Item 2.01. Completion of Acquisition or Disposition of Assets.
On
February 25, 2022, Lucid Diagnostics Inc. (“Lucid”), a majority owned subsidiary of PAVmed Inc. (the “Company”),
and LucidDx Labs Inc. (“LucidDx Labs”), a wholly owned subsidiary of Lucid, entered into an asset purchase agreement
(the “APA”) with ResearchDx, Inc. (“RDx”), and simultaneously closed the transactions contemplated
by the APA (the “Transactions”). Under the APA, LucidDx Labs acquired certain licenses and other related assets necessary
to operate a CLIA-certified, CAP-accredited clinical laboratory. The acquired assets, together with certain additional assets necessary
to commence laboratory operations that were separately purchased by LucidDx Labs, will be used by Lucid to perform the EsoGuard®
Esophageal DNA assay, including without limitation DNA extraction, next generation sequencing (“NGS”) and specimen
storage, in its own laboratory located in Lake Forest, CA (the “Laboratory”). Prior to consummation of the Transactions,
RDx provided such testing and related services for the EsoGuard assay at its own separate CLIA-certified, CAP-accredited laboratory.
Lucid’s EsoGuard assay is a bisulfite-converted NGS DNA methylation assay performed on surface esophageal cells, which is commercially
available in the U.S. as a Laboratory Developed Test and has been shown to be accurate at detecting esophageal precancer and all conditions
along the Barrett’s Esophagus-Esophageal Adenocarcinoma spectrum.
Concurrently
with entering into the APA, LucidDx Labs and RDx also entered into a management services agreement (the “MSA”), pursuant
to which the parties agreed that RDx would continue to provide certain testing and related services for the Laboratory in accordance
with the terms of the MSA. The MSA has a term of three years, subject to earlier termination on thirty days’ notice without cause
or immediately with cause (subject to a cure period in certain circumstances). The MSA is intended to be transitional, allowing operation
of the Laboratory while LucidDx Labs hires personnel and continues to build out its operational infrastructure, although there can be
no assurance that Lucid will be able to do so in a timely manner or at all.
Under
the APA, LucidDx Labs will pay RDx an aggregate purchase price of up to $6,200,000 for the acquired assets. The purchase price was determined
based on an arm’s-length negotiation, in which context Lucid considered the estimated fair value of the assets acquired, as well
as the time and expense associated with an original application for the necessary approvals from governmental authorities. Of the aggregate
purchase price, $1,000,000 was paid in cash at the closing. The remainder will be paid as follows:
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LucidDx
Labs will pay $1,200,000 in cash within two business days after approval is obtained from the applicable governmental authorities
for the transfer of the CLIA certificate, CAP accreditation and State of California Clinical Laboratory license for the Laboratory. |
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LucidDx
Labs will pay $1,000,000 in cash within two business days after approval is obtained from the applicable governmental authorities
for the transfer of the Maryland, New York, Pennsylvania and Rhode Island clinical laboratory licenses currently held by RDx with
respect to the Laboratory. |
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LucidDx
Labs will pay up to $3,000,000 in cash or, in LucidDx Labs’ sole discretion, newly issued shares of Lucid’s common stock,
in quarterly installments of $250,000, pursuant to the terms of an earnout during the 36-month period commencing on February 25,
2022. The shares of Lucid’s common stock will be valued at fair market value as determined in accordance with the APA. In no
event will the aggregate amount of Lucid’s common stock issued pursuant to the APA exceed 19.99% of the issued and outstanding
common stock of Lucid as of February 25, 2022. In the event of the termination of the MSA, the foregoing payment obligations will
cease, except that the full unpaid amount of the earnout will become immediately due and payable if LucidDx Labs terminates the MSA
for any reason not constituting cause or if the MSA is terminated by mutual agreement. |
Lucid
is using its available working capital for the payment of the purchase price.
Under
the MSA, LucidDx Labs will pay up to $1,800,000 in cash, in quarterly installments of $150,000, during the 36-month period commencing
on February 25, 2022, so long as the MSA is in effect. In the event of the termination or expiration of the MSA, the foregoing payment
obligations will cease, except that LucidDx Labs will be required to pay a pro rata portion of the quarterly installment payable in respect
of any partial period during which the MSA is terminated. In addition, LucidDx Labs will pay RDx a personnel fee under the MSA, which
is intended to cover the compensation expenses incurred by RDx, without markup, that are allocable to the services it provides under
the MSA.
The
APA contains representations, warrants and covenants of the parties that are customary for agreements of its type. In addition, if approval
for the transfer of the CLIA certificate, CAP accreditation and State of California Clinical Laboratory license for the Laboratory is
not obtained by December 31, 2022, LucidDx Labs may elect that the APA be voided and the Transactions be unwound, except for any personnel
fees already paid under the MSA.
Each of LucidDx Labs and RDx
agreed to certain indemnification obligations for damages suffered in connection with (i) the breach of their respective representations
and warranties contained in the APA, (ii) the breach of any of their respective covenants or agreements contained in the APA, or (iii)
any liability attributable to RDx’s use of the acquired assets prior to the closing (in the case of RDx’s indemnification
obligations) or any liability attributable to LucidDx Labs’ use of the acquired assets after the closing (in the case of
LucidDx Labs’ indemnification obligations), subject to customary limitations.
Under
the APA, Lucid fully guaranteed the due and prompt performance, payment and discharge when due of, and agreed to be jointly and severally
liable for, each and every payment and indemnification obligation of LucidDx Labs arising under the APA and the related agreements.
Pursuant
to the APA, LucidDx Labs also entered into a three-year lease agreement with Endeavour Investments, LLC, an affiliate of RDx, pursuant
to which LucidDx Labs will lease the space where the Laboratory is located for a base rent of $71,465 per month. The lease provides that
LucidDx Labs has the option to extend the term of the lease for up to two additional three-year periods.
The
APA and MSA are attached hereto as Exhibits 2.1 and, 10.1, respectively, and are incorporated herein by reference. The foregoing description
of the agreements does not purport to be complete and is qualified in its entirety by reference to such exhibits. The agreements have
been included to provide investors and security holders with information regarding their terms. The agreements are not intended to provide
any other factual information about the Company or Lucid. The representations, warranties and covenants contained in the 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, may
in some cases be made solely for the allocation of risk between the parties and may be subject to limitations agreed upon by the contracting
parties.