LAVAL, Québec — August 14, 2009 — BioSyntech, Inc. (“BioSyntech”) (TSX: BSY), a biotechnology company developing biotherapeutic thermogels for regenerative medicine, today announced that it has entered into an agreement with ProQuest Investments III, L.P. (“ProQuest”), Fonds de Solidarité des travailleurs du Québec (F.T.Q.) (“FSTQ”), Highland Crusader Offshore Partners, L.P. (“Highland”) and A. M. Pappas Life Science Ventures III, LP and PV III CEO Fund, LP (collectively, “Pappas” and, together with ProQuest, FSTQ and Highland, the “Investors”) pursuant to which:
– The Investors will subscribe, on a private placement basis, to an aggregate of 140,000 units of BioSyntech (the “Units”), each comprised of $10 principal amount of subordinated secured convertible debentures (the “New Debentures”) and 91 common share purchase warrants (the “New Warrants”), at a price of $10 per Unit, representing gross aggregate proceeds of $1,400,000 to BioSyntech (the “Private Placement”);
– The term of the currently outstanding subordinated secured convertible debentures of BioSyntech that were issued pursuant to the July 2008 public offering (the “Existing Debentures”) will be extended to March 31, 2010 (the “Term Extension”); and
– BioSyntech will also launch a rights offering to its shareholders for an additional 310,000 Units at a price of $10 per Unit, representing gross aggregate proceeds of up to $3,100,000 to BioSyntech (the “Rights Offering”).
The New Debentures will mature on March 31, 2010 and will bear interest at an annual rate of 12% payable in cash or common shares, at the option of BioSyntech, on December 31, 2009 and March 31, 2010. Each New Debenture will be convertible into common shares at the option of the holder at any time prior to maturity at a conversion price of $0.11 per share, being a ratio of approximately 91 common shares per $10 principal amount of New Debentures, subject to customary anti-dilution provisions. The New Debentures will rank pari passu with the Existing Debentures. Each New Warrant will entitle the holder thereof to purchase one common share for a purchase price of $0.14 until the date that it is seven years from the date of closing of the Private Placement. In addition, the New Warrants may be exercised on a cashless basis with BioSyntech paying the in the money amount through the issuance of common shares based on the market price at the time of exercise. BioSyntech will also apply to the Toronto Stock Exchange (“TSX”) to amend the currently outstanding common share purchase warrants of BioSyntech (the “Existing Warrants”) to provide for their exercise on the cashless basis described above.
The Private Placement and the Term Extension are expected to close on or about August 21, 2009 and are subject to certain conditions, including the conditional approval by the TSX of the listing of all common shares which may be issued as a result of the transaction, certain third-party consents and the execution of definitive agreements.
Following completion of the Private Placement and the Term Extension, subject to certain conditions, BioSyntech will launch the $3,100,000 Rights Offering. Two of the Investors have agreed, subject to certain conditions, to exercise the basic subscription rights that they will receive as shareholders of BioSyntech in the Rights Offering and purchase Units not otherwise subscribed by BioSyntech's shareholders at the expiry time of the Rights Offering so as to ensure a minimum subscription of $1,958,900 (the “Stand-by Commitment”). A third Investor would commit an additional $1,141,100 to the Stand-by Commitment subject to the approval of its board of directors. There will be no stand-by fees payable in connection with the Stand-by Commitment. The Rights Offering is expected to close in mid-October 2009.
Laurentian Bank Securities Inc. is acting as sole financial advisor to BioSyntech with regards this financing transaction.
The contemplated financing will improve the cash position of BioSyntech. The Rights Offering will allow all shareholders to participate in the financing. BioSyntech intends to use the net proceeds from the financing to pursue the pivotal trial for the BST-CarGel®, to complete the formal review of the strategic alternatives of BioSyntech, including a commercial partnership in respect of its cartilage repair device, BST-CarGel® and/or a corporate sale of BioSyntech, and for general corporate purposes, including working capital.
An aggregate of 86,432,477 common shares could be issued upon conversion of the New Debentures or exercise of New Warrants to be issued by BioSyntech under the Private Placement and the Rights Offering or in payment of interest on the Existing Debentures for the extended term and on the New Debentures (assuming the payment of interest is made in common shares and the market price of the common shares remains at the current level), resulting in a potential dilution of 42.41% when taking into account the issued and outstanding common shares and the common shares issuable upon conversion of the Existing Debentures or exercise of the Existing Warrants or in payment of interest on the Existing Debentures (based on the above-mentioned assumptions) and 81.97% when taking into account only the issued and outstanding common shares.
The Units to be issued under the Private Placement will be allocated among the Investors as follows: 60,330 Units to Highland, 28,000 Units to ProQuest, 28,000 Units to FSTQ and 23,670 Units to Pappas. Given the current holdings of common shares, Existing Debentures and Existing Warrants by the Investors, the transaction is not expected to materially affect the control of BioSyntech.
ProQuest and FSTQ are “insiders” and “related parties” of BioSyntech pursuant to applicable securities legislation in that they each hold more than 10% of the issued and outstanding common shares. ProQuest currently holds 16,418,999 common shares, $3,000,000 principal amount of Existing Debentures and 7,500,000 Existing Warrants, representing a non-diluted position of 15.6% and a fully-diluted position of 19.7% in the common shares of BioSyntech, and will acquire pursuant to the Private Placement $280,000 principal amount of New Debentures and 2,548,000 New Warrants which would increase its fully-diluted position in the common shares to 19.8%. FSTQ currently holds 12,081,705 common shares, $3,000,000 principal amount of Existing Debentures and 7,500,000 Existing Warrants, representing a non-diluted position of 11.5% and a fully-diluted position of 17.6% in the common shares of BioSyntech, and will also acquire pursuant to the Private Placement $280,000 principal amount of New Debentures and 2,548,000 New Warrants which would increase its fully-diluted position in the common shares to 17.9%. The Private Placement constitutes a “related party transaction” pursuant to Multilateral Instrument 61-101 – Protection of Minority Shareholders in Special Transactions (“MI 61-101”). BioSyntech relies on an exemption included in MI 61-101 to be exempted from the requirement to obtain a formal valuation and minority shareholder approval of the Private Placement based on the fair market value of the Private Placement to related parties not exceeding 25% of BioSyntech’s market capitalization.
A Finance Committee comprised of independent directors, free from any interest in the transaction and unrelated to the Investors, was formed in July 2009 by the Board of Directors of BioSyntech to review the financing alternatives available to BioSyntech. The Finance Committee, after having conducted a detailed review and analysis of the transaction with the assistance of counsel and having received advice from its financial advisors, recommended that the Board of Directors approve the transaction. The Board of Directors of BioSyntech endorsed such conclusions and approved the transaction.
The filing of a material change report less than 21 days before the closing date of the Private Placement and the Term Extension is reasonable and necessary in the circumstances as BioSyntech wishes to complete the Private Placement in a timely manner.
This news release does not constitute an offer to sell or the solicitation of an offer to buy these securities nor shall there be any sale of the securities in any jurisdiction in which such offer, solicitation or sale would be unlawful. Securities may not be offered or sold in the United States absent registration or an exemption from registration under the United States Securities Act of 1933, as amended, and any applicable State laws. BioSyntech has not and does not intend to register any Units, New Debentures, New Warrants or underlying common shares in the United States.
About BioSyntech
BioSyntech is a medical device Company specialized in the development, manufacturing and commercialization of advanced biotherapeutic thermogels for regenerative medicine (tissue repair) and therapeutic delivery. BioSyntech’s platform technology is a family of hydrogels called BST-Gel®, some of which are liquid at low temperature and solid at human body temperature. These gels can be injected or applied to a specific local site and offer beneficial properties for the local repair of damaged tissue such as cartilage, bone and chronic wounds and provide the benefit of avoiding invasive surgery. The Company’s lead, late-stage product, BST-CarGel® is currently undergoing an international pivotal trial. For additional information, visit www.biosyntech.com.
Forward-Looking Statements
This press release contains forward-looking statements and information which are subject to material risks and uncertainties. Such statements are not historical facts and are based on the current expectations of management. You are cautioned that such statements are subject to a multitude of risks and uncertainties that could cause actual results, future circumstances, or events to differ materially from those projected in the forward-looking information. These risks include, but are not limited to, those associated with our capacity to finance our activities, the adequacy, timing, and results of our clinical trials, the regulatory approval process, competition, securing and maintaining corporate alliances, market acceptance of BioSyntech’s products, the availability of government and insurance reimbursements for BioSyntech’s products, the strength of intellectual property, the success of research and development programs, reliance on subcontractors and key personnel, and other risks and uncertainties detailed from time-to time in our filings with the Canadian securities commissions.
Readers should not place undue reliance on the forward-looking information, given that (i) our actual results could differ materially from a conclusion, forecast or projection in the forward-looking information, and (ii) certain material factors or assumptions which were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information, could prove to be inaccurate. Additional information about (i) the material factors that could cause actual results to differ materially from the conclusion, forecast or projection in the forward-looking information, and (ii) the material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information, is contained in BioSyntech’s annual report and other documents filed from time to time with the Canadian securities commissions which are available at www.sedar.com. These statements speak only as of the date they are made, and we assume no obligation to revise such statements as a result of any event, circumstance or otherwise, except in accordance with law. The completion of the transaction is subject to certain conditions, including the conditional approval by the TSX of the listing of all common shares which may be issued as a result of the transaction, certain third-party consents and the execution of definitive agreements. Failure to complete the transaction could have a material adverse effect on BioSyntech and the trading price of its common shares.
For further information:
James Smith
The Equicom Group
416.815.0700 x229
Jsmith@equicomgroup.com