Item 1.01 Entry into a Material Definitive Agreement
On November 29, 2022, Salona Global Medical Device Corporation (the "Company") entered into an Asset Purchase Agreement (the "Purchase Agreement") by and among Biodex Medical Systems, Inc., a New York corporation ("Seller"), the Company, and Salona Bio Acquisition, LLC, Delaware limited liability company, an indirect wholly-owned subsidiary of Company ("Buyer", and together with the Company, the "Buyer Parties")). The Purchase Agreement and the transaction documents contemplated thereby were unanimously approved by the board of directors of the Company.
Consideration and Structure
At the closing of the transactions contemplated by the Purchase Agreement (the "Closing"), the Purchase Agreement provides that the Buyer shall purchase from the Seller substantially all the assets and liabilities of Seller's Biodex Physical Medicine (Rehabilitation) division (the "Rehabilitation Business") in consideration for payments totaling up to $8 million in cash, subject to increase or decrease based on meeting an agreed target working capital amount at closing, as follows:
(i) A closing payment to the Sellers of $5,000,000 in cash, plus or minus a working capital adjustment, plus the assumption of trade payables; and
(ii) Three contingent payments to the Seller totaling up to $3 million, as follows: No later than thirty (30) calendar days after the end of the calendar month of the calendar year 2023 in which the Rehabilitation Business has recognized aggregate revenue of $5 million, $10 million and $15 million, Buyer shall pay to Seller $1 million, $1 million, and $1 million, respectively.
Representations, Warranties and Covenants
The Purchase Agreement contains customary representations, warranties and covenants of the Buyer Parties and the Seller. The Purchase Agreement also contains indemnification provisions pursuant to which the Seller agreed to indemnify the Buyer Parties against certain losses, subject to the limitations set forth therein, including losses related to breaches of representations, warranties and covenants as well as for certain other specified matters, subject to certain limitations set forth in the Purchase Agreement. Each of the parties to the Purchase Agreement has agreed to use its commercially reasonable efforts to take or cause to be taken all actions and things reasonably necessary or advisable to consummate and make effective, as promptly as reasonably practicable, the transactions contemplated thereby.
Conditions to Closing
Under the Purchase Agreement, the obligations of the parties to consummate the transactions contemplated thereby are subject to the satisfaction or waiver of certain customary closing conditions, including, without limitation: (i) the accuracy of each party's representations and warranties, subject to customary materiality and material adverse effect standards; (ii) each party's compliance in all material respects with its covenants set forth in the Purchase Agreement; and (iii) the receipt of landlord approval of assignment of the lease to the Rehabilitation Business' facility. Seller's obligations to consummate the transactions contemplated under the Purchase Agreement are subject to the acceptance of employment offers from the Buyer by at least 50% of the employees of the Rehabilitation Business.
Termination
The Purchase Agreement may be terminated under certain customary circumstances at any time prior to the Closing, including, (i) by mutual written consent of the parties, or (ii) by either party, if (a) the Closing has not occurred by March 31, 2023, (b) the other party has breached any of its representations, warranties, covenants or agreements in the Purchase Agreement and such breach has caused the failure of the closing condition related to the accuracy of such other party's representations and warranties or such other party's compliance with its covenants (subject to a cure period), or (c) any governmental entity has issued a final, non-appealable order or taken any other action permanently enjoining, restraining or otherwise prohibiting the transactions contemplated by the Purchase Agreement.
Other Agreements
The Purchase Agreement contemplates the execution of various additional agreements and instruments, on or before the Closing, including, among others, a Contract Manufacturing Agreement ("CMA") pursuant to which the Buyer agrees to manufacture certain Ultrasound and C-Arm Tables ("Devices") for Seller for a two year term. The terms of the CMA provide for payment by Seller for the Devices at a price equal to Buyer's actual cost of manufacture plus fifteen percent (15%). The Purchase Agreement also contemplates the execution of a Transition Services Agreement pursuant to which the Seller will provide certain services to aid in the transition of the Rehabilitation Business to Buyer's ownership in exchange for payment of the actual costs to Seller for certain of those services.
The foregoing description of the Purchase Agreement, does not purport to be complete, is solely intended as a summary of the material terms of the Purchase Agreement and qualified in its entirety by reference to the full text of the Purchase Agreement, which is attached herewith as Exhibit 2.1 to this Current Report on Form 8-K and incorporated herein by reference.
The Purchase Agreement is being filed to provide investors with information regarding its terms. It is not intended to provide any other factual information about the parties to the Purchase Agreement and neither the copy of the Purchase Agreement filed as an exhibit to this Current Report nor the description of the Purchase Agreement above is intended to modify or supplement any factual disclosures about the Company in its public reports filed with the SEC. In particular, the representations, warranties, covenants and agreements contained in the Purchase Agreement, which were made only for purposes of the Purchase Agreement and as of specific dates, were solely for the benefit of the parties to the Purchase Agreement, may be subject to limitations agreed upon by the parties and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors, security holders and reports and documents filed with the SEC. Investors and security holders are not third-party beneficiaries under the Purchase Agreement and should not rely on the representations, warranties, covenants and agreements, or any descriptions thereof, as characterizations of the actual state of facts or condition of any party to the Purchase Agreement. In addition, the representations, warranties, covenants and agreements and other terms of the Purchase Agreement may be subject to subsequent waiver or modification.
On November 29, 2022, the Registrant issued a press release announcing the matters described in this Item 1.01. The press release is attached as Exhibit 99.1 to this Current Report on Form 8-K.