BELLUS Health Inc. provides an update on the financing and the restructuring of existing notes



    LAVAL, QC, April 8 /CNW Telbec/ - Further to the press release of March
31, 2009, BELLUS Health Inc. ("BELLUS Health") (TSX: BLU) is providing
additional information regarding the announced financing and restructuring of
its existing notes.
    As announced on March 31, 2009, BELLUS Health has entered into binding
letter agreements with each of Vitus Investments III Private Limited, a
corporation whose shares are beneficially owned by Mr. Carlo Bellini, and
Victoria Square Ventures Inc. (the "Investors") pursuant to which Vitus
Investments III Private Limited will purchase Cdn. $10 million of new
convertible notes of BELLUS Health and Victoria Square Ventures Inc. will
purchase Cdn. $10.5 million of such notes, for a total financing commitment of
Cdn. $20.5 million. The obligations of each of the Investors to subscribe for
such notes are subject to a number of customary conditions precedent for a
transaction of this nature, such as the execution of definitive agreements,
the granting of security by BELLUS Health and certain of its Subsidiaries in
favour of the Investors, and the obtaining of all regulatory approvals. In
addition, the closing is subject to the restructuring of BELLUS Health's
current debt and certain of its obligations as described below.
    BELLUS Health has made an application to the Toronto Stock Exchange under
the provisions of Section 604(e) of the Company Manual for an exemption from
shareholder approval requirement on the basis that BELLUS Health is in serious
financial difficulty because of its cash position and the lack of immediate
availability of capital in the public or private markets. The transaction
would otherwise require shareholder approval on the grounds that the potential
issuance, assuming conversion of the new convertible notes in full (without
giving effect to the payment of interest or dividends in common shares of
BELLUS Health on such instruments), of 75,747,000 common shares to Victoria
Square Ventures Inc. and 51,500,000 common shares to Vitus Investments III
Private Limited, may result in Victoria Square Ventures Inc. and Vitus
Investments III Private Limited controlling, after conversion of all new
convertible notes and the preferred shares held or to be issued (as provided
below) by Victoria Square Ventures Inc., Vitus Investments III Private Limited
and the FMRC Family Trust, up to approximately 32% and 20%, respectively, of
the outstanding common shares of BELLUS Health. Moreover, in connection with
the restructuring of its existing notes described below, the FMRC Family
Trust, an insider of BELLUS Health, will receive, assuming full conversion of
the preferred shares described below (without giving effect to the payment of
dividends in common shares of BELLUS Health on such preferred shares),
20,124,000 common shares of BELLUS Health, may result in the FMRC Family Trust
controlling, after conversion of all new convertible notes and the preferred
shares held by Victoria Square Ventures Inc., Vitus Investments III Private
Limited and the FMRC Family Trust, up to approximately 11% of the outstanding
common shares of BELLUS Health. Under the TSX Company Manual, the transaction
will have a material effect on the control of BELLUS Health and result in the
potential issuance of common shares representing more than 10% of BELLUS
Health' issued and outstanding common shares to two insiders, namely Victoria
Square Ventures Inc. and the FMRC Family Trust. In addition, at the time of
the conversion of the new convertible notes, the preferred shares, the
existing convertible notes and the notes issuable to the landlord of BELLUS
Health, in addition to the payment of interests or dividends, as applicable,
upon each of these instruments in common shares of BELLUS Health in accordance
with their terms, BELLUS Health may be issuing greater than 25% of the number
of its currently outstanding common shares. Finally, the "full ratchet"
anti-dilution protection features of the new convertible notes described below
would also otherwise require shareholder approval.
    A committee of independent directors and the full board of directors of
BELLUS Health have each determined that the company meets the requirements of
the TSX serious financial difficulty exemption as well as the exemption from
the application of the related party transaction requirements under National
Instrument 61-101, on the basis that the transaction is reasonable in the
circumstances and is designed to improve the financial situation of BELLUS
Health.
    Victoria Square Ventures Inc. and entities affiliated to it currently
own, directly or indirectly, or exercise control over 6,897,918 common shares
of BELLUS Health (or approximately 13.8% of its outstanding common shares),
after giving effect to the reorganization of the shareholdings of Picchio
Pharma Inc. announced on December 18, 2008. Victoria Square Ventures Inc. is a
wholly-owned subsidiary of Power Corporation.
    The FMRC Family Trust and entities affiliated to it currently own,
directly or indirectly, or exercise control over 5,981,254 common shares of
BELLUS Health (or approximately 11.95% of its outstanding common shares),
after giving effect to the reorganization of the shareholdings of Picchio
Pharma Inc. announced on December 18, 2008.

    Details of the Financing
    ------------------------

    The new convertible notes in the amount of Cdn. $20.5 million to be
issued to the Investors will be secured, subject to certain permitted
encumbrances, by a first charge on all of the assets of BELLUS Health and
certain of its subsidiaries and be convertible into common shares of BELLUS
Health at Cdn. $0.20 per share (the "Financing Conversion Price"). Interest
will be capitalized on the new notes at the rate of 15% per year and the notes
will mature 5 years and one day from the date of issuance. The issue price of
the new convertible notes will be paid to BELLUS Health in a first tranche of
Cdn.$10 million (Cdn.$5 million from Vitus Investments III Private Limited and
Cdn.$5 million from Victoria Square Ventures Inc.) and a second tranche of
Cdn.$10.5 (Cdn.$5 million from Vitus Investments III Private Limited and
Cdn.$5.5 million from Victoria Square Ventures Inc.).
    The new convertible notes will include customary anti-dilution provisions
in respect of issuances of securities or distributions to shareholders and, in
the event BELLUS Health issues additional equity or equity-linked securities
at a price per common share that is less than the Financing Conversion Price
then in effect, "full ratchet" anti-dilution protection (which will have the
effect of lowering the Financing Conversion Price to the new issue price of
equity or equity-linked securities), subject to certain exceptions. In
addition, the new convertible notes will contain adjustment provisions in the
event of a change of control and negative covenants as well as a pre-emptive
right in respect of future financings of BELLUS Health. The exercise of
pre-emptive rights will be subject to regulatory approval. The aggregate
amount of new convertible notes to be issued to the Investors will be
increased by Cdn. $615,000 as a set up fee in connection with the financing.
    Assuming that each of the new convertible notes remain outstanding until
maturity, are converted in full at the Financing Conversion Price and that all
interest thereon are paid by the issuance of common shares of BELLUS Health at
the Financing Conversion Price, the maximum number of common shares issuable
under the new convertible notes is 212,349,035, representing a 424% potential
dilution factor.
    Pursuant to the binding letter agreements with the Investors, each of
Vitus Investments III Private Limited and Victoria Square Ventures Inc. shall
have the right to nominate two (2) members to the Board of Directors of BELLUS
Health and BELLUS Health has agreed to seek the reduction of the size of its
Board of Directors from twelve (12) to eight (8) directors at its next annual
general meeting.

    Amendment to terms of 2026 Notes and 2027 Notes and in Respect of Leased
    ------------------------------------------------------------------------
    Premises
    --------

    Prior to this financing, BELLUS Health and all of the noteholders have
agreed to amend the terms of the outstanding 2026 and 2027 convertible notes
to either make them convertible into a new series of preferred shares of
BELLUS Health and to have these notes converted into such preferred shares
immediately, or to otherwise amend the existing notes which shall remain
outstanding. The features of the new convertible notes to be issued to the
Investors, the terms of the preferred shares as well as the amended terms of
the notes are set forth below.
    In addition, the landlord of the main premises of BELLUS Health, in
Laval, Quebec, has agreed, effective April 1, 2009 and continuing through and
including the period for which rent is payable on March 1, 2011 (on which date
Bellus shall have the right to terminate the lease (the "First Termination
Option")), to defer BELLUS Health' base rent by Cdn. $166,667.00 per month
(the "Deferred Rent"). In the event BELLUS Health does not exercise its First
Termination Option, the monthly Deferred Rent will continue for an additional
twelve-month period under March 31, 2012 (on which date BELLUS Health shall
have the right to terminate the lease (the "Second Termination Option")). The
Deferred Rent shall bear interest at the rate of ten percent (10%) annually,
calculated from the first date of the month when any such component of
Deferred Rent becomes due and payable. Deferred Rent and the accrued interest
thereon shall be evidenced by promissory notes issued by BELLUS Health to its
landlord on the first day of each month when such Deferred Rent becomes due.
The notes shall be payable in cash or, at the option of Bellus, through the
issuance of common shares at the market price on the day that the notes become
payable. Deferred Rent and all notes evidencing Deferred Rent shall be payable
on March 31, 2011 in the event that the First Termination Option is exercised
or, alternatively, on March 31, 2012. In the event that the lease is
terminated under the First Termination Option or the Second Termination
Option, BELLUS Health will pay the landlord a consideration of Cdn.$6.0
million or Cdn.$5.45 million, respectively, payable in common shares of BELLUS
Health at the then market price of the common shares. The precise amount of
rent and number of common shares issued upon conversion of notes issued to the
landlord will depend, among other things, on the extent to which portions of
the premises are sublet or assigned to other tenants during the relevant
period.
    Assuming that the notes issuable to the landlord in respect of deferred
rent and interest thereon remain outstanding until March 31, 2012, are paid by
way of issuance of common shares of BELLUS Health at an assumed market price
of Cdn. $0.35, the closing price of the common shares of the Corporation on
the TSX on April 7, 2009, and that the lease is terminated pursuant to the
Second Termination Option, the maximum number of common shares issuable under
the notes would be 35,633,335, representing a 71% potential dilution factor.
    The holders of 2026 and 2027 convertible that have elected to receive
preferred shares in the authorized capital of BELLUS Health will receive 3,096
preferred shares per $1,000 aggregate principal amount of existing convertible
notes, representing a conversion price equal to 200% of the Financing
Conversion Price (resulting in a conversion price of Cdn. $0.40 per share)
(the "Preferred Share Conversion Price"). Such preferred shares shall be
convertible into common shares of BELLUS Health on a one-to-one basis, subject
to adjustment, shall entitle the holder to 6% cumulative dividends payable in
cash or common shares of the Company at the option of the Company and shall be
automatically converted into common shares of the Company five years from the
date of issuance. Holders of US$33,085,000 principal amount of existing
convertible notes have agreed to amend the terms of their notes to make them
convertible into the preferred shares. The remaining holders have agreed to
amend their existing convertible notes as set out below.
    The amendments to the convertible notes due in 2026 include providing for
a 6% annual interest rate payable in cash or common shares of BELLUS Health at
the option of BELLUS Health at the then market price of the common shares,
replacing the existing conversion rate adjustment period of October 2009 -
November 2009 with a period from October 2012 - November 2012 for conversion
of the notes at the then applicable market price of the common shares of
BELLUS Health and replacing the right to have BELLUS Health redeem the notes
in November 2011 with a right to redeem the notes in November 2014 at the then
face value of the notes. Holders of US$13 million principal amount of the
notes due in 2026 have also agreed to so amend the terms of their notes in
their same manner. A holder of US$500,000 principal amount of convertible
notes due in 2027 has also agreed to amend the terms of its notes, including
the removal of certain negative covenants.
    BELLUS Health has agreed that the right to redeem the 2026 and 2027
convertible notes, as amended, shall be exercisable 90 days prior to the
maturity date of the new convertible notes to be issued to the Investors. Any
additional unsecured debt, other than operating facilities or debt that is
pari passu or junior in ranking to the existing convertible notes, as amended,
shall not mature or be redeemable for cash prior to the date on which the
redemption right of the notes comes into effect. In addition, BELLUS Health
has agreed to certain restrictions on its ability to declare or pay dividends
in cash while the convertible notes are outstanding.
    Assuming that each of the preferred shares remain outstanding until
maturity, are converted in full at the Preferred Share Conversion Price and
that all dividends payable in respect of the preferred shares are paid by the
issuance of common shares of BELLUS Health at an assumed market price of Cdn.
$0.35, the maximum number of common shares issuable under the preferred shares
would be 137,595,789, representing a 275% potential dilution factor.
    Assuming that the 2026 and 2027 convertible notes are converted in full
at an assumed market price of Cdn. $0.35 in 2012, when the price of such
instruments gets adjusted based on the then market price of the common shares
of BELLUS Health, and that all interest thereon is paid by way of issuance of
common shares of BELLUS Health at an assumed market price of Cdn. $0.35, the
maximum number of common shares issuable under the 2026 and 2027 convertible
notes would be 56,437,714, representing a 113% potential dilution factor.

    Potential Dilution
    ------------------

    At the request of the Toronto Stock Exchange, the following table sets
forth the number of common shares, the resulting potential dilution factor to
existing shareholders of BELLUS Health and the resulting holding to Victoria
Square Ventures Inc. and the FMRC Family Trust, which are insiders of BELLUS
Health, and to Vitus Investments III Private Limited. The assumed market
prices used in this press release are only for illustration purposes and do
not represent any particular expected scenario. The dilution factor represents
the factor by which the current number of outstanding common shares of BELLUS
Health, being 50,043,892 common shares, would be increased in each scenario
and the figures in the table are based on the following assumptions:

    
    - that each of the new convertible notes and the preferred shares remain
      outstanding until maturity, are converted in full at the Financing
      Conversion Price or Preferred Share Conversion Price, as applicable,
      and that all interest thereon and dividends payable in respect of the
      preferred shares are paid by the issuance of common shares of BELLUS
      Health at the assumed market prices set forth in the table below,
      provided that the table below assumes that the new convertible notes
      would not be converted at maturity if the market price were below the
      Financing Conversion Price;

    - that the notes issuable to the landlord in respect of deferred rent and
      interest thereon remain outstanding until March 31, 2012, are paid by
      way of issuance of common shares of BELLUS Health at the assumed market
      prices set forth in the table below, and that the lease is terminated
      pursuant to the Second Termination Option; and

    - that the 2026 and 2027 convertible notes are converted in full at the
      assumed market prices described in the table below in 2012, when the
      price of such instruments gets adjusted, and that all interest thereon
      is paid by way of issuance of common shares of BELLUS Health at the
      assumed market prices set forth in the table below.

    -------------------------------------------------------------------------
    Assumed    Number of     Number of    Number of     Number of     Total
    Market      common        common       common        common     Potential
     Price      shares        shares       shares        shares      Dilution
               issuable      issuable    payable to     issuable      factor
                 upon          upon     the landlord      upon
              conversion    conversion      under      conversion
              of the new      of the      the lease       of the
             convertible     preferred                   existing
              notes and     shares and                 convertible
              payment of    payment of                   notes and
               interest      interest                   payment of
               thereon        thereon                    interest
                                                         thereon
    -------------------------------------------------------------------------
    C$0.10   106,774,035   225,507,360   124,716,672   197,532,000      1318%
    -------------------------------------------------------------------------
    C$0.35   212,349,035   137,595,789    35,633,335    56,437,714       893%
    -------------------------------------------------------------------------
    C$0.50   212,349,035   127,046,000    24,943,334    39,506,400       817%
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    Potential      Potential    Potential
     holdings       Holdings     holdings
        of           of the      of Vitus
     Victoria         FMRC        Invest-
      Square         Family      ments III
     Ventures      Trust post     Private
    Inc. post                     Limited
                                    post
    -------------------------------------------------------------------------
        15%            7%            7%
    -------------------------------------------------------------------------
        29%            7%           21%
    -------------------------------------------------------------------------
        31%            7%           23%
    -------------------------------------------------------------------------
    

    The transaction and the issuance of the securities contemplated by this
press release are subject to the approval of the TSX and closing of the first
tranche of the financing is expected to take place on or about April 16, 2009.

    About BELLUS Health

    BELLUS Health is a global health company focused on the development and
commercialization of products to provide innovative health solutions to
address critical unmet needs.

    To Contact BELLUS Health

    For additional information on BELLUS Health and its drug development
programs, please call the Canada and United States toll-free number
1-877-680-4500 or visit the Web Site at www.bellushealth.com.

    Certain statements contained in this news release, other than statements
of fact that are independently verifiable at the date hereof, may constitute
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 BELLUS Health
Inc.'s control. Such risks include but are not limited to: the ability to
obtain financing immediately in the current markets, the impact of general
economic conditions, general conditions in the pharmaceutical and/or
nutraceutical industry, changes in the regulatory environment in the
jurisdictions in which the BELLUS Health Group does business, stock market
volatility, the availability and terms of any financing, fluctuations in
costs, and changes to the competitive environment due to consolidation, that
actual results may vary once the final and quality-controlled verification of
data and analyses has been completed, as well as other risks disclosed in
public filings of BELLUS Health Inc. Consequently, actual future results may
differ materially from the anticipated results expressed in the
forward-looking statements. The reader should not place undue reliance, if
any, on any forward-looking statements included in this news release. These
statements speak only as of the date made and BELLUS Health Inc. is under no
obligation and disavows any intention to update or revise such statements as a
result of any event, circumstances or otherwise, unless required by applicable
legislation or regulation. Please see the Annual Information Form of BELLUS
Health Inc. for further risk factors that might affect the BELLUS Health Group
and its business.




For further information:

For further information: Lise Hébert, Ph.D., (450) 680-4572,
lhebert@bellushealth.com


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