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SemBioSys Enters into Commitment for Up to $4 Million in Financing


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SemBioSys Genetics Inc. has announced that it has entered into a commitment with respect to up to $4 million in financing.

The proposed financing is subject to the completion and execution of definitive agreements, regulatory approval and continued listing of the common shares on the Toronto Stock Exchange.

The Company cannot assure readers that any of these events will occur or be completed and the Company is currently under delisting review with the TSX.

The proposed financing consists of the issuance of bonds (the "Bonds"), issuable in two tranches of $2,000,000 each. In connection with the issuance of the Bonds, SemBioSys will also issue detachable warrants (the "Warrants") convertible into common shares of SemBioSys.

The Bonds carry interest at 7% per annum payable upon maturity or may be used to pay the exercise price of the Warrants.

The proposed investor, Concept Capital Management Ltd., has also agreed to extend a secured loan facility to the Company of $300,000 a month (the "Bridge Loan") at an interest rate of 7% per annum until the proposed financing closes.

The Bridge Loan is expected to be credited against the first tranche of Bonds. The Bridge Loan is subject to the execution and delivery of definitive documents. The first $2,000,000 tranche of Bonds is expected to close on or about, February 28, 2011.

The second $2,000,000 tranche is expected to be drawn down upon once SemBioSys has met a predetermined development milestone to be mutually agreed between the two parties.

"This proposed financing is intended to ensure adequate capital to achieve successful partnerships for our biosimilar human insulin, Apo AIMilano, and additional biosimilar products enabled by our technology platform," said James Szarko, President and CEO of SemBioSys.

Szarko continued, "We have made considerable progress with respect to business development and have reached advanced stage negotiations with third-parties for these programs. The capital from this financing is meant to provide the appropriate flexibility to successfully complete one or more of these potential strategic initiatives."

Twenty Bonds are expected to be issued in the first tranche in denominations of $100,000 each, and each Bond is expected to include one Warrant.

The Bonds have a maximum maturity of 10 years and are expected to be secured by certain intellectual property assets of SemBioSys.

The Bonds are expected to include a call provision that provides that they can be called by the proposed investor, Concept Capital Management Ltd., after three years or redeemed at a 120% premium to their face value, plus accrued interest, at any time by SemBioSys.

Each individual Warrant entitles the holder to purchase, with all or a combination of cash, Bonds or accrued interest, the equivalent of $100,000 worth of common shares of SemBioSys for a period of 10 years after the initial closing of the proposed financing at an initial exercise price of $0.07 per common share.

The exercise price of the Warrants can be reset every six months, based on the simple average closing price of the common shares of SemBioSys on the TSX over the previous six month period, subject to a minimum exercise price of $0.05 per common share.

Conversion of the Warrants would result in the issuance of 57,142,857 common shares at an exercise price of $0.07, representing approximately 111.2% of the current issued and outstanding share capital of the Company (approximately 52.7% including the issuance of the Warrant shares) and a maximum of 157,372,109 common shares at $0.05 per common share or approximately 306.3% of the current issued and outstanding share capital of the Company (approximately 75.4% including the issuance of the Warrant shares).

In addition, the exercise price of the Warrants may be adjusted in the event of certain corporate actions, such as an issuance of common shares at less than the current market price, but in any event will not result in the issuance of more than 157,372,109 common shares.

SemBioSys intends to use the proceeds of the proposed financing for general operating capital and to secure one or more partnership transaction(s) for its biosimilar human insulin or next generation cardiovascular candidate, Apo AIMilano and or additional products enabled by its novel plant based technology platform to make biosimilar drugs.

The proposed transaction has been unanimously approved by all directors of the Company who are free from any interest and unrelated to the parties involved in the proposed transaction.

The Company has applied to the Toronto Stock Exchange for an exemption, in accordance with Section 604(e) of the TSX Company Manual, from the requirement to obtain shareholder approval for the proposed transaction in consideration of the serious financial circumstances of the Company, as described in the Management's Discussion and Analysis for the period ended September 30, 2010.

Closing of the proposed financing is also conditional on receipt of such exemption from the TSX. Shareholder approval for the proposed financing would otherwise be required by the TSX because the number of common shares to be issued on the exercise of the Warrants exceeds the maximum 25% dilution permissible under TSX rules, the exercise price of the Warrants is subject to a reset, the initial exercise price of the Warrants is lower than the market price and the transaction may materially affect the control of the Company because of the large potential share ownership of the proposed investor, Concept Capital Management Ltd.

The Company's reliance on the financial hardship exemption provisions under the TSX Company Manual is based on determinations by the board of directors of the Company, acting in good faith, that the Company is in serious financial difficulty, that the transaction is designed to improve its financial position and that the terms of the transaction are reasonable under such circumstances.

The Company is not currently in compliance with the TSX continued listing requirements, however, it is anticipated, but the Company cannot assure readers, that this financing transaction will enable the Company to become compliant.

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