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 $20m financing is provided in two separate but concurrent transactions in the form of a $15m first lien convertible note (the “Convertible Note”) and a $5m 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:

$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 $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 $10m; 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.

$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.

Source: Company Press Release