Episurf Medical announces a partially secured rights issue of units of up to approximately SEK 120 million

The Board of Directors of Episurf Medical AB (publ) ("Episurf", "Episurf Medical" or the "Company"), (NASDAQ Stockholm: EPIS B) today resolved, subject to the approval by an extraordinary general meeting (the "EGM"), to carry out a new issue of 33,383,180 units, corresponding to a maximum of 500,747,700 new class B shares and a maximum of 200,299,080 warrants, with preferential rights for existing shareholders, of up to approximately SEK 120 million (the "Rights Issue"). Each unit consists of fifteen (15) new class B shares in the Company and six (6) warrants of series TO13 B. Upon full subscription and exercise, the warrants will contribute with additional proceeds corresponding to a maximum of approximately SEK 48 million. The EGM is proposed to approve the Board of Directors' resolution on the Rights Issue and certain related proposals to enable the Rights Issue. The EGM is planned to be held on 22 May 2024 and the notice will be announced through a separate press release. The purpose of the Rights Issue is primarily to finance the ongoing commercialization of the Episealer® Patellofemoral System on the US market and the US regulatory process for the Episealer® MTP-System, the ongoing commercialization of the Episealer® Knee and Episealer® Talus Systems in different geographies and the continuation of clinical development besides general corporate purposes. The Company has received subscription commitments and subscription intentions as well as guarantee commitments for approximately 75.0 percent of the Rights Issue, corresponding to SEK 90 million. Additionally, the Company's largest shareholder, Health Runner AB, as well as shareholder Sacajo Investments LLC (Niles Noblitt), have expressed an ambition to subscribe for their respective pro-rata shares in the Rights Issue. Conditional upon the Rights Issue being successfully completed, Episurf has adopted a financial target to reach annual sales of SEK 150-200 million in the medium term, at which point the Company expects to become cash flow positive.

Summary

• The Board of Directors in Episurf today resolved, subject to the approval by the EGM, to carry out the Rights Issue. The EGM is proposed to approve the Board of Directors' resolution on the Rights Issue and certain related proposals to enable the Rights Issue. The EGM is planned to be held on 22 May 2024 and the notice will be announced through a separate press release.
• All existing shareholders in Episurf will receive one (1) unit right for each class A or class B share held on the record date, expected to occur on or about 24 May 2024. Eight (8) unit rights will entitle the holder to subscribe for one (1) unit. One (1) unit consists of fifteen (15) new class B shares and six (6) warrants of series TO13 B.
• The subscription price is SEK 3.60 per unit, corresponding to a subscription price of SEK 0.24 per class B share. The warrants are issued free of charge. Each warrant will entitle to subscription of one (1) new class B share at a subscription price of SEK 0.24 per class B share during 10 February - 24 February 2025. The warrants will be available for trading on Nasdaq First North Growth Market.
• The subscription price of SEK 0.24 per class B share, corresponds to a discount of approximately 40.5 percent, compared to the theoretical ex-rights price (TERP) based on the closing price of Episurf's class B share on Nasdaq Stockholm on 19 April 2024, the last trading day before announcement of the Rights Issue.
• Upon full subscription of the Rights Issue, Episurf will receive approximately SEK 120 million before deductions of costs related to the Rights Issue and, upon full and exercise of the warrants, Episurf will receive additional proceeds of approximately SEK 48 million before deductions of costs related to the warrants.
• The subscription period in the Rights Issue is expected to run from and including 28 May 2024 up to and including 12 June 2024.
• Existing shareholders, including Fjärde AP-fonden and LMK Forward AB have undertaken, or expressed their intention, to subscribe for units representing approximately 12.7 percent of the Rights Issue, or approximately SEK 15 million.
• Additionally, shareholding members of the Company's Board of Directors and Management, including CEO Pål Ryfors and Chairman Ulf Grunander, have expressed their intention to subscribe for units representing approximately 1.6 percent of the Rights Issue, or approximately SEK 2 million in total. Members of the Board and Management of the Company are prevented, under applicable rules on market abuse, from entering into undertakings to subscribe for units in the Rights Issue, as a result of the Company being in a so-called closed period until the publication of the interim report for the first quarter of 2024, and are expected to enter into undertakings after the closed period has ended.
• A number of external investors have undertaken to guarantee approximately 60.7 percent of the Rights Issue, corresponding to approximately SEK 73 million, at a guarantee commission of 12.0 percent of the guaranteed amount in cash or 14.0 percent of the guaranteed amount in units.
• The Rights Issue is thus covered by subscription intentions, subscription commitments and guarantee commitments representing approximately 75.0 percent of the Rights issue, corresponding to approximately SEK 90 million.
• Additionally, the Company's largest shareholder, Health Runner AB, as well as the shareholder Sacajo Investments LLC (Niles Noblitt) have expressed an ambition to subscribe for their respective pro-rata shares in the Rights Issue.
• Existing shareholders, representing approximately 12.9 percent of the total votes in the Company, have undertaken or expressed their intention to vote in favor of the resolutions regarding the Rights Issue at the EGM.

Episurf's CEO Pål Ryfors comments: "Through this transaction, we are securing our ability to continue our US launch of the Episealer® Patellofemoral System and continue our US regulatory strategy for the Episealer® MTP-System. In our OUS markets, we are continuing our commercialization of Episealer® Knee and Episealer® Talus, now with a more distributor-focused business model. We have solved a problem within orthopedics, and we can help patients globally with our individualized technology. Through this transaction, we are securing our financial position until late 2025."

Background and motive

Episurf is a Swedish, commercial stage orthopaedics company with a proprietary implant technology, based on individualized implants and surgical tools tailored for each patient's needs through advanced imaging techniques and pre-surgical analysis. Episurf's first product group, the Episealer[®] knee implant, addresses the gap in the osteoarthritis treatment paradigm between early biologic interventions and knee replacements, and is commercially available in Europe and several other markets. Episurf has a broad portfolio of products based on their proprietary technology addressing joint injuries including: Episealer[®] Knee (CE marked, US Pivotal trial ongoing), Episealer[®] Talus (CE marked), Episealer[®] Patellofemoral System (FDA 510(k) cleared), and Episealer[®] MTP system (510(k) filed in Q4 2023, expected clearance in 2024). First surgery in human with the Episealer[®] Knee was performed in December 2012, with over 1,900 surgeries performed to date using the Episealer[®] implant. Following the approval of its first product in the US (Episealer[®] Patellofemoral System), Episurf is currently building its US commercial organisation and a broad distributor network to ensure a successful launch.

Use of proceeds

Episurf has identified five investment areas that have the potential to bring the Company significantly closer to a position of sustainable profitability within the established business strategy. The net proceeds from the Rights Issue, provided that the Rights Issue is subscribed to the amount covered by subscription commitments and intentions, as well as guarantee commitments, will be used to:

i. Accelerate the ongoing commercialization of the Episealer® Patellofemoral System on the US market, including continued expansion of the US distributor network, surgical support and other relevant marketing activities, together with a balanced expansion of the US organization (approximately 25%);
ii. Finance the US regulatory process for the Episealer® MTP-System for the US market, as well as pre-launch and market launch activities in the US (approximately 25%);
iii. Accelerate the ongoing commercialization of the Episealer® Knee and Episealer® Talus Systems in the ex-US markets, including marketing and sales activities of the ex-US sales forces and distributor network (approximately 25%);
iv. Continue the Company's clinical development programs, including supporting several independent study initiatives and the ongoing EPIC Knee PMA Study as well as the Company's regulatory activities to support global market presence (approximately 15%); and
v. General corporate purposes and extension of cash runway to at least Q4 2025 (approximately 10%).

Should the Rights Issue be subscribed for an amount higher than the amount covered by subscription commitments and intentions, as well as guarantee commitments, the additional proceeds will be used to finance activities (i) to (v) proportionally.

Upon full exercise of the warrants of series TO13 B in February 2025, the Company is expected to receive up to approximately SEK 48 million, which the Company intends to use to finance activities (i) to (v) proportionally.

Financial target

Conditional upon the Rights Issue being successfully completed, Episurf has adopted a financial target to reach annual sales of SEK 150-200 million in the medium term, at which point the Company expects to become cash flow positive.

Terms of the Rights Issue

Shareholders who are registered in the share register in Episurf on the record date of the Rights Issue, expected to occur on or about 24 May 2024, will receive one (1) unit right for each class A or class B share held in the Company. Eight (8) unit rights entitle the holder to subscribe for one (1) unit. One (1) unit consists of fifteen (15) newly issued class B shares and six (6) warrants of series TO13 B. In addition, shareholders and other investors are offered the possibility to subscribe for units without unit rights, to the extent the Rights Issue is not subscribed for by exercise of unit rights.

The subscription price is SEK 3.60 per unit, corresponding a subscription price of SEK 0.24 per class B share. The warrants are issued free of charge. Provided that the Rights Issue is fully subscribed, Episurf will receive gross proceeds of approximately SEK 120 million before deductions of costs related to the Rights Issue.

Each warrant of series TO13 B entitles the holder to subscribe for one (1) new class B share in the Company during the period from and including 10 February 2025 up to and including 24 February 2025. The exercise price of the warrants of series TO13 B will be SEK 0.24 per class B share. Upon full exercise of the warrants of series TO13 B, Episurf will receive up to an additional SEK 48 million before deduction of costs related to the warrants. The warrants will be available for trading on Nasdaq First North Growth Market.

Provided that the Rights Issue is fully subscribed, the Rights Issue will entail that the share capital is increased by approximately SEK 5,007,477 (assuming implementation of the proposed reduction of share capital as further described below and in the notice for the EGM, such that the quota value of the Company's shares is SEK 0.01), by issue of 500,747,700 new class B shares, resulting in the total number of shares increasing from 267,065,447 shares to 767,813,147 shares, divided into 473,357 class A shares and 767,339,790 class B shares. Shareholders who choose not to participate in the Rights Issue will have their ownership diluted by up to 65.2 percent of the number of shares and  65.1 percent of the number of votes through the Rights Issue (based on the total maximum outstanding shares after the Rights Issue). These shareholders have the opportunity to compensate themselves financially for the dilution effect by selling their unit rights received.

Upon full subscription and exercise of the warrants of series TO13 B, the number of shares will increase by a maximum of 200,299,080 class B shares and the share capital will increase by a maximum of approximately SEK  2,002,991 (assuming implementation of the proposed reductions of share capital and bonus issue, as further described below and in the notice for the EGM, such that the quota value of the Company's shares is SEK 0.01), which, provided that the Rights Issue is fully subscribed, will correspond to a dilution effect of approximately 20.7 percent of the shares and approximately 20.7 percent of the votes in the Company, for shareholders who choose not to exercise their warrants of series TO13 B.

If all investors who have entered into guarantee commitments elect to receive their guarantee commission in units, and provided that all warrants of series TO13 B that are part of such units are exercised, the number of shares will increase by 59,616,648 class B shares and the share capital will increase by approximately SEK 596,166 (assuming implementation of the proposed reductions of share capital and bonus issue, as further described below and in the notice for the EGM, such that the quota value of the Company's shares is SEK 0.01), which, provided that the Rights Issue is fully subscribed, will correspond to a dilution effect of approximately 5.8 percent of the shares and approximately 5.8 percent of the votes in the Company.

In the event that the Rights Issue is fully subscribed, the warrants of series TO13 B are fully exercised for, and all investors who have entered into guarantee commitments elect to receive their guarantee commission in units, and provided that all warrants of series TO13 B that are part of such units are exercised, the total dilution effect will be approximately 74.0 percent of the shares and approximately 73.9 percent of the votes in the Company.

The complete terms and conditions of the Rights Issue and information about the Company will be presented in a prospectus, prepared in accordance with the simplified disclosure regime for secondary issuances, that is expected to be published on the Company's website on or around 24 May 2024.

EGM

The EGM is proposed to approve the Board of Directors' resolution on the Rights Issue and to resolve on certain related proposals to enable the Rights Issue, including reductions of the share capital, a bonus issue and related amendments to the Company's articles of association. The reason for the reductions of the share capital, the bonus issue and the amendments to the articles of association is to enable the Rights Issue and reduce the quota value of the Company's shares as will be further detailed in the notice for the EGM. The EGM is planned to be held on 22 May 2024. Existing shareholders, representing approximately 12.9 percent of the total votes in the Company, have undertaken to, or have expressed their intention to vote in favor of the Rights Issue at the EGM.

The notice for the EGM will be published through a separate press release and will be available on the Company's website, www.episurf.com.

Intentions to subscribe for units, subscription commitments and guarantee commitments

Existing shareholders, including Fjärde AP-fonden and LMK Forward AB have undertaken, or expressed their intention, to subscribe for units representing approximately 12.7 percent of the Rights Issue, or approximately SEK 15 million.

Shareholding members of the Company's Board of Directors and Management, including CEO Pål Ryfors and Chairman Ulf Grunander, have expressed their intention to subscribe for units representing approximately 1.6 percent of the Rights Issue, or approximately SEK 2 million in total. Members of the Board and Management of the Company are prevented, under applicable rules on market abuse, from entering into undertakings to subscribe for units in the Rights Issue, as a result of the Company being in a so-called closed period until the publication of the interim report for the first quarter of 2024 and are expected to enter into undertakings after the closed period has ended.

In total, these subscription commitments and subscription intentions represent approximately 14.3 percent of the Rights Issue, corresponding to approximately SEK 17 million.

In addition, a number of external investors have undertaken to guarantee approximately 60.7 percent of the Rights Issue, corresponding to approximately SEK 73 million, at a guarantee commission of 12.0 percent of the guaranteed amount in cash or 14.0 percent of the guaranteed amount in units, where the subscription price for such units will be equivalent to the subscription price per unit in the Rights Issue. The Company's Board of Directors has thoroughly evaluated the possibility for the guarantors to receive their guarantee commission in the form of units at the abovementioned terms and concluded that offering such possibility has been necessary to obtain the guarantee commitments and is in the best interest of the Company and its shareholders.

Accordingly, the Company has obtained subscription commitments, subscription intentions and guarantee commitments for approximately 75.0 percent of the Rights Issue, corresponding to SEK 90 million.

Additionally, the largest shareholder Health Runner AB, as well as the shareholder Sacajo Investments LLC (Niles Noblitt), have expressed an ambition to subscribe for their respective pro-rata shares in the Rights Issue.

Further information regarding the parties who have entered into subscription intentions, subscription commitments and guarantee commitments will be presented in the prospectus to be made public before the commencement of the subscription period.

Lock-up undertakings

Shareholding members of the Board of Directors and management have entered into lock-up undertakings, which, among other things and with customary exceptions, mean that they have undertaken not to sell shares in the Company. The lock-up undertakings expire on the day that falls 180 days after the date of announcement of the outcome in the Rights Issue.

Furthermore, the Company has undertaken towards Pareto Securities, subject to customary exceptions, not to issue additional shares or other share-related instruments for a period of 180 days after the date of announcement of the outcome in the Rights Issue.

Preliminary timetable of the Rights Issue

The below timetable for the Rights Issue is preliminary and may be adjusted.

22 May Extraordinary general meeting
2024
22 May Last day of trading including the right to
2024 receive unit rights
23 May First day of trading without the right to
2024 receive unit rights
24 May Record date for receipt of unit rights
2024
24 May Publication of the prospectus
2024
28 May - 7 Trading in unit rights
June 2024
28 May - Subscription period
12 June
2024
28 May - Trading in BTUs (paid subscribed units)
24 June
2024
13 June Expected announcement of the outcome of the
2024 Rights Issue
28 June Expected first day of trading in warrants of
2024 series TO13 B on Nasdaq First North Growth
Market
10 - 24 Exercise period for warrants of series TO13 B
February
2025

Advisors

Pareto Securities has been appointed as Sole Manager and Bookrunner in the Rights Issue. Hannes Snellman Advokatbyrå AB is legal adviser to Episurf in connection with the Rights Issue. Advokatfirman Vinge KB is legal adviser to the Sole Manager and Bookrunner in connection with the Rights Issue. Nordic Issuing acts as issuing agent in connection with the Rights Issue.

For more information, please contact:

Pål Ryfors, CEO, Episurf Medical
Tel:+46 (0) 709 62 36 69
Email: pal.ryfors@episurf.com

Veronica Wallin, CFO, Episurf Medical
Tel:+46 (0) 700 37 48 95
Email: veronica.wallin@episurf.com (pal.ryfors@episurf.com)

This information is information that Episurf Medical AB is obliged to make public pursuant to the EU Market Abuse Regulation 596/2014. The information was submitted for publication, through the agency of the contact persons set out above, at 08:00 CEST on 22 April 2024.

About Episurf Medical

Episurf Medical is endeavoring to bring people with painful joint injuries a more active, healthier life through the availability of minimally invasive and individualised treatment alternatives. Episurf Medical's Episealer® individualised implants and Epiguide® surgical drill guides are developed for treating localised cartilage injury in joints. Episurf Medical's μiFidelity® system enables implants to be cost-efficiently tailored to each individual's unique injury for the optimal fit and minimal intervention. Episurf Medical's head office is in Stockholm, Sweden. Its class B share (EPIS B) is listed on Nasdaq Stockholm. For more information, go to the company's website: www.episurf.com.

Important information

The release, announcement or distribution of this press release may, in certain jurisdictions, be subject to restrictions. The recipients of this press release in jurisdictions where this press release has been published or distributed shall inform themselves of and follow such legal restrictions. The recipient of this press release is responsible for using this press release, and the information contained herein, in accordance with applicable rules in each jurisdiction. This press release does not constitute an offer, or a solicitation of any offer, to buy or subscribe for any securities in Episurf Medical in any jurisdiction, neither from Episurf Medical nor from someone else.

This press release is not a prospectus for the purposes of Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017 (the "Prospectus Regulation") and has not been approved by any regulatory authority in any jurisdiction. A prospectus, prepared in accordance with the simplified disclosure regime for secondary issuances as set forth in the Prospectus Regulation, regarding the Rights Issue described in this press release will be prepared and published by the Company prior to the commencing of the subscription period.

This announcement does not identify or suggest, or purport to identify or suggest, the risks (direct or indirect) that may be associated with an investment in the Company. The information contained in this announcement relating to the Rights Issue is for background purposes only and does not purport to be full or complete. No reliance may be placed for any purpose on the information contained in this announcement or its accuracy or completeness. Pareto Securities are acting for Episurf Medical in connection with the Rights Issue and no one else and will not be responsible to anyone other than Episurf Medical for providing the protections afforded to its clients nor for giving advice in relation to the Rights Issue or any other matter referred to herein. Pareto Securities are not liable to anyone else for providing the protection provided to their customers or for providing advice in connection with the Rights Issue or anything else mentioned herein.

This press release does not constitute or form part of an offer or solicitation to purchase or subscribe for securities in the United States. The securities referred to herein may not be sold in the United States absent registration or an exemption from registration under the US Securities Act of 1933, as amended (the "Securities Act"), and may not be offered or sold within the United States absent registration or an applicable exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. There is no intention to register any securities referred to herein in the United States or to make a public Rights Issue of the securities in the United States. The information in this press release may not be announced, published, copied, reproduced or distributed, directly or indirectly, in whole or in part, within or into the US, the United Kingdom, Australia, Belarus, Canada, Hong Kong, Israel, Japan, New Zeeland, Russia, Singapore, South Africa, South Korea, Switzerland or in any other jurisdiction where such announcement, publication or distribution of the information would not comply with applicable laws and regulations or where such actions are subject to legal restrictions or would require additional registration or other measures than what is required under Swedish law. Actions taken in violation of this instruction may constitute a crime against applicable securities laws and regulations.

In the United Kingdom, this document and any other materials in relation to the securities described herein is only being distributed to, and is only directed at, and any investment or investment activity to which this document relates is available only to, and will be engaged in only with, "qualified investors" (within the meaning of the Prospectus Regulation as it forms part of domestic law in the United Kingdom by virtue of the European Union (Withdrawal) Act 2018) who are (i) persons having professional experience in matters relating to investments who fall within the definition of "investment professionals" in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "Order"); or (ii) high net worth entities falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as "relevant persons"). In the United Kingdom, any investment or investment activity to which this communication relates is available only to, and will be engaged in only with, relevant persons. Persons who are not relevant persons should not take any action on the basis of this press release and should not act or rely on it.

Forward-looking statements

This press release contains forward-looking statements that reflect the Company's intentions, beliefs, or current expectations about and targets for the Company's and the group's future results of operations, financial condition, liquidity, performance, prospects, anticipated growth, strategies and opportunities and the markets in which the Company and the group operates. Forward-looking statements are statements that are not historical facts and may be identified by words such as "believe", "expect", "anticipate", "intend", "may", "plan", "estimate", "will", "should", "could", "aim" or "might", or, in each case, their negative, or similar expressions. The forward-looking statements in this press release are based upon various assumptions, many of which are based, in turn, upon further assumptions. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurances that they will materialize or prove to be correct. Because these statements are based on assumptions or estimates and are subject to risks and uncertainties, the actual results or outcome could differ materially from those set out in the forward-looking statements as a result of many factors. Such risks, uncertainties, contingencies and other important factors could cause actual events to differ materially from the expectations expressed or implied in this release by such forward-looking statements. The Company does not guarantee that the assumptions underlying the forward-looking statements in this press release are free from errors and readers of this press release should not place undue reliance on the forward-looking statements in this press release. The information, opinions and forward-looking statements that are expressly or implicitly contained herein speak only as of its date and are subject to change without notice. Neither the Company nor anyone else undertake to review, update, confirm or to release publicly any revisions to any forward-looking statements to reflect events that occur or circumstances that arise in relation to the content of this press release, unless it is required by law or Nasdaq Stockholm's rule book for issuers.

Information to distributors

Solely for the purposes of the product governance requirements contained within: (a) EU Directive 2014/65/EU on markets in financial instruments, as amended ("MiFID II"); (b) Articles 9 and 10 of Commission Delegated Directive (EU) 2017/593 supplementing MiFID II; and (c) local implementing measures (together, the "MiFID II Product Governance Requirements"), and disclaiming all and any liability, whether arising in tort, contract or otherwise, which any "manufacturer" (for the purposes of the MiFID II Product Governance Requirements) may otherwise have with respect thereto, the offered shares have been subject to a product approval process, which has determined that such shares are: (i) compatible with an end target market of retail investors and investors who meet the criteria of professional clients and eligible counterparties, each as defined in MiFID II; and (ii) eligible for distribution through all distribution channels as are permitted by MiFID II (the "Target Market Assessment").

Notwithstanding the Target Market Assessment, distributors should note that: the price of the shares in the Company may decline and investors could lose all or part of their investment; the shares in the Company offer no guaranteed income and no capital protection; and an investment in the shares in the Company is compatible only with investors who do not need a guaranteed income or capital protection, who (either alone or in conjunction with an appropriate financial or other adviser) are capable of evaluating the merits and risks of such an investment and who have sufficient resources to be able to bear any losses that may result therefrom. The Target Market Assessment is without prejudice to the requirements of any contractual, legal or regulatory selling restrictions in relation to the Rights Issue. Furthermore, it is noted that, notwithstanding the Target Market Assessment, the Sole Manager and Bookrunner will only procure investors who meet the criteria of professional clients and eligible counterparties.

For the avoidance of doubt, the Target Market Assessment does not constitute: (a) an assessment of suitability or appropriateness for the purposes of MiFID II; or (b) a recommendation to any investor or group of investors to invest in, or purchase, or take any other action whatsoever with respect to the shares in the Company.

Each distributor is responsible for undertaking its own target market assessment in respect of the shares in the Company and determining appropriate distribution channels.