Mr. Ali Mahdavi reports

SPECTRAL MEDICAL INC. ANNOUNCES CLOSING OF FIRST TRANCHE OF $14.0 MILLION CONVERTIBLE NOTE PRIVATE PLACEMENT, CONVERSION OF US$4.5 MILLION OF MATURING CONVERTIBLE NOTES AND REPAYMENT OF US$4.5 MILLION OF MATURING CONVERTIBLE NOTES

Spectral Medical Inc. has closed the first tranche of a $14.0-million private placement offering of convertible unsecured notes due on Nov. 1, 2031, and has converted an aggregate of $4.5-million (U.S.) (approximately $6.3-million) of maturing convertible notes and repaid an additional $4.5-million (U.S.) (approximately $6.3-million) of maturing convertible notes. All dollar amounts in this news release are in Canadian dollars unless otherwise stated.

Conversion and repayment of 2022 notes and 2023 notes

Prior to the closing of the offering, the company had outstanding $5.0-million (U.S.) aggregate principal amount of 7.00 per cent convertible senior notes issued on Nov. 2, 2022, and $4.0-million (U.S.) aggregate principal amount of 9.00 per cent convertible senior notes issued on Sept. 7, 2023, all of which matured on Nov. 1, 2026.

The holder of $2.5-million (U.S.) aggregate principal amount of the 2022 notes and $2.0-million (U.S.) aggregate principal amount of the 2023 notes converted those notes in accordance with their terms into an aggregate of 13,870,397 common shares of the company.

The remaining $2.5-million (U.S.) aggregate principal amount of the 2022 notes and $2.0-million (U.S.) aggregate principal amount of the 2023 notes, held by Vantive U.S. Healthcare LLC, were not converted and will be repaid by the company today, together with accrued and unpaid interest thereon, for an aggregate principal amount of $4.5-million (U.S.) (approximately $6.3-million).

2026 notes offering

On Oct. 30, 2026, Spectral issued $7.7-million aggregate principal amount of 2026 notes in the first tranche of the offering and expects to issue an additional $6.3-million aggregate principal amount of 2026 notes in a second tranche to be completed on or about Nov. 6, 2026, subject to customary closing conditions.

Holders may convert all or any portion of their 2026 Notes at any time prior to the maturity date into units of the company at a conversion price of $1 per unit, subject to customary anti-dilution adjustments. Each unit consists of one common share and one-half of one common share purchase warrant. Each warrant entitles the holder to acquire one common share at an exercise price of $1.10 until the maturity date.

The 2026 notes bear interest at the Canadian overnight repo rate average plus 800 basis points per annum, accruing from the date of issue and payable semi-annually. On each interest payment date, the company may elect, in its sole discretion, to pay the interest then due in cash or in kind. Interest paid in kind (PIK) will be added to the outstanding principal amount of the 2026 notes, will bear interest at the same rate and will be convertible into units at the conversion price on the same terms as the 2026 notes, provided that the conversion price is not then lower than the minimum price permitted by the Toronto Stock Exchange. If it is, the interest then due will instead be satisfied by the issuance of units of the company at a price per PIK unit equal to the volume weighted average trading price of the common shares on the TSX for the five trading days immediately preceding the applicable interest payment date less a discount of 10 per cent. Each PIK unit shall comprise one common share and one-half of one common share purchase warrant of the company, with each whole warrant comprised in the PIK units exercisable at the market price until the maturity date. Each issuance of PIK units is subject to the prior acceptance of the TSX. The maximum aggregate principal amount of 2026 notes and PIK units outstanding (including the PIK interest) at the maturity date is capped at $28-million.

The company intends to use the net proceeds from the offering to repay the $4.5-million (U.S.) (approximately $6.3-million) principal amount of the 2022 notes and 2023 notes that were not converted, together with accrued interest, and for general corporate and working capital purposes.

Paradigm Capital Inc. acted as financial adviser to the company on the offering, and received on the closing of the first tranche a cash commission of $192,500, $192,500 principal amount of 2026 notes and 385,000 compensation options, each exercisable for one common share at the conversion price until the maturity date, and will receive similar compensation on the closing of the second tranche. The 2026 notes issued in the first tranche were purchased by Pinnacle Island II LP and the adviser. The general partner of Pinnacle II is 1000318530 Ontario Inc., a subsidiary of Paradigm Capital Partners Ltd., which is an influential securityholder of the adviser and a limited partner of Pinnacle II. Pinnacle Island LP, an affiliate of Pinnacle II, was the holder of the 2022 notes and 2023 notes converted as described above. For so long as any 2026 notes remain outstanding, Pinnacle II will be entitled to designate a non-voting observer to attend meetings of the company's board of directors. The 2026 notes, including any securities issuable thereunder, and the compensation options contain limitations on conversion and exercise required by the TSX that apply to any holder which, together with its affiliates and joint actors, would own more than 9.99 per cent of the outstanding common shares and, in the case of Pinnacle II, the adviser and its affiliates, more than 19.99 per cent of the outstanding common shares.

About Spectral Medical Inc.

Spectral is a phase 3 company seeking U.S. Food and Drug Administration (FDA) approval for its unique product for the treatment of patients with septic shock, Toraymyxin (PMX). PMX is a therapeutic hemoperfusion device that removes endotoxin, which can cause sepsis, from the bloodstream and is guided by the company's FDA-cleared Endotoxin Activity Assay (EAA), the only FDA-cleared test for endotoxin in blood.

PMX is approved for therapeutic use in Japan and Europe, licensed by Health Canada, and has been used safely and effectively with over 360,000 units sold worldwide to date. In March, 2009, Spectral obtained the exclusive development and commercial rights in the United States for PMX, and in November, 2010, signed an exclusive distribution agreement for this product in Canada. In July, 2022, the U.S. FDA granted breakthrough device designation for PMX for the treatment of endotoxic septic shock. Approximately 330,000 patients are diagnosed with septic shock in North America each year.

Spectral is listed on the Toronto Stock Exchange under the symbol EDT.

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