’s “penny stock” rules) or any greater net tangible asset or cash requirement which may be contained in the agreement relating to our initial business combination. If public stockholders tender more shares than we have offered to purchase, we will withdraw the tender offer and not complete the initial business combination.
If, however, stockholder approval of the transaction is required by law or stock exchange listing requirement, or we decide to obtain stockholder approval for business or other legal reasons, we will, pursuant to our certificate of incorporation:
conduct the redemptions in conjunction with a proxy solicitation pursuant to Regulation 14A of the Exchange Act, which regulates the solicitation of proxies, and not pursuant to the tender offer rules, and
file proxy materials with the SEC.
In the event that we seek stockholder approval of our initial business combination, we will distribute proxy materials and, in connection therewith, provide our public stockholders with the redemption rights described above upon completion of the initial business combination.
If we seek stockholder approval, we will complete our initial business combination only if a majority of the outstanding shares of common stock voted are voted in favor of the initial business combination. A quorum for such meeting will consist of the holders present in person or by proxy of shares of outstanding capital stock of the company representing a majority of the voting power of all outstanding shares of capital stock of the company entitled to vote at such meeting. Our initial stockholders will count toward this quorum and pursuant to the letter agreement, our sponsor, officers and directors have agreed to vote their founder shares and any public shares purchased during or after this offering (including in open market and privately negotiated transactions) in favor of our initial business combination. For purposes of seeking approval of the majority of our outstanding shares of common stock voted, non-votes will have no effect on the approval of our initial business combination once a quorum is obtained. As a result, in addition to our initial stockholders’ founder shares, we would need only 2,850,001, or approximately 30.2%, (assuming all outstanding shares are voted and the over-allotment option is not exercised) or 487,501, or approximately 5.2% (assuming only the minimum number of shares representing a quorum are voted and the over-allotment option is not exercised), of the 7,500,000 public shares sold in this offering to be voted in favor of an initial business combination. We intend to give approximately 30 days’ (but not less than 10 days’ nor more than 60 days’) prior written notice of any such meeting, if required, at which a vote shall be taken to approve our initial
business combination. These quorum and voting thresholds, and the voting agreements of our initial stockholders, may make it more likely that we will consummate our initial business combination. Each public stockholder may elect to redeem its public shares irrespective of whether they vote for or against the proposed transaction.
Our certificate of incorporation will provide that in no event will we redeem our public shares in an amount that would cause our net tangible assets to be less than $5,000,001 immediately prior to or upon consummation of our initial business combination and after payment of the underwriters’ fees and commissions (so that we are not subject to the SEC’s “penny stock” rules) or any greater net tangible asset or cash requirement which may be contained in the agreement relating to our initial business combination. For example, the proposed initial business combination may require: (i) cash consideration to be paid to the target or its owners, (ii) cash to be transferred to the target for working capital or other general corporate purposes or (iii) the retention of cash to satisfy other conditions in accordance with the terms of the proposed initial business combination. In the event the aggregate cash consideration we would be required to pay for all shares of Class A common stock that are validly submitted for redemption plus any amount required to satisfy cash conditions pursuant to the terms of the proposed initial business combination exceed the aggregate amount of cash available to us, we will not complete the initial business combination or redeem any shares, and all shares of Class A common stock submitted for redemption will be returned to the holders thereof.
Limitation on Redemption upon Completion of our Initial Business Combination if we Seek Stockholder Approval
Notwithstanding the foregoing, if we seek stockholder approval of our initial business combination and we do not conduct redemptions in connection with our initial business combination pursuant to the tender offer rules, our certificate of incorporation will provide that a public stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Exchange Act), will be restricted from seeking redemption rights with respect to more than an aggregate of 15% of the shares sold in this offering, which we refer to as the “Excess Shares.” Such restriction shall also be applicable to our affiliates. We believe this restriction will discourage stockholders from accumulating large blocks of shares, and subsequent attempts by such holders to use their ability to exercise their redemption rights against a proposed initial business combination as a means to force us or our management to purchase their shares at a significant premium to the then-current market price or on other undesirable terms. Absent this provision, a public stockholder holding more than an aggregate of 15% of the shares sold in this offering could threaten to exercise its redemption rights if such holder’s shares are not purchased by us or our management at a premium to the then-current market price or on other undesirable terms. By limiting our stockholders’ ability to redeem no more than 15% of the shares sold in this offering without our prior consent, we believe we will limit the ability of a small group of stockholders to unreasonably attempt to block our ability to complete our initial business combination, particularly in connection with an initial business combination with a target that requires as a closing condition that we have a minimum net worth or a certain amount of cash. However, we would not be restricting our stockholders’ ability to vote all of their shares (including Excess Shares) for or against our initial business combination.
Tendering Stock Certificates in Connection with a Tender Offer or Redemption Rights
We may require our public stockholders seeking to exercise their redemption rights, whether they are record holders or hold their shares in “street name,” to either tender their certificates to our transfer agent prior to the date set forth in the tender offer documents or proxy materials mailedDistribution Agreement.
Our senior management team and Board have an average of more than 19 years of experience in the healthcare industry, including expertise in medical affairs, commercialization and distribution in our initial therapeutic priority areas. We are also supported by a group of well-respected scientific advisors who are experts in the development of our technology and products.
Corporate History
SeaStar Medical, Inc. was initially incorporated under the name Nephrion, Inc. on June 6, 2007. On August 3, 2007, we filed the First Amended and Restated Certificate of Incorporation of Nephrion, Inc., amending our corporate name to such holders, or up to two business days priorCytoPherx, Inc. On June 19, 2019, we filed the Second Certificate of Amendment to the vote onSeventh Amended and Restated Certificate of Incorporation of CytoPherx, Inc., amending our corporate name to SeaStar Medical, Inc.
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Our Approach
The acute inflammatory response occurs in a well-defined coordinated sequential response. Neutrophils are the proposalfirst responders followed by monocytes. The monocytes, as they egress into tissue also follow another sequence of differentiation into tissue macrophages. The first are proinflammatory macrophages, followed by patrolling, reparative macrophages.
This complex, tightly coordinated process is critical for host defense and tissue repair but needs to approvebe tightly regulated by the initial business combinationbody’s inflammatory signaling and cellular apoptosis. If not, further tissue destruction may occur when uncontrolled hyperinflammation leads to degradative reparative processes with worsening tissue or organ function. If this excessive systemic inflammation is severe and prolonged, multi-organ failure, including cardiovascular, respiratory, kidney, liver and neurologic dysfunction may occur, resulting in the event we distribute proxy materials,poor clinical outcomes. Prior therapeutic approaches to block soluble mediator targets, such as a cytokines or free radicals have not proven successful. We believe that our SCD approach, which targets activated cells, is a potentially transformative, if not disruptive, therapeutic approach to deliver their sharesa range of acute and chronic inflammatory disorders.
Our SCD is an extracorporeal synthetic membrane device designed to bind activated leukocytes (neutrophils and monocytes) as part of a CRRT extracorporeal circuit. When added to the transfer agent electronically usingcircuit of a standard CRRT system (using regional citrate anticoagulation) immediately following a standard hemofilter cartridge, blood within the Depository Trust Company’s DWAC (Deposit/Withdrawal At Custodian) System, atstandard hemofilter cartridge enters our SCD and disperses among the holder’s option. The tender offer or proxy materials, as applicable, that we will furnish to holders of our public shares in connection with our initial business combination will indicate whether we are requiring public stockholders to satisfy such delivery requirements. Accordingly, a public stockholder would have from the time we send out our tender offer materials until the closefibers of the tender offer period, or up to two days priordevice. Upon exiting our SCD, the blood is returned to the vote on the initial business combination if we distribute proxy materials, as applicable, to tender its shares if it wishes to seek to exercise its redemption rights. Given the relatively short exercise period, it is advisable for stockholders to use electronic delivery of their public shares.patient’s body.
There is a nominal cost associated with the above-referenced tendering process and the act of certificating the shares or delivering them through the DWAC System. The transfer agent will typically charge the tendering broker $80.00 and it would be up to the broker whether or not to pass this cost on to the redeeming holder. However, this fee would be incurred regardless of whether or not we require holders seeking to exercise redemption rights to tender their shares. The need to deliver shares is a requirement of exercising redemption rights regardless of the timing of when such delivery must be effectuated.
The foregoing is different from the procedures used by many blank check companies. In order to perfect redemption rights in connection with their business combinations, many blank check companies would distribute proxy materials for the
stockholders’ vote on an initial business combination, and a holder could simply vote against a proposed initial business combination and check a box on the proxy card indicating such holder was seeking to exercise his or her redemption rights. After the initial business combination was approved, the company would contact such stockholder to arrange for him or her to deliver his or her certificate to verify ownership. As a result, the stockholder then had an “option window” after the completion of the initial business combination during which he or she could monitor the price of the company’s stock in the market. If the price rose above the redemption price, he or she could sell his or her shares in the open market before actually delivering his or her shares to the company for cancellation. As a result, the redemption rights, to which stockholders were aware they needed to commit before the stockholder meeting, would become “option” rights surviving past the completion of the initial business combination until the redeeming holder delivered its certificate. The requirement for physical or electronic delivery prior to the meeting ensures that a redeeming holder’s election to redeem is irrevocable once the initial business combination is approved.
Any request to redeem such shares, once made, may be withdrawn at any time up to the date set forth in the tender offer materials or the date of the stockholder meeting set forth in our proxy materials, as applicable. Furthermore, if a holder of a public share delivered its certificate in connection with an election of redemption rights and subsequently decides prior to the applicable date not to elect to exercise such rights, such holder may simply request that the transfer agent return the certificate (physically or electronically). It is anticipated that the funds to be distributed to holders of our public shares electing to redeem their shares will be distributed promptly after the completion of our initial business combination.
If our initial business combination is not approved or completed for any reason, then our public stockholders who elected to exercise their redemption rights would not be entitled to redeem their shares for the applicable pro rata share of the trust account. In such case, we will promptly return any certificates delivered by public holders who elected to redeem their shares.
If our initial proposed initial business combination is not completed, we may continue to try to complete an initial business combination with a different target until 18 months from the closing of this offering (or 21 months from the closing of this offering, if we extend the period of time to consummate a business combination, as described in more detail in this prospectus).
Extension of Time to Complete Business Combination
We will have until 18 months from the closing of this offering to consummate an initial business combination. However, if we anticipate that we may not be able to consummate our initial business combination within 18 months, we will, by resolution of our board if requested by our sponsor, extend the period of time to consummate a business combination by an additional three months (for a total of 21 months to complete a business combination), subject to the sponsor depositing additional funds into the trust account as set out below. Pursuant to the terms of our certificate of incorporation and the trust agreement to be entered into between us and Continental Stock Transfer & Trust Company on the date of this prospectus, in order to extend the time available for us to consummate our initial business combination, our sponsor or its affiliates or designees must deposit into the trust account $750,000, or up to $862,500 if the underwriters’ over-allotment option is exercised in full ($0.10 per share in either case) on or prior to the date of the deadline. We will issue a press release announcing the extension, at least three days prior to the deadline. In addition, we will issue a press release the day after the deadline, announcing whether the funds have been timely deposited. Our sponsor and its affiliates or designees are obligated to fund the trust account in order to extend the time for us to complete our initial business combination, but our sponsor will not be obligated to extend such time.
Redemption of Public Shares and Liquidation if no Initial Business Combination
Our certificate of incorporation will provide that we will have only 18 months from the closing of this offering (or 21 months from the closing of this offering, if we extend the period of time to consummate a business combination, as described in more detail in this prospectus) to complete our initial business combination. If we are unable to complete our initial business combination within such 18-month time period (or 21-month period), we will: (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account including interest earned on the funds held in the trust account and not previously released to us to pay our franchise and income taxes (less up to $100,000 of interest to pay liquidation expenses), divided by the number of then outstanding public shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders and our board of directors, dissolve and liquidate, subject in each case to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. There will be no redemption rights or liquidating distributions with respect to our warrants, which
will expire worthless if we fail to complete our initial business combination within the 18-month time period (or 21-month period).
Our sponsor, officersSCD delivers its therapeutic benefit by attenuating the excessive inflammatory response of activated neutrophils and directors have entered into a letter agreementmonocytes. Uninterrupted, the excessive inflammatory response progresses to multi-organ failure (“MOF”), with us, pursuant to which they have waived their rights to liquidating distributions fromdocumented increases in both morbidity and mortality in critically ill patients. Our initial lead product is focused on critically-ill AKI pediatric and adult patients on CRRT. Our SCD leverages the trust account with respect to any founder shares held by them if we fail to complete our initial business combination within 18 months from the closingexisting footprint of this offering (or 21 months from the closing of this offering, if we extend the period of time to consummate a business combination, as describedCRRT pump systems in more detail in this prospectus). However, if our sponsor, officers or directors acquire public shares in or after this offering, they will be entitled to liquidating distributions from the trust account with respect to such public shares if we fail to complete our initial business combination within the allotted 18-month time period (or 21-month period).
Our sponsor, officers, and directors have agreed, pursuant to a written agreement with us, that they will not propose any amendment to our certificate of incorporation: (i) to modify the substance or timing of our obligation to redeem 100% of our public shares if we do not complete our initial business combination within 18 months from the closing of this offering (or 21 months from the closing of this offering, if we extend the period of time to consummate a business combination, as described in more detail in this prospectus); or (ii) with respect to any other provision relating to stockholders’ rights or pre-initial business combination activity, unless we provide our public stockholders with the opportunity to redeem their shares of Class A common stock upon approval of any such amendment at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account including interest earned on the funds held in the trust account and not previously released to us to pay our franchise and income taxes divided by the number of then outstanding public shares. However, we may not redeem our public shares in an amount that would cause our net tangible assets to be less than $5,000,001 either immediately prior to or upon consummation of our initial business combination and after payment of the underwriters’ fees and commissions (so that we are not subject to the SEC’s “penny stock” rules). If this optional redemption right is exercised with respect to an excessive number of public shares such that we cannot satisfy the net tangible asset requirement (described above), we would not proceed with the amendment or the related redemption of our public shares at such time.
We expect that all costs and expenses associated with implementing our plan of dissolution,ICUs today, as well as payments to any creditors, will be funded from amounts remaining outthe growing use and adoption of regional citrate as an anticoagulant. A recent study in the Journal of the approximately $750,000American Medical Association in 2020 demonstrated that while the use of proceeds held outsideregional citrate anticoagulation has the trust account, although we cannot assure yousame mortality profile as heparin, regional citrate anticoagulation showed longer filter life compared to heparin.
Mechanism of Action
The mechanism of action of our SCD consists of two steps: 1) binding activated neutrophils and monocytes on our SCD biomimetic membrane and 2) deactivating the activated neutrophils by maintaining a specified ionized calcium level within our SCD. Our SCD utilizes clinically approved regional citrate
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anticoagulation protocols to lower the ionized calcium level, which prevents blood clogging within the circuit and immuno-modulates the activated neutrophils, which are then returned to the patient. Calcium is then infused into the blood returning to the patient from the SCD, thereby maintaining normal calcium levels in the patient throughout the process.
Our SCD and Neutrophils
Calcium plays a critical role in many biological processes. In the case of neutrophils, calcium can have a profound effect on their activity. It has been shown that there will be sufficient fundslowering calcium levels in neutrophils can lead to higher levels of neutrophil apoptosis (deactivation). Our SCD is designed to selectively bind the most highly activated neutrophils (associated with hyperinflammation) and in a low iCa environment, the activated neutrophils are deactivated, which has the effect of reducing hyperinflammation. When neutrophils are in homeostasis, the normal half-life is six to eight hours, but in a hyperinflammatory state, neutrophil apoptosis is delayed leading to increased numbers of activated neutrophils in circulation. Through clinical and preclinical studies, our SCD has been shown to selectively sequester and deactivate the most highly activated neutrophils, allowing the body to restore neutrophil homeostasis. It is important to note that our SCD does not sequester 100% of these neutrophils as they are important to maintaining immune homeostasis.
Our SCD and Monocytes
We believe the role of circulating monocytes in systemic inflammation and organ specific injury is becoming more appreciated by healthcare professionals. Calcium also has an important influence on monocyte activity. A high percentage of the circulating monocyte subtypes (M1 proinflammatory versus M2 patrolling, reparative) has been shown to influence the degree of acute organ injury and chronic organ dysfunction. In vitro, our SCD membranes in a low iCa perfusion circuit binds the proinflammatory monocytes within the blood more selectively. This selective binding has been shown in clinical trials and results in less proinflammatory circulating monocytes in inflammatory disorders. It is important to note that our SCD does not sequester 100% of these monocytes as they are important to maintaining immune homeostasis.
Histological evaluation of our SCD
Microscopy of our SCD after being used for such purpose. We will depend on sufficient interest being earnedpatient treatment demonstrated the binding of leukocytes on the proceeds held inouter surface of the trust accountmembranes of the cartridge along the blood flow path within the extracorporeal circuit. The bound leukocytes were dominated by neutrophils and monocytes (see Figure 1 below).
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The ability of neutrophils and monocytes to pay any franchise and income tax obligations we may owe. However, if those funds are not sufficient to cover the costs and expenses associated with implementing our plan of dissolution,bind to the extent that thereouter walls of the hollow fiber membranes (figure below) rather than the inner walls, which is any interest accruedthe conventional blood flow path, is due to the difference in shear forces of blood flow. The sheer force of our SCD is similar to capillary flow providing a microenvironment for the trust account not requiredneutrophils and monocytes.
Our Market Opportunity
We are a therapeutic medical device company with clinical data collected and available to pay franchise and income taxes on interest income earned on the trust account balance, we maysupport a HDE submission to FDA to request the trustee to release to us an additional amount of up to $100,000 of such accrued interest to pay those costs and expenses.
If we were to expend all of the net proceeds of this offering and the sale of the private placement warrants, other than the proceeds deposited in the trust account, and without taking into account interest, if any, earned on the trust account, the per-share redemption amount received by stockholders upon our dissolution would be approximately $10.20. The proceeds deposited in the trust account could, however, become subject to the claimsuse of our creditors which would have higher priority thanSCD in pediatric patients with AKI and additional clinical data intended to support the claimsinitiation of our public stockholders. We cannot assure you thata pivotal PMA study in adult AKI. In the actual per-share redemption amount received by stockholders will not be substantially less than $10.20. Under Section 281(b) of the DGCL, our plan of dissolution must provide for all claims against us to be paid in full or make provision for payments to be made in full, as applicable, if there are sufficient assets. These claims must be paid or provided for before we make any distribution of our remaining assets to our stockholders. Whilelonger term, we intend to pay such amounts, if any, we cannot assure you that we will have funds sufficient to pay or provide for all creditors’ claims.
Although we will seek to have all vendors, service providers, prospective target businesses or other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held inpursue the trust account for the benefitapplication of our public stockholders, there is no guarantee that they will execute such agreements or even if they execute such agreements that they would be prevented from bringing claims against the trust accountSCD technology to additional indications, including, but not limited to, fraudulent inducement, breachacute respiratory distress syndrome, chronic dialysis, cardiorenal syndrome and hepatorenal syndrome.
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Our Initial Market Opportunity in Acute Kidney Injury
We believe AKI has increasingly received the attention of fiduciary responsibilityhealthcare professionals and academic publications that reveal the devastating clinical and financial impact of what is most-often a multi-organ syndrome. A 2017 study by Samuel A. Silver and Glenn M Chertow titled “The Economic Consequences of Acute Kidney Injury” stated hospital costs associated with AKI in the U.S. are between $5.4 and $20 billion per year.
The kidneys are a silent killer within medical triage. They do not present clear symptoms or tell the body they are suffering like other major organs such as the heart or lungs. For example, one does not feel pain with a “kidney attack” and symptoms are delayed until irreversible damage may have already occurred. Kidneys also refrain from revealing the impact to the rest of body and organs (and vice-versa) and often are not considered systemically for co-treatment.
Globally consistent criteria for diagnosing AKI has recently emerged with RIFLE (Risk, Injury, Failure, Loss of kidney function, and End-stage kidney disease), an international consensus classification for AKI staging and diagnosing guidelines introduced in 2004, the AKIN (Acute Kidney Injury Network) staging system in 2007, and finally the Kidney Disease: Improving Global Outcomes, AKI Staging and Diagnosing Guidelines published in 2012. These sources have helped clinicians to both improve recognition, staging, diagnosing and subsequent documentation of less obvious cases of AKI secondary diagnoses. While our initial market is focused on AKI patients on CRRT, future indications will likely benefit from improved characterization and diagnosis of patients.
As a result, demand for ICU renal replacement therapy is growing. CRRT is the newest of AKI dialysis modality in the market, first becoming available in 1997, and according to fortune business insights, it is estimated that it has grown to a $ 986 million global market ($354 million market in the U.S.) as of 2019. The two largest operators in the CRRT market by revenue are Fresenius Medical Care Holdings, Inc. and Baxter International, which represent over 80% of the market today in the U.S.
Since 2010, a significant amount of data has been published to quantify the clinical and financial impact of AKI, resulting in a broadening AKI treatment “boom” beyond dialysis to areas of diagnostics, complimentary therapies, and pharmacologics. As hospital administrators and government officials’ understanding of the impact and burden of AKI increases, we believe that attention will only continue to grow. According to Hobson in his article titled “Cost and Mortality Associated with Postoperative Acute Kidney Injury,” a 2015 study of 50,314 patients (over 11 years) found that upon greater scrutiny, AKI was found in 39% of post-surgical patients, and 19% of patients had stage 2 or 3 AKI with an average incremental cost of $29,800 per patient. Additionally, with historical mortality rates approximately 50%, treating AKI is increasingly of interest to clinicians, hospitals, and product manufacturers alike.
The AKI patient population is growing on average 6.9% per year according to the Healthcare Cost and Utilization Project commissioned by the Agency for Healthcare Research and Quality, a U.S. federal agency. According to Massicotte and Azarniouch in their 2015 work titled “Acute Kidney Injury in the Intensive Care Unit: Risk Factors and Outcomes of Physician Recognition Compared with KDIGO Classification,” around 80% of moderate or severe cases of AKI are not diagnosed and documented, suggesting the U.S. AKI patient population is higher than the estimated 6 million patients annually. The estimated pediatric population for AKI patients on CRRT is estimated to be less than 8,000 patients per year, which is a substantially small sub-set of the 6 million AKI patient population.
The AKI market needs new and effective solutions, and hospitals continue to search and evaluate new products. For a product to succeed in the AKI space, it must demonstrate and achieve clear and significant clinical benefit to patients, while providing positive financial incentives for hospitals to generate revenue and profitability.
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Our Growth Strategies
Key elements of our growth strategy include innovating and expand our applications through clinical trials; differentiation through medical education; business development and out-licensing activities and scaling production with manufacturing partners. We expect to employ several core growth strategies:
• | Execute on the clinical plan through key relationships: Our initial focus on the treatment of AKI in adults and pediatrics is supported by our long and established relationship with UOM, which licenses to us certain key technology underpinning our novel immunomodulatory therapy, as well as other leading academic hospitals and institutions throughout the U.S. Such relationships enable us to expand and refine the design and execution of our clinical plans with a more targeted outcome and objectives. In addition, our plan to submit an HDE for AKI pediatric indication, as well as the recent grant by the FDA of Breakthrough Device Designation for our SCD therapy targeting AKI adult patients, is expected to accelerate and streamline the regulatory approval process prior to the commercial launch of our product candidates. |
• | Differentiation through medical education: We intend to explore and pursue business development opportunities with major medical and pharmaceutical companies to establish partnerships, including outbound licensing arrangements. We believe that our clinical experience and depth, combined with our understanding of the scientific mechanism of our SCD and our regulatory submissions around the world, can drive value for our partners and reduce their market risk. We believe our partners will benefit from insight in other SCD trials around the world as well as data generation that is being conducted by our trials. We believe that our SCD therapy has the potential to apply to multiple indications. By pursuing and establishing business relationships with partners who may have strong capabilities beyond AKI, such as the markets for respiratory distress syndrome, we may be able to expand our solutions to the chronic disease setting. |
• | Business development and out-licensing activities: We intend to dedicate resources to educate physicians, hospital clinicians and other decision makers in the medical communities on the role of neutrophils and monocytes in both acute and chronic indications, and therapeutic benefit of controlling and modulating excessive inflammatory response. We intend to focus our marketing strategies not only on the therapeutic capabilities of our technology, but also the economic consequences of hyper-inflammation in the current standard of care and treatment infrastructure, and highlight the differentiating factors of our SCD product candidates that can provide a cost effective solution. |
• | Scaling production with manufacturing partners: As we progress through our planned clinical trials and anticipate the potential commercial launch of our SCD product candidates if FDA approval is received, we are focused on identifying and securing various suppliers and manufacturing partners to scale production in response to the expected demand for our solutions. We continue to negotiate with suppliers of raw materials, including filters, tubing and other components, to establish redundancies and alternative sources to mitigate interruptions in the supply chain in the future. In addition, we may also explore strategic relationships with partners who can provide sources of raw materials while collaborating with us on the marketing and distribution of our product candidates. |
Our Clinical Stage Product Candidates
The following disclosure summarizes our SCD product candidates in clinical stages and other clinical studies. All trials and studies below are conducted under IDEs approved by the FDA.
We submitted a HDE application for SCD for the treatment of pediatric patients with acute kidney injury undergoing CRRT with the FDA in June 2022. We expect the FDA to complete substantive review of the HDE application by the first quarter of 2023.
In April 2022, the FDA granted Breakthrough Device Designation to SCD treatment of adult patients with acute kidney injury undergoing CRRT. We submitted the IDE protocol for the pivotal trial of SCD to the FDA on January 6, 2023. We expect to begin enrollment in the trial late in the first quarter of 2023, with interim and final results expected in late 2023 and 2024, respectively. We expect submission of a PMA application to the FDA in the second half of 2024.
Additional clinical studies under IDEs include cardiorental syndrome in congested heart failure, myocardial stunning in end stage renal disease, and hepatorenal syndrome. We are conducting exploratory clinical research at UOM to define the patient population for potential treatment with SCD product candidates, and any future studies will be based upon initial clinical data collected in these studies.
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Clinical Progression
SCD 006 Pivotal Study Design
We are in the process of initiating a pivotal clinical trial of the SCD for the treatment of AKI in adults under the recent grant of Breakthrough Device Designation by the FDA. This trial (SCD 006) is a 200 patient, pivotal, prospective, multi-center, open label, randomized, two-arm comparative study conducted in the United States. The SCD 006 trial is designed to assess a composite endpoint of both mortality and dialysis dependency at Day 90. Our target population will be adults with AKI in ICUs in hospital settings, and has an estimated 90-day mortality rate of 40% to 50% and for those who survive, the probability of requiring dialysis at Day 90 will be 25%.
Current Trial Status
We submitted the SCD 006 IDE Protocol to the FDA on January 6, 2023. We anticipate the trial to begin enrollment late in the first quarter of 2023 and is anticipated to complete enrollment in 15 to 18 months. On April 29, 2022, we received a Breakthrough Device Designation for the use of our SCD in the treatment of immunomodulatory dysregulation in adult patients (18 and older) with AKI, which should accelerate the regulatory review and approval process for such trial. We currently anticipate generating interim results from this trial in late 2023 and final results in 2024.
Clinical Studies
With the exception of our SCD 003, all of our clinical studies to date have not had a randomized control arm.
AKI Safety, Mortality and Device Integrity Study (CHINA) (ASAIO Journal 57:426-432,2011)
(January 2009 to April 2010)
A study of the SCD was conducted by SeaStar Medical in collaboration with Huashan Hospital in Shanghai, China titled: An Exploratory Clinical Study to Assess Safety and Efficacy of the Double Hemofiltration Cartridge Device (DCD) in Patients with Acute Renal Failure. This study was a prospective, non-randomized, interventional study designed to evaluate the effect of treatment with the SCD on in-hospital mortality in the acute renal failure population being treated with CRRT with regional citrate anticoagulation (“RCA”). Up to seven days of therapy were allowed. All subjects received standard intensive care treatment for patients undergoing CRRT in addition to the SCD treatment.
In this nine patient study, the SCD treatment was demonstrated to reduce the mortality rates of ICU patients with AKI in hospitals compared with case-matched controls from a national dataset, based on deaths resulting from all causes in the hospital setting. The study showed a 22% mortality rates in the SCD treatment arm versus a mortality rate of 78% in the case-matched control group. This improved survival rate was demonstrated to be independent of age and Sequential Organ Failure Assessment (“SOFA”) Score, which is a scoring system used to predict ICU mortality based on lab results and clinical data. The results from this study indicated that treatment with SCD was well tolerated, without significant effects on hematological parameters, including white blood cell and platelet counts, and with an adverse event profile that was expected for a seriously ill population in the ICU with AKI.
In the nine subjects analyzed on SCD treatment, no neutropenic events were reported, and no serious adverse events (“SAEs”) were reported. Adverse events noted included hypercalcemia (8), hypocalcemia (1), hypophosphatemia (2), hypernatremia (1) and thrombocytopenia (1).
A multi-center pilot study to assess the safety and efficacy of a SCD in Patients with Acute Renal Failure (ARF 002) (Seminars in Dialysis Vol 26, Issue 5 :616-623,2013) (May 2010 to January 2011)
This pilot study of the SCD device (ARF-002 Clinical Trial) was sponsored by SeaStar Medical with the support of a third-party contract research organization. The study was designed to evaluate the safety and efficacy of the SCD treatment after up to seven consecutive 24-hour SCD treatments. Outcomes were compared to historical data on in-hospital mortality based on all causes of deaths at day 28 and day 60 in the AKI population being treated with CRRT with RCA.
The study enrolled 35 adult subjects. The mean age was 56.3 and 71.4% of the subjects were Caucasian, 22.9% were Black and 5.7% were Hispanic. The average SOFA score was 11.3. The mortality rate from any cause at Day 60 was 31.4% with SCD versus 50% with the historical standard of care based on literature. Renal recovery, defined as dialysis independence, was observed in all of the surviving subjects at Day 60. Based on the significantly lower mortality rate, the results of this pilot study indicate a potential for a substantial improvement in patient outcomes over historical standard of care therapy.
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A total of 199 adverse events (“AEs”) were observed in 33 of the 35 subjects. Of these 199 AEs, 12 were deemed to be possibly related and one was deemed related (as determined by the investigator) to the study therapy. These included a worsening coagulation defect, hypotension, neutropenia, disseminated intravascular coagulation (“DIC”), thrombocytopenia, recurrent renal failure, hypophosphatemia, hypercalcemia, anemia and cardiogenic shock. Of the 199 total adverse events, 34.7% were deemed to be mild and were experienced by 60% subjects, 51.8% were moderate and experienced by 71% of the subjects and 13.6% were severe, experienced by 54% of the subjects. The AEs observed were those that were expected for a critically ill patient population with acute renal failure and/or in an ICU setting. Twenty-eight SAEs were observed in 23 subjects (which included death). There were no unanticipated adverse device effects. Of these 28 SAEs, two were deemed to be possibly related to treatment (i.e., DIC and cardiogenic shock) and were severe in intensity. Of the SAEs, seven of the 28, or 25%, were deemed to be moderate and were experienced by 20% of the 35 subjects, and 21 (75%) were deemed to be severe, experienced by 51% of the 35 subjects. The following table lists all SAEs encountered during the study by category and the assessment of each SAE:
List of Serious Adverse Events | Study Related | |||||||||||||||
Definitely | Probably | Possibly | Definitely Not | |||||||||||||
Blood and lymphatic system disorders | 1 | 2 | ||||||||||||||
Cardiac Disorders | 1 | 1 | ||||||||||||||
Gastrointestinal Disorders | 1 | |||||||||||||||
General disorders and administration site conditions | ||||||||||||||||
Infections and infestations | 5 | |||||||||||||||
Injury, poisoning and procedural complications | 3 | |||||||||||||||
Metabolism and nutrition disorders | 2 | |||||||||||||||
Musculoskeletal and connective tissue disorders | ||||||||||||||||
Nervous system disorders | 1 | |||||||||||||||
Other | 3 | |||||||||||||||
Renal and Urinary Disorders | ||||||||||||||||
Respiratory, thoracic and mediastinal disorders | 8 | |||||||||||||||
Vascular Disorders | ||||||||||||||||
Total | 0 | 0 | 2 | 26 |
A Multi-Center, Randomized, Controlled, Pivotal Study to Assess the Safety and Efficacy of A Selective Cytopheretic Device in Patients with Acute Kidney Injury (SCD-003 – IDEG090189) (September 2011 to May 2013)
This was a controlled, randomized and multicenter clinical trial that was initiated in September 2011 and terminated in September 2013 under an FDA approved IDE. For this trial, the control group received standard CRRT with RCA and the SCD-treated group received up to seven days of SCD therapy. The study was sponsored by SeaStar Medical with the support of a third-party contract research organization.
The primary objective of the study was to determine if the SCD, when used in conjunction with CRRT, results in clinical and statistical improvement in mortality rate based on all causes through Day 60. Secondary objectives included an assessment of renal replacement therapy dependency at Day 60, mortality at Day 28, the number of ventilator free days at Day 28, and the mortality of the subset of patients with severe sepsis at Day 60.
A total of 134 patients were enrolled in 21 United States medical centers. Patients receiving care in the ICU of each participating hospital were randomized to intensive care treatment for patients undergoing CRRT or CRRT + SCD. Each participating clinical site used their established RCA protocol for the CRRT + SCD circuits (treatment group) and for the CRRT only (control group). The recommended calcium (iCal) level (measured post SCD) in the CRRT and SCD blood circuit was specified to be between 0.25 and 0.4 mmol/L. Inclusion and exclusion criteria were similar claims,to the previous IDE multicenter pilot clinical study except for an age range of 8-80 years and body weight of over 135 kilograms. Once the patient met all eligibility criteria, including being on
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CRRT for a minimum of four hours, but no longer than 24 hours, and had signed an informed consent, the subject was randomized in a 1:1 allocation utilizing a random permuted block design into either the control or treatment group, stratified by study center and the presence of severe sepsis. An overall two-sided 0.05 level of significance at 80% power was used to calculate a sample size of 344 patients, assuming a mortality rate of 50% for the control group and 35% for the treatment group. Adaptive design and interim analysis were planned at the mid-point of enrollment (i.e., 172 patients). Several exploratory biomarkers were also compared between the control and treatment groups, including urine output, serum levels of elastase, cytokines, and total absolute white blood cell, neutrophil and platelet counts throughout treatment.
During the second quarter of the enrollment period, a national calcium shortage occurred in the United States due to certain FDA-related quality manufacturing issues at major U.S. suppliers. Due to the reliance of the SCD on a narrow intra-circuit iCa range for functional efficacy and the concern that patients randomized to the SCD were not receiving effective therapy due to insufficient iCa levels, the interim analysis was performed early after enrollment of 134 patients. Enrollment was paused on May 24, 2013 to assess the clinical impact of the calcium shortage on study endpoints. The shortage of calcium infusion solutions resulted in a tendency to minimize citrate infusion rates. Accordingly, the iCa levels within the blood circuit tended to be above the recommended range of 0.25 to 0.40 mmol/L. No significant differences were noted between the control and treatment groups in terms of baseline characteristics. Of the 134 patients in the analysis, 69 received CRRT alone and 65 received SCD therapy. No statistically significant difference was found between the treated and control patients with a 60-day mortality of 39% (27/69) and 36% (21/59), respectively. No statistically significant difference was found between the SAEs of the control and treatment groups. Furthermore, none of the SAEs were considered ‘definitely’ device related per the principal investigator. The amount of time patients in both the control and treatment group were maintained in the recommended iCa range (0.23—0.40 mmol/L), as specified in the study protocol, was substantially lower than expected. Of the 134 patients enrolled in the SCD-003 protocol at the time of the interim analysis, 19 SCD patients (CRRT + SCD) and 31 control patients (CRRT alone) were maintained in the protocol’s recommended range for greater or equal to 90% of the therapy time. The study was subsequently terminated.
No statistically significant difference was found between the SAEs of the control and treatment groups. The study reported 71 SAEs in the control group (40 of the 63 patients) and 80 SAEs in the SCD treatment group (45 of the 69 patients). The most frequent categories of SAEs were infections and infestations as well as claims challenging the enforceabilitycardiac, respiratory, thoracic and mediastinal disorders. Furthermore, none of the waiver,SAEs were considered “definitely” related to the SCD device per the principal investigator. Overall adverse events did not differ between the treatment and control groups in the intent to treat analysis. The following table lists all SAEs encountered during the study by category and the assessment of each SAE:
List of Serious Adverse Events | Study Related | |||||||||||||||
Definitely | Probably | Possibly | Definitely Not | |||||||||||||
Blood and lymphatic system disorders | 9 | |||||||||||||||
Cardiac Disorders | 15 | |||||||||||||||
Gastrointestinal Disorders | 5 | |||||||||||||||
General disorders and administration site conditions | 4 | |||||||||||||||
Infections and infestations | 14 | |||||||||||||||
Injury, poisoning and procedural complications | 1 | |||||||||||||||
Metabolism and nutrition disorders | 2 | |||||||||||||||
Musculoskeletal and connective tissue disorders | 1 | |||||||||||||||
Nervous system disorders | 6 | |||||||||||||||
Other | 2 | |||||||||||||||
Renal and Urinary Disorders | 1 | |||||||||||||||
Respiratory, thoracic and mediastinal disorders | 13 | |||||||||||||||
Vascular Disorders | 7 | |||||||||||||||
Total | 0 | 0 | 80 | 0 |
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When the iCa treated and control subgroups were compared for a composite index of 60-day mortality and dialysis dependency, the percentage of the SCD treated subjects was 16% versus 58% in the control subjects. The incidence of serious adverse events did not differ between the treated and control groups.
A new IDE was FDA approved on February 12, 2014 for a pivotal trial of 122 patients in up to 30 sites utilizing this primary composite endpoint. If this trial met safety and effectiveness criteria, the FDA stated that a premarket approval and clearance was supportable. This clinical trial was not initiated in 2014 due to continuing injectable calcium shortages, and the company limited the clinical focus to the pediatric indications, where less calcium was needed due to size of study (pediatric study had 15% of the patients compared to pivotal trial of 122 patients).
Safety and early efficacy trial of our SCD therapy in pediatric patients with AKI requiring CRRT (December 2016 and February 2020)
A multi-center, prospective pilot study was undertaken to assess the safety and efficacy of our SCD in pediatric patients with AKI being treated with continuous kidney replacement therapy with RCA. The primary objective of the study was to evaluate the safety of up to seven consecutive 24-hour treatments of our SCD. The secondary objective was to evaluate the efficacy of up to seven consecutive 24-hour SCD treatments on all-cause mortality and dialysis dependency at day 28 and day 60. This study was sponsored by SeaStar Medical with the support of a third-party contract research organization.
Sixteen patients (eight male and eight female) were enrolled in the study at four United States pediatric medical centers, which ran from December 2016 through February 2020. The most common diagnosis leading to ICU admission was septic shock followed by, in diminishing order, pneumonia, rhabdomyolysis, pulmonary hypertension, hemolytic uremic syndrome, encephalomyelitis, disseminated adenoviral infection, cardiac arrest, acute respiratory failure and acute liver failure.
Twelve of the 16 patients survived (75%) to hospital discharge (versus historical control of 50%) and none of the 12 patients required dialysis at 60 days (versus historical control of 15% to 20%). There were 14 SAEs that occurred in fourteen patients in the study. None of the SAEs were device related. There were 47 adverse events that occurred in 14 subjects in the study. The following table lists all SAEs encountered during the study by category and the assessment of each SAE:
List of Serious Adverse Events | Study Related | |||||||||||||||
Definitely | Probably | Possibly | Definitely Not | |||||||||||||
Cardiac Disorders | 4 | |||||||||||||||
Gastrointestinal Disorders | 1 | |||||||||||||||
Infections and infestations | 1 | |||||||||||||||
Metabolism and nutrition disorders | 1 | |||||||||||||||
Nervouse system disorders | 1 | |||||||||||||||
Renal and Urinary Disorders | 1 | |||||||||||||||
Respiratory, thoracic and mediastinal disorders | 2 | |||||||||||||||
Surgical and medical procedures | 1 | |||||||||||||||
Vascular Disorders | 2 | |||||||||||||||
Total | 0 | 0 | 0 | 14 |
A Multi-Center Pilot Study to Assess the Safety and Efficacy of a Selective Cytopheretic Device in Patients Developing AKI or Acute Respiratory Distress Syndrome Associated with COVID-19
(September 2020 to July 2021). Publication: Critical Care Exploration
Twenty-two subjects were enrolled in this pilot study at two leading medical centers. All enrolled patients were treated with corticosteroids, either dexamethasone or hydrocortisone. The majority of enrolled patients also received remdesivir. Sixteen patients were included in the contemporaneous control. Sixteen of the intent to treat (“ITT”) patients received greater than 96 hours of our SCD treatment per protocol (“PP”) since the inclusion criteria required an intent to treat for at least 96 hours. This study was sponsored by SeaStar Medical with the support of a third-party contract research organization.
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The mortality rate of the ITT group at 60 days post-initiation of our SCD treatment was 50% and was 31% for the PP group. The control group had a mortality rate of 81%, which was higher than both the ITT and PP treated groups. The patients in the control group on Extracorporeal Membrane Oxygenation treatment did not survive, while 44% survived in the ITT group. For dialysis dependency at 60 days, 60% of the survivors had not recovered renal function in the ITT group; however, a post-hoc follow up at 90 days demonstrated that only 30% of the survivors still required dialytic support.
Fifty SAEs occurred in 18 subjects. Of note, 22 nosocomial and opportunistic infections were reported in 12 subjects during the entire 60 day follow-up period. Sixteen of the 22 infections occurred after SCD treatment. None of these SAEs were device-related as determined by the site clinical investigators and the independent safety review committee. No RCA-related adverse events were observed with greater than 90% of measured circuit ionized calcium (iCa) values less than 0.4 mmol/L. Systemic iCa values were within the normal ranges required by the clinical protocol. Two circuit clotting events were reported; clotting was initiated in the hemodialysis catheter in one instance and in the hemofilter in the other. No SCD clotting episodes were reported. No episodes of thrombocytopenia, neutropenia, or leukopenia were observed. The following table lists all SAEs encountered during the study by category and the assessment of each SAE:
List of Serious Adverse Events | Study Related | |||||||||||||||
Definitely | Probably | Possibly | Definitely Not | |||||||||||||
Blood and lymphatic system disorders | 1 | |||||||||||||||
Cardiac Disorders | 9 | |||||||||||||||
Gastrointestinal Disorders | 1 | |||||||||||||||
General disorders and administration site conditions | 3 | |||||||||||||||
Hepatobiliary disorders | 2 | |||||||||||||||
Infections and infestations | 22 | |||||||||||||||
Injury, poisoning and procedural complications | ||||||||||||||||
Metabolism and nutrition disorders | 1 | |||||||||||||||
Musculoskeletal and connective tissue disorders | ||||||||||||||||
Nervous system disorders | ||||||||||||||||
Other | ||||||||||||||||
Renal and Urinary Disorders | ||||||||||||||||
Respiratory, thoracic and mediastinal disorders | 8 | |||||||||||||||
Vascular Disorders | 3 | |||||||||||||||
Total | 0 | 0 | 0 | 50 |
SeaStar Medical and the principal investigators of SCD-005 COVID-19 clinical study have recently been accepted and were recently published in Critical Care Exploration, a peer reviewed academic journal.
Chronic Applications
Pilot Feasibility Trial of SCD Therapy in ESRD Patients (May 2012 to April 2013)
Our SCD therapy was evaluated in a more stable end stage renal disease (“ESRD”) patient cohort on chronic hemodialysis. Fifteen ESRD patients were enrolled to assess the safety and early efficacy signals on inflammatory biomarkers. Our SCD therapy promoted a monocyte shift from predominant proinflammatory to reparative phenotype.
Very few adverse events or SAEs were observed during SCD treatment and RCA. SCD treatment and RCA was associated with adverse events in four of the 13 patients. The adverse events were comprised of one episode each of fever, chills, headache, itching, coughing, dizziness, muscle cramps, nausea, vomiting, and chest pain. These adverse events are frequently experienced by patients undergoing standard hemodialysis treatment. No adverse events were definitively related to SCD therapy. SCD treatment and heparin anticoagulation, however, resulted in symptomatic and biochemical events. The initial two patients (Pt1 and Pt2) of this cohort, treated with SCD and heparin anticoagulation, demonstrated a large rise in C-reactive protein levels from 22 to 38 (Pt1) and 51–132 (Pt2) mg/L after four hours of SCD treatment. C-reactive protein levels continued to be elevated at 93 (Pt1) and 147 (Pt2) mg/L on day 1 post-SCD treatment. Because of these events, no further patients were recruited
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for SCD treatment and heparin anticoagulation. The following table lists all SAEs encountered during the study by category and the assessment of each SAE:
Study Related | ||||||||||||||||
List of Serious Adverse Events | Definitely | Probably | Possibly | Definitely Not | ||||||||||||
General disorders and administration site conditions | 1 | 2 | ||||||||||||||
Total | 0 | 0 | 1 | 2 |
Additional Indications with Preclinical Data
The initial research and translation of our SCD into clinical studies was targeted to treat the acute dysregulated systemic inflammation associated with AKI and MOF. Due to the broad applications of immunomodulatory therapy, preclinical models were developed to evaluate the efficacy of our SCD to ameliorate single organ tissue injury.
Chronic Inflammatory Disorders
Chronic Heart Failure
Prior preclinical and clinical evaluations of our SCD therapy have focused on acute inflammatory conditions related to organ dysfunction and failure. Extensions of the immunomodulatory approach to improve organ dysfunction related to chronic inflammation would be transformative. Over the past decade, a number of novel pharmacologic approaches have failed to prove clinical efficacy, accentuating the need to discover new, safe approaches to treat chronic heart failure (“CHF”). In this regard, our SCD was evaluated in a preclinical model of CHF to dampen the cardio-depressant effects of the chronic proinflammatory state of CHF. Chronic heart failure and acute decompensated heart failure have been increasingly recognized as associated with chronic systemic inflammation. Monocytes have been identified as critical sources of systemic inflammation in CHF and may cause a decrease in cardiac myocyte contractility.
Cardiorenal Syndrome
Cardiorenal syndrome (“CRS”) is a clinical disorder in which therapy to relieve the congestive symptoms of chronic heart failure is limited by a decline in renal function. Up to one-third of patients with acute decompensated chronic heart failure present with this disorder; this condition is increasing in incidence with an estimated one million hospital admissions annually in the United States. Once hospitalized, these patients are treated with high dose intravenous diuretics to relieve the persistent congestion. The use of diuretics, however, frequently results in worsening renal function, progression of heart failure and death. Immune dysregulation plays a key role in cardiorenal syndrome.
Myocardial Ischemia in ESRD Patients on Chronic Hemodialysis
A major cause of death in patients on chronic dialysis is due to cardiovascular disease. Novel interventions need to be identified and tested to ameliorate the high morbidity and mortality of myocardial disease in these patients. Multiple hemodynamic and inflammatory factors contribute to the elevated risk of cardiac disease in the chronic hemodialysis patient populations. Hemodialysis treatment is associated with repetitive ischemic events, or myocardial stunning, and is identified with regional wall motion abnormalities on echocardiograms. This repetitive ischemic stress results in progressive damage resulting in declines in left ventricular ejection fraction and risk for sudden cardiac death. Both acute and chronic inflammation and its cellular immunologic effector, the activated monocyte, are central to the accelerated cardiovascular disease in patients with chronic end stage renal disease.
Studies at the University of Michigan
CRS Clinical Trial
This is a safety and efficacy dose escalation study in 10 patients that was designed to evaluate whether ultrafiltration therapy in CRS, a disease with a dismal prognosis and currently ineffective therapy, with use of the SCD therapy will improve cardiac and renal (production of urine) functions. In the study, an improvement of
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cardiac function is measured by the rate of ejection fraction, which is the percentage of blood leaving the heart each time it contracts. An improvement of renal function is measured by the serum creatinine and blood urine nitrogen (two common biomarkers to assess renal function). In addition, a variety of other biomarkers will also be measured. The successful completion of this study is expected to demonstrate proof-of-concept for an innovative approach to the treatment of CRS. Initial results will provide important feasibility data for a follow-on study to undertake a controlled randomized clinical trial to evaluate the clinical efficacy of our SCD in CRS patients that have failed ultrafiltration therapy.
Myocardial Ischemia in ESRD Patients on Chronic Hemodialysis Clinical Trial
Pilot safety and efficacy study in 10 patients to evaluate the reduction in myocardial stunning events in hemodialysis patients. The primary outcome will measure the change in regional wall abnormalities identified on an echocardiogram. Initial results will provide important feasibility data for a follow-on study to undertake a controlled randomized clinical trial to evaluate the clinical efficacy of the SCD in myocardial stunning hemodialysis patients.
Clinical Study
Product Development
Our first generation SCD has been based upon the design of a synthetic hemofilter due to the reduced regulatory risk of an FDA polysulfone hollow fiber cartridge. Second generation prototypes will include flat end caps to allow consistent implementation of the therapy, which we expect is more suitable as we scale up our operations.
We are currently evaluating altered configuration for differing clinical indication, so that pricing decisions can be made based upon unmet medical need and product specifications.
Suppliers
We source critical components from vendors that have been approved and qualified through our vendor management program. Fresenius Medical Care North America (“FMCNA”) is the current supplier of the filter used in our pediatric acute kidney injury indication. In March 2022, we entered into a supply agreement (the “Supply Agreement”) with an FMCNA affiliate, Fresenius USA Marketing, Inc. (“FUSA”), to supply certain filters at an agreed amount per case for use in orderour SCD product in our upcoming clinical trial and any additional clinical trials. We may resell the filters as part of the SCD system in both an Emergency Use Authorization application as well as a future PMA-approved product. The initial term of the Supply Agreement is for three years commencing on March 31, 2022. Either party may terminate the Supply Agreement for uncured material breach or for the insolvency of the other party. In addition, either party may terminate the Supply Agreement if in the reasonable opinion of legal counsel for either party, any future changes in federal or state law or regulations make any portion of the Supply Agreement invalid or illegal and the parties are not able to gainagree on mutually acceptable addendum to the Supply Agreement. We have agreed to indemnify FUSA against certain third-party claims.
We are in the process of developing a second source for the adult and pediatric filters, which will enable us to better manage any supply disruptions. In addition, we have secured a supplier to provide the tubing set required to assemble the SCD device, although we are able to identify and secure additional sources of supplies for the tubing set as it is readily available in the market.
Distribution
The Supply Agreement contains a provision granting FUSA a first right of refusal for the first three years after regulatory approval of our SCD product candidate to distribute the pediatric and adult products in the United States. If during such period, SeaStar Medical elects to promote and sell the SCD through distributors, SeaStar Medical will be required to provide FUSA with a right of first refusal to be SeaStar Medical’s exclusive distributor of the SCD in the United States and its territories, provided that the SCD is not promoted or sold in a manner that is incompatible with any devices manufactured and/or sold by FUSA or its affiliates.
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Third-Party Reimbursement
We anticipate that coverage and reimbursement by CMS and private payors will be essential for most patients and health care providers to afford our treatments, particularly in the applications of continuous renal replacement therapy for dialysis access and the treatment of hyperinflammatory conditions, including AKI. Accordingly, future sales of our products will depend substantially, both domestically and abroad, on reimbursement by government authorities, private health coverage insurers and other third-party payors. Our strategy around reimbursement focuses on achieving alignment and agreement from CMS on coding and payment pathways; both are critical to influencing and achieving optimal reimbursement payment from private payor sources. Therefore, we continue to develop a comprehensive reimbursement strategy including CMS, private payors and other key stakeholders to ensure a clear and sustainable reimbursement path for all SCD product opportunities.
We are pursuing a dual regulatory and legislative reimbursement strategy to ensure separate Medicare payment for our SCD at an advantageappropriate price. The regulatory strategy includes engaging CMS political and career staff directly on coverage, payment and coding followed by submission of formal applications in these areas once FDA approval is obtained. It is difficult to predict what CMS will decide with respect to a claim against our assets, including the funds held in the trust account. If any third party refuses to execute an agreement waiving such claimscoverage and reimbursement for fundamentally novel products. See “Risk Factors — Risks Related to the monies held inCompany’s Business Operations — Should the trust account,Company’s products be approved for commercialization, lack of third-party coverage and reimbursement for the Company’s devices could delay or limit their adoption.”
Intellectual Property
We strive to protect the proprietary technologies that we believe are important to our management will perform an analysis of the alternatives available to itbusiness. We have and will only enter into an agreement with a third party that has not executed a waiver if management believes that such third party’s engagement would be significantly more beneficialcontinue to us thanseek patent protection for our SCD product and related technologies, as well for any alternative. Examples of possible instances where we may engage a third party that refuses to execute a waiver include the engagement of a third party consultant whose particular expertise or skills are believed by management to be significantly superior to those of other consultants that would agree to execute a waiver or in cases where management is unable to find a service provider willing to execute a waiver.
future products. In addition there is no guarantee that such entities will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with us and will not seek recourse against the trust account for any reason. Our sponsor has agreed that it will be liableseeking patent protection, we also rely on trade secrets to us if and to the extent any claims by a third party for services rendered (other than our independent public accountants) or products sold to us, or a prospective target business with which we have entered into a written letter of intent, confidentiality or similar agreement or business combination agreement, reduce the amount of funds in the trust account to below the lesser of (i) $10.20 per public share and (ii) the actual amount per public share held in the trust account as of the date of the liquidation of the trust account, if less than $10.20 per share due to reductions in the value of the trust assets, less taxes payable, provided that such liability will not apply to any claims by a third party or prospective target business who executed a waiver of any and all rights to the monies held in the trust account (whether or not such waiver is enforceable) nor will it apply to any claims under our indemnity of the underwriters of this offering against certain liabilities, including liabilities under the Securities Act. However, we have not asked our sponsor to reserve for such indemnification obligations, not have we independently verified whether our sponsor has sufficient funds to satisfy its indemnity obligations and believe that our sponsor’s only assets are securitiesprotect aspects of our company. Therefore, we cannot assure youbusiness that our sponsor would be ableare not amenable to, satisfy those obligations. None of our officers or directors will indemnify us for claims by third parties including, without limitation, claims by vendors and prospective target businesses.
In the event that the proceeds in the trust account are reduced below (i) $10.20 per public share or (ii) such lesser amount per public share held in the trust account as of the date of the liquidation of the trust account, due to reductions in value of the trust assets, in each case net of the amount of interest which may be withdrawn to pay taxes, and our sponsor asserts that it is unable to satisfy its indemnification obligations or that it has no indemnification obligations related to a particular claim, our independent directors would determine whether to take legal action against our sponsor to enforce its indemnification obligations. While we currently expect that our independent directors would take legal action on our behalf against our sponsor to enforce its indemnification obligations to us, it is possible that our independent directors in exercising their business judgment may choose not to do so if, for example, the cost of such legal action is deemed by the independent directors to be too high relative to the amount recoverable or if the independent directors determine that a favorable outcome is not likely. We have not asked our sponsor to reserve for such indemnification obligations and we cannot assure you that our sponsor would be able to satisfy those obligations. Accordingly, we cannot assure you that due to claims of creditors the actual value of the per-share redemption price will not be less than $10.20 per public share.
We will seek to reduce the possibility that our sponsor will have to indemnify the trust account due to claims of creditors by endeavoring to have all vendors, service providers, prospective target businesses or other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to monies held in the trust account. Our sponsor will also not be liable as to any claims under our indemnity of the underwriters of this offering against certain liabilities, including liabilities under the Securities Act. We will have access to up to approximately $750,000 from the proceeds of this offering with which to pay any such potential claims (including costs and expenses incurred in connection with our liquidation, currently estimated to be no more than approximately $100,000). In the event that we liquidate and it is subsequently determined that the reserve for claims and liabilities is insufficient, stockholders who received funds from our trust account could be liable for claims made by creditors. In the event that our offering expenses exceed our estimate of $848,000, we may fund such excess with funds from the funds not to be held in the trust account. In such case, the amount of funds we intend to be held outside the trust account would decrease by a corresponding amount. Conversely, in the event that the offering expenses are less than our estimate of $848,000, the amount of funds we intend to be held outside the trust account would increase by a corresponding amount.
Under the DGCL, stockholders may be held liable for claims by third parties against a corporation to the extent of distributions received by them in a dissolution. The pro rata portion of our trust account distributed to our public stockholders upon the redemption of our public shares in the event we do not completeconsider appropriate for, patent protection. We also rely on know-how, confidentiality agreements, license agreements and other agreements to establish and protect our initial business combination within 18 monthsproprietary rights. Our success depends in large part on our ability to protect our proprietary technology, including our SCD technologies, and to operate without infringing the proprietary rights of third parties.
The term of individual patents depends on the legal term of the patents in the countries in which they are obtained. In most countries in which we file, the patent term is 20 years from the closingearliest date of this offering (or 21 months fromfiling a non-provisional patent application. In the closing of this offering, if we extend the period of time to consummateUnited States, a business combination, as described in more detail in this prospectus)patent’s term may be consideredlengthened by patent term adjustment, which compensates a liquidating distribution under Delaware law. If the corporation complies with certain procedures set forth in Section 280 of the DGCL intended to ensure that it makes reasonable provisionpatentee for all claims against it, including a 60-day notice period during which any third-party claims can be brought against the corporation, a 90-day period during which the corporation may reject any claims brought, and an additional 150-day waiting period before any liquidating distributions are made to stockholders, any liability of stockholders with respect to a liquidating distribution is limited to the lesser of such stockholder’s pro rata share of the claim or the amount distributed to the stockholder, and any liability of the stockholder would be barred after the third anniversary of the dissolution.
Furthermore, if the pro rata portion of our trust account distributed to our public stockholders upon the redemption of our public shares in the event we do not complete our initial business combination within 18 months from the closing of this offering (or 21 months from the closing of this offering, if we extend the period of time to consummate a business combination, as described in more detail in this prospectus), is not considered a liquidating distribution under Delaware law
and such redemption distribution is deemed to be unlawful, then pursuant to Section 174 of the DGCL, the statute of limitations for claims of creditors could then be six years after the unlawful redemption distribution, instead of three years, as in the case of a liquidating distribution. If we are unable to complete our initial business combination within 18 months from the closing of this offering (or 21 months from the closing of this offering, if we extend the period of time to consummate a business combination, as described in more detail in this prospectus), we will: (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account including interest earned on the funds held in the trust account and not previously released to us to pay our franchise and income taxes (less up to $100,000 of interest to pay dissolution expenses), dividedadministrative delays by the number of then outstanding public shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any), subject to applicable law,U.S. Patent and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders and our board of directors, dissolve and liquidate, subjectTrademark Office in each case to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. Accordingly, it is our intention to redeem our public shares as soon as reasonably possible following our 18th month (or up to the 21st month) and, therefore, we do not intend to comply with those procedures. As such, our stockholders could potentially be liable for any claims to the extent of distributions received by them (but no more) and any liability of our stockholders may extend well beyond the third anniversary of such date.
Because we will not be complying with Section 280, Section 281(b) of the DGCL requires us to adoptgranting a plan, based on facts known to us at such time that will provide for our payment of all existing and pending claims or claims thatpatent. A U.S. patent term may be potentially brought against us within the subsequent 10 years. However, because we areshortened, if a blank check company, rather than an operating company,patent is terminally disclaimed by its owner, over another patent.
The Company currently has 18 issued U.S. patents and our operations will be limited5 pending U.S. patent applications. The Company also has 21 issued foreign patents and has 6 pending foreign patent applications. The Company’s issued patents begin to searching for prospective target businesses to acquire, the only likely claims to arise would be from our vendors (such as lawyers, investment bankers, etc.) or prospective target businesses. As described above, pursuant to the obligation containedexpire in our underwriting agreement, we will seek to have all vendors, service providers, prospective target businesses or other entities with which we do business execute agreements with us waiving any right, title, interest or claim of any kind in or to any monies held in the trust account. As a result of this obligation, the claims that could be made against us are significantly limited and the likelihood that any claim that would result in any liability extending to the trust account is remote. Further, our sponsor may be liable only to the extent necessary to ensure that the amounts in the trust account are not reduced below (i) $10.20 per public share or (ii) such lesser amount per public share held in the trust account as of the date of the liquidation of the trust account, due to reductions in value of the trust assets, in each case net of the amount of interest withdrawn to pay taxes and will not be liable as to any claims under our indemnity of the underwriters of this offering against certain liabilities, including liabilities under the Securities Act. In the event that an executed waiver is deemed to be unenforceable against a third party, our sponsor will not be responsible to the extent of any liability for such third-party claims.
If we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, the proceeds held in the trust account could be subject to applicable bankruptcy law, and may be included in our bankruptcy estate and subject to the claims of third parties with priority over the claims of our stockholders. To the extent any bankruptcy claims deplete the trust account, we cannot assure you we will be able to return $10.20 per share to our public stockholders. Additionally, if we file a bankruptcy petition or an involuntary bankruptcy petition is filed against us that is not dismissed, any distributions received by stockholders could be viewed under applicable debtor/creditor and/or bankruptcy laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a bankruptcy court could seek to recover some or all amounts received by our stockholders. Furthermore, our board of directors may be viewed as having breached its fiduciary duty to our creditors and/or may have acted in bad faith, thereby exposing itself and our company to claims of punitive damages, by paying public stockholders from the trust account prior to addressing the claims of creditors. We cannot assure you that claims will not be brought against us for these reasons.
Our public stockholders will be entitled to receive funds from the trust account only upon the earlier to occur of: (i) the completion of our initial business combination; (ii) the redemption of any public shares properly tendered in connection with a stockholder vote to amend any provisions of our certificate of incorporation: (A) to modify the substance or timing of our obligation to redeem 100% of our public shares if we do not complete our initial business combination within 18 months from the closing of this offering (or 21 months from the closing of this offering, if we extend the period of time to consummate a business combination, as described in more detail in this prospectus); or (B) with respect to any other provision relating to stockholders’ rights or pre-initial business combination activity; and (iii) the redemption of all of our public shares if we are unable to complete our business combination within 18 months from the closing of this offering (or 21 months from the closing of this offering, if we extend the period of time to consummate a business combination, as described in more detail in this prospectus), subject to applicable law. In no other circumstances will a stockholder have any right or interest of any kind to or in the trust account. In the event we seek stockholder approval in connection with our initial business combination, a stockholder’s voting in connection2028, with the initial business combination alone will not resultlast of these patents expiring in a
stockholder’s redeeming its shares to us for an applicable pro rata share of2034, although terminal disclaimers, patent term extension or patent term adjustment can shorten or lengthen the trust account. Such stockholder must have also exercised its redemption rights as described above. These provisions of our certificate of incorporation, like all provisions of our certificate of incorporation, may be amended with a stockholder vote.
Comparison of Redemption or Purchase Prices in Connection with Our Initial Business Combination and if We Fail to Complete Our Initial Business Combinationpatent term.
The following table comparessummarizes the redemptions and other permitted purchases of public shares that may take place in connection with the completionnumber of our initial business combinationpatents and patent applications as of December 31, 2022:
Granted Patents | Pending Applications | |||||||||||||||
US | Foreign | US | Foreign | |||||||||||||
SCD Technology (Patent Families 1-5) | 16 | 21 | 2 | 6 | ||||||||||||
Other Technology (Patent Families 6-10) | 2 | 0 | 3 | 0 | ||||||||||||
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Total | 18 | 21 | 5 | 6 | ||||||||||||
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With respect to our SCD technologies, we own patents and patent applications in five patent families. The patents and applications in Patent Family 1 are co-owned by the Company and UOM. The patents and applications in Patent Families 2-5 are solely owned by the Company. The inventions disclosed in Patent Families 1-4 were developed with U.S. government funding and are subject to the obligations under the Bayh-Dole Act.
Patent Family 1 contains nine U.S. patents and one pending U.S. patent application directed to systems and methods for processing leukocytes and for treating subjects with various inflammatory conditions using a SCD cartridge, and to a SCD cartridge. These patents will expire from 2028-2031, and the pending application, if wegranted, will expire in 2028, assuming that the required maintenance fees are unable to complete our initial business combination within 18 months frompaid. We also co-own with UOM counterpart patents granted in Canada, Japan and New Zealand, and one patent application pending in Europe.
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These counterpart patents, and applications, if granted, will expire in 2028, assuming that the closing of this offering (or 21 months from the closing of this offering, if we extend the period of time to consummate a business combination,required maintenance fees are paid. The patents and applications in Patent Family 1 are as described in more detail in this prospectus).follows:
Patent Family 1†
Jurisdiction | Status | Expiration Date |
| |||||
United States | Granted | 2031 | Methods for processing leukocytes and methods for treating subjects having inflammatory conditions using such methods | |||||
United States | Granted | 2029 | Methods for treating subjects undergoing a cardiopulmonary bypass | |||||
United States | Granted | 2029 | Methods for treating subjects with | |||||
United States | Granted | 2029 |
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United States | Granted | 2029 | Methods for treating subject with sepsis | |||||
United States | Granted | 2031 | A device that processes activated leukocytes and platelets | |||||
United States | Granted | 2029 | Methods for treating acute lung injury and acute respiratory distress syndrome | |||||
United States | Granted | 2029 | Systems for treating activated platelets | |||||
United States | Granted | 2028 | Systems for treating activated leukocytes | |||||
United States | Pending | 2028 | * | Systems for treating leukocytes and platelets and methods for treating subject having inflammatory conditions by | ||||
Canada | Granted | 2028 |
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Canada | Granted | 2028 | A device for processing activated leukocytes and platelets | |||||
Japan | Granted | 2028 | A device and methods for treating leukocytes | |||||
Japan | Granted | 2028 | A device for processing activated leukocytes | |||||
New Zealand | Granted | 2028 | Systems and methods for processing leukocytes and platelets and for treating inflammatory conditions | |||||
Europe | Pending | 2028 | * | A device that processes platelets or leukocytes | ||||
Hong Kong | Pending | 2028 | * | A device that processes platelets or leukocytes |
* | Expiration date if application is granted. |
† | This patent family was developed with U.S. federal government funding and is subject to obligations under the Bayh-Dole Act. |
Pursuant to a license agreement with UOM (as amended, the “UOM License Agreement”), UOM has granted us a worldwide, royalty bearing, exclusive license to their interest in the co-owned patents and applications in Patent Family 1 in the field of medical devices for human therapeutics for certain technologies used in the SCD technology platform, including composition of matter and methods of use patents. In consideration for such exclusive license, during the term of the UOM License Agreement, we agreed to pay UOM a royalty fee equal to 1% of net sales and reimbursement of patent costs. To date, we have not paid and do not owe any royalty payments under the UOM License Agreement. We have paid approximately $91,000 in patent costs reimbursement since January 1, 2020. The UOM License Agreement also imposes certain diligence obligations on us and requires us to achieve specified milestone events by a certain date. Under the UOM License Agreement, UOM’s liability is limited and we agreed to indemnify and hold UOM harmless in connection with
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the use of the licensed technology and activities related to the products created using such licensed patents and/or technology. The UOM License Agreement will remain in effect, unless earlier terminated, until the latter of (i) the expiration of all licensed patents, (ii) the tenth anniversary of the Effective Date (as defined therein) or (iii) the seventh anniversary of the date of the First Commercial Sale (as defined therein). Either party may terminate the UOM License Agreement for the other party’s material breach of any covenant or promise therein that remains uncured for 90 days. We may also terminate the agreement by giving UOM 90-day advanced notice.
In addition to the co-owned patents and patent applications in Family 1, we also solely own four additional patent families (Families 2-5). Patent Family 2 includes one U.S. patent and one pending U.S. patent application directed to a second generation of the SCD cartridge and methods for using our SCD cartridge to process leukocytes. The patent will expire in 2032, and the application, if granted, will expire in 2031, assuming that the required maintenance fees are paid. Counterpart patents have been granted in Australia, Europe, and Japan with the European patent having been validated in France, Germany, Italy, Spain, and the United Kingdom, and patent applications are pending in Canada and Japan. These patents, and applications, if granted, will expire in 2031, assuming that the required maintenance fees are paid. The patents and applications in Patent Family 2 are as follows:
Patent Family 2†
* | Expiration date if application is granted. |
† | This patent family was developed with U.S. federal government funding and is subject to obligations under the Bayh-Dole Act. |
ComparisonPatent Family 3 includes one U.S. patent directed to methods of This Offering to Those of Blank Check Companies Subject to Rule 419
The following table compares the terms of this offering to the terms of an offering bytreating chronic heart failure using a blank check company subject to the provisions of Rule 419. This comparison assumesSCD cartridge, which will expire in 2032, assuming that the gross proceeds, underwriting commissions and underwriting expenses of our offering would be identical to those of an offering undertaken by a company subject to Rule 419, andrequired maintenance fees are paid. A counterpart patent has been granted in Japan that will expire in 2032, assuming that the underwriters will not exercise their over-allotment option. None of the provisions of Rule 419 apply to our offering.required maintenance fees are paid. The patents and applications in Patent Family 3 are as follows:
Patent Family 3†
Jurisdiction |
| Status | Expiration Date |
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| Granted | 2032 | Methods for treating chronic heart failure | |||
Japan | Granted | 2032 | Device for use in treating chronic heart failure |
† |
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Patent Family 4 includes two U.S. patents directed to methods of treating chronic heart failure and acute decompensated heart failure using a SCD cartridge. These patents will expire in 2032, assuming that the required maintenance fees are paid. Counterpart patents have been granted in Australia, and patent applications are pending in Canada and Europe. These patents, and patent applications, if granted, will expire in 2032, assuming that the required maintenance fees are paid. The patents and applications in Patent Family 4 are as follows:
Patent Family 4†
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* | Expiration date if application is granted. |
† | This patent family was developed with U.S. federal government funding and is subject to obligations under the Bayh-Dole Act. |
Patent Family 5 includes three U.S. design patents, three European Community design patents, and three United Kingdom design patents directed to a medical device connector as follows:
Patent Family 5
Jurisdiction |
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Granted | 2025 | Design patent directed to | ||||||
United States | Granted | 2024 |
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United States | Granted | 2025 | Design patent directed to | |||||
United Kingdom | Granted | 2034 | Design patent directed to | |||||
United Kingdom | Granted | 2034 | Design patent directed to | |||||
United Kingdom | Granted | 2034 | Design patent directed to | |||||
European Community | Granted | 2034 | Design patent directed to | |||||
European Community | Granted | 2034 | Design patent directed to | |||||
European Community | Granted | 2034 |
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With respect to our other technologies, we solely own patents and patent applications in five additional patent families (Patent Families 6-10) which are summarized as follows:
Patent Family 6
Jurisdiction |
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United States | Pending | 2040* |
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Patent Family 7
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Pending | 2040* | Device and methods for reducing rejection of |
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Patent Family 8
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Patent Family 9
Jurisdiction | Status | Expiration Date | Subject Matter | |||
United States | Granted | 2027 | Extracorporeal cell-based therapeutic device and delivery system for renal cells |
Patent Family 10
Jurisdiction | Status | Expiration Date | Subject Matter | |||
United States | Granted | 2031 | Methods for enhanced propagation of renal cells |
In addition to seeking patent protection, we also rely on trade secrets and other confidential information to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection.
Competition
The industry for treating inflammation is extremely competitive, and companies developing new treatment procedures face significant capital and regulatory challenges. As our SCD product is a clinical-stage device, we have the additional challenge of establishing medical industry support, which will be driven by treatment data resulting from human clinical studies. Should our device become market cleared by FDA or the regulatory body of another country, we may face significant competition from well-funded pharmaceutical and medical device companies. Additionally, we would likely need to establish large-scale production of our device in order to be competitive. We believe that our SCD is able to compete effectively in the market and we are not aware of any similar device that has completed regulatory approval in any country for the treatment of adults or children with acute kidney injury requiring continuous renal replacement therapy.
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In identifying, evaluatingboth the United States and selectinginternational markets, the use of medical devices is dependent in part on the availability of reimbursement from third-party payors, such as government and private insurance plans. Healthcare providers that use medical devices generally rely on third-party payors to pay for all or part of the costs and fees associated with the medical procedures being performed or to compensate them for their patient care services. Lack of third-party coverage and reimbursement for the Company’s devices could delay or limit their adoption, and as such harm our competitive advantage in the market.
Sales and Marketing
While currently we do not have a target businesssignificant sales and marketing capability, we are actively pursuing resources and support for commercialization efforts in anticipation of obtaining the relevant regulatory approval from FDA, including for the HDE application for pediatric AKI indications that was submitted in June 2022. We intend to build or contract for distribution, sales and marketing capabilities, including hiring additional personnel with appropriate sales experience and engaging experts and consults to promote, advertise and educate hospitals, physicians and other decision makers in the market. From time to time, we have had and are having strategic discussions with potential collaboration partners for our initial business combination,product candidates, although no assurance can be given that we may encounter intense competition from other entities having a business objective similar to ours, including other blank check companies, private equity groups and leveraged buyout funds, and operating businesses seeking strategic business combinations. Many of these entities are well established and have extensive experience identifying and effecting business combinations directly or through affiliates. Moreover, many of these competitors possess greater financial, technical, human and other resources than we do. Our ability to acquire larger target businesses will be limitedable to enter into one or more collaboration agreements for our product candidates on acceptable terms, if at all.
Government Regulation
Our SCD product is subject to regulation by numerous regulatory bodies, primarily the FDA, and comparable international regulatory agencies. These agencies require manufacturers of medical devices to comply with applicable laws and regulations governing the development, testing, manufacturing, labeling, marketing, storage, distribution, advertising and promotion, and post-marketing surveillance reporting of medical devices. The SCD includes a system of cartridges to interact with the patient’s hyperinflammatory cells to allow them to become dormant prior to their return to the patient. As the primary therapeutic mode of action of our available financial resources. This inherent limitation gives others an advantageSCD is attributable to the device’s impact on these autologous cells and their timely return to patients, FDA’s Center for Biological Evaluation and Research has primary jurisdiction over its premarket development, review and approval of our SCD as a medical device. Failure to comply with applicable requirements may subject a device and/or its manufacturer to a variety of administrative sanctions, such as issuance of warning letters, import detentions, mandatory safety notifications, repair/replace/refund actions, or recalls, civil monetary penalties and/or judicial sanctions, such as product seizures, injunctions and criminal prosecution.
FDA’s Pre-market Clearance and Approval Requirements
Each medical device we seek to commercially distribute in pursuing the initial business combinationUnited States will require either a prior 510(k) clearance, unless it is exempt, a de novo request or a PMA from the FDA. Generally, if a new device has a predicate that is already on the market under a 510(k) clearance, the FDA will allow that new device to be marketed under a 510(k) clearance; otherwise, a de novo or PMA is required. Medical devices are classified into one of three classes—Class I, Class II or Class III—depending on the degree of risk associated with each medical device and the extent of control needed to provide reasonable assurance of safety and effectiveness. Class I devices are deemed to be low risk and are subject to the general controls of the FD&C Act, such as provisions that relate to: adulteration; misbranding; registration and listing; notification, including repair, replacement, or refund; records and reports; and good manufacturing practices. Most Class I devices are classified as exempt from pre-market notification under section 510(k) of the FD&C Act, and therefore may be commercially distributed without obtaining 510(k) clearance from the FDA. Class II devices are subject to both general controls and special controls to provide reasonable assurance of safety and effectiveness. Special controls may include performance standards, post market surveillance, patient registries, and/or guidance documents. Most Class II devices require the manufacturer to submit to the FDA a pre-market notification requesting permission to commercially distribute the devices. Devices deemed by the FDA to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices, are placed in Class III. In addition, novel devices that have not been previously classified by the FDA or that have deemed not substantially equivalent to a previously cleared 510(k) device are considered Class III by default, unless and until they are down-classified by the FDA (e.g., via the de novo request process). High risk devices formally classified as Class III by regulation or administrative order cannot be marketed in the U.S. unless the FDA approves the device after submission of a target business. Furthermore, our obligationPMA. Novel devices that are Class III by default may be eligible for down-classification through the de novo request process, if the device manufacturer can demonstrate that the device is lower risk and should therefore be classified as Class I or Class II. The FDA can also impose post-market sales, marketing or other restrictions on devices in order to pay cashassure that they are used in connection with our public stockholders who exercise their redemption rights may reduce the resources availablea safe and effective manner. We believe that SCD will be classified as a Class III device and as such will be subject to us for our initial business combinationPMA submission and our outstanding warrants, and the future dilution theyapproval.
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potentially represent, may not be viewed favorably by certain target businesses. Either of these factors may place us at a competitive disadvantage in successfully negotiating an initial business combination.
Facilities
Our executive offices are located at 1200 W. Platt St., Suite 100, Tampa, Florida 33606, and our telephone number is (813) 222-8996. Our executive offices are provided to us by our sponsor. We consider our current office space adequate for our current operations.
Employees
We currently have two officers. These individuals are not obligated to devote any specific number of hours to our matters but they intend to devote as much of their time as they deem necessary to our affairs until we have completed our initial business combination. The amount of time they will devote in any time period will vary based on whether a target business has been selected for our initial business combination and the stage of the initial business combination process we are in. We do not intend to have any full time employees prior to the completion of our initial business combination.
Periodic Reporting and Financial Information
We will register our units, Class A common stock and warrants under the Exchange Act and have reporting obligations, including the requirement that we file annual, quarterly and current reports with the SEC. In accordance with the Orphan Drug Act of 1984, a rare disease is defined as a disease or condition that affects fewer than 200,000 people in the U.S. Currently, in the U.S., only a portion of the 7,000 known rare diseases have approved treatments. By definition, rare diseases or conditions occur in a small number of patients. As a result, it has been difficult to gather enough clinical evidence to meet the FDA standard of reasonable assurance of safety and effectiveness.
In order to address this challenge, Congress included a provision in the Safe Medical Devices Act of 1990 to create a new regulatory pathway for products intended for diseases or conditions that affect small (i.e., rare) populations, which is the HDE program.
A HUD is a medical device intended to benefit patients in the treatment or diagnosis of a disease or condition that affects or is manifested in not more than 8,000 individuals in the U.S. per year.
The HDE is a marketing application for an HUD under Section 520(m) of the FD&C Act. An HDE is exempt from the effectiveness requirements of Sections 514 and 515 of the ExchangeFD&C Act and is subject to certain profit and use restrictions.
Under section 520(m)(6)(A)(i) of the FD&C Act, an HUD is only eligible to be sold for profit after receiving an HDE approval if the device is intended for the treatment or diagnosis of a disease or condition that either:
occurs in pediatric patients or in a pediatric subpopulation, and such device is labeled for use in pediatric patients or in a pediatric subpopulation in which the disease or condition occurs, or
occurs in adult patients and does not occur in pediatric patients or occurs in pediatric patients in such numbers that the development of the device for such patients is impossible, highly impracticable, or unsafe.
HDE applicants whose devices meet one of the eligibility criteria and wish to sell their HUD for profit should provide adequate supporting documentation to FDA in the original HDE application. HDE holders who wish to sell their devices for profit and who did not submit the request in the original HDE application may submit a supplement and provide adequate supporting documentation to demonstrate that the HUD meets the eligibility criteria.
The number of HDE devices that may be sold for profit is limited to a quantity known as the Annual Distribution Number (“ADN”). If the FDA determines that an HDE holder is eligible to sell the device for profit, FDA will determine the ADN and notify the HDE holder.
The ADN is calculated by taking the number of devices reasonably necessary to treat or diagnose an individual per year and multiplying it by 8000. For example, if the typical course of treatment using an HDE device, in accordance with its intended use, requires the use of two devices per patient per year, then the ADN for that HDE device would be 16,000 (i.e., 2 x 8000).
If the number of devices distributed in a year exceeds the ADN, the sponsor can continue to sell the device but cannot earn a profit for the remainder of the year.
We believe our annual reportsSCD will contain financial statements auditedbe eligible to sell for a profit because we are pursuing a HDE for the pediatric population.
Pre-market Approval Pathway
A pre-market approval application must be submitted to the FDA for Class III devices for which the FDA has required a PMA. The pre-market approval application process is more extensive than the 510(k) pre-market notification and reportedde novo request processes. A PMA application must be supported by extensive data, including but not limited to technical, preclinical, clinical trials, manufacturing and labeling to demonstrate to the FDA’s satisfaction reasonable evidence of safety and effectiveness of the device.
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After a pre-market approval application is submitted, the FDA has 45 days to determine whether the application is sufficiently complete to permit a substantive review and thus whether the FDA will file the application for review. The FDA has 180 days of FDA review time to review a filed pre-market approval application, although the review of an application generally occurs over a significantly longer period of time due to hold periods during which the submitting sponsor (the company) gathers information to address FDA requests for additional information. The total review process is highly variable and can take up to several years. During this review period, the FDA may request additional information or clarification of the information already provided. Also, an advisory panel of experts from outside the FDA may be convened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device.
Although the FDA is not bound by the advisory panel decision, the panel’s recommendations are important to the FDA’s overall decision-making process. In addition, the FDA generally conducts a preapproval inspection of the manufacturing facilities to ensure compliance with the Quality System Regulation (“QSR”). The agency also may inspect one or more clinical sites to assure compliance with FDA’s regulations.
Upon completion of the PMA review, the FDA may: (i) approve the PMA that authorizes commercial marketing with specific prescribing information for one or more indications, which can be more limited than those originally sought; (ii) issue an approvable letter that indicates the FDA’s belief that the PMA is approvable and states what additional information the FDA requires, or the post-approval commitments that must be agreed to prior to approval; (iii) issue a not approvable letter that outlines steps required for approval, but which are typically more onerous than those in an approvable letter, and may require additional clinical trials that are often expensive and time consuming and can delay approval for months or even years; or (iv) deny the application. If the FDA issues an approvable or not approvable letter, the applicant has 180 days to respond, after which the FDA’s review clock is reset.
Clinical Trials
Clinical trials are almost always required to support pre-market approval and are sometimes required for 510(k) clearance. In the U.S., for significant risk devices, these trials require submission of an application for an IDE to the FDA. The IDE application must be supported by appropriate data, such as animal and laboratory testing results, showing it is safe to test the device in humans and that the testing protocol is scientifically sound. The IDE must be approved in advance by the FDA for a specific number of patients at specified study sites. During the trial, the sponsor must comply with the FDA’s IDE requirements for investigator selection, trial monitoring, reporting and recordkeeping. The investigators must obtain patient informed consent, rigorously follow the investigational plan and study protocol, control the disposition of investigational devices and comply with all reporting and recordkeeping requirements. Clinical trials for significant risk devices may not begin until the IDE application is approved by the FDA and the appropriate institutional review boards (“IRBs”) at the clinical trial sites. An IRB is an appropriately constituted group that has been formally designated to review and monitor medical research involving subjects and which has the authority to approve, require modifications in, or disapprove research to protect the rights, safety and welfare of human research subjects. The FDA or the IRB at each site at which a clinical trial is being performed may withdraw approval of a clinical trial at any time for various reasons, including a belief that the risks to study subjects outweigh the benefits or a failure to comply with FDA or IRB requirements. Even if a trial is completed, the results of clinical testing may not demonstrate the safety and effectiveness of the device, may be equivocal or may otherwise not be sufficient to obtain approval or clearance of the product.
Ongoing Regulation by the FDA
Even after a device receives clearance or approval and is placed on the market, numerous regulatory requirements apply. These include:
establishment registration and device listing;
the QSR, which requires manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures during all aspects of the manufacturing process;
• | labeling regulations and the FDA prohibitions against the promotion of products for uncleared, unapproved or “off-label” uses and other requirements related to promotional activities; |
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medical device reporting regulations, which require that manufactures report to the FDA if their device may have caused or contributed to a death or serious injury, or if their device malfunctioned and the device or a similar device marketed by the manufacturer would be likely to cause or contribute to a death or serious injury if the malfunction were to recur; and
corrections and removal reporting regulations, which require that manufactures report to the FDA field corrections or removals if undertaken to reduce a risk to health posed by a device or to remedy a violation of the FDCA that may present a risk to health.
Some changes to an approved PMA device, including changes in indications, labeling or manufacturing processes or facilities, require submission and FDA approval of a new PMA or PMA supplement, as appropriate, before the change can be implemented. Supplements to a PMA often require the submission of the same type of information required for an original PMA, except that the supplement is generally limited to that information needed to support the proposed change from the device covered by the original PMA. The FDA uses the same procedures and actions in reviewing PMA supplements as it does in reviewing original PMAs. PMA supplements also require the submission of a user fee, which varies depending on the type of supplement.
Failure by us or by our independent registered public accountants.
We will provide stockholderssuppliers to comply with audited financial statementsapplicable regulatory requirements can result in enforcement action by the FDA or state authorities, which may include any of the prospective targetfollowing sanctions:
warning or untitled letters, fines, injunctions, consent decrees and civil penalties;
customer notifications, voluntary or mandatory recall or seizure of our products;
operating restrictions, partial suspension or total shutdown of production;
delay in processing submissions or applications for new products or modifications to existing products;
withdrawing approvals that have already been granted; and
criminal prosecution.
In addition, the FDA imposes requirements on labeling and promotion, including requirements that all statements be truthful, accurate, not misleading, adequately substantiated, and fairly balanced and prohibits an approved device from being marketed for off-label use. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability, including substantial monetary penalties and criminal prosecution.
Newly discovered or developed safety or effectiveness data may require changes to a product’s labeling, including the addition of new warnings and contraindications, and also may require the implementation of other risk management measures. Also, new government requirements, including those resulting from new legislation, may be established, or the FDA’s policies may change, which could delay or prevent regulatory clearance or approval of our products under development.
Healthcare Regulation
In addition to the FDA’s restrictions on marketing of pharmaceutical products, the United States healthcare laws and regulations that may affect our ability to operate include: the federal fraud and abuse laws, including the federal anti-kickback and false claims laws, federal data privacy and security laws, and federal transparency laws related to payments and/or other transfers of value made to physicians and other healthcare professionals and teaching hospitals. Many states have similar laws and regulations that may differ from each other and federal law in significant ways, thus complicating compliance efforts. For example, states have anti-kickback and false claims laws that may be broader in scope than analogous federal laws and may apply regardless of payer. In addition, state data privacy laws that protect the security of health information may differ from each other and may not be preempted by federal law. Moreover, several states have enacted legislation requiring pharmaceutical manufacturers to, among other things, establish marketing compliance programs, file periodic reports with the state, make periodic public disclosures on sales and marketing activities, report information related to drug pricing, require the registration of sales representatives, and prohibit certain other sales and marketing practices. These laws may adversely affect our sales, marketing and other activities with respect to any product candidate for which we receive approval to market in the United States by imposing administrative and compliance burdens on us.
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Because of the breadth of these laws and the narrowness of available statutory exceptions and regulatory safe harbors, it is possible that some of our business activities, particularly any sales and marketing activities after a product candidate has been approved for marketing in the United States, could be subject to legal challenge and enforcement actions. If our operations are found to be in violation of any of the federal and state laws described above or any other governmental regulations that apply to us, we may be subject to significant civil, criminal, and administrative penalties, including, without limitation, damages, fines, imprisonment, exclusion from participation in government healthcare programs, additional reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing the regulatory approval, manufacture and marketing of regulated products or the reimbursement thereof. For example, in the U.S., the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, among other things, reduced and/or limited Medicare reimbursement to certain providers and imposed an annual excise tax of 2.3% on any entity that manufactures or imports medical devices offered for sale in the United States, with limited exceptions. The Further Consolidated Appropriations Act, signed into law on December 20, 2019, has now permanently repealed the medical device excise tax. In addition, the Budget Control Act of 2011, as amended by subsequent legislation, further reduces Medicare’s payments to providers by two percent through fiscal year 2027. These reductions may reduce providers’ revenues or profits, which could affect their ability to purchase new technologies. Furthermore, the healthcare industry in the United States has experienced a trend toward cost containment as government and private insurers seek to control healthcare costs by imposing lower payment rates and negotiating reduced contract rates with service providers. Legislation could be adopted in the future that limits payments for our products from governmental payors.
Coverage and Reimbursement
In both the United States and international markets, the use of medical devices is dependent in part on the availability of reimbursement from third-party payors, such as government and private insurance plans. Healthcare providers that use medical devices generally rely on third-party payors to pay for all or part of the tender offer materials or proxy solicitation materials sent to stockholders to assist them in assessing the target business. In all likelihood, these financial statements will need to be prepared in accordance with, or reconciled to, GAAP, or IFRS, depending on the circumstances,costs and the historical financial statements may be required to be audited in accordancefees associated with the standards ofmedical procedures being performed or to compensate them for their patient care services. Should our products under development be approved for commercialization by the PCAOB. These financial statement requirements may limit the pool of potential targets we may conduct an initial business combination with because some targets may be unable to provideFDA, any such statements in time for us to disclose such statements in accordance with federal proxy rules and complete our initial business combination within the prescribed time frame. We cannot assure you that any particular target business identified by us as a potential business combination candidate will have financial statements prepared in accordance with GAAP or that the potential target business will be able to prepare its financial statements in accordance with the requirements outlined above. To the extent that these requirements cannot be met, weproducts may not be able to acquire the proposed target business. While this may limit the pool of potential business combination candidates, we do not believe that this limitation will be material.
We will be required to evaluate our internal control procedures for the fiscal year ending December 31, 2021 as required by the Sarbanes-Oxley Act. Only in the event we are deemed to be a large accelerated filer or an accelerated filer and no longer qualify as an emerging growth company, will we be required to have our internal control procedures audited. A target companyconsidered cost-effective, reimbursement may not be available in compliance with the provisionsUnited States or other countries, if approved, and reimbursement may not be sufficient to allow sales of the Sarbanes-Oxley Act regarding adequacyour future products on a profitable basis. The coverage decisions of their internal controls. The development of the internal controls of any such entity to achieve compliance with the Sarbanes-Oxley Act may increase the time and costs necessary to complete any such business combination. Prior to the date of this prospectus, we will file a Registration Statement on Form 8-A with the SEC to voluntarily register our securities under Section 12 of the Exchange Act. As a result, wethird-party payors will be subject tosignificantly influenced by the rules and regulations promulgated under the Exchange Act. We have no current intention of filing a Form 15 to suspend our reporting or other obligations under the Exchange Act prior or subsequent to the consummationassessment of our initial business combination.future products by health technology assessment bodies. If approved for use in the United States, we expect that any products that we develop will be purchased primarily by medical institutions, which will in turn bill various third-party payors for the health care services provided to patients at their facility. Payors may include CMS, which administers the Medicare program and works in partnership with state governments to administer Medicaid, other government programs and private insurance plans. The process involved in applying for coverage and reimbursement from CMS is lengthy and expensive. Further, Medicare coverage is based on our ability to demonstrate that the treatment is “reasonable and necessary” for Medicare beneficiaries. Even if products utilizing our technology receive FDA and other regulatory clearance or approval, they may not be granted coverage and reimbursement by any payor, including by CMS. Many private payors use coverage decisions and payment amounts determined by CMS as guidelines in setting their coverage and reimbursement policies and amounts. However, no uniform policy for coverage and reimbursement for medical devices exists among third-party payors in the United States. Therefore, coverage and reimbursement can differ significantly from payor to payor.
Employees
As of January 20, 2023, we had 10 full-time employees. None of our employees are represented by labor unions or covered by collective bargaining agreements.
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Facilities
We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue oflease our headquarters located at least $1.07 billion, or (c) in which we are deemed3513 Brighton Boulevard, Suite #410, Denver, Colorado 80216 pursuant to be a large accelerated filer, which means the market value oflease agreement on a month-to-month basis. We believe that our shares of Class A common stock that are held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.location at Brighton Boulevard satisfies our current office needs.
Legal Proceedings
There is no material litigation, arbitration or governmental proceedingFrom time to time, we may become involved in various claims and legal proceedings. We are not currently pending against us ora party to any memberslegal proceedings that, in the opinion of our management, team in their capacityare likely to have a material adverse effect on our business, financial condition or results of operations. Regardless of outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
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MANAGEMENT AND BOARD OF DIRECTORS
Management and Board of Directors
The following table sets forth, as such.
Managementof January 20, 2023, concerning our executive officers and directors.
Officers and Directors
Our officers, directors and director nominees are as follows:
Name | Age | Position | ||||
Eric Schlorff | 50 | Chief Executive Officer and Class III Director | ||||
Caryl Baron | 55 | Interim Chief Financial Officer | ||||
Kevin Chung | 50 | Chief Medical Officer | ||||
Kenneth Van Heel | 58 | Class III Director | ||||
Rick Barnett | 63 | Class I Director and Chairman of the Board | ||||
Andres Lobo | 56 | Class I Director | ||||
Allan Collins, MD | 75 | Class II Director | ||||
Bruce Rodgers |
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Richard Russell |
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Directors
Eric Schlorff has served as a Director and the Chief Executive Officer of SeaStar Medical since July 2019 and as Chief Operating Officer from March 2019 to July 2019. Mr. Schlorff also previously served as a Director of SeaStar Medical from June 2016 to May 2019. From 1999 to 2019, Mr. Schlorff served in multiple roles at the Dow Chemical Company in Midland, Michigan and Indianapolis, Indiana. From June 2016 to February 2019, Mr. Schlorff served as Global Director of Alternative Investments for the Dow Chemical Pension Plan, and Global Finance Leader for Crop Protection & Seeds at Dow AgroSciences from June 2013 to June 2016. Additional leadership positions held by Mr. Schlorff include the Global Market Intelligence Leader at Dow AgroSciences, Global Financial Manager of Royalties at Dow AgroSciences, Senior Investment Manager of Alternative Investments at Dow Chemical Company, New Business Development of Pharmaceuticals at Dow Chemical Company, Global Financial Analyst within the New Businesses division at Dow Chemical Company, and Global Financial Analyst within Dow AgroSciences at Dow Chemical Company.
Kenneth Van Heel has served as a Director of SeaStar Medical since 2021 and previously served as a Director from 2011 to 2015. Mr. Van Heel has also served as Chief Executive Officer at Motorcity Systems, a software provider in the trucking and transportation industry, since November 2021. Since June 2012, Mr. Van Heel has also served as a Director and Advisor at Gantec, Inc., a biotechnology company for agricultural products. From June 2019 to June 2021, Mr. Van Heel served as an Advisor at Motorcity Systems. Prior to joining Motorcity Systems, Mr. Van Heel served in various roles at the Dow Chemical Company. At the Dow Chemical Company, from 2016 to 2021, Mr. Van Heel served as the Global Director of Strategic Planning; from 2012 to 2016, Mr. Van Heel served as the Director of Alternative Investments and CIO Canadian Pension Plan; from 2006 to 2016, Mr. Van Heel served as Director of Alternative Investments; from 2003 to 2006, Mr. Van Heel served as the Senior Manager of Private Equity; from 2000 to 2003, Mr. Van Heel served as the Manager of Dow Corporate Venture Capital; and from 1986 to 2000, Mr. Van Heel held various positions within the Ventures and Business Development division.
Rick Barnett has received the Corporate Director certification from NACD in 2021 and has served as a Director of the SeaStar Medical since January 2021. Mr. Barnett served as President, Chief Executive Officer and Board Member of Satellite Healthcare, Inc. from 2014 to February 2021. Satellite Healthcare is Mr. Barnett has served as the Chairman of the Strategic Planning Committee, as well as a member of the Finance, Quality, Risk/Compliance, and Governance/Compensation committees for Satellite Healthcare, Inc. Mr. Barnett currently serves on the CutisCare, Inc. Board of Directors since 2021 and is a member of the Strategy and Audit Committee. CutisCare Inc. focuses on innovative approaches to wound care. Mr. Barnett has served a term as Chair of the Board of Directors of the National Kidney Foundation—Northern California & Pacific Northwest, and a Board Member since 2018, where he served as a member of the Nominating, Strategic Partnerships, and Membership committees. He also served as
*This individual has indicated his or her assent to occupy such position on the effective date101
Chair of the registration statement,Board of which this prospectus isDirectors for the West Coast Sourcing Solutions, a part.product procurement company, from 2011 to 2014. From 2009 to 2014, Mr. Barnett served as a Senior Vice President of VHA, Inc., a purchasing cooperative for community-owned, nonprofit healthcare institutions. From 2006 to 2008, Mr. Barnett served as General Partner & Board Member of North State Surgery Centers, LLC, an ambulatory surgical clinic center. From 2005 to 2009, Mr. Barnett served as Chair of the Board of Directors of the Hospital Council of Northern California—Northern Sierra Section, a non-profit hospital and health systems trade association.
Andres Lobo has served as a Director of SeaStar Medical since May 2019. Since 1994, Mr. Lobo has served in various roles at the Dow Chemical Company. At the Dow Chemical Company, since 2019, Mr. Lobo has served as the Risk Seeking Assets Director; from 2016 to 2019, Mr. Lobo served as the Corporate Real Estate Director; and from 2006 to 2016, Mr. Lobo served as a Customer Financial Services Portfolio Manager. At Dow Brasil S.A, a subsidiary of the Dow Chemical Company, from 2003 to 2006, Mr. Lobo served as a Senior Finance Manager; from 1999 to 2003, Mr. Lobo served as a Customer Financial Services Manager for Brazil and Latin America; from 1997 to 1999, Mr. Lobo served as a Customer Financial Services Manager for Argentina and Southern Cone; and from 1994 to 1997, Mr. Lobo served as a Credit & Collection Manager. From 1993 to 1994, Mr. Lobo served as a Corporate Account Manager at Leasing Andino S.A., a commercial leasing company, in Santiago, Chile.
Allan Collins, MD has served as a Director of SeaStar Medical since January 2021. Mr. Collins has served as the Chief Medical Officer at NxStage Medical, a medical device company for the treatment of kidneys since 2017. Since 1999, Mr. Collins has also served as the Executive Director of the Kidney Care Initiative at the Chronic Disease Research Group, a non-profit organization that focuses on answering questions on patient experiences with chronic diseases and a division of the Hennepin Healthcare Research Institute, in Minneapolis, Minnesota. From 1999 to 2014, Mr. Collins served as a Director within the United States Renal Data System, a national data system that analyzes information about chronic kidney disease. From 1990 to 2017, Mr. Collins worked for the Hennepin Faculty Associates, an independent medical group at the Hennepin County Medical Center in Minneapolis, Minnesota. From 1980 to 1990, Mr. Collins served as faculty at the Minneapolis Medical Research Foundation, a medical research non-profit organization, and the University of Minnesota School of Medicine.
Bruce Rodgers servesserved as ourLMAO’s Chief Executive Officer and President and iswas Chairman of ourits Board of Directors. Since completion of its initial public offering in October 2015, Mr. Rodgers has served as Chairman, Chief Executive Officer, and President of LMFA, an affiliate of our sponsorthe Sponsor and publicly traded company on the Nasdaq Capital Market. LMFA is a specialty finance company that provides funding to nonprofit community associations primarily located in the state of Florida. Florida and mines for Bitcoin. Mr. Rodgers was instrumental in developing LMFA’s business model prior to its inception and was one of its primary investors. As LMFA’s Chief Executive Officer, Mr. Rodgers has guided LMFA through its initial public offering, subsequent public offerings, and acquisitions of complementary businesses. Mr. Rodgers is a former business transactions attorney counseling numerous businesses with respect to mergers, acquisitions and capital raising transactions. In this capacity, Mr. Rodgers was an associate of Macfarlane, Ferguson, & McMullen, P.A. from 1991 to 1995 and a partner from 1995-1998 and was an equity partner of Foley & Lardner LLP from 1998 to 2003. Originally from Bowling Green, Kentucky, Mr. Rodgers holds an engineeringEngineering degree from Vanderbilt University (1985) and a Juris Doctor, with honors, from the University of Florida (1991). Mr. Rodgers also served as an officer in the United States Navy from 1985-1989 rising to the rank of Lieutenant, Surface Warfare Officer. Mr. Rodgers is a member of the Florida Bar and holds an AV-Preeminent rating from Martindale Hubbell. We believe that Mr. Rodgers is well-qualified to serve on our Board due to his experience in sourcing, negotiating and consummating acquisitions, and investment in and management of a financial services business.
Richard Russell serves served as ourLMAO’s Chief Financial Officer, Treasurer, Secretary and as a director.Director. Mr. Russell has also served as Chief Financial Officer of LMFA, an affiliate of our sponsorthe Sponsor and publicly traded company on the Nasdaq Capital Market since 2017. Since 2016, he has provided financial and accounting consulting services with a focus on technical and external reporting, internal auditing, mergers & acquisitions, risk management, and CFO and controller services. Mr. Russell also served as Chief Financial Officer for Mission Health Communities, offering management services for nursing and post-acute care facilities, from 2013 to 2016 and, before that, Mr. Russell served in a variety of roles for Cott Corporation, an American-Canadian beverage and food service company, from 2007 to 2013, including Senior Director Finance, Senior Director of Internal Auditing, and Assistant Corporate Controller. Mr. Russell’s extensive professional experience with public companies includes his position as Director of Financial Reporting for Quality Distribution, a transportation and logistics company, from 2004 –to 2007, and as Director of Financial Reporting for Danka Business Systems PLC, a supplier of photocopiers and office imaging equipment, from
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2001 to 2004. Mr. Russell also servesserved as Chief Financial Officer of Generation Income Properties, Inc., which is a real estate investment company that is publicly traded on the OTCQB Venture Market,Nasdaq, a position he has held sincefrom December 2019.2019 to February 2022. Mr. Russell earned his bachelorBachelor of scienceScience in accountingAccounting and a master’sMaster’s in tax accountingTax Accounting from the University of Alabama, a bachelorBachelor of artsArts in international studiesInternational Studies from the University of South Florida, and a master’sMaster’s in business administrationBusiness Administration from the University of Tampa. On March 1, 2020, Mr. Russell was appointed to the board of directors for TDNT, a publicly held consumer products company that has been trading on the OTCQB Venture Market since April 2015. Mr. Russell iswas also Chairman of the Hillsborough County Internal Audit Committee sincefrom January 2020 to April 2021 and has been a board member since August 2016. We believe that Mr. Russell is well-qualified to serve on our Board due to his experience in public company operations, including in
Executive Officers
Eric Schlorff See “ – Directors” for the financial services industry, financial analysis and reporting, mergers and acquisitions and risk management.
Bruce H. Bennett is onebiography of our director nominees. Mr. Bennett currentlyEric Schlorff who serves as CEOthe Chief Executive Officer and Chairmana Class III Director.
Caryl Baron has served as the Finance Controller of Mad Mobile,SeaStar Medical since 2020 and as our Interim Chief Financial Officer since October 28, 2022. Since 2013, Ms. Baron has also served as the Founder of Baroness Financial Consulting, an accounting consulting firm, in New York, New York. From 2011 to 2013, Ms. Baron served as the Controller of Rubenstein Public Relations, Inc., a full-service communications agency, in New York, New York. From 2008 to 2010, Ms. Baron served as the Vice President and Finance Director of Omnicon Health Group, a healthcare marketing and communications group, in New York, New York. From 2006 to 2008, Ms. Baron served as the Finance Manager of IMG, a global leadersports, events and talent management company, in point-of-sale modernizationNew York, New York. From 2004 to 2006, Ms. Baron served as the Controller of Cornelia Day Resort, a luxury spa, in New York, New York. From 1996 to 2004, Ms. Baron served as the Financial Operations Manager of Tiffany & Co., a luxury jewelry and specialty retailer, in New York, New York. From 1992 to 1996, Ms. Baron served as the Assistant Controller for WPP, a multinational communications, advertising, public relations, and technology solutions for the retail and restaurant industries, which he foundedcompany, in 2010. As CEO and Chairman of Mad Mobile, Mr. Bennett is responsible for providing leadership and oversight over all functions of the company, including areas such as financial, sales, marketing, hiring, and compensation for the company’s 250 employees globally. Prior to 2010, Mr. BennettNew York, New York.
Kevin Chung has served as the Chief OperatingMedical Officer and as a member of
the board of directors of SOE Software, a nationally recognized leader of e-Government focused software solutions, from 2005 to 2010. In addition, Mr. Bennett has founded, grown, operated, and sold multiple high-growth technology companies, including: GoSolutions, Inc., a provider of voice and data communications services, from 2002 to 2004; Mediacentric Group, Inc., an e-commerce delivery service network provider, from 1998 to 2003; eAngler.com, an online fishing resource, providing anglers with content, community, and e-commerce, from 1994 to 1999; and Image Technologies Group, Inc., a provider of strategic consulting, website-design services, database programming, back-end integration, multimedia services, and wireless applications, from 1989 to 1993. A veteran of the software industry, with over two decades of experience, Mr. Bennett is well-versed at both the board of directors and executive levels of public and private sector companies, and he strives to maximize organizations’ key value propositions and enhance their greatest asset: their people. Mr. Bennett received his Bachelor’s Degree in Computer Science from the University of Texas at El Paso in 1983. We believe that Mr. Bennett is well-qualified to serve on our Board due to his experience founding, growing, operating, and selling high-growth technology companies, his prior board of directors experience, his successful history of addressing the complex needs of large retail and technology brands, and his proven ability to undertake complex mergers and acquisitions.
Craig Burson is one of our director nominees. Mr. Burson is currently the founder and Managing Member of Peak 8 Capital, LLC and Ski Mountain Properties, LLC, two commercial real estate businesses founded by Mr. Burson and his wife. From January 2000 to March 2020, Mr. Burson worked for H.I.G. Capital, LLC (“H.I.G.”), a leading global alternative investment firm with approximately $42 billion of equity capital under management and a focus on the small cap and mid cap segments of the market. From June 2003 until March 2020, Mr. BursonSeaStar Medical since July 1, 2022. Dr. Chung served as a Managing Director in H.I.G.’s Growth Equity and VC funds. During his 20 year career at H.I.G., Mr. Burson focused on making investmentsprofessor in the business services, consumer, healthcare, and technology sectors. Mr. Burson was involved with over 20 investments whileDepartment of Medicine at H.I.G., sat on manythe Uniformed Services University of the boards of companies in which investments were made,Health Sciences from 2016 to 2022, and was a memberas Chair of the auditDepartment of Medicine since 2018. From 2014 to 2020, Dr. Chung served as Critical Care Consultant to the U.S. Surgeon General. From 2016 to 2018, Dr. Chung served as Department of Medicine Chief at the Brooke Army Medical Center. From 2015 to 2016, Dr. Chung served as Director of Research at the US Army Institute of Surgical Research, and compensation committees foras Task Area Manager, Clinical Trial from 2012 to 2015. From 2006 to 2013, Dr. Chung served as Medical Director, Burn Intensive Care Unit at the US Army Burn Center. Dr. Chung is a number of his investments. Prior to H.I.G., Mr. Burson was a memberretired army colonel and holds medical licenses in Texas and Maryland.
Family Relationships
There are no family relationships among any of the Raymond James & Associates technology investment banking practice, where he was active in public offerings, private placements, and mergers & acquisitions. individuals who serve as our directors or executive officers.
Classified Board of Directors
In addition, Mr. Burson had a 15-year careeraccordance with the Dow Chemical Company, holding management positions in engineering, sales, marketing, and new business development. His focus at the Dow Chemical Company was on the healthcare, semiconductor, water treatment, mining, and oil & gas industries. Mr. Burson also served as a development leader at Dowell Schlumberger, where he was involved with advanced oil & gas treatment technologies. In addition, he spent time in the trenches working as a roust-a-bout for Phillips Petroleum while earning his engineering degree. Mr. Burson earned a Bachelor of Science degree in Mining Engineering from the Colorado School of Mines and an M.B.A. from Harvard Business School. We believe that Mr. Burson is well-qualified to serve onCharter, our Board due to his experience in finance and investments, including investments in the technology sector, as well as his board and audit committee service.
Martin Traber is one of our director nominees. Mr. Traber currently serves as a director of LMFA, an affiliate of our sponsor and publicly traded company on the Nasdaq Capital Market, since its initial public offering in October 2015,although Mr. Traber will cease to be a director of LMFA upon the completion of this offering. Also, Mr. Traber currently serves as a director of Mad Mobile, Inc., a global leader in point-of-sale modernization and technology solutions for the retail and restaurant industries, a position he has held since March 2019. Since February 2017, Mr. Traber has served as Chairman of Skyway Capital Markets, LLC a Tampa, Florida-based investment banking firm. From 1994 until 2016, Mr. Traber was a partner of Foley & Lardner LLP, in Tampa, Florida, representing clients in securities law matters and corporate transactions. Mr. Traber was a founder of NorthStar Bank in Tampa, Florida and from 2007 to 2011 served as a member of the Board of Directors of that institution. From 2012 to 2013, he served on the Board of Directors of Exeter Trust Company, Portsmouth, New Hampshire. Mr. Traber holds a Bachelor of Arts and a Juris Doctor from Indiana University. He has counseled and observed numerous businesses in a wide range of industries. The knowledge gained from his observations and his knowledge and experience in business transactions and securities law will assist in monitoring our performance and when we consider and pursue business acquisitions and financial transactions. As a former corporate and securities lawyer, Mr. Traber has a fundamental understanding of governance principles and business ethics. His knowledge of other businesses and industries are useful in determining management and director compensation. We believe that Mr. Traber is well-qualified to serve on our Board due to his strong background in law, finance, mergers and acquisitions, and business.
Number and Terms of Office of Officers and Directors
We will have five directors upon completion of this offering. Our board of directors will be divided into twothree classes with only one class of directors being elected inat each year and each class (except for those directors appointed prior to our first annual meeting of stockholders)the stockholders and each director serving a two-yearthree-year term. In accordance with Nasdaq corporate governance requirements, we are not required to hold an annual meeting until one year afterEach of our first fiscal year end following our listing on Nasdaq. TheClass I Directors has a term of office ofthat expires at the first class of directors, consisting of Mr. Bruce H. Bennett, Mr. Craig E. Burson, and Mr. Martin A. Traber, will expire at our firstnext annual meeting of stockholders. The term of officestockholders following the effectiveness of the second classCharter, each of directors, consisting of Messrs. Bruce M. Rodgers and Richard Russell, will expireour Class II Directors has a term that expires at the second annual meeting of stockholders.
Our officers are appointed bystockholders following the boardeffectiveness of directorsthe Charter and serveeach of our Class III Directors has a term that expires at the discretionthird annual meeting of stockholders following the effectiveness of the board of directors, rather than for specific terms of office. Our board of directors is authorized to appoint persons to the offices set forthCharter, or, in our bylawseach case, when their respective successors are elected and qualified, or upon their earlier death, resignation, retirement or removal. As discussed above, Andre Lobo and Rick Barnett serve as it deems appropriate. Our bylaws provide that our officers may consist of a Chairman of the Board, Chief Executive Officer, Chief Financial Officer, President, Vice Presidents, Secretary, Treasurer, Assistant Secretaries,Class I Directors, Bruce Rodgers, Richard Russell and such other officesAlan Collins serve as may be determined by the board of directors.Class II Directors and Eric Schlorff and Kenneth Van Heel serve as Class III Directors.
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Director Independence
In connection with the consummation of the Business Combination, the Board determined that each of the directors, other than Mr. Schlorff, qualify as an independent director, as defined under the listing rules of Nasdaq, listing standards require thatand our Board will consist of a majority of our board of“independent directors, be independent. An “independent director” is” as defined generally as a person other than an officer or employeeunder the rules of the company or its subsidiaries or any other individual having a relationship which inSEC and Nasdaq listing rules relating to director independence requirements. In addition, we are subject to the opinionrules of the company’s boardSEC and Nasdaq relating to the membership, qualifications, and operations of directors, would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director. Our board of directors has determined that Mr. Bennett, Mr. Burson, and Mr. Traber are “independent directors” as defined in the Nasdaq listing standards and applicable SEC rules. Our independent directors will have regularly scheduled meetings at which only independent directors are present.
Officer and Director Compensation
None of our officers or directors has received any cash compensation for services rendered to us. No compensation of any kind, including finder’s and consulting fees, will be paid by us to our sponsor, officers, and directors, or any of their respective affiliates, for services rendered prior to or in connection with the completion of our initial business combination. However, these individuals will be reimbursed for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable business combinations. Our audit committee, will review on a quarterly basis all payments that were made to our sponsor, officers or directors, or our or their affiliates. Any such payments prior to an initial business combination will be made using funds held outside the trust account. Other than quarterly audit committee review of such payments, we do not expect to have any additional controls in place governing our reimbursement payments to our directors and executive officers for their out-of-pocket expenses incurred in connection with identifying and consummating an initial business combination.
After the completion of our initial business combination, directors or members of our management team who remain with us may be paid consulting or management fees from the combined company. All of these fees will be fully disclosed to stockholders, to the extent then known, in the tender offer materials or proxy solicitation materials furnished to our stockholders in connection with a proposed initial business combination. We have not established any limit on the amount of such fees that may be paid by the combined company to our directors or members of management. It is unlikely the amount of such compensation will be known at the time of the proposed initial business combination, because the directors of the post-combination business will be responsible for determining officer and director compensation. Any compensation to be paid to our officers will be determined, or recommended to the board of directors for determination, either by a compensation committee constituted solely by independent directors or by a majority of the independent directors on our board of directors.
We do not intend to take any action to ensure that members of our management team maintain their positions with us after the consummation of our initial business combination, although it is possible that some or all of our officers and directors may negotiate employment or consulting arrangements to remain with us after our initial business combination. The existence or terms of any such employment or consulting arrangements to retain their positions with us may influence our management’s motivation in identifying or selecting a target business but we do not believe that the ability of our management to remain with us after the consummation of our initial business combination will be a determining factor in our decision to proceed with any potential business combination. We are not party to any agreements with our officers and directors that provide for benefits upon termination of employment.as discussed below.
Committees of the Board of Directors
Our boardThe Company’s Board will direct the management of directorsits business and affairs, as provided by Delaware law, and will conduct its business through meetings of the Board and its standing committees. The Company will have twoa standing committees: an audit committee, compensation committee, and nominating and corporate governance committee, each of which will operate under a compensation committee. Subjectwritten charter.
In addition, from time to phase-in rulestime, special committees may be established under the direction of the Company’s Board when it deems it necessary or advisable to address specific issues. Current copies of the Company’s committee charters will be available on the Company’s website as required by applicable SEC and a limited exception, Nasdaq rulesrules. The information on or available through such website is not deemed incorporated in this prospectus and does not form part of this prospectus.
Audit Committee
Our audit committee will be responsible for, among other things:
retaining, overseeing and evaluating the independence and performance of our independent auditor;
reviewing and discussing with our independent auditor their annual audit, including the timing and scope of audit activities;
• | pre-approving audit services; |
overseeing the financial reporting process and discussing with management and our independent registered public accounting firm the quarterly and annual financial statements that we file with the SEC;
reviewing the adequacy and effectiveness of our accounting and internal controls over financial reporting, disclosure controls and policies and procedures;
reviewing and discussing guidelines and policies governing the process by which our senior management assesses and manages our exposure to risk;
reviewing, and if appropriate, approving or ratifying any related party transactions and other significant conflicts of interest;
establishing procedures for the receipt, retention and treatment of complaints received by us and the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters;
reviewing our program to monitor compliance with our code of ethics; and
overseeing significant deficiencies and material weaknesses in the design or operation of our internal controls over financial reporting.
Our audit committee consists of Kenneth Van Heel, Rick Barnett and Allan Collins, with Mr. Van Heel serving as chair. Rule 10A-3 of the Exchange Act require that the audit committee of a listed company be comprised solely of independent directors, and Nasdaq rules require that the compensationour audit committee of a listed companymust be comprised solelycomposed entirely of independent directors.
Audit Committee
Prior tomembers. Each of Kenneth Van Heel, Allan Collins and Rick Barnett meet the consummationdefinition of this offering, we will establish an“independent director” for purposes of serving on the audit committee under Rule 10A-3of the board of directors. Mr. Bennett, Mr. Burson,Exchange Act and Mr. Traber will serve as membersNasdaq rules. Each member of our audit committee and Mr. Burson will chairalso meets the audit committee. Underfinancial literacy requirements of the Nasdaq listing standards and applicable SEC rules, we are required to have at least three membersstandards. In addition, the Board determined that Kenneth Van Heel qualifies as an “audit committee financial expert,” as such term is defined in Item 407(d)(5) of
Regulation S-K. The Board adopted a written charter for the audit committee, all of whom must be independent. Each of Mr. Bennett, Mr. Burson, and Mr. Traber meet the independent director standard under Nasdaq listing standards and under Rule 10-A-3(b)(1) of the Exchange Act.
Each member of the audit committeewhich is financially literate andavailable on our board of directors has determined that Mr. Bennett and Mr. Burson both qualify as “audit committee financial experts,” as defined in applicable SEC rules.
We will adopt an audit committee charter, which will detail the principal functions of the audit committee, including:
the appointment, compensation, retention, replacement, and oversight of the work of the independent registered public accounting firm engaged by us;
pre-approving all audit and permitted non-audit servicescorporate website. The information on our websites is deemed not to be provided byincorporated in this prospectus or to be part of this prospectus.
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Compensation Committee
Our compensation committee will be responsible for, among other things:
evaluating, determining, and recommending to our Board, the independent registered public accounting firm engaged by us,compensation of our executive officers;
administering and establishing pre-approval policiesrecommending to our Board the compensation of our directors;
reviewing and procedures;approving our executive compensation plan and recommending that our Board amend these plans if deemed appropriate;
setting clear hiring policies for employees or former employees of the independent registered public accounting firm,administering our general compensation plan and other employee benefit plans, including but not limited to, as required by applicable lawsincentive compensation and regulations;equity-based plans and recommending that our Board amend these plans if deemed appropriate;
setting clear policies for audit partner rotation in compliance with applicable laws and regulations;
obtaining and reviewing a report, at least annually, from the independent registered public accounting firm describing: (i) the independent registered public accounting firm’s internal quality-control procedures; (ii) any material issues raised by the most recent internal quality-control review, or peer review, of the audit firm, or by any inquiry or investigation by governmental or professional authorities within the preceding five years respecting one or more independent audits carried out by the firm and any steps taken to deal with such issues; and (iii) all relationships between the independent registered public accounting firm and us to assess the independent registered public accounting firm’s independence;
reviewing and approving any related party transaction requiredseverance or termination arrangements to be disclosed pursuant to Item 404 of Regulation S-K promulgated by the SEC prior to us entering into such transaction; and
reviewingmade with management, the independent registered public accounting firm, and our legal advisors, as appropriate, any legal, regulatory or compliance matters, including any correspondence with regulators or government agencies and any employee complaints or published reports that raise material issues regarding our financial statements or accounting policies and any significant changes in accounting standards or rules promulgated by the Financial Accounting Standards Board, the SEC or other regulatory authorities.
Compensation Committee
Prior to the consummation of this offering, we will establish a compensation committee of the board of directors. Mr. Bennett, Mr. Burson, and Mr. Traber will serve as members of our compensation committee. Under the Nasdaq listing standardsexecutive officers; and applicable SEC rules, we are required to have at least two members of the compensation committee, all of whom must be independent. Mr. Bennett, Mr. Burson, and Mr. Traber are independent, and Mr. Traber will chair the compensation committee.
We will adopt a compensation committee charter, which will detail the principal functions of the compensation committee, including:
reviewing and approving on an annual basisat least annually the corporate goals and objectives relevant to our Chief Executive Officer’sthe compensation if any is paid by us, evaluating our Chief Executive Officer’s performance in light of such goals and objectives and determining and approving the remuneration (if any) of our Chief Executive Officer based on such evaluation;and other executive officers.
reviewingOur Compensation Committee consists of Rick Barnett, Allan Collins and approving on an annual basisRichard Russell, with Mr. Barnett serving as the compensation, if anychair of the Compensation Committee. Each member of the committee is paid by us, of all of our other officers;
reviewing on an annual basis our executive compensation policies and plans;
implementing and administering our incentive compensation equity-based remuneration plans;
assisting managementa non-employee director, as defined in complying with our proxy statement and annual report disclosure requirements;
if required, producing a report on executive compensation to be included in our annual proxy statement; and
reviewing, evaluating, and recommending changes, if appropriate, to the remuneration for directors.
Notwithstanding the foregoing, as indicated above, no compensation of any kind, including finders, consulting, or other similar fees, will be paid to any of our existing stockholders, officers, directors, or any of their respective affiliates, prior to, or for any services they render in order to effectuate the consummation of an initial business combination.
Accordingly, it is likely that prior to the consummation of an initial business combination, the compensation committee, will only be responsible for the review and recommendation of any compensation arrangementswhich is available on our corporate website. The information on our websites is deemed not to be entered intoincorporated in connection with such initial business combination.this prospectus or to be part of this prospectus.
The charter will also provide that the compensation committee may, in its sole discretion, retain or obtain the advice of a compensation consultant, legal counsel or other adviser and will be directly responsible for the appointment, compensation and oversight of the work of any such adviser. However, before engaging or receiving advice from a compensation consultant, external legal counsel or any other adviser, the compensation committee will consider the independence of each such adviser, including the factors required by Nasdaq and the SEC.
Director Nominations
We do not have a standing nominating committee though we intend to form a corporate governance and nominating committee as and when required to do so by law or Nasdaq rules. In accordance with Rule 5605 of the Nasdaq rules, a majority of the independent directors may recommend a director nominee for selection by the board of directors. The board of directors believes that the independent directors can satisfactorily carry out the responsibility of properly selecting or approving director nominees without the formation of a standing nominating committee. The directors who will participate in the consideration and recommendation of director nominees are Mr. Bennett, Mr. Burson, and Mr. Traber. In accordance with Rule 5605 of the Nasdaq rules, all such directors are independent. As there is no standing nominating committee, we do not have a nominating committee charter in place.
The board of directors will also consider director candidates recommended for nomination by our stockholders during such times as they are seeking proposed nominees to stand for election at the next annual meeting of stockholders (or, if applicable, a special meeting of stockholders). Our stockholders that wish to nominate a director for election to our board of directors should follow the procedures set forth in our bylaws.
We have not formally established any specific, minimum qualifications that must be met or skills that are necessary for directors to possess. In general, in identifying and evaluating nominees for director, the board of directors considers educational background, diversity of professional experience, knowledge of our business, integrity, professional reputation, independence, wisdom, and the ability to represent the best interests of our stockholders.
Compensation Committee Interlocks and Insider Participation
None of our executive officers currently serves, orserve, and in the past year hashave not served, as a member of the board of directors or compensation committee (or other committee performing equivalent functions) of any entity that has one or more executive officers serving on our boardBoard or compensation committee.
Nominating and Corporate Governance Committee
Our nominating and corporate governance committee will be responsible for, among other things:
• | identifying, screening and recommending to our Board director candidates for election (or re-election); |
overseeing the policies and procedures with respect to the consideration of director candidates recommended by stockholders;
reviewing and recommending to our Board for approval, as appropriate, disclosures concerning our policies and procedures for identifying and screening Board nominee candidates, the criteria used to evaluate Board membership and director independence as well as any policies regarding Board diversity;
reviewing independence qualifications of directors under the applicable Nasdaq rules;
developing and coordinating with management on appropriate director orientation programs; and
reviewing our stockholder engagement plan, if any, and overseeing relations with stockholders.
Our Nominating and Corporate Governance Committee consists of Andres Lobo, Bruce Rodgers and Kenneth Van Heel, with Mr. Rodgers serving as the chair of the committee. The Board adopted a written charter for the nominating and corporate governance committee, which is available on our corporate website. The information on any of our websites is deemed not to be incorporated in this prospectus or to be part of this prospectus.
Limitation on Liability and Indemnification of Directors and Officers
Our Charter limits the liability for directors to the fullest extent permitted under the DGCL. The DGCL provides that directors of a corporation will not be personally liable for monetary damages for a breach of their fiduciary duties as directors, except for liability:
for any transaction from which the director derives an improper personal benefit;
for any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;
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for any unlawful payment of dividends or redemption of shares; or
for any breach of a director’s duty of loyalty to the corporation or its stockholders.
If the DGCL is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of the directors will be further eliminated or limited to the fullest extent permitted by the DGCL, as so amended.
Delaware law and the Bylaws provide that we will, in certain situations, indemnify our directors and officers and may indemnify other employees and agents, to the fullest extent permitted by law. Any indemnified person is also entitled, subject to certain limitations, to advancement, direct payment, or reimbursement of reasonable expenses (including attorneys’ fees and disbursements) in advance of the final disposition of the proceeding.
We maintain a directors’ and officers’ insurance policy pursuant to which our directors and officers are insured against liability for actions taken in their capacities as directors and officers. We believe these provisions in the Charter and Bylaws are necessary to attract and retain qualified persons as directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, or control persons, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Board Leadership Structure
The Board has not implemented a policy requiring the positions of the Chairman of the Board and Chief Executive Officer to be separate or held by the same individual. Any further determination to create such a policy is expected to be based on circumstances existing from time to time, based on criteria that are in the Company’s best interests and the best interests of its stockholders, including the composition, skills and experience of the Board and its members, specific challenges faced by the Company or the industry in which we operate, and governance efficiency. Historically Mr. Schlorff served as both the Chariman and Chief Executive Officer because Mr. Schlorff’s strategic vision for the business, his in-depth knowledge of the Company’s operations, and his experience serving as the Chief Executive Officer of SeaStar Medical make him well qualified to serve as both Chairman of the Board and Chief Executive Officer of the Company. However, effective as of the Closing, the Board determined that it is in the best interest of the Company and its stockholdrs to separate the roles of Chairman and Chief Executive Officer and elected Mr. Barnett as the Chairman of the Board. The Board believes that having an independent director servng as the Chairman provides better and effective oversight and management of the Company as a publicly traded company, which also improves management efficiency as the Chief Executive Officer can focus on day-to-day operations of the Company. If the Board convenes for a meeting, the non-management directors will meet in one or more executive sessions, if the circumstances warrant it. The Board may also consider appointing a lead independent director, if the circumstances warrant it. In addition, the Board has granted Dr. David Humes, a previously a director of SeaStar Medical, certain rights to attend regularly scheduled meetings of the Board as an observer without any voting or other substantive rights provided to directors.
Risk Oversight
The Board will administer the risk oversight function directly through the Board as a whole, as well as through its committees, where applicable, monitoring and assessing strategic risk exposure, enterprise risk, and governance risks. The audit committee will be responsible for considering and discussing our major financial risk exposures and the steps our management has taken to monitor and control these exposures. The compensation committee will be responsible for reviewing and assessing the risks associated with the compensation arrangements of executive management, including the lack of alignment between the incentives of management and the interests of stockholders. The allocation of risk oversight responsibility may change, from time to time, based on the evolving needs of the Company.
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Code of Business Conduct and Ethics
Prior to the consummation of this offering, we willWe have adopted a Code of Ethics applicable to our directors, executive officers and employees. We will fileemployees that complies with the rules and regulations of the Nasdaq and the SEC. The Code of Ethics codifies the business and ethical principles that govern all aspects of our business. You may review a copy of our Codecode of Ethics andethics on our audit and compensation committee charters as exhibits to the registration statement of which this prospectus is a part. You will be able to review these documents by accessing our public filingswebsite at the SEC’s web site at www.sec.gov. In addition, a copy of the Code of Ethics will be provided without charge upon request from us. We intend to disclose anyseastarmedical.com. All legally required disclosures regarding amendments to, or waivers of, certain provisions of our Codecode of Ethics in a Current Reportethics are available on Form 8-K. See the section of this prospectus entitled “Where You Can Find Additional Information.”
Our initial stockholders, including our sponsor and certain ofwebsite. The information on or available through our directors and officers, shall agree to offer all suitable business combination opportunities within the industry specifically identifiedwebsite is not deemed incorporated in this prospectus and does not form part of this prospectus.
Compensation of Executive Officers and Directors of Company
The Company’s compensation committee is responsible for the offering to the Company before any other person or company until the consummation by the Company of a business combination, subject to any pre-existing contractual or fiduciary obligations they may have, (which pre-existing fiduciary dutiesdeveloping our compensation philosophy, structuring our compensation and any potential conflicts of interest arising therefrom shall have been disclosed to the underwriters prior to the initial filing of the registration statement of which this prospectus forms a partbenefits programs, and disclosed herein), on customary terms reasonably acceptable to the underwriters.
Our certificate of incorporation will provide that we renounce our interest in any corporate opportunity offered to any director or officer unless such opportunity is expressly offered to such person solely in his or her capacity as a director or officer of our companydetermining appropriate payments and such opportunity is one we are legally and contractually permitted to undertake and would otherwise be reasonable for us to pursue, and to the extent the director or officer is permitted to refer that opportunity to us without violating another legal obligation.
Potential investors should also be aware of the following other potential conflicts of interest:
None of our officers or directors is required to commit his or her full timeawards to our affairs and, accordingly, may have conflicts of interest in allocating his or her time among various business activities.
In the course of their other business activities, our officers and directors may become aware of investment and business opportunities which may be appropriate for presentation to us as well as the other entities with which they are affiliated. Our management may have conflicts of interest in determining to which entity a particular business opportunity should be presented.
Our initial stockholders have agreed to waive their redemption rights with respect to any founder shares and any public shares held by them in connection with the consummation of our initial business combination. Additionally, our initial stockholders have agreed to waive their redemption rights with respect to any founder shares held by them if we fail to consummate our initial business combination within 18 months from the closing of this offering (or 21 months from the closing of this offering, if we extend the period of time to consummate a business combination, as described in more detail in this prospectus). If we do not complete our initial business combination within such applicable time period, the proceeds of the sale of the private placement warrants held in the trust account will be used to fund the redemption of our public shares, and the private placement warrants (and the underlying securities) will expire worthless. Our initial stockholders have agreed not to transfer, assign or sell any of their founder shares until the earlier to occur of: (i) one year after the date of the consummation of our initial business combination; or (ii) the date on which we consummate a liquidation, merger, stock exchange, or other similar transaction that results in all of our stockholders having the right to exchange their shares of Class A common stock for cash, securities, or other property (except as described herein under the section of this prospectus entitled “Principal Stockholders — Restrictions on Transfers of Founder Shares and Private Placement Warrants”). Any permitted transferees will be subject to the same restrictions and other agreements of our initial stockholders with respect to any founder shares. Notwithstanding the foregoing, if the closing price of our shares of Class A common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations, and the like) for any 20 trading days within any 30-trading day period commencing 150 days after our initial business combination, the founder shares will no longer be subject to such transfer restrictions. With certain limited exceptions, the private placement warrants and the Class A common stock underlying such warrants, will not be transferable, assignable or saleable by our sponsor or its permitted transferees until 30 days after the completion of our initial business combination. Since our sponsor and officers and directors may directly or indirectly own common stock and warrants following this offering, our officers and directors may have a conflict of interest in determining whether a particular target business is an appropriate business with which to effectuate our initial business combination.
Our officers and directors may have a conflict of interest with respect to evaluating a particular business combination if the retention or resignation of any such officers and directors was included by a target business as a condition to any agreement with respect to our initial business combination.
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The conflicts described above may not be resolved in our favor.
In general, officers and directors of a corporation incorporated under the laws of the State of Delaware are required to present business opportunities to a corporation if:
the corporation could financially undertake the opportunity;
the opportunity is within the corporation’s line of business; and
it would not be fair to our company and its stockholders for the opportunity not to be brought to the attention of the corporation.
Accordingly, as a result of multiple business affiliations, our officers and directors may have similar legal obligations relating to presenting business opportunities meeting the above-listed criteria to multiple entities. Furthermore, our certificate of incorporation will provide that we renounce our interest in any corporate opportunity offered to any director or officer unless such opportunity is expressly offered to such person solely in his or her capacity as a director or officer of our company and such opportunity is one we are legally and contractually permitted to undertake and would otherwise be reasonable for us to pursue, and to the extent the director or officer is permitted to refer that opportunity to us without violating another legal obligation.
Below is a table summarizing the entities to which ournamed executive officers and directors currentlydirectors. The Company’s compensation committee intends to engage a compensation consultant to provide advice on executive and director compensation matters, including providing a recommendation on the compensation level of each executive officer and director of the Company.
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EXECUTIVE AND DIRECTOR COMPENSATION
The discussion in this section contains forward-looking statements that are based on our current considerations and expectations relating to our executive compensation programs and philosophy. As our business and our needs evolve, the actual amount and form of compensation and the compensation programs that we adopt may differ materially from current or planned programs as summarized in this section. All share counts, exercise price amounts, and stock price achievement levels in this section are shown on a pre-Business Combination basis.
Overview
This section discusses the material components of the executive compensation program for SeaStar Medical’s executive officers who are named below. As an emerging growth company, we have fiduciary duties or contractual obligations that may present a conflict of interest:opted to comply with the executive compensation disclosure rules applicable to “smaller reporting companies” as such term is defined in the rules promulgated under the Securities Act, which require compensation disclosure for our principal executive officer and our two other most highly compensated executive officers.
In 2022, SeaStar Medical’s chief executive officer and its two other executive officers, referred to collectively as SeaStar Medical’s “named executive officers,” were as follows:
Eric Schlorff, Chief Executive Officer |
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Accordingly, if anyCaryl Baron, Financial Controller
Kevin Chung, Chief Medical Officer
2022 Compensation of the above executive officers, directors or director nominees becomes aware of an initial business combination opportunity which is suitable for any of the above entities to which he or she has current fiduciary or contractual obligations, he or she will honor his or her fiduciary or contractual obligations to present such business combination opportunity to such other entity, and only present it to us if such entity rejects the opportunity.Named Executive Officers
Base salaries are not prohibited from pursuing an initial business combination with a company that is affiliated with our sponsor, LMFAO Sponsor, LLC, or with any of our officers or directors. In the event we seek to complete our initial business combination with a company that is affiliated with our sponsor, LMFAO Sponsor, LLC, or any of our officers or directors, we, or a committee of independent directors, will obtain an opinion from an independent investment banking firm which is a
member of FINRA or an independent accounting firm that our initial business combination is fair to our company from a financial point of view.
If we submit our initial business combination to our public stockholders for a vote, our sponsor, officers and directors have agreed pursuant to the letter agreement to vote any founder shares held by them and any public shares purchased during or after this offering (including in open market and privately negotiated transactions) in favor of our initial business combination.
Limitation on Liability and Indemnification of Officers and Directors
Our certificate of incorporation will provide that our officers and directors will be indemnified by us to the fullest extent authorized by Delaware law, as it now exists or may in the future be amended. In addition, our certificate of incorporation will provide that our directors will not be personally liable for monetary damages to us or our stockholders for breaches of their fiduciary duty as directors, except to the extent such exemption from liability or limitation thereof is not permitted under the Delaware General Corporation Law as the same exists or may hereafter be amended.
We will enter into agreements with our officers and directorsintended to provide contractual indemnification in addition to the indemnification provided for in our certificatea level of incorporation. Our bylaws also will permit us to secure insurance on behalf of any officer, director or employee for any liability arising out of his or her actions, regardless of whether Delaware law would permit such indemnification. We will purchase a policy of directors’ and officers’ liability insurance that insures our officers and directors against the cost of defense, settlement or payment of a judgment in some circumstances and insures us against our obligations to indemnify our officers and directors.
These provisions may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. These provisions also may have the effect of reducing the likelihood of derivative litigation against officers and directors, even though such an action, if successful, might otherwise benefit us and our stockholders. Furthermore, a stockholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage awards against officers and directors pursuant to these indemnification provisions.
We believe that these provisions, the directors’ and officers’ liability insurance and the indemnity agreements are necessarycompensation sufficient to attract and retain talentedan effective management team, when considered in combination with the other components of the executive compensation program. In general, SeaStar Medical seeks to provide a base salary level designed to reflect each executive officer’s scope of responsibility and experiencedaccountability. Please see the “Salary” column in the “Summary Compensation Table for Fiscal Years 2021 and 2022” below for the base salary amounts received by the named executive officers in fiscal 2021 and directors.2022.
Long-Term Equity Incentive Awards
To further focus SeaStar Medical’s named executive officers on its long-term performance, SeaStar Medical historically has granted equity compensation in the form of stock options for SeaStar Medical capital stock that are subject to time-based and performance vesting requirements and restricted stock units that are subject to time-based vesting requirements. Restricted stock units were granted to Mr. Schlorff and Ms. Baron in 2022. For more information, see “Summary Compensation Table for Fiscal Years 2021 and 2022,” “Outstanding Equity Awards at December 31, 2022,” and “Employee Benefit and Equity Compensation Plans” below.
Incentive Compensation
SeaStar Medical periodically uses bonuses to incentivize and retain its employees, including its named executive officers. Please see the “Bonus” column in the “Summary Compensation Table for Fiscal Years 2021 and 2022” below for the bonus amounts received by the named executive officers in fiscal 2022.
SeaStar Medical periodically enters into agreements to grant short- and long-term cash incentive awards to its employees including its named executive officers to encourage achievement of certain performance goals. This includes incentive awards based on the achievement of certain business development, financing milestone, and exit event goals. In addition, SeaStar Medical periodically awards its named executive officers annual bonuses from a discretionary bonus pool. However, no such incentive awards were earned by SeaStar Medical’s named executive officers during fiscal 2022.
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Summary Compensation Table for Fiscal Years 2021 and 2022
The following table sets forth information for the years ended December 31, 2021 and 2022, regarding compensation awarded to or earned by SeaStar Medical’s named executive officers.
Name and Principal Position | Year | Salary ($) | Bonus (1) ($) | Stock ($) (2) | Option Awards (3) ($) | Non-Equity Incentive Plan Compensation (4) | Total ($) | |||||||||||||||||||||
Eric Schlorff Chief Executive Officer | 2021 | $ | 300,000 | $ | 22,500 | $ | — | $ | — | $ | — | $ | 322,500 | |||||||||||||||
2022 | $ | 420,000 | $ | — | $ | 90,750 | $ | — | $ | 270,000 | $ | 567,750 | ||||||||||||||||
Caryl Baron Interim Chief Financial Officer | 2021 | $ | 150,000 | $ | 56,000 | $ | — | $ | 6,594 | $ | — | $ | 212,594 | |||||||||||||||
2022 | $ | 210,000 | $ | — | $ | 18,250 | $ | — | $ | 15,000 | $ | 243,250 | ||||||||||||||||
Kevin Chung (5) Chief Medical Officer | 2021 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||
2022 | $ | 350,000 | $ | 25,000 | $ | — | $ | — | $ | — | $ | 375,000 |
(1) | Amounts reflect annual bonuses for 2021, which were paid in September 2021, as well as a one-time $50,000 cash retention bonus to Ms. Baron and a one-time $25,000 signing bonus to Mr. Chung. |
(2) | Amounts reflect the grant date fair value of restricted stock units granted to SeaStar Medical’s named executive officers calculated in accordance with FASB ASC Topic 718. For information regarding assumptions underlying the valuation of equity awards, see Note 2 to SeaStar Medical’s audited financial statements appearing in this prospectus. Mr. Schlorff and Ms. Baron received awards of 165,000 and 35,000 restricted stock units, respectively, during fiscal year 2022. The restricted stock units vest with respect to (i) fifty percent (50%) of the units upon completion of one (1) year of service measured from April 21, 2022, and (ii) the balance of the units vest in a series of twenty-four (24) successive equal monthly installments upon completion of each additional month of service over the twenty-four (24) month period measured from April 21, 2022, subject to the terms of the award agreement. |
(3) | Amounts reflect the grant date fair value of options granted to SeaStar Medical’s named executive officers calculated in accordance with FASB ASC Topic 718. SeaStar Medical’s named executive officers will only have a benefit to the extent the fair market value of its common stock is greater than the exercise price of such stock options. For information regarding assumptions underlying the valuation of equity awards, see Note 2 to SeaStar Medical’s audited financial statements appearing in this prospectus. Ms. Baron received a stock option to purchase 16,361 shares of common stock under the 2019 Stock Incentive Plan during fiscal year 2021. The option is exercisable immediately subject to a repurchase right in favor of the Company which lapses as the option vests. The option vests with respect to (i) twenty-five percent (25%) of the shares upon completion of one (1) year of service measured from January 1, 2021, and (ii) the balance of the shares subject to the option in a series of thirty-six (36) successive equal monthly installments upon completion of each additional month of service over the thirty-six (36)-month period measured from January 1, 2022, and expires January 1, 2031, subject to the terms of the award agreement. |
(4) | Amounts reflect the exit event bonus that was earned in connection with the Business Combination under the terms of the transaction bonus agreements. See “Cash Incentive Compensation”. |
(5) | Mr. Chung commenced his employment with SeaStar Medical on July 1, 2022. |
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Narrative to Summary Compensation Table
Employment Agreements
The terms of the beneficial ownershipemployment arrangements with each named executive officer are as follows:
Eric Schlorff
Mr. Schlorff’s employment agreement, which was amended and restated immediately prior to the closing of the Business Combination, governs the terms and conditions of his employment as the Chief Executive Officer of the Company. Mr. Schlorff’s employment agreement entitles him to an annual base salary of $420,000 and the opportunity to participate in the executive bonus plan approved by the Compensation Committee. Mr. Schlorff also will be eligible to participate in the benefit plans that are generally available to all Company employees.
Under the amended employment agreement, if Mr. Schlorff is terminated by the Company without cause, he is entitled to receive continued base salary and health benefits continuation for up to twelve (12) months, offset by any compensation and benefits received from any subsequent employer during such period, subject to Mr. Schlorff executing a general release. For purposes of Mr. Schlorff’s employment agreement, “cause” means (i) executive’s commission of any act of fraud, embezzlement, dishonesty, or sexual harassment, (ii) executive’s refusal or failure to comply in any material respect with our written policies and procedures, (iii) executive’s unauthorized use or disclosure of our commonconfidential information or trade secrets, or (iv) executive’s gross negligence or misconduct adversely affecting our business or affairs in a material manner.
Under his amended employment agreement, Mr. Schlorff will be granted an option following the Closing Date to purchase a number of shares of the Common Stock that, together with his existing equity (including restricted stock asunits covering shares of Common Stock and options to purchase shares of Common Stock) in the Company, would equal 1.5% of the outstanding capital stock of the Company, determined on a fully-diluted basis, on the Closing Date, at an exercise price equal to the fair market value of the Company’s stock on the date of this prospectus,grant. Such options will vest with respect to twenty-five percent (25%) of the option shares after twelve (12) months of service from the Closing Date and for the remaining option shares, on a pro rata basis over the following thirty-six (36) months of service. The employment agreement provides that upon a “Change in Control” (as defined in the agreement), all outstanding stock options will vest. All vested and outstanding stock options will remain exercisable for up to twelve months following a termination of Mr. Schlorff’s employment, other than for cause.
Caryl Baron
Ms. Baron’s employment agreement, which was amended and restated immediately prior to the closing of the Business Combination, governs the terms and conditions of her employment as adjustedthe Interim Chief Financial Officer of the Company. Ms. Baron’s amended employment agreement entitles her to reflectan annual base salary of $210,000 and the saleopportunity to participate in the executive bonus plan approved by the Compensation Committee. Ms. Baron also will be eligible to participate in the benefit plans that are generally available to all Company employees.
Under the amended employment agreement, if Ms. Baron is terminated by the Company without cause, she is entitled to receive continued base salary and health benefits continuation for up to nine (9) months, offset by any compensation and benefits received from any subsequent employer during such period, subject to Ms. Baron executing a general release. For purposes of Ms. Baron’s employment agreement, “cause” means (i) executive’s commission of any act of fraud, embezzlement, dishonesty, or sexual harassment, (ii) executive’s refusal or failure to comply in any material respect with our written policies or procedures, (iii) executive’s unauthorized use or disclosure of our commonconfidential information or trade secrets, or (iv) executive’s gross negligence or misconduct adversely affecting our business or affairs in a material manner.
Under her amended employment agreement, Ms. Baron will be granted an option following the Closing Date to purchase shares of the Common Stock that, together with her existing equity (including restricted stock includedunits
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covering shares of Common Stock and options to purchase shares of Common Stock) in the units offeredCompany, would equal 0.25% of the outstanding capital stock of the Company, determined on a fully-diluted basis, on the Closing Date, at an exercise price equal to the fair market value of the Company’s stock on the date of grant. Such option vest with respect to twenty-five percent (25%) of the option shares after twelve (12) months of service from the Closing Date and for the remaining options shares, on a pro rata basis over the following thirty-six (36) months of service. The employment agreement provides that upon a “Change in Control” (as defined in the agreement), all outstanding stock options will vest. All vested and outstanding stock options will remain exercisable for up to twelve months following a termination of Ms. Baron’s employment, other than for cause.
Kevin Chung
On May 18, 2022, SeaStar Medical entered into an employment agreement with Dr. Chung to serve as its Chief Medical Officer, commencing on July 1, 2022. Dr. Chung is entitled to receive an annual base salary of $350,000 and received a signing bonus of $25,000, payable on July 31, 2022. In addition, Dr. Chung will be eligible to receive an annual discretionary bonus of up to a maximum amount of 40% of his base salary, with the actual amount (if any) to be determined in the sole discretion of the Board based on a combination of factors, including the performance of the Company and Dr. Chung individually. Dr. Chung received no compensation from SeaStar Medical in 2021. Mr. Chung’s current employment agreement continued under the same terms following the Closing Date.
Cash Incentive Compensation
SeaStar Medical awards both short-term and long-term cash incentive compensation to its named executive officers. In December 2021, SeaStar Medical entered into transaction bonus agreements with its named executive officers and certain of its directors, which provide for two long-term incentive bonuses: a business development bonus and an exit bonus.
The business development bonus is designed to drive SeaStar Medical’s performance through certain business development activities with third parties, such as licensing, collaboration, partnership, or strategic arrangements resulting in cash payments to SeaStar Medical. The business development bonus payable under the transaction bonus agreements is based on the amount of cash received by this prospectus,SeaStar Medical, with a threshold amount of $112,500 and assuming no purchase$6,250 payable to Mr. Schlorff and Ms. Baron, respectively, if cash payments exceed a specified threshold, prior to December 31, 2022. If the amount of unitsbusiness development proceeds falls below a threshold set forth in thisthe agreements, then twenty-five percent (25%) of the business development bonus will become payable on each of the six (6) month anniversaries of SeaStar Medical receiving a specified minimum amount of proceeds, provided that such payment will immediately accelerate in full if the amount of such proceeds exceeds a specified multiple of the minimum amount or SeaStar Medical experiences an exit event.
The exit event bonus is designed to drive SeaStar Medical’s performance through certain merger transactions resulting in an acquisition of SeaStar Medical, its post-merger securities being publicly-traded, or an initial public offering by:
each(an “exit event”). The calculation of the bonus varies based on the exit event. The bonus is based on a percentage of the gross cash proceeds exceeding a specified threshold for an acquisition by way of merger, consolidation, reorganization, or other transaction (or series of transactions) resulting in SeaStar Medical stockholders owning less than 50% of the voting interests in the surviving entity, a sale, lease, exclusive license, or other disposition of substantially all of SeaStar Medical’s assets, or any person known by us to beor group becoming the beneficial owner of more than 5%50% of SeaStar Medical’s outstanding voting securities having the right to vote for members of SeaStar Medical’s board of directors. A $270,000 and $15,000 bonus is payable to Mr. Schlorff and Ms. Baron, respectively, in connection with an initial public offering or other business combination of a minimum threshold value resulting in SeaStar Medical’s post-merger securities being publicly-traded. Should the named executive officer terminate employment with SeaStar Medical prior to the exit event, no exit event bonus will be payable. The exit event bonus is anticipated to be paid in connection with the Business Combination under the terms of the transaction bonus agreements, and in December 2022, the Board determined that the exit event bonuses would be payable in connection with the Business Combination.
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Outstanding Equity Awards at December 31, 2022
The following table presents information regarding outstanding equity awards held by SeaStar Medical’s named executive officers as of December 31, 2022. All awards were granted under SeaStar Medical’s 2019 Stock Incentive Plan.
Option Awards (1) | Stock Awards (2) | |||||||||||||||||||||||
Name | Number of Securities Underlying Enexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration | Number of Shares or Units of Stock that have not Vested (#) | Market Value of Shares or Units of Stock that have not Vested (#) | ||||||||||||||||||
Eric Schlorff | 14,014 | (3) | 935 | $ | 10.00 | 3/1/2029 | 165,000 | $ | 90,750 | |||||||||||||||
Chief Executive Officer | 49,442 | (4) | 20,359 | $ | 0.53 | 2/20/2030 | — | $ | — | |||||||||||||||
Caryl Baron | 2,740 | (5) | 1,246 | $ | 10.00 | 3/20/2030 | — | $ | 19,250 | |||||||||||||||
Interim Chief Financial Officer | 7,839 | (6) | 8,522 | $ | 0.55 | 1/1/2031 | — | $ | — | |||||||||||||||
Kevin Chung | — | — | $ | — | — | — | $ | — | ||||||||||||||||
Chief Medical Officer | — | — | $ | — | — | — | $ | — |
(1) | This table provides information pertaining to all outstanding equity awards held by our named executive officers as of December 31, 2022. Stock options granted prior to 2021 are exercisable upon completion of six (6) months of service following the date of grant, subject to a repurchase right in favor of the Company which lapses as the option vests. Stock options granted in 2021 are exercisable immediately, subject to a repurchase right in favor of the Company which lapses as the option vests. Accordingly, the columns and footnotes below reflect the extent to which stock options held by our named executive officers were vested (as opposed to exercisable) as of December 31, 2022. |
(2) | This table provides information pertaining to restricted stock units held by our named executive officers as of December 31, 2022. The restricted stock units were granted on April 4, 2022 and vest with respect to (i) fifty percent (50%) of the units upon completion of one (1) year of service measured from April 21, 2022, and (ii) the balance of the units vest in a series of twenty-four (24) successive equal monthly installments upon completion of each additional month of service over the twenty-four (24) month period measured from April 21, 2022, subject to the terms of the award agreement. |
(3) | The option was granted on February 8, 2019 and vests with respect to (i) twenty-five percent (25%) of the shares upon completion of one (1) year of service measured from March 1, 2019 and (ii) the balance of the shares subject to the option in a series of thirty-six (36) successive equal monthly installments upon completion of each additional month of service over the thirty-six (36)-month period measured from March 1, 2019. |
(4) | The option was granted on August 13, 2020 and vests with respect to (i) twenty-five percent (25%) of the shares upon completion of one (1) year of service measured from February 20, 2020 and (ii) the balance of the shares subject to the option in a series of thirty-six (36) successive equal monthly installments upon completion of each additional month of service over the thirty-six (36)-month period measured from February 20, 2020. |
(5) | The option was granted on March 30, 2020 and vests with respect to (i) twenty-five percent (25%) of the shares upon completion of one (1) year of service measured from March 30, 2020 and (ii) the balance of the shares subject to the option in a series of thirty-six (36) successive equal monthly installments upon completion of each additional month of service over the thirty-six (36)-month period measured from March 30, 2020. |
(6) | The option was granted on January 1, 2021 and vests with respect to (i) twenty-five percent (25%) of the shares upon completion of one (1) year of service measured from January 1, 2021 and (ii) the balance of the shares subject to the option in a series of thirty-six (36) successive equal monthly installments upon completion of each additional month of service over the thirty-six (36)-month period measured from January 1, 2021. |
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Employee Benefit and Equity Compensation Plans
The principal features of SeaStar Medical’s existing employee benefit and equity incentive plans are summarized below. The summaries of the equity incentive plans are qualified in their entirety by reference to the actual text of the plans, which are filed as exhibits to this registration statement.
Equity Incentive Plans
2019 Stock Incentive Plan
The 2019 Stock Incentive Plan was adopted by SeaStar Medical’s board of directors and approved by its stockholders on November 27, 2019. The 2019 Stock Incentive Plan permits the grant of options, stock awards, and restricted stock unit awards. The maximum aggregate number of shares of SeaStar Medical Common Stock that may be issued under the 2019 Stock Incentive Plan is 900,000 shares, subject to adjustment as provided therein.
The 2019 Stock Incentive Plan was terminated upon the closing of the Business Combination and the Company will not grant any further awards under such plan. However, the outstanding awards under the 2019 Stock Incentive Plan will be assumed and continued in connection with the Business Combination. Our Board administers SeaStar Medical’s 2019 Stock Incentive Plan and has the authority, among other matters, to construe and interpret the terms of the 2019 Stock Incentive Plan and awards granted thereunder. It is our intent to file a registration statement on Form S-8 to register the shares granted under the 2019 Stock Incentive Plan, at which time we will issue all such vested shares.
2022 Incentive Plan
In connection with the Business Combination, we adopted a new equity compensation plan that became effective upon the Closing and replaced the existing 2019 Stock Incentive Plan. The following types of awards may be granted under the 2022 Incentive Plan: options, stock appreciation rights, stock awards, restricted stock units, dividend equivalent rights and other awards. Subject to the capitalization adjustments and the add back provisions related to outstanding awards, an aggregate of up to 1,270,000 shares shall initially be reserved for issuance under the 2022 Incentive Plan.
The Compensation Committee has the exclusive authority to administer the 2022 Incentive Plan with respect to awards made to our executive officers and non-employee directors and has the authority to make awards under the 2022 Incentive Plan to all other eligible individuals. However, our Board may at any time appoint a secondary committee of one (1) or more members of the Board to have separate but concurrent authority with the Compensation Committee to make awards under the 2022 Incentive Plan to individuals other than executive officers and non-employee directors. The Board or the Compensation Committee may also delegate authority to administer the 2022 Incentive Plan with respect to such individuals to one or more of our officers.
Change in Control. In the event we should experience a change in control, the following provisions are in effect for all outstanding awards under the 2022 Incentive Plan, unless provided otherwise in an award agreement entered into with the participant:
Each outstanding award may be assumed, substituted, replaced with a cash retention program that preserves the intrinsic value of the award and provides for subsequent payout in accordance with the same vesting schedule applicable to the award or otherwise continued in effect by the successor corporation.
To the extent an award is not so assumed, substituted, replaced, or continued, the award will automatically accelerate in full (with vesting of performance-based awards to be determined with reference to actual performance attained as of the change in control or based on target level), unless the acceleration of such award is precluded by other limitations imposed in the applicable award agreement.
The plan administrator has complete discretion to grant one or more awards which will vest in the event the individual’s service with us or the successor entity is terminated within a designated period following a change in control transaction in which those awards are assumed or otherwise continued in effect.
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Unless the plan administrator establishes a different definition for one or more awards, a change in control will be deemed to occur for purposes of the 2022 Incentive Plan in the event (a) a merger or asset sale or (b) there occurs any transaction pursuant to which any person or group of related persons becomes directly or indirectly the beneficial owner of securities possessing 50% or more of the total combined voting power of our outstanding sharessecurities or (c) there is a change in the majority of common stock;the Board effected through one or more contested elections for board membership.
eachESPP
In connection with the Business Combination, we adopted the LMF Acquisition Opportunities, Inc. 2022 Employee Stock Purchase Plan (the “ESPP”) that became effective upon the Closing. The ESPP is broad-based and allows us to provide an incentive to attract, retain and reward our eligible employees and those of our executive officers and directors that beneficially ownsany participating subsidiary companies (whether now existing or subsequently established) with the opportunity to periodically purchase shares of our common stock;Common Stock at a discount through their accumulated periodic payroll deductions. The ESPP is intended to qualify as an employee stock purchase plan under Section 423 of the Internal Revenue Code of 1986, as amended (“Section 423”). Favorable tax treatment is available for United States tax residents participating in a Section 423 plan. The ESPP also authorizes the grant of rights to purchase shares that do not qualify under Section 423 pursuant to rules, procedures or sub-plans adopted by the plan administrator to achieve tax, securities law, or other compliance objectives in particular locations outside of the United States. Up to 380,000 shares of Common Stock will be available for issuance under the ESPP (subject to adjustments).
Subject to the terms of the ESPP, a committee of two or more Board members appointed by the Board, in its role as plan administrator, has the authority to interpret and
construe any provision of the ESPP, establish rules and regulations relating to administering the ESPP, and make all other determinations necessary or advisable for the administration of the ESPP. To the extent applicable law permits, the plan administrator may, to the extent it deems appropriate, delegate, administrative duties.
Change in Control. In the event of a change in control (as defined in the ESPP), the plan administrator may take such action as deemed appropriate including (i) having the successor entity (or its parent or subsidiary corporation) assume our obligations under the ESPP and the outstanding purchase rights, (ii) accelerating the next purchase date in the then current offering period to a date immediately before the closing date of the change in control, and applying the accumulated payroll deductions to the purchase of shares of our Common Stock at the purchase price in effect for that offering period or (iii) terminating all outstanding purchase rights and refunding all accumulated payroll deductions.
Health and Welfare Plans
All of the Company’s full-time employees, including its named executive officers, are eligible to participate in its health and welfare plans, including medical, dental, vision, voluntary life insurance, voluntary short-term and long-term disability insurance, and employee assistance program benefits made available to its employees.
Non-Employee Director Compensation
For 2022, members of SeaStar Medical’s board of directors earned cash director fees for services rendered as a group.
Unless otherwise indicated, we believe that all persons namedsuch. For more information, see “Fees Earned or Paid in the table have sole voting and investment power with respectCash” below.
In addition, from time to alltime, certain members of SeaStar Medical’s board of directors who are not employees of SeaStar Medical received stock options to purchase shares of common stock beneficially owned by them.and restricted stock units, each under the 2019 Stock Incentive Plan. The following table does not reflect record or beneficial ownershipbelow shows the aggregate grant date fair market value of restricted stock units and stock options granted for the private placement warrants as these warrantsyear ended December 31, 2022, to each non-employee director.
In addition, certain members of SeaStar Medical’s board of directors who are not exercisable within 60 daysemployees of SeaStar Medical have entered into consulting agreements to provide SeaStar Medical certain non-director services. The table below shows the consulting fees earned from or paid or payable by SeaStar Medical for the year ended December 31, 2022, to each non-employee director.
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Name | Fees Earned or Paid in ($) | Stock Awards (2) ($) | Option Awards (3) ($) | All Other Compensation ($) | Total ($) | |||||||||||||||
Richard Barnett | $ | 17,667 | $ | 3,850 | (4) | $ | 8,143 | $ | — | $ | 29,660 | |||||||||
Ray Chow | $ | — | $ | 3,850 | (5) | $ | 19,079 | $ | 250,000 | $ | 727,929 | |||||||||
Allan Collins | $ | 9,000 | $ | 3,850 | (4) | $ | 8,143 | $ | — | $ | 20,993 | |||||||||
David Humes | $ | — | $ | 3,850 | (7) | $ | 6,170 | $ | 135,713 | $ | 145,733 | |||||||||
Andres Lobo | $ | 7,667 | $ | — | — | $ | — | $ | 7,667 | |||||||||||
Ken Van Heel | $ | 10,333 | $ | 3,850 | (4) | $ | 8,207 | $ | — | $ | 22,390 | |||||||||
Bruce Rodgers | $ | 8,667 | $ | — | $ | — | $ | — | $ | 8,667 | ||||||||||
Richard Russell | $ | 7,667 | $ | — | $ | — | $ | — | $ | 7,667 |
(1) | Amounts reflect the director fees earned for attendance at the November 2022 Board meeting. |
(2) | Amounts reflect the grant date fair value of restricted stock units held by our non-employee directors calculated in accordance with FASB ASC Topic 718. For information regarding assumptions underlying the valuation of equity awards, see Note 2 to our audited financial statements incorporated by reference into this prospectus. |
(3) | Amounts reflect the grant date fair value of options granted to our non-employee directors calculated in accordance with FASB ASC Topic 718. For information regarding assumptions underlying the valuation of equity awards, see Note 2 to our audited financial statements incorporated by reference into this prospectus. |
(4) | The restricted stock units were granted on April 4, 2022 and vest with respect to (i) fifty percent (50%) of the units upon completion of one (1) year of service measured from April 21, 2022, and (ii) the balance of the units vest in a series of twelve (12) successive equal monthly installments upon completion of each additional month of service over the twelve (12) month period measured from April 21, 2022, subject to the terms of the award agreement. |
(5) | The restricted stock units were granted on April 4, 2022 and vest with respect to one hundred percent (100%) of the units upon completion of one (1) year of service measured from April 21, 2022, subject to the terms of the award agreement. As a result of Mr. Chow’s death on November 24, 2022, all units under the award forfeited. |
(6) | Represents cash compensation paid to Mr. Chow during fiscal 2022 for consulting services. See “SeaStar Medical Related Party Transactions.” |
(7) | The restricted stock units were granted on April 4, 2022 and vest with respect to one hundred percent (100%) of the units upon completion of one (1) year of service measured from April 21, 2022, subject to the terms of the award agreement. |
(8) | Represent payments to Mr. Humes and Innovative BioTherapies, Inc., an entity controlled and wholly-owned by Dr. Humes, pursuant to a consulting agreement and research service agreement, respectively, during fiscal year 2022. See “SeaStar Medical Related Party Transactions.” |
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
LMAO Related Party Transactions
Founder Shares and Private Placement Warrants
On November 6, 2020, our sponsorthe Sponsor purchased an aggregate of 2,156,250 founder shares (up to 281,250 shares of which are subject to forfeiture depending on the extent to which the underwriters’ over-allotment option is exercised) for an aggregate purchase price of $25,000, or approximately $0.012 per share. In addition,January 2021, we effected a stock dividend, resulting in our sponsor has committed, pursuant to a written agreement, to purchaseInitial Stockholders holding an aggregate of 4,598,000 private placement warrants for a purchase price of $1.00 per warrant in a private placement that will occur simultaneously with the closing of this offering (assuming the underwriters do not exercise their over-allotment option). The following table presents the number of shares and percentage of our common stock owned by our initial stockholders before and after this offering. The post-offering numbers and percentages presented assume that the underwriters do not exercise their over-allotment option that our initial stockholders forfeit 281,2502,587,500 founder shares on a pro rata basis, and that there are 9,450,000 shares of our common stock, consisting of (i) 7,575,000 shares of our Class A common stock (including 7,500,000 public shares and 75,000 shares of Class A common stock issued to the underwriters) and (ii) 1,875,000 shares of our Class B common stock, issued and outstanding after this offering.
| Common Stock |
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| Before Offering | After Offering | ||||||||
Name and Address of Beneficial Owner(1) | Number of Shares Beneficially Owned(2) | Approximate Percentage of Outstanding Common Stock | Number of Shares Beneficially Owned(2) | Approximate Percentage of Outstanding Common Stock | ||||||
LMFAO Sponsor, LLC (our sponsor) (2) (3) | 2,156,250 | 100.0% | 1,875,000 | 19.8% | ||||||
Bruce Rodgers(3) | 2,156,250 | 100.0% | 1,875,000 | 19.8% | ||||||
Richard Russell(3) | 2,156,250 | 100.0% | 1,875,000 | 19.8% | ||||||
Bruce Bennett(4) | – | – | – | – | ||||||
Craig Burson(4) | – | – | – | – | ||||||
Martin Traber(4) | – | – | – | – | ||||||
All executive officers and directors as a group (5 individuals) | 2,156,250 | 100.0% | 1,875,000 | 19.8% | ||||||
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Immediately after this offering, our initial stockholders will beneficially own 20% of the then-issued and outstanding shares of our common stock (assuming they do not purchase any units in this offering and excluding shares of Class A common stock issuable to the underwriters upon the closing of this offering). If we increase or decrease the size of the offering, we will effect a stock dividend or a share contribution back to capital, or other appropriate mechanism, as applicable, with respect to our Class B common stock immediately prior to the consummation of the offering in such amount as to maintain the ownership of our initial stockholders at 20% of our issued and outstanding shares of common stock upon the consummation of this offering (excluding shares of Class A common stock issuable to the underwriters upon the closing of this offering). Because of this ownership block, our initial stockholders may be able to effectively influence the outcome of all matters requiring approval by our stockholders, including the election of directors, amendments to our certificate of incorporation and approval of significant corporate transactions, including approval of our initial business combination.
The holders of the founder shares have agreed: (A) to vote any shares owned by them in favor of any proposed initial business combination; and (B) not to redeem any shares in connection with a stockholder vote to approve a proposed initial business combination or in connection with a tender offer.
Our sponsor and our executive officers and directors are deemed to be our “promoters” as such term is defined under the federal securities laws.
Restrictions on Transfers of Founder Shares and Private Placement Warrants
The founder shares, private placement warrants, and any shares of Class A common stock issued upon conversion or exercise thereof are each subject to transfer restrictions pursuant to lock-up provisions in a letter agreement with us to be entered into by our sponsor, officers and directors. Our initial stockholders have agreed not to transfer, assign or sell any of their founder shares until the earlier to occur of: (i) one year after the date of the consummation of our initial business combination; or (ii) the date on which we consummate a liquidation, merger, stock exchange, or other similar transaction that results in all of our stockholders having the right to exchange their shares of Class A common stock for cash, securities, or other property (except as described herein under the section of this prospectus entitled “Principal Stockholders — Restrictions on Transfers of Founder Shares and Private Placement Warrants”). Any permitted transferees will be subject to the same restrictions and other agreements of our initial stockholders with respect to any founder shares. Notwithstanding the foregoing, if the closing price of our shares of Class A common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing 150 days after our initial business combination, the founder shares will no longer be subject to such transfer restrictions. In addition, the lock-up provisions of the insider letter provide that the founder shares and the private placement warrants, and any shares of Class A common stock issued upon conversion or exercise thereof are not transferable or salable until 30 days after the completion of our initial business combination. However, any such securities may be transferred or sold: (a) to our officers or directors, any affiliates or family members of any of our officers or directors, any members of our sponsor, or any affiliates of our sponsor; (b) in the case of an individual, by gift to a member of the individual’s immediate family or to a trust, the beneficiary of which is a member of one of the individual’s immediate family, an affiliate of such person or to a charitable organization; (c) in the case of an individual, by virtue of laws of descent and distribution upon death of the individual; (d) in the case of an individual, pursuant to a qualified domestic relations order; (e) by private sales or transfers made in connection with the consummation of an initial business combination at prices no greater than the price at which the securities were originally purchased; (f) in the event of our liquidation prior to the completion of our initial business combination; (g) by virtue of the laws of Florida or our sponsor’s limited liability company agreement upon dissolution of our sponsor; or (h) in the event of our liquidation, merger, capital stock exchange, reorganization or other similar transaction which results in all of our stockholders having the right to exchange their shares of common stock for cash, securities or other property subsequent to our completion of our initial business combination; provided, however, that in the case of clauses (a) through (e) or (g) these permitted transferees must enter into a written agreement agreeing to be bound by these transfer restrictions and the other restrictions contained in the letter agreements, and by the same agreements entered into by our sponsor with respect to such securities (including provisions relating to voting, the trust account, and liquidation distributions described elsewhere in this prospectus).
Registration Rights
The holders of the founder shares, representative shares, private placement warrants and warrants that may be issued upon conversion of working capital loans will have registration rights to require us to register a sale of any of our securities held by them pursuant to a registration rights agreement to be signed prior to or on the effective date of this offering. These holders will be entitled to make up to three demands, excluding short form registration demands, that we register such securities for sale under the Securities Act. In addition, these holders will have “piggy-back” registration rights to include their securities in other registration statements filed by us.
Certain Relationships and Related Party Transactions
On November 6, 2020, we issued an aggregate of 2,156,250 founder shares to our sponsor (up to 281,250 shares(337,500 of which are subject to forfeiture depending onby the extent to which the underwriters’ over-allotment option is exercised) for an aggregate purchase price of $25,000 in cash, or approximately $0.012 per share.Sponsor). The number of founder shares issued was determined based on the expectation that such founder shares would represent 20% of the outstanding shares upon completion of this offering (not includingour IPO. Simultaneously with the shares of Class A common stock issuable to Maxim). If we increase or decrease the size of the offering we will effect a stock dividend or a share contribution back to capital or other appropriate mechanism, as applicable, with respect to our Class B common stock immediately prior to the consummation of the offering in such amount as to maintain the ownershipclosing of our initial stockholders at 20.0% ofIPO, the issued and outstanding shares of our common stock upon the consummation of this offering (not including the shares of Class A common stock issuable to Maxim). Up to 281,250 founder shares are subject to forfeiture by our sponsor depending on the extent to which the underwriters’ over-allotment option is exercised. The founder shares (including the Class A common stock issuable upon exercise thereof) may not, subject to certain limited exceptions, be transferred, assigned or sold by the holder until 30 days after the completion of our initial business combination.
Our sponsor has agreed to purchaseSponsor purchased an aggregate of 4,598,0005,738,000 warrants (or 5,048,000 warrants if the over-allotment option is exercised in full) at a price of $1.00 per warrant, for an aggregate purchase price of $4,598,000, or $5,048,000 if the over-allotment option is exercised in full.$5,738,000. The private placement warrants will beare identical to the warrants underlying the units sold in this offeringour IPO except that the private placement warrants, so long as they are held by our sponsor,the Sponsor, the underwriters or their permitted transferees: (i) will not be redeemable by us; (ii) may not (including the Class A common stockCommon Stock issuable upon exercise of these warrants), subject to certain limited exceptions, be transferred, assigned or sold by the holders until 30 days after the completion of our initial business combination; (iii) may be exercised by the holders on a cashless basis; and (iv) will be entitled to registration rights.
The private placement warrants (including the shares of Class A common stock issuable upon exercise thereof) may not,Sponsor has agreed that, subject to certain limited exceptions, the founder shares will not be transferred, assigned,sold, pledged, or soldotherwise disposed until the earlier of (i) twelve months after the Closing or (ii) the date on which the closing price of Common Stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations) for any 20 trading days within any 30-trading day period commencing at least 150 days after the Closing. The Sponsor has also agreed not to transfer any private placement warrants (or any Common Stock issued or issuable upon the exercise of such warrants) until 30 days after the Closing.
Promissory Note—Related Party
Prior to the closing of our IPO, we issued an unsecured promissory note to the Sponsor, pursuant to which we were able to borrow up to an aggregate principal amount of $300,000 to be used for a portion of the expenses of our IPO. This loan was non-interest bearing and due at the earlier of June 30, 2021 or the closing of the IPO. As of January 27, 2021, we had drawn down $151,413 under the promissory note with the Sponsor to pay for offering expenses. On January 28, 2021, in connection with the closing of the IPO, we repaid the full $151,413 loan to the Sponsor. The value of the Sponsor’s interest in this transaction corresponds to the principal amount outstanding under such loan. On February 1, 2022, we issued a promissory note to our Sponsor pursuant to which we may borrow up to an aggregate principal amount of $500,000. This loan is non-interest bearing, unsecured and due at the date we consummate a merger, capital stock exchange, asset acquisition, stock purchase reorganization or similar business combination. No amount is due under the note if an initial business combination is not consummated on or before January 25, 2023. As of September 30, 2022, we had drawn down $910,000 under the note to pay for offering expenses.
Promissory Note—Related Party Extension Loans
Under the terms of LMAO’s Amended and Restated Certificate of Incorporation, LMAO had until 18 months from the closing of the IPO to consummate a business combination. However, the such charter further provides that if LMAO anticipates that it may not be able to consummate a business combination within 18 months, LMAO may, by resolution of the Board, extend the period of time to consummate a business combination by an additional six months (for a total of 21 months to complete a business combination) if such extension is requested by the holder.
As more fully discussedSponsor. Pursuant to the terms LMAO’s Amended and Restated Certificate of Incorporation and the trust agreement entered into between LMAO and Continental Stock Transfer & Trust Company (“Continental”) on January 25, 2021, in order to extend the time available for LMAO to consummate a business combination, the Sponsor or its affiliates or designees had to deposit into the Trust Account $1,035,000 ($0.10 per share in either case) on or prior to the date of the deadline, which was July 29, 2022. Such payment was made in the sectionform of this prospectus entitled “Management—Conflictsthe Extension Loan. Such loan is non-interest bearing and payable upon the consummation of Interest,” ifthe Business Combination. If LMAO completes the Business Combination, LMAO would repay such loaned amount out of the proceeds of the Trust Account released to LMAO. If LMAO does not complete a business combination, LMAO will not repay such loan. Furthermore, the letter agreement with the Sponsor contains a provision pursuant to which the Sponsor has agreed to waive its right to be repaid for such loan out of the funds held in the Trust Account in the event that LMAO does not complete a business combination. The Sponsor and its affiliates or designees are obligated to fund the Trust Account in order to extend the time for LMAO to complete a business combination, but the Sponsor is not obligated to extend such time. LMAO elected to extend the time to complete a business combination.
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Valuation Advisory Services from Skyway
In connection with the determination of the valuation of SeaStar Medical, LMAO engaged Skyway Capital Markets, LLC (“Skyway”) to act as financial advisor to LMAO pursuant to an Engagement Letter entered into on April 14, 2022. Based on the terms of the Engagement Letter, LMAO paid Skyway $250,000 for its advisory services as well as reasonable out-of-pocket expenses, capped at $5,000. One of LMAO’s board members, Marty Traber, is the Chairman of Skyway. The Board was made aware of Mr. Traber’s connection to Skyway, discussed that Mr. Traber could derive directly or indirectly a pecuniary benefit given the fee paid by LMAO to Skyway in connection with their services and ultimately the remainder of the Board (other than Mr. Traber) unanimously approved the engagement of Skyway to act as financial advisor to LMAO.
General
If any of our officers or directors becomes aware of an initial business combination opportunity that falls within the line of business of any entity to which he or she has then-current fiduciary or contractual obligations, he or she will honor his or her fiduciary or contractual obligations to present such business combination opportunity to such other entity. Our officers and directors currently have certain relevant fiduciary duties or contractual obligations that may take priority over their duties to us.
Unless disclosed herein,Other than the foregoing, no compensation of any kind, including finder’s and consulting fees, will be paid by us to our sponsor,the Sponsor, officers and directors, or any of their respective affiliates, for services rendered prior to or in connection with the completion of an initial business combination. However, these individuals will be reimbursed for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable business combinations. Our audit committee will review on a quarterly basis all payments that were made to our sponsor,the Sponsor, officers, directors, or our or their affiliates and will determine which expenses and the amount of expenses that will be reimbursed. There is no cap or ceiling on the reimbursement of out-of-pocket expenses incurred by such persons in connection with activities on our behalf.
Prior to the closing of this offering, our sponsor is anticipated to loan us up to $300,000 to be used for a portion of the expenses of this offering. These loans will be non-interest bearing, unsecured and will be due at the earlier of June 30, 2021 or the closing of this offering. The loan will be repaid upon the closing of this offering out of the estimated $848,000 of offering proceeds that has been allocated to the payment of offering expenses (other than underwriting commissions). The value of our sponsor’s interest in this transaction corresponds to the principal amount outstanding under any such loan.
In addition, in order to finance transaction costs in connection with an intended initial business combination, our sponsor or an affiliate of our sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required. If we complete an initial business combination, we would repay such loaned amounts. In the event that the initial business combination does not close, we may use a portion of the working capital held outside the trust account to repay such loaned amounts but no proceeds from our trust account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into warrants at a price of $1.00 per warrant (which, for example, would result in the holders being issued warrants to purchase 1,500,000 shares if $1,500,000 of notes were so converted), at the option of the lender. Such warrants would be identical to the private placement warrants, including as to exercise price, exercisability and exercise period. The terms of such loans by our officers and directors, if any,We have not been determined and no written agreements exist with respect to such loans. We do not expect to seek loans from parties other than our sponsor or an affiliate of our sponsor as we do not believe third parties will be willing to loan such funds and provide a waiver against any and all rights to seek access to funds in our trust account.
After our initial business combination, members of our management team who remain with us may be paid consulting, management or other fees from the combined company with any and all amounts being fully disclosed to our stockholders, to the extent then known, in the tender offer or proxy solicitation materials, as applicable, furnished to our stockholders. It is unlikely the amount of such compensation will be known at the time of distribution of such tender offer materials or at the time of a stockholder meeting held to consider our initial business combination, as applicable, as it will be up to the directors of the post-combination business to determine executive and director compensation.
We will enterentered into a registration rights agreement with respect to founder shares, the private placement warrants, the warrants issuable upon conversion of working capital loans (if any), and the shares of Class A common stockCommon Stock issuable upon exercise of the foregoing and upon conversion of the founder shares.
Pursuant to a registration rights agreement entered into on January 25, 2021, the holders of the founder shares, private placement warrants, and warrants that may be issued upon conversion of working capital loans (if any) are entitled to registration rights. In connection with the Merger Agreement, LMAO and certain stockholders of each of SeaStar Medical and LMAO who will receive shares of Common Stock pursuant to the Merger Agreement, entered into an amended and restated registration rights agreement, which is described underbecame effective upon the sectionconsummation of this prospectus entitled “Description of Securities—Registration Rights.”the Business Combination.
LMAO Related Party Policy
We haveLMAO did not yet adoptedadopt a formal policy for the review, approval or ratification of related party transactions. Accordingly, the transactions discussed above were not reviewed, approved or ratified in accordance with any such policy.
Prior to the consummationLMAO’s Code of this offering, we will adopt a code of ethics requiring usEthics requires them to avoid, wherever possible, all conflicts of interests, except under guidelines or resolutions approved by ourits board of directors (or the appropriate committee of our board) or as disclosed in our public filings with the SEC. Under ourLMAO’s code of ethics, conflict of interest situations will include any financial transaction, arrangement or relationship (including any indebtedness or guarantee of indebtedness) involving the company. A form of the code of ethics that we plan to adopt prior to the consummation of this offering is filed as an exhibit to the registration statement of which this prospectus is a part.
In addition, our audit committee, pursuant to aits written charter, that we will adopt prior to the consummation of this offering, will beis responsible for reviewing and approving related party transactions to the extent that we enter into such transactions. An affirmative vote of a majority of the members of the audit committee present at a meeting at which a quorum is present will beis required in order to approve a related party transaction. A majority of the members of the entire audit committee will constitute a quorum. Without a meeting, the unanimous written consent of all of the members of the audit committee will be required to approve a related party transaction. A form of the audit committee charter that we plan to adopt prior to the consummation of this offering is filed as an exhibit to the registration statement of which this prospectus is a part. WeLMAO also requirerequired each of ourits directors and executive officers to complete a directors’ and officers’ questionnaire that elicits information about related party transactions.
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These procedures arewere intended to determine whether any such related party transaction impairs the independence of a director or presents a conflict of interest on the part of a director, employee or officer.
To further minimize potential conflicts of interest, we haveLMAO agreed not to consummate an initiala business combination with an entity thatwhich is affiliated with the Sponsor or any of our sponsor, officers orand directors unless we,LMAO, or a committee of independent directors, have obtainedobtain an opinion from an independent investment banking firm which is a member of FINRA or an independent accounting firm that ourthe initial business combination is fair to our companyLMAO from a financial point of view.
Furthermore, in no event will the Sponsor, any of LMAO’s officers and directors, or its or their affiliates, be paid any finder’s fees, reimbursements, or cash payments will be paid by us to our sponsor, officers or directors, or our or their affiliates, for services rendered to us prior to or in connection with the completion of our initial business combination. However,
SeaStar Medical Related Party Transactions
Series B Preferred Stock Financing
In July 2020, SeaStar Medical completed a Series B Preferred Stock financing (the “Series B Financing”) led by the following paymentsDow Pension Funds, who were existing stockholders and noteholders of SeaStar Medical. SeaStar Medical issued and sold a total of 426,977 shares of Series B Preferred Stock at a purchase price of $12.34 per share pursuant to the terms and conditions set forth in the Series B Preferred Stock Purchase Agreement, dated July 28, 2020 (the “Series B Closing Date”), of which 405,166 shares of Series B Preferred Stock were issued and sold to the Dow Pension Funds. In connection with the Series B Financing, all of the secured convertible promissory notes previously held by the Dow Pension Funds, with original principal amounts totaling $15 million with then accrued interest of $4.5 million, converted into 1,576,154 shares of Series A-1 Preferred Stock of SeaStar Medical.
On the Series B Closing Date, SeaStar Medical amended the Amended and Voting Agreement dated November 27, 2019, between SeaStar Medical and certain stockholders named therein (as amended, the “Voting Agreement”), so that the Dow Pension Funds had the right to (i) designate two members to SeaStar Medical’s board of directors as the majority holders of Series B Preferred Stock and (ii) designate one member to SeaStar Medical’s board of directors as the sole stockholders of Series A-1 Preferred Stock.
In connection with the Series B Financing, SeaStar Medical also entered into an Investors’ Rights Agreement (the “IRA”) and a Right of First Refusal and Co-Sale Agreement (the “ROFR&CSA”) with certain stockholders named therein, including the Dow Pension Funds. In connection with the Business Combination, each of the Voting Agreement, IRA, and RFOR&CSA will be madeterminated and of no further force and effect after the Closing.
Convertible Note Financings
On June 10, 2021, SeaStar Medical entered into a Convertible Note Purchase Agreement with the Dow Pension Funds for the issuance and sale of convertible promissory notes (the “June 2021 Notes”) with a total principal amount of $500,000 at an interest rate of 8% per year. The June 2021 Notes were initially scheduled to our sponsor, officers or directors, or our or their affiliates, nonemature on June 10, 2022, which was subsequently extended to December 10, 2022.
On September 10, 2021, SeaStar Medical entered into a Convertible Note Purchase Agreement with the Dow Pension Funds for the issuance and sale of which willconvertible promissory notes (the “September 2021 Notes”) with a total principal amount of $2.6 million at an interest of 8% per year based on four separate closings on September 10, 2021, October 15, 2021, November 15, 2021, and December 15, 2021, respectively. The convertible note purchase agreements were subsequently amended to provide that the final December 15, 2021 closing was to be madesplit into two separate closings of equal amounts on March 16, 2022 and April 18, 2022, respectively. The maturity dates of the September 2021 Notes range from one to three years from the proceedsdate of this offeringissuance.
On December 31, 2021, SeaStar Medical entered into a Convertible Note Purchase Agreement with certain purchasers named therein, pursuant to which SeaStar Medical issued and sold an aggregate principal amount of $217,715 in convertible promissory notes (the “December 2021 Notes”) and offered to exchange shares of Series A-2 Preferred Stock held inby holders of December 2021 Notes with such number of shares of Series B Preferred Stock equal to (i) the trust accountpurchase price of the December 2021 Notes purchased by such investors divided by (ii) $12.34 per share (the “Note Financing and Exchange”). Additionally, upon a liquidation event (the Business Combination does not constitute a liquidation event under the December 2021 Notes), repayment under the December 2021 Notes would require repayment equal to twice their outstanding balance. On February 8, 2022, SeaStar Medical and the Dow Pension Funds amended the September 2021 Notes so they have identical terms and conditions to the December 2021 Notes. In connection with such amendment, all shares of Series A-2 Preferred Stock held by the Dow Pension Funds were exchanged for such number of shares of Series B Preferred Stock equal to the purchase price of the September 2021 Notes divided by $12.34.
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On April 12, 2022, SeaStar Medical entered into a Convertible Bridge Loan Note Purchase Agreement with the Dow Pension Funds for the issuance and sale of convertible promissory notes with a total principal amount of $800,000 at an interest rate of 8% per year (the “Dow April 2022 Bridge Notes”). The Dow April 2022 Bridge Notes are scheduled to mature on April 12, 2025. In connection with the Dow April 2022 Bridge Notes, SeaStar Medical agreed with the Dow Pension Funds that, upon the filing of SeaStar Medical’s Ninth Amended and Restated Certificate of Incorporation and immediately prior to the completioneffective date of the Business Combination, SeaStar Medical will convert or exchange each share of Series A-1 Preferred Stock held by the Dow Pension Funds into three shares of common stock of SeaStar Medical. All of SeaStar Medical’s outstanding convertible promissory notes were converted into shares of common stock of SeaStar Medical at a conversion price equal to $10.00 per share, subject to certain adjustments, immediately prior to the effective date of the Business Combination.
A summary of the convertible notes issued to the Dow Pension Funds is set forth below:
Date of Issuance | Principal Amount | Maturity Date | Interest Rate Per Annum | |||||||||
June 10, 2021 | $ | 500,000 | December 10, 2022 | 8 | % | |||||||
September 10, 2021 (in five tranches) | ||||||||||||
Tranche 1 – September 10, 2021 | $ | 1,400,000 | December 31, 2024 | 8 | % | |||||||
Tranche 2 – October 15, 2021 | $ | 400,000 | December 31, 2024 | 8 | % | |||||||
Tranche 3 – November 15, 2021 | $ | 400,000 | December 31, 2024 | 8 | % | |||||||
Tranche 4 – March 16, 2022 | $ | 200,000 | March 16, 2024 | 8 | % | |||||||
Tranche 5 – April 18, 2022 | $ | 200,000 | April 18, 2025 | 8 | % | |||||||
April 12, 2022 | $ | 800,000 | April 12, 2025 | 8 | % |
Humes Consulting Agreement
On January 9, 2020, SeaStar Medical entered into a consulting agreement with Dr. H. David Humes (the “Humes Consulting Agreement”), a director of SeaStar Medical, pursuant to which Dr. Humes agreed to provide certain consulting services for SeaStar Medical as a scientific advisor with respect to the execution of the SCD pediatric testing and trials, patent work related to the SCD, due diligence activity for investors and FDA communications. Pursuant to the Humes Consulting Agreement, Dr. Humes is entitled to compensation of $175 per hour, up to 15 hours per week unless otherwise mutually agreed upon between the parties. Additionally, pursuant to the Humes Consulting Agreement, SeaStar Medical granted Dr. Humes options to purchase of 20,357 shares of common stock of SeaStar Medical.
Stock Purchase Agreement and IBT Research Services Agreement
On January 9, 2020, SeaStar Medical entered into a Stock Purchase Agreement with Innovative BioTherapies, Inc. (“IBT”) and Dr. Humes (the “IBT Stock Purchase Agreement”) pursuant to which SeaStar Medical sold 100% of IBT’s issued and outstanding shares of common stock to Dr. Humes.
Contemporaneously with the IBT Stock Purchase Agreement, SeaStar Medical entered into a Research Services Agreement with IBT (the “IBT Research Services Agreement”), pursuant to which SeaStar Medical and IBT agreed to jointly identify and define specific research projects for IBT to execute so as to advance SeaStar Medical’s technology platform. Pursuant to the terms of the IBT Research Services Agreement, SeaStar Medical agreed to pay IBT a monthly retainer fee equal to $45,000, payable in nine (9) equal monthly installments of $5,000 per month. As consideration for its sale of IBT to Dr. Humes, SeaStar Medical received a $110,000 credit for future payment obligations to IBT under the IBT Research Services Agreement. SeaStar Medical owns all rights in the work product that results from IBT’s services provided under the IBT Research Services Agreement (the “Deliverables”); however, SeaStar Medical grants IBT a non-exclusive, non-transferable, non-sublicenseable, royalty-free limited right and license to use SeaStar Medical materials and property for the sole purpose of performing the services. No further license is granted to or retained by IBT in such Deliverables and IBT is not permitted to use the Deliverables for any purposes. Additionally, SeaStar Medical has a right of first refusal until January 9, 2025 to license or purchase any intellectual property created by IBT outside of the scope of the IBT Research Services Agreement that is related to our initial business combination:SCD or similar blood filtration devices for patients.
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RepaymentHumes MOU and Convertible Notes
Pursuant to a Memorandum of Understanding between SeaStar Medical and Dr. Humes, dated December 31, 2021, subject to a waiver agreement (“Humes MOU”), the parties agreed that SeaStar Medical pay certain outstanding invoices and future amounts incurred for consulting services performed by Dr. Humes under the Humes Consulting Agreement in the form of convertible promissory notes up to an aggregate amount of $300,000 in loans anticipated$348,963, which consists of certain outstanding invoices as well as future amounts to be madeincurred in connection with Dr. Humes’ consulting services pursuant to usthe Humes Consulting Agreement. As such, SeaStar Medical has issued the following convertible promissory notes (the “Humes Notes”) as payments under the Humes Consulting Agreement to date:
Date of Issuance | Principal Amount | Maturity Date | Interest Rate Per Annum | |||||||||
December 31, 2021 | $ | 44,713 | December 31, 2024 | 8 | % | |||||||
January 1, 2022 | $ | 10,063 | January 1, 2025 | 8 | % | |||||||
February 28, 2022 | $ | 2,100 | February 28, 2025 | 8 | % | |||||||
March 31, 2022 | $ | 8,488 | March 31, 2025 | 8 | % |
The Humes Note issued on December 31, 2021 was part of the Note Financing and Exchange. Accordingly, Dr. Humes’s 3,623 shares of Series A-2 Preferred Stock were converted into 3,623 shares of Series B Preferred Stock in December 2021. Dr. Humes waived the right to exchange additional shares of Series A-2 Preferred Stock into Series B Preferred Stock in connection with the Humes Notes issued on January 1, 2022, February 28, 2022 and March 31, 2022.
The Humes Notes will be converted into shares of common stock of SeaStar Medical at a conversion price equal to $10.00, subject to certain adjustments, immediately prior to the effective date of the Business Combination. In addition, SeaStar Medical and Dr. Humes have agreed that no additional convertible promissory notes will be issued to Dr. Humes under the Humes MOU prior to the closing of the Business Combination.
Humes Participation in non-Dow April 2022 Bridge Notes
On April 12, 2022, SeaStar Medical entered into a Convertible Note Purchase Agreement with certain holders (not including the Dow Pension Funds) of Series A-2 Preferred Stock and Series B Preferred Stock of the Company, pursuant to which SeaStar Medical issued a total of approximately $422,000 in principal amount of convertible notes (the “non-Dow April 2022 Bridge Notes”). Dr. Humes purchased a non-Dow April 2022 Bridge Note with a principal amount of $121,000. Pursuant to the terms of the related Convertible Note Purchase Agreement, SeaStar Medical agreed to convert, immediately prior to the effective date of the Business Combination, each share of Series A-2 Preferred Stock and Series B Preferred Stock held by our sponsorpurchasers of the Non-Dow April 2022 Bridge Notes into either (a) one point four (1.4) shares of common stock of SeaStar Medical or (ii) two (2) shares of common stock of SeaStar Medical, depending on the amount of the purchaser’s participation in the April 2022 financing. Accordingly, immediately prior to cover offering-relatedthe effective date of the Business Combination, the 24,656 shares of Series A-2 Preferred Stock and organizational expenses;3,623 shares of Series B Preferred Stock held by Dr. Humes will be converted into 56,558 shares of common stock of SeaStar Medical (based on a multiple of two) pursuant to the terms of the Convertible Note Purchase Agreement, the non-Dow April 2022 Bridge Notes, and SeaStar Medical’s Ninth Amended and Restated Certificate of Incorporation.
IBT MOU and Convertible Notes
Pursuant to a Memorandum of Understanding between SeaStar Medical and IBT, dated December 31, 2021, as amended (the “IBT MOU”), the parties agreed that SeaStar Medical pay outstanding amount of invoices and certain future amounts incurred for research and technical services performed by IBT pursuant to the IBT Research Services Agreement in the form of convertible promissory notes in the aggregate amount of $144,961.02. As such, SeaStar Medical has issued the following convertible promissory notes (the “IBT Notes”) as payments under the IBT Research Services Agreement to date:
Date of Issuance | Principal Amount | Maturity Date | Interest Rate Per Annum | |||||||||
December 31, 2021 | $ | 69,148.62 | December 31, 2024 | 8 | % | |||||||
January 31, 2022 | $ | 14,635.96 | January 31, 2025 | 8 | % | |||||||
March 31, 2022 | $ | 61,176.44 | March 31, 2025 | 8 | % |
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ReimbursementThe IBT Note issued on December 31, 2021 was part of the Note Financing and Exchange. Accordingly, IBT’s 187 shares of Series A-2 Preferred Stock were converted into 187 shares of Series B Preferred Stock in December 2021. In addition, SeaStar Medical and IBT have agreed that other than the notes set forth above, no additional convertible promissory notes will be issued to IBT under the IBT MOU prior to the closing of the Business Combination.
Chow Consulting Agreement
On November 1, 2019, SeaStar Medical entered into an Independent Consultant Agreement with Mr. Ray Chow, a director of SeaStar Medical, which was amended and restated on May 22, 2020 (the “Chow Consulting Agreement”). Pursuant to the Chow Consulting Agreement, Mr. Chow agreed to provide, among other services, corporate, strategy and business development assistance to SeaStar Medical. As compensation for any out-of-pocket expenses relatedsuch services, SeaStar Medical agreed to identifying, investigatingpay Mr. Chow $25,000 per month during the term of the Chow Consulting Agreement. In addition, pursuant to the Chow Consulting Agreement, Mr. Chow is entitled to receive, subject to approval by SeaStar Medical’s board of directors, options to purchase up to 141,733 shares of common stock of SeaStar Medical. The Chow Consulting Agreement is effective until May 22, 2023, unless renewed by SeaStar Medical in writing at its sole discretion. Each party may terminate the agreement by providing 90-days’ advance notice to the other party. SeaStar Medical may terminate the Chow Consulting Agreement upon a Change in Control (as defined in the Chow Consulting Agreement). SeaStar Medical terminated the Chow Consulting Agreement immediately prior to the closing of the Business Combination. The Chow Consulting Agreement terminated upon Mr. Chow’s death on November 24, 2022.
Pursuant to the Chow Consulting Agreement, SeaStar Medical may suspend the payment of fees to Mr. Chow in the event SeaStar Medical’s cash and completingcash equivalents on its balance sheet is less than $500,000. In addition, SeaStar Medical will be required to pay all fees due to Mr. Chow under the Chow Consulting Agreement in the event of a Change of Control of SeaStar Medical, which includes completion of the Business Combination. Since the execution of the Chow Consulting Agreement, SeaStar Medical has paid a total of $588,258.50 to Mr. Chow for his services under the Chow Consulting Agreement.
Chow Bonus Agreement
In December 2021, SeaStar Medical entered into a transaction bonus agreements with Mr. Chow, which provide for two long-term incentives: a business development bonus and an exit event bonus.
The business development bonus payable under the transaction bonus agreements is based on the amount of cash received by SeaStar Medical, with a threshold amount of $125,000 payable, if cash payments exceed a specified threshold, prior to December 31, 2022. If the amount of business development proceeds falls below a threshold set forth in the agreements, then the business development bonus will vest with respect to twenty-five percent (25%) on each of the six (6) month anniversaries of SeaStar Medical receiving a specified minimum amount of proceeds, provided that such vesting shall immediately accelerate in full if the amount of such proceeds exceeds a specified multiple of the minimum amount or SeaStar Medical experiences an exit event.
The exit event bonus payable to Mr. Chow upon the occurrence of certain merger transactions resulting in an acquisition of SeaStar Medical, our post-merger securities being publicly-traded, or an initial business combination; and
Repaymentpublic offering (an “exit event”). The calculation of loans which may be madethe bonus varies based on the exit event. The bonus is based on a percentage of the gross cash proceeds exceeding a specified threshold for an acquisition by our sponsorway of merger, consolidation, reorganization, or an affiliateother transaction (or series of our sponsortransactions) resulting in SeaStar Medical stockholders owning less than 50% of the voting interests in the surviving entity, a sale, lease, exclusive license, or certainother disposition of our officers and directorssubstantially all of SeaStar Medical’s assets, or any person or group becoming the beneficial owner of more than 50% of SeaStar Medical’s outstanding voting securities having the right to finance transaction costsvote for members of the Board. A $150,000 exit event bonus is payable in connection with an intended initial public offering and other business combination resulting in SeaStar Medical’s post-merger securities being publicly-traded. In December 2022, the Board determined that the $150,000 cash exit event bonus would be payable to Mr. Chow’s estate in connection with the Business Combination.
Barnett Consulting Agreement
On March 1, 2021, SeaStar Medical entered into an Independent Consulting Agreement with Rick Barnett, a director of SeaStar Medical, pursuant to which Mr. Barnett provides SeaStar Medical services related to business development support, hospital strategy development, commercial strategy planning, fundraising support and IPO preparation. As compensation for such services, SeaStar Medical paid Mr. Barnett $12,500 per month during the term of the Independent Consulting Agreement. The Independent Consulting Agreement with Rick Barnett was terminated on March 1, 2022. Since the execution of the Independent Consulting Agreement and prior its termination, SeaStar Medical paid a total of $112,500 to Mr. Barnett.
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Collins Consulting Agreement
On March 1, 2021, SeaStar Medical entered into an Independent Consulting Agreement with Allan Collins, a current director of SeaStar Medical, pursuant to which Mr. Collins provides services related to clinical development plans, medical education plans, key opinion leader development and medical affairs plans. As compensation for such services, SeaStar Medical paid Mr. Collins $12,500 per month during the term of the Independent Consulting Agreement. The Independent Consulting Agreement with Allan Collins was terminated on March 1, 2022. Since the execution of the Independent Consulting Agreement and prior its termination, SeaStar Medical paid a total of $112,500 to Mr. Collins.
Subscription Agreements/PIPE Investment.
On August 23, 2022, LMAO entered into Subscription Agreements with the PIPE Investors pursuant to which the PIPE Investors have agreed to purchase, and LMAO has agreed to sell, an aggregate of 700,000 shares of Common Stock at $10.00 per share and the PIPE Warrants for an aggregate purchase price of $7,000,000. The obligations to consummate the transaction contemplated by the Subscription Agreements are conditioned upon, among other things, customary closing conditions and the consummation of the transactions contemplated by the Merger Agreement. The Dow Pension Funds have agreed to purchase an aggregate of $5,000,000 in the PIPE Investment. The transactions contemplated by the Subscription Agreements were consummated immediately after the Closing.
Business Combination Transactions
In connection with the closing of the Business Combination, the Company entered into various transactions with certain related parties. For a detailed description of such transactions, please see “Business Combination—Amended and Restated Registration Rights Agreement; Director Nomination Agreement; Amendment to Credit Agreement with LMFA; and Amended Promissory Note and Sponsor Promissory Note”.
Company Related Person Transaction Policy
The Company adopted a related person transaction policy that sets forth its procedures for the identification, review, consideration and approval or ratification of related person transactions. For purposes of the Company’s policy only, a related person transaction is a transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships, in which the Company and any related person are, were or will be participants in which the amount involved exceeds $120,000. Transactions involving compensation for services provided to the Company as an employee or director are not covered by this policy. A related person is any executive officer, director or beneficial owner of more than 5% of any class of the Company’s voting securities and any of their respective immediate family members and any entity owned or controlled by such persons.
Under the policy, if a transaction has been identified as a related person transaction, including any transaction that was not a related person transaction when originally consummated or any transaction that was not initially identified as a related person transaction prior to consummation, the Company’s management must present information regarding the related person transaction to the Company’s audit committee, or, if audit committee approval would be inappropriate, to another independent body of the Board, for review, consideration and approval or ratification. The presentation must include a description of, among other things, the material facts, the interests (direct and indirect) of the related persons, the benefits to the Company of the transaction and whether the transaction is on terms that are comparable to the terms available to or from (as the case may be) an unrelated third party or to or from employees generally. Under the policy, the Company will collect information that it deems reasonably necessary from each director, executive officer and, to the extent feasible, significant stockholder to enable the Company to identify any existing or potential related person transactions and to effectuate the terms of the policy. In addition, under the Code of Conduct, the Company’s employees and directors will have an affirmative responsibility to disclose any transaction or relationship that reasonably could be expected to give rise to a conflict of interest. In considering related person transactions, the Company’s audit committee, or other independent body of the Board, will take into account the relevant available facts and circumstances including, but not limited to:
the risks, costs and benefits to the Company;
the impact on a director’s independence in the event that the related person is a director, immediate family member of a director or an entity with which a director is affiliated;
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the availability of other sources for comparable services or products; and
the terms available to or from, as the case may be, unrelated third parties or to or from employees generally.
The policy requires that, in determining whether to approve, ratify or reject a related person transaction, the Company’s audit committee, or other independent body of the Board, must consider, in light of known circumstances, whether or not the transaction is consistent with the Company’s best interests and those of the Company’s stockholders, as the Company’s audit committee, or other independent body of the Board, determines in the good faith exercise of its discretion.
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BENEFICIAL OWNERSHIP OF SECURITIES
The following table sets forth information regarding the beneficial ownership of Common Stock on December 30, 2022 by:
each person known by the Company to be the beneficial owner of more than 5% of outstanding Common Stock;
each of the Company’s current named executive officers and directors; and
all current executive officers and directors of the Company as a group.
Beneficial ownership is determined according to the rules of the SEC, which generally provide that a person has beneficial ownership of a security if he, she or it possesses sole or shared voting or investment power over that security or the right to acquire such power within 60 days. Except as indicated by the footnotes below, the Company believes, based on the information furnished to it, that the persons and entities named in the table below will have not been determined nor have any written agreements been executedsole voting and investment power with respect thereto. Up to $1,500,000all stock that they beneficially own, subject to applicable community property laws.
Common stock issuable upon exercise of such loanswarrants or options currently exercisable within 60 days are deemed outstanding solely for purposes of calculating the percentage of total voting power of the beneficial owner thereof.
Subject to the paragraph above, the percentage ownership of Common Stock is based on 12,699,668 shares of Common Stock outstanding as of December 30, 2022.
Name and Address of Beneficial Owner | Number of Shares Beneficially Owned | % of Class | ||||||
Five Percent Holders | ||||||||
LMFAO Sponsor, LLC (1) | 8,325,500 | 45.2 | % | |||||
Saba Capital Management, L.P. (2) | 972,567 | 7.7 | % | |||||
Hudson Bay Capital Management LP (3) | 750,000 | 5.9 | % | |||||
Dow Employees’ Pension Plan Trust (4) | 4,751,567 | 36.5 | % | |||||
Union Carbide Employees’ Pension Plan Trust (5) | 3,167,706 | 24.6 | % | |||||
Directors and Executive Officers (6) | ||||||||
Eric Schlorff (7) | 80,596 | * | ||||||
Rick Barnett (8) | 12,750 | * | ||||||
Allan Collins, MD (8) | 12,750 | * | ||||||
Kenneth Van Heel (9) | 8,159 | * | ||||||
Andres Lobo | — | * | ||||||
Bruce Rodgers (1) | — | * | ||||||
Richard Russell (1) | — | * | ||||||
Caryl Baron (10) | 13,748 | * | ||||||
Kevin Chung, MD | — | * | ||||||
All directors and executive officers as a group (9 persons) | 128,003 | * |
* | Less than 1%. |
(1) | Includes (i) 2,587,500 shares of Common Stock and (ii) 5,738,000 shares of Common Stock issuable upon the exercise of private warrants held by the Sponsor that became exercisable upon consummation of the Business Combination. Sponsor is the record holder of the shares reported herein. The sole manager of the Sponsor is LMFA, of which Bruce Rodgers is the Chief Executive Officer, President, and Chairman of the Board of Directors and Richard Russell is the Chief Financial Officer, Treasurer, and Secretary. Although Mr. Rodgers and Mr. Russell have membership interests in the Sponsor, the board of directors of LMFA has sole voting and investment discretion with respect to the shares held of record by the Sponsor, and as such, neither Mr. Rodgers nor Mr. Russell is deemed to have beneficial ownership of the Common Stock held directly by the Sponsor. The business address of the Sponsor is 1200 W. Platt St., Suite 100, Tampa, Florida 33606. |
(2) | According to Schedule 13G filed on February 14, 2022. The business address of Saba Capital Management, L.P. is 405 Lexington Avenue, 58th Floor, New York, NY 10174. |
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(3) | According to Schedule 13G filed on February 8, 2022. Hudson Bay Capital Management LP (“Hudson”) serves as the investment manager of HB Strategies LLC, in whose name the securities reported herein are held. As such, Hudson may be deemed to be the beneficial owner of all shares of Class A Common Stock held by HB Strategies LLC. Mr. Sander Gerber serves as the managing member of Hudson Bay Capital GP LLC, which is the general partner of Hudson. Mr. Gerber disclaims beneficial ownership of these securities. The business address of Hudson is 28 Havemeyer Place, 2nd Floor, Greenwich, Connecticut 06830. |
(4) | Includes (i) 4,449,841 shares of Common Stock and (ii) 301,726 shares of Common Stock subject to warrants exercisable within 60 days of November 1, 2022. The business address of the Dow Employees’ Pension Plan Trust is Sylvia Stoesser Center, 2211 H.H. Dow Way, Midland, MI 48674. |
(5) | Includes (i) 2,966,555 shares of Common Stock and (ii) 201,151 shares of Common Stock subject to warrants exercisable within 60 days of November 1, 2022. The business address of the Union Carbide Employees’ Pension Plan Trust is Sylvia Stoesser Center, 2211 H.H. Dow Way, Midland, MI 48674. |
(6) | Unless otherwise noted, the business address of each of the following entities or individuals is c/o SeaStar Medical Holding Corporation, 3513 Brighton Blvd Ste 410, Denver, CO 80216. |
(7) | Includes 4,248 shares of Common Stock issuable upon exercise of stock options within 60 days of December 30, 2022 and excludes 198,530 RSUs granted on April 4, 2022 that will not start to vest until the first anniversary of the grant date. |
(8) | Includes 1,019 shares of Common Stock issuable upon exercise of stock options within 60 days of December 30, 2022 and excludes 8,422 RSUs granted on April 4, 2022, that will not start to vest until the first anniversary of the grant date. |
(9) | Includes 1,020 shares of Common Stock issuable upon exercise of stock options within 60 days of December 30, 2022 and excludes 8,422 RSUs granted on April 4, 2022, that will not start to vest until the first anniversary of the grant date. |
(10) | Includes 1,021 shares of Common Stock issuable upon exercise of stock options within 60 days of December 30, 2022 and excludes 42,112 RSUs granted on April 4, 2022 that will not start to vest until the first anniversary of the grant date. |
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SELLING STOCKHOLDER
This prospectus relates to the possible resale from time to time by Tumim Stone Capital of any or all of the shares of Common Stock that may be convertibleissued by us to Tumim Stone Capital under the Purchase Agreement. For additional information regarding the issuance of Common Stock covered by this prospectus, see the section titled “Tumim Stone Capital Committed Equity Financing” above. We are registering the shares of Common Stock pursuant to the provisions of the Registration Rights Agreement we entered into warrants, at awith Tumim Stone Capital on August 23, 2022 in order to permit the selling stockholder to offer the shares for resale from time to time. Except for the transactions contemplated by the Purchase Agreement and the Registration Rights Agreement, Tumim Stone Capital has not had any material relationship with us within the past three years.
The table below presents information regarding the Selling Stockholder and the shares of Common Stock that it may offer from time to time under this prospectus. This table is prepared based on information supplied to us by the Selling Stockholder, and reflects holdings as of January 20, 2023. The number of shares in the column “Shares to be Sold in this Offering” represents all of the shares of Common Stock that the Selling Stockholder may offer under this prospectus. The Selling Stockholder may sell some, all or none of its shares in this offering. We do not know how long the Selling Stockholder will hold the shares before selling them, and we currently have no agreements, arrangements or understandings with the Selling Stockholder regarding the sale of any of the shares.
Beneficial ownership is determined in accordance with Rule 13d-3(d) promulgated by the SEC under the Exchange Act, and includes shares of Common Stock with respect to which the Selling Stockholder has sole or shared voting or investment power, or the right to acquire sole or shard voting or investment power within sixty days. The percentage of shares of Common Stock beneficially owned by the Selling Stockholder prior to the offering shown in the table below is based on an aggregate of 12,699,668 shares of our Common Stock outstanding on January 19, 2023. Because the purchase price of $1.00 per warrant at the optionshares of Common Stock issuable under the Purchase Agreement is determined during the applicable VWAP Purchase Valuation Period for a VWAP Purchase, the number of shares that may actually be sold by the Company under the Purchase Agreement may be fewer than the number of shares being offered by this prospectus. The last column assumes the resale by the Selling Stockholder of all of the lender.
Our audit committee will review on a quarterly basis all payments that were made to our sponsor, officers or directors, or our or their affiliates.
Pursuant to our certificate of incorporation, our authorized capital stock consists of 100,000,000 shares of Class A common stock, $0.0001 par value, 20,000,000 shares of Class B common stock, $0.0001 par value, and 1,000,000 shares of undesignated preferred stock, $0.0001 par value. Common Stock being offered for resale pursuant to this prospectus.
Number of Shares Owned Prior to Offering | Maximum Number of Shares to be Offered Pursuant to this Prospectus | Number of Shares Owned After Offering | ||||||||||||||||||
Name of Selling Stockholder | Number(1) | % | Number(2) | % | ||||||||||||||||
Tumim Stone Capital LLC (3) | | 218,842 | | | 1.7 | % | | 6,718,842 | | — | — |
(1) | This number represents the 218,842 shares of Common Stock we issued to Tumim on January 20, 2023 as Commitment Shares in partial consideration for entering into the Purchase Agreement with us. In accordance with Rule 13d-3(d) under the Exchange Act, we have excluded from the number of shares beneficially owned prior to the offering all of the shares that Tumim may be required to purchase under the Purchase Agreement, because the issuance of such shares is solely at our discretion and is subject to conditions contained in the Purchase Agreement, the satisfaction of which are entirely outside of Tumim’s control, including the registration statement that includes this prospectus becoming and remaining effective. Furthermore, the Purchases of shares of our Common Stock are subject to certain agreed upon maximum amount limitations set forth in the Purchase Agreement. Also, the Purchase Agreement prohibits us from issuing and selling any shares of our common stock to Tumim to the extent such shares, when aggregated with all other shares of our Common Stock then beneficially owned by Tumim, would cause Tumim’s beneficial ownership of our common stock to exceed the 4.99% Beneficial Ownership Limitation. The Purchase Agreement also prohibits us from issuing or selling shares of our common stock under the Purchase Agreement in excess of the 19.99% Exchange Cap, unless we obtain stockholder approval to do so, or unless sales of common stock are made at a price equal to or greater than $7.18 per share, such that the Exchange Cap limitation would not apply under applicable Nasdaq rules. Neither the Beneficial Ownership Cap nor the Exchange Cap (to the extent applicable under Nasdaq rules) may be amended or waived under the Purchase Agreement. |
(2) | Assumes the sale of all shares being offered pursuant to this prospectus. Depending on the price per share at which we sell our Common Stock to Tumim pursuant to the Purchase Agreement, we may need to sell to Tumim under the Purchase Agreement more shares of our Common Stock than are offered under this prospectus in order to receive aggregate gross proceeds equal to the $100 million Total Commitment available to us under the Purchase Agreement. If we choose to do so, we must first register for resale under the Securities Act such additional shares. The number of shares ultimately offered for resale by Tumim is dependent upon the number of shares we sell to Tumim under the Purchase Agreement. |
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(3) | The business address of Tumim Stone Capital LLC is 140 Broadway, 38th Floor, New York, NY 10005. Tumim Stone Capital LLC’s principal business is that of a private investor. Maier Joshua Tarlow is the manager of 3i Management, LLC, the general partner of 3i, LP, which is the sole member of Tumim Stone Capital, LLC, and has sole voting control and investment discretion over securities beneficially owned directly by Tumim Stone Capital LLC and indirectly by 3i Management, LLC and 3i, LP. 3i Management, LLC is also the manager of Tumim Stone Capital LLC. We have been advised that none of Mr. Tarlow, 3i Management, LLC, 3i, LP or Tumim Stone Capital LLC is a member of the Financial Industry Regulatory Authority, or FINRA, or an independent broker-dealer, or an affiliate or associated person of a FINRA member or independent broker-dealer. The foregoing should not be construed in and of itself as an admission by Mr. Tarlow as to beneficial ownership of the securities beneficially owned directly by Tumim Stone Capital LLC and indirectly by 3i Management, LLC and 3i, LP. |
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DESCRIPTION OF SECURITIES
The following description summarizessummary of the material terms of our capital stock. Because itsecurities is onlynot intended to be a complete summary it may not contain allof the information that is importantrights and preferences of such securities. The descriptions below are qualified by reference to you.the actual text of our Charter. We urge you to read our Charter in its entirety for a complete description of the rights and preferences of our securities.
UnitsAuthorized and Outstanding Stock
Each unit has an offering priceOur Charter authorizes the issuance of $10.00110,000,000 shares, consisting of (a) 100,000,000 shares of Common Stock and consists(b) 10,000,000 shares of one sharepreferred stock (the “Preferred Stock”).
The outstanding shares of Common Stock issued in the Business Combination are duly authorized, validly issued, fully paid and non-assessable. All outstanding shares of LMAO Class B Common Stock following the Business Combination were converted into shares of LMAO Class A common stock and one redeemable warrant entitling the holder to purchase one share of Class A common stock at $11.50 per share, subject to adjustment as described in this prospectus. We expect the Class A common stock and warrants comprising the units will begin separate tradingCommon Stock on the 52nd daya one-to-one basis. Immediately following the closingconversion of this offering unless Maxim informs us of its decision to allow earlier separate trading, subject to our having filed the Current Report on Form 8-K described below and having issued a press release announcing when such separate trading will begin. Once the shares of Class A common stock and warrants commence separate trading, holders will have the option to continue to hold units or separate their units into the component securities. Holders will need to have their brokers contact our transfer agent in order to separate the unitsB Common Stock into shares of Class A common stock and warrants.
In no event will theCommon Stock, each share of Class A common stockCommon Stock issued and warrants be traded separately until we have filed with the SEC a Current Report on Form 8-K which includes an audited balance sheet reflecting our receiptoutstanding was reclassified, redesignated and changed into one validly issued, fully paid and non-assessable share of the gross proceeds at the closingCommon Stock.
As of this offering. We will file a Current Report on Form 8-K which includes this audited balance sheet upon the completion of this offering, which is anticipated to take place three business days after the date of this prospectus. If the underwriters’ over-allotment option is exercised following the initial filing of such Current Report on Form 8-K, a second or amended Current Report on Form 8-K will be filed to provide updated financial information to reflect the exercise of the underwriters’ over-allotment option.
Common Stock
Upon the closing of this offering, 9,450,000December 30, 2022, there were 12,699,668 shares of our common stock will beCommon Stock issued and outstanding (assumingand no exercise of the underwriters’ over-allotment option), consisting of:
7,500,000 shares of our Class A common stock underlyingPreferred Stock issued and outstanding.
Common Stock
The Charter provides the units being offered in this offering;
75,000 shares issued to the underwriters; and
1,875,000 founder shares.
If we increase or decrease the size of the offering, we will effect a stock dividend or share contribution back to capital or other appropriate mechanism, as applicable,following with respect to our Class B common stock immediately prior to the consummationrights, powers, preferences and privileges of the offeringCommon Stock:
Voting Power
Except as otherwise required by law or as otherwise provided in such amount as to maintainany certificate of designation for any series of preferred stock, the ownershipholders of founder shares by our initial stockholders prior to this offering at 20.0%Common Stock possess all voting power for the election of the issuedCompany’s directors and outstanding sharesall other matters requiring stockholder action. Holders of our common stock upon the consummation of this offering (excluding shares of Class A common stock issuable to the underwriters upon the closing of this offering).
Common stockholders of recordStock are entitled to one vote for eachper share held on all matters to be voted on by stockholders. Holders of the Class A common stock and holders of the Class B common stock will vote together as a single class on all matters submitted to a vote of our stockholders, except as required by law. Unless specified in our certificate of incorporation or bylaws, or as required by applicable provisions of the DGCL or applicable stock exchange rules, the affirmative vote of a majority of our shares of common stock that are voted is required to approve any such matter voted on by our stockholders. Our board of directors will be divided into 2 classes, each of which will generally serveCharter does not provide for a term of 2 years with only one class of directors being elected in each year. There is no cumulative voting with respectrights.
Dividends
Subject to the electionrights, if any, of directors, with the result that the holders of more than 50%any outstanding shares of preferred stock, under the shares voted for the electionCharter, holders of directors can elect all of the directors. Our stockholders areCommon Stock will be entitled to receive ratablesuch dividends, when,if any, as and ifmay be declared from time to time by the board of directorsBoard in its discretion out of funds legally available therefor.
Because our certificate of incorporation authorizes the issuance of up to 100,000,000 shares of Class A common stock, if we were to enter into an initial business combination, we may (depending on the terms of such an initial business combination) be required to increase the number of shares of Class A common stock which we are authorized to issue at the same time as our stockholders vote on the initial business combination, to the extent we seek stockholder approval in connection with our initial business combination.
In accordance with Nasdaq corporate governance requirements, we are not required to hold an annual meeting until no later than one year after our first fiscal year end following our listing on Nasdaq. Under Section 211(b) of the DGCL, we are, however, required to hold an annual meeting of stockholders for the purposes of electing directors in accordance with our bylaws, unless such election is made by written consent in lieu of such a meeting. We may not hold an annual meeting of stockholders to elect new directors prior to the consummation of our initial business combination,Liquidation, Dissolution and thus we may not be in compliance with Section 211(b) of the DGCL, which requires an annual meeting. Therefore, if our stockholders want us to hold an annual meeting prior to the consummation of our initial business combination, they may attempt to force us to hold one by submitting an application to the Delaware Court of Chancery in accordance with Section 211(c) of the DGCL.
We will provide our stockholders with the opportunity to redeem all or a portion of their public shares upon the completion of our initial business combination at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account as of two business days prior to the consummation of our initial business combination including interest earned on the funds held in the trust account and not previously released to us to pay our franchise and income taxes, divided by the number of then outstanding public shares, subject to the limitations described herein. The amount in the trust account is initially anticipated to be approximately $10.20 per public share. The per-share amount we will distribute to investors who properly redeem their shares will not be reduced by the deferred underwriting commissions we will pay to the underwriters. Our sponsor, officers and directors have entered into a letter agreement with us, pursuant to which they have agreed to waive their redemption rights with respect to any founder shares and any public shares held by them in connection with the completion of our initial business combination. Unlike many blank check companies that hold stockholder votes and conduct proxy solicitations in conjunction with their initial business combinations and provide for related redemptions of public shares for cash upon completion of such initial business combinations even when a vote is not required by law, if a stockholder vote is not required by law and we do not decide to hold a stockholder vote for business or other legal reasons, we will, pursuant to our certificate of incorporation, conduct the redemptions pursuant to the tender offer rules of the SEC, and file tender offer documents with the SEC prior to completing our initial business combination. Our certificate of incorporation will require these tender offer documents to contain substantially the same financial and other information about the initial business combination and the redemption rights as is required under the SEC’s proxy rules. If, however, a stockholder approval of the transaction is required by law, or we decide to obtain stockholder approval for business or other legal reasons, we will, like many blank check companies, offer to redeem shares in conjunction with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules. If we seek stockholder approval, we will complete our initial business combination only if a majority of the outstanding shares of common stock voted are voted in favor of the initial business combination. A quorum for such meeting will consist of the holders present in person or by proxy of shares of outstanding capital stock of the company representing a majority of the voting power of all outstanding shares of capital stock of the company entitled to vote at such meeting.
However, the participation of our sponsor, officers, directors, advisors or their affiliates in privately negotiated transactions (as described in this prospectus), if any, could result in the approval of our initial business combination even if a majority of our public stockholders vote, or indicate their intention to vote, against such business combination. For purposes of seeking approval of the majority of our outstanding shares of common stock voted, non-votes will have no effect on the approval of our initial business combination once a quorum is obtained. We intend to give approximately 30 days’ (but not less than 10 days’ nor more than 60 days’) prior written notice of any such meeting, if required, at which a vote shall be taken to approve our initial business combination. These quorum and voting thresholds, and the voting agreements of our initial stockholders, may make it more likely that we will consummate our initial business combination.
If we seek stockholder approval of our initial business combination and we do not conduct redemptions in connection with our initial business combination pursuant to the tender offer rules, our certificate of incorporation will provide that a public stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Exchange Act), will be restricted from redeeming its shares with respect to more than an aggregate of 15% of the shares of common stock sold in this offering, which we refer to as the Excess Shares. However, we would not be restricting our stockholders’ ability to vote all of their shares (including Excess Shares) for or against our initial business combination. Our stockholders’ inability to redeem the Excess Shares will reduce their influence over our ability to complete our initial business combination, and such stockholders could suffer a material loss in their investment if they sell such Excess Shares on the open market. Additionally, such stockholders will not receive redemption distributions with respect to the Excess Shares if we complete the initial business combination. And, as a result, such stockholders will continue to hold that number of shares exceeding 15% and, in order to dispose such shares would be required to sell their stock in open market transactions, potentially at a loss.
If we seek stockholder approval in connection with our initial business combination, pursuant to the letter agreement our sponsor, officers and directors have agreed to vote their founder shares and any public shares purchased during or after this offering (including in open market and privately negotiated transactions) in favor of our initial business combination. As a result, in addition to our initial stockholders’ founder shares, we would need only 2,850,001, or approximately 30.2%,
(assuming all outstanding shares are voted and the over-allotment option is not exercised) or 487,501, or approximately 5.2% (assuming only the minimum number of shares representing a quorum are voted and the over-allotment option is not exercised), of the 7,500,000 public shares sold in this offering to be voted in favor of an initial business combination. Additionally, each public stockholder may elect to redeem its public shares irrespective of whether they vote for or against the proposed transaction (subject to the limitation described in the preceding paragraph).
Pursuant to our certificate of incorporation to be in effect upon completion of this offering, if we are unable to complete our initial business combination within 18 months from the closing of this offering (or 21 months from the closing of this offering, if we extend the period of time to consummate a business combination, as described in more detail in this prospectus), we will: (i) cease all operations except for the purpose of winding up; (ii) as promptly as reasonably possible but no more than 10 business days thereafter subject to lawfully available funds therefor, redeem the public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account including interest earned on the funds held in the trust account and not previously released to us to pay our franchise and income taxes (less up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding public shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any), subject to applicable law; and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders and our board of directors, dissolve and liquidate, subject in each case to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. Our sponsor, officers and directors have entered into a letter agreement with us, pursuant to which they have agreed to waive their rights to liquidating distributions from the trust account with respect to any founder shares held by them if we fail to complete our initial business combination within 18 months from the closing of this offering (or 21 months from the closing of this offering, if we extend the period of time to consummate a business combination, as described in more detail in this prospectus). However, if our initial stockholders acquire public shares in or after this offering, they will be entitled to liquidating distributions from the trust account with respect to such public shares if we fail to complete our initial business combination within the prescribed time period.Winding Up
In the event of athe Company’s voluntary or involuntary liquidation, dissolution, distribution of assets or winding upwinding-up, the holders of the company after an initial business combination, our stockholders areCommon Stock will be entitled to receive an equal amount per share ratably inof all of the Company’s assets remainingof whatever kind available for distribution to themstockholders, after the rights of the holders of the preferred stock have been satisfied and after payment or provision for payment of liabilities and after provision is made for each class of stock, if any, having preference over the common stock. Our stockholders haveCompany’s debts.
Preemptive or Other Rights
There are no preemptive rights or other subscription rights. There are no sinking fund provisions applicable to the common stock, except that we will provide our stockholders with the opportunity to redeem their public shares for cash equal to their pro rata share of the aggregate amount then on deposit in the trust account, upon the completion of our initial business combination, subject to the limitations described herein.Company’s Common Stock.
Founder Shares
The founder shares are identical to the shares of Class A common stock included in the units being sold in this offering, and holders of founder shares have the same stockholder rights as public stockholders, except that: (i) the founder shares are subject to certain transfer restrictions, as described in more detail below; (ii) our sponsor, officers and directors have entered into a letter agreement with us, pursuant to which they have agreed: (A) to waive their redemption rights with respect to any founder shares and any public shares held by them in connection with the completion of our initial business combination; (B) to waive their redemption rights with respect to their founder shares and public shares in connection with a stockholder vote to approve an amendment to our certificate of incorporation: (x) to modify the substance or timing of our obligation to redeem 100% of our public shares if we do not complete our initial business combination within 18 months from the closing of this offering (or 21 months from the closing of this offering, if we extend the period of time to consummate a business combination, as described in more detail in this prospectus); or (y) with respect to any other provision relating to stockholders’ rights or pre-initial business combination activity; and (C) to waive their rights to liquidating distributions from the trust account with respect to any founder shares held by them if we fail to complete our initial business combination within 18 months from the closing of this offering (or 21 months from the closing of this offering, if we extend the period of time to consummate a business combination, as described in more detail in this prospectus), although they will be entitled to liquidating distributions from the trust account with respect to any public shares they hold if we fail to complete our initial business combination within such time period; (iii) the founder shares are shares of our Class B common stock that will automatically convert into shares of our Class A common stock at the time of our initial business combination, or at any time prior thereto at the option of the holder, on a one-for-one basis, subject to adjustment as described herein; and (iv) are entitled to registration rights. If we submit our initial business combination to our public stockholders for a vote, our sponsor, officers and directors have agreed pursuant to the letter agreement to vote any founder shares held by them and any public shares purchased during or after this offering (including in open market and privately negotiated transactions) in favor of our initial business combination.
The shares of Class B common stock will automatically convert into shares of Class A common stock at the time of our initial business combination on a one-for-one basis (subject to adjustment for stock splits, stock dividends, reorganizations, recapitalizations, and the like), and subject to further adjustment as provided herein. In the case that additional shares of Class A common stock, or equity-linked securities, are issued or deemed issued in excess of the amounts offered in this prospectus and related to the closing of the initial business combination, the ratio at which shares of Class B common stock shall convert into shares of Class A common stock will be adjusted (unless the holders of a majority of the outstanding shares of Class B common stock agree to waive such adjustment with respect to any such issuance or deemed issuance) so that the number of shares of Class A common stock issuable upon conversion of all shares of Class B common stock will equal, in the aggregate, on an as-converted basis, 20% of the sum of the total number of all shares of common stock outstanding upon completion of this offering, plus all shares of Class A common stock and equity-linked securities issued or deemed issued in connection with the initial business combination (excluding any shares or equity-linked securities issued, or to be issued, to any seller in the initial business combination, any private placement-equivalent securities issued to our sponsor or its affiliates upon conversion of loans made to us).
We cannot determine at this time whether a majority of the holders of our Class B common stock at the time of any future issuance would agree to waive such adjustment to the conversion ratio. They may waive such adjustment due to (but not limited to) the following: (i) closing conditions which are part of the agreement for our initial business combination; (ii) negotiation with Class A stockholders on structuring an initial business combination; or (iii) negotiation with parties providing financing which would trigger the anti-dilution provisions of the Class B common stock. If such adjustment is not waived, the issuance would not reduce the percentage ownership of holders of our Class B common stock, but would reduce the percentage ownership of holders of our Class A common stock. If such adjustment is waived, the issuance would reduce the percentage ownership of holders of both classes of our common stock. Holders of founder shares may also elect to convert their shares of Class B common stock into an equal number of shares of Class A common stock, subject to adjustment as provided above, at any time. The term “equity-linked securities” refers to any debt or equity securities that are convertible, exercisable or exchangeable for shares of Class A common stock issues in a financing transaction in connection with our initial business combination, including but not limited to a private placement of equity or debt. Securities could be “deemed issued” for purposes of the conversion rate adjustment if such shares are issuable upon the conversion or exercise of convertible securities, warrants or similar securities.Preferred Stock
Our initial stockholders have agreed not to transfer, assign or sell any of their founder shares until the earlier to occur of: (i) one year after the date of the consummation of our initial business combination; or (ii) the date on which we consummate a liquidation, merger, stock exchange or other similar transaction which results in all of our stockholders having the right to exchange their shares of Class A common stock for cash, securities or other property (except as described herein under the section of this prospectus entitled “Principal Stockholders — Restrictions on Transfers of Founder Shares and Private Placement Warrants”). Any permitted transferees will be subject to the same restrictions and other agreements of our initial stockholders with respect to any founder shares. Notwithstanding the foregoing, if the closing price of our shares of Class A common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing 150 days after our initial business combination, the founder shares will no longer be subject to such transfer restrictions.
Preferred Stock
Our certificate of incorporationCharter provides that shares of preferred stock may be issued from time to time in one or more series. Our board of directorsBoard is authorized to fix the voting rights, if any, designations, powers, preferences, the relative, participating, optional, or other special rights and any qualifications, limitations, and restrictions thereof, applicable to the shares of each series. Our board of directorsBoard will be able to, without stockholder approval, issue preferred stock with voting and other rights that could adversely affect the voting power and other rights of the holders of the common stockCommon Stock and could have anti-takeover effects. The ability of our board of directorsBoard to issue preferred stock without stockholder approval could have the effect of delaying, deferring, or preventing a change of control of us or the removal of existing management. We have no preferred stock outstanding at the date hereof. Although we do not currently intend to issue any shares of preferred stock, we cannot assure you that we will not do so in the future. No shares of preferred stock are being issued or registered in this offering.
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While we have no current plans to issue preferred stock, circumstances in which we might issue preferred stock in the future could include, among others, offerings of preferred stock undertaken for capital raising purposes (whether before or in connection with our initial business combination or thereafter), issuances in connection with acquisitions we might make in the future, or issuances in connection with potential change of control or strategic transactions involving us. Any determination by us to issue shares of preferred stock in the future will be dependent on the facts and circumstances at the time.
Public Stockholders’ Warrants
Each warrant entitles the holder thereof to purchase one share of Class A common stockCommon Stock at a price of $11.50 per share, subject to adjustment as discussed below, at any time commencing on the later of 12 months from the closing of this offering or 30 days after the completion of our initial business combination.November 27, 2022. The warrants will expire five years after the completion of our initial business combination, at 5:00 pm., New York City time,on October 28, 2027, or earlier upon redemption or liquidation.
We will not be obligated to deliver any shares of Class A common stockCommon Stock pursuant to the exercise of a warrant and will have no obligation to settle such warrant exercise unless a registration statement under the Securities Act with respect to the shares of Class A common stockCommon Stock underlying the warrants is then effective and a prospectus relating thereto is current, subject to our satisfying our obligations described below with respect to registration. No warrant will be exercisable and we will not be obligated to issue shares of Class A common stockCommon Stock upon exercise of a warrant unless Class A common stockCommon Stock issuable upon such warrant exercise has been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the registered holder of the warrants. In the event that the conditions in the two immediately preceding sentences are not satisfied with respect to a warrant, the holder of such warrant will not be entitled to exercise such warrant and such warrant may have no value and expire worthless. In no event will we be required to net cash settle any warrant. In the event that a registration statement is not effective for the exercised warrants, the purchaser of a unit containing such warrant will have paid the full purchase price for the unit solely for the share of Class A common stockCommon Stock underlying such unit.
We are not registeringThe registration statement of which this prospectus is part provides for the registration, under the Securities Act, of the issuance of the shares of Class A common stockCommon Stock issuable upon exercise of the warrants at this time. However, we have agreed that as soon as practicable, but in no event later than 15 business days after the closing of our initial business combination, wewarrants. We will use our reasonable best efforts: to file with the SEC a registration statement covering the shares of Class A common stock issuable upon exercise of the warrants, to cause such registration statement to become effective, and toefforts maintain a current prospectus relating to those shares of Class A common stockCommon Stock until the warrants expire or are redeemed, as specified in the warrant agreement. If a registration statement covering the shares of Class A common stock issuable upon exercise of the warrants is not effective by the 60th business day after the closing of our initial business combination, warrant holders may, until such time as there is an effective registration statement and during any period when we will have failed to maintain an effective registration statement, exercise warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption. Notwithstanding the above, if our Class A common stockCommon Stock is at the time of any exercise of a warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, we may, at our option, require holders of public warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event we so elect, we will not be required to file or maintain in effect a registration statement, but we will be required to use our reasonable best efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available.
Once the warrants become exercisable, we may call the warrants for redemption (other than the private placement warrants)Private Placement Warrants):
in whole and not in part;
at a price of $0.01 per warrant;
upon not less than 30 days’ prior written notice of redemption (the “30-day redemption period”) to each warrant holder; and
• | upon not less than 30 days’ prior written notice of redemption (the “30-day redemption period”) to each warrant holder; and |
if, and only if, the reported last sale price of the Class A common stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period ending 3 business days before we send the notice of redemption to the warrant holders.
• | if, and only if, the reported last sale price of the Common Stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period ending 3 business days before we send the notice of redemption to the warrant holders. |
If and when the warrants become redeemable by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under all applicable state securities laws.
We have established the last of the redemption criterion discussed above to prevent a redemption call unless there is at the time of the call a significant premium to the warrant exercise price. If the foregoing conditions are satisfied and we issue a notice of redemption of the warrants, each warrant holder will be entitled to exercise its warrant prior to the scheduled redemption date. However, the price of the Class A common stockCommon Stock may fall below the $18.00 redemption trigger price (as
adjusted for stock splits, stock dividends, reorganizations, recapitalizations, and the like) as well as the $11.50 warrant exercise price after the redemption notice is issued.
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If we call the warrants for redemption as described above, our management will have the option to require any holder that wishes to exercise its warrant to do so on a “cashless basis.” In determining whether to require all holders to exercise their warrants on a “cashless basis,” our management will consider, among other factors, our cash position, the number of warrants that are outstanding and the dilutive effect on our stockholders of issuing the maximum number of shares of Class A common stockCommon Stock issuable upon the exercise of our warrants. If our management takes advantage of this option, all holders of warrants would pay the exercise price by surrendering their warrants for that number of shares of Class A common stockCommon Stock equal to the quotient obtained by dividing: (x) the product of the number of shares of Class A common stockCommon Stock underlying the warrants, multiplied by the difference between the exercise price of the warrants and the “fair market value” (defined below); by (y) the fair market value. The “fair market value” shall mean the average reported last sale price of the Class A common stockCommon Stock for the 10 trading days ending on the third trading day prior to the date on which the notice of redemption is sent to the holders of warrants. If our management takes advantage of this option, the notice of redemption will contain the information necessary to calculate the number of shares of Class A common stockCommon Stock to be received upon exercise of the warrants, including the “fair market value” in such case. Requiring a cashless exercise in this manner will reduce the number of shares to be issued and thereby lessen the dilutive effect of a warrant redemption. We believe this feature is an attractive option to us if we do not need the cash from the exercise of the warrants after our initial business combination. If we call our warrants for redemption and our management does not take advantage of this option, our sponsorSponsor and its permitted transferees would still be entitled to exercise their private placement warrantsPrivate Placement Warrants for cash or on a cashless basis using the same formula described above that other warrant holders would have been required to use had all warrant holders been required to exercise their warrants on a cashless basis, as described in more detail below.
A holder of a warrant may notify us in writing in the event it elects to be subject to a requirement that such holder will not have the right to exercise such warrant, to the extent that after giving effect to such exercise, such person (together with such person’s affiliates), to the warrant agent’s actual knowledge, would beneficially own in excess of 4.9% or 9.8% (or such other amount as a holder may specify) of the shares of Class A common stockCommon Stock outstanding immediately after giving effect to such exercise.
If the number of outstanding shares of Class A common stockCommon Stock is increased by a stock dividend payable in shares of Class A common stock,Common Stock, or by a split-up of shares of Class A common stockCommon Stock or other similar event, then, on the effective date of such stock dividend, split-up or similar event, the number of shares of Class A common stockCommon Stock issuable on exercise of each warrant will be increased in proportion to such increase in the outstanding shares of Class A common stock.Common Stock. A rights offering to holders of Class A common stockCommon Stock entitling holders to purchase shares of Class A common stockCommon Stock at a price less than the fair market value will be deemed a stock dividend of a number of shares of Class A common stockCommon Stock equal to the product of: (i) the number of shares of Class A common stockCommon Stock actually sold in such rights offering (or issuable under any other equity securities sold in such rights offering that are convertible into or exercisable for Class A common stock)Common Stock); and (ii) one (1) minus the quotient of: (x) the price per share of Class A common stockCommon Stock paid in such rights offering, divided by (y) the fair market value. For these purposes: (i) if the rights offering is for securities convertible into or exercisable for Class A common stock,Common Stock, in determining the price payable for Class A common stock,Common Stock, there will be taken into account any consideration received for such rights, as well as any additional amount payable upon exercise or conversion; and (ii) fair market value means the volume weighted average price of Class A common stockCommon Stock as reported during the ten (10) trading day period ending on the trading day prior to the first date on which the shares of Class A common stockCommon Stock trade on the applicable exchange or in the applicable market, regular way, without the right to receive such rights.
In addition, if we, at any time while the warrants are outstanding and unexpired, pay a dividend or make a distribution in cash, securities or other assets to the holders of Class A common stockCommon Stock on account of such shares of Class A common stockCommon Stock (or other shares of our capital stock into which the warrants are convertible), other than: (a) as described above; (b) certain ordinary cash dividends; or (c) to satisfy the redemption rights of the holders of Class A common stock in connection with a proposed initial business combination; (d) to satisfy the redemption rights of the holders of Class A common stock in connection with a stockholder vote to amend our certificate of incorporation: (1) to modify the substance or timing of our obligation to redeem 100% of our Class A common stock if we do not complete our initial business combination within 18 months from the closing of this offering (or 21 months from the closing of this offering, if we extend the period of time to consummate a business combination, as described in more detail in this prospectus); or (2) with respect to any other provision relating to stockholders’ rights or pre-initial business combination activity; or (e)Common Stock in connection with the redemption of our public shares upon our failure to complete our initial business combination,Business Combination, then the warrant exercise price will be decreased, effective immediately after the effective date of such event, by the amount of cash and/or the fair market value of any securities or other assets paid on each share of Class A common stockCommon Stock in respect of such event.
If the number of outstanding shares of our Class A common stockCommon Stock is decreased by a consolidation, combination, reverse stock split or reclassification of shares of Class A common stockCommon Stock or other similar event, then, on the effective date of such consolidation, combination, reverse stock split, reclassification or similar event, the number of shares of Class A common stockCommon Stock issuable on exercise of each warrant will be decreased in proportion to such decrease in outstanding shares of Class A common stock.Common Stock.
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Whenever the number of shares of Class A common stockCommon Stock purchasable upon the exercise of the warrants is adjusted, as described above, the warrant exercise price will be adjusted by multiplying the warrant exercise price immediately prior to such adjustment by a fraction (x) the numerator of which will be the number of shares of Class A common stockCommon Stock purchasable upon the exercise of the warrants immediately prior to such adjustment, and (y) the denominator of which will be the number of shares of Class A common stockCommon Stock so purchasable immediately thereafter.
In case of any reclassification or reorganization of the outstanding shares of Class A common stockCommon Stock (other than those described above or that solely affects the par value of such shares of Class A common stock)Common Stock), or in the case of any merger or consolidation of us with or into another corporation (other than a consolidation or merger in which we are the continuing corporation and that does not result in any reclassification or reorganization of our outstanding shares of Class A common stock)Common Stock), or in the case of any sale or conveyance to another corporation or entity of the assets or other property of us as an entirety or substantially as an entirety in connection with which we are dissolved, the holders of the warrants will thereafter have the right to purchase and receive, upon the basis and upon the terms and conditions specified in the warrants and in lieu of the shares of our Class A common stockCommon Stock immediately theretofore purchasable and receivable upon the exercise of the rights represented thereby, the kind and amount of shares of stock or other securities or property (including cash) receivable upon such reclassification, reorganization, merger or consolidation, or upon a dissolution following any such sale or transfer, that the holder of the warrants would have received if such holder had exercised their warrants immediately prior to such event. If less than 70% of the consideration receivable by the holders of Class A common stockCommon Stock in such a transaction is payable in the form of Class A common stockCommon Stock in the successor entity that is listed for trading on a national securities exchange or is quoted in an established over-the-counter market, or is to be so listed for trading or quoted immediately following such event, and if the registered holder of the warrant properly exercises the warrant within thirty days following public disclosure of such transaction, the warrant exercise price will be reduced as specified in the warrant agreement based on the Black-Scholes value (as defined in the warrant agreement) of the warrant. The purpose of such exercise price reduction is to provide additional value to holders of the warrants when an extraordinary transaction occurs during the exercise period of the warrants pursuant to which the holders of the warrants otherwise do not receive the full potential value of the warrants.
The warrants will bewere issued in registered form under a warrant agreement between Continental, Stock Transfer & Trust Company, as warrant agent, and us. You should review a copy of the warrant agreement, which will be filed as an exhibit to the registration statement of which this prospectus is a part, for a completeThe description of the termswarrants set forth herein is a summary and conditions applicabledoes not purport to the warrants.be complete. The warrant agreement provides that the terms of the warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision, but requires the approval by the holders of at least 65% of the then outstanding public warrants to make any change that adversely affects the interests of the registered holders of public warrants.
The warrants may be exercised upon surrender of the warrant certificate on or prior to the expiration date at the offices of the warrant agent, with the exercise form on the reverse side of the warrant certificate completed and executed as indicated, accompanied by full payment of the exercise price (or on a cashless basis, if applicable), by certified or official bank check payable to us, for the number of warrants being exercised. The warrant holders do not have the rights or privileges of holders of Class A common stockCommon Stock and any voting rights until they exercise their warrants and receive shares of Class A common stock.Common Stock. After the issuance of shares of Class A common stockCommon Stock upon exercise of the warrants, each holder will be entitled to one (1) vote for each share held of record on all matters to be voted on by stockholders.
In addition, if: (x) we issue additional shares of Class A common stockCommon Stock or equity-linked securities for capital raising purposes in connection with the closing of our initial business combinationthe Business Combination at a Newly Issued Price of less than $9.20 per share of Class A common stockCommon Stock (with such issue price or effective issue price to be determined in good faith by our board of directorsBoard and, in the case of any such issuance to our sponsorSponsor or its affiliates, without taking into account any founder shares held by our sponsorSponsor or its affiliates, prior to such issuance); (y) the aggregate gross proceeds from such issuances represent more than 60% of the total equity proceeds, and interest thereon, available for the funding of our initial business combinationthe Business Combination on the date of the consummation of our initial business combinationthe Business Combination (net of redemptions); and (z) the Market Value is below $9.20 per share, the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the higher of the Market Value and the Newly Issued Price, and the $18.00 per share redemption trigger price (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations, and the like) will be adjusted (to the nearest cent) to be equal to 180% of the higher of the Market Value and the Newly Issued Price.
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We have agreed that, subject to applicable law, any action, proceeding or claim against us arising out of or relating in any way to the warrant agreement will be brought and enforced in the courts of the State of New York or the United States District Court for the Southern District of New York, and we irrevocably submit to such jurisdiction, which jurisdiction will be the exclusive forum for any such action, proceeding or claim. See “Risk Factors — Our warrant agreement will designate the courts of the State of New York or the United States District Court for the Southern District of New York as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by holders of our warrants, which could limit the ability of warrant holders to obtain a favorable judicial forum for disputes with our company.” This provision applies to claims under the Securities Act but does not apply to claims under the Exchange Act or any claim for which the federal district courts of the United States of America are the sole and exclusive forum.
Private Placement Warrants
The private placement warrantsPrivate Placement Warrants (including the Class A common stockCommon Stock issuable upon exercise of the private placement warrants)Private Placement Warrants) will not be transferable, assignable or salable until 30 days after the completion of our initial business combinationNovember 28, 2022 (except, among other limited exceptions, as described under the section of this prospectus entitled “Principal Stockholders—Restrictions on Transfers of Founder Shares and Private Placement Warrants,” to our officers and directors and other persons or entities affiliated with our sponsor)Sponsor) and they will not be redeemable by us so long as they are held by our sponsorSponsor or its permitted transferees. Our sponsor,Sponsor, or its permitted transferees, has the option to exercise the private placement warrantsPrivate Placement Warrants on a cashless basis. Except as described below, the private placement warrantsPrivate Placement Warrants have terms and provisions that are identical to those of the warrants being sold as part of the units in this offering,our IPO, including as to exercise price, exercisability and exercise period. If the private placement warrantsPrivate Placement Warrants are held by holders other than the sponsorSponsor or its permitted transferees, the private placement warrantsPrivate Placement Warrants will be redeemable by us and exercisable by the holders on the same basis as the warrants included in the units being sold in this offering.our IPO.
If holders of the private placement warrantsPrivate Placement Warrants elect to exercise them on a cashless basis, they would pay the exercise price by surrendering their warrants for that number of shares of Class A common stockCommon Stock equal to the quotient obtained by dividing (x) the product of the number of shares of Class A common stockCommon Stock underlying the warrants, multiplied by the difference between the exercise price of the warrants and the “fair market value” (defined below) by (y) the fair market value. The “fair market value” shall mean the average reported last sale price of the Class A common stockCommon Stock for the 10 trading days ending on the third trading day prior to the date on which the notice of warrant exercise is sent to the warrant agent. The reason that we haveLMAO agreed that these warrants willwould be exercisable on a cashless basis so long as they are held by the sponsorSponsor or its permitted transferees is because it iswas not known at thisthat time whether they willwould be affiliated with us following an initial business combination.the Business Combination. If they remainare affiliated with us, their ability to sell our securities in the open market will be significantly limited. We expect tomay have policies in place in the future that prohibit insiders from selling our securities except during specific periods of time. Even during such periods of time when insiders will be permitted to sell our securities, an insider cannot trade in our securities if he or she is in possession of material non-public information. Accordingly, unlike public stockholders who could sell the shares of Class A common stockCommon Stock issuable upon exercise of the warrants freely in the open market, the insiders could be significantly restricted from doing so. As a result, we believeLMAO believed that allowing the holders to exercise such warrants on a cashless basis iswas appropriate.
In order to finance transaction costs in connection with an intended initial business combination,the Business Combination, our sponsorSponsor or an affiliate of our sponsorSponsor or certain of our officers and directors may,had the option, but arewere not obligated to, loan us funds as may be required. Up to $1,500,000 of such working capital loans may be convertible into private placement-equivalent warrants atOn February 1, 2022, LMAO issued a price of $1.00 per warrant at the option of the lender. Such warrants would be identicalpromissory note to the private placement warrants, including asSponsor pursuant to exercise price, exercisabilitywhich LMAO may borrow up to an aggregate principal amount of $500,000 and exercise period. The termsto which such convertible promissory note was amended and restated on July 28, 2022 to increase the aggregate principal amount to $1.75 million and subsequently amended by the Sponsor Note, a more detailed discussion of such working capital loans by our sponsor or its affiliates, or our officers and directors, if any, have not been determined and no written agreements exist with respectwhich is contained elsewhere in this prospectus. As of September 30, 2022, we had drawn down $910,000 under the note to such loans.pay for offering expenses.
In addition, holders of our private placement warrantsPrivate Placement Warrants are entitled to certain registration rights.
Our sponsorSponsor has agreed not to transfer, assign or sell any of the private placement warrantsPrivate Placement Warrants (including the Class A common stockCommon Stock issuable upon exercise of any of these warrants) until the date that is 30 days after the date we complete our initial business combination, except that,November 28, 2022 (except, among other limited exceptions, as described under the section of this prospectus entitled “Principal Stockholders—Restrictions on Transfers of Founder Shares and Private Placement Warrants” made to our officers and directors and other persons or entities affiliated with our sponsor.Sponsor).
DividendsListing
WeOur Common Stock and warrants are traded on the Nasdaq Capital Market under the symbols “ICU” and “ICUCW,” respectively.
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PLAN OF DISTRIBUTION
The shares of common stock offered by this prospectus are being offered by the Selling Stockholder, Tumim Stone Capital LLC. The shares may be sold or distributed from time to time by the selling stockholder directly to one or more purchasers or through brokers, dealers, or underwriters who may act solely as agents at market prices prevailing at the time of sale, at prices related to the prevailing market prices, at negotiated prices, or at fixed prices, which may be changed. The sale of the ordinary shares offered by this prospectus could be effected in one or more of the following methods:
ordinary brokers’ transactions;
transactions involving cross or block trades;
through brokers, dealers, or underwriters who may act solely as agents;
“at the market” into an existing market for the ordinary shares;
in other ways not involving market makers or established business markets, including direct sales to purchasers or sales effected through agents;
in privately negotiated transactions; or
any combination of the foregoing.
In order to comply with the securities laws of certain states, if applicable, the shares may be sold only through registered or licensed brokers or dealers. In addition, in certain states, the shares may not be sold unless they have not paidbeen registered or qualified for sale in the state or an exemption from the state’s registration or qualification requirement is available and complied with.
Tumim Stone Capital is an “underwriter” within the meaning of Section 2(a)(11) of the Securities Act.
Tumim Stone Capital has informed us that it intends to use one or more registered broker-dealers to effectuate all sales, if any, cash dividends onof our common stock to datethat it has acquired and do not intend to pay cash dividends prior to the completion of an initial business combination. The payment of cash dividendsmay in the future acquire from us pursuant to the Purchase Agreement. Such sales will be dependent upon our
revenuesmade at prices and earnings, if any, capital requirements and general financial conditions subsequentat terms then prevailing or at prices related to completion of an initial business combination. The payment of any cash dividends subsequent to an initial business combinationthe then current market price. Each such registered broker-dealer will be an underwriter within the discretionmeaning of our board of directors at such time. If we increase or decrease the sizeSection 2(a)(11) of the offering weSecurities Act. Tumim Stone Capital has informed us that each such broker-dealer will effect a stock dividendreceive commissions from Tumim Stone Capital that will not exceed customary brokerage commissions.
Brokers, dealers, underwriters or a share contribution back to capital or other appropriate mechanism, as applicable, with respect to our Class B common stock immediately prior toagents participating in the consummationdistribution of the offering in such amount as to maintain the ownership of our initial stockholders at 20% of the issued and outstanding shares of our common stock uponoffered by this prospectus may receive compensation in the consummationform of this offering. Further, if we incur any indebtedness, our ability to declare dividends may be limited by restrictive covenants we may agree to in connection therewith.
Our Transfer Agent and Warrant Agent
The transfer agent for our common stock and the warrant agent for our warrants is Continental Stock Transfer & Trust Company. We have agreed to indemnify Continental Stock Transfer & Trust Company in its roles as transfer agent and warrant agent, its agents and each of its stockholders, directors, officers and employees against all claims and losses that may arise out of acts performedcommissions, discounts, or omitted for its activities in that capacity, except for any liability due to any gross negligence, willful misconduct or bad faith of the indemnified person or entity.
Our Certificate of Incorporation
Our certificate of incorporation will contain certain requirements and restrictions relating to this offering that will apply to us until the completion of our initial business combination. These provisions cannot be amended without the approval of the holders of 65% of our common stock. Our initial stockholders, who will collectively beneficially own 20% of our common stock upon the closing of this offering (assuming they do not purchase any units in this offering), will participate in any vote to amend our certificate of incorporation and will have the discretion to vote in any manner they choose. Specifically, our certificate of incorporation will provide, among other things, that:
If we are unable to complete our initial business combination within 18 monthsconcessions from the closing of this offering (or 21 months frompurchasers, for whom the closing of this offering, if we extend the period of time to consummate a business combination,broker-dealers may act as described in more detail in this prospectus), we will: (i) cease all operations, except for the purpose of winding up; (ii) as promptly as reasonably possible, but not more than 10 business days thereafter subject to lawfully available funds therefor, redeem 100% of the public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, including interest earned on the funds held in the trust account and not previously released to us to pay our franchise and income taxes (less up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding public shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any), subject to applicable law; and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders and our board of directors, dissolve and liquidate, subject in each case to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law;
Prior to our initial business combination, we may not issue additional shares of capital stock that would entitle the holders thereof to: (i) receive funds from the trust account; or (ii) vote on any initial business combination;
Although we do not intend to enter into an initial business combination with a target business that is affiliated with our sponsor, our directors or our officers, we are not prohibited from doing so. In the event we enter into such a transaction, we, or a committee of independent directors, will obtain an opinion from an independent investment banking firm that is a member of FINRA or an independent accounting firm that such an initial business combination is fair to our company from a financial point of view;
If a stockholder vote on our initial business combination is not required by law and we do not decide to hold a stockholder vote for business or other legal reasons, we will offer to redeem our public shares pursuant to Rule 13e-4 and Regulation 14E of the Exchange Act, and will file tender offer documents with the SEC prior to completing our initial business combination which contain substantially the same financial and other information about our initial business combination and the redemption rights as is required under Regulation 14A of the Exchange Act; whether or not we maintain our registration under the our Exchange Act or our listing on Nasdaq, we will provide our public stockholders with the opportunity to redeem their public shares by one of the two methods listed above;
If our stockholders approve an amendment to our certificate of incorporation: (i) to modify the substance or timing of our obligation to redeem 100% of our public shares if we do not complete our initial business combination within 18 months from the closing of this offering (or 21 months from the closing of this offering, if we extend the period of time to consummate a business combination, as described in more detail in this prospectus); or (ii) with respect to any other provision relating to stockholders’ rights or pre-business combination activity, we will provide our public stockholders with the opportunity to redeem all or a portion of their shares of Class A common stock upon such approval at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the trust account, including interest earned on the funds held in the trust account and not previously released to us to pay our franchise and income taxes, divided by the number of then outstanding public shares; and
We will not effectuate our initial business combination with another blank check company or a similar company with nominal operations.
In addition, our certificate of incorporation will provide that under no circumstances will we redeem our public shares in an amount that would cause our net tangible assets to be less than $5,000,001 either immediately prior to or upon consummation of our initial business combination and after payment of the underwriters’ fees and commissions.
Certain Anti-Takeover Provisions of Delaware Law and our Certificate of incorporation and Bylaws
We will be subject to the provisions of Section 203 of the DGCL regulating corporate takeovers upon completion of this offering. This statute prevents certain Delaware corporations, under certain circumstances, from engaging in a “business combination” with:
a stockholder who owns 15% or more of our outstanding voting stock (otherwise known as an “interested stockholder”);
an affiliate of an interested stockholder; or
an associate of an interested stockholder, for three years following the date that the stockholder became an interested stockholder.
A “business combination” includes a merger or sale of more than 10% of our assets. However, the above provisions of Section 203 do not apply if:
our board of directors approves the transaction that made the stockholder an “interested stockholder,” prior to the date of the transaction;
after the completion of the transaction that resulted in the stockholder becoming an interested stockholder, that stockholder owned at least 85% of our voting stock outstanding at the time the transaction commenced, other than statutorily excluded shares of common stock; or
on or subsequent to the date of the transaction, the initial business combination is approved by our board of directors and authorized at a meeting of our stockholders, and not by written consent, by an affirmative vote of at least two-thirds of the outstanding voting stock not owned by the interested stockholder.
Our certificate of incorporation will provide that our board of directors will be classified into 2 classes of directors. As a result, in most circumstances, a person can gain control of our board only by successfully engaging in a proxy contest at two or more annual meetings.
Our authorized but unissued common stock and preferred stock are available for future issuances without stockholder approval and could be utilized for a variety of corporate purposes, including future offerings to raise additional capital, acquisitions and employee benefit plans. The existence of authorized but unissued and unreserved common stock and
preferred stock could render more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.
Exclusive forum for certain lawsuits
Our certificate of incorporation will require, to the fullest extent permitted by law, that derivative actions brought in our name, actions against directors, officers and employees for breach of fiduciary duty and certain other actions may be brought only in the Court of Chancery in the State of Delaware, except any action: (A) as to which the Court of Chancery in the State of Delaware determines that there is an indispensable party not subject to the jurisdiction of the Court of Chancery (and the indispensable party does not consent to the personal jurisdiction of the Court of Chancery within 10 days following such determination); (B) which is vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery; or (C) for which the Court of Chancery does not have subject matter jurisdiction. If an action is brought outside of Delaware, the stockholder bringing the suit will be deemed to have consented to service of process on such stockholder’s counsel. Although we believe this provision benefits us by providing increased consistency in the application of law in the types of lawsuits to which it applies, a court may determine that this provision is unenforceable, and to the extent it is enforceable, the provision may have the effect of discouraging lawsuits against our directors and officers.
Our certificate of incorporation will provide that the exclusive forum provision will be applicable to the fullest extent permitted by applicable law, subject to certain exceptions. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. As a result, the exclusive forum provision will not apply to suits brought to enforce any duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. In addition, our certificate of incorporation will provide that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States of America shall, to the fullest extent permitted by law, be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended, or the rules and regulations promulgated thereunder. We note, however, that there is uncertainty as to whether a court would enforce this provision and that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Section 22 of the Securities Act creates concurrent jurisdiction for state and federal courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder.
Special meeting of stockholders
Our bylaws provide that special meetings of our stockholders may be called only by a majority vote of our board of directors, by our Chief Executive Officer or by our Chairman.
Advance notice requirements for stockholder proposals and director nominations
Our bylaws provide that stockholders seeking to bring business before our annual meeting of stockholders, or to nominate candidates for election as directors at our annual meeting of stockholders, must provide timely notice of their intent in writing. To be timely, a stockholder’s notice will need to be received by the company secretary at our principal executive offices not later than the close of business on the 90th day nor earlier than the opening of business on the 120th day prior to the anniversary date of the immediately preceding annual meeting of stockholders. Pursuant to Rule 14a-8 of the Exchange Act, proposals seeking inclusion in our annual proxy statement must comply with the notice periods contained therein. Our bylaws also specify certain requirements as to the form and content of a stockholders’ meeting. These provisions may preclude our stockholders from bringing matters before our annual meeting of stockholders or from making nominations for directors at our annual meeting of stockholders.
Action by written consent
Subsequent to the consummation of the offering, any action required or permitted to be taken by our common stockholders must be effected by a duly called annual or special meeting of such stockholders and may not be effected by written consent of the stockholders other than with respect to our Class B common stock.
Classified Board of Directors
Our board of directors will initially be divided into 2 classes, Class I and Class II, with members of each class serving staggered 2-year terms. Our certificate of incorporation will provide that the authorized number of directors may be changed only by resolution of the board of directors. Subject to the terms of any preferred stock, any or all of the directors may be removed from office at any time, but only for cause and only by the affirmative vote of holders of a majority of the voting power of all then outstanding shares of our capital stock entitled to vote generally in the election of directors, voting
together as a single class. Any vacancy on our board of directors, including a vacancy resulting from an enlargement of our board of directors, may be filled only by vote of a majority of our directors then in office.
Class B Common Stock Consent Right
For so long as any shares of Class B common stock remain outstanding, we may not, without the prior vote or written consent of the holders of a majorityagent, of the shares of Class B common stock then outstanding, voting separately as a single class, amend, alter or repeal any provision our certificate of incorporation, whether by merger, consolidation or otherwise, if such amendment, alteration or repeal would alter or change the powers, preferences or relative, participating, optional or other or special rights of the Class B common stock. Any action required or permitted to be taken at any meeting of the holders of Class B common stock may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signedsold by the holders of the outstanding Class B common stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares of Class B common stock were present and voted.
Securities Eligible for Future Sale
Immediately after the consummation of this offering (assuming no exercise of the underwriters’ over-allotment option) we will have 9,450,000 (or 10,867,500 if the underwriters’ over-allotment option is exercised in full) shares of common stock outstanding. Of these shares, the 7,500,000 shares (or 8,625,000 if the underwriters’ over-allotment option is exercised in full) sold in this offering will be freely tradable without restriction or further registration under the Securities Act, except for any shares purchased by one of our affiliates within the meaning of Rule 144 under the Securities Act. 1,875,000 (or 2,156,250 if the underwriters’ over-allotment option is exercised in full) shares of Class B common stock are restricted securities under Rule 144, in that they were issued in private transactions not involving a public offering. In addition, the shares of Class B common stock, and the securities underlying the foregoing and 75,000 (or 86,250 if the underwriters’ over-allotment opinion is exercised in full) shares of Class A common stock issuable to Maxim and/or its designees, are subject to transfer restrictions as set forth elsewhere inselling stockholder through this prospectus. These restricted securities will be entitledThe compensation paid to registration rights as more fully described below under “— Registration Rights.”
Rule 144
Pursuant to Rule 144, a person who has beneficially owned restrictedany such particular broker-dealer by any such purchasers of shares of our common stock sold by the selling stockholder may be less than or warrants for at least six months would be entitled to sell their securities providedin excess of customary commissions. Neither we nor the selling stockholder can presently estimate the amount of compensation that (i) such person is not deemed to have been oneany agent will receive from any purchasers of our affiliates at the time of, or at any time during the three months preceding, a sale and (ii) we are subject to the Exchange Act periodic reporting requirements for at least three months before the sale and have filed all required reports under Section 13 or 15(d) of the Exchange Act during the 12 months (or such shorter period as we were required to file reports) preceding the sale.
Persons who have beneficially owned restricted shares of our common stock sold by the selling stockholder.
We know of no existing arrangements between the selling stockholder or warrants for at least six months but who are our affiliates atany other stockholder, broker, dealer, underwriter or agent relating to the time of,sale or at any time during the three months preceding, a sale, would be subject to additional restrictions, by which such person would be entitled to sell within any three-month period only a number of securities that does not exceed the greater of:
1%distribution of the total number of shares of Class Aour common stock then outstanding, which will equal 75,750 shares immediately afteroffered by this offering (or 87,113 if the underwriters exercise their over-allotment option in full); orprospectus.
the average weekly reported trading volume of the common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respectWe may from time to the sale.
Sales by our affiliates under Rule 144 are also limited by manner of sale provisions and notice requirements and to the availability of current public information about us.
Restrictions on the Use of Rule 144 by Shell Companies or Former Shell Companies
Rule 144 is not available for the resale of securities initially issued by shell companies (other than business combination related shell companies) or issuers that have been at any time previously a shell company. However, Rule 144 also includes an important exception to this prohibition if the following conditions are met:
the issuer of the securities that was formerly a shell company has ceased to be a shell company;
the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act;
at least one year has elapsed from the time that the issuer filed current Form 10 type information with the SEC reflecting its status as an entity that is not a shell company.
As a result, our initial stockholders will be ableone or more supplements to sell their founder shares and private placement warrants, and the securities underlying the foregoing, as applicable, pursuantthis prospectus or amendments to Rule 144 without registration one year after we have completed our initial business combination.
Registration Rights
The holders of the founder shares (and any shares of Class A common stock issuable upon conversion of the founder shares), representative shares, private placement warrants (and any shares of Class A common stock issuable upon conversion of the private placement warrants), and securities that may be issued upon conversion of working capital loans (and any securities that may be issued upon conversion of working capital loans) will be entitled to registration rights pursuant to a registration rights agreement to be signed prior to or on the effective date of this offering, requiring us to register such securities for resale (in the case of the founder shares, only after conversion to our Class A common stock). The holders of the majority of these securities are entitled to make up to three demands, excluding short form demands, that we register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to our completion of our initial business combination and rights to require us to register for resale such securities pursuant to Rule 415 under the Securities Act. Notwithstanding the foregoing, the underwriters may not exercise their demand and “piggyback” registration rights after five and seven years after the effective date of the registration statement of which this prospectus forms a part to amend, supplement or update information contained in this prospectus, including, if and may not exercise its demand rights on more than one occasion. when required under the Securities Act, to disclose certain information relating to a particular sale of shares offered by this prospectus by the selling stockholder, including the names of any brokers, dealers, underwriters or agents participating in the distribution of such shares by the selling stockholder, any compensation paid by the selling stockholder to any such brokers, dealers, underwriters or agents, and any other required information.
We will bearpay the expenses incurredincident to the registration under the Securities Act of the offer and sale of the shares of our common stock covered by this prospectus by the selling stockholder. As consideration for its irrevocable commitment to purchase our common stock under the Purchase Agreement, on January 20, 2023, we issued, as partial consideration, to Tumim Stone Capital 218,842 shares of our Common Stock as Commitment Shares. We also paid $75,000 in cash to Tumim Stone Capital as reimbursement for the fees and disbursements of its counsel in connection with the filingtransactions contemplated by the Purchase Agreement. We estimate the total cost of this offering to be $150,000.
We also have agreed to indemnify Tumim Stone Capital and certain other persons against certain liabilities in connection with the offering of shares of our common stock offered hereby, including liabilities arising under the Securities Act or, if such indemnity is unavailable, to contribute amounts required to be paid in respect of such liabilities. Tumim Stone Capital has agreed to indemnify us against liabilities under the Securities Act
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that may arise from certain written information furnished to us by Tumim Stone Capital specifically for use in this prospectus or, if such indemnity is unavailable, to contribute amounts required to be paid in respect of such liabilities. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers, and controlling persons, we have been advised that in the opinion of the SEC this indemnification is against public policy as expressed in the Securities Act and is therefore, unenforceable.
Tumim Stone Capital has agreed that during the term of the Purchase Agreement, neither Tumim Stone Capital nor any of its affiliates nor any entity managed or controlled by Tumim Stone Capital shall, directly or indirectly, (i) engage in or effect any short sale (as such registration statements.
Listingterm is defined in Rule 200 of SecuritiesRegulation SHO of the Exchange Act) of our common stock or (ii) execute any stock pledge, forward sales contract, option, put, call, swap or similar hedging arrangement (including on a total return basis), which establishes a net short position with respect to our common stock.
We have appliedadvised the selling stockholder that it is required to list our units, Class A common stock and warrants on Nasdaqcomply with Regulation M promulgated under the symbols “LMAOU,” “LMAO”Exchange Act. With certain exceptions, Regulation M precludes the selling stockholder, any affiliated purchasers, and “LMAOW,” respectively. We expect that our units will be listed on Nasdaq onany broker-dealer or promptly afterother person who participates in the effective datedistribution from bidding for or purchasing, or attempting to induce any person to bid for or purchase any security which is the subject of the registration statement. Followingdistribution until the entire distribution is complete. Regulation M also prohibits any bids or purchases made in order to stabilize the price of a security in connection with the distribution of that security. All of the foregoing may affect the marketability of the securities offered by this prospectus.
This offering will terminate on the date thethat all shares of our Class A common stock and warrants are eligible to trade separately, we anticipate thatoffered by this prospectus have been sold by the shares of our Class Aselling stockholder.
Our common stock and warrants will beis currently listed separately and as a unit on Nasdaq. We cannot guarantee that our securities will be approved for listing on Nasdaq.The Nasdaq Capital Market under the symbol “ICU”.
U.S. Federal Income Tax Considerations
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a discussionsummary of certain materialthe U.S. federal income tax consequences ofconsiderations generally applicable to the acquisition, ownership and disposition of our units, shares of Class A common stockCommon Stock and warrants,Warrants, which we refer to collectively as our securities, purchased pursuantsecurities. This summary is based upon U.S. federal income tax law as of the date of this prospectus, which is subject to this offering. Because the componentschange or differing interpretations, possibly with retroactive effect. This summary does not discuss all aspects of U.S. federal income taxation that may be important to particular investors in light of their individual circumstances, including investors subject to special tax rules (e.g., financial institutions, insurance companies, broker-dealers, tax-exempt organizations (including private foundations), taxpayers that have elected mark-to-market accounting, S corporations, regulated investment companies, real estate investment trusts, passive foreign investment companies, controlled foreign corporations, investors that will hold Common Stock or Warrants as part of a unit are separable at the option of the holder, the holder of a unit generally should be treated,straddle, hedge, conversion, or other integrated transaction for U.S. federal income tax purposes, asor investors that have a functional currency other than the ownerU.S. dollar), all of whom may be subject to tax rules that differ materially from those summarized below. In addition, this summary does not discuss other U.S. federal tax consequences (e.g., estate or gift tax), any state, local, or non-U.S. tax considerations or the underlying Class A common stock and one redeemable warrant. As a result, the discussion below with respectMedicare tax or alternative minimum tax. In addition, this summary is limited to actual holders of Class A common stock and warrants should also apply to holders of units (as the deemed owners of the underlying Class A common stock and warrantsinvestors that comprise the units). This discussion assumes that stockholders will hold our securities as capital assets within the meaning of Section 1221 of“capital assets” (generally, property held for investment) under the Internal Revenue Code of 1986, as amended, (the “Code”). No ruling from the Internal Revenue Service, (the “IRS”) has been or will be sought regarding any matter discussed herein. No assurance can be given that the Code.
This discussion doesIRS would not describe allassert, or that a court would not sustain a position contrary to any of the U.S. federal income tax consequencesaspects set forth below.
For purposes of this summary, a “U.S. Holder” is a beneficial holder of securities who or that, may be relevant to you in light of your particular circumstances, including the alternative minimum tax, the Medicare tax on certain investment income and the special tax rules that may apply to certain types of investors, such as:
banks or financial institutions;
insurance companies;
brokers, dealers or traders in securities, commodities or currencies;
traders that elect to use a mark-to-market method of accounting;
persons holding the securities as part of a “straddle,” hedge, conversion, integrated transaction or similar transaction;
U.S. expatriates or former long-term residents of the United States;
partnerships or other pass-through entities for U.S. federal income tax purposes is:
an individual who is a United States citizen or resident of the United States;
a corporation or other entity treated as a corporation for United States federal income tax purposes created in, or organized under the law of, the United States or any state or political subdivision thereof;
an estate the income of which is includible in gross income for United States federal income tax purposes regardless of its source; or
a trust (A) the administration of which is subject to the primary supervision of a United States court and anywhich has one or more United States persons (within the meaning of the Code) who have the authority to control all substantial decisions of the trust or (B) that has in effect a valid election under applicable Treasury regulations to be treated as a United States person.
A “non-U.S. Holder” is a beneficial ownersholder of such entities;securities that is neither a U.S. Holder nor a partnership for U.S. federal income tax purposes.
S corporations;
regulated investment companies;
real estate investment trusts;
grantor trusts; and
tax-exempt entities (including private foundations).
If you area partnership (including an entity or arrangement treated as a partnership for U.S. federal income tax purposes,purposes) holds our securities, the U.S. federal income tax treatment of your partnersa partner, member or other beneficial owner in such partnership will generally depend onupon the status of your partnersthe partner, member or other beneficial owner, the activities of the partnership and your activities. A partnershipcertain determinations made at the partner, member or other beneficial owner level. If you are a partner, inmember or other beneficial owner of a partnership should consult its own tax advisor as to the U.S. federal tax consequences of acquiring, owning and disposing ofholding our securities.
This discussion is based on the Internal Revenue Code of 1986, as amended, the Code, and administrative pronouncements, judicial decisions and final, temporary and proposed Treasury regulations as of the date hereof, all of which are subject to change or differing interpretations, possibly on a retroactive basis. This discussion does not address any aspect of state, local or non-U.S. taxation, or any U.S. federal taxes other than income tax (such as gift and estate taxes).
Yousecurities, you are urged to consult your tax advisor with respect to the application of U.S. federal tax laws to your particular situation, as well as any tax consequences arising under the laws of any state, local or foreign jurisdiction.
Personal Holding Company Status
We could be subject to a second level of U.S. federal income tax on a portion of our income if we are determined to be a personal holding company, or PHC, for U.S. federal income tax purposes. A U.S. corporation generally will be classified as a PHC for U.S. federal income tax purposes in a given taxable year if (i) at any time during the last half of such taxable year, five or fewer individuals (without regard to their citizenship or residency and including as individuals for this purpose certain entities such as certain tax-exempt organizations, pension funds and charitable trusts) own or are deemed to own (pursuant to certain constructive ownership rules) more than 50% of the stock of the corporation by value and (ii) at least 60% of the corporation’s adjusted ordinary gross income, as determined for U.S. federal income tax purposes, for such taxable year consists of PHC income (which includes, among other things, dividends, interest, certain royalties, annuities and, under certain circumstances, rents).
At least 60% of our adjusted ordinary gross income may consist of PHC income, depending on the date and size of our initial business combination. In addition, depending on the concentration of our stock in the hands of individuals, including the members of our sponsor and certain tax-exempt organizations, pension funds and charitable trusts, more than 50% of our stock may be owned or deemed owned (pursuant to the constructive ownership rules) by such persons during the last half of a taxable year. Thus, no assurance can be given that we will not be a PHC following this offering or in the future. If we are or were to become a PHC in a given taxable year, we would be subject to an additional PHC tax, currently 20%, on our undistributed PHC income, which generally includes our taxable income, subject to certain adjustments.
Allocation of Purchase Price and Characterization of a Unit
No statutory, administrative or judicial authority directly addresses the U.S. federal income tax treatment of a unit or instruments similar to a unit for U.S. federal income tax purposes and, therefore, their treatment is not entirely clear. The acquisition of a unit should be treated for U.S. federal income tax purposes as the acquisition of one share of our Class A common stock and one warrant to acquire one share of our Class A common stock. We intend to treat the acquisition of a unit in this manner and, by purchasing a unit, you will agree to adopt such treatment for tax purposes. For U.S. federal income tax purposes, each holder of a unit must allocate the purchase price paid by such holder for such unit between the one share of Class A common stock and the one warrant based on the relative fair market value of each at the time of issuance. The price allocated to each share of Class A common stock and the one warrant should be the stockholder’s tax basis in such share or
one warrant, as the case may be. Any disposition of a unit should be treated for U.S. federal income tax purposes as a disposition of the share of Class A common stock and one warrant comprising the unit, and the amount realized on the disposition should be allocated between the Class A common stock and the one warrant based on their relative fair market values at the time of disposition. The separation of shares of Class A common stock and warrants comprising units should not be a taxable event for U.S. federal income tax purposes. If the separation of the share of Class A common stock and warrant comprising a unit is considered to be a taxable event for U.S. federal income tax purposes, it is possible that you could recognize gain or loss on such separation in a taxable exchange. In this case, your holding period in the Class A common stock and the warrant comprising the unit would likely commence the day following such taxable event. You are urged to consult your own tax advisor regarding the tax consequences to you if the separation of a unit is considered a taxable event.
The foregoing treatment of the shares of Class A common stock and warrants and a holder’s purchase price allocation are not binding on the Internal Revenue Service, the IRS, or the courts. Because there are no authorities that directly address instruments that are similar to the units, no assurance can be given that the IRS or the courts will agree with the characterization described above or the discussion below. Accordingly, each prospective investor is urged to consult its own tax advisors regarding the tax consequences of an investment in a unit (including alternative characterizationsthe ownership and disposition of a unit). Unless otherwise stated, the remainder of this discussion assumes that the characterization of the units described above is respected forour securities.
THIS DISCUSSION MATERIAL OF U.S. federal income tax purposes.FEDERAL INCOME TAX CONSIDERATIONS IS FOR GENERAL INFORMATION PURPOSES ONLY AND IS NOT TAX ADVICE. PROSPECTIVE HOLDERS SHOULD CONSULT THEIR TAX ADVISORS CONCERNING THE U.S. FEDERAL INCOME TAX CONSEQUENCES TO THEM OF OWNING AND DISPOSING OF OUR SECURITIES, AS WELL AS THE APPLICATION OF ANY, STATE, LOCAL AND NON-U.S. INCOME, ESTATE AND OTHER TAX CONSIDERATIONS.
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U.S. Holders
This section applies to youTaxation of Distributions
We have not paid cash dividends on our capital stock, and we do not anticipate paying any dividends on our Common Stock in the foreseeable future. However, if you are a “U.S. Holder.” A U.S. Holder is a beneficial owner of our units, shares of Class A common stock or warrants who or that is, for U.S. federal income tax purposes:
an individual who is a citizen or resident of the United States;
a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized in or under the laws of the United States, any state thereof or the District of Columbia;
an estate the income of which is subjectwe do pay distributions to U.S. federal income taxation regardless of its source; or
a trust (i) the administration of which is subject to the primary supervision of a court in the United States and for which one or more U.S. persons have the authority to control all substantial decisions or (ii) that has an election in effect under applicable income tax regulations to be treated as a U.S. person for U.S. federal income tax purposes.
Taxation of Distributions. If you are a U.S. HolderHolders of shares of our Class A common stock and we pay cash distributions to you,Common Stock, such distributions generally will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Distributions in excess of current and accumulated earnings and profits will constitute a return of capital that will be applied against and reduce (but not below zero) yourthe U.S. Holder’s adjusted tax basis in our Class A common stock.Common Stock. Any remaining excess will be treated as gain realized on the sale or other disposition of the Class A common stockCommon Stock and will be treated as described under “U.S. Holders - “U.S. Holders—Gain or Loss on Sale, Taxable Exchange or Other Taxable Disposition of Class A common stock”Common Stock” below.
If you are taxable as a corporation for U.S. federal income tax purposes, dividendsDividends we pay to youa U.S. Holder that is a taxable corporation generally will qualify for the dividends received deduction if the requisite holding period is satisfied. With certain exceptions (including but not limited to, dividends treated as investment income for purposes of investment interest deduction limitations), and provided certain holding period requirements are met, dividends we pay to you if you are a non-corporate U.S. Holder will generally will constitute “qualified dividends” that will be subject to tax at the maximum tax rate applicableaccorded to long-term capital gains. It is unclear whether the redemption rights with respect to the Class A common stock described in this prospectus may prevent you from satisfying the applicable holding period requirements with respect to the dividends received deduction or the preferential tax rate on qualified dividend income, as the case may be. If the holding period requirements are not satisfied, then the dividends received deduction may not be available and you would have taxable income equal to the entire dividend amount if you are taxable as a corporation, and if you are a non-corporate U.S. Holder, you may be subject to tax on such dividend at regular ordinary income tax rates instead of the preferential rate that applies to qualified dividend income.
Gain or Loss on Sale, Taxable Exchange or Other Taxable Disposition of Class Common Stock
A common stock and Warrants. Upon aU.S. Holder will recognize gain or loss on the sale, taxable exchange or other taxable disposition of our Class A common stockCommon Stock. Any such gain or warrants (which, in general, would include a redemption of Class A common stock or warrants that is treated as a sale of such securities as described below, and including as a result of a dissolution and liquidation in the event we do not consummate an initial business combination within the
required time period), you generallyloss will recognizebe capital gain or loss, in anand will be long-term capital gain or loss if the U.S. Holder’s holding period for the Common Stock so disposed of exceeds one year. The amount of gain or loss recognized will generally be equal to the difference between (i)(1) the sum of the amount of cash and the fair market value of any property received in respect ofsuch disposition and (2) the Class A common stock and warrants, respectively, and (ii) yourU.S. Holder’s adjusted tax basis in your Classits Common Stock so disposed of. A common stock and warrants, respectively. YourU.S. Holder’s adjusted tax basis in your Class A common stock or warrantsits Common Stock will generally will equal yourthe U.S. Holder’s acquisition cost (that is, as discussed above, the portion of the purchase price of a unit allocated to a share of Class A common stock or one warrant or, as discussed below, your initial basis for Class A common stock received upon exercise of warrants) less in the case of a share of Class A common stock, any prior distributiondistributions treated as a return of capital. Any such capital gain or loss generally will be long-term capital gain or loss if your holding period for the Class A common stock or warrants so disposed of exceeds one year at the time of the disposition. It is unclear, however, whether the redemption rights with respect to the Class A common stock described in this prospectus may suspend the running of the applicable holding period for this purpose. If the running of the holding period is suspended and you are a non-corporate U.S. holder, you may not be able to satisfy the one-year holding period requirement for long-term capital gain treatment, in which case any gain on a sale or taxable disposition of the shares or warrants would be subject to short-term capital gain treatment and would be taxed at regular ordinary income tax rates. Long-term capital gains recognized by you if you are a non-corporate U.S. Holder will be eligible to be taxed at reduced rates. The deductibility of capital losses is subject to limitations.
Redemption of Class A common stock. Common Stock
In the event that your Class A common stocka U.S. Holder’s Common Stock is redeemed by us, including pursuant to the redemption provisions described in this prospectus under the section of this prospectus entitled “Description of Securities — Common Stock” or if we purchase your Class A common stock in an open market transaction, the treatment of the transaction for U.S. federal income tax purposes will depend on whether the redemption qualifies as sale of the Class A common stockCommon Stock under Section 302 of the Code. If the redemption qualifies as a sale of Common Stock under the Class A common stock, youtests described below, the tax consequences to the U.S. Holder will be treatedthe same as described under “U.S. Holders — “U.S. Holders—Gain or Loss on Sale, Taxable Exchange or Other Taxable Disposition of Class A common stock and Warrants”Common Stock” above. If the redemption does not qualify as a sale of common stock, youCommon Stock, the U.S. Holder will be treated as receiving a corporate distribution, subject to the tax consequences of which are described above under “U.S. Holders — “U.S. Holders—Taxation of Distributions.Distributions.” Whether athe redemption qualifies for sale treatment will depend largelyprimarily on the total number of shares of our stock treated as held by youthe U.S. Holder (including any stock you constructively owned by the U.S. Holder as a result of owning warrants) relative to all of our shares outstandingWarrants) both before and after the redemption. The redemption of Class A common stockCommon Stock will generally will be treated as a sale of the Class A common stockCommon Stock (rather than as a corporate distribution) if the redemption (i)(1) is “substantially disproportionate” with respect to you, (ii)the U.S. Holder, (2) results in a “complete termination” of yourthe U.S. Holder’s interest in us or (iii)(3) is “not essentially equivalent to a dividend” with respect to you.the U.S. Holder. These tests are explained more fully below.
In determining whether any of the foregoing tests are satisfied, you would takea U.S. Holder takes into account not only stock actually owned by you,the U.S. Holder, but also shares of our stock that youare constructively own. Youowned by it. A U.S. Holder may constructively own, in addition to stock owned directly, stock owned by certain related individuals and entities in which you havethe U.S. Holder has an interest or that have an interest in you,such U.S. Holder, as well as any stock you havethe U.S. Holder has a right to acquire by exercise of an option, which would generally include Class A common stock which could be acquired pursuant to the exercise of the warrants. In order to meet theWarrants. A redemption of a U.S. Holder’s stock will be substantially disproportionate test,with respect to the U.S. Holder if the percentage of our outstanding voting stock actually and constructively owned by youthe U.S. Holder immediately following the redemption of Class A common stock must,is, among other requirements, be less than 80% of the percentage of our outstanding voting stock actually and constructively owned by youthe U.S. Holder immediately before the redemption. There will be a complete termination of youra U.S. Holder’s interest if either (i)(1) all of the shares of our stock actually and constructively owned by youthe U.S. Holder are redeemed or (ii)(2) all of the shares of our stock actually owned by youthe U.S. Holder are redeemed and you arethe U.S. Holder is eligible to waive, and effectively waivewaives in accordance with specific rules, the attribution of stock owned by certain family members and you dothe U.S. Holder does not constructively own any other Class A common stock.stock (including any stock constructively owned by the U.S. Holder as a result of owning Warrants). The redemption of the Class A common stockCommon Stock will not be essentially equivalent to a dividend if the redemption results in a “meaningful reduction” of yourthe U.S. Holder’s proportionate interest in us. Whether the redemption will result in a meaningful reduction in youra U.S. Holder’s proportionate interest in us will depend on the particular facts and circumstances. However, theThe IRS has indicated in a published ruling that even a small
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reduction in the proportionate interest of a small minority stockholder in a publicly held corporation who exercises no control over corporate affairs may constitute such a “meaningful reduction.” You shouldA U.S. Holder is urged to consult your ownits tax advisors as to the tax consequences of a redemption.redemption, including the application of the constructive ownership rules described above.
If none of the foregoing tests is satisfied, then the redemption will be treated as a corporate distribution, and you will be subject to the tax consequences of which are described under “U.S. Holders — “U.S. Holders—Taxation of Distributions,” above. After the application of those rules, any of your remaining tax basis of the U.S. Holder in the redeemed Class A common stock willCommon Stock should be added to yourthe U.S. Holder’s adjusted tax basis in any of yourits remaining Class A stock, or, if you haveit has none, to yourthe U.S. Holder’s adjusted tax basis in yourits warrants or possibly in other stock constructively owned by it.
If you are a U.S. Holder who actually or constructively owns five percent (or, if our stock is not then publicly traded, one percent) or more of our stock (by vote or value) before redemption, you may be subject to special reporting requirements with respect to a redemption of Class A common stock, and you should consult your own tax advisor with respect to your reporting requirements.
Exercise or Lapse of a Warrant.
Except as discussed below with respect to the cashless exercise of a warrant, you generallyWarrant, a U.S. Holder will not recognize taxable gain or loss onupon the acquisition of Class A common stock upon exercise of a warrant. YourWarrant. The U.S. Holder’s tax basis in the share of our Class A common stockourCommon Stock received upon exercise of warrantsthe Warrant will generally will be an amount equal to the sum of yourthe U.S. Holder’s initial tax basisinvestment in the warrants (i.e., the portion of your purchase price for units that is allocated to the warrant, as described above under “— General Treatment of Units”)Warrant and the exercise price. Yourprice of such Warrant. It is unclear whether a U.S. Holder’s holding period for the Class A common stockCommon Stock received upon exercise of the warrants will beginWarrant would commence on the date of exercise of the Warrant or the day following the date of exercise (or possibly the date of exercise) of the warrants andWarrant; however, in either case the holding period will not include the period during which youthe U.S. Holder held the warrants. If a warrant is allowed to lapse unexercised, you generally will recognize a capital loss equal to your tax basis in the warrant.Warrants.
The tax consequences of a cashless exercise of a warrantWarrant are not clear under current tax law. A cashless exercise may be tax-free,nontaxable, either because the exercise is not a realization event or because the exercise is treated as a recapitalization for U.S. federal income tax purposes. In either case, yoursituation, a U.S. Holder’s tax basis in the Class A common stockCommon Stock received would generally equal yourthe holder’s tax basis in the warrants exercised.Warrant. If the cashless exercise were treated as not being a gain realization event, yourit is unclear whether a U.S. Holder’s holding period infor the Class A common stockCommon Stock would be treated as commencingcommence on the date of exercise of the Warrant or the day following the date of exercise (or possibly the date of exercise) of the warrant.Warrant. If, however, the cashless exercise were treated as a recapitalization, the holding period of the Class A common stockCommon Stock would include yourthe holding period inof the warrants exercised.Warrant.
It is also possible that a cashless exercise could be treated as a taxable exchange in which gain or loss would beis recognized. In such event, you coulda U.S. Holder would be deemed to have surrendered warrants equal to thea number of shares of Class A common stockWarrants having a fair market value equal to the exercise price for the total number of warrants to be exercised. Youprice. The U.S. Holder would recognize capital gain or loss in an amount equal to the difference between the fair market value of the Class A common stockCommon Stock represented by the warrantsWarrants deemed surrendered and yourthe U.S. Holder’s tax basis in the warrantsWarrants deemed surrendered. In this case, youra U.S. Holder’s tax basis in the Class A common stockCommon Stock received would equal the sum of the fair market value of the Class A common stock represented by the warrants deemed surrendered and your tax basisU.S. Holder’s initial investment in the warrants exercised. YourWarrants exercised and the exercise price of such Warrants. It is unclear whether a U.S. Holder’s holding period for the Class A common stockCommon Stock would commence on the date of exercise of the Warrant or the day following the date of exercise (or possibly the date of exercise) of the warrant.Warrant; however, in either case the holding period will not include the period during which the U.S. Holder held the Warrants.
Due to the absence of authority on the U.S. federal income tax treatment of a cashless exercise, including when a U.S. Holder’s holding period would commence with respect to the Common Stock received, there can be no assurance which, if any, of the alternative tax consequences and holding periods described above would be adopted by the IRS or a court of law. Accordingly, you shouldU.S. Holders are urged to consult yourtheir tax advisoradvisors regarding the tax consequences of a cashless exercise.
Sale, Taxable Exchange, Redemption or Expiration of a Warrant. Warrant
Upon a sale, taxable exchange (other than by exercise), redemption (other than a redemption for Common Stock), or expiration of a warrant,Warrant, a U.S. Holder will recognize taxable gain or loss in an amount equal to the difference between (1) the amount realized upon such disposition or expiration (or, if the warrant is held as part of a unit at the time of the disposition of the unit, the portion of the amount realized on such disposition that is allocated to the warrant based on the then fair market values of the warrant and the Class A common stock constituting such unit) and (2) the U.S. Holder’s tax basis in the warrant (that is, the portion of the U.S. Holder’s purchase price for a unit that is allocated to the warrant, as described above under “—Allocation of Purchase Price and Characterization of a Unit”).Warrant. Such gain or loss will generally be treated as long-term capital gain or loss if the warrantWarrant is held by the U.S. Holder for more than one year at the time of such disposition or expiration. If a Warrant is allowed to lapse unexercised, a U.S. Holder generally will recognize a capital loss equal to such holder’s tax basis in the Warrant. The deductibility of capital losses is subject to certain limitations.
A redemption of Warrants for Common Stock described in this prospectus under “Description of Securities—Warrants” should be treated as a “recapitalization” within the meaning of Section 368(a)(1)(E) of the Code. Accordingly, you should not recognize any gain or loss on the redemption of Warrants for shares of our Common Stock. Your aggregate tax basis in the shares of Common Stock received in the redemption should equal your aggregate tax basis in your Warrants redeemed and your holding period for the shares of Common Stock received in redemption of your Warrants should include your holding period for your surrendered Warrants.
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Possible Constructive Distributions.
The terms of each warrantWarrant provide for an adjustment to the number of shares of common stockCommon Stock for which the warrantWarrant may be exercised or to the exercise price of the warrantWarrant in certain circumstances,events, as discussed in the section of this prospectus entitled “Descriptioncaptioned “Description of Securities — Securities—Warrants — Public Stockholders’ Warrants..” An adjustment which has the effect of preventing dilution is generally is not taxable. If you area taxable event. Nevertheless, a U.S. Holder of warrants, youWarrants would be treated as receiving a constructive distribution from us if, for example, the adjustment increases yourthe holder’s proportionate interest in our assets or earnings and profits (e.g., through an increase in the number of shares of common stockCommon Stock that would be obtained upon exercise) as a result of a taxable distribution of cash to the holders of shares of our common stock,Common Stock which is taxable to such holders as a distribution as described under “U.S. Holders — “U.S. Holders—Taxation of Distributions”Distributions” above. Such a constructive distribution would be subject to tax as described under that section in the same manner as if yousuch U.S. Holder received a cash distribution from us equal to the fair market value of such increased interest.
Information Reporting and Backup Withholding. In general, information reporting requirements may apply to dividends paid to U.S. Holders on or with respect to our common stock and to the proceeds from the sale or other disposition of our common stock, warrants, or units. A U.S. Holder will be subject to backup withholding on such dividends and proceeds at the applicable rate (currently 24% for payments made before January 1, 2026) if the U.S. Holder is not otherwise exempt and (i) the holder fails to provide us or our paying agent with a correct taxpayer identification number, (ii) we or our paying agent are notified by the IRS that the holder provided an incorrect taxpayer identification number, (iii) we or our paying agent are notified by the IRS that the holder failed to properly report payments of interest or dividends or (iv) the
holder fails to certify under penalty of perjury that it has provided a correct taxpayer identification number and has not been notified by the IRS that it is subject to backup withholding. A U.S. Holder generally may establish that it is exempt from or otherwise not subject to backup withholding by providing a properly completed IRS Form W-9 to us or our paying agent.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against your U.S. federal income tax liability, provided that the required information is timely furnished to the IRS.
Non-U.S. Holders
This section applies to you if you are a “Non-U.S. Holder.” A Non-U.S. Holder is a beneficial owner of our units that is not a U.S. Holder or an entity or arrangement treated as a partnership for U.S. federal income tax purposes.
Taxation of Distributions.
In general, any distributions (including constructive distributions) we make to you with respect toa non-U.S. Holder of shares of our Class A common stock,Common Stock, to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles), will constitute dividends for U.S. federal income tax purposes and, provided such dividends are not effectively connected with yourthe non-U.S. Holder’s conduct of a trade or business within the United States, we will be required to withhold tax from the gross amount of the dividend at a rate of 30%, unless you aresuch non-U.S. Holder is eligible for a reduced rate of or exemption from withholding tax under an applicable income tax treaty and provide properly executedprovides proper certification of yourits eligibility for such reduced rate or exemption (on(usually on an applicable IRS Form W-8).Such form must be provided prior to the payment of dividends and must be updated periodically. If a Non-U.S. Holder holds our Class A common stock through a financial institutionW-8BEN or other agent acting on the holder’s behalf, the holder will be required to provide appropriate documentation to such agent. The holder’s agent may then be required to provide certification to the applicable withholding agent, either directly or through other intermediaries. If you are eligible for a reduced rate of or exemption from U.S. withholding tax under an income tax treaty, you should consult with your own tax advisor to determine if you are able to obtain a refund or credit of any excess amounts withheld by timely filing an appropriate claim for a refund with the IRS.W-8BEN-E, as applicable). In the case of any constructive dividend, it is possible that this tax would be withheld from any amount owed to a non-U.S. Holder by the applicable withholding agent, including cash distributions on other property or sale proceeds from warrantsWarrants or other property subsequently paid or credited to such holder. Any distribution not constituting a dividend will be treated first as reducing (but not below zero) yourthe non-U.S. Holder’s adjusted tax basis in its shares of our Class A common stockCommon Stock and, to the extent such distribution exceeds yourthe non-U.S. Holder’s adjusted tax basis, as gain realized from the sale or other disposition of the Class A common stock,Common Stock, which will be treated as described under “Non-U.S. Holders — “Non-U.S. Holders—Gain on Sale, Taxable Exchange or Other Taxable Disposition of Class A common stockCommon Stock and Warrants”Warrants” below. In addition, if we determine that we are likely to be classified as a “U.S.“United States real property holding corporation” (see “Non-U.S. Holders — “Non-U.S. Holders—Gain on Sale, Taxable Exchange or Other Taxable Disposition of Class A common stockCommon Stock and Warrants”Warrants” below), we will withhold 15% of any distribution that exceeds our current and accumulated earnings and profits.
The withholding tax does not applyDividends we pay to dividends paid to you if you provide a Form W-8ECI, certifyingnon-U.S. Holder that the dividends are effectively connected with yoursuch non-U.S. Holder’s conduct of a trade or business within the United States.States (or if a tax treaty applies are attributable to a U.S. permanent establishment or fixed base maintained by the non-U.S. Holder) will generally not be subject to U.S. withholding tax, provided such non-U.S. Holder complies with certain certification and disclosure requirements (usually by providing an IRS Form W-8ECI). Instead, the effectively connectedsuch dividends will generally be subject to U.S. federal income tax, as if you were anet of certain deductions, at the same graduated individual or corporate rates applicable to U.S. resident, subject to an applicable income tax treaty providing otherwise. A Non-U.S.Holders. If the non-U.S. Holder that is a corporation, dividends that receivesare effectively connected dividendsincome may also be subject to an additionala “branch profits tax” imposed at a rate of 30% (or asuch lower treaty rate)rate as may be specified by an applicable income tax treaty).
Exercise or Lapse of a Warrant.
The U.S. federal income tax treatment of youra non-U.S. Holder’s exercise of a warrant, or the lapse of a warrant held by you,Warrant generally will correspond to the U.S. federal income tax treatment of the exercise or lapse of a warrantWarrant by a U.S. Holder, as described under “U.S. Holders — “U.S. Holders—Exercise or Lapse of a Warrant”Warrant” above, although to the extent a cashless exercise results in a taxable exchange, the treatmenttax consequences to the non-U.S. Holder would be similar tothe same as those described below in “Non-U.S. Holders — “Non-U.S. Holders—Gain on Sale, Taxable Exchange or Other Taxable Disposition of Class A common stockCommon Stock and Warrants.Warrants.”
Redemption of Warrants for Common Stock
The U.S. federal income tax treatment to a non-U.S. Holder upon a redemption of Warrants for Common Stock described in this prospectus under “Description of Securities—Warrants” generally will correspond to the U.S. federal income tax treatment to a U.S. Holder, as described in the second paragraph under “U.S. Holders— Sale, Exchange, Redemption or Expiration of a Warrant.”
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Gain on Sale, Taxable Exchange or Other Taxable Disposition of Class A common stockCommon Stock and Warrants. You
A non-U.S. Holder will generally will not be subject to U.S. federal income or withholding tax in respect of gain recognized on thea sale, taxable exchange or other taxable disposition of our Class A common stock (which, in general, would include a redemption of Class A common stockCommon Stock or warrants that is treated as a sale, of such securities as described below, and including a dissolution and liquidation in the event we do not complete an initial business combination within 18 months from the closing of this offering (or 21 months from the closing of this offering, if we extend the period of time to consummate a business combination, as described in more detail in this prospectus))taxable exchange, expiration, redemption or warrants (including an expiration or redemptionother taxable disposition of our warrants), in each case, without regard to whether those securities were held as part of a unit,Warrants unless:
the gain is effectively connected with the conduct of a trade or business by you within the United States (and, under certain income tax treaties, is attributable to a United States permanent establishment or fixed base maintained by you);
• | the gain is effectively connected with the conduct of a trade or business by the non-U.S. Holder within the United States (and, if an applicable tax treaty so requires, is attributable to a U.S. permanent establishment or fixed base maintained by the non-U.S. Holder); |
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we are or have been a “U.S. real property holding corporation” for U.S. federal income tax purposes at any time during the shorter of the five-year period ending on the date of disposition or the period that you held our Class A common stock, and, in the case where shares of our Class A common stock are regularly traded on an established securities market, you have owned, directly or constructively, more than 5% of our Class A common stock at any time within the shorter of the five-year period preceding the disposition or your holding period for the shares of our Class A common stock. There can be no assurance that our Class A common stock will be treated as regularly traded on an established securities market for this purpose.
• | we are or have been a “United States real property holding corporation” for U.S. federal income tax purposes at any time during the shorter of the five-year period ending on the date of disposition or the period that the non-U.S. Holder held our Common Stock, and, in the case where shares of our Common Stock are regularly traded on an established securities market, the non-U.S. Holder has owned, directly or constructively, more than 5% of our Common Stock at any time within the shorter of the five-year period preceding the disposition or such non-U.S. Holder’s holding period for the shares of our Common Stock. There can be no assurance that our Common Stock will be treated as regularly traded on an established securities market for this purpose. |
Unless an applicable treaty provides otherwise, gainGain described in the first bullet point above will be subject to tax at generally applicable U.S. federal income tax rates as if you were a U.S. resident.rates. Any gaingains described in the first bullet point above if you areof anon-U.S. Holder that is a foreign corporation may also be subject to an additional “branch profits tax” at a 30% rate (or lower applicable treaty rate). If you are an individual Non-U.S. HolderGain described in the second bullet point above youwill generally will be subject to a flat 30% U.S. federal income tax. Non-U.S. Holders are urged to consult their tax on the gain derived from the sale, which may be offset by U.S. source capital losses. If you are eligibleadvisors regarding possible eligibility for the benefits of anunder income tax treaty between the United States and your country of residence, any gain described in the second bullet point will be subject to U.S. federal income tax in the manner specified by the income tax treaty and generally will only be subject to such tax if such gain is attributable to a permanent establishment maintained by you in the United States. To claim the benefit of any applicable income tax treaty, you must properly submit an applicable IRS Form W-8. You should consult your own tax advisor regarding the potential application of income tax treaties and their eligibility for income tax treaty benefits.treaties.
If the third bullet point above applies to you,a non-U.S. Holder, gain recognized by yousuch holder on the sale, exchange or other disposition of our Class A common stockCommon Stock or warrantsWarrants will be subject to tax at generally applicable U.S. federal income tax rates. In addition, a buyer of our Class A common stockCommon Stock or warrantsWarrants from yousuch holder may be required to withhold U.S. federal income tax at a rate of 15% of the amount realized upon such disposition. We cannot determine whether we will be a U.S. real property holding corporation in the future until we complete an initial business combination. We will be classified as a U.S.United States real property holding corporation if the fair market value of our “U.S.“United States real property interests” equals or exceeds 50 percent50% of the sum of the fair market value of our worldwide real property interests plus our other assets used or held for use in a trade or business, as determined for U.S. federal income tax purposes. We do not believe we currently are or will become a United States real property holding corporation, however there can be no assurance in this regard. Non-U.S. Holders are urged to consult their tax advisors regarding the application of these rules.
Possible Constructive Distributions
The terms of each Warrant provide for an adjustment to the number of shares of Common Stock for which the Warrant may be exercised or to the exercise price of the Warrant in certain events, as discussed in the section of this prospectus captioned “Description of Securities—Warrants.” An adjustment which has the effect of preventing dilution is generally not a taxable event. Nevertheless, a non-U.S. Holder of Warrants would be treated as receiving a constructive distribution from us if, for example, the adjustment increases the holder’s proportionate interest in our assets or earnings and profits (e.g., through an increase in the number of shares of Common Stock that would be obtained upon exercise) as a result of a distribution of cash to the holders of shares of our Common Stock which is taxable to such holders as a distribution, as described under “Non-U.S. Holders—Taxation of Distributions” above. A non-U.S. Holder would be subject to U.S. federal income tax withholding under that section in the same manner as if such non-U.S. Holder received a cash distribution from us equal to the fair market value of such increased interest without any corresponding receipt of cash.
Redemption of Class A common stock. Common Stock
The characterization for U.S. federal income tax purposes of the redemption of your Class A common stock pursuant to the redemption provisions described in the section of this prospectus entitled “Description of Securities —a non-U.S. Holder’s Common Stock”Stock will generally will correspond to the U.S. federal income tax characterization of such a redemption of your Class A common stock,a U.S. Holder’s Common Stock, as described under “U.S. Holders — “U.S. Holders—Redemption of Class A common stock”Common Stock” above, and the consequences of the redemption to youthe non-U.S. Holder will be as described above under “Non-U.S. Holders — “Non-U.S. Holders—Taxation of Distributions”Distributions” and “Non-U.S. Holders — “Non-U.S. Holders—Gain on Sale, Taxable Exchange or Other Taxable Disposition of Class A common stockCommon Stock and Warrants,” as applicable.
Information Reporting and Backup Withholding. Information returns will be filed with the IRS in connection with payments of dividends and the proceeds from a sale or other disposition of our units, shares of Class A common stock and warrants. You may have to comply with certification procedures to establish that you are not a United States person in order to avoid information reporting and backup withholding requirements. The certification procedures required to claim a reduced rate of withholding under a treaty will satisfy the certification requirements necessary to avoid the backup withholding as well. Generally, U.S. information reporting and backup withholding requirements will not apply to a payment of disposition proceeds to a Non-U.S. Holder where the transaction is effected outside the United States through a non-U.S. office of a non-U.S. broker. Information reporting and backup withholding requirements may, however, apply to a payment of disposition proceeds if the broker has actual knowledge, or reason to know, that the holder is, in fact, a U.S. person. For information reporting purposes, certain brokers with substantial U.S. ownership or operations will generally be treated in a manner similar to U.S. brokers. Backup withholding is not an additional tax. The amount of any backup withholding from a payment to you will be allowed as a credit against your U.S. federal income tax liability and may entitle you to a refund, provided that the required information is timely furnished to the IRS.
Foreign Account Tax Compliance Act.
Sections 1471 through 1474 of the Code and the Treasury regulationsRegulations and administrative guidance promulgated thereunder and applicable administrative guidance (collectively,(commonly referred as the “Foreign Account Tax Compliance Act” or “FATCA”) generally impose withholding at a rate of 30% U.S. federal withholding taxin certain circumstances on paymentsdividends in respect of, dividends on, and after December 31, 2018,the gross proceeds from the sale or other dispositionof dispositions of, our common stock made to (i) a “foreignsecurities which are held by or through certain foreign financial institution,” as defined under such rules,institutions (including investment funds), unless any such institution (1) enters into, and complies with, an agreement with the Department of TreasuryIRS to among other things, collectreport, on an annual basis, information with respect to interests in, and provide to it substantial information regarding such institution’s United States financial account holders, including certain account holdersaccounts maintained by, the institution that are foreignowned by certain U.S. persons and by certain non-U.S. entities with United States ownersthat are wholly or in the case of a foreign financial institution in a jurisdiction that has entered intopartially owned by U.S. persons and to withhold on certain payments, or (2) if required under an intergovernmental agreement withbetween the United States and an applicable foreign country, reports such institution compliesinformation to its local tax authority, which will exchange such information with the requirements of such agreement and (ii) a “non-financial
foreign entity,” as defined under such rules, unless such entity provides the paying agent with a certification that it does not have any substantial United States owners or a certification identifying the direct and indirect substantial United States owners of the entity, unless in each case, an exemption applies. The U.S. Department ofauthorities. Under proposed Treasury Regulations promulgated by the Treasury has proposed regulationsDepartment on December 13, 2018, which eliminate the federal withholding tax of 30% applicable to the gross proceeds of a sale or other disposition of our securities. Withholding agentsstate that taxpayers may rely on the proposed Treasury Regulations until final regulationsTreasury Regulations are issued.
Youissued, this withholding tax will not apply to the gross proceeds from the sale or disposition of our securities. An intergovernmental agreement between the United States and an applicable foreign country may modify these requirements. Accordingly, the entity through which our securities are held will affect the determination of whether such withholding is required. Similarly, dividends in respect of our securities held by an investor that is a non-financial non-U.S. entity that does not qualify under certain exceptions will generally be subject to withholding at a rate of 30%, unless such entity either (1) certifies to us or the applicable withholding agent that such entity does not have any “substantial United States owners” or (2) provides certain information regarding the entity’s “substantial United States owners,” which will in turn be provided to the U.S. Department of Treasury. Prospective investors should consult with your owntheir tax advisoradvisors regarding the possible implications of the FATCA rules on your particular circumstances.
Maxim is acting as sole book-running manager of the offering and as representative of the underwriters named below. Subject to the terms and conditions of the underwriting agreement dated the date of this prospectus, the underwriters named below, through their representative Maxim, have severally agreed to purchase on a firm commitment basis, and we have agreed to sell to the underwriters, the following respective number of units set forth opposite the underwriter’s name at a public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus.
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The underwriting agreement provides that the obligations of the underwriters to purchase the units included in this offering are subject to all applicable laws and regulations and certain conditions precedent such as the receipt by the underwriters of officers’ certificates and legal opinions and approval of certain legal matters by their counsel. The underwriters are obligated to purchase all of the units (other than those covered by the over-allotment option described below) if they purchase any of the units. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the non-defaulting underwriters may be increased or the underwriting agreement may be terminated. We have agreed to indemnify the underwriters and certain of their controlling persons against certain liabilities, including liabilities under the Securities Act, and to contribute to payments that the underwriters may be required to make in respect of those liabilities.
Units sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Upon the execution of the underwriting agreement, the underwriters will be obligated to purchase the units at the prices and upon the terms stated therein, and, as a result, will thereafter bear any risk associated with changing the offering price to the public or other selling terms after completion of the initial public offering. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part. Maxim has advised us that the underwriters do not intend to make sales to discretionary accounts.
If the underwriters sell more units than the total number set forth in the table above, we have granted to the underwriters an option, exercisable for 45 days from the date of this prospectus, to purchase up to 1,125,000 additional units at the public offering price less the underwriting discount. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, in connection with this offering. To the extent the option is exercised, each underwriter must purchase a number of additional units approximately proportionate to that underwriters’ initial purchase commitment. Any units issued or sold under the option will be issued and sold on the same terms and conditions as the other units that are the subject of this offering.
We, our sponsor and our officers and directors have agreed that, for a period of 180 days from the date of this prospectus, we and they will not, without the prior written consent of Maxim, offer, sell, contract to sell, grant any option to sell (including any short sale), pledge, transfer, establish an open “put equivalent position” within the meaning of Rule 16a-l(h) under the Exchange Act, as amended, or otherwise dispose of, directly or indirectly, any of our units, warrants, shares of common stock, or any other securities convertible into, or exercisable, or exchangeable for, shares of our common stock currently or hereafter owned either of record or beneficially, or publicly announce an intention to do any of the foregoing. Maxim in its sole discretion may release any of the securities subject to these lock-up agreements at any time without notice. Our sponsor, officers, and directors are also subject to separate transfer restrictions on their founder shares and private placement warrants pursuant to the letter agreement as described herein.
Our initial stockholders have agreed not to transfer, assign or sell any of their founder shares until the earlier to occur of: (i) one year after the date of the consummation of our initial business combination; or (ii) the date on which we consummate a liquidation, merger, stock exchange, or other similar transaction which results in all of our stockholders having the right to exchange their shares of Class A common stock for cash, securities, or other property (except as described herein under the section of this prospectus entitled “Principal Stockholders — Restrictions on Transfers of Founder Shares and Private Placement Warrants”). Any permitted transferees will be subject to the same restrictions and other agreements of our initial stockholders with respect to any founder shares. Notwithstanding the foregoing, if the closing price of our shares of Class A common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing 150 days after our initial business combination, the founder shares will no longer be subject to such transfer restrictions. We refer to such transfer
restrictions throughout this prospectus as the lock-up. The private placement warrants (including the Class A common stock issuable upon exercise of the private placement warrants) will not be transferable, assignable or salable until 30 days after the completion of our initial business combination (except with respect to permitted transferees as described herein under the section of this prospectus entitled “Principal Stockholders — Restrictions on Transfers of Founder Shares and Private Placement Warrants”).
Prior to this offering, there has been no public market for our securities. Consequently, the initial public offering price for the units was determined by negotiations between us and the underwriters. Among the factors considered in determining the initial public offering price were the history and prospects of companies whose principal business is the acquisition of other companies, prior offerings of those companies, our management, our capital structure, and currently prevailing general conditions in the equity securities markets, including current market valuations of publicly traded companies considered comparable to our company. We cannot assure you, however, that the price at which the units, Class A common stock or warrants will sell in the public market after this offering will not be lower than the initial public offering price or that an active trading marketinvestment in our units, Class A common stock, or warrants will develop and continue after this offering.
We have applied to list our units on Nasdaq under the symbol “LMAOU.” We cannot guarantee that our securities will be approved for listing on Nasdaq. We expect that our units will be listed on Nasdaq on or promptly after the date of this prospectus. We expect that our Class A common stock and warrants will be listed under the symbols “LMAO” and “LMAOW,” respectively, once the Class A common stock and warrants begin separate trading.
The following table shows the underwriting discounts and commissions that we are to pay to the underwriters in connection with this offering. These amounts are shown assuming both no exercise and full exercise of the underwriters’ over-allotment option. The upfront portion of the underwriting discounts and commissions will be $0.20 per unit.
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Per Unit(1) | $ | 0.55 | $ | 0.55 | |
Total(1) | $ | 4,125,000 | $ | 4,743,750 | |
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(1)Includes $0.35 per unit, or $2,625,000 (or $3,018,750 if the over-allotment option is exercised in full) in the aggregate, payable to the underwriters for deferred underwriting commissions to be placed in a trust account located in the United States as described herein. The deferred commissions will be released to the underwriters only on completion of an initial business combination, in an amount equal to $0.35 multiplied by the number of shares of Class A common stock sold as part of the units in this offering, as described in this prospectus. |
If we do not complete our initial business combination and subsequently liquidate, the trustee and the underwriters have agreed that: (i) they will forfeit any rights or claims to its deferred underwriting discounts and commissions, including any accrued interest thereon, then in the trust account upon liquidation; and (ii) that the deferred underwriters’ discounts and commissions will be distributed on a pro rata basis, including interest earned on the funds held in the trust account and not previously released to us to pay our franchise and income taxes to the public stockholders.
In addition to the underwriting discount, we paid Maxim $25,000, as an advance against out-of-pocket accountable expenses actually anticipated to be incurred by the underwriters. We have agreed to pay or reimburse the underwriters for travel, lodging and other “road show” expenses, expenses of the underwriters’ legal counsel and certain diligence and other fees, including the preparation, binding and delivery of bound volumes in form and style reasonably satisfactory to Maxim, as representative of the underwriters, transaction Lucite cubes or similar commemorative items in a style as reasonably requested by the representative, and reimbursement for background checks on our directors, director nominees and executive officers, which such fees and expenses are capped at an aggregate of $125,000 (less amounts previously paid).
No discounts or commissions will be paid on the sale of the private placement warrants.
Representative’s Common Stock
We have agreed to issue to Maxim and/or its designees, 75,000 shares of common stock (or 86,250 shares if the underwriters’ over-allotment option is exercised in full) upon the consummation of this offering. Maxim has agreed not to transfer, assign or sell any such shares until the completion of our initial business combination. In addition, Maxim has
agreed (i) to waive its redemption rights with respect to such shares in connection with the completion of our initial business combination and (ii) to waive its rights to liquidating distributions from the trust account with respect to such shares if we fail to complete our initial business combination within 18 months from the closing of this offering (or 21 months from the closing of this offering, if we extend the period of time to consummate a business combination, as described in more detail in this prospectus). The shares issued to Maxim will be granted customary registration rights in compliance with FINRA Rule 5110(g)(8).
The shares have been deemed compensation by FINRA and are therefore subject to a lock-up for a period of 180 days immediately following the commencement of sales of this offering pursuant to FINRA Rule 5110(e)(1). Pursuant to this FINRA lock-up, these securities cannot be sold, transferred, assigned, pledged or hypothecated or the subject of any hedging, short sale, derivative, put or call transaction that would result in the economic disposition of the securities by any person for a period of 180 days immediately following the commencement of sales of this offering except as permitted under FINRA Rule 5110(e)(2), including to any underwriter and selected dealer participating in the offering and their officers or partners, registered persons or affiliates.
Right of First Refusal
Subject to certain conditions, we granted Maxim, for a period beginning on the closing of this offering and ending 18 months after the date of the consummation of our business combination, a right of first refusal to act as lead left book-running managing underwriter with at least 75% of the economics; or, in the case of a three-handed deal 50% of the economics, for any and all future public and private equity, convertible and debt offerings for us or any of our successors or subsidiaries. In accordance with FINRA Rule 5110(g)(6), such right of first refusal shall not have a duration of more than three years from the commencement of sales of this offering.securities.
Regulatory Restrictions on Purchase of Securities
In connection with the offering, the underwriters may purchase and sell units in the open market. The underwriters have advised us that, in accordance with Regulation M under the Securities Exchange Act of 1934, as amended, they may engage in short sale transactions, purchases to cover short positions, which may include purchases pursuant to the over-allotment option, stabilizing transactions, syndicate covering transactions or the imposition of penalty bids in connection with this offering. These activities may have the effect of stabilizing or maintaining the market price of our units at a level above that which might otherwise prevail in the open market.
Short sales involve secondary market sales by the underwriters of a greater number of units than it is required to purchase in the offering.
“Covered” short sales are sales of units in an amount up to the number of units represented by the underwriters’ over-allotment option.
“Naked” short sales are sales of units in an amount in excess of the number of units represented by the underwriters’ over-allotment option.
Covering transactions involve purchases of units either pursuant to the over-allotment option or in the open market after the distribution has been completed in order to cover short positions.
To close a naked short position, the underwriters must purchase units in the open market after the distribution has been completed. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the units in the open market after pricing that could adversely affect investors who purchase in the offering.
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Stabilizing transactions involve bids to purchase units so long as the stabilizing bids do not exceed a specified maximum.140
Purchases to cover short positions and stabilizing purchases, as well as other purchases by the underwriters for their own account, may have the effect of preventing or retarding a decline in the market price of the units. They may also cause the price of the units to be higher than the price that would otherwise exist in the open market in the absence of these transactions. The underwriters may conduct these transactions in the over-the-counter market or otherwise. Neither we, nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our Class A common stock. The underwriters are not obligated to engage in these activities and, if commenced, any of the activities may be discontinued at any time.
We estimate that our portion of the total expenses of this offering payable by us will be $848,000, excluding underwriting discounts and commissions.
We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make because of any of those liabilities.
We are not under any contractual obligation to engage any of the underwriters to provide any services for us after this offering, and have no present intent to do so. However, any of the underwriters may introduce us to potential target businesses or assist us in raising additional capital in the future. If any of the underwriters provide services to us after this offering, we may pay such underwriter fair and reasonable fees that would be determined at that time in an arm’s length negotiation; provided that no agreement will be entered into with any of the underwriters and no fees for such services will be paid to any of the underwriters prior to the date that is 90 days from the date of this prospectus, unless FINRA determines that such payment would not be deemed underwriters’ compensation in connection with this offering and we may pay the underwriters of this offering or any entity with which they are affiliated a finder’s fee or other compensation for services rendered to us in connection with the completion of an initial business combination.
Electronic Distribution
A prospectus in electronic format may be made available by e-mail or on the web sites or through online services maintained by one or more of the underwriters or their affiliates. In those cases, prospective investors may view offering terms online and may be allowed to place orders online. The underwriters may agree with us to allocate a specific number of common shares for sale to online brokerage account holders. Any such allocation for online distributions will be made by the underwriters on the same basis as other allocations. Other than the prospectus in electronic format, the information on the underwriters’ web sites and any information contained in any other web site maintained by any of the underwriters is not part of this prospectus, has not been approved and/or endorsed by us or the underwriters and should not be relied upon by investors.
Other Activities and RelationshipsLEGAL MATTERS
The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. Certain of the underwriters and their respective affiliates have, from time to time, performed, and may in the future perform, various financial advisory and investment banking services for us, for which they received or will receive customary fees and expenses.
In addition, in the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investments and securities activities may involve securities and/or instruments of ours or our affiliates. The underwriters and their respective affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may at any time hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.
Selling Restrictions
Other than in the United States, no action has been taken by us or the underwriters that would permit a public offeringvalidity of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
Notice to Prospective Investors in the European Economic Area
In relation to each member state of the European Economic Area that has implemented the Prospectus Directive (each, a “relevant member state”), with effect from and including the date on which the Prospectus Directive is implemented in that relevant member state (the “relevant implementation date”), an offer of units described in this prospectus may not be made to the public in that relevant member state prior to the publication of a prospectus in relation to the units that has been approvedpassed upon for us by the competent authority in that relevant member state or, where appropriate, approved in another relevant member state and notified to the competent authority in that relevant member state, all in accordance with the Prospectus Directive, except that, with effect from and including the relevant implementation date, an offer of our units may be made to the public in that relevant member state at any time:
to any legal entity which is a qualified investor as defined in the Prospectus Directive;
to fewer than 100, or, if the relevant member state has implemented the relevant provisions of the 2010 PD Amending Directive, 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the relevant Dealer or Dealers nominated by the issuer for any such offer; or natural or legal persons (other than qualified investors as defined below) subject to obtaining the prior consent of the underwriters for any such offer; or
in any other circumstances that do not require the publication by us of a prospectus pursuant to Article 3 of the Prospectus Directive.
provided that no such offer of units referred to in the bullet points above shall require us or the underwriters to publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive.
Each purchaser of units described in this prospectus located within a relevant member state will be deemed to have represented, acknowledged and agreed that it is a “qualified investor” within the meaning of Article 2(1)(e) of the Prospectus Directive.
For the purpose of this provision, the expression an “offer of units to the public” in any relevant member state means the communication in any form and by any means of sufficient information on the terms of the offer and the units to be offered so as to enable an investor to decide to purchase or subscribe for the units, as the expression may be varied in that member state by any measure implementing the Prospectus Directive in that member state, and the expression “Prospectus Directive” means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive to the extent implemented by the relevant member state) and includes any relevant implementing measure in each relevant member state. The expression 2010 PD Amending Directive means Directive 2010/73/EU.
We have not authorized and do not authorize the making of any offer of units through any financial intermediary on their behalf, other than offers made by the underwriters with a view to the final placement of the units as contemplated in this prospectus. Accordingly, no purchaser of the units, other than the underwriters, is authorized to make any further offer of the units on behalf of us or the underwriters.
Notice to Prospective Investors in the United Kingdom
This prospectus is only being distributed to, and is only directed at, persons in the United Kingdom that are qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive that are also (i) investment professionals falling
within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”) or (ii) high net worth entities, and other persons to whom it may lawfully be communicated, falling within Article 49(2)(a) to (d) of the Order (each such person being referred to as a “relevant person”). The units are only available to, and any invitation, offer or agreement to purchase or otherwise acquire such units will be engaged in only with, relevant persons. This prospectus and its contents are confidential and should not be distributed, published or reproduced (in whole or in part) or disclosed by recipients to any other persons in the United Kingdom. Any person in the United Kingdom that is not a relevant person should not act or rely on this document or any of its contents.
Notice to Prospective Investors in France
Neither this prospectus nor any other offering material relating to the units described in this prospectus has been submitted to the clearance procedures of the Autorité des Marchés Financiers or of the competent authority of another member state of the European Economic Area and notified to the Autorité des Marchés Financiers. The units have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France. Neither this prospectus nor any other offering material relating to the units has been or will be:
released, issued, distributed or caused to be released, issued or distributed to the public in France; or
used in connection with any offer for subscription or sale of the units to the public in France.
Such offers, sales and distributions will be made in France only:
to qualified investors (investisseurs qualifiés) and/or to a restricted circle of investors (cercle restreint d’investisseurs), in each case investing for their own account, all as defined in, and in accordance with, articles L.411-2, D.411-1, D.411-2, D.734-1, D.744-1, D.754-1 and D.764-1 of the French Code monétaire et financier;
to investment services providers authorized to engage in portfolio management on behalf of third parties; or
in a transaction that, in accordance with article L.411-2-II-1° -or-2° -or 3° of the French Code monétaire et financier and article 211-2 of the General Regulations (Règlement Général) of the Autorité des Marchés Financiers, does not constitute a public offer (appel public à l’épargne).
The units may be resold directly or indirectly, only in compliance with articles L.411-1, L.411-2, L.412-1 and L.621-8 through L.621-8-3 of the French Code monétaire et financier.
Notice to Prospective Investors in Hong Kong
The units may not be offered or sold in Hong Kong by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), or (ii) to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a “prospectus” within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong) and no advertisement, invitation or document relating to the units may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to units which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.
Notice to Prospective Investors in Japan
The units offered in this prospectus have not been and will not be registered under the Financial Instruments and Exchange Law of Japan. The units have not been offered or sold and will not be offered or sold, directly or indirectly, in Japan or to or for the account of any resident of Japan (including any corporation or other entity organized under the laws of Japan), except (i) pursuant to an exemption from the registration requirements of the Financial Instruments and Exchange Law and (ii) in compliance with any other applicable requirements of Japanese law.
Notice to Prospective Investors in Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the units may not be circulated or distributed, nor may the units be offered or sold, or be made the subject of an invitation
for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”), (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA, in each case subject to compliance with conditions set forth in the SFA.
Where the units are subscribed or purchased under Section 275 of the SFA by a relevant person which is
a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or
a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the shares pursuant to an offer made under Section 275 of the SFA except:
to an institutional investor (for corporations, under Section 274 of the SFA) or to a relevant person defined in Section 275(2) of the SFA, or to any person pursuant to an offer that is made on terms that such shares, debentures and units of shares and debentures of that corporation or such rights and interest in that trust are acquired at a consideration of not less than $200,000 (or its equivalent in a foreign currency) for each transaction, whether such amount is to be paid for in cash or by exchange of securities or other assets, and further for corporations, in accordance with the conditions specified in Section 275 of the SFA;
where no consideration is or will be given for the transfer; or
where the transfer is by operation of law.
Notice to Prospective Investors in Canada
The units may be sold in Canada only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the units must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.
Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriters’ conflicts of interest in connection with this offering.
Notice to Prospective Investors in the Dubai International Financial Centre
This prospectus relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority (“DFSA”). This prospectus is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus nor taken steps to verify the information set forth herein and has no responsibility for the prospectus. The securities to which this prospectus relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the securities offered should conduct their own due diligence on the securities.Morgan, Lewis & Bockius LLP, Palo Alto, California. If you do not understand the contents of this prospectus you should consult an authorized financial advisor.
Notice to Prospective Investors in Australia
No placement document, prospectus, product disclosure statement or other disclosure document has been lodged with the Australian Securities and Investments Commission (“ASIC”), in relation to the offering. This prospectus does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act 2001 (the “Corporations Act”), and does not purport to include the information required for a prospectus, product disclosure statement or other disclosure document under the Corporations Act. Any offer in Australia of the securities may only be made to persons (the “Exempt Investors”) who are “sophisticated investors” (within the meaning of section 708(8) of the Corporations Act), “professional investors” (within the meaning of section 708(11) of the Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708 of the Corporations Act so that it is lawful to offer the securities without disclosure to investors under Chapter 6D of the Corporations Act.
The securities applied for by Exempt Investors in Australia must not be offered for sale in Australia in the period of 12 months after the date of allotment under the offering, except in circumstances where disclosure to investors under Chapter 6D of the Corporations Act would not be required pursuant to an exemption under section 708 of the Corporations Act or otherwise or where the offer is pursuant to a disclosure document which complies with Chapter 6D of the Corporations Act. Any person acquiring securities must observe such Australian on-sale restrictions. This prospectus contains general information only and does not take account of the investment objectives, financial situation or particular needs of any particular person. It does not contain any securities recommendations or financial product advice. Before making an investment decision, investors need to consider whether the information in this prospectus is appropriate to their needs, objectives and circumstances, and, if necessary, seek expert advice on those matters.
Notice to Prospective Investors in Switzerland
The securities may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (“SIX”) or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing material relating to the securities or the offering may be publicly distributed or otherwise made publicly available in Switzerland.
Neither this document nor any other offering or marketing material relating to the offering, the company, or the shares have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of securities will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA (FINMA), and the offer of securities has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes (“CISA”). The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of securities.
Foley & Lardner LLP, Tampa, Florida, is acting as counsel in connection with the registration of our securities under the Securities Act, and as such, will pass upon the validity of theany securities offered in this prospectus. Ellenoff Grossman & Schole LLP, New York, New York, advisedis also passed upon by counsel for the underwriters, in connection with thedealers or agents of an offering of those securities, that counsel will be named in the securities.applicable prospectus supplement.
141
EXPERTS
The financial statements of LMF Acquisition Opportunities, Inc. at November 6,as of December 31, 2021 and 2020, for the year ended December 31, 2021, and for the period from October 28, 2020 (inception) through November 6,December 31, 2020, includedappearing in this prospectus have been audited by MaloneBailey, LLP, independent registered public accounting firm, as set forth in their report thereon, appearing elsewhere in this prospectus, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
The financial statements of SeaStar Medical, Inc. as of December 31, 2021 and 2020, and for each of the years then ended, included in this prospectus of SeaStar Medical Holding Corporation, which is referred to and made a part of this Prospectus and Registration Statement, have been audited by Armanino LLP, independent registered public accounting firm, as set forth in their report appearing elsewhere herein (which contains an explanatoryemphasis-of-matter paragraph relating todescribing conditions that raise substantial doubt about theSeaStar Medical’s ability of LMF Acquisition Opportunities, Inc. to continue as a going concern as described in Note 1 to the financial statements) appearing elsewhere in this prospectus,, and are included in reliance upon such report given uponon the authority of such firm as experts in auditingaccounting and accounting.auditing.
Where You Can Find Additional Information
142
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the securities we are offeringoffered by this prospectus. This prospectus, which forms a part of such registration statement, does not contain all of the information included in the registration statement. For further information aboutpertaining to us and our securities, you should refer to the registration statement and the exhibitsto its exhibits. The registration statement has been filed electronically and schedules filed with the registration statement.may be obtained in any manner listed below. Whenever we make reference in this prospectus to any of our contracts, agreements or other documents, the references are materially complete but may not includenecessarily complete. If a description of all aspects of such contracts, agreementscontract or other documents, anddocument has been filed as an exhibit to the registration statement or a report we file under the Exchange Act, you should refer to the exhibits attachedcopy of the contract or document that has been filed. Each statement in this prospectus relating to thea contract or document filed as an exhibit to a registration statement for copies ofor report is qualified in all respects by the actual contract, agreement or other document.filed exhibit.
Upon completion of this offering, we will be subject to the information requirements of the Exchange Act and willWe file annual, quarterly and current event reports, proxy statements and other information with the SEC. You can read ourOur SEC filings includingare available to the registration statement,public over the Internetinternet at the SEC’s website at www.sec.gov and on our website, free of charge, at https://seastarmedical.com/. The information found on, or that can be accessed from or that is hyperlinked to, our website is not part of this prospectus. You may also read andinspect a copy any document we file with the SEC at its public reference facility at 100 F Street, N.E., Washington, D.C. 20549.
You may also obtain copies of the documents at prescribed rates by writing toregistration statement through the Public Reference Section of the SEC at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities.SEC’s website, as provided herein.
143
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AUDITED FINANCIAL STATEMENTS: | ||||
| F-2 | |||
| F-3 | |||
| F-4 | |||
| F-5 | |||
| F-6 | |||
F-7 | ||||
UNAUDITED CONDENSED FINANCIAL |
| |||
F-20 | ||||
F-21 | ||||
F-22 | ||||
F-23 | ||||
F-24 |
Page | ||||
AUDITED FINANCIAL STATEMENTS: | ||||
F-35 | ||||
F-36 | ||||
F-37 | ||||
F-38 | ||||
F-39 | ||||
F-40 | ||||
UNAUDITED FINANCIAL STATEMENTS: | ||||
F-57 | ||||
F-58 | ||||
F-59 | ||||
F-60 | ||||
F-61 |
Going Concern Matter
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
November 24, 2020, except footnote 8 which is dated January 8, 2021
NOVEMBER 6, 2020
ASSETS |
|
|
|
Cash | $ | 25,000 |
|
Deferred offering costs |
| 73,000 |
|
Total Assets | $ | 98,000 |
|
|
|
|
|
LIABILITIES AND STOCKHOLDER’S EQUITY |
|
|
|
Accounts payable | $ | 73,000 |
|
Total Liabilities |
| 73,000 |
|
|
|
|
|
Commitments |
| - |
|
|
|
|
|
Stockholder’s Equity |
|
|
|
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued and outstanding |
| - |
|
Class A common stock, $0.0001 par value; 100,000,000 shares authorized; none issued and outstanding |
| - |
|
Class B common stock, $0.0001 par value; 20,000,000 shares authorized; 2,156,250 shares issued and outstanding | $ | 216 |
|
Additional paid-in capital |
| 24,784 |
|
Retained earnings |
| - |
|
Total Stockholder’s Equity |
| 25,000 |
|
Total Liabilities and Stockholder’s Equity | $ | 98,000 |
|
December 31, 2021 | December 31, 2020 | |||||||
ASSETS | ||||||||
Cash | $ | 51,567 | $ | 38,388 | ||||
Prepaid insurance and other fees | 286,237 | — | ||||||
Deferred offering costs | — | 230,820 | ||||||
Prepaid expenses | 14,817 | — | ||||||
Cash and marketable securities held in trust | 105,581,820 | — | ||||||
Total assets | $ | 105,934,441 | $ | 269,208 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
Accounts payable and accrued expenses | 376,702 | 123,031 | ||||||
Notes — related parties | — | 126,413 | ||||||
Total current liabilities | 376,702 | 249,444 | ||||||
Deferred underwriting commissions in connection with the initial public offering | 3,622,500 | — | ||||||
Warrant liability (Note 7) | 6,930,740 | — | ||||||
Total liabilities | 10,929,942 | 249,444 | ||||||
Commitments | ||||||||
Class A common stock subject to possible redemption 10,350,000 shares at redemption value of $10.20 per share | 105,570,000 | — | ||||||
Stockholders’ equity (deficit): | ||||||||
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued and outstanding | — | — | ||||||
Class A common stock, $0.0001 par value; 100,000,000 shares authorized; 103,500,000 issued and outstanding at December 31, 2021 excluding 10,350,000 shares subject to possible redemption and none issued at December 31, 2020 | 10 | — | ||||||
Class B common stock, $0.0001 par value; 20,000,000 shares authorized; 2,587,500 shares and 2,156,250 issued and outstanding at December 31, 2021 and December 31, 2020, respectively (See Note 4) | 259 | 215 | ||||||
Additional paid-in capital | — | 24,785 | ||||||
Accumulated equity (deficit) | (10,565,770 | ) | (5,236 | ) | ||||
Total stockholders’ equity | (10,565,501 | ) | 19,764 | |||||
Total liabilities and stockholders’ equity | $ | 105,934,441 | $ | 269,208 | ||||
For the period from oCTOBER 28, 2020 (inception) through NOVEMBER 6, 2020
| ||||
|
|
| ||
|
|
| ||
|
| |||
|
|
|
(1) This number excludes an aggregate of up to 281,250 shares of Class B common stock subject to forfeiture if the over-allotment option is not exercised in full or in part by the underwriters.
For the Twelve Months Ended December 31, 2021 | From October 28, 2020 (inception) to December 31, 2020 | |||||||
Expenses: | ||||||||
Formation and Administrative costs | $ | 1,122,443 | $ | 5,236 | ||||
Loss from operations | (1,122,443 | ) | (5,236 | ) | ||||
Gain on warrant liability revaluation | 1,185,940 | — | ||||||
Other income | ||||||||
Investment income earned on marketable securities held in Trust Account | 11,820 | — | ||||||
Net income (loss) | $ | 75,317 | $ | (5,236 | ) | |||
Net income (loss) per share: | ||||||||
Weighted average shares outstanding, basic and dilutive | ||||||||
Class A — Common stock | 9,651,587 | — | ||||||
Class B — Common stock | 2,554,418 | 2,156,250 | ||||||
Basic and diluted net income (loss) per share | ||||||||
Class A — Common stock | $ | 0.02 | $ | — | ||||
Class B — Common stock | $ | 0.02 | $ | — |
For the period from OCTOBER 28, (DEFICIT)
|
| COMMON STOCK |
| ADDITIONAL |
|
|
| TOTAL | ||||||||||||
|
| Class A |
| Class B |
| Paid-In |
| Accumulated |
| STOCKHOLDERS’ | ||||||||||
|
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| Equity | ||||||
Balance – October 28, 2020 (date of inception) |
|
|
| $ |
|
|
|
| $ |
|
| $ |
|
| $ |
|
|
| $ |
|
Issuance of Class B common stock to Sponsor (1) |
| - |
|
| - |
| 2,156,250 |
|
| 216 |
|
| 24,784 |
|
|
|
|
|
| 25,000 |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – November 6, 2020 |
| - |
| $ | - |
| 2,156,250 |
| $ | 216 |
| $ | 24,784 |
| $ |
|
|
| $ | 25,000 |
(1) This number includes an aggregate of up to 281,250 shares of Class B common stock subject to forfeiture if the over-allotment option is not exercised in full or in part by the underwriters.
Class A Common Stock | Class B Common Stock | Additional paid in capital | Accumulated Deficit | Total Equity (Deficit) | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||||||
Balance as of December 31, 2020 | — | $ | — | 2,156,250 | $ | 215 | $ | 24,785 | $ | (5,236 | ) | $ | 19,764 | |||||||||||||||
Class A Units issued for cash | 10,350,000 | 1,035 | — | — | 103,498,965 | — | 103,500,000 | |||||||||||||||||||||
Representative shares issued | 103,500 | 10 | — | — | (10 | ) | — | — | ||||||||||||||||||||
Class A Units subject to possible redemption | (10,350,000 | ) | (1,035 | ) | (105,568,965 | ) | — | (105,570,000 | ) | |||||||||||||||||||
Private placement warrants issued for cash | 5,738,000 | — | 5,738,000 | |||||||||||||||||||||||||
Class B shares dividend issued to Sponsor | 431,250 | 44 | (44 | ) | — | — | ||||||||||||||||||||||
Warrants classified as liabilities | (8,116,680 | ) | — | (8,116,680 | ) | |||||||||||||||||||||||
Underwriting fee & offering costs | (6,211,902 | ) | — | (6,211,902 | ) | |||||||||||||||||||||||
Reclass APIC to retained earnings | 10,635,851 | (10,635,851 | ) | — | ||||||||||||||||||||||||
Net income | — | — | — | — | — | 75,317 | 75,317 | |||||||||||||||||||||
Balance — December 31, 2021 | 103,500 | $ | 10 | 2,587,500 | $ | 259 | $ | — | $ | (10,565,770 | ) | $ | (10,565,501 | ) | ||||||||||||||
For the period from OCTOBER 28, 2020 (inception) through NOVEMBER 6, 2020
Cash Flows from Operating Activities: |
|
|
|
|
Net income |
| $ | - |
|
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
Net cash used in operating activities |
|
| - |
|
|
|
|
|
|
Cash Flows from Financing Activities |
|
|
|
|
Proceeds from issuance of Class B common stock to Sponsor |
|
| 25,000 |
|
Net cash provided by operating activities |
|
| 25,000 |
|
Net increase in cash |
|
| 25,000 |
|
Cash – beginning of the period |
|
| - |
|
Cash – end of the period |
| $ | 25,000 |
|
|
|
|
|
|
Supplemental disclosure of noncash activities: |
|
|
|
|
Deferred offering costs |
| $ | 73,000 |
|
For the Twelve Months Ended December 31, | From October 28, 2020 (inception) to | |||||||
2021 | 2020 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income (loss) | $ | 75,317 | $ | (5,236 | ) | |||
Adjustments to reconcile net income (loss) to cash used in operating activities | ||||||||
Formation costs paid by related parties | — | (107,789 | ) | |||||
Gain on warrant liability revaluation | (1,185,940 | ) | — | |||||
Interest earned in trust account | (11,820 | ) | — | |||||
Change in assets and liabilities | ||||||||
Prepaid costs | (301,054 | ) | — | |||||
Accounts payable and accrued expenses | 253,671 | — | ||||||
Net cash used in operating activities | (1,169,826 | ) | (113,025 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Investment in trust account | (105,570,000 | ) | — | |||||
Net cash used in financing activities | (105,570,000 | ) | — | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from issuance of private placement warrants | 5,738,000 | — | ||||||
Proceeds from notes — related party | 25,000 | 126,413 | ||||||
Proceeds from issuance of IPO units, net of offering costs | 101,141,418 | — | ||||||
Repayment from notes and advances payable — related party | (151,413 | ) | — | |||||
Proceeds from sale of stock to related party | — | 25,000 | ||||||
Net cash provided by financing activities | 106,753,005 | 151,413 | ||||||
NET INCREASE IN CASH | 13,179 | 38,388 | ||||||
CASH — BEGINNING OF YEAR | 38,388 | — | ||||||
CASH — END OF PERIOD | $ | 51,567 | $ | 38,388 | ||||
SUPPLEMENTAL DISCLOSURES OF NON-CASHFLOW INFORMATION | ||||||||
Reclassification of warrants to liability | 8,116,680 | — | ||||||
Deferred underwriting commissions in connection with the initial public offering | 3,622,500 | — | ||||||
Initial Classification of Class A shares subject to redemption | 105,570,000 | — | ||||||
Representative Class A shares issued to Maxim | 10 | — | ||||||
Class B dividend stock issued to Sponsor | 44 | — |
The Company’s ability to commence operations is contingent upon obtaining adequate financial resources through a proposedinitial public offering (“IPO”) described below. The Company will not generate any operating revenues until after the completion of 7,500,000its initial Business Combination, at the earliest. The Company will generate
The Company’s Business Combination must be with one or more target businesses that together have a fair market value equal to at least 80%cash was held outside of the balance in the Trust Account (as defined below) (net of taxes payable) at the timeas of the signing an agreement to enter into the Business Combination. However, the Company will only complete the Business Combination if the post-Business Combination company owns or acquires 50% or moredate of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficientIPO and became available for it not to be required to register as an investment company under the Investment Company Act of 1940, as amended (the “Investment Company Act”). There is no assurance that the Company will be able to successfully effect the Business Combination.
Uponworking capital purposes at such time.
The Company will provide its public stockholders with the opportunity to redeem all or a portion
The shares of common stock subject to redemption will be recorded at a redemption value and classified as temporary equity upon the completion of the Proposed Public Offering, in accordance with Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” In such case, the Company will proceed with the Business Combination if the Company has net tangible assets of at least $5,000,001 upon such consummation of the Business Combination and, if the Company seeks stockholder approval, a majority of the issued and outstanding shares voted are voted in favor of the Business Combination.
The Company will have 18 months from the closing of the Proposed Public Offering (or 21 months from the closing of this offering, if the Company extends the period of time to consummate a business combination, as described in more detail in this prospectus) to consummate the Business Combination (the “Combination Period”). However, if the Company is unable to complete the Business Combination within the Combination Period, the Company will redeem 100% of the outstanding public shares for a pro rata portion of the funds held in the Trust Account, equal to the aggregate amount then on deposit in the Trust Account including interest earned on the funds held in the Trust Account and not previously released to the Company to pay its franchise and income taxes, divided by the number of then outstanding public shares, subject to applicable law and as further described in this registration statement of which this prospectus forms a part, and then seek to dissolve and liquidate.
The Sponsor, officers, and directors have agreed: (i) to waive their redemption rights with respect to their founder shares and public shares in connection with the completion of the Business Combination; (ii) to waive their redemption rights with respect to their founder shares and public shares in connection with a stockholder vote to approve an amendment to the Company’s certificate of incorporation; and (iii) to waive their rights to liquidating distributions from the Trust Account with respect to their founder shares if the Company fails to complete the Business Combination within the Combination Period.
The Sponsor has agreed that it will be liable to the Company if and to the extent any claims by a third party for services rendered or products sold to the Company, or a prospective target business with which the Company has entered into a written letter of intent, confidentiality or similar agreement, or business-combination agreement, reduce the amount of funds in the Trust Account to below the lesser of: (i) $10.20 per public share; and (ii) the actual amount per public share held in the Trust Account as of the date of the liquidation of the Trust Account, if less than $10.20 per share due to reductions in the value of the trust assets, less taxes payable, provided that such liability will not apply to any claims by a third party or prospective target business who executed a waiver of any and all rights to the monies held in the Trust Account (whether or not such waiver is enforceable) nor will it apply to any claims under the Company’s indemnity of the underwriters of this offering against certain liabilities, including liabilities under the Securities Act. However, the Company has not asked its Sponsor to reserve for such indemnification obligations, nor has the Company independently verified whether its Sponsor has sufficient funds to satisfy its indemnity obligations and believe that the Sponsor’s only assets are securities of the Company. Therefore, the Company cannot assure that its Sponsor would be able to satisfy those obligations.
Going Concern Consideration
As of November 6, 2020, the Company had $25,000 in cash and a working capital deficit of $48,000 (excluding deferred offering costs). The Company has incurred and expects to continue to incur significant costs in pursuit of its financing and acquisition plans. These conditions raise substantial doubt about the Company’s ability to continue as a going concern one year from the issuance date of the financial statements. Management plans to address this uncertainty through a Proposed Public Offering as discussed in Note 3 and issuance of an unsecured promissory note with principal up to $300,000 to the Sponsor as discussed in Note 8. There is no assurance that the Company’s plans to raise capital or to consummate a Business Combination will be successful within the Combination Period. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Deferred
Deferredthe Company recognized the accretion from initial book value to redemption amount value. The change in the carrying value of the redeemable Class A Ordinary Shares resulted in charges against additional
stockholders’ equity (consisting of $2,070,000 in underwriters’ discount, $3,622,500 in deferred underwriters’ fee, the fair value of the shares issued to the underwriters of $1,000 deemed as underwriters’ compensation, and approximately $518,402 of other cash expenses).
The
Net Loss Per Share
Net loss per share is computed by dividing net loss by the weighted average number of ordinary shares outstanding during the period, excluding ordinary shares subject to forfeiture. Weighted average shares were reduced for the effect of an aggregate of 281,250 sharesactive markets;
more significant inputs or significant value drivers are unobservable.
position taken or expectedto be taken in a tax return. For those benefits to be recognized, a tax position must be
The Company has identified the United States as its only “major” tax jurisdiction.
The Company ismay be subject to potential income tax examinationsexamination by federal, state and statecity taxing authorities.authorities in the areas of income taxes. These potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with federal, state and statecity tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.
The provision for
the Company’s financial position may be materially adversely affected. Additionally, the Company’s ability to complete an initial business combination may be materially adversely affected due to significant governmental measures being implemented to contain the
Note 3 — Proposed Public Offering
In
Note 4 —7).
Warrants will not be released from the Trust Account until the earliest of (a) the completion of the Company’s initial Business Combination, (b) the redemption of any Public Shares properly submitted in connection with a stockholder vote to amend the Company’s amended and restated certificate of incorporation, and (c) the redemption of the Company’s Public Shares if the Company is unable to complete the initial Business Combination within 15 months from the closing of the IPO (or up to 21 months from the closing of the IPO if the Company extends the period of time to consummate a business combination, as described in more detail the prospectus for the IPO), subject to applicable law. The proceeds deposited in the Trust Account could become subject to the claims of the Company’s creditors, if any, which could have priority over the claims of the Company’s public stockholders.
from the Trust Account with respect to its founder shares if the Company fails to complete its initial Business Combination within 18 months from the closing of this offeringthe IPO (or up to 21 months from the closing of this offering,the IPO if the Company extends the period of time to consummate a business combination, as described in more detail in this prospectus).combination. In addition, the Company’s Sponsor has agreed to vote any founder shares held by them and any public sharesPublic Shares purchased during or after this offeringthe IPO (including in open market and privately negotiated transactions) in favor of the Company’s initial Business Combination.
Note 5 — Related Party Transactions
There were no loans as of December 31, 2021.
shares.
Underwriters Agreement
The underwriters have a 45-day option from the date of this prospectus to purchase up to an additional 1,125,000 units to cover over-allotments, if any.
The underwriters will be entitled to an underwriting discount of $0.20 per Unit, or $1.5 million in the aggregate (or approximately $1.725 million in the aggregate if the underwriter’s over-allotment option is exercised in full), payable upon the closing of the Proposed Public Offering. An additional fee of $0.35 per Unit, or $2.625 million in the aggregate (or $3,018,750 in the aggregate if the underwriter’s over-allotment option is exercised in full) will be payable to the underwriters for deferred underwriting commissions. The deferred fee will become payable to the underwriters from the amounts held in the Trust Account solely in the event that the Company completes a Business Combination, subject to the terms of the underwriting agreement.
Representative’s Common Stock
The Company has agreed to issue to Maxim and/or its designees, 75,000 shares of common stock (or 86,250 shares ifour initial public offering and the underwriter’s over-allotment option is exercised in full) upon the consummation of this offering. Maxim has agreed not to transfer, assign, or sell any such shares until the completionsale of the Business Combination. In addition, Maxim has agreed: (i) to waive its redemption rights with respect to such sharesprivate placement warrants, an aggregate amount of $105,570,000 (which amount includes the deferred underwriting discount) was placed in the trust account established in connection with the completioninitial public offering. Transaction costs included of the Business Combination;$2,070,000 in underwriting discount and (ii) to waive its rights to liquidating distributions from the Trust Account with respect to such shares if the Company fails to complete its Business Combination within 18 months from the closing of this offering (or 21 months from the closing of this offering, if the Company extends the period of time to consummate a business combination, as described$3,622,500 in more detail in this prospectus).
deferred underwriting discount. The shares have been deemed compensation by FINRA and are therefore subject to a lock-up for a period of 180 days immediately following the date of the effectiveness of the registration statement of which this prospectus forms a part pursuant to Rule 5110(e)(1) of FINRA’s NASD Conduct Rules. Pursuant to FINRA Rule 5110(e)(1), these securities will not be the subject of any hedging, short sale, derivative, put, or call transaction that would result in the economic disposition of the securities by any person for a period of 180 days immediately following the effective date of the registration statement of which this prospectus forms a part, nor may they be sold, transferred, assigned, pledged, or hypothecated for a period of 180 days immediately following the effective date of the registration statement of which this prospectus forms a part except to any underwriter and selected dealer participating in the offering and their bona fide officers or partners.
Preferred Stock — The Company is authorized to issue a total of 1,000,000 shares of preferred stock at par value of $0.0001 each. At November 6, 2020, there were no shares of preferred stock issued or outstanding.
Class A Common Stock — The Company is authorized to issue a total of 100,000,000 shares of Class A common stock at par value of $0.0001 each. At November 6, 2020, there were no shares of Class A common stock issued or outstanding.
Class B Common Stock — The Company is authorized to issue a total of 20,000,000 shares of Class B common stock at par value of $0.0001 each. At November 6, 2020, the Company issued 2,156,250 shares of Class B common stock to its initial stockholder, the Sponsor, for $25,000, or approximately $0.012 per share. The founder shares include an aggregate of up to 281,250 shares subject to forfeiture if the over-allotment option is not exercised by the underwriters in full.
The Company’s initial stockholder has agreed not to transfer, assign, or sell any of its founder shares until the earlier of: (i) one year after the date of the consummation of the Business Combination; or (ii) the date on which the Company consummates a liquidation, merger, stock exchange, or other similar transaction that results in all of its stockholders having the right to exchange their shares of Class A common stock for cash, securities, or other property. Any permitted transfereesdeferred underwriting discount will be subject to the same restrictions and other agreementsdue upon a successful merger.
Holders of the Class A common stock and holders of the Class B common stock will vote together as a single class on all matters submitted to a vote of the Company's stockholders, with each share of common stock entitling the holder to one vote.
Warrants — No16,088,000 warrants are currently outstanding. Each warrantswarrant entitles the holder thereof to purchase one share of the Company’s Class A common stock at a price of $11.50 per share, subject to adjustment as discussed herein. In addition, if: (x) the Company issues additional shares of Class A common stock or equity-linked securities for capital raising purposes in connection with the closing of its Business Combination at an issue price or effective issue price of less than $9.20 per share of Class A common stock (with such issue price or effective issue price to be determined in good faith by the Company’s board of directors and, in the case of any such issuance to the Company’s sponsorSponsor or its affiliates, without taking into account any founder shares held by the Company’s sponsorSponsor or its affiliates, prior to such issuance) (the “Newly Issued Price”); (y) the aggregate gross proceeds from such issuances represent more than 60% of the total equity proceeds, and interest thereon, available for the funding of the Business Combination on the date of the consummation of the Business Combination (net of redemptions); and (z) the volume weighted average trading price of the Company’s common stock during the 20 trading day period starting on the trading day prior to the day on which the Company consummates the Business Combination (such price, the “Market Value”) is below $9.20 per share, the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the higher of the Market Value and the Newly Issued Price, and the $18.00 per share redemption trigger price described below under “Redemption of warrants” will be adjusted (to the nearest cent) to be equal to 180% of the higher of the Market Value and the Newly Issued Price.
the closing of this offering,December 31, 2021, or 30 days after the completion of its Business Combination, and will expire five years after the completion of the Business Combination, at 5:00 p.m., New York City time, or earlier upon redemption or liquidation.
|
|
|
|
|
|
As of December 31, 2021 | As of January 28, 2021 | |||||||
Class A Common stock price | $ | 10.04 | $ | 9.90 | ||||
Term in years | 5.07 | 6.00 | ||||||
Risk free rate | 1.27 | % | 0.58 | % | ||||
Implied Volatility | 11.6 | % | 12.1 | % |
As of December 31, 2021 | As of January 28, 2021 | |||||||
Public Warrants | $ | 4,450,500 | $ | 5,175,000 | ||||
Private Placement Warrants | 2,480,240 | 2,941,680 | ||||||
$ | 6,930,740 | $ | 8,116,680 | |||||
Level 1: | Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. | |
Level 2: | Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active. | |
Level 3: | Unobservable inputs based on the Company’s assessment of the assumptions that market participants would use in pricing the asset or liability. |
Level | December 31, 2021 | January 28, 2021 | ||||||||||
Assets: | ||||||||||||
Government securities held in Trust Account | 1 | $ | 105,581,820 | $ | 105,570,833 | |||||||
Liabilities: | ||||||||||||
Private Placement Warrants | 3 | 2,480,240 | 2,941,680 | |||||||||
Public Warrants | 3 | 4,450,500 | 5,175,000 |
September 30, 2022 | December 31, 2021 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Cash | $ | 116,840 | $ | 51,567 | ||||
Prepaid insurance and other fees | 41,361 | 286,237 | ||||||
Prepaid expenses | 132,875 | 14,817 | ||||||
Cash and marketable securities held in trust | 107,048,750 | 105,581,820 | ||||||
Current Assets | 107,339,826 | 105,934,441 | ||||||
Total assets | $ | 107,339,826 | $ | 105,934,441 | ||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
Accrued expenses | 1,866,028 | 376,702 | ||||||
Notes and advances payable - related parties | 2,768,405 | — | ||||||
Deferred underwriting commissions in connection with the initial public offering | 3,622,500 | 3,622,500 | ||||||
Warrant liability (Note 9) | 1,129,378 | 6,930,740 | ||||||
Total current liabilities | 9,386,311 | 10,929,942 | ||||||
Total liabilities | 9,386,311 | 10,929,942 | ||||||
Commitments | ||||||||
Class A common stock subject to possible redemption 10,350,000 shares at redemption value of $10.32 and $10.20per share at September 30, 2022 and December 31, 2021, respectively | 106,848,750 | 105,570,000 | ||||||
Stockholders’ deficit: | ||||||||
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued and outstanding | — | — | ||||||
Class A common stock, $0.0001 par value; 100,000,000 shares authorized; 103,500 issued and outstanding at September 30, 2022 and December 31, 2021 excluding 10,350,000 shares subject to possible redemption | 10 | 10 | ||||||
Class B common stock, $0.0001 par value; 20,000,000 shares authorized; 2,587,500 shares issued and outstanding at September 30, 2022 and December 31, 2021 (See Note 11 ) | 259 | 259 | ||||||
Additional paid-in capital | — | — | ||||||
Accumulated deficit | (8,895,504 | ) | (10,565,770 | ) | ||||
Total stockholders’ deficit | (8,895,235 | ) | (10,565,501 | ) | ||||
Total liabilities and stockholders’ deficit | $ | 107,339,826 | $ | 105,934,441 | ||||
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Expenses: | ||||||||||||||||
Formation and Administrative costs | $ | 270,265 | $ | 411,398 | $ | 830,707 | $ | 747,073 | ||||||||
Merger costs | 1,391,601 | — | 2,453,569 | — | ||||||||||||
Loss from operations | (1,661,866 | ) | (411,398 | ) | (3,284,276 | ) | (747,073 | ) | ||||||||
Gain on warrant liability revaluation | 680,522 | 644,720 | 5,801,362 | 702,400 | ||||||||||||
Other income | ||||||||||||||||
Investment income earned on marketable securities held in Trust Account | 361,717 | 2,661 | 431,930 | 4,415 | ||||||||||||
Net income (loss) | $ | (619,627 | ) | $ | 235,983 | $ | 2,949,016 | $ | (40,258 | ) | ||||||
Net income (loss) per share: | ||||||||||||||||
Weighted average shares outstanding, basic and dilutive | ||||||||||||||||
Class A - Common stock | 10,453,500 | 10,453,500 | 10,453,500 | 9,381,347 | ||||||||||||
Class B - Common stock | 2,587,500 | 2,587,500 | 2,587,500 | 2,543,269 | ||||||||||||
Basic and diluted net income (loss) per share | ||||||||||||||||
Class A - Common stock | $ | (0.05 | ) | $ | 0.02 | $ | 0.23 | $ | (0.00 | ) | ||||||
Class B - Common stock | $ | (0.05 | ) | $ | 0.02 | $ | 0.23 | $ | (0.00 | ) |
For the Nine Months Ended September 30, | ||||||||
2022 | 2021 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income (loss) | $ | 2,949,016 | $ | (40,258 | ) | |||
Adjustments to reconcile net income (loss) to cash used in operating activities | ||||||||
Formation costs paid by related parties | — | (126,413 | ) | |||||
Gain on warrant liability revaluation | (5,801,362 | ) | (702,400 | ) | ||||
Interest earned on marketable securities in trust | (431,930 | ) | — | |||||
Change in assets and liabilities | ||||||||
Prepaid costs | 126,818 | 342,091 | ||||||
Accrued expenses | 1,489,326 | 154,275 | ||||||
Net cash used in operating activities | (1,668,132 | ) | (372,705 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Investment in Trust account | (1,035,000 | ) | (105,578,132 | ) | ||||
Net cash used in investing activities | (1,035,000 | ) | (105,578,132 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Insurance financing payments | — | (753,994 | ) | |||||
Proceeds from issuance of private placement warrants | — | 5,738,000 | ||||||
Proceeds from issuance of units | — | 103,500,000 | ||||||
Issue costs from issuance of units | — | (2,405,717 | ) | |||||
Proceeds from notes and advances payable - related party | 2,818,205 | — | ||||||
Repayment from notes and advances payable - related party | (49,800 | ) | — | |||||
Net cash provided by financing activities | 2,768,405 | 106,078,289 | ||||||
NET INCREASE IN CASH | 65,273 | 127,452 | ||||||
CASH - BEGINNING OF YEAR | 51,567 | 38,388 | ||||||
CASH - END OF PERIOD | $ | 116,840 | $ | 165,840 | ||||
SUPPLEMENTAL DISCLOSURES OF NON-CASHFLOW INFORMATION | ||||||||
Reclassification of warrants to liability | $ | — | $ | 8,116,680 | ||||
Deferred underwriting commissions in connection with the initial public offering | $ | — | $ | 3,806,185 | ||||
Remeasurement of Class A common stock subject to redemption | $ | 1,278,750 | $ | — |
Class A Common Stock | Class B Common Stock | Additional paid in capital | Accumulated Deficit | Total Deficit | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||||||
Balance as of December 31, 2020 | — | $ | — | 2,156,250 | $ | 215 | $ | 24,785 | $ | (5,236 | ) | $ | 19,764 | |||||||||||||||
Class A Units issued for cash | 10,350,000 | 1,035 | — | — | 103,498,965 | — | 103,500,000 | |||||||||||||||||||||
Representative shares issued for no cash | 103,500 | 10 | — | — | (10 | ) | — | — | ||||||||||||||||||||
Class A Units reclassified to Commitments subject to possible redemption | (10,350,000 | ) | (1,035 | ) | — | — | (105,568,965 | ) | (105,570,000 | ) | ||||||||||||||||||
Underwriter fee & offering costs | — | — | — | — | (6,211,902 | ) | — | (6,211,902 | ) | |||||||||||||||||||
Private placement warrants issued for cash | — | — | — | — | 5,738,000 | — | 5,738,000 | |||||||||||||||||||||
Class B shares issued to Sponsor | — | — | 431,250 | 44 | (44 | ) | — | — | ||||||||||||||||||||
Warrants classified as liabilities | — | — | — | — | (8,116,680 | ) | — | (8,116,680 | ) | |||||||||||||||||||
Reclass APIC to retained earnings | — | — | — | — | 10,635,851 | (10,635,851 | ) | — | ||||||||||||||||||||
Net income | — | — | — | — | — | 1,706,457 | 1,706,457 | |||||||||||||||||||||
Balance - March 31, 2021 | 103,500 | $ | 10 | 2,587,500 | $ | 259 | $ | — | $ | (8,934,630 | ) | $ | (8,934,361 | ) | ||||||||||||||
Net loss | — | — | — | — | — | (1,982,698 | ) | (1,982,698 | ) | |||||||||||||||||||
Balance - June 30, 2021 | 103,500 | $ | 10 | 2,587,500 | $ | 259 | $ | — | $ | (10,917,328 | ) | $ | (10,917,059 | ) | ||||||||||||||
Net income | — | — | — | — | — | 235,983 | 235,983 | |||||||||||||||||||||
Balance as of September 30, 2021 | 103,500 | $ | 10 | 2,587,500 | $ | 259 | $ | — | $ | (10,681,345 | ) | $ | (10,681,076 | ) | ||||||||||||||
Balance as of December 31, 2021 | 103,500 | $ | 10 | 2,587,500 | $ | 259 | $ | — | $ | (10,565,770 | ) | $ | (10,565,501 | ) | ||||||||||||||
Net income | — | — | — | — | — | 3,386,081 | 3,386,081 | |||||||||||||||||||||
Balance - March 31, 2022 | 103,500 | $ | 10 | 2,587,500 | $ | 259 | $ | — | $ | (7,179,689 | ) | $ | (7,179,420 | ) | ||||||||||||||
Net income | — | — | — | — | — | 182,562 | 182,562 | |||||||||||||||||||||
Balance - June 30, 2022 | 103,500 | $ | 10 | 2,587,500 | $ | 259 | $ | — | $ | (6,997,127 | ) | $ | (6,996,858 | ) | ||||||||||||||
Net loss | — | — | — | — | — | (619,627 | ) | (619,627 | ) | |||||||||||||||||||
Remeasurement of Class A common stock | — | — | — | — | — | (1,278,750 | ) | (1,278,750 | ) | |||||||||||||||||||
Balance - September 30, 2022 | 103,500 | $ | 10 | 2,587,500 | $ | 259 | $ | — | $ | (8,895,504 | ) | $ | (8,895,235 | ) | ||||||||||||||
LMF Acquisition Opportunities, Inc.
PRELIMINARY PROSPECTUS
Sole Manager
Maxim Group LLC
Until ,to enable the Company to borrow up to an aggregate principal amount of $1,750,000 to be used for a portion of the expenses of the IPO. The Working Capital Loan is
As of September 30, 2022 | As of December 31, 2021 | |||||||
Public Warrants | $ | 726,570 | $ | 4,450,500 | ||||
Private Placement Warrants | 402,808 | 2,480,240 | ||||||
$ | 1,129,378 | $ | 6,930,740 | |||||
Level 1: | Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. | |||
Level 2: | Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active. | |||
Level 3: | Unobservable inputs based on the Company’s assessment of the assumptions that market participants would use in pricing the asset or liability. |
Level | September 30, 2022 | December 31, 2021 | ||||||||||
Assets: | ||||||||||||
Government securities held in Trust Account | 1 | $ | 107,048,750 | $ | 105,581,820 | |||||||
Liabilities: | ||||||||||||
Private Placement Warrants | 3 | 402,808 | 2,480,240 | |||||||||
Public Warrants | 3 | 726,570 | 4,450,500 |
2021 | 2020 | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash | $ | 510 | $ | 2,807 | ||||
Other receivables | 58 | — | ||||||
Inventory | — | 55 | ||||||
Prepaid expenses | 33 | 45 | ||||||
Total current assets | 601 | 2,907 | ||||||
Other assets | 2 | 2 | ||||||
Total assets | $ | 603 | $ | 2,909 | ||||
LIABILITIES, CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS’ DEFICIT | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 85 | $ | 382 | ||||
Accrued expenses | 186 | 678 | ||||||
Current portion of notes payable — Government loans | — | 20 | ||||||
Convertible notes, less discount, related party | 2,378 | — | ||||||
Derivative liability | 471 | — | ||||||
Total current liabilities | 3,120 | 1,080 | ||||||
Long-term liabilities | ||||||||
Notes payable — Government loans, net of current portion | 63 | 63 | ||||||
Convertible notes, less discount, related party, net of current portion | 181 | — | ||||||
Derivative liability | 55 | — | ||||||
Total long-term liabilities | 299 | 63 | ||||||
Total liabilities | 3,419 | 1,143 | ||||||
Commitments and contingencies (see note 8) | ||||||||
Convertible Preferred stock: $0.001 par value, 2,965,505 shares authorized at December 31, 2021 and 2020, respectively | ||||||||
Series A-1 preferred stock; 1,601,060 shares designated; 1,576,154 shares issued and outstanding with an aggregate liquidation preference of $77,799 as of December 31, 2021 and 2020 | 19,451 | 19,451 | ||||||
Series A-2 preferred stock; 900,495 shares designated; 772,285 and 784,511 shares issued and outstanding with an aggregate liquidation preference of $9,530 and $9,681 as of December 31, 2021 and 2020, respectively | 48,477 | 48,628 | ||||||
Series B preferred stock; 453,950 shares designated; 439,203 and 426,977 shares issued and outstanding with an aggregate liquidation preference of $5,421 and $5,270 as of December 31, 2021 and 2020, respectively | 5,421 | 5,270 | ||||||
Total convertible preferred stock | 73,349 | 73,349 | ||||||
Stockholders’ deficit | ||||||||
Common stock — $0.001 par value per share; 3,531,504 shares authorized and no shares issued or outstanding at December 31, 2021 and 2020 | — | — | ||||||
Additional paid-in capital | 147 | 133 | ||||||
Accumulated deficit | (76,312 | ) | (71,716 | ) | ||||
Total stockholders’ deficit | (76,165 | ) | (71,583 | ) | ||||
Total liabilities, convertible preferred stock and stockholders’ deficit | $ | 603 | $ | 2,909 | ||||
Year Ended December 31, | ||||||||
2021 | 2020 | |||||||
Operating expenses | ||||||||
Research and development | $ | 2,766 | $ | 4,025 | ||||
General and administrative | 1,683 | 2,428 | ||||||
Total operating expenses | 4,449 | 6,453 | ||||||
Loss from operations | (4,449 | ) | (6,453 | ) | ||||
Other income (expense), net | ||||||||
Interest expense | (212 | ) | (3,308 | ) | ||||
Other income | 91 | 84 | ||||||
Gain on sale of assets and liabilities held for sale | — | 71 | ||||||
Change in fair value of derivative liability | (27 | ) | — | |||||
Loss on disposal of other assets | — | (6 | ) | |||||
Gain on early extinguishment of convertible notes | — | 6,345 | ||||||
Total other income (expense), net | (148 | ) | 3,186 | |||||
Loss before income tax provision | (4,597 | ) | (3,267 | ) | ||||
Income tax provision (benefit) | (1 | ) | 9 | |||||
Net loss | $ | (4,596 | ) | $ | (3,276 | ) | ||
Net loss per share of common stock, basic and diluted | $ | — | $ | — | ||||
Weighted-average shares outstanding, basic and diluted | — | — | ||||||
Convertible Preferred Stock | Additional Paid-In Capital | Accumulated Deficit | Total Stockholders’ Deficit | |||||||||||||||||||||||||||||||||||||||||||||
Series B Preferred Stock | Series A-1 Preferred Stock | Series A-2 Preferred Stock | Common Shares | |||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Total | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||
Balance, January 1, 2020 | — | $ | — | — | $ | — | — | $ | — | $ | — | 784,551 | $ | 78 | $ | 48,683 | $ | (68,440 | ) | $ | (19,679 | ) | ||||||||||||||||||||||||||
Conversion of common stock into preferred stock | — | — | — | — | 784,511 | 48,628 | 48,628 | (784,551 | ) | (78 | ) | (48,550 | ) | — | (48,628 | ) | ||||||||||||||||||||||||||||||||
Conversion of convertible notes into preferred stock | 19,785 | 245 | 1,576,154 | 19,451 | — | — | 19,696 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Issuance of stock | 407,192 | 5,025 | — | — | — | — | 5,025 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | — | (3,276 | ) | (3,276 | ) | ||||||||||||||||||||||||||||||||||
Balance, December 31, 2020 | 426,977 | 5,270 | 1,576,154 | 19,451 | 784,511 | 48,628 | 73,349 | — | — | 133 | (71,716 | ) | (71,583 | ) | ||||||||||||||||||||||||||||||||||
Conversion of Series A-2 Preferred stock to Series B Preferred stock | 12,226 | 151 | — | — | (12,226 | ) | (151 | ) | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | — | — | — | 14 | — | 14 | ||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | — | (4,596 | ) | (4,596 | ) | ||||||||||||||||||||||||||||||||||
Balance, December 31, 2021 | 439,203 | $ | 5,421 | 1,576,154 | $ | 19,451 | 772,285 | $ | 48,477 | $ | 73,349 | — | $ | — | $ | 147 | $ | (76,312 | ) | $ | (76,165 | ) | ||||||||||||||||||||||||||
Year Ended December 31, | ||||||||
2021 | 2020 | |||||||
Cash flows from operating activities | ||||||||
Net loss | $ | (4,596 | ) | $ | (3,276 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
Amortization of discount on secured convertible notes | 140 | 1,454 | ||||||
Amortization of deferred financing costs | — | 239 | ||||||
Accrued interest added to principal of convertible notes | — | 1,615 | ||||||
Non-cash accrued interest related to convertible notes | 72 | — | ||||||
Change in fair value of derivative liability | 27 | — | ||||||
Gain on convertible note extinguishment | — | (6,345 | ) | |||||
PPP loan forgiveness | (91 | ) | (84 | ) | ||||
Gain on sale of assets and liabilities held for sale | — | (71 | ) | |||||
Loss on disposal of other assets | — | 6 | ||||||
Stock-based compensation | 14 | — | ||||||
Changes in operating assets and liabilities | ||||||||
Inventory | 55 | 137 | ||||||
Prepaid expenses | 12 | 129 | ||||||
Accounts payable | (297 | ) | 225 | |||||
Accrued expenses and other current liabilities | (450 | ) | 395 | |||||
Other assets | — | 4 | ||||||
Net cash used in operating activities | (5,114 | ) | (5,572 | ) | ||||
Cash flows from financing activities | ||||||||
Proceeds from issuance of convertible notes | 2,746 | — | ||||||
Proceeds from issuance of Series B Preferred stock | — | 5,025 | ||||||
Repayment to settle convertible notes | — | (300 | ) | |||||
Proceeds from PPP loan | 91 | 104 | ||||||
Repayment of PPP loan | (20 | ) | — | |||||
Proceeds from SBA loan | — | 63 | ||||||
Net cash provided by financing activities | 2,817 | 4,892 | ||||||
Net decrease in cash | (2,297 | ) | (680 | ) | ||||
Cash, beginning of year | 2,807 | 3,487 | ||||||
Cash, end of year | $ | 510 | $ | 2,807 | ||||
Supplemental disclosure of cash flow information | ||||||||
Cash paid for income taxes | $ | — | $ | 1 | ||||
Cash paid for interest | $ | — | $ | 1 | ||||
Supplemental disclosure of noncash flow information | ||||||||
Fair value of derivative liability and discount on issuance of convertible notes | $ | 499 | $ | — | ||||
Conversion of Series A-2 Preferred stock into Series B Preferred stock | $ | 151 | $ | — | ||||
Conversion of accrued expenses into convertible notes | $ | 114 | $ | — | ||||
Other receivables of cash in transit for convertible notes | $ | 58 | $ | — | ||||
Assets and liabilities held for sale exchanged for prepaid research and development | $ | — | $ | 110 | ||||
Conversion of common stock into Series A-2 Preferred stock | $ | — | $ | 48,628 | ||||
Conversion of convertible notes into Series A-1 Preferred stock | $ | — | $ | 19,696 |
1. | DESCRIPTION OF BUSINESS |
1. | DESCRIPTION OF BUSINESS (continued) |
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
Level 3 Rollforward | Derivative Liability | |||
Balance December 31, 2019 | $ | 9,010 | ||
Recognized as part of the net gain on early extinguishment of convertible notes | (9,010 | ) | ||
Balance December 31, 2020 | — | |||
Additions | 499 | |||
Changes in fair value | 27 | |||
Balance December 31, 2021 | $ | 526 | ||
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
3. | ACCRUED EXPENSES |
2021 | 2020 | |||||||
Accrued research and development | $ | 58 | $ | 485 | ||||
Accrued bonus | — | 47 | ||||||
Accrued legal | 27 | 40 | ||||||
Accrued interest | 72 | — | ||||||
Accrued other | 29 | 106 | ||||||
Total accrued expenses | $ | 186 | $ | 678 | ||||
4. | CONVERTIBLE NOTES |
4. | CONVERTIBLE NOTES (continued) |
2021 | 2020 | |||||||
Dow Notes | $ | 1,620 | $ | — | ||||
Union Carbide Notes | 1,080 | — | ||||||
IBT & David Humes Notes | 114 | — | ||||||
Investor Notes | 104 | |||||||
Unamortized Debt Discount | (359 | ) | — | |||||
2,559 | — | |||||||
Less current portion | (2,378 | ) | — | |||||
$ | 181 | $ | — | |||||
4. | CONVERTIBLE NOTES (continued) |
Years ending December 31, | ||||
2022 | $ | 2,700 | ||
2023 | — | |||
2024 | 218 | |||
$ | 2,918 | |||
5. | NOTES PAYABLE — GOVERNMENT LOANS |
Years ending December 31, | ||||
2022 | $ | — | ||
2023 | 1 | |||
2024 | 1 | |||
2025 | 1 | |||
2026 | 1 | |||
Thereafter | 59 | |||
$ | 63 | |||
6. | CONVERTIBLE PREFERRED STOCK AND COMMON STOCK |
6. | CONVERTIBLE PREFERRED STOCK AND COMMON STOCK (continued) |
6. | CONVERTIBLE PREFERRED STOCK AND COMMON STOCK (continued) |
7. | STOCK-BASED COMPENSATION AWARDS |
Options | Weighted Average Exercise Price | Total Intrinsic Value | Weighted Average Remaining Contractual Life (Years) | |||||||||||||
Outstanding as of December 31, 2019 | 73,974 | $ | 10.00 | |||||||||||||
Granted | 106,970 | $ | 3.82 | |||||||||||||
Forfeited | (39,093 | ) | $ | 10.00 | ||||||||||||
Outstanding as of December 31, 2020 | 141,851 | $ | 5.34 | $ | — | 8.84 | ||||||||||
Granted | 153,504 | $ | 0.55 | |||||||||||||
Forfeited | (7,973 | ) | $ | 10.00 | ||||||||||||
Outstanding as of December 31, 2021 | 287,382 | $ | 2.65 | $ | — | 8.61 | ||||||||||
Options exercisable as of December 31, 2021 | 67,840 | $ | 5.53 | $ | — | 7.94 | ||||||||||
7. | STOCK-BASED COMPENSATION AWARDS (continued) |
2021 | 2020 | |||||||
Research and development | $ | 12 | $ | — | ||||
General and administrative | 2 | — | ||||||
Total | $ | 14 | $ | — | ||||
2021 | 2020 | |||||||
Expected term (years) | 6.3 | 5.9 | ||||||
Expected volatility | 74.8 | % | 77.1 | % | ||||
Risk-free interest rate | 0.78 | % | 0.1 | % | ||||
Expected dividend rate | 0 | % | 0 | % |
8. | COMMITMENTS AND CONTINGENCIES |
8. | COMMITMENTS AND CONTINGENCIES (continued) |
9. | INCOME TAXES |
2021 | 2020 | |||||||
Statutory income tax rate | 21.0 | % | 21.0 | % | ||||
State income tax | 3.6 | % | 3.3 | % | ||||
PPP Loan forgiveness | 0.5 | % | 0.5 | % | ||||
Other | (1.3 | )% | (0.1 | )% | ||||
Valuation allowance | (23.8 | )% | (25.0 | )% | ||||
Total effective income tax rate | (0.0 | )% | (0.3 | )% | ||||
9. | INCOME TAXES (continued) |
2021 | 2020 | |||||||
Deferred tax assets: | ||||||||
Net operating losses | $ | 17,538 | $ | 16,637 | ||||
Accrued compensation | — | 4 | ||||||
Reserves | — | 31 | ||||||
Stock-based compensation | 3 | — | ||||||
Tax credits | 648 | 648 | ||||||
Total deferred tax assets | 18,189 | 17,320 | ||||||
Valuation allowance | (18,189 | ) | (17,320 | ) | ||||
Net deferred tax assets | $ | — | $ | — | ||||
10. | NET LOSS PER SHARE |
2021 | 2020 | |||||||
Options to purchase common stock | 287,382 | 141,851 | ||||||
Convertible preferred stock | 2,787,642 | 2,787,642 | ||||||
Total | 3,075,024 | 2,929,493 | ||||||
11. | SUBSEQUENT EVENTS |
11. | SUBSEQUENT EVENTS (continued) |
September 30, | December 31, | |||||||
2022 | 2021 | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash | $ | 49 | $ | 510 | ||||
Other receivables | — | 58 | ||||||
Prepaid expenses | 36 | 33 | ||||||
Capitalized merger costs | 1,005 | — | ||||||
Total current assets | 1,090 | 601 | ||||||
Other assets | 2 | 2 | ||||||
Total assets | $ | 1,092 | $ | 603 | ||||
LIABILITIES, CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS’ DEFICIT | ||||||||
Current liabilities | ||||||||
Accounts payable | $ | 1,291 | $ | 85 | ||||
Accrued expenses | 836 | 186 | ||||||
LMFA note payable | 350 | — | ||||||
Convertible notes - related party, net of discount | 413 | 2,378 | ||||||
Derivative liability | — | 471 | ||||||
Total current liabilities | 2,890 | 3,120 | ||||||
Long-term liabilities | ||||||||
Notes payable - Government loans | 63 | 63 | ||||||
Convertible notes - related party, net of discount, net of current portion | 4,047 | 181 | ||||||
Derivative liability | — | 55 | ||||||
Total long-term liabilities | 4,110 | 299 | ||||||
Total liabilities | 7,000 | 3,419 | ||||||
Commitments and contingencies (see Note 9) | ||||||||
Convertible preferred stock: $0.001 par value, 3,702,505 and 2,965,505 shares authorized as of September 30, 2022 and December 31, 2021, respectively | ||||||||
Series B preferred stock; 700,950 and 453,950 shares designated; 633,697 and 439,203 shares issued and outstanding with an aggregate liquidation preference of $7,821 and $5,421 as of September 30, 2022 and December 31, 2021, respectively | 7,821 | 5,421 | ||||||
Series A-1 preferred stock; 1,601,060 shares designated; 1,576,154 shares issued and outstanding with an aggregate liquidation preference of $77,799 as of September 30, 2022 and December 31, 2021 | 19,451 | 19,451 | ||||||
Series A-2 preferred stock; 900,495 shares designated; 577,791 and 772,285 shares issued and outstanding with an aggregate liquidation preference of $7,130 and $9,530 as of September 30, 2022 and December 31, 2021, respectively | 46,077 | 48,477 | ||||||
Total convertible preferred stock | 73,349 | 73,349 | ||||||
Stockholders’ deficit | ||||||||
Common stock - $0.001 par value per share; 12,000,000 and 3,531,504 shares authorized at September 30, 2022 and December 31, 2021, respectively, and no shares issued or outstanding at September 30, 2022 and December 31, 2021 | — | — | ||||||
Additional paid-in capital | 853 | 147 | ||||||
Accumulated deficit | (80,110 | ) | (76,312 | ) | ||||
Total stockholders’ deficit | (79,257 | ) | (76,165 | ) | ||||
Total liabilities, convertible preferred stock and stockholders’ deficit | $ | 1,092 | $ | 603 | ||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Operating expenses | ||||||||||||||||
Research and development | $ | 727 | $ | 985 | $ | 1,678 | $ | 2,267 | ||||||||
General and administrative | 1,042 | 170 | 2,215 | 1,138 | ||||||||||||
Total operating expenses | 1,769 | 1,155 | 3,893 | 3,405 | ||||||||||||
Loss from operations | (1,769 | ) | (1,155 | ) | (3,893 | ) | (3,405 | ) | ||||||||
Other Income (expense) | ||||||||||||||||
Interest expense | (123 | ) | (54 | ) | (483 | ) | (65 | ) | ||||||||
Other income | 1 | — | 1 | 91 | ||||||||||||
Change in fair value of derivative liability | — | — | 578 | — | ||||||||||||
Total other income (expense) | (122 | ) | (54 | ) | 96 | 26 | ||||||||||
Loss before income tax provision (benefit) | (1,891 | ) | (1,209 | ) | (3,797 | ) | (3,379 | ) | ||||||||
Income tax provision (benefit) | 1 | (2 | ) | 1 | (1 | ) | ||||||||||
Net loss | $ | (1,892 | ) | $ | (1,207 | ) | $ | (3,798 | ) | $ | (3,378 | ) | ||||
Net loss per share of common stock, basic and diluted | $ | — | $ | — | $ | — | $ | — | ||||||||
Weighted-average shares outstanding, basic and diluted | — | — | — | — | ||||||||||||
Convertible Preferred Stock | Stockholders’ Deficit | |||||||||||||||||||||||||||||||||||||||||||||||
Series B Preferred Stock | Series A-1 Preferred Stock | Series A-2 Preferred Stock | Common Shares | Additional Paid-In Capital | Accumulated Deficit | Total Stockholders’ Deficit | ||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Total | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2020 | 426,977 | $ | 5,270 | 1,576,154 | $ | 19,451 | 784,511 | $ | 48,628 | $ | 73,349 | — | $ | — | $ | 133 | $ | (71,716 | ) | $ | (71,583 | ) | ||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | — | — | — | 3 | — | 3 | ||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | — | (1,065 | ) | (1,065 | ) | ||||||||||||||||||||||||||||||||||
Balance, March 31, 2021 | 426,977 | 5,270 | 1,576,154 | 19,451 | 784,511 | 48,628 | 73,349 | — | — | 136 | (72,781 | ) | (72,645 | ) | ||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | — | — | — | 3 | — | 3 | ||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | — | (1,106 | ) | (1,106 | ) | ||||||||||||||||||||||||||||||||||
Balance, June 30, 2021 | 426,977 | 5,270 | 1,576,154 | 19,451 | 784,511 | 48,628 | 73,349 | — | — | 139 | (73,887 | ) | (73,748 | ) | ||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | — | — | — | 3 | — | 3 | ||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | — | (1,207 | ) | (1,207 | ) | ||||||||||||||||||||||||||||||||||
Balance, September 30, 2021 | 426,977 | $ | 5,270 | 1,576,154 | $ | 19,451 | 784,511 | $ | 48,628 | $ | 73,349 | — | $ | — | $ | 142 | $ | (75,094 | ) | $ | (74,952 | ) | ||||||||||||||||||||||||||
Convertible Preferred Stock | ||||||||||||||||||||||||||||||||||||||||||||||||
Series B Preferred Stock | Series A-1 Preferred Stock | Series A-2 Preferred Stock | Common Shares | Additional Paid-In Capital | Accumulated Deficit | Total Stockholders’ Deficit | ||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Total | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2021 | 439,203 | $ | 5,421 | 1,576,154 | $ | 19,451 | 772,285 | $ | 48,477 | $ | 73,349 | — | $ | — | $ | 147 | $ | (76,312 | ) | $ | (76,165 | ) | ||||||||||||||||||||||||||
Conversion of Series A-2 Preferred stock to Series B Preferred stock | 194,494 | 2,400 | — | — | (194,494 | ) | (2,400 | ) | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | — | — | — | 4 | — | 4 | ||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | — | (1,004 | ) | (1,004 | ) | ||||||||||||||||||||||||||||||||||
Balance, March 31, 2022 | 633,697 | 7,821 | 1,576,154 | 19,451 | 577,791 | 46,077 | 73,349 | — | — | 151 | (77,316 | ) | (77,165 | ) | ||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | — | — | — | 345 | — | 345 | ||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | — | (902 | ) | (902 | ) | ||||||||||||||||||||||||||||||||||
Balance, June 30, 2022 | 633,697 | 7,821 | 1,576,154 | 19,451 | 577,791 | 46,077 | 73,349 | — | — | 496 | (78,218 | ) | (77,722 | ) | ||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | — | — | — | — | — | — | — | 357 | — | 357 | ||||||||||||||||||||||||||||||||||||
Net loss | — | — | — | — | — | — | — | — | — | — | (1,892 | ) | (1,892 | ) | ||||||||||||||||||||||||||||||||||
Balance, September 30, 2022 | 633,697 | $ | 7,821 | 1,576,154 | $ | 19,451 | 577,791 | $ | 46,077 | $ | 73,349 | — | $ | — | $ | 853 | $ | (80,110 | ) | $ | (79,257 | ) | ||||||||||||||||||||||||||
Nine Months Ended September 30, | ||||||||
2022 | 2021 | |||||||
Cash flows from operating activities | ||||||||
Net loss | $ | (3,798 | ) | $ | (3,378 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
Amortization of discount on convertible notes | 234 | 42 | ||||||
Non-cash interest related to convertible notes | 249 | 2 | ||||||
Change in fair value of derivative liability | (578 | ) | — | |||||
Stock-based compensation | 706 | 9 | ||||||
Changes in operating assets and liabilities | ||||||||
Inventory | — | 55 | ||||||
Prepaid expenses | (3 | ) | (7 | ) | ||||
Capitalized merger costs | (1,005 | ) | — | |||||
Accounts payable | 1,206 | (160 | ) | |||||
Accrued expenses and other current liabilities | 497 | (582 | ) | |||||
Net cash used in operating activities | (2,492 | ) | (4,019 | ) | ||||
Cash flows from financing activities | ||||||||
Proceeds from issuance of convertible notes | 1,681 | 1,900 | ||||||
Proceeds from borrowings on LMFA note payable | 350 | — | ||||||
Repayment of PPP loan | — | (20 | ) | |||||
Net cash provided by financing activities | 2,031 | 1,880 | ||||||
Net decrease in cash | (461 | ) | (2,139 | ) | ||||
Cash, beginning of period | 510 | 2,807 | ||||||
Cash, end of period | $ | 49 | $ | 668 | ||||
Supplemental disclosure of cash flow information | ||||||||
Cash paid for income taxes | $ | — | $ | 1 | ||||
Cash paid for interest | $ | — | $ | 1 | ||||
Supplemental disclosure of noncash flow information | ||||||||
Conversion of Series A-2 Preferred stock into Series B Preferred stock | $ | 2,400 | $ | — | ||||
Value of derivative liability on issuance of convertible notes | 52 | 444 | ||||||
Non-cash conversion of accrued expenses into convertible notes | 96 | — |
1. | DESCRIPTION OF BUSINESS |
1. | DESCRIPTION OF BUSINESS (continued) |
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
Level 3 Rollforward | Derivative Liability | |||
Balance December 31, 2021 | $ | 526 | ||
Additions | 52 | |||
Changes in fair value | (578 | ) | ||
Balance September 30, 2022 | $ | — | ||
Balance December 31, 2020 | $ | — | ||
Additions | 444 | |||
Changes in fair value | — | |||
Balance September 30, 2021 | $ | 444 | ||
3. | CAPITALIZED MERGER COSTS |
4. | ACCRUED EXPENSES |
September 30, 2022 | December 31, 2021 | |||||||
Accrued interest | $ | 321 | $ | 72 | ||||
Accrued director remuneration | 185 | — | ||||||
Accrued research and development | 130 | 58 | ||||||
Accrued bonus | 105 | — | ||||||
Accrued merger costs | 57 | — | ||||||
Accrued other | 24 | 29 | ||||||
Accrued legal | 14 | 27 | ||||||
Total accrued expenses | $ | 836 | $ | 186 | ||||
5. | LMFA Note Payable |
6. | CONVERTIBLE NOTES |
Issue Date | Amount | Maturity Date | ||||
June 2021 | $ | 300 | December 2022 | |||
September 2021 | 840 | December 2024 | ||||
October 2021 | 240 | December 2024 | ||||
November 2021 | 240 | December 2024 | ||||
March 2022 | 120 | March 2024 | ||||
April 2022 | 480 | April 2025 | ||||
April 2022 | 120 | April 2025 | ||||
$2,340 | ||||||
6. | CONVERTIBLE NOTES (continued) |
Issue Date | Amount | Maturity Date | ||||
June 2021 | $ | 200 | December 2022 | |||
September 2021 | 560 | December 2024 | ||||
October 2021 | 160 | December 2024 | ||||
November 2021 | 160 | December 2024 | ||||
March 2022 | 80 | March 2024 | ||||
April 2022 | 320 | April 2025 | ||||
April 2022 | 80 | April 2025 | ||||
$1,560 | ||||||
6. | CONVERTIBLE NOTES (continued) |
September 30, 2022 | December 31, 2021 | |||||||
Dow Notes | $ | 2,340 | $ | 1,620 | ||||
Union Carbide Notes | 1,560 | 1,080 | ||||||
IBT & David Humes Notes | 210 | 114 | ||||||
Investor Notes | 526 | 104 | ||||||
Unamortized Debt Discount | (176 | ) | (359 | ) | ||||
4,460 | 2,559 | |||||||
Less current portion | (413 | ) | (2,378 | ) | ||||
$ | 4,047 | $ | 181 | |||||
6. | CONVERTIBLE NOTES (continued) |
Years ending December 31: | ||||
2022 (remaining) | $ | 500 | ||
2023 | — | |||
2024 | 2,618 | |||
2025 | 1,518 | |||
Total | $ | 4,636 | ||
7. | NOTES PAYABLE – GOVERNMENT LOANS |
2022 (remaining) | $ | — | ||
2023 | 1 | |||
2024 | 1 | |||
2025 | 1 | |||
2026 | 1 | |||
2027 | 1 | |||
Thereafter | 58 | |||
$ | 63 | |||
8. | CONVERTIBLE PREFERRED STOCK AND COMMON STOCK |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Research and development | $ | 27 | $ | 3 | $ | 53 | $ | 9 | ||||||||
General and administrative | 330 | — | 653 | — | ||||||||||||
Total | $ | 357 | $ | 3 | $ | 706 | $ | 9 | ||||||||
9. | COMMITMENTS AND CONTINGENCIES |
9. | COMMITMENTS AND CONTINGENCIES (continued) |
10. | INCOME TAXES |
11. | NET LOSS PER SHARE |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Options to purchase common stock | 271,280 | 267,034 | 271,280 | 267,034 | ||||||||||||
Restricted stock units | 255,000 | — | 170,000 | — | ||||||||||||
Convertible preferred stock | 2,787,642 | 2,787,642 | 2,787,642 | 2,787,642 | ||||||||||||
Total | 3,313,922 | 3,054,676 | 3,228,922 | 3,054,676 | ||||||||||||
12. | SUBSEQUENT EVENTS |
12. | SUBSEQUENT EVENTS (continued) |
12. | SUBSEQUENT EVENTS (continued) |
12. | SUBSEQUENT EVENTS (continued) |
12. | SUBSEQUENT EVENTS (continued) |
12. | SUBSEQUENT EVENTS (continued) |
6,718,842 Shares of Common Stock
PROSPECTUS
, 2023
You should rely only on the information contained or incorporated by reference in this prospectus. We have not, and the underwriters have not authorized anyone to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained or incorporated by reference in this prospectus is accurate as of any date other than the date on the front of this prospectus.
No dealer, salesperson or any other person is authorized to give any information or make any representations in connection with this offering other than those contained in this prospectus and, if given or made, the information or representations must We are not be relied upon as having been authorized by us. This prospectus does not constitutemaking an offer to sell or a solicitation of an offer to buy any security other than thethese securities offered by this prospectus, or an offer to sell or a solicitation of an offer to buy any securities by anyone in any jurisdiction in whichstate where the offer or solicitation is not authorized or is unlawful.permitted.
PART II
Information Not Required in Prospectus
Item 13. |
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The following is an estimate of Issuance and Distribution.
The estimatedthe expenses payable by us in connection with the offering described in this registration statement (other than the underwriting discount and commissions) will be as follows:
Legal fees and expenses | $ | 275,000 | |
Printing and road show expenses |
| 65,000 | |
Accounting fees and expenses |
| 45,000 | |
SEC/FINRA expenses |
| 23,000 | |
Directors’ and officers’ insurance premiums |
| 200,000 | |
Nasdaq listing and filing fees |
| 75,000 | |
Reimbursement to underwriters for expenses |
| 125,000 | |
Miscellaneous expenses |
| 40,000 | |
Total | $ | 848,000 | |
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(1)This amount represents the approximate amount of annual director and officer liability insurance premiums the registrant anticipates paying following the completion of its initial public offering and until it completes an initial business combination. |
Item 14.Indemnification(all of Directors and officers.
Our certificate of incorporation provides that all of our directors, officers, employees and agents shall be entitledwhich are to be indemnified by us to the fullest extent permitted by Section 145 of the Delaware General Corporation Law (“DGCL”). Section 145 of the Delaware General Corporation Law concerning indemnification of officers, directors, employees and agents is set forth below.
Section 145. Indemnification of officers, directors, employees and agents; insurance.
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Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers, and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment of expenses incurred or paid by a director, officer or controlling person in a successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling personthe registrant) that we may incur in connection with the securities being registered wehereby.
Amount | ||||
SEC registration fee | $3,391.11 | |||
Legal fees and expenses | * | |||
Accounting fees and expenses | * | |||
Miscellaneous | * | |||
Total | * |
* | These fees are calculated based on the securities offered and the number of issuances and accordingly cannot be defined at this time. |
We will unlessbear all costs, expenses and fees in connection with the registration of the securities, including with regard to compliance with state securities or “blue sky” laws. The Selling Stockholder, however, will bear all underwriting commissions and discounts, if any, attributable to their sale of the securities. All amounts are estimates except the SEC registration fee and the FINRA filing fee.
Item 14. | Indemnification of Directors and Officers. |
Section 145 of the DGCL provides, generally, that a corporation shall have the power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the opinionright of its counsel the matter has been settledcorporation) by controlling precedent, submitreason of the fact that such person is or was a director, officer, employee or agent of the corporation against all expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the courtbest interests of appropriate jurisdiction the question whethercorporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. A corporation may similarly indemnify such indemnificationperson for expenses actually and reasonably incurred by it is against public policy as expressedsuch person in connection with the defense or settlement of any action or suit by or in the Securities Actright of the corporation, provided that such person acted in good faith and willin a manner he or she reasonably believed to be governed byin or not opposed to the finalbest interests of the corporation, and, in the case of claims, issues and matters as to which such person shall have been adjudged liable to the corporation, provided that a court shall have determined, upon application, that, despite the adjudication of liability but in view of all of the circumstances of the case, such issue.person is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper.
In accordance with Section 102(b)(7) of the DGCL, our certificate of incorporation,Charter provides that noa director shallwill not be personally liable to us or any of our stockholders for monetary damages resulting from breachesfor breach of their fiduciary duty as directors,a director, except for liability (i) for any breach of the director’s duty of loyalty to the extent such limitation onus or exemption from liability is not permitted under the DGCL. The effect of this provision of our certificate of incorporation is to eliminate our rights and those of our stockholders, (through stockholders’ derivative suits on our behalf) to recover monetary damages against(ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from which the director derived an improper personal benefit. No such provision shall eliminate or limit the liability of a director for breachany act or omission occurring prior to the date when such provision became effective. Accordingly, these provisions will have no effect on the availability of the fiduciary duty of care as a director, including breaches resulting from negligent or grossly negligent behavior, except, as restricted by Section 102(b)(7) of the DGCL. However, this provision does not limit or eliminate our rights or the rights of any stockholder to seek non-monetary relief,equitable remedies such as an injunction or rescission in the event ofbased on a director’s breach of a director’shis or her duty of care.
If the DGCL is amended to authorize corporate action further eliminating or limiting the liability of directors, then, in accordance with our certificate of incorporation, the liability of our directors to us or our stockholders will be eliminated or limited to the fullest extent authorized by the DGCL, as so amended. Any repeal or amendment of provisions of our certificate of incorporation limiting or eliminating the liability of directors, whether by our stockholders or by changes in law, or the adoption of any other provisions inconsistent therewith, will (unless otherwise required by law) be prospective only, except to the extent such amendment or change in law permits us to further limit or eliminate the liability of directors on a retroactive basis.
Our certificate of incorporation alsoThe Charter provides that we will indemnify our present and former directors and officers to the fullestmaximum extent authorized or permitted by applicable law, indemnify our current and former officers and directors, as well as those persons who, while directors or officers of our corporation, are or were serving as directors, officers, employees or agents of another entity, trust or other enterprise, including service with respect to an employee benefit plan, in connection with any threatened, pending or completed proceeding, whether civil, criminal, administrative or investigative, against all expense, liability and loss (including, without limitation, attorney’s fees, judgments, fines, ERISA excise taxes and penalties and amounts paid in settlement) reasonably incurred or suffered by any such person in connection with any such proceeding. Notwithstanding the foregoing, a person eligible for indemnification pursuant to our certificate of incorporation will be indemnified by us in connection with a proceeding initiated by such person only if such proceeding was authorized by our board of directors, except for proceedings to enforce rights to indemnification.
The right to indemnification which will be conferred by our certificate of incorporation is a contract right that includes the right to be paid by us the expenses incurred in defending or otherwise participating in any proceeding referenced above in advance of its final disposition, provided, however, that if the DGCL requires, an advancement of expenses incurred by our officer or director (solely in the capacity as an officer or director of our corporation) will be made only upon delivery to us of an undertaking, by or on behalf of such officer or director, to repay all amounts so advanced if it is ultimately determinedand that such person is not entitled to be indemnified for such expenses under our certificate of incorporation or otherwise.
The rights to indemnification and advancement of expenses will not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any person covered by our certificate of incorporation may have or hereafter acquire under law, our certificate of incorporation, our bylaws, anbylaw provision, agreement, vote of stockholders or disinterested directors or otherwise.
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The Company entered, and expects to continue to enter into, indemnification agreements with its directors, executive officers, and other employees as determined by the Board. Each indemnification agreement provides for indemnification and advancements by the Company of provisions of our certificate of incorporation affecting indemnification rights, whether by our stockholders or by changes in law, or the adoption of any other provisions inconsistent therewith, will (unless otherwise required by law) be prospective only, except to the extent such amendment or change in law permits us to provide broader indemnification rights on a retroactive basis, and will not in any way diminish or adversely affect any right or protection existing at the time of such repeal or amendment or adoption of such inconsistent provision with respect to any act or omission occurring prior to such repeal or amendment or adoption of such inconsistent provision. Our certificate of incorporation also permits us, to the extent and in the manner authorized or permitted by law, to indemnify and to advance expenses to persons other that those specifically covered by our certificate of incorporation.
Our bylaws, which we intend to adopt immediately prior to the closing of this offering, include the provisions relating to advancement ofcertain expenses and indemnification rights consistent with those which will be set forth in our certificatecosts, if the basis of incorporation. In addition, our bylaws provide forthe indemnitee’s involvement was by reason of the fact that the indemnitee is or was a right of indemnity to bring a suit in the event a claim for indemnification or advancement of expenses is not paid in full by us within a specified period of time. Our bylaws also permit us to purchase and maintain insurance, at our expense, to protect us and/or any director, officer, employee, or agent of our corporationthe Company or any of its subsidiaries or was serving at the Company’s request in an official capacity for another entity, trust or other enterprise against any expense, liability or loss, whether or not we would have the power to indemnify such person against such expense, liability or loss under the DGCL.
Any repeal or amendment of provisions of our bylaws affecting indemnification rights, whether by our board of directors, stockholders or by changes in applicable law, or the adoption of any other provisions inconsistent therewith, will (unless otherwise required by law) be prospective only, except to the extent such amendment or change in law permits us to provide broader indemnification rights on a retroactive basis, and will not in any way diminish or adversely affect any right or protection existing thereunder with respect to any act or omission occurring prior to such repeal or amendment or adoption of such inconsistent provision.
We will enter into indemnification agreements with each of our officers and directors a form of which is to be filed as an exhibit to this Registration Statement. These agreements will require us to indemnify these individuals to the fullest extent permitted under Delaware law against liabilities that may arise by reasonthe laws of their servicethe state of Delaware.
Item 15. | Recent Sales of Unregistered Securities. |
PIPE Financing
As previously announced, on August 23, 2022, following the execution of the Merger Agreement, LMAO entered into Subscription Agreements with three institutional investors (the “PIPE Investors”) pursuant to, us, and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified.
Pursuanton the terms and subject to the Underwriting Agreementconditions of which, the PIPE Investors collectively subscribed for an aggregate of 700,000 shares of Common Stock at $10.00 per share, and 700,000 warrants (the “PIPE Warrants”) for aggregate gross proceeds of $7.0 million (the “PIPE Financing”). The PIPE Financing was consummated substantially concurrently with the Closing of the Business Combination.
The shares of Common Stock issued to be filed as Exhibit 1.1the PIPE Investors were issued pursuant to this Registration Statement, we have agreed to indemnifyand in accordance with the underwriters andexemption from registration under the underwriters have agreed to indemnify us against certain civil liabilities that may be incurred in connection with this offering, including certain liabilitiesSecurities Act, under Section 4(a)(2) promulgated under the Securities Act.
Item 15.Recent SalesThe issuance of Unregistered Securities.
On November 6, 2020, LMFAO Sponsor, LLC, our sponsor, purchased an aggregate of 2,156,250 founder shares, for an aggregate offering price of $25,000 at an average purchase price of approximately $0.012 per share (up to 281,250 shares of which are subject to forfeiture depending onClass A Common Stock upon the extent to which the underwriters’ over-allotment option is exercised). The number of founder shares issued was determined based on the expectation that the founder shares would represent 20%automatic conversion of the outstanding sharesClass B Common Stock and the issuance of common stockCommon Stock upon completionthe automatic conversion of this offering. Such securities were issuedthe Class A Common Stock at the Closing has not been registered under the Securities Act in connection with our organization pursuant toreliance on the exemption from registration contained inprovided by Section 4(a)(2) of the Securities Act. Our sponsor is an accredited investor for purposes of Rule 501 of Regulation D.
In addition, LMFAO Sponsor, LLC, an affiliate of our sponsor, has committed, pursuant to a written agreement, to purchase from us an aggregate of 4,598,000 warrants (or 5,048,000 warrants if the over-allotment option is exercised in full) at a price of $1.00 per warrant ($4,598,000 in the aggregate, or $5,048,000 if the over-allotment option is exercised in full). This purchase will take place on a private placement basis simultaneously with the completion of our initial public offering. This issuance will be made pursuant to the exemption from registration contained in Section 4(a)(2)3(a)(9) of the Securities Act.
No underwriting discounts
Item 16. | Exhibits. |
(a) Exhibit Index
See the Exhibit Index immediately preceding the signature page hereto for a list of exhibits filed as part of this registration statement on Form S-1, which Exhibit Index is incorporated herein by reference.
(b) Financial statement schedules
All schedules are omitted because the required information is either not present, not present in material amounts or commissions were paid with respect to such sales.presented within the consolidated financial statements included in the prospectus and are incorporated herein by reference.
Item 16.Exhibits and Financial Statement Schedules.
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The undersigned registrant hereby undertakes:
A. | To file, during any period in which offers or sales are being made, a post-effective amendment to this registration |
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(ii) | To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. |
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(iii) | To include any material information with respect to |
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C. | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. |
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(i) | Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; |
(ii) | Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by |
(iii) | The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and |
(iv) | Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. |
F. | Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. |
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EXHIBIT INDEX
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† | Schedules and exhibits to this agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the SEC upon request. |
** | Filed herewith |
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Tampa, State of Florida,Denver, Colorado, on the 19th day of January 2021.20, 2023.
SEASTAR MEDICAL HOLDING CORPORATION | ||
By: |
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| /s/ | |
Name: |
| Eric Schlorff |
Title: | Chief Executive Officer |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned constitutes and appoints Eric Schloff his or her true and lawful attorney-in-fact and agent, with full power of substitution and revocation, for him or her and in his or her name, place and stead, in any and all capacities, to execute any or all amendments including any post-effective amendments and supplements to this Registration Statement, and any additional Registration Statement filed pursuant to Rule 462(b), and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement on Form S-1 has been signed below by the following persons in the capacities and on the dates indicated.
Name |
| Date | ||
/s/ Eric Schlorff Eric Schlorff | Chief Executive Officer and Director (Principal Executive Officer) | January 20, 2023 | ||
/s/ Caryl Baron Caryl Baron | Interim Chief Financial Officer (Principal Financial and Accounting Officer) | January 20, 2023 | ||
/s/ Rick Barnett Rick Barnett | Chairman of the Board of Directors | January 20, 2023 | ||
/s/ Kenneth Van Heel Kenneth Van Heel | Director | January 20, 2023 | ||
/s/ Andres Lobo Andres Lobo | Director | January��20, 2023 | ||
/s/ Allan Collins Allan Collins | Director | January 20, 2023 | ||
/s/ Bruce Bruce Rodgers |
| Director | January | |
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/s/ Richard Russell |
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Richard Russell | ||||
Director | ||||
January 20, 2023 |
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