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Lakeshore Acquisition I Corp. *

Lakeshore Acquisition I Corp. *

Apr 12, 2021 by Kristi Marvin

PROPOSED BUSINESS COMBINATION: ProSomnus Holdings Inc. 

ENTERPRISE VALUE: $168 million
ANTICIPATED SYMBOL: OSA

Lakeshore Acquisition I Corp. proposes to combine with ProSomnus Holdings Inc., the first manufacturer of precision, mass-customized oral appliance therapy devices to treat obstructive sleep apnea, which affects over 74 million Americans and is associated with serious comorbidities, including heart failure, stroke, hypertension, morbid obesity and type 2 diabetes.

ProSomnus’s patented devices are a more comfortable and less invasive alternative to continuous positive airway pressure (CPAP) therapy, and lead to more effective and patient-preferred outcomes. With more than 150,000 patients treated, ProSomnus’s devices are the most prescribed oral appliance therapy in the U.S.

SUBSEQUENT EVENT – 12/1/22 – LINK

Non-Redemption Agreement

  • On November 30, 2022, Lakeshore also entered into non-redemption agreements with certain institutional investors for an aggregate of 200,339 shares of the Purchaser, and such investors will also receive an aggregate of 172,368 additional shares from the Purchaser.
  • Altogether, there are 395,339 shares subject to non-redemption agreements and, in connection therewith, the investors will receive an aggregate of 340,085 additional shares of the Purchaser.

SUBSEQUENT EVENT – 11/30/22 – LINK

Non-Redemption Agreement

  • The SPAC has entered into common stock securities purchase agreements with accredited and institutional investors in a private placement for aggregate gross proceeds of $8.2 million.
    • Such investors will receive 820,000 shares of Lakeshore’s common stock at the closing of the business combination with ProSomnus, and such investors will also receive 619,932 additional shares of common stock as provided in the transaction agreements between Lakeshore and ProSomnus.
    • ProSomnus has also entered into a non-redemption agreement with an institutional investor for 195,000 shares, and such investors will also receive 167,717 additional shares.
    • The subscription agreements and non-redemption agreements are in addition to the $30 million convertible note PIPE that Lakeshore announced the signing on August 26, 2022.

SUBSEQUENT EVENT – 9/16/22 – LINK

  • On September 15, 2022, Lakeshore Acquisition I Corp., ProSomnus Holdings Inc., a Delaware corporation, RedOne Investment Limited, entered into a Note Purchase Agreement (the “Note Purchase Agreement”).
  • The Company and the Investor have agreed that the Company shall issue and sell to the Investor a promissory note of $310,000 in aggregate principal amount.
  • On the closing date of the purchase and sale of the Note, the Investor delivered the Note reflecting the Principal Amount and the Investor deposited $300,000 by wire transfer into the specified Company account.
  • The Sponsor agreed to transfer, and the Company agreed to ensure that the Sponsor shall transfer, to the Investor at the closing of the Company’s initial business combination.
  • The transfer of founder shares shall occur, in whole or in part, exclusively upon the sole election of the Investor.
  • The founder shares will be subject to similar registration rights as the founder shares held by the Sponsor.

EXTENSION – 9/7/22 – LINK

  • The SPAC approved the extension from September 15, 2022 to December 15, 2022, by depositing into Lakeshore’s trust account $0.125 per share for each public share that has not been redeemed
    • At the meeting, 2,606,117 ordinary shares were redeemed.

SUBSEQUENT EVENT – 8/26/22 – LINK

  • ProSomnus Sleep Technologies announced the execution of definitive agreements with institutional investors led by funds affiliated with or managed by Cohanzick Management, LLC and CrossingBridge Advisors, LLC.
  • The debt being issued to various institutional parties consists of $30 million of debt comprised of two tranches: $15 million of senior secured convertible notes and $15 million of junior secured convertible notes with maturities of 36 months and 40 months, respectively.  
  • Post issuance, within 12 months, the debt will be DTC eligible for secondary trading.
  • Neither note has scheduled amortization.
  • The senior debt has an initial conversion price of $13.00, to be reset at a 5% premium to market price six and twelve months after closing, subject to a floor.
  • The subordinated debt has an initial conversion price of $11.50, to be reset to a 5% premium to the market price six and twelve months after close and subject to a floor.
  • The financing will support the previously announced, pending merger of ProSomnus and Lakeshore Acquisition I Corp.
  • The closing of the convertible debt financing is conditioned upon the closing of the business combination prior to December 10, 2022.
  • The notes will be issued by the combined company.

TRANSACTION

  • Lakeshore will acquire ProSomnus for $125 million (including the assumption of $13 million of debt that will be paid off at closing).
  • In connection with the transaction:
    • (i) Lakeshore will issue approximately 11 million newly issued shares to current stockholders of ProSomnus (subject to the actual amount of net debt outstanding, at closing),
    • (ii) Cohanzick Management and CrossingBridge Advisors are expected to lead and backstop a $30 million senior and junior convertible note investment, and
    • (iii) the parties expect to receive a minimum additional $10 million in equity from a PIPE or from Lakeshore’s trust account.
    • Current stockholders of ProSomnus may also be entitled to an earn-out of up to an additional 3 million shares in three tranches if certain trading price targets are met within three years after closing.
    • The transaction implies a pro forma enterprise value for the combined company of approximately $168 million, which equates to approximately 4.3x projected FY 2023 revenue of $38 – 40 million, at the midpoint.

Lakeshore Transaction Overview

PIPE

  • Purchaser has agreed to use its reasonable best efforts to, within 60 days following the date of the Merger Agreement:
    • Enter into definitive agreements
      • (i) with certain investors pursuant to which such investors will purchase shares of Purchaser Common Stock at a purchase price of $10.00 per share, and/or
      • (ii) with certain “beneficial owners” of Purchaser Common Stock pursuant to which such Purchaser stockholders shall agree not to redeem their shares of Purchaser Common Stock in connection with the Merger and to waive their redemption rights under the Purchaser’s amended and restated memorandum and articles of association; provided that the combination of proceeds under (i) and
      • (ii) shall be equal to an aggregate of at least $10,000,000 held inside or outside the Trust Account immediately prior to the consummation of the Merger; and
    • Enter into definitive agreements with certain investors pursuant to which such investors will purchase convertible notes of Purchaser with aggregate principal funding equal to $30,000,000, in a private placement or placements to be consummated immediately prior to the consummation of the Merger.

DEBT INVESTMENT & BACKSTOP

Senior Debt:

  • Purchaser entered into a non-binding Term Sheet dated as of May 6, 2022 with funds and accounts managed or advised by Cohanzick Management, LLC and CrossingBridge Management, LLC, pursuant to which the Cohanzick and CrossingBridge will agree to fund $17,142,857 in aggregate principal amount of Senior Secured Convertible Notes, consisting of aggregate cash to Purchaser of $15 million and an original issue discount (“OID”) of $2,142,857 (the “Senior Debt”), which Senior Debt will be issued in a single closing that will occur concurrently with the Closing.
  • If the net cash to the Purchaser’s balance sheet after paydown of debt, fees and expenses in connection with the Merger is below $30,000,000, the OID of the Senior Debt shall be adjusted as follows:
    • For every $1,000,000 below $30,000,000 (and above $18,000,000) in net cash to the Purchaser’s balance sheet, the OID shall increase by 0.33%.
  • Interest on the Senior Debt will accrue and be paid quarterly at the rate of 9.00% per annum in cash based on a 365-day year.
  • Unless earlier converted, redeemed or repurchased, all principal, together with accrued and unpaid interest under the Senior Debt will be due and payable 36 months after the issuance date of the Senior Debt (the “Senior Debt Maturity Date”).
  • The repayment of the Senior Debt will not be amortized.
  • Prior to the Senior Debt Maturity Date, the holders of the Senior Debt may, at their sole discretion, elect to convert the Senior Debt into Purchaser Common Stock.
  • Initially, the conversion price of the Senior Debt will be $13.00 per share (the “Senior Debt Conversion Price”).
  • The Senior Debt Conversion Price will be subject to reset to the lower of a 5% premium to the market price of Purchaser Common Stock 6 months and 12 months after the Closing, subject to $5.50 per share floor.
  • The Senior Debt will contain customary mandatory prepayment provisions, including prepayment with net proceeds of certain indebtedness, asset sales, and casualty events, provided that the holders of the Senior Debt shall have the option to waive any such prepayments.
  • In addition, the Senior Debt will also be subject to customary anti-dilution adjustments and “make-whole” increases in connection with certain fundamental changes.
  • The Senior Debt may be prepaid at par after 18 months from the issuance date upon 30 days’ notice.
  • Upon closing of the Senior Debt, the holders of the Senior Debt shall receive warrants of Purchaser with 10% warrant coverage and an exercise price equal to $11.50 per share (such warrants, the “Senior Debt Warrants”).
  • The Senior Debt Warrants will be exercisable for a period of 5 years from the Closing.
  • The Senior Debt Warrants shall be issued pursuant to the warrant agreement governing the Purchaser Warrants.

 Junior Debt:

  • Pursuant to the Term Sheet, Craig-Hallum Capital Group and Roth Capital Partners (the “Placement Agents”) will use their best efforts to place $16,666,667 in aggregate principal amount of secured convertible notes, consisting of aggregate cash to Purchaser of $15 million and an OID of $1,666,667 (the “Junior Debt”).
  • The Junior Debt will be subordinated to the Senior Debt through an intercreditor agreement among the lenders.
  • The principal, interest and any other amounts owing under the Junior Debt shall be secured by second priority security interests, and liens on all present and after-acquired assets of Purchaser and subsidiary guarantors, including, but without limitation, a pledge of the equity interests directly or indirectly held by Purchaser and its subsidiary guarantors.
  • Interest on the Junior Debt shall accrue on all outstanding principal amounts at the rate of Prime + 6.50% per annum PIK or cash, payable quarterly at the election of Purchaser.
  • The date of maturity of the Junior Debt shall occur on the latter of the 40th month anniversary from the Closing, or 120 days after the maturity of the Senior Debt (the “Junior Debt Maturity Date”).
  • The repayment of the Junior Debt will not be amortized.
  • Prior to the Junior Debt Maturity Date, each holder of Junior Debt may, at its sole discretion, elect to convert the Junior Debt into Purchaser Common Stock.
  • Initially, the conversion price of the Junior Debt will be $11.50 per share (the “Junior Debt Conversion Price”).
  • The Junior Debt Conversion Price will be subject to reset to the lower of a 5% premium to the market price of Purchaser Common Stock 6 months and 12 months after Closing subject to $4.50 per share floor.
  • The Junior Debt will contain customary mandatory prepayment provisions, including prepayment with net proceeds of certain indebtedness, asset sales, and casualty events, provided that the holders of Junior Debt shall have the option to waive any such prepayments. The Purchaser will have the option to prepay (the “Optional Prepayment”) all or any portion of the Junior Debt at par plus any accrued and unpaid interest, upon 30 business days written notice, in cash or in stock at any time after 18 months from the date of issuance if the Daily VWAP of the Purchaser Common Stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days exceeds $18.00.
  • Notwithstanding, the Optional Prepayment may not be paid in cash while the Senior Debt is outstanding.
  • Upon closing of the Junior Debt, the holders of the Junior Debt shall receive warrants of Purchaser with 100% warrant coverage and an exercise price equal to $20.00 per share (such warrants, the “Junior Debt Warrants” and together with the Senior Debt Warrants, the “Lender Warrants”).
  • The Junior Debt Warrants will be exercisable for a period of 10 years from the Closing.
  • The Junior Debt Warrants shall be issued pursuant to the warrant agreement governing the Purchaser Warrants.

BACKSTOP

  • Cohanzick agrees and is obligated to backstop the $15,000,000 of Junior Debt to the extent the Placement Agents are not able to place the full $15,000,000 (“the “Backstop”).
  • Cohanzick will receive 90,000 Purchaser Common Stock from the Placement Agents that are otherwise due to the Placement Agents as part of their placement agent fee on the Junior Debt.
  • For every $1,000.00 that is purchased by parties other than Cohanzick (the “Junior Debt Note Purchasers”), the Placement Agents will receive 6.00 (six) shares of Purchaser Common Stock from Cohanzick, up to a total of 90,000 shares of Purchaser Common Stock.
  • At Closing, Cohanzick will receive 50,000 newly issued shares of Purchaser Common Stock as a commitment fee in return for backstopping the Junior Debt.
  • In addition, at Closing, Cohanzick will receive 250,000 newly issued shares of Purchaser Common Stock (the “Bonus Shares”).
  • Cohanzick will transfer the Bonus Shares, pro rata, to the Junior Debt Note Purchasers.

LOCK-UP

Company Lock-Up

  • The period commencing on the closing date of the Merger and ending on the earlier of:
    • (i) six months after the Closing; and
    • (ii) with respect to Lock-up Shares not held by a Significant Company Stockholder only, if the VWAP of the Purchaser Common Stock equals or exceeds $12.50 per share for any 20 trading days within any 30 consecutive trading days beginning 90 days after the Closing.

Sponsor Lock-Up:

  • Purchaser and ProSomnus entered into the Purchaser Support Agreement (the “Purchaser Support Agreement”), with the initial shareholders of the Purchaser (the “Supporters”), pursuant to which the Supporters agreed:
    • (i) to not transfer any Purchaser Common Stock owned by them,
    • (iii) to not transfer any Purchaser Common Stock held by them until six months after the date of the consummation of the initial business combination.
    • (iv) to automatically transfer up to an aggregate of 30% of the Founder Shares held by each Supporter to Equity Investors for no consideration.
  • If the aggregate number of transferred Founder Shares is equal to or greater than 273,350 Founder Shares (the “20% Threshold”), the Purchaser shall issue a full warrant to the Supporters for each transferred Founder Share transferred above the 20% Threshold; provided that in no event shall the aggregate number of transferred Founder Shares be greater than 410,025.

NOTABLE CONDITIONS TO CLOSING

  • Purchaser having no less than $40,000,000 in cash and cash equivalents available to them immediately after the Closing, including the net proceeds from the Trust Account and the net proceeds from the Transaction Financing.

NOTABLE CONDITIONS TO TERMINATION

  • By either Purchaser or ProSomnus, if the Closing has not occurred by December 10, 2022 (the “Outside Date”).

ADVISORS

  • Solomon Partners and Gordon Pointe Capital, LLC are acting as financial advisors to ProSomnus.
  • Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. is acting as legal advisor to ProSomnus.
  • Loeb & Loeb is acting as legal advisor to Lakeshore.
  • Craig-Hallum Capital Group and Roth Capital Partners are acting as joint placement agents on the PIPE.
  • Craig-Hallum Capital Group is acting as M&A advisor to Lakeshore.

MANAGEMENT & BOARD

Executive Officers

Bill Chen, 55
Chief Executive Officer & Chairman

Mr. Chen has a mixed background of engineering, finance, and operation management across industries and continents. Mr. Chen has been an independent advisor for merger and acquisition and equity transactions since August 2015. Since February 2020, Mr. Chen has served as a Special Advisor for Newborn Acquisition Corp. (NASDAQ:NBAC), a special purpose acquisition company that is in the process of completing a business combination with Nuvve Corporation. Since May 2017, Mr. Chen has served as Chief Executive Officer of Shanghai Renaissance Investment Management Co. Ltd., a licensed private equity firm in China that he founded. From March 2014 to August 2015, Mr. Chen served as Executive Vice President of Sanpower Group, a private conglomerate based in China, where he was in charge of cross-border merger and acquisition and post-merger integration. From January 2011 to January 2014, Mr. Chen served as Vice President of Strategy and Global Investment of JA Solar, a vertically integrated solar products manufacturing company based in China. From February 2005 to October 2010, Mr. Chen served as a Partner of BDO Capital Advisors and its affiliates in China with a focus on cross-border merger and acquisition and equity transactions. From June 2001 to August 2004, Mr. Chen served as a Senior Business Advisor to Capgemini, a consulting company based in Toronto Canada. From November 2000 to May 2001, Mr. Chen served as a Senior Financial Analyst in IBM Global Services in Toronto Canada. From December 1997 to November 2000, Mr. Chen served as a Staff Accountant in the General Accounting Department of Ashland Inc. Prior to his career in accounting and finance, Mr. Chen was an engineer and project manager in China from July 1987 to August 1993.

Laura Li, 43
Chief Financial Officer & Director

Since August 2017, Ms. Li has served as CFO of Shanghai Renaissance Investment Management Co. Ltd., a licensed private equity firm in China where she has conducted numerous financial and risk assessments for equity investments in the private market. From January 2016 to January 2017, Ms. Li served as Director of Operations and Finance for Shanghai Zhaoxi Investment Management Co. Ltd., a private equity firm. From March 2014 to December 2015, Ms. Li served as Senior Manager of Financial Analysis at Financial Management Department of GCL Group, a leading renewable products manufacturing company, where she contributed in the implementation of restructuring and listing projects. From November 2011 to February 2014, Ms. Li served as Investment Manager in JA Solar. From November 2006 to November 2010, Ms. Li served as an analyst at the Shanghai office and then the Beijing office of NERA Economic Consulting. From September 2004 to November 2006, Ms. Li served as Finance Manager at ASE Group, a semiconductor manufacturing company. Ms. Li is a Certified Public Accountant in China, and she is also a CFA Charter holder.

Board of Directors

H. David Sherman, 72
Director

Since 1985, Dr. Sherman has been a professor at Northeastern University, specializing in, among other areas, financial and management accounting, global financial statement analysis and contemporary accounting issues. Since January 2014, Professor Sherman has served as Trustee and Chair of the Finance Committee for the American Academy of Dramatic Arts, the oldest English language acting school in the world. Since July 2010, he has also served as a Board member and Treasurer for D-Tree International, a non-profit organization that develops and supports electronic clinical protocols to enable health care workers worldwide to deliver high quality care. Since September 2019, Dr. Sherman has served as an independent board member for Newborn Acquisition Corp. (NASDAQ:NBAC). Dr. Sherman previously served on the board and as audit committee chair for Dunxin Financial Holdings Ltd. (AMEX:DXF), a financial service company, Kingold Jewelry Inc. (NASDAQ: KGJI), a designer and manufacturer of gold jewelry related products, China HGS Real Estate Inc. (NASDAQ: HGSH), a real estate company, Agfeed Corporation, a manufacturing company of agricultural products, and China Growth Alliance, Ltd., a business acquisition company formed to acquire an operating business in China. Dr. Sherman was previously on the faculty of the Sloan School of Management at Massachusetts Institute of Technology (MIT) and also, among other academic appointments, held an adjunct professorship at Tufts Medical School and was a visiting professor at Harvard Business School (2015). From 2004 to 2005, Dr. Sherman was an Academic Fellow at the U.S. Securities and Exchange Commission in the Division of Corporate Finance’s Office of Chief Accountant. Dr. Sherman is a Certified Public Accountant and previously practiced with Coopers & Lybrand. Dr. Sherman’s research has been published in management and academic journals including Harvard Business Review, Sloan Management Review, Accounting Review and European Journal of Operations Research.

Jianzhong Lu, 66
Director

Mr. Lu has extensive experience working with listed companies, including auditing, internal control, risk management and budget management. Since August 2019, Mr. Lu has served as an independent board member and chair of the audit committee for Newborn Acquisition Corp. (NASDAQ:NBAC). Since October 2016, Mr. Lu has served as certified public accountant at Dahua Certified Public Accountants Co., Ltd. From June 2014 to September 2016, Mr. Lu was a Partner of Zhongxinghua Accounting Firm. From October 2013 to May 2014, Mr. Lu served as Marketing Director of Shanghai branch of Daxin Accounting Firm. From July 2012 to September 2013, Mr. Lu served as Partner of Shanghai De’an Accounting Firm. From September 1997 to June 2012, Mr. Lu served as a Partner in the Audit Department of Pricewaterhousecoopers Zhongtian Accounting Firm. From September 1986 to August 1997, Mr. Lu served as a Lecturer and Associate Professor in the Finance and Accounting Department of Shanghai Maritime University. From December 1982 to August 1986, Mr. Lu worked as an accountant in the financial department of Shanghai Daily Hardware Industry Company. From August 2016 to October 2017, Mr. Lu was an external expert of Asset Securitization Research Group of the Development Research Center of the State Council of PRC. From October 2014 to May 2015, he was a member of the expert group of the Evaluation and Assessment of Economic Indicators of State-owned Enterprises at the Ministry of Finance in the People’s Republic of China. Mr. Lu is a Certified Public Account in China.

Yan Zhu, 57
Director

Dr. Zhu has extensive expertise in both biotechnology and pharmaceutical industries in drug discovery and development. He has broad experience relating to drug discovery in various therapeutic areas, diabetes, obesity, cardiovascular, infectious disease and cancer. He also has extensive experience in drug development with management of number of preclinical and clinical development candidates. Since December 2013, Dr. Zhu has served as Vice President of Operation, Chemistry Service, and Head of Business Development in Japan for WuxiAppTec Co. Ltd, a CRO company. From March 2011 to November 2013, Dr. Zhu served as Director of Medicinal Chemistry Research Laboratories, Pharmaceutical Research Division of Takeda Pharmaceutical Co. Ltd in Japan. From August 2008 to March 2011, Dr. Zhu served as Associate Director of Chemistry in Eli Lilly & Company. From August 2007 to August 2008, Dr. Zhu served as Associate Director of Chemistry in Poniard Pharmaceuticals in San Francisco. From February 2001 to August 2007, Dr. Zhu served as Project Leader and Senior Scientist in Metabolex Inc. in Hayward California. From November 1998 to February 2001, Dr. Zhu served as a Research Scientist of Medicinal Chemistry at Theravance Inc., a biopharma company based in San Francisco. From June 1997 to November 1998, Dr. Zhu served as a Research Scientist in the Department of Bioorganic Chemistry in Genentech Inc., a biotechnology company based in San Francisco. Dr. Zhu is a member of American Chemical Society, Division of Organic Chemistry and Medicine Chemistry. Dr. Zhu is also a member of American Diabetes Association.

ByKristi Marvin