Kovo HealthTech Corporation (TSX-V:KOVO) said it has entered into a non-binding letter of intent (LOI) with Avonlea Ventures #2 Inc (AV) which has committed to a strategic investment in Kovo comprising a US$3.3 million non-brokered private placement and a secured credit facility of up to US$7 million.
"This funding allows Kovo to further develop our SaaS-based medical billing technology platforms and retire debt, while driving significant growth through our pipeline of strategic acquisitions," Kovo CEO Greg Noble said in a statement.
The financing envisages AV purchasing an aggregate of 17,600,000 units at a purchase price C$0.25 each for gross proceeds of C$4,400,000. Each unit will consist of one common share and one-half of one transferable common share purchase warrant exercisable to acquire an additional common share at C$0.40 for a period of 24 months. About 85% of the proceeds will go towards retiring other indebtedness of the company while the remainder will be used as working capital.
READ: Kovo HealthTech sees nine-months revenue soar 134%, driven by organic growth and acquisitions
The equity financing will be made pursuant to the terms of a definitive investment agreement.
The LOI contemplates that AV is entitled to nominate two directors to Kovo’s board of directors at the closing of the financing as long as AV owns 10% or more of the issued and outstanding shares. The initially nominated director is Michael Steele while an additional board member will be named at the company's next AGM.
As things stand, there are 40,006,156 Kovo common shares issued and outstanding. When the financing is completed AV will control 17,600,000 shares, representing approximately 30.6%. That stake rises to 39.8% on a partially diluted basis and assuming the exercise of the warrants.
Debt Financing
Upon finalization and execution of the credit agreement, AV intends to make a non-revolving secured multi-draw term credit available to Kovo in the aggregate principal amount of US$7,000,000, which amount may be drawn in multiple advances. Advances will be used to finance certain acquisitions by Kovo, in each case as approved at AV’s sole discretion.
Interest will accrue on each advance at an annual rate of 12%, payable monthly in arrears during the initial term. The loan will become due and payable 12 months after the date of the credit agreement and will provide, among other things, a general charge against Kovo's assets as security.
The company expects to announce additional details when the investment agreement and credit facility are executed, which is expected in Q1 2023.
Kovo HealthTech is a growing healthcare technology company that specializes in Billing-as-a-Service offering SaaS-style recurring revenue contracts and software for more than 1,700 US healthcare providers.
Contact the author at jon.hopkins@proactiveinvestors.com