Conclusion of a letter of intent. Update on strategic options review
Legal basis: Article 17.1 MAR – confidential information
The Management Board of Medicalgorithmics S.A. (the “Company”) announces that on 7 May 2022, a letter of intent (the “LOI”) was entered into between the Company, Medi-Lynx Cardiac Monitoring, LLC (“Medi-Lynx”), Medicalgorithmics US Holding Corporation (“Holding”) and a potential Buyer – being in the healthcare industry, concerning a potential transaction which would consist of granting of financing to (the “Loan”) and an option to acquire certain assets of Medi-Lynx (the “Purchase Option”), structured as described in the letter of intent (the Loan and Purchase Option under the LOI are collectively the “Transaction”).
The Buyer will make a Loan pursuant to a Loan Agreement to be entered into on or before 11:59 p.m. CT on May 13, 2022, on the following terms: (i) up to $2.5 million, (ii) secured by Medi-Lynx’s assets and Medi-Lynx’s promissory note, (iii) $100,000 of the Loan will be paid to Medi-Lynx on the date of the Loan Agreement and the Purchase Option Agreement, and $800,000 will be paid to the Company on behalf of Medi-Lynx in for expenses related to goods and services provided by Company to Medi-Lynx (“Expenses”) in the immediate preceding month. Subsequent tranches of the Loan, $800,000 each, will be paid to the Company, on behalf of Medi-Lynx on a monthly basis for the Expenses. The interest rate on the Loan is 10% per annum and 2% commitment fee on the principal amount of each Loan Advance. The term of the Loan is 6 months from the date of execution of the Loan Agreement and the Purchase Option Agreement.
Concurrently with the Loan Agreement, it is the intention of the parties to enter into a Purchase Option Agreement pursuant to which Buyer will have the option to purchase certain assets of Medi-Lynx for: (i) $3.5 million, (ii) the assumption of certain liabilities under various agreements entered into by Medi-Lynx, and (iii) the forgiveness of the Loan, including interest and fees (the “Purchase Price”). The purchase price for the grant of the Purchase Option is $25,000 and will be payable to Medi-Lynx. The Purchase Option may be exercised within 60 days of the execution of the Option Agreement. The subject of the Purchase Option will be designated assets of Medi-Lynx, including, but not limited to: contracts, designated by Buyer in its sole discretion, including contracts with insurers and medical facilities, employees, domain names, operating assets, including intangible assets, telephone numbers, inventory, fixed assets (the “Purchased Assets”). The assets do not include certain assets of Medi-Lynx including its Accounts Receivable.
For the avoidance of doubt, the Company indicates that the Purchased Assets do not include the Company’s intellectual property that would be necessary for the provision of services to the Buyer under the Support Agreement (as defined below); however, the LOI states the Buyer is willing to negotiate the purchase of this and other assets of the Company in the future.
If the Buyer executes the Purchase Option, the Company contemplates entering into an agreement with the Buyer to provide support services and manufacture and sell the monitoring devices (the “Support Agreement”). The services will be sold at a price of $666,000 per month for the first 6 months and $500,000 per month thereafter, plus $400 (the current contract price between the Company and Medi-Lynx is $300) for each monitoring device purchased pursuant to the existing purchase schedule between Medi-Lynx and the Company at an average of approximately 500 units per month plus repairs through December 31, 2022, and thereafter at the agreed upon quantity at the sole discretion of the Buyer. Buyer would assume all outstanding Medi-Lynx purchase orders for the purchase, service and repair of equipment for the month in which the agreement to sell the Purchased Assets to Buyer (the “Purchase Agreement”) is executed. The Support Agreement is to provide for a 6-month notice period to the Company prior to termination.
A condition precedent to consummating of the Transaction under the Purchase Agreement is the receipt of corporate approvals by the Buyer and the Company, Medi-Lynx and Holding (“MDG Group”) and Med-Lynx Monitoring, Inc. (owned by Medi-Lynx’s prior owner and founder). The conditions precedent to the Purchase Agreement, if the Purchase Option is exercised, includes the forgiveness of the $2 million of Paycheck Protection Program – “PPP Loan” granted to Medi-Lynx or the approval of the Purchase Agreement by the relevant authorities.
The LOI provides for a maximum penalty of $75,000 for withdrawal from the Transaction. The MDG Group is jointly and severally liable for this penalty which is secured by the assets of Medi-Lynx. The Transaction will be deemed to be abandoned if (i) the MDG Group fails to obtain the necessary corporate approvals to enter into the Loan Agreement and the Purchase Option Agreement if the Buyer is willing to sign them on May 13, 2022, (ii) a bankruptcy petition is filed by or against Medi-Lynx, or (iii) the MDG Group notifies the Buyer of its intention to no longer pursue the Transaction.
The LOI states that the Transaction will include a termination fee of $1,000,000 if, prior to the exercise of the Purchase Option by the Buyer, Medi-Lynx receives a bid to acquire all or substantially all of its equity rights or assets for a consideration which Medi-Lynx determines is superior to the Buyer’s Purchase Price and terminates the Option. Such termination fee would be secured by the assets of Medi-Lynx.
In addition, the Company will be required to maintain a non-compete obligation in the U.S. during the term of the Support Agreement. MDG Group’s non-compete obligations will relate to the marketing or sale of cardiac monitoring devices. Holding and Medi-Lynx will agree to non-compete provisions in the territory covering the USA for a period not to exceed 2 years relating to the marketing or sale of cardiac monitoring devices.
Under the LOI, exclusivity was granted until the first of the following events: (i) the failure to enter into the Loan Agreement and the Purchase Option Agreement by May 13, 2022, (ii) a bankruptcy petition is filed by or against Medi-Lynx, (iii) the expiration of the Purchase Option Period, or (iv) the notification of MDG Group or the Buyer of its intention to discontinue the Transaction.
The LOI may be terminated by either party at any time, and such termination shall not affect the payment of the Transaction cancellation penalty and Option termination fee if certain circumstances occurred. The LOI is entered into under the laws of the State of Delaware, USA.
Simultaneously, with reference to current report no. 31/2021 and 35/2021 on the commencement by the Company of the review of strategic options, the Management Board informs that the implementation of the above mentioned Transaction does not end this process and the Management Board will continue to search for financing options and development opportunities for the Company’s capital group.
The Management Board of the Company expects that the Transaction may bring benefits to the Company resulting in securing of its liquidity within the timeframe of the contract and in 2022, depending on the delivery of Buyer’s commitments, esp. regarding the Loan and the “Support Agreement” as well as other assumptions re Company financial plan.
The proceeds from the purchase for the selected assets of Medi-Lynx of $3.5 million would be paid to Medi-Lynx and will be utilized to make payments on its liabilities to its creditors. To fulfill the transaction requirements, Medi-Lynx will be required to settle with the State of Texas Comptroller on the taxes in dispute, the issue was reported in the Company annual report for the 2021 and respective current reports.
The Management Board of the Company points that the Loan advances after the initial advance of $800,000 (to be paid to the Company on behalf of Medi-Lynx in for expenses related to goods and services provided by Company to Medi-Lynx in the immediate preceding month) will occur only if the Buyer does not exercise the Purchase Option before the date that the loan advance is to be made.
Additionally, the transaction will enable the Company to come back to the business model prior to acquiring Medi-Lynx that is of a service and device provider. Company operates successfully in this model on out of US markets with revenues growing above 30% year over year.