Sotera Health (SHC) Risk Factors

Our industry is characterized by evolving regulations, and our operations are subject to extensive regulation in the United States and other countries where we do business. We are regulated by national and local agencies with jurisdiction over a number of areas directly or indirectly related to our businesses, including environmental, nuclear safety, homeland or national security, worker safety and health, food, drug and device manufacturing, fire protection, research, and marketing, transportation, drug enforcement (governing the handling of controlled substances), protection against infectious diseases and pathogens and agriculture, fish and wildlife. These laws and regulations regulate our use of potentially hazardous materials, such as EO, Co-60 and E-beam, and can require us to carefully manage, control emissions of and/or limit human exposure to, these materials. For example, OSHA regulations and similar laws in other jurisdictions limit worker exposure to EO. In addition, FDA and comparable foreign regulations dictate the acceptable amount of EO residue on different types of sterilized products. In most jurisdictions, we are required to maintain and operate pollution control equipment to minimize emissions and releases of EO. Regulations issued by OSHA, the NRC and other agencies also require that equipment used at our facilities be designed and operated in a manner that is safe. In the United States, the use of EO for medical device sterilization is regulated by the US EPA under the CAA and FIFRA. Our supplier maintains a FIFRA registration for the EO they sell in the United States that is used to sterilize or reduce the viable microorganisms on a listed group of products, including medical devices, pharmaceutical products, cosmetics and spice products. The US EPA is in the process of reviewing EO's FIFRA re-registration eligibility in accordance with the provisions of FIFRA. In November 2020, the US EPA released a draft risk assessment for public comment regarding the re-registration review, stating that additional mitigation measures are necessary to protect the health of workers at facilities that use EO and surrounding communities. In April 2023, the US EPA proposed stricter EO regulations based on the 2016 IRIS Assessment through a proposed interim decision ("PID") under FIFRA that sets forth measures designed to mitigate EO exposure for workers exposed to EO in occupational settings. The PID includes a number of proposed requirements that are inconsistent with existing industry practices and proposed implementation timelines that would be difficult for existing facilities to meet. The next step in the FIFRA re-registration process will be for the US EPA to issue an interim decision ("ID"), which is expected by the third quarter of 2024. We expect the ID to require significant enhancements to the processes and equipment used for the listed applications and the conditions ultimately required for continued use of EO may impose on us significant additional costs. Any future failure of the US EPA to allow the FIFRA re-registration of EO would have a material adverse effect on our business, prospects, financial condition or results of operations. In April 2023, the US EPA also proposed updated NESHAP regulations based on the 2016 IRIS Assessment that would govern EO sterilization facilities like ours and require these facilities to implement additional air pollution technologies, practices and procedures designed to further reduce EO emissions from EO facilities. Like those reflected in the PID, the proposed updates to NESHAP contain a number of requirements that are inconsistent with existing industry practices and an implementation timeline that may be difficult for existing facilities to meet. The public comment period for the NESHAP and PID proposals closed in June 2023, and the US EPA is required by a consent order to adopt final NESHAP requirements by March 2024. Although we have been implementing enhancements at our EO sterilization facilities that we expect will facilitate our ability to meet many of the US EPA's proposed NESHAP and PID requirements, certain aspects are untested or not widely adopted at existing EO sterilization facilities. Compliance with the proposals in the form proposed by the US EPA in April 2023 would require additional facility modifications as well as additional capital and operational costs. Some requirements (if adopted as proposed) could be unachievable at our EO facilities and existing EO facilities throughout the industry, particularly within the 18-month implementation period contemplated by the US EPA's April 2023 proposals for existing facilities to come into compliance with many of the proposed requirements. The US EPA has engaged in additional regulatory activities relating to EO emissions that could trigger additional community concerns and litigation regarding EO that could cause us to incur material defense costs, could result in diversion of management resources, and potentially could cause us to incur material liability or settlement costs or have other adverse effects on our business, financial condition, or operations. For example, in 2021 the US EPA Office of the Inspector General published multiple reports critical of the US EPA's communications about risks related to EO facilities, including Sterigenics former and current facilities in Willowbrook and elsewhere, and suggesting that the US EPA should conduct a new residual risk and technology review for EO emitting industrial source categories. In addition, in December 2021, the US EPA expanded the scope of reporting requirements to require most EO sterilization facilities in the U.S., including Sterigenics facilities, to report their EO emissions to a US EPA database starting in 2022. Since 2022, the US EPA has been conducting outreach sessions in communities located near commercial EO sterilization facilities. Such community outreach sessions have in the past, and may in the future, create community concerns and increase the risk of litigation near commercial EO sterilization facilities, including ours, notwithstanding facility compliance with applicable rules and control of emissions beyond the requirements of applicable rules. State and local authorities, including California and the South Coast Air Quality Management District ("SCAQMD") in Southern California, are also conducting community outreach sessions relating to EO commercial sterilization facilities. SCAQMD adopted new regulations in December 2023 and is expected in 2024 to publish new health risk assessments and conduct community meetings about risks related to EO emissions from Sterigenics facilities in Los Angeles and Ontario, California. The European Union has also been reviewing current regulations for the use of EO in EO sterilization facilities and in 2023, decided that EO as a sterilizing agent for medical devices will fall under the scope of the European Union Medical Devices Regulation, which may impose new and different regulatory requirements for the use of EO in the European Union. We expect to incur capital costs for enhancements to our equipment and to implement process automation and emission control enhancements to comply with these and other evolving requirements. If future regulations differ from our current expectations, they may require additional modifications and capital costs beyond what we have budgeted for, which could be material. New standards for commercial EO sterilization, such as new US EPA standards based on the 2016 IRIS Assessment, could also make it more difficult and expensive to raise capital for future investments in EO sterilization facilities. In the United States, our gamma irradiation facilities are heavily regulated, including by the NRC and state regulations. These laws and regulations specify the requirements for, among other things, maximum radiation doses, system designs, safety features and alarms and employee monitoring, testing and reporting. While some specific requirements are different in the various jurisdictions other than the United States, the fundamental concepts are consistent inasmuch as all are signatories to the IAEA conventions and have adopted safety standards from the IAEA and recommendations from the ICRP. The design, construction and operation of sterilization and lab testing facilities are highly regulated and require government licenses, including environmental approvals and permits, and may be subject to the imposition of related conditions that vary by jurisdiction. In some cases, these approvals and permits entail periodic review. We cannot predict whether all licenses required for a new facility will be granted or whether the conditions associated with such licenses will be achievable. Changes in these laws and regulations have the potential to increase our costs. Additionally, our operations in the United States and the majority of our facilities outside the United States (to the extent we are processing a product in that facility that will end up in the U.S. market) are regulated by the FDA. We are also regulated by other health regulatory authorities in other countries. Specifically, these operations include some of our sterilization and product testing activities that may constitute "manufacturing" activities and are subject to FDA requirements. From time to time, the FDA issues Form 483 findings related to our operations and may issue warning letters or take other administrative or enforcement actions for noncompliance with FDA laws and regulations. The issues raised by such warning letters and related administrative actions require significant resources and time to correct. Failure to comply with regulatory requirements could have a material adverse effect on our business. To the extent Nordion in the future ceases to operate its facility in Kanata, Canada, Nordion will be responsible for the radiological decommissioning of such facility, including in respect of the portion leased by BWX Technologies, Inc. in connection with its 2018 acquisition of the Medical Isotopes business to the extent any contamination precedes such transaction. In addition, if Sterigenics in the future ceases to operate any of its irradiation facilities, it will be responsible for decommissioning costs in respect of such facilities. We currently provide financial assurance for approximately $48.2 million of such decommissioning liabilities in the aggregate in the form of letters of credit, surety bonds or other surety. Such potential decommissioning liabilities may be greater than currently estimated if additional irradiation facilities are licensed, unexpected radioactive contamination of those facilities occur, regulatory requirements change, waste volume increases, or decommissioning cost factors such as waste disposal costs increase. See Item 1, "Business-Governmental Regulation and Environmental Matters" for more information on the regulatory requirements of our businesses. Compliance with these regulations, as well as our own voluntary programs that relate to maintaining the safety of our employees and facilities as well as the environment, and the safety and competitiveness of our equipment, systems and facilities, may be difficult, burdensome or expensive. Any changes in these regulations, the interpretation of such regulations or our customers' perception of such changes will require us to make adaptations that may subject us to additional costs, and ultimate costs and the timing of such costs may be difficult to accurately predict and could be material. Regulatory agencies may refuse to grant approval or clearance or may require the provision of additional data, and regulatory processes may be time consuming and costly, and their outcome may be uncertain in certain of the countries in which we operate. Failure to secure renewal of permits or tightening of restrictions within our existing permits could have a material adverse effect on our business or cause us to incur material expenses. Regulatory agencies may also change policies, adopt additional regulations or revise existing regulations, each of which could impact our ability to provide our services or increase our costs. Additionally, local regulatory authorities may change the way in which they interpret and apply local regulations in response to negative public pressure about our facilities. For example, officials stopped operations at one of our facilities purportedly to review our fire and building code status and certificate of occupancy and we were required to initiate and prevail in litigation to establish that we were entitled to continue to operate our facility. Our failure to comply with the regulatory requirements of these agencies and officials may subject us to administratively or judicially imposed sanctions. These sanctions include, among others, warning letters, notices of violation, fines, civil penalties, criminal penalties, injunctions, debarment, product seizure or detention and total or partial suspension of operations, sale and/or promotion. While we strive to comply with these regulatory requirements, we have not always been and may not always be in compliance and, as a result, can be subject to significant civil and criminal fines and penalties, including the shutdown of our operations or the suspension of our licenses, permits or registrations. See Item 3, Legal Proceedings and Note 20, "Commitments and Contingencies" to our consolidated financial statements and related Risk Factor "-Potential health risks associated with the use of EO may subject us to future liability claims and associated adverse effects." The failure to receive or maintain, or delays in the receipt of, relevant U.S. or international regulatory qualifications could have a material adverse effect on our business, prospects, financial condition or results of operations.

As described elsewhere in Note 20, "Commitments and Contingencies" to our consolidated financial statements under the heading "Ethylene Oxide Tort Litigation," we are subject to tort lawsuits alleging injuries caused by our use of EO and low-level environmental exposure to EO emissions and releases from certain of our sterilization facilities. Trials were conducted in the Circuit Court of Cook County, Illinois in late 2022 in two individual cases related to the Willowbrook, Illinois facility. The first trial resulted in a verdict for the plaintiff and a judgment of $358.7 million (including $320 million in punitive damages) against Sterigenics U.S., LLC and Sotera Health LLC (the "Defendant Subsidiaries"). Two months later, the second trial resulted in a verdict for the Defendant Subsidiaries. In January 2023, the Defendant Subsidiaries entered into binding term sheets that provided an agreed path to pay $408.0 million to settle over 880 claims related to our former facility in Willowbrook, Illinois, including the claim of the plaintiff in the first trial. The settlement was finalized in June 2023. Two plaintiffs opted out of the settlement and 23 more cases have since been brought relating to the Willowbrook facility. In October 2023, the Defendant Subsidiaries entered into binding term sheets to pay $35 million to resolve 79 claims related to the Atlanta, Georgia facility, including a case that was scheduled to begin trial in the State Court of Gwinnett County in late October 2023. The settlement was finalized with 100 percent participation by the 79 eligible claimants in January 2024. Approximately 245 consolidated personal injury claims, 2 unconsolidated personal injury lawsuits and 365 consolidated property devaluation claims related to the Atlanta facility remain pending in the State Court of Cobb County, Georgia. We also face two lawsuits in New Mexico relating to emissions and releases of EO from our facility in Santa Teresa, New Mexico. New lawsuits relating to our use, emissions and releases of EO could be filed in Illinois, Georgia, New Mexico or other locations where we have facilities, and publicity about judgments or settlement agreements may increase interest in EO litigation and result in new claims being filed. We continue to believe that the EO-related claims are without merit and intend to vigorously defend the remaining EO cases and any future EO cases. We do not believe the damages award in the first trial in Illinois is predictive of potential future damage awards in the other EO tort cases, or that the settlement amounts reflected in the Willowbrook or Atlanta settlements described above are predictive of potential future settlements, but there can be no assurance that any cases proceeding to trial will not result in significant judgments adverse to the Defendant Subsidiaries and future settlements of EO cases are reasonably possible. In the event the Defendant Subsidiaries receive one or more additional adverse judgments in any EO tort case(s), the Defendant Subsidiaries may be required to post security of a significant amount to stay those judgments through the appeals process, which would create uncertainty about whether and how the Defendant Subsidiaries could post such collateral without support from Sotera Health Company or other corporate affiliates and whether Sotera Health Company could and would provide parent credit support to stay enforcement of any future judgments. Actions required to secure appellate bonds may create a substantial strain on the Defendant Subsidiaries' and our liquidity and financial condition. There is no assurance that the Defendant Subsidiaries or we will meet the requirements to provide an appellate bond(s) for appeals of any future adverse judgments. If the Defendant Subsidiaries are unable to meet those requirements and are not able to secure an appellate bond when and in the form and amount required by the courts for the appeal to proceed, the judgment(s) will become enforceable and may exceed the Defendant Subsidiaries' ability to pay in cash. If the Defendant Subsidiaries are unable to pay in cash, the Defendant Subsidiaries or we may be required to seek financing, sell assets or take other measures to address the judgments. There can be no assurance that the Defendant Subsidiaries or we will be able to secure such financing, and any sales of assets or other such actions taken to attempt to satisfy judgments may significantly limit our liquidity, harm our financial condition and increase our leverage. Enforceable judgments in excess of $100.0 million that are not stayed or remain undischarged for a period of sixty consecutive days would constitute an event of default under our senior secured credit facilities. Thus, if the Defendant Subsidiaries are unable to meet collateral requirements to post an appellate bond to stay the enforceability of a judgment, absent judicial relief, we may be required to negotiate with our current lenders to avert a default under our senior secured credit facilities and the success of such negotiations cannot be assured.

Federal, state, local and international authorities regulate operations within our three business units, including the operation of our gamma irradiation and EO processing plants, as well as the operations of our customers. If the regulators that govern our operations or the operations of our customers were to institute severely restrictive policies or regulations that increase our costs or change the preferences or requirements of our customers, demand for our products and services may be materially affected. Additionally, certain regulators, including the FDA, have started initiatives to encourage development of sterilization alternatives to EO processing. For example, the FDA approved vaporized hydrogen peroxide (VHP) as a Category-A sterilization methodology in January 2024. We have taken part in some of these initiatives. We have also made proactive, voluntary investments to enhance the emissions controls and employee protections within our EO facilities. Still, new regulations or changes to existing or expected regulations may require additional investments in new emissions control or employee protection technology or otherwise increase the cost of our gamma irradiation or EO processing. See related Risk Factor "-We are subject to extensive regulatory requirements and routine regulatory audits in our operations. We must receive permits, licenses and/or regulatory clearance or approval for our operations. Compliance with these regulations is costly, and failure to comply with all laws and regulations or to receive or maintain permits, licenses, clearances or approvals may hurt our revenues, profitability, financial condition or value. We face liability and reputational risks even if we comply with all laws and regulations." Reconfiguring a gamma irradiation or EO processing plant so that it is suitable for a different sterilization technology, in response to changes in demand, regulations or other factors, would require significant capital investment and require us to suspend operations at the affected facility during the conversion. Any of the foregoing could have a material adverse effect on our business, prospects, financial condition or results of operations.

Our growth strategy depends on expanding capacity in Europe, the Americas and Asia, which includes building new facilities and maintaining and expanding existing facilities. The construction or expansion of modern and safe sterilization facilities requires significant expenditures. Delay in the review and licensing process for a new facility could impair or delay our ability to develop that facility or increase the cost so substantially that the facility becomes unattractive to us. Any failure to procure and maintain the necessary licenses and equipment would adversely affect ongoing development, construction and continuing operation of our facilities. Additionally, even when we maintain the necessary licenses and equipment and comply with applicable regulations, we still may be unable to maintain or expand our operations at existing facilities, or otherwise execute on our growth strategy, because of negative publicity or community resistance. Suspensions and closures of our facilities have impacted and may continue to impact our results of operations, and the effects could be material. New facilities may not meet our return expectations due to schedule delays, diversion of management's attention, cost overruns or revenue shortfalls, or they may not generate the capacity that we anticipate or result in the receipt of revenue in the originally anticipated time period or at all. We may not maintain revenue growth or profitability, or such growth, if any, could be delayed if we are not successful in continuing to expand capacity. Additionally, if future demand trends warrant capacity in geographic areas that we have not targeted for new growth, we may be unable to capitalize on opportunities in a timely manner.

Many of our facilities are located on leased premises. These leases vary in length up through 2042, most with options to renew for specified periods of time. We expect to renew or buy out such leases, including all sterilization facility leases expiring in the next five years, as they come due. At the end of the lease term and any renewal period for a facility, we may be unable to renew the lease without substantial additional cost, if at all. For example, in September 2019, we were unable to reach an agreement to renew the lease on our EO processing facility in Willowbrook, Illinois following community pressure resulting from negative publicity surrounding the facility. If we are unable to renew our facility leases, we may be required to relocate or close a facility. Relocating a facility involves significant expense in connection with the movement and installation of specialized equipment and any necessary recertification or licensing with regulatory authorities. Even briefly closing a facility to relocate would reduce the sales that the facility would have contributed to our revenues and could negatively impact our customer relations. Any such relocation or closure could have a material adverse effect on our business, prospects, financial condition or results of operations.