Lakeshore Acquisition I Corp. (NASDAQ:LAAA) has signed definitive agreements for $30 million in convertible notes for its combination with medical device company ProSomnus.

The recent commitment of debt financing comes from institutional investors led by funds affiliated with or managed by Cohanzick Management, LLC and CrossingBridge Advisors, LLC, but the closing of the notes are conditioned upon the closing of the business combination prior to December 10, 2022.

The $30 million debt facility, which is being issued to various institutional parties, is comprised of two tranches:  $15 million of senior secured convertible notes and $15 million of junior secured convertible notes with maturities of 36 months and 40 months, respectively.

Following the issuance, within 12 months, the debt will be eligible for secondary trading. The senior debt has an initial conversion price of $13.00, which is to be reset at 5% premium to market price six and twelve months after closing, subject to a floor while the subordinated debt has an initial conversion price of $11.50, to be reset to a 5% premium to the market price six and twelve months after close and subject to a floor.

The financing plays an important role in closing Lakeshore’s business combination with ProSomnus. With Lakeshore bringing in $55 million into the deal from its current trust, the $30 million in convertible notes will help strengthen the company’s balance sheet. The parties disclosed the term sheet for the senior and junior notes at deal announcement, but at that time the funding was not definite as it was subject to today’s signing of the definitive convertible debt agreements. Lakeshore must maintain at least $40 million in cash and cash equivalents available after closing.

Lakeshore and ProSomnus disclosed that they expect to use the proceeds of the facility to fund multiple strategic growth initiatives such as continued growth of the sales team to expand the company’s international presence. ProSomnus also plans to complete the development of its next-generation Oral Appliance Therapy, which features sensors that allow physicians to monitor their patients during critical hours.  Other initiatives for ProSomnus include investments in manufacturing techniques, raising efforts of public awareness of Obstructive Sleep Apnea, and the value-added features of the company’s new therapy devices.

The combined company is expected to change its name to ProSomnus, Inc. and its class A common stock is expected to be traded on the Nasdaq Capital Market under the symbol “OSA”.

The parties initially announced the $168 million combination a few months ago on May 10. Pleasanton, California-based ProSomnus customizes oral appliance therapy devices to treat obstructive sleep apnea. Precision oral appliance therapy is a new option for treating obstructive sleep apnea, where each ProSomnus device is personalized and digitally manufactured to match the anatomy and treatment plan for each patient.