Connetics files 10-Q to avoid further consent payments for 2.25% notes, acceleration of 2% notes

By Jennifer Chiou

New York, July 25 - Connetics Corp. said that after filing its 10-Q for the first quarter of 2006, it will not be required to make additional consent payments following the already announced receipt of the necessary consents to amend its 2.25% convertible senior notes due May 30, 2008.

The company said it has now cured the previously disclosed default under the indentures of its 2.25% notes and 2% convertible senior notes due March 30, 2015.

The company's management also said it believes it is now in compliance with Nasdaq marketplace rules after filing the 10-Q report for the quarter ended March 31 and the 10-K/A for 2005.

Because the company met the July 25 filing deadline, holders of the 2% notes will not have the right to accelerate the notes.

If an acceleration from at least 25% of noteholders had happened, Connetics said it would have had enough cash and short-term investments to repay the 2% convertibles.

On July 21, Connetics received the consents to amend its 2.25% notes, but not its 2% notes, and added it entered into a supplemental indenture for the 2.25% notes.

The consent solicitation expired at 5 p.m. ET on July 21 after being pushed back from 5 p.m. ET on July 19. The solicitation began on July 10.

As previously announced, the amendments to the note indentures provide the company with additional time to comply with financial reporting requirements.

For each $1,000 principal amount of the 2.25% convertibles for which consent was given, Connetics paid $15.00 - a sum increased on July 19 from $2.50. It had been offering $10.00 for the 2% notes, a figure left unchanged on July 19.

If the company did not file an amendment to its 2005 10-K and 10-Q for the quarter ended March 31 by the close of business on July 29, Connetics would have paid an additional $35.00 for the 2.25% notes, a sum increased from the original $10.00.

If the company had not filed an amendment to its 2005 10-K and 10-Q for the quarter ended March 31 by the close of business on July 25, Connetics said it would have paid an additional $30.00 for the 2.00% notes.

In addition, Connetics would have paid an additional 4.75% per year in special interest on the 2.25% notes from execution of the supplemental indenture to the date on which it files an amendment to its 10-K for 2005 and required quarterly reports. The extra interest was increased from 2.5% on July 19.

Connetics had been offering 4.5%, increased from 3% for the 2% notes.

On May 30, Connetics had received a notice of default from holders of more than 25% of the 2.25% notes and for the 2.00% notes on May 26 due to its failure to file its 10-Q for the quarter ended March 31 by the filing deadline.

After having received a notice from the listing qualifications department on May 19 due to a delay in filing its 10-Q for the period ended March 31, Connetics had requested and participated in a hearing before the Nasdaq listing qualifications panel, which automatically deferred the delisting of its stock pending the panel review.

As announced on May 3, Connetics said it determined that its previously filed consolidated financial statements should no longer be relied upon due to errors on accruals for estimated rebates and chargebacks for its products.

The specialty pharmaceutical company, based in Palo Alto, Calif., is focused on dermatology products.

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