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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or (g) OF THE SECURITIES EXCHANGE ACT OF 1934
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
For the fiscal year ended March 31, 2017
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 001-35776
Acasti Pharma Inc.
(Exact name of Registrant as specified in its charter)
N/A
(Translation of Registrant’s name into English)
Québec, Canada
(Jurisdiction of incorporation or organization)
545, Promenade du Centropolis, Suite 100, Laval, Québec H7T 0A3
(Address of principal executive office)
Linda P. O’Keefe, Chief Financial Officer
Acasti Pharma Inc.
545, Promenade du Centropolis, Suite 100
Laval, Québec H7T 0A3
Tel: 450-687-2262
Fax: 450-687-2272
(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class
Common Shares, no par value
Name of each exchange on which registered
The NASDAQ Capital Market
Securities registered or to be registered pursuant to Section 12(g) of the Act.
Not applicable
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
14,702,556 Common Shares issued and outstanding as of March 31, 2017.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes ☐ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large
accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐ Emerging growth company ☒
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the
extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☐
International Financial Reporting Standards as
issued by
Board ☒
the
International Accounting Standards
Other ☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Table of Contents
TABLE OF CONTENTS
INTRODUCTION AND USE OF CERTAIN TERMS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
PART I
Item 1.
Item 2.
Item 3.
Item 4.
Item 4A.
Item 5.
Item 6.
Item 7.
Item 8.
Item 9.
Item 10.
Item 11.
Item 12.
Identity of Directors, Senior Management and Advisers
Offer Statistics and Expected Timetable
Key Information
Information on the Company
Unresolved Staff Comments
Operating and Financial Review and Prospects
Directors, Senior Management and Employees
Major Shareholders and Related Party Transactions
Financial Statements
The Offer and Listing
Additional Information
Quantitative and Qualitative Disclosure about Market Risk
Description of Securities other than Equity Securities
PART II
Defaults, Dividend Arrearages and Delinquencies
Material Modification to the Rights of Security Holdings and Use of Proceeds
Controls and Procedures
Reserved
Item 13.
Item 14.
Item 15.
Item 16.
Item 16A. Audit Committee Financial Expert
Item 16B. Code of Ethics
Item 16C. Principal Accountant Fees and Services
Item 16D. Exemptions from the Listing Standards for Audit Committees
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Item 16F. Change in Registrant’s Certifying Accountant
Item 16G. Corporation Governance
Item 16H. Mining Safety Disclosure
PART III
Item 17.
Item 18.
Item 19.
Financial Statements
Financial Statements
Exhibits
EXHIBITS INDEX
SIGNATURES
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4
8
8
8
8
28
49
49
64
79
79
80
82
91
91
92
92
92
92
92
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93
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94
94
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INTRODUCTION AND USE OF CERTAIN TERMS
As used in this annual report on Form 20-F, or this annual report, unless the context otherwise requires, references to “we”, “our”,
“us”, “Acasti”, “Acasti Pharma”, “Corporation”, “it”, “its” or similar terms refer to Acasti Pharma Inc.
Market data and certain industry data and forecasts included in this annual report were obtained from internal company surveys,
market research, publicly available information, reports of governmental agencies and industry publications and surveys. We have relied
upon industry publications as our primary sources for third-party industry data and forecasts. Industry surveys, publications and forecasts
generally state that the information they contain has been obtained from sources believed to be reliable, but that the accuracy and
completeness of that information is not guaranteed. We have not independently verified any of the data from third-party sources or the
underlying economic assumptions they made. Similarly, internal surveys, industry forecasts and market research, which we believe to be
reliable based upon our management’s knowledge of our industry, have not been independently verified. Our estimates involve risks and
uncertainties, including assumptions that may prove not to be accurate, and these estimates and certain industry data are subject to change
based on various factors, including those discussed under “Risk Factors” in this annual report. While we believe our internal business
research is reliable and the market definitions we use in this annual report are appropriate, neither our business research nor the definitions
we use have been verified by any independent source. This annual report may only be used for the purpose for which it has been published.
We own or have rights to trademarks, service marks or trade names that we use in connection with the operation of our business. In
addition, our name, logo and website names and addresses are our service marks or trademarks. CaPre® and the phrase “BREAKING
DOWN THE WALLS OF CHOLESTEROL” are our registered trademarks. The other trademarks, trade names and service marks
appearing in this annual report are the property of their respective owners. Solely for convenience, the trademarks, service marks,
tradenames and copyrights referred to in this annual report are listed without the ©, ® and TM symbols, but we will assert, to the fullest
extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks and tradenames.
Financial Information
All financial information in this annual report is presented in accordance with International Financial Reporting Standards, or IFRS,
as issued by the International Accounting Standards Board, or IASB.
We use multiple financial measures for the review of our operating performance. These measures are generally IFRS financial
measures, but one adjusted financial measure, Non-IFRS operating loss (adding to net loss, finance expenses, depreciation and amortization
and impairment loss, change in fair value of derivative warrant liabilities, stock-based compensation and by subtracting finance income and
deferred income tax recovery), is also used to assess our operating performance. This non-IFRS financial measure is derived from our
financial statements and is presented in a consistent manner. We use this measure, in addition to the IFRS financial measures, for the
purposes of evaluating our historical and prospective financial performance, as well as our performance relative to competitors. All of these
measures also help us to plan and forecast future periods as well as to make operational and strategic decisions. We believe that providing
this Non-IFRS information to investors, in addition to IFRS measures, allows them to see our results through the eyes of our management,
and to better understand our historical and future financial performance. See “Item 5. Operating and Financial Review and Prospects”,
including for a reconciliation to net loss.
In this annual report, all references to “CA$” or “$” are to Canadian dollars, unless expressly otherwise stated. All amounts related
to our financial results are presented in thousands of Canadian dollars, except where noted and per share amounts.
Exchange Rate Information
The following table presents the average exchange rate for one Canadian dollar expressed as one U.S. dollar for each of our last
five fiscal years. The average rate is calculated using the average of the exchange rates on the last day of each month during the period.
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Fiscal Year Ended
February 28, 2013
February 28,2014
February 28, 2015
February 29, 2016
March 31, 2017
Average
(US$)
0.9903
0.9555
0.8003
0.7645
0.7618
The following table presents the high and low exchange rate for one Canadian dollar expressed as one U.S. dollar for each month
during the previous six months.
Month
November 2016
December 2016
January 2017
February 2017
March 2017
April 2017
May 2017
Low
High
(US$)
0.7359
0.7354
0.7431
0.7520
0.7388
0.7301
0.7276
0.7520
0.7645
0.7711
0.7704
0.7539
0.7559
0.7437
The exchange rates are based upon the noon buying rate, as quoted by the Bank of Canada. As of May 1, 2017, the Bank of Canada
no longer publishes updated data for exchange rates published under previous methodologies, including daily noon and closing rates as
well as high and low exchange rates. For the month of May 2017, the exchange rate presented above is based upon the daily average
closing rate. As of June 26, 2017, the exchange rate for one Canadian dollar expressed as one U.S. dollar, as quoted by the Bank of Canada
was $1.00 = US$0.7554.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual report contains information that may be forward-looking information within the meaning of Canadian securities laws
and forward-looking statements within the meaning of U.S. federal securities laws, both of which we refer to in this annual report as
forward-looking information. Forward-looking information can be identified by the use of terms such as “may”, “will”, “should”, “expect”,
“plan”, “anticipate”, “believe”, “intend”, “estimate”, “predict”, “potential”, “continue” or other similar expressions concerning matters that
are not statements about the present or historical facts. Forward-looking information in this annual report includes, among other things,
information or statements about:
•
•
•
•
•
•
•
•
•
our ability to conduct all required clinical and nonclinical trials for CaPre, including the timing and results of those clinical
trials;
our strategy, future operations, prospects and the plans of our management;
the design, regulatory plan, timeline, costs and results of our clinical and nonclinical trials for CaPre;
the timing and outcome of our meetings and discussions with the U.S. Food and Drug Administration, or FDA;
our planned regulatory filings for CaPre, and their timing;
our expectation that our Bridging Study (as defined below) results will support our plan to get authorization from the FDA to
use the its 505(b)(2) pathway with new chemical entity, or NCE, status towards a New Drug Application, or NDA, approval
in the United States;
the timing and results from two competitor outcomes studies in mild to moderate hypertriglyceridemia, or HTG, patients;
the potential benefits and risks of CaPre as compared to other products in the pharmaceutical, medical food and natural health
products markets;
our anticipated marketing advantages and product differentiation of CaPre and its potential to become the best-in-class
omega-3, or OM3, compound for the treatment of severe HTG;
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•
•
•
•
•
•
•
•
•
•
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•
our estimates of the size of the potential market for CaPre, unmet medical needs in that market, the potential for market
expansion, and the rate and degree of market acceptance of CaPre if it reaches commercialization, and our ability to serve that
market;
the potential to expand CaPre’s indication for the treatment of mild to moderate HTG;
the degree to which physicians would switch their patients to a product with CaPre’s target product profile;
our strategy and ability to develop, commercialize and distribute CaPre in the United States and elsewhere;
the manufacturing scale-up of CaPre and the related timing;
our intention and ability to strengthen our patent portfolio and other means of protecting our intellectual property rights;
the availability, consistency and sources of our raw materials, including krill oil;
our expectation to be able to rely on third parties to manufacture CaPre whose manufacturing processes and facilities are in
compliance with current good manufacturing practices, or cGMP;
the potential for OM3s in other cardiovascular medicine, or CVM, indications;
our intention to pursue development and/or distribution partnerships to support the development and commercialization of
CaPre, and to pursue strategic opportunities to provide capital and market access;
our need for additional financing and our estimates regarding our future financing and capital requirements;
our expectation regarding our financial performance, including our revenues, profitability, research and development, costs
and expenses, gross margins, liquidity, capital resources and capital expenditures; and
our projected capital requirements to fund our anticipated expenses, including our research and development and general and
administrative expenses.
Although the forward-looking information in this annual report is based upon what we believe are reasonable assumptions, you
should not place undue reliance on that forward-looking information since actual results may vary materially from it. Important
assumptions by us when making forward-looking statements include, among other things, assumptions by us that:
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•
•
•
•
•
•
•
•
we successfully and timely complete all required clinical and nonclinical trials necessary for regulatory approval of CaPre;
we successfully enroll patients in our Phase 3 program;
the timeline and costs for our clinical programs are not materially underestimated or affected by unforeseen circumstances;
CaPre is safe and effective;
the FDA confirms our 505(b)(2) regulatory pathway with NCE status towards NDA approval in the United States and we
finalize the protocols for our Phase 3 program for CaPre within our anticipated timeframe;
outcome study data from two of our competitors in mild to moderate HTG patients is positive;
we obtain and maintain regulatory approval for CaPre on a timely basis;
we are able to attract, hire and retain key management and skilled scientific personnel;
third parties provide their services to us on a timely and effective basis;
we are able to maintain our required supply of raw materials, including krill oil;
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•
•
•
•
•
•
•
•
•
•
•
•
•
•
we are able to find and retain a third-party to manufacture CaPre in compliance with cGMP;
we are able to secure distribution arrangements for CaPre, if it reaches commercialization;
we are able to manage our future growth effectively;
we are able to gain acceptance of CaPre in its markets and we are able to serve those markets;
our patent portfolio is sufficient and valid;
we are able to secure and defend our intellectual property rights and to avoid infringing upon the intellectual property rights
of third parties;
we are able to take advantage of business opportunities in the pharmaceutical industry and receive strategic partner support;
we are able to continue as a going concern;
we are able to obtain additional capital and financing, as needed, on favorable terms;
there is no significant increase in competition for CaPre from other companies in the pharmaceutical, medical food and natural
health product industries;
CaPre would be viewed favorably by payers at launch and receive appropriate healthcare reimbursement;
market data and reports reviewed by us are accurate;
there are no adverse changes in relevant laws or regulations; and
we face no product liability lawsuits and other proceedings or any such matters, if they arise, are satisfactorily resolved.
In addition, the forward-looking information in this annual report is subject to a number of known and unknown risks, uncertainties
and other factors, including those described in this annual report under the heading “Item 3.D. Risk Factors”, many of which are beyond
our control, that could cause our actual results and developments to differ materially from those that are disclosed in or implied by the
forward-looking information, including, among others:
•
•
•
•
•
•
•
•
•
•
•
risks related to timing and possible difficulties, delays or failures in our planned Phase 3 program for CaPre;
pre-clinical and clinical trials may be more costly or take longer to complete than anticipated, and may never be initiated or
completed, or may not generate results that warrant future development of CaPre;
CaPre may not prove to be as safe and effective or as potent as we currently believe;
our planned Phase 3 program may not produce positive results;
our anticipated studies and submissions to the FDA may not occur as currently anticipated, or at all;
the FDA could reject our 505(b)(2) regulatory pathway;
outcome study data from two of our competitors in mild to moderate HTG patients may be negative, which could also
negatively affect the market perception of CaPre;
we may encounter difficulties, delays or failures in obtaining regulatory approvals for the initiation of clinical trials or to
market CaPre;
we may need to conduct additional future clinical trials for CaPre, the occurrence and success of which cannot be assured;
CaPre may have unknown side effects;
the FDA may refuse to approve CaPre, or place restrictions on our ability to commercialize CaPre;
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•
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•
CaPre could be subject to extensive post-market obligations and continued regulatory review, which may result in significant
additional expense and affect sales, marketing and profitability;
we may fail to achieve our publicly announced milestones on time;
we may encounter difficulties in completing the development and commercialization of CaPre;
third parties we will rely upon to conduct our Phase 3 program for CaPre may not effectively fulfill their obligations to us,
including complying with FDA requirements;
there may be difficulties, delays, or failures in obtaining health care reimbursements for CaPre;
recently enacted and future laws may increase the difficulty and cost for us to obtain marketing approval of and
commercialize CaPre and affect the prices we can charge;
new laws, regulatory requirements, and the continuing efforts of governmental and third-party payors to contain or reduce the
costs of healthcare through various means could adversely affect our business;
the market opportunity for, and demand and market acceptance of, CaPre may not be as strong as we anticipate;
third parties that we will rely upon to manufacture, supply and distribute CaPre may not effectively fulfill their obligations to
us, including complying with FDA requirements;
there may not be an adequate supply of raw materials, including krill oil, in sufficient quantities and quality and to produce
CaPre under cGMP standards;
Neptune has significant influence with respect to matters submitted to our shareholders for approval;
Neptune’s interest may not align with those of us or our other shareholders;
we may not be able to meet applicable regulatory standards for the manufacture of CaPre or scale-up our manufacturing
successfully;
we may not be able to produce clinical batches of CaPre in a timely manner or at all;
as a company, we have limited sales, marketing and distribution experience;
our patent applications may not result in issued patents, our issued patents may be circumvented or challenged and ultimately
struck down, and we may not be able to successfully protect our trade secrets or other confidential proprietary information;
we may face claims of infringement of third party intellectual property and other proprietary rights;
we may face product liability claims and product recalls;
we face intense competition from other companies in the pharmaceutical, medical food and natural health product industries;
we have a history of negative operating cash flow and may never become profitable or be able to sustain profitability;
we have significant additional future capital needs and may not be able to raise additional financing required to fund further
research and development, clinical studies, obtain regulatory approvals, and meet ongoing capital requirements to continue
our current operations on commercially acceptable terms or at all;
we may acquire businesses or products or form strategic partnerships in the future that may not be successful;
we may be unable to secure development and/or distribution partnerships to support the development and commercialization of
CaPre, provide development capital, or market access;
we rely on key management and skilled scientific personnel; and
general changes in economic and capital market conditions could adversely affect us.
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All of the forward-looking information in this annual report is qualified by this cautionary statement. There can be no guarantee
that the results or developments that we anticipate will be realized or, even if substantially realized, that they will have the consequences or
effects on our business, financial condition or results of operations that we anticipate. As a result, you should not place undue reliance on
the forward-looking information. Except as required by applicable law, we do not undertake to update or amend any forward-looking
information, whether as a result of new information, future events or otherwise. All forward-looking information is made as of the date of
this annual report.
Item 1.
Identity of Directors, Senior Management and Advisers
Not applicable.
Item 2. Offer Statistics and Expected Timetable
PART I
Not applicable.
Item 3. Key Information
A.
Selected Financial Data
The following information should be read in conjunction with “Item 5. Operating and Financial Review and Prospects” and our
audited financial statements and the related notes for our fiscal year ended March 31, 2017, which are prepared in accordance with IFRS as
issued by the IASB and are included in this annual report. The selected financial information below includes financial information derived
from our audited financial statements. Our historical results from any prior period are not necessarily indicative of results to be expected for
any future period. The following table is a summary of our selected consolidated financial information in accordance with IFRS as issued
by the IASB for each of our five most recently completed fiscal years.
Revenue from sales
Loss from operating activities
Net loss and total comprehensive
loss
Basic and diluted loss per share
Total assets
Total liabilities
Share capital
Warrants and rights
Weighted average number of
shares outstanding
Dividends declared per share
March 31, 2017
$
nil
(11,210)
$
February 29, 2016
nil
$
(9,612)
$
For the fiscal year ended
February 28, 2015
nil
$
(12,395)
$
February 28, 2014
$
501
(10,800)
$
February 28, 2013
724
$
(6,980)
$
$
$
$
$
$
$
(11,247)
(1.01)
25,456
3,753
66,576
453
$
$
$
$
$
$
(6,317)
(0.59)
28,517
1,297
61,973
—
$
$
$
$
$
$
(1,655)
(0.16)
37,208
3,980
61,628
—
$
$
$
$
$
$
(11,612)
(1.38)
45,632
12,352
61,027
407
$
$
$
$
$
$
(6,892)
(0.95)
12,170
2,446
28,923
407
11,094,512
—
10,659,936
—
10,617,704
—
8,436,893
—
7,275,444
—
B.
Capitalization and Indebtedness
Not applicable.
C.
Reasons for the Offer and Use of Proceeds
Not applicable.
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D. Risk Factors
Investing in our securities involves a high degree of risk due to, among other things, the nature of our business and the present
stage of our development. Prospective and current investors should carefully consider the following risks and uncertainties, together with
all other information in this annual report, as well as our financial statements included in this annual report and “Item 5. Operating and
Financial Review and Prospects.” If any of these risks actually occur, our business, financial condition, prospects, results of operations or
cash flow could be materially and adversely affected and you could lose all or a part of the value of your investment. Additional risks or
uncertainties not currently known to us, or that we currently deem immaterial, may also negatively affect our business operations.
Risks Facing Our Business and Industry
We may not be able to maintain our operations and advance our research and development of CaPre without additional funding.
We have incurred operating losses and negative cash flows from operations since our inception. To date, we have financed our
operations through public offerings and private placements of securities, proceeds from exercises of warrants, rights and options, and receipt
of research tax credits. Our cash and cash equivalents (including restricted investments) were $9.8 million as of March 31, 2017 and
$12.6 million as of February 29, 2016. We will require substantial additional funds to conduct further research and development and our
planned Phase 3 program, obtain regulatory approvals and commercialize CaPre. In addition to completing nonclinical and clinical trials,
we expect that additional time and capital will be required by us to file an NDA to obtain FDA approval for CaPre in the United States and
to complete marketing and other pre-commercialization activities. We will also most likely require additional capital to fund our daily
operating needs. To achieve our business plan, we will need to raise the necessary capital primarily through additional securities offerings
and strategic alliances. We have no committed source of additional capital from our parent company, Neptune Technologies and
Bioressources Inc., or Neptune, which owns approximately 34% of our common shares, or any other party, and if we are unable to raise
additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back or discontinue our
development or commercialization of CaPre or our other research and development initiatives. Funding needs could also force us to seek
strategic partners for CaPre at an earlier stage than we desire or on terms that are less favorable to us or force us to relinquish or license our
rights to CaPre on unfavorable terms or in markets where we would prefer to pursue development or commercialization ourselves.
Additional funding from third parties may not be available on acceptable terms or at all to enable us to continue and complete our research
and development of CaPre.
Our financial statements have been prepared on a going-concern basis, which assumes we will continue our operations in the
foreseeable future and will be able to realize our assets and discharge our liabilities and commitments in the ordinary course of business. If
we are unable to continue as a going concern, material writedowns to the carrying value of our assets, including intangible assets, could be
required. If we fail to obtain additional financing, we may not be able to continue as a going concern.
We may never become profitable or be able to sustain profitability.
We are a clinical-stage biopharmaceutical company with a limited operating history. The likelihood of success of our business plan
must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered when developing and
expanding early-stage businesses and the regulatory and competitive environment in which we operate. Biopharmaceutical product
development is a highly speculative undertaking, involves a substantial degree of risk and is a capital-intensive business. We expect to incur
expenses without any meaningful corresponding revenues unless and until we are able to obtain regulatory approval and sell CaPre in
significant quantities. We have been engaged in developing CaPre since 2008. To date, we have not generated any revenue from CaPre, and
we may never be able to obtain regulatory approval for marketing CaPre in any indication. Even we are able to commercialize CaPre, we
may still not generate significant revenues or achieve profitability. We have incurred net losses of $11.2 million for the thirteen month
period ended March 31, 2017, and $6.3 million and $1.7 million for our fiscal years ended 2016 and 2015, respectively. As of March 31,
2017, we had an accumulated deficit of $50.9 million.
If we obtain FDA approval for CaPre, we expect that our expenses will increase as we prepare for the commercial launch of CaPre.
We also expect that our research and development expenses will continue to increase if we pursue FDA approval for CaPre for other
indications. As a result, we expect to continue to incur substantial
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losses for the foreseeable future, and these losses may be increasing. We are uncertain about when or if we will be able to achieve or
sustain profitability. If we fail to become and remain profitable our ability to sustain our operations and to raise capital could be impaired
and the price of our common shares could decline.
We have no marketing and sales organization and, as a company, no experience in marketing products. If we are unable to establish
marketing and sales capabilities or enter into agreements with a strategic partner to market and sell CaPre, we may not be able to
generate revenue.
We have no sales, marketing or distribution capabilities and, as a company, we have no experience in marketing products. If CaPre
or another of our future product candidates is approved for commercialization, unless we find a strategic partner to assist us with sales,
marketing and distribution, we will be required to develop in-house marketing and sales force capability, which would require significant
capital expenditures, management resources and time. Also, we would have to compete with other biotechnology and pharmaceutical
companies to recruit, hire, train and retain marketing and sales personnel. We face competition in our search for strategic partners to assist
us with sales, marketing and distribution, and we may not be able to establish or maintain any such arrangements. If we do find a strategic
partner, any revenue we receive from CaPre would partly depend upon the efforts of that strategic partner, which may not be successful.
We may have little or no control over the marketing and sales efforts by any strategic partner we find for CaPre and our revenue may be
lower than if we had commercialized CaPre independently.
If we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our
business strategy.
Our ability to compete in the highly competitive pharmaceuticals industry largely depends upon our ability to attract and retain
highly qualified managerial, scientific and medical personnel. Competition for skilled personnel in our market is intense and competition
for experienced scientists may limit our ability to hire and retain highly qualified personnel on acceptable terms. We are highly dependent
on our management, scientific and medical personnel. Despite our efforts to retain valuable employees, members of our management,
scientific and medical teams may terminate their employment with us on short notice or, potentially, without any notice at all. The loss of
the services of any of our executive officers or other key employees could potentially harm our business, operating results or financial
condition. Our success may also depend on our ability to attract, retain and motivate highly skilled junior, mid-level, and senior managers
and scientific personnel. In addition, we do not maintain “key person” insurance policies on the lives of our executives or those of any of
our other employees. Other pharmaceutical companies with which we compete for qualified personnel have greater financial and other
resources, different risk profiles, and a longer history in the industry than we do. They also may provide more diverse opportunities and
better chances for career advancement. Some of these characteristics may be more appealing to high-quality candidates than what we can
offer. If we are unable to continue to attract and retain high-quality personnel, the rate and success at which we can develop and
commercialize CaPre and any other future product candidates would be limited.
Neptune has significant influence over matters we put to a vote of our shareholders.
Neptune currently owns approximately 34% of our outstanding common shares and we are a subsidiary of Neptune. As a result,
Neptune has significant influence with respect to all matters submitted to our shareholders for approval, such as the election and removal of
directors, amendments to our articles of incorporation and by-laws and the approval of certain business combinations. This concentration of
holdings may cause the market price of our common shares to decline, delay or prevent any acquisition, delay or discourage take-over
attempts that shareholders may consider to be favourable, or make it more difficult or impossible for a third party to acquire control of us
or effect a change in our board of directors and management. Any delay or prevention of a change of control transaction could deter
potential acquirors or prevent the completion of a transaction in which our shareholders could receive a premium over the then current
market price for our common shares.
Neptune’s interests may not align with those of us or our other shareholders.
Neptune’s interests may not in all cases be aligned with interests of us or our other shareholders. Neptune may have an interest in
pursuing acquisitions, divestitures and other transactions that may ultimately be detrimental to our business and negatively affect the market
price of our common shares.
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Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.
Our operations, and those of our suppliers, third party manufacturers and other contractors and consultants could be subject to
earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather
conditions, medical epidemics and other natural or man-made disasters or business interruptions, for which we are predominantly self-
insured. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our
costs and expenses. We rely on third-party manufacturers to manufacture CaPre. Our ability to obtain supplies of CaPre could be disrupted
if the operations of our manufacturers and suppliers are affected by a man-made or natural disaster or other business interruption.
Our prospects currently depend entirely on the success of CaPre, which is still in clinical development, and we may not be able to
generate revenues from CaPre.
We have no prescription drug products that have been reviewed or approved by the FDA, Health Canada or any similar regulatory
authority. Our only prescription drug candidate is CaPre, for which we have not yet filed an NDA, and for which we must conduct a Phase 3
program, undergo further development activities and seek and receive regulatory approval prior to commercial launch, which we do not
anticipate will occur until 2021 at the earliest. We have invested significant effort and financial resources in researching and developing
CaPre. Further development of CaPre will require substantial investment, access to sufficient commercial manufacturing capacity and
significant marketing efforts before we can generate any revenue from sales of CaPre, if it is ever approved for commercialization.
We do not have any other prescription drug candidates in development and so our business prospects currently depend entirely on
the successful development, regulatory approval and commercialization of CaPre, which may never occur. Most prescription drug
candidates never reach the clinical development stage and even those that do reach clinical development have only a small chance of
successfully completing clinical development and gaining regulatory approval. If we are unable to successfully commercialize CaPre, we
may never generate meaningful revenues. In addition, if CaPre reaches commercialization and there is low market demand for CaPre or the
market for CaPre develops less rapidly than we anticipate, we may not have the ability to shift our resources to the development of
alternative products.
If we encounter difficulties enrolling patients in our planned Phase 3 program, our development activities for CaPre could be delayed or
otherwise adversely affected.
We may experience difficulties in patient enrollment in our clinical trials, including our planned Phase 3 program for CaPre, for a
variety of reasons. Timely completion of our clinical trials in accordance with their protocols depends, among other things, on our ability to
enroll a sufficient number of patients who remain in the trial until its conclusion. The enrollment of patients depends on many factors,
including:
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the number of clinical trials for other product candidates in the same therapeutic area that are currently in clinical
development, and our ability to compete with those trials for patients and clinical trial sites;
patient eligibility criteria defined in the protocol;
the size of the patient population;
the risk that disease progression will result in death before the patient can enroll in clinical trials or before the completion of
any clinical trials in which the patient is enrolled;
the proximity and availability of clinical trial sites for prospective patients;
the design of the trial;
our ability to recruit clinical trial investigators with the appropriate competencies and experience;
our ability to obtain and maintain patient consents; and
the risk that patients enrolled in clinical trials will drop out of the trials before completion.
Our planned Phase 3 program for CaPre may compete with other clinical trials for product candidates that are in the same
therapeutic areas as CaPre. This competition could reduce the number and types of patients and qualified clinical investigators available to
us, because some patients who might have opted to enroll in our Phase 3 program may instead opt to enroll in a trial being conducted by
one of our competitors or a clinical trial site may not allow us to conduct our clinical program at that site if competing trials are already
being conducted there. We may
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also encounter difficulties finding adequate clinical trial sites at which to conduct our Phase 3 program. Delays in patient enrollment may
result in increased costs or may affect the timing or outcome of our planned Phase 3 program, which could impair or prevent its completion
and adversely affect our ability to advance the development of CaPre.
We may not be able to obtain required regulatory approvals for CaPre.
We have limited experience in conducting and managing the clinical trials necessary to obtain regulatory approvals, including
approval by the FDA and, as a company, we have no experience in obtaining approval of any product candidates. The research, testing,
manufacturing, labeling, packaging, storage, sale, marketing, pricing, export, import and distribution of prescription drug products are
subject to extensive regulation by the FDA and other regulatory authorities in the United States and other countries and those regulations
differ from country to country. We are not permitted to market CaPre in the United States until we receive approval of an NDA from the
FDA and similar restrictions apply in other countries. In the United States, the FDA generally requires the completion of preclinical testing
and clinical trials of each drug to establish its safety and efficacy and extensive pharmaceutical development to ensure its quality before an
NDA is approved. Regulatory authorities in other jurisdictions impose similar requirements. Of the large number of drugs in development,
only a small percentage result in the submission of an NDA to the FDA and even fewer are approved for commercialization. To date, we
have not submitted an NDA for CaPre to the FDA or comparable applications to other regulatory authorities.
Our receipt of required regulatory approvals for CaPre is uncertain and subject to a number of risks, including:
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the FDA or comparable foreign regulatory authorities or independent institutional review boards, or IRBs, may disagree with
the design or implementation of our clinical trials;
we may not be able to provide acceptable evidence of the safety and efficacy of CaPre;
the results of our clinical trials may not meet the level of statistical or clinical significance required by the FDA or other
regulatory agencies for marketing approval;
the dosing of CaPre in a particular clinical trial may not be at an optimal level;
patients in our clinical trials may suffer adverse effects for reasons that may or may not be related to CaPre;
we may be unable to demonstrate that CaPre’s clinical and other benefits outweigh its safety risks;
the data collected from our clinical trials may not be sufficient to support the submission of an NDA for CaPre or to obtain
regulatory approval for CaPre in the United States or elsewhere;
the FDA or comparable foreign regulatory authorities may not approve the manufacturing processes or facilities of third party
manufacturers with which we contract for clinical and commercial supplies of CaPre; and
the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a
manner rendering our clinical data insufficient for approval.
The FDA and other similar regulators have substantial discretion in the approval process and may refuse to accept our application
or may decide that our data is insufficient for approval and require additional clinical trials, or preclinical or other studies for CaPre. If
regulatory approval for CaPre is obtained in one jurisdiction, that does not necessarily mean that CaPre will receive regulatory approval in
all jurisdictions in which we seek approval. If we fail to obtain approval for CaPre in one or more jurisdictions, our ability to obtain
approval in a different jurisdiction may be negatively affected.
Even if we receive regulatory approval for CaPre, it may just be for a limited indication.
If we obtain regulatory approval for CaPre, we will only be permitted to market it for the indication approved by the FDA, and any
such approval may put limits on the indicated uses or promotional claims we may make for it, or otherwise not permit labeling that
sufficiently differentiates CaPre from competitive products with comparable therapeutic profiles. For example, while our initial objective is
to seek regulatory approval for the treatment of severe HTG, afterwards obtaining approval for CaPre to address mild to moderate HTG
could greatly expand our potential market for CaPre. However, even if CaPre is approved for severe HTG, it may never be
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approved for the treatment of mild to moderate HTG. In addition, any approval we receive for CaPre could contain significant use
restrictions for specified age groups, warnings, precautions or contraindications, or may be subject to burdensome post-approval study or
risk management requirements. If any regulatory approval for CaPre contains significant limits, we may not be able to obtain sufficient
funding or generate meaningful revenue from CaPre or be able to continue developing, marketing or commercializing CaPre.
We may be unable to find successful strategic partnerships to develop and commercialize CaPre.
We intend to seek co-development, licensing and/or marketing partnership opportunities with third parties that we believe will
complement or augment our development and commercialization efforts for CaPre. Entering into partnership relationships may require us to
incur non-recurring and other charges, increase our near and long-term expenditures, issue securities that dilute our existing shareholders or
disrupt our management and business. Entering into partnership relationships could also delay the development of CaPre and our other
future product candidates if we become dependent upon a strategic partner and that strategic partner does not prioritize the development of
CaPre relative to its other development activities. In addition, we face significant competition in seeking strategic partners and the
negotiation process is time-consuming and complex. We may not be successful in our efforts to establish a strategic partnership or other
alternative arrangements for CaPre on our anticipated timeline, or at all, because CaPre may be deemed to be at too early of a stage of
development for collaborative effort and third parties may not view CaPre as having the requisite potential to demonstrate safety and
efficacy. Even if we do enter into strategic partnerships, those partnerships may not achieve our objectives.
We may be unable to develop alternative product candidates.
To date, we have not commercialized any prescription drug candidates and, other than CaPre, we do not have any compounds in
clinical trials, nonclinical testing, lead optimization or lead identification stages. If we fail to obtain regulatory approval for and successfully
commercialize CaPre as a treatment for severe HTG or any other indication, whether as a stand-alone therapy or in combination with other
treatments, we would have to develop, acquire or license alternative product candidates or drug compounds to expand our product
candidate pipeline beyond CaPre. In such a scenario, we may not be able to identify and develop or acquire product candidates that prove to
be successful products, or to develop or acquire them on terms that are acceptable to us.
We may not be able to compete effectively against our competitors’ pharmaceutical products.
The biotechnology and pharmaceutical industries are highly competitive. There are many pharmaceutical companies,
biotechnology companies, public and private universities and research organizations actively engaged in the research and development of
products that may be similar to CaPre. It is probable that the number of companies seeking to develop products and therapies similar to
CaPre will increase. Many of these and other existing or potential competitors have substantially greater financial, technical and human
resources than we do and may be better equipped to develop, manufacture and market products. These companies may develop and
introduce products and processes competitive with or superior to CaPre. In addition, other technologies or products may be developed that
have an entirely different approach or means of accomplishing the intended purposes of CaPre, which might render our technology and
CaPre non-competitive or obsolete.
Our competitors in the United States and globally include large, well-established pharmaceutical companies, specialty
pharmaceutical sales and marketing companies, and specialized cardiovascular treatment companies. GlaxoSmithKline plc, which currently
sells LOVAZA, a prescription-only OM3 fatty acid indicated for patients with severe HTG, was approved by FDA in 2004 and has been on
the market in the United States since 2005. Multiple generic versions of LOVAZA are now available in the United States. Amarin launched
its prescription-only OM3 drug VASCEPA in 2013, and reached a market share of approximately 20% by the end of 2015. In addition,
EPANOVA (OM3-carboxylic acids) capsules, a free fatty acid form of OM3 (comprised of 55% EPA and 20% DHA), is FDA-approved
for patients with severe HTG. Omtryg, another OM3 fatty acid composition developed by Trygg Pharma AS, received FDA approval for
severe HTG. Neither EPANOVA nor Omtryg have yet been commercially launched, but could launch at any time. Other large companies
with products competing indirectly with CaPre include AbbVie, Inc., which currently sells Tricor and Trilipix for the treatment of severe
HTG, and Niaspan, which is primarily used to raise HDL-C but is also used to lower TGs. Generic versions of Tricor, Trilipix and Niaspan
are also now available in the United States. In addition, we are aware of a number of other pharmaceutical companies that are developing
products that, if approved and marketed, would compete with CaPre.
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Even if it receives regulatory approval, CaPre may need to demonstrate compelling comparative advantages in efficacy,
convenience, tolerability and safety to be commercially successful. Other competitive factors, including generic drug competition, could
force us to lower prices or could result in reduced sales of CaPre. In addition, new products developed by others could emerge as
competitors to CaPre. If we are not able to compete effectively against our current and future competitors, our business will not grow and
our financial condition and operations will suffer.
CaPre could face competition from products for which no prescription is required.
If it receives regulatory approval, CaPre will be a prescription-only OM3. Mixtures of OM3 fatty acids are naturally occurring
substances in various foods, including fatty fish. OM3 fatty acids are also marketed by other companies as dietary supplements or natural
health products. Dietary supplements may generally be marketed without a lengthy FDA premarket review and approval process and do not
require a prescription. However, unlike prescription drug products, manufacturers of dietary supplements may not make therapeutic claims
for their products; dietary supplements may be marketed with claims describing how the product affects the structure or function of the
body without premarket approval, but may not expressly or implicitly represent that the dietary supplement will diagnose, cure, mitigate,
treat, or prevent disease. We cannot be certain that physicians or consumers will view CaPre as superior to these alternatives or that
physicians will be more likely to prescribe CaPre. If the price of CaPre is significantly higher than the prices of commercially available
OM3 fatty acids marketed by other companies as dietary supplements or natural health products, physicians may recommend these
commercial alternatives instead of CaPre or patients may elect on their own to take commercially available non-prescription OM3 fatty
acids. Either of these outcomes could limit how we price CaPre and negatively affect our revenues.
If outcome studies being conducted by two of our competitors testing the impact of OM3 on treating patients with mild to moderate HTG
are negative, there could also be an adverse impact for CaPre.
We are currently awaiting outcome study data from two of our competitors that are testing the effects of OM3 on patients with mild
to moderate HTG. If those studies show that OM3 effectively treats patients with mild to moderate HTG, we believe that the potential to
expand CaPre’s indication in the future to include the treatment of moderate to high HTG would be significantly advanced. Conversely, if
outcome study data from one or both of those competitors is negative, or if one or both clinical trials fail to be completed, our potential
target market for CaPre could be limited solely to patients with severe HTG and our ability to realize greater market potential of CaPre
could be harmed.
Recent and future legal developments could make it more difficult and costly for us to obtain regulatory approvals for CaPre and
negatively affect the prices we may charge.
In the United States and elsewhere, recent and proposed legal and regulatory changes to healthcare systems could prevent or delay
our receipt of regulatory approval for CaPre, restrict or regulate our post-approval marketing activities, and adversely affect our ability to
profitably sell CaPre. Proposals have also been made to expand post-approval requirements and to restrict sales and promotional activities
for pharmaceutical products. We do not know whether additional legislative changes will be enacted, or whether the FDA’s regulations,
guidance or interpretations will be changed, or what impact any such changes will have, if any, on our ability to obtain regulatory approvals
for CaPre. Further, the Centers for Medicare and Medicaid Services, or CMS, frequently changes product descriptors, coverage policies,
product and service codes, payment methodologies and reimbursement values. Also, increased scrutiny by the U.S. Congress of the FDA’s
approval process could significantly delay or prevent our receipt of regulatory approval for CaPre and subject us to more stringent product
labeling and post-marketing testing and other requirements.
In the United States, the Medicare Modernization Act, or the MMA, changed the way Medicare covers and pays for
pharmaceutical products. The MMA expanded Medicare coverage for drug purchases by the elderly and introduced a new reimbursement
methodology based on average sales prices for drugs. In addition, the MMA authorized Medicare Part D prescription drug plans to use
formularies where they can limit the number of drugs that will be covered in any therapeutic class. As a result of the MMA and the
expansion of federal coverage of drug products, we expect there will be additional pressure to contain and reduce healthcare costs. These
healthcare cost reduction initiatives and other provisions of the MMA could decrease the coverage and price that we would receive for
CaPre. While the MMA applies only to drug benefits for Medicare beneficiaries, private health insurance companies often follow Medicare
coverage policy and payment limitations in setting their own reimbursement rates, and any reduction in reimbursement that results from the
MMA may result in a similar reduction in payments from private health insurance companies.
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The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act
(the Health Care Reform Law), has broadened access to health insurance, reduced or constrained the growth of healthcare spending,
enhanced remedies against fraud and abuse, added new transparency requirements for the healthcare and health insurance industries,
imposed new taxes and fees on the health industry and imposed additional health policy reforms. Provisions of the Health Care Reform
Law affecting pharmaceutical companies include requirements to offer discounts on brand-name drugs to patients who fall within the
Medicare Part D coverage gap, commonly referred to as the “donut hole”, and to pay an annual non-tax deductible fee to the federal
government based on each company’s market share of prior year total sales of branded products to certain federal healthcare programs, such
as Medicare, Medicaid, Department of Veterans Affairs and Department of Defense.
Despite initiatives to invalidate the Health Care Reform Law, the U.S. Supreme Court has upheld key aspects of it. Due to the
results of the recent presidential election, the Health Care Reform Law may be significantly changed and we do not know whether any such
changes could have significant negative financial impact on the development or potential profitability of CaPre. At this time, it remains
unclear whether there will be any changes made to the Health Care Reform Law, whether to certain provisions or its entirety. The Health
Care Reform Law or any replacement of it could continue to apply downward pressure on pharmaceutical pricing, especially under the
Medicare program, and may also increase our regulatory burdens and operating costs. Additional federal healthcare reform measures could
be adopted in the future limiting the amounts that federal and state governments will pay for healthcare products and services, which could
negatively affect the value of CaPre and our ability to achieve profitability.
In Canada, most new patented drug prices are limited so that the cost of therapy is in the range of the cost of therapy for existing
drugs sold in Canada used to treat the same disease. As a result:
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prices of moderate and substantial improvement drugs and breakthrough drugs are also restricted by a variety of tests;
existing patented drug prices cannot increase by more than the Canadian Consumer Price Index; and
the Canadian prices of patented medicines can never be the highest in the world.
If CaPre receives regulatory approval in Canada, restrictions on the price we can charge there for CaPre could reduce the value of CaPre
and our ability to generate revenue and achieve profitability.
In many jurisdictions outside the United States, a product candidate must be approved for health care reimbursement before it can
be approved for sale. In some cases, the price that we intend to charge for CaPre will also be subject to approval. If we fail to comply with
the regulatory requirements in our target international markets or to receive required marketing approvals, our potential market for CaPre
will be reduced and our ability to realize the full market potential for CaPre will be harmed.
Reimbursement decisions by third-party payors may have an adverse effect on pricing and market acceptance. If there is not sufficient
reimbursement for CaPre, it is less likely that it will be widely used.
Even if CaPre is approved for sale by the appropriate regulatory authorities, market acceptance and sales of CaPre will depend on
reimbursement policies and may be affected by future healthcare reform measures. Government authorities and third-party payors, such as
private health insurers and health maintenance organizations, decide which drugs they will reimburse and establish payment levels. We
cannot be certain that reimbursement will be available for CaPre. If reimbursement is not available or is available on a limited basis, we
may not be able to successfully commercialize CaPre.
There may be significant delays in obtaining coverage and reimbursement for newly-approved drugs, and coverage may be more
limited than the purposes for which the drug is approved by the FDA or other regulatory authorities. Moreover, eligibility for coverage and
reimbursement does not imply that a drug will be paid for in all cases or at a rate that covers our costs, including research, development,
manufacture, sale and distribution expenses. Interim reimbursement levels for new drugs, if applicable, may also be insufficient to cover
our costs and may not be made permanent. Reimbursement rates may vary according to the use of a drug and the clinical setting in which it
is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other
services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private
payors and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices
than in the United States. Our inability to promptly obtain coverage and profitable payment rates from both government-funded and private
payors for CaPre could have a material adverse effect on our operating results and our overall financial condition.
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Even if we obtain FDA approval of CaPre, we may never obtain approval or commercialize it outside of the United States, which would
limit our ability to realize CaPre’s full market potential.
In order to market CaPre outside of the United States, we must establish and comply with numerous and varying regulatory
requirements of other countries regarding safety and efficacy. Clinical trials conducted in one country may not be accepted by regulatory
authorities in other countries, and regulatory approval in one country does not mean that regulatory approval will be obtained in any other
country. Approval procedures vary among countries and can involve additional product testing and validation and additional administrative
review periods. Seeking foreign regulatory approvals could result in significant delays, difficulties and costs for us and may require
additional preclinical studies or clinical trials, which would be costly and time consuming. Regulatory requirements can vary widely from
country to country and could delay or prevent the introduction of CaPre in those countries. In addition, our failure to obtain regulatory
approval in any country may delay or have negative effects on the process for regulatory approval in other countries. If we fail to comply
with regulatory requirements in international markets or to obtain and maintain required approvals, our target market will be reduced and
our ability to realize the full market potential of CaPre will be harmed.
If we or our third-party service providers fail to comply with healthcare laws and regulations or government price reporting laws, we
could be subject to civil or criminal penalties.
In addition to the FDA’s restrictions on marketing pharmaceutical products, several other types of federal and state healthcare fraud
and abuse laws restrict marketing practices in the pharmaceutical industry. These laws include the U.S. Anti-Kickback Statute, U.S. False
Claims Act and similar state laws. The U.S. Anti-Kickback Statute prohibits, among other things, offering, paying, soliciting or receiving
remuneration to induce, or in return for, purchasing, leasing, or ordering any healthcare item or service reimbursable under Medicare,
Medicaid or other federally financed healthcare programs. A person or entity does not need to have actual knowledge of the U.S. Anti-
Kickback Statute or special intent to violate the law in order to have committed a violation. This statute has been interpreted broadly to
apply to arrangements between pharmaceutical manufacturers and prescribers, dispensers, purchasers and formulary managers. The
exemptions and safe harbors from prosecution are drawn narrowly and we may fail to meet all of the criteria for safe harbor protection from
anti-kickback liability.
In addition, the Health Care Reform Law provides that the government may assert that a claim including items or services resulting
from a violation of the U.S. Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the U.S. False Claims Act. Federal
false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false claim for payment to the federal
government or knowingly making, or causing to be made, a false statement to get a false claim paid. The “qui tam” provisions of the False
Claims Act allow a private individual to bring civil actions on behalf of the federal government alleging that the defendant has submitted a
false claim to the federal government. These individuals, sometimes known as “relators” or, more commonly, as “whistleblowers”, may
share in any amounts paid by the entity to the government in fines or settlement. The number of filings of qui tam actions has increased
significantly in recent years, causing more healthcare companies to have to defend a case brought under the federal False Claim Act. If an
entity is determined to have violated the federal False Claims Act, it may be required to pay up to three times the actual damages sustained
by the government, plus attorneys’ fees and costs, and civil penalties of up to US$21,563 for each separate false claim. Certain
administrative sanctions, up to and including exclusion of an entity from participation in the federal healthcare programs, may also ensue.
Additional laws and regulations include:
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the U.S. federal Health Insurance Portability and Accountability Act (HIPAA), as amended by the Health Information
Technology for Economic and Clinical Health Act (HITECH), which created additional federal criminal statutes that prohibit,
among other things, schemes to defraud healthcare programs and imposes requirements on certain types of people and entities
relating to the privacy, security, and transmission of individually identifiable health information, and requires notification to
affected individuals and regulatory authorities of breaches of security of individually identifiable health information;
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the federal Physician Payment Sunshine Act, which requires certain manufacturers of drugs, devices, biologics and medical
supplies for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program, to report
annually to the CMS information related to payments and other transfers of value to physicians, other healthcare providers
and teaching hospitals, and ownership and investment interests held by physicians and other healthcare providers and their
immediate family members, which is published in a searchable form on an annual basis; and
the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws, which generally prohibit companies and their
intermediaries from making improper payments to government officials for the purpose of obtaining or retaining business.
Violations of these laws, or allegations of such violations, could result in fines, penalties or prosecution and have a negative
impact on our business, results of operations and reputation.
Over the past few years, a number of pharmaceutical and other healthcare companies have been prosecuted under these laws for a
variety of alleged prohibited promotional and marketing activities, such as providing free trips, free goods, sham consulting fees and grants
and other monetary benefits to prescribers; reporting to pricing services inflated average wholesale prices that were then used by federal
programs to set reimbursement rates; engaging in off-label promotion that caused claims to be submitted to Medicaid for non-covered,
off-label uses; and submitting inflated best price information to the Medicaid Rebate Program to reduce liability for Medicaid rebates. Most
states also have statutes or regulations similar to the U.S. Anti-Kickback Statute and the U.S. False Claims Act, which apply to items and
services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. Sanctions under these
federal and state laws may include civil monetary penalties, exclusion of a manufacturer’s products from reimbursement under government
programs, criminal fines and imprisonment. Settlements of U.S. government litigation may include Corporate Integrity Agreements with
commitments for monitoring, training, and reporting designed to prevent future violations.
Any action against us for an alleged or suspected violation of these laws could cause us to incur significant legal expenses and
could divert our management’s attention from the operation of our business, even if our defense is successful. In addition, achieving and
sustaining compliance with these laws and regulations may be costly to us in terms of money, time and resources. If we or any strategic
partners, manufacturers or service providers fail to comply with these laws, we could be subject to enforcement actions, including:
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adverse regulatory inspection findings;
warning letters;
voluntary or mandatory product recalls or public notification or medical product safety alerts to healthcare professionals;
restrictions on, or prohibitions against, marketing our products;
restrictions on, or prohibitions against, importation or exportation of our products;
suspension of review or refusal to approve pending applications or supplements to approved applications;
exclusion from participation in government-funded healthcare programs;
exclusion from eligibility for the award of government contracts for our products;
suspension or withdrawal of product approvals;
product seizures;
injunctions; and
civil and criminal penalties and fines.
We rely on third parties to conduct our clinical trials for CaPre.
We rely heavily on contract research organizations, or CROs, to monitor and manage data for our preclinical studies and clinical
trials for CaPre. While we only control certain aspects of the CRO’s activities, we nevertheless are responsible for ensuring that our clinical
trials are conducted in accordance with applicable protocols, legal, regulatory and scientific standards, and our reliance on the CRO does
not relieve us from those responsibilities. We and the CRO are required to comply with cGCPs, which are regulations and guidelines
enforced by the FDA, Health Canada and comparable foreign regulatory authorities for any products in clinical development.
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The FDA enforces these cGCP regulations through periodic inspections of trial sponsors, principal investigators and trial sites. If we or the
CRO fail to comply with applicable cGCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA, Health
Canada or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing
applications for CaPre. Upon inspection, the FDA could determine that our clinical trials do not comply with cGCPs. In addition, our
clinical trials must be conducted with products produced under cGMP regulations and require a large number of test subjects. If we or the
CRO fail to comply with these regulations, we may have to repeat preclinical studies or clinical trials for CaPre, which would delay the
regulatory approval process and could also subject us to enforcement action up to and including civil and criminal penalties.
If our relationship with a CRO terminates, we may not be able to enter into arrangements with alternative CROs. If the CRO does
not successfully carry out its duties or obligations or meet expected deadlines, if it needs to be replaced or if the quality or accuracy of the
clinical data it obtains is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, we
may have to extend, delay or terminate our preclinical studies or clinical trials, and we may not be able to obtain regulatory approval for or
successfully commercialize CaPre.
The third parties conducting our preclinical studies and clinical trials at CROs will not be our employees and, except for remedies
available to us under our agreements with the CROs, we cannot control whether or not they devote sufficient time and resources to our
preclinical, clinical and nonclinical programs. These third parties may also have relationships with other commercial entities, including our
competitors, for whom they may also be conducting clinical studies or other drug development activities, which could affect their
performance on our behalf.
We rely on third parties to manufacture, produce and supply CaPre and we may be adversely affected if those third parties are unable or
unwilling to fulfill their obligations, including complying with FDA requirements.
Producing pharmaceutical products requires significant expertise and capital investment, including the development of advanced
manufacturing techniques and process controls. We do not own or operate manufacturing facilities for the production of CaPre, nor do we
have plans to develop our own manufacturing operations in the foreseeable future. Accordingly, we need to rely on one or more third party
manufacturers to produce and supply our required drug product for our nonclinical research and clinical trials for CaPre.
Although we are currently working with CordenPharma at its Chenôve facility in Dijon, France to develop a commercially viable
manufacturing process for CaPre, doing so is a difficult and uncertain task, and there are risks associated with scaling to the level required
for advanced clinical trials or commercialization, including, among others, cost overruns, potential problems with process scale up, process
reproducibility, stability issues, lot consistency and timely availability of reagents or raw materials. Any of these challenges could delay
completion of our preclinical studies or clinical trials for CaPre, require bridging or repetition of studies or trials, increase development
costs, delay approval of CaPre, impair our commercialization efforts, and increase our costs. We may have to delay or suspend the
production of CaPre if a third-party manufacturer:
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becomes unavailable for any reason, including as a result of the failure to comply with current good manufacturing practices,
or cGMP, regulations;
experiences manufacturing problems or other operational failures, such as equipment failures or unplanned facility shutdowns
required to comply with cGMP or damage from any event, including fire, flood, earthquake, business restructuring or
insolvency; or
fails or refuses to perform its contractual obligations under its agreement with us, such as failing or refusing to deliver the
quantities of CaPre requested by us on a timely basis.
If our third-party manufacturers fail to achieve and maintain high manufacturing standards in compliance with cGMP regulations,
we may be subject to sanctions, including fines, product recalls or seizures, injunctions, delays or suspensions of our clinical trials for
CaPre, total or partial suspension of production of CaPre, civil penalties, withdrawals of previously granted regulatory approvals, and
criminal prosecution. We do not currently have arrangements in place for redundant supply. If any one of our current contract
manufacturers cannot perform as agreed, we may be required to replace that manufacturer. Although we believe that there are several
potential alternative manufacturers who could manufacture CaPre, we may incur added costs and delays in identifying and qualifying any
such replacement.
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The research, development and manufacture of CaPre involves using potentially hazardous materials.
Our research and development activities relating to CaPre involve the controlled use of potentially hazardous substances, including
chemical and biological materials. Our manufacturers for CaPre will be subject to federal, provincial, state and local laws and regulations in
Canada, the United States and in other jurisdictions governing laboratory procedures and the use, manufacture, storage, handling and
disposal of medical and hazardous materials. Although we believe that our manufacturers’ procedures for using, handling, storing and
disposing of these materials comply with legally prescribed standards, we cannot completely eliminate the risk of contamination or injury
resulting from medical or hazardous materials. If any such contamination or injury were to occur, we may incur liability or local, city,
provincial, state or federal authorities may curtail the use of these materials and interrupt our business operations and the production of
CaPre. In the event of an accident, we could be held liable for damages or penalized with fines, and the liability could exceed our resources.
We do not have any insurance for liabilities arising from medical or hazardous materials. Complying with environmental, health and safety
laws and regulations is expensive, and current or future environmental regulations may impair our research, development and production
efforts relating to CaPre, which could harm our business, prospects, financial condition or results of operations. Although we maintain
workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use
of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for
environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological,
hazardous or radioactive materials. In addition, we may incur substantial costs in order to comply with current or future environmental,
health and safety laws and regulations. These laws and regulations may make it more difficult for us to conduct our research, development
or production activities relating to CaPre and if we fail to comply with them, we could have substantial fines, penalties or other sanctions
imposed against us.
We depend on Neptune for some important services.
Neptune provides us with some shared back office services and functions, including corporate affairs, public company reporting,
accounting, payroll, information technology, accounts payable, accounts receivable and shared premises. If our arrangements with Neptune
for these services were to be terminated or not renewed, we may have to incur additional costs to provide them ourselves or to source them
from another third party.
We rely on Neptune to supply us with the krill oil we need to produce CaPre for our clinical programs and commercial supply.
We depend on krill oil sourced from Neptune to produce CaPre. If we are not able to acquire krill oil in sufficient quantities from
Neptune, we may need to seek alternative suppliers of krill oil and may be required to pay higher prices. Any alternative supply of krill oil
may not be of comparable quality to that provided by Neptune, which could negatively affect the efficacy, or the markets’ perception of the
efficacy, of CaPre. Our reliance on Neptune or other third-party suppliers for krill oil exposes us to risks such as potential fluctuations in
supply and reduced control over our production costs and delivery schedules for CaPre.
Interruptions of our supply of CaPre could disrupt our planned Phase 3 program and, if CaPre reaches commercialization, impair any
future revenue streams.
We will require much larger amounts of CaPre for purposes of our planned Phase 3 program and potential commercialization than
we have in the past. Supply interruptions for CaPre could occur and our inventory of CaPre may not always be sufficient due to a number of
factors, including:
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failure to have a third-party supply chain partner’s process validated in a timely manner;
shortages of required raw materials, such as krill oil, and the packaging components required by our manufacturers;
changes in our sources for manufacturing or packaging;
failure to timely locate and obtain replacement manufacturers, as needed; and
conditions affecting the cost and availability of raw materials.
We are also in the process of scaling-up our production of CaPre and CaPre may not be of comparable quality when produced in
large 100 kilogram batches. If we experience interruptions in the production of CaPre, our ability to complete our planned Phase 3 program
could be interrupted. If CaPre receives regulatory approval, interruptions in the production of CaPre or insufficient inventory levels of
CaPre could have a material adverse effect on our results of operations.
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If product liability lawsuits are brought against us, we may incur substantial liabilities and be required to cease the sale, marketing and
distribution of CaPre.
We face a potential risk of product liability associated with any future commercialization of CaPre or any other future product
candidate we develop. For example, we may be sued if CaPre allegedly causes injury. Any such product liability claims may include
allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability and
a breach of warranties. Claims could also be asserted under U.S. state or Canadian provincial or other foreign consumer protection
legislation. If we cannot successfully defend against product liability claims, we may incur substantial liabilities or be required to cease the
sale, marketing and distribution of CaPre. Even successful defense against product liability claims would require significant financial and
management resources. Regardless of the merits or eventual outcome, liability claims may result in:
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decreased demand for CaPre or any future products that we may develop;
injury to our reputation;
costs to defend the related litigation;
a diversion of management’s time and our resources;
substantial monetary awards to consumers, trial participants or patients;
product recalls, withdrawals or labeling, marketing or promotional restrictions;
loss of revenue;
an inability to commercialize CaPre; and
a decline in the price of our common shares.
If we are unable to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product
liability claims, the commercialization of CaPre or any other product candidates we develop could be hindered or prevented. We currently
carry product liability insurance, shared with Neptune, in the amount of $10.0 million in the aggregate. Any claim that may be brought
against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in
excess of the limits of our insurance coverage. Our insurance policies also have various exclusions, and we may be subject to a product
liability claim for which we have no coverage. In the event of a successful product liability claim against us, we may have to pay from our
own resources any amounts awarded by a court or negotiated in a settlement that exceed coverage limitations or that is not covered by our
insurance, and we may not have, or be able to obtain, sufficient funds to pay such amounts.
We may not achieve our publicly announced milestones on time, or at all.
From time to time, we may publicly announce the timing of certain events we expect to occur, such as the anticipated timing of
results from our clinical trials. These statements are forward-looking and are based on the best estimate of management at the time relating
to the occurrence of the events. However, the actual timing of these events may differ from what has been publicly disclosed. The timing
of events such as completion of a clinical trial, discovery of a new product candidate, filing of an application to obtain regulatory approval,
beginning of commercialization of products, or announcement of additional clinical trials for a product candidate may ultimately vary from
what is publicly disclosed. For example, we cannot provide assurances that we will conduct our planned Phase 3 clinical trial for CaPre,
that we will make regulatory submissions or receive regulatory approvals as planned, or that we will be able to adhere to plans for the
scale-up of manufacturing and launch of CaPre. These variations in timing may occur as a result of different events, including the nature of
the results obtained during a clinical trial or during a research phase, problems with a supplier or a distribution partner or any other event
having the effect of delaying the publicly announced timeline. We undertake no obligation to update or revise any forward-looking
information, whether as a result of new information, future events or otherwise, except as otherwise required by law. Any variation in the
timing of previously-announced milestones could have a material adverse effect on our business, financial condition or operating results
and the trading price of our common shares.
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We may be subject to foreign exchange rate fluctuations.
Our reporting currency is the Canadian dollar. However, many of our expenses, such as CaPre’s chief manufacturing
organization’s production activities and certain CRO arrangements for our planned Phase 3 program, currently are and/or are expected to
be, denominated in foreign currencies, including European euros and U.S. dollars. Though we plan to implement measures designed to
reduce our foreign exchange rate exposure, the U.S. dollar/Canadian dollar and European euro/Canadian dollar exchange rates have
fluctuated significantly in the recent past and may continue to do so, which could have a material adverse effect on our business, financial
position and results of operations.
Risks Related to Intellectual Property
It is difficult and costly to protect our intellectual property rights.
The success of our business will largely depend on our ability to:
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obtain and maintain patents, trade secret protection and operate without infringing the intellectual proprietary rights of third
parties;
successfully defend our patents, including patents licensed to us by Neptune, against third-party challenges; and
successfully enforce our patents against third party competitors.
Our patents and/or proprietary technologies could be circumvented through the adoption of competitive, though non-infringing,
processes or products. The patent positions of pharmaceutical companies can be highly uncertain and involve complex legal, scientific and
factual questions for which important legal principles remain unresolved. Changes in either the patent laws or in interpretations of patent
laws may diminish the value of our intellectual property. We cannot predict the breadth of claims that may be allowable or enforceable in
our patents, including the patents licensed to us by Neptune.
We face risks that:
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our rights under our Canadian, U.S. or foreign patents or other patents that Neptune or other third parties license to us could
be curtailed;
we may not be the first inventor of inventions covered by our issued patents or pending applications or be the first to file
patent applications for those inventions;
our pending or future patent applications may not be issued with the breadth of claim coverage sought by us, or be issued at
all;
our competitors could independently develop or patent technologies that are substantially equivalent or superior to our
technologies;
our trade secrets could be learned independently by our competitors;
the steps we take to protect our intellectual property may not be adequate; and
effective patent, trademark, copyright and trade secret protection may be unavailable, limited or not sought by us in some
foreign countries.
Further, patents have a limited lifespan. In the United States, a patent generally expires 20 years after it is filed (or 20 years after
the filing date of the first non-provisional U.S. patent application to which it claims priority). While extensions may be available, the life of
a patent, and the protection it affords, is limited. Without patent protection for CaPre or any other of our future product candidates, we may
be open to competition from generic versions of CaPre or our other future product candidates. Further, the extensive period of time between
patent filing and regulatory approval for a product candidate limits the time during which we can market that product candidate under patent
protection. Patents owned by third parties could have priority over patent applications filed or in-licensed by us, or we or our licensors
could become involved in interference, opposition or invalidity proceedings before U.S., Canadian or foreign patent offices. The cost of
defending and enforcing our patent rights against infringement charges by other patent holders may be significant and could limit our
operations.
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CaPre is partly covered by patents that are not owned by us but are instead licensed to us by Neptune.
In addition to our proprietary patent applications, we have an exclusive worldwide license under a license agreement with Neptune
to use certain patents and know-how owned by Neptune to develop and commercialize CaPre within a specified field of use. This limitation
on our field of use may prevent us from developing and commercializing CaPre in other fields. Also, our license from Neptune is subject to
termination for breach of its terms, and therefore our license rights are only available to us for as long as Neptune agrees that our
development and commercialization activities meet the terms of the license.
Disputes may arise between us and Neptune regarding the intellectual property that is subject to the license agreement, including
with respect to:
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the scope of rights granted under the license agreement and other interpretation-related issues;
whether and the extent to which our technology and processes infringe on intellectual property of Neptune that is not subject
to the licensing agreement;
our right to sublicense patent and other rights to third parties under collaborative development relationships;
our diligence obligations with respect to our use of the licensed technology in relation to our development and
commercialization of our product candidates, and what activities satisfy those diligence obligations; and
the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by Neptune and us
and our partners.
If our license is terminated for any reason and we are not able to negotiate another agreement with Neptune for use of its patents
and know-how, we would not be able to manufacture and market CaPre, which would have a material adverse effect on our business and
financial condition.
CaPre may infringe the intellectual property rights of others, which could increase our costs and delay or prevent our development and
commercialization efforts.
Our success depends in part on avoiding infringement of the proprietary technologies of others. The pharmaceutical industry has
been characterized by frequent litigation regarding patent and other intellectual property rights. Identification of third party patent rights
that may be relevant to our proprietary or licensed technology is difficult because patent searching is imperfect due to differences in
terminology among patents, incomplete databases and the difficulty in assessing the meaning of patent claims. Additionally, because patent
applications are maintained in secrecy until the application is published, we may be unaware of third-party patents that may be infringed by
our development and commercialization of CaPre or any other future product candidate. There may be certain issued patents and patent
applications claiming subject matter that we may be required to license in order to research, develop or commercialize CaPre, and any such
patents and patent applications may not be available to license on commercially reasonable terms, or at all. If claims of patent infringement
are asserted by third parties against us, they could be time-consuming and may:
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result in costly litigation;
divert the time and attention of our technical personnel and management;
delay our clinical trials for CaPre;
prevent us from commercializing CaPre until the asserted patent expires or is held finally invalid or not infringed in court;
require us to cease or to modify our use of the technology and/or develop non-infringing technology; or
require us to enter into royalty or licensing agreements.
Others may hold proprietary rights that could prevent CaPre from being marketed. Any patent-related legal action against us
claiming damages and seeking to enjoin commercial activities relating to CaPre or our processes could subject us to potential liability for
damages and require us to obtain a license to continue to manufacture or market CaPre or any other future prescription drug candidates. We
might not prevail in any such actions or if any license is required under any of these patents it may not be available on commercially
acceptable terms, if at all.
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Even if a license can be obtained on acceptable terms, the rights may be non-exclusive, which could give our competitors access to the
same technology or intellectual property rights licensed to us. We could be forced to redesign CaPre or any other future product candidates
or processes to avoid infringement.
In addition, we may find it necessary to pursue claims or initiate lawsuits to protect or enforce our patent or other intellectual
property rights. The cost to us in defending or initiating any litigation or other proceeding relating to patent or other proprietary rights, even
if resolved in our favor, could be substantial, and litigation would divert our management’s attention. Some of our competitors may be able
to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources.
Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could delay our research and
development efforts and limit our ability to continue our operations.
A number of companies, including several major pharmaceutical companies, have conducted research on pharmaceutical uses of
OM3 fatty acids, which has resulted in the filing of many patent applications related to this research. We are aware of third-party U.S.,
Canadian or other foreign patents that contain broad claims related to methods of using these general types of compounds, which may be
construed to include potential uses of CaPre. If we were to challenge the validity of these or any other issued U.S., Canadian or other
foreign patents in court, we would need to overcome a statutory presumption of validity that attaches to every U.S. and Canadian patent.
This means that, in order to prevail, we would have to present clear and convincing evidence as to the invalidity of the other party’s patent’s
claims. If we were to challenge the validity of any issued U.S. patent in an administrative trial before the Patent Trial and Appeal Board in
the United States Patent and Trademark Office, or USPTO, we would have to prove that the claims are unpatentable by a preponderance of
the evidence. If there are disputes over our intellectual property rights, a jury and/or court may not find in our favor on questions of
infringement, validity or enforceability.
If we do not protect our trademark for CaPre, we may not be able to build name recognition in our markets of interest.
We have trademarked CaPre. Our trademark may be challenged, infringed, circumvented or declared generic or determined to be
infringing on other marks. We may not be able to protect our rights to this trademark or may be forced to stop using this name, which we
need for name recognition by potential strategic partners and customers. If we are unable to establish name recognition based on our
trademark, we may not be able to compete effectively and our business may be adversely affected.
We may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time-
consuming and unsuccessful.
Competitors may infringe our patents or the patents of our licensors. To counter infringement or unauthorized use, we may be
required to file infringement claims, which can be expensive and time-consuming. If we or our licensors were to initiate legal proceedings
against a third party to enforce a patent covering CaPre or our technology, the defendant could counterclaim that our or our licensor’s
patent is invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability
are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements; for example,
lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected
with prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution. The
outcome following legal assertions of invalidity and unenforceability during patent litigation is unpredictable. With respect to the validity
question, for example, we cannot be certain that there is no invalidating prior art, of which we or our licensors and the patent examiner
were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity or unenforceability, we would lose at least
part, and perhaps all, of the patent protection on CaPre or certain aspects of our platform technology. Such a loss of patent protection could
have a material adverse impact on our business. Patents and other intellectual property rights also will not protect our technology if
competitors design around our protected technology without legally infringing our patents or other intellectual property rights.
In addition, in an infringement proceeding, a court may refuse to stop the other party from using the technology at issue on the
grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one
or more of our patents at risk of being invalidated, held unenforceable, or interpreted narrowly and could put our patent applications at risk
of not issuing. Defense of these claims, regardless of their merit, would involve substantial litigation expense and would be a substantial
diversion of employee resources from our business.
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Interference proceedings provoked by third parties or brought by the USPTO may be necessary to determine the priority of
inventions with respect to our patents or patent applications or those of our licensors. An unfavorable outcome could result in a loss of our
current patent rights and could require us to cease using the related technology or to attempt to license rights to it from the prevailing party.
Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms, or at all. Litigation or
interference proceedings may result in a decision adverse to our interests and, even if we are successful, may result in substantial costs and
distract our management and other employees. We may not be able to prevent, alone or with our licensors, misappropriation of our trade
secrets or confidential information, particularly in countries where the laws may not protect those rights as fully as in the United States.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that
some of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public
announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive
these results to be negative, it could have a substantial adverse effect on the price of our common shares.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee
payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for
non-compliance with these requirements.
Changes in patent law could diminish the value of patents in general, thereby impairing our ability to protect CaPre and any of our
other future product candidates.
Numerous recent changes to the patent laws and proposed changes to the rules of the USPTO may have a significant impact on our
ability to protect our technology and enforce our intellectual property rights. For example, the Leahy-Smith America Invents Act , or AIA,
enacted in 2011, involves significant changes in patent legislation. An important change introduced by the AIA is that, as of March 16,
2013, the United States transitioned to a “first-to-file” system for deciding which party should be granted a patent when two or more patent
applications are filed by different parties claiming the same invention. A third party that files a patent application in the USPTO after that
date but before us could therefore be awarded a patent covering an invention of ours even if we had made the invention before it was made
by the third party. This will require us to be cognizant going forward of the time from invention to filing of a patent application. Further, the
Supreme Court of the United States has ruled on several patent cases in recent years, some of which cases either narrow the scope of patent
protection available in certain circumstances or weaken the rights of patent owners in certain situations. These changes have led to
increasing uncertainty with regard to the scope and value of our issued patents and to our ability to obtain patents in the future.
Among some of the other changes introduced by the AIA are changes that limit where a patentee may file a patent infringement
suit and providing opportunities for third parties to challenge any issued patent in the USPTO. This applies to all of our U.S. patents, even
those issued before March 16, 2013. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard
in United States federal court necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO
proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if
first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims
that would not have been invalidated if first challenged by the third party as a defendant in a district court action.
Once granted, patents may remain open to opposition, interference, re-examination, post-grant review, inter partes review,
nullification derivation and opposition proceedings in court or before patent offices or similar proceedings for a given period after
allowance or grant, during which time third parties can raise objections against the initial grant. In the course of any such proceedings,
which may continue for a protracted period of time, the patent owner may be compelled to limit the scope of the allowed or granted claims
attacked, or may lose the allowed or granted claims altogether. Depending on decisions by the U.S. Congress, the U.S. federal courts, the
USPTO or similar authorities in foreign jurisdictions, the laws and regulations governing patents could change in unpredictable ways that
may weaken our and our licensors’ ability to obtain new patents or to enforce existing patents we and our licensors or partners may obtain
in the future.
We may not be able to protect our intellectual property rights throughout the world.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign
jurisdictions. The legal systems of some countries, particularly certain developing countries, do not favor the enforcement of patents, trade
secrets and other intellectual property protection, which could make it difficult for us to stop the infringement of our patents or marketing
of competing products in violation of our
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proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our
efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our
patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that
we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce
our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual
property that we develop or license.
Risks Relating to Our Common Shares
The trading price of our common shares may be volatile.
Market prices for securities in general, and those of pharmaceutical companies in particular, tend to fluctuate. The trading price for
our common shares has experienced volatility in the past. Factors that could affect the trading price of our common shares and cause
volatility include, among others:
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results or delays of pre-clinical and clinical studies by us or others;
the commencement, enrollment or results of future clinical trials we may conduct, or changes in the development status of
CaPre or any of our other future product candidates;
any delay in our regulatory filings for CaPre or any of our other future product candidates and any adverse development or
perceived adverse development with respect to the applicable regulatory authority’s review of our filings;
filing or granting or invalidity of patents;
exclusive rights obtained by us or others;
disputes or other developments relating to proprietary rights, including patents;
litigation matters and our ability to obtain patent protection for our technologies;
changes in regulations;
additions or departures of key scientific or management personnel;
overall performance of the equity markets;
general political and economic conditions;
publications;
failure to meet the estimates and projections of the investment community or that we may otherwise provide to the public;
research reports or positive or negative recommendations or withdrawal of research coverage by securities analysts;
announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our
competitors;
public concerns over the risks of pharmaceutical products and dietary supplements;
unanticipated serious safety concerns related to the use of CaPre; and
future sales of securities by us in financings or by our shareholders.
As a result, the market price of our common shares may fluctuate significantly in the future. In addition, the stock market in
general, and pharmaceutical companies in particular, have experienced extreme price and volume fluctuations that have often been
unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the
market price of our common shares, regardless of our actual operating performance. In the past, securities class action litigation has often
been instituted against companies following periods of volatility of the market price of a company’s securities. This type of litigation, if
brought against us, could result in substantial costs and liabilities for us and divert our management’s attention and resources, which would
harm our business, operating results or financial condition.
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Future securities issuances by us could result in significant dilution for existing shareholders.
Our articles of incorporation permit us to issue an unlimited number of common shares and preferred shares, issuable in series, and
our shareholders will have no pre-emptive rights in connection with further issuances of securities by us. Our directors have the discretion
to determine the provisions attaching to any series of preferred shares and the price of issue of further issuances of our common shares.
Also, additional common shares may be issued by us upon the exercise of outstanding stock options and warrants. The issuance of these
additional equity securities or the issuance of new stock options or warrants may have a dilutive effect on existing holders of our common
shares and, as a result, the market price for our common shares could decline. The market price of our common shares could also decline as
a result of future issuances by us in connection with strategic partnerships, or sales by our existing shareholders, or the perception that
these sales could occur. Sales by our shareholders, including Neptune, might also make it more difficult for us to sell equity securities at a
time and price that we deem appropriate, which could reduce our ability to raise capital and have an adverse effect on our business.
Raising additional capital may cause dilution to our existing shareholders, restrict our operations or require us to relinquish rights to
our technologies or product candidates.
We may seek additional capital through a combination of public and private equity offerings, debt financings, strategic partnerships
and alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt
securities, the ownership interests of our shareholders will be diluted, and the terms may include liquidation or other preferences that
adversely affect the rights of our common shareholders. The incurrence of indebtedness would result in increased fixed payment
obligations and could involve certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our
ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct
our business. If we raise additional funds through strategic partnerships and licensing arrangements with third parties, we may have to
relinquish valuable rights relating to CaPre or our other future product candidates, or grant licenses on terms unfavorable to us.
An active market for our common shares might not be sustained.
If an active market for our common shares is not sustained, holders of our common shares may be unable to sell their investments
on satisfactory terms. Declines in the value of our common shares may adversely affect the liquidity of the market for our common shares.
Factors unrelated to our performance may also have an effect on the price and liquidity of our common shares including:
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extent of analyst coverage of us;
lower trading volume and general market interest in our common shares;
the size of our public float; and
any event resulting in a delisting of our common shares from the NASDAQ Stock Market or the TSX Venture Exchange, or
TSXV.
A large number of our common shares may be issued and subsequently sold upon the exercise of our outstanding warrants and under
our convertible debentures, which could depress the trading price for our common shares.
As of March 31, 2017, we had up to 5,254,535 common shares issuable under our outstanding warrants and convertible debentures.
To the extent that holders of our warrants and convertible debentures sell underlying common shares issued under those warrants and
convertible debentures, the market price of our common shares may decrease due to the additional selling pressure in the market and 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 anticipates 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 risk of dilution from issuances of our common shares
underlying our warrants and convertible debentures could also cause shareholders to sell their common shares, which could result in a
decline in their market price.
We do not intend to pay dividends on our common shares for the foreseeable future.
We have never paid dividends on our common shares and we do not anticipate paying any dividends on our common shares for the
foreseeable future because, among other reasons, we currently intend to retain any future earnings to finance our business. Any future
payment of dividends by us will depend on factors such as cash on hand
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and whether we achieve profitability, our financial requirements to fund our growth, our general financial condition and other factors our
board of directors may consider appropriate in the circumstances. Until we pay dividends, which we may never do, our shareholders will
not be able to receive a return on their common shares unless they sell them.
If we fail to meet applicable listing requirements, the NASDAQ Stock Market or the TSXV may delist our common shares from trading,
in which case the liquidity and market price of our common shares could decline.
Our common stock is currently listed on the NASDAQ Stock Market and the TSXV, but we cannot assure you that our securities
will continue to be listed on the NASDAQ Stock Market and the TSXV in the future. In the past, we have received notices from the
NASDAQ Stock Market that we have not been in compliance with its continued listing standards, and we have taken responsive actions and
regained compliance. If we fail to comply with listing standards and the NASDAQ Stock Market or TSXV delists our common shares, we
and our shareholders could face significant material adverse consequences, including:
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a limited availability of market quotations for our common shares;
reduced liquidity for our common shares;
a determination that our common shares are “penny stock”, which would require brokers trading in our common shares to
adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our
common shares;
a limited amount of news about us and analyst coverage of us; and
a decreased ability for us to issue additional equity securities or obtain additional equity or debt financing in the future.
We may pursue opportunities or transactions that adversely affect our business and financial condition.
In the ordinary course of our business, our management regularly explores potential strategic opportunities and transactions, which
may involve:
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significant debt or equity investments in us by third parties;
the acquisition or disposition by us of material assets;
the licensing, acquisition or disposition by us of material intellectual property;
the development of new product lines or new applications for our existing products;
entering into distribution arrangements;
issuance of our common shares; and
other similar matters.
Public announcement by us of strategic opportunities or transactions might have a significant effect on the trading price of our
common shares. Our policy is to not publicly disclose our pursuit of a potential strategic opportunity or transaction unless we are required
to do so by applicable law. Investors who buy or sell our common shares could be doing so at a time when we are pursuing a particular
strategic opportunity or transaction that, when announced, could have a significant effect on the trading price for our common shares.
In addition, any strategic transactions we enter into could carry significant risks, including:
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exposure to unknown liabilities;
higher than anticipated transaction costs and expenses;
the difficulty and expense of integrating operations and personnel of any acquired companies;
disruption of our ongoing business;
diversion of our management’s time and attention; and
possible dilution to our existing shareholders.
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As a foreign private issuer, we are subject to different U.S. securities laws and regulations than a domestic U.S. issuer, which may limit
the information publicly available to our U.S. shareholders.
We are a foreign private issuer under applicable U.S. federal securities laws, and therefore, we are not required to comply with all
the periodic disclosure and current reporting requirements of the U.S. Securities and Exchange Act of 1934, or the Exchange Act. As a
result, we do not file the same reports that a U.S. domestic issuer would file with the SEC, although we are required to file with or furnish
to the SEC the continuous disclosure documents that we are required to file in Canada under Canadian securities laws. In addition, our
officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions of Section 16 of the
Exchange Act. Therefore, our shareholders may not know on as timely a basis when our officers, directors and principal shareholders
purchase or sell common shares as the reporting periods under the corresponding Canadian insider reporting requirements are longer. In
addition, as a foreign private issuer, we are exempt from the proxy rules under the Exchange Act.
As an “emerging growth company”, we are exempt from the requirement to comply with the auditor attestation requirements of the
Sarbanes-Oxley Act.
We are an “emerging growth company”, as defined in the U.S. Jumpstart Our Business Start-ups Act, and we use the exemption
provided to emerging growth companies from the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002.
Therefore, our internal controls over financial reporting will not receive the level of review provided by the process relating to the auditor
attestation included in annual reports of issuers that are not using an exemption. In addition, we cannot predict if investors will find our
common shares less attractive because we rely on this exemption. If some investors find our common shares less attractive as a result, there
may be a less active trading market for our common shares and trading price for our common shares may be negatively affected.
U.S. investors may be unable to enforce certain judgments.
We are a company existing under the Business Corporations Act (Québec). Some of our directors and officers are residents of
Canada, and substantially all of our assets are located outside the United States. As a result, it may be difficult to effect service within the
United States upon us or upon some of our directors and officers. Execution by U.S. courts of any judgment obtained against us or any of
our directors or officers in U.S. courts may be limited to assets located in the United States. It may also be difficult for holders of securities
who reside in the United States to realize in the United States upon judgments of U.S. courts predicated upon civil liability of us and our
directors and executive officers under the U.S. federal securities laws. There may be doubt as to the enforceability in Canada against
non-U.S. entities or their controlling persons, directors and officers who are not residents of the United States, in original actions or in
actions for enforcement of judgments of U.S. courts, of liabilities predicated solely upon U.S. federal or state securities laws.
Item 4.
Information on the Company
A. History and Development of the Company
We were incorporated on February 1, 2002 under Part 1A of the Companies Act (Québec) under the name “9113-0310 Québec
Inc.” On February 14, 2011, the Business Corporations Act (Québec) came into effect and replaced the Companies Act (Québec). We are
now governed by the Business Corporations Act (Québec). On August 7, 2008, under a Certificate of Amendment, we changed our name
to “Acasti Pharma Inc.”, our share capital description, the provisions regarding restrictions on transfers of our securities and our borrowing
powers. On November 7, 2008, under a Certificate of Amendment, we changed the provisions regarding our borrowing powers. We
became a reporting issuer in Québec on November 17, 2008.
Our head and registered office is located at 545 Promenade du Centropolis, Suite 100, Laval, Québec H7T 0A3. We currently
employ 15 full-time employees, with the majority working out of our headquarters in Laval and our laboratory in Sherbrooke, Québec. Our
website address is http://www.acastipharma.com. We do not incorporate the information on or accessible through our website into this
annual report, and you should not consider any information on, or that can be accessed through, our website as part of this annual report.
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Intercorporate Relationships
We have no subsidiaries. As of the date of June 26, 2017, Neptune owns 5,064,694 of our common shares, representing 34.4% of
our issued and outstanding common shares.
B. Our Business
We are a biopharmaceutical innovator focused on the research, development and commercialization of prescription drugs using
omega-3, or OM3, fatty acids derived from krill oil. OM3 fatty acids have extensive clinical evidence of safety and efficacy in lowering
triglycerides, or TGs, in patients with hypertriglyceridemia, or HTG. Our lead product candidate is CaPre, an OM3 phospholipid, which we
are developing initially for the treatment of severe HTG, a condition characterized by abnormally high levels of TGs in the bloodstream
(over 500 mg/dL). Market research commissioned by us from DP Analytics suggests there is a significant unmet medical need for an
effective, safe and well-absorbing OM3 therapeutic that demonstrates a positive impact on the major blood lipids associated with
cardiovascular disease risk. We believe that, if supported by our Phase 3 program that we plan to initiate during the second half of 2017,
CaPre will address this unmet medical need. We also believe the potential exists to expand CaPre’s initial indication to the mild to
moderate HTG (200 – 499 mg/dL) segment, although at least one additional clinical trial will likely be required to expand CaPre’s
indications to this segment. We may seek to identify new potential indications for CaPre that may be appropriate for future studies and
pipeline expansion. In addition, we may also seek to in-license other cardiometabolic drug candidates for drug development and
commercialization.
In four clinical trials conducted to date, we saw the following beneficial effects with CaPre, and we are seeking to demonstrate
similar safety and efficacy in our planned Phase 3 program:
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significant reduction of TGs and non-high density lipoprotein cholesterol (non-HDL-C) levels in the blood of patients with
mild to severe HTG;
no deleterious effect on low-density lipoprotein cholesterol (LDL-C), or “bad” cholesterol, with the potential to reduce
LDL-C;
potential to increase high-density lipoprotein cholesterol (HDL-C), or “good” cholesterol;
good bioavailability (absorption by the body), even under fasting conditions;
no significant food effect when taken with either low-fat or high-fat meals; and
an overall safety profile similar to that demonstrated by currently marketed OM3s.
Our Successful Phase 1 and Phase 2 Studies Helps Reduce Phase 3 Program Risk
About Hypertriglyceridemia
According to The American Heart Association Scientific Statement on Triglycerides and Cardiovascular Disease from 2011, TG
levels provide important information as a marker associated with the risk for heart disease and stroke, especially when an individual also
has low levels of HDL-C, and elevated levels of LDL-C. HTG can be caused by both genetic and environmental factors, including obesity,
sedentary lifestyle and high-calorie diets. HTG is also associated with comorbid conditions such as chronic renal failure, pancreatitis,
nephrotic syndrome and diabetes. Multiple epidemiological, clinical, genetic studies suggest that patients with elevated TG levels (greater
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than or equal to 200 mg/dL) are at a greater risk of coronary artery disease, or CAD, and pancreatitis, a life-threatening condition, as
compared to those with normal TG levels. The genes regulating TGs and LDL-C are equally strong predictors of CAD, but HDL-C is not.
Other studies suggest that lowering and managing TG levels may reduce these risks. In addition, the Japan EPA Lipid Intervention Study,
or JELIS, demonstrated the long-term benefit of an OM3 eicosapentaenoic acid, or EPA, in preventing major coronary events in
hypercholesterolemic patients receiving statin treatment. JELIS found a 19% relative risk reduction in major coronary events in patients
with relatively normal TGs but a more pronounced 53% reduction in the subgroup with TGs ³ 150mg/dL and HDL-C < 40mg/dL.
About CaPre
CaPre is a krill oil-derived mixture containing polyunsaturated fatty acids, or PUFAs, primarily composed of OM3 fatty acids,
principally EPA, and docosahexaenoic acid, or DHA. EPA and DHA are well known to be beneficial for human health, and according to
numerous recent clinical studies, may promote healthy heart, brain and visual function, and may also contribute to reducing inflammation
and blood TGs. Krill is a natural source of phospholipids and OM3 fatty acids. The EPA and DHA contained in CaPre are delivered as a
combination of OM3s as free fatty acids and OM3s bound to phospholipid esters, allowing these PUFAs to reach the small intestine where
they undergo rapid absorption and transformation into complex fat molecules that are required for lipid transport in the bloodstream. We
believe that EPA and DHA are more efficiently transported by phospholipids sourced from krill oil than the EPA and DHA contained in
fish oil that are transported either by TGs (as in dietary supplements) or as ethyl esters in other prescription OM3 drugs (such as LOVAZA
and VASCEPA), which must then undergo additional digestion before they are ready for transport into the bloodstream. The digestion and
absorption of OM3 ethyl ester drugs requires a particular enzymatic process that is highly dependent on the fat meal content – the higher
the fat content of the meal, the better the OM3 ethyl ester absorption. High fat meal content is not recommended in patients with HTG. We
believe that CaPre’s superior absorption profile could represent a significant clinical advantage, since taking it with a low-fat meal
represents a more realistic and attractive regimen for patients with HTG who must follow a restricted low-fat diet.
CaPre is intended to be used as a therapy combined with positive lifestyle changes, such as a healthy diet, and to be administered
either alone or with other drug treatment regimens such as statins (a class of drug used to reduce LDL-C). CaPre is intended to be taken
orally once or twice per day in capsule form.
Potential Market for CaPre
We believe a significant opportunity exists for OM3 market expansion because, among other things:
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cardiovascular diseases, or CVD, and stroke are the leading causes of morbidity and mortality in the United States. The
burden of CVD and stroke in terms of life-years lost, diminished quality of life, and direct and indirect medical costs also
remains enormous;
evidence suggests potential for OM3s in other cardiometabolic indications; and
based on the assumption that the REDUCE-IT trial sponsored by Amarin and the STRENGTH trial sponsored by Astra
Zeneca, or the CV outcome trials, will be positive, key opinion leaders interviewed by DP Analytics in the study described
further below estimated that they would increase their own prescribing of OM3s by 42% in mild to moderate HTG patients
(200 – 499 mg/dL) and by 35% in severe HTG patients.
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According to the American Heart Association, the prevalence of HTG in the United States and globally correlates to the aging of
the population and the increasing incidence of obesity and diabetes. Market participants, including the American Heart Association, have
estimated that one-third of adults in the United States have elevated levels of TGs (TGs ³150 mg/dL), including approximately 36 million
people diagnosed with mild to moderate HTG, and 3 to 4 million people diagnosed with severe HTG. Moreover, according to Ford,
Archives of Internal Medicine in a study conducted between 1999 and 2004, 18% of adults in the United States, corresponding to
approximately 40 million people, had elevated TG levels equal to or greater than 200 mg/dl, of which only 3.6% were treated specifically
with TG-lowering medication. We believe this data indicates there is a large underserved market opportunity for CaPre.
In 2015, CaPre’s target market in the United States for severe HTG was estimated by IMS NSP Audit data to be approximately
$750 million, with approximately 5 million prescriptions written annually over the prior four years. The total global market was estimated
by GOED Proprietary Research in 2015 to be approximately $2.3 billion. We believe there is the potential to greatly expand the treatable
market in the United States to the approximately 36 million people with mild to moderate HTG, assuming favorable results from the CV
outcome studies that are currently ongoing. These CV outcome trials are expected to report in mid-2018 (the REDUCE-IT trial sponsored
by Amarin) and 2019 (the STRENGTH trial sponsored by Astra Zeneca) and are designed to evaluate the long-term benefit of lowering
TGs on cardiovascular risks with prescription drugs containing OM3 fatty acids. If these trials are successful, additional clinical trials
would likely be required for CaPre to also expand its label claims to the mild to moderate HTG segment. Given the large portion of the
adult population in the United States that have elevated levels of TGs but who go largely untreated, we believe there is the potential for a
very significant increase in the total number of patients eligible for treatment if the CV outcome trials are positive.
The following charts illustrate the estimated global and U.S. markets for HTG in 2015, according to IMS NSP Audit data:
CaPre has two FDA-approved and marketed branded competitors (LOVAZA and VASCEPA). In addition, Astra Zeneca has an
FDA-approved product, EPANOVA, which has not yet been launched. LOVAZA generics became available on the U.S. market in 2013. In
spite of generic options, audited prescription data from IMS NSP Audit data suggests that over 50% of OM3 prescriptions are written for
branded products (LOVAZA or VASCEPA). By 2015, there had been only an approximately 25% decline in total market value, in spite of
some generic switching that occurs at pharmacies. This stability of branded products is due in part to the fact that the pricing differential
between branded and generic OM3 products is smaller than is typically the case between branded and generic products in the
pharmaceutical industry. Based on both primary market research with pharmacy benefit managers, or PBMs, and audited prescription
reports, the average pricing of generics is currently approximately $160 per month, while pricing for branded products averages $250 -
$300 per month. Amarin has raised prices for VASCEPA annually since its launch in late 2013. PBMs offer “Preferred Brand” status (Tier
2 or Tier 3), without significant restrictions (i.e. no prior authorization, step edits, or high co-payments) for these branded OM3s.
Except as otherwise indicated, all of the information that follows under this heading has been derived from secondary sources,
including audited U.S. prescribing data, and from a qualitative U.S. commercial and primary market research assessment conducted for us
by DP Analytics, A Division of Destum Partners, Inc., or Destum, a market research firm, dated August 19, 2016, which we refer to as the
Destum Market Research. In its market analysis for CaPre, Destum utilized secondary market data and reports and conducted primary
qualitative market research with physicians and third-party payers, such as PBMs. One-on-one in-depth phone interviews lasting on
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average 30-60 minutes were conducted with 22 physicians and 5 PBMs, and key qualitative data was obtained by Destum on current
clinical practice for treating patients with HTG, and their perceptions of the current unmet medical need in treating patients with HTG. All
interviews were conducted by the same individual at Destum and recorded to ensure consistency and collection of key data points. Destum
utilized OM3 prescription data from 2009 to 2015 to estimate the size of CaPre’s potential market. Based on its discussions with the PBMs,
Destum also assumed CaPre would be viewed favorably by payers at launch (e.g., Tier 2 or 3, depending on payer plan, which is
comparable to LOVAZA and VASCEPA). Upon completing the screening questionnaire and being approved for inclusion in Destum’s
study, key opinion leaders, or KOLs, and high volume prescribers, or HVPs, were provided with a study questionnaire and were asked to
comment on a target profile for a potential new OM3 “Product X” offering a “trifecta” of cardio-metabolic benefits similar to the potential
efficacy and safety benefits demonstrated by CaPre in our two Phase 1 pharmacokinetic studies and two Phase 2 clinical trials, which we
refer to as the Target Product Profile. Respondents were told that the unidentified product was being prepared for a Phase 3 program
designed to confirm with statistical significance the product’s safety and efficacy in patients with severe HTG. The Target Product Profile
was used by Destum strictly for market research analysis purposes and should not be construed as an indication of future performance of
CaPre and should not be read as an expectation or guarantee of future performance or results of CaPre, and will not necessarily be an
accurate indication of whether or not such results will be achieved by CaPre in our planned Phase 3 program. We subsequently retained
Destum as our exclusive advisor and business development consultant to identify potential strategic partners for CaPre, under which
Destum may be entitled to a success fee if a business arrangement or transaction is consummated. Destum’s market research and its
conclusions were substantially completed prior our entry into this agreement with Destum.
During the Destum Market Research, KOLs and HVPs interviewed by Destum were asked to assess the level of unmet medical
need associated with treating patients with severe HTG based on currently available treatment options. 91% of physicians interviewed by
Destum indicated that they believe that the current unmet medical need for treating HTG was moderate to high. The reasons identified by
these physicians for their dissatisfaction with the currently available OM3s included insufficient lowering of TGs (principally relating to
VASCEPA), negative LDL-C effects (principally relating to LOVAZA), gastrointestinal side effects, and the fishy taste from fish
oil-derived OM3s. Despite the availability of other drug classes to treat severe HTG, interviewed physicians indicated that they would
welcome the introduction of new and improved OM3 products, particularly if they can address these perceived deficiencies.
Interviewed physicians responded favorably in the Destum Market Research to the Target Product Profile. They indicated that their
weighted prescribing percentages of the Target Product Profile would increase by approximately 35% to 53% (with the range depending on
the specific profile presented) in the severe HTG patient population within two years of the Target Product Profile’s approval.
Approximately 60% of the interviewed physicians indicated that they would switch primarily due to the “trifecta effect” of the Target
Product Profile on reducing TGs and LDL-C while elevating HDL-C, and the remaining 40% indicated they would switch primarily due to
the Target Product Profile’s effective reduction of TGs alone. In connection with their responses, the interviewed physicians were
instructed to assume the Target Product Profile and all currently available OM3 products were not subject to any reimbursement or coverage
hurdles (e.g., all products were on an equal health care coverage playing field). This assumption was supported by our interviews with
leading PBMs in the United States.
We plan to conduct additional market research with KOLs, HVPs, primary care physicians and payers to further develop and refine
our understanding of the potential marketplace for CaPre.
Our Clinical Data
CaPre is being developed by us for the treatment of patients with severe HTG. In two Phase 2 clinical trials conducted by us in
Canada (our COLT and TRIFECTA trials), CaPre was found to be safe and well-tolerated at all doses tested, with no serious adverse events
that were considered treatment-related. Among the reported adverse events with an occurrence of greater than 2% of subjects and greater
than placebo, only diarrhea had an incidence of 2.2%.
In both Phase 2 clinical trials, CaPre significantly lowered TGs in patients with mild to severe HTG. Importantly, in these studies,
CaPre also demonstrated no deleterious effect on LDL-C (unlike LOVAZA and EPANOVA, which have been shown to significantly
increase LDL-C in patients with severe HTG). Further, our Phase 2 data indicated that CaPre may actually reduce LDL-C. LDL-C is
undesirable because it accumulates in the walls of blood vessels, where it can cause blockages (atherosclerosis). In the Phase 2 trials, CaPre
also reduced non-HDL-C (all cholesterol contained in the bloodstream except HDL-C), which is also considered to be a marker of
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cardiovascular disease. The COLT trial data showed a mean increase of 7.7% in HDL-C with CaPre at 4 grams per day (p=0.07). Further
studies in our planned Phase 3 program are required to demonstrate CaPre’s statistical significance with HDL-C.
We believe that these multiple potential cardiovascular benefits, if confirmed in our planned Phase 3 program, could be significant
differentiators for CaPre in the marketplace, as no currently approved OM3 drug has shown an ability to positively modulate these four
major blood lipid categories (TGs, non-HDL-C, LDL-C and HDL-C) in the treatment of severe HTG. We also believe that if supported by
additional clinical trials, CaPre has the potential to become the best-in-class OM3 compound for the treatment of mild to moderate HTG.
On September 14, 2016, we announced positive data from our completed comparative bioavailability study, or the Bridging Study.
The Bridging Study was an open-label, randomized, four-way, cross-over, bioavailability study comparing CaPre, given as a single dose of
4 grams in fasting and fed (high-fat) states, as compared to the FDA-approved HTG drug LOVAZA (OM3-acid ethyl esters) in 56 healthy
volunteers. The protocol was reviewed and approved by the FDA. The primary objective of the Bridging Study was to compare the
bioavailability of CaPre to LOVAZA, each administered as a single 4 gram dose with a high-fat meal, which is the condition under which
administration of OM3 drugs will yield the highest levels of EPA and DHA in the blood, and therefore has the highest potential for
toxicity. To allow us to rely on the long-term safety data of LOVAZA to support a 505(b)(2) NDA for CaPre, our results had to show that
the blood levels of EPA and DHA resulting from a single 4 gram dose of CaPre are not significantly higher than from a single 4 gram dose
of LOVAZA under fed (high-fat meal) conditions. The Bridging Study met all of its objectives and demonstrated that the levels of EPA and
DHA following administration of CaPre did not exceed corresponding levels following administration of LOVAZA in subjects who were
fed a high-fat meal. We expect that these results will support a claim by us that CaPre and LOVAZA have a comparable safety profile.
Also, among subjects in a fasting state, CaPre demonstrated better bioavailability than LOVAZA, as measured by significantly higher
blood levels of EPA and DHA. Since most HTG patients must follow a restricted low-fat diet, we believe that CaPre’s strong
bioavailability profile could provide a more effective clinical solution for these patients.
We summarized and submitted data from our Bridging Study to the FDA for review and discussed it with the FDA at an End of
Phase 2 meeting during the first quarter of 2017. We also presented our Bridging Study data at the National Lipid Association Conference
in May 2017 and we plan to submit the data from our Bridging Study for peer review and publication.
The graph below illustrates that the Bridging Study achieved all of its objectives:
Absorption of EPA and DHA as ethyl ester formulations in the currently available prescription OM3 drugs derived from fish oil
(such as LOVAZA and VASCEPA) require the breakdown of the ethyl esters by pancreatic enzymes (lipases) to be released into the blood.
These particular enzymes are produced in response to the consumption of high-fat content meals, leading to optimal absorption of EPA and
DHA. As a result, these OM3 ethyl ester formulations have demonstrated lower absorption and bioavailability when taken with a low-fat
meal or on an empty stomach. As shown in our CAP13-101 study described further below, absorption of CaPre, which is
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formulated as OM3 phospholipids and free fatty acids, is not meaningfully affected by the fat content of a meal consumed prior to drug
administration. Since a low-fat diet is typically a critical component for treatment of patients with severe HTG, we believe that being able
to effectively combine CaPre with a low-fat diet could give CaPre a significant clinical and marketing advantage over the ethyl ester-based
OM3s, such as LOVAZA and VASCEPA, that must be taken with a high-fat meal to achieve optimal absorption.
Our CAP13-101 study was an open-label, randomized, multiple-dose, single-center, parallel-design study in healthy volunteers. 42
subjects were enrolled into 3 groups of 14 subjects who took 1 gram, 2 grams or 4 grams of CaPre, administered once a day 30 minutes
after breakfast. The objectives of the study were to determine the pharmacokinetic, or PK, profile and safety on Day 1 following a single
oral dose and Day 14 following multiple oral doses of CaPre in individuals pursuing a low-fat diet (therapeutic lifestyle changes diet). The
effect of a high-fat meal on the bioavailability of CaPre was also evaluated at Day 15. Blood samples were collected for assessment of EPA
and DHA total lipids in plasma to derive the PK parameters.
The PK profile of CaPre following multiple 4 gram doses obtained in the CAP13-101 study at Day 14 was compared to the results
obtained in a similar PK study (Offman 2013 - ECLIPSE 2) where LOVAZA was also administered at 4 grams a day for 14 days with a
low-fat diet. Although CaPre contains approximately 2.5 times less EPA and DHA compared to LOVAZA (approximately 310 mg/1g
capsule for CaPre versus 770 mg/1g capsule for LOVAZA), when administered with a low-fat meal, CaPre plasma levels of EPA and DHA
are very similar to those of LOVAZA, as indicated by the area under the plasma drug concentration against time curve, or AUC, and the
maximal plasma drug concentration. This study gives us confidence in the dosing and design of our planned Phase 3 program.
As illustrated by the two graphs below, CaPre reached similar blood and therapeutic levels to LOVAZA after 14 daily doses of
CaPre at 4 grams/day, despite CaPre containing 2.5 times less EPA and DHA compared to LOVAZA:
The graph below illustrates that the bioavailability of CaPre (total EPA+DHA levels in the blood) does not appear to be
meaningfully affected by the fat content of a meal after multiple daily doses of CaPre at 4 grams/day (< 20% difference in AUC). We
believe that CaPre’s strong bioavailability could represent a significant clinical advantage for CaPre since taking it with a low-fat meal
represents a more realistic and attractive regimen for patients with HTG who must follow a restricted low-fat diet.
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Our Study CAP13-101 CaPre Pharmacokinetics Shows No Significant Food Effect
The graph below presents a summary of the effects of CaPre on patients’ lipid profiles as obtained in our completed TRIFECTA
and COLT Phase 2 clinical trials. 90% of the patients in these clinical trials had mild to moderate HTG (levels between 200 – 499 mg/dL)
and 10% of patients had severe HTG (levels between 500 and 877 mg/dL), which was the maximum level of TGs permitted by Health
Canada’s study protocol. Only 30% of the participating patients were taking statins, which we believe is important because statins appear
to enhance the TG-lowering effect of OM3s. In contrast, in our competitors’ summary data that follows, 100% of the patients in those
studies with mild to moderate HTG were taking statins with their OM3s.
The summary data from our COLT and TRIFECTA clinical trials shows that CaPre significantly reduces TGs, but unlike some
other prescription EPA/DHA-based OM3s, it has no deleterious effect on LDL-C and may potentially increase HDL-C (p=0.07), which we
refer to as the “trifecta effect”. Also, a dose response was seen for all of the major lipid markers; the greater the dose of CaPre, the greater
the beneficial effect of CaPre.
Our Phase 2 Study Results Show CaPre Dose Response and Potential for “Trifecta” Lipid Effect
* Indicates results reached statistical significance
TRIFECTA for 1g (N=130) & 2g (N=128) and COLT for 4g (N=62). HDL-C results at 4g from COLT approached statistical significance at P=0.07.
We conducted a subgroup analysis including only patients with severe HTG, consisting of approximately 10% of the patients from
our TRIFECTA study, to compare the effects of CaPre versus other OM3 drugs in the initial target population of patients with severe HTG.
Despite being given at a lower dose (only 1 gram and 2 grams), CaPre’s results compared very well with data from independent studies for
the other prescription OM3 drugs that are FDA-approved for the treatment of severe HTG at higher doses of 2 grams and 4 grams. While
the results of this subgroup analysis were not statistically significant for CaPre (potentially due to the small sample size), numerically, the
results compared well with the other OM3 drugs, even though CaPre was given at a much lower dose. The results for LDL-C, HDL-C and
non-HDL-C levels in the subgroup shown in the table below are based on descriptive statistics only and are solely directional, meaning that
no statistical testing was conducted and so no “p” values were generated.
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Our Sub-Group Analysis in Patients with Severe HTG: CaPre1 at 1g and 2g Compares Well with Our Competitors2 at 2g and 4g
Only ~1/3 of all patients across all studies were on statins
* Indicates results reached statistical significance
1.
Subgroup analysis on CaPre Phase 2 TRIFECTA study data in patients with severe HTG; (N=10 for 1g & N=14 for 2g). Results are
not statistically significant for TGs, which may be explained by the small number of patients in this subgroup analysis. Results for
LDL-C, HDL-C and non-HDL-C are based on descriptive statistics only (no statistical testing conducted).
2. LOVAZA 4g (N=103), VASCEPA 2g/4g (N=73/76), EPANOVA 2g/4g (N=100/99).
Since statins appear to enhance the TG-lowering property of OM3 drugs, we conducted a subgroup analysis that only included
patients who were taking a statin at baseline in the COLT and TRIFECTA studies (approximately 30% of the population of both trials,
combined). The graph below compares the TG-lowering effects of CaPre to other OM3s, all on a background of a statin drug, and shows
that CaPre’s TG-lowering effects compare well with other FDA-approved OM3 drugs. We believe it is noteworthy that only 39 patients on
2 grams of CaPre in our TRIFECTA study (out of a total of 128) and only 22 patients on 4 grams of CaPre in our COLT study (out of 62)
were taking statins.
The CaPre 2 gram bar graph in the table below shows the results from patients in our TRIFECTA trial who were taking statins. A
statistically significant reduction in TGs (-25.7% placebo corrected) was seen in that statin subgroup. The CaPre 4 gram bar graph in the
table below shows patient results only from our COLT trial (as there was no 4 gram component for our TRIFECTA). None of the results
were statistically significant at 4 grams of CaPre, potentially due to the small number of patients (22) in the statins subgroup.
As seen in the larger full study analyses in the tables above, CaPre does not show any deleterious effect on LDL, and shows the
potential to decrease LDL and increase HDL (p=0.07). These observations will need to be confirmed in our planned Phase 3 program.
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Our Sub-Group Analysis in Patients Treated with Statins1 vs Independent Competitor Data2: Potential for CaPre Trifecta Effect
* Indicates results reached statistical significance
1.
2.
CaPre subgroup analyses on patients treated with statins: TRIFECTA for 2g (N=39) and COLT for 4g (N=22). For CaPre 2g, results
for LDL-C, HDL-C, and non-HDL-C are based on descriptive statistics only (no statistical testing was conducted). For CaPre 4g, no
results are statistically significant which may be explained by the small number of patients.
All patients on a statin background: LOVAZA (N=122 for 4g), VASCEPA (N= 234 for 2g, N=227 for 4g), EPANOVA (N=209 for
2g, N=207 for 4g). Statins have been shown to enhance the efficacy of OM3 products – VASCEPA NDA 202057. Statistical review,
section 4.2 ‘‘Other special/Subgroup populations’, p. 107; and Maki K et al. Clin. Ther. 2013.
In summary, in addition to effectively reducing TG levels in patients with mild to severe HTG, clinical data collected by us to date
indicates that CaPre may also have:
•
•
•
beneficial effects on other blood lipids, such as HDL-C (good cholesterol) and non-HDL-C;
no deleterious effect on, and may potentially reduce, LDL-C (bad cholesterol) levels; and
absorption capability that is not meaningfully affected by the fat content of a meal consumed prior to drug administration,
providing patients with the reassurance that following their physician-recommended low-fat diet will still result in high
absorption.
We believe that these features could set CaPre apart from currently available FDA-approved OM3 treatment options in the
marketplace and could give us a significant clinical and marketing advantage.
CaPre’s potential clinical benefits as compared to currently available FDA-approved OM3 treatment options are summarized in the
table below and indicate that CaPre may deliver a more complete lipid management solution for patients with severe HTG:
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Our Nonclinical Research
In addition to our Phase 2 clinical trials, we carried out an extensive nonclinical program to demonstrate the safety of CaPre in a
defined set of studies required by the FDA. These studies were carried out by contract research organizations with Good Laboratory
Practice certification and conducted on various species of animals recommended by the FDA to investigate the long-term effects of CaPre
at doses of up to 65 grams of human equivalent dose over 39 weeks. In these studies, hematological, biochemical, coagulation and overall
health parameters of CaPre were evaluated and no toxic effects were observed in any of the segments of the studies. Other studies focused
on the potential toxic effects of CaPre on vital systems, such as the cardiovascular, respiratory and central nervous system as evaluated by
behavioural studies of the various species. These studies showed that CaPre did not have any adverse or toxic effects on any of the vital
systems investigated, again up to doses well above the recommended clinical dose of CaPre. To rule out short term toxic effects of CaPre
on genes, genomic toxicity studies were undertaken on accepted cellular and animal models. These studies showed no toxic effects of
CaPre on any of the genetic markers indicative of potential gene altering toxic effects.
We believe the studies conducted to date indicate that CaPre is well-tolerated and shows no toxic effects on any of the
physiological and vital systems of the tested animals or their genes or molecules at doses well above CaPre’s anticipated clinical
therapeutic dose of 4 grams daily.
In parallel to our planned Phase 3 program, we will have to complete additional nonclinical studies, including a pre- and postnatal
development study in rodents and a 26-week oral carcinogenicity study in transgenic hemizygous rasH2 mice. These nonclinical studies
will be required to support a NDA for CaPre.
Our Planned Phase 3 Program Design
In March 2017, we announced our plans to proceed with our Phase 3 program following our End-of-Phase 2 meeting with the FDA
in February 2017. Based on the guidance we received from the FDA, we plan to conduct two pivotal, randomized, placebo-controlled Phase
3 studies to evaluate the safety and efficacy of CaPre in patients with severe HTG (TG levels >500 mg/dL). These studies will evaluate
CaPre’s ability to lower TGs from baseline in approximately 400 patients randomized to either 4 grams daily or placebo. The FDA’s
feedback supports our plan to conduct two studies instead of one large study, potentially shortening the time to an NDA submission, as no
open label extension to the studies is planned. We intend to initiate our Phase 3 program during the second half of 2017. The following
chart illustrates the expected design and dosing of our planned Phase 3 program for CaPre.
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Our Regulatory Strategy for CaPre
Our strategy is to develop and initially commercialize CaPre for the treatment of severe HTG. Our goal is to initiate our Phase 3
program during the second half of 2017, which would be specifically designed to fully evaluate the clinical effect of CaPre on TGs,
non-HDL-C, LDL-C, and HDL-C levels together with a variety of other cardiometabolic biomarkers in patients with severe HTG.
In December 2015, we announced that we intend to pursue a 505(b)(2) regulatory pathway towards an NDA approval in the United
States. A 505(b)(2) regulatory pathway is defined in the U.S. Federal Food Drug and Cosmetic Act (FDCA) as an NDA containing
investigations of safety and effectiveness that are being relied upon for approval and were not, in whole, conducted by or for the applicant,
and for which the applicant has not obtained a right of reference. 505(b)(2) regulatory pathways differ from a typical NDA because they
allow a sponsor to rely, at least in part, on the FDA’s findings of safety and/or effectiveness for a previously-approved drug. We intend to
pursue the 505(b)(2) regulatory pathway as a strategy to leverage the large body of safety data for LOVAZA, which could accelerate and
streamline the development of CaPre and reduce associated costs and risks.
In connection with our intended use of the 505(b)(2) pathway, the FDA supported our proposal to conduct our Bridging Study that
compared CaPre (which has an OM3 free fatty acid/phospholipid composition) with the FDA-approved HTG drug LOVAZA (which has an
OM3-acid ethyl esters composition) in healthy volunteers. In February 2017, we met with the FDA to review our Bridging Study data. We
confirmed with the FDA the 505(b)(2) regulatory approach to use the safety data for LOVAZA, and finalized the study design for our
Phase 3 clinical trials, which will be required for NDA approval. We expect to continue our dialogue with the FDA during the second half
of 2017 to obtain feedback on our regulatory and clinical plans and to clarify or answer specific questions prior to our initiation of our Phase
3 clinical studies.
Our planned key milestones and development timeline are presented below.
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CaPre Development Timeline and Key Milestones
Our Intellectual Property Strategy
Under a license agreement we entered into with Neptune in August 2008, which we refer to as the “license agreement”, we
received an exclusive license to use Neptune’s intellectual property portfolio related to cardiovascular pharmaceutical applications. The
license agreement allows us to develop and commercialize CaPre and our novel and active pharmaceutical ingredients, or APIs, for the
prescription drug and medical food markets. As a result of a royalty prepayment transaction we entered into with Neptune on December 4,
2012, we are no longer required to pay any royalties to Neptune under the license agreement during its term for the use of the licensed
intellectual property. The license agreement expires on the date of the last to expire patent, which is 2031.
In addition to the license agreement, we continue to expand our own intellectual property, or IP, portfolio and patents. We have
now filed patent applications in 22 jurisdictions, including Europe, North America, Asia and Australia for our “Concentrated Therapeutic
Phospholipid Composition” to treat HTG, and we currently have 17 issued or allowed patents and 17 patents pending. The last to expire of
our patents is valid until 2031.
Patent Description
Composition of Matter
WO (PCT) Application # &
U.S. Patent #
Expiration Date of
Patent Family
Number of Patents
Worldwide
CONCENTRATED THERAPEUTIC PHOSPHOLIPID
COMPOSITION
WO2011050474 &
US8,586,567;
2031*
14*
(20 patents pending in
approx. 19 countries)
* Five Australian innovation patents are valid until 2018, patent (ZL 201080059930.4) granted by the Chinese Patent Office is valid until 2030 and patent (US
9475830) granted by the United States Patent and Trademark Office is valid until 2031. Our Australian patent AU 2010312238 expires in 2030.
U.S. patents were granted to us protecting a method of reducing serum TG levels comprising administering a composition
comprising about 66% phospholipid, or PL, (US 8,586,567), and a method of treating HTG comprising administering a composition
comprising about 60% PL (US 9,475,830). We later filed a U.S. continuation patent application to pursue prosecution of composition of
matter claims encompassing an extract comprising a PL content between about 60% to about 99%. The U.S. patent covers concentrated
therapeutic phospholipid compositions useful for treating or preventing diseases associated with cardiovascular disease, metabolic
syndrome, inflammation and associated diseases associated, neurodevelopmental diseases, and neurodegenerative diseases, comprising
administering an effective amount of a concentrated therapeutic phospholipid composition. The U.S. patent is valid until 2031. The
corresponding US 8,586,567 patent has also been granted in South Africa and Japan. Chinese patent (ZL 201080059930.4), which is valid
until 2030, relates to concentrated therapeutic phospholipid OM3 compositions and covers methods for treating or preventing diseases
associated with cardiovascular diseases, metabolic syndrome, inflammation, neurodevelopmental diseases, and neurodegenerative diseases.
The patent had also been granted in Japan, Mexico and Taiwan.
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A patent is generally valid for 20 years from the date of first filing. Patent terms can vary slightly for other jurisdictions, with 20
years from filing being the norm. In certain jurisdictions, exclusivity can be formally extended beyond the normal patent term to
compensate for regulatory delays during the pre-market approval process.
We believe these patents increase potential commercial opportunities for CaPre, including through possible licensing and
partnership opportunities. We are committed to building a global portfolio of patents to ensure long-lasting and comprehensive intellectual
property protection and to safeguard potentially valuable market expansion opportunities.
Our patent No. 600167 in New Zealand, which is enforceable until 2030 and relates to a concentrated phospholipid composition
comprising 60% PL and method of using the same for treating cardiovascular diseases, has been opposed by BIO-MER Ltd. Our
corresponding Australian patent No. 2010312238 was opposed by Enzymotec Ltd., but that opposition has been since been dropped. The
New Zealand patent opposition is in its early stages. In our view, no new prior art has been presented that was not already considered in
other jurisdictions, such as in the United States and Japan, where our patents are in force.
The following table summarizes the patent applications related to our license agreement with Neptune.
Patent Description
Composition of Matter
(NATURAL PHOSPHOLIPIDS OF MARINE ORIGIN CONTAINING FLAVONOIDS AND
POLYUNSATURATED PHOSPHOLIPIDS AND THEIR USES)
Method of Use for Dyslipidemia
(KRILL AND/OR MARINE EXTRACTS FOR PREVENTION AND/OR TREATMENT OF
CARDIOVASCULAR DISEASES, ARTHRITIS, SKIN CANCER, PREMENSTRUAL SYNDROME,
DIABETES AND TRANSDERMAL TRANSPORT)
Method of Extraction
(METHOD OF EXTRACTING LIPIDS FROM MARINCE AND AQUATIC ANIMAL TISSUE)
US Patent #
Expiration Date of
Patent
US8,030,348 (1)
2022
Holder
Neptune
US8,057,825
2022
Neptune
US6,800,299
2019
Neptune
(1) Three continuations also stem from U.S. Pat. 8,030,348 (U.S. Pat. 8,278,351; and 8,383,675).
We have applied for trademark protection of CaPre, and we are the owner of the trademark BREAKING DOWN THE WALLS OF
CHOLESTEROL in Canada, the United States and the European Union. The trademark CaPre® is registered in the United States, Canada,
Australia, China, Japan and Europe. In addition, we also protect our optimization and extraction processes through industrial trade secrets
and know-how.
Manufacturing of CaPre
We are developing CaPre as a NCE and we plan to implement our Phase 3 program using good manufacturing practices, or cGMP,
good clinical practices, or cGCP, and good laboratory practices, or cGLP. The contract manufacturing organizations, or CMOs, selected by
us for manufacturing and packaging are all cGMP compliant. As batch sizes of 10 to 12 kilograms of CaPre have already been successfully
produced and tested clinically, we are now scaling up to 100 kg/day to fulfill the clinical product requirements for our planned Phase 3
program and initial commercial launch.
In preparation for our planned Phase 3 program, working together with our pharmaceutical CMOs, we have advanced the
installation and qualification of the proprietary extraction and purification equipment used to manufacture CaPre. We ran our first
engineered production run of CaPre in December 2016 and our first scaled cGMP batches of CaPre at CordenPharma’s Chenôve facility in
Dijon, France during the first half of 2017.
The graphic below illustrates the manufacturing sequence for CaPre:
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Our Business and Commercialization Strategy
Key elements of our business and commercialization strategy include initially obtaining regulatory approval for CaPre in the
United States for severe HTG. We do not have in-house sales and marketing capabilities. We are currently evaluating several alternative
approaches to commercializing CaPre in the United States. Our preferred strategy is to commercialize CaPre outside the United States
through strategic partnerships, and to potentially seek funding support from strategic partnerships for these development and
commercialization activities. We believe that a late development-stage and differentiated drug candidate like CaPre could be attractive to
various global, regional or specialty pharmaceutical companies, and we are taking an opportunistic approach to partnering and licensing in
various geographies and indications.
If we reach commercialization of CaPre, as part of our sales and marketing strategy, we expect to focus our U.S. launch initially on
lipid specialists, cardiologists and primary care physicians who comprise the top prescribers of lipid-regulating therapies for patients with
severe HTG.
Our key commercialization goals include:
•
•
•
•
initiating and completing our planned Phase 3 program and, assuming the results are positive, filing an NDA to obtain
regulatory approval for CaPre in the United States, initially for the treatment of severe HTG, with the potential to afterwards
expand CaPre’s indication to the treatment of mild to moderate HTG;
continuing to strengthen our patent portfolio and other intellectual property rights;
continuing to evaluate the optimal strategic approach for commercializing CaPre in the United States; and
pursuing strategic opportunities outside of the United States, such as licensing or similar transactions, joint ventures,
partnerships, strategic alliances or alternative financing transactions, to provide development capital, market access and other
strategic sources of capital for us.
In addition to completing our planned Phase 3 program, we expect that additional time and capital will be required to complete the
filing of an NDA to obtain FDA pre-market approval for CaPre in the United States, and to complete business development collaborations,
marketing and other pre-commercialization activities before reaching the commercial launch of CaPre.
Competition
The biotechnology and pharmaceutical industries are highly competitive. There are many pharmaceutical companies,
biotechnology companies, public and private universities and research organizations actively engaged in the research and development of
products that may be similar to CaPre. We believe that the number of companies seeking to develop products and therapies similar to CaPre
will likely increase, particularly if the CV outcome trials by Amarin and/or Astra Zeneca are successful.
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Our competitors in the United States and globally include large, well-established pharmaceutical companies, specialty
pharmaceutical sales and marketing companies, and specialized cardiovascular treatment companies. GlaxoSmithKline plc, which currently
sells LOVAZA, a prescription-only OM3 fatty acid indicated for patients with severe HTG, was approved by the FDA in 2004 and has been
available in the U.S. market since 2005. Multiple generic versions of LOVAZA are now available in the United States. Amarin launched its
prescription-only OM3 drug VASCEPA in 2013, and reached a market share of approximately 20% by the end of 2015. In addition,
EPANOVA (OM3-carboxylic acids) capsules, a free fatty acid form of OM3 (comprised of 55% EPA and 20% DHA), is FDA-approved
for patients with severe HTG. Omtryg, another OM3-acid fatty acid composition developed by Trygg Pharma AS, received FDA approval
for severe HTG. Neither EPANOVA nor Omtryg have yet been commercially launched, but could launch at any time. Other large
companies with products that would compete indirectly with CaPre include AbbVie, Inc., which currently sells Tricor and Trilipix for the
treatment of severe HTG, and Niaspan, which is primarily used to raise HDL-C but is also used to lower TGs. Generic versions of Tricor,
Trilipix, and Niaspan are also now available in the United States. In addition, we are aware of a number of other pharmaceutical companies
that are developing products that, if approved and marketed, would compete with CaPre.
Raw Materials
We use semi-refined raw krill oil as our primary raw material to produce CaPre. Krill is generally harvested in Antarctic waters.
The total quantity of the krill species is estimated to be at least 500,000,000 metric tons. The krill biomass is the world’s most abundant
biomass and is monitored to help ensure sustainable cultivation. Currently, we source all of our krill oil from Neptune.
Employees, Specialized Skills and Knowledge
Our management consists of professionals from business development, sales and marketing, clinical development, pharmaceutical
manufacturing, finance and science backgrounds. Our research team includes scientists with expertise in pharmaceutical development,
chemistry, manufacturing and controls, nonclinical and clinical studies, pharmacology, regulatory affairs, quality assurance/quality control,
intellectual property and strategic alliances. As of March 31, 2017, we employed 15 people in Canada and the United States, eight of whom
have advanced biology, engineering, chemistry, biochemistry or microbiology degrees. We generally require all of our employees to enter
into invention assignment, non-disclosure and non-compete agreements. We rely, in part, on some administrative and general accounting
support from Neptune, and we also rely on third-party consultants from time to time. Our employees are not covered by any collective
bargaining agreement or represented by a trade union.
Additional Information About Our Phase 2 Clinical Trials
Our COLT Trial
Our COLT clinical trial, which was completed in 2014, was a randomized, open-label, dose-ranging, multi-center trial in Canada
designed to assess the safety and efficacy of CaPre in the treatment of patients with TG levels between 200-877 mg/dL. The primary
objectives of the COLT study were to evaluate the safety and efficacy of 0.5 grams, 1 gram, 2 grams and 4 grams of CaPre per day in
reducing fasting plasma TGs over 4 and 8 weeks, as compared to the standard of care alone.
The secondary objectives of the COLT study were to evaluate:
•
•
•
the effect of CaPre on fasting plasma TGs in patients with TGs between 200-499 mg/dL (mild to moderate HTG);
the dose dependent effect on fasting plasma triglycerides in patients with TGs between 500-877 mg/dL (severe HTG); and
the effect of CaPre on fasting plasma levels of LDL-C (direct measurement), HDL-C, non-HDL-C, hs-CRP and OM3 index.
The final results of the COLT trial indicated that CaPre was safe and effective in reducing TGs in patients with mild to severe HTG
with significant mean (average) TG reductions above 20% after 8 weeks of treatment with daily doses of 4 grams and 2 grams.
Demographics and baseline characteristics of the patient population were balanced in terms of age, race and gender. A total of 288 patients
were enrolled and randomized and 270 patients completed the study, which exceeded our targeted number of evaluable patients. From this
patient population, approximately 90% had mild to moderate HTG.
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The proportion of patients treated with CaPre that experienced one or more adverse events in the COLT trial was similar to that of
the standard of care group (30.0% versus 34.5%, respectively). A substantial majority of adverse events were mild (82.3%) and no severe
treatment-related adverse effects were reported. Only one patient was discontinued from the study due to an adverse event of moderate
intensity. While the rate of gastrointestinal side effects was higher in the CaPre groups compared to standard of care alone and appeared to
increase in a dose-related manner, none of the subjects participating in the study suffered from a serious adverse event. The COLT study
results showed that even at higher doses, CaPre is safe and well tolerated with only transient and predominantly mild adverse events
occurring at low rates.
The COLT trial met its primary objective of showing CaPre to be safe and effective in reducing TGs in patients with mild to severe
HTG. After only a 4-week treatment, CaPre achieved a statistically significant TG reduction as compared to standard of care alone.
Standard of care could be any treatment physicians considered appropriate in a real-life clinical setting and included lifestyle modifications
as well as statins and/or ezetimibe. Patients treated with 4 grams of CaPre per day over 4 weeks reached a mean TG decrease of 15.4% from
baseline and a mean improvement of 18.0% over the standard of care. Results also showed increased benefits after 8 weeks of treatment,
with patients on a daily dose of 4 grams of CaPre registering a mean TG decrease of 21.6% from baseline and a mean improvement of
14.4% over the standard of care.
After 8 weeks of treatment, patients treated with 1 gram of CaPre for the first 4 weeks of treatment and 2 grams for the following 4
weeks, showed a statistically significant TG mean improvement of 16.2% over the standard of care, corresponding to a 23.3% reduction for
the 1-2 grams patient population as compared to a 7.1% reduction for the standard of care. After 8 weeks of treatment, patients treated with
2 grams of CaPre for the entire 8 weeks showed statistically significant TG mean improvements of 14.8% over the standard of care,
corresponding to a 22.0% reduction for the 2 grams as compared to a 7.1% reduction for the standard of care. Also, after 8 weeks of
treatment, patients treated with 4 grams for the entire 8 weeks showed statistically significant TG, non-HDL-C and HbA1C mean
improvements of 14.4% and 9.8% and 15.0%, respectively, as compared to standard of care. The 4 grams group showed mean
improvements in:
•
•
•
TGs of 14.4%, corresponding to a reduction of 21.6% as compared to a reduction of a 7.1% for the standard of care group,
non-HDL-C of 9.8%, corresponding to a reduction of 12.0% as compared to a reduction of 2.3% for the standard of care group,
and
HbA1C of 15.0%, corresponding to a reduction of 3.5% as compared to an increase of 11.5% for the standard of care group.
In addition, all combined doses of CaPre showed a statistically significant treatment effect on HDL-C levels, with an increase of
7.4% as compared to standard of care. Trends (p-value < 0.1) were also noted on patients treated with 4 grams of CaPre for the entire
8-week treatment period with mean reduction of total cholesterol of 7.0% and increase of HDL-C levels of 7.7%, as compared to the
standard of care. The results of the COLT trial indicated that CaPre has no significant deleterious effect on LDL-C (bad cholesterol) levels.
Our TRIFECTA Trial
Our TRIFECTA clinical trial, which was completed in 2015, was a 12-week, randomized, placebo-controlled, double-blind, dose-
ranging trial in Canada, designed to assess the safety and efficacy of CaPre at a dose of 1 gram or 2 grams on fasting plasma TGs as
compared to a placebo in patients with TG levels between 200-877 mg/dL. A total of 387 patients were randomized and 365 patients
completed the 12-week study, consistent with our targeted number of evaluable patients. From this patient population, approximately 90%
had mild to moderate HTG with baseline TGs between 200 and 499 mg/dL. The remainder had severe HTG with baseline TGs between
500 and 877 mg/dL. Approximately 30% of patients were on lipid-lowering medications, such as statins, and approximately 10% were
diabetic.
Similar to our COLT study, the primary objective of the TRIFECTA study was to evaluate the effect of CaPre on fasting plasma
TGs in patients with TGs between 200-877 mg/dL and to assess the tolerability and safety of CaPre. The secondary objectives of the
TRIFECTA study were to evaluate:
•
•
the effect of CaPre on fasting plasma TGs in patients with TGs between 200-499 mg/dL;
the dose dependent effect on fasting plasma TGs in patients with TGs between 500-877 mg/dL; and
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•
the effect of CaPre in patients with mild to moderate HTG and severe HTG on fasting plasma levels of LDL-C (direct
measurement), and on fasting plasma levels of HDL-C, non-HDL-C, hs-CRP and OM3 index.
CaPre successfully met the TRIFECTA’s study’s primary objective. The placebo-corrected percentage change in TGs were
decreases of 9.1% (p=0.049) and 9.7% (p=0.044) for 1 gram and 2 grams of CaPre, respectively. Key secondary objectives were also met:
•
•
•
there was a statistically significant decrease in non-HDL-C versus placebo (p=0.038), with the 2 gram group decreasing by
5.3% from baseline versus placebo over the 12-week period;
HDL-C (good cholesterol) slightly increased at both the 1 gram and 2 gram levels; and
LDL-C (bad cholesterol) and slightly decreased at the 2 gram level.
Finally, a statistically significant dose response increase in the OM3 index for patients on 1 gram and 2 grams versus placebo was
noted. The OM3 index reflects the percentage of EPA and DHA in red blood cell fatty acids and the risk of cardiovascular disease is
considered to be lower as the OM3 index increases.
CaPre was found to be safe and well tolerated at all doses tested, with no serious adverse events that were considered treatment-
related. Out of 387 randomized patients, a total of 7 (1.8%) were discontinued as a result of adverse events, three were on placebo, two
were on 1 gram and two were on 2 grams. The predominant incidence was gastrointestinal-related, with no difference between CaPre and
placebo. The safety profiles of patients on CaPre and placebo were similar.
The COLT and TRIFECTA clinical trials were conducted by JSS Medical Research, a CRO specializing in the pharmaceutical,
biotechnology, nutraceutical and medical device industries, which is both owned and managed by Dr. John Sampalis, the brother of
Dr. Tina Sampalis, who previously was our President and Chief Global Strategy Officer. JSS was selected by us following a rigorous due
diligence process. Our board of directors appointed an external independent auditor, SNC Lavalin Pharma, to confirm and validate the
clinical trials’ achievements, milestones and payments.
Government Regulation
United States Drug Development
Government authorities in the United States, at the federal, state and local level, and in other countries extensively regulate, among
other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping,
promotion, advertising, distribution, post-approval monitoring and reporting, marketing and export and import of drug products such as
CaPre. Generally, before a new drug can be marketed, considerable data demonstrating its quality, safety and efficacy must be obtained,
organized into a format specific to each regulatory authority, submitted for review and approved by the regulatory authority.
FDA Regulatory Process
In the United States, the FDA regulates drugs under the FDCA and its implementing regulations. Drugs are also subject to other
federal, state and local statutes and regulations. The process of obtaining regulatory approvals and the subsequent compliance with
appropriate federal, state and local statutes and regulations require the expenditure of substantial time and financial resources.
In order to be marketed in the United States, CaPre must be approved by the FDA through the NDA review process. The process
required before a drug may be marketed in the United States generally involves the following:
•
•
•
•
completion of extensive nonclinical (animal) and formulation studies in accordance with applicable regulations, including the
FDA’s Good Laboratory Practice, or GLP, regulations;
submission of an investigational new drug, or IND, which must become effective before human clinical trials may begin in the
United States;
performance of adequate and well-controlled clinical trials in accordance with the applicable IND and other clinical study-
related regulations, such as current Good Clinical Practices, to establish the safety and efficacy of the proposed drug for its
proposed indication;
submission of an NDA for a new drug;
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•
•
•
satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities where the drug is
produced to assess compliance with cGMP to assure that the facilities, methods and controls are adequate to preserve the
drug’s identity, strength, quality and purity;
satisfactory completion of potential FDA audit of the nonclinical and/or clinical trial sites that generated the data in support of
the NDA; and
FDA review and approval of the NDA prior to any commercial marketing or sale of the drug in the United States.
The data required to support an NDA is generated in two distinct development stages: nonclinical and clinical. The nonclinical
development stage generally involves synthesizing or otherwise producing the active component, developing the formulation and
determining the manufacturing process, as well as carrying out non-human toxicology, pharmacology and drug metabolism studies in the
laboratory, which support subsequent clinical testing. The sponsor must submit the results of the nonclinical tests, together with
manufacturing information, analytical data, any available clinical data or literature and a proposed clinical protocol, to the FDA as part of
the IND, which is a request for authorization from the FDA to administer an investigational drug product to humans. The IND
automatically becomes effective 30 days after receipt by the FDA, unless the FDA raises concerns or questions regarding the proposed
clinical trials. The FDA may also place the IND on clinical hold within that 30-day time period. In such a case, the IND sponsor and the
FDA must resolve any outstanding concerns before the clinical trial can begin. A clinical hold may be imposed at any time before or during
a clinical trial due to safety concerns or non-compliance.
The clinical stage of development first involves the administration of the investigational drug to healthy volunteers and then to
patients with the disease being targeted with the drug, all done under the supervision of qualified investigators, generally physicians not
employed by or under the trial sponsor’s control, in accordance with cGCP. All research subjects must provide their informed consent for
their participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the
clinical trial, dosing procedures, subject selection and exclusion criteria, data collection, and the parameters to be used to monitor subject
safety and assess the investigational drug’s efficacy. Each protocol, and any subsequent amendments to the protocol or new investigator’s
information, must be submitted to the FDA as part of the IND. Further, each clinical trial must be reviewed and approved by an independent
institutional review board, or IRB, at or servicing each institution at which the clinical trial will be conducted. An IRB is charged with
protecting the welfare and rights of trial participants and considers such items as whether the risks to individuals participating in the clinical
trials are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the informed consent form that must be
provided to each clinical trial subject or its legal representative. There are also requirements governing the reporting of ongoing clinical
trials and completed clinical trial results to public registries, as well as reporting of safety information under the IND.
Clinical studies are generally conducted in three sequential phases that may overlap, known as Phase 1, Phase 2 and Phase 3
clinical trials. Phase 1 generally involves a small number of healthy volunteers who are initially exposed to a single dose and then multiple
doses of the investigational drug. The primary purpose of these studies is to assess the metabolism, pharmacologic action, side effect
tolerability and safety of the drug. Phase 2 trials typically involve studies in disease-affected patients to determine the dose required to
produce the desired benefits. At the same time, safety and further pharmacokinetic and pharmacodynamic information is collected, as well
as identification of possible adverse effects and safety risks and preliminary evaluation of efficacy. Phase 3 clinical trials generally involve
large numbers of patients at multiple sites, often in multiple countries (from several hundred to several thousand subjects) and are designed
to provide the data necessary to demonstrate the effectiveness of the product for its intended use, its safety in use, and to establish the
overall benefit/risk relationship of the product and provide an adequate basis for product approval. Phase 3 clinical trials should, if possible,
include comparisons with placebo and may include a comparison to approved therapies. The duration of treatment is often extended to
mimic the actual use of a product during marketing. Generally, two adequate and well-controlled Phase 3 clinical trials are required by the
FDA for approval of an NDA (Pivotal Studies).
Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA. In addition, written IND
safety reports must be submitted to the FDA and the investigators for serious and unexpected adverse events or any finding from tests in
laboratory animals that suggests a significant risk for human subjects. The FDA, the IRB, or the sponsor may suspend or terminate a
clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable
health risk.
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Additionally, some clinical trials are overseen by an independent group of qualified experts organized by the clinical trial sponsor, known
as a data safety monitoring board or committee. This group provides oversight and will determine whether or not a trial may move forward
at designated check points based on review of interim data from the study. A clinical trial may be terminated or suspended based on
evolving business objectives and/or competitive climate.
The manufacturing process must be capable of consistently producing quality batches of the investigational drug and, among other
things, must develop methods for testing the identity, strength, quality and purity of the final drug product. The sponsor must develop
appropriate labeling that sets forth the conditions of intended use. Additionally, appropriate packaging must be selected and tested and
stability studies must be conducted to demonstrate that the drug candidate does not undergo unacceptable deterioration over its shelf life.
Post-approval studies, sometimes referred to as Phase 4 clinical trials, may be conducted after initial marketing approval. These
studies are used to gain additional experience from the treatment of patients in the intended therapeutic indication. In certain instances, the
FDA may mandate the performance of Phase 4 studies as part of a post-approval commitment, such as pediatric studies.
NDA and FDA Review Process
Nonclinical and clinical information is filed with the FDA in an NDA along with proposed labeling. The NDA is a request for
approval to market the drug and must contain proof of safety, purity, potency and efficacy, which is demonstrated by extensive nonclinical
and clinical testing. Data may come from company-sponsored clinical trials intended to test the safety and effectiveness of a use of a
product, or from a number of alternative sources, including studies initiated by investigators. To support marketing approval, the data
submitted must be sufficient in quality and quantity to establish the safety and effectiveness of the investigational drug product to the
satisfaction of the FDA.
The submission of an NDA is subject to the payment of substantial user fees; a waiver of such fees may be obtained under certain
limited circumstances. FDA approval of an NDA must be obtained before marketing a drug in the United States. In addition, under the
Pediatric Research Equity Act, an NDA or supplement to an NDA must contain data to assess the safety and effectiveness of the drug for
the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation
for which the product is safe and effective. The FDA may grant deferrals for submission of data or full or partial waivers.
The FDA reviews all NDAs submitted before it accepts them for filing and may request additional information. The FDA must
make a decision on accepting an NDA for filing within 60 days of receipt. Once the submission is accepted for filing, the FDA begins an
in-depth review of the NDA. Under the goals and policies agreed to by the FDA under the Prescription Drug User Fee Act, or PDUFA, the
FDA has ten months from the filing date in which to complete its initial review of a standard NDA and respond to the applicant. This
review typically takes 12 months from the date the NDA is submitted to the FDA including the screening which takes a period of 60 days.
The FDA does not always meet its PDUFA goal dates for standard NDAs, and the review process is often significantly extended by FDA
requests for additional information or clarification.
After the NDA submission is accepted for filing, the FDA reviews the NDA to determine, among other things, whether the
proposed product is safe and effective for its intended use, and whether the product is being manufactured in accordance with cGMP to
assure and preserve the product’s identity, strength, quality and purity. The FDA will likely re-analyze the clinical trial data, which could
result in extensive discussions with the FDA.
Before approving an NDA, the FDA will conduct a pre-approval inspection of the manufacturing facilities for the new product to
determine whether they comply with cGMP. The FDA will not approve the product unless it determines that the manufacturing processes
and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required
specifications. In addition, before approving an NDA, the FDA may also audit data from clinical trials to ensure compliance with cGCP
requirements. After the FDA evaluates the application, manufacturing process and manufacturing facilities, it will issue a Complete
Response Letter, or CRL. A CRL indicates that the review cycle of the application is complete and whether the application is approved
and, when applicable, the CRL describes the specific deficiencies in the NDA and may require additional clinical data and/or an additional
Phase 3 clinical trial(s), and/or other significant and time-consuming requirements related to clinical trials, nonclinical studies or
manufacturing. The applicant may either resubmit the NDA, addressing all of the deficiencies identified in the letter, or withdraw the
application. Even if such data and information is submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for
approval.
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If a product receives marketing approval, the approval may be significantly limited to specific diseases and dosages or the
indications for use may otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that
certain contraindications, warnings or precautions be included in the product labeling, may condition the approval of the NDA on other
changes to the proposed labeling, or may require a Risk Evaluation and Mitigation Strategy (REMS), which could limit the ability to
market the drug once approved. The FDA may also require the development of adequate controls and specifications, or a commitment to
conduct post-market testing or clinical trials and surveillance to monitor the effects of approved products.
U.S. Post-Marketing Requirements
Following approval of a new product, a pharmaceutical company and the approved product are subject to continuing regulation by
the FDA, including, among other things, monitoring and recordkeeping activities, reporting to the applicable regulatory authorities of
adverse experiences with the product, providing the regulatory authorities with updated safety and efficacy information, product sampling
and distribution requirements, and complying with promotion and advertising requirements, which include, among others, standards for
direct-to-consumer advertising, restrictions on promoting drugs for uses or in patient populations that are not described in the drug’s
approved labeling, or “off-label use”, limitations on industry-sponsored scientific and educational activities, and requirements for
promotional activities involving the internet. Although physicians may prescribe legally available drugs for off-label uses, manufacturers
and distributors may not market or promote such off-label uses. Modifications or enhancements to the product or its labeling or changes of
the site of manufacture are often subject to the approval of the FDA and other regulators, which may or may not be received or may result
in a lengthy review process. In some cases, these changes will require the submission of clinical data and the payment of a user fee.
U.S. Patent Term Restoration and Marketing Exclusivity
Depending upon the timing, duration and specifics of the FDA approval of our prescription drug candidates, some of our U.S.
patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984,
commonly referred to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five
years as compensation for patent term lost during product development and the FDA regulatory review process. However, patent term
restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. The patent term
restoration period is generally one-half the time between the effective date of an IND and the submission date of an NDA plus the time
between the submission date of an NDA and the approval of that application. Only one patent applicable to an approved drug is eligible for
the extension and the application for the extension must be submitted prior to the expiration of the patent. The USPTO in consultation with
the FDA, reviews and approves the application for any patent term extension or restoration. In the future, we intend to apply for restoration
of patent term for one of our currently owned or licensed patents to add patent life beyond its current expiration date, depending on the
expected length of the clinical trials and other factors involved in the filing and review of the relevant NDA.
Non-U.S. Drug Regulation
In Canada, biopharmaceutical product candidates are regulated by the Food and Drugs Act and the related rules and regulations,
which are enforced by the Therapeutic Products Directorate of Health Canada. In order to obtain approval for commercializing new drugs
in Canada, the sponsor must satisfy many regulatory conditions. The sponsor must first complete preclinical studies in order to file a clinical
trial application, or CTA, in Canada. The sponsor will then receive different clearance authorizations to proceed with Phase I clinical trials,
which can then lead to Phase 2 and Phase 3 clinical trials. Once all three phases of trials are completed, the sponsor must file a registration
file named a New Drug Submission, or NDS, in Canada. If the NDS demonstrates that the product was developed in accordance with the
regulatory authorities’ rules, regulations and guidelines and demonstrates favorable safety and efficacy and receives a favorable risk/benefit
analysis, then the regulatory authorities issue a notice of compliance, which allows the sponsor to market the product.
In addition to regulations in the United States and Canada, we are subject to a variety of regulations governing clinical studies and
commercial sales and distribution of our products in other jurisdictions around the world. These laws and regulations typically require the
licensing of manufacturing and contract research facilities, carefully controlled research and testing of product candidates and
governmental review and approval of results prior to marketing therapeutic product candidates. Additionally, they require adherence to
good laboratory practices, good clinical practices and good manufacturing practices during production. The process of new drug approvals
by regulators in the United States, Canada and the European Union are generally considered to be among the most rigorous in the world.
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Whether or not the FDA or Health Canada approval is obtained for a product, we must obtain approval from the comparable
regulatory authorities of other countries before we can commence clinical studies or marketing of the product in those countries. The
approval process varies from country to country and the time may be longer or shorter than that required for the FDA or Health Canada
approval. The requirements governing the conduct of clinical studies, product licensing, pricing and reimbursement vary greatly from
country to country. In some international markets, additional clinical trials may be required prior to the filing or approval of marketing
applications within the country.
Active Pharmaceutical Ingredient Regulation
The FDA will regulate finished products containing APIs developed or under development by us. Depending on its intended uses, a
finished product containing the API may be regulated as a drug under the procedures described above. It may be possible to market a
finished product containing an API developed or under development by us as a dietary supplement. Dietary supplements do not require
FDA premarket approval. However, it may be necessary to submit a notification to the FDA that a company intends to market a dietary
supplement containing a “new dietary ingredient.” In general, the regulatory requirements in other countries also depend on the nature of
the finished product and do not focus on the API itself.
C. Organizational Structure
We have no subsidiaries. As of June 26, 2017, Neptune owns 5,064,694 of our common shares, representing 34.4% of our common
shares issued and outstanding. Our common shares are voting, participating and have no par value. Neptune also owns a warrant entitling it
to acquire 592,500 common shares.
D.
Property, Plants and Equipment
Our head office and operations are located at 545, Promenade Centropolis, suite 100, Laval, Québec, Canada, H7T 0A3. We do
not own our own manufacturing facility for the production of CaPre; however, we do own the proprietary equipment for producing the API
and drug product. We currently do not have plans to develop our own manufacturing facility. However, this could change in the foreseeable
future, as we consider the most cost-effective approaches to producing CaPre while ensuring the highest level of quality. We currently
depend on third party suppliers and manufacturers, such as Neptune, to produce our required raw krill oil and drug substance and products.
If CaPre is approved for distribution by the FDA, we initially expect to rely on cGMP-compliant third parties to manufacture NKPL66,
which is API in CaPre, encapsulate, bottle and package clinical supplies of CaPre.
We have entered into an agreement CordenPharma Chenôve, a third party CMO, for the manufacturing of CaPre clinical material
for the purposes of our planned Phase 3 program in accordance with cGMP regulations imposed by the FDA.
Item 4A. Unresolved Staff Comments
Not applicable.
Item 5. Operating and Financial Review and Prospects
This annual report contains forward-looking statements, principally in, but not limited to, “Item 4 - Information on the Company”
and “Item 5 - Operating and Financial Review and Prospects”. These statements may be identified by the use of words like “plan”,
“expect”, “aim”, believe”, “project”, “anticipate”, “intend”, “estimate”, “will”, “should”, “could” and similar expressions in connection
with any discussion, expectation, or projection of future operating or financial performance, events or trends. In particular, these include
statements about our strategy for growth, future performance or results of current sales and production, interest rates, foreign exchange
rates, and the outcome of contingencies, such as acquisitions and/or legal proceedings and intellectual property issues.
Forward-looking statements are based on certain assumptions and expectations of future events that are subject to risks and
uncertainties. Actual future results and trends may differ materially from historical results or those projected in any forward-looking
statements depending on a variety of factors, including, among other things, the factors discussed in this annual report under “Item 3.D -
Risk Factors” and factors described in documents that
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we may furnish from time to time to the SEC. Although the forward-looking information is based upon what we believe to be reasonable
assumptions, no person should place undue reliance on forward-looking information since actual results may vary materially from the
forward-looking information. Except as required by law, we undertake no obligation to update publicly or revise any forward-looking
statements because of new information. Please refer to “Special Note Regarding Forward-Looking Statements” at the beginning of this
annual report for additional details.
Management’s Discussion and Analysis of Financial Situation and Operating Results
Fiscal Years Ended March 31, 2017, February 29, 2016 and February 28, 2015
Introduction
This management discussion and analysis, or MD&A, is presented in order to provide the reader with an overview of our financial
results and changes to our financial position as at March 31, 2017 and for the year then ended. This MD&A also explains the material
variations in our financial statements of operations, financial position and cash flows for our fiscal years ended March 31, 2017
February 29, 2016 and February 28, 2015.
This MD&A, should be read together with our audited financial statements for the fiscal years ended March 31, 2017, February 29,
2016 and February 28, 2015 under “Item 17. Financial Statements” in this annual report. Our audited financial statements were prepared in
accordance with IFRS, as issued by the IASB. Our financial results are published in Canadian dollars. All amounts appearing in this
MD&A are in thousands of Canadian dollars, except share and per share amounts or unless otherwise indicated.
Caution Regarding Non-IFRS Financial Measures
We use multiple financial measures for the review of our operating performance. These measures are generally IFRS financial
measures, but one adjusted financial measure, Non-IFRS operating loss (adding to net loss, finance expenses, depreciation and amortization
and impairment loss, change in fair value of derivative warrant liabilities, stock-based compensation and by subtracting finance income and
deferred income tax recovery), is also used to assess our operating performance. This non-IFRS financial measure is derived from our
financial statements and is presented in a consistent manner. We use this measure, in addition to the IFRS financial measures, for the
purposes of evaluating our historical and prospective financial performance, as well as our performance relative to competitors. All of these
measures also help us to plan and forecast future periods as well as to make operational and strategic decisions. We believe that providing
this Non-IFRS information to investors, in addition to IFRS measures, allows them to see our results through the eyes of our management,
and to better understand our historical and future financial performance.
Securities regulations require that companies caution readers that earnings and other measures adjusted to a basis other than IFRS
do not have standardized meanings and are unlikely to be comparable to similar measures used by other companies. Accordingly, they
should not be considered in isolation. We use Non-IFRS operating loss to measure our performance from one period to the next without the
variation caused by certain adjustments that could potentially distort the analysis of trends in our operating performance, and because we
believe it provides meaningful information on our financial condition and operating results. Our method for calculating Non-IFRS
operating loss may differ from that used by other corporations.
We calculate our Non-IFRS operating loss measurement by adding to net loss, finance expenses, depreciation and amortization and
impairment loss, change in fair value of derivative warrant liabilities, stock-based compensation and by subtracting finance income and
deferred tax recovery. Other items that do not impact our core operating performance are excluded from the calculation as they may vary
significantly from one period to another. Finance income/costs include foreign exchange gain (loss). We also exclude the effects of certain
non-monetary transactions recorded, such as stock-based compensation, from our Non-IFRS operating loss calculation. We believes it is
useful to exclude this item as it is a non-cash expense. Excluding this item does not imply it is necessarily non-recurring. A reconciliation of
net loss to Non-IFRS operating loss is presented further below.
Basis of Presentation of the Financial Statements
Beginning in fiscal 2017, our fiscal year end is on March 31. Fiscal 2017 is a transition year, and includes thirteen months of
operations, beginning on March 1, 2016 and ending on March 31, 2017. As a result, the financial statements and corresponding notes to
financial statements include two unaudited periods: the one-month period ended March 31, 2017 and the twelve-month period ended
February 28, 2017.
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Following the change of our year end to March 31, 2017 and the inclusion of thirteen months of operations, this MD&A discusses
and compares the thirteen-month period ended March 31, 2017, the twelve-month period ended February 29, 2016 and the twelve-month
period ended February 28, 2015. In addition, there is comparative discussion of our results of operations for the three-month periods ended
February 28, 2017 and February 29, 2016 and a discussion on notable items related to the one-month result of operations ending March 31,
2017. The selected quarterly financial data includes the eight most recent fiscal quarters and are presented including the most recent quarter
as the four-month quarter ended March 31, 2017.
We are subject to a number of risks associated with the conduct of our clinical program and their results, the establishment of
strategic alliances and the successful development of new products and their marketing. We have incurred significant operating losses and
negative cash flows from operations since inception. To date, we have financed our operations through the public offering and private
placement of common shares and convertible debt, the proceeds from research grants and research tax credits, and the exercises of
warrants, rights, and options. To achieve the objectives of our business plan, we plan to raise the necessary funds through additional
securities offerings and the establishment of strategic alliances as well as additional research grants and research tax credits. We anticipate
that the products developed by us will require approval from the FDA and equivalent regulatory organizations in other countries before
their sale can be authorized. Our ability to ultimately achieve profitable operations is dependent on a number of factors outside of our
control.
Our current assets of $10,187 as at March 31, 2017 include cash and cash equivalents totaling $9,772, mainly generated by the net
proceeds from our public offering and private placement completed on February 21, 2017 as well as the public offering completed on
December 3, 2013 and private offering completed on February 7, 2014, which we refer to as the previous offerings. Our liabilities total
$3,753 at March 31, 2017 and are comprised primarily of $2,138 in amounts due to or accrued for creditors, $1,406 for unsecured
convertible debentures and $209 for derivative warrant liabilities. Our current assets as at this date are projected to be significantly less
than needed to support our current liabilities as at that date when combined with the projected level of our expenses for the next twelve
months, including not only the preparation for, but the planned initiation of our Phase 3 program for our drug candidate, CaPre. Additional
funds will also be needed for our expected expenses for the total CaPre Phase 3 research and development phase and other needed
operations beyond the next twelve months. In addition to having raised additional funds during the thirteen-month period ended
March 31, 2017, we are working towards development of strategic partner relationships and plan to raise additional funds in the future, but
there can be no assurance as to when or whether we will complete any financing or strategic collaborations. In particular, raising financing
is subject to market conditions and is not within our control. Additionally, although we intend to continue to rely on the support of Neptune
for a portion of our general and administrative needs, the continuance of this support is outside of our control. If we do not raise additional
funds, find one or more strategic partners or do not receive the continued support from Neptune, it may not be able to realize our assets and
discharge our liabilities in the normal course of business. As a result, there exists a material uncertainty that casts substantial doubt about
our ability to continue as a going concern and, therefore, realize our assets and discharge our liabilities in the normal course of business. We
currently have no other arranged sources of financing.
Our financial statements have been prepared on a going concern basis, which assumes we will continue our operations in the
foreseeable future and will be able to realize our assets and discharge our liabilities and commitments in the ordinary course of business.
Our financial statements do not include any adjustments to the carrying values and classification of assets and liabilities and reported
expenses that may be necessary if the going concern basis was not appropriate for our financial statements. If we are unable to continue as a
going concern, material write-downs to the carrying values of our assets, including the intangible asset, could be required.
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Selected Financial Information
(In thousands of dollars, except per share data)
Net loss
Basic and diluted loss per share
Non-IFRS operating loss (1)
Total assets
Working capital(2)
Total non-current financial liabilities
Total equity
One-month
period ended
March 31,
Three-month
period ended
February 28,
Three-month
period ended
February 29,
2017
$
(769)
(0.05)
(406)
25,456
8,049
1,615
21,703
2017
$
(2,598)
(0.23)
(1,745)
26,367
8,510
1,576
22,386
2016
$
(1,919)
(0.18)
(1,163)
28,517
12,185
156
27,220
Thirteen-
month period
March 31,
February 29,
ended Year ended Year ended
February 28,
2015
$
(1,655)
(0.16)
(8,507)
37,208
18,020
2,357
33,228
2016
$
(6,317)
(0.59)
(6,569)
28,517
10,184
156
27,220
2017
$
(11,247)
(1.01)
(7,798)
25,456
8,049
1,615
21,703
(1) Non-IFRS operating loss (adding to net loss financial expenses (income), depreciation and amortization and impairment of intangible asset, change in fair value of
derivative warrant liabilities, stock-based compensation and by subtracting deferred income tax recovery) is not a standard measure endorsed by IFRS
requirements. A reconciliation to our net loss is presented further below.
(2) Working capital is presented for information purposes only and represents a measurement of our short-term financial health mostly used in financial circles.
Working capital is calculated by subtracting current liabilities from current assets. Because there is no standard method endorsed by IFRS requirements, the
results may not be comparable to similar measurements presented by other public companies.
Reconciliation of Net Loss to Non-IFRS Operating Loss
(In thousands of dollars, except per share data)
One-month
period ended
March 31,
Three-month
period ended
February 28,
Three-month
period ended
February 29,
Net loss
Add (deduct):
Stock-based compensation
Depreciation and amortization/
Impairment of intangible assets
Financial expenses (income)
Change in fair value of derivative warrant
liabilities
Deferred income tax recovery
Non-IFRS operating loss
2017
$
(769)
86
226
29
22
—
(406)
Thirteen-
month period
March 31,
ended Year ended Year ended
February 28,
2015
$
2017
$
2016
$
February 29,
2017
$
2016
$
(2,598)
(1,919)
(11,247)
(6,317)
(1,655)
158
669
28
127
(129)
(1,745)
108
674
309
1,553
938
(176)
(114)
—
(1,163)
2,738
113
53
(129)
(7,798)
2,734
(1,094)
(2,201)
—
(6,569)
2,335
(1,916)
(8,824)
—
(8,507)
Stock-based compensation expense increased for the three-month period ended February 28, 2017 as 465,000 stock options were
granted on February 24, 2017 compared to nil for the three-month period ended February 29, 2016. There are no notable matters in stock-
based compensation expense and no grants for the one-month period ended March 31, 2017. The overall stock-based compensation
expense increased for the thirteen-month period ending March 31, 2017 as a total of 1,300,400 stock options were granted compared to
109,188 stock options being granted for the year ended February 29, 2016. The stock-based compensation expense decreased for the year
ended February 29, 2016 compared to the same period in 2015 as the 2012 grants had fully vested.
Depreciation, amortization and impairment expense totaled $669 for the three-month period ended February 28, 2017 or $269 less
than $938 for the three-month period ended February 29, 2016 based on $70 increased depreciation in the current period associated
primarily with the new production equipment first used during this period offset by no current period impairment charge compared to the
$339 impairment charge recognized during the three-month period ended February 28, 2016. Depreciation, amortization and impairment
expense totaled $2,738 for the thirteen-month period ended March 31, 2017 which approximated the same amount when compared to the
year ended February 29, 2016. However, there was a change in the mix of this expense as the thirteen-month period ended March 31, 2017
included only depreciation and amortization with the impact of one additional month of depreciation and amortization expense and the
addition of new equipment generating incremental depreciation expense, but not the $339 impairment charge recognized during the year
ended February 29, 2016. If the impairment charge is excluded from the expense for the year ended February 29, 2016, then the
depreciation and amortization expense totaling $2,395 approximates the expense for the year ended February 28, 2015.
Financial expenses (income) totaled $28 for the three-month period ended February 28, 2017 or $204 less than ($176) for the
three-month period ended February 29, 2016 based primarily on a $134 foreign exchange gain in the prior period changing to a $22 foreign
exchange loss in the current period combined with less interest income in
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the current period without the prior year pledge impact supporting Neptune and interest expense associated with the convertible debt
included in our recent private placement. The net financial expenses (income) totaling $29 for the month ended March 31, 2017 also
resulted primarily from the interest expense from our recent private placement. Net financial expenses (income) totaling $113 for the
thirteen-month period ended March 31, 2017 reflect a $1,207 decrease compared to ($1,094) for the year ended February 29, 2016
primarily resulting from the $1,023 foreign exchange gain recognized during the year ended February 29, 2016 changing to the $180
foreign exchange loss recognized during the thirteen-month period ended March 31, 2017. The foreign exchange changes resulted
primarily from the utilization of US$-denominated cash and cash equivalents over the periods generating lower US$-denominated cash and
cash equivalents throughout the periods and at March 31, 2017 compared to February 29, 2016 and, the periods then ended combined with a
decrease in the reporting US$ exchange rate. The US$-denominated cash, cash equivalents and short-term investments totaled US$3,524 at
March 31, 2017 and US$10,314 at February 29, 2016 and the exchange rate reporting of CA$ per US$ was $1.3299 at March 31, 2017
compared to $1.3531 at February 29, 2016. Additionally, interest income for the thirteen-month period ended March 31, 2017 totaled $125
compared to $73 for the year ended February 29, 2016, and $39 in interest expense was incurred in the current period, including $31 in
March, in connection with the convertible debentures from the private placement. The net financial expenses (income) of ($1,094) for the
year ended February 29, 2016 was $822 less than ($1,916) for the year ended February 28, 2015 based on the lower foreign exchange gain
that year.
The fair value of the derivative warrant liabilities totaled $209 at March 31, 2017, or $53 more than the $156 fair value at
February 29, 2016, $22 of which was recognized during the one-month ended March 31, 1017. The $156 fair value of the derivative
warrant liabilities at February 29, 2016 was $2,201 less than the $2,357 value at February 28, 2015 and the decline in value for the year-
ended February 28, 2015 was $8,824. The fair value of the warrants is estimated at each reporting date using the Black-Scholes option
pricing model. The fair value of the warrants issued in connection with our previous offerings was determined to be $0.58 per warrant upon
issuance, $0.09 per warrant at February 29, 2016 and $0.11 per warrant as of March 31, 2017. In fiscal years 2016 and 2015, the decline in
our stock price resulted in gains based on the change in fair value of the warrant liabilities reducing the corresponding liability in the
statement of financial position.
We recorded a $129 deferred income tax recovery at February 28, 2017 to reduce to nil an income tax liability that was attributable
to the difference between the tax basis and the carrying amount of the unsecured convertible debentures.
The non-IFRS operating loss increased by $582 for the three-month period ended February 28, 2017 to $1,745 compared to $1,163
for the three-month period ended February 29, 2016, mainly due to an increase in general and administrative (G&A) expenses and a smaller
increase in research and development or (R&D) expenses, before consideration of stock-based compensation, amortization and
depreciation. The non-IFRS operating loss increased by $1,229 for the thirteen-month period ended March 31, 2017 to $7,798 compared to
$6,569 for the year-ended February 29, 2016. This increase was primarily due to the incremental one-month period non-IFRS operating
loss of $406 for March 2017 as well as increased G&A expenses compared to the prior period before consideration of stock-based
compensation and amortization and depreciation. There were no notable matters for the one-month period ended March 31, 2017. The
non-IFRS operating loss for the year ended February 29, 2015 totaled $8,507 or a $1,938 decrease compared to the year ended February 29,
2016.
Selected Quarterly Financial Data
Fiscal Year ended March 31, 2017
(In thousands of dollars, except per share data)
March 31,
November 30,
August 31, May 31,
Net loss
Basic and diluted loss per share
Non-IFRS operating loss (2)
(1) This fiscal quarter represents a period of four months ended March 31, 2017.
53
2017(1)
$
(3,367)
(0.28)
(2,151)
2016
$
(2,397)
(0.22)
(1,737)
2016
$
2016
$
(2,330)
(0.22)
(1,625)
(3,154)
(0.29)
(2,286)
Table of Contents
(2) Non-IFRS operating loss (adding to net loss financial expenses (income), depreciation and amortization and impairment of intangible assets, change in fair value
of derivative warrant liabilities, stock-based compensation and by subtracting deferred income tax recovery) is not a standard measure endorsed by IFRS
requirements. A reconciliation to our net loss is presented above.
Fiscal Year ended February 29, 2016
(In thousands of dollars, except per share data)
February 29,
November 30,
August 31, May 31,
Net loss
Basic and diluted loss per share
Non-IFRS operating loss (1)
2016
$
(1,919)
(0.18)
(1,163)
2015
$
(2,191)
(0.20)
(1,988)
2015
$
2015
$
(1,241)
(0.12)
(1,485)
(966)
(0.09)
(1,933)
(1) Non-IFRS operating loss (adding to net loss financial expenses (income), depreciation and amortization and impairment of intangible assets, change in fair value
of derivative warrant liabilities, stock-based compensation and by subtracting deferred income tax recovery) is not a standard measure endorsed by IFRS
requirements. A reconciliation to our net loss is presented above.
The increase in net loss, net loss per share and non-IFRS operating loss in the fourth quarter of 2017 can partially be explained by
the inclusion of the additional month in comparison to the comparative three-month quarterly financial data. The month of March 2017
explains an increase in the fourth quarter net loss of $769 or ($0.05) per share as well as an increase in non-IFRS operating loss of $406.
The variances in net loss from quarter to quarter are mainly due to the changes in fair value of the warrant liabilities, notably for the quarter
ended May 31, 2015 with a gain of $1,708, as well as variations in foreign exchange gains or losses, particularly for the quarter ended
August 31, 2015 with a foreign exchange gain of $890. The quarterly year-to-year non-IFRS operating loss variances are mainly
attributable to fluctuations in research and development expenses from quarter-to-quarter as well as an increase in general and
administrative expenses over the prior year in the last three quarters of fiscal 2017.
Results from Operations for the One-Month and Thirteen-Month Periods ended March 31, 2017 and the Three-Month Periods
ended February 28, 2017 and February 29, 2016 and Years ended February 29, 2016 and February 28, 2015
The net loss totaling $2,598 or ($0.23) per share for the three-month period ended February 28, 2017 increased $679 or ($0.05) per
share compared to a net loss totaling $1,919 or ($0.18) per share for the three-month period ended February 29, 2016. This resulted
primarily from the $582 increased non-IFRS operating loss explained below, $241 from the increased loss due to the change in value of the
warrant derivative liability due to the reduction in our share price and a $204 financial expense increase led by a foreign exchange gain
during the prior period transitioning to a foreign exchange loss during the current period offset by no impairment charge in the current
period compared to the $339 charge in the prior period combined with the $129 tax benefit recognized in the current period.
The net loss totaling $11,247 or ($1.01) per share for the thirteen-month period ended March 31, 2017 increased $4,930 or ($0.42)
per share compared to the net loss totaling $6,317 or ($0.59) per share for the year ended February 29, 2016. This change resulted primarily
based on the $1,229 increased non-IFRS operating loss explained below, $2,254 from the increased loss due to the change in value of the
warrant derivative liability due to the reduction in our share price, a $1,207 financial expense increase (led by a foreign exchange gain
during the prior period transitioning to a foreign exchange loss during the current period), and increased depreciation and stock
compensation expense offset by no impairment charge in the current period compared to the $339 charge in the prior period combined with
the $129 tax benefit recognized in the current period.
The net loss totaling $6,317 or ($0.59) per share for the year ended February 29, 2016 increased $4,662 or ($0.43) per share
compared to the net loss totaling $1,655 or ($0.16) per share for the year ended February 28, 2015. This change resulted primarily based on
the $7,445 decrease in net financial income, including a $6,623 decrease in the fair value of the warrant liabilities and the $810 decrease in
the foreign exchange gain offset by the $1,527 decrease in G&A expenses and $1,256 decrease in R&D expenses.
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Table of Contents
Breakdown of Major Components of Statement of Earnings and Comprehensive Loss for the One-Month and Thirteen-Month Periods
ended March 31, 2017; Three-Month Periods ended February 28, 2017 and February 29, 2016; and Fiscal Years ended February 29,
2016 and February 28, 2015
Research and development expenses
Salaries and benefits
Stock-based compensation
Research contracts
Professional fees
Depreciation and amortization
Impairment of intangible assets
Other
Government grants and tax credits
Total
General and administrative expenses
Salaries and benefits
Administrative fees
Stock-based compensation
Professional fees
Rent
Other
Total
One-month
period ended
March 31,
Three-month
period ended
February 28,
Three-month
period ended
February 29,
Thirteen-
month period
ended
Year ended
March 31,
February 29,
2017
$
104
18
63
57
226
—
3
(45)
426
2017
$
376
27
435
238
668
—
30
(215)
1,559
2016
$
332
12
761
(118)
611
339
88
(291)
1,734
2017
$
1,294
107
3,149
634
2,738
—
61
(330)
7,653
2016
$
989
53
2,730
1,171
2,395
339
238
(349)
7,566
One-month
period ended
March 31,
Three-month
period ended
February 28,
Three-month
period ended
February 29,
Thirteen-
month period
ended
Year ended
March 31,
February 29,
2017
$
110
25
68
52
10
27
292
2017
$
493
75
132
231
30
52
1,013
2016
$
64
184
95
137
(12)
(37)
431
2017
$
1,198
325
567
1,053
121
293
3,557
2016
$
409
579
256
616
67
119
2,046
Year ended
February 28,
2015
$
465
258
5,062
865
2,335
—
101
(264)
8,822
Year ended
February 28,
2015
$
617
650
1,296
593
99
318
3,573
Three-month period ended February 28, 2017 compared to three-month period ended February 29, 2016
During the three-month period ended February 28, 2017, we continued to move our R&D program forward as planned on its
previously announced timeline for the conduct of our clinical program and production scale-up. Though the $1,559 in total R&D expenses
for the three-month period ended February 28, 2017 decreased $175 from $1,734 in total R&D expenses for the three-month period ended
February 29, 2016, R&D expenses, before depreciation, amortization, intangible asset impairment, and stock-based compensation,
increased by $92 for the three-month period ended February 28, 2017 to $864 compared to $772 for the same period ended February 29,
2016. This increase was mainly attributable to the $356 increase in professional fees and a $76 reduction in government grants and tax
credits mitigated by a $326 decrease in research contracts. This expense mix changed with the transition of expenses from completed
contracts under our successful Phase 2 bioavailability bridging clinical study to consultants to support preparation for our clinical study
program review with the FDA on the Phase 2 outcome combined with Phase 3 planning. This increase also resulted from $44 in
incremental salaries and benefits primarily sourced from full-time compared to half-time direct leadership and management of R&D when
compared to the same period last year.
G&A expenses totaling $1,013 for the three-month period ended February 28, 2017 increased $582 from $431 for the three-month
period ended February 29, 2016. This increase primarily resulted from the $545 increase in G&A expenses, before consideration of stock-
based compensation, to $881 for the three-month period ended February 28, 2017 compared to $336 for the same period ended
February 29, 2016. This $545 increase was mainly
55
Table of Contents
attributable to a $429 increase in salaries and benefits associated with the added full-time executive and managerial headcount to support
our strategy and financing while becoming more independent from Neptune, which was demonstrated with a $109 reduction in its related
administrative fee. This increase also resulted from increased professional fees of $94 due primarily to expenses for maintaining the
reactivated public and investor relations programs, $42 in rent expense resulting primarily from a net credit recognized for the three-month
period ended February 29, 2016 after a positive adjustment was negotiated with the lessor and other administration expense increase of $89
after another cost management credit impact during the prior year period.
Thirteen-Month and One-Month Periods ended March 31, 2017 compared to the Fiscal Year-Ended February 29, 2016
R&D expenses totaled $7,653 for the thirteen-month period ended March 31, 2017, or an increase of $87 compared to $7,566 in
total R&D expenses for the year ended February 29, 2016. The R&D expense increase resulted primarily from $426 in total R&D expenses
during March 2017, the thirteenth month of the period ended March 31, 2017, offset by no intangible asset impairment charge in the
thirteen-month period ended March 31, 2017 compared to the $339 charge last year. R&D expenses, before consideration of stock-based
compensation, amortization and depreciation and impairments of intangible assets, increased by $29 for the thirteen-month period ended
March 31, 2017, including $182 during the month of March 2017, to $4,808 compared to $4,779 for the year ended February 29, 2016. The
increase of $29 was mainly attributable to the increase in research contracts of $419 and salaries and benefits of $305, principally offset by
decreases in professional fees of $537, other expenses of $177 and government grants of $19. The increase of $419 in research contracts
during the thirteen-month period ended March 31, 2017 includes $63 relating to the additional one-month period ended March 31, 2017,
but was primarily due to the cost of our Phase 2 bioavailability bridging clinical study initiated early in fiscal 2017 exceeding the cost of
our other Phase 2 and non-clinical testing completed in fiscal 2016. The increased salaries and benefits represented the cost of the expanded
team headcount, led by full-time dedicated management (only part time in prior years), needed for us to continue our pharmaceutical
process and analytical development and chemistry manufacturing control scale-up, as planned on our previously announced timeline. The
decrease of $537 in professional fees is primarily due to a decrease in the development consulting fees incurred last year for our prior Phase
2 clinical study analytics and the planning for our Phase 2 bridging clinical study during the thirteen-month period ended March 31, 2017.
G&A expenses totaled $3,557 for the thirteen-month period ended March 31, 2017, or an increase of $1,511 compared to total
G&A expenses of $2,046 for the year ended February 29, 2016. This period-to-period increase includes $292 in total G&A expenses for the
thirteenth month of March 2017, $243 in increased stock-based compensation expense and a $976 increase in other G&A expenses,
excluding the thirteenth month and stock-based compensation expenses. G&A expenses, excluding the stock-based compensation,
increased $1,200 to $2,990 for the thirteen-month period ended March 31, 2017, including $224 during the month of March 2017,
compared to $1,790 for the year ended February 29, 2016. This increase was primarily attributable to a $789 increase in salaries and
benefits offset by a $254 decrease in Neptune administrative fees, combined with increased professional fees of $437, rent of $54 and other
expenses of $174. The increase in salaries and benefit expenses resulted from our need for the added full-time executive and managerial
headcount to lead our strategy, incremental financing and back office while supporting continued and expanded R&D with the need for
full-time leadership from our management (which was only part time in prior years). The increased professional fees were principally
comprised of expenses associated with our investor and public relations program, the achievement of business development milestones,
increased market research expenses, and non-recurring project legal and accounting fees associated with the year-end change and
immigration-related fees for the U.S.-resident executives.
Fiscal Year ended February 29, 2016 compared to Fiscal Year ended February 28, 2015
R&D expenses totaled $7,566 for the year ended February 29, 2016, or $1,256 less than $8,822 in total R&D expenses for the year
ended February 28, 2015. This R&D expense decrease resulted primarily from R&D expenses, before consideration of stock-based
compensation, amortization and depreciation and impairment of intangible assets, decreasing by $1,450 to $4,779 from $6,229. This
decrease is mainly attributable to a significant decrease in contract expenses related to our clinical studies of $2,332 and government grants
increase of $85, partially offset by an increase in salaries and benefits of $524, professional fees of $306 and other expenses of $137.
G&A expenses totaled $2,046 for the year ended February 29, 2016, or $1,527 less than $3,573 for the year ended February 28,
2015. This G&A expense decrease resulted primarily from G&A expenses, before consideration of stock-based compensation, decreasing
by $487 to $1,790 for the year ended February 29, 2016 from $2,277 for
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the year ended February 28, 2015. This decrease is mainly attributable to decreases in salaries of $208, administrative fees of $71, rent of
$32 and other expenses of $199 partially offset by an increase in professional fees of $23.
Liquidity and Capital Resources
Share Capital Structure
Our authorized share capital consists of an unlimited number of Class A (which we refer to in this annual report as our common
shares), Class B, Class C, Class D and Class E shares, without par value. Our issued and outstanding fully paid shares, stock options,
restricted shares units and warrants, were as follows as at March 31, 2017, February 28, 2017 and February 29, 2016:
Class A shares, voting, participating and without par value
Stock options granted and outstanding
Restricted share units granted and outstanding
2017 Public offering warrants exercisable at $2.15,
until February 21, 2022
Series 2017 BW Broker warrants exercisable at $2.15, until
February 21, 2018
Series 2017 unsecured convertible debentures conversion option
contingent warrants exercisable at $1.90, until February 21, 2020 (1)
Series 8 warrants exercisable at $1.50 USD, until December 3, 2018 (2)
Series 9 warrants exercisable at $13.30 until December 3, 2018
Total fully-diluted shares
March 31,
February 28, 2017
February 29, 2016
2017
14,702,556
1,424,788
—
1,965,259
234,992
1,052,630
1,840,000
161,654
21,381,879
10,712,038
454,151
—
10,644,440
429,625
18,398
—
—
—
—
—
1,840,000
161,654
13,167,843
—
1,840,000
161,654
13,094,117
(1) The debentures are convertible into common shares at a fixed price of $1.90 per common share, except if we pay before the maturity all or any portion of the
convertible debentures. Should we pay all or any portion of the convertible debenture before maturity, then warrants become exercisable at $1.90 per common share
for the equivalent convertible debenture amount prepaid.
(2) Total of 18,400,000 warrants, in order to obtain one common share, 10 warrants must be exercised for a total amount of $15.00 USD.
Cash Flows and Financial Condition between the One-Month Period ended March 31, 2017; Three-Month Periods ended February 28,
2017 and February 29, 2016; Thirteen-Month Period ended March 31, 2017; and Fiscal Years ended February 29, 2016 and
February 28, 2015
Operating Activities
During the one-month period ended March 31, 2017, our operating activities used cash of $746, as primarily explained in the
non-IFRS operating loss section above. The use of cash flow in operating activities for the one-month period ended March 31, 2017 is
mainly attributable to net loss, as explained in the Reconciliation of Net Loss to Non-IFRS Operating Loss section above, further modified
by changes in working capital, excluding cash.
During the three-month periods ended February 28, 2017 and February 29, 2016, our operating activities used cash of $1,425 and
$1,691, respectively, as primarily explained in the non-IFRS operating loss section above. The use of cash flows in operating activities for
the three-month periods ended February 28, 2017 and February 29, 2016 when compared to the net losses for each period are mainly
attributable to the change in non-cash operating items, as explained in the Reconciliation of Net Loss to Non-IFRS Operating Loss section
above, further modified by changes in working capital, excluding cash.
During the thirteen-month period ended March 31, 2017 and the years ended February 29, 2016 and February 28, 2015, our
operating activities used cash of $6,958, $6,574 and 7,198, respectively, as primarily explained in the Reconciliation of Net Loss to
Non-IFRS Operating Loss section above. The use of cash flows in operating activities for the thirteen-month period ended March 31, 2017
and the years ended February 29, 2016 and February 28, 2015 when compared to the net losses for each period are mainly attributable to
the change in non-cash operating items, as explained in the Reconciliation of Net Loss to Non-IFRS Operation Loss section above, offset
by reductions in working capital, excluding cash.
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Investing Activities
During the three-month period ended February 28, 2017, our investing activities generated cash of $3,327, compared to using cash
of $11 for the three-month period ended February 29, 2016. The cash generated by investing activities during the three-month period ended
February 28, 2017 was mainly due to the maturity of short-term investments of $4,031, offset by the acquisition of equipment totaling
$733.
During the thirteen-month period ended March 31, 2017 and the years ended February 29, 2016 and February 28, 2015, our
investing activities generated cash of $6,888, $8,229 and $7,627, respectively. The cash generated by investing activities during the
thirteen-month period ended March 31, 2017 was mainly due to the maturity of short-term investments of $22,030, offset by reinvestment
in short-term investments totaling $12,765 and the acquisition of equipment totaling $2,527. The cash generated by investing activities
during the year-ended February 29, 2016 was mainly due to the maturity of short-term investments of $20,437, offset by the reinvestment
in short-term investments totaling $11,954 and acquisition of equipment of $276. The cash generated by investing activities during the
year-ended February 28, 2015 was mainly due to the maturity of short-term investments of $22,150, offset by the reinvestment in short-
term investments totaling $14,478.
Financing Activities
During the three-month period ended February 28, 2017, our financing activities generated cash of $6,924 The cash generated by
financing activities during the three-month period ended February 28, 2017 was mainly due to the net proceeds from our public offering of
$5,044 and net proceeds from our private placement of $1,882.
During the thirteen-month period ended March 31, 2017, our financing activities generated cash of $6,864 and decreased from the
three-month period ending February 28, 2017, as certain transaction costs associated with the financing activities were paid. The cash
generated by financing activities during the thirteen-month period ended March 31, 2017 was mainly due to the net proceeds from our
public offering of $5,010 and net proceeds from our private placement of $1,872.
Overall, our cash increased by $6,745, $1,716 and by $635, for the thirteen-month period ended March 31, 2017 and the years
ended February 29, 2016 and February 28, 2015, respectively. Cash and cash equivalents as at March 31, 2017 totaled $9,772.
We are subject to a number of risks associated with the conduct of our clinical program and their results, the establishment of
strategic alliances and the successful development of new products and their marketing. We have incurred significant operating losses and
negative cash flows from operations since inception. To date, we have financed our operations through the public offering and private
placement of common shares and convertible debt, the proceeds from research grants and research tax credits, and the exercises of
warrants, rights, and options. To achieve the objectives of our business plan, we plan to raise the necessary funds through additional
securities offerings and the establishment of strategic alliances as well as additional research grants and research tax credits. We anticipate
that the products developed by us will require approval from the FDA and equivalent regulatory organizations in other countries before
their sale can be authorized. Our ability to ultimately achieve profitable operations is dependent on a number of factors outside of our
control.
Our current assets of $10,187 as at March 31, 2017 include cash and cash equivalents totaling $9,772, mainly generated by the net
proceeds from our public offering and private placement completed on February 21, 2017 as well as the public offering completed on
December 3, 2013 and private offering completed on February 7, 2014, which we refer to as the previous offerings. Our liabilities total
$3,753 at March 31, 2017 and are comprised primarily of $2,138 in amounts due to or accrued for creditors, $1,406 for unsecured
convertible debentures and $209 for derivative warrant liabilities. Our current assets as at this date are projected to be significantly less
than needed to support our current liabilities as at that date when combined with the projected level of our expenses for the next twelve
months, including not only the preparation for, but the planned initiation of our Phase 3 program for our drug candidate, CaPre. Additional
funds will also be needed for our expected expenses for the total CaPre Phase 3 research and development phase beyond the next twelve
months. In addition to having raised additional funds during the thirteen-month period ended March 31, 2017, we are working towards
development of strategic partner relationships and plan to raise additional funds in the future, but there can be no assurance as to when or
whether we will complete any financing or strategic collaborations. In particular, raising financing is subject to market conditions and is not
within our control. Additionally, although we intend to continue to rely on the support of Neptune for a portion of our general and
administrative needs, the continuance of this support is outside of our control. If we do not raise additional funds, find one or more strategic
partners or do not receive the continued
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support from Neptune, it may not be able to realize our assets and discharge our liabilities in the normal course of business. As a result,
there exists a material uncertainty that casts substantial doubt about our ability to continue as a going concern and, therefore, realize our
assets and discharge our liabilities in the normal course of business. We currently have no other arranged sources of financing.
2017 Public Offering
On February 21, 2017, we closed a public offering issuing 3,930,518 units at a price of $1.45 per unit for gross proceeds of $5,699.
Each unit consists of one common share and one half of one common share purchase warrant. Each whole warrant entitles the holder to
purchase one common share at an exercise price of $2.15 per common share, at any time until February 21, 2022. The units issued as part of
the public offering are considered equity instruments. The transaction costs associated with the public offering amounted to $1,190. The
proceeds and transaction costs were allocated to share capital.
As part of the transaction, we also issued broker warrants to purchase up to 234,992 common shares. Each broker warrant entitles
the holder to acquire one common share at an exercise price of $2.15 per common share, at any time until February 21, 2018. The total costs
associated with the broker warrants are accounted for at fair value using the Black-Scholes pricing model; they amounted to $144 and were
recorded to contributed surplus with the offsetting entry as a reduction of share capital.
The warrants issued as part of the units of the public offering and the broker warrants, include an “acceleration right”, related to our
right to accelerate the expiry date of the warrants. The acceleration right clause means our right to accelerate the expiry date to a date that
is not less than 30 days following delivery of the acceleration notice if, at any time at least four months after the effective date, the volume
weighted average trading price of our common shares equals or exceeds $2.65 for a period of 20 consecutive trading days on the TSXV.
Additionally, as part of the public offering and convertible debt transactions, a total of 60,000 common shares were issued by us as
equity settled share-based payments for services received from an employee of Neptune at a price of $1.57 per share for a total cost of $94.
The equity settled share-based payment costs have been allocated between the share capital for a cost that amounted to $85 and debt for a
cost that amounted to $9 based on relative value.
Unsecured Convertible Debentures and Contingent Warrants
Concurrent with our public offering, on February 21, 2017, we issued $2,000 aggregate principal amount of unsecured convertible
debentures maturing on February 21, 2020 and contingent warrants to acquire up to 1,052,630 common shares in a private placement
transaction. The principal may be prepaid, in whole or in part, at any time and from time to time, in cash, at our sole discretion. The
debentures are convertible into common shares at any time by the holder at a fixed price of $1.90 per common share, except if we pay
before the maturity all or any portion of the convertible debentures. Should we pay all or any portion of the convertible debentures before
maturity, then warrants become exercisable at $1.90 per common share for the equivalent convertible debenture amount prepaid. The
contingent warrants will be exercisable for the remaining term of the convertible debentures for the same price as the conversion options.
The unsecured convertible debentures were issued at a discount of 3.5% to the principal amount, for aggregate gross proceeds of $1,930.
The convertible debentures provide us with an accelerated conversion right whereby we may, at any time at least four months after
the date of issuance of the convertible debentures, accelerate the conversion of the debentures to common shares in the event that the
volume weighted average price of our common shares on the TSXV is equal to or exceeds $2.65, subject to customary adjustment
provisions, during 20 consecutive trading days.
The interest to be paid on the convertible debentures is 8% per annum, payable on a quarterly basis in cash or common shares or a
combination thereof, commencing on March 31, 2017. The decision to pay the interest due in cash or shares is at our discretion and the
number of common shares to be issued will be calculated at the current market price as at the close of business on the day before the
interest payment is to be made. Payment in shares will be at a floor price of $0.10 per share, with the difference between the amount
payable and the amount computed at floor price payable in cash.
The proceeds of the private placement were split between the liability and the equity at the time of issuance. Both the conversion
option and contingent warrants are considered the equity component of the private placement. The fair value of the liability component was
determined through a discounted cash flow analysis using a
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discount rate of 20% that was set based on a similar debt and maturity considering our credit risk excluding the conversion option and
contingent warrants. The amount allocated to the equity component is the residual amount after deducting the fair value of the financial
liability component from the fair value of the entire compound instrument. Subsequent to initial recognition, the liability is measured at
amortized cost calculated using the effective interest rate method and will accrete up to the principal balance at maturity. The interest
accretion is presented as a financial expense. The equity component is not re-measured. Transaction costs were allocated to the components
in proportion to their initial carrying amounts. The portion allocated to the liability was recognized as a reduction of the debt whereas the
portion allocated to other equity was recognized as a reduction to other equity.
The fair value of the liability portion at the time of issuance was determined to be $1,519 and the transaction costs and debt
discount amounted to $134, of which $30 is still unpaid as at March 31, 2017. The residual of the proceeds allocated to the equity
component amounted to $481 and the transactions costs amounted to $43, of which $10 is unpaid at March 31, 2017.
Use of Funds
We have used and intend to continue to use the net proceeds from the public offering, the private placement and our previous
offerings to fund the completion of our manufacturing scale-up and the clinical and regulatory planning and preparations necessary to be
ready to enroll the first patient in our planned Phase 3 program for CaPre, intellectual property expansion, business development activities,
general and administrative expenses, and working capital. We currently project, however, after our end of Phase 2 meeting with the FDA,
which took place after the closing of our public offering and private placement financing, that most of the more than $1 million net
proceeds that we raised over our originally anticipated offering amount will be used for the clinical program preparation based now on the
plan being better defined after the FDA meeting, including our plan to conduct two smaller studies instead of one larger study.
Financial Position
The following table details the significant changes to our statements of financial position as at March 31, 2017 compared to
February 29, 2016:
(In thousands of dollars)
Accounts
Cash and cash equivalents
Short-term investments, including restricted investments
Receivable
Prepaid expenses
Equipment
Intangible asset
Trade and other payables
Payable to parent corporation
Derivative warrant liabilities
Unsecured convertible debentures
Increase
(Decrease)
6,745
(9,443)
(193)
(247)
2,594
(2,517)
1,000
(3)
53
1,406
Comments
See cash flow statement
Maturity of short-term investments, decrease in investments
Payments received
Completion of research contracts
Acquisition of laboratory and production equipment
Amortization
Increase in expenses and research contracts
Payment made to parent company
Change in fair value
Debt issued in Private Placement transaction
See the statement of changes in equity in our financial statements in “Item 17. Financial Statements” for details of changes to the equity
accounts from February 29, 2016.
Derivative Warrant Liabilities
As of March 31, 2017, the amount of $209 included in liabilities represents the fair value of the warrants issued as part of our
previous offerings. The warrants forming part of the units issued in connection with our previous offerings are derivative liabilities for
accounting purposes due to the currency of the exercise price (US$) being different from our functional currency (CA$). The warrant
liabilities will be settled in common shares. The fair value of the warrants issued in connection with our previous offerings was determined
to be $0.58 per warrant upon issuance and $0.11 per warrant as of March 31, 2017. The fair value of the warrants is revalued at each
reporting date.
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Contractual Obligations, Off-Balance-Sheet Arrangements and Commitments
We have no off-balance sheet arrangements, except for the following commitments. As at March 31, 2017, our liabilities are
$3,753, of which $2,138 is due within twelve months, $209 relates to a derivative warrant liability that will be settled in common shares and
$1,406 relates to unsecured convertible debentures, described in note 11 of our financial statements, which includes $21 in interest
accretion and will be settled either in cash or common shares. The principal amount of unsecured convertible debentures may be prepaid, in
whole or in part, at any time and from time to time, in cash, at our sole discretion. The debentures are convertible into common shares at a
fixed price of $1.90 per common share, except if we pay before the maturity all or any portion of the convertible debentures.
A summary of our contractual obligations at March 31, 2017, is as follows:
(In thousands of dollars)
Trade and other payables
Research and development contracts
Purchase obligation of equipment
Unsecured convertible debentures
Total
Significant commitments as of March 31, 2017 include:
Research and Development Agreements
Total
$
2,138
917
21
2,463
5,539
1 year or less
$
2,138
917
21
160
3,236
1 to 3 years
$
—
—
—
2,303
2,303
In the normal course of business, we have signed agreements with various partners and suppliers for them to execute R&D projects
and to produce certain tools and equipment. We have reserved certain rights relating to these projects. We initiated R&D projects that are
planned to be conducted over the next 12-month period for a total cost of $2,169, of which an amount of $785 has been paid to date. As at
March 31, 2017, an amount of $467 is included in “Trade and other payables” in relation to these projects. We have also entered into a
contract to purchase production equipment for a total cost of $1,162 to be used in the manufacturing of the clinical and future commercial
supply of CaPre, of which an amount of $853 has been paid to date. As at March 31, 2017, an amount of $288 is included in “Trade and
other payables” related to this equipment.
Related Party Transactions
During the periods specified below, we were charged by Neptune for the purchase of research supplies and for certain costs
incurred by Neptune for our benefit, as follows:
(In thousands of dollars)
Research and development expenses
General and administrative expenses
Total
One-month
period ended
March 31,
2017
Three-month
period ended
February 28,
2017
Three-month
period ended
February 29,
2016
$
1
41
42
$
6
241
247
$
24
215
239
Thirteen-
month
period
ended Year ended Year ended
February 28,
2015
$
February 29,
2016
March 31,
2017
$
$
60
618
678
371
790
1,161
344
876
1,220
We purchased from Neptune research and development supplies totaling $113, of which $73 as at March 31, 2017 is recorded in
prepaid expenses and will be expensed as used.
Where Neptune incurs specific incremental costs for our benefit, it charges those amounts directly. Costs that benefit more than
one entity of the Neptune group are charged by allocating a fraction of costs incurred by Neptune that is commensurate to the estimated
fraction of services or benefits received by each entity for those items. These charges do not represent all charges incurred by Neptune that
may have benefited us. Also, these charges do not necessarily represent the cost that we would otherwise need to incur, should we not
receive these services or benefits through the shared resources of Neptune.
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On January 7, 2016, Neptune announced the acquisition of Biodroga Nutraceuticals Inc. As part of this transaction, we pledged an
amount of $2 million, or the committed funds, to partly guarantee the financing for the transaction under a pledge agreement. Neptune had
agreed to pay us an annual fee on the committed funds outstanding at an annual rate of 9% during the first six months and 11% for the
remaining term of the pledge agreement. On September 20, 2016, Neptune fully released the pledged amount. We recognized interest
revenue in the amount of $89 during the thirteen-month period ended March 31, 2017 and nil for the month ended March 31, 2017.
The payable to Neptune primarily for general and administrative shared services has no specified maturity date for payment or
reimbursement and does not bear interest.
Use of Estimates and Measurement of Uncertainty
The preparation of the financial statements in conformity with IFRS requires our management to make judgments, estimates and
assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual
results may differ from these estimates. Estimates are based on management’s best knowledge of current events and actions that we may
undertake in the future. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognized in the period in which the estimates are revised and in any future periods affected. Critical judgments in applying accounting
policies that have the most significant effect on the amounts recognized in the financial statements include identification of triggering
events indicating that the intangible assets might be impaired and the use of the going concern basis of preparation of the financial
statements. At the end of each reporting period, management assesses the basis of preparation of the financial statements. The financial
statements have been prepared on a going concern basis in accordance with IFRS. The going concern basis of presentation assumes that we
will continue our operations for the foreseeable future and can realize our assets and discharge our liabilities and commitments in the
normal course of business. Assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within
the next financial year include determination of the recoverable amount of our cash generating unit, or CGU, and measurement of
derivative warrant liabilities and stock-based compensation. Also, management uses judgment to determine which research and
development, or R&D, expenses qualify for R&D tax credits and in what amounts. We recognize the tax credits once we have reasonable
assurance that they will be realized. Recorded tax credits are subject to review and approval by tax authorities and therefore, could be
different from the amounts recorded.
Critical Accounting Policies
Impairment of Non-Financial Assets
The carrying value of our license asset is reviewed at each reporting date to determine whether there is any indication of
impairment. If any such indication exists, then the CGU’s recoverable amount is estimated. The identification of impairment indicators and
the estimation of recoverable amounts require the use of judgment.
Derivative Warrant Liabilities
The warrants forming part of the units issued in our public offering are derivative liabilities for accounting purposes due to the
currency of the exercise price being different from our functional currency. The derivative warrant liabilities are required to be measured at
fair value at each reporting date with changes in fair value recognized in earnings. We use Black-Scholes pricing model to determine the
fair value. The model requires the assumption of future stock price volatility, which is estimated based on weighted average historic
volatility. Changes to the expected volatility could cause significant variations in the estimated fair value of the derivative warrant
liabilities.
Stock-based Compensation
We have a stock-based compensation plan, which is described in note 15 of our financial statements in “Item 17. Financial
Statements”. We account for stock options granted to employees based on the fair value method, with fair value determined using the
Black-Scholes model. The Black Scholes model requires certain assumptions such as future stock price volatility and expected life of the
instrument. Expected volatility is estimated based on weighted average historic volatility. The expected life of the instrument is estimated
based on historical experience and general holder behavior. Under the fair value method, compensation cost is measured at fair value at
date of
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grant and is expensed over the award’s vesting period with a corresponding increase in contributed surplus. For stock options granted to
non-employees, we measure based on the fair value of services received, unless those are not reliably estimable, in which case we measure
the fair value of the equity instruments granted. Compensation cost is measured when we obtain the goods or the counterparty renders the
service.
Tax Credits
Refundable tax credits related to eligible expenses are accounted for as a reduction of related costs in the year during which the
expenses are incurred as long as there is reasonable assurance of their realization.
Future Accounting Changes
A number of new standards, interpretations and amendments to existing standards were issued by the IASB, or the IFRS
Interpretations Committee, or IFRIC, that are mandatory but not yet effective for the thirteen-month and one-month periods March 31,
2017 and have not been applied in preparing our financial statements. The following standards have been issued by the IASB with effective
dates in the future that have been determined by management to impact the financial statements:
Financial Instruments
On July 24, 2014, the IASB issued the final version of IFRS 9, Financial Instruments, which addresses the classification and
measurement of financial assets and liabilities, impairment and hedge accounting, replacing IAS 39, Financial Instruments: Recognition
and Measurement. IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with earlier adoption permitted. We intend
to adopt IFRS 9 in our financial statements for the annual period beginning on April 1, 2018. We have not yet assessed the impact of
adoption of IFRS 9, and do not intend to early-adopt IFRS 9 in our financial statements.
Amendments to IFRS 2 – Classification and Measurement of Share-Based Payment Transactions
On June 20, 2016, the IASB issued amendments to IFRS 2, Share-Based Payment, clarifying how to account for certain types of
share-based payment transactions. The amendments apply for annual periods beginning on or after January 1, 2018. Earlier application is
permitted. As a practical simplification, the amendments can be applied prospectively. Retrospective, or early application is permitted if
information is available without the use of hindsight. The amendments provide requirements on the accounting for the effects of vesting
and non-vesting conditions on the measurement of cash-settled share-based payments; share-based payment transactions with a net
settlement feature for withholding tax obligations; and a modification to the terms and conditions of a share-based payment that changes the
classification of the transaction from cash-settled to equity-settled. We intend to adopt the amendments to IFRS 2 in our financial
statements for the annual period beginning on April 1, 2018. We have not yet assessed the impact of adoption of the amendments of IFRS
2, and do not intend to early-adopt these amendments in our financial statements.
Credit Risk
Credit risk is the risk of a loss if a customer or counterparty to a financial asset fails to meet its contractual obligations. We have
credit risk relating to cash, cash equivalents and short-term investments, which we manage by dealing only with highly-rated Canadian
financial institutions. The carrying amount of financial assets, as disclosed in the statements of financial position, represents our credit
exposure at the reporting date.
Currency Risk
We are exposed to the financial risk related to the fluctuation of foreign exchange rates and the degrees of volatility of those rates.
Foreign currency risk is limited to the portion of our business transactions denominated in currencies other than the Canadian dollar.
Fluctuations related to foreign exchange rates could cause unforeseen fluctuations in our operating results. A portion of our expenses,
mainly related to research contracts and purchase of production equipment, is incurred in US dollars and in Euros, for which no financial
hedging is required. There is a financial risk related to the fluctuation in the value of the US dollar and the Euro in relation to the Canadian
dollar. In order to minimize the financial risk related to the fluctuation in the value of the US dollar in relation to the Canadian dollar, funds
continue to be invested as short-term investments in the US dollar. A significant portion of our cash and cash equivalents are denominated
in US dollars, further exposing us to fluctuations in the value of the US dollar in relation to the Canadian dollar. See Note 19 of our
financial statements in “Item 17. Financial Statements”.
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Interest Rate Risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in
market rates. As at March 31, 2017, February 28, 2017 and February 29, 2016, our cash and cash equivalents and our short term
investments were subject to fluctuations in short-term fixed interest rates.
Our capacity to reinvest the short-term amounts with equivalent return will be impacted by variations in short-term fixed interest
rates available on the market. Management believes the risk we will realize a loss as a result of the decline in the fair value of its short-term
investments is limited because these investments have short-term maturities and are generally held to maturity. Our capacity to reinvest the
short-term amounts with equivalent return will be impacted by variations in short-term fixed interest rates available on the market.
Management believes the risk we will realize a loss as a result of the decline in the fair value of our short-term investments is limited
because these investments have short-term maturities and are generally held to maturity.
Liquidity Risk
Liquidity risk is the risk that we will not be able to meet our financial obligations as they fall due. We manage liquidity risk
through the management of its capital structure and financial leverage, as outlined in Note 22 to our financial statements in “Item 17.
Financial Statements”. We also manage liquidity risk by continuously monitoring actual and projected cash flows. Our board of directors
reviews and approves our operating budgets, and reviews material transactions outside the normal course of business. Our contractual
obligations related to financial instruments and other obligations and liquidity resources are presented in “–Liquidity and Capital
Resources”.
Item 6.
Directors, Senior Management and Employees
A. Directors and Senior Management
The following table sets out the name and the province or state and country of residence of each of our directors and all offices
with us held by them, their principal occupation, the year in which they became a director, and the number of common shares they have
declared to beneficially own, directly or indirectly, or over which control or direction is exercised by them.
Name, Province or State, as the case may be, and
Country of Residence of each Director
Principal Occupation
First Year
as Director
Number of Common Shares
Beneficially Owned or
Controlled
or Directed by Each Director
Roderick N. Carter
California, United States
Chairman of the Board
Jean-Marie (John) Canan
Florida, United States
Janelle D’Alvise
California, United States
James S. Hamilton
Québec, Canada
Leendert H. Staal
Maryland, United States
Principal, Aquila Life
Sciences LLC
Corporate Director
2015
2016
President and CEO of Acasti
2016
President and CEO of
Neptune Technologies &
Bioressources Inc.
Independent consultant and
owner of Staal Consulting
LLC
2015
2016
-
57,500
52,500
-
-
The following is a brief biography of our directors and senior management:
Dr. Roderick N. Carter
Dr. Carter has a strong history of contributions to healthcare through clinical, research, business and people leadership. He has
significant experience developing and commercializing nutraceutical and pharmaceutical products and has successfully led clinical research
and business development strategies for cardiovascular and inflammation related diseases. Dr. Carter is currently Principal at Aquila Life
Sciences LLC, a consulting firm he
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founded in April 2008 focusing on pharmaceutical development and commercialization. Prior to this, he was Vice President of Clinical
Development at Reliant Pharmaceuticals, which developed the OM3 cardiovascular drug LOVAZA, and today is a wholly-owned
subsidiary of GlaxoSmithKline. He also served as Executive Director at Merck and Co., USA, President and Chief Executive Officer of
WellGen and Senior Medical Director at Pfizer Inc., USA. Dr. Carter received his Medical Degree from the University of Witwatersrand,
Johannesburg, along with a Master of Science degree in Sports Medicine from Trinity College, Dublin.
Janelle D’Alvise (also our CEO)
Ms. D’Alvise has extensive experience in diagnostics, medical devices, pharmaceuticals and drug discovery research tools. Until
recently, Ms. D’Alvise was the President and Chairman of Pediatric Bioscience. Before that, she was the CEO of Gish Biomedical, a
cardiopulmonary medical device company. Prior to Gish, Ms. D’Alvise was the CEO of the Sidney Kimmel Cancer Center (SKCC), a drug
discovery research institute. From 1995 until 1998, she was also the Co-Founder and Executive VP/COO of Metrika Inc., and in 1999 was
the Co- Founder/President/CEO/Chairman of NuGEN, Inc. Ms. D’Alvise built both companies from technology concept through to
successful regulatory approvals, product introduction and sustainable revenue growth. Prior to 1995, Ms. D’Alvise was a VP of Drug
Development at Syntex/Roche and Business Unit Director of their Pain and Inflammation business, and also VP of Commercial Operations
at SYVA, (Syntex’s clinical diagnostics division), and began her career with Diagnostic Products Corporation. Ms. D’Alvise has a B.S. in
Biochemistry from Michigan Technological University. She has completed post- graduate work at the University of Michigan, Stanford
University, and the Wharton Business Schools. Ms. D’Alvise has served on the board of numerous private companies and non-profits, and
is an Entrepreneur-in-Residence for the von Liebig Institute for Entrepreneurship at the University of California, San Diego.
James S. Hamilton
Mr. Hamilton is currently President and Chief Executive Officer of Neptune. Prior to joining Neptune, from 2006 to 2015,
Mr. Hamilton served as Vice President Human Nutrition and Health, North America, and President of DSM Nutritional Products USA,
Inc., based in Parsippany, New Jersey. He was serving on the global management team of DSM Nutritional Products’ Human Nutrition &
Health business, an organization with over $2 billion in global sales and operations in more than 40 countries. DSM Nutritional Products is
an important division of the life sciences and material sciences corporation, DSM N.V. of the Netherlands. Mr. Hamilton’s industry
knowledge has made him a valuable contributor to several trade associations and he a director and is the immediate past chairman of the
board of directors of the Council for Responsible Nutrition, the dietary supplement industry’s leading trade association. Mr. Hamilton is a
graduate of Concordia University in Montreal, Canada and has attended a number of business education and leadership programs at the
London Business School and INSEAD.
Jean-Marie (John) Canan
Mr. Canan is an accomplished business executive with over 34 years of strategic, business development and financial leadership
experience. Mr. Canan recently retired from Merck & Co., Inc. where his last senior position was as Senior Vice-President, Global
Controller, and Chief Accounting Officer for Merck from November 2009 to March 2014. He has managed all interactions with the audit
committee of the Merck board of directors, while participating extensively with the main board and the compensation & benefits
committee. Mr. Canan serves as a director of REV Group, a public company, where he chairs the audit committee. Mr. Canan also provides
consulting services to Willow BioPharma, a Canadian start-up, engaged in the acquisition and development of legacy pharmaceutical
assets. He also serves on the board of trustees of Angkor Hospital for Children, where he also chairs the audit & risk committee. Mr. Canan
is a graduate of McGill University, Montreal, Canada, and is a Canadian Chartered Accountant.
Dr. Leendert H. Staal
Dr. Staal is a member of the board of directors of Neptune. He is a seasoned and accomplished senior executive with a strong track
record of value creation. Dr. Staal has held numerous senior level positions within the DSM group, most recently as President and Chief
Executive Officer of DSM Nutritional Products from January 2008 to March 2013 and previously as President and Chief Executive Officer
of DSM Pharmaceuticals. Dr. Staal also held the position of Group Vice President of Quest International and was Chairman of Unipath (a
wholly owned subsidiary of Unilever). He is currently an independent consultant and owner of Staal Consulting LLC, focusing on
mergers and acquisitions and business strategy. Recently, he has been providing consulting services in connection with Neptune’s
Sherbrooke plant, where he is part of a team enhancing and optimizing plant output. Dr. Staal has a Ph.D. in Chemistry from the University
of Amsterdam.
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The following are brief biographies of our senior managers, other than our President and Chief Financial Officer, Janelle D’
Alvise, whose biography appears further above:
Linda P. O’Keefe – Chief Financial Officer (CFO)
Ms. O’Keefe has been our Chief Financial Officer since November 28, 2016. She has worked with both public and private
biotechnology, diagnostics, medical devices and healthcare services firms, and also in other private equity-financed markets, including
business services, education and technology. Prior to joining us, Ms. O’Keefe consulted with various firms after serving as Chief Financial
Officer and executive-in-residence for Gryphon Investors, a San Francisco-based private equity firm. At Gryphon Investors, she led
fundraising, limited partner relations, risk management and advised portfolio company management teams on growth, financing and back
office strategies. In addition, Ms. O’Keefe provided mergers & acquisitions and integration support, established and led audit committees,
and supported the expansion of teams and systems to meet the needs of growing companies. Ms. O’Keefe also served as Chief Financial
Officer of Delphi Ventures, a healthcare-focused venture capital firm, and Elevate Ventures; as Vice President of Finance at Genelabs
Technologies and Target Therapeutics; and as Controller at Collagen Corporation. Ms. O’Keefe is an active Certified Public Accountant
and Chartered Global Management Accountant in California and Indiana and was formerly an audit senior with Ernst & Young. She is a
member of the American Institute of CPAs, the California and Indiana Societies of CPAs, Association for Corporate Growth, Financial
Executives International, and Healthcare Financial Management Association. Ms. O’Keefe holds a Bachelor of Science in Business from
the University of California, Berkeley.
Dr. Pierre Lemieux – Chief Operating Officer (COO)
Dr. Lemieux has been our Chief Operating Officer since April 12, 2010. He holds a post-doctoral degree in Oncology from the
Health Science Center, University of Texas (San Antonio), USA, and a PhD in biochemistry from Laval University, Canada, jointly with
University of Nottingham, England. Prior to joining us, Dr. Lemieux was the President, Chief Executive Officer and the chairman of the
board as well as being the founder of Technologie Biolactis Inc., a late-stage biotechnology company specialized in the commercialization
of proteins to better serve the nutraceutical, cosmetic and pharmaceutical industries. Dr. Lemieux has 20 years of experience in
pharmaceutical development and has occupied a variety of high management positions in the pharmaceutical industry.
Mr. Laurent Harvey – Vice President, Clinical and Non-Clinical Affairs
Mr. Harvey has more than 25 years’ experience in the biopharmaceutical industry, primarily in drug development and clinical
research. Before joining us, he occupied different management positions at Bristol-Myers Squibb, Æterna-Zentaris, Innodia, Bellus Health
and KLOX Technologies. During his career, he participated in many national and international clinical programs in various therapeutic
fields such as cardiovascular, endocrinology, oncology and neurology. Mr. Harvey holds a Bachelor’s degree in pharmacy and M.Sc. in
hospital pharmacy, both from Université de Montréal.
B.
Compensation
Summary of our Compensation Programs
Our executive compensation program is intended to attract, motivate and retain high-performing senior executives, encourage and
reward superior performance and align the executives’ interests with ours by providing compensation which is competitive with the
compensation received by executives employed by comparable companies and ensuring that the achievement of annual objectives is
rewarded through the payment of bonuses and providing executives with long-term incentive through the grant of stock options.
Our governance & human resources, or GHR, committee has authority to retain the services of independent compensation
consultants to advise its members on executive compensation and related matters, and to determine the fees and the terms and conditions of
the engagement of those consultants. During our fiscal year ended March 31, 2017, the GHR committee retained compensation consulting
services, including those led by Lockton Companies, to review our executive compensation programs, including base salary, short-term and
long-term incentives, total cash compensation levels and total direct compensation of certain senior positions, against those of peer groups
of similar and larger size, as
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measured by market capitalization, biotechnology and pharmaceutical companies listed or headquartered in North America. All of the
services provided by the consultants were provided to the GHR committee. The GHR committee assessed the independence of the
consultants and concluded that its engagement of the consultants did not raise any conflict of interest with us or any of our directors or
executive officers. As influenced by the consultants’ fiscal period 2017 executive compensation review, the board and GHR committee set
the following executive compensation program.
Use of Fixed and Variable Pay Components
Compensation of NEOs is revised each year and has been structured to encourage and reward executive officers on the basis of
short-term and long-term corporate performance. In the context of its analysis of compensation for our fiscal year ended March 31, 2017,
the following components were examined by the GHR committee:
base salary;
short term incentive plan, consisting of a cash bonus;
long term incentive plan, consisting of stock options and equity incentive grants based on performance and/or time vesting
conditions; and
other elements of compensation, consisting of group benefits and perquisites.
•
•
•
•
Base Salary
We intend to be competitive with comparator companies and to attract and retain top talent. The GHR committee will review
compensation periodically to be sure it meets this strategic imperative. Base salary is set to reflect an individual’s skills, experience and
contributions within a salary structure consistent with our gender pay equity policy. Base salary structure is revised annually by the GHR
committee as our financial and market conditions evolve.
Short Term Incentive Plan (STIP)
Our Short-Term Incentive Plan, or STIP, provides for potential rewards when a threshold of corporate performance is met.
Personal objectives that support corporate goals are established annually with each employee and are assessed at the end of each financial
year. Personal objectives are assessed through a performance grid, with pre-specified, objective performance criteria. STIP awards are paid
out in proportion to individual performance, determined in end-of-year performance reviews. For the most senior participants in the STIP,
greater weight is assigned to corporate objectives. Target payout is expressed as a percentage of base salary and is determined by
employment contracts and board discretion. Annual salary for STIP purposes is the annual salary in effect at the end of the plan year (i.e.,
prior to annual salary increases).
The actual amount awarded ranges from zero for performance well below expectation and is capped at two times target for
exceptional performance. The STIP is a discretionary variable compensation plan and all STIP payments are subject to board approval.
Participants must be employed by us at the end of the financial year to qualify. We reserve the right to modify or discontinue the STIP at
any time.
Ms. D’Alvise, our CEO, is eligible for up to a 50% bonus of her annual base salary and Ms. O’Keefe, our CFO, is eligible for up to
a 40% bonus of her annual base salary. Dr. Lemieux, our COO, is eligible for up to a 40% bonus of his annual base salary and Mr. Harvey,
Vice President, Clinical and Non-Clinical Affairs, is eligible for up to a 30% bonus of his annual base salary.
These performance goals will take into account the achievement of R&D milestones within timelines and budget and individual
objectives determined annually by the board according to short-term priorities.
Long Term Incentive Plan (LITP)
The LTIP has been adopted as a reward and retention mechanism. Participation is determined annually at the discretion of the
board. Employees approved by our board of directors may participate in our stock option plan, which is designed to align the long-term
interests of participants with those of shareholders, in order to promote shareholder value.
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The GHR committee determines the number of stock options to be granted to a participant based on peer group data and taking into
account corporate performance and level in the organization. The LTIP calculation is based on a guideline percentage of base salary and the
number of options is determined based on an approved dollar value (rather than a specific number of shares). The guideline ranges from
15% to 200% and is subject to adjustment by the board in reviewing annual achievement of corporate performance and availability of
shares. The GHR committee may also determine, in its sole discretion, ad hoc stock option awards to be granted to participants in order to
address extraordinary situations. Awards at any level may be adjusted as necessary to maintain an equity burn rate and overhang similar to
comparator companies. In addition to our stock option plan, the board is also empowered to grant ad hoc awards, from time to time, under
our equity incentive plan to provide for a share-related mechanism to attract, retain and motivate qualified directors, senior employees and
consultants.
Our directors and executive officers are not permitted to purchase financial instruments, such as prepaid variable forward contracts,
equity swaps, collars or units of exchange funds that are designed to hedge or offset a decrease in market value of equity securities granted
as compensation or held, directly or indirectly, by the director or officer.
Share Ownership Guidelines
To further align the interests of our executives with those of our other shareholders, the board has adopted share ownership
guidelines. Under these guidelines, the CEO and other executives (i.e., CFO, COO, VPs) are required to retain and hold 50% of the shares
acquired by them under any equity incentive award granted on or after June 8, 2017 (after subtracting shares sold to pay for option exercise
costs, and relevant federal, state, and local taxes which are assumed to be at the highest marginal tax rates). In addition, the share retention
rule applies unless the executive beneficially owns shares with a value at or in excess of the following share ownership guidelines:
•
•
CEO — 2x then-current annual base salary
Other executives — 1x then-current annual base salary.
The value of an individual’s shares for purposes of the share ownership guidelines is deemed to be the greater of the then-current
fair market value of the shares, or the individual’s cost basis in the shares. Shares counted in calculating the share ownership guidelines
include shares beneficially owned outright, whether from open market purchases, shares retained after option exercises, and shares of
restricted stock or deferred stock units that have fully vested. In addition, in the case of vested, unexercised, in-the-money stock options,
the in-the-money value of the stock options will be included in the share ownership calculation. Executives have five years from their date
of hire or promotion to satisfy the share ownership guidelines.
Stock Option Plan
Our stock option plan was adopted by our board of directors on October 8, 2008 and has been amended from time to time,
including most recently on June 14, 2017. The grant of options is part of the long-term incentive component of executive and director
compensation and an essential part of compensation. Qualified directors, employees and consultants may participate in our stock option
plan, which is designed to encourage optionnees to link their interests with those of our shareholders, in order to promote an increase in
shareholder value. Awards and the determination of any exercise price are made by our board of directors, after recommendation by the
GHR committee. Awards are established, among other things, according to the role and responsibilities associated with the participant’s
position and his or her influence over appreciation in shareholder value. Any award grants a participant the right to purchase a certain
number of common shares during a specified term in the future, after a vesting period and/or specific performance conditions, at an
exercise price equal to at least 100% of the market price (as defined below) of our common shares on the grant date. The “market price” of
common shares as of a particular date generally means the closing price per common share on the TSXV, or any other exchange on which
the common shares are listed from time to time, for the last preceding date on which there was a sale of common shares on that exchange
(subject to certain exceptions set forth in the stock option plan in the event that we are no longer traded on any stock exchange). Previous
awards may sometimes be taken into account when new awards are considered.
In accordance with the stock option plan, all of an option holder’s options will immediately vest on the date of a Change of Control
event (as defined in the stock option plan), subject to the terms of any employment agreement or other contractual arrangement between the
option holder and us.
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However, in no case will the grant of options under the plan, together with any proposed or previously existing security based
compensation arrangement, result in (in each case, as determined on the grant date): the grant to any one consultant within any 12-month
period, of options reserving for issuance a number of common shares exceeding in the aggregate 2% of our issued and outstanding
common shares (on a non-diluted basis); or the grant to any one employee, which provides investor relations services, within any 12-month
period, of options reserving for issuance a number of common shares exceeding in the aggregate 2% of our issued and outstanding
common shares (on a non-diluted basis).
Options granted under the stock option plan are non-transferable and are subject to a minimum vesting period of 18 months, with
gradual and equal vesting on no less than a quarterly basis. They are exercisable, subject to vesting and/or performance conditions, at a
price equal to the closing price of the common shares on the TSXV on the day prior to the grant of such options. In addition, and unless
otherwise provided for in the agreement between us and the holder, options will also lapse upon termination of employment or the end of
the business relationship with us except that they may be exercised for 60 days after termination or the end of the business relationship (30
days for investor relations services employees), to the extent that they will have vested on such date of termination of employment, except
in the case of death, disability or retirement where this period is extended to 12 months.
Subject to the approval of relevant regulatory authorities, including the TSXV, if applicable, and compliance with any conditions
attached to that approval (including, in certain circumstances, approval by disinterested shareholders) if applicable, the board of directors
has the right to amend or terminate the stock option plan. However, unless option holders consent to the amendment or termination of the
stock option plan in writing, any such amendment or termination of the stock option plan cannot affect the conditions of options that have
already been granted and that have not been exercised under the stock option plan.
Options for common shares representing a fixed rate of 20% of our outstanding issued common shares as of February 29, 2016
may be granted by the board under the stock option plan. As at the March 31, 2017, there were 657,619 common shares reserved for
issuance under the stock option plan. As of March 31, 2017, there were 1,424,788 options outstanding under the stock option plan. On
June 14, 2017, in connection with amendments to the stock option plan discussed below, the board granted 1,021,500 stock options to
employees, executives and members of the board, of which 373,600 of these stock options are subject to shareholder approval at our next
annual general and special shareholders meeting.
On June 14, 2017, the board approved amendments to the existing limits for common shares reserved for issuance under the stock
option plan as described below, which are subject to shareholder approval. At our next annual and special shareholders meeting,
shareholders will be asked to consider a resolution to approve amendments to the equity incentive plan to set the total number of common
shares reserved for issuance pursuant to awards granted under the equity incentive plan to an aggregate number that:
•
if, and for so long as the common shares are listed on the TSXV, will not exceed the lower of:
•
•
367,563 Common Shares, and
20% of the issued and outstanding common shares as of March 31, 2017, (equating to 2,940,511 common shares), which
number will include common shares issuable pursuant to options issued under the amended stock option plan; or
•
if, and for so long as the common shares are listed on the TSX, will not exceed 2.5% of the issued and outstanding common
shares from time to time.
The proposed amendments would also change certain limits to the number of common shares that can be reserved for issuance for
specific grants.
Equity Incentive Plan
On May 22, 2013, our equity incentive plan was adopted by the board in order to, among other things, provide us with a share-
related mechanism to attract, retain and motivate qualified directors, employees and consultants. The adoption of the equity incentive plan
was initially approved by shareholders at our 2013 Shareholders’ meeting held on June 27, 2013.
Eligible persons may participate in the equity incentive plan. “Eligible persons” under the equity incentive plan consist of any
director, officer, employee or consultant (as defined in the equity incentive plan) of us or a subsidiary. A participant is an eligible person to
whom an award has been granted under the equity incentive plan. The equity incentive plan provides us with the option to grant to eligible
persons bonus shares, restricted shares, restricted share units, performance share units, deferred share units and other share-based awards.
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If, and for so long as our common shares are listed on the TSXV, no more than 2% of the issued and outstanding common shares
may be granted to any one consultant or employee conducting investor relations activities in any 12-month period.
The board has the right to determine that any unvested or unearned restricted share units, deferred share units, performance share
units or other share-based awards or restricted shares subject to a restricted period outstanding immediately prior to the occurrence of a
change in control will become fully vested or earned or free of restriction upon the occurrence of a change in control. The board may also
determine that any vested or earned restricted share units, deferred share units, performance share units or other share-based awards will be
cashed out at the market price as of the date a change in control is deemed to have occurred, or as of such other date as the board may
determine prior to the change in control. Further, the board has the right to provide for the conversion or exchange of any restricted share
unit, deferred share unit, performance share unit or other share-based award into or for rights or other securities in any entity participating
in or resulting from the change in control.
The equity incentive plan is administered by the board and the board has sole and complete authority, in its discretion, to determine
the type of awards under the equity incentive plan relating to the issuance of common shares (including any combination of bonus shares,
restricted share units, performance share units, deferred share units, restricted shares or other share-based awards) in such amounts, to such
persons and under such terms and conditions as the board may determine, in accordance with the provisions of the equity incentive plan
and the recommendations made by the GHR committee.
Subject to the adjustment provisions provided for in the equity incentive plan and the applicable rules and regulations of all
regulatory authorities to which we are subject (including any stock exchange), the total number of common shares reserved for issuance
pursuant to awards granted under the equity incentive plan will be equal to a number that (A) if, and for so long as the common shares are
listed on the TSXV, will not exceed either (i) 267,800 common shares, and (ii) 20% of the issued and outstanding common shares as of
February 29, 2016, representing 2,142,407 common shares, which includes common shares issuable pursuant to options issued under our
stock option plan.
On June 14, 2017, the board approved amendments to the existing limits of common shares reserved for issuance under the stock
option plan as described above, which are subject to shareholder approval.
Other Forms of Compensation
RRSP Matching Program. Effective June 1, 2016, we sponsor a voluntary Registered Retirement Savings Plan, or RRSP, matching
program, which is open to all eligible employees, including NEOs. The RRSP matching program matches employees’ contributions up to a
maximum of $1,000 per fiscal year for eligible employees who participate in the program. Other than matching contributions under the
RRSP matching program (which amounts are disclosed in the column entitled “All Other Compensation” in the summary compensation
table below), we do not provide pension or retirement benefits to our executive officers or directors.
Other Benefits and Perquisites. Our executive employee benefit program also includes life, medical, dental and disability
insurance. These benefits and perquisites are designed to be competitive overall with equivalent positions in comparable organizations. We
do not have a pension plan for employees.
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Compensation Paid to Named Executive Officers
The following table sets forth the compensation information for the NEOs during the thirteen months ended March 31, 2017, and
the fiscal years ended February 29, 2016 and February 28, 2015.
Name and
Principal Position
Period
ended
Salary
($)
Janelle D’Alvise(4)
CEO
Linda P. O’Keefe(5)
CFO
Pierre Lemieux
COO
Laurent Harvey
Vice President,
Clinical and Non-
Clinical Affairs
March 31,
2017
March 31,
2017
March 31,
2017
February 29,
2016
February 28,
2015
March 31,
2017
February 29,
2016
February 28,
2015
365,072
114,183
275,819
239,565
202,115
194,846
159,808
107,977
Share-
Based
Awards(1)(2)
($)
Option-Based
Awards
(1) (2)
($)
Annual
Incentive
Plans
($)
All Other
Compensation
($)(3)
Total
Compensation
($)
-
-
-
-
-
-
-
-
502,163
136,049(6)
-
1,003,284
237,340
39,897(7)
109,414(8)
500,834
96,522
33,320
22,163
84,205
17,153
7,388
49,000
42,000
12,000
35,000
16,000
8,000
-
-
-
-
-
-
421,341
314,885
236,278
314,051
192,961
123,365
(1) We have adopted IFRS 2 Share-Based Payment to account for the issuance of stock options to employees and non-employees. The fair value of stock options is
estimated at the grant date using the Black-Scholes option pricing model. This model requires the input of a number of parameters, including share price, share
exercise price, expected share price volatility, expected time until exercise and risk-free interest rates. Although the assumptions used reflect management’s
best estimates, they involve inherent uncertainties based on market conditions generally outside of our control.
(2)
The fair value of the option-based awards granted in the thirteen-month period ended March 31, 2017 is as follows: (i) the May 12, 2016 option-based awards
are based on a fair value of $0.96 per option granted to Ms. D’Alvise; (ii) the May 30, 2016 option-based awards are based on a fair value of $1.18 per option
granted to Dr. Lemieux and Mr. Harvey; (iii) the February 24, 2017 option-based awards are based on a fair value of $1.19 per option granted to Ms. O’Keefe
and Dr. Lemieux and Mr. Harvey.
For the period ended on February 29, 2016, the fair market value of the June 1, 2015 option-based awards are based on a fair value of $1.97 per option granted to
Messrs. Harvey and Lemieux.
For the period ended on February 28, 2015, the fair market value of the October 20, 2014 option-based awards granted to Dr. Lemieux is based on a fair value of
$3.00 per option, prior to our reverse share split.
(3)
The value of perquisites and other personal benefits received by these executives did not total an aggregate value of $50,000 or more, and does not represent
10% or more of their total salary during the financial years ended March 31, 2017, February 29, 2016 and February 28, 2015.
(4) Ms. D’Alvise was appointed our President and CEO on May 11, 2016 and began her functions on June 1, 2016. Her employment agreement provides for
payments in U.S. dollars with an annual base salary of US$330,000.
(5) Ms. O’Keefe was appointed our CFO effective as of November 27, 2016. Her employment agreement provides for payments in U.S. dollars with an annual
base salary of US$250,000.
(6)
US$102,300, converted as at March 31, 2017, based on a closing exchange rate of US1.00= $1.3299.
(7)
US$30,000 converted as at March 31, 2017, based on a closing exchange rate of US1.00= $1.3299.
(8)
Consulting services from July 2016 to November 2016 which provided for payments in U.S. dollars: US$82,273, converted as at March 31, 2017 based on a
closing exchange rate of US1.00= $1.3299.
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Outstanding Share-Based and Option-Based Awards
The following tables provide information about the number and value of the outstanding option-based awards held by the NEOs as
of March 31, 2017. There are no share-based awards outstanding as of the date of this annual report.
Name / Grant Date
Number of Securities
Underlying
Unexercised Options
(#)
Option Exercise
Price ($)
Option Expiration
Date
Value of Unexercised
In-The-Money
Options(1)
($)
May 12, 2023
1.56
1.65
200,000
525,000
Janelle D’Alvise (2)
May 12, 2016
Linda P. O’Keefe (3)
February 24, 2017
Pierre Lemieux
February 24, 2017
May 30, 2016
June 1, 2015
October 20, 2014
Laurent Harvey
February 24, 2017
May 30, 2016
June 1, 2015
October 20, 2014
(1) Calculation is based on a trading price of $1.83 for our common shares on the TSXV, as at closing on March 31, 2017.
(2) Ms. D’Alvise was appointed as our President and CEO on May 11, 2016 and began her functions on June 1, 2016.
(3) Ms. O’Keefe was appointed as our CFO effective November 27, 2016.
50,000
31,400
16,900(1)
7,500(1)
50,000
21,000
8,700(1)
2,500(1)
1.65
1.99
4.50(1)
6.50(1)
1.65
1.99
4.50(1)
6.50(1)
February 24, 2027
May 29, 2023
June 1, 2022
October 19, 2019
February 24, 2027
May 29, 2023
June 1, 2022
October 19, 2019
February 24, 2027
141,750
36,000
9,000
-
-
-
9,000
-
-
-
The following table sets out the value of share-based, option-based, and warrant-based awards held by the NEOs that vested during
the fiscal year ended March 31, 2017:
Name
Janelle D’Alvise
Compensation of Directors
Share-Based Awards
($)
-
Option-Based Awards
($)
28,875
Our directors’ compensation consists of an annual fixed compensation of US$35,000. While our compensation structure does not
include meeting fees, a discretionary reduction of 20% may be applied to the annual retainer payment each time a director fails to attend a
quarterly board or committee session. In addition, the chairman of the board and each chairperson of the audit and the GHR committees
received additional compensation of US$25,000 and US$10,000, respectively, for their additional work during the fiscal year ended
March 31, 2017. The directors are also entitled to be reimbursed for travelling and other reasonable expenses properly incurred by them in
attending meetings of the board or any committee or in otherwise serving us, in accordance with our policy on travel and expenses.
Following their first election to our board of directors, non-executive directors are eligible to receive an initial equity grant of up to
150% of their annual cash retainer worth of stock options vesting annually in equal installments over a 3-year period, subject to the other
terms and conditions set forth under the heading “–Stock Option Plan”. In addition to their initial grant, non-executive directors are eligible
to receive an annual equity-based award equal to 100% of their total annual cash retainer vesting quarterly in equal installments over an
18-month period. These awards will be granted at the same time that we are performing our annual performance review for our employees,
subject to availability of common shares and subject to the terms and conditions described under the headings “–Stock Purchase Plan” and
“–Equity Incentive Plan”. The level of these awards will be consistent with equivalent awards in comparable companies obtained from the
benchmark exercise and in accordance with the recommendations obtained from our independent compensation consultant.
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The total compensation for our non-executive directors during the thirteen-month period ended March 31, 2017 was as follows:
Name
Roderick N.
Carter
Jean-Marie
(John) Canan
James S.
Hamilton
Leendert H.
Staal(6)
Pierre
Fitzgibbon(6)
Thirteen
Months
Ended March
31
Fees Earned
($)
Option-Based
Awards(1)(2)
($)
All Other
Compensation
($)(5)
2017
2017
2017
2017
2017
188,517(3)
236,860
44,884(4)
58,520
-
-
44,884(4)
58,520
21,917
-
-
-
-
-
-
Total
($)
425,377
103,404
-
103,404
21,917
(1) We have adopted IFRS 2 Share-Based Payment to account for the issuance of stock options to employees and non-employees. The fair value of the awards
is estimated at the grant date using the Black-Scholes option pricing model. This model requires the input of a number of parameters, including share price,
share exercise price, expected share price volatility, expected time until exercise and risk-free interest rates. Although the assumptions used reflect
management’s best estimates, they involve inherent uncertainties based on market conditions generally outside of our control.
(2)
(3)
For the thirteen-month period ended on March 31, 2017, (i) the fair market value of the May 30, 2016 option-based awards is based on a fair value of $1.18
per option granted to Dr. Carter; and (ii) the fair market value of the February 24, 2017 option-based awards is based on a fair value of $1.17 per option
granted to Mr. Canan and Dr. Staal.
Dr. Carter was appointed Executive Chairman of the board on March 1, 2016 and earned compensation of US$98,980 for this role through June 30, 2016.
After that date and Ms. D’Alvise’s appointment as CEO on June 1, 2016, Dr. Carter earned compensation of US$45,000 for being Chairman of the board
through March 31, 2017.
(4) Mr. Canan and Dr. Staal earned a director compensation of US$33,750 and were appointed to the board of directors in July 2016.
(5)
(6)
The directors do not receive pension benefits or other non-equity based annual compensation.
After the resignation of certain directors on February 29, 2016, Mr. Fitzgibbon, Chairman of the board of directors of Neptune, joined until July 12, 2016
as member of our board of directors and Chair of the audit and GHR committees to help insure a proper transition between the departing directors and the
election of the new nominees at our 2016 annual general shareholders meeting.
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Outstanding Share-Based and Option-Based Awards for Directors
The following table provides information about the number and value of the outstanding share-based and option-based awards
held by non-executive directors. There were no share-based awards outstanding as of the date of this annual report.
Name / Grant Date
Number of Securities
Underlying
Unexercised Options
Option Exercise
Price ($)(1)
Option Expiration Date
Value of Unexercised
in-the-Money
Options
($)(2)
Roderick N. Carter
May 30, 2016
August 19, 2015
Jean-Marie (John) Canan
February 24, 2017
Leendert H. Staal
February 24, 2017
200,000
10,000(1)
50,000
50,000
1.99
4.80
1.65
1.65
May 29, 2023
August 19, 2022
February 24, 2027
February 24, 2027
-
-
9,000
9,000
(1) Option-based awards were consolidated following our share consolidation. The exercise price was increased proportionally to reflect the consolidation.
(2) Calculation is based on a trading price of $1.83 for our common shares on the TSXV, as at closing on March 31, 2017.
None of the share-based and stock options of the Corporation held by non-executive Directors that vested during the financial
year ended on March 31, 2017 were in-the-money at their respective vesting date.
C.
Board Practices
Board of Directors
Director Independence
Our board of directors believes that, in order to maximize its effectiveness, the board must be able to operate independently. A
majority of directors must satisfy the applicable tests of independence, such that the board of directors complies with all independence
requirements under applicable corporate and securities laws and stock exchange requirements applicable to us. No director will be
independent unless the board of directors has affirmatively determined that the director has no material relationship with us or any of our
affiliates, either directly or indirectly or as a partner, shareholder or officer of an organization that has a relationship with us or our
affiliates. Such determinations will be made on an annual basis and, if a director joins the board of directors between annual meetings, at
such time.
Independent Directors
The board of directors determined that Mr. Canan, Dr. Carter and Dr. Staal are independent within the meaning of NI 52-110 and
NASDAQ Stock Market rules.
Directors Who are Not Independent
The board of directors determined that Mr. Hamilton is not independent within the meaning of NI 52-110 and NASDAQ rules
given that he is President and CEO of Neptune. In addition, the board of directors determined that Ms. D’Alvise is not independent within
the meaning of NI 52-110 and NASDAQ given that she is our President and CEO.
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Attendance Record of Directors for Board Meetings
During the fiscal year ended March 31, 2017, the board of directors held 12 meetings. Attendance of directors at those meetings
is indicated in the table below:
Board Members
Roderick N. Carter
Jean-Marie (John) Canan (1)
Janelle D’Alvise(1)
James S. Hamilton
Leendert H. Staal(1)
Pierre Fitzgibbon(2)
Attendance
12/12
8/8
8/8
12/12
8/8
4/4
(1) Ms. D’Alvise, Mr. Canan and Dr. Staal joined the board of director at our last annual general meeting on July 12, 2016.
(2) Mr. Fitzgibbon was temporarily appointed as a member of the board from March 1, 2016 to July 12, 2016 following the resignation of certain directors.
During the fiscal year ended March 31, 2017, the independent directors held at least 5 scheduled meetings at which
non-independent directors and members of management were not in attendance.
Chairman of the Board
Dr. Carter acts as Chairman of the board. His duties and responsibilities consist of the oversight of the quality and integrity of the
board of directors’ practices.
Board Mandate
There is no specific mandate for the board of directors, since the board has plenary power. Any responsibility that is not delegated
to senior management or a committee of the board remains with the full board of directors.
Position Descriptions
No written position description has been approved for the chair of the board of directors and for the chairs of each committee.
The primary role and responsibility of the chair of each committee of the board of directors is to: (i) in general, ensure that the committee
fulfills its mandate, as determined by the board of directors; (ii) chair meetings of the committee; (iii) report to the board of directors; and
(iv) act as liaison between the committee and the board of directors and, if necessary, our management.
Orientation and Continuing Education
We provide orientation for new appointees to the board of directors and committees in the form of informal meetings with
members of the board and senior management, complemented by presentations on the main areas of our business. The board does not
formally provide continuing education to its directors, as directors are experienced members. The board of directors relies on professional
assistance, when judged necessary, in order to be educated/updated on a particular topic.
Code of Business Conduct and Ethics
The board of directors adopted a Code of Business Conduct and Ethics, or Code of Conduct, for our directors, officers and
employees on May 31, 2007, as amended from time to time. Our Code of Conduct can be found on SEDAR at www.sedar.com and on our
web site on www.acastipharma.com. A copy of the Code of Conduct can also be obtained by contacting our Corporate Secretary. Since its
adoption by the board of directors, any breach of the Code of Conduct must be brought to the attention of the board of directors by our CEO
or other senior executives. No report has ever been filed which pertains to any conduct of a director or executive officer that constitutes a
breach to our Code of Conduct.
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Since the adoption of the Code of Conduct and the following policies, the board of directors actively monitors compliance with
the Code Conduct and promotes a business environment where employees are encouraged to report malfeasance, irregularities and other
concerns. The Code of Conduct provides for specific procedures for reporting non-compliant practices in a manner which, in the opinion of
the board of directors, encourages and promotes a culture of ethical business conduct.
The board of directors also adopted a disclosure policy, insider trading policy, majority voting policy, management and board
compensation policies, and a whistleblower policy.
In addition, under the Civil Code of Québec, to which we are subject as a legal person incorporated under the Business
Corporations Act (Québec) (L.R.Q., c. S-31), a director o must immediately disclose to the board any situation that may place him or her in
a conflict of interest. Any such declaration of interest is recorded in the minutes of proceeding of the board of directors. The director
abstains, except if required, from the discussion and voting on the question. In addition, it is our policy that an interested director recuse
himself or herself from the decision-making process pertaining to a contract or transaction in which he or she has an interest.
Nomination of Directors
The board of directors receives recommendations from the GHR committee, but retains responsibility for managing its own
affairs by, among other things, giving its approval for the composition and size of the board of directors, and the selection of candidates
nominated for election to the board of directors. The GHR committee initially evaluates candidates for nomination for election as directors,
having regard to the background, employment and qualifications of possible candidates.
The selection of the nominees for the board of directors is made by the other members of the board, based on our needs and the
qualities required for the board of directors, including ethical character, integrity and maturity of judgment of the candidates; the level of
experience of the candidates, their ideas regarding the material aspects of our business, the expertise of the candidates in fields relevant to
us while complementing the training and experience of the other members of the board of directors; the will and ability of the candidates to
devote the necessary time to their duties to the board of directors and its committees, the will of the candidates to serve on the board of
directors for numerous consecutive financial periods and finally, the will of the candidates to refrain from engaging in activities which
conflict with the responsibilities and duties of a director. The board researches the training and qualifications of potential new directors
which seem to correspond to the selection criteria of the board of directors and, depending on the results of said research, organizes
meetings with the potential candidates.
In the case of incumbent directors whose terms of office are set to expire, the board will review such directors’ overall service to
us during their term of office, including the number of meetings attended, level of participation, quality of performance and any
transactions of such directors with us during their term of office.
We may use various sources in order to identify the candidates for the board of directors, including our own contacts and the
references of other directors, officers, advisors and executive placement agencies. We will consider director candidates recommended by
shareholders and will evaluate those director candidates in the same manner in which we evaluate candidates recommended by other
sources. In making recommendations for director nominees for the annual meeting of shareholders, we will consider any written
recommendations of director candidates by shareholders received by our Corporate Secretary not later than 120 days before the anniversary
of the previous year’s annual meeting of shareholders. Recommendations must include the candidate’s name, contact information and a
statement of the candidate’s background and qualifications, and must be mailed to us. Following the selection of the candidates by the
board of directors, we will propose a list of candidates to the shareholders, for our annual meeting of shareholders.
The board of directors does not have a nominating committee and has not adopted any formal written director term limit policy.
Proposed nominations of director candidates are evaluated by our GHR committee.
GHR Committee
The mandate of the GHR committee consists of the evaluation of the proposed nominations of senior executives and director
candidates to our board of directors, recommending for board approval, if appropriate, revisions of our corporate governance practices and
procedures, developing new charters for any new committees established by the board of directors, monitoring relationships and
communication between management and the board of directors, monitoring emerging best practices in corporate governance and oversight
of governance matters and assessing the board of directors and its committees. The GHR committee is also in charge of establishing the
procedure which must be followed by us to comply with applicable guidelines of the TSXV and NASDAQ Stock Market regarding
corporate governance.
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The GHR committee has the responsibility of evaluating the compensation, performance incentives as well as the benefits
granted to our upper management in accordance with their responsibilities and performance as well as to recommend the necessary
adjustments to our board of directors. The GHR committee also reviews the amount and method of compensation granted to the directors.
The GHR committee may retain an external firm in order to assist it during the execution of its mandate. The GHR committee considers
time commitment, comparative fees and responsibilities in determining compensation.
The GHR committee is composed of independent members within the meaning of NI 52-110 and NASDAQ Stock Exchange
rules, namely Dr. Staal, acting as chairperson, Dr. Carter and Mr. Canan.
Periodic Assessments
The board of directors, its committees and each director are subject to periodic evaluations of their efficacy and contribution. The
evaluation procedure consists in identifying any shortcomings and implementing adjustments proposed by directors at the beginning and
during meetings of the board of directors and of each of its committees. Among other things, these adjustments deal with the level of
preparation of directors, management and consultants employed by us, the relevance and sufficiency of the documentation provided to
directors and the time allowed to directors for discussion and debate of items on the agenda.
Director Term Limits
The board actively considers the issue of term limits from time to time. At this time, the board does not believe that it is in our
best interests to establish a limit on the number of times a director may stand for election. While such a limit could help create an
environment where fresh ideas and viewpoints are available to the board, a director term limit could also disadvantage us through the loss
of the beneficial contribution of directors who have developed increasing knowledge of, and insight into, us and our operations over a
period of time. As we operate in a unique industry, it is difficult to find qualified directors with the appropriate background and experience
and the introduction of a director term limit would impose further difficulty.
Policies Regarding the Representation of Women on the Board and Among Executive Officers
We have not adopted a formal written policy regarding diversity amongst executive officers and members of the board of
directors, including mechanisms for board renewal, in connection with, among other things, the identification and nomination of women
directors. Nevertheless, we recognize that gender diversity is a significant aspect of diversity and acknowledges the important role that
women with appropriate and relevant skills and experience can play in contributing to the diversity of perspective on the board of directors.
Rather than considering the level of representation of women for directorship and executive officer positions when making board
or executive officer appointments, we consider all candidates based on their merit and qualifications relevant to the specific role. While we
recognize the benefits of diversity at all levels within its organization, we do not currently have any targets, rules or formal policies that
specifically require the identification, consideration, nomination or appointment of candidates for directorship or executive management
positions or that would otherwise force the composition of our board of directors and executive management team. Currently, we have one
women director who is also our CEO. In addition, our CFO is a woman.
Audit Committee
Our audit committee is responsible for assisting the board of directors in fulfilling its oversight responsibilities with respect to
financial reporting, including:
•
•
•
•
•
reviewing our procedures for internal control with our auditor and management performing financial functions;
reviewing and approving the engagement of the auditor;
reviewing annual and quarterly financial statements and all other material continuous disclosure documents, including our
annual information form and management’s discussion and analysis;
assessing our financial and accounting personnel;
assessing our accounting policies;
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•
•
reviewing our risk management procedures; and
reviewing any significant transactions outside our ordinary course of business and any pending litigation involving us.
The audit committee has direct communication channels with our management performing financial functions and our external
auditor to discuss and review such issues as the audit committee may deem appropriate. As of March 31, 2017, the audit committee is
composed of Mr. Canan, as chairperson, Dr. Carter and Dr. Staal. Each is “financially literate” and “independent” within the meaning of NI
52-110 and the Exchange Act.
Compensation Governance
Compensation of our executive officers and directors is recommended to the board of directors by the GHR committee. In its
review process, the GHR committee relies on input from management on the assessment of executives and corporate performance. During
the fiscal year ended March 31, 2017, the GHR committee was composed of the following members, each of whom is independent:
Dr. Staal, acting as chairperson, Dr. Carter and Mr. Canan. The GHR committee establishes management compensation policies and
oversees their general implementation. All members of the GHR committee have direct experience which is relevant to their responsibilities
as GHR committee members. All members are or have held senior executive or director roles within significant businesses, several also
having public companies experience, and have a good financial understanding which allows them to assess the costs versus benefits of
compensation plans. The members combined experience in our sector provides them with the understanding of our success factors and
risks, which is very important when determining metrics for measuring success.
Risk management is a primary consideration of the GHR committee when implementing its compensation program. We do
not believe that our compensation program results in unnecessary or inappropriate risk taking, including risks that are likely to have a
material adverse effect on us. Payments of bonuses, if any, are not made unless performance goals are met.
For executives, more than half of target direct compensation (base salary + target STIP awards + target LTIP awards) is
considered “at risk”. We believe this mix results in a strong pay-for-performance relationship and an alignment with shareholders and is
competitive with other firms of comparable size in similar fields. The CEO (or any person acting in that capacity) makes recommendations
to the GHR committee as to the compensation of our executive officers, other than himself or herself, for approval by the board. The GHR
committee makes recommendations to the board of directors as to the compensation of the CEO, for approval. The CEO’s salary is based
on comparable market consideration and the GHR committee’s assessment of his or her performance, with regard to our financial
performance and progress in achieving strategic goals.
Qualitative factors beyond the quantitative financial metrics are also a key consideration in determination of individual executive
compensation payments. How executives achieve their financial results and demonstrate leadership consistent with our values are key to
individual compensation decisions.
D. Employees
Our management consists of professionals experienced in business development, finance and science. Our research team includes
scientists with expertise in pharmaceutical development, chemistry, manufacturing and controls, nonclinical and clinical studies,
pharmacology, regulatory affairs, quality assurance/quality control, intellectual property and strategic alliances. As of March 31, 2017, we
had 13 full-time employees located in Canada and 2 full-time employees located in the United States. We generally require all of our
employees to enter into an invention assignment, non-disclosure and non-compete agreement. We rely, in part, on the administrative and
other staff of Neptune and also rely on consultants from time to time. Our employees are not covered by any collective bargaining
agreement or represented by a trade union. We consider our relations with our employees to be good and our operations have never been
interrupted as the result of a labor dispute.
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E.
Share Ownership
The following table shows the total number of common shares beneficially owned by each of our directors and executive officers
and the percentage of the total issued and outstanding common shares that such holdings represent.
Name
Roderick N. Carter
Jean-Marie (John) Canan
James S. Hamilton
Leendert H. Staal
Janelle D’Alvise
Linda P. O’Keefe
Pierre Lemieux
Laurent Harvey
Common shares beneficially owned
as of March 31, 2017
-
57,500
-
-
52,500
30,000
7,000
-
Percentage of total issued and
outstanding common shares
as of March 31, 2017(1)
-
*
-
-
*
*
*
-
(1)
*
Based on 14,702,556 common shares outstanding.
Less than 1%.
See “Item 6.B. Compensation” above for information regarding the share-based, option-based, call-option-based, and warrant-
based awards held by our directors and executive officers and for a description of our stock option plan and equity incentive plan.
Item 7.
Major Shareholders and Related Party Transactions
A. Major Shareholders
As of June 26, 2017, Neptune owns 5,064,694 common shares representing 34% of our common shares issued and outstanding.
The common shares are voting, participating, and have no par value. Neptune also owns a warrant entitling it to acquire 592,500 common
shares (in order to obtain 1 common share, 10 warrants must be exercised). Neptune does not have different voting rights than other holders
of common shares. To the best of our knowledge, there are no other beneficial owners of 5% or more of any class of our voting securities
other than Mr. George W. Haywood, who, according to a beneficial ownership report on Schedule 13G filed by Mr. Haywood with the
Commission, owns 1,479,000 of our common shares, representing 9.9% of our issued and outstanding common shares.
All common shares, including those held by Neptune, are common shares with the same voting rights. Based on the records of
our registrar and transfer agent, Computershare Trust Company of Canada, as of March 31, 2017, there were approximately 10 registered
holders (including The Depository Trust Company) of our common shares resident in the United States (approximately 10% of all
registered holders).
B.
Related Party Transactions
Please see the section entitled “—Related Party Transactions” in “Item 5. Operating and Financial Review and Prospects”.
C.
Interests of Experts and Counsel
Not applicable.
Item 8.
Financial Statements
A.
Consolidated Statements and Other Financial Information
Financial Statements
See “Item 17. Financial Statements” for our audited consolidated financial statements.
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Legal Proceedings
Due to the fact that a significant portion of our intellectual property rights are licensed to us by Neptune, we rely on Neptune to
protect a significant portion of the intellectual property rights that we use under our license agreement with Neptune. Neptune is engaged in
a number of legal actions related to its intellectual property.
Our former CEO is claiming the payment of approximately $8.5 million and the issuance of equity instruments from the Neptune
group. As our management believes that these claims are not valid, no provision has been recognized. Neptune and its subsidiaries also
filed an additional claim to recover certain amounts from the former officer.
We are also involved in other matters arising in the ordinary course of our business. Since management believes that all related
claims are not valid and it is presently not possible to determine the outcome of these matters, no provisions have been made in our
financial statements for their ultimate resolution beyond the amounts incurred and recorded for such matters. The resolution of these other
matters could have an effect on our financial statements in the year that a determination is made, however, in management’s opinion, the
final resolution of all such matters is not projected to have a material adverse effect on our financial position.
Dividend Policy
We do not anticipate paying any cash dividend on the common shares in the foreseeable future. We presently intend to retain
future earnings to finance the expansion and growth of our business. Any future determination to pay dividends will be at the discretion of
our board of directors and will depend on our financial condition, results of operations, capital requirements and other factors the board of
directors deems relevant. In addition, the terms of any future debt or credit facility may preclude us from paying dividends.
Item 9.
The Offer and Listing
A.
Listing Details
Since March 31, 2011, our common shares have been listed on the TSX-V under the ticker symbol APO. Since January 7, 2013,
our common shares have been listed on the NASDAQ Stock Market under the ticker symbol ACST. The following tables set forth, for the
periods indicated, the high and low market prices of our common shares as reported on the TSX-V and the NASDAQ Stock Market.
(a) For the five most recent full fiscal years:
Fiscal year ended
Feb. 28, 2013(1)
Feb. 28, 2014(1)
Feb. 28, 2015(1)
Feb. 29, 2016
Mar. 31, 2017
TSX-V
NASDAQ Stock Market
High $
Low $
High US$
Low US$
27.60
43.20
14.90
7.60
4.03
16.00
39.90
11.50
42.00
11.50
13.40
1.83
1.47
6.10
3.09
20.00
10.90
10.90
1.30
1.11
(1)
Our common shares were consolidated on October 15, 2015, on the basis of one (1) post-consolidation common share for every 10
pre-consolidation common shares, and each fractional common share resulting from the consolidation was rounded up. The common share
price was increased proportionally to reflect the consolidation.
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(b) For each full financial quarter of the two most recent full fiscal years and any subsequent period:
TSX-V
NASDAQ Stock Market
Period
1st Quarter ended May 31, 2015 (1)
2nd Quarter ended Aug. 31, 2015 (1)
3rd Quarter ended Nov. 30, 2015 (1)
4th Quarter ended Feb. 29, 2016
1st Quarter ended May 31, 2016
2nd Quarter ended Aug. 31, 2016
3rd Quarter ended Nov. 30, 2016
Four-month period ended Mar. 31, 2017
High $ Low $ High US$ Low US$
5.00
3.90
2.01
1.30
1.20
1.21
1.20
1.11
6.10
4.20
3.80
3.20
1.88
1.79
3.09
2.03
7.60
5.50
4.70
4.40
2.45
2.25
4.03
2.66
4.00
3.50
2.65
1.83
1.50
1.66
1.62
1.47
(1)
Our common shares were consolidated on October 15, 2015, on the basis of one (1) post-consolidation common share for every 10
pre-consolidation common shares, and each fractional common share resulting from the consolidation was rounded up. The common share
price was increased proportionally to reflect the consolidation.
(c) For the most recent six months:
TSX-V
NASDAQ Stock Market
Period
November 2016
December 2016
January 2017
February 2017
March 2017
April 2017
May 2017
High $
3.32
Low $
1.62
High US$
2.46
Low US$
1.20
2.66
1.47
2.32
1.64
1.88
1.53
2.12
1.53
1.88
1.70
1.83
1.65
2.03
1.75
1.48
1.65
1.44
1.35
1.11
1.20
1.16
1.14
1.24
1.23
The holders of common shares are entitled to vote at all meetings of our shareholders except meetings at which only holders of a
specified class or series of shares are entitled to vote. The holders of common shares are entitled to receive dividends as and when declared
by the board, if any.
No common shares have been issued subject to call or assessment. There are no pre-emptive or conversion rights and no
provisions for redemption or purchase for cancellation, surrender, or sinking or purchase funds. Our common shares must be issued as
fully-paid and non-assessable, and are not subject to further capital calls by us. All of the common shares rank equally as to voting rights,
participation in a distribution of our assets on a liquidation, dissolution or winding-up, and the entitlement to dividends. Common shares are
transferable at the offices of our transfer agent and registrar, Computershare Trust Company of Canada, in Toronto, Ontario, Canada and
Montreal, Québec, Canada. There are no restrictions in our corporate documents on the free transferability of the common shares.
B.
Plan of Distribution
Not applicable.
C. Markets
Since March 31, 2011, the common shares have been listed on the TSX-V under the ticker symbol APO. Since January 7, 2013,
the common shares have been listed on the NASDAQ Stock Market under the ticker symbol ACST.
D.
Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
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F.
Expenses of the Issuer
Not applicable.
Item 10.
Additional Information
A.
Share Capital
Not applicable.
B. Memorandum and Articles of Association
We were incorporated on February 1, 2002 under Part 1A of the Companies Act (Québec) under the name “9113-0310 Québec
Inc”. On August 7, 2008, pursuant to a Certificate of Amendment, we changed our name to “Acasti Pharma Inc.”, our share capital, the
provisions regarding the restrictions on securities transfers and our borrowing powers. On November 7, 2008, pursuant to a Certificate of
Amendment, we further revised our provisions regarding our borrowing powers. We became a reporting issuer in Québec on November 17,
2008. On February 14, 2011, the Business Corporations Act (Québec) came into effect and replaced the Companies Act (Québec). We are
now governed by the Business Corporations Act (Québec), or the BCA.
Register, Entry Number and Purposes
Our articles of incorporation, as amended, or Articles, and general by-laws, do not define any of our objects and purposes. In that
respect, we have no limit on the type of business we can carry out.
Directors’ Powers
Our Articles and by-laws do not contain any provision regarding: (a) a director’s power in the absence of an independent quorum,
to vote compensation to itself or any members of the committees of the board; (b) retirement or non-retirement of directors under an age
limit requirement; and (c) number of shares, if any, required for a director’s qualification.
Our by-laws provide that a director may not vote on a resolution to approve, amend or terminate a contract or transaction in which
the director has any financial stake that may reasonably be considered to influence decision-making or be present during deliberations
concerning the approval, amendment or termination of such a contract or transaction, unless the contract or transaction: (a) relates
primarily to the remuneration of the director or an associate of the director as a director of us or an affiliate of us, (b) relates primarily to the
remuneration of the director or an associate of the director as an officer, employee or mandatary of us or an affiliate of us, if we are not a
reporting issuer, (c) is for indemnity or liability insurance, or (d) is with an affiliate of us, and the sole interest of the director is as a director
or officer of the affiliate. In addition, our by-laws provide that a director must avoid placing himself or herself in any situation where his or
her personal interests would be in conflict with his obligations as a director of ours, and that a director must disclose to us any interest he or
she has in a business or association that may place him or her in a situation of conflict of interest and of any right he or she may set up
against us, indicating their nature and value, where applicable.
Our Articles provide that the board may, on behalf us, (a) borrow money, (b) issue, reissue, sell or pledge debt instruments,
(c) guarantee the obligations of a third party, and (d) hypothecate all or any of its assets, both present and future, to guarantee the
performance of any of our obligations.
The quorum at every meeting of the board has been set to the minimum number of directors required under our Articles. In the
absence of a quorum, a director has no power to make any decision regarding, among other things, compensation to himself or herself or to
any member of the committees of the board.
Our by-laws do not contain any requirements with respect to a mandatory retirement age for our directors and the number of
shares required for directors’ qualifications.
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Rights, Preferences and Restrictions Attaching to Each Class of Shares
Our authorized capital consists of an unlimited number of no par value common shares and an unlimited number of no par value
Class B, Class C, Class D and Class E preferred shares (collectively, the preferred shares), issuable in one or more series. As of March 31,
2017, there were:
•
•
•
•
•
•
•
a total of 14,702,556 common shares issued and outstanding and no preferred shares issued and outstanding;
990,726 options to purchase common shares issued and outstanding, at a weighted average exercise price of $3.49 per
common share;
18,400,000 Series 8 public offering warrants issued in 2014 to purchase common shares issued and outstanding
(including 592,500 warrants held by Neptune), at an exercise price of US$1.50 per common share (10 warrants must be
exercised in order to acquire one common share);
161,654 Series 9 private placement warrants issued in 2014 to purchase common shares issued and outstanding, at an
exercise price of $13.30 per common share;
$2,000,000 aggregate principal amount of unsecured convertible debentures, maturing on February 21, 2020, issued in
our February 2017 private placement and contingent warrants to acquire up to 1,052,630 common shares:
○
○
○
the debentures are convertible into common shares at any time by the holder at a fixed price of $1.90 per
common share, except if we pay before the maturity all or any portion of the convertible debentures;
if we pay all or any portion of the convertible debentures before maturity, then warrants become
exercisable at $1.90 per common share for the equivalent convertible debenture amount prepaid.
the contingent warrants will be exercisable for the remaining term of the convertible debentures for the
same price as the conversion options;
warrants issued in connection with our February 2017 public offering to purchase up to 1,965,259 common shares at an
exercise price of $2.15 per common share, at any time until February 21, 2022; and
broker warrants issued in connection with our February 2017 public offering to purchase up to 234,992 common shares
at an exercise price of $2.15 per common share, at any time until February 21, 2018.
The following is a brief description of the rights, privileges, conditions and restrictions attaching to the common shares and
preferred shares.
Common Shares
Voting Rights
Each common share entitles its holder to receive notice of, and to attend and vote at, all annual or special meetings of our
shareholders. Each common share entitles its holder to one vote at any meeting of our shareholders, other than meetings at which only the
holders of a particular class or series of shares are entitled to vote due to statutory provisions or the specific attributes of this class or series.
Dividends
Subject to the prior rights of the holders of preferred shares ranking before the common shares as to dividends, the holders of
common shares are entitled to receive dividends as declared by the board our funds that are available for the payment of dividends.
Winding-up and Dissolution
In the event of our voluntary or involuntary winding-up or dissolution, or any other distribution of our assets among our
shareholders for the purposes of winding up its affairs, the holders of common shares shall be entitled to receive, after payment by us to the
holders of preferred shares ranking prior to common shares regarding the distribution of our assets in the case of winding-up or dissolution,
share for share, the remainder of our property, with neither preference nor distinction. The order of priority, applicable to all classes of our
shares with respect to the redemption, liquidation, dissolution or distribution of property (the order of priority) is as follows: First, the
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Class E non-voting shares; Second, the Class D non-voting shares; Third, the Class B multiple voting shares and Class C non-voting
shares, pari passu; and Fourth, the common shares. Notwithstanding the order of priority, shareholders of a class of shares may renounce
the order of priority by unanimous approval by all shareholders of that class of shares.
Preferred Shares
Class B Multiple Voting Shares
Each Class B multiple voting share entitles the holder thereof to 10 votes per share in all of our shareholder meetings.
Dividends. Holders of Class B multiple voting shares are entitled to receive, as and when such dividends are declared, an annual
non-cumulative dividend of 5% on the amount paid for the said shares, payable at the time and in the manner which the directors may
determine and subject to the order of priority.
Participation. Subject to the provisions of subsection 5.2.2 of our Articles, holders of Class B multiple voting shares do not have
the right to participate in our profits or surplus assets.
Conversion. Holders of Class B multiple voting shares have the right, at their entire discretion, to convert, part or all of the
Class B multiple voting shares they hold into common shares on the basis of 1 common share for each Class B multiple voting share
converted.
Redemption. Subject to the provisions of the BCA and the order of priority, holders of Class B multiple voting shares have the
right to demand from us, upon 30 days’ written notice, that we redeem the Class B multiple voting shares at a price equivalent to the
amount paid for such shares plus the redemption premium, as defined in subsection 5.2.4.1 of the Articles, and any and all declared but yet
unpaid dividends on same.
Liquidation. In the event of our dissolution or liquidation or any other distribution of our property, the Class B voting
shareholders have the right to be reimbursed for the amount paid for their Class B multiple voting shares plus the redemption premium, as
defined in subsection 5.2.4.1 of our Articles as well as the amount of any and all declared but yet unpaid dividends on their shares, subject
to the order of priority.
Class C Non-Voting Shares
Subject to the provisions of the BCA, holders of Class C non-voting shares are neither entitled to vote at any meeting of our
shareholders, receive a notice of any such meeting, nor attend any such meeting.
Dividends. Holders of Class C non-voting shares are entitled to receive, as and when such dividends are declared, an annual
non-cumulative dividend of 5% on the amount paid for the said shares, plus a redemption premium as defined in subsection 5.3.6.1 of our
Articles, payable at the time and in the manner which the directors may determine and subject to the order of priority.
Participation. Subject to the provisions of subsection 5.3.2 of our Articles, holders of Class C non-voting shares do not have the
right to participate in our profits or surplus assets.
Conversion. Holders of Class C non-voting shares have the right, at their entire discretion, to convert, part or all of the Class C
non-voting shares they hold into common shares on the basis of 1 common share for each Class C non-voting share converted.
Forced Conversion. All of our Class C non-voting shares shall automatically be converted in common shares upon the request of
an unrelated third-party investor in us investing more than $500,000, or any other amount to be determined by the board of directors in us
and requesting as a condition to the investment that the Class C non-voting shares be converted into common shares on the basis of 1
common share for each Class C non-voting share converted.
Redemption. Subject to the provisions of the BCA and the order of priority, holders of Class C non-voting shares have the right to
demand, upon 30 days’ written notice, that we redeem their Class C non-voting shares at a price equivalent to the amount paid for the
shares plus the redemption premium, as defined in subsection 5.3.6.1 of our Articles, and any and all declared but yet unpaid dividends on
the shares.
Liquidation. In the event of our dissolution or liquidation or any other distribution of our property, Class C non-voting
shareholders have the right to be reimbursed for the amount paid for their Class C non-voting shares plus the redemption premium, as
defined in subsection 5.3.6.1 of our Articles, as well as the amount of any and all declared but yet unpaid dividends on their shares, subject
to the order of priority.
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Class D Non-Voting Shares
Subject to the provisions of the BCA, holders of Class D non-voting shares are neither entitled to vote at any meeting of the
shareholders, receive a notice of any such meeting, nor attend any such meeting.
Dividends. Holders of Class D non-voting shares are entitled to receive, as and when such dividends are declared, a monthly
non-cumulative dividend of 0.5% to 2% on the amount paid for the shares, plus a redemption premium as defined in subsection 5.4.6.1 of
our Articles, payable at the time and in the manner which the directors may determine and subject to the order of priority.
Participation. Subject to the provisions of subsection 5.4.2 of our Articles, holders of Class D non-voting shares do not have the
right to participate in our profits or surplus assets.
Conversion. Holders of Class D non-voting shares have the right, at their discretion, to convert, part or all of their Class D
non-voting shares into common shares on the basis of a number of common shares equal to the number of Class D non-voting shares
converted multiplied by a conversion ratio, calculated as follows:
Conversion Ratio =
The product obtained by multiplying a factor to be agreed at the time of the issuance of the Class D non-voting shares
by the average amount paid per share for the Class D non-voting shares plus the redemption premium per share, as
defined in subsection 5.4.6.1 of our Articles as well as the amount of any and all declared but yet paid dividends on
the shares
Fair market value of the common shares at the date of any conversion of Class D non-voting shares into common
shares
Conversion All of our Class C non-voting shares automatically convert into common shares upon the request of an unrelated third
party investor in us, investing more than $500,000, or any other amount to be determined by the board of directors, in us and requesting as
a condition to the investment that the Class C non-voting shares be converted into common shares in all cases, on the basis of a number of
common shares equal to the number of Class D non-voting shares converted multiplied by the conversion ratio, calculated as follows:
Conversion Ratio =
The product obtained by multiplying a factor to be agreed at the time of the issuance of the Class D non-voting shares
by the average amount paid per share for the Class D non-voting shares plus the redemption premium per share, as
defined in subsection 5.4.6.1 of our Articles as well as the amount of any and all declared but yet paid dividends on
the shares
Fair market value of the common shares at the date of any conversion of Class D non-voting shares into common
shares
Redemption. Subject to the provisions of the BCA and the order of priority, holders of Class D non-voting shares have the right to
demand, upon 30 days’ written notice, that we redeem their Class D non-voting shares at a price equivalent to the amount paid for the
shares plus the redemption premium, as defined in subsection 5.4.6.1 of our Articles, and any and all declared but yet unpaid dividends on
the shares.
Liquidation. In the event of our dissolution or liquidation or any other distribution of our property, the Class D non-voting
shareholders shall have the right to be reimbursed for the amount paid for their Class D non-voting shares plus the redemption premium, as
defined in subsection 5.4.6.1 of our Articles as well as the amount of any and all declared but yet unpaid dividends on their shares, subject
to the order of priority.
Class E Non-Voting Shares
Subject to the provisions of the BCA, holders of Class E non-voting shares are neither entitled to vote at any meeting of the
shareholders, receive a notice of any such meeting, nor attend any such meeting.
Dividends. Holders of Class E non-voting shares are entitled to receive, as and when such dividends are declared, a monthly
non-cumulative dividend of 0.5% to 2% on the amount paid for the shares, payable at the time and in the manner which the directors may
determine and subject to the order of priority.
Participation. Subject to the provisions of subsection 5.5.2 of our Articles, holders of Class E non-voting shares do not have the
right to participate in our profits.
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Conversion. Holders of Class E non-voting shares have the right, at their discretion, to convert, part or all of their Class E
non-voting shares into common shares on the basis of a number of common shares equal to the number of Class E non-voting shares
converted multiplied by the conversion ratio, calculated as follows:
Conversion Ratio =
The product obtained by multiplying a factor to be agreed at the time of the issuance of the Class E non-voting shares
by the average amount paid per share for the Class E non-voting shares plus the amount of any and all declared but
yet paid dividends on the shares
Fair market value of the common shares at the date of any conversion of Class E non-voting shares into common
shares
Redemption. Subject to the provisions of the BCA and the order of priority, we have the right, upon 30 days’ written notice, to
redeem the Class E non-voting shares at a price equivalent to the amount paid for the shares and any and all declared but yet unpaid
dividends on the shares.
Liquidation. In the event of our dissolution or liquidation or any other distribution of our property, the Class E non-voting
shareholders have the right to be reimbursed for the amount paid for their Class E non-voting shares as well as the amount of any and all
declared but yet unpaid dividends on the shares, subject to the order of priority.
Procedures to Change the Rights of Shareholders
In order to change the rights attached to all classes of our shares, the vote of at least 66 2/3% of the holders of each class, must be
cast at a shareholders meeting called for amending the rights attached to our common shares or preferred shares, as the case may be.
Ordinary and Extraordinary Shareholders’ Meetings
Our by-laws provide that our annual meeting of shareholders must be held on a yearly basis on such date and on such time as may
be fixed by the board. Our by-laws provide that special meetings of shareholders may be called at any time as determined by the board. Our
shareholders are entitled to call special meetings of shareholders, provided that they hold at least 10% of the issued and outstanding shares
entitled to vote at the meeting so called. Our by-laws provide that notice of each annual and special meeting of shareholders must be sent to
the shareholders entitled to attend such meetings not less than 21 days and not more than 60 days before the date fixed for such meeting.
Our by-laws provide that during any meeting of shareholders, the attendance, in person or by proxy, of at least two shareholders
representing at least 10% of the issued and outstanding shares entitled to vote at the meeting will constitute a quorum.
Limitations on Rights to Own Securities
There exists no limitation on the right to own our securities.
Impediments to Change of Control
Neither our Articles nor by-laws contain any provision that would have an effect of delaying, deferring or preventing a change in
control of us.
Stockholder Ownership Disclosure Threshold in Bylaws
Our Articles and By-laws do not contain any provision requiring a shareholder to disclose his ownership above a particular
threshold.
C. Material Contracts
For the two years preceding this annual report, we have not entered into any material contracts, other than contracts entered into
in the ordinary course of our business, besides the indenture relating to the warrants that we issued in connection our public offering of
units in February 2017.
D. Exchange Controls
Subject to the following paragraph, there is no law or governmental decree or regulation in Canada that restricts the export or
import of capital, or affects the remittance of dividends, interest or other payments to non-resident holders of our subordinate voting shares,
other than withholding tax requirements.
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There is no limitation imposed by Canadian law or by our Articles or our other charter documents on the right of a non-resident to
hold or vote voting shares, other than as provided by the Investment Canada Act (Canada), or Investment Canada Act, the North American
Free Trade Agreement Implementation Act (Canada), or North American Free Trade Agreement, and the World Trade Organization
Agreement Implementation Act. The Investment Canada Act requires notification and, in certain cases, advance review and approval by the
Government of Canada of an investment to establish a new Canadian business by a non-Canadian or of the acquisition by a “non-Canadian”
of “control” of a “Canadian business”, all as defined in the Investment Canada Act. Generally, the threshold for review will be higher in
monetary terms for a member of the World Trade Organization or North American Free Trade Agreement.
E.
Taxation
The following is a summary of certain U.S. federal income tax considerations to a U.S. Holder (as defined below) arising from
and relating to the acquisition, ownership, and disposition of our common shares as capital assets.
This summary provides only general information and does not purport to be a complete analysis or listing of all potential U.S.
federal income tax consequences that may apply to a U.S. Holder as a result of the acquisition, ownership, and disposition of our common
shares. In addition, this summary does not take into account the individual facts and circumstances of any particular U.S. Holder that may
affect the U.S. federal income tax consequences applicable to that U.S. Holder. Accordingly, this summary is not intended to be, and should
not be construed as, legal or U.S. federal income tax advice with respect to any U.S. Holder. Each U.S. Holder should consult its own tax
advisor regarding the U.S. federal, U.S. state and local, and non-U.S. tax consequences arising from or relating to the acquisition,
ownership, and disposition of our common shares.
No legal opinion from U.S. legal counsel or ruling from the Internal Revenue Service, or IRS, has been requested, or will be
obtained, regarding the U.S. federal income tax consequences to U.S. Holders of the acquisition, ownership, and disposition of our common
shares. This summary is not binding on the IRS, and the IRS is not precluded from taking a position that is different from, and contrary to,
the positions taken in this summary. In addition, because the authorities on which this summary is based are subject to various
interpretations, the IRS and the U.S. courts could disagree with one or more of the positions taken in this summary.
Scope of this Disclosure
Authorities
This summary is based on the U.S. Internal Revenue Code of 1986, as amended, or the Code, U.S. Treasury Regulations
promulgated thereunder (whether final, temporary or proposed), published IRS rulings, judicial decisions, published administrative
positions of the IRS, and the Convention between Canada and the United States of America with Respect to Taxes on Income and on
Capital, signed September 26, 1980, as amended (the Canada-U.S. Tax Treaty). Any of the authorities on which this summary is based
could be changed in a material and adverse manner at any time, and any such change could be applied on a retroactive basis. Unless
otherwise discussed, this summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation.
U.S. Holders
For purposes of this summary, a “U.S. Holder” is a beneficial owner of common shares that, for U.S. federal income tax
purposes, is (a) an individual who is a citizen or resident of the United States, (b) a corporation, or other entity classified as a corporation
for U.S. federal income tax purposes, that is created or organized in or under the laws of the U.S., any state in the United States or the
District of Columbia, (c) an estate if the income of such estate is subject to U.S. federal income tax regardless of the source of such income,
or (d) a trust if (i) such trust has validly elected to be treated as a U.S. person for U.S. federal income tax purposes or (ii) a U.S. court is able
to exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to control all
substantial decisions of such trust.
U.S. Holders Subject to Special U.S. Federal Income Tax Rules Not Addressed
This summary does not address the U.S. federal income tax consequences applicable to U.S. Holders that are subject to special
provisions under the Code, including, but not limited to, the following U.S. Holders: (a) U.S.
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Holders that are tax-exempt organizations, qualified retirement plans, individual retirement accounts, or other tax deferred accounts;
(b) U.S. Holders that are financial institutions, insurance companies, real estate investment trusts, or regulated investment companies;
(c) U.S. Holders that are dealers in securities or currencies or U.S. Holders that are traders in securities that elect to apply a mark-to-market
accounting method; (d) U.S. Holders that have a “functional currency” other than the U.S. dollar; (e) U.S. Holders subject to the alternative
minimum tax provisions of the Code; (f) U.S. Holders that own common shares as part of a straddle, hedging transaction, conversion
transaction, integrated transaction, constructive sale, or other arrangement involving more than one position; (g) U.S. Holders that acquired
common shares through the exercise of employee stock options or otherwise as compensation for services; (h) U.S. Holders that hold
common shares other than as a capital asset within the meaning of Section 1221 of the Code; (i) U.S. Holders that beneficially own
(directly, indirectly or by attribution) 10% or more of our voting securities or otherwise held 10% or more of our total combined voting
power; and (j) U.S. expatriates. U.S. Holders that are subject to special provisions under the Code, including U.S. Holders described above,
should consult their own tax advisor regarding the U.S. federal, U.S. federal alternative minimum, U.S. federal estate and gift, U.S. state
and local, and non-U.S. tax consequences arising from and relating to the acquisition, ownership, and disposition of the common shares.
If an entity or arrangement that is classified as a partnership for U.S. federal income tax purposes holds common shares, the U.S.
federal income tax consequences to that partnership and the partners of that partnership generally will depend on the activities of the
partnership and the status of the partners. Partners of entities that are classified as partnerships for U.S. federal income tax purposes should
consult their own tax advisors regarding the U.S. federal income tax consequences arising from and relating to the acquisition, ownership
and disposition of the common shares.
Tax Consequences Other than U.S. Federal Income Tax Consequences Not Addressed
This summary does not address the U.S. estate and gift, alternative minimum, state, local or non-U.S. tax consequences to U.S.
Holders of the acquisition, ownership, and disposition of our common shares. Each U.S. Holder should consult its own tax advisor
regarding the U.S. estate and gift, alternative minimum, state, local and foreign tax consequences arising from and relating to the
acquisition, ownership, and disposition of our common shares.
U.S. Federal Income Tax Considerations of the Acquisition, Ownership, and Disposition of Common Shares
Distributions on Common Shares
Subject to the possible application of the passive foreign investment company, or PFIC, rules described below (see the more
detailed discussion below at “—Passive Foreign Investment Company Rules”), a U.S. Holder that receives a distribution, including a
constructive distribution or a taxable stock distribution, with respect to the common shares generally will be required to include the amount
of that distribution in gross income as a dividend (without reduction for any Canadian income tax withheld from such distribution) to the
extent of our current or accumulated “earnings and profits” (as computed for U.S. federal income tax purposes). To the extent that a
distribution exceeds our current and accumulated “earnings and profits”, the excess amount will be treated (a) first, as a tax-free return of
capital to the extent of a U.S. Holder’s adjusted tax basis in the common shares with respect to which the distribution is made (resulting in a
corresponding reduction in the tax basis of those common shares) and, (b) thereafter, as gain from the sale or exchange of those common
shares (see the more detailed discussion at “—Disposition of Common Shares” below). We do not intend to calculate our current or
accumulated earnings and profits for U.S. federal income tax purposes and, therefore, will not be able to provide U.S. Holders with that
information. U.S. Holders should therefore assume that any distribution by us with respect to our common shares will constitute a dividend.
However, U.S. Holders should consult their own tax advisors regarding whether distributions from us should be treated as dividends for
U.S. federal income tax purposes. Dividends paid on our common shares generally will not be eligible for the “dividends received
deduction” allowed to corporations under the Code with respect to dividends received from U.S. corporations.
A dividend paid by us generally will be taxed at the preferential tax rates applicable to long-term capital gains if, among other
requirements, (a) we are a “qualified foreign corporation” (as defined below), (b) the U.S. Holder receiving the dividend is an individual,
estate, or trust, and (c) the dividend is paid on common shares that have been held by the U.S. Holder for at least 61 days during the
121-day period beginning 60 days before the “ex-dividend date” (i.e., the first date that a purchaser of the common shares will not be
entitled to receive the dividend).
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For purposes of the rules described in the preceding paragraph, we generally will be a “qualified foreign corporation”, or a QFC,
if (a) we are eligible for the benefits of the Canada-U.S. Tax Treaty, or (b) our common shares are readily tradable on an established
securities market in the United States, within the meaning provided in the Code. However, even we satisfy one or more of the
requirements, we will not be treated as a QFC if we are classified as a PFIC (as discussed below) for the taxable year during which we pay
the applicable dividend or for the preceding taxable year. The dividend rules are complex, and each U.S. Holder should consult its own tax
advisor regarding the application of those rules to them in their particular circumstances. Even if we satisfy one or more of the
requirements, as noted below, there can be no assurance that we will not become a PFIC in the future. Thus, there can be no assurance that
we will qualify as a QFC.
Disposition of Common Shares
Subject to the possible application of the PFIC rules described below (see more detailed discussion below at “—Passive Foreign
Investment Company Rules”), a U.S. Holder will recognize gain or loss on the sale or other taxable disposition of common shares (that is
treated as a sale or exchange for U.S. federal income tax purposes) equal to the difference, if any, between (a) the U.S. dollar value of the
amount realized on the date of the sale or disposition and (b) the U.S. Holder’s adjusted tax basis (determined in U.S. dollars) in the
common shares sold or otherwise disposed of. Any such gain or loss generally will be capital gain or loss, which will be long-term capital
gain or loss if the common shares are held for more than one year. Each U.S. Holder should consult its own tax advisor as to the tax
treatment of dispositions of common shares in exchange for Canadian dollars.
Preferential tax rates apply to long-term capital gains of a U.S. Holder that is an individual, estate, or trust. There are currently no
preferential tax rates for long-term capital gains of a U.S. Holder that is a corporation. Deductions for capital losses are subject to complex
limitations.
Passive Foreign Investment Company Rules
Special, generally unfavorable, rules apply to the ownership and disposition of the stock of a PFIC. For U.S. federal income tax
purposes, a non-U.S. corporation is classified as a PFIC for each taxable year in which either:
•
•
at least 75% of its gross income is “passive” income (referred to as the “income test”); or
at least 50% of the average value of its assets is attributable to assets that produce passive income or are held for the
production of passive income (referred to as the “asset test”).
Passive income includes the following types of income:
•
•
dividends, royalties, rents, annuities, interest, and income equivalent to interest; and
net gains from the sale or exchange of property that gives rise to dividends, interest, royalties, rents, or annuities and certain
gains from the commodities transactions.
In determining whether we are a PFIC, we will be required to take into account a pro rata portion of the income and assets of each
corporation in which we own, directly or indirectly, at least 25% by value.
We have not made a determination as to whether we were a PFIC for the 2017 taxable year(s) or whether we will be a PFIC for
the current taxable year. Accordingly, there can be no assurance that we were not a PFIC for the 2017 taxable year(s). Whether we are a
PFIC depends on complex U.S. federal income tax rules that are subject to differing interpretations and whose application to us is uncertain.
Further, since our PFIC status will depend upon the composition of our income and assets and the fair market value of our assets from time
to time (including whether we own, directly or indirectly, at least 25% by value, of the stock of any subsidiary) and generally cannot be
determined until the end of a taxable year, there can be no assurance that we will not be a PFIC for the current taxable year. In addition, we
cannot predict whether the composition of our income and assets (including income and assets held indirectly) or the fair market value of its
assets from time to time may result in it being treated as a PFIC in any future taxable year. Accordingly, no assurance can be given that we
are not a PFIC or will not become a PFIC in subsequent taxable years.
Generally, if we are or have been treated as a PFIC for any taxable year during a U.S. Holder’s holding period of common shares,
any “excess distribution” with respect to the common shares would be allocated rateably over the U.S. Holder’s holding period. The
amounts allocated to the taxable year of the excess distribution and to
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any year before we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to
tax at the highest rate in effect for individuals or corporations in that taxable year, as appropriate, and an interest charge would be imposed
on the amount allocated to that taxable year. Distributions made in respect of common shares during a taxable year will be excess
distributions to the extent they exceed 125% of the average of the annual distributions on common shares received by the U.S. Holder
during the preceding three taxable years or the U.S. Holder’s holding period, whichever is shorter.
Generally, if we are treated as a PFIC for any taxable year during which a U.S. Holder owns common shares, any gain on the
disposition of the common shares would be treated as an excess distribution and would be allocated rateably over the U.S. Holder’s holding
period and subject to taxation in the same manner as described in the preceding paragraph.
Certain elections may be available (including a “mark-to-market” or “qualified electing fund” election) to U.S. Holders in limited
circumstances that may mitigate the adverse consequences resulting from PFIC status, particularly if they are made in the first taxable year
during such holder’s holding period in which we are treated as a PFIC. U.S. Holders should be aware that, for each tax year, if any, that we
are a PFIC, we can provide no assurances that we will make available to U.S. Holders the information U.S. Holders require to make a
“qualified electing fund” election with respect to us.
If we were were to be treated as a PFIC in any taxable year, a U.S. Holder will generally be required to file an annual report with
the IRS containing such information as the U.S. Treasury Department may require.
Each current or prospective U.S. Holder should consult its own tax advisor regarding our status as a PFIC, the possible
effect of the PFIC rules to such holder and information reporting required if we were a PFIC, as well as the availability of any
election that may be available to the holder to mitigate adverse U.S. federal income tax consequences of holding shares in a PFIC.
Receipt of Foreign Currency
The amount of a distribution paid in Canadian dollars or Canadian dollar proceeds received on the sale or other taxable
disposition of common shares will generally be equal to the U.S. dollar value of the currency on the date of receipt. If any Canadian dollars
received with respect to the common shares are later converted into U.S. dollars, U.S. Holders may realize gain or loss on the conversion.
Any gain or loss generally will be treated as ordinary income or loss and generally will be from sources within the United States for U.S.
foreign tax credit purposes. Each U.S. Holder should consult its own tax advisor concerning the possibility of foreign currency gain or loss
if any such currency is not converted into U.S. dollars on the date of receipt.
Foreign Tax Credit
Subject to certain limitations, a U.S. Holder who pays (whether directly or through withholding) Canadian or other foreign
income tax with respect to the common shares may be entitled, at the election of the U.S. Holder, to receive either a deduction or a credit
for Canadian or other foreign income tax paid. Dividends paid on common shares generally will constitute income from sources outside the
United States. The foreign tax credit rules (including the limitations with respect thereto) are complex, and each U.S. Holder should consult
its own tax advisor regarding the foreign tax credit rules, having regard to such holder’s particular circumstances.
Information Reporting; Backup Withholding
Generally, information reporting and backup withholding will apply to distributions on, and the payment of proceeds from the
sale or other taxable disposition of, the common shares unless (i) the U.S. Holder is a corporation or other exempt entity, or (ii) in the case
of backup withholding, the U.S. Holder provides a correct taxpayer identification number and certifies that the U.S. Holder is not subject to
backup withholding.
Backup withholding is not an additional tax. Any amount withheld generally will be creditable against a U.S. Holder’s U.S.
federal income tax liability or refundable to the extent that it exceeds such liability provided the required information is provided to the IRS
in a timely manner.
In addition, certain categories of U.S. Holders must file information returns with respect to their investment in a non-U.S.
corporation. For example, certain U.S. Holders must file IRS Form 8938 with respect to certain “specified foreign financial assets” (such as
the common shares) with an aggregate value in excess of US$50,000 (and, in some circumstances, a higher threshold). Failure to do so
could result in substantial penalties and in the extension of the statute of limitations with respect to such holder’s U.S. federal income tax
returns. Each U.S. Holder should consult its own tax advisor regarding application of the information reporting and backup withholding
rules to it in connection with an investment in our common shares.
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Medicare Contribution Tax
U.S. Holders that are individuals, estates or certain trusts generally will be subject to a 3.8% Medicare contribution tax on, among
other things, dividends on, and capital gains from the sale or other taxable disposition of, common shares, subject to certain limitations and
exceptions. Each U.S. Holder should consult its own tax advisor regarding possible application of this additional tax to income earned in
connection with an investment in our common shares.
F. Dividends and Paying Agents
Not applicable.
G.
Statement by Experts
Not applicable.
H. Documents on Display
Any statement in this annual report about any of our contracts or other documents is not necessarily complete. If the contract or
document is filed as an exhibit to this annual report, the contract or document is deemed to modify the description contained in this annual
report. You must review the exhibits themselves for a complete description of the contract or document.
Our SEC filings are available at the SEC’s website at www.sec.gov. You may also read and copy any document we file with the
SEC at the public reference facilities maintained by the SEC at SEC Headquarters, Public Reference Section, 100 F Street, N.E.,
Washington D.C. 20549. You may obtain information on the operation of the SEC’s public reference facilities by calling the SEC at
1-800-SEC-0330. In addition, we are required by Canadian securities laws to file documents electronically with Canadian securities
regulatory authorities and these filings are available on our SEDAR profile at www.sedar.com. Requests for such documents should be
directed to our Corporate Secretary.
I.
Subsidiary Information
Not applicable.
Item 11.
Quantitative and Qualitative Disclosure about Market Risk
Information relating to quantitative and qualitative disclosures about market risks is detailed in “Item 5. Operating and Financial
Review and Prospects”, as well as in Note 19 to our audited consolidated financial statements contained in “Item 17. Financial Statements”.
Item 12.
Description of Securities other than Equity Securities
A. Debt Securities
Not applicable.
B. Warrants and Rights
Not applicable.
C. Other Securities
Not applicable.
D. American Depositary Shares
Not applicable.
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Item 13.
Defaults, Dividend Arrearages and Delinquencies
None.
PART II
Item 14.
Material Modification to the Rights of Security Holdings and Use of Proceeds
None.
Item 15.
Controls and Procedures
Disclosure Controls and Procedures
As of the end of the period covered by this annual report, our management, with the participation of our CEO and CFO, has
performed an evaluation of the effectiveness of our disclosure controls and procedures within the meaning of Rules 13a-15 (e) and
15d-15(e) of the Exchange Act. Based upon this evaluation, our management has concluded that, as of March 31, 2017, our existing
disclosure controls and procedures were effective. It should be noted that while the CEO and CFO believe that our disclosure controls and
procedures provide a reasonable level of assurance that they are effective, they do not expect the disclosure controls and procedures to be
capable of preventing all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met.
Management’s Report on Internal Controls over Financial Reporting
Our management, with the participation of our CEO and CFO, is responsible for establishing and maintaining adequate internal
control over financial reporting. Our internal control system was designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation and fair presentation of its published consolidated financial statements. All internal control systems,
no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective may not prevent or detect
misstatements and can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our management conducted an assessment of
the design and operation effectiveness of our internal control over financial reporting as of March 31, 2017. In making this assessment, we
used the criteria established within the Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on this assessment, our management has concluded that, as of March 31, 2017,
our internal control over financial reporting was effective.
Changes in Internal Control over Financial Reporting
No changes were made to our internal controls over financial reporting that occurred during the four-month period and fiscal year
ended March 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial
reporting.
We qualify as an “emerging growth company” under Section 3(a)(80) of the Exchange Act, as a result of enactment of the
Jumpstart Our Business Startups Act of 2012, or JOBS Act. Under the JOBS Act, emerging growth companies are exempt from
Section 404(b) of the Sarbanes-Oxley Act of 2002, which generally requires that a public company’s registered public accounting firm
provide an attestation report relating to management’s assessment of internal control over financial reporting. We qualify as an emerging
growth company and therefore have not included in, or incorporated by reference into, this annual report such an attestation report as of the
end of the period covered by this annual report.
Item 16.
Reserved
Item 16A. Audit Committee Financial Expert
Our board of directors has determined that Mr. Canan is the “audit committee financial expert”, as defined by applicable
regulations of the Commission. The Commission has indicated that the designation of Mr. Canan as an audit committee financial expert
does not make him an “expert” for any purpose, impose any duties, obligations
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or liability on Mr. Canan that are greater than those imposed on members of the audit committee and board of directors who do not carry
this designation or affect the duties, obligations or liability of any other member of the audit committee or board of directors.
Item 16B. Code of Ethics
The board of directors adopted a Code of Business Conduct and Ethics for our directors, officers and employees on May 31,
2007, which can be found on SEDAR at www.sedar.com and on our web site on www.acastipharma.com. A copy of the Code of Ethics and
Conduct can also be obtained by contacting our Corporate Secretary. Any breach of the Code of Ethics must be brought to the attention of
the board of directors by our CEO or other senior executive officer. No report has ever been filed which pertains to any conduct of a
director or executive officer that constitutes a breach of the Code of Business Conduct and Ethics.
The board of directors also adopted an insider trading program for its directors, officers and employees and adopted recently a
majority voting policy for the election of proposed director candidates at our annual general shareholders meeting.
Item 16C.
Principal Accountant Fees and Services
Audit Fees
“Audit fees” consist of fees for professional services for the audit of our annual financial statements, interim reviews and limited
procedures on interim financial statements, securities filings and consultations on accounting or disclosure issues. KPMG LLP, our
external auditors, billed $235,400 for audit fees for the fiscal year ended March 31, 2017 and $77,250 for the fiscal year ended
February 29, 2016.
Audit-Related Fees
“Audit-related fees” consist of fees for professional services that are reasonably related to the performance of the audit or review
of our financial statements and which are not reported under “Audit Fees” above. KPMG LLP billed $6,550 for the fiscal year ended
March 31, 2017 and $14,675 for the fiscal year ended February 29, 2016.
Tax Fees
“Tax fees” consist of fees for professional services for tax compliance, tax advice and tax planning. KPMG LLP billed $31,600
for tax fees for fiscal year ended March 31, 2017 and $26,600 for tax fees for the fiscal year ended February 29, 2016. Tax fees include, but
are not limited to, preparation of tax returns.
All Other Fees
“Other fees” include all other fees billed for professional services other than those mentioned hereinabove. KPMG LLP billed no
fees under this category for the fiscal years ended March 31, 2017 and February 29, 2016.
Pre-Approval Policies and Procedures
The audit committee approves all audit, audit-related services, tax services and other non-audit related services provided by the
external auditors in advance of any engagement. Under the Sarbanes-Oxley Act of 2002, audit committees are permitted to approve certain
fees for non-audit related services pursuant to a de minimus exception prior to the completion of an audit engagement. Non-audit related
services satisfy the de minimus exception if the following conditions are met:
•
•
•
the aggregate amount of all non-audit services that were not pre-approved is reasonably expected to constitute no more than
five per cent of the total amount of fees paid by us and our subsidiaries to our external auditors during the fiscal year in
which the services are provided;
we or our subsidiaries, as the case may be, did not recognize the services as non-audit services at the time of the
engagement; and
the services are promptly brought to the attention of the audit committee and approved, prior to the completion of the audit,
by the audit committee or by one or more of its members to whom authority to grant such approvals had been delegated by
the audit committee.
None of the services described above under “Principal Accountant Fees and Services” were approved by the audit committee
pursuant to the de minimus exception.
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Item 16D.
Exemptions from the Listing Standards for Audit Committees
Not applicable.
Item 16E.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Not applicable.
Item 16F.
Change in Registrant’s Certifying Accountant
None.
Item 16G. Corporation Governance
NASDAQ Marketplace Rule 5615(a)(3) permits a foreign private issuer to follow its home country practice in lieu of certain of
the requirements of the Rule 5600 Series. A foreign private issuer that follows a home country practice in lieu of one or more provisions of
the Rule 5600 Series is required to disclose in its annual report filed with the SEC, or on its website, each requirement of the Rule 5600
Series that it does not follow and describe the home country practice followed by the issuer in lieu of such NASDAQ corporate governance
requirements. We do not follow NASDAQ Marketplace Rule 5620(c), but instead follow our home country practice. The NASDAQ
minimum quorum requirement under Rule 5620(c) for a meeting of shareholders is 33.33% of the outstanding shares of common voting
stock. Our quorum requirement, as set forth in our by-laws, is that a quorum for a meeting of our holders of common shares is the
attendance, in person or by proxy, of the shareholders representing 10% of our common shares. The foregoing is consistent with the laws,
customs and practices in Québec, Canada, and the rules and policies of the TSX-V.
Item 16H. Mining Safety Disclosure
Not applicable.
Item 17.
Statements
PART III
The consolidated financial statements of Acasti Pharma Inc. are located at the end of this annual report, beginning on page F-1.
Item 18.
Financial Statements
See Item 17.
Item 19.
Exhibits
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Exhibit
Number Description of Document
EXHIBITS INDEX
1.1
1.2
2.1
2.2
Articles of Incorporation (incorporated by reference to Exhibit 4.1 from Form S-8 (File No. 333-191383) filed with the
Commission on September 25, 2013)
Amended and Restated General By-Law (incorporated by reference to Exhibit 99.1 from Form 6-K (File No. 001-35776) filed
with the Commission on February 21, 2017)
Specimen Certificate for Common Shares of Acasti Pharma Inc. (incorporated by reference to Exhibit 2.1 from Form 20-F
(File No. 001-35776) filed with the Commission on June 6, 2014)
Warrant Indenture dated December 3, 2013 between Acasti Pharma Inc. and Computershare Trust Company of Canada
(incorporated by reference to Exhibit 99.1 from Form 6-K (File No. 001-35776) filed with the Commission on December 3,
2013)
2.3*
Warrant Indenture dated February 21, 2017 between Acasti Pharma Inc. and Computershare Trust Company of Canada
4.1
4.2*
4.3*
11.1
Prepayment Agreement, dated December 4, 2012, between Neptune Technologies & Bioressources Inc. and Acasti Pharma
Inc. (incorporated by reference to Exhibit 99.1 from Form 6-K (File No. 001-35776) filed with the Commission on
October 29, 2013)
Equity Incentive Plan, as amended June 8, 2017
Stock Option Plan, as amended June 8, 2017
Code of Business Conduct and Ethics for Directors, Officers and Employees (incorporated by reference to Exhibit 99.4 from
Form 40-F (File No. 001-35776) filed with the Commission on May 30, 2013)
12.1*
Principal Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12.2*
Principal Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
13.1*
Principal Executive Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
13.2*
Principal Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
* Filed herewith.
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The registrant hereby certifies that it meets all of the requirements for filing on this Annual Report and that it has duly caused and
authorized the undersigned to sign this Annual Report on its behalf.
SIGNATURES
ACASTI PHARMA INC.
/s/ Janelle D’Alvise
By:
Name: Janelle D’Alvise
Title: Principal Executive Officer
Date: June 27, 2017
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Financial Statements of
ACASTI PHARMA INC.
For the thirteen-month and one-month periods ended March 31, 2017, twelve-month period ended February 28, 2017 and years ended
February 29, 2016 and February 28, 2015
F-1
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INDEPENDENT AUDITORS’ REPORT OF REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of Acasti Pharma Inc.
We have audited the accompanying financial statements of Acasti Pharma Inc., which comprise the statements of financial position as at
March 31, 2017 and February 29, 2016, the statements of earnings and comprehensive loss, changes in equity and cash flows for the thirteen-month
period ended March 31, 2017 and the years ended February 29, 2016 and February 28, 2015, and notes, comprising a summary of significant
accounting policies and other explanatory information.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting
Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Canadian
generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require
that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free
from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected
depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In
making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the financial statements in order
to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s
internal control. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating
the overall presentation of the financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements present fairly, in all material respects, the financial position of Acasti Pharma Inc. as at March 31, 2017 and
February 29, 2016, and its financial performance and its cash flows for the thirteen-month period ended March 31, 2017 and years ended
February 29, 2016 and February 28, 2015 in accordance with International Financial Reporting Standards as issued by the International Accounting
Standards Board.
Other matter
The financial statements of Acasti Pharma Inc. as at February 28, 2017 and for the twelve-month and one-month periods ended February 28, 2017 and
March 31, 2017 respectively are unaudited. Accordingly, we do not express an opinion on them.
Emphasis of matter
Without qualifying our opinion, we draw attention to Note 2(c) in the financial statements which indicates that Acasti Pharma Inc. has incurred operating
losses and negative cash flows from operations since inception, that the Corporation’s current assets as at March 31, 2017 are projected to be
significantly less than needed and that its future operations are dependent on obtaining additional financing and on the continued support of its parent
corporation for a portion of its general and administrative needs. These conditions, along with other matters as set forth in 2(c) in the financial
statements, indicate the existence of a material uncertainty that casts substantial doubt about Acasti Pharma Inc.’s ability to continue as a going concern.
/s/ KPMG LLP*
June 6, 2017
Montréal, Canada
*CPA auditor, CA, public accountancy permit No. A119178
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity.
KPMG Canada provides services to KPMG LLP.
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ACASTI PHARMA INC.
Financial Statements
Thirteen-month and one-month periods ended March 31, 2017, twelve-month period ended February 28, 2017 and years ended February 29, 2016 and
February 28, 2015
Financial Statements
Statements of Financial Position
Statements of Earnings and Comprehensive Loss
Statements of Changes in Equity
Statements of Cash Flows
Notes to Financial Statements
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ACASTI PHARMA INC.
Statements of Financial Position
March 31, 2017, February 28, 2017 and February 29, 2016
(thousands of Canadian dollars)
Assets
Current assets:
Cash and cash equivalents
Short-term investments
Receivables
Prepaid expenses
Restricted short-term investment
Equipment
Intangible assets
Total assets
Liabilities and Equity
Current liabilities:
Trade and other payables
Payable to parent corporation
Derivative warrant liabilities
Unsecured convertible debentures
Total liabilities
Equity:
Share capital
Other equity
Contributed surplus
Deficit
Total equity
Commitments and contingencies
Total liabilities and equity
March 31, 2017
February 28, 2017
February 29, 2016
Notes
22
4
5(b)
7
8
9
5(c)
10, 12(d)
11
12
11
20
$
(Unaudited)
$
9,772
—
206
209
10,187
—
2,881
12,388
25,456
2,126
12
2,138
209
1,406
3,753
66,576
309
5,693
(50,875)
21,703
10,573
—
166
176
10,915
—
2,870
12,582
26,367
2,390
15
2,405
187
1,389
3,981
66,576
309
5,607
(50,106)
22,386
$
3,027
7,443
399
456
11,325
2,000
287
14,905
28,517
1,126
15
1,141
156
—
1,297
61,973
—
4,875
(39,628)
27,220
25,456
26,367
28,517
See accompanying notes to financial statements.
On behalf of the Board:
/s/ Dr. Roderick Carter
Roderick Carter
Chair of the Board
/s/ Jean-Marie Canan
Jean-Marie Canan
Director
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ACASTI PHARMA INC.
Statements of Earnings and Comprehensive Loss
Thirteen-month and one-month periods ended March 31, 2017, twelve-month period ended February 28, 2017 and years ended February 29, 2016 and
February 28, 2015
Thirteen-months
Twelve-months
Notes
ended Month ended
March 31,
March 31,
2017
$
2017
(Unaudited)
$
February 28,
2017
(Unaudited)
$
ended Year ended Year ended
February 28,
2015
February 29,
2016
$
$
(thousands of Canadian dollars, except per share data )
Research and development expenses, net of government
assistance of $330 (March 2017 - $45 (unaudited);
February 2017- $285 (unaudited), 2016 - $349, 2015 -
$264)
General and administrative expenses
Loss from operating activities
Financial (expenses) income
Change in fair value of warrant liabilities
Net financial (expenses) income
14
10
Net loss and comprehensive loss before income tax
Deferred income tax recovery
Net loss and total comprehensive loss
(7,653)
(3,557)
(11,210)
(113)
(53)
(166)
(11,376)
129
(11,247)
(426)
(292)
(718)
(29)
(22)
(51)
(769)
—
(769)
(7,227)
(3,265)
(10,492)
(84)
(31)
(115)
(10,607)
129
(10,478)
(7,566)
(2,046)
(9,612)
1,094
2,201
3,295
(6,317)
—
(6,317)
(8,822)
(3,573)
(12,395)
1,916
8,824
10,740
(1,655)
—
(1,655)
Basic and diluted loss per share
16
(1.01)
(0.05)
(0.97)
(0.59)
(0.16)
Weighted average number of shares outstanding
11,094,512 14,702,556
10,788,075
10,659,936
10,617,704
See accompanying notes to financial statements
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ACASTI PHARMA INC.
Statements of Changes in Equity
Thirteen-month and one-month periods ended March 31, 2017, twelve-month period ended February 28, 2017 and years ended February 29, 2016 and
February 28, 2015
(thousands of Canadian dollars )
Notes
Number
Share capital
Dollar
$
Other
equity
$
Contributed
surplus
$
Deficit
$
Total
$
Balance, February 29, 2016
10,712,038
61,973
—
—
—
10,712,038
—
—
—
61,973
—
—
—
—
—
4,875
(39,628)
27,220
—
—
(10,478)
(10,478)
(769)
(769)
—
4,875
(11,247)
(50,875)
(11,247)
15,973
Net loss and total comprehensive loss for
the twelve-month period (unaudited)
Net loss and total comprehensive loss for
the one-month period (unaudited)
Net loss and total comprehensive loss for
the thirteen-month period
Transactions with owners, recorded
directly in equity
Contributions by and distributions to
equity holders
Public offering
Issue of unsecured convertible
debentures, net of deferred income
tax expense of $129
Equity settled non-employee share-
based payment
Share-based payment transactions for
the twelve-month period (unaudited)
Share-based payment transactions for
the one-month period (unaudited)
Share-based payment transactions for
the thirteen-month period
Total contributions by and distributions
to equity holders for the twelve-month
period (unaudited)
Total contributions by and distributions
to equity holders for the one-month
period (unaudited)
Total contributions by and distributions
to equity holders for the thirteen-
month period
Balance at February 28, 2017
(unaudited)
Balance at March 31, 2017
12(b)
3,930,518
4,509
—
144
—
4,653
11,18
12(b)
15
15
15
—
60,000
—
—
—
—
94
—
—
—
309
—
—
—
—
—
—
588
86
674
—
—
—
—
—
309
94
588
86
674
3,990,518
4,603
309
732
—
5,644
—
—
—
86
—
86
3,990,518
4,603
309
818
—
5,730
14,702,556
14,702,556
66,576
66,576
309
309
5,607
5,693
(50,106)
(50,875)
22,386
21,703
See accompanying notes to financial statements.
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ACASTI PHARMA INC.
Statements of Changes in Equity, Continued
Thirteen-month and one-month periods ended March 31, 2017, twelve-month period ended February 28, 2017 and years ended February 29, 2016 and
February 28, 2015
Notes
Amount
Share capital
Other
equity
Contributed
surplus
Deficit
Total
(thousands of Canadian dollars)
Balance, February 28, 2015
Net loss and total comprehensive loss for the
year
Transactions with owners, recorded directly
in equity
Contributions by and distributions to equity
holders
Share-based payment transactions
Issuance of shares
Share options exercised
RSUs released
Total contributions by and distributions to
equity holders
15
12(c)
15
Dollar
$
10,644,440
61,628
—
10,644,440
—
61,628
—
50,000
250
17,348
67,598
—
101
1
243
345
Balance at February 29, 2016
10,712,038
61,973
$
—
—
—
—
—
—
—
—
—
$
$
$
4,911
(33,311)
33,228
—
4,911
(6,317)
(39,628)
(6,317)
26,911
309
(102)
—
(243)
(36)
—
—
—
—
—
309
(1)
1
—
309
4,875
(39,628)
27,220
(thousands of Canadian dollars)
Balance, February 28, 2014
Net loss and total comprehensive loss for the
year
Transactions with owners, recorded directly
in equity
Contributions by and distributions to equity
holders
Share-based payment transactions
Share options exercised
RSUs released
Expiration of warrants
Total contributions by and distributions to
equity holders
15
15
Share capital
Notes
Amount
Dollar
Other
equity
Contributed
surplus
Deficit
Total
$
$
$
$
$
61,027
407
3,502
(31,656)
33,280
10,586,258
—
—
61,027
—
407
—
3,502
(1,655)
(33,311)
(1,655)
31,625
10,586,258
—
20,000
38,182
—
58,182
—
50
551
—
—
—
—
(407)
1,553
—
(551)
407
601
(407)
1,409
—
—
—
—
—
1,553
50
—
—
1,603
Balance at February 28, 2015
10,644,440
61,628
—
4,911
(33,311)
33,228
See accompanying notes to financial statements.
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ACASTI PHARMA INC.
Statements of Cash Flows
Thirteen-month and one-month periods ended March 31, 2017, twelve-month period ended February 28, 2017 and years ended February 29, 2016 and
February 28, 2015
Thirteen-months ended
Month ended
Twelve-months
ended
Year ended
Year ended
Notes
March 31,
2017
$
March 31,
2017
(Unaudited)
$
February 28,
February 29,
2017
(Unaudited)
$
2016
$
February 28,
2015
$
(11,247)
(769)
(10,478)
(6,317)
(1,655)
(thousands of Canadian dollars)
Cash flows used in operating activities:
Net loss for the period
Adjustments:
Depreciation of equipment
Amortization of intangible assets
Impairment loss related to intangible
assets
Stock-based compensation
Net financial expenses (income)
Realized foreign exchange gain (loss)
Deferred income tax recovery
Changes in non-cash operating items
Net cash used in operating activities
Cash flows from (used in) investing
activities:
Interest received
Acquisition of equipment
Acquisition of intangible assets
Acquisition of short-term investments
Maturity of short-term investments
Net cash (used in) investing activities
Cash flows from (used in) financing
activities:
Net proceeds from public offering
Net proceeds from private placement
Proceeds from exercise of warrants and
options
7
8
8
15
14
17
7, 17
8
12(b)
11, 12(c)
Share issue costs
Interest paid
Net cash from (used in) financing activities
12(d)
Foreign exchange (loss) gain on cash and
cash equivalents held in foreign currencies
Net increase (decrease) in cash and cash
equivalents
Cash and cash equivalents, beginning of
period
Cash and cash equivalents, end of period
Cash and cash equivalents is comprised
of:
Cash
Cash equivalents
See accompanying notes to financial statements.
221
2,517
—
674
166
48
(129)
(7,750)
792
(6,958)
150
(2,527)
—
(12,765)
22,030
6,888
5,010
1,872
—
—
(18)
6,864
32
194
—
86
51
(12)
—
(418)
(328)
(746)
4
(24)
—
—
—
(20)
(34)
(10)
—
—
—
(44)
189
2,323
—
588
115
60
(129)
(7,332)
1,120
(6,212)
59
2,336
339
309
(3,295)
36
—
(6,533)
(41)
(6,574)
146
(2,503)
—
(12,765)
22,030
6,908
114
(276)
(92)
(11,954)
20,437
8,229
5,044
1,882
—
—
(18)
6,908
—
—
—
(1)
(2)
(3)
(49)
9
(58)
64
6,745
(801)
7,546
1,716
4
2,331
—
1,553
(10,740)
3
—
(8,504)
1,306
(7,198)
41
(35)
(51)
(14,478)
22,150
7,627
—
—
50
—
(4)
46
160
635
3,027
9,772
10,573
9,772
3,027
10,573
1,311
3,027
676
1,311
6,778
2,994
6,778
2,994
7,584
2,989
3,027
—
1,311
—
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ACASTI PHARMA INC.
Notes to Financial Statements
Thirteen-month and one-month periods ended March 31, 2017, twelve-month period ended February 28, 2017 and years ended February 29, 2016 and
February 28, 2015
(thousands of Canadian dollars, except where noted and for share and per share amounts)
1. Reporting entity
Acasti Pharma Inc. ( Acasti or the Corporation) is incorporated under the Business Corporations Act (Québec) (formerly Part 1A of the Companies
Act (Québec)). The Corporation is domiciled in Canada and its registered office is located at 545, Promenade du Centropolis, Laval, Québec,
H7T 0A3. Neptune Technologies and Bioressources Inc. (Neptune or the parent) currently owns approximately 34% of the issued and outstanding
Class A shares ( Common Shares) of the Corporation. The Corporation, Neptune and Biodroga Nutraceuticals Inc., a subsidiary of Neptune, are
collectively referred to as the “Group”.
Pursuant to a license agreement entered into with Neptune in August 2008, as amended, Acasti has been granted an exclusive worldwide license to
use Neptune’s intellectual property to develop, clinically study and market new pharmaceutical products to treat human cardiovascular conditions.
Neptune’s intellectual property is related to the extraction of ingredients from marine biomasses, such as krill. The eventual products are aimed at
applications in the prescription drug, over-the-counter medicine and medical foods markets. In December 2012, the Corporation entered into a
prepayment agreement with Neptune pursuant to which the Corporation exercised its option under the License Agreement to pay in advance all of
the future royalties payable under the license which was exercised in fiscal 2014. As a result of the royalty prepayment, Acasti is no longer required
to pay any royalties to Neptune under the License Agreement during its term for the use of the intellectual property under license. The license allows
Acasti to exploit the intellectual property rights in order to develop novel active pharmaceutical ingredients (“APIs”) into commercial products for
the prescription drugs and the medical food markets.
The Corporation is subject to a number of risks associated with the conduct of its clinical program and its results, the establishment of strategic
alliances and the successful development of new pharmaceutical products and their marketing. The Corporation has incurred significant operating
losses and negative cash flows from operations since inception. To date, the Corporation has financed its operations through the public offering and
private placement of Common Shares and convertible debt, the proceeds from research grants and research tax credits, and the exercises of warrants,
rights and options. To achieve the objectives of its business plan, Acasti plans to raise the necessary funds through additional securities offerings and
the establishment of strategic alliances as well as additional research grants and research tax credits. The Corporation anticipates that the products
developed by the Corporation will require approval from the U.S Food and Drug Administration and equivalent regulatory organizations in other
countries before their sale can be authorized. The ability of the Corporation to ultimately achieve profitable operations is dependent on a number of
factors outside of the Corporation’s control.
2. Basis of preparation
(a)
Statement of compliance:
These financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the
International Accounting Standards Board (“IASB”). Beginning in fiscal 2017, the Corporation’s fiscal year end is on March 31. Fiscal 2017
is a transition year, and includes thirteen months of operations, beginning on March 1, 2016 and ending on March 31, 2017. As a result, the
above financial statements and corresponding notes to financial statements include two unaudited periods: the one-month period ended
March 31, 2017 and the twelve-month period ended February 28, 2017. The Canadian Securities regulator permits, in the transition year, the
presentation of a thirteen-month period for the financial year ended March 31, 2017.
The financial statements were approved by the Board of Directors on June 6, 2017.
(b) Basis of measurement:
The financial statements have been prepared on the historical cost basis, except for:
•
•
Stock-based compensation which is measured pursuant to IFRS 2, Share-based payments (Note 3(e) (ii )); and,
Derivative warrant liabilities measured at fair value on a recurring basis (Note 10).
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ACASTI PHARMA INC.
Notes to Financial Statements
Thirteen-month and one-month periods ended March 31, 2017, twelve-month period ended February 28, 2017 and years ended February 29, 2016 and
February 28, 2015
(thousands of Canadian dollars, except where noted and for share and per share amounts)
2. Basis of preparation (continued):
(c) Going concern uncertainty:
The Corporation has incurred operating losses and negative cash flows from operations since inception. The Corporation’s current assets of
$10.2 million as at March 31, 2017 include cash and cash equivalents totalling $9.8 million, mainly generated by the net proceeds from the
Public Offering and Private Placement completed on February 21, 2017 as well as the public offering completed on December 3, 2013 and
private offering completed on February 7, 2014 (the Previous Offerings). The Corporation’s liabilities total $3.8 million at March 31, 2017
and are comprised primarily of $2.1 million in amounts due to or accrued for creditors, $1.4 million for unsecured convertible debentures and
$0.2 million for derivative warrant liabilities. The Corporation’s current assets as at this date are projected to be significantly less than needed
to support the current liabilities as at that date when combined with the projected level of expenses for the next twelve months, including not
only the preparation for, but the planned initiation of the Phase 3 clinical study program for its drug candidate, CaPre. Additional funds will
also be needed for the expected expenses for the total CaPre Phase 3 research and development phase beyond the next twelve months. In
addition to having raised additional funds during the thirteen-month period ended March 31, 2017, the Corporation is working towards
development of strategic partner relationships and plans to raise additional funds in the future, but there can be no assurance as to when or
whether Acasti will complete any financing or strategic collaborations. In particular, raising financing is subject to market conditions and is not
within the Corporation’s control. Additionally, although the Corporation intends to continue to rely on the support of Neptune for a portion of
its general and administrative needs, the continuance of this support is outside of the Corporation’s control. If the Corporation does not raise
additional funds, find one or more strategic partners or does not receive the continued support from its parent, it may not be able to realize its
assets and discharge its liabilities in the normal course of business. As a result, there exists a material uncertainty that casts substantial doubt
about the Corporation’s ability to continue as a going concern and, therefore, realize its assets and discharge its liabilities in the normal course
of business. The Corporation currently has no other arranged sources of financing.
The financial statements have been prepared on a going concern basis, which assumes the Corporation will continue its operations in the
foreseeable future and will be able to realize its assets and discharge its liabilities and commitments in the ordinary course of business. These
financial statements do not include any adjustments to the carrying values and classification of assets and liabilities and reported expenses that
may be necessary if the going concern basis was not appropriate for these financial statements. If the Corporation was unable to continue as a
going concern, material write-downs to the carrying values of the Corporation’s assets, including the intangible asset, could be required.
(d)
Functional and presentation currency:
These financial statements are presented in Canadian dollars, which is the Corporation’s functional currency.
(e) Use of estimates and judgments:
The preparation of the financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that
affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from
these estimates.
Estimates are based on management’s best knowledge of current events and actions that the Corporation may undertake in the future. Estimates
and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the
estimates are revised and in any future periods affected.
Critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements
include the following:
•
•
Identification of triggering events indicating that the intangible assets might be impaired.
The use of the going concern basis of preparation of the financial statements. At the end of each reporting period, management assesses
the basis of preparation of the financial statements (Note 2(c)).
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ACASTI PHARMA INC.
Notes to Financial Statements
Thirteen-month and one-month periods ended March 31, 2017, twelve-month period ended February 28, 2017 and years ended February 29, 2016 and
February 28, 2015
(thousands of Canadian dollars, except where noted and for share and per share amounts)
2. Basis of preparation (continued):
(e) Use of estimates and judgments (continued):
Assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year include
the following:
● Determination of the recoverable amount of the Corporation’s cash generating unit (“CGU”).
● Measurement of derivative warrant liabilities ( note 10) and stock-based compensation ( note 15).
Also, management uses judgment to determine which research and development (“R&D”) expenses qualify for R&D tax credits and in what
amounts. The Corporation recognizes the tax credits once it has reasonable assurance that they will be realized. Recorded tax credits are subject
to review and approval by tax authorities and therefore, could be different from the amounts recorded.
3. Significant accounting policies:
The accounting policies set out below have been applied consistently to all periods presented in these financial statements.
(a)
Financial instruments:
A financial instrument is any contract that gives rise to a financial asset of one party and a financial liability or equity instrument of another
party.
(i)
Non-derivative financial assets:
The Corporation has the following non-derivative financial assets: cash, cash equivalents, short-term investments and receivables. The
Corporation determines the classification of its financial assets at initial recognition. The subsequent measurement of financial assets
depends on their classification.
Financial assets and liabilities are offset and the net amount presented in the statements of financial position when, and only when, the
Corporation has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability
simultaneously.
Loans and receivables
The classification “loans and receivables” comprises financial assets with fixed or determinable payments that are not quoted in an active
market. Such assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition,
loans and receivables are measured at amortized cost using the effective interest method, less any impairment losses.
Cash, cash equivalents, short-term investments and receivables with maturities of less than one year are classified as loans and
receivables.
Cash and cash equivalents comprise cash balances and highly liquid investments purchased three months or less from maturity.
(ii) Non-derivative financial liabilities:
The Corporation has the following non-derivative financial liabilities: trade and other payables, payable to parent corporation and
unsecured convertible debentures. Such financial liabilities are recognized initially at fair value plus any directly attributable transaction
costs. Subsequent to initial recognition, these financial liabilities are measured at amortized cost using the effective interest method.
The Corporation derecognizes a financial liability when its contractual obligations are discharged, cancelled or expire.
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ACASTI PHARMA INC.
Notes to Financial Statements
Thirteen-month and one-month periods ended March 31, 2017, twelve-month period ended February 28, 2017 and years ended February 29, 2016 and
February 28, 2015
(thousands of Canadian dollars, except where noted and for share and per share amounts)
3. Significant accounting policies (continued):
(a)
Financial instruments (continued):
(iii) Compound financial instruments:
Compound financial instruments are instruments that can be converted to share capital at the option of the holder, and the number of
shares to be issued is fixed.
The unsecured convertible debentures are compound instruments and have been separated into liability and equity components. The
liability component is recognized initially at the fair value of a similar liability that does not have an equity conversion option. The
equity component is recognized initially as the difference between the fair value of the compound financial instrument as a whole and the
fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in
proportion to their initial carrying amounts. Subsequent to initial recognition, the liability component of a compound financial instrument
is measured at amortized cost using the effective interest method. The equity component of a compound financial instrument is not
remeasured subsequent to initial recognition.
(iv) Share capital:
Common Shares
Class A Common Shares are classified as equity. Incremental costs directly attributable to the issue of Common Shares and share options
are recognized as a deduction from share capital, net of any tax effects.
(v) Derivative financial instruments:
The Corporation has issued liability-classified derivatives over its own equity. Derivatives are recognized initially at fair value;
attributable transaction costs are recognized in profit and loss as incurred. Subsequent to initial recognition, derivatives are measured at
fair value, and all changes in their fair value are recognized immediately in profit or loss.
(vi) Other equity instruments:
Warrants, options and rights over the Corporation’s equity issued outside of share-based payment transactions that do not meet the
definition of a liability instrument are recognized in equity.
(b)
Equipment:
(i)
Recognition and measurement:
Equipment is measured at cost less accumulated depreciation and accumulated impairment losses, if any.
Cost includes expenditures that are directly attributable to the acquisition of the asset, including all costs incurred in bringing the asset to
its present location and condition.
Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment.
Gains and losses on disposal of equipment are determined by comparing the proceeds from disposal with the carrying amount of
equipment, and are recognized net within “other income or expenses” in profit or loss.
(ii)
Subsequent costs:
The cost of replacing a part of an equipment is recognized in the carrying amount of the item if it is probable that the future economic
benefits embodied within the part will flow to the Corporation, and its cost can be measured reliably. The carrying amount of the
replaced part is derecognized. The costs of the day-to-day servicing of equipment are recognized in profit or loss as incurred.
F-12
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ACASTI PHARMA INC.
Notes to Financial Statements
Thirteen-month and one-month periods ended March 31, 2017, twelve-month period ended February 28, 2017 and years ended February 29, 2016 and
February 28, 2015
(thousands of Canadian dollars, except where noted and for share and per share amounts)
3. Significant accounting policies (continued):
(b)
Equipment (continued):
(iii) Depreciation:
Depreciation is recognized in profit or loss on either a straight-line basis or a declining basis over the estimated useful lives of each part
of an item of equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in
the asset. Items of equipment are depreciated from the date that they are available for use or, in respect of assets not yet in service, from
the date they are ready for their intended use.
The estimated useful lives and rates for the current and comparative periods are as follows:
Assets
Furniture and office equipment
Computer equipment
Laboratory equipment
Production equipment
Method
Declining balance
Declining balance
Declining balance
Straight-line
Period/Rate
20% to 30%
30%
30%
10 years
Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted prospectively if appropriate.
(c)
Intangible assets:
(i)
Research and development:
Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is
recognized in profit or loss as incurred.
Development activities involve a plan or design for the production of new or substantially improved products and processes.
Development expenditure is capitalized only if development costs can be measured reliably, the product or process is technically and
commercially feasible, future economic benefits are probable, and the Corporation intends to and has sufficient resources to complete
development and to use or sell the asset. The expenditure capitalized includes the cost of materials, direct labour, overhead costs that are
directly attributable to preparing the asset for its intended use, and borrowing costs on qualifying assets. Other development
expenditures are recognized in profit or loss as incurred.
Capitalized development expenditure is measured at cost less accumulated amortization and accumulated impairment losses. As of the
reporting periods presented, the Corporation has not capitalized any development expenditure.
(ii) Other intangible assets:
Patent costs
Patents for technologies that are no longer in the research phase are recorded at cost. Patent costs include legal fees to obtain patents and
patent application fees. When the technology is still in the research and development phase, those costs are expensed as incurred.
Licenses
Licenses that are acquired by the Corporation and have finite useful lives are measured at cost less accumulated amortization and
accumulated impairment losses.
F-13
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ACASTI PHARMA INC.
Notes to Financial Statements
Thirteen-month and one-month periods ended March 31, 2017, twelve-month period ended February 28, 2017 and years ended February 29, 2016 and
February 28, 2015
(thousands of Canadian dollars, except where noted and for share and per share amounts)
3. Significant accounting policies (continued):
(c)
Intangible assets (continued):
(iii) Subsequent expenditure:
Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it
relates. All other expenditures, including expenditure on internally generated goodwill and brands, are recognized in profit or loss as
incurred.
(iv) Amortization:
Amortization is calculated over the cost of the asset less its residual value.
Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of intangible assets from the date that
they are available for use, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied
in the asset. The estimated useful lives for the current and comparative periods are as follows:
Assets
Patents
License
(d)
Impairment:
(i)
Financial assets:
Period
20 years
8 to 14 years
A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective
evidence that it is impaired. A financial asset is impaired if objective evidence, such as default or delinquency by a debtor, indicates that
a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future
cash flows of that asset that can be estimated reliably.
An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount
and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognized in
profit or loss and reflected in an allowance account against the financial asset. When a subsequent event causes the amount of
impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.
(ii) Non-financial assets:
The carrying amounts of the Corporation’s non-financial assets are reviewed at each reporting date to determine whether there is any
indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In
assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets
that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use
that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit, or “CGU”).
F-14
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ACASTI PHARMA INC.
Notes to Financial Statements
Thirteen-month and one-month periods ended March 31, 2017, twelve-month period ended February 28, 2017 and years ended February 29, 2016 and
February 28, 2015
(thousands of Canadian dollars, except where noted and for share and per share amounts)
3. Significant accounting policies (continued):
(d)
Impairment (continued):
(ii) Non-financial assets (continued):
The Corporation’s corporate assets do not generate separate cash inflows. If there is an indication that a corporate asset may be impaired,
then the recoverable amount is determined for the CGU to which the corporate asset belongs.
An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment
losses are recognized in profit or loss.
Impairment losses recognized in prior years are assessed at each reporting date for any indications that the loss has decreased or no
longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An
impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been
determined, net of depreciation or amortization, if no impairment loss had been recognized.
(e)
Employee benefits:
(i)
Short-term employee benefits:
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.
A liability is recognized for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Corporation has a
present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be
estimated reliably.
(ii)
Share-based payment transactions:
The grant date fair value of share-based payment awards granted to employees is recognized as an employee expense, with a
corresponding increase in contributed surplus, over the period that the employees unconditionally become entitled to the awards. The
grant date fair value takes into consideration market performance conditions when applicable. The amount recognized as an expense is
adjusted to reflect the number of awards for which the related service and non-market vesting conditions are expected to be met, such
that the amount ultimately recognized as an expense is based on the number of awards that do meet the related service and non-market
performance conditions at the vesting date.
Share-based payment arrangements in which the Corporation receives goods or services as consideration for its own equity instruments
are accounted for as equity-settled share-based payment transactions, regardless of how the equity instruments are obtained by the
Corporation.
(iii) Termination benefits:
Termination benefits are recognized as an expense when the Corporation is committed demonstrably, without realistic possibility of
withdrawal, to a formal detailed plan to either terminate employment before the normal retirement date, or to provide termination
benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognized
as an expense if the Corporation has made an offer of voluntary redundancy, it is probable that the offer will be accepted, and the number
of acceptances can be estimated reliably. If benefits are payable more than 12 months after the reporting year, then they are discounted to
their present value.
F-15
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ACASTI PHARMA INC.
Notes to Financial Statements
Thirteen-month and one-month periods ended March 31, 2017, twelve-month period ended February 28, 2017 and years ended February 29, 2016 and
February 28, 2015
(thousands of Canadian dollars, except where noted and for share and per share amounts)
3. Significant accounting policies (continued):
(f)
Provisions:
A provision is recognized if, as a result of a past event, the Corporation has a present legal or constructive obligation that can be estimated
reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by
discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks
specific to the liability. The unwinding of the discount is recognized as finance cost.
(i)
Onerous contracts:
A provision for onerous contracts is recognized when the expected benefits to be derived by the Corporation from a contract are lower
than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the
expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the
Corporation recognizes any impairment loss on the assets associated with that contract.
(ii) Contingent liability:
A contingent liability is a possible obligation that arises from past events and of which the existence will be confirmed only by the
occurrence or non-occurrence of one or more uncertain future events not within the control of the Corporation; or a present obligation
that arises from past events (and therefore exists), but is not recognized because it is not probable that a transfer or use of assets,
provision of services or any other transfer of economic benefits will be required to settle the obligation; or the amount of the obligation
cannot be estimated reliably.
(g) Government grants:
Government grants are recorded as a reduction of the related expense or cost of the asset acquired. Government grants are recognized when
there is reasonable assurance that the Corporation has met the requirements of the approved grant program and there is reasonable assurance
that the grant will be received.
Grants that compensate the Corporation for expenses incurred are recognized in profit or loss in reduction thereof on a systematic basis in the
same years in which the expenses are recognized. Grants that compensate the Corporation for the cost of an asset are recognized in profit or
loss on a systematic basis over the useful life of the asset.
(h)
Lease payments:
Payments made under operating leases are recognized in profit or loss on a straight-line basis over the term of the lease. Lease incentives
received are recognized as an integral part of the total lease expense, over the term of the lease.
(i)
Foreign currency:
Transactions in foreign currencies are translated into the functional currency at exchange rates at the dates of the transactions. Monetary assets
and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that
date. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning
of the period, adjusted for effective interest and payments during the period, and the amortized cost in foreign currency translated at the
exchange rate at the end of the reporting period. Foreign currency differences arising on retranslation are recognized in profit or loss.
F-16
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ACASTI PHARMA INC.
Notes to Financial Statements
Thirteen-month and one-month periods ended March 31, 2017, twelve-month period ended February 28, 2017 and years ended February 29, 2016 and
February 28, 2015
(thousands of Canadian dollars, except where noted and for share and per share amounts)
3. Significant accounting policies (continued):
(j)
Finance income and finance costs:
Finance income comprises interest income on funds invested. Interest income is recognized as it accrues in profit or loss, using the effective
interest method.
Finance costs comprise interest expense and accretion on borrowings, unwinding of the discount on provisions and impairment losses
recognized on financial assets. Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying
asset are recognized in profit or loss using the effective interest method.
Foreign currency gains and losses are reported on a net basis.
The Corporation recognizes interest income as a component of investing activities and interest expense as a component of financing activities
in the statements of cash flows.
(k)
Income tax:
Income tax expense comprises current and deferred taxes. Current and deferred taxes are recognized in profit or loss except to the extent that
they relate to items recognized directly in equity or in other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted
at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. Deferred tax is not recognized for temporary differences arising from the initial
recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or
loss. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that
have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable
right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on
different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized
simultaneously. A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is
probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date
and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
(l)
Earnings per share:
The Corporation presents basic and diluted earnings per share (“EPS”) data for its Class A shares (or “Common Shares”). Basic EPS is
calculated by dividing the profit or loss attributable to the holders of Class A shares (Common Shares) of the Corporation by the weighted
average number of Common Shares outstanding during the year, adjusted for own shares held. Diluted EPS is determined by adjusting the
profit or loss attributable to the holders of Class A shares (Common Shares) and the weighted average number of Class A shares (Common
Shares) outstanding adjusted for the effects of all dilutive potential Common Shares, which comprise warrants, rights and share options granted
to employees.
(m) Segment reporting:
An operating segment is a component of the Corporation that engages in business activities from which it may earn revenues and incur
expenses. The Corporation has one reportable operating segment: the development and commercialization of pharmaceutical applications of its
licensed rights for cardiovascular diseases. The majority of the Corporation’s assets are located in Canada, while one major production unit,
with a carrying value of $2,394, is located in France.
F-17
Table of Contents
ACASTI PHARMA INC.
Notes to Financial Statements
Thirteen-month and one-month periods ended March 31, 2017, twelve-month period ended February 28, 2017 and years ended February 29, 2016 and
February 28, 2015
(thousands of Canadian dollars, except where noted and for share and per share amounts)
3. Significant accounting policies (continued):
(n) Change in accounting policy:
Future accounting change:
The following new standards, and amendments to standards and interpretations, are not yet effective for the period ended March 31, 2017, and
have not been applied in preparing these financial statements.
New standards and interpretations not yet adopted:
(i)
Financial instruments:
On July 24, 2014, the International Accounting Standards Board (IASB) issued the final version of IFRS 9, Financial Instruments, which
addresses the classification and measurement of financial assets and liabilities, impairment and hedge accounting, replacing IAS 39, Financial
Instruments: Recognition and Measurement. IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with earlier adoption
permitted. The Corporation intends to adopt IFRS 9 in its financial statements for the annual period beginning on April 1, 2018. The
Corporation has not yet assessed the impact of adoption of IFRS 9, and does not intend to early adopt IFRS 9 in its financial statements.
(ii) Amendments to IFRS 2 – Classification and Measurement of Share-Based Payment Transactions:
On June 20, 2016, the IASB issued amendments to IFRS 2, Share-Based Payment, clarifying how to account for certain types of share-based
payment transactions. The amendments apply for annual periods beginning on or after January 1, 2018. Earlier application is permitted. As a
practical simplification, the amendments can be applied prospectively. Retrospective, or early application is permitted if information is
available without the use of hindsight. The amendments provide requirements on the accounting for: the effects of vesting and non-vesting
conditions on the measurement of cash-settled share-based payments; share-based payment transactions with a net settlement feature for
withholding tax obligations; and a modification to the terms and conditions of a share-based payment that changes the classification of the
transaction from cash-settled to equity-settled. The Corporation intends to adopt the amendments to IFRS 2 in its financial statements for the
annual period beginning on April 1, 2018. The Corporation has not yet assessed the impact of adoption of the amendments of IFRS 2, and does
not intend to early adopt these amendments in its financial statements.
4. Receivables:
Sales tax receivables
Government assistance and tax credits receivable
Other receivables
March 31, 2017
February 28, 2017
February 29, 2016
$
89
115
2
206
(Unaudited)
$
83
81
2
166
$
182
217
—
399
Notes
6
F-18
Table of Contents
ACASTI PHARMA INC.
Notes to Financial Statements
Thirteen-month and one-month periods ended March 31, 2017, twelve-month period ended February 28, 2017 and years ended February 29, 2016 and
February 28, 2015
(thousands of Canadian dollars, except where noted and for share and per share amounts)
5. Related parties:
(a) Administrative and research and development expenses:
The Corporation was charged by Neptune for the purchase of research supplies and for certain costs incurred by Neptune for the benefit of the
Corporation, as follows:
Thirteen-months
March 31,
2017
ended Month ended
March 31,
2017
(Unaudited)
$
$
Twelve-months
ended
February 28,
2017
(Unaudited)
$
Research and development expenses
General and administrative expenses
60
618
678
1
41
42
59
577
636
Year ended
February 29,
2016
Year ended
February 28,
2015
$
371
790
1,161
$
344
876
1,220
The Corporation purchased from the parent company research and development supplies totaling $113, of which $73 as at March 31, 2017 and
as at February 28, 2017 (unaudited) is recorded in prepaid expenses and will be expensed as used.
Where Neptune incurs specific incremental costs for the benefit of the Corporation, it charges those amounts directly. Costs that benefit more
than one entity of the Group are charged by allocating a fraction of costs incurred by Neptune that is commensurate to the estimated fraction of
services or benefits received by each entity for those items.
These charges do not represent all charges incurred by Neptune that may have benefited the Corporation. Also, these charges do not
necessarily represent the cost that the Corporation would otherwise need to incur, should it not receive these services or benefits through the
shared resources of Neptune.
(b)
Interest revenue:
On January 7, 2016 Neptune announced the acquisition of Biodroga Nutraceuticals Inc. As part of this transaction, the Corporation pledged an
amount of $2 million (“Committed Funds”) to partly guarantee the financing for the said transaction (“Pledge Agreement”). Neptune had
agreed to pay Acasti an annual fee on the Committed Funds outstanding at an annual rate of 9% during the first six months and 11% for the
remaining term of the Pledge Agreement. On September 20, 2016, Neptune fully released the pledged amount. The Corporation recognized
interest revenue in the amount of $89 for the thirteen-month period ended March 31, 2017, nil (unaudited) for the month ended March 31,
2017, $89 (unaudited) for the twelve-month period ended February 28, 2017 and $27 for the year ended February 29, 2016.
(c)
Payable to parent corporation:
Payable to parent corporation, primarily for general and administrative shared services, has no specified maturity date for payment or
reimbursement and does not bear interest.
(d) Key management personnel compensation:
The key management personnel are the officers of the Corporation, the members of the Board of Directors of the Corporation and of the parent
company. They control in the aggregate less than 2% of the voting shares of the Corporation (1% in 2016 and 2% in 2015).
F-19
Table of Contents
ACASTI PHARMA INC.
Notes to Financial Statements
Thirteen-month and one-month periods ended March 31, 2017, twelve-month period ended February 28, 2017 and years ended February 29, 2016 and
February 28, 2015
(thousands of Canadian dollars, except where noted and for share and per share amounts)
5. Related parties (continued):
(d) Key management personnel compensation (continued):
Key management personnel compensation includes the following for the thirteen-month and one-month periods ended March 31, 2017, twelve-
month period ended February 28, 2017 and years ended February 29, 2016 and February 28, 2015:
Thirteen-months
March 31,
2017
ended Month ended
March 31,
2017
(Unaudited)
$
$
Twelve-months
ended
February 28,
2017
(Unaudited)
$
Short-term benefits
Severance
Share-based compensation costs
6. Government assistance:
1,311
—
619
1,930
202
—
78
280
1,109
—
541
1,650
Year ended
February 29,
2016
Year ended
February 28,
2015
$
688
103
120
911
$
742
175
1,339
2,256
Government assistance is comprised of a government grant from the federal government and research and development investment tax credits
receivable from the provincial government which relate to qualifiable research and development expenditures under the applicable tax laws. The
amounts recorded as receivables are subject to a government tax audit and the final amounts received may differ from those recorded.
Unrecognized federal tax credits may be used to reduce future income tax and expire as follows:
$
2029
2030
2031
2032
2033
2034
2035
2036
2037
11
30
45
431
441
436
519
286
251
2,450
F-20
Table of Contents
ACASTI PHARMA INC.
Notes to Financial Statements
Thirteen-month and one-month periods ended March 31, 2017, twelve-month period ended February 28, 2017 and years ended February 29, 2016 and
February 28, 2015
(thousands of Canadian dollars, except where noted and for share and per share amounts)
7. Equipment:
Cost:
Balance at February 28, 2014
Additions
Balance at February 28, 2015
Additions
Balance at February 29, 2016
Additions for the twelve-month period (Unaudited)
Balance at February 28, 2017 (Unaudited)
Additions for the one-month period (Unaudited)
Additions for the thirteen-month period
Balance at March 31, 2017
Accumulated depreciation:
Balance at February 28, 2014
Depreciation for the year
Balance at February 28, 2015
Depreciation for the year
Balance at February 29, 2016
Depreciation for the twelve-month period
(Unaudited)
Balance at February 28, 2017 (Unaudited)
Depreciation for the one-month period (Unaudited)
Depreciation for thirteen-month period
Balance at March 31, 2017
Net carrying amounts:
February 29, 2016
February 28, 2017 (Unaudited)
March 31, 2017
Furniture and
office equipment
$
Computer
equipment
$
Laboratory
equipment
$
Production
equipment
$
59
—
59
—
59
—
59
—
—
59
45
4
49
3
52
7
59
—
7
59
7
—
—
3
—
3
—
3
8
11
—
8
11
3
—
3
—
3
1
4
—
1
4
—
7
7
25
35
60
276
336
186
522
—
186
522
—
—
—
56
56
129
185
11
140
196
280
337
326
—
—
—
—
—
2,578
2,578
43
2,621
2,621
—
—
—
—
—
52
52
21
73
73
—
2,526
2,548
Total
$
87
35
122
276
398
2,772
3,170
43
2,815
3,213
48
4
52
59
111
189
300
32
221
332
287
2,870
2,881
Depreciation expense for the thirteen-month and one-month periods ended March 31, 2017 and twelve-month period ended February 28, 2017 and
years ended February 29, 2016 and February 28, 2015 has been recorded in “research and development expenses” in the statements of earnings and
comprehensive loss.
F-21
Table of Contents
ACASTI PHARMA INC.
Notes to Financial Statements
Thirteen-month and one-month periods ended March 31, 2017, twelve-month period ended February 28, 2017 and years ended February 29, 2016 and
February 28, 2015
(thousands of Canadian dollars, except where noted and for share and per share amounts)
8.
Intangible assets :
Cost:
Balance at February 28, 2014
Additions
Balance at February 28, 2015
Additions
Balance at February 29, 2016, February 28, 2017
(Unaudited) and March 31, 2017
Accumulated amortization:
Balance at February 28, 2014
Amortization for the year
Balance at February 28, 2015
Amortization for the year
Impairment loss
Balance at February 29, 2016
Amortization for the twelve-month period (Unaudited)
Balance at February 28, 2017 (Unaudited)
Amortization for the one-month period (Unaudited)
Amortization for the thirteen-month period
Balance at March 31, 2017
Net carrying amounts:
February 29, 2016
February 28, 2017 (Unaudited)
March 31, 2017
Patents
$
License
$
Total
$
227
51
278
84
362
1
9
10
13
339
362
—
362
—
—
362
—
—
—
24,330
—
24,330
—
24,557
51
24,608
84
24,330
24,692
4,780
2,322
7,102
2,323
—
9,425
2,323
11,748
194
2,517
11,942
14,905
12,582
12,388
4,781
2,331
7,112
2,336
339
9,787
2,323
12,110
194
2,517
12,304
14,905
12,582
12,388
Amortization expense and impairment loss for the thirteen-month and one-month periods ended March 31, 2017, the twelve-month period ended
February 28, 2017 and years ended February 29, 2016 and February 28, 2015 have been recorded in “research and development expenses” in the
statements of earnings and comprehensive loss.
F-22
Table of Contents
ACASTI PHARMA INC.
Notes to Financial Statements
Thirteen-month and one-month periods ended March 31, 2017, twelve-month period ended February 28, 2017 and years ended February 29, 2016 and
February 28, 2015
(thousands of Canadian dollars, except where noted and for share and per share amounts)
9. Trade and other payables:
Trade payables
Accrued liabilities and other payables
Employee salaries and benefits payable
March 31, 2017
February 28, 2017
February 29, 2016
$
259
1,354
513
2,126
(Unaudited)
$
534
1,372
484
2,390
$
375
543
208
1,126
The Corporation’s exposure to currency and liquidity risks related to trade and other payables is presented in Note 19.
10. Derivative warrant liabilities:
Warrants issued as part of a public offering of units composed of class A share (Common Share) and Common Share purchase warrants in 2014 are
derivative liabilities (“Derivative warrant liabilities”) for accounting purposes due to the currency of the exercise price being different from the
Corporation’s functional currency.
The derivative warrant liabilities are measured at fair value at each reporting period and the reconciliation of changes in fair value is presented in the
following table:
Thirteen-month period
ended March 31, 2017
Month ended
March 31, 2017
Twelve-month period
ended February 28, 2017
(Unaudited)
Year ended
February 29,
2016
$
156
53
209
(Unaudited)
$
187
22
209
$
156
31
187
$
2,357
(2,201)
156
Balance – beginning of period
Change in fair value of derivative
warrant liabilities
Balance – end of period
The fair value of the derivative warrant liabilities was estimated using the Black-Scholes option pricing model and based on the following
assumptions:
Exercise price
Share price(1)
Dividend
Risk-free interest
Estimated life
Expected volatility
March 31, 2017
February 28, 2017
February 29, 2016
US $1.50
US $1.36
—
1.22%
1.68 years
108.35%
(Unaudited)
US $1.50
US $1.25
—
1.24%
1.76 years
107.36%
US $1.50
US $1.50
—
0.87%
2.76 years
76.34%
(1) In order to obtain one Common Share, 10 warrants must be exercised.
The fair value of the warrants issued was determined to be $0.11 per share issuable as at March 31, 2017 and $0.10 (unaudited) per share issuable as
at February 28, 2017 ($0.09 per share issuable as at February 29, 2016).
F-23
Table of Contents
ACASTI PHARMA INC.
Notes to Financial Statements
Thirteen-month and one-month periods ended March 31, 2017, twelve-month period ended February 28, 2017 and years ended February 29, 2016 and
February 28, 2015
(thousands of Canadian dollars, except where noted and for share and per share amounts)
11. Unsecured convertible debentures
Concurrent with the Public Offering described in note 12, on February 21, 2017, the Company issued $2,000 aggregate principal amount of
unsecured convertible debentures maturing February 21, 2020 and contingent warrants to acquire up to 1,052,630 Common Shares (the “Private
Placement”). The principal may be prepaid, in whole or in part, at any time and from time to time, in cash, at the sole discretion of the Corporation.
The debentures are convertible into Common Shares at anytime by the holder at a fixed price of $1.90 per Common Share except if the Corporation
pays before the maturity, all or any portion of the convertible debentures. Should the Corporation pay all or any portion of the convertible debenture
before maturity, then warrants become exercisable at $1.90 per Common Share for the equivalent convertible debenture amount prepaid. The
contingent warrants will be exercisable for the remaining term of the convertible debt for the same price as the conversion options. The unsecured
convertible debentures were issued at a discount of 3.5% to the principal amount, for aggregate gross proceeds of $1,930.
The convertible debentures provide the Corporation an accelerated conversion right whereby the Corporation may, at any time at least four months
after the date of issuance of the convertible debentures, accelerate the conversion of the debentures to Common Shares in the event that the volume
weighted average price of the Corporation’s Common Shares on the TSX Venture Exchange is equal to or exceeds $2.65, subject to customary
adjustment provisions, during 20 consecutive trading days.
The interest to be paid on the convertible debentures under the terms of the agreement is 8% per annum, payable on a quarterly basis in cash or
Common Shares of the Corporation or a combination thereof, commencing on March 31, 2017. The decision to pay the interest due in cash or shares
is at the discretion of the Corporation and the number of Common Shares to be issued will be calculated at the current market price as at the close of
business on the day before the interest payment is to be made. Payment in shares shall be at a floor price of $0.10 per share, with the difference
between the amount payable and the amount computed at floor price payable in cash.
The proceeds of the Private Placement were split between the liability and the equity at the time of issuance of the Private Placement. Both the
conversion option and contingent warrants are considered the equity component of the Private Placement. The fair value of the liability component
was determined through a discounted cash flow analysis using a discount rate of 20% that was set based on a similar debt and maturity considering
the Corporation’s credit risk excluding the conversion option and contingent warrants. The amount allocated to the equity component is the residual
amount after deducting the fair value of the financial liability component from the fair value of the entire compound instrument. Subsequent to initial
recognition, the liability is measured at amortized cost calculated using the effective interest rate method and will accrete up to the principal balance
at maturity. The interest accretion is presented as a financial expense. The equity component is not re-measured. Transaction costs were allocated to
the components in proportion to their initial carrying amounts. The portion allocated to the liability was recognized as a reduction of the debt whereas
the portion allocated to other equity was recognized as a reduction to other equity.
The fair value of the liability portion at the time of issuance was determined to be $1,519 and the transaction costs and debt discount amounted to
$134, of which $30 is still unpaid as at March 31, 2017. The residual of the proceeds allocated to the equity component amounted to $481 and the
transactions costs amounted to $43, of which $10 is unpaid at March 31, 2017.
F-24
Table of Contents
ACASTI PHARMA INC.
Notes to Financial Statements
Thirteen-month and one-month periods ended March 31, 2017, twelve-month period ended February 28, 2017 and years ended February 29, 2016 and
February 28, 2015
(thousands of Canadian dollars, except where noted and for share and per share amounts)
11. Unsecured convertible debentures (continued):
The split between the liability and equity component portions of the Private Placement are summarized below:
Liability component
Equity component
Total Private Placement
$
1,519
(134)
—
8
(4)
1,389
31
(14)
39
(18)
1,406
$
481
(43)
(129)
—
—
309
—
—
—
—
309
$
2,000
(177)
(129)
8
(4)
1,698
31
(14)
39
(18)
1,715
Components at date of issue
Transaction costs and debt discount
Deferred income tax expense (note 18)
Effective interest for the twelve-month period (Unaudited)
Interest payable (Unaudited)
February 28, 2017 (Unaudited)
Effective interest for the one-month period (Unaudited)
Interest payable (Unaudited)
Effective interest for the thirteen-month period
Interest payable
March 31, 2017
12. Capital and other components of equity
(a)
Share capital:
Authorized capital stock:
Unlimited number of shares:
Ø Class A shares (Common Shares), voting (one vote per share), participating and without par value
Ø Class B shares, voting (ten votes per share), non-participating, without par value and maximum annual non-cumulative dividend
of 5% on the amount paid for said shares. Class B shares are convertible, at the holder’s discretion, into Class A shares (Common
Shares), on a one-for-one basis, and Class B shares are redeemable at the holder’s discretion for $0.80 per share, subject to
certain conditions. (1)
Ø Class C shares, non-voting, non-participating, without par value and maximum annual non-cumulative dividend of 5% on the
amount paid for said shares. Class C shares are convertible, at the holder’s discretion, into Class A shares (Common Shares), on a
one-for-one basis, and Class C shares are redeemable at the holder’s discretion for $0.20 per share, subject to certain conditions.
(1)
Ø Class D and E shares, non-voting, non-participating, without par value and maximum monthly non-cumulative dividend between
0.5% and 2% on the amount paid for said shares. Class D and E shares are convertible, at the holder’s discretion, into Class A
shares (Common Shares), on a one-for-one basis, and Class D and E shares are redeemable at the holder’s discretion, subject to
certain conditions. (1)
(1) None issued and outstanding
F-25
Table of Contents
ACASTI PHARMA INC.
Notes to Financial Statements
Thirteen-month and one-month periods ended March 31, 2017, twelve-month period ended February 28, 2017 and years ended February 29, 2016 and
February 28, 2015
(thousands of Canadian dollars, except where noted and for share and per share amounts)
12. Capital and other components of equity (continued):
(b)
Public offering 2017:
Concurrent with the private placement described in Note 11, on February 21, 2017, the Corporation closed a public offering (“Public
Offering”) issuing 3,930,518 units of Acasti (“Units”) at a price of $1.45 per Unit for gross proceeds of $5,699. Each Unit consists of one
class A share (Common Share) and one half of one class A or common share purchase warrant. Each whole warrant entitles the holder thereof
to purchase one common share at an exercise price of $2.15 per common share, at any time until February 21, 2022. The Units issued as part
of the public offering are considered equity instruments. The transaction costs associated with the Public Offering amounted to $1,190, of
which $381 remains unpaid as at March 31, 2017 (February 28, 2017 - $416 (unaudited)). The proceeds and transaction costs were allocated to
share capital.
As part of the transaction, the Company also issued broker warrants (the “Broker Warrants”) to purchase up to 234,992 Common Shares. Each
Broker Warrant entitles the holder thereof to acquire one Common Share of the Corporation at an exercise price of $2.15 per common share, at
any time until February 21, 2018. The broker warrants are considered for compensation to non-employees under IFRS 2, stock-based
compensation, and are accounted for at fair value through contributed surplus. To determine the fair value of the Broker Warrants, the Black-
Scholes pricing model was used. The total costs associated with the Broker Warrants amounted to $144 and were allocated to share capital.
The warrants issued as part of the Units of the Public Offering and the broker warrants include an “Acceleration Right”, related to the
Corporation’s right to accelerate the expiry date of the warrants. The Acceleration Right clause means the right of the Corporation to accelerate
the expiry date to a date that is not less than 30 days following delivery of the acceleration notice if, at any time at least four months after the
effective date, the volume weighted average trading price of the common shares equals or exceeds $2.65 for a period of 20 consecutive trading
days on the TSXV.
Furthermore, as part of the February 2017 Public Offering and convertible debt transactions, a total of 60,000 Common Shares were issued as
equity settled share-based payments for services received from an employee of the parent at a price of $1.57 per share for a total cost of $94.
The equity settled share-based payment costs have been allocated to share capital for a cost that amounted to $85 and to debt for a cost that
amounted to $9 based on relative value.
The value of the broker warrants was estimated using the Black-Scholes option pricing model and based on the following assumptions:
Exercise price
Share price
Dividend
Risk-free interest
Estimated life
Expected volatility
(c)
Issuance of shares:
Thirteen-month period ended
March 31, 2017
$2.15
$1.70
—
0.79%
1.00 year
112.09%
On February 5, 2016, 50,000 shares were issued on the settlement of a liability. An amount of $102, net of share issuance costs of $1, was
recorded in share capital.
F-26
Table of Contents
ACASTI PHARMA INC.
Notes to Financial Statements
Thirteen-month and one-month periods ended March 31, 2017, twelve-month period ended February 28, 2017 and years ended February 29, 2016 and
February 28, 2015
(thousands of Canadian dollars, except where noted and for share and per share amounts)
12. Capital and other components of equity (continued):
(d) Warrants:
The warrants of the Corporation are composed of the following as at March 31, 2017, February 28, 2017, February 29, 2016 and February 28,
2015:
March 31,
2017
February 28,
2017
(Unaudited)
February 29,
2016
February 28,
2015
Number outstanding
Amount
Number
outstanding
Amount
Number
outstanding
Amount
Number
outstanding
$
$
$
Amount
$
18,400,000
18,400,000
209 18,400,000
209 18,400,000
187 18,400,000
187 18,400,000
156 18,400,000
156 18,400,000
2,357
2,357
Liability
Series 8 Public
offering Warrants
2014 (note 10) (i)
Equity
Public offering
warrants
Public offering
warrants 2017 (ii)
1,965,259
— 1,965,259
—
—
—
—
—
Series 2017-BW
Broker warrants
(iii)
Private Placement –
contingent warrants
2017 Unsecured
convertible
debenture
conversion option
and contingent
warrants (iv)
Series 9 Private
Placement
warrants 2014 (v)
234,992
144
234,992
144
—
—
—
—
1,052,630
309 1,052,630
309
—
—
—
—
161,654
3,414,535
—
161,654
453 3,414,535
—
453
161,654
161,654
—
—
161,654
161,654
—
—
(i)
In order to obtain one Common Share of the Corporation at an exercise price of US$15.00, 10 warrants must be exercised. Warrants
expire on December 3, 2018.
(ii) Warrant to acquire one Common Share of the Corporation at an exercise price of $2.15, expiring on February 21, 2022.
(iii) Warrant to acquire one Common Share of the Corporation at an exercise price of $2.15 expiring on February 21, 2018.
(iv) Warrant to acquire one Common Share of the Corporation at an exercise price of $1.90 expiring on February 21, 2020, net of deferred
tax expense of $129.
(v) Warrant to acquire one Common Share of the Corporation at an exercise price of $13.30, expiring on December 3, 2018.
F-27
Table of Contents
ACASTI PHARMA INC.
Notes to Financial Statements
Thirteen-month and one-month periods ended March 31, 2017, twelve-month period ended February 28, 2017 and years ended February 29, 2016 and
February 28, 2015
(thousands of Canadian dollars, except where noted and for share and per share amounts)
13. Personnel expenses:
Salaries and other short-term employee
benefits
Share-based compensation costs
Severance
14. Financial (expenses) income:
Interest income
Foreign exchange gain
Financial income
Foreign exchange loss
Interest on convertible debenture
Other charges
Financial expenses
Financial (expenses) income
Thirteen-months
ended
March 31,
2017
$
2,483
674
—
3,157
Thirteen-months
ended
March 31,
2017
$
125
—
125
(180)
(39)
(19)
(238)
(113)
Month ended
March 31,
2017
(Unaudited)
$
Twelve-month
period ended
February 28,
2017
(Unaudited)
$
Year ended
February 29,
2016
Year ended
February 28,
2015
$
$
214
86
—
300
2,269
588
—
2,857
1,902
309
210
2,421
1,554
1,553
171
3,278
Month ended
March 31,
2017
(Unaudited)
$
Twelve-month
period ended
February 28,
2017
(Unaudited)
$
6
—
6
(3)
(31)
(1)
(35)
(29)
F-28
Year ended
February 29,
2016
Year ended
February 28,
2015
$
73
1,023
1,096
—
—
(2)
(2)
$
87
1,833
1,920
—
—
(4)
(4)
119
—
119
(177)
(8)
(18)
(203)
(84)
1,094
1,916
Table of Contents
ACASTI PHARMA INC.
Notes to Financial Statements
Thirteen-month and one-month periods ended March 31, 2017, twelve-month period ended February 28, 2017 and years ended February 29, 2016 and
February 28, 2015
(thousands of Canadian dollars, except where noted and for share and per share amounts)
15. Share-based payments:
At March 31, 2017, the Corporation has the following share-based payment arrangement:
(a)
Corporation stock option plan:
The Corporation has in place a stock option plan for directors, officers, employees and consultants of the Corporation. The plan provides for
the granting of options to purchase Class A shares (Common Shares). The exercise price of the stock options granted under this plan is not
lower than the closing price of the shares listed on the TSXV at the close of markets the day preceding the grant. Under this plan, the maximum
number of Class A shares (Common Shares) that may be issued upon exercise of options granted under the plan is 2,142,407, representing
20% of the number of Class A shares (Common Shares) issued and outstanding as at February 29, 2016. The terms and conditions for
acquiring and exercising options are set by the Corporation’s Board of Directors, subject among others, to the following limitations: the term of
the options cannot exceed ten years and every stock option granted under the stock option plan will be subject to conditions no less restrictive
than a minimum vesting period of 18 months and a gradual and equal acquisition of vesting rights not shorter than on a quarterly basis. The
total number of shares issued to any one consultant cannot exceed 2% of the Corporation’s total issued and outstanding shares. The
Corporation is not authorized to grant such number of options under the stock option plan that could result in a number of Class A shares
(Common Shares) issuable pursuant to options granted to (a) related persons exceeding 10% of the Corporation’s issued and outstanding
Class A shares (Common Shares) (on a non-diluted basis) on the date an option is granted, or (b) any one eligible person in a twelve month
period exceeding 5% of the Corporation’s issued and outstanding Class A shares (Common Shares) (on a non-diluted basis) on the date an
option is granted.
The following tables summarize information about activities within the stock option plan:
Outstanding at beginning of period
Granted
Forfeited
Expired
Outstanding at end of period
Exercisable at end of period
Outstanding at beginning of period
Granted
Forfeited
Expired
Outstanding at end of period
Thirteen-month period ended
March 31, 2017
Weighted average
exercise price
13.52
1.69
13.27
15.38
2.58
Number of
options
$
454,151
1,300,400
(190,138)
(139,625)
1,424,788
6.44
238,482
Month ended
March 31, 2017
(Unaudited)
Twelve-month period ended
February 28, 2017
(Unaudited)
Weighted average
Number of
Weighted average
exercise price
$
options
exercise price
$
Number of
options
2.59
—
11.50
—
2.58
1,427,288
—
(2,500)
—
1,424,788
13.52
1.69
13.29
15.38
2.59
454,151
1,300,400
(187,638)
(139,625)
1,427,288
Exercisable at end of period
6.44
238,482
6.49
240,982
F-29
Table of Contents
ACASTI PHARMA INC.
Notes to Financial Statements
Thirteen-month and one-month periods ended March 31, 2017, twelve-month period ended February 28, 2017 and years ended February 29, 2016 and
February 28, 2015
(thousands of Canadian dollars, except where noted and for share and per share amounts)
15. Share-based payments (continued):
(a)
Corporation stock option plan (continued):
Outstanding at beginning of year
Granted
Exercised
Forfeited
Expired
Cancelled
Outstanding at end of year
Year ended
February 29, 2016
Year ended
February 28, 2015
Weighted average
Number of
Weighted average
exercise price
$
options
exercise price
$
Number of
options
15.33
4.65
2.50
9.40
18.57
—
13.52
429,625
109,188
(250)
(66,912)
(17,500)
—
454,151
15.72
9.51
2.50
14.90
18.00
17.50
15.33
491,100
51,250
(20,000)
(22,725)
(10,000)
(60,000)
429,625
Exercisable at end of year
15.28
375,563
15.48
332,039
The weighted average of the fair value of the options granted to employees and directors of the Company during the thirteen-month period
ended March 31, 2017 is $1.40 and during the twelve-month period ended February 28, 2017 is $1.40 (unaudited) (2016 -$2.14 and 2015 -
$3.52). There were no options granted during the month ended March 31, 2017 and no options granted to consultants during the thirteen-month
period ended March 31, 2017 and years ended February 29, 2016 and February 28, 2015.
No options were exercised during the thirteen-month period ended March 31, 2017. The weighted average share price at the date of exercise
for share options exercised during the year ended February 29, 2016 was $4.20 (2015 - $9.20). Stock-based compensation recognized under
this plan for the thirteen-month and one-month periods ended March 31, 2017 amounted to $674 and $86 (unaudited), respectively and
amounted to $588 (unaudited) for the twelve-month period ended February 28, 2017 (2016 - $234 and 2015 - $526).
The fair value of options granted was estimated using the Black-Scholes option pricing model, resulting in the following weighted average
assumptions for options granted during the periods ended:
Exercise price
Share price
Dividend
Risk-free interest
Estimated life
Expected volatility
Thirteen-month
period ended
March 31,
2017
$1.69
$1.69
—
0.87%
4.94 years
123.54%
Twelve-month
Period ended
Year ended
February 28, 2017
February 29, 2016
Year ended
February 28, 2015
(Unaudited)
$1.69
$1.69
—
0.87%
4.94 years
123.54%
$4.65
$4.65
—
0.66%
4.20 years
65.63%
$9.51
$9.51
—
1.14%
3.00 years
60.34%
The expected life of the stock options is based on historical data and current expectation and is not necessarily indicative of exercise patterns
that may occur. The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the options is
indicative of future trends, which may also not necessarily be the actual outcome.
F-30
Table of Contents
ACASTI PHARMA INC.
Notes to Financial Statements
Thirteen-month and one-month periods ended March 31, 2017, twelve-month period ended February 28, 2017 and years ended February 29, 2016 and
February 28, 2015
(thousands of Canadian dollars, except where noted and for share and per share amounts)
15. Share-based payments (continued):
(a)
Corporation stock option plan (continued):
The following tables summarize the status of the outstanding and exercisable options of the Corporation:
March 31, 2017
Exercise price
$1.56 - $1.61
$1.62 - $1.82
$1.83 - $2.25
$2.26 - $5.65
$5.66 - $21.00
Exercise price
$1.56 - $1.61
$1.62 - $1.82
$1.83 - $2.25
$2.26 - $5.65
$5.66 - $21.00
Options outstanding
Weighted
remaining
contractual life
outstanding
Number of
options
outstanding
6.11
9.90
6.16
4.08
0.64
525,000
465,000
286,700
79,588
68,500
Exercisable options
Weighed
average
exercise price
Number of
options
exercisable
131,250
—
—
38,732
68,500
$
1.56
—
—
3.84
17.26
6.98
1,424,788
6.44
238,482
February 28, 2017 (Unaudited)
Options outstanding
Weighted
remaining
contractual life
Number of
options
Outstanding
Outstanding
6.20
9.99
6.25
4.17
0.71
525,000
465,000
286,700
79,588
71,000
Exercisable options
Weighed
average
exercise price
Number of
options
exercisable
131,250
—
—
38,732
71,000
$
1.56
—
—
3.84
17.06
7.06
1,427,288
6.49
240,982
Share-based payment transactions and broker warrants:
The fair value of share-based payment transaction is measured using the Black-Scholes valuation model. Measurement inputs include share price on
measurement date, exercise price of the instrument, expected volatility (based on weighted average historic volatility), weighted average expected
life of the instruments (based on historical experience and general option holder behaviour unless no entity-specific information exists in which case
the average of the vesting and contractual periods is used), expected dividends, and the risk-free interest rate (based on government bonds). Service
and non-market performance conditions attached to the transactions, if any, are not taken into account in determining fair value.
b)
Corporation equity incentive plan:
The Corporation established an equity incentive plan for employees, directors and consultants. The plan provides for the issuance of restricted
share units (“RSU”), performance share units, restricted shares, deferred share units and other share-based awards, subject to restricted
conditions as may be determined by the Board of Directors. There are no such awards outstanding as of March 31, 2017, February 28, 2017
and February 29, 2016 and no stock-based compensation was recognized for the one-month and thirteen-month periods ended March 31, 2017
and $64 for the twelve-month period ended February 29, 2016 (2015 - $466).
F-31
Table of Contents
ACASTI PHARMA INC.
Notes to Financial Statements
Thirteen-month and one-month periods ended March 31, 2017, twelve-month period ended February 28, 2017 and years ended February 29, 2016 and
February 28, 2015
(thousands of Canadian dollars, except where noted and for share and per share amounts)
16. Loss per share:
Diluted loss per share was the same amount as basic loss per share, as the effect of options, RSUs and warrants would have been anti-dilutive,
because the Corporation incurred losses in each of the periods presented. All outstanding options, RSUs and warrants could potentially be dilutive in
the future.
17. Supplemental cash flow disclosure:
(a)
Changes in non-cash operating items:
Thirteen-months
Twelve-months
Receivables
Receivable from corporation under common
control
Inventories
Prepaid expenses
Trade and other payables
Receivable/payable to parent corporation
(b) Non-cash transactions:
Equity settled share-based payment included
in equity ($85) and unsecured convertible
debentures ($9)
Issuance of broker warrants included in net
proceeds from public offering
Public offering transaction costs included in
trade and other payables
Reduction in share issue costs from reduction
in trade and other payables
Private Placement transaction costs included
in trade and other payables
Equipment included in trade and other
payables
Interest payable included in trade and other
payables
Issuance of shares on settlement of a liability
Intangible assets included in trade and other
payables
Interest receivable included in payable to
parent corporation
ended
March 31,
2017
$
193
—
—
247
382
(30)
792
Thirteen-
months
ended
March 31,
2017
$
94
144
381
109
40
288
18
—
—
—
Month ended
March 31,
2017
(Unaudited)
$
(40)
—
—
(33)
(252)
(3)
(328)
ended
Year ended
February 28,
2017
(Unaudited)
$
233
—
—
280
634
(27)
1,120
February 29,
2016
$
406
50
88
(138)
50
(497)
(41)
Year ended
February 28,
2015
$
248
47
174
385
(87)
539
1,306
Month ended
Twelve-months
ended
Year ended
Year ended
March 31,
2017
(Unaudited)
$
February 28,
2017
(Unaudited)
$
February
29,
2016
$
February
28,
2015
$
—
—
381
—
40
288
18
—
—
—
94
144
416
109
50
269
4
—
—
—
—
—
—
—
—
—
—
103
—
27
—
—
—
—
—
—
—
—
8
—
F-32
Table of Contents
ACASTI PHARMA INC.
Notes to Financial Statements
Thirteen-month and one-month periods ended March 31, 2017, twelve-month period ended February 28, 2017 and years ended February 29, 2016 and
February 28, 2015
(thousands of Canadian dollars, except where noted and for share and per share amounts)
18. Income taxes:
Deferred tax (recovery) expense:
Thirteen-months
ended
March 31,
2017
$
Month
ended
March 31,
2017
(Unaudited)
$
Twelve-months
ended
Year ended
February 28, 2017
(Unaudited)
February 29,
2016
Year ended
February 28,
2015
$
$
$
2,240
163
2,077
2,065
2,221
(2,369)
(129)
(163)
—
(2,206)
(2,065)
(2,221)
(129)
—
—
Thirteen-
months
ended
March 31,
2017
$
(11,376)
Month
ended
Twelve-months
ended
February 28, 2017
(Unaudited)
Year ended
February 29,
2016
Year ended
February 28,
2015
$
$
$
(10,607)
(6,317)
(1,654)
March 31,
2017
(Unaudited)
$
(769)
26.87%
(3,057)
26.80%
(207)
26.88%
26.90%
26.90%
(2,850)
(1,699)
(445)
2,369
178
14
166
201
(129)
163
23
6
12
3
—
2,206
155
8
154
198
(129)
2,065
83
(592)
143
—
—
2,221
418
(2,374)
180
—
—
Origination and reversal of temporary
differences
Change in unrecognized deductible temporary
differences
Deferred tax (recovery) expense
Reconciliation of effective tax rate:
Loss before income taxes
Basic combined Canadian statutory income tax
rate 1
Computed income tax recovery
Increase resulting from:
Change in unrecognized deductible
temporary differences
Non-deductible stock-based compensation
Non-deductible change in fair value
Permanent differences and other
Change in statutory income tax rate
Total tax (recovery) expense
1 The Canadian combined statutory income tax rate has decreased due to a reduction in the provincial statutory income tax rate.
F-33
Table of Contents
ACASTI PHARMA INC.
Notes to Financial Statements
Thirteen-month and one-month periods ended March 31, 2017, twelve-month period ended February 28, 2017 and years ended February 29, 2016 and
February 28, 2015
(thousands of Canadian dollars, except where noted and for share and per share amounts)
18. Income taxes (continued):
Unrecognized deferred tax assets:
At March 31, 2017, February 28, 2017 and February 29, 2016, the net deferred tax assets, which have not been recognized in these financial
statements because the criteria for recognition of these assets were not met, were as follows:
Deferred tax assets
Tax losses carried forward
Research and development expenses
Property, plan and equipment and intangible assets
Other deductible temporary differences
Deferred tax assets
Deferred tax liabilities
Tax basis of unsecured convertible
debentures in excess of carrying value
Deferred tax liabilities
Net deferred tax assets
March 31, 2017
$
8,293
4,220
435
522
13,470
122
122
13,348
February 28, 2017
(Unaudited)
$
8,153
4,196
423
539
13,311
126
126
13,185
February 29, 2016
$
6,020
3,866
340
388
10,614
—
—
10,614
On initial recognition of the unsecured convertible debenture equity component, a deferred tax liability of $129 was recognized with the
corresponding entry recognized directly in Other equity. Consequently, an equal amount of deferred tax asset related to unrecognized tax losses was
recognized with the offsetting entry in the Corporation statement of earnings and comprehensive loss.
As at March 31, 2017 and February 28, 2017, the amounts and expiry dates of tax attributes and temporary differences, which are available to reduce
future years’ taxable income, were as follows:
March 31, 2017
Federal
$
Provincial
$
February 28, 2017
(Unaudited)
Provincial
$
Federal
$
Tax losses carried forward
2029
2030
2031
2032
2033
2034
2035
2036
2037
714
1,627
2,071
2,262
1,854
3,597
4,595
5,494
9,109
31,323
714
1,620
2,063
2,241
1,825
3,597
4,595
5,494
9,109
31,260
714
1,627
2,071
2,262
1,854
3,597
4,595
5,494
8,579
30,793
Research and development expenses, without time limitation
15,436
16,559
15,347
Other deductible temporary differences, without time limitation
3,154
3,154
3,158
F-34
714
1,620
2,063
2,241
1,825
3,597
4,595
5,494
8,579
30,728
16,469
3,158
Table of Contents
ACASTI PHARMA INC.
Notes to Financial Statements
Thirteen-month and one-month periods ended March 31, 2017, twelve-month period ended February 28, 2017 and years ended February 29, 2016 and
February 28, 2015
(thousands of Canadian dollars, except where noted and for share and per share amounts)
19. Financial instruments:
This note provides disclosures relating to the nature and extent of the Corporation’s exposure to risks arising from financial instruments, including
credit risk, foreign currency risk, interest rate risk and liquidity risk, and how the Corporation manages those risks.
(a)
Credit risk:
Credit risk is the risk of a loss if a customer or counterparty to a financial asset fails to meet its contractual obligations. The Corporation has
credit risk relating to cash and cash equivalents and short-term investments, which it manages by dealing only with highly-rated Canadian
institutions. The carrying amount of financial assets, as disclosed in the statements of financial position, represents the Corporation’s credit
exposure at the reporting date.
(b) Currency risk:
The Corporation is exposed to the financial risk related to the fluctuation of foreign exchange rates and the degrees of volatility of those rates.
Foreign currency risk is limited to the portion of the Corporation’s business transactions denominated in currencies other than the Canadian
dollar. Fluctuations related to foreign exchange rates could cause unforeseen fluctuations in the Corporation’s operating results.
A portion of the expenses, mainly related to research contracts and purchase of production equipment, is incurred in US dollars and in Euros,
for which no financial hedging is required. There is a financial risk related to the fluctuation in the value of the US dollar and the Euro in
relation to the Canadian dollar. In order to minimize the financial risk related to the fluctuation in the value of the US dollar in relation to the
Canadian dollar, funds continue to be invested as short-term investments in the US dollar.
The following table provides an indication of the Corporation’s significant foreign exchange currency exposures as stated in Canadian dollars
at the following dates:
Cash and cash equivalents
Short-term investments
Receivables
Trade and other payables
US$
March 31, 2017
Euro
3,524
—
2
(503)
3,023
—
—
—
(317)
(317)
February 28, 2017
US$
3,691
—
3
(376)
3,318
(Unaudited)
Euro
—
—
—
(603)
(603)
February 29,
2016
US$
2,872
7,442
1
(275)
10,040
The following exchange rates are those applicable to the following periods and dates:
March 31,
2017
Average
Reporting
Average
February 28,
2017
(Unaudited)
Reporting
February 29,
2016
Average
Reporting
CA$ per US$
CA$ per Euro
1.3134
1.4424
1.3299
1.4251
1.3113
1.4434
1.3281
1.4066
1.3071
1.4393
1.3531
—
F-35
Table of Contents
ACASTI PHARMA INC.
Notes to Financial Statements
Thirteen-month and one-month periods ended March 31, 2017, twelve-month period ended February 28, 2017 and years ended February 29, 2016 and
February 28, 2015
(thousands of Canadian dollars, except where noted and for share and per share amounts)
19. Financial instruments (continued):
(b) Currency risk (continued):
Based on the Corporation’s foreign currency exposures noted above, varying the above foreign exchange rates to reflect a 5% strengthening of
the US dollar and Euro would have decrease in net loss as follows, assuming that all other variables remain constant:
Decrease in net loss
March 31, 2017
$
139
February 28, 2017
(Unaudited)
$
151
February 29, 2016
$
502
An assumed 5% weakening of the foreign currencies would have an equal but opposite effect on the basis that all other variables remained
constant.
(c)
Interest rate risk:
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market rates.
The Corporation’s exposure to interest rate risk as at March 31, 2017, February 28, 2017 and February 29, 2016 is as follows:
Cash and cash equivalents
Short-term investments
Unsecured convertible debentures
Short-term fixed interest rate
Short-term fixed interest rate
Long-term fixed interest rate
The capacity of the Corporation to reinvest the short-term amounts with equivalent return will be impacted by variations in short-term fixed
interest rates available on the market. Management believes that the risk the Corporation will realize a loss as a result of the decline in the fair
value of its cash equivalents is limited because these investments have short-term maturities and are generally held to maturity.
(d)
Liquidity risk:
Liquidity risk is the risk that the Corporation will not be able to meet its financial obligations as they fall due. The Corporation manages
liquidity risk through the management of its capital structure and financial leverage, as outlined in Note 22. It also manages liquidity risk by
continuously monitoring actual and projected cash flows. The Board of Directors reviews and approves the Corporation’s operating budgets,
and reviews material transactions outside the normal course of business. Refer to Note 2(c).
F-36
Table of Contents
ACASTI PHARMA INC.
Notes to Financial Statements
Thirteen-month and one-month periods ended March 31, 2017, twelve-month period ended February 28, 2017 and years ended February 29, 2016 and
February 28, 2015
(thousands of Canadian dollars, except where noted and for share and per share amounts)
19. Financial instruments (continued):
(d)
Liquidity risk (continued):
The following are the contractual maturities of financial liabilities as at March 31, 2017, February 28, 2017 and February 29, 2016:
Required payments per year
Total
Carrying amount
Less than 1 year
Trade and other payables
Payable to parent corporation
Unsecured convertible debentures
Notes
9
5(c)
11
$
2,126
12
2,463
4,601
$
2,126
12
1,406
3,544
$
2,126
12
160
2,298
Required payments per year
Total
Carrying amount
Less than 1 year
Trade and other payables
Payable to parent corporation
Unsecured convertible debentures
9
5(c)
11
$
2,390
15
2,480
4,885
$
2,390
15
1,389
3,794
$
2,390
15
160
2,565
Required payments per year
Total
Carrying amount
Less than 1 year
Trade and other payables
Payable to parent corporation
9
5(c)
$
1,126
15
1,141
$
1,126
15
1,141
$
1,126
15
1,141
March 31, 2017
1 to 3 years
$
—
—
2,303
2,303
February 28, 2017
(Unaudited)
1 to 3 years
$
—
—
2,316
2,316
February 29, 2016
1 to 3 years
$
—
—
—
The Derivative warrant liabilities are excluded from the above tables as they will be settled in shares and not by the use of liquidities.
F-37
Table of Contents
ACASTI PHARMA INC.
Notes to Financial Statements
Thirteen-month and one-month periods ended March 31, 2017, twelve-month period ended February 28, 2017 and years ended February 29, 2016 and
February 28, 2015
(thousands of Canadian dollars, except where noted and for share and per share amounts)
20. Commitments and contingencies:
Research and development agreements:
In the normal course of business, the Corporation has signed agreements with various partners and suppliers for them to execute research and
development projects and to produce certain tools and equipment. The Corporation has reserved certain rights relating to these projects.
The Corporation initiated research and development projects that are planned to be conducted over the next 12-month period for a total cost of
$2,169 of which an amount of $785 has been paid to date. As at March 31, 2017, an amount of $467 is included in “Trade and other payables” in
relation to these projects.
The Corporation has also entered into a contract to purchase production equipment for a total cost of $1,162 to be used in the manufacturing of the
clinical and future commercial supply of CaPre®, of which an amount of $853 has been paid to date. As at March 31, 2017, an amount of $288 is
included in “Trade and other payables” related to this equipment.
Contingencies:
A former CEO of the Corporation is claiming the payment of approximately $8.5 million and the issuance of equity instruments from the Group. As
the Corporation’s management believes that these claims are not valid, no provision has been recognized. Neptune and its subsidiaries also filed an
additional claim to recover certain amounts from the former officer. All outstanding share-based payments held by the former CEO have been
cancelled during the year ended February 28, 2015.
The Corporation is also involved in other matters arising in the ordinary course of its business. Since management believes that all related claims are
not valid and it is presently not possible to determine the outcome of these matters, no provisions have been made in the financial statements for
their ultimate resolution beyond the amounts incurred and recorded for such matters. The resolution of such matters could have an effect on the
Corporation’s financial statements in the year that a determination is made, however, in management’s opinion, the final resolution of all such
matters is not projected to have a material adverse effect on the Corporation’s financial position.
21. Determination of fair values:
Certain of the Corporation’s accounting policies and disclosures require the determination of fair value, for both financial assets and liabilities. Fair
values have been determined for measurement and/or disclosure purposes based on the following methods.
Financial assets and liabilities:
In establishing fair value, the Corporation uses a fair value hierarchy based on levels as defined below:
•
•
•
Level 1: defined as observable inputs such as quoted prices in active markets.
Level 2: defined as inputs other than quoted prices in active markets that are either directly or indirectly observable.
Level 3: defined as inputs that are based on little or no observable market data, therefore requiring entities to develop their own
assumptions.
The Corporation has determined that the carrying values of its short-term financial assets and liabilities approximate their fair value given the short-
term nature of these instruments. The fair value of the liability component of the convertible debenture is determined by discounting future cash
flows using a rate that the Corporation could obtain for loans with similar terms, conditions and maturity dates. The fair value of this liability at
February 28, 2017 and March 31, 2017 has not changed from the issuance date of February 21, 2017 and was measured using level 3 inputs.
F-38
Table of Contents
ACASTI PHARMA INC.
Notes to Financial Statements
Thirteen-month and one-month periods ended March 31, 2017, twelve-month period ended February 28, 2017 and years ended February 29, 2016 and
February 28, 2015
(thousands of Canadian dollars, except where noted and for share and per share amounts)
21. Determination of fair values (continued):
Derivative warrant liabilities:
The Corporation measured its derivative warrant liabilities at fair value on a recurring basis. These financial liabilities were measured using a level 3
inputs (Note 10).
As at March 31, 2017, the effect of an increase or a decrease of 5% of the volatility used, which is the significant unobservable input in the fair value
estimate, would result in a loss of $49 or a gain of $44, respectively. As at February 28, 2017, the effect of an increase or a decrease of 5% of the
volatility used, which is the significant unobservable input in the fair value estimate, would result in a loss of $45 (unaudited) or a gain of $40
(unaudited), respectively.
22. Capital management:
Since inception, the Corporation’s objective in managing capital is to ensure sufficient liquidity to finance its research and development activities,
general and administrative expenses, expenses associated with intellectual property protection and its overall capital expenditures. The Corporation is
not exposed to external requirements by regulatory agencies or third parties regarding its capital, except for certain covenants included within the
convertible debentures (Note 11).
Since the beginning of its operations, the Corporation has primarily financed its liquidity needs from funding provided through public offerings,
private placements, its parent corporation, from the exercise of warrants that were distributed to its parent corporation’s shareholders, from a rights
offering and from the issuance of options to employees. However, the Corporation attempts to optimize its liquidity needs with non-dilutive sources
whenever possible, including from research and development tax credits or government assistance.
The Corporation defines capital to include total shareholders’ equity, derivative warrant liabilities and unsecured convertible debentures.
The Corporation’s policy is to maintain a minimal level of debt.
The following table summarizes the cash and cash equivalents and short-term investments of the Corporation:
Cash
Cash equivalents
Short-term investments
March 31, 2017
February 28, 2017
February 29, 2016
6,778
2,994
—
9,772
(Unaudited)
7,584
2,989
—
10,573
3,027
—
7,443
10,470
As at March 31, 2017 and February 28, 2017, cash equivalents consisting of two term deposits totaling $2,994 (US - $2,251) and $2,990 (US$2,251)
(unaudited), respectively, are being held with a Canadian financial institution having a high credit rating. The term deposits as at March 31, 2017
have maturity dates of April 11, 2017 and April 25, 2017, bearing an interest rate of 0.52% and 0.53% per annum, respectively, cashable at any time
at the discretion of the Corporation, under certain conditions. The term deposits as at February 28, 2017 have maturity dates of March 12, 2017 and
March 28, 2017, bearing an interest rate of 0.46% and 0.45% per annum, respectively, cashable at any time at the discretion of the Corporation,
under certain conditions.
As at February 29, 2016, a short-term investment consisting of a term deposit totaling $7,443 (US - $5,500) was with a Canadian financial institution
having a high credit rating. The short-term investment had a maturity date of March 29, 2016, bearing an interest rate of 0.33% per annum, cashable
at any time at the discretion of the Corporation, under certain conditions.
F-39
Exhibit 2.3
ACASTI PHARMA INC.
as the Corporation
and
COMPUTERSHARE TRUST COMPANY OF CANADA
as the Warrant Agent
WARRANT INDENTURE
Providing for the Issue of Warrants
Dated as of February 21, 2017
TABLE OF CONTENTS
ARTICLE 1 INTERPRETATION
1.1
1.2
1.3
1.4
1.5
1.6
1.7
Definitions.
Gender and Number.
Headings, Etc.
Day not a Business Day.
Time of the Essence.
Monetary References.
Applicable Law.
ARTICLE 2 ISSUE OF WARRANTS
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
2.9
2.10
2.11
2.12
2.13
Creation and Issue of Warrants.
Terms of Warrants.
Warrantholder not a Shareholder.
Warrants to Rank Pari Passu.
Form of Warrants and Certificated Warrants.
Beneficial Holders of Warrants.
Warrant Certificate.
Legends.
Register of Warrants
Issue in Substitution for Warrant Certificates Lost, etc.
Exchange of Warrant Certificates.
Transfer and Ownership of Warrants.
Cancellation of Surrendered Warrants.
ARTICLE 3 EXERCISE OF WARRANTS
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
Right of Exercise.
Warrant Exercise.
Securities Restrictions.
Prohibition on Exercise by U.S. Persons; Legended Certificates
Transfer Fees and Taxes.
Warrant Agency.
Effect of Exercise of Warrant Certificates.
Partial Exercise of Warrants; Fractions.
2
2
6
6
6
6
6
6
7
7
7
7
8
8
8
10
11
13
14
15
15
16
16
16
17
19
20
21
21
22
22
- 2 -
3.9
3.10
Expiration of Warrants.
Accounting and Recording.
ARTICLE 4 ADJUSTMENT OF NUMBER OF COMMON SHARES AND EXERCISE PRICE
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
Adjustment of Number of Common Shares and Exercise Price.
Entitlement to Common Shares on Exercise of Warrant.
No Adjustment for Certain Transactions.
Determination by Independent Firm.
Proceedings Prior to any Action Requiring Adjustment.
Certificate of Adjustment.
Notice of Special Matters.
No Action after Notice.
Other Action.
Protection of Warrant Agent.
Participation by Warrantholder.
ARTICLE 5 RIGHTS OF THE CORPORATION AND COVENANTS
5.1
5.2
5.3
5.4
5.5
Optional Purchases by the Corporation.
General Covenants.
Warrant Agent’s Remuneration and Expenses.
Performance of Covenants by Warrant Agent.
Enforceability of Warrants.
ARTICLE 6 ENFORCEMENT
6.1
6.2
6.3
6.4
Suits by Registered Warrantholders.
Suits by the Corporation.
Immunity of Shareholders, etc.
Waiver of Default.
ARTICLE 7 MEETINGS OF REGISTERED WARRANTHOLDERS
7.1
7.2
7.3
7.4
7.5
7.6
Right to Convene Meetings.
Notice.
Chairman.
Quorum.
Power to Adjourn.
Show of Hands.
23
23
23
23
27
27
28
28
28
28
28
29
29
29
30
30
30
31
31
31
32
32
32
32
32
33
33
33
33
33
34
34
- 3 -
Poll and Voting.
Regulations.
Corporation and Warrant Agent May be Represented.
Powers Exercisable by Extraordinary Resolution.
Meaning of Extraordinary Resolution.
Powers Cumulative.
Minutes.
Instruments in Writing.
Binding Effect of Resolutions.
Holdings by Corporation Disregarded.
7.7
7.8
7.9
7.10
7.11
7.12
7.13
7.14
7.15
7.16
ARTICLE 8 SUPPLEMENTAL INDENTURES
8.1
8.2
Provision for Supplemental Indentures for Certain Purposes.
Successor Entities.
ARTICLE 9 CONCERNING THE WARRANT AGENT
9.1
9.2
9.3
9.4
9.5
9.6
9.7
9.8
9.9
9.10
9.11
9.12
9.13
9.14
9.15
Trust Indenture Legislation.
Rights and Duties of Warrant Agent.
Evidence, Experts and Advisers.
Documents, Monies, etc. Held by Warrant Agent.
Actions by Warrant Agent to Protect Interest.
Warrant Agent Not Required to Give Security.
Protection of Warrant Agent.
Replacement of Warrant Agent; Successor by Merger.
Conflict of Interest.
Acceptance of Agency.
Warrant Agent Not to be Appointed Receiver.
Warrant Agent Not Required to Give Notice of Default.
Anti-Money Laundering.
Compliance with Privacy Code.
Securities Exchange Commission Certification.
ARTICLE 10 GENERAL
10.1
10.2
10.3
Notice to the Corporation and the Warrant Agent.
Notice to Registered Warrantholders.
Ownership of Warrants.
34
34
35
35
36
37
37
37
37
37
38
38
39
39
39
39
40
41
41
41
42
43
43
44
44
44
44
45
45
46
46
46
47
- 4 -
Counterparts.
Satisfaction and Discharge of Indenture.
Provisions of Indenture and Warrants for the Sole Benefit of Parties and Registered
Warrantholders.
Common Shares or Warrants Owned by the Corporation or its Subsidiaries – Certificate to be
Provided.
Severability.
Force Majeure.
Assignment, Successors and Assigns.
Rights of Rescission and Withdrawal for Holders.
Language
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
47
47
48
48
48
49
49
49
49
SCHEDULES
SCHEDULE “A” FORM OF WARRANT CERTIFICATE
SCHEDULE “B” FORM OF TRANSFER CERTIFICATE
SCHEDULE “C” EXERCISE FORM
SCHEDULE “D” FORM OF DECLARATION FOR REMOVAL OF LEGEND
SCHEDULE “E” FORM OF U.S. PURCHASER CERTIFICATION UPON EXERCISE OF
WARRANTS
THIS WARRANT INDENTURE is dated as of February 21, 2017.
WARRANT INDENTURE
BETWEEN:
ACASTI PHARMA INC. , a corporation incorporated under the laws of the Province of Québec (the
“Corporation”),
- and -
COMPUTERSHARE TRUST COMPANY OF CANADA , a trust company existing under the laws of Canada
and authorized to carry on business in all provinces of Canada (the “Warrant Agent”),
WHEREAS in connection with its short form prospectus dated February 10, 2017 filed with the Canadian provincial
securities regulatory authorities in the provinces of Alberta, British Columbia, Manitoba, Ontario and Québec relating
to a Canadian public offering and a concurrent offering by way of private placements outside of Canada, including in
the United States in an offering to accredited investors exempt from the registration requirements of the U.S. Securities
Act (as defined herein), pursuant to Rule 501(a) of Regulation D thereunder, the Corporation proposes to issue and sell
3,930,518 units (“Units”) of the Corporation (the “ Offering”), each Unit comprising one (1) Common Share (as
defined herein) and one half of one (1/2) Warrant (as defined herein);
AND WHEREAS for the purpose of the Offering, the Corporation is proposing to issue 1,965,259 Warrants pursuant
to this Indenture;
AND WHEREAS each whole Warrant shall, subject to adjustment, entitle the holder thereof to acquire one
(1) Common Share upon payment of the Exercise Price (as defined below) upon the terms and conditions herein set
forth;
AND WHEREAS all acts and deeds necessary have been done and performed to make the Warrants, when created and
issued as provided in this Indenture, legal, valid and binding upon the Corporation with the benefits and subject to the
terms of this Indenture;
AND WHEREAS the foregoing recitals are made as representations and statements of fact by the Corporation and not
by the Warrant Agent;
NOW THEREFORE, in consideration of the premises and mutual covenants hereinafter contained and other good and
valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Corporation hereby appoints
the Warrant Agent as warrant agent to hold the rights, interests and benefits contained herein for and on behalf of those
persons who from time to time become the holders of Warrants issued pursuant to this Indenture and the parties hereto
agree as follows:
- 2 -
ARTICLE 1
INTERPRETATION
1.1 Definitions.
In this Indenture, including the recitals and schedules hereto, and in all indentures supplemental hereto:
“Acceleration Notice” means the notice of acceleration deliverable to the Warrantholders upon the Corporation’s
exercise of the Acceleration Rights;
“Acceleration Right” means the right of the Corporation to accelerate the Expiry Date to a date that is not the less than
30 days following delivery of the Acceleration Notice if, at any time at least four months after the Effective Date, the
volume weighted average trading price of the Common Shares equals or exceeds CAD$2.65 for a period of 20
consecutive trading dates on the TSXV;
“Adjustment Period” means the period from the Effective Date up to and including the Expiry Time;
“Applicable Legislation” means any statute of Canada or a province thereof, and the regulations under any such
named or other statute, relating to warrant indentures or to the rights, duties and obligations of warrant agents under
warrant indentures, to the extent that such provisions are at the time in force and applicable to this Indenture;
“Applicable Securities Laws” means the applicable securities laws, regulations, rules, rulings and orders, including the
applicable federal and state securities laws and regulations of the United States, including the U.S. Securities Act,
together with all related rules, policies, notices, blanket rulings, orders and all other regulatory instruments of the
securities regulators in the Provinces of Quebec, Ontario, Manitoba, Alberta and British Columbia, and the policies of
the TSXV;
“Auditors” means a firm of chartered accountants duly appointed as auditors of the Corporation;
“Authenticated” means (a) with respect to the issuance of a Warrant Certificate, one which has been duly signed by
the Corporation and authenticated by manual signature of an authorized officer of the Warrant Agent, (b) with respect
to the issuance of an Uncertificated Warrant, one in respect of which the Warrant Agent has completed all Internal
Procedures such that the particulars of such Uncertificated Warrant as required by Section 2.7 are entered in the register
of holders of Warrants, “Authenticate”, “Authenticating” and “Authentication” have the appropriate correlative
meanings;
“Book Based Participants” means institutions that participate directly or indirectly in the Book Based System;
“Book Based System ” means the book-based securities registration and transfer system administered by the Depository
in accordance with its operating rules and procedures in force from time to time;
“Book Based Warrants” means Warrants that are to be held by or on behalf of the Depository;
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“Business Day” means any day other than Saturday, Sunday or a statutory or civic holiday, or any other day on which
the banks or Warrant Agency are not open for business in Montreal, Québec or Toronto, Ontario and shall be a day on
which the TSXV is open for trading;
“CDS Global Warrants” means Warrants representing all or a portion of the aggregate number of Warrants issued in
the name of the Depository represented by an Uncertificated Warrant, or if requested by the Depository or the
Corporation, by a Warrant Certificate;
“Certificated Warrant” means a Warrant evidenced by a writing or writings substantially in the form of Schedule
“A”, attached hereto;
“Common Shares” means, subject to Article 4, fully paid and non-assessable Class A shares of the Corporation as
presently constituted;
“Counsel” means a barrister or solicitor and/or a firm of barristers and/or solicitors retained by the Warrant Agent or
retained by the Corporation and acceptable to the Warrant Agent, which may or may not be counsel for the
Corporation;
“Current Market Price” of the Common Shares at any date means the weighted average of the trading price per
Common Share for each day there was a closing price for the twenty consecutive Trading Days ending on (and
including) the third Trading Day immediately prior to such date on the TSXV, or if on such date the Common Shares
are not listed on the TSXV, on such other stock exchange upon which such Common Shares are listed as the directors
of the Corporation may select for this purpose, or, if such Common Shares are not then listed on any stock exchange,
on any over-the-counter market on which the Common Shares are traded as the directors of the Corporation may select
for this purpose, or if Common Shares are not then traded on any over-the-counter-market, then the Current Market
Price shall be determined by the directors of the Corporation, acting reasonably;
“Depository” means CDS Clearing and Depository Services Inc. or such other Person as is designated in writing by the
Corporation to act as depository in respect of the Warrants;
“Dividends” means any dividends paid by the Corporation;
“Effective Date” means the date of this Indenture;
“Exchange Rate” means the number of Common Shares subject to the right of purchase under each Warrant;
“Exercise Date” means, in relation to the Warrants, the Business Day on which such Warrant is validly exercised or
deemed to be validly exercised in accordance with Article 3 hereof;
“Exercise Notice” has the meaning set forth in Section 3.2(a);
“Exercise Price” at any time means the price at which a whole Common Share may be purchased by the exercise of a
whole Warrant, which is initially CAD$2.15 per Common Share, payable in immediately available Canadian funds,
subject to adjustment in accordance with the provisions of Article 4;
“Expiry Date” means the earlier of (i) February 21, 2022; and (ii) thirty (30) days following the date of delivery of an
Acceleration Notice;
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“Expiry Time” means 5:00 p.m. (Montreal time) on the Expiry Date;
“Extraordinary Resolution” has the meaning set forth in 7.11;
“Issue Date” means February 21, 2017;
“Internal Procedures” means in respect of the making of any one or more entries to, changes in or deletions of any
one or more entries in the register at any time (including without limitation, original issuance or registration of transfer
of ownership) the minimum number of the Warrant Agent’s internal procedures customary at such time for the entry,
change or deletion made to be complete under the operating procedures followed at the time by the Warrant Agent, it
being understood that neither preparation and issuance shall constitute part of such procedures for any purpose of this
definition;
“NASDAQ” means The Nasdaq Stock Market;
“person” means an individual, body corporate, partnership, trust, warrant agent, executor, administrator, legal
representative or any unincorporated organization;
“register” means the one set of records and accounts maintained by the Warrant Agent pursuant to Section 2.9;
“Registered Warrantholders” means the persons who are registered owners of Warrants as such names appear on the
register, and for greater certainty, shall include the Depository as well as the holders of Uncertificated Warrants
appearing on the register of the Warrant Agent;
“Regulation D” means Regulation D as promulgated by the SEC under the U.S. Securities Act;
“Regulation S” means Regulation S as promulgated by the SEC under the U.S. Securities Act;
“SEC” means the United States Securities and Exchange Commission;
“Shareholders” means the holders of Common Shares;
“Tax Act” means the Income Tax Act (Canada) and the regulations thereunder;
“this Warrant Indenture ”, “this Indenture”, “this Agreement”, “hereto” “herein”, “hereby”, “hereof” and similar
expressions mean and refer to this indenture and any indenture, deed or instrument supplemental hereto; and the
expressions “Article”, “Section”, “subsection” and “paragraph” followed by a number, letter or both mean and refer
to the specified article, section, subsection or paragraph of this indenture;
“Trading Day ” means, with respect to the TSXV, a day on which such exchange is open for the transaction of
business, and with respect to another exchange or an over-the-counter market, means a day on which such exchange is
open for the transaction of business;
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“Transaction Instruction” means a written order signed by the holder or the Depository, entitled to request that one or
more actions be taken, or such other form as may be reasonably acceptable to the Warrant Agent, requesting one or
more such actions to be taken in respect of an Uncertificated Warrant;
“TSXV” means the TSX Venture Exchange;
“Uncertificated Warrant” means any Warrant which is not a Certificated Warrant, including uncertificated Warrants
issued through the Book-Based System;
“United States” means the United States of America, its territories and possessions, any state of the United States, and
the District of Columbia;
“U.S. Accredited Investor Certificate ” means the U.S. Accredited Investor Status Certificate attached as Schedule A
to the subscription agreement relating to the U.S. Placement;
“U.S. Person” has the meaning given to such term in Regulation S under the U.S. Securities Act;
“U.S. Placement” means the original private placement in the United States of the Warrants on the date hereof;
“U.S. Purchaser Letter” means the U.S. Purchaser letter in substantially the form attached hereto as Schedule “E”;
“U.S. Securities Act” means the United States Securities Act of 1933 , as amended;
“U.S. Warrantholder” means any Warrantholder that is a U.S. Person, acquired Warrants in the United States or for
the account or benefit of any U.S. Person or Person in the United States;
“U.S. Warrant Legend” means the U.S. restrictive legends set forth in Section 2.8(a);
“Warrants” means the Common Share purchase warrants created by and authorized by and issuable under this
Indenture, to be issued and countersigned hereunder in certificated form and/or held through the Book Based System on
a no certificate issued basis, entitling the holder thereof to purchase one Common Share (subject to adjustment as herein
provided) at the Exercise Price prior to the Expiry Time or means the warrants issued and Authenticated hereunder,
whether by way of Warrant Certificate or Uncertificated Warrant;
“Warrant Agency ” means the principal office of the Warrant Agent in the City of Montreal, Québec, the City of
Toronto, Ontario, or such other place as may be designated in accordance with Section 3.6;
“Warrant Agent” means Computershare Trust Company of Canada, in its capacity as warrant agent of the Warrants, or
its successors from time to time;
“Warrant Certificate” means a certificate, substantially in the form set forth in Schedule “A” hereto, to evidence those
Warrants that will be evidenced by a certificate;
“Warrantholders”, or “ holders” without reference to Warrants, means the holders of Warrants and includes
Registered Warrantholders and owners of Warrants who beneficially hold securities
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entitlements in respect of the Warrants through a Book Based Participant, and “ Warrantholder” means any of the
Warrantholders;
“Warrantholders’ Request ” means an instrument signed in one or more counterparts by Registered Warrantholders
entitled to acquire in the aggregate not less than 50% of the aggregate number of Common Shares which could be
acquired pursuant to all Warrants then unexercised and outstanding, requesting the Warrant Agent to take some action
or proceeding specified therein; and
“written order of the Corporation ”, “written request of the Corporation ”, “written consent of the Corporation ”
and “certificate of the Corporation ” mean, respectively, a written order, request, consent and certificate signed in the
name of the Corporation by any duly authorized signatory of the Corporation and may consist of one or more
instruments so executed.
1.2 Gender and Number.
Words importing the singular number or masculine gender shall include the plural number or the feminine or
neuter genders, and vice versa.
1.3 Headings, Etc.
The division of this Indenture into Articles and Sections, the provision of a Table of Contents and the insertion of
headings are for convenience of reference only and shall not affect the construction or interpretation of this Indenture or
of the Warrants.
1.4 Day not a Business Day.
If any day on or before which any action or notice is required to be taken or given hereunder is not a Business
Day, then such action or notice shall be required to be taken or given on or before the requisite time on the next
succeeding day that is a Business Day.
1.5 Time of the Essence.
Time shall be of the essence of this Indenture.
1.6 Monetary References.
Whenever any amounts of money are referred to herein, such amounts shall be deemed to be in lawful money of
Canada unless otherwise expressed. References to “CAD$” are references to Canadian dollars.
1.7 Applicable Law.
This Indenture, the Warrants, the Warrant Certificates (including all documents relating thereto, which by
common accord have been and will be drafted in English) shall be construed in accordance with the laws of the
Province of Québec and the federal laws of Canada applicable therein and shall be treated in all respects as legally-
binding contracts. Each of the parties hereto, which shall include the Warrantholders, irrevocably attorns to the
exclusive jurisdiction of the courts of the Province of Québec with respect to all matters arising out of this Indenture
and the transactions contemplated herein.
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ARTICLE 2
ISSUE OF WARRANTS
2.1 Creation and Issue of Warrants.
A maximum of 1,965,259 Warrants (subject to adjustment as herein provided) are hereby created and authorized
to be issued in accordance with the terms and conditions hereof. By written order of the Corporation, the Warrant
Agent shall deliver Warrant Certificates to Registered Warrantholders and record the name of the Registered
Warrantholders on the Warrant register. Registration of interests in Warrants held by the Depository may be evidenced
by a position appearing on the register for Warrants of the Warrant Agent for an amount representing the aggregate
number of such Warrants outstanding from time to time. The Warrant Agent is hereby appointed Warrant Agent in
respect of the Warrants.
2.2 Terms of Warrants.
(a)
Subject to the applicable conditions for exercise set out in Article 3 having been satisfied and subject to
adjustment in accordance with Article 4, each Warrant shall entitle each Warrantholder thereof, upon exercise at
any time after the Issue Date and prior to the Expiry Time, to acquire one Common Share upon payment of the
Exercise Price.
(b) No fractional Warrants shall be issued or otherwise provided for hereunder and Warrants may only be exercised
in a sufficient number to acquire whole numbers of Common Shares. If any fractional interest in such securities
would, except for the provisions of this Section, be deliverable hereunder, the number of Warrants or Common
Shares, as the case may be, issuable by the Corporation shall be rounded down to the nearest whole number of
Warrants or Common Shares, as the case may be, to be issued in accordance with this Indenture.
(c)
Each Warrant shall entitle the holder thereof to such other rights and privileges as are set forth in this Indenture.
(d) The number of Common Shares which may be purchased pursuant to the Warrants and the Exercise Price
therefor shall be adjusted upon the events and in the manner specified in Article 4.
(e)
If at any time at least four months after the Effective Date, the volume weighted average trading price of the
Common Shares shall equal or exceed $2.65 for a period of twenty (20) consecutive trading days on TSXV, the
Corporation shall be entitled, at the option of the Corporation, to exercise the Acceleration Right by delivering an
Acceleration Notice to the Warrantholders. An Acceleration Notice shall be delivered to each Warrantholder in
the manner in Section 10.1.
2.3 Warrantholder not a Shareholder.
Except as may be specifically provided herein, nothing in this Indenture or in the holding of a Warrant Certificate,
entitlement to a Warrant or otherwise, shall, in itself, confer or be construed as conferring upon a Warrantholder any
right or interest whatsoever as a Shareholder, including, but not limited to, the right to vote at, to receive notice of, or to
attend, meetings of
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Shareholders or any other proceedings of the Corporation, or the right to Dividends and other allocations.
2.4 Warrants to Rank Pari Passu.
All Warrants shall rank equally and without preference over each other, whatever may be the actual date of issue
thereof.
2.5 Form of Warrants and Certificated Warrants.
The Warrants may be issued in both certificated and uncertificated form. Each Warrant originally issued to a U.S.
Warrantholder will be evidenced in certificated form only and bear the applicable legends as set forth in Schedule “A”
hereto. All Warrants issued in certificated form shall be evidenced by one or more Warrant Certificates (including all
replacements issued in accordance with this Indenture), substantially in the form set out in Schedule “A” hereto, which
shall be dated as of the Issue Date, shall bear such distinguishing letters and numbers as the Corporation may, with the
approval of the Warrant Agent, prescribe, and shall be issuable in any denomination excluding fractions. All Warrants
issued to the Depository may be in either a certificated or uncertificated form, such uncertificated form being evidenced
by a book position on the register of Warrantholders to be maintained by the Warrant Agent in accordance with
Section 2.6.
Each Warrantholder, by purchasing Warrants, acknowledges and agrees that the terms and conditions set forth in
the form of Warrant Certificate set out in Schedule “A” hereto shall apply to all Warrants and Warrantholders,
regardless of whether such Warrants are issued in certificated or uncertificated form, or whether such Warrantholders
are Registered Warrantholders or owners of Warrants who beneficially hold securities entitlements in respect of the
Warrants through a Book Based Participant.
2.6 Beneficial Holders of Warrants.
(a)
The Warrants may be represented in the form of one or more CDS Global Warrants registered in the name of the
Depositary or its nominee and held by, or on behalf of, the Depositary, as depositary of the CDS Global Warrants
for the Book Based Participants, and any such CDS Global Warrant will bear, or be deemed to bear the legend
included in section 2.8(c) hereto.
(b) Registration of beneficial interests in and transfers of Warrants held by the Depository shall be made only
through the Book Based System and no Warrant Certificates shall be issued in respect of such Warrants except
where physical certificates evidencing ownership in such securities are required or as set out herein or as may be
requested by a Depository, as determined by the Corporation, from time to time. Except as provided in this
Section 2.6, owners of beneficial interests in any CDS Global Warrants shall not be entitled to have Warrants
registered in their names and shall not receive or be entitled to receive Warrants in definitive form or to have their
names appear in the register referred to in Section 2.9 herein.
(c) Notwithstanding any other provision in this Indenture, no CDS Global Warrants may be exchanged in whole or in
part for registered Warrants, and no transfer of any CDS
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Global Warrant in whole or in part may be registered, in the name of any Person other than the Depository for
such CDS Global Warrants or a nominee thereof unless:
(i)
(ii)
the Depository notifies the Corporation that it is unwilling or unable to continue to act as depository in
connection with the Book Based Warrants and the Corporation is unable to locate a qualified successor;
the Corporation determines that the Depository is no longer willing, able or qualified to discharge properly
its responsibilities as holder of the CDS Global Warrants and the Corporation is unable to locate a qualified
successor;
(iii)
the Depository ceases to be a clearing agency or otherwise ceases to be eligible to be a depository and the
Corporation is unable to locate a qualified successor;
(iv)
the Corporation determines that the Warrants shall no longer be held as Book Based Warrants through the
Depository;
(v)
such right is required by Applicable Law, as determined by the Corporation and the Corporation’s Counsel;
(vi)
the Warrant is to be Authenticated to or for the account or benefit of a person in the United States or a U.S.
Person; or
(vii) such registration is effected in accordance with the Internal Procedures of the Depository and the Warrant
Agent,
following which Warrants for those holders requesting the same shall be registered and issued to the beneficial
owners of such Warrants or their nominees as directed by the holder. The Corporation shall provide an Officer’s
Certificate giving notice to the Warrant Agent of the occurrence of any event outlined in this Section 2.6(b)(i) and
(vi).
(d)
(e)
Subject to the provisions of this Section 2.6, any exchange of CDS Global Warrants for Warrants which are not
CDS Global Warrants may be made in whole or in part in accordance with the provisions of Section 2.11, mutatis
mutandis. All such Warrants issued in exchange for a CDS Global Warrant or any portion thereof shall be
registered in such names as the Depository for such CDS Global Warrants shall direct and shall be entitled to the
same benefits and subject to the same terms and conditions (except insofar as they relate specifically to CDS
Global Warrants) as the CDS Global Warrants or portion thereof surrendered upon such exchange.
Every Warrant that is Authenticated upon registration or transfer of a CDS Global Warrant, or in exchange for or
in lieu of a CDS Global Warrant or any portion thereof, whether pursuant to this Section 2.6, or otherwise, shall
be Authenticated in the form of, and shall be, a CDS Global Warrant, unless such Warrant is registered in the
name of a person other than the Depository for such CDS Global Warrant or a nominee thereof.
(f) Notwithstanding anything to the contrary in this Indenture, subject to Applicable Law, the CDS Global Warrant
will be issued as an Uncertificated Warrant, unless otherwise requested in writing by the Depository or the
Corporation.
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(g) The rights of beneficial owners of Warrants who hold securities entitlements in respect of the Warrants through
the Book Based System shall be limited to those established by applicable law and agreements between the
Depository and the Book Based Participants and between such Book Based Participants and the beneficial
owners of Warrants who hold securities entitlements in respect of the Warrants through the Book Based System,
and such rights must be exercised through a Book Based Participant in accordance with the rules and procedures
of the Depository.
(h) Notwithstanding anything herein to the contrary, neither the Corporation nor the Warrant Agent nor any agent
thereof shall have any responsibility or liability for:
(i)
any aspects of the records relating to any beneficial ownership interests or any other interests in the
Warrants or the Book Based System, or payments made by the Depository or its nominee on account of any
beneficial ownership interest or any other interest of any person in any Warrant represented by an
electronic position in the Book Based System;
(ii)
for maintaining, supervising or reviewing any records of the Depository or its nominee or any Book Based
Participant relating to any such interest; or
(iii) any advice or representation made or given by the Depository or those contained herein that relate to the
rules and regulations of the Depository or any action to be taken by the Depository on its own direction or
at the direction of any Book Based Participant.
(i)
The Corporation may terminate the application of this Section 2.6 in its sole discretion in which case all Warrants
shall be evidenced by Warrant Certificates registered in the name of a Person other than the Depository.
2.7 Warrant Certificate.
(a)
For Warrants issued in certificated form, the form of certificate representing Warrants shall be substantially as set
out in Schedule “A” hereto or such other form as is authorized from time to time by the Warrant Agent. Each
Warrant Certificate shall be Authenticated manually on behalf of the Warrant Agent. Each Warrant Certificate
shall be signed by any authorized signatory of the Corporation; whose signature shall appear on the Warrant
Certificate and may be printed, lithographed or otherwise mechanically reproduced thereon and, in such event,
certificates so signed are as valid and binding upon the Corporation as if it had been signed manually. Any
Warrant Certificate which is signed by any authorized signatory of the Corporation as hereinbefore provided shall
be valid notwithstanding that one or more of the person(s) whose signature is printed, lithographed or
mechanically reproduced no longer holds office at the date of issuance of such certificate. The Warrant
Certificates may be engraved, printed or lithographed, or partly in one form and partly in another, as the Warrant
Agent may determine.
(b) The Warrant Agent shall Authenticate Uncertificated Warrants (whether upon original issuance, exchange,
registration of transfer, partial payment or otherwise) by completing its Internal Procedures and the Corporation
shall, and hereby acknowledges that it shall, thereupon be deemed to have duly and validly issued such
Uncertificated Warrants
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under this Indenture. Such Authentication shall be conclusive evidence that such Uncertificated Warrant has been
duly issued hereunder and that the holder or holders are entitled to the benefits of this Indenture. The register shall
be final and conclusive evidence as to all matters relating to Uncertificated Warrants with respect to which this
Indenture requires the Warrant Agent to maintain records or accounts. In case of differences between the register
at any time and any other time, the register at the later time shall be controlling, absent manifest error and such
Uncertificated Warrants are binding on the Corporation.
(c) Any Warrant Certificate validly issued in accordance with the terms of this Indenture in effect at the time of issue
of such Warrant Certificate shall, subject to the terms of this Indenture and applicable law, validly entitle the
holder to acquire Common Shares, notwithstanding that the form of such Warrant Certificate may not be in the
form currently required by this Indenture.
(d) No Certificated Warrant shall be considered issued and Authenticated or, if Authenticated, shall be obligatory or
shall entitle the holder thereof to the benefits of this Indenture, until it has been Authenticated by manual
signature by or on behalf of the Warrant Agent substantially in the form of the Warrant set out in Schedule “A”
hereto. Such Authentication on any such Certificated Warrant shall be conclusive evidence that such Certificated
Warrant is duly Authenticated and is valid and a binding obligation of the Corporation and that the holder is
entitled to the benefits of this Indenture.
(e) No Uncertificated Warrant shall be considered issued and shall be obligatory or shall entitle the holder thereof to
the benefits of this Indenture, until it has been Authenticated by entry on the register of the particulars of the
Uncertificated Warrant. Such entry on the register of the particulars of an Uncertificated Warrant shall be
conclusive evidence that such Uncertificated Warrant is a valid and binding obligation of the Corporation and that
the holder is entitled to the benefits of this Indenture.
(f)
The Authentication by the Warrant Agent of any Warrants by way of entry on the register shall not be construed
as a representation or warranty by the Warrant Agent as to the validity of this Indenture or of such Warrants
(except the due Authentication thereof) or as to the performance by the Corporation of its obligations under this
Indenture and the Warrant Agent shall in no respect be liable or answerable for the use made of the Warrants or
any of them or the proceeds thereof.
2.8 Legends.
(a) Neither the Warrants nor the Common Shares issuable upon exercise of the Warrants have been or will be
registered under the U.S. Securities Act or under any United States state securities laws. If applicable, each
Warrant Certificate originally issued for the benefit or account of a U.S. Warrantholder and each Warrant
Certificate issued in exchange therefor or in substitution thereof, shall bear the following legends or such
variations thereof as the Corporation may prescribe from time to time:
THIS WARRANT AND THE SECURITIES DELIVERABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “ U.S.
SECURITIES ACT”), OR
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ANY STATE SECURITIES LAWS, AND MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED, DIRECTLY OR INDIRECTLY, ONLY (A) TO ACASTI PHARMA INC. (THE
“CORPORATION”) (B) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 OF
REGULATION S UNDER THE U.S. SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE
LOCAL LAWS AND REGULATIONS, (C) WITHIN THE UNITED STATES IN ACCORDANCE WITH THE
EXEMPTION FROM REGISTRATION UNDER THE U.S. SECURITIES ACT PROVIDED BY (1) RULE 144A
UNDER THE U.S. SECURITIES ACT OR (2) IF AVAILABLE, RULE 144 UNDER THE U.S. SECURITIES
ACT AND, IN EACH CASE, IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS, OR
(D) IN A TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER THE U.S. SECURITIES
ACT OR ANY APPLICABLE STATE SECURITIES LAWS, PROVIDED THAT IN THE CASE OF
TRANSFERS PURSUANT TO (C)(2) OR (D) ABOVE, A LEGAL OPINION SATISFACTORY TO THE
CORPORATION MUST FIRST BE PROVIDED TO COMPUTERSHARE TRUST COMPANY OF CANADA
TO THE EFFECT THAT SUCH TRANSFER MAY BE EFFECTED WITHOUT REGISTRATION UNDER
THE U.S. SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. DELIVERY OF THIS
CERTIFICATE MAY NOT CONSTITUTE “GOOD DELIVERY” IN SETTLEMENT OF TRANSACTIONS ON
STOCK EXCHANGES IN CANADA.”
provided, that, if the Warrants are being sold outside the United States in accordance with Rule 904 of Regulation
S, and if the Corporation is a “foreign issuer” within the meaning of Regulation S at the time of sale, this legend
may be removed by the transferor providing a declaration to the Warrant Agent in the form set forth in the
attached Warrant Certificate or as the Warrant Agent or the Corporation may prescribe from time to time, and if
required by the Warrant Agent, including an opinion of counsel, of recognized standing reasonably satisfactory to
the Corporation and the Warrant Agent, that such legend is no longer required under the U.S. Securities Act and
applicable state securities laws.
(b) Each Warrant Certificate and each Warrant Certificate issued in exchange therefor or in substitution thereof, shall
bear the following legends or such variations thereof as the Corporation may prescribe from time to time:
“THE SECURITIES EVIDENCED HEREBY AND THE SECURITIES ISSUABLE UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OR U.S. STATE
SECURITIES LAWS. THESE WARRANTS MAY NOT BE EXERCISED IN THE UNITED STATES OR BY
OR ON BEHALF OF, OR FOR THE ACCOUNT OR BENEFIT OF, A U.S. PERSON UNLESS AN
EXEMPTION FROM REGISTRATION UNDER THE U.S. SECURITIES ACT AND ANY APPLICABLE
STATE SECURITIES LAWS IS AVAILABLE AND THE CORPORATION HAS RECEIVED AN OPINION
OF COUNSEL OF RECOGNIZED STANDING TO SUCH EFFECT IN FORM AND SUBSTANCE
REASONABLY SATISFACTORY TO THE CORPORATION. “UNITED STATES” AND “U.S. PERSON”
ARE AS DEFINED BY REGULATION S UNDER THE U.S. SECURITIES ACT. IF REQUESTED BY THE
CORPORATION, THE HOLDER AGREES TO
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PROVIDE THE INFORMATION NECESSARY TO DETERMINE WHETHER THE TRANSFER OR
EXERCISE OF THIS WARRANT IS PERMISSIBLE UNDER THE U.S. SECURITIES ACT.”
(c)
The Warrant Agent shall be entitled to request any other documents that it may require in accordance with its
internal policies for the removal of the legend set forth above.
(d) Each CDS Global Warrant originally issued in Canada and held by the Depository, and each CDS Global
Warrant issued in exchange therefor or in substitution thereof shall bear or be deemed to bear the following
legend or such variations thereof as the Corporation may prescribe from time to time:
“UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF CDS
CLEARING AND DEPOSITORY SERVICES INC. (“ CDS”) TO ACASTI PHARMA INC. (THE “ ISSUER”)
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IN RESPECT THEREOF IS REGISTERED IN THE NAME OF CDS & CO, OR IN
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF CDS (AND ANY
PAYMENT IS MADE TO CDS & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF CDS), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED HOLDER
HEREOF, CDS & CO., HAS A PROPERTY INTEREST IN THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HEREIN AND IT IS A VIOLATION OF ITS RIGHTS FOR ANOTHER PERSON TO HOLD,
TRANSFER OR DEAL WITH THIS CERTIFICATE.”
(e) Notwithstanding any other provisions of this Indenture, in processing and registering transfers of Warrants, no
duty or responsibility whatsoever shall rest upon the Warrant Agent to determine the compliance by any
transferor or transferee with the terms of the legend contained in subsections 2.8(a) or 2.8(c), or with the relevant
securities laws or regulations, including, without limitation, Regulation S, and the Warrant Agent shall be entitled
to assume that all transfers are legal and proper.
2.9 Register of Warrants
(a)
The Warrant Agent shall maintain records and accounts concerning the Warrants, whether certificated or
uncertificated, which shall contain the information called for below with respect to each Warrant, together with
such other information as may be required by law or as the Warrant Agent may elect to record. All such
information shall be kept in one set of accounts and records which the Warrant Agent shall designate (in such
manner as shall permit it to be so identified as such by an unaffiliated party) as the register of the holders of
Warrants. The information to be entered for each account in the register of Warrants at any time shall include
(without limitation):
(i)
the name and address of the holder of the Warrants, the date of Authentication thereof and the number of
Warrants;
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(ii) whether such Warrant is a Certificated Warrant or an Uncertificated Warrant and, if a Warrant Certificate,
the unique number or code assigned to and imprinted thereupon and, if an Uncertificated Warrant, the
unique number or code assigned thereto if any;
(iii) whether such Warrant has been cancelled; and
(iv)
a register of transfers in which all transfers of Warrants and the date and other particulars of each transfer
shall be entered.
The register shall be available for inspection by the Corporation and or any Warrantholder during the Warrant
Agent’s regular business hours on a Business Day and upon payment to the Warrant Agent of its reasonable fees.
Any Warrantholder exercising such right of inspection shall first provide an affidavit in form satisfactory to the
Corporation and the Warrant Agent stating the name and address of the Warrantholder and agreeing not to use the
information therein except in connection with an effort to call a meeting of Warrantholders or to influence the
voting of Warrantholders at any meeting of Warrantholders.
(b) Once an Uncertificated Warrant has been Authenticated, the information set forth in the register with respect
thereto at the time of Authentication may be altered, modified, amended, supplemented or otherwise changed
only to reflect exercise or proper instructions to the Warrant Agent from the holder as provided herein, except that
the Warrant Agent may act unilaterally to make purely administrative changes internal to the Warrant Agent and
changes to correct errors. Each person who becomes a holder of an Uncertificated Warrant, by his, her or its
acquisition thereof shall be deemed to have irrevocably consented to the foregoing authority of the Warrant Agent
to make such error corrections.
2.10 Issue in Substitution for Warrant Certificates Lost, etc.
(a)
If any Warrant Certificate becomes mutilated or is lost, destroyed or stolen, the Corporation, subject to applicable
law, shall issue and thereupon the Warrant Agent shall certify and deliver, a new Warrant Certificate of like tenor,
and bearing the same legend, if applicable, as the one mutilated, lost, destroyed or stolen in exchange for and in
place of and upon cancellation of such mutilated Warrant Certificate, or in lieu of and in substitution for such lost,
destroyed or stolen Warrant Certificate, and the substituted Warrant Certificate shall be in a form approved by the
Warrant Agent and the Warrants evidenced thereby shall be entitled to the benefits hereof and shall rank equally
in accordance with its terms with all other Warrants issued or to be issued hereunder.
(b) The applicant for the issue of a new Warrant Certificate pursuant to this Section 2.10 shall bear the cost of the
issue thereof and in case of loss, destruction or theft shall, as a condition precedent to the issuance thereof, furnish
to the Corporation and to the Warrant Agent such evidence of ownership and of the loss, destruction or theft of
the Warrant Certificate so lost, destroyed or stolen as shall be satisfactory to the Corporation and to the Warrant
Agent, in their sole discretion, and such applicant shall also be required to furnish an indemnity and surety bond
in amount and form satisfactory to the
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Corporation and the Warrant Agent, in their sole discretion, and shall pay the reasonable charges of the
Corporation and the Warrant Agent in connection therewith.
2.11 Exchange of Warrant Certificates.
(a) Any one or more Warrant Certificates representing any number of Warrants may, upon compliance with the
reasonable requirements of the Warrant Agent (including compliance with Applicable Securities Laws), be
exchanged for one or more other Warrant Certificates representing the same aggregate number of Warrants and
bearing the same legend, if applicable, as represented by the Warrant Certificate or Warrant Certificates so
exchanged.
(b) Warrant Certificates may be exchanged only at the Warrant Agency or at any other place that is designated by the
Corporation with the approval of the Warrant Agent. Any Warrant Certificate or duly executed Transaction
Instruction from the holder (or such other instructions, in form satisfactory to the Warrant Agent), tendered for
exchange shall be surrendered to the Warrant Agency and cancelled by the Warrant Agent.
(c) Warrant Certificates exchanged for Warrant Certificates that bear a legend set forth in Section 2.8 shall bear the
same legend.
2.12 Transfer and Ownership of Warrants.
(a)
The Warrants may only be transferred on the register kept by the Warrant Agent at the Warrant Agency by the
holder or its legal representatives or its attorney duly appointed by an instrument in writing in form and execution
satisfactory to the Warrant Agent only upon (a) in the case of a Warrant Certificate, surrendering to the Warrant
Agent at the Warrant Agency the Warrant Certificate representing the Warrants to be transferred together with a
duly executed transfer form as set forth in Schedule “B”, (b) in the case of Book Based Warrants, in accordance
with procedures prescribed by the Depository under the Book Based System, (c) in the case of Uncertificated
Warrants, surrendering to the Warrant Agent at the Warrant Agency, a duly executed Transaction Instruction
from the holder (or such other instructions, in form satisfactory to the Warrant Agent), and (d) upon compliance
with:
(i)
the conditions herein;
(ii)
such reasonable requirements as the Warrant Agent may prescribe; and
(iii) all Applicable Securities Laws and requirements of regulatory authorities;
and such transfer shall be duly noted in such register by the Warrant Agent. Upon compliance with such
requirements, the Warrant Agent shall issue to the transferee of a Certificated Warrant (or it shall Authenticate an
Uncertificated Warrant instead, upon request), a Warrant Certificate, and to the transferee of an Uncertificated
Warrant, an Uncertificated Warrant (or it shall Authenticate and deliver a Certificated Warrant instead, upon
request), representing the Warrants transferred and the transferee of a Book Based Warrant shall be recorded
through the relevant Book Based Participant in accordance with the Book Based System as the entitlement holder
in respect of such
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Warrants. Transfers within the Book Based System are not the responsibility of the Warrant Agent and will not be
noted on the register maintained by the Warrant Agent.
(b)
(c)
If a Warrant Certificate tendered for transfer bears the legend set forth in Section 2.8(a), the Warrant Agent shall
not register such transfer unless the transferor has provided the Warrant Agent with the Warrant Certificate and
(i) the transfer is made to the Corporation or (ii) a declaration to the effect set forth in Schedule C to this Warrant
Indenture, or in such other form as the Corporation may from time to time prescribe, is delivered to the Warrant
Agent, and if required by the Warrant Agent, the transferor provides an opinion of counsel of recognized
standing, reasonably satisfactory to the Corporation and the Warrant Agent that the transfer is in compliance with
applicable state laws and the U.S. Securities Act.
Subject to the provisions of this Indenture and Applicable Legislation, the Warrantholder shall be entitled to the
rights and privileges attaching to the Warrants, and the issue of Common Shares by the Corporation upon the
exercise of Warrants in accordance with the terms and conditions herein contained shall discharge all
responsibilities of the Corporation and the Warrant Agent with respect to such Warrants and neither the
Corporation nor the Warrant Agent shall be bound to inquire into the title of any such holder.
2.13 Cancellation of Surrendered Warrants.
All Warrant Certificates surrendered pursuant to Article 3 shall be cancelled by the Warrant Agent and upon such
circumstances all such Uncertificated Warrants shall be deemed cancelled and so noted on the register by the Warrant
Agent. Upon request by the Corporation, the Warrant Agent shall furnish to the Corporation a cancellation certificate
identifying the Warrant Certificates so cancelled, the number of Warrants evidenced thereby, the number of Common
Shares, if any, issued pursuant to such Warrants and the details of any Warrant Certificates issued in substitution or
exchange for such Warrant Certificates cancelled.
ARTICLE 3
EXERCISE OF WARRANTS
3.1 Right of Exercise.
Subject to the provisions hereof, each Registered Warrantholder may exercise the right conferred on such holder
to subscribe for and purchase one Common Share for each Warrant after the Issue Date and prior to the Expiry Time
and in accordance with the conditions herein.
Notwithstanding any provision to the contrary contained in this Indenture, no U.S. Warrantholder may exercise
any Warrant unless an exemption from the registration requirements of the U.S. Securities Act is available and such
holder provides evidence, including an opinion of counsel, of the availability of such exemption reasonably satisfactory
to the Corporation and the Warrant Agent; provided, however, that a U.S. Warrantholder that is the original purchaser
of Warrants and delivered to the Corporation a U.S. Accredited Investor Certificate in connection with its purchase of
Units pursuant to the U.S. Placement will not be required to deliver an opinion of counsel in connection with the
exercise of the Warrants, unless reasonably requested by the Corporation.
3.2 Warrant Exercise.
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(a) Registered Warrantholders of Warrant Certificates who wish to exercise the Warrants held by them in order to
acquire Common Shares must complete a Transaction Instruction or the exercise form (the “Exercise Notice”)
attached to the Warrant Certificate(s) in the form set forth in Schedule “C” hereto, which may be amended by the
Corporation with the consent of the Warrant Agent, if such amendment does not, in the reasonable opinion of the
Corporation and the Warrant Agent, which may be based on the advice of Counsel, materially and adversely
affect the rights, entitlements and interests of the Warrantholders, and deliver such certificate(s), if applicable, the
executed Exercise Notice and a certified cheque, bank draft or money order payable to or to the order of the
Corporation for the aggregate Exercise Price to the Warrant Agent at the Warrant Agency. The Warrants
represented by a Warrant Certificate shall be deemed to be surrendered upon personal delivery of such certificate,
Exercise Notice and aggregate Exercise Price or, if such documents are sent by mail or other means of
transmission, upon actual receipt thereof by the Warrant Agent at the office referred to above.
(b)
In addition to completing the Exercise Form attached to the Warrant Certificate(s), a U.S. Warrantholder, or any
other person requesting delivery of the Common Shares issuable upon exercise of the Warrants in or into the
United States must (a) provide a completed and executed U.S. Purchaser Letter or (b) an opinion of counsel of
recognised standing in form and substance reasonably satisfactory to the Corporation and the Warrant Agent that
the exercise and delivery is exempt from the registration requirements of Applicable Securities Laws of any state
of the United States and the U.S. Securities Act; provided, however a U.S. Warrantholder that is the original
purchaser of Warrants and who has delivered the U.S. Accredited Investor Certificate attached to the subscription
agreement of the Corporation in connection with its purchase of Units pursuant to the U.S. Placement, will not be
required to deliver a U.S. Purchaser Letter or an opinion of counsel in connection with the due exercise of the
Warrant at a time when the representations, warranties and covenants made by the Warrantholder in the U.S.
Accredited Investor Certificate remain true and correct and the Warrantholder certifies to the Corporation as such.
(c) A Registered Warrantholder of Uncertificated Warrants evidenced by a security entitlement in respect of
Warrants must complete the Exercise Notice and deliver the executed Exercise Notice and a certified cheque,
bank draft or money order payable to or to the order of the Corporation for the aggregate Exercise Price to the
Warrant Agent at the Warrant Agency. The Uncertificated Warrants shall be deemed to be surrendered upon
receipt of the duly completed and executed Exercise Notice and payment of the applicable Exercise Price or, if
such documents are sent by mail or other means of transmission, upon actual receipt thereof by the Warrant
Agent at the office referred to above.
(d) A beneficial owner of Warrants evidenced by a security entitlement in respect of Warrants in the Book Based
System who desires to exercise his or her Warrants must do so by causing a Book Based Participant to deliver to
the Depository on behalf of the entitlement holder, notice of the owner’s intention to exercise Warrants in a
manner acceptable to the Depository. Forthwith upon receipt by the Depository of such notice,
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as well as payment for the aggregate Exercise Price, the Depository shall deliver to the Warrant Agent
confirmation of its intention to exercise Warrants (“Confirmation”) in a manner acceptable to the Warrant Agent,
including by electronic means through a book based registration system, including CDSX. An electronic exercise
of the Warrants initiated by the Book Based Participant through a book based registration system, including
CDSX, shall constitute a representation to both the Corporation and the Warrant Agent that the beneficial owner
at the time of exercise of such Warrants (a) is not in the United States; (b) is not a U.S. Person and is not
exercising such Warrants on behalf of a U.S. Person or a person in the United States; and (c) did not execute or
deliver the notice of the owner’s intention to exercise such Warrants in the United States. If the CDS Participant
is not able to make or deliver the foregoing representation by initiating the electronic exercise of the Warrants,
then such Warrants shall be withdrawn from the book based registration system, including CDSX by the CDS
Participant and an individually registered Warrant Certificate shall be issued by the Warrant Agent to such
Beneficial Owner or CDS Participant and the exercise procedures set forth in Section 3.2(a) shall be followed.
(e)
Payment representing the aggregate Exercise Price must be provided to the appropriate office of the Book Based
Participant in a manner acceptable to it. A notice in form acceptable to the Book Based Participant and payment
from such beneficial holder should be provided to the Book Based Participant sufficiently in advance so as to
permit the Book Based Participant to deliver notice and payment to the Depository and for the Depository in turn
to deliver notice and payment to the Warrant Agent prior to the Expiry Time. The Depository will initiate the
exercise by way of the Confirmation and forward the aggregate Exercise Price electronically to the Warrant
Agent and the Warrant Agent will execute the exercise by issuing to the Depository through the Book Based
System the Common Shares to which the exercising Warrantholder is entitled pursuant to the exercise. Any
expense associated with the exercise process will be for the account of the entitlement holder exercising the
Warrants and/or the Book Based Participant exercising the Warrants on its behalf.
(f)
By causing a Book Based Participant to deliver notice to the Depository, a Warrantholder shall be deemed to have
irrevocably surrendered his or her Warrants so exercised and appointed such Book Based Participant to act as his
or her exclusive settlement agent with respect to the exercise and the receipt of Common Shares in connection
with the obligations arising from such exercise.
(g) Any notice which the Depository determines to be incomplete, not in proper form or not duly executed shall for
all purposes be void and of no effect and the exercise to which it relates shall be considered for all purposes not to
have been exercised thereby. A failure by a Book Based Participant to exercise or to give effect to the settlement
thereof in accordance with the Warrantholder’s instructions will not give rise to any obligations or liability on the
part of the Corporation or Warrant Agent to the Book Based Participant or the Warrantholder.
(h) Any exercise form or Exercise Notice referred to in this Section 3.2 shall be signed by the Registered
Warrantholder, or its executors or administrators or other legal representatives or an attorney of the Registered
Warrantholder, duly appointed by an
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instrument in writing satisfactory to the Warrant Agent but such exercise form need not be executed by the
Depository.
(i) Any exercise referred to in this Section 3.2 shall require that the entire Exercise Price for Common Shares
subscribed must be paid at the time of subscription and such Exercise Price and original Exercise Notice
executed by the Registered Warrantholder or the Confirmation from the Depository must be received by the
Warrant Agent prior to the Expiry Time.
(j) Warrants may only be exercised pursuant to this Section 3.2 by or on behalf of a Registered Warrantholder, as
applicable, who makes the certifications set forth on the Exercise Notice set out in Schedule “C” or as provided
herein.
(k)
(l)
If the form of Exercise Notice set forth in the Warrant Certificate shall have been amended, the Corporation shall
cause the amended Exercise Notice to be forwarded to all Registered Warrantholders.
Exercise Notices and Confirmations must be delivered to the Warrant Agent at any time during the Warrant
Agent’s actual business hours on any Business Day prior to the Expiry Time. Any Exercise Notice or
Confirmations received by the Warrant Agent after business hours on any Business Day other than the Expiry
Date will be deemed to have been received by the Warrant Agent on the next following Business Day.
(m) Any Warrant with respect to which an Exercise Notice or Confirmation is not received by the Warrant Agent
before the Expiry Time shall be deemed to have expired and become void and all rights with respect to such
Warrants shall terminate and be cancelled.
3.3
Securities Restrictions.
Notwithstanding anything herein contained, Common Shares will be issued upon exercise of a Warrant only in
compliance with the securities laws of any applicable jurisdiction, including without limitation the Applicable
Securities Laws, and, without limiting the generality of the foregoing, the Corporation will direct the Warrant Agent to
legend any certificates representing the Common Shares if, in the opinion of counsel to the Corporation acting
reasonably, such legend is necessary in order to avoid a violation of such securities laws or to comply with the
requirements of any stock exchange on which the Common Shares are listed; provided that if, at any time, in the
opinion of counsel to the Corporation, acting reasonably, such legends are no longer necessary in order to avoid a
violation of any such laws, or the holder of any such legended certificate, at his or her expense, provides the
Corporation with evidence in form and substance reasonably satisfactory to the Corporation (which may include an
opinion of Counsel of recognized standing in form and substance reasonably satisfactory to the Corporation) to the
effect that such holder is entitled to sell or otherwise transfer such Common Shares in a transaction in which such
legends are not required, such legended certificates may thereafter be surrendered to the Warrant Agent in exchange for
a certificate which does not bear such legends.
The Warrant Agent shall be entitled to assume that Common Shares may be issued pursuant to the exercise of any
Warrant without violating any Applicable Securities Laws and without legending the certificate representing the
Common Shares unless the Warrant Agent has
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received notice in writing from the Corporation stating otherwise and setting forth the restrictions on the exercise of the
Warrants and any legend the certificates representing the Common Shares should bear.
3.4 Prohibition on Exercise by U.S. Persons; Legended Certificates
(a)
Subject to Section 3.2(b) and Section 3.4(b), (i) Warrants may not be exercised within the United States or by or
on behalf of any U.S. Warrantholders; and (ii) no Common Shares issued upon exercise of Warrants may be
delivered to any address in the United States.
(b) Notwithstanding Section 3.4(a), Warrants which bear the legend set forth in Section 2.8(a) and 2.8(b) may be
exercised in the United States or by or on behalf of a U.S. Warrantholder, and Common Shares issued upon
exercise of any such Warrants may be delivered to an address in the United States, provided that (a) the Person
exercising the Warrants (i) is an original U.S. Purchaser who purchased the Warrants directly from the
Corporation, (ii) is an institutional “accredited investor” that satisfies one or more of the criteria set forth in Rule
501(a)(1), (2), (3) or (7) of Regulation D and (b) delivers a completed and executed U.S. Purchaser Letter or
provides in form and substance satisfactory to the Corporation and Warrant Agent a legal opinion which confirms
that issuance of shares without registration under the U.S. Securities Act is in compliance with the applicable state
laws and the U.S. Securities Act; provided however that in the case of a U.S. Warrantholder that is the original
purchaser of the Warrants and who delivered the U.S. Accredited Investor Certificate to the Corporation in
connection with its purchase of Units pursuant to the U.S. Placement, such Warrantholder will not be required to
deliver a U.S. Purchaser Letter or an opinion of counsel in connection with the exercise of the Warrant at a time
when the representations, warranties and covenants made by the Warrantholder in the U.S. Accredited Investor
Certificate remain true and correct and the Warrantholder certifies to the Corporation as such.
(c) Certificates representing Common Shares issued upon the exercise of Warrants which bear the legend set forth in
Sections 2.8(a) and 2.8(b) and which are issued and delivered pursuant to Section 3.4(b) shall bear the following
legend:
“THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE “ U.S. SECURITIES ACT ”), OR ANY STATE
SECURITIES LAWS, AND MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED,
DIRECTLY OR INDIRECTLY, ONLY (A) TO ACASTI PHARMA INC. (THE “ CORPORATION”)
(B) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 OF REGULATION S UNDER
THE U.S. SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE LOCAL LAWS AND
REGULATIONS, (C) WITHIN THE UNITED STATES IN ACCORDANCE WITH THE EXEMPTION FROM
REGISTRATION UNDER THE U.S. SECURITIES ACT PROVIDED BY (1) RULE 144A UNDER THE U.S.
SECURITIES ACT OR (2) IF AVAILABLE, RULE 144 UNDER THE U.S. SECURITIES ACT AND, IN EACH
CASE, IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS, OR (D) IN A TRANSACTION
THAT DOES NOT REQUIRE REGISTRATION UNDER THE U.S. SECURITIES ACT OR ANY
APPLICABLE STATE SECURITIES LAWS, PROVIDED THAT IN
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THE CASE OF TRANSFERS PURSUANT TO (C)(2) OR (D) ABOVE, THE HOLDER MUST FURNISH TO
THE CORPORATION AN OPINION OF COUNSEL OF RECOGNIZED STANDING IN FORM AND
SUBSTANCE REASONABLY SATISFACTORY TO THE CORPORATION TO THE EFFECT THAT THE
PROPOSED TRANSFER MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE U.S. SECURITIES
ACT OR APPLICABLE STATE SECURITIES LAWS.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE LISTED ON THE TSX VENTURE
EXCHANGE (“TSXV”); HOWEVER, SUCH SECURITIES CANNOT BE TRADED THROUGH THE
FACILITIES OF THE TSXV SINCE THEY ARE NOT FREELY TRANSFERABLE, AND CONSEQUENTLY
DELIVERY OF ANY CERTIFICATE REPRESENTING SUCH SECURITIES IS NOT “GOOD DELIVERY” IN
SETTLEMENT OF TRANSACTIONS ON THE TSXV. PROVIDED THAT THE CORPORATION IS A
“FOREIGN ISSUER” WITHIN THE MEANING OF REGULATION S AT THE TIME OF SALE, A NEW
CERTIFICATE, BEARING NO LEGEND, DELIVERY OF WHICH WILL CONSTITUTE “GOOD
DELIVERY” MAY BE OBTAINED FROM COMPUTERSHARE INVESTOR SERVICES INC., AS
REGISTRAR AND TRANSFER AGENT, OR SUCH OTHER ORGANIZATION OR ENTITY PERFORMING
SUCH FUNCTION FOR THE CORPORATION (THE “TRANSFER AGENT”) UPON DELIVERY OF THIS
CERTIFICATE AND A DULY EXECUTED DECLARATION, IN A FORM SATISFACTORY TO THE
TRANSFER AGENT AND THE CORPORATION, TO THE EFFECT THAT THE SALE OF THE
SECURITIES REPRESENTED HEREBY IS BEING MADE IN COMPLIANCE WITH RULE 904 OF
REGULATION S UNDER THE SECURITIES ACT (AND IF REQUIRED BY THE TRANSFER AGENT OR
THE CORPORATION, AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE TRANSFER
AGENT AND THE CORPORATION).”
3.5 Transfer Fees and Taxes.
If any of the Common Shares subscribed for are to be issued to a person or persons other than the Registered
Warrantholder, the Registered Warrantholder shall execute the form of transfer and will comply with such reasonable
requirements as the Warrant Agent may stipulate and will pay to the Corporation or the Warrant Agent on behalf of the
Corporation, all applicable transfer or similar taxes and the Corporation will not be required to issue or deliver
certificates evidencing Common Shares or issue Common Shares in uncertificated form unless or until such
Warrantholder shall have paid to the Corporation or the Warrant Agent on behalf of the Corporation, the amount of
such tax or shall have established to the satisfaction of the Corporation and the Warrant Agent that such tax has been
paid or that no tax is due.
3.6 Warrant Agency.
To facilitate the exchange, transfer or exercise of Warrants and compliance with such other terms and conditions
hereof as may be required, the Corporation has appointed the Warrant Agency, as the agency at which Warrants may
be surrendered for exchange or transfer or at which Warrants may be exercised and the Warrant Agent has accepted
such appointment. The Corporation may from time to time designate alternate or additional places as the Warrant
Agency (subject to the Warrant Agent’s prior approval) and will give notice to the Warrant Agent of any proposed
change of the Warrant Agency. Branch registers shall also be kept at such
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other place or places, if any, as the Corporation, with the approval of the Warrant Agent, may designate. The Warrant
Agent will from time to time when requested to do so by the Corporation or any Registered Warrantholder, upon
payment of the Warrant Agent’s reasonable charges, furnish a list of the names and addresses of Registered
Warrantholders showing the number of Warrants held by each such Registered Warrantholder.
3.7 Effect of Exercise of Warrant Certificates.
(a) Upon the exercise of Warrants pursuant to and in compliance with Section 3.2 and subject to Section 3.3 and
Section 3.4, the Common Shares to be issued pursuant to the Warrants exercised shall be deemed to have been
issued and the person or persons to whom such Common Shares are to be issued shall be deemed to have become
the holder or holders of record of such Common Shares on the Exercise Date, unless the register shall be closed
on such date, in which case the Common Shares subscribed for shall be deemed to have been issued and such
person or persons deemed to have become the holder or holders of record of such Common Shares, on the date on
which such register is reopened. It is hereby understood that in order for persons to whom Common Shares are to
be issued, to become holders of Common Shares of record on the Exercise Date, beneficial holders must
commence the exercise process sufficiently in advance so that the Warrant Agent is in receipt of all items of
exercise at least one Business Day prior to such Exercise Date.
(b) As soon as practicable, but in any event within five Business Days after the Exercise Date with respect to a
Warrant, the Warrant Agent shall cause to be delivered or mailed to the person or persons in whose name or
names the Warrant is registered or, if so specified in writing by the holder, cause to be delivered to such person
or persons at the Warrant Agency where the Warrant Certificate was surrendered, a certificate or certificates for
the appropriate number of Common Shares subscribed for, or any other appropriate evidence of the issuance of
Common Shares to such person or persons in respect of Common Shares issued under the Book Based System.
3.8 Partial Exercise of Warrants; Fractions.
(a)
The holder of any Warrants may exercise his right to acquire a number of whole Common Shares less than the
aggregate number which the holder is entitled to acquire. In the event of any exercise of a number of Warrants
less than the number which the holder is entitled to exercise, the holder of Warrants upon such exercise shall, in
addition, be entitled to receive, without charge therefor, a new Warrant Certificate(s), bearing the same legend, if
applicable, or other appropriate evidence of Warrants, in respect of the balance of the Warrants held by such
holder and which were not then exercised.
(b) Notwithstanding anything herein contained including any adjustment provided for in Section 4.1, the Corporation
shall not be required, upon the exercise of any Warrants, to issue fractions of Common Shares. Warrants may
only be exercised in a sufficient number to acquire whole numbers of Common Shares.
3.9 Expiration of Warrants.
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Immediately after the Expiry Time, all rights under any Warrant in respect of which the right of acquisition
provided for herein shall not have been exercised shall cease and terminate and each Warrant shall be void and of no
further force or effect.
3.10 Accounting and Recording.
(a)
The Warrant Agent shall promptly account to the Corporation with respect to Warrants exercised, and shall
promptly forward to the Corporation (or into an account or accounts of the Corporation with the bank or trust
company designated by the Corporation for that purpose), all monies received by the Warrant Agent on the
subscription of Common Shares through the exercise of Warrants. All such monies and any securities or other
instruments, from time to time received by the Warrant Agent shall be received in trust for, and shall be
segregated and kept apart by the Warrant Agent, the Warrantholders and the Corporation as their interests may
appear.
(b) The Warrant Agent shall record the particulars of Warrants exercised, which particulars shall include the names
and addresses of the persons who become holders of Common Shares on exercise and the Exercise Date, in
respect thereof. The Warrant Agent shall provide such particulars in writing to the Corporation within five
Business Days of any request by the Corporation therefor.
ARTICLE 4
ADJUSTMENT OF NUMBER OF COMMON SHARES AND EXERCISE PRICE
4.1 Adjustment of Number of Common Shares and Exercise Price.
The subscription rights in effect under the Warrants for Common Shares issuable upon the exercise of the
Warrants shall be subject to adjustment from time to time upon the occurrence of any of the events and in the manner
provided as follows:
(a)
If and whenever, at any time during the Adjustment Period, the Corporation shall:
(i)
subdivide, re-divide or change its Common Shares into a greater number of Common Shares;
(ii)
reduce, combine or consolidate its outstanding Common Shares into a lesser number of Common Shares; or
(iii)
issue Common Shares or securities exchangeable for, or convertible into, Common Shares to all or
substantially all of the holders of Common Shares by way of stock dividend or other distribution (other than
dividends paid in the ordinary course, and other than a distribution of Common Shares upon the exercise of
any outstanding warrants, options or other securities);
(any of such events in Section 4.1(a) (i) to (iii), a “ Common Share Reorganization”), then the Exercise Price
shall be adjusted with effect on the effective date of such subdivision, re-division, change, reduction, combination,
consolidation or on the record date of such distribution, as the case may be, shall in the case of the events referred
to in
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(i) or (iii) above be decreased in proportion to the number of outstanding Common Shares resulting from such
subdivision, re-division, change or distribution, or shall, in the case of the events referred to in (ii) above, be
increased in proportion to the number of outstanding Common Shares resulting from such reduction, combination
or consolidation by multiplying the Exercise Price in effect immediately prior to such effective date or record date
by a fraction, the numerator of which shall be the number of Common Shares outstanding on such effective date or
record date before giving effect to such Common Share Reorganization and the denominator of which shall be the
number of Common Shares outstanding as of the effective date or record date after giving effect to such Common
Shares Reorganization (including, in the case where securities exchangeable for or convertible into Common
Shares are distributed, the number of Common Shares that would have been outstanding had such securities been
exchanged for or converted into Common Shares on such record date or effective date). Such adjustment shall be
made successively whenever any event referred to in this Section 4.1(a) shall occur. Upon any adjustment of the
Exercise Price pursuant to Section 4.1(a), the Exchange Rate shall be contemporaneously adjusted by multiplying
the number of Common Shares theretofore obtainable on the exercise thereof by a fraction of which the numerator
shall be the Exercise Price in effect immediately prior to such adjustment and the denominator shall be the
Exercise Price resulting from such adjustment;
(b)
if and whenever at any time during the Adjustment Period, the Corporation shall fix a record date for the
issuance of rights, options or warrants to all or substantially all the holders of its outstanding Common Shares
entitling them, for a period expiring not more than 45 days after such record date, to subscribe for or purchase
Common Shares (or securities convertible or exchangeable into Common Shares) at a price per Common Share
(or having a conversion or exchange price per Common Share) less than 95% of the Current Market Price on such
record date (a “Rights Offering”), the Exercise Price shall be adjusted immediately after such record date so that
it shall equal the amount determined by multiplying the Exercise Price in effect on such record date by a fraction,
of which the numerator shall be the total number of Common Shares outstanding on such record date plus a
number of Common Shares equal to the number arrived at by dividing the aggregate price of the total number of
additional Common Shares offered for subscription or purchase (or the aggregate conversion or exchange price of
the convertible or exchangeable securities so offered) by such Current Market Price, and of which the
denominator shall be the total number of Common Shares outstanding on such record date plus the total number
of additional Common Shares offered for subscription or purchase or into which the convertible or exchangeable
securities so offered are convertible or exchangeable; any Common Shares owned by or held for the account of
the Corporation shall be deemed not to be outstanding for the purpose of any such computation; such adjustment
shall be made successively whenever such a record date is fixed; to the extent that no such rights or warrants are
exercised prior to the expiration thereof, the Exercise Price shall be readjusted to the Exercise Price which would
then be in effect if such record date had not been fixed or, if any such rights or warrants are exercised, to the
Exercise Price which would then be in effect based upon the number of Common Shares (or securities convertible
or exchangeable into Common Shares) actually issued upon the exercise of such rights or warrants, as the case
may be. Upon any adjustment of the Exercise Price pursuant to this Section 4.1(b), the Exchange Rate
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will be adjusted immediately after such record date so that it will equal the rate determined by multiplying the
Exchange Rate in effect on such record date by a fraction, of which the numerator shall be the Exercise Price in
effect immediately prior to such adjustment and the denominator shall be the Exercise Price resulting from such
adjustment. Such adjustment will be made successively whenever such a record date is fixed, provided that if two
or more such record dates or record dates referred to in this Section 4.1(b) are fixed within a period of 25 Trading
Days, such adjustment will be made successively as if each of such record dates occurred on the earliest of such
record dates;
(c)
if and whenever at any time during the Adjustment Period the Corporation shall fix a record date for the making
of a distribution to all or substantially all the holders of its outstanding Common Shares of (i) securities of any
class, whether of the Corporation or any other entity (other than Common Shares), (ii) rights, options or warrants
to subscribe for or purchase Common Shares (or other securities convertible into or exchangeable for Common
Shares), other than pursuant to a Rights Offering; (iii) evidences of its indebtedness or (iv) any property or other
assets (other than cash dividends paid in the normal course) then, in each such case, the Exercise Price shall be
adjusted immediately after such record date so that it shall equal the price determined by multiplying the Exercise
Price in effect on such record date by a fraction, of which the numerator shall be the total number of Common
Shares outstanding on such record date multiplied by the Current Market Price on such record date, less the
excess, if any, of the fair market value on such record date, as determined by the Corporation (whose
determination shall be conclusive), of such securities or other assets so issued or distributed over the fair market
value of any consideration received therefor by the Corporation from the holders of the Common Shares, and of
which the denominator shall be the total number of Common Shares outstanding on such record date multiplied
by the Current Market Price on such record date; and Common Shares owned by or held for the account of the
Corporation shall be deemed not to be outstanding for the purpose of any such computation; such adjustment
shall be made successively whenever such a record date is fixed; to the extent that such distribution is not so
made, the Exercise Price shall be readjusted to the Exercise Price which would then be in effect if such record
date had not been fixed. Upon any adjustment of the Exercise Price pursuant to this Section 4.1(c), the Exchange
Rate will be adjusted immediately after such record date so that it will equal the rate determined by multiplying
the Exchange Rate in effect on such record date by a fraction, of which the numerator shall be the Exercise Price
in effect immediately prior to such adjustment and the denominator shall be the Exercise Price resulting from
such adjustment;
(d)
if and whenever at any time during the Adjustment Period, there is a reclassification of the Common Shares or a
capital reorganization of the Corporation other than as described in Section 4.1(a) or a consolidation,
amalgamation, arrangement or merger of the Corporation with or into any other body corporate, trust, partnership
or other entity (other than consolidations, amalgamations, arrangements or mergers which do not result in any
reclassification of the outstanding Common Shares or a change of the Common Shares into other shares), or a
sale or conveyance of the property and assets of the Corporation as an entirety or substantially as an entirety to
any other body corporate, trust, partnership or other entity, any Registered Warrantholder who has not exercised
its
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right of acquisition prior to the effective date of such reclassification, capital reorganization, consolidation,
amalgamation, arrangement or merger, sale or conveyance, upon the exercise of such right thereafter, shall be
entitled to receive upon payment of the Exercise Price and shall accept, in lieu of the number of Common Shares
that prior to such effective date the Registered Warrantholder would have been entitled to receive, the number of
shares or other securities or property of the Corporation or of the body corporate, trust, partnership or other entity
resulting from such merger, amalgamation or consolidation, or to which such sale or conveyance may be made, as
the case may be, that such Registered Warrantholder would have been entitled to receive on such reclassification,
capital reorganization, consolidation, amalgamation, arrangement or merger, sale or conveyance, if, on the
effective date thereof, as the case may be, the Registered Warrantholder had been the registered holder of the
number of Common Shares to which prior to such effective date it was entitled to acquire upon the exercise of the
Warrants. If determined appropriate by the Warrant Agent, relying on advice of Counsel, to give effect to or to
evidence the provisions of this Section 4.1(d), the Corporation, its successor, or such purchasing body corporate,
partnership, trust or other entity, as the case may be, shall, prior to or contemporaneously with any such
reclassification, capital reorganization, consolidation, amalgamation, arrangement, merger, sale or conveyance,
enter into an indenture which shall provide, to the extent possible, for the application of the provisions set forth in
this Indenture with respect to the rights and interests thereafter of the Registered Warrantholders to the end that
the provisions set forth in this Indenture shall thereafter correspondingly be made applicable, as nearly as may
reasonably be, with respect to any shares, other securities or property to which a Registered Warrantholder is
entitled on the exercise of its acquisition rights thereafter. Any indenture entered into between the Corporation
and the Warrant Agent pursuant to the provisions of this Section 4.1(d) shall be a supplemental indenture entered
into pursuant to the provisions of Article 8 hereof. Any indenture entered into between the Corporation, any
successor to the Corporation or such purchasing body corporate, partnership, trust or other entity and the Warrant
Agent shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments
provided in this Section 4.1 and which shall apply to successive reclassifications, capital reorganizations,
amalgamations, consolidations, mergers, sales or conveyances;
(e)
in any case in which this Section 4.1 shall require that an adjustment shall become effective immediately after a
record date for an event referred to herein, the Corporation may defer, until the occurrence of such event, issuing
to the Registered Warrantholder of any Warrant exercised after the record date and prior to the completion of
such event the additional Common Shares issuable by reason of the adjustment required by such event before
giving effect to such adjustment; provided, however, that the Corporation shall deliver to such Registered
Warrantholder an appropriate instrument evidencing such Registered Warrantholder’s right to receive such
additional Common Shares upon the occurrence of the event requiring such adjustment and the right to receive
any distributions made on such additional Common Shares declared in favour of holders of record of Common
Shares on and after the relevant date of exercise or such later date as such Registered Warrantholder would, but
for the provisions of this Section 4.1(e), have become the holder of record of such additional Common Shares
pursuant to Section 4.1;
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(f)
(g)
(h)
in any case in which Section 4.1(a)(iii), Section 4.1(b) or Section 4.1(c) require that an adjustment be made to the
Exercise Price, no such adjustment shall be made if the Registered Warrantholders of the outstanding Warrants
receive, subject to any required stock exchange or regulatory approval, the rights or warrants referred to in
Section 4.1(a)(iii), Section 4.1(b) or the shares, rights, options, warrants, evidences of indebtedness or assets
referred to in Section 4.1(c), as the case may be, in such kind and number as they would have received if they had
been holders of Common Shares on the applicable record date or effective date, as the case may be, by virtue of
their outstanding Warrant having then been exercised into Common Shares at the Exercise Price in effect on the
applicable record date or effective date, as the case may be;
the adjustments provided for in this Section 4.1 are cumulative, and shall, in the case of adjustments to the
Exercise Price be computed to the nearest whole cent and shall apply to successive subdivisions, re-divisions,
reductions, combinations, consolidations, distributions, issues or other events resulting in any adjustment under
the provisions of this Section 4.1, provided that, notwithstanding any other provision of this Section, no
adjustment of the Exercise Price shall be required unless such adjustment would require an increase or decrease of
at least 1% in the Exercise Price then in effect; provided, however, that any adjustments which by reason of this
Section 4.1(g) are not required to be made shall be carried forward and taken into account in any subsequent
adjustment; and
after any adjustment pursuant to this Section 4.1, the term “ Common Shares” where used in this Indenture shall
be interpreted to mean securities of any class or classes which, as a result of such adjustment and all prior
adjustments pursuant to this Section 4.1, the Registered Warrantholder is entitled to receive upon the exercise of
his Warrants, and the number of Common Shares indicated by any exercise made pursuant to a Warrant shall be
interpreted to mean the number of Common Shares or other property or securities a Registered Warrantholder is
entitled to receive, as a result of such adjustment and all prior adjustments pursuant to this Section 4.1, upon the
full exercise of a Warrant.
4.2 Entitlement to Common Shares on Exercise of Warrant.
All Common Shares or shares of any class or other securities, which a Registered Warrantholder is at the time in
question entitled to receive on the exercise of its Warrant, whether or not as a result of adjustments made pursuant to
this Article 4, shall, for the purposes of the interpretation of this Indenture, be deemed to be Common Shares which
such Registered Warrantholder is entitled to acquire pursuant to such Warrant.
4.3 No Adjustment for Certain Transactions.
Notwithstanding anything in this Article 4, no adjustment shall be made in the acquisition rights attached to the
Warrants if the issue of Common Shares is being made pursuant to this Indenture or in connection with (a) any share
incentive plan or restricted share plan or share purchase plan in force from time to time for directors, officers,
employees, consultants or other service providers of the Corporation; or (b) the satisfaction of existing instruments
issued at the date hereof.
4.4 Determination by Independent Firm.
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In the event of any question arising with respect to the adjustments provided for in this Article 4 such question
shall be conclusively determined by an independent firm of chartered accountants other than the Auditors, who shall
have access to all necessary records of the Corporation, and such determination shall be binding upon the Corporation,
the Warrant Agent, all holders and all other persons interested therein.
4.5 Proceedings Prior to any Action Requiring Adjustment.
As a condition precedent to the taking of any action which would require an adjustment in any of the acquisition
rights pursuant to any of the Warrants, including the number of Common Shares which are to be received upon the
exercise thereof, the Corporation shall take any action which may, in the opinion of Counsel, be necessary in order that
the Corporation has unissued and reserved in its authorized capital and may validly and legally issue as fully paid and
non-assessable all the Common Shares which the holders of such Warrants are entitled to receive on the full exercise
thereof in accordance with the provisions hereof.
4.6 Certificate of Adjustment.
The Corporation shall from time to time immediately after the occurrence of any event which requires an
adjustment or readjustment as provided in Section 4.1, deliver a certificate of the Corporation to the Warrant Agent
specifying the nature of the event requiring the same and the amount of the adjustment or readjustment necessitated
thereby and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is
based, which certificate shall be supported by a certificate of the Corporation’s Auditors verifying such calculation. The
Warrant Agent shall rely, and shall be protected in so doing, upon the certificate of the Corporation or of the
Corporation’s Auditor and any other document filed by the Corporation pursuant to this Article 4 for all purposes.
4.7 Notice of Special Matters.
The Corporation covenants with the Warrant Agent that, so long as any Warrant remains outstanding, it will give
notice to the Warrant Agent and to the Registered Warrantholders of its intention to fix a record date that is prior to the
Expiry Date for any matter for which an adjustment may be required pursuant to Section 4.1. Such notice shall specify
the particulars of such event and the record date for such event, provided that the Corporation shall only be required to
specify in the notice such particulars of the event as shall have been fixed and determined on the date on which the
notice is given. The notice shall be given in each case not less than 14 days prior to such applicable record date. If
notice has been given and the adjustment is not then determinable, the Corporation shall promptly, after the adjustment
is determinable, file with the Warrant Agent a computation of the adjustment and give notice to the Registered
Warrantholders of such adjustment computation.
4.8 No Action after Notice.
The Corporation covenants with the Warrant Agent that it will not close its transfer books or take any other
corporate action which might deprive the Registered Warrantholder of the
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opportunity to exercise its right of acquisition pursuant thereto during the period of 14 days after the giving of the
certificate or notices set forth in Section 4.6 and Section 4.7.
4.9 Other Action.
If the Corporation, after the date hereof, shall take any action affecting the Common Shares other than action
described in Section 4.1, which in the reasonable opinion of the directors of the Corporation would materially affect the
rights of Registered Warrantholders, the Exercise Price and/or Exchange Rate, the number of Common Shares which
may be acquired upon exercise of the Warrants shall be adjusted in such manner and at such time, by action of the
directors, acting reasonably and in good faith, in their sole discretion as they may determine to be equitable to the
Registered Warrantholders in the circumstances, provided that no such adjustment will be made unless any requisite
prior approval of any stock exchange on which the Common Shares are listed for trading has been obtained.
4.10 Protection of Warrant Agent.
The Warrant Agent shall not:
(i)
(ii)
at any time be under any duty or responsibility to any Registered Warrantholder to determine whether any
facts exist which may require any adjustment contemplated by Section 4.1, or with respect to the nature or
extent of any such adjustment when made, or with respect to the method employed in making the same;
be accountable with respect to the validity or value (or the kind or amount) of any Common Shares or of
any other securities or property which may at any time be issued or delivered upon the exercise of the rights
attaching to any Warrant;
(iii) be responsible for any failure of the Corporation to issue, transfer or deliver Common Shares or certificates
for the same upon the surrender of any Warrants for the purpose of the exercise of such rights or to comply
with any of the covenants contained in this Article 4; and
(iv)
incur any liability or be in any way responsible for the consequences of any breach on the part of the
Corporation of any of the representations, warranties or covenants herein contained or of any acts of the
directors, officers, employees, agents or servants of the Corporation.
4.11 Participation by Warrantholder.
No adjustments shall be made pursuant to this Article 4 if the Registered Warrantholders are entitled to participate
in any event described in this Article 4 on the same terms, mutatis mutandis, as if the Registered Warrantholders had
exercised their Warrants prior to, or on the effective date or record date of, such event.
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ARTICLE 5
RIGHTS OF THE CORPORATION AND COVENANTS
5.1 Optional Purchases by the Corporation.
Subject to compliance with Applicable Securities Laws and approval of applicable regulatory authorities and any
stock exchange on which the Common Shares are listed, the Corporation may from time to time purchase by private
contract or otherwise any of the Warrants. Any such purchase shall be made at the lowest price or prices at which, in
the opinion of the directors, such Warrants are then obtainable, plus reasonable costs of purchase, and may be made in
such manner, from such persons and on such other terms as the Corporation, in its sole discretion, may determine. In
the case of Certificated Warrants, Warrant Certificates representing the Warrants purchased pursuant to this Section 5.1
shall forthwith be delivered to and cancelled by the Warrant Agent and reflected accordingly on the register of
Warrants. In the case of Uncertificated Warrants, the Warrants purchased pursuant to this Section 5.1 shall be reflected
accordingly on the register of Warrants and in accordance with procedures prescribed by the Depository under the
Book Based System. No Warrants shall be issued in replacement thereof.
5.2 General Covenants.
The Corporation covenants with the Warrant Agent that so long as any Warrants remain outstanding:
(a)
(b)
(c)
(d)
(a)
it will reserve and keep available a sufficient number of Common Shares for the purpose of enabling it to satisfy
its obligations to issue Common Shares upon the exercise of the Warrants;
it will cause the Common Shares from time to time acquired pursuant to the exercise of the Warrants to be duly
issued and delivered in accordance with the Warrants and the terms hereof;
all Common Shares which shall be issued upon exercise of the right to acquire provided for herein shall be fully
paid and non-assessable;
it will use reasonable commercial efforts to maintain its corporate existence and carry on its business in the
ordinary course;
it will use reasonable commercial efforts to ensure that all Common Shares outstanding or issuable from time to
time (including without limitation the Common Shares issuable on the exercise of the Warrants) continue to be or
are listed and posted for trading on the TSXV (or such other Canadian stock exchange acceptable to the
Corporation) and NASDAQ, provided that this clause shall not be construed as limiting or restricting the
Corporation from completing a consolidation, amalgamation, arrangement takeover bid or merger that would
result in the Common Shares ceasing to be listed and posted for trading on the TSXV or NASDAQ, so long as the
holders of Common Shares receive securities of an entity which is listed on a stock exchange in Canada or the
United States, or cash, or the holders of the Common Shares have approved the transaction in
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accordance with the requirements of applicable corporate and securities laws and the policies of the TSXV and, to
the extent applicable, NASDAQ;
(b)
it will make all requisite filings under applicable Canadian securities legislation including those necessary to
remain a reporting issuer not in default in each of the provinces and other Canadian jurisdictions where it is or
becomes a reporting issuer; and
(c)
generally, it will well and truly perform and carry out all of the acts or things to be done by it as provided in this
Indenture.
5.3 Warrant Agent’s Remuneration and Expenses.
The Corporation covenants that it will pay to the Warrant Agent from time to time reasonable remuneration for its
services hereunder and will pay or reimburse the Warrant Agent upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Warrant Agent in the administration or execution of the trusts
hereby created (including the reasonable compensation and the disbursements of its Counsel and all other advisers and
assistants not regularly in its employ) both before any default hereunder and thereafter until all duties of the Warrant
Agent hereunder shall be finally and fully performed. Any amount owing hereunder and remaining unpaid after 30 days
from the invoice date will bear interest at the then current rate charged by the Warrant Agent against unpaid invoices
and shall be payable upon demand. This Section shall survive the resignation of the Warrant Agent and/ or the
termination of this Indenture.
5.4 Performance of Covenants by Warrant Agent.
If the Corporation shall fail to perform any of its covenants contained in this Indenture, the Warrant Agent may
notify the Registered Warrantholders of such failure on the part of the Corporation or may itself perform any of the
covenants capable of being performed by it but, subject to Section 9.2, shall be under no obligation to perform said
covenants or to notify the Registered Warrantholders of such performance by it. All sums expended or advanced by the
Warrant Agent in so doing shall be repayable as provided in Section 5.3. No such performance, expenditure or advance
by the Warrant Agent shall relieve the Corporation of any default hereunder or of its continuing obligations under the
covenants herein contained.
5.5 Enforceability of Warrants.
The Corporation covenants and agrees that it is duly authorized to create and issue the Warrants to be issued
hereunder and that the Warrants, when issued and Authenticated as herein provided, will be valid and enforceable
against the Corporation in accordance with the provisions hereof and the terms hereof and that, subject to the
provisions of this Indenture, the Corporation will cause the Common Shares from time to time acquired upon exercise
of Warrants issued under this Indenture to be duly issued and delivered in accordance with the terms of this Indenture.
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ARTICLE 6
ENFORCEMENT
6.1
Suits by Registered Warrantholders.
All or any of the rights conferred upon any Registered Warrantholder by any of the terms of this Indenture may
be enforced by the Registered Warrantholder by appropriate proceedings but without prejudice to the right which is
hereby conferred upon the Warrant Agent to proceed in its own name to enforce each and all of the provisions herein
contained for the benefit of the Registered Warrantholders.
6.2
Suits by the Corporation.
The Corporation shall have the right to enforce full payment of the Exercise Price of all Common Shares issued
by the Warrant Agent to a Registered Warrantholder hereunder and shall be entitled to demand such payment from the
Registered Warrantholder or alternatively to instruct the Warrant Agent to cancel the share certificates and amend the
securities register accordingly.
6.3
Immunity of Shareholders, etc.
The Warrant Agent and the Warrantholders hereby waive and release any right, cause of action or remedy now or
hereafter existing in any jurisdiction against any incorporator or any past, present or future shareholder, trustee,
employee or agent of the Corporation or any successor entity on any covenant, agreement, representation or warranty
by the Corporation herein.
6.4 Waiver of Default.
Upon the happening of any default hereunder:
(i)
(ii)
the Registered Warrantholders of not less than 51% of the Warrants then outstanding shall have power (in
addition to the powers exercisable by Extraordinary Resolution) by requisition in writing to instruct the
Warrant Agent to waive any default hereunder and the Warrant Agent shall thereupon waive the default
upon such terms and conditions as shall be prescribed in such requisition; or
the Warrant Agent shall have power to waive any default hereunder upon such terms and conditions as the
Warrant Agent may deem advisable, on the advice of Counsel, if, in the Warrant Agent’s opinion, based on
the advice of Counsel, the same shall have been cured or adequate provision made therefor;
provided that no delay or omission of the Warrant Agent or of the Registered Warrantholders to exercise any right or
power accruing upon any default shall impair any such right or power or shall be construed to be a waiver of any such
default or acquiescence therein and provided further that no act or omission either of the Warrant Agent or of the
Registered Warrantholders in the premises shall extend to or be taken in any manner whatsoever to affect any
subsequent default hereunder of the rights resulting therefrom.
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ARTICLE 7
MEETINGS OF REGISTERED WARRANTHOLDERS
7.1 Right to Convene Meetings.
The Warrant Agent may at any time and from time to time, and shall on receipt of a written request of the
Corporation or of a Warrantholders’ Request and upon being indemnified and funded to its reasonable satisfaction by
the Corporation or by the Registered Warrantholders signing such Warrantholders’ Request against the costs which
may be incurred in connection with the calling and holding of such meeting, convene a meeting of the Registered
Warrantholders. If the Warrant Agent fails to so call a meeting within seven days after receipt of such written request of
the Corporation or such Warrantholders’ Request and the indemnity and funding given as aforesaid, the Corporation or
such Registered Warrantholders, as the case may be, may convene such meeting. Every such meeting shall be held in
the City of Montreal, Québec or at such other place as may be approved or determined by the Warrant Agent.
7.2 Notice.
At least 21 days’ prior written notice of any meeting of Registered Warrantholders shall be given to the
Registered Warrantholders in the manner provided for in Section 10.2 and a copy of such notice shall be sent by mail to
the Warrant Agent (unless the meeting has been called by the Warrant Agent) and to the Corporation (unless the
meeting has been called by the Corporation). Such notice shall state the time when and the place where the meeting is
to be held, shall state briefly the general nature of the business to be transacted thereat and shall contain such
information as is reasonably necessary to enable the Registered Warrantholders to make a reasoned decision on the
matter, but it shall not be necessary for any such notice to set out the terms of any resolution to be proposed or any of
the provisions of this Section 7.2.
7.3 Chairman.
An individual (who need not be a Registered Warrantholder) designated in writing by the Warrant Agent shall be
chairman of the meeting and if no individual is so designated, or if the individual so designated is not present within
fifteen minutes from the time fixed for the holding of the meeting, the Registered Warrantholders present in person or
by proxy shall choose an individual present to be chairman.
7.4 Quorum.
Subject to the provisions of Section 7.11, at any meeting of the Registered Warrantholders a quorum shall consist
of Registered Warrantholder(s) present in person or by proxy and entitled to purchase at least 20% of the aggregate
number of Common Shares which could be acquired pursuant to all the then-outstanding Warrants. If a quorum of the
Registered Warrantholders shall not be present within thirty minutes from the time fixed for holding any meeting, the
meeting, if summoned by Registered Warrantholders or on a Warrantholders’ Request, shall be dissolved; but in any
other case the meeting shall be adjourned to the same day in the next week (unless such day is not a Business Day, in
which case it shall be adjourned to the next following Business Day) at the same time and place and no notice of the
adjournment need be given. Any business may be brought before or dealt with at an adjourned meeting which might
have been dealt with at the original meeting in accordance with the notice calling the
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same. No business shall be transacted at any meeting unless a quorum be present at the commencement of business. At
the adjourned meeting the Registered Warrantholders present in person or by proxy shall form a quorum and may
transact the business for which the meeting was originally convened, notwithstanding that they may not be entitled to
acquire at least 20% of the aggregate number of Common Shares which may be acquired pursuant to all then
outstanding Warrants.
7.5 Power to Adjourn.
The chairman of any meeting at which a quorum of the Registered Warrantholders is present may, with the
consent of the meeting, adjourn any such meeting, and no notice of such adjournment need be given except such notice,
if any, as the meeting may prescribe.
7.6
Show of Hands.
Every question submitted to a meeting shall be decided in the first place by a majority of the votes given on a
show of hands except that votes on an Extraordinary Resolution shall be given in the manner hereinafter provided. At
any such meeting, unless a poll is duly demanded as herein provided, a declaration by the chairman that a resolution has
been carried or carried unanimously or by a particular majority or lost or not carried by a particular majority shall be
conclusive evidence of the fact.
7.7 Poll and Voting.
(a) On every Extraordinary Resolution, and on any other question submitted to a meeting and after a vote by show of
hands when demanded by the chairman or by one or more of the Registered Warrantholders acting in person or
by proxy and entitled to acquire in the aggregate at least 5% of the aggregate number of Common Shares which
could be acquired pursuant to all the Warrants then outstanding, a poll shall be taken in such manner as the
chairman shall direct. Questions other than those required to be determined by Extraordinary Resolution shall be
decided by a majority of the votes cast on the poll.
(b) On a show of hands, every person who is present and entitled to vote, whether as a Registered Warrantholder or
as proxy for one or more absent Registered Warrantholders, or both, shall have one vote. On a poll, each
Registered Warrantholder present in person or represented by a proxy duly appointed by instrument in writing
shall be entitled to one vote in respect of each Warrant then held or represented by it. A proxy need not be a
Registered Warrantholder. The chairman of any meeting shall be entitled, both on a show of hands and on a poll,
to vote in respect of the Warrants, if any, held or represented by him.
7.8 Regulations.
(a)
The Warrant Agent, or the Corporation with the approval of the Warrant Agent, may from time to time make and
from time to time vary such regulations as it shall think fit for the setting of the record date for a meeting for the
purpose of determining Registered Warrantholders entitled to receive notice of and to vote at the meeting.
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(b) Any regulations so made shall be binding and effective and the votes given in accordance therewith shall be valid
and shall be counted. Save as such regulations may provide, the only persons who shall be recognized at any
meeting as a Registered Warrantholder, or be entitled to vote or be present at the meeting in respect thereof
(subject to Section 7.9), shall be Registered Warrantholders or proxies of Registered Warrantholders.
7.9 Corporation and Warrant Agent May be Represented.
The Corporation and the Warrant Agent, by their respective directors, officers, agents, and employees and the
Counsel for the Corporation and for the Warrant Agent may attend any meeting of the Registered Warrantholders.
7.10 Powers Exercisable by Extraordinary Resolution.
In addition to all other powers conferred upon them by any other provisions of this Indenture or by law, the
Registered Warrantholders at a meeting shall, subject to the provisions of Section 7.11, have the power exercisable
from time to time by Extraordinary Resolution:
(i)
to agree to any modification, abrogation, alteration, compromise or arrangement of the rights of Registered
Warrantholders or the Warrant Agent in its capacity as warrant agent hereunder (subject to the Warrant
Agent’s prior consent, acting reasonably) or on behalf of the Registered Warrantholders against the
Corporation whether such rights arise under this Indenture or otherwise;
(ii)
to amend, alter or repeal any Extraordinary Resolution previously passed or sanctioned by the Registered
Warrantholders;
(iii)
(iv)
(v)
(vi)
to direct or to authorize the Warrant Agent, subject to Section 9.2(a) hereof, to enforce any of the covenants
on the part of the Corporation contained in this Indenture or to enforce any of the rights of the Registered
Warrantholders in any manner specified in such Extraordinary Resolution or to refrain from enforcing any
such covenant or right;
to waive, and to direct the Warrant Agent to waive, any default on the part of the Corporation in complying
with any provisions of this Indenture either unconditionally or upon any conditions specified in such
Extraordinary Resolution;
to restrain any Registered Warrantholder from taking or instituting any suit, action or proceeding against the
Corporation for the enforcement of any of the covenants on the part of the Corporation in this Indenture or
to enforce any of the rights of the Registered Warrantholders;
to direct any Registered Warrantholder who, as such, has brought any suit, action or proceeding to stay or to
discontinue or otherwise to deal with the same upon payment of the costs, charges and expenses reasonably
and properly incurred by such Registered Warrantholder in connection therewith;
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(vii) to assent to any change in or omission from the provisions contained in this Indenture or any ancillary or
supplemental instrument which may be agreed to by the Corporation, and to authorize the Warrant Agent to
concur in and execute any ancillary or supplemental indenture embodying the change or omission;
(viii) with the consent of the Corporation, such consent not to be unreasonably withheld, to remove the Warrant
Agent or its successor in office and to appoint a new warrant agent or warrant agents to take the place of the
Warrant Agent so removed; and
(ix)
to assent to any compromise or arrangement with any creditor or creditors or any class or classes of
creditors, whether secured or otherwise, and with holders of any shares or other securities of the
Corporation.
7.11 Meaning of Extraordinary Resolution.
(a)
(b)
The expression “Extraordinary Resolution” when used in this Indenture means, subject as hereinafter provided
in this Section 7.11 and in Section 7.14, a resolution proposed at a meeting of Registered Warrantholders duly
convened for that purpose and held in accordance with the provisions of this Article 7 at which there are present
in person or by proxy Registered Warrantholders holding at least 20% of the aggregate number of Common
Shares that could be acquired and passed by the affirmative votes of Registered Warrantholders holding not less
than 66 2⁄3% of the aggregate number of Common Shares that could be acquired at the meeting and voted on the
poll upon such resolution.
If, at the meeting at which an Extraordinary Resolution is to be considered, Registered Warrantholders holding at
least 20% of the aggregate number of Common Shares that could be acquired are not present in person or by
proxy within 30 minutes after the time appointed for the meeting, then the meeting, if convened by Registered
Warrantholders or on a Warrantholders’ Request, shall be dissolved; but in any other case it shall stand adjourned
to such day, being not less than 15 or more than 60 days later, and to such place and time as may be appointed by
the chairman. Not less than 14 days’ prior notice shall be given of the time and place of such adjourned meeting
in the manner provided for in Section 10.2. Such notice shall state that at the adjourned meeting the Registered
Warrantholders present in person or by proxy shall form a quorum but it shall not be necessary to set forth the
purposes for which the meeting was originally called or any other particulars. At the adjourned meeting the
Registered Warrantholders present in person or by proxy shall form a quorum and may transact the business for
which the meeting was originally convened and a resolution proposed at such adjourned meeting and passed by
the requisite vote as provided in Section 7.11(a) shall be an Extraordinary Resolution within the meaning of this
Indenture notwithstanding that Registered Warrantholders entitled to acquire at least 20% of the aggregate
number of Common Shares which may be acquired pursuant to all the then outstanding Warrants are not present
in person or by proxy at such adjourned meeting.
(c)
Subject to Section 7.14, votes on an Extraordinary Resolution shall always be given on a poll and no demand for
a poll on an Extraordinary Resolution shall be necessary.
7.12 Powers Cumulative.
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Any one or more of the powers or any combination of the powers in this Indenture stated to be exercisable by the
Registered Warrantholders by Extraordinary Resolution or otherwise may be exercised from time to time and the
exercise of any one or more of such powers or any combination of powers from time to time shall not be deemed to
exhaust the right of the Registered Warrantholders to exercise such power or powers or combination of powers then or
thereafter from time to time.
7.13 Minutes.
Minutes of all resolutions and proceedings at every meeting of Registered Warrantholders shall be made and duly
entered in books to be provided from time to time for that purpose by the Warrant Agent at the expense of the
Corporation, and any such minutes as aforesaid, if signed by the chairman or the secretary of the meeting at which such
resolutions were passed or proceedings had shall be prima facie evidence of the matters therein stated and, until the
contrary is proved, every such meeting in respect of the proceedings of which minutes shall have been made shall be
deemed to have been duly convened and held, and all resolutions passed thereat or proceedings taken shall be deemed
to have been duly passed and taken.
7.14 Instruments in Writing.
All actions which may be taken and all powers that may be exercised by the Registered Warrantholders at a
meeting held as provided in this Article 7 may also be taken and exercised by Registered Warrantholders holding at
least 66 2⁄3% of the aggregate number of all of the then outstanding Warrants by an instrument in writing signed in one
or more counterparts by such Registered Warrantholders in person or by attorney duly appointed in writing, and the
expression “Extraordinary Resolution” when used in this Indenture shall include an instrument so signed.
7.15 Binding Effect of Resolutions.
Every resolution and every Extraordinary Resolution passed in accordance with the provisions of this Article 7 at
a meeting of Registered Warrantholders shall be binding upon all the Warrantholders, whether present at or absent from
such meeting, and every instrument in writing signed by Registered Warrantholders in accordance with Section 7.14
shall be binding upon all the Warrantholders, whether signatories thereto or not, and each and every Warrantholder and
the Warrant Agent (subject to the provisions for indemnity herein contained) shall be bound to give effect accordingly
to every such resolution and instrument in writing.
7.16 Holdings by Corporation Disregarded.
In determining whether Registered Warrantholders holding Warrants evidencing the entitlement to acquire the
required number of Common Shares are present at a meeting of Registered Warrantholders for the purpose of
determining a quorum or have concurred in any consent, waiver, Extraordinary Resolution, Warrantholders’ Request or
other action under this Indenture, Warrants owned legally or beneficially by the Corporation shall be disregarded in
accordance with the provisions of Section 10.7.
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ARTICLE 8
SUPPLEMENTAL INDENTURES
8.1 Provision for Supplemental Indentures for Certain Purposes.
From time to time, the Corporation (when authorized by action of the directors) and the Warrant Agent may,
subject to the provisions hereof and they shall, when so directed in accordance with the provisions hereof, execute and
deliver by their proper officers, indentures or instruments supplemental hereto, which thereafter shall form part hereof,
for any one or more or all of the following purposes:
(i)
setting forth any adjustments resulting from the application of the provisions of Article 4;
(ii)
adding to the provisions hereof such additional covenants and enforcement provisions as, in the opinion of
Counsel, are necessary or advisable in the premises, provided that the same are not in the opinion of the
Warrant Agent, relying on the advice of Counsel, prejudicial to the interests of the Registered
Warrantholders;
(iii) giving effect to any Extraordinary Resolution passed as provided in Section 7.11;
(iv) making such provisions not inconsistent with this Indenture as may be necessary or desirable with respect to
matters or questions arising hereunder or for the purpose of obtaining a listing or quotation of the Warrants
on any stock exchange, provided that such provisions are not, in the opinion of the Warrant Agent, relying
on the advice of Counsel, prejudicial to the interests of the Registered Warrantholders;
(v)
adding to or altering the provisions hereof in respect of the transfer of Warrants, making provision for the
exchange of Warrants, and making any modification in the form of the Warrant Certificates which does not
affect the substance thereof;
(vi) modifying any of the provisions of this Indenture, including relieving the Corporation from any of the
obligations, conditions or restrictions herein contained, provided that such modification or relief shall be or
become operative or effective only if, in the opinion of the Warrant Agent, relying on the advice of
Counsel, such modification or relief in no way prejudices any of the rights of the Registered Warrantholders
or of the Warrant Agent, and provided further that the Warrant Agent may in its sole discretion decline to
enter into any such supplemental indenture which in its opinion may not afford adequate protection to the
Warrant Agent when the same shall become operative;
(vii) providing for the issuance of additional Warrants hereunder, including Warrants in excess of the number set
out in Section 2.1 and any consequential amendments hereto as may be required by the Warrant Agent
relying on the advice of Counsel; and
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(viii) for any other purpose not inconsistent with the terms of this Indenture, including the correction or
rectification of any ambiguities, defective or inconsistent provisions, errors, mistakes or omissions herein,
provided that in the opinion of the Warrant Agent, relying on the advice of Counsel, the rights of the
Warrant Agent and of the Registered Warrantholders are in no way prejudiced thereby.
8.2
Successor Entities.
In the case of the consolidation, amalgamation, arrangement, merger or transfer of the undertaking or assets of the
Corporation as an entirety or substantially as an entirety to or with another entity (“successor entity”), the successor
entity resulting from such consolidation, amalgamation, arrangement, merger or transfer (if not the Corporation) shall
expressly assume, by supplemental indenture satisfactory in form to the Warrant Agent and executed and delivered to
the Warrant Agent, the due and punctual performance and observance of each and every covenant and condition of this
Indenture to be performed and observed by the Corporation.
ARTICLE 9
CONCERNING THE WARRANT AGENT
9.1 Trust Indenture Legislation.
(a)
If and to the extent that any provision of this Indenture limits, qualifies or conflicts with a mandatory requirement
of Applicable Legislation, such mandatory requirement shall prevail.
(b) The Corporation and the Warrant Agent agree that each will, at all times in relation to this Indenture and any
action to be taken hereunder, observe and comply with and be entitled to the benefits of Applicable Legislation.
9.2 Rights and Duties of Warrant Agent.
(a)
In the exercise of the rights and duties prescribed or conferred by the terms of this Indenture, the Warrant Agent
shall exercise that degree of care, diligence and skill that a reasonably prudent warrant agent would exercise in
comparable circumstances. No provision of this Indenture shall be construed to relieve the Warrant Agent from
liability for its own gross negligent action, wilful misconduct, bad faith or fraud under this Indenture.
(b) The obligation of the Warrant Agent to commence or continue any act, action or proceeding for the purpose of
enforcing any rights of the Warrant Agent or the Registered Warrantholders hereunder shall be conditional upon
the Registered Warrantholders furnishing, when required by notice by the Warrant Agent, sufficient funds to
commence or to continue such act, action or proceeding and an indemnity reasonably satisfactory to the Warrant
Agent to protect and to hold harmless the Warrant Agent and its officers, directors, employees and agents, against
the costs, charges and expenses and liabilities to be incurred thereby and any loss and damage it may suffer by
reason thereof. None of the provisions contained in this Indenture shall require the Warrant Agent to expend or to
risk its own funds or otherwise to incur financial liability
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in the performance of any of its duties or in the exercise of any of its rights or powers unless indemnified and
funded as aforesaid.
(c)
The Warrant Agent may, before commencing or at any time during the continuance of any such act, action or
proceeding, require the Registered Warrantholders, at whose instance it is acting to deposit with the Warrant
Agent the Warrants Certificates held by them, for which Warrants the Warrant Agent shall issue receipts.
(d) Every provision of this Indenture that by its terms relieves the Warrant Agent of liability or entitles it to rely upon
any evidence submitted to it is subject to the provisions of Applicable Legislation.
9.3 Evidence, Experts and Advisers.
(a)
(b)
In addition to the reports, certificates, opinions and other evidence required by this Indenture, the Corporation
shall furnish to the Warrant Agent such additional evidence of compliance with any provision hereof, and in such
form, as may be prescribed by Applicable Legislation or as the Warrant Agent may reasonably require by written
notice to the Corporation.
In the exercise of its rights and duties hereunder, the Warrant Agent may, if it is acting in good faith, rely as to
the truth of the statements and the accuracy of the opinions expressed in statutory declarations, opinions, reports,
written requests, consents, or orders of the Corporation, certificates of the Corporation or other evidence
furnished to the Warrant Agent pursuant to a request of the Warrant Agent, provided that such evidence complies
with Applicable Legislation and that the Warrant Agent complies with Applicable Legislation and that the
Warrant Agent examines the same and determines that such evidence complies with the applicable requirements
of this Indenture.
(c) Whenever it is provided in this Indenture or under Applicable Legislation that the Corporation shall deposit with
the Warrant Agent resolutions, certificates, reports, opinions, requests, orders or other documents, it is intended
that the truth, accuracy and good faith on the effective date thereof and the facts and opinions stated in all such
documents so deposited shall, in each and every such case, be conditions precedent to the right of the Corporation
to have the Warrant Agent take the action to be based thereon.
(d) The Warrant Agent may employ or retain such Counsel, accountants, appraisers or other experts or advisers as it
may reasonably require for the purpose of discharging its duties hereunder and may pay reasonable remuneration
for all services so performed by any of them, without taxation of costs of any Counsel, and shall not be
responsible for any misconduct or negligence on the part of any such experts or advisers who have been
appointed with due care by the Warrant Agent.
(e)
The Warrant Agent may act and rely and shall be protected in acting and relying in good faith on the opinion or
advice of or information obtained from any Counsel, accountant, appraiser, engineer or other expert or adviser,
whether retained or employed by the
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Corporation or by the Warrant Agent, in relation to any matter arising in the administration of the agency hereof.
9.4 Documents, Monies, etc. Held by Warrant Agent.
(a) Any monies, securities, documents of title or other instruments that may at any time be held by the Warrant
Agent shall be placed in the deposit vaults of the Warrant Agent or of any Canadian chartered bank listed in
Schedule I of the Bank Act (Canada), or deposited for safekeeping with any such bank. Any monies held pending
the application or withdrawal thereof under any provisions of this Indenture, shall be held, invested and
reinvested in Permitted Investments as directed in writing by the Corporation. Permitted Investments shall be
treasury bills guaranteed by the Government of Canada having a term to maturity not to exceed ninety (90) days,
or term deposits or bankers’ acceptances of a Canadian chartered bank having a term to maturity not to exceed
ninety (90) days, or such other investments that is in accordance with the Warrant Agent’s standard type of
investments. Unless otherwise specifically provided herein, all interest or other income received by the Warrant
Agent in respect of such deposits and investments shall belong to the Corporation.
(b) Any written direction for the investment or release of funds received shall be received by the Warrant Agent by
9:00 a.m. (Montreal time) on the Business Day on which such investment or release is to be made, failing which
such direction will be handled on a commercially reasonable efforts basis and may result in funds being invested
or released on the next Business Day.
(c)
(d)
The Warrant Agent shall have no responsibility or liability for any diminution of any funds resulting from any
investment made in accordance with this Indenture, including any losses on any investment liquidated prior to
maturity in order to make a payment required hereunder.
In the event that the Warrant Agent does not receive a direction or only a partial direction, the Warrant Agent
may hold cash balances constituting part or all of such monies and may, but need not, invest same in its deposit
department, the deposit department of one of its affiliates, or the deposit department of a Canadian chartered
bank; but the Warrant Agent, its affiliates or a Canadian chartered bank shall not be liable to account for any
profit to any parties to this Indenture or to any other person or entity.
9.5 Actions by Warrant Agent to Protect Interest.
The Warrant Agent shall have power to institute and to maintain such actions and proceedings as it may consider
necessary or expedient to preserve, protect or enforce its interests and the interests of the Registered Warrantholders.
9.6 Warrant Agent Not Required to Give Security.
The Warrant Agent shall not be required to give any bond or security in respect of the execution of the agency
and powers of this Indenture or otherwise in respect of the premises.
9.7 Protection of Warrant Agent.
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By way of supplement to the provisions of any law for the time being relating to the Warrant Agent it is expressly
declared and agreed as follows:
(i)
(ii)
the Warrant Agent shall not be liable for or by reason of any statements of fact or recitals in this Indenture
or in the Warrant Certificates (except the representation contained in Section 9.9 or in the authentication of
the Warrant Agent on the Warrant Certificates) or be required to verify the same, but all such statements or
recitals are and shall be deemed to be made by the Corporation;
nothing herein contained shall impose any obligation on the Warrant Agent to see to or to require evidence
of the registration or filing (or renewal thereof) of this Indenture or any instrument ancillary or
supplemental hereto;
(iii)
the Warrant Agent shall not be bound to give notice to any person or persons of the execution hereof;
(iv)
(v)
the Warrant Agent shall not incur any liability or responsibility whatever or be in any way responsible for
the consequence of any breach on the part of the Corporation of any of its covenants herein contained or of
any acts of any directors, officers, employees, agents or servants of the Corporation;
the Corporation hereby indemnifies and agrees to hold harmless the Warrant Agent, its affiliates, their
officers, directors, employees, agents, successors and assigns from and against any and all liabilities, losses,
damages, penalties, claims, actions, suits, costs, expenses and disbursements, including legal fees and
disbursements of whatever kind and nature which may at any time be imposed on or incurred by or asserted
against the Warrant Agent, whether groundless or otherwise, arising from or out of any act, omission or
error of the Warrant Agent, provided that the Corporation shall not be required to indemnify the Warrant
Agent in the event of the gross negligence or wilful misconduct of the Warrant Agent, and this provision
shall survive the resignation or removal of the Warrant Agent or the termination or discharge of this
Indenture; and
(vi) notwithstanding the foregoing or any other provision of this Indenture, any liability of the Warrant Agent
shall be limited, in the aggregate, to the amount of annual retainer fees paid by the Corporation to the
Warrant Agent under this Indenture in the twelve (12) months immediately prior to the Warrant Agent
receiving the first notice of the claim. Notwithstanding any other provision of this Indenture, and whether
such losses or damages are foreseeable or unforeseeable, the Warrant Agent shall not be liable under any
circumstances whatsoever for any: (a) breach by any other party of Applicable Securities Laws; (b) lost
profits; or (c) special, indirect, incidental, consequential, exemplary, aggravated or punitive losses or
damages.
9.8 Replacement of Warrant Agent; Successor by Merger.
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(a)
The Warrant Agent may resign its agency and be discharged from all further duties and liabilities hereunder,
subject to this Section 9.8, by giving to the Corporation not less than 60 days’ prior notice in writing or such
shorter prior notice as the Corporation may accept as sufficient. The Registered Warrantholders by Extraordinary
Resolution shall have power at any time to remove the existing Warrant Agent and to appoint a new warrant
agent. In the event of the Warrant Agent resigning or being removed as aforesaid or being dissolved, becoming
bankrupt, going into liquidation or otherwise becoming incapable of acting hereunder, the Corporation shall
forthwith appoint a new Warrant Agent unless a new Warrant Agent has already been appointed by the
Registered Warrantholders; failing such appointment by the Corporation, the retiring Warrant Agent or any
Registered Warrantholder may apply to a judge of the Superior Court of the Province of Québec on such notice
as such judge may direct, for the appointment of a new Warrant Agent; but any new Warrant Agent so appointed
by the Corporation or by the Court shall be subject to removal as aforesaid by the Registered Warrantholders.
Any new Warrant Agent appointed under any provision of this Section 9.8 shall be an entity authorized to carry
on the business of a trust company in the Province of Québec and, if required by the Applicable Legislation for
any other provinces, in such other provinces. On any such appointment the new warrant agent shall be vested with
the same powers, rights, duties and responsibilities as if it had been originally named herein as Warrant Agent
hereunder.
(b) Upon the appointment of a successor warrant agent, the Corporation shall promptly notify the Registered
Warrantholders thereof in the manner provided for in Section 10.2.
(c) Any Warrant Authenticated but not delivered by a predecessor Warrant Agent may be Authenticated by the
successor Warrant Agent in the name of the predecessor or successor Warrant Agent.
(d) Any corporation into which the Warrant Agent may be merged or consolidated or amalgamated, or any
corporation resulting therefrom to which the Warrant Agent shall be a party, or any corporation succeeding to
substantially the corporate trust business of the Warrant Agent shall be the successor to the Warrant Agent
hereunder without any further act on its part or any of the parties hereto, provided that such corporation would be
eligible for appointment as successor Warrant Agent under Section 9.8(a).
9.9 Conflict of Interest.
(a)
The Warrant Agent represents to the Corporation that to the best of its knowledge, at the time of execution and
delivery hereof no material conflict of interest exists between its role as a Warrant Agent hereunder and its role in
any other capacity and agrees that in the event of a material conflict of interest arising hereafter it will, within 90
days after ascertaining that it has such material conflict of interest, either eliminate the same or assign its agency
hereunder to a successor Warrant Agent approved by the Corporation and meeting the requirements set forth in
Section 9.8(a). Notwithstanding the foregoing provisions of this Section 9.9(a), if any such material conflict of
interest exists or hereafter shall exist, the validity and enforceability of this Indenture and the Warrant
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Certificate, if applicable, shall not be affected in any manner whatsoever by reason thereof.
(b)
Subject to Section 9.9(a), the Warrant Agent, in its personal or any other capacity, may buy, lend upon and deal
in securities of the Corporation and generally may contract and enter into financial transactions with the
Corporation without being liable to account for any profit made thereby.
9.10 Acceptance of Agency.
The Warrant Agent hereby accepts the agency in this Indenture declared and provided for and agrees to perform
the same upon the terms and conditions herein set forth.
9.11 Warrant Agent Not to be Appointed Receiver.
The Warrant Agent and any person related to the Warrant Agent shall not be appointed a receiver, a receiver and
manager or liquidator of all or any part of the assets or undertaking of the Corporation.
9.12 Warrant Agent Not Required to Give Notice of Default.
The Warrant Agent shall not be bound to give any notice or do or take any act, action or proceeding by virtue of
the powers conferred on it hereby unless and until it shall have been required so to do under the terms hereof; nor shall
the Warrant Agent be required to take notice of any default hereunder, unless and until notified in writing of such
default, which notice shall distinctly specify the default desired to be brought to the attention of the Warrant Agent and
the Warrant Agent shall promptly provide the Warrantholders with any such notice and in the absence of any such
notice the Warrant Agent may for all purposes of this Indenture conclusively assume that no default has been made in
the observance or performance of any of the representations, warranties, covenants, agreements or conditions contained
herein. Any such notice shall in no way limit any discretion herein given to the Warrant Agent to determine whether or
not the Warrant Agent shall take action with respect to any default.
9.13 Anti-Money Laundering.
(a)
Each party to this Agreement other than the Warrant Agent hereby represents to the Warrant Agent that any
account to be opened by, or interest to be held by the Warrant Agent in connection with this Agreement, for or to
the credit of such party, either (i) is not intended to be used by or on behalf of any third party; or (ii) is intended to
be used by or on behalf of a third party, in which case such party hereto agrees to complete and execute forthwith
a declaration in the Warrant Agent’s prescribed form as to the particulars of such third party.
(b) The Warrant Agent shall retain the right not to act and shall not be liable for refusing to act if, due to a lack of
information or for any other reason whatsoever, the Warrant Agent, in its sole judgment, determines that such act
might cause it to be in non-compliance with any applicable anti-money laundering, anti-terrorist or economic
sanctions legislation, regulation or guideline. Further, should the Warrant Agent, in its sole judgment, determine
at any time that its acting under this Indenture has resulted in
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its being in non-compliance with any applicable anti-money laundering, anti-terrorist or economic sanctions
legislation, regulation or guideline, then it shall have the right to resign on 10 days written notice to the other
parties to this Indenture, provided (i) that the Warrant Agent’s written notice shall describe the circumstances of
such non-compliance; (ii) that if such circumstances are rectified to the Warrant Agent’s satisfaction within such
10 day period, then such resignation shall not be effective.
9.14 Compliance with Privacy Code.
Each party to this Agreement acknowledges that the Warrant Agent may, in the course of providing services
hereunder, collect or receive financial and other personal information about such parties and/or their representatives, as
individuals, or about other individuals related to the subject matter hereof, and use such information for the following
purposes:
(i)
to provide the services required under this Indenture and other services that may be requested from time to
time;
(ii)
to help the Warrant Agent manage its servicing relationships with such individuals;
(iii)
to meet the Warrant Agent’s legal and regulatory requirements; and
(iv)
if Social Insurance Numbers are collected by the Warrant Agent, to perform tax reporting and to assist in
verification of an individual’s identity for security purposes.
Each party to this Agreement acknowledges and agrees that the Warrant Agent may receive, collect, use and
disclose personal information provided to it or acquired by it in the course of its acting as agent hereunder for the
purposes described above and, generally, in the manner and on the terms described in its Privacy Code, which the
Warrant Agent shall make available on its website or upon request, including revisions thereto. The Warrant Agent
may transfer personal information to other companies in or outside of Canada that provide data processing and storage
or other support in order to facilitate the service it provides.
Further, the Corporation agrees that it shall not provide or cause to be provided to the Warrant Agent any personal
information relating to an individual who is not a party to this Indenture unless the Corporation has assured itself that
such individual understands and has consented to the aforementioned uses and disclosures.
9.15 Securities Exchange Commission Certification.
The Corporation confirms that it has either (i) a class of securities registered pursuant to Section 12 of the U.S.
Securities Exchange Act of 1934, as amended (the “1934 Act”); or (ii) a reporting obligation pursuant to Section 15(d)
of the Act, and has provided the Warrant Agent with an Officers’ Certificate (in a form provided by the Warrant Agent)
certifying such reporting obligation and other information as requested by the Warrant Agent. The Corporation
covenants that in the event that any such registration or reporting obligation shall be terminated by the Corporation in
accordance with the 1934 Act, the Corporation shall promptly notify the Warrant Agent of such termination and such
other information as the Warrant Agent may require at the
time. The Corporation acknowledges that the Warrant Agent is relying upon the foregoing representation and covenants
in order to meet certain SEC obligations with respect to those clients who are filing with the SEC.
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10.1 Notice to the Corporation and the Warrant Agent.
ARTICLE 10
GENERAL
(a) Unless herein otherwise expressly provided, any notice to be given hereunder to the Corporation or the Warrant
Agent shall be deemed to be validly given if delivered, sent by registered letter, postage prepaid or faxed:
(i)
If to the Corporation:
Acasti Pharma Inc.
545 Promenade du Centropolis, Suite 100, Laval, Québec, Canada, H7T 0A3
Attention: Chief Financial Officer
Telecopy: (450) 687-2272
(ii)
If to the Warrant Agent:
Computershare Trust Company of Canada
1500 boul. Robert-Bourassa, 7 th Floor, Montréal, Québec, Canada, H3A 3S8
Attention: General Manager, Corporate Trust
Telecopy: (514) 982-7677
and any such notice delivered in accordance with the foregoing shall be deemed to have been received and given
on the date of delivery or, if mailed, on the fifth Business Day following the date of mailing such notice or, if
telecopied, on the next Business Day following the date of transmission.
(b) The Corporation or the Warrant Agent, as the case may be, may from time to time notify the other in the manner
provided in Section 10.1(a) of a change of address which, from the effective date of such notice and until changed
by like notice, shall be the address of the Corporation or the Warrant Agent, as the case may be, for all purposes
of this Indenture.
(c)
If, by reason of a strike, lockout or other work stoppage, actual or threatened, involving postal employees, any
notice to be given to the Warrant Agent or to the Corporation hereunder could reasonably be considered unlikely
to reach its destination, such notice shall be valid and effective only if it is delivered to the named officer of the
party to which it is addressed, as provided in Section 10.1(a), or given by facsimile or other means of prepaid,
transmitted and recorded communication.
10.2 Notice to Registered Warrantholders.
(a) Unless otherwise provided herein, notice to the Registered Warrantholders under the provisions of this Indenture
shall be valid and effective if delivered or sent by ordinary prepaid post addressed to such holders at their post
office addresses appearing on the
- 47 -
register hereinbefore mentioned and shall be deemed to have been effectively received and given on the date of
delivery or, if mailed, on the third Business Day following the date of mailing such notice. In the event that
Warrants are held in the name of the Depository, a copy of such notice shall also be sent by electronic
communication to the Depository and shall be deemed received and given on the next Business Day it is so sent.
(b)
If, by reason of a strike, lockout or other work stoppage, actual or threatened, involving postal employees, any
notice to be given to the Registered Warrantholders hereunder could reasonably be considered unlikely to reach
its destination, such notice shall be valid and effective only if it is delivered to such Registered Warrantholders to
the address for such Registered Warrantholders contained in the register maintained by the Warrant Agent or such
notice may be given, at the Corporation’s expense, by means of publication in the Globe and Mail, National
Edition, or any other English language daily newspaper or newspapers of general circulation in Canada, in the
first such notice to be published within five business days of such event, each two successive weeks, and any so
notice published shall be deemed to have been received and given on the latest date the publication takes place.
10.3 Ownership of Warrants.
The Corporation and the Warrant Agent may deem and treat the Registered Warrantholders as the absolute owner
thereof for all purposes, and the Corporation and the Warrant Agent shall not be affected by any notice or knowledge
to the contrary except where the Corporation or the Warrant Agent is required to take notice by statute or by order of a
court of competent jurisdiction. The receipt of any such Registered Warrantholder of the Common Shares which may
be acquired pursuant thereto shall be a good discharge to the Corporation and the Warrant Agent for the same and
neither the Corporation nor the Warrant Agent shall be bound to inquire into the title of any such holder except where
the Corporation or the Warrant Agent is required to take notice by statute or by order of a court of competent
jurisdiction.
10.4 Counterparts.
This Indenture may be executed in several counterparts, each of which when so executed shall be deemed to be
an original and such counterparts together shall constitute one and the same instrument and notwithstanding their date
of execution they shall be deemed to be dated as of the date hereof. Delivery of an executed copy of the Indenture by
electronic facsimile transmission or other means of electronic communication capable of producing a printed copy will
be deemed to be execution and delivery of this Indenture as of the date hereof.
10.5 Satisfaction and Discharge of Indenture.
Upon the earlier of:
(i)
the date by which there shall have been delivered to the Warrant Agent for exercise or cancellation all
Warrants theretofore Authenticated hereunder, in the case of Certificated Warrants, or by way of a
Transaction Instruction (or such other instructions, in a form satisfactory to the Warrant Agent), in the case
of
- 48 -
Uncertificated Warrants, or by way of standard processing through the Book Based System in the case of a
CDS Global Warrant; and
(ii)
the Expiry Time;
and if all certificates or other entry on the register representing Common Shares required to be issued in compliance
with the provisions hereof have been issued and delivered hereunder or to the Warrant Agent in accordance with such
provisions, this Indenture shall cease to be of further effect and the Warrant Agent, on demand of and at the cost and
expense of the Corporation and upon delivery to the Warrant Agent of a certificate of the Corporation stating that all
conditions precedent to the satisfaction and discharge of this Indenture have been complied with, shall execute proper
instruments acknowledging satisfaction of and discharging this Indenture. Notwithstanding the foregoing, the
indemnities provided to the Warrant Agent by the Corporation hereunder shall remain in full force and effect and
survive the termination of this Indenture.
10.6 Provisions of Indenture and Warrants for the Sole Benefit of Parties and Registered Warrantholders.
Nothing in this Indenture or in the Warrants, expressed or implied, shall give or be construed to give to any
person other than the parties hereto and the Registered Warrantholders, as the case may be, any legal or equitable right,
remedy or claim under this Indenture, or under any covenant or provision herein or therein contained, all such covenants
and provisions being for the sole benefit of the parties hereto and the Registered Warrantholders.
10.7 Common Shares or Warrants Owned by the Corporation or its Subsidiaries – Certificate to be Provided.
For the purpose of disregarding any Warrants owned legally or beneficially by the Corporation in Section 7.16,
the Corporation shall provide to the Warrant Agent, from time to time, a certificate of the Corporation setting forth as at
the date of such certificate:
(i)
the names (other than the name of the Corporation) of the Registered Warrantholders which, to the
knowledge of the Corporation, hold Warrants which are owned by or held for the account of the
Corporation; and
(ii)
the number of Warrants owned legally or beneficially by the Corporation,
and the Warrant Agent, in making the computations in Section 7.16, shall be entitled to rely on such certificate without
any additional evidence.
10.8 Severability.
If, in any jurisdiction, any provision of this Indenture or its application to any party or circumstance is restricted,
prohibited or unenforceable, such provision will, as to such jurisdiction, be ineffective only to the extent of such
restriction, prohibition or unenforceability without invalidating the remaining provisions of this Indenture and without
affecting the validity or enforceability of such provision in any other jurisdiction or without affecting its application to
other parties or circumstances.
10.9 Force Majeure.
- 49 -
No party shall be liable to the other, or held in breach of this Indenture, if prevented, hindered, or delayed in the
performance or observance of any provision contained herein by reason of act of God, riots, terrorism, acts of war,
epidemics, governmental action or judicial order, earthquakes, or any other similar causes (including, but not limited to,
mechanical, electronic or communication interruptions, disruptions or failures). Performance times under this Indenture
shall be extended for a period of time equivalent to the time lost because of any delay that is excusable under this
Section.
10.10 Assignment, Successors and Assigns.
Neither of the parties hereto may assign its rights or interest under this Indenture, except as provided in
Section 9.8 in the case of the Warrant Agent, or as provided in Section 8.2 in the case of the Corporation. Subject
thereto, this Indenture shall enure to the benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns.
10.11 Rights of Rescission and Withdrawal for Holders.
Should a holder of Warrants exercise any legal, statutory, contractual or other right of withdrawal or rescission
that may be available to it, and the holder’s funds which were paid on exercise have already been released to the
Corporation by the Warrant Agent, the Warrant Agent shall not be responsible for ensuring the exercise is cancelled
and a refund is paid back to the holder. In such cases, the holder shall seek a refund directly from the Corporation and
subsequently, the Corporation, upon surrender to the Corporation or the Warrant Agent of any Common Shares that
may have been issued, or such other procedure as agreed to by the parties hereto, shall instruct the Warrant Agent in
writing, to cancel the exercise transaction and any such Common Shares on the register, which may have already been
issued upon the Warrant exercise. In the event that any payment is received from the Corporation by virtue of the
holder being a shareholder for such Warrants that were subsequently rescinded, such payment must be returned by the
Corporation to such holder. The Warrant Agent shall not be under any duty or obligation to take any steps to ensure or
enforce that the funds are returned pursuant to this section, nor shall the Warrant Agent be in any other way responsible
in the event that any payment is not delivered or received pursuant to this section. Notwithstanding the foregoing, in
the event that the Corporation provides the refund to the Warrant Agent for distribution to the holder, the Warrant
Agent shall return such funds to the holder as soon as reasonably practicable, and in so doing, the Warrant Agent shall
incur no liability with respect to the delivery or non-delivery of any such funds.
10.12 Language
The parties hereto confirm their express wish that this Indenture and all documents and agreements directly or
indirectly relating thereto be drawn up in the English language. Notwithstanding such express wish, the parties agree
that any such document or agreement, or any part thereof or of this Indenture, may be drawn up in the French language.
Les parties aux présentes confirment leur volonté expresse que la présente convention ainsi que tous les documents et
conventions s’y rattachant directement ou indirectement soient rédigés en anglais. Nonobstant cette volonté expresse,
les parties aux présentes conviennent que la présente
- 50 -
convention ainsi que tous les documents et conventions s’y rattachant directement ou indirectement, ou toute partie de
ceux-ci, puissent être rédigés en français.
[Signature page follows]
IN WITNESS WHEREOF the parties hereto have executed this Indenture under the hands of their proper officers in
that behalf as of the date first written above.
ACASTI PHARMA INC.
By:
Name: Jan D’Alvise
Title: President and Chief Executive Officer
COMPUTERSHARE TRUST COMPANY
OF CANADA
By:
Name:
Title:
By:
Name:
Title:
A-1
SCHEDULE “A”
FORM OF WARRANT CERTIFICATE
[For all Warrants sold outside the United States and registered in the name of the Depository, include the
following legend:]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF CDS
CLEARING AND DEPOSITORY SERVICES INC. (“ CDS”) TO ACASTI PHARMA INC. (THE “ ISSUER”)
OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY
CERTIFICATE ISSUED IN RESPECT THEREOF IS REGISTERED IN THE NAME OF CDS & CO., OR
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF CDS (AND ANY
PAYMENT IS MADE TO CDS & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF CDS), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED HOLDER
HEREOF, CDS & CO., HAS A PROPERTY INTEREST IN THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HEREIN AND IT IS A VIOLATION OF ITS RIGHTS FOR ANOTHER PERSON TO HOLD,
TRANSFER OR DEAL WITH THIS CERTIFICATE.
[If applicable, each Warrant Certificate originally issued for the benefit or account of a U.S. Warrantholder and
each Warrant Certificate issued in exchange therefor or in substitution thereof, shall bear the following legends or
such variations thereof as the Corporation may prescribe:] THIS WARRANT AND THE SECURITIES
DELIVERABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE “U.S. SECURITIES ACT”), OR ANY STATE
SECURITIES LAWS, AND MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED,
DIRECTLY OR INDIRECTLY, ONLY (A) TO ACASTI PHARMA INC. (THE “CORPORATION”)
(B) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 OF REGULATION S
UNDER THE U.S. SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE LOCAL LAWS
AND REGULATIONS, (C) WITHIN THE UNITED STATES IN ACCORDANCE WITH THE
EXEMPTION FROM REGISTRATION UNDER THE U.S. SECURITIES ACT PROVIDED BY (1) RULE
144A UNDER THE U.S. SECURITIES ACT OR (2) IF AVAILABLE, RULE 144 UNDER THE U.S.
SECURITIES ACT AND, IN EACH CASE, IN COMPLIANCE WITH APPLICABLE STATE
SECURITIES LAWS, OR (D) IN A TRANSACTION THAT DOES NOT REQUIRE REGISTRATION
UNDER THE U.S. SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS,
PROVIDED THAT IN THE CASE OF TRANSFERS PURSUANT TO (C)(2) OR (D) ABOVE, A LEGAL
OPINION SATISFACTORY TO THE CORPORATION MUST FIRST BE PROVIDED TO
COMPUTERSHARE TRUST COMPANY OF CANADA TO THE EFFECT THAT SUCH TRANSFER
MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE U.S. SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS. DELIVERY OF THIS CERTIFICATE MAY NOT
CONSTITUTE “GOOD
A-2
DELIVERY” IN SETTLEMENT OF TRANSACTIONS ON STOCK EXCHANGES IN CANADA.
THE SECURITIES EVIDENCED HEREBY AND THE SECURITIES ISSUABLE UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OR U.S. STATE
SECURITIES LAWS. THESE WARRANTS MAY NOT BE EXERCISED IN THE UNITED STATES OR
BY OR ON BEHALF OF, OR FOR THE ACCOUNT OR BENEFIT OF, A U.S. PERSON UNLESS AN
EXEMPTION FROM REGISTRATION UNDER THE U.S. SECURITIES ACT AND ANY APPLICABLE
STATE SECURITIES LAWS IS AVAILABLE AND THE CORPORATION HAS RECEIVED AN
OPINION OF COUNSEL OF RECOGNIZED STANDING TO SUCH EFFECT IN FORM AND
SUBSTANCE REASONABLY SATISFACTORY TO THE CORPORATION. “UNITED STATES” AND
“U.S. PERSON” ARE AS DEFINED BY REGULATION S UNDER THE U.S. SECURITIES ACT. IF
REQUESTED BY THE CORPORATION, THE HOLDER AGREES TO PROVIDE THE INFORMATION
NECESSARY TO DETERMINE WHETHER THE TRANSFER OR EXERCISE OF THIS WARRANT IS
PERMISSIBLE UNDER THE U.S. SECURITIES ACT.”]
SUBJECT TO THE CORPORATION’S ACCELERATION RIGHT, THE WARRANTS EVIDENCED
HEREBY ARE EXERCISABLE AT OR BEFORE 5:00 P.M. (MONTREAL TIME) ON FEBRUARY 21, 2022,
AFTER WHICH TIME THE WARRANTS EVIDENCED HEREBY SHALL BE DEEMED TO BE VOID AND
OF NO FURTHER FORCE OR EFFECT.
WARRANT
To acquire Common Shares of
ACASTI PHARMA INC.
(incorporated pursuant to the laws of the Province of Québec)
Warrant
Certificate No. ●
Certificate for
Warrants, each entitling the holder to acquire one (1) Common Share subject to adjustment
in accordance with the terms of the Warrant Indenture
CUSIP: ●
ISIN: ●
THIS IS TO CERTIFY THAT , for value received,
A-3
(the “Warrantholder”) is the registered holder of the number of common share purchase warrants (the “ Warrants”)
of Acasti Pharma Inc. (the “Corporation”) specified above, and is entitled, on exercise of these Warrants upon and
subject to the terms and conditions set forth herein and in the Warrant Indenture hereinafter referred to, to purchase at
any time before 5:00 p.m. (Montreal time) (the “Expiry Time”) on February 21, 2022 (the “ Expiry Date”), subject to
the Acceleration Right, one fully paid and non-assessable common share without par value in the capital of the
Corporation as constituted on the date hereof (a “Common Share”) for each Warrant subject to adjustment in
accordance with the terms of the Warrant Indenture.
For the purpose of this Warrant Certificate and the Warrant Indenture, “Acceleration Right” means the right of the
Company to accelerate the Expiry Date to a date that is not the less than 30 days following delivery of the Acceleration
Notice if, at any time at least four months following the Effective Date, the volume weighted average trading price of
the Common Shares equals or exceeds $2.65 for a period of 20 consecutive trading dates on the TSXV.
The Warrants evidenced hereby are exercisable at or before 5:00 p.m. (Montreal time) on February 21, 2022 after
which time the warrants evidenced hereby shall be deemed to be void and of no further force or effect.
The right to purchase Common Shares may only be exercised by the Warrantholder within the time set forth above by:
(a)
duly completing and executing the exercise form (the “ Exercise Form”) attached hereto; and
(b)
surrendering this warrant certificate (the “ Warrant Certificate ”), with the Exercise Form to the Warrant
Agent at the principal office of the Warrant Agent, in the city of Montreal, Québec, together with a certified
cheque, bank draft or money order in the lawful money of Canada payable to or to the order of the
Corporation in an amount equal to the aggregate Exercise Price (as defined herein) for the Common Shares
so subscribed for.
The surrender of this Warrant Certificate, the duly completed Exercise Form and payment as provided above will be
deemed to have been effected only on personal delivery thereof to, or if sent by mail or other means of transmission on
actual receipt thereof by, the Warrant Agent at its principal office as set out above.
Subject to adjustment thereof in the events and in the manner set forth in the Warrant Indenture hereinafter referred to,
the exercise price payable for each Common Share upon the exercise of the Warrants shall be CAD$2.15 per Common
Share (the “Exercise Price”) .
Certificates for the Common Shares subscribed for will be mailed to the persons specified in the Exercise Form at their
respective addresses specified therein or, if so specified in the Exercise Form, delivered to such persons at the office
where this Warrant Certificate is surrendered. If fewer Common Shares are purchased than the number that can be
purchased pursuant to this Warrant Certificate, the holder hereof will be entitled to receive without charge a new
Warrant Certificate in respect of the balance of the Common Shares not so purchased. No fractional Common Shares
will be issued upon exercise of any Warrant.
A-4
This Warrant Certificate evidences Warrants of the Corporation issued or issuable under the provisions of a warrant
indenture (which indenture together with all other instruments supplemental or ancillary thereto is herein referred to as
the “Warrant Indenture”) dated as of February 21, 2017 between the Corporation and Computershare Trust Company
of Canada, as Warrant Agent, to which Warrant Indenture reference is hereby made for particulars of the rights of the
holders of Warrants, the Corporation and the Warrant Agent in respect thereof and the terms and conditions on which
the Warrants are issued and held, all to the same effect as if the provisions of the Warrant Indenture were herein set
forth, to all of which the holder, by acceptance hereof, assents. The Corporation will furnish to the holder, on request
and without charge, a copy of the Warrant Indenture.
The Warrants evidenced hereby shall not be exercised by any U.S. Warrantholder, or any other person requesting
delivery of the Common Shares issuable upon exercise of the Warrants in or into the United States must (a) provide a
completed and executed U.S. Purchaser Letter or (b) an opinion of counsel of recognised standing in form and
substance reasonably satisfactory to the Corporation and the Warrant Agent that the exercise and delivery is exempt
from the registration requirements of applicable securities laws of any state of the United States and the U.S. Securities
Act; provided, however a U.S. Warrantholder that is the original purchaser of Warrants and who has delivered the U.S.
Accredited Investor Certificate attached to the subscription agreement of the Corporation in connection with its
purchase of Units pursuant to the U.S. Placement, will not be required to deliver a U.S. Purchaser Letter or an opinion
of counsel in connection with the due exercise of the Warrant at a time when the representations, warranties and
covenants made by the Warrantholder in the U.S. Accredited Investor Certificate remain true and correct and the
Warrantholder represents to the Corporation as such.
On presentation at the principal office of the Warrant Agent as set out above, subject to the provisions of the Warrant
Indenture and on compliance with the reasonable requirements of the Warrant Agent, one or more Warrant Certificates
may be exchanged for one or more Warrant Certificates entitling the holder thereof to purchase in the aggregate an
equal number of Common Shares as are purchasable under the Warrant Certificate(s) so exchanged.
The Warrant Indenture contains provisions for the adjustment of the Exercise Price per Common Share upon the
exercise of Warrants and the number of Common Shares issuable upon the exercise of Warrants in the events and in
the manner set forth therein.
The Warrant Indenture also contains provisions making binding on all holders of Warrants outstanding thereunder
resolutions passed at meetings of holders of Warrants held in accordance with the provisions of the Warrant Indenture
and instruments in writing signed by Warrantholders entitled to purchase a specific majority of the Common Shares that
can be purchased pursuant to such Warrants.
Nothing contained in this Warrant Certificate, the Warrant Indenture or elsewhere shall be construed as conferring upon
the holder hereof any right or interest whatsoever as a holder of Common Shares or any other right or interest except as
herein and in the Warrant Indenture expressly provided. In the event of any discrepancy between anything contained in
this Warrant Certificate and the terms and conditions of the Warrant Indenture, the terms and conditions of the Warrant
Indenture shall govern.
A-5
Warrants may only be transferred in compliance with the conditions of the Warrant Indenture on the register to be kept
by the Warrant Agent in Montreal, Québec, or such other registrar as the Corporation, with the approval of the Warrant
Agent, may appoint at such other place or places, if any, as may be designated, upon surrender of this Warrant
Certificate to the Warrant Agent or other registrar accompanied by a written instrument of transfer in form and
execution satisfactory to the Warrant Agent or other registrar and upon compliance with the conditions prescribed in
the Warrant Indenture and with such reasonable requirements as the Warrant Agent or other registrar may prescribe and
upon the transfer being duly noted thereon by the Warrant Agent or other registrar. Time is of the essence hereof.
This Warrant Certificate will not be valid for any purpose until it has been countersigned by or on behalf of the Warrant
Agent from time to time under the Warrant Indenture.
The parties hereto have declared that they have required that these presents and all other documents related hereto be in
the English language. Les parties aux présentes déclarent qu’elles ont exigé que la présente convention, de même que
tous les documents s’y rapportant, soient rédigés en anglais.
[Signature page follows]
IN WITNESS WHEREOF the Corporation has caused this Warrant Certificate to be duly executed as of
, .
A-6
ACASTI PHARMA INC.
By:
Authorized Signatory
Countersigned and Registered by:
COMPUTERSHARE TRUST
COMPANY OF CANADA
By:
Authorized Signatory
Date:
C-1
SCHEDULE “B”
FORM OF TRANSFER CERTIFICATE
To: Computershare Trust Company of Canada
RE: Transfer of Warrants under the Warrant Indenture (the “ Warrant Indenture ”), dated as of February 21, 2017,
between Acasti Pharma Inc. (the “Corporation”) and Computershare Trust Company of Canada, as Warrant Agent
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers to
(print name and address) the Warrants represented by this Warrants Certificate and hereby irrevocable constitutes and
appoints
as its attorney with full power of substitution to transfer the said securities on the
appropriate register of the Warrant Agent. Capitalized terms used herein and not otherwise defined have the meanings
set forth in the Warrant Indenture.
In the case of a warrant certificate that contains a U.S. Warrant Legend, the undersigned hereby represents, warrants
and certifies that (one (only) of the following must be checked):
☐
☐
☐
(A) the transfer is being made only to the Corporation;
(B) the transfer is being made outside the United States in accordance with Rule 904 of
Regulation S under the U.S. Securities Act, and in compliance with any applicable local
securities laws and regulations and the holder has provided herewith the Declaration for
Removal of Legend attached as Schedule “D” to the Warrant Indenture, or
(C) the transfer is being made within the United States or to, or for the account or benefit
of, U.S. Persons, in accordance in accordance with the exemption from registration under the
U.S. Securities Act provided by (i) Rule 144A under the U.S. Securities Act, (ii) if available,
Rule 144 under the U.S. Securities Act and, in each case, in compliance with applicable state
securities laws, or (iii) in a transaction that does not require registration under the U.S.
Securities Act or any applicable state securities laws, and the undersigned has furnished to
the Corporation and the Warrant Agent an opinion of counsel of recognized standing in form
and substance reasonably satisfactory to the Corporation and the Warrant Agent to such
effect.
In the case of a warrant certificate that does not contain a U.S. Warrant Legend, if the proposed
transfer is to, or for the account or benefit of a U.S. Warrantholder or to a person in the United States, the undersigned
hereby represents, warrants and certifies that the transfer of the Warrants is being completed pursuant to an exemption
from the registration requirements of the U.S. Securities Act and any applicable state securities laws, in which case the
undersigned has furnished to the Corporation and the Warrant Agent an opinion of counsel of recognized
standing in form and substance reasonably satisfactory to the Corporation and the Warrant Agent to such effect.
C-2
☐
If transfer is to a U.S. Person, check this box.
DATED this day of , 20 .
SPACE FOR GUARANTEES OF
SIGNATURES (BELOW)
Guarantor’s Signature/Stamp
)
)
)
)
)
)
)
Signature of Transferor
Name of Transferor
REASON FOR TRANSFER – For US Residents only (where the individual(s) or corporation receiving the securities is
a US resident). Please select only one (see instructions below).
☐ Gift ☐ Estate ☐ Private Sale ☐ Other (or no change in ownership)
Date of Event (Date of gift, death or sale): Value per Warrant on the date of event:
/ /
$ .
☐ CAD OR ☐ USD
CERTAIN REQUIREMENTS RELATING TO TRANSFERS – READ CAREFULLY
The signature(s) of the transferor(s) must correspond with the name(s) as written upon the face of this certificate(s), in
every particular, without alteration or enlargement, or any change whatsoever. All securityholders or a legally
authorized representative must sign this form. The signature(s) on this form must be guaranteed in accordance with the
transfer agent’s then current guidelines and requirements at the time of transfer. Notarized or witnessed signatures are
not acceptable as guaranteed signatures. As at the time of closing, you may choose one of the following methods
(although subject to change in accordance with industry practice and standards):
•
Canada and the USA: A Medallion Signature Guarantee obtained from a member of an acceptable
Medallion Signature Guarantee Program (STAMP, SEMP, NYSE, MSP). Many commercial banks, savings
banks, credit unions, and all broker dealers participate in a Medallion Signature Guarantee Program. The
Guarantor must affix a stamp bearing the actual words “Medallion Guaranteed”, with the correct prefix
covering the face value of the certificate.
C-3
•
•
Canada: A Signature Guarantee obtained from an authorized officer of the Royal Bank of Canada, Scotia
Bank or TD Canada Trust. The Guarantor must affix a stamp bearing the actual words “Signature
Guaranteed”, sign and print their full name and alpha numeric signing number. Signature Guarantees are
not accepted from Treasury Branches, Credit Unions or Caisse Populaires unless they are members of a
Medallion Signature Guarantee Program. For corporate holders, corporate signing resolutions, including
certificate of incumbency, are also required to accompany the transfer, unless there is a “Signature &
Authority to Sign Guarantee” Stamp affixed to the transfer (as opposed to a “Signature Guaranteed” Stamp)
obtained from an authorized officer of the Royal Bank of Canada, Scotia Bank or TD Canada Trust or a
Medallion Signature Guarantee with the correct prefix covering the face value of the certificate.
Outside North America: For holders located outside North America, present the certificates(s) and/or
document(s) that require a guarantee to a local financial institution that has a corresponding Canadian or
American affiliate which is a member of an acceptable Medallion Signature Guarantee Program. The
corresponding affiliate will arrange for the signature to be over-guaranteed.
OR
The signature(s) of the transferor(s) must correspond with the name(s) as written upon the face of this certificate(s), in
every particular, without alteration or enlargement, or any change whatsoever. The signature(s) on this form must be
guaranteed by an authorized officer of Royal Bank of Canada, Scotia Bank or TD Canada Trust whose sample
signature(s) are on file with the transfer agent, or by a member of an acceptable Medallion Signature Guarantee
Program (STAMP, SEMP, NYSE, MSP). Notarized or witnessed signatures are not acceptable as guaranteed
signatures. The Guarantor must affix a stamp bearing the actual words: “SIGNATURE GUARANTEED”,
“MEDALLION GUARANTEED” OR “SIGNATURE & AUTHORITY TO SIGN GUARANTEE”, all in accordance
with the transfer agent’s then current guidelines and requirements at the time of transfer. For corporate holders,
corporate signing resolutions, including certificate of incumbency, will also be required to accompany the transfer
unless there is a “SIGNATURE & AUTHORITY TO SIGN GUARANTEE” Stamp affixed to the Form of Transfer
obtained from an authorized officer of the Royal Bank of Canada, Scotia Bank or TD Canada Trust or a
“MEDALLION GUARANTEED” Stamp affixed to the Form of Transfer, with the correct prefix covering the face
value of the certificate.
REASON FOR TRANSFER – FOR US RESIDENTS ONLY
Consistent with US IRS regulations, Computershare is required to request cost basis information from US
securityholders. Please indicate the reason for requesting the transfer as well as the date of event relating to the reason.
The event date is not the day in which the transfer is finalized, but rather the date of the event which led to the transfer
request (i.e. date of gift, date of death of the securityholder, or the date the private sale took place).
D-1
SCHEDULE “C”
EXERCISE FORM
TO: Acasti Pharma Inc.
AND TO:
Computershare Trust Company of Canada
c/o of Corporate Trust Services
1500 Robert Bourassa Street, Suite 700
Montréal, Québec H3A 3S8
Attention: Manager, Corporate Trust
OR TO:
Computershare Trust Company of Canada
c/o of Corporate Trust Services
100 University Avenue, Suite 800
Toronto, ON M5J 2Y1
Attention: Manager, Corporate Trust
The undersigned hereby exercises the right of such holder to be issued, and hereby subscribes for, Common Shares that
are issuable pursuant to the exercise of such Warrants on the terms specified in such Warrant Certificate and in the
Warrant Indenture dated February 21, 2017 between Computershare Trust Company of Canada and Acasti Pharma Inc.
(the “Warrant Indenture”).
The undersigned holder of the Warrants evidenced by this Warrant Certificate hereby exercises the right to acquire
Common Shares of Acasti Pharma Inc. for an aggregate purchase price of
CAD$ .
❑
Please check if this Exercise Form is being exercised by or on behalf of a U.S. Warrantholder, or in connection
with a request for delivery of the Common Shares issuable upon exercise of the Warrants in or into the United
States (in which case, additional documentation and certifications may be required).
Exercise Price Payable: equals CAD$2.15 for each Common Share, subject to adjustment in accordance with the
Warrant Indenture.
Capitalized terms used herein have the meaning ascribed to them in the Warrant Indenture.
The undersigned hereby irrevocably directs that the said Common Shares be issued, registered and delivered as
follows:
Name(s) in Full
Address(es)
Number of
Common Shares
D-2
Please print full name in which certificates representing the Common Shares are to be issued. If any Common Shares
are to be issued to a person or persons other than the registered holder, the registered holder must pay to the Warrant
Agent all exigible transfer taxes or other government charges, if any, and the Form of Transfer must be duly executed.
Once completed and executed, this Exercise Form must be mailed or delivered to Computershare Trust Company of
Canada, c/o Corporate Trust Services, 1500 Robert Bourassa Street, Suite 700, Montréal, Quebec H3A 3S8.
It is understood that the Corporation and Computershare Trust Company of Canada may require evidence to verify the
foregoing representation.
DATED _______________________, 20__.
Witness
Signature of Warrantholder, to be the same as appears
on the face of this Warrant Certificate
Name of Registered Warrantholder
❑
Please check if the certificates representing the Common Shares are to be delivered at the office where this
Warrant Certificate is surrendered, failing which such certificates will be mailed to the address set out above.
Certificates will be delivered or mailed as soon as practicable after the surrender of this Warrant Certificate to
the Warrant Agent.
D-3
SCHEDULE “D”
FORM OF DECLARATION FOR REMOVAL OF LEGEND
TO: Computershare Trust Company of Canada
Computershare Investor Services Ltd., as registrar and transfer agent for the Warrants and Common Shares
issuable upon exercise of the Warrants of Acasti Pharma Inc.
The undersigned (a) acknowledges that the sale of the securities of Acasti Pharma Inc. (the “ Corporation”) to which this declaration
relates is being made in reliance on Rule 904 of Regulation S under the United States Securities Act of 1933, as amended (the “ U.S.
Securities Act”) and (b) certifies that (1) the undersigned is not (i) an “affiliate” of the Corporation (as that term is defined in Rule 405
under the U.S. Securities Act), (ii) a “distributor” as defined in Regulation S under the U.S. Securities Actor (iii) an affiliate of a distributor,
(2) the offer of such securities was not made to a person in the United States and either (A) at the time the buy order was originated, the
buyer was outside the United States, or the seller and any person acting on its behalf reasonably believed that the buyer was outside the
United States, or (B) the transaction was executed in, on or through the facilities of a designated offshore securities market (such as the
TSX Venture Exchange or the Toronto Stock Exchange) and neither the seller nor any person acting on its behalf knows that the transaction
has been prearranged with a buyer in the United States or a U.S. person, (3) neither the seller nor any affiliate of the seller nor any person
acting on any of their behalf has engaged or will engage in any directed selling efforts in the United States in connection with the offer and
sale of such securities, (4) the sale is bona fide and not for the purpose of “washing off” the resale restrictions imposed because the
securities are “restricted securities” (as such term is defined in Rule 144(a)(3) under the U.S. Securities Act), (5) the seller does not intend
to replace the securities sold in reliance on Rule 904 of the U.S. Securities Act with fungible unrestricted securities and (6) the
contemplated sale is not a transaction, or part of a series of transactions which, although in technical compliance with Regulation S, is part
of a plan or scheme to evade the registration provisions of the U.S. Securities Act. Terms used herein have the meanings given to them by
Regulation S.
DATED this _____ day of __________, 20__.
(Name of Seller)
By:
Name: [*]
Title: [*]
Affirmation By Seller’s Broker-Dealer (required for sales in accordance with Section (b)(2)(B) above)
We have read the foregoing representations of our customer, (the “Seller”) dated , with regard
to our sale, for such Seller’s account, of the securities of the Corporation described therein, and on behalf of ourselves we certify and affirm
that (A) we have no knowledge that the transaction had been prearranged with a buyer in the United States, (B) the transaction was
executed on or through the facilities of designated offshore securities market, (C) neither we, nor any person acting on our behalf, engaged
in any directed selling efforts in connection with the offer and sale of such securities, and (D) no selling concession, fee or other
remuneration is being paid to us in connection with this offer and sale other than the usual and customary broker’s commission that would
be received by a person executing such transaction as agent. Terms used herein have the meanings given to them by Regulation S under the
U.S. Securities Act.
Name of Firm
By:
Authorized officer
Date: __________
FORM OF U.S. PURCHASER CERTIFICATION UPON EXERCISE OF WARRANTS
SCHEDULE “E”
Acasti Pharma Inc.
545 Promenade du Centropolis, Suite 100, Laval, Québec, Canada, H7T 0A3
Attention: Chief Financial Officer
- and to -
Computershare Trust Company of Canada.
as Warrant Agent
Dear Sirs:
We are delivering this letter in connection with the purchase of common shares (the “ Common Shares”) of Acasti
Pharma Inc., a corporation incorporated under the laws of the Province of Québec (the “Corporation”) upon the
exercise of warrants of the Corporation (“Warrants”), issued under the warrant indenture dated as of February 21,
2017 between the Corporation and Computershare Trust Company of Canada.
We hereby confirm that:
(a) we are an institutional “ accredited investor” (satisfying one or more of the criteria set forth in Rule 501 (a)
(1),(2),(3) or (7) of Regulation D under the United States Securities Act of 1933 (the “U.S. Securities
Act”)) who is also a “ Qualified Purchaser” (as defined in Section 2(a) (51) of, and related rules under, the
United States Investment Company Act of 1940 , as amended (the “1940 Act”));
(b) we are purchasing the Common Shares for our own account;
(c) we have such knowledge and experience in financial and business matters that we are capable of evaluating
the merits and risks of purchasing the Common Shares;
(d) we are not acquiring the Common Shares with a view to distribution thereof or with any present intention of
offering or selling any of the Common Shares, except (A) to the Corporation, (B) outside the United States
in accordance with Rule 904 under the U.S. Securities Act or (C) inside the United States in accordance
with Rule 144 under the U.S. Securities Act, if applicable, and in compliance with applicable state securities
laws;
(e) we acknowledge that we have had access to such financial and other information as we deem necessary in
connection with our decision to exercise the Warrants and purchase the Common Shares; and
(f) we acknowledge that we are not purchasing the Common Shares as a result of any general solicitation or
general advertising, including advertisements, articles, notices or other communications published in any
newspaper, magazine or similar media or broadcast over radio, television, or any seminar or meeting whose
attendees have been invited by general solicitation or general advertising.
- 2 -
We understand that the Common Shares are being offered in a transaction not involving any public offering within the
United States within the meaning of the U.S. Securities Act and that the Common Shares have not been and will not be
registered under the U.S. Securities Act.
We further understand that any Common Shares acquired by us will be in the form of definitive physical certificates
and that such certificates will bear a legend reflecting the fact that we will not offer, sell or otherwise transfer any of the
Common Shares, directly or indirectly, unless (i) the sale is to the Corporation; (ii) the sale is made outside the United
States in compliance with the requirements of Rule 904 of Regulation S under the U.S. Securities Act; or (iii) the sale is
made in the United States pursuant to an exemption from registration under the U.S. Securities Act provided by
(A) Rule 144A under the U.S. Securities Act or (2) if available, Rule 144 under the U.S. Securities Act and, in each
case, in compliance with applicable state securities laws, or (iv) in a transaction that does not require registration under
the U.S. Securities Act or any applicable state securities laws; and, in the case of clause (iii)(B) or clause (iv), and, prior
to such sale or transfer, the seller has furnished to the Corporation and the Corporation’s transfer agent an opinion of
counsel of recognized standing in form and substance reasonably satisfactory to the Corporation and such Transfer
Agent to the effect that the proposed transfer may be effected without registration under the U.S. Securities Act or
applicable state securities laws.
We acknowledge that you will rely upon our confirmations, acknowledgements and agreements set forth herein, and we
agree to notify you promptly in writing if any of our representations or warranties herein ceases to be accurate or
complete.
DATED this _____ day of ______, 20__.
(Name of U.S. Purchaser)
By:
Name: [*]
Title: [*]
Exhibit 4.2
ACASTI PHARMA INC.
EQUITY INCENTIVE PLAN
JUNE 27, 2013
LASTLY AMENDED JUNE 8, 2017
Acasti Pharma Inc.
Equity Incentive Plan
ARTICLE 1
PURPOSE
1.1 Purpose
The purpose of this Plan is to provide the Corporation with a share-related mechanism to attract, retain and motivate
qualified Directors, Employees and Consultants of the Corporation and its Subsidiaries, to reward such of those
Directors, Employees and Consultants as may be granted Awards under this Plan by the Board from time to time for
their contributions toward the long term goals and success of the Corporation and to enable and encourage such
Directors, Employees and Consultants to acquire Shares as long term investments and proprietary interests in the
Corporation.
ARTICLE 2
INTERPRETATION
2.1 Definitions
When used herein, unless the context otherwise requires, the following terms have the indicated meanings,
respectively:
“Affiliate” has the meaning set forth in the Securities Act;
“Associate” has the meaning ascribed to it in the Securities Act;
“Award” means any Bonus Share, Restricted Share Unit, Performance Share Unit, Deferred Share Unit, Restricted
Share or Other Share-Based Award granted under this Plan;
“Award Agreement” means a signed, written agreement between a Participant and the Corporation, substantially
in the form attached as Schedule A, subject to any amendments or additions thereto as may, in the discretion of the
Board, be necessary or advisable, evidencing the terms and conditions on which an Award has been granted under
this Plan;
“Award Value” means such percentage of annual base salary or such other amount as may be determined from
time to time by the Board as the original value of the Award to be paid to a Participant and specified in the
Participant’s Award Agreement;
“Board” means the board of directors of the Corporation;
- 2 -
“Business Day” means a day, other than a Saturday or Sunday, on which the principal commercial banks in the
City of Montréal are open for commercial business during normal banking hours;
“Bonus Share” means Shares issued to a Participant under the terms of this Plan;
“Cause” means, with respect to a particular Employee:
(a)
(b)
“cause” as such term is defined in the written employment agreement between the Corporation and the
Employee; or
in the event there is no written employment agreement between the Corporation and the Employee or
“cause” is not defined in the written employment agreement between the Corporation and the Employee,
the usual meaning of “cause” under the laws of the Province of Québec.
“Change in Control” means the occurrence of any one or more of the following events:
(a)
(b)
a consolidation, merger, amalgamation, arrangement or other reorganization or acquisition involving the
Corporation or any of its Affiliates and another corporation or other entity, as a result of which the holders
of Shares prior to the completion of the transaction hold less than 50% of the outstanding shares of the
successor corporation after completion of the transaction;
the sale, lease, exchange or other disposition, in a single transaction or a series of related transactions, of
assets, rights or properties of the Corporation and/or any of its Subsidiaries which have an aggregate book
value greater than 30% of the book value of the assets, rights and properties of the Corporation and its
Subsidiaries on a consolidated basis to any other person or entity, other than a disposition to a wholly-
owned subsidiary of the Corporation in the course of a reorganization of the assets of the Corporation and
its subsidiaries;
(c)
a resolution is adopted to wind-up, dissolve or liquidate the Corporation;
(d)
any person, entity or group of persons or entities acting jointly or in concert (an “ Acquiror”) acquires or
acquires control (including, without limitation, the right to vote or direct the voting) of Voting Securities of
the Corporation which, when added to the Voting Securities owned of record or beneficially by the
Acquiror or which the Acquiror has the right to vote or in respect of which the Acquiror has the right to
direct the voting, would entitle the Acquiror and/or Associates and/or Affiliates of the Acquiror to cast or to
direct the casting of 20% or more of the votes attached to all of the Corporation’s outstanding Voting
Securities which may be cast to elect directors of the Corporation or the successor corporation (regardless
of whether a meeting has been called to elect directors);
(e)
as a result of or in connection with: (A) a contested election of directors, or; (B) a consolidation, merger,
amalgamation, arrangement or other reorganization or acquisitions involving the Corporation or any of its
affiliates and another corporation or other entity, the nominees named in the most recent Management
- 3 -
Information Circular of the Corporation for election to the Board shall not constitute a majority of the
Board; or
(f)
the Board adopts a resolution to the effect that a Change of Control as defined herein has occurred or is
imminent.
For the purposes of the foregoing, “Voting Securities” means Shares and any other shares entitled to vote for the
election of directors and shall include any security, whether or not issued by the Corporation, which are not shares
entitled to vote for the election of directors but are convertible into or exchangeable for shares which are entitled to
vote for the election of directors including any options or rights to purchase such shares or securities.
Notwithstanding the foregoing definition, for Awards that are non-qualified deferred compensation held by a U.S.
Taxpayer, any Change in Control must also meet the requirements for a “change in control” or “change in
ownership” under Section 409A;
“Code” means the U.S. Internal Revenue Code of 1986, as amended from time to time, and the regulations
promulgated under it;
“Committee” has the meaning set forth in Section 3.2;
“Corporation” means Acasti Pharma Inc.;
“Consultant” means an individual or Consultant Company, other than an Employee or a Director of the
Corporation, that:
(a)
(b)
(c)
(d)
is engaged to provide on a ongoing bona fide basis, consulting, technical, management or other services to
the Corporation or an Affiliate of the Corporation, other than services provided in relation to a Distribution;
provides the services under a written contract between the Corporation or an Affiliate of the Corporation
and the individual or the Consultant Company;
in the reasonable opinion of the Corporation, spends or will spend a significant amount of time and
attention on the affairs and business of the Corporation or an Affiliate of the Corporation; and
has a relationship with the Corporation or an Affiliate of the Corporation that enables the individual to be
knowledgeable about the business and affairs of the Corporation;
“Consultant Company” means for an individual consultant, a company or partnership of which the individual is
an employee, shareholder or partner;
“Date of Grant” means, for any Award, the date specified by the Board at the time it grants the Award (which,
for greater certainty, shall be no earlier than the date on which the Board meets for the purpose of granting such
Award) or if no such date is specified, the date upon which the Award was granted;
- 4 -
“Deferred Share Unit” or “DSU” means a unit equivalent in value to a Share, credited by means of a
bookkeeping entry in the books of the Corporation in accordance with ARTICLE 7;
“Director” means a director of the Corporation who is not an employee of the Corporation or a Subsidiary;
“Disabled” or “Disability” means the permanent and total incapacity of a Participant as determined in accordance
with procedures established by the Board for purposes of this Plan;
“Distribution” has the meaning set forth in the Securities Act;
“Effective Date” means the effective date of this Plan, being June 27, 2013;
“Employee” means an individual who:
(a)
is considered an employee of the Corporation or a Subsidiary of the Corporation under the Income Tax Act
(Canada) (i.e., for whom income tax, employment insurance and CPP deductions must be made at source);
(b) works full-time for the Corporation or a Subsidiary of the Corporation providing services normally
provided by an employee and who is subject to the same control and direction by the Corporation or a
Subsidiary of the Corporation over the details and methods of work as an employee of the Corporation, but
for whom income tax deductions are not made at source; or
(c) works for the Corporation or a Subsidiary of the Corporation on a continuing and regular basis for a
minimum amount of time per week providing services normally provided by an employee and who is
subject to the same control and direction by the Corporation or a Subsidiary of the Corporation over the
details and methods of work as an employee of the Corporation, but for whom income tax deductions are
not made at source.
“Exchange” means such stock exchange or other organized market on which the Shares are or may be listed or
posted for trading from time to time, including as applicable the TSX-V or the TSX;
“Exchange Act” means the United States Securities Exchange Act of 1934, as amended from time to time;
“Insider” means an “insider” as defined by the Exchange from time to time in its rules and regulations;
“Investor Relations Activities” means any activities, by or on behalf of the Corporation or shareholder of the
Corporation, that promote or reasonably could be expected to promote the purchase or sale of securities of the
Corporation, but does not include:
(a)
the dissemination of information provided, or records prepared, in the ordinary course of business of the
Corporation
- 5 -
(i)
to promote the sale of products or services of the Corporation, or
(ii)
to raise public awareness of the Corporation,
(b)
that cannot reasonably be considered to promote the purchase or sale of securities of the Corporation;
(c)
activities or communications necessary to comply with the requirements of:
(i)
applicable Securities Laws;
(ii) Exchange requirements or the by-laws, rules or other regulatory instruments of any other self
regulatory body or exchange having jurisdiction over the Corporation;
(d)
communications by a publisher of, or writer for, a newspaper, magazine or business or financial
publication, that is of general and regular paid circulation, distributed only to subscribers to it for value or to
purchasers of it, if:
(i)
the communication is only through the newspaper, magazine or publication, and
(ii)
the publisher or writer receives no commission or other consideration other than for acting in the
capacity of publisher or writer; or
activities or communications that may be otherwise specified by the Exchange.
“Market Price” at any date in respect of the Shares shall be the closing price of such Shares on the Exchange
(and if listed on more than one stock exchange, then the highest of such closing prices) on the last Business Day
prior to the relevant date. In the event that such Shares did not trade on such Business Day, the Market Price shall
be the average of the bid and asked prices in respect of such Shares at the close of trading on such date. In the
event that such Shares are not listed and posted for trading on any stock exchange, the Market Price shall be the
fair market value of such Shares as determined by the Board in its sole discretion;
“NI 45-106” means National Instrument 45-106 Prospectus and Registration Exemptions of the Canadian
Securities Administrators, as amended from time to time;
“Other Share-Based Award” means any right granted under Section 8.1;
“Participant” means an Employee, Consultant or Director to whom an Award has been granted under this Plan;
“Participant’s Employer” means the Corporation or such Subsidiary as is or, if the Participant has ceased to be
employed by the Corporation or such Subsidiary, was the Participant’s Employer;
- 6 -
“Performance Goals” means performance goals expressed in terms of attaining a specified level of the particular
criteria or the attainment of a percentage increase or decrease in the particular criteria, and may be applied to one
or more of the Corporation, a Subsidiary, or a division or strategic business unit of the Corporation, or may be
applied to the performance of the Corporation relative to a market index, a group of other companies or a
combination thereof, all as determined by the Board;
“Performance Share Unit” or “PSU” means any right granted under Section 5.1 of the Plan;
“Permitted Assign” has the meaning assigned to that term in NI 45-106;
“Person” includes an individual, sole proprietorship, partnership, unincorporated association, unincorporated
syndicate, unincorporated organization, trust, body corporate, and a natural person in his or her capacity as trustee,
executor, administrator or other legal representative;
“Plan” means this Acasti Pharma Inc. Equity Incentive Plan, as may be amended from time to time;
“QBCA” means the Business Corporations Act (Québec), as amended, or such other successor legislation which
may be enacted, from time to time;
“Regulatory Authorities” means the Exchange and any other organized trading facilities on which the
Corporation’s Shares are listed and all securities commissions or similar securities regulatory bodies having
jurisdiction over the Corporation;
“Restricted Period” means the period during which Restricted Shares are subject to restrictions as set out in the
Award Agreement;
“Restricted Shares” means Shares granted to a Participant under Section 6.1 hereof that are subject to certain
restrictions and to a risk of forfeiture;
“Restricted Share Unit” or “RSU” means a right to receive a Share or a Restricted Share granted, as determined
by the Board, under Section 4.1;
“Securities Act” means the Securities Act (Québec), as amended, or such other successor legislation as may be
enacted, from time to time;
“Securities Laws” means securities legislation, securities regulation and securities rules, as amended, and the
policies, notices, instruments and blanket orders in force from time to time that govern or are applicable to the
Corporation or to which it is subject, including, without limitation, the Securities Act;
“Share” means one (1) common share without par value in the capital stock of the Corporation as constituted on
the Effective Date or, in the event of an adjustment contemplated by ARTICLE 12, such other shares or securities
to which the holder of an Award may be entitled as a result of such adjustment;
- 7 -
“Stock Option Plan” means the Corporation’s stock option plan in effect from time to time;
“Termination Date” means, in the case of a Participant whose employment or term of office or engagement with
the Corporation or an Affiliate terminates:
(i)
(ii)
in the case of the resignation of the Participant as an Employee of the Corporation, the date that the
Participant provides notice of his or her resignation as an Employee of the Corporation to the
Corporation;
in the case of the termination of the Participant as an Employee of the Corporation by the Corporation
for any reason other than death, the effective date of termination set out in the Corporation’s notice of
termination of the Participant as an Employee of the Corporation to the Participant;
(iii)
in the case of the termination of the written contract of the Consultant Participant to provide
consulting services to the Corporation, the effective date of termination set out in any notice provided
by one of the parties to the written contract to the other party; or
(iv)
the effective date of termination of a Director, Employee or Consultant pursuant to an order made by
any Regulatory Authority having jurisdiction to so order;
provided that in the case of termination by reason of voluntary resignation by the Participant, such date shall not
be earlier than the date that notice of resignation was received from such Participant, and “Termination Date” in
any such case specifically does not mean the date on which any period of contractual notice, reasonable notice,
salary continuation or deemed employment that the Corporation or the Affiliate, as the case may be, may be
required at law to provide to a Participant would expire;
“TSX-V” means the TSX Venture Exchange;
“TSX” means the Toronto Stock Exchange; and
“U.S. Taxpayer” shall mean a Participant who is a U.S. citizen, U.S. permanent resident or individual providing
services to the Corporation or its Subsidiaries in the U.S.
2.2
Interpretation
(a) Whenever the Board or, where applicable, the Committee is to exercise discretion in the administration of
this Plan, the term “discretion” means the sole and absolute discretion of the Board or the Committee, as
the case may be.
(b) As used herein, the terms “Article”, “Section”, “Subsection” and “clause” mean and refer to the specified
Article, Section, Subsection and clause of this Plan, respectively.
- 8 -
(c) Words importing the singular include the plural and vice versa and words importing any gender include
any other gender.
(d) Whenever any payment is to be made or action is to be taken on a day which is not a Business Day, such
payment shall be made or such action shall be taken on the next following Business Day.
(e)
In this Plan, a Person is considered to be a “Subsidiary” of another Person if:
(i)
it is controlled by,
(A)
that other, or
(B)
that other and one or more Persons, each of which is controlled by that other, or
(C)
two or more Persons, each of which is controlled by that other; or
(ii)
it is a Subsidiary of a Person that is that other’s Subsidiary.
(f)
In this Plan, a Person is considered to be “controlled” by a Person if:
(i)
in the case of a Person,
(A)
voting securities of the first-mentioned Person carrying more than 50% of the votes for the
election of directors are held, directly or indirectly, otherwise than by way of security only, by
or for the benefit of the other Person; and
(B)
the votes carried by the securities are entitled, if exercised, to elect a majority of the directors
of the first-mentioned Person;
(ii)
in the case of a partnership that does not have directors, other than a limited partnership, the
second-mentioned Person holds more than 50% of the interests in the partnership; or
(iii)
in the case of a limited partnership, the general partner is the second-mentioned Person.
(g) Unless otherwise specified, all references to money amounts are to Canadian currency.
(h) This Plan is established under and the provisions of this Plan will be subject to and interpreted and
construed in accordance with the laws of the Province of Québec.
(i)
The headings used herein are for convenience only and are not to affect the interpretation of this Plan.
- 9 -
ARTICLE 3
ADMINISTRATION
3.1 Administration
Subject to Section 3.2, this Plan will be administered by the Board and the Board has sole and complete authority, in its
discretion, to:
(a)
determine the individuals to whom grants under the Plan may be made;
(b) make grants of Awards under the Plan relating to the issuance of Shares (including any combination of
Bonus Shares, Restricted Share Units, Performance Share Units, Deferred Share Units, Restricted Shares or
Other Share-Based Awards) in such amounts, to such Persons and, subject to the provisions of this Plan, on
such terms and conditions as it determines including without limitation:
(i)
the time or times at which Awards may be granted;
(ii)
the conditions under which:
(A)
Awards may be granted to Participants; or
(B)
Awards may be forfeited to the Corporation,
including any conditions relating to the attainment of specified Performance Goals;
(iii)
the price, if any, to be paid by a Participant in connection with the granting of Awards;
(iv) whether restrictions or limitations are to be imposed on the Shares issuable pursuant to grants of
Awards, and the nature of such restrictions or limitations, if any; and
(v)
any acceleration of exercisability or vesting or Restricted Period, or waiver of termination regarding
any Award, based on such factors as the Board may determine;
(c)
interpret this Plan and adopt, amend and rescind administrative guidelines and other rules and regulations
relating to this Plan; and
(d) make all other determinations and take all other actions necessary or advisable for the implementation and
administration of this Plan.
The Board’s determinations and actions within its authority under this Plan are conclusive and binding on the
Corporation and all other persons. The day-to-day administration of the Plan may be delegated to such officers and
employees of the Corporation or of a Subsidiary as the Board determines.
3.2 Delegation to Committee
- 10 -
To the extent permitted by applicable law and the Corporation’s articles, the Board may, from time to time, delegate to
a committee (the “Committee”) of the Board, all or any of the powers conferred on the Board under the Plan. In
connection with such delegation, the Committee will exercise the powers delegated to it by the Board in the manner and
on the terms authorized by the Board. Any decision made or action taken by the Committee arising out of or in
connection with the administration or interpretation of this Plan in this context is final and conclusive. Notwithstanding
any such delegation or any reference to the Committee in this Plan, the Board may also take any action and exercise
any powers that the Committee is authorized to take or has power to exercise under this Plan.
3.3 Eligibility
All Employees, Consultants and Directors are eligible to participate in the Plan, subject to subsections 10.11(c) and
10.2(g). Eligibility to participate does not confer upon any Employee, Consultant or Director any right to receive any
grant of an Award pursuant to the Plan. The extent to which any Employee, Consultant or Director is entitled to receive
a grant of an Award pursuant to the Plan will be determined in the sole and absolute discretion of the Board.
3.4 Board Requirements
Any Award granted under this Plan shall be subject to the requirement that, if at any time the Corporation shall
determine that the listing, registration or qualification of the Shares issuable pursuant to such Award upon any
securities exchange or under any Securities Laws of any jurisdiction, or the consent or approval of Regulatory
Authority, is necessary as a condition of, or in connection with, the grant or exercise of such Award or the issuance or
purchase of Shares thereunder, such Award may not be accepted or exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been effected or obtained on conditions acceptable to the
Board. Nothing herein shall be deemed to require the Corporation to apply for or to obtain such listing, registration,
qualification, consent or approval.
3.5 Participation
The Board may only grant Awards to an Employee or Consultant if such Employee or Consultant is a bona fide
Employee or Consultant of the Corporation or a Subsidiary of the Corporation, as the case may be. The Board may, in
its sole discretion, grant the majority of the Awards to Insiders of the Corporation. The number of Shares that may be
purchased under any Award or the amount of any Award that shall be granted in any form that may result in the
issuance of Shares will be determined and fixed by the Board at the date of grant, provided that:
(i)
(ii)
no more than 2% of the issued and outstanding Shares may be granted to any one Consultant in any
12 month period; and
no more than an aggregate of 2% of the issued and outstanding Shares may be granted to all
Participants conducting Investor Relations Activities in any 12 month period.
3.6 Number of Shares Reserved
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Subject to adjustment as provided for in ARTICLE 12 and any subsequent amendment to this Plan, the number of
Shares reserved for issuance and which will be available for issuance pursuant to Awards granted under this Plan will
be equal to a number that:
(a)
if, and for so long as the Common Shares are listed on the TSXV, shall not exceed the lower of (i) 367,563
Common Shares, and (ii) 20% of the issued and outstanding Common Shares as of March 31, 2017,
representing 2,940,511 Common Shares, which number shall include Common Shares issuable pursuant to
options issued under the Stock Option Plan.
(b)
if, and for so long as the Shares are listed on the TSX, shall not exceed 2.5% of the issued and outstanding
Shares of the Corporation from time to time.
The aggregate maximum number of Shares available under the Plan may be used for any type of Award. Subject to the
provisions and restrictions of this Plan, if any Award is exercised, cancelled, expired or otherwise terminated for any
reason whatsoever, the number of Shares in respect of which Award is exercised, cancelled, expired or otherwise
terminated for any reason whatsoever, as the case may be, will ipso facto again be immediately available for purchase
pursuant to Awards granted under this Plan.
All grants of Awards under this Plan will be evidenced by Award Agreements. Award Agreements will be subject to
the applicable provisions of this Plan and will contain such provisions as are required by this Plan and any other
provisions that the Board may direct. Any one officer of the Corporation is authorized and empowered to execute and
deliver, for and on behalf of the Corporation, an Award Agreement to each Participant granted an Award pursuant to
this Plan.
3.7 Non-transferability of Awards
No assignment or transfer of Awards, whether voluntary, involuntary, by operation of law or otherwise, vests any
interest or right in such Awards whatsoever in any assignee or transferee (except that, if, and for so long as the Shares
are listed on the TSX, a Participant may transfer Awards to Permitted Assigns in a manner consistent with applicable
tax and securities laws) and immediately upon any assignment or transfer, or any attempt to make the same, such
Awards will terminate and be of no further force or effect. If any Participant has transferred Awards to a corporation
pursuant to this Section 3.7, such Awards will terminate and be of no further force or effect if at any time the transferor
should cease to own all of the issued shares of such corporation.
3.8 Dividend Equivalents
(a) RSUs, PSUs and DSUs shall be credited with dividend equivalents in the form of additional RSUs, PSUs
and DSUs as of each dividend payment date in respect of which normal cash dividends are paid on Shares.
Such dividend equivalents shall be computed by dividing: (a) the amount obtained by multiplying the
amount of the dividend declared and paid per Share by the number of RSUs, PSUs and DSUs held by the
Participant on the record date for the payment of such dividend,
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by (b) the Market Price at the close of the first business day immediately following the dividend record
date, with fractions computed to three decimal places. Dividend equivalents credited to a Participant’s
accounts shall vest in proportion to the RSUs, PSUs and DSUs to which they relate.
(b) The Board may in its discretion include in an Award Agreement applicable to an Other Share-Based Award
a dividend equivalent right entitling the Participant to receive amounts equal to the normal cash dividends
that would be paid, during the time such Award is outstanding and unexercised, on the Shares covered by
such Award if such Shares were then outstanding and may decide whether such payments shall be made in
cash, in Shares or in another form, whether they shall be conditioned upon the vesting of the Award to
which they relate, the time or times at which they shall be made, and such other terms and conditions as the
Board shall deem appropriate.
(c)
The foregoing does not obligate the Corporation to make dividends on Shares and nothing in this Plan shall
be interpreted as creating such an obligation.
3.9 Permitted Assigns
If, and for so long as the Shares are listed on the TSX, grants of Awards may be made to Permitted Assigns of
Employees, Directors and Consultants and may be transferred by Employees, Directors and Consultants to a Permitted
Assign of an Employee, Director or Consultant as applicable, except for U.S. Taxpayers, if transfer to a Permitted
Assign would be prohibited by Section 409A of the Code. In any such case, the provisions of ARTICLE 10 shall apply
to the Award as if the Award was held by the Employee, Director or Consultant rather than such person’s Permitted
Assign.
In the event of the death of the Permitted Assign, the Award shall be automatically transferred to the Employee,
Director or Consultant who effected the transfer of the Award to the deceased Permitted Assign.
ARTICLE 4
GRANT OF RESTRICTED SHARE UNITS
4.1 Grant of RSUs
If, and for so long as (i) the Corporation is a Tier 1 issuer on the TSXV, (ii) the Shares are listed on the Toronto Stock
Exchange, or (iii) the prior approval of the of the stock exchange on which the Shares are listed for trading is obtained,
the Board may, from time to time, subject to the provisions of this Plan and such other terms and conditions as the
Board may prescribe, grant RSUs to any Participant. The number of RSUs to be credited to each Participant’s account
shall be computed by dividing (a) the Award Value, by (b) the Market Price of a Share on the day immediately
preceding the Grant Date, with fractions rounded down to the nearest whole number.
4.2 Terms of RSUs
The Board shall have the authority to condition the grant of RSUs upon the attainment of
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specified Performance Goals, or such other factors (which may vary as between awards of RSUs) as the Board may
determine in its sole discretion.
4.3 Vesting of RSUs
The Board shall have the authority to determine at the time of grant, in its sole discretion, the duration of the vesting
period and other vesting terms applicable to the grant of RSUs, provided that no RSU granted shall vest and be payable
after December 31 of the third calendar year following the year of service for which the RSU was granted.
4.4 Delivery of Shares
Unless otherwise specified in the Award Agreement, as soon as practicable following the expiry of the applicable
vesting period, or at such later date as may be determined by the Board in its sole discretion at the time of grant, a share
certificate representing the Shares issuable pursuant to the RSUs shall be registered in the name of the Participant or as
the Participant may direct, subject to applicable securities laws.
ARTICLE 5
PERFORMANCE SHARE UNITS
5.1 Grant of PSUs
If, and for so long as (i) the Corporation is a Tier 1 issuer on the TSXV, (ii) the Shares are listed on the Toronto Stock
Exchange, or (iii) the prior approval of the of the stock exchange on which the Shares are listed for trading is obtained,
the Board may, from time to time, subject to the provisions of this Plan and such other terms and conditions as the
Board may prescribe, grant PSUs to any Participant. Each PSU will consist of a right to receive a Share upon the
achievement of such Performance Goals during such performance periods as the Board will establish. The number of
PSUs to be credited to each Participant’s account shall be computed by dividing (a) the Award Value, by (b) the
Market Price of a Share on the day immediately preceding the Grant Date, with fractions rounded down to the nearest
whole number.
5.2 Terms of PSUs
Subject to the terms of the Plan, the Performance Goals to be achieved during any performance period, the length of
any performance period, the amount of any PSU granted, the termination of a Participant’s employment and the amount
of any payment or transfer to be made pursuant to any PSU will be determined by the Board and by the other terms and
conditions of any PSU, all as set forth in the applicable Award Agreement.
5.3 Performance Goals
The Board will issue Performance Goals prior to the commencement of the performance period to which such
Performance Goals pertain. The Performance Goals may be based upon the achievement of corporation-wide,
divisional or individual goals, or any other basis determined by the Board. The Board may modify the Performance
Goals as necessary to align them with the Corporation’s corporate objectives if there is a subsequent material change in
the Corporation’s business, operations or capital or corporate structure. The Performance Goals may include a
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threshold level of performance below which no payment will be made (or no vesting will occur), levels of performance
at which specified payments will be made (or specified vesting will occur), and a maximum level of performance above
which no additional payment will be made (or at which full vesting will occur).
5.4 Delivery of Shares
Unless otherwise specified in the Award Agreement, as soon as practicable following the expiry of the applicable
vesting period, or at such later date as may be determined by the Board in its sole discretion at the time of grant, a share
certificate representing the Shares issuable pursuant to the PSUs shall be registered in the name of the Participant or as
the Participant may direct, subject to applicable securities laws.
ARTICLE 6
RESTRICTED SHARES
6.1 Grant of Restricted Shares
If, and for so long as (i) the Corporation is a Tier 1 issuer on the TSXV, (ii) the Shares are listed on the Toronto Stock
Exchange, or (iii) the prior approval of the of the stock exchange on which the Shares are listed for trading is obtained,
the Board may, from time to time, subject to the provisions of this Plan and such other terms and conditions as the
Board may prescribe, grant Restricted Shares to any Participant. The terms and conditions of each Restricted Shares
grant shall be evidenced by an Award Agreement, which agreements need not be identical. The number of Restricted
Shares to be credited to each Participant’s account shall be computed by dividing (a) the Award Value, by (b) the
Market Price of a Share on the day immediately preceding the Grant Date, with fractions rounded down to the nearest
whole number.
Subject to the restrictions set forth in Section 10.2, except as otherwise set forth in the applicable Award Agreement,
the Participant shall generally have the rights and privileges of a shareholder as to such Restricted Shares, including the
right to vote such Restricted Shares. Unless otherwise set forth in a Participant’s Award Agreement, cash dividends and
stock dividends, if any, with respect to the Restricted Shares shall be withheld by the Corporation for the Participant’s
account, and shall be subject to forfeiture until released, in each case, to be released at the same time and in the same
proportion as the lapse of restrictions on the Restricted Shares to which such dividends relate. Except as otherwise
determined by the Board, no interest will accrue or be paid on the amount of any dividends withheld.
6.2 Restrictions on Transfer
In addition to any other restrictions set forth in a Participant’s Award Agreement, until such time that the Restricted
Period for the Restricted Shares has lapsed pursuant to the terms of the Award Agreement, which Restricted Period the
Board may in its sole discretion accelerate at any time, the Participant shall not be permitted to sell, transfer, pledge, or
otherwise encumber the Restricted Shares. Notwithstanding anything contained herein to the contrary, the Board shall
have the authority to remove any or all of the restrictions on the Restricted Shares whenever it may determine that, by
reason of changes in applicable laws or other changes in circumstances arising after the date of the Restricted Shares
Award, such action is appropriate.
6.3
Separation of Service
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Except as may otherwise be provided by applicable laws and regulations or in the applicable Award Agreement, in the
event of a Participant’s “separation from service” (within the meaning of Section 409A of the Code) with the
Corporation or any of the Subsidiaries for any reason prior to the time that the Restricted Period for the Participant’s
Restricted Shares has lapsed, as soon as practicable following such Separation from Service, the Corporation shall
repurchase from the Participant, and the Participant shall sell, all of such Participant’s Restricted Shares for which the
Restricted Period has not lapsed at a purchase price equal to the cash amount, if any, paid by the Participant for the
Restricted Shares, or if no cash amount was paid by the Participant for the Restricted Shares, such Restricted Shares
shall be forfeited by the Participant to the Corporation for no consideration as of the date of such separation from
service.
ARTICLE 7
GRANT OF DEFERRED SHARE UNITS
7.1 Number of Deferred Share Units
If, and for so long as (i) the Corporation is a Tier 1 issuer on the TSXV, (ii) the Shares are listed on the Toronto Stock
Exchange, or (iii) the prior approval of the of the stock exchange on which the Shares are listed for trading is obtained,
the Board may, from time to time, subject to the provisions of this Plan and such other terms and conditions as the
Board may prescribe, grant Deferred Share Units to any Participant; provided, however, to the extent required by
applicable law (including, but not limited to, Section 409A of the Code), if any Participant is allowed an election to
receive DSUs in lieu of other compensation, such election must be made in writing prior to the start of the calendar
year during which services will be performed for which the compensation relates, or such later date as permitted in
accordance with applicable law, including, but not limited to, Section 409A of the Code and the regulations thereunder.
The number of DSUs to be credited to each Participant’s account shall be computed by dividing (a) the Award Value,
by (b) the Market Price of a Share on the day immediately preceding the Grant Date, with fractions rounded down to
the nearest whole number.
All Deferred Share Units received by a Participant shall be credited to an account maintained for the Participant on the
books of the Corporation, as of the Date of Grant. The award of Deferred Share Units for a calendar year to a
Participant shall be evidenced by an Award Agreement.
7.2
Issuance of Shares
DSUs shall be settled on the date established in the Award Agreement (the “ Settlement Date”); provided, however
that in no event shall a DSU Award be settled prior to the date of the applicable Participant’s Separation from Service.
If the Award Agreement does not establish a date for the settlement of the DSUs, then the Settlement Date shall be the
date of Separation from Service, subject to the delay that may be required under Section 13.9 below. On the Settlement
Date for any DSU:
(a)
the Participant shall deliver a cheque payable to the Corporation (or payment by such other method as may
be acceptable to the Corporation) representing payment of any amounts required by the Corporation to be
withheld in connection with such settlement as contemplated by Section 13.3; and
(b)
the Corporation shall issue to the Participant one fully paid and non-assessable Share in respect of each
Vested DSU being paid on such date.
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ARTICLE 8
OTHER SHARE-BASED AWARDS
8.1 Other Share-Based Awards
The Board may, from time to time, subject to the prior approval of the TSX-V, if applicable, the provisions of this Plan
and such other terms and conditions as the Board may prescribe, grant Other Share-Based Awards to any Participant.
Each Other Share-Based Award will consist of a right (1) which is other than an Award or right described in Article 4,
5, 6 or 7 above and (2) which is denominated or payable in, valued in whole or in part by reference to, or otherwise
based on or related to, Shares (including, without limitation, securities convertible into Shares) as are deemed by the
Board to be consistent with the purposes of the Plan; provided, however, that such right will comply with applicable
law. Subject to the terms of the Plan and any applicable Award Agreement, the Board will determine the terms and
conditions of Other Share-Based Awards. Shares or other securities delivered pursuant to a purchase right granted under
this Section 8.1 will be purchased for such consideration, which may be paid by such method or methods and in such
form or forms, including, without limitation, cash, Shares, other securities, other Awards, other property, or any
combination thereof, as the Board will determine.
ARTICLE 9
BONUS SHARES
9.1 Bonus Shares
The Board may, from time to time, subject to the provisions of this Plan and such other terms and conditions as the
Board may prescribe, grant fully paid and non-assessable Bonus Shares to any Participant. The allocation of the Bonus
Shares among the Participants shall be determined by the Board of Directors at the time that the Bonus Shares are
qualified for issuance and shall be evidenced by an Award Agreement.
ARTICLE 10
TERMINATION OF EMPLOYMENT OR SERVICES
10.1 Death or Disability
If a Participant dies or becomes Disabled while an Employee, Director or Consultant:
(a)
a portion of the next instalment of any Awards due to vest (or for which the Restricted Period is due to
lapse) shall immediately vest (or cease to be restricted) such portion to equal to the number of Awards next
due to vest (or cease to be restricted) multiplied by a fraction the numerator of which is the number of days
elapsed since the date of vesting (or lapse of Restricted Period) of the last instalment of the Awards (or if
none have vested or have ceased to be restricted, the Date of Grant) to the date of Disability or death and
the denominator of which is the number of days between the date of vesting (or lapse of Restricted Period)
of the last instalment of the Awards (or if none have vested or have ceased to be
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restricted, the Date of Grant) and the date of vesting (or lapse of Restricted Period) of the next instalment of
the Awards;
(b)
unless otherwise determined by the Board and set forth in an Award Agreement and subject to subsection
(c), any Awards held by the Participant that are not yet vested (or for which the Restricted Period has not
lapsed) at the date of Disability or death are immediately forfeited to the Corporation on the date of
Disability or death; and
(c)
such Participant’s or Director’s eligibility to receive further grants of Awards under the Plan ceases as of
the date of Disability or death.
10.2 Termination of Employment or Services
(a) Where a Participant’s employment or term of office or engagement with the Corporation or an Affiliate
terminates by reason of the Participant’s death or Disability, then the provisions of Section 10.1 will apply.
(b) Unless otherwise determined by the Board and set forth in an Award Agreement, where a Participant’s
employment or term of office or engagement terminates by reason of a Participant’s resignation or, in the
case of a Consultant, by reason of the termination by the Consultant of the Consultant’s engagement in
accordance with the terms of such engagement, then any Awards held by the Participant that are not yet
vested (or for which the Restricted Period has not lapsed) at the Termination Date are immediately forfeited
to the Corporation on the Termination Date.
(c) Unless otherwise determined by the Board and set forth in an Award Agreement, where a Participant’s
employment or term of office or engagement terminates by reason of termination by the Corporation or an
Affiliate without cause in the case of an Employee, without breach of a Director’s fiduciary duties or
without breach of contract by a Consultant, as applicable (in each case as determined by the Board in its
sole discretion) (whether such termination occurs with or without any or adequate notice or reasonable
notice, or with or without any or adequate compensation in lieu of such notice), then any Awards held by
the Participant that are not yet vested (or for which the Restricted Period has not lapsed) at the Termination
Date are immediately forfeited to the Corporation on the Termination Date.
(d) Where an Employee Participant’s or Consultant Participant’s employment or engagement is terminated by
the Corporation or an Affiliate for cause (as determined by the Board in its sole discretion), or, in the case
of a Consultant, for breach of contract (as determined by the Board in its sole discretion), then any Awards
held by the Participant at the Termination Date (whether or not then vested or subject to a Restricted
Period) are immediately forfeited to the Corporation on the Termination Date.
(e) Where a Director’s term of office is terminated by the Corporation for breach by the Director of his or her
fiduciary duty to the Corporation (as determined by the
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Board in its sole discretion), then any Awards held by the Director at the Termination Date (whether or not
vested or subject to a Restricted Period) are immediately forfeited to the Corporation on the Termination
Date.
(f) Where a Director’s term of office terminates for any reason other than death or Disability of the Director or
a breach by the Director of his or her fiduciary duty to the Corporation (as determined by the Board in its
sole discretion), the Board may, in its sole discretion, at any time prior to or following the Termination
Date, provide for the vesting (or lapse of restrictions) of any or all Awards held by a Director on the
Termination Date.
(g) The eligibility of a Participant to receive further grants under the Plan ceases as of the date that the
Corporation or an Affiliate, as the case may be, provides the Participant with written notification that the
Participant’s employment or term of service is terminated, notwithstanding that such date may be prior to
the Termination Date.
(h) Unless the Board, in its sole discretion, otherwise determines, at any time and from time to time, Awards
are not affected by a change of employment arrangement within or among the Corporation or a Subsidiary
for so long as the Participant continues to be an employee of the Corporation or a Subsidiary, including
without limitation a change in the employment arrangement of a Participant whereby such Participant
becomes a Director.
10.3 Discretion to Permit Acceleration
Notwithstanding the provisions of Sections 10.1 and 10.2, the Board may, in its discretion, at any time prior to or
following the events contemplated in such Sections, permit the acceleration of vesting (or Restricted Period) of any or
all Awards, all in the manner and on the terms as may be authorized by the Board.
ARTICLE 11
CHANGE IN CONTROL
11.1 Change in Control
The Board shall have the right to determine that any unvested or unearned Bonus Shares, Restricted Share Units,
Deferred Share Units, Performance Share Units or Other Share-Based Awards or Restricted Shares subject to a
Restricted Period outstanding immediately prior to the occurrence of a Change in Control shall become fully vested or
earned or free of restriction upon the occurrence of such Change in Control. The Board may also determine that any
vested or earned Bonus Shares, Restricted Share Units, Deferred Share Units, Performance Share Units or Other Share-
Based Awards shall be cashed out at the Market Price as of the date such Change in Control is deemed to have
occurred, or as of such other date as the Board may determine prior to the Change in Control. Further, the Board shall
have the right to provide for the conversion or exchange of any Bonus Shares, Restricted Share Unit, Deferred Share
Unit, Performance Share Unit or Other Share-Based Award into or for rights or other securities in any entity
participating in or resulting from the Change in Control.
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ARTICLE 12
SHARE CAPITAL ADJUSTMENTS
12.1 General
The existence of any Awards does not affect in any way the right or power of the Corporation or its shareholders to
make, authorize or determine any adjustment, recapitalization, reorganization or any other change in the Corporation’s
capital structure or its business, or any amalgamation, combination, arrangement, merger or consolidation involving the
Corporation, to create or issue any bonds, debentures, Shares or other securities of the Corporation or to determine the
rights and conditions attaching thereto, to effect the dissolution or liquidation of the Corporation or any sale or transfer
of all or any part of its assets or business, or to effect any other corporate act or proceeding, whether of a similar
character or otherwise, whether or not any such action referred to in this Section would have an adverse effect on this
Plan or on any Award granted hereunder.
12.2 Reorganization of Corporation’s Capital
Should the Corporation effect a subdivision or consolidation of Shares or any similar capital reorganization or a
payment of a stock dividend (other than a stock dividend that is in lieu of a cash dividend), or should any other change
be made in the capitalization of the Corporation that does not constitute a Change in Control and that would warrant the
amendment or replacement of any existing Awards in order to adjust the number of Shares that may be acquired on the
vesting of outstanding Awards and/or the terms of any Award in order to preserve proportionately the rights and
obligations of the Participants holding such Awards, the Board will, subject to the prior approval of the Exchange,
authorize such steps to be taken as it may consider to be equitable and appropriate to that end.
12.3 Other Events Affecting the Corporation
In the event of an amalgamation, combination, arrangement, merger or other transaction or reorganization involving the
Corporation and occurring by exchange of Shares, by sale or lease of assets or otherwise, that does not constitute a
Change in Control and that warrants the amendment or replacement of any existing Awards in order to adjust: (a) the
number of Shares that may be acquired on the vesting of outstanding Awards and/or (b) the terms of any Award in
order to preserve proportionately the rights and obligations of the Participants holding such Awards, the Board will,
subject to the prior approval of the Exchange, authorize such steps to be taken as it may consider to be equitable and
appropriate to that end.
12.4 Immediate Acceleration of Awards
Where the Board determines that the steps provided in Sections 12.2 and 12.3 would not preserve proportionately the
rights, value and obligations of the Participants holding such Awards in the circumstances or otherwise determines that
it is appropriate the Board may permit the immediate vesting of any unvested Awards and immediate lapse of any
Restricted Period.
12.5 Issue by Corporation of Additional Shares
Except as expressly provided in this ARTICLE 12, neither the issue by the Corporation of shares of any class or
securities convertible into or exchangeable for shares of any class, nor the
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conversion or exchange of such shares or securities, affects, and no adjustment by reason thereof is to be made with
respect to the number of Shares that may be acquired as a result of a grant of Awards.
12.6 Fractions
No fractional Shares will be issued pursuant to an Award. Accordingly, if, as a result of any adjustment under
Section 12.2, 12.3 or dividend equivalent, a Participant would become entitled to a fractional Share, the Participant has
the right to acquire only the adjusted number of full Shares and no payment or other adjustment will be made with
respect to the fractional Shares, which shall be disregarded.
ARTICLE 13
MISCELLANEOUS PROVISIONS
13.1 Legal Requirement
The Corporation is not obligated to grant any Awards, issue any Shares or other securities, make any payments or take
any other action if, in the opinion of the Board, in its sole discretion, such action would constitute a violation by a
Participant, Director or the Corporation of any provision of any applicable statutory or regulatory enactment of any
government or government agency or the requirements of any stock exchange upon which the Shares may then be
listed.
13.2 Participants’ Entitlement
Except as otherwise provided in this Plan, Awards previously granted under this Plan are not affected by any change in
the relationship between, or ownership of, the Corporation and an Affiliate. For greater certainty, all grants of Awards
remain are not affected by reason only that, at any time, an Affiliate ceases to be an Affiliate.
13.3 Withholding Taxes
The granting or vesting or lapse of the Restricted Period of each Award under this Plan is subject to the condition that if
at any time the Board determines, in its discretion, that the satisfaction of withholding tax or other withholding
liabilities is necessary or desirable in respect of such grant, vesting or lapse of the Restricted Period, such action is not
effective unless such withholding has been effected to the satisfaction of the Board. In such circumstances, the Board
may require that a Participant pay to the Corporation such amount as the Corporation or an Affiliate is obliged to remit
to the relevant taxing authority in respect of the granting or vesting or lapse of the Restricted Period of the Award. Any
such additional payment is due no later than the date on which any amount with respect to the Award is required to be
remitted to the relevant tax authority by the Corporation or an Affiliate, as the case may be.
13.4 Rights of Participant
No Participant has any claim or right to be granted an Award and the granting of any Award is not to be construed as
giving a Participant a right to remain as an employee, consultant or director of the Corporation or an Affiliate. No
Participant has any rights as a shareholder of the
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Corporation in respect of Shares issuable pursuant to any Award until the allotment and issuance to such Participant, or
as such Participant may direct, of certificates representing such Shares.
13.5 Other Incentive Awards
The Board shall have the right to grant other incentive awards based upon Shares under this Plan to Participants in
accordance with applicable laws and regulations and subject to regulatory approval, including without limitation the
approval of the Exchange (to the extent the Corporation has any securities listed on the particular exchange), having
such terms and conditions as the Board may determine, including without limitation the grant of Shares based upon
certain conditions and the grant of securities convertible into Shares.
13.6 Blackout Period
If an Award expires during, or within five business days after, a trading black-out period imposed by the Corporation to
restrict trades in the Corporation’s securities, then, notwithstanding any other provision of this Plan, the Award shall
expire ten business days after the trading black-out period is lifted by the Corporation.
13.7 Termination
The Board may, without notice or shareholder approval, terminate the Plan on or after the date upon which no Awards
remain outstanding.
13.8 Amendment
(a)
Subject to the rules and policies of any stock Exchange on which the Shares are listed and applicable law,
the Board may, without notice or shareholder approval, at any time or from time to time, amend the Plan for
the purposes of:
(i) making any amendments to the general vesting provisions or Restricted Period of each Award;
(ii) making any amendments to the provisions set out in ARTICLE 10;
(iii) making any amendments to add covenants of the Corporation for the protection of Participants, as the
case may be, provided that the Board shall be of the good faith opinion that such additions will not be
prejudicial to the rights or interests of the Participants, as the case may be;
(iv) making any amendments not inconsistent with the Plan as may be necessary or desirable with respect
to matters or questions which, in the good faith opinion of the Board, having in mind the best interests
of the Participants and Directors, it may be expedient to make, including amendments that are
desirable as a result of changes in law in any jurisdiction where a Participant resides, provided that the
Board shall be of the opinion that such amendments and modifications will not be prejudicial to the
interests of the Participants and Directors; or
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(v) making such changes or corrections which, on the advice of counsel to the Corporation, are required
for the purpose of curing or correcting any ambiguity or defect or inconsistent provision or clerical
omission or mistake or manifest error, provided that the Board shall be of the opinion that such
changes or corrections will not be prejudicial to the rights and interests of the Participants.
(b)
Subject to Section 11.1, the Board shall not materially adversely alter or impair any rights or increase any
obligations with respect to an Award previously granted under the Plan without the consent of the
Participant, as the case may be.
(c) Notwithstanding any other provision of this Plan, none of the following amendments shall be made to this
Plan without approval of the Exchange (to the extent the Corporation has any securities listed on the
particular Exchange) and the approval of shareholders in accordance with the requirements of such
Exchange(s):
(i)
(ii)
amendments to the Plan which would increase the number of Shares issuable under the Plan, except
as otherwise provided pursuant to the provisions in the Plan, including Sections 12.2 and 12.3, which
permit the Board to make adjustments in the event of transactions affecting the Corporation or its
capital;
amendments to the Plan which would increase the number of Shares issuable to Insiders, except as
otherwise provided pursuant to the provisions in the Plan, including Sections 12.2 and 12.3, which
permit the Board to make adjustments in the event of transactions affecting the Corporation or its
capital; and
(iii) amendments to this Section 13.8.
Any amendment that would cause an Award held by a U.S. Taxpayer to fail to comply with Section 409A of the Code
shall be null and void ab initio.
13.9 Section 409A of the Code
This Plan will be construed and interpreted to be exempt from, or where not so exempt, to comply with Section 409A of
the Code to the extent required to preserve the intended tax consequences of this Plan. The Corporation reserves the
right to amend this Plan to the extent it reasonably determines is necessary in order to preserve the intended tax
consequences of this Plan in light of Section 409A of the Code and any regulations or guidance under that section. In
no event will the Corporation be responsible if Awards under this Plan result in adverse tax consequences to a U.S.
Taxpayer under Section 409A of the Code. Notwithstanding any provisions of the Plan to the contrary, in the case of
any “specified employee” within the meaning of Section 409A of the Code who is a U.S. Taxpayer, distributions of
non-qualified deferred compensation under Section 409A of the Code made in connection with a “separation from
service” within the meaning set forth in Section 409A of the Code may not be made prior to the date which is 6 months
after the date of separation from service (or, if earlier, the date of death of the U.S. Taxpayer). Any amounts subject to
a delay in payment pursuant to the
- 23 -
preceding sentence shall be paid as soon practicable following such 6-month anniversary of such separation from
service.
13.10 Requirement of Notification of Election Under Section 83(b) of the Code
If a Participant, in connection with the acquisition of Restricted Shares under the Plan, is permitted under the terms of
the Award Agreement to make the election permitted under Section 83(b) of the Code (i.e., an election to include in
gross income in the year of transfer the amounts specified in Section 83(b) of the Code notwithstanding the continuing
transfer restrictions) and the Participant makes such an election, the Participant shall notify the Corporation of such
election within ten (10) days of filing notice of the election with the Internal Revenue Service, in addition to any filing
and notification required pursuant to regulations issued under Section 83(b) of the Code.
13.11 Indemnification
Every member of the Board will at all times be indemnified and saved harmless by the Corporation from and against all
costs, charges and expenses whatsoever including any income tax liability arising from any such indemnification, that
such member may sustain or incur by reason of any action, suit or proceeding, taken or threatened against the member,
otherwise than by the Corporation, for or in respect of any act done or omitted by the member in respect of this Plan,
such costs, charges and expenses to include any amount paid to settle such action, suit or proceeding or in satisfaction
of any judgment rendered therein.
13.12 Participation in the Plan
The participation of any Participant in the Plan is entirely voluntary and not obligatory and shall not be interpreted as
conferring upon such Participant any rights or privileges other than those rights and privileges expressly provided in the
Plan. In particular, participation in the Plan does not constitute a condition of employment or engagement nor a
commitment on the part of the Corporation to ensure the continued employment or engagement of such Participant. The
Plan does not provide any guarantee against any loss which may result from fluctuations in the market value of the
Shares. The Corporation does not assume responsibility for the income or other tax consequences for the Participants
and Directors and they are advised to consult with their own tax advisors.
13.13 International Participants
With respect to Participants who reside or work outside Canada and the United States, the Board may, in its sole
discretion, amend, or otherwise modify, without shareholder approval, the terms of the Plan or Awards with respect to
such Participants in order to conform such terms with the provisions of local law, and the Board may, where
appropriate, establish one or more sub-plans to reflect such amended or otherwise modified provisions.
13.14 Effective Date
This Plan becomes effective on June 27, 2013, being the date on which the Plan was approved by the shareholders of
the Corporation.
13.15 Governing Law
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This Plan and all matters to which reference is made herein shall be governed by and interpreted in accordance with the
laws of the Province of Québec and the federal laws of Canada applicable therein.
Lastly adopted by the Board on June 8, 2017
Lastly approved by Shareholders on July 12, 2016
SCHEDULE A
Award Agreement
Acasti Pharma Inc. (“ Us” or “Our”) hereby grants the following Award(s) to you subject to the terms and conditions of
this Award Agreement (the “ Agreement”), together with the provisions of Our Equity Incentive Plan (the “ Plan”) in
which you become a “Participant”, dated ●, 2013, all the terms of which are hereby incorporated into this Agreement:
Name and Address of Participant:
Date of Grant:
Type of Award:
Total Number Granted:
Vesting Date(s):
1.
2.
3.
The terms and conditions of the Plan are hereby incorporated by reference as terms and conditions of this
Award Notice and all capitalized terms used herein, unless expressly defined in a different manner, have the
meanings ascribed thereto in the Plan.
Each notice relating to the Award must be in writing and signed by the Participant or the Participant’s legal
representative. All notices to US must be delivered personally or by prepaid registered mail and must be
addressed to Our Corporate Secretary. All notices to the Participant will be addressed to the principal address of
the Participant on file with US. Either the Participant or US may designate a different address by written notice
to the other. Any notice given by either the Participant or US is not binding on the recipient thereof until
received.
Nothing in the Plan, in this Agreement, or as a result of the grant of an Award to you, will affect Our right, or
that of any Affiliate of Ours, to terminate your employment or term of office or engagement at any time for any
reason whatsoever. Upon such termination, your rights to exercise Award will be subject to restrictions and time
limits, complete details of which are set out in the Plan.
[4.
Add a fixed payment date or permitted event for payment, for U.S. taxpayers .]
ACASTI PHARMA INC.
By:
Authorized Signatory
I have read the foregoing Agreement and hereby accept the Award in accordance with and subject to the terms and
conditions of the Agreement and the Plan. [I understand that I may review the complete text of the Plan on line at
[●], or by contacting either my Human
Resources representative or the Office of the Corporate Secretary.] I agree to be bound by the terms and
conditions of the Plan governing the Award.
- 2 -
Date Accepted
Signature
Exhibit 4.3
ACASTI PHARMA INC.
STOCK OPTION PLAN
AS AMENDED JUNE 8, 2017
ACASTI PHARMA INC.
STOCK OPTION PLAN
THIS PLAN adopted October 8, 2008, amended on April 29, 2009, March 1, 2011, May 22, 2013, October 5, 2015, May 11,
2016 and June 8, 2017.
ARTICLE 1
DEFINITIONS AND INTERPRETATION
1.1 Definitions. Where used in this Plan, unless there is something in the subject matter or context inconsistent
therewith, the following terms will have the meanings set forth below:
(a)
(b)
“Associate” has the meaning ascribed to it in the Securities Act.
“Board” means the board of directors of the Corporation, or any duly appointed committee thereof to which the
board of directors of the Corporation has delegated the power to administer and grant Options under this Plan, as
constituted from time to time.
(c)
“Cause” means, with respect to a particular Employee:
(i)
(ii)
“cause” as such term is defined in the written employment agreement between the Corporation and the
Employee; or
in the event there is no written employment agreement between the Corporation and the Employee or
“cause” is not defined in the written employment agreement between the Corporation and the Employee,
the usual meaning of cause under the laws of the Province of Québec.
(d)
“Change of Control” means:
(i)
a consolidation, reorganization, amalgamation, merger, acquisition or other business combination (or a
plan of arrangement in connection with any of the foregoing), other than solely involving the Corporation
and any one or more of its Associates, with respect to which all or substantially all of the Persons who
were the beneficial owners of the Shares and other securities of the Corporation immediately prior to such
consolidation, reorganization, amalgamation, merger, acquisition, business combination or plan of
arrangement do not, following the completion of such consolidation, reorganization, amalgamation,
merger, acquisition, business combination or plan of arrangement, beneficially own, directly or indirectly,
more than 50% of the resulting voting rights (on a fully-diluted basis) of the Corporation or its successor;
(ii)
a resolution is adopted to wind-up, dissolve or liquidate the Corporation;
(iii)
(iv)
the sale, exchange or other disposition to a person other than an Affiliate of the Corporation of all or
substantially all of the Corporation’s assets; or
a change in the composition of the Board, which occurs at a single meeting of the shareholders of the
Corporation or upon the execution of a shareholders’
- 2 -
resolution, such that individuals who are members of the Board immediately prior to such meeting or
resolution cease to constitute a majority of the Board, without the Board, as constituted immediately prior
to such meeting or resolution, having approved of such change;
(e)
(f)
“Code” has the meaning given in Section 7.1 of this Plan.
“Company” means, unless specifically indicated otherwise, a corporation, incorporated association or
organization, body corporate, partnership, trust, association, or other entity other than an individual.
(g)
“Consultant” means a person, other than an Employee or Director of the Corporation, or a Company, who:
(i)
(ii)
(iii)
(iv)
provides on a bona fide basis consulting, technical, management or other services to the Corporation or a
Subsidiary of the Corporation under a written contract;
possesses technical, business, management or other expertise of value to the Corporation or a Subsidiary
of the Corporation;
in the reasonable opinion of the Corporation, spends or will spend a significant amount of time and
attention on the business and affairs of the Corporation or a Subsidiary of the Corporation; and
has a relationship with the Corporation or a Subsidiary of the Corporation that enables the individual to be
knowledgeable about the business and affairs of the Corporation.
(h)
“Corporation” means Acasti Pharma Inc., and includes any successor corporation thereto.
(i)
“Director” means a member of the board of directors of the Corporation or a member of the board of directors of
a Subsidiary of the Corporation to whom stock options may be granted in reliance on a prospectus exemption
under applicable Securities Laws.
(j)
“Effective Date” means the effective date of this Plan, as amended, being October 8, 2008.
(k)
“Employee” means an individual who:
(i)
(ii)
is considered an employee of the Corporation or a Subsidiary of the Corporation under the Income Tax
Act (Canada) (i.e., for whom income tax, employment insurance and CPP deductions must be made at
source);
works full-time for the Corporation or a Subsidiary of the Corporation providing services normally
provided by an employee and who is subject to the same control and direction by the Corporation or a
Subsidiary of the Corporation over the details and methods of work as an employee of the Corporation,
but for whom income tax deductions are not made at source; or
- 3 -
(iii)
works for the Corporation or a Subsidiary of the Corporation on a continuing and regular basis for a
minimum amount of time per week providing services normally provided by an employee and who is
subject to the same control and direction by the Corporation or a Subsidiary of the Corporation over the
details and methods of work as an employee of the Corporation, but for whom income tax deductions are
not made at source.
(l)
(m)
(n)
(o)
(p)
“Exchange” means the TSX Venture Exchange and, where the context permits, any other exchange on which the
Shares are or may be listed from time to time.
“Exercise Notice” means the notice respecting the exercise of an Option, in the form set out in the Option
Agreement, duly executed by the Option Holder.
“Exercise Period” means the period during which a particular Option may be exercised and, subject to earlier
termination in accordance with the terms hereof, is the period from and including the Grant Date through to and
including the Expiry Date.
“Exercise Price” means the price per Share at which Shares may be purchased under an Option duly granted
under this Plan, as determined in accordance with Section 4.3 of this Plan and, if applicable, adjusted in
accordance with Section 3.5 of this Plan.
“Expiry Date” means the date determined in accordance with Section 4.2 of this Plan and after which a particular
Option cannot be exercised and is deemed to be null and void and of no further force or effect.
(q)
“Grant Date” means the date on which the Board grants a particular Option.
(r)
(s)
(t)
(u)
(v)
“Insider” means an “insider” as defined by the Exchange from time to time in its rules and regulations.
“ISOs” has the meaning given in Section 7.1 of this Plan.
“Market Price” at any date in respect of the Shares shall be the closing price of such Shares on the Exchange
(and if listed on more than one stock exchange, then the highest of such closing prices) on the last Business Day
prior to the Grant Date (or, if such Shares are not then listed and posted for trading on the Exchange, on such
stock exchange in Canada on which the Shares are listed and posted for trading as may be selected for such
purpose by the Board). In the event that such Shares did not trade on such Business Day, the Market Price shall
be the average of the bid and asked prices in respect of such Shares at the close of trading on such date. In the
event that such Shares are not listed and posted for trading on any stock exchange, the Market Price shall be the
fair market value of such Shares as determined by the Board in its sole discretion;
“Option” means an option to acquire Shares granted to a Director, Employee or Consultant of the Corporation, or
any Subsidiary of the Corporation pursuant to this Plan.
“Option Agreement” means an agreement, in the form substantially similar as that set out in Schedule “A”
hereto, evidencing an Option granted under this Plan.
(w)
(x)
(y)
(z)
(aa)
(bb)
- 4 -
“Option Holder” means a Director, Employee or Consultant or former Director, Employee or Consultant, to
whom an Option has been granted and who continues to hold an unexercised and unexpired Option or, where
applicable, the Personal Representative of such person.
“Plan” means this stock option plan, as may be amended from time to time.
“Person” means a Company or an individual.
“Personal Representative” means:
(i)
(ii)
in the case of a deceased Option Holder, the executor or administrator of the deceased duly appointed by
a court or public authority having jurisdiction to do so; and
in the case of an Option Holder who, for any reason, is unable to manage his or her affairs, the individual
entitled by law to act on behalf of such Option Holder.
“QBCA” means the Business Corporations Act (Québec), as amended, or such other successor legislation which
may be enacted, from time to time.
“Regulatory Authorities” means the Exchange and any other organized trading facilities on which the
Corporation’s Shares are listed and all securities commissions or similar securities regulatory bodies having
jurisdiction over the Corporation.
(cc)
“Re-Organization Event” has the meaning given in Section 3.5 of this Plan.
(dd)
(ee)
(ff)
“Securities Act” means the Securities Act (Québec), as amended, or such other successor legislation as may be
enacted, from time to time.
“Securities Laws” means securities legislation, securities regulation and securities rules, as amended, and the
policies, notices, instruments and blanket orders in force from time to time that govern or are applicable to the
Corporation or to which it is subject, including, without limitation, the Securities Act.
“Share” means one (1) common share without par value in the capital stock of the Corporation as constituted on
the Effective Date or, in the event of an adjustment contemplated by Section 3.5 of this Plan, such other shares or
securities to which an Option Holder may be entitled upon the due exercise of an Option as a result of such
adjustment.
(gg)
“Subsidiary” means a subsidiary as defined in the QBCA.
(hh)
“Termination Date” means:
(i)
in the case of the resignation of the Option Holder as an Employee of the Corporation, the date that the
Option Holder provides notice of his or her resignation as an Employee of the Corporation to the
Corporation;
- 5 -
(ii)
(iii)
in the case of the termination of the Option Holder as an Employee of the Corporation by the Corporation
for any reason other than death, the effective date of termination set out in the Corporation’s notice of
termination of the Option Holder as an Employee of the Corporation to the Option Holder;
in the case of the termination of the written contract of the Option Holder to provide consulting services to
the Corporation, the effective date of termination set out in any notice provided by one of the parties to
the written contract to the other party; or
(iv)
the effective date of termination of a Director, Employee or Consultant pursuant to an order made by any
Regulatory Authority having jurisdiction to so order.
(ii)
“U.S. Taxpayer” has the meaning given in Section 7.1 of this Plan.
1.2 Choice of Law. This Plan is established under and the provisions of this Plan will be subject to and
interpreted and construed in accordance with the laws of the Province of Québec.
1.3 Headings. The headings used herein are for convenience only and are not to affect the interpretation of this
Plan.
ARTICLE 2
PURPOSE AND ADMINISTRATION
2.1 Purpose. The purpose of this Plan is to provide the Corporation with a share-related mechanism to attract,
retain and motivate qualified Directors, Employees and Consultants of the Corporation, and any Subsidiary of the Corporation,
to reward such of those Directors, Employees and Consultants as may be granted Options under this Plan by the Board from time
to time for their contributions toward the long term goals and success of the Corporation and to enable and encourage such
Directors, Employees and Consultants to acquire Shares as long term investments and proprietary interests in the Corporation.
2.2 Administration. This Plan will be administered by the Board. The Board may make, amend and repeal at
any time and from time to time such regulations not inconsistent with this Plan as it may deem necessary or advisable for the
proper administration and operation of this Plan and such regulations will form part of this Plan. The Board may delegate to any
director or other senior officer or employee of the Corporation such administrative duties and powers as it may see fit.
2.3 Board Powers. The Board shall have the power, where consistent with the general purpose and intent of this
Plan and subject to the specific provisions of this Plan to, amongst other things:
(a)
(b)
establish policies and to adopt rules and regulations for carrying out the purposes, provisions and administration
of this Plan;
interpret and construe this Plan and to determine all questions arising out of this Plan or any Option, and any such
interpretation, construction or determination made by the Board shall be final, binding and conclusive for all
purposes;
(c)
determine the number of Shares reserved for issuance by each Option;
determine the Exercise Price of each Option;
- 6 -
determine the time or times when Options will be granted and exercisable;
determine if the Shares which are issuable on the due exercise of an Option will be subject to any restrictions
upon the due exercise of such Option; and
(d)
(e)
(f)
(g)
prescribe the form of the instruments and certificates relating to the grant, exercise and other terms of Options.
2.4 Board Discretion. The Board may, in its discretion, require as conditions to the grant or exercise of any
Option that the Option Holder shall have:
(a)
represented, warranted and agreed in form and substance satisfactory to the Corporation that the Option Holder is
acquiring and will acquire such Option and the Shares to be issued upon the exercise thereof for his, her or its
own account, for investment and not with a view to or in connection with any distribution, that the Option Holder
has had access to such information as is necessary to enable him, her or it to evaluate the merits and risks of such
investment and that the Option Holder is able to bear the economic risk of holding such Shares for an indefinite
period;
(b)
agreed to restrictions on transfer in form and substance satisfactory to the Corporation and to an endorsement on
any option agreement or certificate representing the Shares making appropriate reference to such restrictions; and
(c)
agreed to indemnify the Corporation in connection with the foregoing.
2.5 Board Requirements. Any Option granted under this Plan shall be subject to the requirement that, if at any
time counsel to the Corporation shall determine that the listing, registration or qualification of the Shares issuable upon due
exercise of such Option upon any securities exchange or under any Securities Laws of any jurisdiction, or the consent or
approval of Regulatory Authority, is necessary as a condition of, or in connection with, the grant or exercise of such Option or
the issuance or purchase of Shares thereunder, such Option may not be accepted or exercised in whole or in part unless such
listing, registration, qualification, consent or approval shall have been effected or obtained on conditions acceptable to the Board.
Nothing herein shall be deemed to require the Corporation to apply for or to obtain such listing, registration, qualification,
consent or approval.
2.6 Interpretation. The interpretation by the Board of any of the provisions of this Plan and any determination
by it pursuant thereto will be final and conclusive and will not be subject to any dispute by any Option Holder. No member of the
Board or any individual acting pursuant to authority delegated by it hereunder will be liable for any action or determination in
connection with this Plan made or taken in good faith and each member of the Board and each such individual will be entitled to
indemnification with respect to any such action or determination in the manner provided for by the Corporation.
- 7 -
ARTICLE 3
GRANT OF OPTIONS
3.1 Board to Issue Shares. The Shares to be issued to Option Holders upon the exercise of Options will be
previously authorized but unissued Shares in the capital stock of the Corporation.
3.2 Participation. The Board will, from time to time and in its sole discretion, determine (i) those Directors,
Employees, Consultants (and, when applicable, to a Company wholly owned by any such Director, Employee or Consultant), if
any, to whom Options are to be granted based upon certain participation criteria, which criteria include but are not limited to
functions within the Corporation, or any Subsidiary of the Corporation, seniority or actual and future contributions to the success
of to the Corporation, or any Subsidiary of the Corporation, and (ii) the number of Options to be granted to such Directors,
Employees or Consultants. The Board may only grant options to an Employee or Consultant if such Employee or Consultant is a
bona fide Employee or Consultant of the Corporation or a Subsidiary of the Corporation, as the case may be. The Board may, in
its sole discretion, grant the majority of the Options to Insiders of the Corporation. However, in no case will the grant of Options
under this Plan, together with any proposed or previously existing security based compensation arrangement, result in (in each
case, as determined on the Grant Date):
(a)
(b)
the grant to any one Consultant of the Corporation, or any Subsidiary of the Corporation, within any twelve
(12) month period, of Options reserving for issuance a number of Shares exceeding in the aggregate two percent
(2%) of the Corporation’s issued and outstanding Shares (on a non-diluted basis); or
the grant to any one Employee of the Corporation or any Subsidiary of the Corporation, which provides investor
relations services, within any twelve (12) month period, of Options reserving for issuance a number of Shares
exceeding in the aggregate two percent (2%) of the Corporation’s issued and outstanding Shares (on a non-diluted
basis).
3.3 Number of Shares Reserved. Subject to adjustment as provided for in Section 3.4 of this Plan and any
subsequent amendment to this Plan, the number of Shares reserved for issuance and which will be available for purchase
pursuant to Options granted under this Plan, together with any proposed or previously existing security based compensation
arrangement, will equal to 2,940,511, representing 20% of the issued and outstanding Shares of the Corporation as of March 31,
2017. Subject to the provisions and restrictions of this Plan, if any Option is cancelled, expired or otherwise terminated for any
reason whatsoever, the number of Shares in respect of which Option is cancelled, expired or otherwise terminated for any reason
whatsoever, as the case may be, will ipso facto again be immediately available for purchase pursuant to Options granted under
this Plan.
3.4 Adjustments. If, prior to the complete exercise of an Option, the Shares are consolidated, subdivided,
converted, exchanged or reclassified or in any way substituted for (collectively, a “ Re-Organization Event”), an Option, to the
extent that it has not been exercised, will be adjusted by the Board in accordance with such Re-Organization Event in the manner
the Board deems appropriate and equitable. No fractional Shares will be issued upon the exercise of the Options and accordingly,
if as a result of the Re-Organization Event, an Option Holder would become entitled to a fractional Share, such Option Holder
will have the right to purchase only the next lowest whole number of Shares and no payment or other adjustment will be made
with respect to the fractional interest so disregarded.
3.5 Notification of Grant. Following the approval by the Board of the granting of an Option, the Board will
notify the Option Holder in writing of the award and will enclose with such notice the Option Agreement representing the Option
so granted.
- 8 -
3.6 Copy of Plan. Each Option Holder, concurrently with the notice of the award of the Option, will, upon
written request, be provided with a copy of this Plan, and a copy of any amendment to this Plan will be promptly provided by the
Board to each Option Holder.
3.7 Limitation. This Plan does not give any Option Holder that is a Director the right to serve or continue to
serve as a Director of the Corporation, does not give any Option Holder that is an Employee the right to be or to continue to be
employed by the Corporation and does not give any Option Holder that is a Consultant the right to be or continue to be retained
or engaged by the Corporation as a consultant for the Corporation.
ARTICLE 4
TERMS AND CONDITIONS OF OPTIONS
4.1 Term of Option. Subject to Section 4.2, the Expiry Date of an Option will be the date so fixed by the Board
at the time the particular Option is granted, provided that such date will be no later than the tenth (10th) anniversary of the Grant
Date of such Option.
4.2 Termination of Option. Subject to such other terms or conditions that may be attached to Options granted
hereunder, an Option Holder may exercise an Option in whole or in part at any time or from time to time during the Exercise
Period. Any Option or part thereof not exercised within the Exercise Period will terminate and become null, void and of no effect
as of 5:00 p.m. (Montréal time) on the Expiry Date. The Expiry Date of an Option will be the earlier of the date so fixed by the
Board at the time the Option is granted and the date established, if applicable, in subsections (a) to (c) below:
(a)
Death, Disability or Retirement of Option Holder
In the event that the Option Holder should die, become disable or retire from the Corporation while he or she is still an
Employee (if he or she holds his or her Option as an Employee) or in the event that the Option Holder should die or become disable while
he or she is still a Director (if he or she holds his or her Option as a Director) or a Consultant (if he or she holds his or her Option as a
Consultant), the Expiry Date will be the first anniversary of the Option Holder’s date of death, disability or retirement, as applicable.
(b)
Ceasing to Hold Office
In the event that the Option Holder holds his or her Option as a Director of the Corporation and such Option Holder ceases
to be a Director of the Corporation other than by reason of death or disability the Expiry Date of the Option will not exceed the sixtieth
(60th) day following the date the Option Holder ceases to be a Director of the Corporation unless the Option Holder ceases to be a Director
of the Corporation as a result of:
(i)
(ii)
ceasing to meet the qualifications of a director set forth the QBCA; or
an ordinary resolution having been passed by the shareholders of the Corporation pursuant to the QBCA;
or
(iii)
an order made by any Regulatory Authority having jurisdiction to so order,
in which case the Expiry Date will be the date the Option Holder ceases to be a Director of the Corporation.
(c)
Ceasing to be an Employee or Consultant
- 9 -
In the event that the Option Holder holds his or her Option as an Employee or Consultant of the Corporation and such Option
Holder ceases to be an Employee or Consultant of the Corporation other than by reason of death, disability or retirement, as
applicable in accordance with Section 4.2(a), the Expiry Date of the Option will not exceed the sixtieth (60th) day following the
Termination Date or, if the Employee or Consultant provides investor relations services, the thirtieth (30th) day following the
Termination Date, unless the Option Holder::
(i)
(ii)
ceases to be an Employee of the Corporation as a result of termination for Cause; or
ceases to be an Employee or Consultant of the Corporation as a result of an order made by any Regulatory
Authority having jurisdiction to so order,
in which case the Expiry Date will be the Termination Date.
(d)
Bankruptcy
In the event that an Option Holder commits an act of bankruptcy or any proceeding is commenced against an Option Holder
under the Bankruptcy and Insolvency Act (Canada) or other applicable bankruptcy or insolvency legislation in force at the time
of such bankruptcy or insolvency, the Expiry Date of the Option will be the date immediately preceding the date on which such
Option Holder commits such act of bankruptcy.
Notwithstanding anything contained in this Plan, with the exception of Section 5.5, in no case will an Option be exercisable after
the tenth (10th) anniversary of the Grant Date of the Option.
4.3 Exercise Price. The price at which an Option Holder may purchase a Share upon the exercise of an Option
(the “Exercise Price”) will be determined by the Board and set forth in the Option Agreement issued in respect of such Option
and, in any event, will not be less than the Market Price of the Corporation’s Shares calculated as of the Grant Date.
Notwithstanding anything else contained in this Plan, in no case will the Market Price be less than the minimum prescribed by
each of the organized trading facilities as would apply to the Grant Date in question.
4.4 Vesting. The date or dates on and after which a particular Option, or part thereof, may be exercised will be
determined by the Board and set forth in the Option Agreement issued in respect of such Option. In any event, all Options will be
vested gradually and evenly over a period of at least eighteen (18) months, on a quarterly basis.
4.5 Additional Terms. Subject to all applicable Securities Laws of all applicable Regulatory Authorities, the
Board may attach other terms and conditions to the grant of a particular Option, such terms and conditions to be referred to in the
Option Agreement at the time of grant. These terms and conditions may include, but are not necessarily limited to, the following:
(a)
(b)
providing that an Option expires on a date other than as provided for herein;
providing that a portion or portions of an Option vest after certain periods of time or upon the occurrence of
certain events, or expire after certain periods of time or upon the occurrence of certain events;
(c)
providing that an Option be exercisable immediately, in full, notwithstanding that it has vesting
- 10 -
provisions, upon the occurrence of certain events, such as a friendly or hostile take-over bid for the Corporation;
and
(d)
providing that an Option issued to, held by or exercised by an Option Holder who is a citizen or resident of the
United Sates of America, and otherwise meeting the statutory requirements, be treated as an “Incentive Stock
Option” as that term is defined for purposes of the United States of America Internal Revenue Code of 1986, as
amended.
4.6 Non-Transferability of Options. The Options granted hereunder are not assignable, transferable or
negotiable (whether by operation of law or otherwise) and may not be assigned or transferred, provided however that the
Personal Representative of an Option Holder may, to the extent permitted by Section 5.1 of this Plan, exercise the Option within
the Exercise Period. Upon any attempt to assign, transfer, negotiate, pledge, hypothecate or otherwise dispose of or transfer an
Option contrary to this Section 4.6 of this Plan, or upon the levy of any attachment or similar process upon an Option, the Option
and all rights, benefits and privileges arising thereunder or therefrom, at the sole discretion and election of the Board, shall cease
and terminate and be of no further force or affect whatsoever.
4.7 No Rights as Shareholders. An Option Holder shall not have any rights as a shareholder of the Corporation
with respect to any of the Shares covered by such Option until the date of issuance of a certificate for Shares upon the due
exercise of such Option, in full or in part, and then only with respect to the Shares represented by such certificate or certificates.
Without in any way limiting the generality of the foregoing, no adjustment shall be made for dividends or other rights for which
the record date is prior to the date such share certificate is issued.
ARTICLE 5
EXERCISE OF OPTION
5.1 Exercise of Option. An Option may be exercised only by the Option Holder or the Personal Representative
of the Option Holder. Subject to the provisions of this Plan, an Option Holder or the Personal Representative of an Option Holder
may exercise an Option in whole or in part at any time or from time to time during the Exercise Period up to 5:00 p.m. (Montréal
time) on the Expiry Date by delivering to the Secretary of the Corporation an Exercise Notice indicating the number of Shares to
be purchased pursuant to the exercise of the Option, the applicable Option Agreement and a certified cheque or bank draft
payable to “Acasti Pharma Inc.” in an amount equal to the aggregate Exercise Price of the Shares to be purchased pursuant to the
exercise of the Option.
5.2 Withholding Taxes. In addition to the other conditions on exercise set forth in this Plan, the exercise of
each Option granted under this Plan is subject to the satisfaction of all applicable withholding taxes or other withholding
liabilities as the Corporation may determine to be necessary or desirable in respect of such exercise. The Corporation will require
that an Option Holder pay to the Corporation, in addition to, and in the same manner as, the Exercise Price, such amount as the
Corporation is obliged to remit to the relevant taxing authority in respect of the exercise of the Option.
5.3 Issue of Share Certificates. As soon as practicable following the receipt of (i) the Exercise Notice and the
certified cheque or bank draft referred to in Section 5.1, and (ii) any amounts payable under Section 5.2, the Board will cause to
be delivered to the Option Holder the Shares so purchased in certificated or uncertificated form. If the number of Shares so
purchased is less than the number of Shares subject to the Option Agreement, the Option Holder will surrender the Option
Agreement to the Corporation and the Board will forward a new Option Agreement to the Option Holder
- 11 -
concurrently with delivery of the Shares for the balance of Shares available under the Option.
5.4 Condition of Issue. The Options and the issue of Shares by the Corporation pursuant to the exercise of
Options are subject to the terms and conditions of this Plan and compliance with the rules and policies of all applicable
Regulatory Authorities to the granting of such Options and to the issuance and distribution of such Shares, and to all applicable
Securities Laws. The Option Holder agrees to comply with all such laws, regulations, rules and policies and agrees to furnish to
the Corporation any information, reports or undertakings required to comply with and to fully cooperate with the Corporation in
complying with such laws, regulations, rules and policies. Notwithstanding any of the provisions contained in this Plan or in any
Option, the Corporation’s obligation to issue Shares to an Option Holder pursuant to the exercise of any Option granted under the
Plan shall be subject to:
(a)
(b)
(c)
completion of such registration or other qualification of such Shares or obtaining approval of such Regulatory
Authority as the Corporation shall determine to be necessary or advisable in connection with the authorization,
issuance or sale thereof;
the admission of such Shares to listing on any stock exchange on which the Shares may then be listed;
the receipt from the Option Holder of such representations, warranties, agreements and undertakings, as the
Corporation determines to be necessary or advisable in order to safeguard against the violation of the Securities
Laws of any jurisdiction; and
(d)
the satisfaction of any conditions on exercise prescribed pursuant to this Plan.
5.5 Blackout Period. If an Option expires during, or within five business days after, a trading black-out period
imposed by the Corporation to restrict trades in the Corporation’s securities, then, notwithstanding any other provision of the
Plan, the Option shall expire ten business days after the trading black-out period is lifted by the Corporation, subject to the
maximum period of time during which an Option is exercisable under Sections 7.3 of this Plan.
ARTICLE 6
AMENDMENT AND TERMINATION
6.1 Amendment Without Shareholder Approval . Subject to the prior approval of the Exchange, The Board
may amend, suspend or discontinue the Plan, and amend or discontinue any Options granted under the Plan, at any time without
shareholder approval. Without limiting the foregoing, the Board is specifically authorized to amend the terms of the Plan, and the
terms of any Options granted under the Plan, without obtaining shareholder approval, to:
(a)
(b)
(c)
amend the vesting provisions to the extent permitted under the rules and regulations of the Exchange;
amend the termination provisions, except as otherwise provided in Section 6.3 (b) hereof;
amend the eligibility requirements of eligible Directors, Employees or Consultants which would have the
potential of broadening or increasing Insider participation;
(d)
add any form of financial assistance;
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(e)
(f)
(g)
amend a financial assistance provision which is more favorable to Directors, Employees or Consultants;
add a deferred or restricted share unit or any other provision which results in Directors, Employees or Consultants
receiving securities while no cash consideration is received by the Corporation; and
make other amendments of a housekeeping nature or to comply with the requirements of any Regulatory
Authority.
6.2 Amendment with Shareholder Approval. Notwithstanding Section 6.1, no amendments to the Plan to:
(a)
(b)
(c)
(d)
increase the number of Shares reserved for issuance under the Plan (including a change from a fixed maximum
number of shares to a fixed maximum percentage of Shares);
change the manner of determining the Exercise Price; or
amend the amending provisions of Sections 6.1 to 6.3 of this Plan; or
change the employees (or class of employees) eligible to receive options under this Plan
shall be made without obtaining approval of the shareholders in accordance with the requirements of the Exchange.
6.3 Amendment of Insider Options. Notwithstanding Section 6.1, no amendments to granted Options to:
(a)
(b)
reduce the Exercise Price for the benefit of Insiders; or
extend the termination date for the benefit of Insiders, other than in accordance with Section 5.4 hereof;
shall be made without obtaining approval of the shareholders, or approval of the disinterested shareholders for amendments
under Section 6.3(a), in accordance with the requirements of the Exchange; and no action shall be taken with respect to granted
Options without the consent of the Option Holder, unless the Board determines that such action does not materially alter or
impair such Option.
- 13 -
6.4 Options Granted Prior to Termination. No amendment, suspension or discontinuance of the Plan or of
any granted Option may contravene the requirements of the Exchange or any securities commission or regulatory body to which
the Plan or the Corporation is now or may hereafter be subject to. Termination of the Plan shall not affect the ability of the Board
to exercise the powers granted to it hereunder with respect to Options granted under the Plan prior to the date of such termination.
6.5 Retrospective Amendment. The Board may from time to time retrospectively amend this Plan and, with the
consent of the affected Option Holders, retrospectively amend the terms and conditions of any Options that have been previously
granted.
6.6 Change of Control. Notwithstanding anything contained to the contrary in this Plan or in any resolution of
the Board in implementation thereof:
(a)
in the event of a proposed Change of Control of the Corporation, the Corporation shall have the right, upon
written notice thereof to each Option Holder holding Options under the Plan, to permit the exercise of all such
Options within the twenty (20) day period next following the date of such notice and to determine that upon the
expiration of such twenty (20) day period, all rights of the Option Holders to such Options or to exercise same (to
the extent not theretofore exercised) shall ipso facto terminate and cease to have further force or effect
whatsoever;
(b)
in the event of a Change of Control of the Corporation where a notice by the Corporation was not sent to Option
Holders in accordance with Section 6.6(a),
(i)
(ii)
all of the Option Holder’s Options will immediately vest on the date of such event. In such event, all
Options so vested will be exercisable from such date until their respective expiry dates, subject to the
terms of any employment agreement or other contractual arrangement between the Option Holder and the
Corporation. For greater certainty, upon a Change of Control, Option Holders shall not be treated any
more favourably than holders of Shares with respect to the consideration that the Option Holders would
be entitled to receive for their Shares; and
if the Option Holder elects to exercise its Options following a Change of Control, such Option Holder
shall be entitled to receive, and shall accept, in lieu of the number of Shares which such Option Holder
was entitled upon such exercise, the kind and amount of shares and other securities, property or cash
which such Option Holder could have been entitled to receive as a result of such Change of Control, on
the effective date thereof, had such Option Holder been the registered holder of the number of Shares to
which such Option Holder was entitled to purchase upon exercise of such Options.
6.7 Extension of Expiration Date, Non-Applicability of Termination of Employment Provisions. Subject to
the rules of any relevant Regulatory Authority and Securities Laws, the Board may, by resolution:
(a)
extend the Expiration Date of any Option, but shall not, in the event of any such advancement or extension, be
under any obligation to advance or extend the date on or by which Options may be exercised by any other Option
Holder; and
- 14 -
(b)
decide that any of the provisions hereof concerning the effect of termination of the Option Holder’s employment
shall not apply to any Option Holder for any reason acceptable to the Board.
Notwithstanding the provisions of Sections 6.6 and 6.7, should changes be required to the Plan by any
Regulatory Authority of any jurisdiction to which this Plan or the Corporation now is or hereafter becomes subject, such changes
shall be made to the Plan as are necessary to conform with such requirements and, if such changes are approved by the Board, the
Plan, as amended, shall be filed with the records of the Corporation and shall remain in full force and effect in its amended form
as of and from the date of its adoption by the Board.
6.8 Regulatory Authority Approval . This Plan and any amendments hereto are subject to all necessary
approvals of the applicable Regulatory Authorities.
6.9 Agreement . The Corporation and every Option granted hereunder will be bound by and subject to the terms
and conditions of this Plan. By accepting an Option granted hereunder, the Option Holder has expressly agreed with the
Corporation to be bound by the terms and conditions of this Plan.
6.10 Effective Date of Plan. Upon approval by the shareholders of the Corporation in accordance with the
QBCA, and by acceptance by the Exchange (if the Shares are listed or posted on an Exchange and such acceptance is required),
the amendments to this Plan made on May 11, 2016 shall be deemed to be effective as of the Effective Date. Any Options
granted prior to such approval and acceptance(s), that exceed the previous number of Options available for grant, shall be
conditional upon such approval and acceptance(s) being given and no such Options may be exercised unless such approval and
acceptance is given.
6.11 Governing Law. This Plan and all matters to which reference is made herein shall be governed by and
interpreted in accordance with the laws of the Province of Québec and the federal laws of Canada applicable therein.
ARTICLE 7
U.S. TAXPAYERS
7.1 Provisions for U.S. Taxpayers. Options granted under this Plan to U.S. Taxpayers may be nonqualified
stock options or incentive stock options intended to qualify under Section 422 (“ISOs”) of the United States Internal Revenue
Code of 1986 and the applicable authority thereunder (the “Code”). Each Option shall be designated in the Option Agreement as
either an ISO or a non-qualified stock option. “U.S. Taxpayer” means a Person who is a U.S. citizen, U.S. permanent resident or
U.S. tax resident for the purposes of the Code whose purchase of Shares under this Plan would be subject to U.S. taxation under
the Code. Such Person shall be considered a U.S. Taxpayer solely with respect to such options. Options may be granted as ISOs
only to individuals who are employees of the Corporation or any present or future “subsidiary corporation” or “parent
corporation” as those terms are defined in Section 424(e) and (f) of the Code, and shall not be granted to non-employee Directors
or independent contractors. If an Option Holder ceases to be employed by the Corporation and/or all “subsidiary corporations” or
“parent corporations” as those terms are defined in Section 424(e) and (f) of the Code, other than by reason of death or disability
(meaning “permanent and total disability” as defined in Section 22(e)(3) of the Code), Options shall be eligible for treatment as
ISOs only if exercised no later than three months following such termination of employment.
7 . 2 ISOs. The maximum number of Options that may be granted as ISOs is equal to the maximum number of
Shares issuable under Section 3.3. The terms and conditions of any ISOs granted
- 15 -
hereunder, including the eligible recipients of ISOs, shall be subject to the provisions of Section 422 of the Code, and the terms,
conditions, limitations and administrative procedures established by the Board from time to time in accordance with this Plan. At
the discretion of the Board, ISOs may be granted to any Employee of the Corporation, its “parent corporation” or any “subsidiary
corporation“ of the Corporation, as such terms are defined in Sections 424(e) and (f) of the Code.
.
3 ISO Grants to 10% Shareholders. Notwithstanding anything to the contrary in this Plan, if an ISO is
7
granted to a Person who owns shares representing more than ten percent of the voting power of all classes of shares of the
Corporation or of a “subsidiary corporation” or “parent corporation”, as such terms are defined in Section 424(e) and (f) of the
Code, the term of the Option shall not exceed five years from the time of grant of such Option and the Exercise Price shall be at
least 110 percent (110%) of the Market Price (at the time of grant) of the Shares subject to the Option.
7.4 $100,000 Per Year Limitation for ISOs. To the extent the aggregate Market Price (determined at the time
of grant) of the Shares for which ISOs are exercisable for the first time by any Person during any calendar year (under all plans
of the Corporation) exceeds $100,000, such excess ISOs shall be treated as nonqualified stock options.
7.5 Disqualifying Dispositions. Each Person awarded an ISO under this Plan shall notify the Corporation in
writing immediately after the date he or she makes a disqualifying disposition of any Shares acquired pursuant to the exercise of
such ISO. A disqualifying disposition is any disposition (including any sale) of Shares before the later of (i) two years after the
time of grant of the ISO or (ii) one year after the date the Person acquired the Shares by exercising the ISO. The Corporation
may, if determined by the Board and in accordance with procedures established by it, retain possession of any Shares acquired
pursuant to the exercise of an ISO as agent for the applicable Person until the end of the period described in the preceding
sentence, subject to complying with any instructions from such Person as to the sale of such Share.
.
7
6 Section 409A. Any Options granted to U.S. Taxpayers shall be limited to Employees or Consultants
providing services to the Corporation or to an affiliate which is an “eligible issuer”, as defined in final Treas. Reg. 1.409A-1(b)
(iii) (this includes corporate subsidiaries in which the Corporation has a controlling interest).
(a)
(b)
No extension of term of an Option shall extend beyond the latest date that the right could have expired by its
original terms.
Any replacement options issued under Section 3.5 or 6.6 of this Plan shall comply with U.S. Treas. Reg. 1.424-1
as if the Option were a incentive stock option (ISO) so that the ratio of the Exercise Price to the fair market value
of Shares subject to the Options immediately after the replacement may not be greater than the ratio of the
Exercise Price to the fair market value of Shares subject to the Options immediately before the replacement.
7.7 Transferability. Notwithstanding any other provision in this Plan, an ISO is not transferable except by will
or by the laws of descent and distribution, and may be exercised, during the Option Holder’s lifetime, only by such Option
Holder.
Adopted by the Board on October 8, 2008, as amended on April 29, 2009, March 1, 2011, May 22, 2013, October 5,
2015, May 11, 2016 and June 8, 2017 and lastly approved by the shareholders on July 12, 2016.
- 16 -
I, Janelle D’Alvise, certify that:
SECTION 302 CERTIFICATION
Exhibit 12.1
1.
2.
3.
4.
I have reviewed this annual report on Form 20-F of Acasti Pharma Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d–15(f)) for the company and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the company, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the
period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the
company’s internal control over financial reporting; and
5.
The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons
performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
company’s internal control over financial reporting.
/s/ Janelle D’Alvise
Name: Janelle D’Alvise
Title: Principal Executive Officer
Date: June 27, 2017
I, Linda P. O’Keefe, certify that:
SECTION 302 CERTIFICATION
Exhibit 12.2
1.
2.
3.
4.
I have reviewed this annual report on Form 20-F of Acasti Pharma Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d–15(f)) for the company and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the
period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the
company’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons
performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and
report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
company’s internal control over financial reporting.
/s/ Linda P. O’Keefe
Name: Linda P. O’Keefe
Title: Principal Financial Officer
Date: June 27, 2017
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES–OXLEY ACT OF 2002
In connection with the Annual Report on Form 20-F of Acasti Pharma Inc. (the “Company”) for the fiscal year ended March 31, 2017, as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Janelle D’Alvise, Principal Executive Officer of
the Company certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1.
2.
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of
the Company.
Exhibit 13.1
Date: June 27, 2017
/s/ Janelle D’Alvise
Name: Janelle D’Alvise
Title: Principal Executive Officer
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES–OXLEY ACT OF 2002
In connection with the Annual Report on Form 20-F of Acasti Pharma Inc. (the “Company”) for the fiscal year ended March 31, 2017, as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Linda P. O’Keefe, Principal Financial Officer of
the Company certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1.
2.
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of
the Company.
Exhibit 13.2
Date: June 27, 2017
/s/ Linda P. O’Keefe
Name: Linda P. O’Keefe
Title: Principal Financial Officer