As filed with the Securities and Exchange Commission on February 9, 2007
REGISTRATION NO. 333-140039
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Amendment No. 1 to
FORM F-10
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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NEUROCHEM INC.
(Exact name of Registrant as specified in its charter)
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Canada 2834 Not Applicable
(Province or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification No.)
incorporation or Code Number)
organization)
275 Armand-Frappier Boulevard
Laval, Quebec H7V 4A7, Canada
(450) 680-4500
(Address and telephone number of Registrant's principal executive offices)
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CT Corporation System
111 Eighth Avenue, 13th Floor
New York, New York 10011
(212) 894-8400
(Name, address (including zip code) and telephone number (including area code)
of agent for service in the United States)
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Copies to:
Richard Cherney, Esq. David Skinner Scott M. Tayne, Esq.
Davies Ward Phillips & Vineberg LLP Neurochem Inc. Davies Ward Phillips & Vineberg LLP
1501, avenue McGill College 275 Armand-Frappier Boulevard 625 Madison Avenue, 12th Floor
Montreal, Quebec H3A 3N9, Canada Laval, Quebec H7V 4A7, Canada New York, NY 10022
(514) 841-6400 (450) 680-4500 (212) 588-5500
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED
SALE OF THE SECURITIES TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
Province of Quebec, Canada
(Principal jurisdiction regulating this offering)
It is proposed that this filing shall become effective (check appropriate box):
A. [X] Upon filing with the Commission, pursuant to Rule 467(a) (if in
connection with an offering being made contemporaneously in the United
States and Canada)
B. [ ] At some future date (check the appropriate box below)
1. [ ] pursuant to Rule 467(b) on (__________) at (_____) (designate a time
not sooner than 7 calendar days after filing).
2. [ ] pursuant to Rule 467(b) on (__________) at (_____) (designate a time
7 calendar days or sooner after filing) because the securities
regulatory authority in the review jurisdiction has issued a receipt
or notification of clearance on (__________).
3. [ ] pursuant to Rule 467(b) as soon as practicable after notification of
the Commission by the Registrant or the Canadian securities
regulatory authority of the review jurisdiction that a receipt or
notification of clearance has been issued with respect hereto.
4. [ ] after the filing of the next amendment to this Form (if preliminary
material is being filed).
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to the home jurisdiction's shelf prospectus
offering procedures, check the following box. [X]
PART I
INFORMATION REQUIRED TO BE DELIVERED TO OFFEREES OR PURCHASERS
This short form prospectus constitutes a public offering of these securities
only in those jurisdictions where they may be lawfully offered for sale and
therein only by persons permitted to sell such securities. INFORMATION HAS BEEN
INCORPORATED BY REFERENCE IN THIS SHORT FORM PROSPECTUS FROM DOCUMENTS FILED
WITH SECURITIES COMMISSIONS OR SIMILAR AUTHORITIES IN CANADA. Copies of the
documents incorporated herein by reference may be obtained on request without
charge from the Corporate Secretary of Neurochem at 275 Armand-Frappier
Boulevard, Laval, Quebec H7V 4A7 telephone (450) 680-4500.
SHORT FORM BASE SHELF PROSPECTUS DATED FEBRUARY 9, 2007
NEW ISSUE AND SECONDARY OFFERING
(NEUROCHEM LOGO)
NEUROCHEM INC.
US$102,085,000
COMMON SHARES AND NOTES
This prospectus relates to the offering (each, an "Offering") from time to time
of common shares (the "Common Shares") or the resale of the "Notes" (as defined
herein and, together with the Common Shares, collectively, the "Securities") of
Neurochem Inc. ("Neurochem," the "Company," or "we") including the Common Shares
issuable upon conversion of such Notes and the Common Shares issuable under the
"ELOC" (as defined herein) in Canada and the United States up to an aggregate
offering price of US$102.085 million during the 25-month period that this short
form base shelf prospectus, including any amendments hereto, remains valid and
the resale of Securities issued hereunder from time to time. The Common Shares
are listed on The Nasdaq Global Market ("NASDAQ") under the symbol "NRMX" and on
the Toronto Stock Exchange ("TSX") under the symbol "NRM." On February 7, 2007,
the last trade of the Common Shares on NASDAQ was at US$17.05 per share and the
closing price of the Common Shares on the TSX was CDN$20.25 per share. THERE IS
CURRENTLY NO MARKET THROUGH WHICH THE NOTES MAY BE SOLD AND PURCHASERS MAY NOT
BE ABLE TO RESELL SUCH SECURITIES PURCHASED UNDER THE SHORT FORM BASE SHELF
PROSPECTUS. THIS MAY AFFECT THE PRICING OF THE NOTES IN THE SECONDARY MARKET,
THE TRANSPARENCY AND AVAILABILITY OF TRADING PRICES, THE LIQUIDITY OF THE
SECURITIES AND THE EXTENT OF ISSUER REGULATION. SEE "RISK FACTORS."
All shelf information permitted under securities legislation to be omitted from
this base shelf prospectus will be contained in one or more shelf prospectus
supplements that will be delivered to purchasers together with the base shelf
prospectus. Each prospectus supplement will be incorporated by reference into
this prospectus for the purposes of securities legislation as of the date of the
prospectus supplement and only for the purposes of the distribution of the
Securities to which the prospectus supplement pertains.
The Securities may be sold through underwriters or dealers or directly or
through agents designated from time to time at amounts and prices and other
terms determined by Neurochem or any selling securityholders. A prospectus
supplement will set out the names of any underwriters, dealers, agents or
selling securityholders involved in the sale of the Securities, the amounts, if
any, to be purchased by underwriters, the plan of distribution for the
Securities, including the proceeds to Neurochem, the amounts and prices at which
the Securities are sold and the compensation of such underwriters, dealers or
agents.
Certain risk factors should be considered by prospective investors in connection
with an investment in Securities of the Company. See "Risk factors."
NEITHER THE SECURITIES AND EXCHANGE COMMISSION OF THE UNITED STATES (THE "SEC")
NOR ANY STATE SECURITIES REGULATOR HAS APPROVED, DISAPPROVED OR OTHERWISE PASSED
UPON THE SECURITIES OFFERED HEREBY OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL
OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENCE.
Neurochem is permitted, under a multijurisdictional disclosure system adopted by
the United States, to prepare this prospectus in accordance with Canadian
disclosure requirements, which are different from those of the United States.
Neurochem prepares its consolidated financial statements in accordance with
Canadian generally accepted accounting principles ("Canadian GAAP"), and they
are subject to Canadian auditing and auditor independence standards. They may
not be comparable to financial statements prepared in accordance with generally
accepted accounting principles of the United States ("US GAAP"). The Notes to
Neurochem's consolidated financial statements set forth the principal
differences between Canadian GAAP and US GAAP as they relate to Neurochem's
business.
The ability of United States investors to enforce civil liabilities under United
States federal securities laws may be affected adversely because Neurochem is
incorporated under the laws of Canada, most of its officers and directors and
most of the experts named in this prospectus are Canadian residents, and most of
Neurochem's assets and the assets of said persons are or may be located outside
the United States.
Owning the Securities may subject you to tax consequences both in the United
States and Canada. This prospectus does not describe these tax consequences. You
should consult your own tax advisor with respect to your own particular
circumstances.
NEUROCHEM'S EARNINGS COVERAGE RATIO IS LESS THAN ONE-TO-ONE. SEE "EARNINGS
COVERAGE RATIO."
You should rely only on the information contained or incorporated by reference
in this prospectus. Neurochem has not authorized anyone to provide you with
information different from that contained in this prospectus or incorporated
herein by reference. Neurochem is offering to sell its Securities and seeking
offers to buy its Securities only in the jurisdictions where offers and sales
are permitted. Unless otherwise indicated, the information contained in this
prospectus is accurate only as at the date of this prospectus, regardless of the
time of delivery of this prospectus or any sale of Securities.
TABLE OF CONTENTS
GLOSSARY.................................................................. 1
PROSPECTUS SUMMARY........................................................ 3
RISK FACTORS.............................................................. 8
FORWARD-LOOKING STATEMENTS................................................ 26
EXCHANGE RATE INFORMATION................................................. 26
USE OF PROCEEDS........................................................... 27
CAPITALIZATION AND CHANGES IN LOAN AND CAPITAL STRUCTURE.................. 28
PRICE RANGE AND TRADING VOLUMES OF COMMON SHARES.......................... 30
DIVIDEND POLICY........................................................... 30
OUR BUSINESS.............................................................. 31
DESCRIPTION OF SHARE CAPITAL.............................................. 35
EARNINGS COVERAGE RATIO................................................... 36
DESCRIPTION OF SECURITIES................................................. 37
DESCRIPTION OF THE NOTES.................................................. 37
THE EQUITY LINE OF CREDIT FACILITY........................................ 71
SELLING SECURITYHOLDERS................................................... 74
PLAN OF DISTRIBUTION...................................................... 75
CORPORATE INFORMATION AND REGISTERED OFFICE............................... 80
DOCUMENTS INCORPORATED BY REFERENCE....................................... 81
DOCUMENTS FILED AS PART OF THE REGISTRATION STATEMENT..................... 83
WHERE YOU CAN FIND MORE INFORMATION....................................... 83
ENFORCEMENT OF CIVIL LIABILITIES.......................................... 83
TRANSFER AGENT AND REGISTRAR.............................................. 83
LEGAL MATTERS............................................................. 84
LEGAL PROCEEDINGS......................................................... 84
INDEPENDENT CHARTERED ACCOUNTANTS......................................... 84
PURCHASERS' STATUTORY RIGHTS.............................................. 84
AUDITORS' CONSENT......................................................... A-1
CERTIFICATE OF NEUROCHEM INC.............................................. C-1
Glossary
Except where the context requires otherwise, the following terms as used in this
prospectus have the meanings assigned to them below.
"AA AMYLOIDOSIS" means Amyloid A amyloidosis;
"AD" means Alzheimer's disease;
"AFFILIATES" means, collectively, Neurochem (International) Limited, a Swiss
corporation, Neurochem Holdings Limited, a Swiss corporation, Neurochem Luxco I
S.A.R.L., a Luxembourg corporation, Neurochem Luxco II S.A.R.L., a Luxembourg
corporation, Neurochem Luxco I S.C.S. a Luxembourg limited partnership,
Neurochem U.S. LLC, a Delaware limited liability company (each individually
sometimes referred to herein as an "AFFILIATE");
"BUSINESS DAY" is a day other than a Saturday, a Sunday or a day on which
banking institutions are not required to be open in the City of New York, in the
State of New York (United States of America) or in the city in which the Trustee
administers its corporate trust business;
"CAA" means Cerebral Amyloid Angiopathy;
"CANADIAN GAAP" means Canadian generally accepted accounting principles;
"CENTOCOR" means Centocor, Inc., a subsidiary of Johnson & Johnson;
"CITYPLATZ" means Cityplatz Limited, a corporation organized and existing under
the laws of the British Virgin Islands with its head and principal office in the
Isle of Man;
"COMMON SHARES" means the common shares of the capital of Neurochem Inc.;
"COMPANY," "NEUROCHEM," "WE," "US" and "OUR" mean or refer to Neurochem Inc.
and, unless the context otherwise requires, its subsidiaries and its Affiliates;
"DRAW-DOWN PRICING PERIOD" means a period of up to twenty-one consecutive
trading days, in multiples of three trading days, over which the volume-weighted
average price of the Common Shares determines the price at which our Common
Shares will be sold to Cityplatz in the applicable drawdown under the ELOC;
"DTC" means the Depository Trust Company;
"EMEA" means the European Medicines Agency;
"ELOC" means the equity line of credit facility described herein (see "Equity
line of credit facility");
"FDA" means the United States Food and Drug Administration;
"INDENTURE" means the trust indenture dated as of November 9, 2006 between
Neurochem and the Trustee;
"INTEREST PAYMENT DATE" means a date on which interest must be paid on the Notes
pursuant to the Indenture;
"MAA" means marketing authorization application;
"MATURITY DATE" has the meaning assigned to it in the Indenture;
"NDA" means new drug application;
"NOTES" means US$42,085,000 aggregate principal amount of 6% convertible
senior notes of Neurochem Inc. due 2026;
"OFFERING" means any offering of a tranche of Securities made pursuant to this
prospectus and any supplement(s) hereto during the 25-month period that this
short form base shelf prospectus, including any amendments hereto, remains
valid;
1
"ORDER" means the order from the securities regulatory authorities of each of
the provinces of Canada dated January 17, 2007 granting certain exemptive relief
with respect to this prospectus;
"PORTAL MARKET" means the Private Offerings, Resale and Trading through
Automatic Linkages system of the National Association of Securities Dealers,
Inc.;
"PREFERRED SHARES" means the preferred shares in the capital of Neurochem Inc.;
"REGISTRATION RIGHTS AGREEMENT" means the registration rights agreement dated as
of November 9, 2006 by and between Neurochem and UBS Securities LLC;
"REGULATION 14E" means Regulation 14E under the Securities Exchange Act;
"RULE 13E-4" means Rule 13e-4 under the Securities Exchange Act;
"SEC" means the United States Securities and Exchange Commission;
"SECURITIES" means Common Shares and Notes;
"SECURITIES EXCHANGE ACT" means the United States Securities Exchange Act of
1934;
"TAX ACT" means the Income Tax Act (Canada) and the regulations thereunder;
"TRADING MARKET" means any tier of NASDAQ, the TSX, the American Stock Exchange,
the New York Stock Exchange or the OTC Bulletin Board;
"TRUSTEE" means The Bank of New York, acting as trustee under the Indenture;
"TRUST INDENTURE ACT" means the United States Trust Indenture Act of 1939;
"TSX" means the Toronto Stock Exchange;
"US GAAP" means generally accepted accounting principles of the United States;
"US SECURITIES ACT" means the United States Securities Act of 1933;
2
Prospectus summary
The following is a summary only and is qualified in its entirety by, and should
be read in conjunction with, the more detailed information and financial
statements appearing elsewhere in this prospectus and in the documents
incorporated by reference in this prospectus. As used in this prospectus, unless
the context otherwise requires or indicates, the terms "we," "us," "our,"
"Neurochem" or the "Company" mean or refer to Neurochem Inc. and, unless the
context otherwise requires, its subsidiaries and its Affiliates (as such term is
defined in this prospectus). The holdings of Common Shares or actions in respect
of our securities by Picchio Pharma Inc. through P.P. Luxco Holdings II S.A.R.L.
are referred to in and for the purposes of this prospectus as being holdings and
actions of Picchio Pharma.
OUR BUSINESS
We are a biopharmaceutical company focused on the development and
commercialization of innovative therapeutics to address critical unmet medical
needs. We currently have one program for which we have completed and submitted a
NDA to the FDA, one program in Phase III clinical development with one clinical
trial recently completed and one other ongoing, and another program which has
completed a Phase IIa clinical trial. Each of these programs targets disorders
for which there are currently no known cures and limited therapies. As our drugs
target what are known or believed to be the underlying causes of disorders and
potentially inhibit further disease progression, the product candidates are
referred to as "disease modifiers."
As they all target amyloid-related diseases, our investigational product
candidates consist of small molecules that have been shown to interfere with
amyloidosis and the associated build-up of amyloid leading to the damage of the
tissues in the body and/or their related functions. Both eprodisate (KIACTA(TM);
formerly FIBRILLEX(TM)) and tramiprosate (ALZHEMED(TM) and CEREBRIL(TM)), our
most advanced product candidates, are based on this technology.
Eprodisate (KIACTA(TM)) completed a Phase II/III clinical trial in December
2004. Eprodisate (KIACTA(TM)) is targeted to treat AA amyloidosis, a fatal
disease, which is often associated with kidney dysfunction. In December 2004,
through our wholly-owned subsidiary, Neurochem (International) Limited, we
entered into a definitive collaboration and distribution agreement with
Centocor, for the exclusive distribution rights for eprodisate (KIACTA(TM)) for
the prevention and treatment of AA amyloidosis, with the exception of Canada,
Switzerland, Japan, Taiwan and South Korea, for which distribution rights remain
with Neurochem. We submitted to the FDA the final modules of our NDA for
eprodisate (KIACTA(TM)) in February 2006 and are now seeking marketing approval
of eprodisate (KIACTA(TM)) for the treatment of AA amyloidosis. This most recent
submission completed the "rolling" NDA that was initiated in August 2005 under
the Continuous Marketing Application (CMA) Pilot 1 program. The FDA agreed in
June 2005 to file and review the NDA. See "Recent developments." In August 2006,
we received an approvable letter from the FDA with respect to the eprodisate
(KIACTA(TM)) NDA. In September 2006, our Marketing Authorization Application or
MAA for eprodisate (KIACTA(TM)) was validated by the EMEA and in October 2006,
we announced that we had submitted a complete response to the FDA approvable
letter for eprodisate (KIACTA(TM)). See "Recent developments." KIACTA(TM) is a
trademark of Centocor.
Tramiprosate (ALZHEMED(TM)) is being developed for the treatment of AD.
Tramiprosate (ALZHEMED(TM)) is currently in two Phase III clinical trials,
designed to assess the safety, efficacy and disease-modifying effect of
tramiprosate (ALZHEMED(TM)) in mild-to-moderate AD patients. The clinical trials
began in North America and Europe in June 2004 and September 2005, respectively.
The North American Phase III clinical trial was recently completed. Enrolment of
patients participating in the European clinical trial is scheduled to be
completed in early 2007. We are in discussions with various potential partners
with respect to collaboration on and the commercialization of tramiprosate
(ALZHEMED(TM)).
Tramiprosate (CEREBRIL(TM)) is designed for the treatment of Hemorrhagic Stroke
due to CAA. A Phase IIa clinical trial was completed in January 2004. We are
currently prioritizing our human and financial resources on the development of
our eprodisate (KIACTA(TM)) and tramiprosate (ALZHEMED(TM)) programs.
Accordingly, we plan to await the outcome of one or both of these programs
before advancing our CAA program any further.
3
We also have ongoing discovery programs that are focused on the development of
next generation AD compounds and a vaccine for the prevention and/or treatment
of AD.
DESCRIPTION OF SECURITIES
This prospectus qualifies:
- - the resale of up to US$60 million worth of Common Shares that we may sell
to Cityplatz Limited pursuant to an equity line of credit facility (see
"Our business-Equity line of credit facility") entered into by the Company
in August 2006. For a description of the Common Shares, please see
"Description of share capital."
- - the resale of US$42.085 million aggregate principal amount of 6%
convertible senior unsecured Notes due 2026 issued under an Indenture dated
as of November 9, 2006 between the Company and The Bank of New York, as
trustee, and the Common Shares issuable upon conversion of the Notes. For a
description of the Notes, please see "Description of the Notes."
4
SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial data for the six months ended
December 31, 2003 and for the years ended December 31, 2004 and 2005 are derived
from our audited consolidated financial statements. The following summary
consolidated financial data as of September 30, 2006 and for the nine-months
ended September 30, 2006 and 2005 are derived from our unaudited interim
consolidated financial statements. For your convenience, and as presented in the
audited consolidated financial statements and unaudited interim consolidated
financial statements referred to above, we have converted certain Canadian
dollar amounts for the year ended December 31, 2005, at September 30, 2006 and
for the nine months then ended into US dollars at the rate of US$0.8577 per
CDN$1.00 and US$0.8966 per CDN$1.00, respectively (the noon exchange rate quoted
by the Bank of Canada on December 31, 2005 and September 30, 2006,
respectively). You should not view these currency translations as a
representation that the Canadian dollar amounts actually represent the indicated
US dollar amounts or could be or could have been converted into US dollars at
the rates indicated or at any other rate.
This information is only a summary and should be read together with the
consolidated financial statements, the related notes and other financial
information incorporated by reference in this prospectus and on file with the
SEC. For more details on how you can obtain our SEC reports incorporated by
reference into this prospectus, see "Where you can find more information."
We prepare our consolidated financial statements in accordance with Canadian
generally accepted accounting principles. See the supplemental note to our
audited consolidated financial statements and to our unaudited consolidated
interim financial statements incorporated by reference into this prospectus for
a description of the principal differences between Canadian generally accepted
accounting principles and US generally accepted accounting principles.
5
CONSOLIDATED STATEMENT OF OPERATIONS DATA
SIX MONTHS NINE MONTHS NINE MONTHS NINE MONTHS
ENDED YEAR ENDED YEAR ENDED YEAR ENDED ENDED ENDED ENDED
(in thousands, except share and DECEMBER 31, DECEMBER DECEMBER 31, DECEMBER SEPTEMBER SEPTEMBER SEPTEMBER
per share data) 2003 31, 2004 2005 31, 2005 30, 2005 30, 2006 30, 2006
------------ ---------- ------------ ----------- ----------- ----------- -----------
(CDN$) (CDN$) (CDN$) (US$) (CDN$) (CDN$) (US$)
Revenues:
Collaboration agreement ..... -- 132 3,384 2,902 2,777 1,822 1,634
Reimbursable costs .......... -- 195 1,057 907 827 605 542
---------- ---------- ---------- ---------- ---------- ---------- ----------
-- 327 4,441 3,809 3,604 2,427 2,176
Expenses:
Research and development .... 8,661 30,957 50,495 43,310 38,807 42,529 38,131
Research tax credits and
grants ................... (1,122) (1,799) (4,393) (3,768) (2,664) (1,463) (1,312)
Other research and
development charges ...... -- -- -- -- -- 1,277 1,145
---------- ---------- ---------- ---------- ---------- ---------- ----------
7,539 29,158 46,102 39,542 36,143 42,343 37,964
General and administrative .. 7,454 17,953 22,212 19,051 17,819 9,850 8,832
Arbitral award .............. -- -- -- -- -- 2,089 1,873
Reimbursable costs .......... -- 195 1,057 907 827 605 542
Stock-based compensation .... -- 4,038 4,795 4,113 3,930 2,996 2,686
Special charges ............. -- 1,676 -- -- -- -- --
Depreciation of property and
equipment ................ 557 1,801 2,028 1,739 1,548 945 847
Amortization and write-off of
patent costs ............. 89 245 1,161 996 228 381 342
Interest and bank charges ... 46 277 462 396 380 74 66
---------- ---------- ---------- ---------- ---------- ---------- ----------
15,685 55,343 77,817 66,744 60,875 59,283 53,152
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income before undernoted
items ....................... (15,685) (55,016) (73,376) (62,935) (57,271) (56,856) (50,976)
Investment income and other:
Interest income ............. 520 1,030 2,082 1,786 1,475 1,702 1,526
Foreign exchange gain
(loss) ................... (1,747) 1,298 187 160 (68) (595) (533)
Other income ................ 139 289 935 802 638 1,207 1,082
Share of loss in a company
subject to significant
influence ................ -- -- (3,124) (2,679) (2,153) (2,210) (1,981)
Non-controlling interest .... -- -- 930 798 641 724 649
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net loss ....................... (16,773) (52,399) (72,366) (62,068) (56,738) (56,028) (50,233)
========== ========== ========== ========== ========== ========== ==========
Net loss per share, basic and
diluted ..................... (0.63) (1.74) (2,06) (1.77) (1.65) (1.45) (1.30)
========== ========== ========== ========== ========== ========== ==========
Basic weighted average number of
Common Shares outstanding ... 26,813,836 30,156,194 35,104,342 35,104,342 34,288,153 38,589,402 38,589,402
========== ========== ========== ========== ========== ========== ==========
CONSOLIDATED BALANCE SHEET DATA
AS OF SEPTEMBER 30, 2006
--------------------------------------------------
(in thousands) ACTUAL AS ADJUSTED (1) ACTUAL AS ADJUSTED (1)
------ --------------- ------ ---------------
(CDN$) (CDN$) (US$) (US$)
Cash, cash equivalents and marketable securities .. 26,769 71,565 24,001 64,165
Working capital ................................... 14,416 59,212 12,925 53,089
Total assets ...................................... 53,508 100,008 47,976 89,668
6% Convertible senior notes ....................... -- 37,324 -- 33,465
Other long-term liabilities (2) ................... 610 610 547 547
Total liabilities ................................. 45,541 82,865 40,832 74,297
Non-controlling interest .......................... 1,030 1,030 923 923
Total shareholders' equity ........................ 6,937 16,113 6,221 14,448
6
- ----------
(1) As adjusted to give effect to the sale, on November 9, 2006 and November
17, 2006, of the Notes, after deducting discounts and commissions and
offering expenses we paid. Under Canadian generally accepted accounting
principles, the Notes would be considered a compound financial instrument,
and accordingly we will separately record on our balance sheet the
liability component (US$33.5 million) and equity component (US$8.6
million). In addition, offering expenses related to the equity component in
the amount of US$0.4 million will be charged to the deficit. Under US GAAP,
the full amount of the Notes would be considered a liability and the
aggregate amount of US$42.1 million would be recorded on our balance sheet
as 6% convertible senior notes. No amount would be allocated to the equity
component under US GAAP.
(2) Excluding a long-term deferred gain on sale of property of CDN$18.7
million.
7
Risk factors
Investing in our Securities involves a significant amount of risk. You should
carefully consider the risks described below, together with all of the other
information included in this prospectus and the documents incorporated by
reference into this prospectus, before making an investment decision. If any of
the following risks actually occurs, our business, financial condition or
results of operations could be adversely affected. In such an event, the trading
price of our Securities could decline and you may lose part or all of your
investment. Any reference in this section to our "products" includes a reference
to our product candidates and future products we may develop.
RISKS RELATED TO US AND OUR BUSINESS
WE HAVE A HISTORY OF LOSSES, AND WE HAVE NOT GENERATED ANY PRODUCT SALES REVENUE
TO DATE. WE MAY NEVER ACHIEVE OR MAINTAIN PROFITABILITY.
Our potential product candidates are still only in development, and as a result
we have not to date generated any revenues from product sales. We have incurred
substantial expenses in our efforts to develop products. Consequently, we have
generated operating losses each year since our inception, and as of December 31,
2005, we had an accumulated deficit of approximately CDN$220.7 million or
US$189.3 million. Our losses have adversely impacted, and will continue to
adversely impact our working capital, total assets and shareholders' equity. We
do not expect to generate any significant revenues from product sales in the
immediate future, and our expenses are likely to increase as we continue to
expand our research and development and clinical study programs and our sales
and marketing activities and seek regulatory approval for our product
candidates. We may never commercialize any products. Even if we succeed in
developing commercial products, we expect to incur additional operating losses
for at least the next several years. If we do not ultimately commercialize
products and achieve or maintain profitability, an investment in our shares
could result in a significant or total loss.
WE DO NOT HAVE THE REQUIRED APPROVALS TO MARKET ANY OF OUR PRODUCT CANDIDATES,
AND WE DO NOT KNOW IF WE WILL EVER RECEIVE SUCH APPROVALS.
None of our product candidates has received regulatory approval for commercial
sale. We cannot market a pharmaceutical product in any jurisdiction until it has
completed rigorous pre-clinical testing and clinical trials and such
jurisdiction's extensive regulatory approval process. In general, significant
research and development and clinical studies are required to demonstrate the
safety and efficacy of our product candidates before we can submit regulatory
applications. Preparing, submitting and advancing applications for regulatory
approval is complex, expensive and time consuming and entails significant
uncertainty. The New Drug Application filing process for the first of our
product candidates was completed in April, 2006, and only in relation to the
FDA. See "Our business -- Recent developments." Even if a product candidate is
approved by the FDA or any other regulatory authority, we may not obtain
approval for an indication whose market is large enough to recoup our investment
in that product candidate. We may never obtain the required regulatory approvals
for any of our product candidates.
OUR CLINICAL TRIALS MAY NOT YIELD RESULTS WHICH WILL ENABLE US TO OBTAIN
REGULATORY APPROVAL FOR OUR PRODUCTS.
We will only receive regulatory approval for a product candidate if we can
demonstrate in carefully designed and conducted clinical trials that the product
candidate is safe and effective. We do not know whether our pending or any
future clinical trials will demonstrate sufficient safety and efficacy to obtain
the requisite regulatory approvals or will result in marketable products. The
FDA has indicated to us that if it grants marketing approval for eprodisate
(KIACTA(TM)), such approval will need to be supplemented by complementary
clinical studies aimed at specific matters, including QT cardiac status clinical
studies. Unfavourable data from those studies could result in withdrawal of
marketing approval. In addition, the FDA has requested additional supporting
information, including clinical data, in connection with the approval process
for eprodisate (KIACTA(TM)). See "Our business -- Recent developments." Clinical
trials are lengthy, complex, expensive and uncertain processes. It takes
8
RISK FACTORS
several years to complete testing, and failure can occur at any stage of
testing. Results attained in pre-clinical testing and early clinical studies, or
trials, may not be indicative of results that are obtained in later studies. We
may suffer significant setbacks in advanced clinical trials, even after
promising results in earlier studies. Based on results at any stage of clinical
trials, we may decide to repeat or redesign a trial or discontinue development
of one or more of our product candidates. Further, actual results may vary once
the final and quality-controlled verification of data and analyses has been
completed. If we fail to adequately demonstrate the safety and efficacy of our
products under development, we will not be able to obtain the required
regulatory approvals to commercialize our product candidates.
Clinical trials are subject to continuing oversight by governmental regulatory
authorities and institutional review boards and:
- - must meet the requirements of these authorities;
- - must meet requirements for informed consent; and
- - must meet requirements for good clinical practices.
We may not be able to comply with these requirements in respect of one or more
of our product candidates.
We rely on third parties, including contract research organizations and outside
consultants, to assist us in managing and monitoring clinical trials. Our
reliance on these third parties may result in delays in completing, or in
failing to complete, these trials if one or more third parties fails to perform
with the speed and level of competence we expect.
If clinical trials for a product candidate are unsuccessful, we will be unable
to commercialize such product candidate. If one or more of our clinical trials
is delayed, we will be unable to meet our anticipated development or
commercialization timelines. Either circumstance could cause the price of the
Common Shares to decline.
IF WE ENCOUNTER DIFFICULTIES ENROLLING PATIENTS IN OUR CLINICAL TRIALS, OUR
TRIALS COULD BE DELAYED OR OTHERWISE ADVERSELY AFFECTED.
Clinical trials for our product candidates require that we identify and enrol a
large number of patients with the disorder under investigation. We may not be
able to enrol a sufficient number of patients to complete our clinical trials in
a timely manner. Patient enrolment is a function of many factors including:
- - design of the protocol;
- - the size of the patient population;
- - eligibility criteria for the study in question;
- - perceived risks and benefits of the drug under study;
- - availability of competing therapies;
- - efforts to facilitate timely enrolment in clinical trials;
- - patient referral practices of physicians; and
- - availability of clinical trial sites.
If we have difficulty enrolling a sufficient number of patients to conduct our
clinical trials as planned, we may need to delay or terminate ongoing clinical
trials.
A SETBACK IN ANY OF OUR CLINICAL TRIALS WOULD LIKELY CAUSE A DROP IN THE PRICE
OF THE COMMON SHARES.
We have completed a Phase II/III clinical trial of eprodisate (KIACTA(TM) -
formerly FIBRILLEX(TM)) and have initiated two Phase III clinical trials of
tramiprosate (ALZHEMED(TM)). Study data for the Phase II/III clinical trial of
eprodisate (KIACTA(TM)) was released in the second quarter of 2005. With respect
to the results of the Phase II/III clinical trial, the primary efficacy analysis
consisted of a stringent pre-specified
9
RISK FACTORS
p-value of 0.01, which was not met. Setbacks in any phase of the clinical
development of our product candidates would have an adverse financial impact
(including with respect to our collaboration agreement and distribution
agreement with Centocor) could jeopardize FDA or EMEA approval and would likely
cause a drop in the price of our Common Shares. The FDA issued an approvable
letter for eprodisate (KIACTA(TM)) in August, 2006. See "Our business -- Recent
developments." Moreover, because tramiprosate (ALZHEMED(TM)) and tramiprosate
(CEREBRIL(TM)) are the same compound targeted at different indications, a
failure in the development of either of these product candidates could have a
negative impact on the development of the other.
EVEN IF WE OBTAIN REGULATORY APPROVALS FOR OUR PRODUCT CANDIDATES, WE WILL BE
SUBJECT TO STRINGENT ONGOING GOVERNMENT REGULATION.
Even if regulatory authorities approve any of our product candidates, the
manufacture, marketing and sale of such products will be subject to strict and
ongoing regulation. Compliance with such regulation will be expensive and
consume substantial financial and management resources. For example, an approval
for a product may be conditioned on our conducting costly post-marketing
follow-up studies. For example, the FDA has indicated to us that if it grants
marketing approval for eprodisate (KIACTA(TM)), such approval will need to be
supplemented by complementary clinical studies aimed at specific matters,
including QT cardiac status clinical studies. In addition, if based on these
studies, a regulatory authority does not believe that the product demonstrates a
benefit to patients, such authority could limit the indications for which the
product may be sold or revoke the product's regulatory approval.
We and our contract manufacturers will be required to comply with applicable
current Good Manufacturing Practice ("GMP") regulations for the manufacture of
our products. These regulations include requirements relating to quality
assurance, as well as the corresponding maintenance of records and
documentation. Manufacturing facilities must be approved before we can use them
in commercial manufacturing of our products and are subject to subsequent
periodic inspection by regulatory authorities. In addition, material changes in
the methods of manufacturing or changes in the suppliers of raw materials are
subject to further regulatory review and approval.
If we or any future marketing collaborators or contract manufacturers fail to
comply with applicable regulatory requirements, we may be subject to sanctions
including fines, product recalls or seizures, injunctions, total or partial
suspension of production, civil penalties, withdrawals of previously granted
regulatory approvals and criminal prosecution. Any of these penalties could
delay or prevent the promotion, marketing or sale of our products.
IF OUR PRODUCTS DO NOT GAIN MARKET ACCEPTANCE, WE MAY BE UNABLE TO GENERATE
SIGNIFICANT REVENUES.
Even if our products are approved for sale, they may not be successful in the
marketplace. Market acceptance of any of our products will depend on a number of
factors including:
- - demonstration of clinical effectiveness and safety;
- - the advantages and disadvantages of our products relative to alternative
treatments;
- - the availability of acceptable pricing and adequate third-party
reimbursement; and
- - the effectiveness of marketing and distribution methods for the products.
If our products do not gain market acceptance among physicians, patients and
others in the medical community, our ability to generate significant revenues
from our products would be limited.
WE MAY NOT ACHIEVE OUR PROJECTED DEVELOPMENT GOALS IN THE TIME FRAMES WE
ANNOUNCE AND EXPECT.
We set goals for and make public statements regarding timing of the
accomplishment of objectives material to our success, such as the commencement
and completion of clinical trials, anticipated regulatory submission and
approval dates and time of product launch. The actual timing of these events can
vary dramatically due to factors such as delays or failures in our clinical
trials, the uncertainties inherent in the regulatory approval process and delays
in achieving manufacturing or marketing arrangements sufficient to commercialize
our products. There can be no assurance that our clinical trials will be
completed, that we will make regulatory submissions or receive regulatory
approvals as planned or that we will be able to adhere to our current schedule
for the launch of any of
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RISK FACTORS
our products. If we fail to achieve one or more of these milestones as planned,
the price of the Common Shares would likely decline.
IF WE FAIL TO OBTAIN ACCEPTABLE PRICES OR ADEQUATE REIMBURSEMENT FOR OUR
PRODUCTS, OUR ABILITY TO GENERATE REVENUES WILL BE DIMINISHED.
Our ability to successfully commercialize our products will depend significantly
on our ability to obtain acceptable prices and the availability of reimbursement
to the patient from third-party payers, such as government and private insurance
plans. While we have not commenced discussions with any such parties, these
third-party payers frequently require companies to provide predetermined
discounts from list prices, and they are increasingly challenging the prices
charged for pharmaceuticals and other medical products. Our products may not be
considered cost-effective, and reimbursement to the patient may not be available
or sufficient to allow us to sell our products on a competitive basis. We may
not be able to negotiate favourable reimbursement rates for our products.
In addition, the continuing efforts of third-party payers to contain or reduce
the costs of healthcare through various means may limit our commercial
opportunity and reduce any associated revenue and profits. We expect proposals
to implement similar government control to continue. In addition, increasing
emphasis on managed care will continue to put pressure on the pricing of
pharmaceutical and biopharmaceutical products. Cost control initiatives could
decrease the price that we or any current or potential collaborators could
receive for any of our products and could adversely affect our profitability. In
addition, in Canada and in many other countries, pricing and/or profitability of
some or all prescription pharmaceuticals and biopharmaceuticals are subject to
government control.
If we fail to obtain acceptable prices or an adequate level of reimbursement for
our products, the sales of our products would be adversely affected or there may
be no commercially viable market for our products.
COMPETITION IN OUR TARGETED MARKETS IS INTENSE, AND DEVELOPMENT BY OTHER
COMPANIES COULD RENDER OUR PRODUCTS OR TECHNOLOGIES NON-COMPETITIVE.
The biopharmaceutical industry is highly competitive. New products developed by
other companies in the industry could render our products or technologies
non-competitive. Competitors are developing and testing products and
technologies that would compete with the products that we are developing. Some
of these products may be more effective or have an entirely different approach
or means of accomplishing the desired effect than our products. We expect
competition from biopharmaceutical and pharmaceutical companies and academic
research institutions to increase over time. Many of our competitors and
potential competitors have substantially greater product development
capabilities and financial, scientific, marketing and human resources than we
do. Our competitors may succeed in developing products earlier and in obtaining
regulatory approvals and patent protection for such products more rapidly than
we can or at a lower price.
WE MAY NOT OBTAIN ADEQUATE PROTECTION FOR OUR PRODUCTS THROUGH OUR INTELLECTUAL
PROPERTY.
Our success depends, in large part, on our ability to protect our competitive
position through patents, trade secrets, trademarks and other intellectual
property rights. The patent positions of pharmaceutical and biopharmaceutical
firms, including Neurochem, are uncertain and involve complex questions of law
and fact for which important legal issues remain unresolved. The patents issued
or to be issued to us may not provide us with any competitive advantage. Our
patents may be challenged by third parties in patent litigation, which is
becoming widespread in the biopharmaceutical industry. In addition, it is
possible that third parties with products that are very similar to ours will
circumvent our patents by means of alternate designs or processes. We may have
to rely on method of use protection for our compounds in development and any
resulting products, which may not confer the same protection as compounds per
se. We may be required to disclaim part of the term of certain patents. There
may be prior art of which we are not aware that may affect the validity or
enforceability of a patent claim. There also may be prior art of which we are
aware, but which we do not believe affects the validity or enforceability of a
claim, which may, nonetheless ultimately be found to affect the validity or
enforceability of a claim. No assurance can be given that our patents would, if
challenged, be held by a court to be valid or enforceable or that a competitor's
technology or product would be
11
RISK FACTORS
found by a court to infringe our patents. Applications for patents and
trademarks in Canada, the United States and in foreign markets have been filed
and are being actively pursued by us. Pending patent applications may not result
in the issuance of patents, and we may not develop additional proprietary
products which are patentable.
Patent applications relating to or affecting our business have been filed by a
number of pharmaceutical and biopharmaceutical companies and academic
institutions. A number of the technologies in these applications or patents may
conflict with our technologies, patents or patent applications, and such
conflict could reduce the scope of patent protection which we could otherwise
obtain. We could become involved in interference proceedings in the United
States in connection with one or more of our patents or patent applications to
determine priority of invention. Our granted patents could also be challenged
and revoked in opposition proceedings in certain countries outside the United
States.
In addition to patents, we rely on trade secrets and proprietary know-how to
protect our intellectual property. We generally require our employees,
consultants, outside scientific collaborators and sponsored researchers and
other advisors to enter into confidentiality agreements. These agreements
provide that all confidential information developed or made known to the
individual during the course of the individual's relationship with us is to be
kept confidential and not disclosed to third parties except in specific
circumstances. In the case of our employees, the agreements provide that all of
the technology which is conceived by the individual during the course of
employment is our exclusive property. These agreements may not provide
meaningful protection or adequate remedies in the event of unauthorized use or
disclosure of our proprietary information. In addition, it is possible that
third parties could independently develop proprietary information and techniques
substantially similar to ours or otherwise gain access to our trade secrets.
We currently have the right to use certain technology under license agreements
with third parties. Our failure to comply with the requirements of material
license agreements could result in the termination of such agreements, which
could cause us to terminate the related development program and cause a complete
loss of our investment in that program.
As a result of the foregoing factors, we may not be able to rely on our
intellectual property to protect our products in the marketplace.
WE MAY INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS.
Our commercial success depends significantly on our ability to operate without
infringing the patents and other intellectual property rights of third parties.
There could be issued patents of which we are not aware that our products
infringe or patents, that we believe we do not infringe, but that we may
ultimately be found to infringe. Moreover, patent applications are in some cases
maintained in secrecy until patents are issued. The publication of discoveries
in the scientific or patent literature frequently occurs substantially later
than the date on which the underlying discoveries were made and patent
applications were filed. Because patents can take many years to issue, there may
be currently pending applications of which we are unaware that may later result
in issued patents that our products infringe. For example, pending applications
may exist that provide support or can be amended to provide support for a claim
that results in an issued patent that our product infringes.
The biopharmaceutical industry has produced a proliferation of patents, and it
is not always clear to industry participants, including us, which patents cover
various types of products. The coverage of patents is subject to interpretation
by the courts, and the interpretation is not always uniform. We are aware of,
and have reviewed, third party patents relating to the treatment of amyloid
related diseases, and we believe that our product candidates do not infringe any
valid claim of these patents, although there can be no assurances of this. In
the event of infringement or violation of another party's patent, we may not be
able to enter into licensing arrangements or make other arrangements at a
reasonable cost. Any inability to secure licenses or alternative technology
could result in delays in the introduction of our products or lead to
prohibition of the manufacture or sale of products by us.
PATENT LITIGATION IS COSTLY AND TIME CONSUMING AND MAY SUBJECT US TO
LIABILITIES.
Our involvement in any patent litigation, interference, opposition or other
administrative proceedings will likely cause us to incur substantial expenses,
and the efforts of our technical and management
12
RISK FACTORS
personnel will be significantly diverted. In addition, an adverse determination
in litigation could subject us to significant liabilities. See "Our business --
Recent developments."
WE MAY NOT OBTAIN TRADEMARK REGISTRATIONS.
The Company has filed applications for trademark registrations in connection
with our product candidates in various jurisdictions, including the United
States. KIACTA(TM) is a trademark of Centocor. We do not believe that any of
these current trademarks is critical to the success of the product candidate to
which it relates, and we intend to file applications for other possible
trademarks for our product candidates. No assurance can be given that any of our
trademarks will be registered in the United States or elsewhere or that the use
of any trademark will confer a competitive advantage in the marketplace.
Furthermore, even if we are successful in our trademark registrations, the FDA
has its own process for drug nomenclature and its own views concerning
appropriate proprietary names. It also has the power, even after granting market
approval, to request a company to reconsider the name for a product because of
evidence of confusion in the market place. No assurance can be given that the
FDA or any other regulatory authority will approve of any of our trademarks or
will not request reconsideration of one of our trademarks at some time in the
future. During the summer of 2006, the trademark KIACTA(TM) and not
FIBRILLEX(TM) was accepted by the FDA thus far. In addition, pursuant to a
settlement agreement dated October 3, 2005, with Alza Corporation, relative to
their opposition to our trademark application for ALZHEMED(TM) in the United
States, we agreed not to register ALZHEMED(TM) in the United States and
elsewhere except for Canada, Switzerland, China, Japan, South Korea and Taiwan.
WE WILL REQUIRE SIGNIFICANT ADDITIONAL FINANCING, AND WE MAY NOT HAVE ACCESS TO
SUFFICIENT CAPITAL.
We will require additional capital to pursue planned clinical trials, regulatory
approvals, as well as further research and development and marketing efforts for
our product candidates. Except as expressly described in this prospectus or the
documents incorporated herein by reference, we do not anticipate generating
significant revenues from operations in the near future, and we have no
committed sources of capital, except pursuant to the ELOC facility. Although the
ELOC provides that we can require the counterparty to purchase, at our election,
up to US$60 million of Common Shares, there can be no assurances that we will be
able to satisfy the closing conditions applicable to us under the facility. In
addition, each advance under the ELOC is limited in that we cannot issue more
than 4.9% of our issued and outstanding Common Shares in any one drawdown. We
intend to raise additional funds through public or private financing,
collaborations with other pharmaceutical companies or financing from other
sources. Additional funding may not be available on terms which are acceptable
to us. If adequate funding is not available on reasonable terms, we may need to
delay, reduce or eliminate one or more of our product development programs or
obtain funds on terms less favourable than we would otherwise accept. To the
extent that additional capital is raised through the sale of equity or
convertible debt securities, the issuance of those securities could result in
dilution to our shareholders. Moreover, the incurrence of debt financing could
result in a substantial portion of our future operating cash flow, if any, being
dedicated to the payment of principal and interest on such indebtedness and
could impose restrictions on our operations. This could render us more
vulnerable to competitive pressures and economic downturns.
We anticipate that our existing working capital, access to the ELOC facility and
anticipated revenues will be sufficient to fund our development programs,
clinical trials and other operating expenses into fiscal 2008. However, our
future capital requirements are substantial and may increase beyond our current
expectations depending on many factors including:
- - the duration and results of our clinical trials for eprodisate
(KIACTA(TM)), tramiprosate (ALZHEMED(TM)) and tramiprosate (CEREBRIL(TM));
- - unexpected delays or developments in seeking regulatory approvals;
- - the time and cost in preparing, filing, prosecuting, maintaining and
enforcing patent claims;
- - other unexpected developments encountered in implementing our business
development and commercialization strategies;
13
RISK FACTORS
- - the outcome of litigation; if any; and
- - further arrangements, if any, with collaborators.
OUR REVENUES AND EXPENSES MAY FLUCTUATE SIGNIFICANTLY, AND ANY FAILURE TO MEET
FINANCIAL EXPECTATIONS MAY DISAPPOINT SECURITIES ANALYSTS OR INVESTORS AND
RESULT IN A DECLINE IN THE PRICE OF THE COMMON SHARES.
Our revenues and expenses have fluctuated in the past and are likely to do so in
the future. These fluctuations could cause our share price to decline. Some of
the factors that could cause our revenues and expenses to fluctuate include:
- - the inability to complete product development in a timely manner that
results in a failure or delay in receiving the required regulatory
approvals to commercialize our product candidates;
- - the timing of regulatory submissions and approvals;
- - the timing and willingness of any current or future collaborators to invest
the resources necessary to commercialize our product candidates;
- - the outcome of litigation, if any;
- - the timing of achievement and the receipt of milestone payments from
current or future collaborators; and
- - failure to enter into new or the expiration or termination of current
agreements with collaborators.
Due to fluctuations in our revenues and expenses, we believe that
period-to-period comparisons of our results of operation are not indicative of
our future performance. It is possible that in some future quarter or quarters,
our revenues and expenses will be below the expectations of securities analysts
or investors. In this case, the price of the Common Shares could fluctuate
significantly or decline.
WE MAY INVEST OR SPEND THE PROCEEDS OF AN OFFERING IN WAYS WITH WHICH INVESTORS
MAY NOT AGREE AND IN WAYS THAT MAY NOT EARN A PROFIT.
We intend to use the proceeds from any Offering primarily for general corporate
purposes, which may include but are not limited to, our current clinical
development programs. However, we will retain broad discretion over the use of
the proceeds from such Offering. Investors may not agree with the ways we decide
to use these proceeds, and our use of the proceeds may not yield any profits. We
will not receive any proceeds from the sale of any Securities by a selling
securityholder.
WE ARE DEPENDENT ON CENTOCOR FOR THE COMMERCIALIZATION OF EPRODISATE
(KIACTA(TM)).
We are dependent on Centocor for the further development and commercialization
of eprodisate (KIACTA(TM)) in most jurisdictions. Risks that we face in
connection with this collaboration include the following:
- - while Centocor is contractually prohibited from developing or
commercializing, either alone or with others, products and services that
are similar to or competitive with eprodisate (KIACTA(TM)), this
restriction does not apply to its affiliates;
- - Centocor may underfund or not commit sufficient resources to marketing,
distribution or other development of eprodisate(KIACTA(TM));
- - Centocor may not properly maintain or defend certain intellectual property
rights that may be important to the commercialization of eprodisate
(KIACTA(TM));
- - Centocor may encounter conflicts of interest, changes in business strategy
or other issues which could adversely affect its willingness or ability to
fulfill its obligations to us (for example, pharmaceutical companies
historically have re-evaluated their priorities following mergers and
consolidations, which have been common in recent years in this industry);
and
- - disputes may arise between us and Centocor delaying or terminating the
development or commercialization of eprodisate (KIACTA(TM)), resulting in
litigation or arbitration that could be time-consuming and expensive, or
causing Centocor to act in its own self-interest and not in our interest or
those of our shareholders.
14
RISK FACTORS
Centocor can terminate our collaboration with them for a number of reasons,
including without cause upon one-year's notice, upon a change of control of
Neurochem and upon short notice if the FDA takes certain adverse actions with
respect to an NDA filing. If this collaboration were to be terminated, we would
be required to devote additional resources to developing and commercializing
eprodisate (KIACTA(TM)) or seek a new collaborator or abandon this product
candidate.
As we are seeking a collaboration with respect to tramiprosate (ALZHEMED(TM)),
we would likely be subject to the same general types of risks as those described
above.
THERE CAN BE NO ASSURANCES THAT WE WILL CONCLUDE A COLLABORATION WITH RESPECT TO
TRAMIPROSATE (ALZHEMED(TM))
While we are seeking a collaboration with respect to tramiprosate
(ALZHEMED(TM)), there can be no assurances that we will be able to conclude such
a collaboration successfully or on favourable terms. This could adversely affect
our ability to commercialize tramiprosate (ALZHEMED(TM)).
WE ARE CURRENTLY DEPENDENT ON THIRD PARTIES FOR A VARIETY OF FUNCTIONS AND MAY
ENTER INTO FUTURE COLLABORATIONS FOR THE MANUFACTURE OF OUR PRODUCTS. OUR
ARRANGEMENTS WITH THESE THIRD PARTIES MAY NOT PROVIDE US WITH THE BENEFITS WE
EXPECT.
We currently rely upon third parties to perform functions related to the
research, development and clinical trials of our product candidates. In
addition, because we do not have the resources, facilities or experience to
manufacture our product candidates on our own, we currently rely, and will
continue to rely, on contract manufacturers to produce our product candidates
for clinical trials, and, if our products are approved, in quantities for
commercial sales. Our reliance on these relationships poses a number of risks,
including the following:
- - disagreements with third parties could delay or terminate the research,
development or manufacturing of product candidates, or result in litigation
or arbitration;
- - we cannot effectively control the resources our third-party partners will
devote to our programs or products;
- - there can be no assurances that we will be able to renew such arrangements,
especially with respect to product supply;
- - contracts with our third parties may fail to provide sufficient protection
or we may have difficulty enforcing the contracts if one of these partners
fails to perform;
- - the third parties with whom we contract may fail to comply with regulatory
requirements;
- - conflicts of interest may arise between their work for us and their work
for another entity, and we may lose their services;
- - with respect to our contract manufacturers:
- third parties may not be able to manufacture our product candidates in
a cost-effective or timely manner or in quantities needed for clinical
trials or commercial sales;
- delays in, or failures to achieve, scale-up to commercial quantities,
or changes to current raw material suppliers or product manufacturers
(whether the change is attributable to us or the supplier or
manufacturer) could delay clinical studies, regulatory submissions and
commercialization of our product candidates; and
- we may not have all of the required intellectual property rights to
the manufacturing processes for our product candidates.
Given these risks, our current and future collaborative efforts with third
parties may not be successful. Failure of these efforts could require us to
devote additional internal resources to the activities currently performed, or
to be performed, by third parties, to seek alternative third-party
collaborators, or to delay our product development or commercialization.
15
RISK FACTORS
WE WILL NOT BE ABLE TO SUCCESSFULLY COMMERCIALIZE OUR PRODUCT CANDIDATES IF WE
ARE UNABLE TO CREATE SALES, MARKETING AND DISTRIBUTION CAPABILITIES OR MAKE
ADEQUATE ARRANGEMENTS WITH THIRD PARTIES FOR SUCH PURPOSES.
In order to commercialize our product candidates successfully, we intend, on a
product-by-product basis, either to develop internal sales, marketing and
distribution capabilities or make arrangements with third parties to perform
some or all of these services. We currently have limited marketing capabilities
and no sales force. We have limited experience in developing, training or
managing a marketing or sales force. To the extent we internally develop a sales
force, the cost of establishing and maintaining a sales force would be
substantial and may exceed its cost effectiveness. In addition, in marketing our
products, we would likely compete with many companies that currently have
extensive and well-funded marketing and sales operations. Despite our marketing
and sales efforts, we may be unable to compete successfully against these
companies. For example, we are seeking a co-development and co-promotion partner
to assist us in completing the development and undertaking the commercialization
of tramiprosate (ALZHEMED(TM)). We may not be able to do so on favourable terms.
We do not currently have any arrangements in place with third parties for the
sale, marketing or distribution of any of our products, except for the
distribution rights granted to Centocor. We may rely on additional third parties
to market and sell our products in certain territories, rather than establish
our own sales force. If we contract with third parties for the sales and
marketing of our products, our revenues will depend upon the efforts of these
third parties, whose efforts may not be successful. If we fail to establish
successful marketing and sales capabilities or to make arrangements with third
parties for such purposes, our business, financial condition and results of
operations will be materially adversely affected.
WE ARE SUBJECT TO INTENSE COMPETITION FOR OUR SKILLED PERSONNEL, AND THE LOSS OF
KEY PERSONNEL OR THE INABILITY TO ATTRACT ADDITIONAL PERSONNEL COULD IMPAIR OUR
ABILITY TO CONDUCT OUR OPERATIONS.
We are highly dependent on our management and our clinical, regulatory and
scientific staff, the loss of whose services might adversely impact our ability
to achieve our objectives. Recruiting and retaining qualified management and
clinical, scientific and regulatory personnel is critical to our success.
Competition for skilled personnel is intense, and our ability to attract and
retain qualified personnel may be affected by such competition.
Our Management Agreement with Picchio International Inc., pursuant to which Dr.
Francesco Bellini, our Chairman, President and Chief Executive Officer, provides
management services to the Company, expires on November 30, 2007. There can be
no assurances that we will be able to renew the agreement or retain the services
of Dr. Bellini.
WE ARE SUBJECT TO THE RISK OF PRODUCT LIABILITY CLAIMS, FOR WHICH WE MAY NOT
HAVE OR BE ABLE TO OBTAIN ADEQUATE INSURANCE COVERAGE.
Human therapeutic products involve the risk of product liability claims and
associated adverse publicity. Currently, our principal risks relate to
participants in our clinical trials, who may suffer unintended consequences. If
we ultimately are successful in commercializing a product, claims might be made
directly by patients, healthcare providers or pharmaceutical companies or others
selling our products. We may not have or be able to obtain or maintain
sufficient and affordable insurance coverage, including coverage for potentially
very significant legal expenses, and without sufficient coverage any claim
brought against us could have a materially adverse effect on our business,
financial condition or results of operations.
OUR BUSINESS INVOLVES THE USE OF HAZARDOUS MATERIALS WHICH REQUIRES US TO COMPLY
WITH ENVIRONMENTAL REGULATION.
Our discovery and development processes involve the controlled use of hazardous
and radioactive materials. We are subject to federal, provincial and local laws
and regulations governing the use, manufacture, storage, handling and disposal
of such materials and certain waste products. The risk of accidental
contamination or injury from these materials cannot be completely eliminated. In
the event of such an accident, we could be held liable for any damages that
result, and any such liability could exceed our resources. We may not be
adequately insured against this type of liability. We may be required to incur
significant costs to comply with environmental laws and regulations in the
future, and
16
RISK FACTORS
our operations, business or assets may be materially adversely affected by
current or future environmental laws or regulations.
LEGISLATIVE ACTIONS, POTENTIAL NEW ACCOUNTING PRONOUNCEMENTS AND HIGHER
INSURANCE COSTS ARE LIKELY TO IMPACT OUR FUTURE FINANCIAL POSITION OR RESULTS OF
OPERATIONS.
Future changes in financial accounting standards may cause adverse, unexpected
revenue fluctuations and affect our financial position or results of operations.
New pronouncements and varying interpretations of pronouncements have occurred
with greater frequency and are expected to occur in the future, and we may make
or be required to make changes in our accounting policies in the future.
Compliance with changing regulations of corporate governance and public
disclosure, notably with respect to internal controls over financial reporting,
may result in additional expenses. Changing laws, regulations and standards
relating to corporate governance and public disclosure are creating uncertainty
for companies such as ours, and insurance costs are increasing as a result of
this uncertainty.
WE MAY INCUR LOSSES ASSOCIATED WITH FOREIGN CURRENCY FLUCTUATIONS.
Our operations are in many instances conducted in currencies other than the
Canadian dollar (principally in US dollars and Euros) and we hold cash, cash
equivalents and debt in other currencies (principally in US dollars), and
fluctuations in the value of foreign currencies relative to the Canadian dollar
could cause us to incur currency exchange losses.
OUR LARGEST SHAREHOLDER HAS INFLUENCE OVER OUR BUSINESS AND CORPORATE MATTERS,
INCLUDING THOSE REQUIRING SHAREHOLDER APPROVAL. THIS COULD DELAY OR PREVENT A
CHANGE IN CONTROL. SALES OF COMMON SHARES BY SUCH SHAREHOLDERS COULD HAVE AN
IMPACT ON THE MARKET PRICE OF THE COMMON SHARES.
Picchio Pharma Inc. and its shareholders, Power Technology Investment
Corporation, the FMRC Family Trust and certain persons related to such entities
own an aggregate of approximately 33% of our outstanding Common Shares. In
addition, two of our 12 directors are nominees of Picchio Pharma Inc. Picchio
Pharma Inc. has the ability to exercise some degree of influence over our
business and the outcome of various corporate matters, including those requiring
shareholder approval. In particular, this concentration of ownership may have
the effect of delaying or deferring a change in control of us and may adversely
affect the price of our Common Shares. Dr. Francesco Bellini, O.C., our
Chairman, President and Chief Executive Officer, is a beneficiary of a trust
which owns 50% of the voting shares of Picchio Pharma Inc. Pursuant to an
agreement between Power Technology Investment Corporation and the FMRC Family
Trust, each has agreed to use commercially reasonable efforts to cause the sale
of up to half of Common Shares owned indirectly by Picchio Pharma Inc. from time
to time upon request by the other.
RISKS RELATED TO THE COMMON SHARES
OUR SHARE PRICE MAY BE VOLATILE, AND AN INVESTMENT IN COMMON SHARES COULD SUFFER
A DECLINE IN VALUE.
Common Shares are listed only on NASDAQ and the TSX. Our valuation and share
price since the beginning of trading after our initial public offerings, first
in Canada and then in the United States, have had no meaningful relationship to
current or historical financial results, asset values, book value or many other
criteria based on conventional measures of the value of shares. The market price
of Common Shares will fluctuate due to various factors including:
- - clinical and regulatory developments regarding KIACTA(TM), ALZHEMED(TM) and
CEREBRIL(TM) and our other product candidates;
- - developments regarding current or future third-party collaborators;
- - other announcements by us regarding technological, product development or
other matters;
- - arrivals or departures of key personnel;
- - government regulatory action affecting our product candidates and our
competitors' products in the United States, Canada and foreign countries;
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RISK FACTORS
- - developments or disputes concerning patent or proprietary rights;
- - actual or anticipated fluctuations in our revenues or expenses;
- - general market conditions and fluctuations for the emerging growth and
biopharmaceutical market sectors; and
- - economic conditions in the United States, Canada or abroad.
Listing on NASDAQ and the TSX may increase share price volatility due to various
factors including:
- - different ability to buy or sell our Common Shares;
- - different market conditions in different capital markets; and
- - different trading volume.
In the past, following periods of large price declines in the public market
price of a company's securities, securities class action litigation has often
been initiated against that company. Litigation of this type could result in
substantial costs and diversion of management's attention and resources, which
would adversely affect our business. Any adverse determination in litigation
could also subject us to significant liabilities.
BECAUSE WE ARE A CANADIAN COMPANY, CERTAIN CIVIL LIABILITIES AND JUDGMENTS MAY
BE UNENFORCEABLE AGAINST US BY US INVESTORS.
We are incorporated under the laws of Canada. Most of our directors and officers
and most of the experts named in this prospectus are residents of Canada. Most
of our assets and the assets of such persons are located outside of the United
States. As a result, it may be difficult for our US-based shareholders to
initiate a lawsuit within the United States. It may also be difficult for
shareholders to enforce a United States judgment in Canada or elsewhere or to
succeed in a lawsuit in Canada or elsewhere based only on violations of United
States securities laws.
WE CURRENTLY DO NOT INTEND TO PAY DIVIDENDS IN THE NEAR FUTURE.
We have never declared or paid any dividends on Common Shares. We currently
intend to retain our future earnings, if any, to finance further research and
the expansion of our business. As a result, the return on an investment in
Common Shares will, for the foreseeable future, depend upon any future
appreciation in value. There is no guarantee that Common Shares will appreciate
in value or even maintain the price at which shareholders have purchased their
Common Shares.
RISKS RELATED TO THE ELOC
A LARGE NUMBER OF COMMON SHARES MAY BE SOLD UNDER THE ELOC. THE SALE OR
AVAILABILITY FOR SALE OF THESE SHARES MAY DEPRESS THE PRICE OF OUR COMMON
SHARES.
To the extent that Cityplatz, the counterparty under the ELOC, sells Common
Shares issued under the securities purchase agreement, our Common Share price
may decrease due to the additional selling pressure in the market. The risk of
dilution from sales of Common Shares to or by Cityplatz may cause holders of
Common Shares to sell their Common Shares, which could further contribute to any
decline in the Common Share price. The sale of Common Shares at a discount will
further dilute the interests of holders of Common Shares.
THE SALE OF COMMON SHARES ISSUED UNDER THE SECURITIES PURCHASE AGREEMENT COULD
ENCOURAGE SHORT SALES BY THIRD PARTIES WHICH COULD FURTHER DEPRESS THE PRICE OF
THE COMMON SHARES.
Any downward pressure on the price of Common Shares caused by the sale of Common
Shares issued under the securities purchase agreement could encourage short
sales by third parties. In a short sale, a prospective seller borrows Common
Shares from a shareholder or broker and sells the borrowed Common Shares. The
prospective seller hopes that the Common Share price will decline, at which time
the seller can purchase Common Shares at a lower price for delivery back to the
lender. The seller profits when the Common Share price declines because it is
purchasing Common Shares at a price lower
18
RISK FACTORS
than the sale price of the borrowed Common Shares. Such sales could place
downward pressure on the price of our Common Shares by increasing the number of
Common Shares being sold, which could further contribute to any decline of our
Common Share price.
WE CANNOT PREDICT THE ACTUAL NUMBER OF COMMON SHARES THAT WE WILL ISSUE IN ANY
PARTICULAR DRAWDOWN OR IN TOTAL UNDER THE ELOC. THE NUMBER OF COMMON SHARES THAT
WE WILL ISSUE UNDER EACH DRAWDOWN WILL DEPEND ON THE MARKET PRICE OF THE COMMON
SHARES OVER THE DRAW-DOWN PRICING PERIOD.
The actual number of Common Shares that we will issue in any particular drawdown
or in total under the ELOC is uncertain. Subject to the limitations in the
securities purchase agreement, we have the discretion to give a drawdown notice
at any time throughout the term of the securities purchase agreement. We have
not determined the amount of proceeds we will seek to draw down under the
securities purchase agreement. However, we are required under the securities
purchase agreement to draw down US$25 million under the ELOC. Also, the number
of Common Shares we must issue after giving a drawdown notice will fluctuate
based on the market price of our Common Shares during the Draw-Down Pricing
Period. Cityplatz will receive more Common Shares if our Common Share price
declines.
During each Draw-Down Pricing Period, Cityplatz may seek to sell the Common
Shares purchased under the drawdown in order to reduce the economic risk
associated with the purchase of the Common Shares that it has agreed to purchase
under the terms of the securities purchase agreement. These sales during a
Draw-Down Pricing Period may cause the volume-weighted average price of our
Common Shares on a particular trading day to decline, resulting in the sale of
an increasing number of Common Shares for the same monetary proceeds as the
Draw-Down Pricing Period progresses.
BECAUSE CITYPLATZ IS A RESIDENT OF A FOREIGN COUNTRY, CERTAIN CIVIL LIABILITIES
AND JUDGMENTS MAY BE UNENFORCEABLE AGAINST CITYPLATZ BY US INVESTORS
Cityplatz is a British Virgin Islands corporation with its head and principal
office in the Isle of Man and a substantial portion of its assets are located
outside of the United States. As a result, it may be difficult for our US-based
shareholders to initiate a lawsuit against Cityplatz within the United States.
It may also be difficult for shareholders to enforce a United States judgment in
the Isle of Man or elsewhere or to succeed in a lawsuit in the Isle of Man or
elsewhere based only on violations of United States securities laws.
RISKS RELATED TO THE NOTES
THE NOTES ARE UNSECURED, ARE SUBORDINATED TO ALL OF OUR FUTURE SECURED
INDEBTEDNESS AND ARE EFFECTIVELY SUBORDINATED TO ALL LIABILITIES OF OUR
SUBSIDIARIES ONE OF WHICH HOLDS MOST OF THE INTELLECTUAL PROPERTY USED IN OUR
BUSINESS.
The Notes are unsecured and subordinated in right of payment to all of our
future secured indebtedness, to the extent of the assets securing such
indebtedness, and are effectively subordinated to all liabilities of our
subsidiaries, including trade payables. In the event of our insolvency,
bankruptcy, liquidation, reorganization, dissolution or winding up, we may not
have sufficient assets to pay amounts due on any or all of the Notes then
outstanding. See "Description of the Notes -- Ranking."
In addition, some of our operations are conducted through our subsidiaries and
one of our subsidiaries holds most of the intellectual property used in our
business. None of our subsidiaries has guaranteed or otherwise become obligated
with respect to the Notes, and, as a result, the Notes will be effectively
subordinated to all liabilities and other obligations of our subsidiaries.
Accordingly, our right to receive assets from any of our subsidiaries upon its
liquidation or reorganization, and the right of holders of the Notes to
participate in those assets, is effectively subordinated to claims of that
subsidiary's creditors, including trade creditors. Even if we were a creditor of
any of our subsidiaries, our rights as a creditor would be subordinate to any
security interest in the assets of that subsidiary and any indebtedness of that
subsidiary senior to that held by us. Furthermore, none of our subsidiaries is
under any obligation to make payments to us, and any payments to us would depend
on the earnings or financial condition
19
RISK FACTORS
of our subsidiaries and various business considerations. Statutory, contractual
or other restrictions may also limit our subsidiaries' ability to pay dividends
or make distributions, loans or advances to us. For these reasons, we may not
have access to any assets or cash flows of our subsidiaries to make payments on
the Notes.
CERTAIN STOCK EXCHANGE LISTING STANDARDS MAY REQUIRE SHAREHOLDER APPROVAL BEFORE
WE CAN ISSUE COMMON SHARES UPON CONVERSION OF THE NOTES WHICH COULD RESULT IN AN
EVENT OF DEFAULT.
The continued listing standards of the NASDAQ Stock Market and of the TSX may
result in our not issuing shares upon conversion of the Notes without first
obtaining approval of those of our shareholders who are not also holders of
Notes. These listing standards of The NASDAQ Stock Market and of the TSX provide
that the number of Common Shares that may be issued upon conversion of the Notes
or otherwise in accordance with the terms of the Indenture, may not exceed a
prescribed percentage of our outstanding Common Shares as at the date of the
determination of the price of the Notes. In the case of The NASDAQ Stock Market,
the percentage is 20% or more and, in the case of the TSX, the percentage is 25%
or more. In addition, pursuant to the rules of the TSX, we may not issue any
shares upon conversion of the Notes or in accordance with certain provisions of
the Indenture if the issuance of such shares would be at an effective conversion
rate resulting in a price per share of less than CDN$15.83 (representing 85% of
the market price of Common Shares for the five trading days preceding the date
hereof).
In the event that we are unable to deliver shares upon conversion of the Notes
or otherwise in accordance with the Indenture, we would be in default under the
terms of the Indenture. Such a default would have a material adverse effect on
our financial position.
VOLATILITY OF THE MARKET PRICE OF COMMON SHARES MAY DEPRESS THE TRADING PRICE OF
THE NOTES.
The market price of Common Shares has experienced, and may continue to
experience, substantial volatility. Since January 1, 2004, the trading price of
Common Shares on The NASDAQ Global Market has ranged from a low of US$6.89 per
share to a high of US$27.43 per share and on the TSX has ranged from a low of
CDN$8.50 per share to a high of CDN$36.55 per share. Because the Notes are
convertible into Common Shares at certain times or in certain circumstances,
volatility in the price of Common Shares, whether on The NASDAQ Global Market or
the TSX, may depress the trading price of the Notes. The risk of volatility and
depressed prices of Common Shares also applies to holders who receive Common
Shares upon conversion of their Notes.
Numerous factors, including many over which we have no control, may have a
significant impact on the market price of Common Shares, including, among other
things:
- - clinical and regulatory developments regarding ALZHEMED(TM), KIACTA(TM) and
CEREBRIL(TM) and our other product candidates;
- - developments regarding current or future third-party collaborators;
- - other announcements by us regarding technological, product development or
other matters;
- - arrivals or departures of key personnel;
- - changes in financial estimates and recommendations by securities analysts;
- - government regulatory action affecting our product candidates and our
competitors' products in the United States, Canada and foreign countries;
- - actual or anticipated fluctuations in our revenues or expenses;
- - general market conditions and fluctuations for the emerging growth and
biopharmaceutical market sectors;
- - economic conditions in the United States, Canada or abroad; and
- - purchases or sales of blocks of our securities.
Listing on NASDAQ and the TSX may increase share price volatility due to various
factors including:
20
RISK FACTORS
- - different ability to buy or sell our Common Shares;
- - different market conditions in different capital markets; and
- - different trading volume.
In addition, the stock market in recent years has experienced extreme price and
trading volume fluctuations that often have been unrelated or disproportionate
to the operating performance of individual companies. These broad market
fluctuations may adversely affect the price of Common Shares, regardless of our
operating performance. In addition, sales of substantial amounts of Common
Shares in the public market after any offering, or the perception that those
sales may occur, could cause the market price of Common Shares to decline.
Power Technology Investment Corporation, a subsidiary of Power Corporation of
Canada, and the FMRC Family Trust, of which Dr. Francesco Bellini, our Chairman,
President and Chief Executive Officer, is a beneficiary, each a 50% shareholder
of Picchio Pharma Inc., the parent company of one of our principal shareholders,
have purchased an aggregate of approximately US$13.5 million principal amount of
Notes. Picchio Pharma Inc., through a subsidiary, and such shareholders own an
aggregate of approximately 33% of Common Shares (without giving effect to the
conversion of the Notes). In addition, certain of our officers and directors and
officers and directors of such entities and/or of Picchio Pharma have purchased
in the aggregate an additional approximate US$4.1 million principal amount of
the Notes.
A decision by any of the foregoing persons to sell a substantial amount of
Common Shares could cause the trading price of Common Shares to decline
substantially. Furthermore, shareholders may initiate securities class action
lawsuits if the market price of our stock drops significantly, which may cause
us to incur substantial costs and could divert the time and attention of our
management.
These factors, among others, could significantly depress the trading price of
the Notes and the price of Common Shares issued upon conversion of the Notes.
AN IRREVOCABLE ELECTION TO SETTLE THE NOTES IN CASH AND SHARES MAY HAVE ADVERSE
CONSEQUENCES.
If we irrevocably elect to settle the Notes in cash and shares, as described
under "Description of the Notes -- Conversion rights," "-- Conversion
procedures," "-- Payment upon conversion" and "-- Our right to irrevocably elect
payment method," such election may:
- - result in holders receiving no shares upon conversion or fewer shares
relative to the conversion value of the Notes;
- - reduce cash availability;
- - delay holders' receipt of the proceeds upon conversion; and
- - subject holders to market risk before receiving any shares upon conversion.
If we make the irrevocable election described above, after the effective date of
the election the Notes will be convertible into cash and, if applicable, Common
Shares based on the sum of the "daily settlement amounts" described in this
prospectus for the 20 consecutive trading days that begins on, and includes, the
second trading day after the day the Notes are tendered for conversion (or, if
we have called the Notes for redemption, the 23rd trading day before the
applicable redemption date). We refer to this 20 trading day period as the "cash
settlement averaging period." In addition, in order to comply with the continued
listing requirements of the NASDAQ Global Market, we may not issue more than an
aggregate of 7,740,345 Common Shares upon conversion.
We will generally deliver the cash and, if applicable, Common Shares issuable
upon conversion as soon as practicable, but in no event more than two Business
Days after the last trading day in the cash settlement averaging period, which
will be at least 21 trading days after the date holders tender their Notes for
conversion. In addition, because the consideration due upon conversion is based
in part on the trading prices of Common Shares during the cash settlement
averaging period, any decrease in the price of Common Shares after Notes are
tendered for conversion may significantly decrease the value of the
consideration received by a converting Note holder. Furthermore, because we must
settle at
21
RISK FACTORS
least a portion of our conversion obligation in cash, the conversion of Notes
may significantly reduce our liquidity.
THE INCREASE IN THE CONVERSION RATE APPLICABLE TO NOTES THAT HOLDERS CONVERT IN
CONNECTION WITH A MAKE-WHOLE FUNDAMENTAL CHANGE MAY NOT ADEQUATELY COMPENSATE
NOTE HOLDERS FOR THE LOST OPTION TIME VALUE OF THEIR NOTES AS A RESULT OF THAT
FUNDAMENTAL CHANGE.
If a make-whole fundamental change occurs before November 15, 2011, the
conversion rate applicable to holders who convert their Notes within a specified
time frame will be increased under certain circumstances. The amount of the
increase in the conversion rate depends on the date when the fundamental change
becomes effective and the applicable price described in this prospectus. See
"Description of the Notes -- Conversion rights" and "-- Adjustment to the
conversion rate upon the occurrence of a make-whole fundamental change."
Although the increase in the conversion rate is designed to compensate Note
holders for the lost option time value of their Notes as a result of the
fundamental change, the increase in the conversion rate is only an approximation
of the lost value and may not adequately compensate them for the loss. In
addition, they will not be entitled to an increased conversion rate if:
- - the make-whole fundamental change occurs on or after November 15, 2011; or
- - the applicable price is greater than US$60.00 per share or less than
US$16.43 per share (in each case, subject to adjustment at the relevant
time).
Furthermore, a holder may not receive the additional shares payable as a result
of the increase in the conversion rate until the second Business Day after the
effective date of the fundamental change, or even later, which could be a
significant period of time after the date the holder has tendered its Notes for
conversion. In addition, applicable NASDAQ and TSX listing standards may also
limit the amount by which we may increase the conversion rate. Our obligation to
increase the conversion rate as described above also could be considered a
penalty, in which case its enforceability would be subject to general principles
of reasonableness of economic remedies.
WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS TO PURCHASE THE NOTES ON THE
PURCHASE DATES OR UPON A CHANGE IN CONTROL OR, IF WE IRREVOCABLY ELECT TO SETTLE
THE CONVERSION OF THE NOTES IN CASH AND SHARES, MAKE THE CASH PAYMENT DUE UPON
CONVERSION.
On each of November 15, 2011, November 15, 2016 and November 15, 2021, holders
may require us to purchase, for cash, all or a portion of their Notes at 100% of
their principal amount, plus any accrued and unpaid interest to, but excluding,
that date. If a change in control occurs, holders of the Notes may require us to
repurchase, for cash, all or a portion of their Notes. We do not expect to
generate any significant revenue from product sales in the immediate future, and
we expect to incur additional operating losses for at least the next several
years. We may not have sufficient funds for any required repurchase of the
Notes. In addition, if we irrevocably elect to settle the conversion of the
Notes in cash and shares, we must pay the principal return, and, in certain
circumstances, other amounts, in cash. We may not have cash available to
repurchase the Notes or to pay the principal return. In addition, the terms of
any borrowing agreements which we may enter into from time to time may require
early repayment of borrowings under circumstances similar to those constituting
a change in control. These agreements may also make our repurchase of Notes, or
any cash payment we may make upon conversion of the Notes, an event of default
under the agreements. If we fail to repurchase the Notes or pay the cash payment
due upon conversion when required, we will be in default under the Indenture for
the Notes. See "Description of the Notes -- Conversion rights," "-- Purchase of
Notes by us at the option of the holder" and "-- Holders may require us to
repurchase their Notes upon a change in control."
FLUCTUATIONS IN THE EXCHANGE RATE BETWEEN THE US DOLLAR AND THE CANADIAN DOLLAR
MAY ADVERSELY IMPACT OUR RESULTS OF OPERATIONS AND OUR ABILITY TO MAKE PAYMENTS
ON THE NOTES.
We must make payments on the Notes in US dollars. Accordingly, any appreciation
of the US dollar may cost us additional Canadian funds to make payments on the
Notes. In addition, we may in the future engage in hedging transactions in an
effort to reduce our exposure to fluctuations in currency exchange
22
RISK FACTORS
rates. These hedging transactions or our decision not to hedge may result in
losses, which would adversely affect our financial position and results of
operations.
INCREASED LEVERAGE AS A RESULT OF OUR RECENT NOTE OFFERING MAY HARM OUR
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
As adjusted to include the sale of the Notes, our total consolidated long-term
debt as of September 30, 2006 would have been approximately US$33.465 million
and would have represented approximately 69% of our total capitalization as of
that date. In addition, the Indenture for the Notes will not restrict our
ability to incur additional indebtedness.
Our level of indebtedness could have important consequences to Note holders,
because:
- - it could affect our ability to satisfy our obligations under the Notes;
- - a substantial portion of our cash flows from operations will have to be
dedicated to interest and principal payments and may not be available for
operations, working capital, capital expenditures, expansion, acquisitions
or general corporate or other purposes;
- - it may impair our ability to obtain additional financing in the future;
- - it may limit our flexibility in planning for, or reacting to, changes in
our business and industry; and
- - it may make us more vulnerable to downturns in our business, our industry
or the economy in general.
NOTE HOLDERS MAY NOT BE ABLE TO CONVERT THEIR NOTES INTO COMMON SHARES, OR, AT
OUR ELECTION, CASH OR A COMBINATION OF CASH AND SHARES, BEFORE NOVEMBER 15,
2021, AND THE VALUE OF THE NOTES COULD BE LESS THAN THE VALUE OF THE COMMON
SHARES INTO WHICH THEIR NOTES COULD OTHERWISE BE CONVERTED.
Prior to November 15, 2021, the Notes are convertible into Common Shares or, at
our election, cash or a combination of cash and shares, only if specified
conditions are met. These conditions may not be met. If these conditions for
conversion are not met, Note holders will not be able to convert their Notes and
they may not be able to receive the value of the Common Shares into which the
Notes would otherwise be convertible. In addition, for these and other reasons,
the trading price of the Notes could be substantially less than the conversion
value of the Notes.
WE HAVE MADE ONLY LIMITED COVENANTS IN THE INDENTURE FOR THE NOTES, AND THESE
LIMITED COVENANTS MAY NOT PROTECT NOTE HOLDERS' INVESTMENT.
The Indenture for the Notes does not:
- - require us to maintain any financial ratios or specific levels of net
worth, revenues, income, cash flows or liquidity and, accordingly, does not
protect holders of the Notes in the event that we experience significant
adverse changes in our financial condition or results of operations;
- - limit our subsidiaries' ability to incur indebtedness which would
effectively rank senior to the Notes;
- - limit our ability to incur secured indebtedness or indebtedness that is
equal in right of payment to the Notes;
- - restrict our subsidiaries' ability to issue securities that would be senior
to the Common Shares of our subsidiaries held by us;
- - restrict our ability to repurchase our securities; or
- - restrict our ability to pledge our assets or those of our subsidiaries; or
- - restrict our ability to make investments or to pay dividends or make other
payments in respect of Common Shares or other securities ranking junior to
the Notes.
Furthermore, the Indenture for the Notes contains only limited protections in
the event of a change in control. We could engage in many types of transactions,
such as acquisitions, refinancings or recapitalizations, that could
substantially affect our capital structure and the value of the Notes and
23
RISK FACTORS
Common Shares but would not constitute a "change in control" that permits
holders to require us to repurchase their Notes. For these reasons, prospective
investors should not consider the covenants in the Indenture or the repurchase
feature of the Notes as a significant factor in evaluating whether to invest in
the Notes.
THE NOTES MAY NOT HAVE AN ACTIVE MARKET AND THEIR PRICE MAY BE VOLATILE. YOU MAY
BE UNABLE TO SELL YOUR NOTES AT THE PRICE YOU DESIRE OR AT ALL
The initial offering of Notes was a new issue of securities. There can be no
assurance that a liquid market will develop or be maintained for the Notes, that
you will be able to sell any of the Notes at a particular time (if at all) or
that the prices you receive if or when you sell the Notes will be above their
initial offering price. Although the Notes sold to qualified institutional
buyers are eligible for trading in the PORTAL Market, we do not intend to list
the Notes on any national securities exchange. UBS Securities LLC, as initial
purchaser, has advised us that it intends to make a market in the Notes, but it
has no obligation to do so and may cease its market-making at any time without
notice. In addition, market making will be subject to the limits imposed by the
US Securities Act and the Securities Exchange Act and may be limited during the
pendency of any shelf registration statement or exchange offer. The liquidity of
the trading market in the Notes, and the market price quoted for the Notes, may
be adversely affected by, among other things:
- - changes in the overall market for debt securities;
- - changes in our financial performance or prospects;
- - the prospects for companies in our industry generally;
- - the number of holders of the Notes;
- - the interest of securities dealers in making a market for the Notes; and
- - prevailing interest rates.
IF WE DECIDE TO SETTLE ANY CONVERSION OF NOTES IN CASH, HOLDERS MAY RECEIVE LESS
PROCEEDS THAN EXPECTED BECAUSE THE VALUE OF OUR COMMON STOCK MAY DECLINE BETWEEN
THE DAY THAT THEY EXERCISE THEIR CONVERSION RIGHTS AND THE DAY THE VALUE OF
THEIR SHARES IS DETERMINED.
The conversion value that Note holders will receive upon conversion of their
Notes if we decide to settle the conversion in cash, in whole or in part, is
generally determined in part by the average of the volume-weighted average price
per Common Share on The NASDAQ Global Market for the 20 consecutive trading days
beginning on the first trading day immediately following the conversion notice
retraction deadline. Accordingly, if the price of Common Shares decreases after
a holder tenders its Notes for conversion, the conversion value it receives may
be adversely affected.
AN ADVERSE RATING OF THE NOTES MAY CAUSE THEIR TRADING PRICE TO FALL.
A rating agency may assign a rating that adversely affects the market for the
Notes. Ratings agencies may also lower ratings on the Notes in the future. If
rating agencies assign a lower-than-expected rating or reduce, or indicate that
they may reduce, their ratings in the future, the trading price of the Notes
could significantly decline.
FUTURE ISSUANCES OF COMMON SHARES AND HEDGING ACTIVITIES MAY DEPRESS THE TRADING
PRICE OF COMMON SHARES AND THE NOTES.
Any issuance of equity securities after this offering, including the issuance of
shares upon conversion of the Notes, could dilute the interests of our existing
shareholders, including holders who have received shares upon conversion of
their Notes, and could substantially decrease the trading price of Common Shares
and the Notes. We may issue equity securities in the future for a number of
reasons, including to finance our operations and business strategy, to adjust
our ratio of debt to equity, to satisfy our obligations upon the exercise of
options or for other reasons. As of September 30, 2006, there were:
- - 2,619,457 Common Shares issuable upon exercise of outstanding options, at a
weighted average exercise price of CDN$17.06 per share, of which options to
purchase 1,366,624 shares were exercisable; and
24
RISK FACTORS
- - 2,216,911 Common Shares available for future grant under our stock option
plan and an agreement to issue up to 220,000 Common Shares to our President
and Chief Executive Officer as of September 30, 2006.
In addition, we have the ability to sell up to US$60 million of Common Shares
under the ELOC facility. See "Our business -- Recent developments."
In addition, the price of Common Shares could also be affected by possible sales
of Common Shares by investors who view the Notes as a more attractive means of
equity participation in us and by hedging or arbitrage trading activity that we
expect to develop involving Common Shares. This hedging or arbitrage could, in
turn, affect the trading price of the Notes and any Common Shares that holders
receive upon conversion of the Notes.
THE EFFECT OF DRAW-DOWNS AND THE ISSUANCE OF COMMON SHARES UNDER THE ELOC MAY
HAVE A NEGATIVE EFFECT ON THE MARKET PRICE OF THE COMMON SHARES.
The increase in the number of Common Shares issued and outstanding pursuant to
draw-downs under the ELOC will result in dilution to existing shareholders and
could have a negative effect on the market price of the Common Shares. Since
there will be more Common Shares sold or available for sale, the market price of
the Common Shares may decline or not increase as much as it might have without
the availability of such Common Shares. See "Our business -- Recent
developments."
PROVISIONS IN THE INDENTURE FOR THE NOTES COULD DISCOURAGE AN ACQUISITION OF US
BY A THIRD PARTY, EVEN IF THE ACQUISITION WOULD BE FAVOURABLE TO NOTE HOLDERS.
If a "change in control" (as defined in the Indenture) occurs, holders of the
Notes will have the right, at their option, to require us to repurchase all or a
portion of their Notes. In addition, the Indenture for the Notes prohibits us
from engaging in certain mergers or acquisitions unless, among other things, the
surviving entity assumes our obligations under the Notes. These could prevent or
deter a third party from acquiring us even where the acquisition could be
beneficial to Note holders.
WE DO NOT INTEND TO PAY CASH DIVIDENDS ON COMMON SHARES IN THE FORESEEABLE
FUTURE.
We have never declared or paid any cash dividends on Common Shares, and we
currently do not anticipate paying any cash dividends in the foreseeable future.
Because we do not anticipate paying cash dividends for the foreseeable future,
holders who convert their Notes and receive Common Shares will not realize a
return on their investment unless the trading price of Common Shares
appreciates, which we cannot assure.
IN THE EVENT OF A DEFAULT UNDER THE NOTES, NOTE HOLDERS MAY HAVE DIFFICULTIES
ENFORCING JUDGMENTS OBTAINED IN THE UNITED STATES BECAUSE MOST OF OUR ASSETS AND
MOST OF OUR OFFICERS AND DIRECTORS ARE LOCATED OUTSIDE THE UNITED STATES.
Most of our assets, as well as most of our officers and directors, are located
outside the United States. For this reason, Note holders may encounter
difficulties collecting in the United States on a judgment obtained in the
United States against us or certain of our directors or officers, including with
respect to payments or defaults on the Notes. Furthermore, the enforcement in
Quebec, Canada, our principal jurisdiction, of a judgment obtained in the United
States would entail additional costs and could afford us or any of our directors
and officers located in Canada with additional grounds for defense. This could
add to the delays in enforcing such a judgment and could prevent its enforcement
altogether. In addition, there is doubt as to the enforcement in Canada of
actions based solely on US federal securities laws, and, therefore, some of the
remedies that would typically be available to a US investor under those laws
could be unavailable to a US investor in Canada. See "Description of the Notes
- -- Enforceability of judgments."
25
Forward-looking statements
This prospectus and the documents incorporated by reference herein contain
forward-looking statements concerning the business, operations, financial
performance and condition of Neurochem. When used in this prospectus the words
"believe," "anticipate," "intend," "estimate" and "expect" and similar
expressions are intended to identify forward-looking statements, although not
all forward-looking statements contain such words. These forward-looking
statements are based on current expectations and are naturally subject to
uncertainty and changes in circumstances that may cause actual results to differ
materially from those expressed or implied by such forward-looking statements.
Such statements, based as they are on the current expectations of management,
inherently involve numerous risks and uncertainties, known and unknown, many of
which are beyond Neurochem's control. Such risks include but are not limited to:
the impact of general economic conditions, general conditions in the
pharmaceutical industry, changes in the regulatory environment in the
jurisdictions in which Neurochem does business, stock market volatility,
fluctuations in costs and changes to the competitive environment due to
consolidation. More detailed information about these and other factors is
included in this prospectus under the section entitled "Risk factors" as well as
in other documents incorporated by reference in this prospectus. Many of these
factors are beyond our control; therefore, future events may vary substantially
from what we currently foresee. You should not place undue reliance, if any, on
such forward-looking statements. Neurochem disavows and is under no obligation
to update or alter such forward-looking statements whether as a result of new
information, future events or otherwise.
Exchange rate information
The following table sets forth:
- - the noon exchange rates for one Canadian dollar, expressed in US dollars,
in effect at the end of the periods indicated, as quoted by the Bank of
Canada;
- - the high and low noon exchange rates during such periods, as quoted by the
Bank of Canada; and
- - the average noon exchange rates for such periods.
SIX MONTHS YEAR YEAR NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
2003 2004 2005 2005 2006
------------ ------------ ------------ ------------- -------------
Closing.. US$0.7738 US$0.8308 US$0.8577 US$0.8613 US$0.8966
High..... 0.7738 0.8493 0.8690 0.8613 0.9099
Low...... 0.7084 0.7159 0.7872 0.7872 0.8528
Average.. 0.7417 0.7683 0.8254 0.8171 0.8829
On February 7, 2007, the noon exchange rate for one Canadian dollar, expressed
in US dollars, as quoted by the Bank of Canada, was US$0.8437.
26
Use of proceeds
Except as otherwise set forth in a prospectus supplement, we will use any
net proceeds received by us from the sale of the Securities from time to time
for general corporate purposes, which may include, but are not limited to,
advancing our current clinical development programs or initiating new ones,
research for new or existing products and capital expenditures. We will not
receive any proceeds from the sale of Securities issued hereunder by any selling
securityholders. The estimated minimum net proceeds to be received by us
pursuant to Offerings is US$25 million. There are no minimum net proceeds to the
selling securityholders of the Notes.
27
Capitalization and changes in loan and capital structure
The following table sets forth our cash, cash equivalents and short-term
investments and capitalization as of September 30, 2006.
- - on an actual basis; and
- - on an as adjusted basis to give effect to the sale of the Notes, after
deducting discounts and commissions and offering expenses we paid.
For your convenience, we have converted certain Canadian dollar amounts as of
September 30, 2006 into US dollars at the rate of US$0.8966 per CDN$1.00 (the
noon exchange rate quoted by the Bank of Canada on September 30, 2006). You
should not view these currency translations as a representation that the
Canadian dollar amounts actually represent the indicated US dollar amounts or
could be or could have been converted into US dollars at the rates indicated or
at any other rate.
AS OF SEPTEMBER 30, 2006
-----------------------------------------------
(in thousands, except share and per share data) ACTUAL AS ADJUSTED ACTUAL AS ADJUSTED
-------- ----------- -------- -----------
(CDN$) (CDN$) (US$) (US$)
Cash, cash equivalents and marketable
securities ................................. 26,769 71,565 24,001 64,165
======== ======== ======== ========
6% Convertible senior notes (2) ............... -- 37,324(2) -- 33,465(2)
Other long-term liabilities (1) ............... 610 610 547 547
-------- -------- -------- --------
Total long-term liabilities ................... 610 37,934 547 34,012
-------- -------- -------- --------
Shareholders' equity:
Common Shares, no par value; unlimited number
authorized; 38,690,945 shares issued and
outstanding, actual and as adjusted ........ 270,793 270,793 242,793 242,793
Preferred shares, no par value; unlimited
number authorized; no shares issued and
outstanding, actual and as adjusted ........ -- -- -- --
Holder conversion option ...................... -- 9,614(2) -- 8,620(2)
Additional paid in capital .................... 12,920 12,920 11,584 11,584
Deficit ....................................... (276,776) (277,214)(2) (248,156) (248,549)(2)
-------- -------- -------- --------
Total shareholders' equity .................... 6,937 16,113 6,221 14,448
-------- -------- -------- --------
Total capitalization .......................... 7,547 54,047 6,768 48,460
======== ======== ======== ========
(1) Excludes the long-term deferred gain on sale of property of CDN$18.7
million.
(2) Under Canadian GAAP, the Notes would be considered a compound financial
instrument and accordingly we will separately record on our balance sheet
the liability component (US$33.5 million) and equity component (US$8.6
million). In addition, offering expenses related to the equity component in
the amount of US$0.4 million will be charged to the deficit. Under US GAAP,
the full amount of the Notes would be considered a liability and the
aggregate amount of US$42.1 million would be recorded on our balance sheet
as 6% convertible senior notes. No amount would be allocated to the equity
component under US GAAP.
The table above should be read in conjunction with our consolidated financial
statements and related notes incorporated by reference in this prospectus. The
number of Common Shares outstanding excludes the following:
- - 2,619,457 Common Shares issuable upon exercise of options outstanding as of
September 30, 2006, at a weighted average exercise price of CDN$17.06 per
share, of which options to purchase 1,366,624 shares were exercisable as of
that date;
28
CAPITALIZATION
- - 2,216,911 Common Shares available for future grant under our stock option
plan and an agreement to issue up to 220,000 Common Shares to our President
and Chief Executive Officer as of September 30, 2006; and
- - 2,134,471 Common Shares initially issuable upon conversion of the Notes.
Since September 30, 2006, the only changes in our capitalization have been:
- - the issuance of 86,927 Common Shares upon the exercise of options
outstanding under our equity incentive plans;
- - the issuance of a US$40,000,000 aggregate principal amount of Notes on
November 9, 2006 and a US$2,085,000 aggregate principal amount of Notes on
November 17, 2006.
29
Price range and trading volumes of Common Shares
Common Shares are traded publicly on The NASDAQ Global Market under the symbol
"NMRX" and on the TSX under the symbol "NRM." The following table presents
quarterly information on the price range of Common Shares. This information
indicates the high and low sales prices and the aggregate volume of trading of
Common Shares on The NASDAQ Global Market and the TSX.
NASDAQ GLOBAL MARKET TSX
-------------------------- -------------------------
VOLUME HIGH LOW VOLUME HIGH LOW
---------- ----- ----- --------- ----- -----
(US$) (US$) (CDN$) (CDN$)
FISCAL YEAR ENDED DECEMBER 31, 2004
First quarter ................... 3,853,387 26.04 18.05 6,806,084 33.24 22.05
Second quarter .................. 6,617,780 27.43 19.49 5,775,204 36.55 26.20
Third quarter ................... 11,097,629 24.48 11.85 7,456,225 31.00 15.55
Fourth quarter .................. 6,008,670 20.97 15.33 4,009,027 25.09 19.50
FISCAL YEAR ENDED DECEMBER 31, 2005
First quarter ................... 12,366,554 20.80 11.78 7,943,814 25.50 14.26
Second quarter .................. 15,366,913 13.46 6.89 6,855,167 16.65 8.50
Third quarter ................... 4,318,520 13.00 9.81 2,340,558 15.20 11.75
Fourth quarter .................. 5,186,555 15.25 11.96 3,536,122 18.10 13.85
FISCAL YEAR ENDING DECEMBER 31, 2006
First quarter ................... 4,666,700 16.47 13.56 3,785,400 18.99 15.57
Second quarter .................. 6,321,700 15.09 10.09 3,198,800 17.10 11.20
Third quarter ................... 16,757,900 20.36 9.23 7,582,600 22.69 10.40
Fourth quarter .................. 18,043,556 26.51 15.56 6,773,619 29.99 17.78
On February 7, 2007, the last trade of the Common Shares on NASDAQ was at
US$17.05 per share and the closing price on the TSX was CDN$20.25 per share.
Dividend policy
We have not declared any dividends since our incorporation. Any future
determination to pay dividends will remain at the discretion of our board of
directors and will depend on our financial condition, results of operations,
capital requirements and such other factors as our board of directors deems
relevant.
30
Our business
We are a biopharmaceutical company focused on the development and
commercialization of innovative therapeutics to address critical unmet medical
needs. We currently have one program for which we have completed and submitted
an NDA to the FDA, one program in Phase III clinical development with one
clinical trial recently completed and one other ongoing, and another program
which has completed a Phase IIa clinical trial. Each of these programs targets
disorders for which there are currently no known cures and limited therapies.
As our drugs target what are known or believed to be the underlying causes of
disorders and potentially inhibit further disease progression, the product
candidates are referred to as "disease modifiers."
As they all target amyloid-related diseases, our investigational product
candidates consist of small molecules that have been shown to interfere with
amyloidosis and the associated build-up of amyloid leading to the damage of the
tissues in the body and/or their related functions. Both eprodisate (KIACTA(TM);
formerly FIBRILLEX(TM)) and tramiprosate (ALZHEMED(TM) and CEREBRIL(TM)), our
most advanced product candidates, are based on this technology.
Eprodisate (KIACTA(TM)), our most advanced product candidate, completed a Phase
II/III clinical trial in December 2004. Eprodisate (KIACTA(TM)) is targeted to
treat AA amyloidosis, a fatal disease, which is often associated with kidney
dysfunction. In December 2004, through our wholly-owned subsidiary, Neurochem
(International) Limited, we entered into a definitive collaboration and
distribution agreement with Centocor, a subsidiary of Johnson & Johnson, for the
exclusive distribution rights for eprodisate (KIACTA(TM)) for the prevention and
treatment of AA amyloidosis, with the exception of Canada, Switzerland, Japan,
Taiwan and South Korea, for which the distribution rights remain with Neurochem.
We submitted to the FDA the final modules of our NDA for eprodisate (KIACTA(TM))
in February 2006 and are now seeking marketing approval of eprodisate
(KIACTA(TM)) for the treatment of AA amyloidosis. That submission completed the
"rolling" NDA that was initiated in August 2005 under the Continuous Marketing
Application (CMA) Pilot 1 program. The FDA agreed in June 2005 to file and
review the NDA. See "-- Recent developments." In August 2006, we received an
approvable letter from the FDA with respect to the eprodisate (KIACTA(TM)) NDA.
In September 2006, our Marketing Authorization Application or MAA for eprodisate
(KIACTA(TM)) was validated by the EMEA and in October 2006, we announced that we
had submitted a complete response to the FDA approvable letter for eprodisate
(KIACTA(TM)). Having been subsequently awarded a Class II review by the FDA, a
decision on eprodisate (KIACTA(TM)) is expected on or about April 16, 2007. See
"-- Recent developments." KIACTA(TM) is a trademark of Centocor.
Tramiprosate (ALZHEMED(TM)), our next most advanced product candidate, is being
developed for the treatment of AD. Tramiprosate (ALZHEMED(TM)) is currently in
advanced clinical development. The Phase III clinical trials, designed to assess
the safety, efficacy and disease-modifying effect of tramiprosate (ALZHEMED(TM))
in mild-to-moderate AD patients, began in North America and Europe in June 2004
and September 2005, respectively. The North American Phase III clinical trial
was recently completed. Enrolment of patients participating in the European
clinical trial is scheduled to be completed in the early 2007. We are in
discussions with various potential partners with respect to collaboration on and
the commercialization of tramiprosate (ALZHEMED(TM)).
Tramiprosate (CEREBRIL(TM)) is our third product candidate for the treatment of
Hemorrhagic Stroke due to CAA. A Phase IIa clinical trial was completed in
January 2004. We are currently prioritizing our human and financial resources on
the development of our eprodisate (KIACTA(TM)) and tramiprosate (ALZHEMED(TM))
programs. Accordingly, we plan to await the outcome of one or both of these
programs before advancing our CAA program any further.
We also have ongoing discovery programs that are focused on the development of
next generation AD compounds and a vaccine for the prevention and/or treatment
of AD.
RECENT DEVELOPMENTS
Since March 22, 2006, the date of our annual information form and our SEC Form
40-F for our fiscal year ended December 31, 2005, we have had the following
significant developments:
31
OUR BUSINESS
EPRODISATE (KIACTA(TM), FORMERLY FIBRILLEX(TM)) - FDA ACCEPTED AND FILED THE
NDA, GRANTED PRIORITY REVIEW AND ISSUED APPROVABLE LETTER.
In April 2006, the NDA for eprodisate (KIACTA(TM)), was filed and granted
priority review by the FDA. Priority review status of the application normally
reduces the standard review time for an application to six months. On August 11,
2006, Neurochem announced that it had received an approvable letter from the FDA
for eprodisate (KIACTA(TM)) for the treatment of AA amyloidosis. In its letter,
the FDA requested additional efficacy information, as well as a safety update.
The FDA asked for further manufacturing and pharmacokinetic information, and
stated that a QT cardiac status clinical study should be submitted as part of a
Phase 4 (post approval) commitment. The FDA stated that the efficacy information
would probably need to be addressed by one or more additional clinical trials.
As an alternative, the FDA also stated that significant findings obtained from a
complete follow-up of patients in the existing study could be persuasive.
TRAMIPROSATE (ALZHEMED(TM)) - TWO PHASE III CLINICAL TRIALS ON TRACK.
In April 2006, data from the open-label extension study of the Phase II clinical
trial for tramiprosate (ALZHEMED(TM)), involving mild-to-moderate AD patients,
continued to show clinically important benefits on cognitive and global
performance measures, consistent with the stabilization of the disease, in a
portion of patients (four out of nine) with mild AD after three years on study
medication. The data were presented by Paul S. Aisen, M.D., Professor of
Neurology and Medicine at Georgetown University Medical Center, and principal
investigator in the United States of the ongoing Phase III clinical trial for
tramiprosate (ALZHEMED(TM)). The presentation was given at the 9th international
Geneva/Springfield Symposium on advances in Alzheimer Therapy (Geneva,
Switzerland).
Additional efficacy results on tramiprosate (ALZHEMED(TM)) were also presented
at recent scientific and medical conferences. Due to the capability of
tramiprosate (ALZHEMED(TM)) to bind to soluble amyloid [ ](BETA) (A(BETA))
peptide and interfere with the amyloid cascade, data from in vitro studies
suggest that tramiprosate (ALZHEMED(TM)) exhibits neuroprotective effects
against A(BETA) induced toxicity. The exact molecular mechanism underlying these
effects is currently under investigation.
Tramiprosate (ALZHEMED(TM)) recently completed a multicentre, randomized,
double-blind, placebo-controlled, three-armed, parallel-designed Phase III
clinical trial in North America. A total of 1,052 patients at 67 clinical sites
across the United States and Canada were randomized to receive study medication
over a period of 18 months. All patients who completed the North American Phase
III clinical trial were eligible to receive tramiprosate (ALZHEMED(TM)) in an
18-month extension study.
The Company also launched its Phase III clinical trial in Europe in September
2005. This international, multicentre, randomized, double-blind,
placebo-controlled, three-armed, parallel-designed Phase III clinical trial is
progressing on schedule. Just as for the North American trial, the European
study will investigate the safety, efficacy and the potential to arrest or slow
the progression of AD with tramiprosate (ALZHEMED(TM)) in some 930
mild-to-moderate AD patients. Enrolment is advancing well and is expected to be
completed early in 2007.
The safety profile of tramiprosate's (ALZHEMED(TM)) is well characterized.
During 2005 and subsequent to year end, Neurochem received five recommendations
from its Independent Safety Review Board for tramiprosate (ALZHEMED(TM)) to
continue the Company's North American Phase III clinical trial for the treatment
of AD.
FINAL AWARD ANNOUNCED IN ICC ARBITRATION AND LITIGATION VOLUNTARILY DISMISSED
In June 2006 the International Chamber of Commerce Court of Arbitration (the
"ICC") issued its Final Award (the "Final Award") in the arbitration dispute
involving Neurochem Inc. and Neurochem (International) Limited (in this section
of this prospectus, collectively referred to as "Neurochem") and Immtech
Pharmaceuticals, Inc. (formerly known as Immtech International, Inc. or
"Immtech"). The dispute concerns an agreement entered into between Immtech and
Neurochem Inc. in April 2002 (the "Agreement") under which Neurochem Inc. had
the right to apply its proprietary anti-amyloid
32
OUR BUSINESS
technology to test certain compounds to be provided by Immtech. The ICC denied
the majority of Immtech's claims.
Immtech brought claims against Neurochem Inc. in legal proceedings filed on
August 12, 2003, with the Federal District Court for the Southern District of
New York, USA (the "Court"). An amended complaint was filed in January 2004
adding the University of North Carolina at Chapel Hill ("UNC") and Georgia State
University, Research Foundation, Inc. (together with UNC, the "Universities") as
plaintiffs and Neurochem (International) Limited as defendant. The dispute was
presented to a tribunal (the "Tribunal") convened in accordance with the rules
of the ICC. An evidentiary hearing before the Tribunal was held in September
2005. In the Final Award, the Tribunal held that Neurochem did not
misappropriate any of Immtech's compounds, information or trade secrets and that
Immtech was not entitled to any interest in, or ownership or assignment of,
Neurochem's patent applications.
The Tribunal found that Neurochem had breached certain sections of the
Agreement, and Immtech was awarded US$35,000 in damages, plus interest thereon.
Immtech was awarded only a portion of the ICC's administrative charges and
arbitral fees and costs incurred by the Tribunal which had been previously
advanced by Immtech, as well as a portion of Immtech's arbitration-related legal
fees. Those charges, fees and costs amounted to approximately US$1.83 million.
On July 10, 2006, Immtech submitted an application in the form of a letter to
the Tribunal and the ICC seeking determination by the Tribunal of an issue
Immtech asserted the Tribunal did not decide; specifically, Immtech claimed that
certain Neurochem "inventions," and pending patent applications relating
thereto, should be assigned to, and therefore be owned by Immtech and that the
Final Award failed to distinguish between the issue of ownership, as distinct
from the issue of inventorship. On July 28, 2006, we filed a response opposing
Immtech's request for a further determination with respect to ownership of the
Neurochem inventions and pending patent applications.
The Tribunal issued an Addendum to the Final Award dated September 21, 2006, in
which it denied Immtech's request to make a further determination.
On January 25, 2007, Immtech and the Universities filed a Notice of Voluntary
Dismissal with the Court, bringing to an end the litigation action described
herein. The litigation had been stayed since 2004 when the Court had ordered
Immtech to submit its claims to arbitration as provided for in the underlying
agreement between Immtech and Neurochem, leaving the claims of the Universities
to be decided after the conclusion of the arbitration.
The voluntary dismissal occurred after a January 16, 2006, status conference
where the Court granted Neurochem permission to take discovery of the plaintiffs
as to the extent to which the Universities controlled Immtech's involvement in
the ICC arbitration between Neurochem and Immtech completed last year and
described herein. In the litigation, the Universities asserted that they had
claims against Neurochem that were independent of the claims asserted by Immtech
in the arbitration. Neurochem's position is that the Universities had no claims.
The discovery ordered by the Court in a January 17, 2007 order would have been
in aid of Neurochem's motion for summary judgment as to any claims made by the
Universities. The plaintiffs voluntarily dismissed their complaint against
Neurochem without any payment, license, business agreement, concession or
compromise by Neurochem.
EQUITY LINE OF CREDIT FACILITY
In August 2006 Neurochem entered into a securities purchase agreement with
Cityplatz for an equity line of credit facility (the "ELOC") with a 24-month
term that provides the Company with the right to issue and sell up to US$60
million worth of Common Shares to Cityplatz at a discount of 3% of the market
price of the Common Shares. The agreement provides for an obligation on the part
of Neurochem, subject to certain conditions, to sell at least US$25 million
worth of Common Shares over the term of the facility. Rodman & Renshaw, LLC, a
registered broker/dealer in the United States, is acting as placement agent in
connection with the ELOC. We also signed a registration rights agreement whereby
we agreed to file a registration statement (of which this prospectus forms a
part) covering the resale of the Common Shares issued under the facility. See
"Plan of distribution -- Resale of Common Shares issued under the ELOC."
CHANGE TO BOARD OF DIRECTORS
On August 18, 2006, Neurochem announced that Mr. Ronald Nordmann had resigned
from the Company's board of directors.
NEUROCHEM MARKETING AUTHORIZATION APPLICATION FOR EPRODISATE (KIACTA(TM))
ACCEPTED FOR REVIEW BY EMEA
In September 2006, our MAA for eprodisate (KIACTA(TM)) was validated by the
EMEA, which confirms that the regulatory review has started. We are seeking
marketing approval of our investigational product candidate, eprodisate
(KIACTA(TM)) in the European Union ("EU").
33
OUR BUSINESS
The MAA for eprodisate (KIACTA(TM)) will be reviewed under the Centralized
Procedure, where marketing authorization is applied for all EU Member States
(numbering 25 countries today), plus Norway and Iceland. Eprodisate (KIACTA(TM))
has been designated as an Orphan Medicinal Product in the EU, which normally
provides ten years of market exclusivity upon regulatory approval.
COMPLETE RESPONSE TO FDA FOR APPROVABLE LETTER FOR EPRODISATE (KIACTA(TM))
On October 16, 2006, we announced that we had submitted a complete response to
the FDA's August 2006 approvable letter to eprodisate (KIACTA(TM)).
PRIVATE PLACEMENT OF US$42.085 MILLION AGGREGATE PRINCIPAL AMOUNT OF
6% CONVERTIBLE SENIOR NOTES DUE 2026
We announced on November 9, 2006 the initial closing of a private placement with
UBS Securities LLC as initial purchaser, of US$40 million aggregate principal
amount of 6% convertible senior notes due in 2026, with a conversion premium of
20%. Neurochem Inc. had granted the initial purchaser a 30-day option to
purchase up to an additional US$2.085 million aggregate principal amount of the
Notes, which was exercised in full by UBS Securities LLC on November 15, 2006
and closed on November 17, 2006. Neurochem will pay interest on the Notes until
maturity on November 15, 2026, subject to earlier repurchase, redemption or
conversion.
Neurochem has been advised that the FMRC Family Trust (of which Dr. Francesco
Bellini, the Chairman, President and CEO of Neurochem, is a beneficiary) and
Power Technology Investment Corporation (a subsidiary of Power Corporation of
Canada), the shareholders of Picchio Pharma Inc., the indirect principal
shareholder of Neurochem, and certain officers and directors of Neurochem and/or
such entities have purchased approximately US$17.585 million aggregate principal
amount of Notes in the private placement.
APPOINTMENT OF MR. JOHN BERNBACH TO THE BOARD OF DIRECTORS
On January 12, 2007 we appointed Mr. John Bernbach to our board of directors.
Mr. Bernbach brings vast experience and expertise in advertising, marketing and
branding strategies to Neurochem. He is President and Founder of NTM (Not
Traditional Media) Inc., has served as Chairman and CEO of The Bernbach Group,
as Director and then as CEO and Chairman of North American Television, as
Chairman and Director of Avenue China and as President/COO of DDB Needham
Worldwide. He currently serves on several other boards, including the boards of
a number of non-profit organizations.
34
Description of share capital
Our authorized share capital consists of an unlimited number of Common Shares
and an unlimited number of Preferred Shares, all without nominal or par value.
As of February 7, 2007, 38,777,872 Common Shares and no Preferred Shares were
issued and outstanding. We have no current intention to issue Preferred Shares.
Common Shares. Each Common Share entitles the holder thereof to one vote at any
meeting of the shareholders of the Company, except meetings at which only
holders of a specified class of shares are entitled to vote. Subject to the
rights of holders of the Preferred Shares, the Common Shares are entitled to
receive, as and when declared by our board of directors, dividends in such
amounts as shall be determined by our board of directors. The holders of Common
Shares have the right, subject to the rights of the holders of Preferred Shares,
to receive the remaining property of the Company in the event of liquidation,
dissolution or winding-up of the Company, whether voluntary or involuntary.
Preferred Shares. The Preferred Shares may be issued from time to time in one or
more series, the terms of each series including the number of shares, the
designation, rights, preferences, privileges, priorities, restrictions,
conditions and limitations to be determined at the time of creation of each such
series by our board of directors without shareholder approval, provided that all
Preferred Shares will rank, with respect to dividends and return of capital in
the event of liquidation, dissolution, winding-up or other distribution of our
assets for the purpose of winding-up its affairs, pari passu among themselves
and in priority to all Common Shares or shares of any class ranking junior to
the Preferred Shares. Except as provided for in our articles of incorporation
(as amended), the holders of Preferred Shares shall not be entitled to receive
notice of meetings of our shareholders nor to attend thereat and shall not be
entitled to vote at any such meeting.
35
Earnings coverage ratio
The Company's earnings coverage ratios for the 12 months ended December 31, 2005
and the 12 months ended September 30, 2006 were each less than one-to-one.
For the 12-month period ended December 31, 2005:
(a) the consolidated net loss of the Company before interest expense and
income taxes was CDN$71,904,000; and
(b) the interest expense on the consolidated long-term debt of the Company
was CDN$342,000.
The earnings coverage ratio for the 12 months then ended is therefore -210
times.
Neurochem would have needed to attain net earnings of CDN$342,000 for the 12
months ended December 31, 2005 in order to have had a one-to-one earnings
coverage ratio on interest expenses relating to long-term debt.
For the 12-month period ended September 30, 2006:
(a) the consolidated net loss of the Company before interest expense and
income taxes was CDN$71,500,000; and
(b) the interest expense on the consolidated long-term debt of the Company
was CDN$53,000.
The earnings coverage ratio for the 12 months then ended is therefore -1349
times.
Neurochem would have needed to attain net earnings of CDN$53,000 for the 12
months ended September 30, 2006 in order to
have had a one-to-one earnings coverage ratio.
Neurochem's interest requirements, after giving effect to the issue of the
Notes, amounted to CDN$2,869,000 for the 12-months ended September 30, 2006.
Neurochem's consolidated net loss before interest expense and income tax for the
12 months then ended was CDN$71,500,000, which is -25 times Neurochem's interest
requirements for this period. Adjustments made to this information to give
effect to the issuance of any new debt securities under this prospectus will be
included in supplements to be delivered in connection with such Offerings.
36
Description of Securities
This prospectus qualifies:
- - the resale of up to US$60 million worth of Common Shares that we may sell
to Cityplatz Limited pursuant to an equity line of credit facility (see
"Our business-Equity line of credit facility") entered into by the Company
in August 2006. For a description of the Common Shares, please see
"Description of share capital."
- - the resale of US$42.085 million aggregate principal amount of 6%
convertible senior unsecured Notes due 2026 issued under an Indenture dated
as of November 9, 2006 between the Company and The Bank of New York, as
trustee, and the Common Shares issuable upon conversion of the Notes. For a
description of the Notes, please see "Description of the Notes."
Description of the Notes
We issued the Notes under an Indenture dated as of November 9, 2006, between us
and The Bank of New York, as trustee. The following summary of the terms of the
Notes, the Indenture and the Registration Rights Agreement does not purport to
be complete and is subject, and qualified in its entirety by reference, to the
detailed provisions of the Notes, the Indenture and the Registration Rights
Agreement. Copies of the Indenture and the Registration Rights Agreement will be
provided upon request. They are also available for inspection at the office of
the Trustee and are available online at www.sedar.com. Those documents, and not
this description, define the legal rights of the Notes holders.
For purposes of this summary, the terms "Neurochem," "we," "us" and "our" refer
only to Neurochem Inc. and not to any of its subsidiaries, unless we specify
otherwise. Unless the context requires otherwise, the term "interest" includes
"additional interest" and "additional amounts."
GENERAL
The Notes:
- - are limited to US$42.085 million aggregate principal amount;
- - bear interest at a rate of 6% per annum, payable semi-annually in arrears
on May 15 and November 15 of each year, beginning on May 15, 2007, to
holders of record at the close of business on the preceding May 1 and
November 1, respectively, except as described below;
- - bear additional interest if we fail to comply with the obligations we
describe under "-- Registration rights, additional interest";
- - are issued in denominations of integral multiples of US$1,000 principal
amount;
- - are our unsecured indebtedness and will be equal in right of payment to any
senior unsecured indebtedness as described under "-- Ranking";
- - are convertible into Common Shares based on an initial conversion rate of
50.7181 shares per US$1,000 principal amount of Notes (which represents an
initial conversion price of approximately US$19.72 per share) under the
conditions and subject to such adjustments described under "-- Conversion
rights";
- - permit us to satisfy our conversion obligation in cash, Common Shares or a
combination of cash and Common Shares;
- - are redeemable, in whole or in part, by us at any time on or after November
15, 2011, at a redemption price in cash equal to 100% of the principal
amount of the Notes we redeem, plus accrued and unpaid interest to, but
excluding, the redemption date, as described under "-- Redemption of Notes
at our option";
37
DESCRIPTION OF NOTES
- - are redeemable by us at any time, subject to certain elections of the
holders, at a redemption price in cash equal to 100% of the principal
amount of the Notes we redeem, plus accrued and unpaid interest to, but
excluding, the redemption date, if certain changes in the laws and
regulations relating to Canadian withholding taxes occur, as described
under "-- Redemption of Notes for tax reasons";
- - are subject to purchase by us at the option of the holder on each of
November 15, 2011, November 15, 2016 and November 15, 2021 at a purchase
price in cash equal to 100% of the principal amount of the Notes to be
purchased, plus accrued and unpaid interest to, but excluding, the purchase
date, as described under "-- Purchase of Notes by us at the option of the
holder";
- - are subject to mandatory conversion at our option if a make-whole
fundamental change occurs before November 15, 2011, as described under "--
Conversion rights" and "-- Mandatory conversion upon a make-whole
fundamental change";
- - are subject to repurchase by us at the option of the holder upon a change
in control, as described under "-- Holders may require us to repurchase
their Notes upon a change in control," at a repurchase price in cash equal
to 100% of the principal amount of the Notes to be repurchased, plus
accrued and unpaid interest to, but excluding, the change in control
repurchase date; and
- - mature on November 15, 2026, unless previously redeemed, repurchased or
purchased by us or converted.
All cash payments on the Notes will be made in US dollars.
We issued the Notes in denominations of integral multiples of US$1,000 principal
amount, without coupons. We initially issued the Notes as global securities in
book-entry form, with the exception of the US$2.5 million principal amount
issued in registered form. We will make payments in respect of the Notes by wire
transfer of immediately available funds to the accounts specified by holders of
the Notes. If a holder of a Note that has been subsequently issued in
certificated form does not specify an account, we will mail a check to that
holder's registered address.
A holder may convert Notes at the office of the conversion agent, present Notes
for registration of transfer at the office of the registrar for the Notes and
present Notes for payment at maturity at the office of the paying agent. We have
appointed the Trustee as the initial conversion agent, registrar and paying
agent for the Notes.
We will not provide a sinking fund for the Notes. The Indenture does not contain
any financial covenants and will not limit our ability to incur additional
indebtedness (including senior or secured indebtedness), pay dividends or
repurchase our securities. In addition, the Indenture does not provide any
protection to holders of Notes in the event of a highly leveraged transaction or
a change in control, except as, and only to the limited extent, described under
"-- Holders may require us to repurchase their Notes upon a change in control"
and "-- Consolidation, merger and sale of assets."
If any payment date with respect to the Notes falls on a day that is not a
Business Day, we will make the payment on the next Business Day. The payment
made on the next Business Day will be treated as though it had been made on the
original payment date, and no interest will accrue on the payment for the
additional period of time.
INTEREST PAYMENTS
We will pay interest on the Notes at a rate of 6% per annum, payable
semi-annually in arrears on each May 15 and November 15 of each year, beginning
on May 15, 2007. Except as described below, we will pay interest that is due on
an Interest Payment Date to holders of record at the close of business on the
preceding May 1 and November 1, respectively. Interest will accrue on the Notes
from and including November 9, 2006 or from and including the last date in
respect of which interest has been paid or provided for, as the case may be, to,
but excluding, the next Interest Payment Date or Maturity Date, as the case may
be. We will pay interest on the Notes on the basis of a 360-day year consisting
of twelve 30-day months.
38
DESCRIPTION OF NOTES
IF A HOLDER SURRENDERS A NOTE FOR CONVERSION AFTER THE CLOSE OF BUSINESS ON THE
RECORD DATE FOR THE PAYMENT OF AN INSTALMENT OF INTEREST AND BEFORE THE RELATED
INTEREST PAYMENT DATE, THEN, DESPITE THE CONVERSION, WE WILL, ON THE INTEREST
PAYMENT DATE, PAY THE INTEREST DUE WITH RESPECT TO THE NOTE TO THE PERSON WHO
WAS THE RECORD HOLDER OF THE NOTE AT THE CLOSE OF BUSINESS ON THE RECORD DATE.
However, the holder who surrenders the Note for conversion during that period
must pay to the conversion agent upon surrender of the Note an amount equal to
the interest payable on such Interest Payment Date on the portion of the Note
being converted, unless:
- - we have called the Note for redemption;
- - the Note is surrendered for conversion after the record date immediately
preceding the maturity; or
- - we have specified a change in control repurchase date that is after a
record date but on or before to the next Interest Payment Date, and the
Note is tendered for conversion after that record date and on or before
that Interest Payment Date.
In addition, in no event will a holder that surrenders a Note for conversion
need to pay any overdue interest that has accrued on the Note.
If we redeem a Note, or if a holder surrenders a Note for purchase at the option
of the holder or for repurchase upon a change in control as described under "--
Purchase of Notes by us at the option of the holder" and "-- Holders may require
us to repurchase their Notes upon a change in control," we will pay accrued and
unpaid interest, if any, to the holder that surrenders the Note for redemption,
purchase or repurchase, as the case may be. HOWEVER, IF WE REDEEM A NOTE ON A
REDEMPTION DATE THAT IS AN INTEREST PAYMENT DATE, WE WILL PAY THE ACCRUED AND
UNPAID INTEREST DUE ON THAT INTEREST PAYMENT DATE INSTEAD TO THE RECORD HOLDER
OF THE NOTE AT THE CLOSE OF BUSINESS ON THE RECORD DATE FOR THAT INTEREST
PAYMENT.
For a description of when and to whom we must pay additional interest, if any,
see "-- Registration rights, additional interest."
CONVERSION RIGHTS
If the conditions for conversion of the Notes described below, including those
described under "-- Conditions for conversion" and "-- Conversion procedures,"
are satisfied, holders of Notes may, subject to prior maturity, redemption or
repurchase, convert their Notes in integral multiples of US$1,000 principal
amount into Common Shares based on an initial conversion rate of 50.7181 Common
Shares per US$1,000 principal amount of Notes, subject to adjustment as
described below. This rate results in an initial conversion price of
approximately US$19.72 per Common Share. We will not issue fractional Common
Shares upon conversion of the Notes and instead will pay a cash adjustment for
fractional shares based on the volume-weighted average price per Common Share on
the trading day immediately preceding the conversion date. Except as described
below, we will not make any payment or other adjustment on conversion with
respect to any accrued interest on the Notes, and we will not adjust the
conversion rate to account for accrued and unpaid interest. Upon conversion, we
may choose to deliver, in lieu of Common Shares, cash, or a combination of cash
and Common Shares.
In certain circumstances, a holder must pay interest if the conversion occurs
between a record date and an Interest Payment Date. See "-- Interest payments"
above.
The conversion right with respect to any Notes we have called for redemption
will expire at the close of business on the last Business Day immediately
preceding the redemption date, unless we default in the payment of the
redemption price. A Note for which a holder has delivered a purchase notice or a
change in control repurchase notice, as described below, requiring us to
purchase the Note may be surrendered for conversion only if the holder withdraws
the notice in accordance with the Indenture, unless we default in the payment of
the purchase price or change in control repurchase price.
In the event of:
- - a taxable distribution to holders of Common Shares which results in an
adjustment to the conversion rate, or
39
DESCRIPTION OF NOTES
- - an increase in the conversion rate at our discretion,
the holders of the Notes may, in certain circumstances, be deemed to have
received a distribution subject to US federal income tax as a dividend. This
generally would occur, for example, if we adjust the conversion rate to
compensate holders for cash dividends on Common Shares and could also occur if
we make other distributions of cash or property to our shareholders.
CONVERSION PROCEDURES
Upon conversion, we may choose to deliver, in lieu of Common Shares, cash or a
combination of cash and Common Shares, as described below under "-- Payment upon
conversion." At any time before maturity, we may irrevocably elect, in our sole
discretion, to satisfy our conversion obligation in cash (as described under "--
Payment upon conversion") up to 100% of the principal amount of the Notes
converted, with any remaining amount to be satisfied in Common Shares, with such
election not to take effect before the day that follows the fifth anniversary of
the issuance of the Notes.
To convert a certificated Note, the holder must complete the conversion notice
on the back of the Note and deliver it, together with the Note and any required
interest payment, to the office of the conversion agent for the Notes, which
will initially be the office of the Trustee. In addition, the holder must pay
any tax or duty payable as a result of any transfer involving the issuance or
delivery of the Common Shares in a name other than that of the registered holder
of the Note. The Note will be deemed to be converted on the date on which the
holder has satisfied all of these requirements. We refer to this date as the
"conversion date." To convert interests in a global Note, the holder must comply
with DTC's then applicable conversion program procedures.
A holder that has delivered a purchase notice or repurchase notice with respect
to a Note, as described below, may convert that Note only if the holder
withdraws the notice in accordance with the Indenture. See "-- Purchase of Notes
by us at the option of the holder" and "-- Holders may require us to repurchase
their Notes upon a change in control."
PAYMENT UPON CONVERSION
Upon conversion, a holder of Notes will receive Common Shares or, at our option,
cash or a combination of cash and Common Shares as described below.
In order to comply with the requirements of the NASDAQ Global Market and the
TSX, we may choose to not issue, in respect of our conversion obligation for the
Notes, more than a total of 7,740,345 Common Shares at below the greater of the
market value or book value of the Common Shares. This maximum number of shares
represents approximately 19.9% of our outstanding Common Shares as of the close
of business on the day immediately preceding the date of the offering memorandum
issued in connection with the initial offering of the Notes and is subject to
adjustment for stock splits, stock dividends and similar transactions. We
understand that whether Nasdaq will consider any Common Shares issued upon
conversion to be issued at below the greater of market or book value depends on
how much cash, if any, we choose to deliver upon conversion. For example, if we
make the election referred to below under "-- Our right to irrevocably elect
payment method," we understand that Nasdaq will view any Common Shares issued
upon conversion to be issued at below the greater of market or book value.
Conversely, if we only deliver Common Shares upon conversion, as described in
the fourth bullet point under "-- Conversion on or before the final notice date"
below, we understand that Nasdaq will not consider those shares to be issued at
below the greater of market or book value.
CONVERSION ON OR BEFORE THE FINAL NOTICE DATE
If we receive a holder's conversion notice on or before the date that is 20 days
before maturity or, with respect to Notes being redeemed, the applicable
redemption date, which we refer to as the "final notice date," the following
procedures will apply:
If we choose to satisfy all or any portion of our obligation to deliver Common
Shares upon conversion (which we refer to as our "conversion obligation"), in
cash, we will notify holders through the Trustee of the dollar amount to be
satisfied in cash (which must be expressed either as 100% of the conversion
obligation or as a fixed dollar amount per US$1,000 principal amount of Notes,
and which we refer to
40
DESCRIPTION OF NOTES
as the "cash amount") at any time on or before the date (the "cash settlement
notice deadline date") that is two Business Days following the conversion date.
If we timely elect to pay cash for any portion of the shares otherwise issuable
to a holder (other than in the case of an irrevocable election described below
under "--Our right to irrevocably elect payment method"), such holder may
retract the conversion notice at any time on or before the second Business Day
(the "conversion retraction deadline date") following the cash settlement notice
deadline date. If we do not elect to deliver cash in lieu of shares (other than
cash in lieu of fractional shares), no such retraction can be made (and a
conversion notice shall be irrevocable). If we elect to deliver cash for all or
a portion of the shares and if the conversion notice has not been retracted on
or before the conversion retraction deadline date, then settlement in cash or in
shares and cash will occur on the third Business Day following the final day of
the 20 consecutive trading-day period beginning on, and including, the trading
day after the conversion retraction deadline date (the "cash settlement
averaging period"). If we satisfy the entire conversion obligation in Common
Shares, then settlement will occur on the third Business Day following the
conversion date. However, if a holder surrenders a Note for conversion in
connection with a "make-whole fundamental change" under circumstances where we
must increase the conversion rate applicable to that Note, then we will deliver,
through the conversion agent, the consideration that is payable on account of
the increase in the conversion rate as soon as practicable, but in no event
after the second Business Day after the latest of:
- - the date the holder surrenders the Note for conversion;
- - the last trading day in the applicable cash settlement averaging period;
and
- - the effective date of the make-whole fundamental change.
Settlement amounts will be computed as follows:
- - If we satisfy the entire conversion obligation in shares, we will deliver a
number of whole shares to the Note holders for each US$1,000 principal
amount of Notes to be converted equal to the conversion rate. In addition,
we will pay cash for all fractional Common Shares as described above under
"-- General."
- - If we elect to satisfy the entire conversion obligation in cash, we will
deliver to the Note holders for each US$1,000 principal amount of Notes to
be converted cash in an amount equal to the product of:
- the conversion rate in effect at the close of business on the last
trading day of cash settlement averaging period, and
- the average of the applicable cash settlement share prices of Common
Shares during the cash settlement averaging period.
The "applicable cash-settlement share price," with respect to a trading
day, is equal to the volume-weighted average price per Common Share on the
NASDAQ Global Market on such trading day. We will make appropriate
adjustments to the applicable cash-settlement share prices in accordance
with the Indenture to account for the occurrence of certain events during
the cash settlement averaging period.
"Trading day" generally means any day during which
- trading in Common Shares generally occurs; and
- there is no "market disruption event" (a described below).
"Market disruption event" generally means (i) a failure by the primary
United States national securities exchange or market on which Common Shares
are listed or admitted to trading to open for trading during its regular
trading session or (ii) the occurrence or existence prior to 1:00 p.m. on
any trading day for Common Shares for an aggregate of at least 30 minutes
of any suspension or limitation imposed on trading (by reason of movements
in price exceeding limits permitted by the stock exchange or otherwise) in
Common Shares or in any options, contracts or future contracts relating to
Common Shares.
41
DESCRIPTION OF NOTES
The "volume weighted average price" per Common Share on any trading day
means such price (expressed in US dollars) on the NASDAQ Global Market or,
if Common Shares are not listed on the NASDAQ Global Market, on the
principal US exchange on which Common Shares are then listed, as displayed
on Bloomberg (or any successor service) in respect of the period from 9:30
a.m. to 4:00 p.m., New York City time, on such trading day; or, if such
price is not available, the volume weighted average price means the market
value per Common Share (expressed in US dollars) on such day as determined
by a nationally recognized investment banking firm retained for this
purpose by us.
Because, in this case, the amount of cash that we deliver on conversion
will be calculated based on the applicable cash-settlement share price over
a 20 trading-day period, holders of Notes bear the market risk that Common
Shares will decline in value between the time they surrender their Notes
for conversion and the day we deliver cash upon conversion.
- - If we elect to satisfy a fixed portion (other than 100%) of the conversion
obligation in cash, we will deliver to the holder, for each US$1,000
principal amount of Notes to be converted, the cash amount and a number of
shares equal to (i) the conversion rate in effect at the close of business
on the last trading day of cash settlement averaging period, minus (ii) the
cash amount divided by the average of the applicable cash-settlement share
prices of Common Shares during the cash settlement averaging period;
provided, however, that the number of shares will not be less than zero. In
addition, we will pay cash for all fractional Common Shares as described
above under "-- General." Because, in this case, the number of Common
Shares that we deliver on conversion will be calculated over a 20
trading-day period, holders of Notes bear the market risk that Common
Shares will decline in value between the time they surrender their Notes
for conversion and the day we deliver the Common Shares due upon
conversion.
CONVERSION AFTER THE FINAL NOTICE DATE
With respect to conversions where the conversion date is after the final notice
date, we will not send individual notices of our election to satisfy all or any
portion of the conversion obligation in cash. Instead, if we choose to satisfy
all or any portion of the conversion obligation in cash after the final notice
date, we will publicly announce, through a reputable national newswire service,
the dollar amount to be satisfied in cash (which must be expressed either as
100% of the conversion obligation or as a fixed dollar amount). We will notify
the Trustee of this election on the same date we make the public announcement.
If the conversion date with respect to a Note is after the final notice date,
the following procedures will apply:
- - settlement amounts will be computed and settlement dates will be determined
in the same manner as set forth above under "--Conversion on or before the
final notice date," except that the cash settlement averaging period shall
be the 20 trading-day period beginning on the trading day after the
conversion date; and
- - the conversion retraction deadline date will be the second Business Day
following the conversion date.
We may not have the financial resources, and we may not be able to arrange for
financing, to pay the cash due upon conversion. Furthermore, payment of cash
upon conversion may violate the terms of any future indebtedness. See "Risk
factors -- We may not have the ability to raise the funds to purchase the Notes
on the purchase dates or upon a change in control or, if we irrevocably elect to
settle the conversion of the Notes in cash and shares, make the cash payment due
upon conversion." Our failure to pay cash on the Notes when converted would
result in an event of default with respect to the Notes.
OUR RIGHT TO IRREVOCABLY ELECT PAYMENT METHOD
Notwithstanding the provisions described under "-- Conversion on or before the
final notice date" and "--Conversion after the final notice date" above, at any
time before maturity, we may irrevocably elect to satisfy in cash up to 100% of
the principal amount of the Notes converted after the date of
42
DESCRIPTION OF NOTES
such election, with any remaining amount to be satisfied in Common Shares. Such
election shall be in our sole discretion without the consent of the holders of
the Notes, by publicly announcing, through a reputable national newswire
service, that we have made such election. The election shall not be effective
before November 15, 2011. We also must, on the election date and the effective
date (if they are not the same date), mail written notice of our election to the
Trustee and each holder of Notes. If the conversion date with respect to a Note
tendered for conversion is after the effective date, such notice of conversion
will not be retractable, the cash settlement averaging period will be the 20
trading-day period beginning on the trading day after the conversion date, and
settlement (in cash or in shares and cash) will occur on the Business Day
following the final day of the cash settlement averaging period. However, if
after the effective date a holder surrenders a Note for conversion in connection
with a "make-whole fundamental change" under circumstances where we must
increase the conversion rate applicable to that Note, then we will deliver,
through the conversion agent, the consideration that is payable on account of
the increase in the conversion rate as soon as practicable, but in no event
after the second Business Day after the latest of:
- - the date the holder surrenders the Note for conversion;
- - the last trading day in the applicable cash settlement averaging period;
and
- - the effective date of the make-whole fundamental change.
See "-- Adjustment to the conversion rate upon the occurrence of a make-whole
fundamental change."
We will deliver, for each US$1,000 principal amount of Notes submitted for
conversion a settlement amount equal to the sum of the "daily settlement
amounts" (as described below) for each of the 20 trading days during the cash
settlement averaging period.
The "daily settlement amount," for each of the 20 trading days during the cash
settlement averaging period, consists of:
- - cash equal to the lesser of US$50 and the "daily conversion value" (as
described below); and
- - to the extent the daily conversion value exceeds US$50, a number of shares
equal to:
- the excess of the daily conversion value over US$50, divided by
- the volume-weighted average price of Common Shares on that trading
day.
We will deliver cash in lieu of any fractional Common Shares based on the
volume-weighted average price per Common Share on the trading day immediately
preceding the conversion date.
The "daily conversion value" on a given trading day generally means
one-twentieth of the product of:
- - the applicable conversion rate; and
- - the volume-weighted average price per Common Share on that trading day.
If we irrevocably elect to deliver cash upon conversion of the Notes, we may not
have the financial resources, and we may not be able to arrange for financing,
to pay the cash due upon conversion after the election date. Furthermore,
payment of cash upon conversion may violate the terms of our existing or future
indebtedness. See "Risk factors -- We may not have the ability to raise the
funds to purchase the Notes on the purchase dates or upon a change in control
or, if we irrevocably elect to settle the conversion of the Notes in cash and
shares, make the cash payment due upon conversion." Our failure to pay cash on
the Notes when converted would result in an event of default with respect to the
Notes.
CONDITIONS FOR CONVERSION
The Notes will become convertible only in certain circumstances, which we
describe below. If the Notes become convertible, we will provide written notice
to holders, at their addresses appearing in the security register, and we will
publicly announce, through a reputable national newswire service, and publish on
our website, that the Notes have become convertible, stating, among other
things:
- - the event causing the Notes to become convertible;
43
DESCRIPTION OF NOTES
- - the time during which the Notes will be convertible as a result of that
event;
- - if that event is a transaction described under "-- Conversion upon the
occurrence of certain corporate transactions," the anticipated effective
date of the transaction; and
- - the procedures holders must follow to convert their Notes, including the
name and address of the conversion agent.
We will mail the notice, and make the public announcement and publication, as
soon as practicable, but in no event later than the open of business on the
first date the Notes become convertible as a result of the event. If we fail to
mail the notice or make the public announcement or publication by that time,
then the Notes will remain convertible for an additional Business Day for each
Business Day, on or after the first date the Notes become convertible, that we
fail to mail such notice or make such public announcement or publication. In
addition, if the event causing the Notes to become convertible is a make-whole
fundamental change for which we must increase the conversion rate applicable to
holders that convert their Notes in connection with that make-whole fundamental
change, as described under "-- Adjustment to the conversion rate upon the
occurrence of a make-whole fundamental change," then the increased conversion
rate will continue to apply to holders that convert their Notes during any
period that the convertibility of the Notes pursuant to that make-whole
fundamental change is so extended.
Holders may surrender their Notes for conversion only in the circumstances
described below. In all cases, the right to convert the Notes will terminate at
the close of business on the Business Day immediately preceding the Maturity
Date.
CONVERSION BASED ON PRICE OF COMMON SHARES
Prior to maturity or earlier redemption or repurchase, holders may surrender
their Notes for conversion during any calendar quarter after the calendar
quarter ending December 31, 2006, if the "closing sale price" (as defined in the
Indenture) of Common Shares for each of 20 or more trading days in a period of
30 consecutive trading days ending on the last trading day of the immediately
preceding calendar quarter exceeds 120% of the conversion price in effect on the
last trading day of the immediately preceding calendar quarter. Our board of
directors will make appropriate adjustments, in its good faith determination, to
account for any adjustment to the conversion rate that becomes effective, or any
event requiring an adjustment to the conversion rate where the ex date (as
defined in the Indenture) of the event occurs, during that 30 consecutive
trading day period.
The "closing sale price" of Common Shares on any trading day generally means the
closing sale price per Common Share (or, if no closing sale price per share is
reported, the average of the bid and ask prices per share or, if more than one
in either case, the average of the average bid and the average ask prices per
share) on such trading day on the US principal national securities exchange on
which Common Shares are listed or as otherwise provided in the Indenture.
CONVERSION UPON SATISFACTION OF THE TRADING PRICE CONDITION
Prior to maturity or earlier redemption or repurchase, holders may surrender
their Notes for conversion during the five consecutive Business Days immediately
after any five consecutive trading day period (we refer to this five consecutive
trading day period as the "Note measurement period") in which the average
trading price per US$1,000 principal amount of Notes, as determined following a
request by a holder of Notes in accordance with the procedures described below,
was equal to or less than 97% of the average conversion value of the Notes
during the Note measurement period. We refer to this condition as the "trading
price condition."
For purposes of the trading price condition, the "conversion value" per US$1,000
principal amount of Notes on a trading day is the product of the closing sale
price per Common Share and the conversion rate of the Notes in effect on that
trading day.
Except as described below, the "trading price" of the Notes on any day generally
means the average secondary market bid quotations obtained by the bid
solicitation agent for US$5,000,000 principal amount of Notes at approximately
4:00 p.m., New York City time, on such day from three independent nationally
recognized securities dealers we select. However, if the bid solicitation agent
can
44
DESCRIPTION OF NOTES
reasonably obtain only two such bids, then the average of the two bids will
instead be used, and if the bid solicitation agent can reasonably obtain only
one such bid, then that one bid will be used. Even still, if on a given day:
- - the bid solicitation agent cannot reasonably obtain at least one bid for
US$5,000,000 principal amount of Notes from an independent nationally
recognized securities dealer; or
- - in the reasonable, good faith judgment of our board of directors, the bid
quotation or quotations that the bid solicitation agent has obtained are
not indicative of the secondary market value of the Notes,
then the trading price per US$1,000 principal amount of Notes will be deemed to
be equal to 97% of the product of the closing sale price of Common Shares on
that day and the conversion rate in effect on that day.
The bid solicitation agent will have no obligation to determine the trading
price of the Notes unless we have requested it to do so, and we will have no
obligation to make such request unless a holder provides us with reasonable
evidence that the trading price per US$1,000 principal amount of Notes would be
equal to or less than 97% of the conversion value of the Notes. At such time, we
will instruct the bid solicitation agent to determine the trading price of the
Notes for each of the next five trading days and on each following trading day
until the trading price condition is no longer satisfied.
CONVERSION BASED ON REDEMPTION
If we call a Note for redemption, the holder of that Note may surrender the Note
for conversion at any time before the close of business on the Business Day
immediately preceding the redemption date. For a discussion of the manner in
which we may redeem the Notes, see "-- Redemption of Notes at our option."
CONVERSION UPON THE OCCURRENCE OF CERTAIN CORPORATE TRANSACTIONS
If:
- - a "fundamental change," as described below, or a "make-whole fundamental
change," as described under "-- Adjustment to the conversion rate upon the
occurrence of a make-whole fundamental change" occurs; or
- - we are party to a consolidation, amalgamation, statutory arrangement,
merger or binding share exchange pursuant to which Common Shares would be
converted into or exchanged for, or would constitute solely the right to
receive, cash, other securities or other property,
then a holder may surrender its Notes for conversion at any time during the
period that begins on, and includes, the 30th day before the date we originally
announce as the anticipated effective date of the transaction and ends on, and
includes, the 30th day after the actual effective date of the transaction. In
addition, if the transaction is a "make-whole fundamental change," then the
Notes may also be surrendered for conversion at any time during the "make-whole
conversion period" described under "-- Adjustment to the conversion rate upon
the occurrence of a make-whole fundamental change," and if the transaction is a
"change in control," then the Notes may also be surrendered for conversion at
any time until, and including, the change in control repurchase date for that
change in control. Holders that convert their Notes in connection with a
"make-whole fundamental change" may in some circumstances also be entitled to an
increased conversion rate. See "-- Adjustment to the conversion rate upon the
occurrence of a make-whole fundamental change."
In addition, if we take any action, or become aware of any event, that would
require an adjustment to the conversion rate as described in the third, fourth,
fifth or sixth bullet point under "-- Adjustments to the conversion rate" below,
then we must mail to holders written notice of the action or event at least 20
days before the record, effective or expiration date, as the case may be, of the
transaction. Holders may surrender their Notes for conversion beginning on the
date we mail the notice (or, if earlier, the date the Indenture requires us to
mail the notice) until the close of business on the Business Day immediately
preceding the "ex date" (as defined in the Indenture) of the transaction or
until we announce that the transaction will not take place.
45
DESCRIPTION OF NOTES
A "fundamental change" generally will be deemed to occur upon the occurrence of
a "change in control" as described in "-- Holders may require us to repurchase
their Notes upon a change in control," and a "termination of trading." A
"termination of trading" is deemed to occur if Common Shares (or other Common
Shares into which the Notes are then convertible) are not listed for trading on
a US national securities exchange.
CONVERSION DURING SPECIFIED PERIODS
The Notes may be surrendered for conversion:
- - at any time from, and including, October 15, 2009 to, and including,
November 15, 2009;
- - at any time from, and including, October 15, 2011 to, and including,
November 15, 2011; and
- - at any time on or after November 15, 2021.
MANDATORY CONVERSION UPON A MAKE-WHOLE FUNDAMENTAL CHANGE
If a make-whole fundamental change occurs prior to November 15, 2011, then we
may, at our option, cause all, and not less than all, of the outstanding Notes
to be automatically converted on the Business Day immediately following the last
day of the applicable make-whole conversion period. The increase in the
conversion rate that applies during this make-whole conversion period, as
described under "-- Adjustment to the conversion rate upon the occurrence of a
make-whole fundamental change," will also apply to such an automatic conversion.
If we elect to cause the Notes to be converted, we will publicly announce,
through a reputable national newswire service, that we have made the election,
no later than the fifth Business Day after the effective date of the make-whole
fundamental change.
The consideration due upon automatic conversion will be determined as described
above under "-- Payment upon conversion," except that:
- - the conversion date will be deemed to be the Business Day immediately
following the last day of the applicable make-whole conversion period;
- - holders will not be permitted to retract the automatic conversion;
- - solely for purposes of determining the cash settlement averaging period,
the conversion retraction deadline date will be deemed to be the conversion
date;
- - if we have not made the irrevocable election referred to under "-- Our
right to irrevocably elect payment method" above, then the public
announcement referred to above will specify the dollar amount of our
conversion obligation that we will settle in cash (which must be expressed
as either 100% of the conversion obligation or a fixed dollar amount per
US$1,000 principal amount of Notes); and
- - holders must surrender their Notes to the conversion agent before they may
receive the consideration due upon the automatic conversion.
CHANGE IN THE CONVERSION RIGHT UPON CERTAIN RECLASSIFICATIONS, BUSINESS
COMBINATIONS AND ASSET SALES
Except as provided in the Indenture and as described below, if we reclassify the
Common Shares or are party to a consolidation, amalgamation, statutory
arrangement, merger or binding share exchange, or if we sell, transfer, lease,
convey or otherwise dispose of all or substantially all of our property or
assets (or if we and/or our subsidiaries sell, transfer, lease, convey or
otherwise dispose of all or substantially all of the property or assets of us
and our subsidiaries on a consolidated basis), in each case pursuant to which
the Common Shares would be converted into or exchanged for, or would constitute
solely the right to receive, cash, other securities or other property, then, at
the effective time of the transaction, the right to convert a Note will be
changed into a right to convert it into the kind and amount of cash, other
securities or other property (the "reference property"), which a holder of such
Note would have received (assuming, if applicable, that the holder would have
made the applicable election referred to in the immediately following paragraph)
if the holder had converted the Note and, upon such conversion, received,
immediately before the transaction, a number of Common Shares equal to the
conversion rate then applicable multiplied by the principal amount (expressed in
thousands) of the Note. However, at and after the effective time of the
transaction, the settlement of
46
DESCRIPTION OF NOTES
our conversion obligation will continue to be made in accordance with the
provisions described under "-- Payment upon conversion" above, except that any
shares that would have been due upon conversion will instead be payable in
reference property based on the fair value of the reference property. A change
in the conversion right such as this could substantially lessen or eliminate the
value of the conversion right. For example, if a third party acquires us in a
cash merger, each Note would be convertible solely into cash and would no longer
be potentially convertible into securities whose value could increase depending
on our future financial performance, prospects and other factors. There is no
precise, established definition of the phrase "all or substantially all of our
property or assets" under applicable law. Accordingly, there may be uncertainty
as to whether the provisions above would apply to a sale, transfer, lease,
conveyance or other disposition of less than all of our property or assets, or
of less than all of the property or assets of us and our subsidiaries on a
consolidated basis.
If a transaction described above occurs and holders of Common Shares have the
opportunity to elect the form of consideration to receive in that transaction,
then we will make adequate provision to give holders of the Notes, treated as a
single class, a reasonable opportunity to elect the form of such consideration
for purposes of determining the composition of the "reference property"
described above. Once the election is made, it will apply to all holders of
Notes after the effective time of the transaction. We have agreed in the
Indenture not to become a party to such a transaction unless its terms are
consistent with these provisions.
Despite the previous paragraphs, if, before the date that is five years and a
day after the last date of original issuance of the Notes (being November 17,
2006, the date of closing of the over-allotment option), such a change in the
conversion right would entitle holders of Notes to receive, upon conversion of
the Notes, any property (including cash) or securities that would not constitute
"prescribed securities" for the purpose of clause 212(1)(b)(vii)(E) of the Tax
Act (which we refer to in this prospectus as "ineligible consideration"), then
there will be no change to the right of the holders of Notes to convert their
Notes into shares of Neurochem and holders will not have any right to receive
such ineligible consideration, but we or the successor or acquiror, as the case
may be, will have the right (at our sole option or that of the successor or
acquiror, as the case may be) to satisfy the obligation to deliver shares of
Neurochem by instead delivering either such ineligible consideration or
"prescribed securities" with a market value comparable to that of the ineligible
consideration. In general, prescribed securities include Common Shares and other
shares which are not redeemable by the holder within five years of the date of
issuance. We will give notice to Note holders at least 30 days before the
effective date of such a transaction in writing and by release to a business
newswire stating the consideration into which the Notes will be convertible
after the effective date of the transaction. After we give the notice, we or the
successor or acquiror, as the case may be, may not change the consideration to
be delivered upon conversion of the Notes, except in accordance with any other
provision of the Indenture.
ADJUSTMENTS TO THE CONVERSION RATE
Subject to the terms of the Indenture, we will adjust the conversion rate for:
- - dividends or distributions on Common Shares payable in Common Shares;
- - subdivisions, combinations or certain reclassifications of Common Shares;
- - distributions to all or substantially all holders of Common Shares of
certain rights or warrants entitling them, for a period expiring not more
than 60 days immediately following the record date for the distribution, to
purchase or subscribe for Common Shares, or securities convertible into or
exchangeable or exercisable for Common Shares, at a price per share that is
less than the "current market price" (as defined in the Indenture) per
Common Share on the record date for the distribution;
- - dividends or other distributions to all or substantially all holders of
Common Shares of shares of our or any of our existing or future
subsidiaries' capital stock (other than Common Shares), evidences of
indebtedness or other assets (other than dividends or distributions covered
by the bullet points below) or the dividend or distribution to all or
substantially all holders of Common Shares of certain rights or warrants
(other than those covered in the immediately preceding bullet point or,
47
DESCRIPTION OF NOTES
as described below, certain rights or warrants distributed pursuant to a
shareholder rights plan) to purchase or subscribe for our securities;
however, we will not adjust the conversion rate pursuant to this provision
for distributions of certain rights or warrants to acquire Common Shares,
if we make certain arrangements for holders of Notes to receive those
rights and warrants upon conversion of the Notes;
- - cash dividends or other cash distributions by us to all or substantially
all holders of Common Shares, other than distributions described in the
following bullet point; and
- - distributions of cash or other consideration by us or any of our
subsidiaries in respect of a tender offer or exchange offer for Common
Shares, where such cash and the value of any such other consideration per
Common Share validly tendered or exchanged exceeds the closing sale price
per Common Share on the first trading day after the expiration of the
tender or exchange offer.
Subject to the provisions of the Indenture, if we distribute cash in accordance
with the fifth bullet point above, then we will generally increase the
conversion rate so that it equals the rate determined by multiplying the
conversion rate in effect immediately before the open of business on the "ex
date" for the cash distribution by a fraction whose numerator is the "current
market price" (as defined in the Indenture) per Common Share on that "ex date"
and whose denominator is that "current market price" less the per share amount
of the distribution. However, we will not adjust the conversion rate pursuant to
this provision to the extent that either:
- - the adjustment would reduce the conversion price below US$0.0001; or
- - pursuant to the fifth bullet point above, the adjustment would result in a
reduction of the conversion price below CDN$15.83. See "Limitations on
adjustments due to shareholder approval requirements."
"Current market price" per Common Share on a date generally means the average of
the closing sale prices of Common Shares for the 10 consecutive trading days
ending on, but excluding, the earlier of that date or the ex date with respect
to the distribution requiring such computation. We will make adjustments to the
current market price in accordance with the Indenture to account for the
occurrence of certain events during the 10 consecutive trading day period.
If we issue rights, options or warrants that are only exercisable upon the
occurrence of certain triggering events, then:
- - we will not adjust the conversion rate pursuant to the first six bullet
points above until the earliest of these triggering events occurs; and
- - we will readjust the conversion rate to the extent any of these rights,
options or warrants are not exercised before they expire.
The Indenture does not require us to adjust the conversion rate for any of the
transactions described in the bullet points above if we make provision for
holders of Notes to participate in the transaction without conversion on a basis
and with notice that our board of directors determines in good faith to be fair
and appropriate, as provided in the Indenture.
We will not adjust the conversion rate pursuant to the bullet points above
unless the adjustment would result in a change of at least 1% in the then
effective conversion rate. However, we will carry forward any adjustment that we
would otherwise have to make and take that adjustment into account in any
subsequent adjustment. In addition, at the end of each fiscal year, beginning
with the fiscal year ending on December 31, 2006, we will give effect to any
adjustments that we have otherwise deferred pursuant to this provision, and
those adjustments, if any, will no longer be carried forward and taken into
account in any subsequent adjustment. Furthermore, if we mail a notice of
redemption or a fundamental change or make-whole fundamental change, or any
transaction described under "-- Conversion upon the occurrence of certain
corporate transactions" above, occurs, then we will give effect to all
adjustments that we have otherwise deferred pursuant to this provision.
To the extent permitted by law and the continued listing requirements of the
NASDAQ Global Market and the TSX, we may, from time to time, increase the
conversion rate by any amount for a period of at
48
DESCRIPTION OF NOTES
least 20 days or any longer period required by law, so long as the increase is
irrevocable during that period and our board of directors determines that the
increase is in our best interests. We will mail a notice of the increase to
holders at least 15 days before the day the increase commences. In addition, we
may also increase the conversion rate as we determine to be advisable in order
to avoid taxes to recipients of certain distributions.
A distribution of rights pursuant to any future shareholder rights plan will not
trigger a conversion rate adjustment pursuant to the fourth bullet point above
so long as we have made proper provision to provide that holders will enjoy such
rights after conversion in accordance with the terms of the Indenture.
Except as we have described above, we will not adjust the conversion rate for
the issuance of Common Shares or the right to purchase Common Shares or
securities convertible into or exchangeable or exercisable for Common Shares.
ADJUSTMENT TO THE CONVERSION RATE UPON THE OCCURRENCE OF A MAKE-WHOLE
FUNDAMENTAL CHANGE
If, prior to November 15, 2011:
- - there occurs a sale, transfer, lease, conveyance or other disposition of
all or substantially all of our property or assets, or of all or
substantially all of the property or assets of us and our subsidiaries on a
consolidated basis, to any "person" or "group" (as those terms are used in
Sections 13(d) and 14(d) of the Securities Exchange Act), including any
group acting for the purpose of acquiring, holding, voting or disposing of
securities within the meaning of Rule 13d-5(b)(1) under the Securities
Exchange Act (we refer to such a transaction as an "asset sale make-whole
fundamental change"); or
- - there occurs any transaction or series of related transactions (other than
a "listed stock business combination" as described under "-- Holders may
require us to repurchase their Notes upon a change in control"), in
connection with which (whether by means of an exchange offer, liquidation,
tender offer, consolidation, amalgamation, statutory arrangement, merger,
combination, reclassification, recapitalization, asset sale, lease of
assets or otherwise) Common Shares are exchanged for, converted into,
acquired for or constitutes solely the right to receive other securities,
other property, assets or cash (we refer to such any transaction described
in this and the immediately preceding bullet point as a "make-whole
fundamental change"),
then we will increase the conversion rate applicable to Notes that are
surrendered for conversion at any time from, and including, the 30th day before
the date we originally announce as the anticipated effective date of the
make-whole fundamental change to, and including, the 40th Business Day after the
effective date of the make-whole fundamental change (or, if the make-whole
fundamental change also constitutes a "change in control," as described under
"-- Holders may require us to repurchase their Notes upon a change in control,"
to, and including, the change in control repurchase date for that change in
control). We refer to this period as the "make-whole conversion period."
We will mail to holders, at their addresses appearing in the security register,
notice of, and we will publicly announce, through a reputable national newswire
service, and publish on our website, the anticipated effective date of any
proposed make-whole fundamental change. We must make this mailing, announcement
and publication at least 30 days before the anticipated effective date of the
make-whole fundamental change. We must also state, in the notice, announcement
and publication, whether we have made the election referred to above to change
the conversion right in lieu of increasing the conversion rate. In addition, no
later than the third Business Day after the completion of the make-whole
fundamental change, we must make an additional notice, announcement and
publication announcing such completion.
If a holder surrenders a Note for conversion in connection with a make-whole
fundamental change we have announced, but the make-whole fundamental change is
not consummated, then the holder will not be entitled to the increased
conversion rate referred to above in connection with the conversion.
49
DESCRIPTION OF NOTES
THE INCREASE IN THE CONVERSION RATE
In connection with the make-whole fundamental change, we will increase the
conversion rate by reference to the table below, based on the date when the
make-whole fundamental change becomes effective, which we refer to as the
"effective date," and the "applicable price." If the make-whole fundamental
change is a transaction or series of related transactions described in the
second bullet point under "-- Adjustment to the conversion rate upon the
occurrence of a make-whole fundamental change" and the consideration (excluding
cash payments for fractional shares or pursuant to statutory appraisal rights)
for Common Shares in the make-whole fundamental change consists solely of cash,
then the "applicable price" will be the cash amount paid per Common Share in the
make-whole fundamental change. If the make-whole fundamental change is an asset
sale make-whole fundamental change and the consideration paid for our property
and assets (or for the property and assets of us and our subsidiaries on a
consolidated basis) consists solely of cash, then the "applicable price" will be
the cash amount paid for our property and assets, expressed as an amount per
Common Share outstanding on the effective date of the asset sale make-whole
fundamental change. In all other cases, the "applicable price" will be the
average of the "closing sale prices" (as defined in the Indenture) per Common
Share for the five consecutive trading days immediately preceding the effective
date. Our board of directors will make appropriate adjustments, in its good
faith determination, to account for any adjustment to the conversion rate that
becomes effective, or any event requiring an adjustment to the conversion rate
where the ex date of the event occurs, at any time during those five consecutive
trading days.
The following table sets forth the number of additional shares per US$1,000
principal amount of Notes that will be added to the conversion rate applicable
to Notes that are converted during the make-whole conversion period. The
increased conversion rate will be used to determine the amount of Common Shares,
cash or combination of cash and Common Shares that are due upon conversion, as
described under "--Payment upon conversion" above. If an event occurs that
requires an adjustment to the conversion rate, we will, on the date we must
adjust the conversion rate, adjust each applicable price set forth in the first
column of the table below by multiplying the applicable price in effect
immediately before the adjustment by a fraction:
- - whose numerator is the conversion rate in effect immediately before the
adjustment; and
- - whose denominator is the adjusted conversion rate.
In addition, we will adjust the number of additional shares in the table below
in the same manner in which, and for the same events for which, we must adjust
the conversion rate as described under "-- Adjustments to the conversion rate."
NUMBER OF ADDITIONAL SHARES
(per US$1,000 principal amount of Notes)
EFFECTIVE DATE
---------------------------------------------------------------------------------------
NOVEMBER 3, NOVEMBER 15, NOVEMBER 15, NOVEMBER 15, NOVEMBER 15, NOVEMBER 20,
APPLICABLE PRICE 2006 2007 2008 2009 2010 2011
---------------- ----------- ------------ ------------- ------------ ------------ ------------
US$16.43........... 10.14 10.14 10.14 10.14 10.14 10.14
US$20.00........... 10.14 10.14 10.14 9.67 7.41 0.00
US$25.00........... 6.83 7.45 6.53 5.29 3.38 0.00
US$30.00........... 4.21 4.75 4.05 3.15 1.85 0.00
US$35.00........... 2.64 3.15 2.64 2.01 1.21 0.00
US$40.00........... 1.65 2.14 1.78 1.35 0.89 0.00
US$45.00........... 1.00 1.48 1.23 0.95 0.69 0.00
US$50.00........... 0.57 1.04 0.87 0.70 0.60 0.00
US$55.00........... 0.28 0.75 0.64 0.54 0.55 0.00
US$60.00........... 0.10 0.55 0.50 0.50 0.50 0.00
50
DESCRIPTION OF NOTES
The numbers of additional shares set forth in the table above are based on the
volume weighted average price of US$16.43 per Common Share on November 3, 2006.
The exact applicable price and effective date may not be as set forth in the
table above, in which case:
- - if the actual applicable price is between two applicable prices listed in
the table above, or the actual effective date is between two dates listed
in the table above, we will determine the number of additional shares by
linear interpolation between the numbers of additional shares set forth for
the two applicable prices, or for the two dates based on a 365-day year, as
applicable;
- - if the actual applicable price is greater than US$60.00 per share (subject
to adjustment), we will not increase the conversion rate; and
- - if the actual applicable price is less than US$16.43 per share (subject to
adjustment), we will not increase the conversion rate.
ADJUSTMENT TO THE CONVERSION RATE FROM OCTOBER 15, 2009 TO NOVEMBER 15, 2009
The conversion rate will be adjusted, as of the open of business on October 15,
2009, to an amount equal to a fraction whose numerator is US$1,000 and whose
denominator is the adjusted average of the closing sale prices of Common Shares
during the 20 trading days immediately preceding, and including, the third
Business Day immediately preceding October 15, 2009. However, no such adjustment
will be made if the adjustment would reduce the conversion rate otherwise then
in effect, and if a condition for conversion (other than pursuant to the first
bullet point under "-- Conversion rights," "-- Conditions for conversion" and
"-- Conversion during specified periods") has been satisfied. On and after
November 15, 2009, the conversion rate will be readjusted back to the conversion
rate that was in effect immediately before the adjustment described above, after
giving effect to any other conversion rate adjustments that were required to be
made from, and including, October 15, 2009 to, and including, November 15, 2009.
A holder that converts a Note during this period will continue to be entitled to
receive, in cash (in addition to Common Shares, or, at our option, cash or a
combination of cash and Common Shares, due upon conversion), unpaid interest
that has accrued on the portion of the Note being converted to, but excluding,
the conversion date. Such holder will not be required to make any payment to the
conversion agent upon conversion. However, if the conversion date is after a
record date and on or before the related Interest Payment Date, then unpaid
interest that has accrued to, but excluding, that Interest Payment Date will be
paid, on that Interest Payment Date, to the holder of record of the Note at the
close of business on that record date, and the holder converting the Note will
not be entitled to such accrued and unpaid interest unless the holder was also
such record holder.
If we adjust the conversion rate as described in the paragraph above and we
decide to seek shareholder approval in connection with the issuance of Common
Shares upon conversion in accordance with the listing standards of the TSX
described in the paragraph below, we will be permitted to delay the due date by
which we otherwise would be required to deliver the consideration due upon such
conversion until the fifth Business Day after the obtaining of such requisite
approval, which approval shall be obtained no later than January 15, 2010.
LIMITATIONS ON ADJUSTMENTS DUE TO SHAREHOLDER APPROVAL REQUIREMENTS
Any adjustment to the conversion rate described above is subject to certain
continued listing standards of The NASDAQ Global Market and the TSX which limit
the amount by which we may increase the conversion rate without shareholder
approval. These standards generally require us to obtain the approval of our
shareholders before entering into certain transactions that potentially result
in the issuance of over a specified percentage of Common Shares at below the
greater of the book or market value thereof (20%, in the case of The NASDAQ
Global Market and 25% in the case of the TSX). The listing standards of the TSX
also prevent us from increasing the conversion rate as described above to the
extent the increase would reduce the conversion price below CDN$15.83 without
shareholder approval. Except as described above under "-- Adjustment to the
conversion rate from October 15,
51
DESCRIPTION OF NOTES
2009 to November 15, 2009," we will not increase the conversion rate as
described above beyond the maximum level permitted by these continued listing
standards.
Our obligation to increase the conversion rate as described above could be
considered a penalty, in which case its enforceability would be subject to
general principles of reasonableness of economic remedies.
REDEMPTION OF NOTES AT OUR OPTION
Prior to November 15, 2011, we cannot redeem the Notes, except as described
under "-- Redemption of Notes for tax reasons." We may redeem the Notes at our
option, in whole or in part, at any time, and from time to time, on or after
November 15, 2011, on a date not less than 30 nor more than 60 days after the
day we mail a redemption notice to each holder of Notes to be redeemed at the
address of the holder appearing in the securities register, at a redemption
price, payable in cash, equal to 100% of the principal amount of the Notes we
redeem plus any accrued and unpaid interest to, but excluding, the redemption
date. However, if a redemption date is after a record date for the payment of an
instalment of interest and on or before the related Interest Payment Date, then
the payment of interest becoming due on that Interest Payment Date will be
payable, on that Interest Payment Date, to the holder of record at the close of
business on the record date, and the redemption price will not include any
accrued and unpaid interest. The redemption date must be a Business Day. We will
make at least 10 semi-annual interest payments on the Notes before we may redeem
the Notes at our option, unless we redeem the Notes for tax reasons, as
described under "-- Redemption of Notes for tax reasons," before November 15,
2011.
If the paying agent holds money sufficient to pay the redemption price due on a
Note on the redemption date in accordance with the terms of the Indenture, then,
on and after the redemption date, the Note will cease to be outstanding and
interest on the Note will cease to accrue, whether or not the holder delivers
the Note to the paying agent. Thereafter, all other rights of the holder
terminate, other than the right to receive the redemption price upon delivery of
the Note.
The conversion right with respect to any Notes we have called for redemption
will expire at the close of business on the last Business Day immediately
preceding the redemption date, unless we default in the payment of the
redemption price.
If we redeem less than all of the outstanding Notes, the Trustee will select the
Notes to be redeemed in integral multiples of US$1,000 principal amount by lot,
on a pro rata basis or in accordance with any other method the Trustee considers
fair and appropriate. However, we may redeem the Notes only in integral
multiples of US$1,000 principal amount. If a portion of a holder's Notes is
selected for partial redemption and the holder converts a portion of the Notes,
the principal amount of the Note that is subject to redemption will be reduced
by the principal amount that the holder converted.
We will not redeem any Notes at our option if the principal amount of the Notes
has been accelerated, and such acceleration has not been rescinded, on or prior
to such date.
REDEMPTION OF NOTES FOR TAX REASONS
We may also redeem all, but not less than all, of the Notes for cash if we have
or would become obligated to pay to the holder of any Note "additional amounts"
that are more than de minimis as a result of any change, announced after
November 3, 2006, in the laws or any regulations of Canada or any Canadian
political subdivision or taxing authority, or any change, after November 3,
2006, in an interpretation or application of such laws or regulations by any
legislative body, court, governmental agency, taxing authority or regulatory
authority (including the enactment of any legislation and the publication of any
judicial decision or regulatory or administrative determination), which we refer
to as a "change in Canadian tax law." However, we cannot redeem the Notes for
tax reasons if, by taking reasonable measures available to us, we can avoid
paying additional amounts that are more than de minimis. In addition, to redeem
the Notes for tax reasons, we must deliver to the Trustee an opinion of counsel
specializing in taxation and an officers' certificate attesting to such a change
in such laws, regulations, interpretations or applications and to the obligation
to pay such additional amounts. The term "additional amounts" is described under
"--Canadian withholding taxes" below.
52
DESCRIPTION OF NOTES
A redemption by us for tax reasons will be at a redemption price, payable in
cash, equal to 100% of the principal amount of the Notes to be redeemed, plus
any accrued and unpaid interest to, but excluding, the redemption date. Except
in respect of certain excluded holders, we will not reduce the redemption price
for applicable Canadian withholding taxes. If the redemption date is after a
record date for the payment of an instalment of interest and on or before the
related Interest Payment Date, then the payment of interest becoming due on that
Interest Payment Date will be payable, on that Interest Payment Date, to the
holder of record at the close of business on the record date, and the redemption
price will not include any accrued and unpaid interest. The redemption date must
be a Business Day.
We will give holders notice of a redemption of Notes for tax reasons not less
than 30 Business Days nor more than 60 Business Days before the redemption date;
provided, that (i) we will not give notice of a redemption for tax reasons
earlier than 60 Business Days before the earliest date on or from which we would
be obligated to pay any additional amounts that are more than de minimis and
(ii) at the time we give the notice, the circumstances creating our obligation
to pay such additional amounts are in effect.
Upon receiving such notice of redemption, no later than the close of business on
the Business Day prior to the redemption date, each holder who does not wish to
have us redeem its Notes will have the right to elect to:
- - convert its Notes; or
- - not have its Notes redeemed, provided that no additional amounts will be
payable on any payment of interest or principal with respect to the
unredeemed Notes after such redemption date. All future payments will be
subject to the deduction or withholding of any Canadian taxes required to
be deducted or withheld.
The holder must deliver a written notice of election to the paying agent no
later than the close of business on the Business Day before the redemption date.
A holder may withdraw any notice of election by delivering a written notice of
withdrawal to the paying agent before the close of business on the Business Day
before the redemption date. Where no election is made, the holder will have its
Notes redeemed without any further action.
We will not redeem any Notes for tax reasons if the principal amount of the
Notes has been accelerated, and such acceleration has not been rescinded, on or
prior to such date.
PURCHASE OF NOTES BY US AT THE OPTION OF THE HOLDER
On each of November 15, 2011, November 15, 2016 and November 15, 2021 (each, a
"purchase date"), a holder may require us to purchase all or a portion of the
holder's outstanding Notes, at a price in cash equal to 100% of the principal
amount of the Notes to be purchased, plus any accrued and unpaid interest to,
but excluding, the purchase date, subject to certain additional conditions.
However, we will, on the purchase date, pay the accrued and unpaid interest to,
but excluding, the purchase date to the holder of record at the close of
business on the immediately preceding record date. Accordingly, the holder
submitting the Note for purchase will not receive this accrued and unpaid
interest unless that holder was also the holder of record at the close of
business on the immediately preceding record date.
On each purchase date, we will purchase all Notes for which the holder has
delivered and not withdrawn a written purchase notice. Holders may submit their
written purchase notice to the paying agent at any time from the opening of
business on the date that is 20 Business Days before the purchase date until the
close of business on the Business Day immediately preceding the purchase date.
We will give notice on a date that is at least 20 Business Days before each
purchase date to all holders at their addresses shown on the register of the
registrar, and to beneficial owners as required by applicable law, stating,
among other things:
- - the amount of the purchase price;
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DESCRIPTION OF NOTES
- - that Notes with respect to which the holder has delivered a purchase notice
may be converted, if otherwise convertible, only if the holder withdraws
the purchase notice in accordance with the terms of the Indenture; and
- - the procedures that holders must follow to require us to purchase their
Notes, including the name and address of the paying agent.
To require us to purchase its Notes, the holder must deliver a purchase notice
that states:
- - the certificate numbers of the holder's Notes to be delivered for purchase,
if they are in certificated form;
- - the principal amount of the Notes to be purchased, which must be an
integral multiple of US$1,000; and
- - that the Notes are to be purchased by us pursuant to the applicable
provisions of the Indenture.
A holder that has delivered a purchase notice may withdraw the purchase notice,
in whole or in part, by delivering a written notice of withdrawal to the paying
agent before the close of business on the Business Day before the purchase date.
The notice of withdrawal must state:
- - the name of the holder;
- - a statement that the holder is withdrawing its election to require us to
purchase its Notes;
- - the certificate numbers of the Notes being withdrawn, if they are in
certificated form;
- - the principal amount being withdrawn, which must be an integral multiple of
US$1,000; and
- - the principal amount, if any, of the Notes that remain subject to the
purchase notice, which must be an integral multiple of US$1,000.
If the Notes are not in certificated form, the above notices must comply with
appropriate DTC procedures.
To receive payment of the purchase price for a Note for which the holder has
delivered and not withdrawn a purchase notice, the holder must deliver the Note,
together with necessary endorsements, to the paying agent at any time after
delivery of the purchase notice. We will pay the purchase price for the Note on
the later of the purchase date and the time of delivery of the Note, together
with necessary endorsements.
If the paying agent holds on a purchase date money sufficient to pay the
purchase price due on a Note in accordance with the terms of the Indenture,
then, on and after that purchase date, the Note will cease to be outstanding and
interest on the Note will cease to accrue, whether or not the holder delivers
the Note to the paying agent. Thereafter, all other rights of the holder
terminate, other than the right to receive the purchase price upon delivery of
the Note.
We may not have the financial resources, and we may not be able to arrange for
financing, to pay the purchase price for all Notes holders have elected to have
us purchase. Furthermore, financial covenants contained in any future
indebtedness we may incur may limit our ability to pay the purchase price to
purchase Notes. See "Risk factors -- We may not have the ability to raise the
funds to purchase the Notes on the purchase dates or upon a change in control
or, if we irrevocably elect to settle the conversion of the Notes in cash and
shares, make the cash payment due upon conversion." Our failure to purchase the
Notes when required would result in an event of default with respect to the
Notes.
We will not purchase any Notes at the option of holders if the principal amount
of the Notes has been accelerated, and such acceleration has not been rescinded,
on or prior to such date.
In connection with any purchase offer, we will, to the extent applicable:
- - comply with the provisions of Rule 13e-4 and Regulation 14E and all other
applicable laws; and
- - file a Schedule TO or any other required schedule under the Securities
Exchange Act or other applicable laws, including any applicable Canadian
laws.
54
DESCRIPTION OF NOTES
HOLDERS MAY REQUIRE US TO REPURCHASE THEIR NOTES UPON A CHANGE IN CONTROL
If a "change in control," as described below, occurs, then we will be required
to make an offer to each holder, which we refer to as a "change in control
offer," to repurchase for cash all or any portion of its Notes in integral
multiples of US$1,000 principal amount, at a price equal to 100% of the
principal amount of the Notes to be repurchased, plus, except as described
below, any accrued and unpaid interest to, but excluding, the "change in control
repurchase date," as described below.
However, if the change in control repurchase date is after a record date for the
payment of an instalment of interest and on or before the related Interest
Payment Date, then the payment of interest becoming due on that Interest Payment
Date will be payable, on that Interest Payment Date, to the holder of record at
the close of business on the record date, and the repurchase price will not
include any accrued and unpaid interest.
We must repurchase the Notes on a date of our choosing, which we refer to as the
"change in control repurchase date." However, the change in control repurchase
date must be no later than 35 days, and no earlier than 20 days, after the date
we have mailed a notice of the change in control, as described below.
Within 5 Business Days after the occurrence of a change in control, we must mail
to all holders of Notes at their addresses shown on the register of the
registrar, and to beneficial owners as required by applicable law, a notice
regarding the change in control. We must also publish the notice in The New York
Times, the Wall Street Journal or another newspaper of national circulation in
the United States. The notice must state, among other things:
- - the events causing the change in control;
- - the date of the change in control;
- - the change in control repurchase date;
- - the last date on which a holder may exercise the repurchase right;
- - the change in control repurchase price;
- - the names and addresses of the paying agent and the conversion agent;
- - the procedures that holders must follow to exercise their repurchase right;
- - the conversion rate and any adjustments to the conversion rate that will
result from the change in control; and
- - that Notes with respect to which a holder has delivered a change in control
repurchase notice may be converted, if otherwise convertible, only if the
holder withdraws the change in control repurchase notice in accordance with
the terms of the Indenture.
To exercise the repurchase right, a holder must deliver a written change in
control repurchase notice to the paying agent no later than the close of
business on the Business Day immediately preceding the change in control
repurchase date. This written notice must state:
- - the certificate numbers of the Notes that the holder will deliver for
repurchase, if they are in certificated form;
- - the principal amount of the Notes to be repurchased, which must be an
integral multiple of US$1,000; and
- - that the Notes are to be repurchased by us pursuant to the change in
control provisions of the Indenture.
A holder may withdraw any change in control repurchase notice, in whole or in
part, by delivering to the paying agent a written notice of withdrawal prior to
the close of business on the Business Day immediately preceding the change in
control repurchase date. The notice of withdrawal must state:
- - the name of the holder;
55
DESCRIPTION OF NOTES
- - a statement that the holder is withdrawing its election to require us to
repurchase its Notes;
- - the certificate numbers of the Notes being withdrawn, if they are in
certificated form;
- - the principal amount of Notes being withdrawn, which must be an integral
multiple of US$1,000; and
- - the principal amount, if any, of the Notes that remain subject to the
change in control repurchase notice, which must be an integral multiple of
US$1,000.
If the Notes are not in certificated form, the above notices must comply with
appropriate DTC procedures.
To receive payment of the change in control repurchase price for a Note for
which the holder has delivered and not withdrawn a change in control repurchase
notice, the holder must deliver the Note, together with necessary endorsements,
to the paying agent at any time after delivery of the change in control
repurchase notice. We will pay the change in control repurchase price for the
Note on the later of the change in control repurchase date and the time of
delivery of the Note, together with necessary endorsements.
If the paying agent holds, on the change in control repurchase date, money
sufficient to pay the change in control repurchase price due on a Note in
accordance with the terms of the Indenture, then, on and after the change in
control repurchase date, the Note will cease to be outstanding and interest on
such Note will cease to accrue, whether or not the holder delivers the Note to
the paying agent. Thereafter, all other rights of the holder terminate, other
than the right to receive the change in control repurchase price upon delivery
of the Note.
A "change in control" generally will be deemed to occur at such time as:
- - any "person" or "group" (as those terms are used in Sections 13(d) and
14(d) of the Securities Exchange Act) becomes the "beneficial owner" (as
that term is used in Rule 13d-3 under the Securities Exchange Act),
directly or indirectly, of 50% or more of the total outstanding voting
power of all classes of our capital stock entitled to vote generally in the
election of directors ("voting stock");
- - there occurs a sale, transfer, lease, conveyance or other disposition of
all or substantially all of our property or assets, or of all or
substantially all of the property or assets of us and our subsidiaries on a
consolidated basis, to any "person" or "group" (as those terms are used in
Sections 13(d) and 14(d) of the Securities Exchange Act), including any
group acting for the purpose of acquiring, holding, voting or disposing of
securities within the meaning of Rule 13d-5(b)(1) under the Securities
Exchange Act;
- - we consolidate with, or merge with or into, another person or any person
consolidates with, or merges with or into, us, unless either:
- the persons that "beneficially owned," directly or indirectly, the
shares of our voting stock immediately prior to such consolidation or
merger "beneficially own," directly or indirectly, immediately after
such consolidation or merger, shares of the surviving or continuing
corporation's voting stock representing at least a majority of the
total outstanding voting power of all outstanding classes of voting
stock of the surviving or continuing corporation in substantially the
same proportion as such ownership immediately prior to such
consolidation or merger; or
- both of the following conditions are satisfied (we refer to such a
transaction as a "listed stock business combination"):
- at least 90% of the consideration (other than cash payments for
fractional shares or pursuant to statutory appraisal rights) in
such consolidation or merger consists of common stock and any
associated rights traded on a US national securities exchange (or
which will be so traded when issued or exchanged in connection
with such consolidation or merger); and
56
DESCRIPTION OF NOTES
- as a result of such consolidation or merger, the Notes become
convertible solely into such common stock and associated rights
(disregarding our right, as described above, to pay a portion or
all of our conversion obligation in cash);
- - the following persons cease for any reason to constitute a majority of our
board of directors:
- individuals who on the first issue date of the Notes constituted our
board of directors; and
- any new directors whose election to our board of directors or whose
nomination for election by our shareholders was approved by at least a
majority of our directors then still in office either who were
directors on such first issue date of the Notes or whose election or
nomination for election was previously so approved; or
- - we are liquidated or dissolved or holders of our capital stock approve any
plan or proposal for our liquidation or dissolution.
There is no precise, established definition of the phrase "all or substantially
all" of our property or assets, or of less than all of the property or assets of
us and our subsidiaries on a consolidated basis, under applicable law.
Accordingly, there may be uncertainty as to whether a sale, transfer, lease,
conveyance or other disposition of less than all of our property or assets would
permit a holder to exercise its right to have us repurchase its Notes in
accordance with the change in control provisions described above.
We may not have the financial resources, and we may not be able to arrange for
financing, to pay the change in control repurchase price for all Notes holders
have elected to have us repurchase. Furthermore, financial covenants contained
in any future indebtedness we may incur may limit our ability to pay the change
in control repurchase price to repurchase Notes. See "Risk factors -- We may not
have the ability to raise the funds to purchase the Notes on the purchase dates
or upon a change in control or, if we irrevocably elect to settle the conversion
of the Notes in cash and shares, make the cash payment due upon conversion." Our
failure to repurchase the Notes when required would result in an event of
default with respect to the Notes.
We may in the future enter into transactions, including recapitalizations, that
would not constitute a change in control but that would increase our debt or
otherwise adversely affect holders. The Indenture for the Notes does not
restrict our or our subsidiaries' ability to incur indebtedness, including
senior or secured indebtedness. Our incurrence of additional indebtedness could
adversely affect our ability to service our indebtedness, including the Notes.
In addition, the change in control repurchase feature of the Notes would not
necessarily afford holders of the Notes protection in the event of highly
leveraged or other transactions involving us that may adversely affect holders
of the Notes. Furthermore, the change in control repurchase feature of the Notes
may in certain circumstances deter or discourage a third party from acquiring
us, even if the acquisition may be beneficial to our securityholders. We are not
aware, however, of any specific effort to accumulate Common Shares or to obtain
control of us by means of a merger, tender offer, solicitation or otherwise.
We will not repurchase any Notes at the option of holders upon a change in
control if the principal amount of the Notes has been accelerated, and such
acceleration has not been rescinded, on or prior to such date.
In connection with any change in control offer, we will, to the extent
applicable:
- - comply with the provisions of Rule 13e-4 and Regulation 14E and all other
applicable laws; and
- - file a Schedule TO or any other required schedule under the Securities
Exchange Act or other applicable laws, including any Canadian laws.
RANKING
The Notes will be our unsecured senior obligations and will rank equally with
any unsecured senior indebtedness. However, the Notes will be effectively
subordinated to any of our existing and future secured indebtedness to the
extent of the assets securing such indebtedness. The Notes will also be
57
DESCRIPTION OF NOTES
effectively subordinated to all liabilities, including trade payables and lease
obligations, if any, of our subsidiaries. Any right by us to receive the assets
of any of our subsidiaries upon its liquidation or reorganization, and the
consequent right of the holders of the Notes to participate in these assets,
will be effectively subordinated to the claims of that subsidiary's creditors,
except to the extent that we are recognized as a creditor of such subsidiary, in
which case our claims would still be subordinated to any security interests in
the assets of such subsidiary and any indebtedness of such subsidiary that is
senior to that held by us.
The Notes are exclusively our obligations. Our subsidiaries are separate and
distinct legal entities and have no obligation, contingent or otherwise, to pay
any amounts due on the Notes or to make any funds available for payment on the
Notes, whether by dividends, loans or other payments. In addition, the payment
of dividends and the making of loans and advances to us by our subsidiaries may
be subject to statutory, contractual or other restrictions, may depend on the
earnings or financial condition of those subsidiaries and are subject to various
business considerations. As a result, we may be unable to gain access to the
cash flow or assets of our subsidiaries.
The Indenture does not limit the amount of additional indebtedness, including
senior or secured indebtedness, which we can create, incur, assume or guarantee,
nor does the Indenture limit the amount of indebtedness or other liabilities
that our subsidiaries can create, incur, assume or guarantee.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Indenture prohibits us from consolidating with, or amalgamating or merging
with or into, or selling, transferring, leasing, conveying or otherwise
disposing of all or substantially all of our property or assets, or all or
substantially all of the property or assets of us and our subsidiaries on a
consolidated basis, to another person (including pursuant to a statutory
arrangement), whether in a single transaction or series of related transactions,
unless, among other things:
- - such other person is a corporation organized and existing under the laws of
the United States, any state of the United States or the District of
Columbia or the laws of Canada or any province or territory thereof;
- - such person assumes all of our obligations under the Notes and the
Indenture; and
- - no default or event of default exists immediately after giving effect to
the transaction or series of transactions.
When the successor assumes all of our obligations under the Indenture, except in
the case of a lease, our obligations under the Indenture will terminate.
Some of the transactions described above could constitute a change in control
that permits holders to require us to repurchase their Notes, as described under
"-- Holders may require us to repurchase their Notes upon a change in control."
There is no precise, established definition of the phrase "all or substantially
all of our property or assets" under applicable law. Accordingly, there may be
uncertainty as to whether the provisions above would apply to a sale, transfer,
lease, conveyance or other disposition of less than all of our property or
assets, or of less than all of the property or assets of us and our subsidiaries
on a consolidated basis.
EVENTS OF DEFAULT
The following are events of default under the Indenture for the Notes:
- - our failure to pay the principal of or premium, if any, on any Note when
due, whether at maturity, upon redemption, on the purchase date with
respect to a purchase at the option of the holder, on a change in control
repurchase date with respect to a change in control or otherwise;
- - our failure to pay an instalment of interest or additional interest or
additional amounts, if any, on any Note when due, if the failure continues
for 30 days after the date when due;
- - our failure to satisfy our conversion obligations upon the exercise of a
holder's conversion right;
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DESCRIPTION OF NOTES
- - our failure to timely provide notice (or to make an offer, as the case may
be) as described under "--Adjustment to the conversion rate upon the
occurrence of a make-whole fundamental change," "-- Purchase of Notes by us
at the option of the holder," or "-- Holders may require us to repurchase
their Notes upon a change in control";
- - our failure to comply with any other term, covenant or agreement contained
in the Notes or the Indenture, if the failure is not cured within 60 days
after notice to us by the Trustee or to the Trustee and us by holders of at
least 25% in aggregate principal amount of the Notes then outstanding, in
accordance with the Indenture;
- - a termination of trading that persists for more than 20 trading days after
notice to us by the Trustee or to the Trustee and us by holders of at least
25% in aggregate principal amount of the Notes then outstanding, in
accordance with the Indenture;
- - a default by us or any of our subsidiaries in the payment when due, after
the expiration of any applicable grace period, of principal of, or premium,
if any, or interest on, indebtedness for money borrowed (other than
indebtedness between Neurochem Inc. and its direct and indirect
subsidiaries) in the aggregate principal amount then outstanding of US$5.0
million or more, or acceleration of our or our subsidiaries' indebtedness
for money borrowed in such aggregate principal amount or more so that it
becomes due and payable before the date on which it would otherwise have
become due and payable, if such default is not cured or waived, or such
acceleration is not rescinded, within 30 days after notice to us by the
Trustee or to us and the Trustee by holders of at least 25% in aggregate
principal amount of Notes then outstanding, in accordance with the
Indenture;
- - failure by us or any of our subsidiaries to pay final judgments, the
aggregate uninsured portion of which is at least US$5.0 million, if the
judgments are not paid or discharged within 30 days; and
- - certain events of bankruptcy, insolvency or reorganization with respect to
us or any of our subsidiaries that is a "significant subsidiary" (as
defined in Regulation S-X under the Securities Exchange Act) or any group
of our subsidiaries that in the aggregate would constitute a "significant
subsidiary."
If an event of default, other than an event of default referred to in the last
bullet point above with respect to us (but including an event of default
referred to in that bullet point solely with respect to a significant
subsidiary, or group of subsidiaries that in the aggregate would constitute a
significant subsidiary, of ours), has occurred and is continuing, either the
Trustee, by notice to us, or the holders of at least 25% in aggregate principal
amount of the Notes then outstanding, by notice to us and the Trustee, may
declare the principal of, and any accrued and unpaid interest, including
additional interest, if any, on, all Notes to be immediately due and payable. In
the case of an event of default referred to in the last bullet point above with
respect to us (and not solely with respect to a significant subsidiary, or group
of subsidiaries that in the aggregate would constitute a significant subsidiary,
of ours), the principal of, and accrued and unpaid interest, including
additional interest, if any, on, all Notes will automatically become immediately
due and payable.
After any such acceleration, the holders of a majority in aggregate principal
amount of the Notes, by written notice to the Trustee, may rescind or annul such
acceleration in certain circumstances, if:
- - the rescission would not conflict with any order or decree;
- - all events of default, other than the non-payment of accelerated principal
or interest, have been cured or waived; and
- - certain amounts due to the Trustee are paid.
The Indenture does not obligate the Trustee to exercise any of its rights or
powers at the request or demand of the holders, unless the holders have offered
to the Trustee security or indemnity that is reasonably satisfactory to the
Trustee against the costs, expenses and liabilities that the Trustee may incur
to comply with the request or demand. Subject to the Indenture, applicable law
and the Trustee's rights to indemnification, the holders of a majority in
aggregate principal amount of the outstanding Notes will have the right to
direct the time, method and place of conducting any
59
DESCRIPTION OF NOTES
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee.
No holder will have any right to institute any proceeding under the Indenture,
or for the appointment of a receiver or a Trustee, or for any other remedy under
the Indenture, unless:
- - the holder gives the Trustee written notice of a continuing event of
default;
- - the holders of at least 25% in aggregate principal amount of the Notes then
outstanding make a written request to the Trustee to pursue the remedy;
- - the holder or holders offer and, if requested, provide the Trustee
indemnity reasonably satisfactory to the Trustee against any loss,
liability or expense; and
- - the Trustee fails to comply with the request within 60 days after the
Trustee receives the notice, request and offer of indemnity and does not
receive, during those 60 days, from holders of a majority in aggregate
principal amount of the Notes then outstanding, a direction that is
inconsistent with the request.
However, the above limitations do not apply to a suit by a holder to enforce:
- - the payment of any amounts due on the Notes after the applicable due date;
or
- - the right to convert Notes in accordance with the Indenture.
Except as provided in the Indenture, the holders of a majority of the aggregate
principal amount of outstanding Notes may, by notice to the Trustee, waive any
past default or event of default and its consequences, other than a default or
event of default:
- - in the payment of principal of, or premium, if any, or interest, additional
interest or additional amounts, if any, on, any Note or in the payment of
the redemption price, purchase price or change in control repurchase price;
- - arising from our failure to convert any Note in accordance with the
Indenture; or
- - in respect of any provision under the Indenture that cannot be modified or
amended without the consent of the holders of each outstanding Note
affected.
We will promptly notify the Trustee if a default or event of default occurs. In
addition, the Indenture requires us to furnish to the Trustee, on an annual
basis, a statement by certain of our officers stating whether they are aware of
any default or event of default by us in performing any of our obligations under
the Indenture or the Notes and describing any such default or event of default.
If a default or event of default has occurred and the Trustee has received
notice of the default or event of default in accordance with the Indenture, the
Trustee must mail to each holder a notice of the default or event of default
within 30 days after it occurs. However, the Trustee need not mail the notice if
the default or event of default:
- - has been cured or waived; or
- - is not in the payment of any amounts due with respect to any Note and the
Trustee in good faith determines that withholding the notice is in the best
interests of holders.
CANADIAN WITHHOLDING TAXES
We will make payments on the Notes without withholding or deducting on account
of any present or future Canadian federal, provincial or territorial tax or
other government charge ("Canadian taxes"), unless we are required by law to
withhold or deduct Canadian taxes. However, if we are required to withhold or
deduct any amount on account of Canadian taxes as a result a change in Canadian
tax law that occurs after the issuance of the Notes, we will make such
withholding or deduction and pay, as additional interest, additional amounts
that would be necessary so that the net amount received by each holder of Notes
after the withholding or deduction (including with respect to additional
amounts) will not be less than the amount the holder would have received if
Canadian taxes had not been withheld or deducted. We refer to these extra
payments as "additional amounts." Where we are not required to withhold on
amounts paid or credited to a holder, but such holder is liable for tax under
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DESCRIPTION OF NOTES
Part XIII of the Tax Act on such amounts solely as a result of a change in
Canadian tax law, we will make a similar payment of additional amounts to such a
holder (other than an excluded holder, as described below). Subject to the terms
of the Indenture, however, we will not pay additional amounts on payments on
Notes whose beneficial owner:
- - is subject to Canadian tax on those payments because it carries on business
in Canada, other than solely by virtue of holding of the Notes;
- - fails to comply with any administrative requirements necessary as a
precondition to exemption from withholding Canadian taxes;
- - is a person with which we do not deal at arm's length (within the meaning
of the Tax Act; or
- - has elected not to have its securities redeemed pursuant to a redemption
for tax reasons.
We refer to these beneficial owners as "excluded holders." We will remit the
amount we withhold or deduct to the relevant authority. References in this
description of the Notes to the payment of premium or interest on any Note, or
any consideration due upon conversion of a Note, include the payment of
additional amounts to the extent that additional amounts are, were or would be
payable in such context.
We will furnish to the Trustee, within 30 days after the date that the payment
of any Canadian taxes is due pursuant to applicable law, certified copies of tax
receipts evidencing that we have made the payment. We will indemnify and hold
harmless each holder of Notes (other than excluded holders), and, upon written
request, reimburse each such holder, for the amount of:
- - any Canadian taxes that we do not withhold or deduct and that are levied or
imposed on and paid by the holder or beneficial owner as a result of
payments made under or with respect to the Notes and that are payable as a
result of a change in Canadian tax law;
- - any liability (including penalties, interest and expenses) arising from, or
with respect to, such Canadian taxes;
- - any Canadian taxes that are levied or imposed with respect to any payment
made under the preceding two bullet points; and
- - any amount of tax (including interest, penalty or expenses) for which a
beneficial owner of the Notes would be liable for in its jurisdiction of
residence as a result of the payment of additional amounts and for which a
foreign tax credit or similar relief or remission would not be available.
MODIFICATION AND WAIVER
We may amend or supplement the Indenture or the Notes with the consent of the
Trustee and holders of at least a majority in aggregate principal amount of the
outstanding Notes. In addition, subject to certain exceptions, the holders of a
majority in aggregate principal amount of the outstanding Notes may waive our
compliance with any provision of the Indenture or Notes. However, without the
consent of the holders of each outstanding Note affected, no amendment,
supplement or waiver may:
- - change the stated maturity of the principal of, or the payment date of any
instalment of interest, additional interest or additional amount on, any
Note;
- - reduce the principal amount of, or any premium, interest, additional
interest or additional amounts on, any Note;
- - change the place, manner or currency of payment of principal of, or any
premium, interest, additional interest or additional amounts on, any Note;
- - impair the right to institute a suit for the enforcement of any payment on,
or with respect to, or of the conversion of, any Note;
- - modify, in a manner adverse to the holders of the Notes, the provisions of
the Indenture relating to the right of the holders to require us to
purchase Notes at their option or upon a change in control;
- - modify the ranking provisions of the Indenture in a manner adverse to the
holders of Notes;
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DESCRIPTION OF NOTES
- - adversely affect the right of the holders of the Notes to convert their
Notes in accordance with the Indenture;
- - reduce the percentage in aggregate principal amount of outstanding Notes
whose holders must consent to a modification or amendment of the Indenture
or the Notes;
- - reduce the percentage in aggregate principal amount of outstanding Notes
whose holders must consent to a waiver of compliance with any provision of
the Indenture or the Notes or a waiver of any default or event of default;
or
- - modify the provisions of the Indenture with respect to modification and
waiver (including waiver of a default or event of default), except to
increase the percentage required for modification or waiver or to provide
for the consent of each affected holder.
We may, with the Trustee's consent, amend or supplement the Indenture or the
Notes without notice to or the consent of any holder of the Notes to:
- - evidence the assumption of our obligations under the Indenture and the
Notes by a successor upon our consolidation or merger or the sale,
transfer, lease, conveyance or other disposition of all or substantially
all of our property or assets, or of all or substantially all of the
property or assets of us and our subsidiaries on a consolidated basis, in
accordance with the Indenture;
- - make adjustments in accordance with the Indenture to the right to convert
the Notes upon certain reclassifications or changes in Common Shares and
certain consolidations, mergers and binding share exchanges and upon the
sale, transfer, lease, conveyance or other disposition of all or
substantially all of our property or assets, or of all or substantially all
of the property or assets of us and our subsidiaries on a consolidated
basis;
- - make any changes or modifications to the Indenture necessary in connection
with the registration of the public offer and sale of the Notes under the
US Securities Act pursuant to the Registration Rights Agreement or the
qualification of the Indenture under the Trust Indenture Act;
- - secure our obligations in respect of the Notes;
- - add to our covenants for the benefit of the holders of the Notes or to
surrender any right or power conferred upon us; or
- - make provision with respect to adjustments to the conversion rate as
required by the Indenture or to increase the conversion rate in accordance
with the Indenture.
In addition, we and the Trustee may enter into a supplemental Indenture without
the consent of holders of the Notes in order to cure any ambiguity, defect,
omission or inconsistency in the Indenture in a manner that does not,
individually or in the aggregate with all other changes, adversely affect the
rights of any holder.
Except as provided in the Indenture, the holders of a majority in aggregate
principal amount of the outstanding Notes, by notice to the Trustee, generally
may:
- - waive compliance by us with any provision of the Indenture or the Notes, as
detailed in the Indenture; and
- - waive any past default or event of default and its consequences, except a
default or event of default:
- in the payment of principal of, or premium, if any, or interest,
additional interest or additional amounts on, any Note or in the
payment of the redemption price, purchase price or change in control
repurchase price;
- arising from our failure to convert any Note in accordance with the
Indenture; or
- in respect of any provision under the Indenture that cannot be
modified or amended without the consent of the holders of each
outstanding Note affected.
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DESCRIPTION OF NOTES
DISCHARGE
We may generally satisfy and discharge our obligations under the Indenture by:
- - delivering all outstanding Notes to the Trustee for cancellation; or
- - depositing with the Trustee or the paying agent after the Notes have become
due and payable, whether at stated maturity or any redemption date,
purchase date or change in control repurchase date, cash sufficient to pay
all amounts due on all outstanding Notes and paying all other sums payable
under the Indenture.
In addition, in the case of a deposit, there must not exist a default or event
of default on the date we make the deposit, and the deposit must not result in a
breach or violation of, or constitute a default under, the Indenture or any
other agreement or instrument to which we are a party or by which we are bound.
CALCULATIONS IN RESPECT OF NOTES
We and our agents are responsible for making all calculations called for under
the Indenture and Notes. These calculations include, but are not limited to,
determination of the trading price of the Notes, the current market price of
Common Shares, the number of shares, if any, issuable upon conversion of the
Notes and amounts of interest, additional interest and additional amounts
payable on the Notes. We and our agents will make all of these calculations in
good faith, and, absent manifest error, these calculations will be final and
binding on all holders of Notes. We will provide a copy of these calculations to
the Trustee, as required, and, absent manifest error, the Trustee is entitled to
rely on the accuracy of our calculations without independent verification.
RULE 144A INFORMATION, SEC REPORTING
If at any time we are not subject to the reporting requirements of the
Securities Exchange Act, we will promptly furnish to the holders, beneficial
owners and prospective purchasers of the Notes or underlying Common Shares, upon
their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the US Securities Act to facilitate the resale of those Notes
or shares pursuant to Rule 144A. In addition, we must provide the Trustee with a
copy of the reports we must file with the SEC pursuant to Section 13 or 15(d) of
the Securities Exchange Act as soon as reasonably practicable, but in no event
later than two Business Days, after the time those reports are filed with the
SEC.
REPORTS TO TRUSTEE
We will regularly furnish to the Trustee copies of our annual report to
shareholders, containing audited financial statements, and any other financial
reports which we furnish to our shareholders.
UNCLAIMED MONEY
If money deposited with the Trustee or paying agent for the payment of principal
of, premium, if any, or accrued and unpaid interest or additional interest on,
the Notes remains unclaimed for two years, the Trustee and paying agent will pay
the money back to us upon our written request. However, the Trustee and paying
agent have the right to withhold paying the money back to us until they publish
in a newspaper of general circulation in the City of New York, or mail to each
holder, a notice stating that the money will be paid back to us if unclaimed
after a date no less than 30 days from the publication or mailing. After the
Trustee or paying agent pays the money back to us, holders of Notes entitled to
the money must look to us for payment as general creditors, subject to
applicable law, and all liability of the Trustee and the paying agent with
respect to the money will cease.
PURCHASE AND CANCELLATION
The registrar, paying agent and conversion agent will forward to the Trustee any
Notes surrendered to them for transfer, exchange, payment or conversion, and the
Trustee will promptly cancel those Notes in accordance with its customary
procedures. We will not issue new Notes to replace Notes that we have paid or
delivered to the Trustee for cancellation or that any holder has converted.
We may, to the extent permitted by law, purchase Notes in the open market or by
tender offer at any price or by private agreement. We may, at our option and to
the extent permitted by law, reissue,
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DESCRIPTION OF NOTES
resell or surrender to the Trustee for cancellation any Notes we purchase in
this manner. Notes surrendered to the Trustee for cancellation may not be
reissued or resold and will be promptly cancelled.
REPLACEMENT OF NOTES
We will replace mutilated, lost, destroyed or stolen Notes at the holder's
expense upon delivery to the Trustee of the mutilated Notes or evidence of the
loss, destruction or theft of the Notes satisfactory to the Trustee and us. In
the case of a lost, destroyed or stolen Note, we or the Trustee may require, at
the expense of the holder, indemnity reasonably satisfactory to us and the
Trustee.
TRUSTEE AND TRANSFER AGENT
The Trustee for the Notes is The Bank of New York, and we have appointed the
Trustee as the paying agent, bid solicitation agent, registrar, conversion agent
and custodian with regard to the Notes. The Indenture permits the Trustee to
deal with us and any of our affiliates with the same rights the Trustee would
have if it were not Trustee. However, under the Trust Indenture Act, if the
Trustee acquires any conflicting interest and there exists a default with
respect to the Notes, the Trustee must eliminate the conflict or resign. The
Bank of New York and its affiliates have in the past provided and may from time
to time in the future provide banking and other services to us in the ordinary
course of their business.
The holders of a majority in aggregate principal amount of the Notes then
outstanding have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee, subject to certain
exceptions. If an event of default occurs and is continuing, the Trustee must
exercise its rights and powers under the Indenture using the same degree of care
and skill as a prudent person would exercise or use under the circumstances in
the conduct of his or her own affairs. The Indenture does not obligate the
Trustee to exercise any of its rights or powers at the request or demand of the
holders, unless the holders have offered to the Trustee security or indemnity
that is reasonably satisfactory to the Trustee against the costs, expenses and
liabilities that the Trustee may incur to comply with the request or demand.
The US transfer agent for Common Shares is Computershare Trust Company, Inc.,
and the Canadian transfer agent for Common Shares is Computershare Investor
Services Inc.
LISTING AND TRADING
The Notes are eligible for trading by qualified institutional buyers on The
PORTAL Market. We have not applied, and do not intend to apply, to list the
Notes on any securities exchange.
ENFORCEABILITY OF JUDGMENTS
Since a significant portion of our assets, as well as the assets of a number of
our directors and officers, are outside the United States, any judgment obtained
in the United States against us or certain of our directors or officers,
including judgments with respect to the payment of principal and interest on any
Notes, may not be collectible within the United States.
We have been informed by Davies Ward Phillips & Vineberg LLP, our Canadian
counsel, that the laws of the Province of Quebec and the federal laws of Canada
applicable therein generally permit the recognition and enforcement of any final
and conclusive judgment in personam of any federal or state court located in the
State of New York (a "New York Court") against us to be brought in a court of
competent jurisdiction of the Province of Quebec, which judgment is subsisting
and unsatisfied for a sum certain with respect to the enforceability of the
Indenture and the Notes that is not impeachable as void or voidable under the
internal laws of the State of New York if:
- - the New York Court rendering such judgment had jurisdiction over us, as
recognized by the courts of the Province of Quebec or, if applicable, the
federal court of Canada (and submission by us in the Indenture to the
jurisdiction of the New York Court will be sufficient for that purpose with
respect to the Notes);
- - such judgment was not obtained by fraud or in a manner contrary to natural
justice, and the enforcement thereof would not be inconsistent with public
policy (as such terms are understood
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DESCRIPTION OF NOTES
under the laws of the Province of Quebec) or the federal laws of Canada or
contrary to any order made by the Attorney General of Canada under the
Foreign Extraterritorial Measures Act (Canada) or by the Competition
Tribunal under the Competition Act (Canada);
- - the enforcement of such judgment would not be contrary to the laws of
general application limiting the enforcement of creditors' rights including
bankruptcy, reorganization, winding up, moratorium and similar laws and
does not constitute, directly or indirectly, the enforcement of foreign
revenue, expropriatory or penal laws in the Province of Quebec or any
applicable federal laws in Canada; and
- - the action to enforce such judgment is commenced within the appropriate
limitation period, except that any court in the Province of Quebec or, if
applicable, federal court of Canada may only give judgment in Canadian
dollars.
We have been advised by such counsel that there is doubt as to the
enforceability in Canada in original actions, or in motions to enforce judgments
of US courts, of civil liabilities predicated solely upon US federal securities
laws.
FORM, DENOMINATION AND REGISTRATION OF NOTES
GENERAL
The Notes have been issued in registered form, without interest coupons, in
denominations of integral multiples of US$1,000 principal amount. Notes sold in
reliance on Regulation S under the US Securities Act are represented by an
offshore global security. Notes sold in reliance on Rule 144A under the US
Securities Act are represented by a Rule 144A global security. See "-- Global
securities" below for more information. The Trustee need not:
- - register the transfer of or exchange any Note for a period of 15 days
before selecting Notes to be redeemed;
- - register the transfer of or exchange any Note during the period beginning
at the opening of business 15 days before the mailing of a notice of
redemption of Notes selected for redemption and ending at the close of
business on the day of the mailing; or
- - register the transfer of or exchange any Note that has been selected for
redemption or for which the holder has delivered, and not validly
withdrawn, a purchase notice or change in control repurchase notice,
except, in the case of a partial redemption, purchase or repurchase, that
portion of the Notes not being redeemed, purchased or repurchased.
See "-- Global securities" and "-- Certificated securities" for a description of
additional transfer restrictions that apply to the Notes.
We will not impose a service charge in connection with any transfer or exchange
of any Note, but we may in general require payment of a sum sufficient to cover
any transfer tax or similar governmental charge imposed in connection with the
transfer or exchange.
GLOBAL SECURITIES
Global securities have been deposited with the Trustee as custodian for DTC, and
registered in the name of DTC or a nominee of DTC.
Except in the limited circumstances described below and in "-- Certificated
securities," holders of Notes are not entitled to receive Notes in certificated
form. Unless and until it is exchanged in whole or in part for certificated
securities, each global security may not be transferred except as a whole by DTC
to a nominee of DTC or by a nominee of DTC to DTC or another nominee of DTC.
DTC has accepted the global securities in its book-entry settlement system. The
custodian and DTC have electronically recorded the principal amount of Notes
represented by global securities held within DTC. Beneficial interests in the
global securities will be shown on records maintained by DTC and its direct and
indirect participants. So long as DTC or its nominee is the registered owner or
holder of a global security, DTC or such nominee will be considered the sole
owner or holder of the Notes represented by such global security for all
purposes under the Indenture, the Notes and the
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DESCRIPTION OF NOTES
Registration Rights Agreement. No owner of a beneficial interest in a global
security can transfer such interest except in accordance with DTC's applicable
procedures and the applicable procedures of its direct and indirect
participants. The laws of some jurisdictions may require that certain purchasers
of securities take physical delivery of such securities in definitive form.
These limitations and requirements may impair the ability to transfer or pledge
beneficial interests in a global security.
Payments of principal, premium, if any, and interest under each global security
will be made to DTC or its nominee as the registered owner of such global
security. We expect that DTC or its nominee, upon receipt of any such payment,
will immediately credit DTC participants' accounts with payments proportional to
their respective beneficial interests in the principal amount of the relevant
global security as shown on the records of DTC. We also expect that payments by
DTC participants to owners of beneficial interests will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such participants, and
none of us, the Trustee, the custodian or any paying agent or registrar will
have any responsibility or liability for any aspect of the records relating to
or payments made on account of beneficial interests in any global security or
for maintaining or reviewing any records relating to such beneficial interests.
DTC has advised us that it is a limited-purpose trust company organized under
the New York Banking Law, a "banking organization" within the meaning of the New
York Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code and a
"clearing agency" registered under the Securities Exchange Act. DTC was created
to hold the securities of its participants and to facilitate the clearance and
settlement of securities transactions among its participants in such securities
through electronic book-entry changes in accounts of the participants, which
eliminates the need for physical movement of securities certificates. DTC's
participants include securities brokers and dealers (including UBS Securities
LLC, initial purchaser of the Notes), banks, trust companies, clearing
corporations and certain other organizations, some of whom (and/or their
representatives) own the depository. Access to DTC's book-entry system is also
available to others, such as banks, brokers, dealers and trust companies, that
clear through or maintain a custodial relationship with a participant, either
directly or indirectly. The ownership interest and transfer of ownership
interests of each beneficial owner or purchaser of each security held by or on
behalf of DTC are recorded on the records of the direct and indirect
participants.
SAME-DAY SETTLEMENT AND PAYMENT
We will make payments in respect of the Notes by wire transfer of immediately
available funds to the accounts specified by registered holders of the Notes. If
a holder of a certificated Note does not specify an account, we will mail a
check to that holder's registered address.
We expect the Notes will trade in DTC's Same-Day Funds Settlement System, and
DTC will require all permitted secondary market trading activity in the Notes to
be settled in immediately available funds. We expect that secondary trading in
any certificated securities will also be settled in immediately available funds.
Transfers between participants in DTC will be effected in the ordinary way in
accordance with DTC rules and will be settled in same-day funds. Transfers
between participants in Euroclear and Clearstream will be effected in the
ordinary way in accordance their respective rules and operating procedures.
Cross-market transfers between DTC, on the one hand, and directly or indirectly
through Euroclear or Clearstream participants, on the other hand, will be
effected in DTC in accordance with DTC rules on behalf of Euroclear or
Clearstream, as the case may be, by its respective depositary. However, such
cross-market transactions will require delivery of instructions to Euroclear or
Clearstream, as the case may be, by the counterparty in such system in
accordance with its rules and procedures and within its established deadlines
(Brussels time). Euroclear or Clearstream, as the case may be, will, if the
transaction meets its settlement requirements, deliver instructions to its
respective depositary to take action to effect final settlement on its behalf by
delivering or receiving interests in the global security in DTC and by making or
receiving payment in accordance with normal procedures for same-day funds
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DESCRIPTION OF NOTES
settlement applicable to DTC. Euroclear participants and Clearstream
participants may not deliver instructions directly to the depositaries for
Euroclear or Clearstream.
Because of time zone differences, the securities account of a Euroclear or
Clearstream participant purchasing an interest in a global security from a
participant in DTC will be credited, and any such crediting will be reported to
the relevant Euroclear or Clearstream participant, during the securities
settlement processing day (which must be a Business Day for Euroclear and
Clearstream) immediately following the settlement date of DTC. DTC has advised
us that cash received in Euroclear or Clearstream as a result of sales of
interests in a global security by or through a Euroclear or Clearstream
participant to a participant in DTC will be received with value on the
settlement date of DTC but will be available in the relevant Euroclear or
Clearstream cash account only as of the Business Day for Euroclear or
Clearstream following DTC's settlement date.
Although DTC, Euroclear and Clearstream have agreed to the above procedures to
facilitate transfers of interests in the global securities among their
participants, they are under no obligation to perform or to continue those
procedures, and those procedures may be discontinued at any time. None of us,
UBS Securities LLC (as initial purchaser of the Notes) or the Trustee are
responsible for the performance by DTC, Euroclear and Clearstream or their
direct or indirect participants of their respective obligations under the rules
and procedures governing their operations.
We have obtained the information we describe in this prospectus concerning DTC,
Euroclear and Clearstream and their book-entry systems from sources that we
believe to be reliable, but we take no responsibility for the accuracy of this
information.
CERTIFICATED SECURITIES
The Trustee will exchange each beneficial interest in a global security for one
or more certificated securities registered in the name of the owner of the
beneficial interest, as identified by DTC, only if:
- - DTC notifies us that it is unwilling or unable to continue as depositary
for that global security or ceases to be a clearing agency registered under
the Securities Exchange Act and, in either case, we do not appoint a
successor depositary within 90 days of such notice or cessation; or
- - an event of default has occurred and is continuing and the Trustee has
received a request from DTC to issue certificated securities.
REGISTRATION RIGHTS, ADDITIONAL INTEREST
We and UBS Securities LLC, as initial purchaser of the Notes, entered into the
Registration Rights Agreement on November 9, 2006. Pursuant to the Registration
Rights Agreement, we agreed:
- - to file with the SEC a shelf registration statement covering the Notes and
the Common Shares issuable upon conversion of the Notes. We filed a
registration statement, of which this prospectus is a part, on January 17,
2007;
- - to use our reasonable best efforts to cause the shelf registration
statement, if not effective upon filing, to become effective under the US
Securities Act as promptly as practicable but in any event by the 180th day
after the date we first issue the Notes; and
- - to use our reasonable best efforts to keep the shelf registration statement
continuously effective under the US Securities Act until there are no
registrable securities outstanding.
This prospectus is filed with the SEC and the securities regulatory authorities
in each of the Provinces of Canada pursuant to our obligations under the
Registration Rights Agreement.
The Registration Rights Agreement permits us to prohibit offers and sales of
registrable securities pursuant to the shelf registration statement for a period
not to exceed an aggregate of 30 days in any three-month period and not to
exceed an aggregate of 60 days in any 12-month period, under certain
circumstances and subject to certain conditions. We refer to such any period
during which we may prohibit offers and sales as a "suspension period."
"Registrable securities" generally means each Note and each Common Share
issuable upon conversion, redemption, purchase or repurchase of the Notes until
the earlier of:
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DESCRIPTION OF NOTES
- - the date the Note or Common Share has been effectively registered under the
US Securities Act and disposed of in accordance with the shelf registration
statement;
- - the date when the Note or Common Share may be resold without restriction
pursuant to Rule 144(k) under the US Securities Act or any successor
provision thereto; or
- - the date when the Note or Common Share has been publicly sold pursuant to
Rule 144 under the US Securities Act.
Holders of registrable securities must deliver certain information to be used in
connection with, and to be named as selling securityholders in, the shelf
registration statement in order to have their registrable securities included in
the shelf registration statement. Failure to do so will result in the Note
holder not being named as a selling securityholder in the shelf registration
statement, not being permitted to sell any registrable securities held by that
holder pursuant to the shelf registration statement and not being entitled to
receive any of the additional interest described in the following paragraph.
There can be no assurance that we will be able to maintain an effective and
current shelf registration statement as required.
If:
- - the shelf registration statement has not become effective under the US
Securities Act by the 180th day after the date we first issued the Notes;
- - a holder supplies the questionnaire described below after the effective
date of the shelf registration statement, and we fail to supplement this
prospectus, amend the shelf registration statement, or file a new
registration statement, in order to add such holder as a selling
securityholder or, in the case of an amendment to the shelf registration
statement or new registration statement, such amendment or new registration
statement does not become effective, in accordance with the terms of the
Registration Rights Agreement;
- - the shelf registration statement, or any subsequent registration statement,
is filed and has become effective under the US Securities Act but then
ceases to be effective (without being succeeded immediately by an
additional registration statement that is filed and immediately becomes
effective) or usable for the offer and sale of registrable securities for a
period of time (including any suspension period) that exceeds an aggregate
of 30 days in any three-month period or an aggregate of 60 days in any
12-month period; or
- - we fail to name as a selling securityholder, in any registration statement
or amendment thereto, at the time it becomes effective under the US
Securities Act, or in any prospectus relating to such registration
statement, at the time we file the prospectus or, if later, the time the
registration statement or amendment to which such prospectus relates
becomes effective under the US Securities Act, any holder that is entitled
to be so named as a selling securityholder,
then we will pay additional interest to each holder of registrable securities
who has provided to us the required selling securityholder information (or, in
the case of the second or fourth bullet points above, the applicable holder or
holders). We refer to each event described in the bullet points above as a
"registration default."
The additional interest we must pay while there is a continuing registration
default accrues at a rate per year equal to 0.25% for the 90-day period
beginning on, and including, the date of the registration default, and
thereafter at a rate per year equal to 0.50%, of the aggregate principal amount
of the applicable Notes.
Additional interest will not accrue on any Note after it has been converted or
on any cash or Common Shares that we issue as payment of any portion of a
make-whole payment. If a Note ceases to be outstanding during a registration
default, we will prorate the additional interest to be paid with respect to that
Note. In no event will additional interest be payable with respect to any
registration default relating to a failure to register the Common Shares
underlying the Notes. For avoidance of doubt, if we fail to register both the
Notes and the underlying Common Shares, then additional interest will be payable
in connection with the registration default relating to the failure to register
Notes.
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DESCRIPTION OF NOTES
So long as a registration default continues, we will pay additional interest in
cash on May 15 and November 15 of each year to each holder who is entitled to
receive additional interest in respect of a Note or underlying Common Shares, as
the case may be, of which the holder was the holder of record at the close of
business on the immediately preceding May 1 and November 1, respectively. If we
call a Note for redemption, purchase a Note pursuant to a purchase at the
holder's option or repurchase a Note upon a change in control, and the
redemption date, purchase date or change in control repurchase date is after the
close of business on a record date and before the related additional Interest
Payment Date, we will instead pay the additional interest to the holder that
submitted the Note for redemption, purchase or repurchase.
Following the cure of a registration default, additional interest will cease to
accrue with respect to that registration default. In addition, no additional
interest will accrue after the period we must keep the shelf registration
statement effective under the US Securities Act or on any security that ceases
to be a registrable security. However, we will remain liable for any previously
accrued additional interest.
References in this description of the Notes to the payment of principal or
interest on any Note are deemed to include the payment of additional amounts to
the extent that, in such context, additional amounts are, were or would be
payable.
We agreed in the Registration Rights Agreement to give notice to all holders of
the filing and effectiveness of the initial shelf registration statement by
release through a US national newswire service. A holder of registrable
securities that does not provide us with a completed questionnaire or the
information called for by it before effectiveness of the initial shelf
registration statement will not be named as a selling securityholder in the
shelf registration statement when it becomes effective and will not able to use
the shelf registration statement to resell registrable securities. However, such
a holder of registrable securities may thereafter provide us with a completed
questionnaire, following which we will, as promptly as reasonably practicable
after the date we receive the completed questionnaire, but in any event within
five Business Days after that date (except as described below), file a
supplement to the prospectus relating to the shelf registration statement or, if
required, file a post-effective amendment or a new shelf registration statement
in order to permit resales of such holder's registrable securities. However, if
we receive the questionnaire during a suspension period, or we initiate a
suspension period within five Business Days after we receive the questionnaire,
then we will, except as described below, make the filing within five Business
Days after the end of the suspension period. If we file a post-effective
amendment or a new registration statement, then we will use our best efforts to
cause the post-effective amendment or new registration statement to become
effective under the US Securities Act as promptly as practicable, but in any
event by the 30th day after the date the Registration Rights Agreement requires
us to file the post-effective amendment or new registration statement. However,
if a post-effective amendment or a new registration statement is required in
order to permit resales by holders seeking to include registrable securities in
the shelf registration statement after the effectiveness of the original shelf
registration statement, we will not be required to file more than one
post-effective amendment or new registration statement for such purpose in any
30-day period. We have also agreed to pay all expenses in connection with the
performance of our obligations under the Registration Rights Agreement.
To the extent that any holder of registrable securities identified in the shelf
registration statement is a broker/dealer, or is an affiliate of a broker/dealer
that did not acquire its registrable securities in the ordinary course of its
business or that at the time of its purchase of registrable securities had an
agreement or understanding, directly or indirectly, with any person to
distribute the registrable securities, we understand that the SEC may take the
view that such holder is, under the SEC's interpretations, an "underwriter"
within the meaning of the US Securities Act. Any holder, whether or not it is an
"underwriter," who sells securities by means of the prospectus relating to the
shelf registration statement will be subject to certain potential liabilities
arising under the US Securities Act for material misstatements or omissions
contained in the prospectus. However, a holder of registrable securities that is
deemed to be an "underwriter" within the meaning of the US Securities Act may be
subject to additional liabilities under the federal securities laws for
misstatements and omissions contained in the shelf registration statement.
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DESCRIPTION OF NOTES
The above summary of certain provisions of the Registration Rights Agreement
does not purport to be complete and is subject, and is qualified in its entirety
by reference, to the provisions of the Registration Rights Agreement. Copies of
the Registration Rights Agreement are available from us or the Trustee upon
request.
GOVERNING LAW
The Indenture, the Notes and the Registration Rights Agreement are governed by
and construed in accordance with the laws of the State of New York, without
giving effect to such state's conflicts of laws principles. We have submitted to
the non-exclusive jurisdiction of any federal or state court in the State of New
York for purposes of all legal actions and proceedings instituted in connection
with the Indenture, the Notes or the Registration Rights Agreement. As of the
issue date of the Notes, we appointed CT Corporations Systems Inc., 111 Eighth
Avenue, New York, New York 10011, as our authorized agent upon which process may
be served in any such action or proceeding in any federal or state court in the
State of New York.
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The Equity line of credit facility
THE SECURITIES PURCHASE AGREEMENT
On August 9, 2006, we entered into a securities purchase agreement with
Cityplatz for the future issuance and purchase of our Common Shares. This
securities purchase agreement established the ELOC. See "Our business - Recent
developments - Equity line of credit facility." The following summary of the
terms of the ELOC does not purport to be complete and is subject, and qualified
in its entirety by reference, to the detailed provisions of the securities
purchase agreement with Cityplatz establishing the ELOC. Copies of the
securities purchase agreement will be provided upon request. The securities
purchase agreement with Cityplatz is also available online at www.sedar.com.
Under the ELOC, Cityplatz, has committed to provide us up to US$60 million as we
request it over a 24-month period, in return for Common Shares we issue to
Cityplatz. Only one drawdown is allowed in each Draw-Down Pricing Period. The
maximum amount we can actually draw pursuant to each request is limited to US$6
million (based on a 21-trading day Draw-Down Pricing Period, and pro-rated for
shorter periods). We are under no obligation to issue any Common Shares to
Cityplatz or to request a drawdown during any period, although we have agreed to
request drawdowns of at least US$25 million over the term of the facility.
The per share dollar amount that Cityplatz pays for our Common Shares for each
drawdown includes a 3% discount to the volume-weighted average price of our
Common Shares for each day during the Draw-Down Pricing Period after our
drawdown request. We will receive the amount of the drawdown less a placement
fee equal to 2.4% of gross proceeds payable to the placement agent, Rodman &
Renshaw, LLC, which introduced Cityplatz to us. The price per share that
Cityplatz ultimately pays is determined by dividing the final drawdown amount by
the number of Common Shares that we issue to Cityplatz. The purchase and sale of
Common Shares under a drawdown will be settled on the first trading day
immediately after each consecutive three trading day period within a Draw-Down
Pricing Period.
We are required to comply with Nasdaq's issuer designation requirements. One of
those requirements prevents us from issuing more than 19.9% of our outstanding
Common Shares unless and until we receive the approval of our shareholders.
Additionally, the securities purchase agreement does not permit us to draw funds
if the issuance of shares of Common Shares to Cityplatz pursuant to the drawdown
would exceed 4.9% of our issued and outstanding Common Shares at the time of
issuance. In such cases, we will not be permitted to issue the shares otherwise
issuable pursuant to the drawdown and Cityplatz will not be obligated to
purchase those Common Shares.
THE DRAWDOWN PROCEDURE AND THE PURCHASE OF OUR COMMON SHARES
We may request a drawdown by sending a drawdown notice to Cityplatz, stating the
amount of the drawdown that we wish to exercise and the minimum threshold price
at which we are willing to sell the Common Shares.
AMOUNT OF THE DRAWDOWN
No drawdown can be more than US$6 million (subject to proration based on a
21-day Draw-Down Pricing Period).
Additionally, if any of the following events occur during the Draw-Down Pricing
Period, the investment amount for that Draw-Down Pricing Period will be reduced
by 1/21 (based on a 21-day Draw-Down Pricing Period, pro-rated for shorter
periods) and the volume weighted average price of any trading day during a
Draw-Down Pricing Period will have no effect on the pricing of the Common Shares
purchased during that Draw-Down Pricing Period:
- - the volume weighted average price is less than the minimum threshold price
we designate;
- - trading of the Common Shares is suspended for more than three hours, in the
aggregate, or if any trading day is shortened because of a public holiday;
or
71
EQUITY LINE OF CREDIT FACILITY
- - if sales of previously drawn down Common Shares pursuant to the
registration statement of which this prospectus is a part are suspended by
us because of certain potentially material events for more than three
hours, in the aggregate.
If we set too high a threshold price, and if our stock price does not
consistently meet that level during the Draw-Down Pricing Period after our
drawdown request, then the amount that we can draw and the number of shares that
we will issue to Cityplatz will be reduced.
Once we draw on the ELOC we cannot make another drawdown request until the
following Draw-Down Pricing Period, once a three-trading day cushion period has
elapsed.
NUMBER OF COMMON SHARES
The Draw-Down Pricing Period immediately following the drawdown notice is used
to determine the number of Common Shares that we will issue in return for the
money provided by Cityplatz, which then allows us to calculate the price per
share that Cityplatz will pay for our Common Shares.
In order to determine the number of Common Shares that we can issue in
connection with a drawdown, take 1/21 of the drawdown amount determined as
described above (based on a 21-day Draw-Down Pricing Period, pro-rated for
shorter periods), and for each of the 21 trading days immediately following the
date on which we give notice of the drawdown, divide it by 97% of the
volume-weighted average daily trading price of our Common Shares for that day.
The 97% represents Cityplatz's 3% discount. The sum of these 21 daily
calculations produces the maximum number of Common Shares that we can issue,
unless, as described above, the volume-weighted average daily price for any
given trading day is below the threshold amount, trading is suspended for any
given trading day or sales made pursuant to the registration statement are
suspended, in which case those days are ignored in the calculation.
NECESSARY CONDITIONS BEFORE CITYPLATZ IS OBLIGATED TO PURCHASE OUR COMMON SHARES
Notably, the following conditions must be satisfied before Cityplatz is
obligated to purchase any Common Shares that we may request be purchased from
time to time:
- - a registration statement for the shares must be declared effective by the
Securities and Exchange Commission and must remain effective in order to
Cityplatz to resell Common Shares purchased under the ELOC;
- - the Common Shares are trading on NASDAQ and all of the shares issuable
pursuant to the applicable drawdown documents are listed or quoted (if
applicable) for trading on NASDAQ;
- - there is a sufficient number of authorized but unissued Common Shares for
the issuance of all of the Common Shares issuable pursuant to the drawdown;
- - we have not, directly or indirectly, provided Cityplatz with any material,
non-public information that has not been made publicly available in a
widely disseminated release or otherwise in a manner contemplated by US
Securities legislation;
- - trading in our Common Shares must not have been suspended by the Securities
and Exchange Commission or NASDAQ, nor shall minimum prices have been
established on securities whose trades are reported on NASDAQ;
- - no statute, rule, regulation, executive order, decree, ruling or injunction
may be in effect which prohibits consummation of the transactions
contemplated by the securities purchase agreement.
A further condition is that we may not issue more than 19.9% of our issued and
outstanding Common Shares without first obtaining approval from our shareholders
for such excess issuance. In addition, the ELOC agreement provides that we may
not issue more than 4.9% of our Common Shares pursuant to any single drawdown.
72
EQUITY LINE OF CREDIT FACILITY
TERMINATION OF THE SECURITIES PURCHASE AGREEMENT
The ELOC established by the securities purchase agreement will terminate 24
months from the effective date of the registration statement of which this
prospectus forms a part. The ELOC shall also terminate if (i) the Common Shares
are de-listed from NASDAQ unless the Common Shares are listed at such time on a
Trading Market and such de-listing is in connection with a subsequent listing on
another Trading Market, (ii) the Company is subject to a change of control
transaction, (iii) the Company suffers a material adverse effect which cannot be
cured prior to the next drawdown notice, or (iv) the registration statement does
not become effective by the 12-month anniversary of the date of the securities
purchase agreement. The Company may terminate the securities purchase agreement
upon five trading days' notice (i) if Cityplatz shall fail to fund a properly
noticed drawdown within five trading days of the end of the applicable
settlement period or (ii) after it has drawn down at least US$25,000,000 under
the ELOC. Either party may also terminate the securities purchase agreement upon
five trading days' notice if the volume-weighted average price of the Common
Shares is below US$5 for more than 30 consecutive trading days, as adjusted.
COSTS OF CLOSING THE TRANSACTION
At the initial closing of the transaction on August 9, 2006, we paid US$65,000
to cover the legal fees and due diligence expenses of Cityplatz.
INDEMNIFICATION OF CITYPLATZ
Cityplatz is entitled to customary indemnification from us for any losses or
liabilities suffered by it based upon material misstatements or omissions from
the securities purchase agreement, the registration statement or this
prospectus, except as they relate to information supplied by Cityplatz to us for
inclusion in the registration statement and prospectus.
73
Selling securityholders
Securities may be sold under this prospectus by way of a secondary offering by
or for the account of certain of our securityholders. The prospectus supplement
that we will file with the SEC in connection with any offering of Securities by
selling securityholders will include the following information:
- - the names of the selling securityholders;
- - the number of Securities owned by each selling securityholders;
- - the number of Securities being distributed for the account of each selling
security holder;
- - the number of Securities to be owned by the selling securityholders after
the distribution and the percentage that number represents of the total
number of outstanding Securities;
- - whether the Securities are owned by the selling securityholders both of
record and beneficially, of record only or beneficially only.
Pursuant to the Registration Rights Agreement, we agreed, inter alia, to file
with the SEC and use our best efforts to cause to become effective, a shelf
registration statement, of which this prospectus is a part, to permit the
holders, from time to time, of the Notes to publicly offer and sell their Notes
and the Common Shares issuable upon conversion of the Notes, in the United
States. See "Description of the Notes -- Registration rights, additional
interest."
Similarly, under the terms of a registration rights agreement entered into in
connection with the ELOC, we agreed, inter alia, to file with the SEC, and use
commercially reasonable efforts to cause to become effective, a shelf
registration statement, of which this prospectus is a part, to permit Cityplatz
to publicly offer and sell in the United States the shares purchased under the
terms of the ELOC. See "-- Plan of distribution."
74
Plan of distribution
We may sell our Securities to or through underwriters or dealers, and also may
sell Securities to one or more other purchasers, directly or through agents in
negotiated transactions, block trades, equity lines of credit or a combination
of these methods. This prospectus may also, from time to time, relate to the
offering of Securities by certain selling security holders to one or more other
purchasers through underwriters, dealers, directly, or through agents.
A prospectus supplement will describe the terms of each Offering, including the
names of any underwriters, agents or selling security holders, the number and
the purchase price or prices of the Securities, the proceeds to us or any
selling shareholder from the sale of the Securities, any underwriting discount
or commission and any discounts, concessions or commissions allowed or reallowed
or paid by any underwriter to any other dealer. Any discounts, concessions or
commissions allowed or paid to dealers may be changed from time to time.
Our Securities may be sold from time to time in one or more transactions at
prices, which may be changed, or at market prices prevailing at the time of
sale, at prices related to such prevailing market price or at privately
negotiated prices.
Underwriters, dealers and agents who participate in a distribution of our
Securities may be entitled under agreements to be entered into with us to
indemnification by us against certain liabilities, or to contribution with
respect to payments which the underwriters, dealers or agents may be required to
make in respect thereof.
In connection with any offering of our Securities, the underwriters may
over-allot or effect transactions which stabilize or maintain the market price
of Common Shares offered at a level above that which might otherwise prevail in
the open market. Such transactions, if commenced, may be discontinued at any
time.
Selling security holders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their
Securities on the TSX, NASDAQ or in private transactions. These sales may be at
fixed or negotiated prices. Selling security holders may use any one or more of
the following methods when selling Securities:
- - ordinary brokerage transactions and transactions in which the broker/dealer
solicits purchasers;
- - block trades in which the broker/dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;
- - purchases by a broker/dealer as principal and resale by the broker/dealer
for its account;
- - an exchange distribution in accordance with the rules of the applicable
exchange;
- - privately negotiated transactions;
- - settlement of short sales entered into after the effective date of the
registration statement of which this prospectus is a part, to the extent
contractually permitted between Neurochem and the selling security holders;
- - broker/dealers may agree with the selling security holders to sell a
specified number of securities at a stipulated price per Security;
- - through the writing or settlement of options or other hedging transactions,
whether through an options exchange or otherwise;
- - a combination of any such methods of sale; or
- - any other method permitted pursuant to applicable law.
Selling security holders may also sell Common Shares under Rule 144 and Notes
under Rule 144A under the US Securities Act, as amended, if available, or
pursuant to other exemptions from the prospectus or registration requirements
rather than under this prospectus.
75
PLAN OF DISTRIBUTION
Broker/dealers engaged by selling security holders may arrange for other
brokers/dealers to participate in sales. Broker/dealers may receive commissions
or discounts from selling security holders (or, if any broker/dealer acts as
agent for the purchaser of securities, from the purchaser) in amounts to be
negotiated, but, except as set forth in a supplement to this prospectus, in the
case of an agency transaction not in excess of a customary brokerage commission
in compliance with NASD Rule 2440; and in the case of a principal transaction a
markup or markdown in compliance with NASD IM-2440.
In connection with the sale of Securities or interests therein, selling security
holders may enter into hedging transactions with broker/dealers or other
financial institutions, which may in turn engage in short sales of the
Securities in the course of hedging the positions they assume. Selling security
holders may also, to the extent contractually permitted between the Neurochem
and the selling security holders, sell Securities and deliver them to close out
their short position, or loan or pledge the Securities to broker/dealers that in
turn may sell these securities. Selling security holders may also enter into
options or other transactions with broker/dealers or other financial
institutions or the creation of one or more derivative securities which require
the delivery to such broker/dealer or other financial institution of Securities.
RESALE OF COMMON SHARES ISSUED UNDER THE ELOC
Cityplatz will be an underwriter within the meaning of the US Securities Act and
applicable Canadian securities legislation and any broker/dealers or agents that
are involved in selling the shares may be considered to be "underwriters" within
the meaning of the US Securities Act in connection with such sales. In such
event, any commissions received by such broker/dealers or agents and any profit
on the resale of the Common Shares purchased by them may be deemed to be
underwriting commissions or discounts under the US Securities Act or such
legislation. Cityplatz has informed the Company that except with respect to
Rodman & Renshaw, LLC, to which we will pay a placement fee equal to 2.4% of
gross proceeds of each drawdown, there are no written or oral agreements or
understandings, directly or indirectly, with any person to distribute the Common
Shares. In no event shall any broker/dealer receive fees, commissions and
markups which, in the aggregate, would exceed eight percent (8%). The Company is
required to pay certain fees and expenses incident to the registration of the
Common Shares to be sold by Cityplatz. The Company has agreed to indemnify
Cityplatz against certain losses, claims, damages and liabilities, including
liabilities under the US Securities Act. Neurochem and Cityplatz have obtained
an order from the securities regulatory authorities of each of the provinces of
Canada (the "ORDER") exempting Cityplatz from the application of certain rules
relating to underwriting activities in connection with the purchase and resale
of the Common Shares under the ELOC, including the requirement to be registered
as a dealer and that its officers, directors and certain of its employees be
registered as salespersons or representatives of a registered dealer.
Under the terms and conditions of the Order:
(a) we are required to:
- issue a press release:
- upon any material change to the pricing provisions of the
securities purchase agreement;
- upon the delivery of a drawdown notice to Cityplatz (the press
release will disclose that a drawdown notice has been delivered
and will state: that the prospectus related to the drawdown has
been (or will be) filed and is (or will be) available on SEDAR
and EDGAR, and that purchasers pursuant to the prospectus have,
for a period of 40 days after the settlement date of the
drawdown, the rights of rescission or damages described in this
prospectus under "Purchasers' Statutory Rights"; and
- immediately following the closing of each drawdown (the press
release will disclose the closing of the drawdown, state that the
prospectus related to the drawdown has been filed and is
available on SEDAR and EDGAR, specify the relevant distribution
period and disclose that purchasers pursuant to the prospectus
have the rights of
76
PLAN OF DISTRIBUTION
rescission or damages described in this prospectus under
"Purchasers' Statutory Rights";
(b) Cityplatz:
- may not solicit offers to purchase Common Shares purchased by it under
the securities purchase agreement and must effect all sales of such
Common Shares during the distribution period using a dealer
unaffiliated with Cityplatz or us; and
- must make available to the securities regulatory authorities of
Canada, upon request, full particulars of its trading and hedging
activities and, if relevant, the trading and hedging activities of any
associate(s), affiliate(s), or insider(s) of Cityplatz, in relation to
our securities during the term of the securities purchase agreement;
(c) the number of Common Shares issued under the terms of the ELOC during any
24-month period during the subsistence of the facility may not exceed 19.9%
of the total number of Common Shares outstanding at the beginning of such
24-month period;
(d) the commencement date of each Draw-Down Pricing Period must not be later
than five trading days after delivery of the drawdown notice; and
(e) no extraordinary commission or consideration may be paid by Cityplatz to a
person or company in respect of the distribution of Common Shares purchased
pursuant to the securities purchase agreement.
Other than Cityplatz's involvement as an underwriter with respect to the
ELOC as set forth above, no underwriter has been involved in the preparation of
this prospectus, performed any review of the contents of this prospectus or
performed any due diligence with respect to Neurochem in connection with this
prospectus.
Because Cityplatz is an "underwriter" within the meaning of the US Securities
Act, it will be subject to the prospectus delivery requirements of the US
Securities Act including Rule 172 thereunder. Other than Rodman & Renshaw LLC,
there is no underwriter or coordinating broker acting in connection with the
proposed sale or the resale of Common Shares issued or to be issued by Neurochem
to Cityplatz under the terms of ELOC.
We agreed in favour of Cityplatz to use commercially reasonable efforts to keep
this prospectus effective until the earlier of (i) 24 months from the date of
this prospectus, (ii) the expiration of the commitment period of the ELOC or
(iii) all of the Common Shares issuable under the ELOC have been sold pursuant
to this prospectus. The Common Shares will be sold only through registered or
licensed brokers or dealers if required under applicable securities laws. In
addition, in certain states of the United States, the Common Shares may not be
sold unless they have been registered or qualified for sale in the applicable
state or an exemption from the registration or qualification requirement is
available and is complied with.
Under applicable United States rules and regulations, any person engaged in the
distribution of the Common Shares may not simultaneously engage in market making
activities with respect to the Common Shares of the Company for the applicable
restricted period, as defined in Regulation M, prior to the commencement of the
distribution. In addition, Cityplatz will be subject to applicable provisions of
the Securities Exchange Act and the rules and regulations thereunder, including
Regulation M, which may limit the timing of purchases and sales of Common Shares
by Cityplatz or any other person. We will make copies of this prospectus
available to Cityplatz and have informed them of the need to deliver a copy of
this prospectus to each purchaser at or prior to the time of the sale.
RESALE OF THE NOTES OR UNDERLYING COMMON SHARES
The Notes were issued on November 9, 2006 and November 17, 2006 and offered and
sold in the United States to qualified institutional buyers in reliance on Rule
144A under the US Securities Act and outside the United States in reliance on
Regulation S under the U.S. Securities Act.
77
PLAN OF DISTRIBUTION
Securityholders are entitled to the benefits of a registration rights agreement
described under "Description of the Notes - Registration rights, additional
interest," pursuant to which the Company has filed this prospectus as a short
form base shelf prospectus with the Securities regulatory authorities in each of
the provinces of Canada under the National Instrument 44-102 shelf prospectus
system and a registration statement including this prospectus with the SEC under
the US Securities Act.
All shelf information omitted from this short form base shelf prospectus will be
contained in a shelf prospectus supplement that will be delivered to purchasers
together with this prospectus. Each shelf prospectus supplement will be
incorporated by reference into this prospectus as of the date of such prospectus
supplement and only for the purposes of the Offering to which such prospectus
supplement pertains. The only information that will be contained in any
supplement to this prospectus is the information required by applicable
securities legislation and a current list of the securityholders who have
delivered a completed selling securityholder's questionnaire to the Company
(each, an "Electing Holder") and the aggregate principal amount of the Notes
held by each such Electing Holder.
An Electing Holder may sell at any time, or from time to time, pursuant to this
prospectus, the aggregate principal amount of the Notes held by such Electing
Holder as set forth in a prospectus supplement, as the case may be, and the
aggregate principal amount payable of the Notes held by such Electing Holders
shall thereafter be reduced to the extent of such sales. The Notes held by the
Electing Holders were either acquired by them upon the above-mentioned issuance
of the Notes at a price of US$1,000 per Note, or in subsequent transactions
thereafter at varying prices.
The Company is registering the Securities covered by this prospectus under the
US Securities Act and is obtaining a receipt therefor from the Securities
regulatory authorities in each of the provinces of Canada to permit any Electing
Holders to conduct public secondary trading of these Securities from time to
time after the date of this prospectus in accordance with applicable Canadian
securities laws and the federal securities laws of the United States.
The Company will not receive any of the proceeds from the sale of the Securities
by Electing Holders. The prices for such sales will be determined by Electing
Holders or by agreement between Electing Holders and underwriters, dealers or
agents who may receive fees or commissions in connection with the sale. The
aggregate proceeds to Electing Holders from the sale of the Securities offered
by them will be the purchase price of the Securities less discount and
commissions, if any.
Once any Security is sold by an Electing Holder pursuant to this prospectus and
a related prospectus supplement, such Security becomes freely tradable without
restriction in the United States and Canada and is not thereafter covered by
this prospectus even if subsequently reacquired by an Electing Holder.
Neurochem Inc.'s outstanding Common Shares are listed on NASDAQ and the TSX.
Each has, to the extent necessary, approved the listing of the underlying Common
Shares. We do not intend to list the Notes for trading on any securities
exchange in the United States or Canada. Accordingly, no assurance can be given
as to the development of an active trading market for the Notes. See "Risk
Factors."
In order to comply with the securities laws of certain US states and Canadian
jurisdictions, if applicable, the Notes and underlying Common Shares may be sold
in such jurisdictions only through registered or licensed brokers or dealers.
The Securityholders and any underwriters, dealers or agents that participate in
the distribution of the Securities offered under this prospectus may be deemed
to be "underwriters" within the meaning of the U.S. Securities Act, and any
discounts, commissions or concessions received by them might be deemed to be
underwriting compensation under the US Securities Act.
In addition, any Securities covered by this prospectus which qualify for sale
pursuant to Rule 144 or Rule 144A of the US Securities Act may be sold under
Rule 144 or Rule 144A rather than pursuant to this prospectus. There is no
assurance that any selling securityholder will sell any or all of the Notes or
underlying Common Shares described in this prospectus, and any selling
Securityholder may transfer, devise or gift such Securities by other means not
described in this prospectus.
In connection with any offering of Securities, the underwriters, if any, may
offer, allot or effect transactions that stabilize or maintain the market price
of the Securities offered at a level above that
78
PLAN OF DISTRIBUTION
which might otherwise prevail in the open market. Such transactions, if
commenced, may be discontinued at any time.
79
Corporate information and registered office
Neurochem Inc. was incorporated on June 17, 1993 under the Canada Business
Corporations Act. Neurochem Inc. has an indirect wholly-owned subsidiary,
Neurochem (International) Limited, a Swiss corporation. Neurochem
(International) Limited is wholly-owned by Neurochem Holdings Limited, a Swiss
corporation which is, in turn, wholly-owned by Neurochem Luxco II S.A.R.L., a
Luxembourg corporation. Neurochem Luxco II S.A.R.L. is wholly-owned by Neurochem
Luxco I S.C.S., a Luxembourg limited partnership whose sole limited partner is
Neurochem Inc. and whose sole general partner is Neurochem Luxco I S.A.R.L., a
Luxembourg corporation wholly-owned by Neurochem Inc. Neurochem Inc. is also the
sole shareholder of Neurochem U.S. LLC, a Delaware limited liability company.
All of such entities, other than Neurochem Inc., are sometimes collectively
referred to in this prospectus as our "Affiliates."
Our drug development facilities, laboratories and registered office are located
in Canada, at 275 Armand-Frappier Boulevard, Laval, Quebec, H7V 4A7. Neurochem
(International) Limited has offices in the Parc Scientifique-Ecole Polytechnique
Federale de Lausanne in Ecublens, Switzerland.
80
Documents incorporated by reference
INFORMATION HAS BEEN INCORPORATED BY REFERENCE IN THIS PROSPECTUS FROM DOCUMENTS
FILED WITH SECURITIES COMMISSIONS OR SIMILAR AUTHORITIES IN CANADA (INCLUDING
THE PERMANENT INFORMATION RECORD IN THE PROVINCE OF QUEBEC). Copies of documents
incorporated by reference herein and not delivered with this prospectus may be
obtained upon request without charge from our Corporate Secretary at 275
Armand-Frappier Boulevard, Laval, Quebec H7V 4A7, telephone (450) 680-4500 or by
accessing the disclosure documents available through the Internet on the
Canadian System for Electronic Document Analysis and Retrieval (SEDAR), which
can be accessed at www.sedar.com. For the purpose of the Province of Quebec,
this simplified prospectus contains information to be completed by consulting
the permanent information record. A copy of the permanent information record may
be obtained from our Corporate Secretary at the above-mentioned address and
telephone number.
The following documents filed with the securities commission or similar
regulatory authority in each of the provinces of Canada are specifically
incorporated by reference in, and form an integral part of, this prospectus:
- - the audited consolidated balance sheets of Neurochem as at December 31,
2005 and 2004 and the audited consolidated statements of operations,
deficit and cash flows for the year ended December 31, 2005 and 2004, and
for the six-month period ended December 31, 2003 and for the period from
inception (June 17, 1993) to December 31, 2005, together with the auditors'
report thereon, the Notes thereto and Management's discussion and analysis
of financial condition and results of operations in respect of the year
ended December 31, 2005, December 31, 2004 and for the six-month period
ended December 31, 2003;
- - the unaudited consolidated balance sheets, consolidated statements of
operations, consolidated statements of deficit, consolidated statement of
cash flows and the Notes thereto and Management's discussion and analysis
of financial condition and results of operations in respect of the
three-month and nine-month periods ended September 30, 2006 and 2005;
- - the annual information form of Neurochem dated March 22, 2006 for the year
ended December 31, 2005;
- - the management proxy circular of Neurochem dated March 17, 2006;
- - the material change reports of Neurochem dated August 17, 2006 related to
the ELOC and the receipt of an approvable letter for KIACTA(TM) and August
18, 2006 related to a change to the board of directors of Neurochem. See
"Our business -- Recent developments"; and
- - The Material Change Report of Neurochem dated November 10, 2006 related to
the private placement of US$40 million aggregate principal amount of Notes.
See "Our business -- Recent developments" and "Description of share
capital."
Any document of the type referred to in the preceding paragraph along with any
management proxy circulars and material change reports (other than any
confidential material change reports) filed by Neurochem with a securities
commission or similar regulatory authority in any province of Canada, after the
date of this prospectus and before the termination of this Offering, will be
deemed to be incorporated by reference in this prospectus.
In addition, to the extent indicated in any report on Form 6-K furnished to the
SEC, any information included therein shall be deemed to be incorporated by
reference in this prospectus. Further, we are incorporating by reference into
this prospectus the supplemental note entitled "Reconciliation to United States
Generally Accepted Accounting Principles" in respect of our audited consolidated
financial statements as at December 31, 2005 and 2004, and for the years ended
December 31, 2005 and 2004, for the six-month period ended December 31, 2003,
and for the period from inception (June 17, 1993) to December 31, 2005, and in
respect of our unaudited interim financial statements as at September 30, 2006,
and for the nine-month periods ended September 30, 2006 and 2005 which was
furnished to the SEC on Form 6-K on January 16, 2007.
81
DOCUMENTS INCORPORATED BY REFERENCE
Any statement contained in a document incorporated or deemed to be incorporated
by reference herein will be deemed to be modified or superseded for the purposes
of this prospectus to the extent that a statement contained herein or in any
other subsequently filed document that also is or is deemed to be incorporated
by reference herein modifies or supersedes that statement. The modifying or
superseding statement need not state that it has modified or superseded a prior
statement or include any information set forth in the document that it modifies
or supersedes. The making of a modifying or superseding statement will not be
deemed an admission that the modified or superseded statement, when made,
constituted a misrepresentation, an untrue statement of a material fact or an
omission of a material fact that is required to be stated or that is necessary
to make a statement not misleading in light of the circumstances in which it was
made. Any statement so modified or superseded will not be deemed, except as so
modified or superseded, to constitute a part of this prospectus.
82
Documents filed as part of the registration statement
The following documents have been filed with the SEC as part of the registration
statement of which this prospectus forms a part: (i) the documents listed under
"Documents incorporated by reference"; (ii) powers of attorney from our
directors and officers and from our authorized representative in the United
States; (iii) the consent of Davies Ward Phillips & Vineberg LLP, our Canadian
counsel, dated February 9, 2007; (iv) a Statement of Eligibility of the Trustee
on Form T-1; (v) the Indenture; and (vi) the consent of KPMG LLP, dated
February 9, 2007.
Where you can find more information
Copies of this prospectus and the documents incorporated by reference herein may
be obtained on request without charge from the Corporate Secretary of Neurochem
Inc., at our registered office; 275 Armand-Frappier Boulevard, Laval, Quebec,
H7V 4A7, telephone (450) 680-4500. Copies of these documents are available on
the System for Electronic Document Analysis and Retrieval of the Canadian
Securities Administrators (SEDAR), at www.sedar.com.
We have filed with the SEC under the US Securities Act, as amended, a
registration statement on Form F-10 relating to the Common Shares and of which
this prospectus is a part. This prospectus does not contain all of the
information set forth in such registration statement, as to which reference is
made for further information. We are subject to the informational requirements
of the Securities Exchange Act, as amended, and in accordance therewith are
required to file reports and other information with the SEC. Under the
multijurisdictional disclosure system adopted by the United States, such reports
and other information may be prepared in accordance with the disclosure
requirements of Canada, which requirements are different from those of the
United States. Such registration statement, reports and other information may be
inspected without charge at the Public Reference Section of the SEC at 100 F
Street, NE, Washington D.C. 20549. Copies of all or any portion of the
registration statement and such reports and other information may be obtained
from the public reference room of the SEC, upon payment of the prescribed fees.
You may call the SEC at 1-800-SEC-0330 or access its website at www.sec.gov for
further information about the public reference room. You may also read and
download some of the documents we have filed with the SEC's EDGAR system at
www.sec.gov.
As a "foreign private issuer" under the Securities Exchange Act, we provide to
our shareholders proxy statements and annual reports prepared in accordance with
applicable Canadian law. Our annual reports are available within 90 days of the
end of each fiscal year and will contain our audited consolidated financial
statements. We will also make available quarterly reports containing unaudited
summary consolidated financial information for each of the first three fiscal
quarters. We intend to prepare these financial statements, in accordance with
Canadian GAAP and to include a reconciliation to US GAAP in the Notes to the
annual consolidated financial statements. We are exempt from provisions of the
Securities Exchange Act which require us to provide proxy statements in
prescribed form to shareholders and which relate to short swing profit reporting
and liability.
Enforcement of civil liabilities
We are incorporated under the laws of Canada. Most of our directors and officers
are residents of Canada. Most of our assets and the assets of such persons are
located outside of the United States. As a result, it may be difficult for our
US-based security holders to initiate a lawsuit within the United States. It may
also be difficult for shareholders to enforce a United States judgment in Canada
or elsewhere or to succeed in a lawsuit in Canada or elsewhere based only on
violations of United States securities laws.
Transfer agent and registrar
Computershare Investor Services Inc. is the Canadian transfer agent and
registrar for Common Shares and Computershare Trust Company, Inc. is the US
transfer agent and registrar for Common Shares.
83
Legal matters
Certain legal matters in connection with the Offering(s) will be passed upon on
our behalf by Davies Ward Phillips & Vineberg LLP (Montreal) and Davies Ward
Phillips & Vineberg LLP (New York). As of the date of this prospectus, the
partners and associates of each of Davies Ward Phillips & Vineberg LLP, and
Davies Ward Phillips & Vineberg LLP (New York), respectively, beneficially
owned, directly or indirectly, less than 1% of any class of securities of
Neurochem or any associated party or affiliate of Neurochem.
Legal proceedings
Other than as specifically disclosed in this prospectus and the documents
incorporated by reference, we are not aware of any litigation outstanding,
threatened or pending as at the date hereof by or against the Company, which
would be material to a purchase of Common Shares or Notes.
Independent chartered accountants
Our auditors are KPMG LLP, located at 600 de Maisonneuve Blvd. West, Suite 1500,
Montreal, Quebec, Canada H3A 0A3.
Our consolidated balance sheets as at December 31, 2005 and 2004 and our
consolidated statements of operations, deficit and cash flows for the year ended
December 31, 2005, and 2004 and the six-month period ended December 31, 2003 and
for the period from inception (June 17, 1993) to December 31, 2005 incorporated
by reference herein have been audited by our auditors who are independent
chartered accountants.
Purchasers' statutory rights
Securities legislation in certain provinces of Canada provides purchasers with
the right to withdraw from an agreement to purchase securities and with remedies
for rescission or damages if the prospectus, prospectus supplements relating to
securities purchased by a purchaser and any amendment are not delivered to the
purchaser, provided that the remedies are exercised by the purchaser within the
time limit prescribed by securities legislation. However, purchasers of Common
Shares under this prospectus will not have any right to withdraw from an
agreement to purchase the Common Shares because the prospectus relating to the
Common Shares purchased is, as permitted under the Order, not being delivered
and they also will not have remedies of rescission or damages for non-delivery
of the prospectus.
Securities legislation in certain of the provinces of Canada also provides
purchasers with remedies for rescission or damages if the prospectus, prospectus
supplements relating to securities purchased by a purchaser or any amendment
contain a misrepresentation, provided that the remedies are exercised by the
purchaser within the time limit prescribed by securities legislation. Any
remedies under such securities legislation that a purchaser of Common Shares
under this prospectus may have against us for rescission or damages if the
prospectus, prospectus supplements relating to securities purchased by a
purchaser or any amendment contain a misrepresentation remain unaffected by the
non-delivery of the prospectus. Purchasers should refer to the applicable
provisions of the securities legislation and the Order or consult with a legal
advisor for the particulars of their rights.
84
PART II
INFORMATION NOT REQUIRED TO BE DELIVERED TO
OFFEREES OR PURCHASERS
Indemnification
Under the Canada Business Corporations Act, the Registrant may indemnify a
director or officer of the Registrant, a former director or officer of the
Registrant or another individual who acts or acted at the Registrant's request
as a director or officer, or an individual acting in a similar capacity, of
another entity, against all costs, charges and expenses, including an amount
paid to settle an action or satisfy a judgment, reasonably incurred by the
individual in respect of any civil, criminal, administrative, investigative or
other proceeding in which the individual is involved because of that association
with the Registrant or other entity. The Registrant may not indemnify an
individual unless the individual (i) acted honestly and in good faith with a
view to the best interests of the Registrant or, as the case may be, in the best
interests of the other entity for which the individual acted as director or
officer or in a similar capacity at the Registrant's request, and (ii) in the
case of a criminal or administrative action or proceeding that is enforced by a
monetary penalty, had reasonable grounds for believing that his or her conduct
was lawful. Such indemnification may be made in connection with an action by or
on behalf of the Registrant or other entity to procure a judgment in its favor
only with court approval. A director or officer is entitled to indemnification
from the Registrant as a matter of right if he or she was not judged by the
Court or other competent authority to have committed any fault or omitted to do
anything that he or she ought to have done and fulfilled the conditions set
forth above.
The Registrant may advance moneys to a director, officer or other
individual for the costs, charges and expenses of a proceeding referred to
above. The individual shall repay the moneys if he or she does not fulfill the
conditions set forth above to qualify for indemnification.
In accordance with provisions of the Canada Business Corporations Act
described above, the by-laws of the Registrant provide that the Registrant
shall, unless its board of directors otherwise determines in any particular
case, indemnify a director or officer of the Registrant, a former director or
officer of the Registrant, or another individual who acts or acted at the
Registrant's request as a director or officer or an individual acting in a
similar capacity, of another entity, to the maximum extent not prohibited by the
Canada Business Corporations Act.
The Registrant maintains directors' and officers' liability insurance that
provides coverage for losses as a result of claims against directors and
officers of the Registrant and former directors and officers of the Registrant
in their capacities as directors or officers of the Registrant.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing provisions, the Registrant has been
informed that in the opinion of the U.S. Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933, and is therefore unenforceable.
II-1
EXHIBITS
Exhibit No. Description
- ----------- -----------
4.1 Annual information form of the Registrant dated March 22, 2006,
for the fiscal year ended December 31, 2005 (incorporated by
reference to the Registrant's annual report on Form 40-F for the
fiscal year ended December 31, 2005)
4.2 Audited consolidated balance sheets of the Registrant as at
December 31, 2005 and 2004, and the consolidated statements of
operations, deficit and cash flows for the years ended December
31, 2005 and December 31, 2004, for the six-month period ended
December 31, 2003, and for the period from inception (June 17,
1993) to December 31, 2005, together with the auditors' report
thereon, the Notes thereto, including a reconciliation to United
States generally accepted accounting principles, and Management's
discussion and analysis of financial condition and results of
operations in respect of the years ended December 31, 2005 and
December 31, 2004, and the six-month period ended December 31,
2003 (incorporated by reference to Registrant's Form 6-K for the
month of March, 2006, furnished to the Commission on March 7,
2006)
4.3 Unaudited consolidated balance sheets, consolidated statements of
operations, consolidated statements of deficit, consolidated
statement of cash flow and the Notes thereto and Management's
discussion and analysis of financial condition and results of
operations in respect of the three-month and nine-month periods
ended September 30, 2006 and 2005 (incorporated by reference to
the Registrant's Form 6-K furnished to the SEC on November 15,
2006)
4.4 Management proxy circular of the Registrant dated March 17, 2006
in respect of the annual meeting of shareholders held on May 9,
2006 (incorporated by reference to the Registrant's Form 6-K
furnished to the SEC on March 24, 2006)
4.5 Supplemental note entitled "Reconciliation to United States
Generally Accepted Accounting Principles" in respect of the
audited consolidated financial statements of the Registrant as at
December 31, 2005 and 2004, and for the years ended December 31,
2005 and 2004, for the six-month period ended December 31, 2003,
and for the period from inception (June 17, 1993) to December 31,
2005, and in respect of the Registrant's unaudited interim
financial statements as at September 30, 2006, and for the
nine-month periods ended September 30, 2006 and 2005 (incorporated
by reference to the Registrant's Form 6-K furnished to the SEC on
January 16, 2007)
4.6 Material change report of the Registrant dated August 17, 2006
related to the entry into of a securities purchase agreement in
respect of an equity line of credit (incorporated by reference to
the Registrant's Form 6-K for the month of August, 2006, furnished
to the Commission on August 18, 2006)
4.7 Material change report of the Registrant related to the receipt of
an approvable letter for KIACTA(TM) (incorporated by reference to
the Registrant's Form 6-K for the month of August, 2006, furnished
to the Commission on August 18, 2006)
4.8 Material change report of the Registrant dated August 18, 2006
related to a change to the board of directors of Neurochem
(incorporated by reference to the Registrant's Form 6-K for the
month of August, 2006, furnished to the Commission on August 18,
2006)
4.9 Material change report of the Registrant dated November 10, 2006
related to the private placement of US$40 million aggregate
principal amount of Notes (incorporated by reference to the
Registrant's Form 6-K for the month of November 2006, furnished to
the Commission on November 13, 2006)
II-2
5.1 Consent of KPMG LLP
5.2 Consent of Davies Ward Phillips & Vineberg LLP
6.1 Powers of Attorney (included on the signature page of this
registration statement)*
7.1 Indenture, dated as of November 3, 2006, between the Registrant
and The Bank of New York, as trustee (the "Trustee") (incorporated
by reference to the Registrant's Form 6-K for the month of
November, 2006, furnished to the Commission on November 13, 2006)
7.2 Form T-1 Statement of Eligibility of the Trustee*
- ----------
* Previously filed.
II-3
PART III
UNDERTAKING AND CONSENT TO SERVICE OF PROCESS
ITEM 1. UNDERTAKING
The Registrant undertakes to make available, in person or by telephone,
representatives to respond to inquiries made by the Commission staff, and to
furnish promptly, when requested to do so by the Commission staff, information
relating to the securities registered pursuant to Form F-10 or to transactions
in said securities.
ITEM 2. CONSENT TO SERVICE OF PROCESS
Concurrently with the initial filing of this Form F-10, the Registrant
filed with the Commission a written irrevocable consent and power of attorney on
Form F-X.
Any change to the name or address of the agent for service of the
Registrant shall be communicated promptly to the Commission by amendment to Form
F-X referencing the file number of this registration statement.
III-1
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form F-10 and has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized in the City of Laval, Province of Quebec, Country of
Canada, on this 9th day of February, 2007.
NEUROCHEM INC.
By: /s/ Francesco Bellini
------------------------------------
Name: Francesco Bellini, Ph.D.
Title: Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities indicated
on this 9th day of February, 2007.
Name Title
- ---- -----
/s/ Francesco Bellini Chairman, President, Chief Executive
- ------------------------------------- Officer and Director (Principal
Francesco Bellini, Ph.D. Executive Officer)
/s/ Mariano Rodriguez Vice President, Finance and Chief
- ------------------------------------- Financial Officer (Principal Financial
Mariano Rodriguez and Accounting Officer)
* Director
- -------------------------------------
Colin Bier, Ph.D.
* Director
- -------------------------------------
Jean-Guy Desjardins
* Director
- -------------------------------------
Andre Desmarais
III-2
* Director
- -------------------------------------
Neil Flanzraich
* Director
- -------------------------------------
Peter Kruyt
* Director
- -------------------------------------
Francois Legault
* Director
- -------------------------------------
Dr. Frederick H. Lowy
* Director
- -------------------------------------
John Molloy
* Director
- -------------------------------------
Calin Rovinescu
* Director
- -------------------------------------
Graeme K. Rutledge
* Director
- -------------------------------------
Dr. Emil Skamene
* Director
- -------------------------------------
John L. Bernbach
*By: /s/ Mariano Rodriguez
---------------------------------
Mariano Rodriguez
Attorney-in-fact
III-3
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of Section 6(a) of the Securities Act of 1933,
the undersigned has signed this Registration Statement, solely in its capacity
as the duly authorized representative of the Registrant, in the United States on
February 9, 2007.
/s/ Neil Flanzraich
----------------------------------------
Name: Neil Flanzraich
Title: Director
III-4
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
4.1 Annual information form of the Registrant dated March 22, 2006,
for the fiscal year ended December 31, 2005 (incorporated by
reference to the Registrant's annual report on Form 40-F for the
fiscal year ended December 31, 2005)
4.2 Audited consolidated balance sheets of the Registrant as at
December 31, 2005 and 2004, and the consolidated statements of
operations, deficit and cash flows for the years ended December
31, 2005 and December 31, 2004, for the six-month period ended
December 31, 2003, and for the period from inception (June 17,
1993) to December 31, 2005, together with the auditors' report
thereon, the Notes thereto, including a reconciliation to United
States generally accepted accounting principles, and Management's
discussion and analysis of financial condition and results of
operations in respect of the years ended December 31, 2005 and
December 31, 2004, and the six-month period ended December 31,
2003 (incorporated by reference to Registrant's Form 6-K for the
month of March, 2006, furnished to the Commission on March 7,
2006)
4.3 Unaudited consolidated balance sheets, consolidated statements of
operations, consolidated statements of deficit, consolidated
statement of cash flow and the Notes thereto and Management's
discussion and analysis of financial condition and results of
operations in respect of the three-month and nine-month periods
ended September 30, 2006 and 2005 (incorporated by reference to
the Registrant's Form 6-K furnished to the SEC on November 15,
2006)
4.4 Management proxy circular of the Registrant dated March 17, 2006
in respect of the annual meeting of shareholders held on May 9,
2006 (incorporated by reference to the Registrant's Form 6-K
furnished to the SEC on March 24, 2006)
4.5 Supplemental note entitled "Reconciliation to United States
Generally Accepted Accounting Principles" in respect of the
audited consolidated financial statements of the Registrant as at
December 31, 2005 and 2004, and for the years ended December 31,
2005 and 2004, for the six-month period ended December 31, 2003,
and for the period from inception (June 17, 1993) to December 31,
2005, and in respect of the Registrant's unaudited interim
financial statements as at September 30, 2006, and for the
nine-month periods ended September 30, 2006 and 2005 (incorporated
by reference to the Registrant's Form 6-K furnished to the SEC on
January 16, 2007)
4.6 Material change report of the Registrant dated August 17, 2006
related to the entry into of a securities purchase agreement in
respect of an equity line of credit (incorporated by reference to
the Registrant's Form 6-K for the month of August, 2006, furnished
to the Commission on August 18, 2006)
4.7 Material change report of the Registrant related to the receipt of
an approvable letter for KIACTA(TM) (incorporated by reference to
the Registrant's Form 6-K for the month of August, 2006, furnished
to the Commission on August 18, 2006)
4.8 Material change report of the Registrant dated August 18, 2006
related to a change to the board of directors of Neurochem
(incorporated by reference to the Registrant's Form 6-K for the
month of August, 2006, furnished to the Commission on August 18,
2006)
4.9 Material change report of the Registrant dated November 10, 2006
related to the private placement of US$40 million aggregate
principal amount of Notes (incorporated by reference to the
Registrant's Form 6-K for the month of November 2006, furnished to
the Commission on November 13, 2006)
5.1 Consent of KPMG LLP
5.2 Consent of Davies Ward Phillips & Vineberg LLP
6.1 Powers of Attorney (included on the signature page of this
registration statement)*
7.1 Indenture, dated as of November 3, 2006, between the Registrant
and The Bank of New York, as trustee (the "Trustee") (incorporated
by reference to the Registrant's Form 6-K for the month of
November, 2006, furnished to the Commission on November 13, 2006)
7.2 Form T-1 Statement of Eligibility of the Trustee*
- ----------
* Previously filed.