Corgenix Medical Corp. (fka CONX)

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CORGENIX (CONX) MERGER DD

So there are many, many things we could focus on in the Corgenix merger story (EliTech Group, Orgentec, Water Streets, Inverness etc.) that still have not been fully dug into, but I am just going to focus on one main one today. David Ludvigson and his role. For me at least, doing the DD on him, there is no way not to think the company should be answering a few more questions here. It also screams to me questionable BOD oversight at best, and other less friendly things at worst. Certainly provides some legitimacy to shareholder complaints or lawsuits. Who knows, but my assumption based on things not being settled yet on the latest case, is that the lawyers and/or plaintiffs may have gotten wind of more than what were are privy too at the moment. There are a whole lot of overlapping webs here, just a question of putting the pieces together

PIECE #1

Corgenix's code of conduct and ethics document

Why start with conduct and ethics document which most people have seen before? There is nothing particularly different in the language versus other public companies, but I think it's important to keep this language in mind when reading the information in piece #2.

Also important to remember this part when hearing the word "employee":

This Code applies to all directors, officers and employees of the Company. (As used herein, the term “employees means all directors, officers and employees of the Company unless specifically stated otherwise or unless the context clearly indicates otherwise).

Here are a few relevant sections:

The assets of the Company are much more than its portfolio of properties, facilities, equipment, corporate funds and computer systems. They include technologies and concepts, business strategies and plans, as well as information about its business. These assets may not be improperly used and/or used to provide personal benefits for employees. In addition, employees may not provide outside persons with access to assets of the Company for the employee's personal gain or in such a manner as to be detrimental to the Company. Employees should protect the Company’s assets and ensure their efficient and proper use.

Employees should avoid any outside financial interest that might influence their decisions or actions on matters involving the Company or its businesses or property. Such interests include, among other things: (i) a personal or immediate family interest in an enterprise that has business relations with the Company; or (ii) an enterprise or contract with a supplier, service-provider or any other company or entity that engages in business activities with Company, where the employee or a member of the employee's immediate family is a principal or financial beneficiary, other than as an employee.

Transactions With Employees. Enter into any contract or arrangement, or own any interest in or be a director, officer, consultant or attorney in or for an entity which enters into any contract or arrangement (except for the ownership of non-controlling interests in publicly traded entities) with the Company, or any entity in which the Company may serve as a general partner or managing agent, for any transaction in which the Company or any of the above-described entities related to or affiliated with the Company is a participant, except in those situations specifically approved by the Company's Board of Directors pursuant to previously-adopted polices of the Company on those matters.

Employees owe a duty to the Company to advance its legitimate interests when the opportunity arises to do so. Employees should refrain from and shall be prohibited from (i) taking for themselves, or for their personal benefit, opportunities that could advance the interests of the Company or benefit the Company when such opportunities are discovered through the use of Company property; information or position; (ii) using Company property, information or position for personal gain; or (iii) competing with the Company.

Maybe I'm just not seeing it right, but some of what's described below seems to directly contradict this document, particularly the part labeled "Second" below.

PIECE #2

David Ludvigson

Why him? He is a central player in this discussion. Even the company identified him as so in the 8-K filing that postponed the initial merger vote. Now, I have no idea, everything could be above board here certainly and no desire to question Mr. Ludvigson or his role, but I think there are questions here that should be answered. Despite some question surrounding his role and $100,000 payment for closing of deal that some of BOD was not aware of, the BOD decided to continue moving forward.

http://boulderopolis.com/corgenix-delays-shareholder-vote-on-acquisition-again/

The new disclosure adds a paragraph to the proxy statement noting that David Ludvigson – who serves on the Corgenix board of directors as the nominee of the company’s largest shareholder, France-based ELITech Group – is slated to be paid $100,000 by ELITech upon closing of Orgentec’s acquisition of Corgenix.

There are multiple avenues we could go down on him, but here is the general background.

First

He was appointed to the BOD in 2010 at an agreement with Elitech Group who made a significant investment into Corgenix, and also got distribution rights from them and a board member in exchange. Ludvigson was that board member. Who was Ludvigson in the Elitech landscape? Well he previously was President/COO of Nanogen, a biotech that went bankrupt and whose assets were then acquired by Elitech. He was then named by Elitech Group to be COO for the American side of company's business. Elitech subsidiary Wescor, Inc. is the American subsidiary who actually holds the shares of the company. So with that deal Ludvigson jumps on the board as EliTech's rep and they own ~45% of the OS.

What this means is just bringing merger vote up to be voted on virtually assured it's passage, especially because Elitech was the one pushing for it. Now why they would want to is a whole other question for another day.

Second

So where the Ludvigson part of the story starts to get both fascinating and murky. In the year after being appointed by the BOD, he becomes Chief Marketing Officer for a company called Nanomix (http://nano.com) and then 2 years after in 2013 he becomes CEO of Nanomix. Why does this matter? Well this company is in the exact same diagnostic field as Corgenix. In fact, Corgenix and Nanomix have been apparently been partnering on Ebola test kit. Look at front page of Nanomix and you'll see what I mean. Yet, besides one quick mention of Ludvigson's role at Nanomix in a 2013 DEF14A, there was no other mention in any filing (10-K etc.). Surprising especially in light of his role with the company and the ethics code set out. Regardless of merger question, as a shareholder I certainly would have wanted to know this information. Definetly relevant to how I view Ludvigson and his role with the company.

Third

But, lest you think the story ends there it does not. When the acquisition/merger comes into play things get even murkier. Basically Ludvigson was put in charge of the company's search for a target company in conjunction with Inverness. Yes, the same person who was put on the board by the largest shareholder Elitech (owns 45%+ of OS), who will be paid $100,000 if the deal closes (some BOD unaware of), and who now is the CEO of a similar company, Nanomix, is the main one put in charge of target search along with Inverness for Corgenix's assets. Unusual, at least from where I stand.

Here is text on his role in negotiations and search for targets:

Following the report from Mr. Ludvigson, the directors agreed that it was appropriate to advance the exploration effort, and appointed a Strategic Subcommittee consisting of Mr. Gouze (Chairman of the Subcommittee) and Mr. Ludvigson to be responsible for interacting with both potential investment bankers and senior management. Mr. Ludvigson was responsible for organizing the planned face-to-face meetings with the candidate firms including scheduling and pre-meeting preparation of detailed agendas including specific questions our board wished to have answered by the candidate firms.

Water Street represented Orgentec who got the agreement

On April 30, 2014, Mr. Ludvigson learned that Water Street was pursuing opportunities in the diagnostics space and suggested that Inverness contact principals at Water Street. Inverness contacted Water Street the following day and set up a conference call with Corgenix senior management for the following week. Corgenix believes Mr. Ludvigson was introduced to Water Street through a personal relationship between Water Street and a member of ELITech’s board of directors.

]Incentive Payment Description

an incentive payment from our largest shareholder to the board member serving as its nominee on our board of directors upon closing of the merger;

David Ludvigson serves on our board of directors as the nominee of our largest shareholder. On February 3, 2014, Mr. Ludvigson and our largest shareholder entered into an amendment of their existing agreement for consulting services related to a number of matters, including his position on our board of directors. This amendment has a term of 12 months unless renewed by the parties. In addition to reducing his retainer from $11,333 per month to $8,333 per month, the amendment added for the first time that Mr. Ludvigson will be paid an incentive based on the largest shareholder’s realization of Corgenix shareholdings upon the closing of a transaction or sale of the largest shareholder’s shares of Corgenix stock. The incentive payment would vary based on the amount realized from $50,000 to $250,000. Based on the terms of the merger, Mr. Ludvigson will be paid $100,000 upon the closing of the merger. Although our other board members only recently became aware of this incentive payment, our board ratified its approval of the Merger Agreement after it was advised of these arrangements.

Based on the terms of the merger, Mr. Ludvigson will be paid $100,000 upon the closing of the merger. Although our other board members only recently became aware of this incentive payment, our board ratified its approval of the Merger Agreement after it was advised of these arrangements.

All of this for me makes me do a double take. Feel like there may be more than meets the eye. The fact that some BOD unaware of payment arrangement is a bit of a red flag, was the full board aware that he was also CEO of Nanomix?

While, there are many questions out of what I've been finding that might help illuminate things more, I'll start with three.

(1) Who were the other target companies interested in bidding? What was Ludvigson's role in that process? Was he involved in the specific discussions or just Inverness?
(2) What new companies invested in Nanomix in the latest $12 million round at beginning of 2014? (They currently have $50 million in investment funding overall)
(3) Why wasn't the change in Ludvigson's biography adequately communicated to shareholders, in light of companies own polices and widely accepted filing practices of notifying shareholders if there could be a conflict of interest?

On my end, I'm still wrapping my head around the many pieces, and unsure who is benefitting from all of this, but I think at the very least there are alot of questions that shareholders deserve the answers to and hopefully the legal route will open some of them up if the company is not. I am certainly not convinced at all that BOD has been most concerned with acting in the interests of shareholders knowing the information they have known. Would be nice if SEC would peek into to make sure everything is above board here.