TSO₃ Inc. (TSX: TOS) an innovator in sterilization technology for medical devices, today announced that TSO₃ and a fund of which Courage Capital Management LLC 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 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 and a US$5 million first lien 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. 

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.