Conclusion of an investment agreement regarding the acquisition of new shares in the Company for a contribution of approximately PLN 220 million (PLN 44.27 per share). Complete the review of strategic options. Disclosure of delayed confidential information – commencement of negotiations regarding the acquisition of 49.99% of the Company’s share capital.
Current report no .: 55/2022
Date: 10/01/2022
Legal basis: Article 17 para. 1 of MAR – confidential information
Management Board of Medicalgorithmics S.A. (“Company“) informs that on August 26, 2022, it decided to delay the disclosure of confidential information to the public, in accordance with Art. 17 sec. 4 of Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directive 2003/124/EC, 2003/125/EC and 2004/72/ EC. The subject of the delayed confidential information was the commencement of the negotiation process of the transaction consisting in the acquisition of newly issued shares of the Company in the number constituting 49.99% of the share capital of the Company by Biofund Capital Management LLC or its subsidiary.
On October 1, 2022, an investment agreement was concluded between the Company and Biofund Capital Management LLC based in Miami (USA) (“Biofund“), the subject of which is the acquisition of 4,976,384 shares of the Company in the increased share capital, i.e. 49.99% of votes at the general meeting of the Company by Biofund (“Agreement“) (“Transaction“) for a cash contribution in the amount of PLN 13,807,810.28 and a non-cash contribution in the form of 100% shares in Kardiolytics Inc. based in Oklahoma (USA) (“Kardiolytics“). The issue price will be PLN 44.27 per share.
In addition to making a cash contribution, Biofund undertook to provide the Company with additional financing up to the amount of PLN 13,800,000 within 3 years from the date of taking up the Company’s shares, depending on the justified needs of the Company and the possibility of obtaining financing from third parties on the terms, manner and on dates agreed with the Supervisory Board.
Since 2018, Kardiolytics has been developing artificial intelligence algorithms that autonomously analyze and provide the doctor with information quantifying the risk of a heart attack, select a number of biomarkers correlating with the occurrence of cardiovascular diseases, and present a comprehensive image of the patient’s heart structures in the form of 3D models. The models are enriched with the most important parameters resulting from the numerical analysis of fluid mechanics, which are necessary for making a diagnosis and planning the patient’s further treatment path.
As a result of the Transaction, the Company will become the indirect sole owner (as the owner of 100% shares in Kardiolytics) of intellectual property rights to the non-invasive diagnostics of diseases and imaging of the circulatory system technology based on artificial intelligence developed by Kardiolytics.
Pursuant to the Agreement, the share capital will be increased by PLN 497,638.40 through the issue of 995,276 series I bearer shares, 1,194,331 series J registered shares, 1,433,197 series K registered shares and 1,353,580 series L registered shares at the issue price PLN 44.27 for one share of the Company. In return for the shares acquired under the increased share capital of the Company, Biofund will make a cash contribution in the amount of PLN 13,807,810.30 and a non-cash contribution in the form of 1,500 shares in the share capital of Kardiolytics, representing 100% of the share capital of Kardiolytics. The value of the Biofund in-kind contribution is USD 44,890,589 and was determined by the valuation prepared by BakerTilly TPA sp. z o.o. and the statutory auditor issued an opinion on the fair value of the in-kind contribution of Biofund.
Biofund’s shares will be introduced and admitted to trading on the Stock Exchange under the applicable exceptions to the preparation of the prospectus. The parties assume the introduction of all Biofund actions by the end of 2026.
The Agreement provides for the following conditions precedent: adopting a resolution on increasing the share capital in connection with the Transaction and amending the Company’s Articles of Association with regard to the obligation to obtain corporate approvals to perform certain activities in the disposal of the Company’s key assets.
The agreement also provides for the obligation to obtain the consent of Biofund and the Company to perform certain activities in the period before registration in the National Court Register (“KRS”) of increasing the share capital under the Transaction of the Company and Kardiolytics, respectively, related to the management of key assets or incurring liabilities.
The Investor undertook that within 24 months from the date of registration with the National Court Register of the share capital increase under the Transaction, it will vote for the election of two members of the Supervisory Board from among candidates proposed by the Company’s minority shareholders, other than individual shareholders, who hold shares entitling to not less than 3% and not more than 10% of votes at the General Meeting of the Company. He also declared that in the above-mentioned period, one of the members of the Supervisory Board elected from among the candidates proposed by such shareholders will perform a function in the Audit Committee and the Nomination and Remuneration Committee.
The agreement includes standard statements and assurances of the Company, Biofund and Kardiolytics regarding, inter alia, corporate matters, operations, key intellectual property rights and obligations of the parties.
The agreement sets out the rules of liability of the Company and Biofund for the truthfulness, reliability and completeness of statements and assurances, the upper limit of the Company’s liability towards Biofund is USD 6,500,000, and the upper limit of Biofund’s liability towards the Company is USD 3,500,000. The parties are entitled to claim only the benefits specified in the contract corresponding to the damage suffered, excluding lost profits.
The agreement was concluded for a period of 25 years with the proviso that it will be terminated on the date of the first of the following events: in the event of non-fulfillment of the conditions precedent, failure to perform certain corporate actions, the occurrence of a significant negative change in relation to the parties to the Transaction, a negative result of due diligence, failure to document the production capacity of at least 10,000 “pocketEKG” devices and failure to provide the DRAI or 2 software test by the Company ) the not holding of any shares in the Company by Biofund or entities indicated in the Agreement.
The conversion rate for the conversion of Biofund’s liabilities towards the Company contained in the Agreement, which were expressed in US dollars, was set on the day of the commencement of negotiations and amounts to USD 1.00 / PLN 4.60.
The contract is governed by Polish law.
The Management Board decided to make the Transaction due to, inter alia, on the following circumstances: 1) in the opinion of the Management Board of the Company, as a result of the Transaction, an entity with experience and competences, including in (i) developing algorithms for the automatic analysis of computed tomography images of the heart and circulatory system and ECG signals (ii) non-invasive diagnostics of diseases and imaging of the circulatory system (iii) with an organizational structure competent in the design, development and certification of medical devices, which will allow to develop new products on the cardiological diagnostics market offering, among others long-term monitoring of the heart rate in patients with suspected disease, advanced outpatient diagnostics and in-hospital diagnostics; 2) in the opinion of the Management Board of the Company, thanks to the distribution network held through business partners, it will be possible to commercialize new cardiology solutions on the most important markets.
In addition, with reference to the current report No. 31/2021 and subsequent ones regarding the review of the Company’s strategic options, the Management Board of the Company announces that it has made a decision to terminate the review, due to the consideration of all scenarios of possible financing of the further operations of the Company’s capital group. The Transaction scenario selected as part of the strategic options, is the best from the perspective of the development of the Company’s capital group.