Current reports

Conclusion of a preliminary agreement for the sale of 100% of the membership interests in the Issuer’s subsidiary (Medi-Lynx Cardiac Monitoring, LLC)

Current report no.: 47/2022

Date: 15.07.2022

Legal basis: Article 17(1) of the MAR Regulation – confidential information

The Management Board of Medicalgorithmics S.A. with its registered office in Warsaw (the “Company“), in reference to the Company’s current reports no. 30/2022, no. 29/2022 and no. 24/2022, informs that on 15 July 2022, Company, Medi-Lynx Holdings, LLC (“Buyer”), React Health Holdings, LLC (“React Health“, and together with Buyer, the “Buyer Parties”), Medi-Lynx Cardiac Monitoring, LLC (“Medi-Lynx“) and Medicalgorithmics US Holding Corporation (“Seller“) executed a preliminary agreement for the sale of the membership interests in Medi-Lynx (the “Agreement“).

Pursuant to the Agreement, the Seller agreed to enter into an agreement to transfer ownership of 1,000 of the units in Medi-Lynx, representing 100% of the Medi-Lynx ‘s equity interests (the “Units“) to the Buyer, within 2 business days from the date of fulfillment of the conditions precedent provided for in the Agreement (the “Closing Date“) including, in particular, the release of liens established on the Units to the benefit of Medi-Lynx Monitoring, Inc, i.e. the entity from which the Seller previously acquired the shares in Medi-Lynx (“MMI“).

The total purchase price of the Units (the “Price“) consists of: (i) the fixed part of the Price in the amount of USD 1,375,000, (ii) the amount of the cash of Medi-Lynx as of the Closing Date, but not less than USD 375,000, (iii) 65% of the value of the IRS tax refund received by Medi-Lynx (i.e. reimbursement of a portion of the personal taxes paid under the Employee Retention Credit, ERC program from IRS federal funds in the U.S., as referred to in the Company’s 2021 financial statements), less the cost of obtaining the reimbursement as indicated in the Agreement, and (iv) 65% of the total amount being the difference (savings) between the total amount of Medi-Lynx’s disputed potential sales and excise tax liabilities for the period from July 1, 2014 to December 31, 2020 (as of the date of signing the Agreement estimated to be approx. USD 3,479 thousand), and the amounts actually paid in settlement of these arrears, less any costs of tax proceedings.

Payment of the Price shall be made in part, i.e., on the Closing Date with respect to the amounts indicated in clauses (i) and (ii), above, and within 5 business days after receipt or determination of the remaining amounts indicated in clauses (iii) and (iv) above.

The Agreement further provides for the execution on the Closing Date of a support agreement and a license agreement between the Company, the Buyer Parties and Medi-Lynx, the detailed content of which will be subject to further negotiations. It is the intention of the parties to conclude the aforementioned agreements for an indefinite period of time, in order to allow Medi-Lynx to continue to use, among other things, the Pocket ECG technology, based on which it will continue to provide services to customers in the United States. In addition, the Company will provide monitoring devices and technical support to Medi-Lynx under the support agreement, on the basis of the exclusivity as set forth in the support agreement, which exclusivity is subject to termination based upon certain conditions therein. In addition, for a period of 2 years from the Closing Date, the Company, as well as related parties, including the Seller, are obligated not to engage in any activity that competes with the Buyer Parties in the U.S., understood, among other things, as a directly performed activity identical to the business of Medi-Lynx or the Buyer Parties.

Under the Agreement, the Company will cause the foregiveness of the majority of its receivables owed to Medi-Lynx in the total amount of approximately USD 14.0 million (of which all receivables existing as of March 31, 2022 were provided for in the first quarter of 2022).

In addition to comply with one of the closing conditions the Company, the Seller and MMI signed a unsecured promissory Note to release the lien established in favor of MMI on the Units. In addition, the Note set the terms of repayment of a debt of USD 1,708 thousand to MMI by the Company and the Seller by July 2025. The repayment of the debt is secured by a guarantee provided by the Company and the Seller and a lien on the assets of the Company.

Company’s and Seller’s joint liability for indemnification shall not exceed USD 400 thousand, other than in connection with breaches of Fundamental Representations by any of them or Medi-Lynx, in which case the liability is limited to the amount of the Price received.

The parties shall have the right to withdraw from the Agreement, among other things, in the event that the Agreement is not executed within 30 days from the date of its conclusion, with the proviso that the right shall not be vested in the party through whose fault the Agreement was not executed.

The Company further indicates that as of the Closing Date, the option to acquire selected assets of Medi-Lynx established under the option agreement referred to in the Company’s current report No. 30/2022 will expire, as the present Agreement has been executed in lieu thereof. In addition, the amounts received by the Company from React Health referred to in Current Report No. 30/2022 (that is, the two amounts of USD 800,000 each less fees) will be settled as payment for services rendered by the Company to Medi-Lynx.

The agreement was concluded under the laws of the state of Texas, USA.

In the opinion of the Management Board, the transaction will allow the Company in the US to return to the business model prior to the acquisition of Medi-Lynx, i.e. the provision of services and technology delivery successfully developed today in markets outside the US recording sales increases of more than 30% per year.

In the opinion of the Management Board, the implementation of the described transaction, may bring benefits to the Company resulting in securing its liquidity, assuming the fulfillment of the obligations of the Buyer Parties and Medi-Lynx, as well as assuming the fulfillment of other assumptions of the Company’s financial plan.

At the same time, in reference to the current report no. 31/2021 and 35/2021 on the Company’s commencement of the review of strategic options, the Management Board informs that the execution of the aforementioned transaction does not end this process and the Management Board will continue to look for financing options and development opportunities for the Company’s capital group.