TSO3 Announces Closing of US$20 million Financing with Courage Capital to Commercialize the STERIZONE® VP4 Sterilizer and Support Getinge Transition
MYRTLE BEACH, SC and QUEBEC CITY, Aug. 1, 2018 /PRNewswire/ -- TSO3 Inc. (TSX: TOS) ("TSO3" or the "Company"), an innovator in sterilization technology for medical devices, today announced that TSO3 and a fund (the "Fund") of which Courage Capital Management LLC ("Courage") is the investment advisor, have entered into a binding US$20 million debt financing to fund commercialization initiatives for its STERIZONE® VP4 Sterilizer, the only terminal sterilization method that is FDA cleared to sterilize multi-channeled flexible endoscopes (with a maximum of four channels) of up to 3.5 meters in length, such as certain colonoscopes, gastroscopes and duodenoscopes. Courage is a Nashville, TN headquartered alternative asset management firm with a 20-year track record of investments in health care services, medical devices, and pharmaceuticals.
Concurrent with the Courage financing, TSO3 and Getinge Infection Control AB ("Getinge") mutually decided not to renew the distribution agreements between the parties, and have agreed to: 1) provide TSO3 unrestricted independent commercialization of its STERIZONE® VP4 Sterilizers; 2) the Company's purchase of approximately 230 STERIZONE® VP4 Sterilizers, 220 of which are from Getinge's inventory, for $33,000 per sterilizer; 3) transfer Getinge's existing sales pipeline to TSO3 in exchange for shared economics at the completion of sale; and 4) transition to TSO3 the service, maintenance and consumables sales of all existing STERIZONE® VP4 Sterilizer customers in the United States and Canada. Getinge and TSO3 envision maintaining an ongoing collaborative relationship where TSO3 supplies and supports the STERIZONE® VP4 Sterilizer to satisfy Getinge customers looking for a total sterilization solution.
Key Financing Terms with Courage
The US$20 million financing is provided in two separate but concurrent transactions in the form of a US$15 million first lien convertible note (the "Convertible Note") and a US$5 million first lien term loan (the "Term Loan"). The financings are not expected to materially affect control of the Company as the transaction has provisions preventing the conversion of the Convertible Note should the debt conversion result in the issuance of common shares greater than 19.9% at the time of issuance.
The Convertible Note and the Term Loan include standard negative and affirmative covenants commensurate with transactions of this type. Under and subject to the terms of the Convertible Note and the Term Loan, Courage has the right to propose one nominee for election to the board of TSO3.
The key financing terms of the transactions are as follows:
US$15,000,000 First Lien Convertible Note.
The Convertible Note is a 5-year term non-callable note convertible into common shares of the Company at a price of US$0.82 per common share and bears interest at a rate of 10% per annum, accruing as of the closing date until full repayment, compounded quarterly and payable in cash, at or prior to the maturity date of the Convertible Note at the option of the Company. The Convertible Note also provides for automatic conversion in the event all of the Company's stock or all or substantially all of the Company's assets are acquired by another party, and provides for automatic conversion in stages when the Company reaches certain operational milestones which are: (1) the installations in hospitals or medical clinics reach or exceed 400 sterilizers; (2) annual trailing consumables revenue is equivalent to or exceeds USD $10 million; and (3) the market price of the common shares of the Company on the TSX reaches at least 200% of the conversion price. The Company has also granted customary piggyback and demand registration rights to Courage.
US$5,000,000 First Lien Term Loan
The Term Loan is a 5-year term loan callable after 2 years which bears interest at a maximum rate of 12% per annum, which begins accruing immediately, compounds quarterly and is payable in cash, at or prior to the maturity date of the Term Loan. The Company may at its entire discretion decide to reduce the rate of interest payable under the Term Loan provided it decides, on a quarterly basis, to pay a portion or the entirety of a quarterly payment of interest in cash or in common shares of the Company.
Conference Call
The Company will be hosting a conference call on August 8, 2018 to discuss the events described herein along with its second quarter operating results.
Date: Wednesday, August 8, 2018
Time: 8:30 a.m. EDT
Toll-free dial-in number: 1-888-231-8191
International dial-in number: 1-514-807-9895 (Montreal); 1-647-427-7450 (Toronto)
Conference ID: 1888566
Analysts and investors are invited to participate to the call. Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting to the conference call, please contact Gilmartin Group at 1-610-368-6505.
Other interested parties may listen to the live webcast of the conference call at https://event.on24.com/wcc/r/1797562/02A40374E09B0B081C77081E12FCBA62 which will be available for replay in the Investors section of the Company's website at www.tso3.com.
About the STERIZONE® VP4 Sterilizer
The STERIZONE® VP4 Sterilizer is a low-temperature sterilization system that utilizes the dual sterilants of vaporized hydrogen peroxide (H2O2) and ozone (O3) to achieve terminal sterilization of heat and moisture-sensitive medical devices. Its single pre-programmed cycle can sterilize a large number and wide range of compatible devices, creating a cost-effective sterilization process with error-free cycle selection. The device's unique Dynamic Sterilant Delivery System™ automatically adjusts the quantity of injected sterilant based on the load composition, weight and temperature. This capability removes the guesswork and potential for human error, as there is no need to sort instruments and choose the appropriate cycles as with other machines.
The STERIZONE® VP4 Sterilizer is the only terminal sterilization method that is FDA cleared to sterilize multi-channeled flexible endoscopes (with a maximum of four channels) of up to 3.5 meters in length, such as video colonoscopes, duodenoscopes and gastroscopes - an industry first for any medical device sterilization process.
The STERIZONE® VP4 Sterilizer is also the only cleared low temperature sterilizer that can process a mixed load consisting of general instruments, single channel flexible endoscopes, and single or double channel rigid endoscopes in the same cycle with load weights of up to 75 lb. The ability to run mixed loads significantly reduces labor costs by minimizing the amount of instrument sorting required, while maximizing the device turns (more productivity from increased throughput capacity).
More information about the STERIZONE® VP4 Sterilizer is available through TSO3's website, under the Products section.
About TSO3
Founded in 1998, TSO3's activities encompass the sale, production, maintenance, research, development and licensing of sterilization processes, related consumable supplies and accessories for heat-sensitive medical devices. The Company designs products for sterile processing areas in the hospital environment that offer an advantageous replacement solution to other low temperature sterilization processes currently used in hospitals. TSO3 also offers services related to the maintenance of sterilization equipment and compatibility testing of medical devices with such processes.
About Courage Capital Management, LLC
Courage Capital Management, LLC is an alternative asset management firm established in 1998. Courage manages private funds on behalf of pensions, endowments, foundations, and high net worth individuals and families. Courage's principals have on average over two decades of experience in credit opportunities and special situations investing. Headquartered in Nashville, Courage's investment team has an extensive track record of investments in health care services, devices, and pharmaceuticals.
Early Warning Disclosure
The Fund is Courage Credit Opportunities Fund IV, L.P., 1105 North Market Street, Suite 604, Wilmington, Delaware, 19801, United States of America. The general partner of the Fund is Courage Investments Inc. (the "General Partner"). Courage is the investment advisor of the Fund and in such capacity has discretionary management authority over the investment portfolio of the Fund and has control or direction over the securities of the Company held by the Fund. The Fund directly holds the securities of the Company reported in this press release. The address of Courage is 4400 Harding Road, Suite 503, Nashville, Tennessee, 37205, United States of America. The issuance of the Convertible Note and the Term Loan closed on August 1, 2018. Courage and the General Partner may be deemed to be joint actors of the Fund.
Prior to the completion of the issuance of the Convertible Note and the Term Loan, the Fund, Courage and the General Partner did not beneficially own or control or direct any common share of the Company, or any securities convertible into or exercisable or exchangeable for common shares. On a partially diluted basis, assuming conversion of the Convertible Note in full on the date hereof and on the basis of approximately 92,891,304 common shares issued and outstanding immediately prior to the conversion, the Fund would have beneficial ownership of, and Courage would have control or direction over, approximately 16.45% of the issued and outstanding common shares.
The consideration paid by the Fund for the Convertible Note was US$15,000,000, or CAD$ 19,525,500 based on the exchange rate of US$1.00 = CAD$ 1.3017 reported by the Bank of Canada on the day prior to the closing. Based on such exchange rate, the Term Loan of US$5,000,000 has a value of CAD$6,508,500.
The Fund acquired the Convertible Note and the Term Loan for investment purposes. The Fund and Courage may, depending on market and other conditions and subject to applicable securities regulation, change their beneficial ownership of (or control or direction over) common shares, whether in the open market, by privately negotiated agreements, or otherwise.
An early warning report will be filed by the Fund in accordance with applicable securities laws. For further information regarding the early warning report, including a copy of same (which will be filed under the Company's profile on SEDAR at www.sedar.com), please contact: Richard R. Horton at (615) 369-0107.
For more information about TSO3, visit the Company's website at www.tso3.com.
The statements in this release and oral statements made by representatives of TSO3 relating to matters that are not historical facts (including, without limitation, those regarding the timing or outcome of TSO3's regulatory filings, revenue, sales, business or operations) are forward-looking statements that involve certain risks, uncertainties and hypotheses, including, but not limited to, the limited history of sales or distribution of the Company, the ability of the Company to obtain the required regulatory clearances to market its products, general business and economic conditions, the condition of the financial markets, the ability of TSO3 to obtain financing on favourable terms and other risks and uncertainties. Although TSO3 believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. The complete versions of the cautionary note regarding forward-looking statements as well as a description of the relevant assumptions and risk factors likely to affect TSO3's actual or projected results are included in the Management's Discussion and Analysis for the year ended December 31, 2017, which is available on the Company's website. The forward-looking statements contained in this press release are made as of the date hereof, and TSO3 does not assume any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise unless expressly required by applicable securities laws.
SOURCE TSO3 Inc.
Company Codes: Toronto:TOS