BioSyntech, Inc. announces filing of final prospectus and obtention of conditional listing approval from the TSX and provides an update on its convertible debenture offering



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    LAVAL, QC, July 8 /CNW/ - BioSyntech, Inc. (the "Corporation") (TSX: BSY)
announced today that it has filed a final short form prospectus with the
securities regulatory authorities in each of the provinces of Québec, Ontario,
Manitoba, Alberta and British Columbia. The prospectus qualifies a public
offering of 11,000 units (the "Units") at a price of $1,000 per Unit (the
"Offering"). Each Unit is comprised of $1,000 principal amount of 12%
subordinated secured convertible debentures (the "Debentures") and 2,500
warrants, representing aggregate gross proceeds of $11,000,000 to the
Corporation. Each warrant (a "Warrant") is exercisable for one common share of
the Corporation (a "Share") for a period of five years from the closing of the
Offering, at a purchase price of $0.22 per share, subject to standard
anti-dilution provisions.
    The Offering is being made through a syndicate of underwriters led by
Dundee Securities Corporation and including Macquarie Capital Markets Canada
Ltd., Versant Partners Inc. and Laurentian Bank Securities Inc. (the
"Underwriters"). For their services in connection with the distribution of the
Units, the Underwriters will receive a fee of $50 per Unit sold. The
Corporation has also granted to the Underwriters an over-allotment option,
exercisable from time to time in the 60 days following closing of the
Offering, to purchase up to an additional 1,650 Units to cover
over-allotments, for additional gross proceeds of up to $1,650,000.
    The 12% Debentures mature on December 31, 2009 and are convertible into
Shares at any time prior to maturity at a conversion price of $0.20 per Share,
subject to standard anti-dilution provisions (the "Conversion Price").
    The Debentures will bear interest at an annual rate of 12% payable
semi-annually, not in advance, on June 30 and December 31 in each year,
provided that the first interest payment representing all accrued and unpaid
interest up to December 31, 2008 shall be payable only upon the earliest of
(i) the closing of an equity financing transaction at a price equal to or
greater than the Conversion Price for gross proceeds to the Corporation of at
least $5,000,000, (ii) the closing of a partnership agreement in the United
States or Europe for the product of the Corporation named BST-CarGel(R), and
(iii) March 31, 2009.
    The Debentures may be redeemed by the Corporation with prior notice at a
redemption price equal to $1,100 per Debenture plus accrued and unpaid
interest, if any, provided that the volume weighted average trading price of
the Shares for the 20 trading days immediately preceding the third trading day
before the date on which notice of redemption is given is not less than 250%
of the Conversion Price and a minimum of 5,000,000 Shares have traded on the
Toronto Stock Exchange (the "TSX") during such 20-day period.
    Subject to regulatory approval and to the consent of holders of
Debentures representing 66 2/3% of the principal amount of Debentures
outstanding, the Corporation may, at its option, repay the principal amount of
the Debentures at maturity, by issuing freely tradable Shares listed on the
TSX to the holders of Debentures (the "Repayment in Shares Option"). The
number of Shares to be issued pursuant to the Repayment in Shares Option will
be determined by dividing the aggregate principal amount of the outstanding
Debentures by an amount (the "Debenture Repayment Price") corresponding to 95%
of the volume weighted average trading price per Share for the 20 trading days
immediately preceding the date that is five trading days prior to the Maturity
Date. Subject to regulatory approval and to the satisfaction of certain
conditions described in the prospectus, the Corporation may, at its option,
satisfy its obligation to pay interest on the Debentures by issuing freely
tradable Shares listed on the TSX to the holders of Debentures (the "Interest
Payment in Shares Option"). The number of Shares to be issued pursuant to the
Interest Payment in Shares Option will be determined by dividing the amount of
interest payable by an amount (the "Interest Payment Price") corresponding to
95% of the volume weighted average trading price per Share for the five
trading days immediately preceding the interest payment date.
    The net proceeds of the Offering will be used to (i) implement a
streamlined business plan focused on maximizing value for all shareholders;
(ii) complete the pivotal European and Canadian clinical trial for
BST-CarGel(R); (iii) hire a consultant to augment the management team in their
exploration of strategic alternatives, such as partnerships and M&A
transactions; and (iv) support working capital and general corporate purposes.
In light of limited cash resources, the Corporation has decided to take the
following actions in order to implement the said streamlined business plan:

    
    (i)   suspend enrolment in the BST-DermOn(TM) clinical trial;

    (ii)  suspend work on BST-InPod(TM);

    (iii) limit spending in research and development and on products other
          than BST-CarGel(R); and

    (iv)  cease to devote resources to its instrumentation division in the
          coming year.
    

    The Corporation will focus on the completion of its Canadian-European
pivotal trial for BST-CarGel(R) and obtaining clarity regarding its U.S.
regulatory pathway.
    Assuming the conversion of all Debentures and the exercise of all
Warrants, the Offering would represent the issuance of an additional
82,500,000 Shares, representing a dilution to existing shareholders of 86%. In
the event that the Underwriters exercise the Over-Allotment Option in full,
the conversion of all Debentures and exercise of all Warrants would represent
in the aggregate the issuance of an additional 94,875,000 Shares, representing
a dilution to existing shareholders of 99%.
    In the event that the Corporation exercises its Interest Payment in
Shares Option with respect to each and every interest payment, and on the
assumption that the Interest Payment Price is equal to the closing price of
the Shares on the TSX on July 4, 2008, namely $0.15 per Share, the Corporation
would issue an additional 13,200,000 Shares on account of its obligation to
pay interest on the Debentures (15,180,000 Shares in the event that the
Underwriters exercise the Over-Allotment Option in full) representing an added
dilution to existing shareholders of 13.8% (15.9% in the event that the
Underwriters exercise the Over-Allotment Option in full), based on the number
of Shares currently issued and outstanding. Such rate of dilution will vary as
a function of the fluctuation in the trading price of the Shares, and will be
greater in the event that the actual Interest Payment Price is less than
$0.15 per Share.
    In the event that none of the Debentures are converted in the normal
course and that the Corporation exercises its Repayment in Shares Option on
the maturity date of the Debentures, and on the assumption that the then
Debenture Repayment Price is equal to the closing price of the Shares on the
TSX on July 4, 2008, namely $0.15 per Share, the Corporation would issue an
additional 18,333,333 Shares on account of its obligation to repay in full the
principal of the Debentures, in excess of the number of Shares which would
have been issued had the Debentures been converted in the normal course
(21,083,333 additional Shares in the event that the Underwriters exercise the
Over-Allotment Option in full) representing an added dilution to existing
shareholders of 19.2% (22.1% in the event that the Underwriters exercise the
Over-Allotment Option in full), based on the number of Shares currently issued
and outstanding. Such rate of dilution will vary as a function of the
fluctuation in the trading price of the Shares, and would be greater in the
event that the Debenture Repayment Price is less than $0.15 per Share.
    The Corporation has agreed to (i) increase the number of directors on the
board of directors of the Corporation to nine and maintain such number at
nine, and (ii) grant to each of the four largest purchasers of Units under the
Offering, the right to appoint one out of the nine directors, and to nominate
such director (or a replacement nominee) for election at annual meetings of
shareholders of the Corporation. The appointment and nomination rights of each
such purchaser will terminate when such purchaser no longer owns any
Debentures issued under the Offering.
    The Corporation has been advised by the Underwriters that as part of the
Offering, ProQuest Investments ("ProQuest") has agreed to purchase 3,000 Units
for a purchase price of $3,000,000. The Corporation understands that ProQuest
currently holds 14,286,000 Shares (representing approximately 15% of the
currently issued and outstanding Shares). Following the completion of the
Offering and assuming the conversion of all Debentures and the exercise of all
Warrants, ProQuest would own 36,786,000 Shares (representing approximately
19.3% of the then issued and outstanding Shares, assuming that the
Over-Allotment Option is exercised and that no additional Shares would have
been issued, otherwise than upon the conversion of Debentures and the exercise
of the Warrants). As ProQuest is expected to be one of the four largest
purchasers of Units under the Offering, it is expected that on the closing of
the Offering, the Corporation will grant to ProQuest the right to nominate one
member of the board of directors of the Corporation. ProQuest was already
entitled to nominate one member of the board of directors of the Corporation.
    The Corporation has been advised by the Underwriters that the Fonds de
solidarité des travailleurs du Québec (F.T.Q.) ("Fonds") has agreed to
purchase 3,000 Units for a purchase price of $3,000,000. The Corporation
understands that Fonds currently holds 9,523,000 Shares (representing 9.97% of
the currently issued and outstanding Shares). Following the completion of the
Offering and assuming the conversion of all Debentures and the exercise of all
Warrants, Fonds would own 32,023,000 Shares (representing 16.8% of the then
issued and outstanding Shares, assuming that no additional Shares would have
been issued, otherwise than upon the conversion of Debentures and the exercise
of the Warrants). As Fonds is expected to be one of the four largest
purchasers of Units under the Offering, it is expected that on closing of the
Offering, the Corporation will grant to Fonds the right to nominate one member
of the board of directors of the Corporation. Fonds was already entitled to
nominate one member of the board of directors of the Corporation.
    The Corporation has also been advised that as part of the Offering,
Highland Capital Management ("Highland Capital") has agreed to purchase
3,000 Units for a purchase price of $3,000,000. The Corporation understands
that Highland Capital does not currently hold any of the Shares. Following the
completion of the Offering and assuming the conversion of all Debentures and
the exercise of all Warrants, Highland Capital would own 22,500,000 Shares
(representing 11.8% of the issued and outstanding Shares, assuming that no
additional Shares would have been issued, otherwise than upon the conversion
of Debentures and the exercise of the Warrants). As Highland Capital is
expected to be one of the four largest purchasers of Units under the Offering,
it is expected that on closing of the Offering, the Corporation will grant to
Highland Capital the right to nominate one member of the board of directors of
the Corporation.
    In addition, on closing, the Corporation will grant to the fourth largest
purchaser of Units, which is not expected to be an insider of the Company, the
fourth right to nominate one member of the board of directors.
    As a result of the number of Shares issuable upon the conversion of the
Debentures and the Warrants, the participation of ProQuest and F.T.Q. in the
Offering and the grant of appointment rights to certain purchasers of Units
under the Offering as described above, the Offering may have a material effect
on the control of the Corporation.
    The following pro-forma table summarizes the number of Shares which could
be issued to the above mentioned subscribers, under the assumption that the
Debenture Repayment Price and the Interest Payment Price are $0.15 per Share:

    
    -------------------------------------------------------------------------
                                                       Fonds de     Highland
                                          ProQuest   Solidarité      Capital
    -------------------------------------------------------------------------
    Subscription Amount                 $3,000,000   $3,000,000   $3,000,000
    -------------------------------------------------------------------------
    Number of Shares currently held     14,286,000    9,523,000          nil
     (approximate % of the 95,487,015        (15%)       (9.97)
     shares currently outstanding held
     by the shareholder)(1)
    -------------------------------------------------------------------------
    Number of Shares to be issued upon  22,500,000   22,500,000   22,500,000
     conversion of the Debentures and      (19.3%)      (16.8%)      (11.8%)
     exercise of all Warrants included
     in the Units (% of the
     190,362,015 Shares then
     outstanding held by the
     shareholder, assuming the
     exercise of the Over-Allotment
     Option(2))
    -------------------------------------------------------------------------
    Number of Shares to be issued upon  26,100,000   26,100,000   26,100,000
     conversion of the Debentures and      (19.6%)      (17.3%)      (12.7%)
     exercise of all Warrants included
     in the Units in the event the
     Interest Payment in Shares Option
     is exercised in full for all
     interest payments (% of the
     205,542,015 Shares then
     outstanding held by the
     shareholder, assuming the
     exercise of the Over-Allotment
     Option(2))
    -------------------------------------------------------------------------
    Number of Shares to be issued       31,100,000   31,100,000   31,100,000
     under the assumption that no          (20.1%)      (17.9%)      (13.7%)
     Debentures are converted, that
     all of the Warrants have been
     exercised and that the Interest
     Payment in Shares Option and the
     Repayment in Shares Option are
     exercised in full (approximate
     % of the 226,625,348 Shares then
     outstanding held by the
     shareholder, assuming the
     exercise of the Over-Allotment
     Option (2))
    -------------------------------------------------------------------------


    ------------------------------------------------------------
                                          Offering
                                           without     Offering
                                             Over-   with Over-
                                         Allotment    Allotment
                                            Option       Option
    ------------------------------------------------------------
    Subscription Amount                $11,000,000  $12,650,000
    ------------------------------------------------------------
    Number of Shares currently held           N/A          N/A
     (approximate % of the 95,487,015
     shares currently outstanding held
     by the shareholder)(1)
    ------------------------------------------------------------
    Number of Shares to be issued upon  82,500,000   94,875,000
     conversion of the Debentures and        (N/A)       (100%)
     exercise of all Warrants included
     in the Units (% of the
     190,362,015 Shares then
     outstanding held by the
     shareholder, assuming the
     exercise of the Over-Allotment
     Option(2))
    ------------------------------------------------------------
    Number of Shares to be issued upon  95,700,000  110,055,000
     conversion of the Debentures and        (N/A)        (N/A)
     exercise of all Warrants included
     in the Units in the event the
     Interest Payment in Shares Option
     is exercised in full for all
     interest payments (% of the
     205,542,015 Shares then
     outstanding held by the
     shareholder, assuming the
     exercise of the Over-Allotment
     Option(2))
    ------------------------------------------------------------
    Number of Shares to be issued      114,033,333  131,138,333
     under the assumption that no            (N/A)        (N/A)
     Debentures are converted, that
     all of the Warrants have been
     exercised and that the Interest
     Payment in Shares Option and the
     Repayment in Shares Option are
     exercised in full (approximate
     % of the 226,625,348 Shares then
     outstanding held by the
     shareholder, assuming the
     exercise of the Over-Allotment
     Option (2))
    ------------------------------------------------------------

    Notes:

    (1) Based on public information.
    (2) Based on the assumption that no additional shares are issued to that
        date.

    The following pro-forma table summarizes the number of Shares which could
be issued to the above mentioned subscribers, under the assumption that the
Debenture Repayment Price and the Interest Payment Price would be $0.05 per
Share:

    -------------------------------------------------------------------------
                                                       Fonds de     Highland
                                          ProQuest   Solidarité      Capital
    -------------------------------------------------------------------------
    Subscription Amount                 $3,000,000   $3,000,000   $3,000,000
    -------------------------------------------------------------------------
    Number of Shares currently held     14,286,000    9,523,000          nil
     (approximate % of the 95,487,015        (15%)       (9.97)
     shares currently outstanding held
     by the shareholder)(1)
    -------------------------------------------------------------------------
    Number of Shares to be issued upon  22,500,000   22,500,000   22,500,000
     conversion of the Debentures and      (19.3%)      (16.8%)      (11.8%)
     exercise of all Warrants included
     in the Units (% of the
     190,362,015 Shares then
     outstanding held by the
     shareholder, assuming the
     exercise of the Over-Allotment
     Option(2))
    -------------------------------------------------------------------------
    Number of Shares to be issued       33,300,000   33,300,000   33,300,000
     upon conversion of the                (20.2%)      (18.2%)      (14.1%)
     Debentures and exercise of
     all Warrants included in the
     Units in the event the
     Interest Payment in Shares
     Option is exercised in full
     for all interest payments
     (% of the 235,902,015 Shares
     then outstanding held by the
     shareholder, assuming the
     exercise of the
     Over-Allotment Option(2))
    -------------------------------------------------------------------------
    Number of Shares to be issued       78,300,000   78,300,000   78,300,000
     under the assumption that no          (21.7%)      (20.6%)      (18.4%)
     Debentures are converted, that
     all of the Warrants have been
     exercised and that the Interest
     Payment in Shares Option and the
     Repayment in Shares Option are
     exercised in full (approximate
     % of the 425,652,015 Shares then
     outstanding held by the
     shareholder, assuming the
     exercise of the Over-Allotment
     Option (2))
    -------------------------------------------------------------------------


    ------------------------------------------------------------
                                          Offering
                                           without     Offering
                                             Over-   with Over-
                                         Allotment    Allotment
                                            Option       Option
    ------------------------------------------------------------
    Subscription Amount                $11,000,000  $12,650,000
    ------------------------------------------------------------
    Number of Shares currently held           N/A          N/A
     (approximate % of the 95,487,015
     shares currently outstanding held
     by the shareholder)(1)
    ------------------------------------------------------------
    Number of Shares to be issued upon  82,500,000   94,875,000
     conversion of the Debentures and        (N/A)       (100%)
     exercise of all Warrants included
     in the Units (% of the
     190,362,015 Shares then
     outstanding held by the
     shareholder, assuming the
     exercise of the Over-Allotment
     Option(2))
    ------------------------------------------------------------
    Number of Shares to be issued      122,100,000  140,415,000
     upon conversion of the                  (N/A)        (N/A)
     Debentures and exercise of
     all Warrants included in the
     Units in the event the
     Interest Payment in Shares
     Option is exercised in full
     for all interest payments
     (% of the 235,902,015 Shares
     then outstanding held by the
     shareholder, assuming the
     exercise of the
     Over-Allotment Option(2))
    ------------------------------------------------------------
    Number of Shares to be issued      287,100,000  330,165,000
     under the assumption that no            (N/A)        (N/A)
     Debentures are converted, that
     all of the Warrants have been
     exercised and that the Interest
     Payment in Shares Option and the
     Repayment in Shares Option are
     exercised in full (approximate
     % of the 425,652,015 Shares then
     outstanding held by the
     shareholder, assuming the
     exercise of the Over-Allotment
     Option (2))
    ------------------------------------------------------------

    Notes:

    (1) Based on public information.
    (2) Based on the assumption that no additional shares are issued to that
        date.
    

    The TSX has exercised its discretionary power pursuant to Section 606(b)
of the TSX Company Manual to apply to the Offering certain rules of the TSX
Company Manual ordinarily applicable only to private placements due to the
number of Units being issued and the resulting dilution to the holders of
Shares, the participation of insiders in the Offering, and the effect of the
Offering on the control of the Corporation, which rules would require
shareholder approval. As previously announced, a special committee of the
board of directors of the Corporation composed of members free from any
interest in the Offering and unrelated to any of the parties involved in the
Offering, recommended the Offering and that the Corporation make an
application to the TSX for an exemption from the requirement to seek
shareholder approval based on a determination of financial hardship pursuant
to Section 604(e) of the TSX Company Manual. Based on this recommendation, the
board of directors has determined that the Corporation is currently in serious
financial difficulty, that the Offering is designed to improve its financial
position and is reasonable in the circumstances, and has approved the
Offering. The TSX has granted the Corporation an exemption from the
requirement to seek shareholder approval of the Offering on the basis of its
financial hardship. In addition, on July 3, 2008, the TSX has accepted the
Offering and approved the listing of the common shares issuable upon the
conversion of the Debentures and upon the exercise of the Warrants, subject to
the fulfillment of the requirements of the TSX on or prior to September 2,
2008.
    In addition, due to the participation of related parties of the
Corporation in the Offering, namely ProQuest, the Offering constitutes a
related party transaction for the purposes of Multilateral Instrument 61-101
("MI 61-101") and the Corporation is relying on exemptions from the valuation
and minority approval requirements of MI 61-101 based on a determination of
financial hardship. The Corporation has filed material change reports with
respect to the transaction on June 16, 19, 26 and 27 and is concurrently
filing the material change report required pursuant to MI 61-101. The
Corporation is of the view that all of the material information concerning the
transaction will have been disseminated in a timely and reasonable manner. The
Offering is expected to close on or about July 15, 2008 and is subject to
certain conditions. Additional information concerning the Offering may be
found in the Corporation's short form prospectus which is available at
www.sedar.com.

    THE SECURITIES OFFERED HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES
    ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED OR SOLD IN THE UNITED
    STATES ABSENT REGISTRATION OR AN APPLICABLE EXEMPTION FROM THE
    REGISTRATION REQUIREMENTS. THIS PRESS RELEASE SHALL NOT CONSTITUTE AN
    OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY THE SECURITIES, NOR
    SHALL THERE BE ANY SALE OF THE SECURITIES IN ANY STATE IN WHICH SUCH
    OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL.

    FORWARD-LOOKING STATEMENTS

    This press release contains forward-looking statements and information
which are subject to material risks and uncertainties. Such statements are not
historical facts and are based on the current expectations of management. You
are cautioned that such statements are subject to a multitude of risks and
uncertainties that could cause actual results, future circumstances, or events
to differ materially from those projected in the forward-looking information.
These risks include, but are not limited to, those associated with our
capacity to finance our activities, the adequacy, timing, and results of our
clinical trials, the regulatory approval process, competition, securing and
maintaining corporate alliances, market acceptance of the Corporation's
products, the strength of intellectual property, the success of research and
development programs, reliance on subcontractors and key personnel, and other
risks and uncertainties detailed from time-to-time in our filings with the
Canadian securities commissions. There is no guarantee that the Offering will
be completed and that the Corporation will be in a position to meet its
obligations as they become due.
    Readers should not place undue reliance on the forward-looking
information, given that (i) our actual results could differ materially from a
conclusion, forecast or projection in the forward-looking information, and
(ii) certain material factors or assumptions that were applied in drawing a
conclusion or making a forecast or projection as reflected in the
forward-looking information, could prove to be inaccurate. Additional
information about (i) the material factors that could cause actual results to
differ materially from the conclusion, forecast or projection in the
forward-looking information, and (ii) the material factors or assumptions that
were applied in drawing a conclusion or making a forecast or projection as
reflected in the forward-looking information, is contained in the
Corporation's annual report and other documents filed from time to time with
the Canadian securities commissions which are available at www.sedar.com.
These statements speak only as of the date they are made, and we assume no
obligation to revise such statements as a result of any event, circumstances
or otherwise, except in accordance with law.

    %SEDAR: 00020217EF




For further information:

For further information: Claude LeDuc, President and CEO, BioSyntech
Inc., (450) 686-2437; François Michaud, CFO, BioSyntech Inc., (450) 686-2437

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