Centric Health Announces $32.7 Million Financing Transaction

Sep 30, 2019
7:00am

Strengthened Balance Sheet Positions the Company for Long-Term Growth

TORONTO, Sept. 30, 2019 /CNW/ - Centric Health Corporation ("Centric Health" or the "Company") (TSX: CHH), one of Canada's leading healthcare services companies, announced today a significant recapitalization transaction to meaningfully reduce its debt. The Company has entered into a binding term sheet for a private placement of common shares and convertible debentures to Yorkville Asset Management Inc. for and on behalf of certain managed funds ("Yorkville") and certain shareholders of the Company for total gross proceeds of $32,740,000 (the "Private Placement").

The Private Placement consists of the issuance of 43,666,666 common shares of the Company ("Common Shares") at a price of $0.12 per share (the "Offering Price") for aggregate consideration of $5,240,000, and $27,500,000 aggregate principal amount of 8.25% unsecured convertible debentures (the "Convertible Debentures"). In addition, the investors in the Private Placement have an option to subscribe for an additional 41,666,666 Common Shares at a price of $0.12 per share for additional gross proceeds of up to $5,000,000 until closing of the Private Placement (the "Upsize Option"), which would increase the total size of the Private Placement to $37,740,000. The net proceeds of the Private Placement will be used by the Company to repay senior indebtedness and for working capital purposes.

"This transaction is consistent with our deleveraging strategy and represents the substantial completion of the significant business transformation we began 13 months ago," said David Murphy, President and Chief Executive Officer of Centric Health. "The equity injection will further support the momentum we have achieved in our business operations, while providing the financial flexibility to capitalize on various organic growth and acquisition opportunities."

"We have been following the Centric story for a long time and are excited for the opportunity to become a significant shareholder," said Ralph Desando, Managing Director of Private Investments at Yorkville. "Yorkville has tremendous confidence in the management team and Centric's strategic direction. We believe that our growth capital and strategic relationships will help serve as a catalyst for Centric Health to become the leading player in the Canadian institutional pharmacy space. Our confidence is further strengthened by this transaction's demonstrated alignment of executive management, existing shareholders and Yorkville."

The holder of each Convertible Debenture is entitled to receive an interest payment of 8.25% per annum, payable quarterly in cash. Each Convertible Debenture is convertible into Common Shares at the option of the holder at a conversion price of $0.15 per Common Share (the "Conversion Price"). In addition, the Convertible Debentures have a mandatory conversion feature such that $6,875,000 of the Convertible Debentures will automatically convert into Common Shares at the Conversion Price at the beginning of years three, four and five following their issue date. The Convertible Debentures will mature on the fifth anniversary of the issue date at which point any remaining principal amount not already converted will be repaid in Common Shares based on the Conversion Price.

The terms of the Private Placement were determined based on arm's length negotiations between the Company and Yorkville, which is subscribing for $5,000,000 of Common Shares and $20,000,000 of Convertible Debentures, with the opportunity to subscribe for up to $2,500,000 additional Common Shares at the Offering Price pursuant to the Upsize Option. Certain insiders of the Company, including Ewing Morris & Co. Investment Partners Ltd. ("Ewing Morris") and Dr. Jack Shevel and associated companies, the Company's largest shareholder and Chairman Emeritus, have been invited to participate in the Private Placement and are subscribing for $2,500,000 and $5,000,000 of Convertible Debentures, respectively, and have the opportunity to collectively subscribe for up to $2,500,000 of Common Shares at the Offering Price pursuant to the Upsize Option. In addition, David Murphy, the President and Chief Executive Officer of Centric Health, is subscribing for 2,000,000 Common Shares forming part of the Private Placement. As part of the Private Placement, each of Yorkville and Dr. Shevel will receive the right to nominate two directors to the Company's Board of Directors (the "Director Nominees") provided they maintain a certain ownership level.

"On behalf of the Board of Directors, I wanted to thank our significant shareholders for their continued support," said Kevin Dalton, Chairman of the Board. "The significant participation by Ewing Morris and Jack Shevel in this transaction, as well as that of David Murphy, affirms their long-term optimism of Centric's growth trajectory."

In addition, immediately following the completion of the Private Placement, the Company has agreed to exchange the $12,540,000 of convertible preferred shares of the Company held by Ewing Morris (the "Preferred Shares") for an equivalent amount of 8% unsecured convertible debentures (the "Ewing Convertible Debentures") conditional upon the completion of the Private Placement. The Ewing Convertible Debentures will have substantially the same terms as the Preferred Shares, except that (i) the coupon rate under the Ewing Convertible Debentures will be lowered from 9% to 8% per annum, (ii) the conversion price will be lowered from $0.40 to $0.25 and (iii) the forced conversion feature will be lowered from $0.80 to $0.375. The exchange of the Preferred Shares for Ewing Convertible Debentures is expected to result in significant cash savings given the lower coupon payment and elimination of cash taxes on dividends payable on the Preferred Shares.

Assuming the full exercise of the Upsize Option, Centric Health anticipates issuing an aggregate of 85,333,333 Common Shares and Convertible Debentures convertible into 183,333,333 Common Shares under the Private Placement, following which Yorkville would hold up to an approximate 40.8% ownership interest in the Company on an as-converted, partially diluted basis assuming conversion of all of the Convertible Debentures and Fee Warrants (as defined below). Given the level of dilution and insider participation, as well as the fact that the Private Placement is expected to materially affect control of the Company, the Company is expected to be required to obtain disinterested shareholder approval to complete the Private Placement and the exchange of the Preferred Shares for Ewing Convertible Debentures under applicable Toronto Stock Exchange ("TSX") policies and Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions ("MI 61-101"). To that end, the Company expects to convene a special meeting of shareholders in November for the purposes of obtaining disinterested shareholder approval for (i) the completion of the Private Placement, (ii) the exchange of the Preferred Shares for Ewing Convertible Debentures and (iii) the election of Yorkville's Director Nominees to the Board of Directors of the Company (the "Shareholder Approvals"), in each case in accordance with TSX rules and MI 61-101, as applicable. Closing of the Private Placement, the exchange of Preferred Shares for Ewing Convertible Debentures and the election of Yorkville's Director Nominees are each conditional upon obtaining such Shareholder Approvals, as well as the approval of the TSX. The Company is relying on an exemption from formal valuation requirements in accordance with Section 5.5(c) of MI 61-101 as neither the Company nor the related parties participating in the Private Placement have knowledge of any material information concerning the Company or its securities that has not been generally disclosed.

Origin Merchant Partners is acting as the Company's financial advisor on the Private Placement. On closing of the Private Placement, Origin Merchant Partners will receive customary advisory fees, including up to 9,979,167 broker warrants (the "Broker Warrants") subject to TSX approval. Up to 3,645,833 Broker Warrants will be issued in connection with the issuance of Common Shares under the Private Placement, entitling the holder to acquire one Common Share for a period of 24 months from the closing date at an exercise price of $0.12 per share, and 6,333,333 Broker Warrants will be issued upon closing of the Private Placement in respect of the Convertible Debentures to be issued under the Offering, entitling the holder thereof to acquire one Common Share for a period of 24 months from the closing date at an exercise price of $0.15 per share. In addition, subject to closing of the Private Placement and TSX approval, Yorkville will receive a structuring and due diligence fee and up to 4,400,000 warrants (the "Fee Warrants"), with each Fee Warrant entitling the holder to acquire one Common Share for a period of five years from the closing date at an exercise price of $0.25 per share.

ABOUT CENTRIC HEALTH

Centric Health's vision is to be the leading provider of pharmacy and other healthcare services to Canadian seniors. The Company is one of Canada's leading, and most trusted providers of comprehensive Specialty Pharmacy services and solutions to seniors. We operate a large national network of pharmacy fulfilment centres that deliver high-volume solutions for the cost-effective supply of chronic medication and other specialty clinical pharmacy services, serving more than 31,000 residents in over 460 seniors communities (long-term care, retirement homes, and assisted living facilities) nationally.

With services that address the growing demand within the Canadian healthcare system, Centric Health's unparalleled national care delivery platform provides significant potential for future expansion and growth.

For more information, please visit www.centrichealth.ca.

ABOUT YORKVILLE

Yorkville is an independent investment boutique that was founded on an unbiased commitment to its clients' success, and a strong dedication to risk management. Yorkville aims to help high net worth individuals, foundations, institutions, and family offices achieve their financial goals through its wealth management, estate and tax planning, portfolio management, and capital markets debt and equity advisory services. Yorkville is committed to investing in health care as a core investment strategy, including through the Yorkville Long Term Health Care Fund.

For more information, please visit www.yorkvilleasset.com

FORWARD-LOOKING STATEMENTS

This press release contains statements that may constitute "forward-looking statements" within the meaning of applicable Canadian securities legislation. These forward-looking statements include, among others, statements regarding the Company's business strategy, plans and other expectations, beliefs, goals, objectives, information and statements about possible future events, including the holding of the Meeting, the closing of the Private Placement, the exchange of Preferred Shares for Ewing Convertible Debentures and the Company's intentions thereafter. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may", "will", "expect", "intend", "estimate", "anticipate" or similar expressions suggesting future outcomes or events. Such forward-looking statements reflect management's current beliefs and are based on information currently available to management.

Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those contemplated by such statements. Factors that could cause such differences include the Company's liquidity and capital requirements, government regulation and funding, the highly competitive nature of the Company's industry, reliance on contracts with key customers and other risk factors described from time to time in the reports and disclosure documents filed by the Company with Canadian securities regulatory agencies and commissions. These and other factors should be considered carefully and readers should not place undue reliance on the Company's forward-looking statements. As a result of the foregoing and other factors, no assurance can be given as to any such future results, levels of activity or achievements and neither the Company nor any other person assumes responsibility for the accuracy and completeness of these forward-looking statements. The factors underlying current expectations are dynamic and subject to change.

SOURCE Centric Health Corporation

For further information: David Murphy, President and Chief Executive Officer, Centric Health Corporation, 416-927-8400; Andrew Mok, Interim Chief Financial Officer, Centric Health Corporation, 416-927-8400