Full Press Release Details
Material Change Report
ESSA Pharma Inc. ("ESSA"
Suite 720 - 999 West Broadway Street
Vancouver, British Columbia, Canada
January 6, 2016 and January 14,
releases announcing the material change were issued on January 6, 2016 and January 14, 2016
through Canada NewsWire and copies were filed on SEDAR.
ESSA announced and completed a private
placement (the "Private Placement") of 4,545,452 units of the Company (each, a "Unit") at US$3.30 per Unit
for gross aggregate proceeds of approximately US$15 million. Each Unit consisted of one common share of the Company ("Common
Share"), one seven-year cash and cashless exercise warrant (the "7-Year Warrants"), and one-half of one two-year
cash exercise warrant (the "2-Year Warrants" and, together with the 7-Year Warrants, the "Warrants"). Each
Warrant has an exercise price of US$3.30.
announced and completed the Private Placement. The financing was
led by Clarus Lifesciences, a new investor in the Company, with participation from Deerfield Management Company and other existing
shareholders. The Company intends to use the net proceeds from
the Private Placement for general corporate purposes, including funding research and development, preclinical and clinical expenses,
and corporate costs.
Unit consisted of one Common Share, one 7-year Warrant, and one-half of one 2-Year Warrant. Each Warrant has an exercise price
of US$3.30. The price and terms on which the Units were sold pursuant to the Private Placement were negotiated at arm's length
between the Company and the subscribers and no insiders subscribed for
Units under the Private Placement.
All securities issued pursuant to
the Private Placement are subject to a four month and one day hold period in Canada in accordance with applicable securities laws.
Pursuant to a registration rights agreement entered into with each subscriber, the Company is required, within 30 days of closing,
to file a prospectus supplement under its Registration Statement on Form F-10 with respect to resales in the United States, from
time to time, of the Common Shares issuable under the Private Placement and the Common Shares issuable upon the exercise of Warrants
(the "Warrant Shares"). Upon filing of the prospectus supplement, the Common Shares and Warrant Shares will be freely
tradeable in the United States.
The Units, Common Shares, Warrants
and Warrant Shares have not been registered under the United States Securities Act of 1933, as amended, and may not be offered
or sold in the United States absent registration or an applicable exemption from registration requirements.
Dilution and Shareholdings
Under the Private Placement, 4,545,452
Common Shares were issued on closing and, upon exercise of the 7-Year Warrants and the 2-Year Warrants issued on closing of the
Private Placement, 4,545,452 Warrant Shares and 2,272,726 Warrant Shares, respectively, will be issued. In the event that all of
the Warrants issued under the Private Placement are exercised pursuant to cash exercises, the Company would receive aggregate gross
proceeds of approximately US$22.5 million. In the aggregate, the Common Shares issued pursuant to the Private Placement and the
Warrant Shares issuable upon exercise of the Warrants would constitute 50.2% of the issued and outstanding Common Shares on a non-diluted
basis as at December 29, 2015. Other than as described herein, the Private Placement is not expected to materially affect the control
Based on the number of Units subscribed
for by Clarus Lifesciences III, L.P. ("Clarus"), Clarus would, assuming the exercise of all of the Warrants acquired
by it pursuant to the Private Placement, hold 5,303,030 Common Shares, which would constitute 17.5% of the issued and outstanding
Common Shares on a non-diluted basis as at December 29, 2015. In addition, based on the number of Units which Special Situations
Life Sciences Fund L.P. and Deerfield Private Design Fund III L.P. (or their affiliates) subscribed for, these subscribers (together
with their affiliates) would, assuming the exercise of all of the Warrants acquired by them pursuant to the Private Placement,
hold 3,151,512 Common Shares and 3,030,301 Common Shares, respectively, which would constitute 11.0%, and 10.7%, respectively,
of the issued and outstanding Common Shares on a non-diluted basis as at December 29, 2015; however, the terms of the Warrants
issued to these subscribers prohibit the exercise of Warrants to the extent that the holder will, upon exercise, hold in excess
of 9.985% of the issued and outstanding Common Shares, subject to limited exceptions.
Pursuant to the rules of the TSX,
shareholder approval was required for the Private Placement because: (i) the Company issued on the closing of the Private Placement
greater than 25% of the Company's issued and outstanding share capital at a price per Common Share that is less than the
market price of the Common Shares; (ii) the price per Common Share under the Private Placement represented a discount of 23.3%
(using the Bank of Canada noon exchange rate on December 29, 2015) to the volume weighted average price of the Common Shares on
the TSX for the five-day period ended on December 29, 2015, being C$5.96, which is in excess of the 15% discount permitted without
shareholder approval under the rules of the TSX; (iii) the exercise price of the Warrants was less than the market price of the
Common Shares; (iv) the TSX considered the option to have the Warrants redeemed at the Black Scholes value of the Warrants (rather
than a value based on market price) upon the occurrence of certain major change of control transactions or upon the occurrence
of an event of default, as well as the requirement that the Company pay liquidated damages equal to 18% per annum of the Black
Scholes value of the remaining unexercised portion of the Warrant, if the Company should fail to undertake certain actions under
the Warrants (as described further under "Warrant Terms" below), to constitute non-standard adjustments to the exercise
price of the Warrants; and (v) the holders of Warrants are entitled to dividends declared by the board of directors of the Company,
as if the Warrants held by such warrantholders were Common Shares. Shareholder approval was similarly required under the rules
of NASDAQ. In accordance with the rules of the TSX, the TSX determined to permit the Company to obtain shareholder approval through
the delivery of a written consent executed by holders of more than 50% of the issued and outstanding Common Shares in lieu of holding
a shareholder meeting. None of the consenting shareholders participated in the Private Placement.
Nomination Rights and Voting
Under the Private Placement, Clarus
acquired 2,121,212 Common Shares, representing approximately 9.4% of the issued and outstanding Common Shares as at December 29,
2015 on a non-diluted basis and excluding the Warrants (and the Warrant Shares issuable upon exercise thereof) which were issued
to Clarus on the closing date. Pursuant to the terms of the subscription agreement between the Company and Clarus, Clarus is entitled
to nominate two directors to the board of directors of the Company, one of which must be an independent director and pre-approved
by the Company. On closing of the Private Placement, the board of directors of the Company appointed Scott Requadt, Managing Director
of Clarus Ventures, LLC, to the board of directors. These nomination rights will continue for so long as Clarus holds greater than
or equal to 1,060,606 Common Shares, subject to adjustment in certain circumstances.
In addition, on closing of the Private
Placement, Richard Glickman, Marianne Sadar, Raymond Andersen and Bob Rieder, who in the aggregate control approximately 9,482,800
Common Shares constituting 41.9% of the issued and outstanding Common Shares on a non-diluted basis as at December 29, 2015, entered
into a voting agreement (the "Voting Agreement") with Clarus providing that such shareholders will vote against certain
change of control transactions, unless Clarus consents otherwise, and support Clarus' nominees to the board of directors
of the Company. Under the Voting Agreement, the applicable shareholders are prohibited from transferring 50% of the Common Shares
held by them on the effective date, with limited exceptions. The provisions of the Voting Agreement relating to change of control
transactions and non-transferability of Common Shares will expire, at the latest, upon the six-month anniversary of the public
release of the results of the completed Phase 2 portion of the Phase 1/ 2 clinical trial of EPI-506 by the Company or the public
release of the results of the completed Phase 2 portion of an alternative program that is approved by the board of directors and
the provisions relating to the Clarus nominees will continue for so long as Clarus is entitled to nominate directors to the Company's
The 7-Year Warrants have a term
of seven years and an exercise price of US$3.30, and are exercisable either for cash or on a cashless exercise basis based on,
among other things, the volume weighted average price of the Common Shares for the ten consecutive trading day period preceding
the date of exercise. The 2-Year Warrants have a term of two years and an exercise price of US$3.30.
The Warrants contain certain protective
covenants in favour of the warrantholders, including, among others: (i) the option to have the Warrants redeemed at the Black Scholes
value of the Warrants upon the occurrence of certain major change of control transactions, such redemption payment to occur by
cash or by the issuance of Common Shares depending on the form of consideration payable to the Company under the change of control
transaction; (ii) the option to have the Warrants redeemed at the Black Scholes value of the Warrants upon the occurrence of an
event of default, such redemption payment to occur by cash or by the issuance of Common Shares at the Company's option; (iii)
anti-dilution mechanisms in certain circumstances; (iv) entitlement of warrantholders to dividends declared by the board of directors
of the Company, as if the Warrants held by such warrantholders were Common Shares; (v) payment by the Company of liquidated damages
equal to 18% per annum of the Black Scholes value of the remaining unexercised portion of the Warrant, if the Company should fail