-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Oq/ZYtQzz0nBsVdrg2Qls7FyAwY3urgi7S+riKSm+hIdqmQ5yB0vPkSZ0UIJnmo3 1Ptr3WJHZWIomGLB9BEKwA== 0000950123-98-002825.txt : 19980325 0000950123-98-002825.hdr.sgml : 19980325 ACCESSION NUMBER: 0000950123-98-002825 CONFORMED SUBMISSION TYPE: F-3 PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 19980324 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BIOCHEM PHARMA INC CENTRAL INDEX KEY: 0000867202 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 000000000 STATE OF INCORPORATION: E6 FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: F-3 SEC ACT: SEC FILE NUMBER: 333-48521 FILM NUMBER: 98571657 BUSINESS ADDRESS: STREET 1: 275 ARMAND-FRAPPIER BLVD CITY: LAVAL QUEBEC STATE: E6 BUSINESS PHONE: 5146811744 MAIL ADDRESS: STREET 1: 275 ARMAND FRAPPIER BLVD CITY: LAVAL QUEBEC STATE: E6 F-3 1 BIOCHEM PHARMA INC. 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 23, 1998 REGISTRATION NO. 333-45871/333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 AMENDMENT NO. 1 TO FORM F-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------ CLINICHEM DEVELOPMENT INC. DEVELOPPEMENT CLINICHEM INC. (Exact name of registrant as specified in its charter) ------------ CANADA (State or other jurisdiction of incorporation or organization) 2834 (Primary Standard Industrial Classification Code Number) NOT APPLICABLE (I.R.S. Employer Identification Number) 275 ARMAND-FRAPPIER BLVD., LAVAL, QUEBEC, CANADA H7V 4A7 TELEPHONE: (514) 978-7800 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ------------ CT CORPORATION SYSTEM 1633 BROADWAY, NEW YORK, NY 10015 TELEPHONE: (212) 664-1666 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------ FORM F-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------ BIOCHEM PHARMA INC. (Exact name of registrant as specified in its charter) ------------ CANADA (State or other jurisdiction of incorporation or organization) 2834 (Primary Standard Industrial Classification Code Number) NOT APPLICABLE (I.R.S. Employer Identification Number) 275 ARMAND-FRAPPIER BLVD.,LAVAL, QUEBEC, CANADA H7V 4A7 TELEPHONE: (514) 978-7800 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ------------ CT CORPORATION SYSTEM 1633 BROADWAY, NEW YORK, NY 10015 TELEPHONE: (212) 664-1666 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------ Copies to: LANCE C. BALK, ESQ. KIRKLAND & ELLIS 153 EAST 53RD STREET, NEW YORK, NEW YORK 10022-4675 TELEPHONE: (212) 446-4800
LANCE C. BALK, ESQ. CHARLES-A. TESSIER KIRKLAND & ELLIS BIOCHEM PHARMA INC. 153 EAST 53RD STREET, NEW YORK, 275 ARMAND-FRAPPIER BLVD., LAVAL, NEW YORK 10022-4675 QUEBEC, CANADA H7V 4A7 ELEPHONE: (212) 446-4800 TELEPHONE: (514) 978-7800
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, please check the following box. [X] * If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] ------------ CALCULATION OF REGISTRATION FEE ====================================================== TITLE OF EACH CLASS OF SECURITIES AMOUNT PROPOSED MAXIMUM AGGREGATE TO BE REGISTERED TO BE REGISTERED(1) OFFERING PRICE(2) - ------------------------------------------------------ Class A Common Shares................................. 2,800,000 shares US$105,000,000.00 - ------------------------------------------------------ BioChem Common Shares, without par value(4)........... shares ======================================================
====================================================== TITLE OF EACH CLASS OF SECURITIES PROPOSED MAXIMUM AMOUNT TO BE REGISTERED OF REGISTRATION FEE(3) - ------------------------------------------------------ Class A Common Shares................................. US$30,975.00 - ------------------------------------------------------ BioChem Common Shares, without par value(4)........... ======================================================
(1) Based on an estimate of the maximum number of shares issuable in connection with the distribution described herein. (2) Estimated solely for the purpose of calculating the registration statement fee pursuant to Rule 457(f)(2) under the Securities Act of 1933 based on the adjusted book value of the Class A Common Shares of the Registrant after giving effect to the distribution described herein. No consideration will be paid by the recipients of the securities. The exchange rate of US$0.7000 used to calculate the adjusted book value of the Class A Common Shares of the Registrant was based on the noon buying rate on February 6, 1998 in New York City for cable transfers in Canadian dollars for one United States dollar as certified for customs purposes by the Federal Reserve Bank of New York. (3) Previously Paid. (4) The BioChem Common Shares may be converted into such shares upon exercise of the Purchase Option with respect to the Class A Common Shares. Pursuant to Rule 457(i) under the Securities Act of 1933, as amended, no separate fee is required with respect to these BioChem Common Shares. The Registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. * With respect to (i) resales by BioChem Pharma Inc. or its custodian of Class A Common Shares withheld in the distribution described herein in order to pay Canadian withholding tax and (ii) the Form F-3. ================================================================================ 2 Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. SUBJECT TO COMPLETION, DATED , 1998 PROSPECTUS 2,706,475 SHARES CLINICHEM DEVELOPMENT INC. CLASS A COMMON SHARES ------------------------ The callable Class A Common Shares (the "CliniChem Common Shares") of CliniChem Development Inc. ("CliniChem") will be distributed (the "Distribution") by BioChem Pharma Inc. ("BioChem") to the holders of record (the "Holders") of BioChem Common Shares (the "BioChem Common Shares") at the close of business on , 1998 (the "Record Date"). Each Holder will receive one CliniChem Common Share for every 40 BioChem Common Shares held on the Record Date. The Distribution will result in all of the then outstanding CliniChem Common Shares being distributed to the Holders. Assuming that 108,258,990 BioChem Common Shares (the number of BioChem Common Shares outstanding on January 31, 1998) are outstanding on the Record Date, approximately 2,706,475 CliniChem Common Shares are expected to be issued in the Distribution to Holders. After the Distribution, BioChem will hold 1,000 Class B Common Shares (the "Class B Shares") of CliniChem, representing all of the authorized shares of such class. Prior to the Distribution, BioChem will contribute $150 million in cash to CliniChem as a capital contribution. As the holder of the majority of the outstanding Class B Shares following the Distribution, BioChem will have the option to acquire all (but not less than all) of the outstanding CliniChem Common Shares under specified conditions. BioChem has also granted certain technology licenses and agreed to make specified payments on sales of certain products. The Distribution is expected to be taxable to the Holders. A portion of the CliniChem Common Shares otherwise deliverable to certain Holders who are not residents of Canada will be withheld and sold on such Holders' behalf in order to pay any Canadian withholding tax for which such Holders are liable. Such sales of CliniChem Common Shares may be effected, in open-market transactions on a United States or Canadian stock exchange, through dealers or through individually negotiated transactions, following the Distribution. See "The Distribution" and "Income Tax Considerations." The Distribution is expected to take place on or about , 1998, subject to certain conditions specified in the Distribution Agreement between BioChem and CliniChem dated as of , 1998. General Trust of Canada is acting as distribution agent and will be responsible for distributing share certificates to CliniChem shareholders. Neither BioChem nor CliniChem will receive any proceeds in connection with the Distribution. See "The Distribution." There has been no previous public market for the CliniChem Common Shares. Application has been made for the CliniChem Common Shares to be quoted on the Nasdaq National Market (the "Nasdaq") under the symbol "CCHE". The Montreal Exchange and The Toronto Stock Exchange have conditionally agreed to list the CliniChem Common Shares, subject to compliance with the requirements of these exchanges on or before June 15, 1998. BioChem will have the option to acquire all (but not less than all) of the outstanding CliniChem Common Shares at a price determined in accordance with a formula (the "Purchase Option Exercise Price") specified in the articles of incorporation of CliniChem (the "Articles") at any time from and after the Distribution and ending on the earlier of (i) March 31, 2003 or (ii) the 90th day after the date on which CliniChem provides BioChem with quarterly financial statements of CliniChem showing cash and cash equivalents of less than $5.0 million (unless extended by BioChem but in no event beyond March 31, 2003). The Purchase Option Exercise Price may be paid by BioChem in cash, BioChem Common Shares or any combination of cash and BioChem Common Shares at BioChem's discretion. See "The Agreements and the Purchase Option--Purchase Option." Shareholders of BioChem with inquiries regarding the Distribution should contact BioChem Pharma Inc., 275 Armand-Frappier Blvd., Laval, Quebec, Canada H7V 4A7, Attn: Investor Relations; Telephone: (514) 978-7771. ------------------------ THE CLINICHEM COMMON SHARES DISTRIBUTED HEREUNDER INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING ON PAGE 19. ------------------------ NO APPROVAL OF THE DISTRIBUTION BY SHAREHOLDERS OF BIOCHEM IS REQUIRED OR SOUGHT. NO PROXY IS REQUESTED AND NO ACTION IS REQUIRED WITH RESPECT TO THE DISTRIBUTION. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------ ALL REFERENCES IN THIS PROSPECTUS TO "$" AND "DOLLARS" ARE TO CANADIAN DOLLARS, UNLESS OTHERWISE STATED. ------------------------ The date of this Prospectus is , 1998. 3 AVAILABLE INFORMATION As a result of the Distribution, CliniChem will be subject to the information and reporting requirements of the United States Securities Exchange Act of 1934, as amended (the "Exchange Act"), applicable to foreign private issuers, and, in accordance therewith, will be required to file reports and other information with the Securities and Exchange Commission ("SEC"). Holders of CliniChem Common Shares will receive annual reports containing financial information including the report of independent chartered accountants as to the financial statements of CliniChem. Such financial statements will be prepared in accordance with generally accepted accounting principles in Canada and will be reconciled to generally accepted accounting principles in the United States in a note thereto. BioChem is subject to the information and reporting requirements of the Exchange Act applicable to foreign private issuers and in accordance therewith files reports and other information with the SEC. BioChem and CliniChem have filed with the SEC a Registration Statement (including all amendments thereto, the "Registration Statement") under the United States Securities Act of 1933, as amended (the "Securities Act"), with respect to the securities offered by this Prospectus. This Prospectus does not contain all the information set forth in the Registration Statement and the exhibits thereto. Reference is made to the Registration Statement and to the exhibits thereto for further information with respect to BioChem and CliniChem and the Distribution. Statements contained in this Prospectus as to the contents of any contract or any other document referred to are not necessarily complete, and, in each instance, reference is made to the copy of such contract or document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference to such exhibit. The Registration Statement relates to the securities being offered in the United States and to the securities being offered outside the United States insofar as they may be resold from time to time in the United States. The Registration Statement, including exhibits and schedules thereto, may be inspected without charge at the Public Reference Room of the SEC, 450 Fifth Street, Washington, D.C. 20549 and at the SEC's regional offices at 7 World Trade Center, Suite 1300, New York, New York 10048 and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any part thereof may be obtained from the SEC at its principal offices in Washington, D.C. after payment of fees prescribed by the SEC. The Registration Statement and the exhibits thereto are available on the SEC's Internet website (http://www.sec.gov). INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents previously filed with the SEC by BioChem pursuant to the Exchange Act are incorporated herein by this reference: (i) BioChem's Annual Information Form on Form 20-F for the fiscal year ended December 31, 1996. (ii) BioChem's Reports on Form 6-K filed with the SEC on June 13, 1997, August 20, 1997 and February 20, 1998. In addition, all filings on Form 20-F filed by BioChem pursuant to the Exchange Act, and, to the extent so designated therein, any reports on Form 6-K of BioChem, after the initial filing of the Registration Statement of which this Prospectus forms a part, after the date of this Prospectus and prior to the Distribution shall be deemed incorporated by reference in this Prospectus and to be a part hereof from the date any such document is filed. Any statements contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes hereof to the extent that a statement contained herein (or in any other subsequently filed document which also is incorporated by reference herein) modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed to constitute a part hereof except as so modified or superseded. All information appearing in this Prospectus is qualified in its entirety by the information and consolidated financial statements (including notes thereto) appearing in the documents incorporated herein by reference, except to the extent set forth in the immediately preceding sentence. Copies of documents incorporated by reference with respect to BioChem that are not presented herein or delivered herewith (not including exhibits to such documents unless such exhibits are specifically incorporated by reference in such documents or herein) are available without charge to any person to whom this Prospectus 2 4 is delivered upon written or oral request to BioChem's principal executive office: BioChem Pharma Inc., 275 Armand-Frappier Blvd., Laval, Quebec, Canada H7V 4A7, Attn: Investor Relations. ENFORCEABILITY OF CIVIL LIABILITIES UNDER UNITED STATES FEDERAL SECURITIES LAWS BioChem and CliniChem are Canadian corporations. All of BioChem's and CliniChem's directors, officers and controlling persons, as well as certain of the experts named herein, reside outside the United States, and all or a substantial portion of the assets of such persons and of BioChem and CliniChem are located outside the United States. Consequently, it may be difficult or impossible for investors to effect service of process within the United States upon BioChem, CliniChem or such persons, or to realize against them upon judgments of courts of the United States predicated upon civil liabilities under the federal securities laws of the United States. There is doubt as to the enforceability in Canada against BioChem, CliniChem or any of their directors and officers or experts named herein who are not residents of the United States in original actions or in actions for enforcement of judgments rendered by United States courts, of civil liabilities predicated solely on United States federal securities laws. In addition, investors should not assume that courts of Canada (i) would enforce judgments of United States courts obtained in actions against BioChem or CliniChem in the United States or such persons predicated upon the civil liability provisions of the United States federal securities laws or the securities or blue sky laws of any state within the United States or (ii) would enforce, in original actions, liabilities against BioChem, CliniChem or such persons predicated upon the United States federal securities laws or any such state securities or blue sky laws. BioChem and CliniChem have irrevocably appointed CT Corporation System as its agent to receive service of process solely in actions against it arising out of or in connection with the United States federal securities laws or out of violations of such laws in any federal court or state court in New York, New York, relating to the transactions covered by this Prospectus. TRADEMARKS All company and product names referred to in this document are the property of their respective owners. BioChem's discovery to treat Human Immunodeficiency Virus ("HIV"), including Acquired Immunodeficiency Syndrome ("AIDS"), sold in certain countries under the brand name 3TC and in others under the brand name Epivir, has the generic name lamivudine. Lamivudine is also being developed to treat chronic hepatitis B infection. To avoid confusion herein, 3TC will be used to describe the product for HIV or AIDS and lamivudine will be used to describe the product in development for chronic hepatitis B infection. 3TC and Epivir are trademarks of Glaxo Wellcome plc which, with its subsidiaries, is the worldwide licensee of 3TC and lamivudine, subject to special arrangements for Canada, where a Glaxo Wellcome -- BioChem partnership is commercializing 3TC and will commercialize lamivudine. EXCHANGE RATE DATA As of February 6, 1998, the date of the balance sheet of CliniChem, and , 1998, the most recent practicable date prior to the date of this Prospectus, the exchange rates based on the noon buying rate in New York City for cable transfers in Canadian dollars for one United States dollar as certified for customs purposes by the Federal Reserve Bank of New York, were respectively US$0.7000 and . ALL REFERENCES IN THIS PROSPECTUS TO "$" AND "DOLLARS" ARE TO CANADIAN DOLLARS, UNLESS OTHERWISE STATED. 3 5 PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION SET FORTH ELSEWHERE IN THIS PROSPECTUS OR THE REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART. CERTAIN CAPITALIZED TERMS USED IN THIS SUMMARY ARE DEFINED ELSEWHERE IN THIS PROSPECTUS, INCLUDING IN THE GLOSSARY. Some of the statements made in this Prospectus and the accompanying letter to shareholders are forward-looking in nature, including but not limited to, CliniChem's and BioChem's research and development activities and plans, particularly with respect to anticipated CliniChem Programs and CliniChem Products, plans concerning the potential commercialization of the CliniChem Products, and other statements that are not historical facts. The occurrence of the events described and the achievement of the intended results are subject to the future occurrence of many events, some or all of which are not predictable or within CliniChem's control; therefore, actual results may differ materially from those anticipated in any forward-looking statements. Many risks and uncertainties are inherent in the biotechnology and pharmaceutical industry; others are more specific to CliniChem's business. These risks include the risks associated with product research and development, including clinical development, attempts to obtain regulatory clearance to market products and medical acceptance of products, changes in the health care marketplace, patent and intellectual property matters, regulatory and manufacturing issues, the ability to commercialize products effectively, and risks associated with competition from other companies. Many of the risks are described in "Risk Factors" beginning on page 19 and/or in documents filed by BioChem under the Exchange Act or applicable Canadian securities legislation. CliniChem will not update the information contained in this Prospectus except in the normal course of its public disclosure practices. Distributing Company....... BioChem Pharma Inc., a Canadian corporation, is a leading bio-pharmaceutical company engaged in the research, development and marketing of therapeutic products and the research, development, manufacturing and marketing of vaccine and diagnostic products for a wide range of infectious and other diseases. BioChem conducts its business through BioChem Therapeutic Inc., BioChem Vaccines Inc., BioChem ImmunoSystems Inc. and BioChem's foreign subsidiaries. BioChem's most significant therapeutic product is a novel nucleoside analog, marketed under the brand name 3TC, developed with Glaxo Wellcome plc and its subsidiaries (hereinafter collectively "Glaxo Wellcome") for the treatment of patients with HIV infection, including AIDS. The nucleoside analog is marketed under the brand names 3TC or Epivir. Lamivudine, a different dosage regimen of 3TC, is also being developed with Glaxo Wellcome as a treatment for chronic hepatitis B infection, including in the pre-and post-liver transplant setting to prevent graft re-infection by human hepatitis B virus. BioChem has also developed, and is manufacturing and marketing, a line of vaccines including whole virus and split virus influenza vaccines, a combined diphtheria tetanus vaccine and a vaccine to prevent tuberculosis. BioChem has also developed and is manufacturing an immuno-therapeutic product used in the treatment of certain superficial bladder cancers. BioChem's diagnostics operations engage in the research, development, manufacturing and marketing of a wide range of diagnostic products and automated laboratory analyzers for the detection of a variety of infectious diseases, and for use in immunology, endocrinology and hematology. References herein to "BioChem" include BioChem Pharma Inc. and its subsidiaries. 4 6 Distributed Company........ CliniChem Development Inc., a Canadian corporation, is a company recently formed by BioChem to conduct research and development of potential human therapeutic and vaccine products primarily for treatment of cancer and HIV infection and the prevention of certain infectious diseases. CliniChem's therapeutic program includes a novel nucleoside analog to treat various forms of cancer, a novel nucleoside analog to treat HIV infection and small molecules to treat solid cancer tumors by inhibiting angiogenesis. CliniChem's vaccine program includes vaccines against Neisseria meningitidis, Streptococcus pneumoniae, Neisseria gonorrhoeae, Haemophilus influenzae, Streptococcus Group B and Chlamydia pneumoniae, all bacteria responsible for infectious diseases. Upon development and regulatory approval of any such products, CliniChem expects that the products will be marketed under distinct brand names. CliniChem has not yet conducted any business and has no employees. Its three officers are full-time employees of BioChem. CliniChem does not intend to perform any research and development itself, but rather will contract with BioChem to perform all such activities pursuant to the terms of the Research and Development Agreement. The Distribution........... Each Holder will receive one CliniChem Common Share for every 40 BioChem Common Shares held on the Record Date. A total of approximately 2,706,475 CliniChem Common Shares are expected to be distributed, assuming 108,258,990 BioChem Common Shares (the number of BioChem Common Shares outstanding on January 31, 1998) are outstanding on the Record Date. No Holder will be required to pay any cash or other consideration for the CliniChem Common Shares received in the Distribution (exclusive of applicable Canadian withholding taxes), nor will any action be required to be taken by any Holder in order to receive CliniChem Common Shares. The Distribution is expected to be taxable to the Holders. See "Income Tax Considerations." Neither BioChem nor CliniChem will receive any proceeds in connection with the Distribution. See "The Distribution." As of January 31, 1998, there were 97 holders of record of BioChem Common Shares who were United States residents, representing approximately 60% of the outstanding BioChem Common Shares. CliniChem Common Shares.... All of the Class A Common Shares of CliniChem will be subject to the Purchase Option whereby the holder of the majority of the outstanding Class B Shares can require holders of the CliniChem Common Shares to sell their CliniChem Common Shares to the holder of the majority of the outstanding Class B Shares at the Purchase Option Exercise Price. See "The Agreements and the Purchase Option--Purchase Option" and "Description of CliniChem's Share Capital." Record Date; Distribution Date....................... The Record Date for the Distribution will be the close of business on , 1998. Distribution of the CliniChem Common Shares is expected to take place on or about , 1998 (the "Distribution Date"), subject to certain conditions specified in the Distribution Agreement. Contribution by BioChem.... Prior to the Distribution, BioChem will contribute $150 million in cash to CliniChem as a capital contribution, thereby reducing the amount of BioChem's cash and temporary investments by that amount. As the holder of the majority of the outstanding Class B Shares following the 5 7 Distribution, BioChem will have the option to acquire all (but not less than all) of the outstanding CliniChem Common Shares under specified conditions. See "Business of CliniChem--General." BioChem has also granted certain technology licenses and agreed to make specified payments on sales of certain products by BioChem should BioChem exercise the Product Option. See "The Agreements and the Purchase Option." The CliniChem Programs..... It is anticipated that CliniChem will initially conduct its therapeutic development program (the "Therapeutic Program") and its vaccine development program (the "Vaccine Program"), the technology for which will be licensed to CliniChem by BioChem pursuant to the Technology License Agreement, subject to certain third-party rights and the receipt of certain third-party consents and subject further to the terms and conditions of the Research and Development Agreement and the Product Option. See "The Agreements and the Purchase Option". In addition, BioChem has the right, with the consent of the Board of Directors of CliniChem, to expand the scope of the Therapeutic Program and the Vaccine Program and select additional development programs as substitutes for, or in addition to, the Therapeutic Program and the Vaccine Program (any such development programs, together with the Therapeutic Program and the Vaccine Program, being the "CliniChem Programs"). The CliniChem Programs, which are described more fully in the section entitled "The Business of CliniChem--The CliniChem Programs", are the development of: - BCH-4556, a novel nucleoside analog to treat cancer; - BCH-10652, a novel nucleoside analog to treat HIV infection; - small molecules to treat solid cancer tumors by inhibiting angiogenesis through the antagonism of the a(n)b(3) receptor; - a recombinant protein vaccine to protect against infection by Neisseria meningitidis; - a recombinant protein vaccine to protect against infection by Streptococcus pneumoniae; - a recombinant protein vaccine to protect against infection by Neisseria gonorrhoeae; - a recombinant protein vaccine to protect against infection by Haemophilus influenzae non typeable; - a recombinant protein vaccine to protect against infection by Streptococcus Group B; and - a recombinant protein vaccine to protect against infection by Chlamydia pneumoniae. The therapeutic and vaccine products developed according to the terms of the Research and Development Agreement and pursuant to the CliniChem Programs are herein referred to as the "CliniChem Products". Unless BioChem and CliniChem agree otherwise and subject to pre-existing third-party rights and receipt of certain third-party consents, all of the CliniChem Products will be licensed to CliniChem pursuant to the Technology License Agreement. Such license will be limited for each CliniChem Product to a particular Field of Use. See "The Agreements and the Purchase Option--Technology License Agreement." 6 8 The Research and Development Agreement provides that CliniChem will fund Research and Development Costs from January 1, 1998. Based on CliniChem's current development schedule, CliniChem does not expect that most of the CliniChem Products will reach commercial marketability prior to expenditure of the Available Funds. See "The Agreements and the Purchase Option--Research and Development Agreement". Under the BioChem/CliniChem Agreements: (i) BioChem will grant CliniChem an exclusive, worldwide, royalty free license to all BioChem Technology used in the CliniChem Programs, except for technology licensed to BioChem under certain excluded agreements, in return for which CliniChem will pay BioChem the Technology Fee; (ii) CliniChem will contract with BioChem for BioChem to perform the research and development associated with the CliniChem Programs and CliniChem shall pay all associated Research and Development Costs; (iii) any intellectual property arising from BioChem's activities under the Research and Development Agreement will belong to BioChem but will be included in the license of BioChem Technology to CliniChem; (iv) BioChem will have an option to terminate the licenses granted to CliniChem on a product-by-product and country-by-country basis in return for ongoing royalty payments to CliniChem; (v) BioChem will have the right to buy out the ongoing royalty payment stream for a one time cash payment; and (vi) BioChem will provide certain administrative services for CliniChem in return for cash payments. CliniChem is not expected to generate net income for the forseeable future and perhaps not at all. CliniChem Board of Directors.................. All the current directors of CliniChem are also officers, directors or employees of BioChem. Subsequent to the Distribution, two of the current directors will resign as directors of CliniChem and will be replaced by independent directors. As the holder of the majority of the outstanding Class B Shares, BioChem has the right to elect one director. See "Business of CliniChem--Executive Officers and Directors" and "Description of CliniChem's Share Capital." No Fractional Shares....... No fractional CliniChem Common Shares will be distributed. Fractional CliniChem Common Shares will be rounded up to a whole share by CliniChem's transfer agent and distribution agent for the Distribution, General Trust of Canada (the "Distribution Agent"). Reasons for the Distribution............... BioChem believes that the research and development work it has undertaken, directly and through collaborators, in the therapeutic and vaccine areas has yielded results which justify further research and development. However, a substantial amount of additional research and development effort is required to further develop the CliniChem Products to their potential commercialization. Such opportunities involve significantly different risk/reward profiles as compared to BioChem's established therapeutic, vaccine and diagnostic businesses. 7 9 BioChem believes that the arrangements with CliniChem will significantly benefit BioChem shareholders by: - separating the risks associated with conducting the CliniChem Programs from those associated with BioChem's established therapeutic, vaccine and diagnostic businesses; - allowing individual shareholders of BioChem to increase or decrease their level of participation in the business of conducting the CliniChem Programs by varying their level of investment in CliniChem; - obtaining for BioChem the exclusive right to commercialize worldwide (subject to pre-existing third-party rights) any developed CliniChem Product, assuming BioChem's exercise of the Product Option with respect to such product or exercise of the Purchase Option, thereby making it possible for BioChem to capture a potentially greater return on the products developed with CliniChem than would otherwise be possible from products developed for commercialization in conjunction with other third parties; and - allowing BioChem's near-term financial results to continue to reflect principally its established therapeutic, vaccine and diagnostic businesses through CliniChem's payment to BioChem for the Research and Development Costs. The foregoing potential benefits to Holders of the arrangements with CliniChem may, however, be offset by certain costs and detriments, including but not limited to the following: BioChem's loss of control over research and development activities to be conducted by or on behalf of CliniChem, which instead will be overseen by CliniChem's Board of Directors; the administrative costs to BioChem relating to the establishment of CliniChem, including accounting and legal fees and costs; the potential cost of the exercise of any of BioChem's options and potential royalties to CliniChem; and the potential loss of income tax benefits to BioChem which may have been derived from deductions by BioChem rather than by CliniChem of research and development expenses attributable to the CliniChem Programs. Technology License Agreement................ Pursuant to the Technology License Agreement, BioChem has granted to CliniChem an exclusive perpetual license to use BioChem Technology solely to conduct the CliniChem Programs and related activities, and to manufacture and to commercialize the CliniChem Products worldwide. This license is subject to pre-existing third-party rights, receipt of certain third-party consents, the terms and conditions of the Research and Development Agreement and the Product Option. The license for each CliniChem Product shall be limited to a designated Field of Use. See "The Agreements and the Purchase Option--Technology License Agreement" and "--Third-Party Consents and Rights." In consideration for the license to use BioChem Technology to conduct the CliniChem Programs, CliniChem will pay a fee (the "Technology Fee") to BioChem. The Technology Fee will be payable monthly over a period of four years and will be $500,000 for each of the 12 months following the Distribution, $408,333 per month for the following 12 months, $300,000 per month for the following 12 months and 8 10 $200,000 per month for the following 12 months; provided that the Technology Fee will no longer be payable at such time as the number of CliniChem Products being researched or developed by or on behalf of CliniChem, plus the number of CliniChem Products having been acquired by BioChem pursuant to the exercise of the Product Option, is less than two. Pursuant to the terms of the Technology License Agreement, CliniChem's right to obtain manufacturing will be subject to a right of first offer and a right of first refusal on the part of BioChem to manufacture and, in the event BioChem does not exercise such right of first offer or right of first refusal, then BioChem has the right to approve any proposed manufacturer, which approval may be withheld only if any such manufacturer has insufficient or inadequate manufacturing capability (including lack of compliance with Good Manufacturing Practices ("GMP") regulations) or if any such manufacturer's activities are likely to have a material adverse effect on BioChem's overall competitive position in the pharmaceutical industry. In the event that BioChem exercises its right to reject a manufacturer, BioChem will be obligated to manufacture or obtain manufacturing for any such CliniChem Product for CliniChem at prevailing market rates, but not less than BioChem's cost of manufacture plus 15% of such cost. Pursuant to the Technology License Agreement, CliniChem shall not have the right to grant a sublicense with respect to the BioChem Technology to anyone other than BioChem until such time as the Product Option with respect to any CliniChem Product in one or more countries expires unexercised. From and after the expiration of such Product Option in any such country, CliniChem may sublicense BioChem Technology to one or more third parties solely to the extent necessary to complete the development of, or to make or have made and use such Clinichem Product, or to sell or have sold such CliniChem Product in such country. BioChem shall have the right to approve any proposed sublicensee or any manufacturer on behalf of a sublicensee but such approval may only be withheld if any such sublicensee or manufacturer has insufficient manufacturing capability (including lack of compliance with GMP regulations) or if any such sublicensee's or manufacturer's activities are likely to have a material adverse effect on BioChem's overall competitive position in the pharmaceutical industry. Research and Development Agreement................ CliniChem and BioChem have entered into the Research and Development Agreement pursuant to which BioChem will conduct the CliniChem Programs. Until the exercise or the expiration of the Purchase Option, CliniChem is required to utilize the Available Funds only in accordance with the Research and Development Agreement, the Technology License Agreement and the Services Agreement. CliniChem is expected to utilize substantially all of the Available Funds to make payments to BioChem for its Research and Development Costs. Research and Development Costs will be charged in a manner consistent with industry practices, and payments for all reasonable, fully-burdened costs plus 5% of such costs will be recognized by BioChem as contract research and development revenue. 9 11 The Research and Development Agreement provides that CliniChem will fund Research and Development Costs from January 1, 1998, including an estimated $6 million incurred from January 1, 1998 through the Distribution Date. It is anticipated that CliniChem will spend the Available Funds under the Research and Development Agreement over a period of approximately four to five years. Based on CliniChem's current development schedule, CliniChem does not expect that most of the CliniChem Products will reach commercial marketability prior to expenditure of the Available Funds. Currently, other than the Available Funds, CliniChem has no other source for the funding that may be needed to complete the development and commercialization of the CliniChem Products. CliniChem's use of the Available Funds is subject to the terms of the BioChem/CliniChem Agreements. All technology developed or otherwise obtained pursuant to the Research and Development Agreement ("Developed Technology") will be owned by BioChem and licensed to CliniChem pursuant to the terms of the Technology License Agreement. The Research and Development Agreement will terminate upon the exercise or expiration of the Purchase Option, which will expire on the earlier of March 31, 2003 or 90 days after CliniChem provides BioChem with notification that there are less than $5.0 million of Available Funds (unless extended by BioChem but in no event beyond March 31, 2003). However, BioChem's obligation to make payments to CliniChem with respect to Acquired Products will continue if the Purchase Option expires unexercised. See "The Agreements and the Purchase Option--Research and Development Agreement." Product Option............. CliniChem has granted BioChem an option to acquire all rights to each CliniChem Product (the "Product Option"). Upon exercise of the Product Option, BioChem will make Product Payments to CliniChem with respect to each CliniChem Product as to which the Product Option is exercised (an "Acquired Product"). The Product Option for each CliniChem Product is exercisable on a country-by-country basis at any time until (i) with respect to the United States, 30 days after clearance by the United States Food and Drug Administration (the "FDA") to commercially market such CliniChem Product in the United States and (ii) with respect to any other country, 30 days after the clearance by the appropriate regulatory agency to commercially market the CliniChem Product in such country. The Product Option will expire, to the extent not previously exercised, 30 days after the expiration of the Purchase Option. If and to the extent the Product Option is exercised as to any Acquired Product, CliniChem's license to such Acquired Product in the country or countries as to which the Product Option is exercised shall terminate and BioChem shall be subject to the obligation to make Product Payments. Product Payments........... BioChem will make Product Payments to CliniChem with respect to each Acquired Product. Such payments will be a percentage of Net Sales and Licensing Revenues. Such payments will range from 1 to 6% of Net Sales and from 10 to 25% of Licensing Revenues and will be calculated as follows: (a) royalties of up to a maximum of 6% of Net Sales of the Acquired Product determined as follows: (i) 1% of such Net Sales, plus 10 12 (ii) an additional 0.1% of such Net Sales for each full $1 million of Research and Development Costs of the Acquired Product paid by CliniChem at the time BioChem exercised the Product Option with respect to such Acquired Product; plus (b) licensing fees of up to a maximum of 25% of Licensing Revenues with respect to such Acquired Product determined as follows: (i) 10% of such Licensing Revenues, plus (ii) an additional 1% of such Licensing Revenues for each full $1 million of Research and Development Costs of the Acquired Product paid by CliniChem at the time BioChem exercised the Product Option with respect to such Acquired Product. Because the marketing expenses associated with newly introduced products during the first few years after launch are generally significantly higher than those for established products, the Product Option provides that the Product Payments described above will be capped at 3% of Net Sales plus 12.5% of Licensing Revenues, on a quarterly basis, for the first twelve calendar quarters during which the Acquired Product is commercially sold in the first Major Market Country. Subject to BioChem's Product Payment Buy-Out Option described below, Product Payments will be payable, with respect to all countries for which the Product Option has been exercised, until 10 years after the first commercial sale of the Acquired Product in the first Major Market Country in which such product is commercially sold. To the extent BioChem does not exercise the Product Option with respect to any CliniChem Product, CliniChem will retain the rights to research and develop (subject to the terms of the Technology License Agreement and the Research and Development Agreement) and commercialize such CliniChem Product. Until the exercise or the expiration of the Purchase Option, all Product Payments paid to CliniChem as described above will become part of the Available Funds and may be used to pay BioChem for its Research and Development Costs. Product Payment Buy-Out Options.................. BioChem has the option to buy out CliniChem's right to receive Product Payments for any Acquired Product on a country-by-country or global basis. A country-by-country buy-out option may be exercised for any Acquired Product in any country at any time after the end of the twelfth calendar quarter following the date on which the Acquired Product was first commercially sold in such country. The buy-out price for an Acquired Product will be 15 times the total amount of Product Payments for such Acquired Product made by or due from BioChem to CliniChem with respect to such Acquired Products in such country for the four calendar quarters immediately preceding the quarter in which the buy-out option is exercised. The global buy-out option may be exercised for any Acquired Product, for all countries for which BioChem has exercised the Product Option, at any time after the end of the twelfth calendar quarter following the date on which the Acquired Product was first commercially sold in either the United States or two other Major Market Countries. The buy-out price for a global buy-out shall be calculated as if any previous country-by-country buy-outs had not been made by adding payments which would have been made had the country specific buy-out not occurred to the Product Payments used to calculate the buy-out price, and subtracting from the buy-out price the amounts 11 13 paid by BioChem to exercise the country-by-country buy-outs. The buy-out price in the case of a global buy-out will be (i) 20 times (a) the Product Payments made by or due from BioChem to CliniChem with respect to the Acquired Product, plus (b) such Product Payments as would have been made by or due from BioChem to CliniChem if BioChem had not exercised any country-specific buy-out option with respect to such Acquired Product, in each case for the four calendar quarters immediately preceding the quarter in which the global buy-out option is exercised, less (ii) any amount previously paid to exercise any country-specific buy-out option with respect to such Acquired Product. In either case, the buy-out price will be computed as if Product Payments were not limited to 3% of Net Sales or 12.5% of Licensing Revenues (as applicable) during early marketing as described above. Purchase Option............ BioChem, as the holder of the majority of the outstanding Class B Shares after the Distribution, has the right, provided for in CliniChem's Articles, to acquire all (but not less than all) of the outstanding CliniChem Common Shares (the "Purchase Option"). The Purchase Option will be exercisable by written notice given at any time from and after the Distribution Date and ending on the earlier of (i) March 31, 2003 or (ii) the 90(th) day after the date CliniChem provides BioChem (as the holder of the majority of the outstanding Class B Shares) with quarterly financial statements of CliniChem showing cash or cash equivalents of less than $5.0 million, although BioChem may, at its election, extend such period by providing additional funding, including through loans, for the continued conduct of any or all of the CliniChem Programs (but in no event beyond March 31, 2003). If the Purchase Option is exercised, the Purchase Option Exercise Price will be the greatest of: (a) (i) 25 times the aggregate of (a) all worldwide payments made by and all worldwide payments due to be made by BioChem to CliniChem with respect to all Acquired Products for the four calendar quarters immediately preceding the quarter in which the Purchase Option is exercised (the "Base Period") and (b) all payments that would have been made and all payments due to be made by BioChem to CliniChem during the Base Period if BioChem had not previously exercised its Product Payment Buy-Out Option with respect to any CliniChem Product; less (ii) any amounts previously paid to exercise any Product Payment Buy-Out Option for any CliniChem Product; (b) the fair market value of 420,000 BioChem Common Shares; (c) $150 million plus any additional funds contributed to CliniChem by BioChem, less the aggregate amount of all Technology Fee payments, Research and Development Costs and Services Agreement payments paid or incurred by CliniChem as of the date the Purchase Option is exercised; and (d) $50 million. In each case, the amount payable as the Purchase Option Exercise Price will be reduced (but not to less than $1.00) to the extent, if any, that CliniChem's liabilities at the time of exercise (other than liabilities under the Research and Development Agreement, the Services Agreement and the Technology License Agreement and any debt owed to 12 14 BioChem) exceed CliniChem's cash and cash equivalents, and short-term and long-term investments (excluding the amount of Available Funds remaining at such time). BioChem may pay the Purchase Option Exercise Price in cash, in BioChem Common Shares or in any combination of cash and BioChem Common Shares. The per share Purchase Price of CliniChem Common Shares will be affected if CliniChem issues additional CliniChem Common Shares after the Distribution. Under the Articles and the by-laws of CliniChem (the "By-laws"), CliniChem is prohibited from taking or permitting any action inconsistent with, or which would in any way alter, BioChem's rights under the Purchase Option. In addition, until the expiration of the Purchase Option, CliniChem may not, without the consent of BioChem as the sole holder of the majority of the outstanding Class B Shares, amalgamate or liquidate, amend its Articles to alter the Purchase Option, CliniChem's authorized capitalization, or certain provisions of its Articles governing the right of the holders of the majority of the outstanding Class B Shares to elect one director. Income Tax Considerations............. The Distribution will be a taxable dividend to Holders who are resident in Canada. The normal rules concerning the taxation of dividends paid by a taxable Canadian corporation to its shareholders will be applicable. A Holder who is not resident in Canada and receives CliniChem Common Shares as a dividend-in-kind will be subject to Canadian withholding tax. A portion of the CliniChem Common Shares otherwise deliverable to a non-resident Holder will be sold on behalf of the non-resident in order to pay any Canadian withholding tax for which such non-resident is otherwise liable. In the case of a U.S. Holder (as defined below), pursuant to the Canada-United States Income Tax Convention, the rate of withholding is generally 15%. In the case of U.S. Holders who hold their BioChem Common Shares through DTC, DTC will debit the broker-dealer's account for the amount of cash equal to 15% of the fair market value of the dividended shares and remit such amount to Revenue Canada. The broker-dealer will then debit the account of such Holder for a like amount. However, in the case of U.S. Holders who are registered holders (as opposed to beneficial owners who hold their shares through a depositary) ("Registered U.S. Holders"), BioChem needs to withhold 15% of the fair market value of the shares distributed to such Holders and remit the proceeds from the sale of such shares to Revenue Canada. Less than 1% of BioChem's Common Shares held by non-resident Holders are held by Registered U.S. Holders. Accordingly, BioChem (or its transfer agent) will be making such sales on behalf of the Holders from whom shares have been withheld. BioChem expects that such shares will be sold in market transactions in an orderly fashion during the first few weeks following commencement in trading of the CliniChem shares or in one or more private transactions. See "Income Tax Considerations--Canadian Federal Income tax Considerations". The Distribution of CliniChem Common Shares to a U.S. Holder will be treated as a dividend for United States Federal income tax purposes to the extent of BioChem's current and accumulated earnings and profits (as determined for United States tax purposes). Any excess of the value of the CliniChem Common Shares distributed over BioChem's current 13 15 and accumulated earnings and profits will be treated first as a return of a U.S. Holder's tax basis in its BioChem Common Shares, and then (once such basis is reduced to zero) as a capital gain. For these purposes, a U.S. Holder will be considered to have received a distribution equal to the aggregate fair market value on the date of the Distribution of the CliniChem Common Shares actually received by such U.S. Holder plus those shares which are withheld to satisfy such U.S. Holder's Canadian withholding tax liability. BioChem believes that it does not have any accumulated earnings and profits, but cannot determine whether it has current earnings and profits until the close of its 1998 tax year. BioChem will notify the relevant depository agents of any amount which must be included in the income of the U.S. Holders as a dividend. A. U.S. Holder will not be entitled to claim a dividends-received deduction with respect to the CliniChem Common Shares received in the Distribution, or on dividends, if any, that CliniChem pays on CliniChem Common Shares. It is expected that CliniChem will initially be classified as a "passive foreign investment company" ("PFIC") for United States Federal income tax purposes. If CliniChem is so classified, a U.S. Holder of CliniChem Common Shares will be subject to a special United States tax regime with respect to certain distributions received from CliniChem as well as with respect to any gain from the disposition of CliniChem Common Shares, unless such U.S. Holder elects to include currently in gross income a pro rata share of the earnings of CliniChem each year (a "qualified election"). Failure to make such qualified election could be disadvantageous to certain United States investors. Therefore, prospective investors who are United States corporations, United States citizens or residents, or otherwise subject to the United States tax jurisdiction should consult their tax advisors to decide whether to make a qualified election with respect to their CliniChem Common Shares. See "Income Tax Considerations--United States Federal Income Tax Considerations." The status of CliniChem as a foreign corporation may pose special tax risks to United States investors. Certain material United States Federal income tax consequences of the Distribution and receipt of CliniChem Common Shares are discussed under "Income Tax Considerations--United States Federal Income Tax Considerations." A Registered U.S. Holder will be subject to Canadian withholding tax on the Distribution, and will have a portion of the CliniChem Common Shares otherwise deliverable to it withheld from the Distribution by the Distribution Agent, in order for some or all of such withheld shares to be sold and the proceeds used to satisfy Canadian withholding tax for which such U.S. Holder is liable. After sufficient shares are sold to satisfy such liability, any remaining withheld shares which have not been so sold will be distributed to such U.S. Holder. Such U.S. Holder will recognize a short-term capital gain or loss on the sale of such withheld shares equal to the difference between the sale price realized and the sum of the fair value of the shares on the Distribution Date plus any expenses incurred in relation to the sale. See "Income Tax Considerations" and "The Distribution." 14 16 HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES OF THE DISTRIBUTION AND THE OWNERSHIP AND DISPOSITION OF CLINICHEM COMMON SHARES. Risk Factors............... Ownership of CliniChem Common Shares involves a high degree of investment risk which should be considered carefully in evaluating the ownership of CliniChem Common Shares including: (i) No prior operating history; no assurance of profitability; (ii) common management; (iii) lack of arm's-length negotiations; (iv) exercise of the Product Option will give BioChem sole control of a product; (v) the Purchase Option Exercise Price may not reflect the fair market value of the CliniChem Common Shares; (vi) no assurance of exercise of options; (vii) no assurance of successful development of the CliniChem Products; (viii) no assurance of sufficient funds; (ix) no assurance of successful manufacturing or marketing; (x) failure to obtain third-party consents may prevent the marketing of certain CliniChem Products; (xi) potential competition from BioChem; (xii) relationship between CliniChem and BioChem may limit CliniChem's activities and market value; (xiii) directors not initially elected by shareholders; (xiv) limitation on CliniChem's ability to license products to third parties; (xv) uncertainty regarding sufficient availability of BioChem research and development personnel and facilities; (xvi) limitation or termination of rights and obligations in bankruptcy; (xvii) dependence on BioChem; (xviii) highly competitive industry; rapid and significant technological change; (xix) government regulation; (xx) uncertainty regarding patents and proprietary technology; unpredictability of patent protection; (xxi) uncertainty of pharmaceutical pricing and third-party reimbursement; (xxii) CliniChem product liability exposure and insurance; (xxiii) possible dilution; reduction of per share Purchase Option Exercise Price; and (xxiv) no assurance of trading value or markets for CliniChem Common Shares; sale of withheld shares. See "Risk Factors." 15 17 Principal Offices.......... CliniChem's registered and principal executive office is located at 275 Armand-Frappier Boulevard, Laval, Quebec, Canada H7V 4A7. Reasons for Furnishing this Prospectus............... This Prospectus is being furnished solely to provide information for Holders, each of whom will receive CliniChem Common Shares in the Distribution. It is not to be construed as an inducement or encouragement to buy or sell any securities of CliniChem or BioChem. The information contained herein is provided as of the date of this Prospectus unless otherwise indicated. 16 18 GLOSSARY Acquired Product........... A CliniChem Product as to which the Product Option has been exercised by BioChem. Available Funds............ All of the funds contributed or paid to CliniChem by BioChem, plus any investment income earned thereon, less (i) Research and Development Costs, (ii) CliniChem's ongoing administrative expenses and income taxes paid (less income taxes refunded), (iii) the Technology Fee and (iv) payments made pursuant to the Services Agreement. BioChem/CliniChem Agreements............... The Research and Development Agreement, the Technology License Agreement, the Product Option Agreement, the Services Agreement, the Distribution Agreement and the Purchase Option, collectively. BioChem Technology......... All proprietary technology, whether patented or unpatented, owned by, licensed to or controlled by BioChem and related to the CliniChem Programs, including any Developed Technology, which BioChem has the right to license or sublicense without the consent of any third party and without incurring additional liability to any third party, and any additional technology which BioChem chooses to designate as BioChem Technology. Developed Technology....... All technology developed or otherwise obtained pursuant to the Research and Development Agreement. Distribution............... BioChem's distribution of all the outstanding CliniChem Common Shares to the Holders. Distribution Agreement..... The agreement between BioChem and CliniChem relating to the terms and conditions of the Distribution. Distribution Date.......... , 1998, the date of commencement of the Distribution. Field of Use............... The treatment of a particular disease or, in the case of a vaccine, vaccination against a particular bacterium. Holders.................... The holders of record, on the Record Date, of BioChem Common Shares. Licensing Revenues......... Percentage-of-sales payments and Special Royalty Payments received by BioChem from unrelated third parties with respect to Acquired Products. Major Market Country....... Any one of the following countries: Canada, France, Germany, Italy, Japan, the United Kingdom or the United States. Net Sales.................. The total amount invoiced, net of taxes, on sales of an Acquired Product by BioChem to unrelated third parties, such as wholesalers, hospitals distributors, marketing partners and others, in bona fide arm's-length transactions, less discounts, allowances, credits and charges for freight or insurance as customarily determined under BioChem's accounting policies. Product Option............. The option granted by CliniChem to BioChem to acquire all rights to each CliniChem Product (and to terminate CliniChem's corresponding license with respect thereto), exercisable on a product-by-product and country-by-country basis and freely assignable by BioChem. Product Option Agreement... The agreement between BioChem and CliniChem granting the Product Option. 17 19 Product Payment Buy-Out Option................... BioChem's option to buy out CliniChem's right to receive Product Payments for any Acquired Product on a country-by-country or global basis. Product Payments........... Payments to be made by BioChem to CliniChem with respect to Net Sales of Acquired Products and Licensing Revenues with respect to Acquired Products. Purchase Option............ The option of BioChem (as the holder of the majority of the outstanding Class B Shares) to acquire all (but not less than all) of the outstanding CliniChem Common Shares. Purchase Option Exercise Price.................... The amount payable by BioChem to exercise the Purchase Option. Record Date................ , 1998, the date as of which Holders will be eligible to receive CliniChem Common Shares in the Distribution. Research and Development Agreement................ The agreement between BioChem and CliniChem providing for the conduct by BioChem of the CliniChem Programs. Research and Development Costs.................... The fully-burdened cost of activities undertaken pursuant to the Research and Development Agreement plus 5% of such costs, including research expenses, general and administrative expenses, capital asset costs, costs for licenses or acquisition of technology, products or therapeutic agents from third parties for the CliniChem Programs and costs of third-party collaborations or contract research undertaken for the CliniChem Programs. Services Agreement......... The agreement between BioChem and CliniChem pursuant to which BioChem has agreed to provide CliniChem with administrative services. Specialty Royalty Payments................... Front-end distribution fees, prepaid royalties, one-time, infrequent or special payments or non-monetary consideration (including licenses of technology) from a licensee, distributor or marketing partner to BioChem with respect to an Acquired Product but excluding any payments for research and development related services or capital expenditures. The fair market value of any such non-monetary consideration shall be assessed by a third-party expert mutually agreed to by BioChem and CliniChem. Technology Fee............. The payments to be made by CliniChem to BioChem in consideration for BioChem granting CliniChem a license to use existing BioChem Technology for the CliniChem Programs. Technology License Agreement.................. The agreement between BioChem and CliniChem pursuant to which BioChem has granted to CliniChem a license to use BioChem Technology solely to conduct research and development and related activities with respect to the CliniChem Programs, and a license to commercialize the CliniChem Products, in consideration for the Technology Fee. 18 20 RISK FACTORS The following factors, in addition to the other information set forth in this Prospectus should be considered carefully in evaluating ownership of CliniChem Common Shares: No Prior Operating History; No Assurance of Profitability. CliniChem is a newly formed company and is subject to the risks inherent in the establishment of a new business enterprise in the biotechnology industry. CliniChem will incur substantial losses for several years due to the long-term nature of the research and development of the CliniChem Products, which losses may never be recovered. Further, there can be no assurance that the CliniChem Products being developed pursuant to the Research and Development Agreement can be licensed or marketed profitably, if at all. Even if such CliniChem Products are commercialized profitably, the initial losses may never be recovered. See "Business of CliniChem." Common Management. The BioChem/CliniChem Agreements, the By-laws and the Articles were approved by BioChem, as the sole shareholder of CliniChem. The members of the present Board of Directors of CliniChem are persons who are directors, officers or employees of BioChem or its affiliates. See "Business of CliniChem--Executive Officers and Directors." Lack of Arm's-Length Negotiations. The BioChem/CliniChem Agreements were not negotiated on an arm's-length basis and BioChem and CliniChem did not retain separate counsel in connection therewith. BioChem is the contractor under the Research and Development Agreement and will perform or participate in all development activities thereunder. CliniChem will be responsible for and will pay the Research and Development Costs that are incurred by BioChem under the Research and Development Agreement. BioChem will unilaterally determine certain activities to be undertaken under the Research and Development Agreement and in all events BioChem will have substantial influence over all activities and procedures (including the timing and priorities thereof) to be undertaken pursuant to the Research and Development Agreement as BioChem will have full discretion to determine, from time to time, the resources of BioChem (facilities, equipment and personnel) to be made available for activities under the CliniChem Programs and to determine, from time to time, the allocation of these resources among such activities. BioChem has no obligation to complete any development activity after all the Available Funds have been expended under the Research and Development Agreement. BioChem's own projects and other third-party projects may compete for time and resources with projects undertaken pursuant to the Research and Development Agreement and the resources BioChem expends under the Research and Development Agreement may therefore be limited. See "The Agreements and the Purchase Option--Research and Development Agreement." Exercise of the Product Option will give BioChem sole control of a product. If BioChem exercises the Product Option for one or more CliniChem Products, it will have sole discretion to control the commercialization of such CliniChem Product(s), including discretion to allocate its marketing resources among those CliniChem Product(s) and other BioChem products. See "The Agreements and the Purchase Option--Technology License Agreement." The Purchase Option Exercise Price may not reflect fair market value; Transferability of Class B Shares. The Purchase Option Exercise Price was not determined on an arm's-length basis. There can be no assurance that the Purchase Option Exercise Price will accurately reflect the fair market value of the CliniChem Common Shares at the time of exercise, if any, and that the Purchase Option Exercise Price will not be significantly higher or lower than such fair market value. The Purchase Option Exercise Price was determined by BioChem, giving consideration to the structure of the Distribution, CliniChem's planned business, the BioChem/CliniChem Agreements, advice given by Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and such other factors as BioChem deemed appropriate. Furthermore, BioChem may transfer ownership of all or part of the Class B Shares at any time and there can be no assurance that the new holder would have the same financial resources or development, manufacturing or marketing capabilities as BioChem, which may have a material adverse effect on the likelihood of the exercise of the Purchase Option. In the event that a majority of the Class B Shares were to be transferred, the payment by the subsequent holder of the majority of the Class B Shares could be made in cash or, if such holder is a company whose common equity securities are listed on a national securities exchange in the United States, admitted to unlisted trading privileges or listed on the Nasdaq, or whose common equity securities are listed on 19 21 The Toronto Stock Exchange or the Montreal Exchange, in the sole discretion of such holder, in shares of such listed common equity security. See "The Agreements and the Purchase Option--Purchase Option." No Assurance of Exercise of Options. BioChem is not obligated to exercise the Purchase Option or the Product Option, and it will exercise either or both of such options only if, in the opinion of BioChem, it is in BioChem's best interest to do so. Even if the CliniChem Products are developed and approved, if BioChem does not exercise the Product Option for a CliniChem Product and/or does not exercise the Purchase Option, CliniChem will be required to find alternative ways to commercially market or exploit such CliniChem Products and there can be no assurance that CliniChem will be able to do so. In the event BioChem fails to exercise the Purchase Option and CliniChem determines to market the CliniChem Products itself (other than any CliniChem Product as to which BioChem has exercised the Product Option), CliniChem will require substantial additional funds. There can be no assurance that such funds will be available on attractive terms, if at all. Similarly, if CliniChem determines to license the CliniChem Products to third parties, such arrangements, if available, may be on terms less favorable to CliniChem or its shareholders than would be the exercise of the Purchase Option. See "The Agreements and the Purchase Option--Purchase Option." No Assurance of Successful Development of the CliniChem Products. CliniChem has agreed with BioChem that BioChem will use diligent efforts to conduct the CliniChem Programs in accordance with the terms of the Research and Development Agreement. BioChem's historical performance has no relationship to CliniChem's potential product development and is not indicative of the future performance of CliniChem. While certain research and development of the CliniChem Products have been conducted, additional research, clinical studies and product development are still to be undertaken. There can be no assurance that CliniChem or BioChem will be able to complete research, clinical development or product development, gain regulatory approval or successfully commercialize any of the CliniChem Products or that the CliniChem Products can be introduced within the anticipated cost estimates or time frames, if at all. Based on CliniChem's current development schedule, CliniChem does not expect that most of the CliniChem Products will reach commercial marketability prior to expenditure of the Available Funds. The successful development of any of the CliniChem Products will require, among other things, demonstration through human clinical studies that such CliniChem Products are safe and effective. See "The Agreements and the Purchase Option--Research and Development Agreement." No Assurance of Sufficient Funds. There can be no assurance that CliniChem will have sufficient funds to successfully develop any of the CliniChem Products. Based on CliniChem's current development schedule, CliniChem does not expect that most of the CliniChem Products will reach commercial marketability prior to expenditure of all of the Available Funds. Currently, other than the Available Funds, CliniChem has no other source for the funding that may be needed to complete the development and commercialization of the CliniChem Products. Therefore, if additional funding is necessary, such development and commercialization of the CliniChem Products may not be possible. While BioChem may provide additional funding, including through loans, at its absolute discretion, upon terms to be negotiated at such time, BioChem is under no obligation to provide such additional funds and there can be no assurance that it will provide such additional funds. See "The Agreements and the Purchase Option--Purchase Option." No Assurance of Successful Manufacturing or Marketing. CliniChem has no manufacturing or marketing capability. BioChem has vaccine manufacturing, quality control and warehousing operations in two locations in Canada, including its new facility in Ste-Foy in the Quebec City area. BioChem has marketing operations for its vaccines in Canada, Argentina and Spain. BioChem has no manufacturing facilities for commercial production of any of its therapeutic drugs approved or under development. Even if the CliniChem Products are developed and receive necessary regulatory clearances and approvals, there can be no assurance that the CliniChem Products will be successfully manufactured for clinical trials or successfully manufactured or marketed for commercial sale. To be successfully marketed, any CliniChem Product must be manufactured in commercial quantities in compliance with regulatory requirements and at a commercially viable cost. There can be no assurance that any CliniChem Product can be manufactured at a commercially viable cost. Any significant delays in the completion of validation and licensing of expanded or new facilities could have a material adverse effect on the ability to continue clinical trials of and ultimately to market the CliniChem Products on a timely and profitable basis. If BioChem does not exercise its Product Option for a CliniChem 20 22 Product (and does not exercise the Purchase Option), CliniChem will have to make alternative arrangements for manufacturing and marketing that CliniChem Product, and there can be no assurance that CliniChem will be able to do so. If BioChem exercises its Product Option for any CliniChem Product, BioChem may need to develop and/or expand its marketing capabilities to commercialize such Acquired Product effectively. If BioChem exercises its Product Option for any CliniChem Product, and does not, at the time the product is to be commercialized, have a sales force in the relevant country or countries, BioChem may need to arrange for marketing by third parties. If BioChem does not exercise its Product Option for a CliniChem Product (and does not exercise the Purchase Option), CliniChem may need to find other means to commercialize that CliniChem Product not involving BioChem, and there can be no assurance that CliniChem will be able to do so. At the present time, CliniChem does not have, nor, through the development stage of the CliniChem Products, does it expect to develop, any manufacturing or marketing capability. If CliniChem decides to manufacture or market one or more CliniChem Products itself, CliniChem will need substantial additional funds. There is no assurance that additional funds will be available, or will be available on attractive terms, and BioChem has no obligation to supply any additional funds to CliniChem. In addition, prior to the exercise or expiration of the Purchase Option, CliniChem may not use the Available Funds for this purpose without BioChem's consent. If either BioChem or CliniChem seeks a third party to manufacture or market a CliniChem Product, there can be no assurance that satisfactory arrangements can be successfully negotiated or that any such arrangements will be on commercial terms acceptable to BioChem or CliniChem. In addition, even if CliniChem decides to license any CliniChem Product to a third party, agreements with that third party, if available, may be on terms less favorable to CliniChem than the terms of the BioChem/CliniChem Agreements. Even if acceptable manufacturing and marketing resources are available, there can be no assurance that any CliniChem Products will be accepted in the marketplace. There can be no assurance that there will be adequate reimbursement by health insurance companies or other third-party payors for any CliniChem Products that are marketed. CliniChem's right to obtain manufacturing will be subject to a right of first offer and a right of first refusal on the part of BioChem to manufacture and, in the event BioChem does not exercise such right of first offer or right of first refusal, then BioChem has the right to approve any proposed manufacturer, which approval may be withheld only if any such manufacturer has insufficient or inadequate manufacturing capability (including lack of compliance with GMP regulations) or if any such manufacturer's activities are likely to have a material adverse effect on BioChem's overall competitive position in the pharmaceutical industry. There can be no assurance that BioChem will not object to potential manufacturers on such grounds or that such objection will not have an adverse effect on CliniChem's ability to secure satisfactory manufacturing arrangements. See "The Agreements and the Purchase Option--Technology License Agreement." Failure to obtain certain Third-Party Consents may prevent the marketing of certain CliniChem Products. Under certain pre-existing agreements, BioChem may be required to obtain third-party consents in order to grant a sublicense to CliniChem in accordance with the Technology License Agreement. BioChem has licensed certain patents and technology related to adjuvants and biovectors from Pharmadigm Biosciences Inc. ("Pharmadigm") and Biovector Therapeutics, SA ("Biovector") (respectively the "Pharmadigm Agreement" and the "Biovector Agreement"). BioChem is currently evaluating the potential of these adjuvants and biovectors for incorporation into vaccines currently under development in the CliniChem Programs. In the event that (i) any such developed vaccine incorporates such adjuvants or biovectors, (ii) BioChem does not exercise the worldwide Product Option with respect to such vaccine and (iii) BioChem has not exercised the Purchase Option, it may be necessary for BioChem to obtain the consent of Pharmadigm and/or Biovector to sublicense such adjuvants or biovectors to CliniChem on commercial terms acceptable to BioChem or for CliniChem to obtain a license to such patents and technology prior to CliniChem's commercialization of such vaccines. There can be no assurance that BioChem or CliniChem 21 23 would be able to obtain such consent or license or, if available, that it would be available on commercial terms acceptable to BioChem or CliniChem. BioChem has obtained a license from the University of Georgia Research Foundation, Inc. ("UGARF") and Yale University (the "UGARF Agreement") to certain patents and know-how related to the use of BCH-4556 for the treatment of cancer. The UGARF Agreement is silent as to whether BioChem may grant sublicenses to commercialize without the licensors' consent. In the event that BioChem does not exercise the Product Option with respect to BCH-4556 and does not exercise the Purchase Option, it may be necessary for BioChem to obtain the consent of the licensors to sublicense such patents and know-how to CliniChem or for CliniChem to obtain a license to such patents and know-how prior to CliniChem's commercialization of BCH-4556. There can be no assurance that such consent or license would be available, or if available, that it would be available on commercial terms acceptable to BioChem or CliniChem. See "The Agreements and the Purchase Option--Third-Party Consents and Rights." Potential Competition from BioChem. BioChem is engaged in ongoing licensing and development of new products. While BioChem has licensed the rights to conduct the CliniChem Programs and manufacture and commercialize the CliniChem Products to CliniChem, BioChem is not prohibited from developing other products, including those that may compete with the CliniChem Products, or from in-licensing or acquiring products that may compete with the CliniChem Products. BioChem's activities may, in some circumstances, lead to the development, in-licensing or acquisition of products that compete with the CliniChem Products being developed by or on behalf of CliniChem. It is possible that BioChem's rights with respect to such competitive products could reduce BioChem's incentive to exercise the Product Option or the Purchase Option. See "The Agreements and the Purchase Option--Research and Development Agreement." Relationship Between CliniChem and BioChem May Limit CliniChem's Activities and Market Value. The terms of the BioChem/CliniChem Agreements, the Articles and the By-laws were not determined on an arm's-length basis and certain terms may limit CliniChem's activities and its market value. The Articles and the By-laws prohibit CliniChem from taking or permitting any action that might impair BioChem's rights under the Purchase Option. Prior to the exercise or the expiration of the Purchase Option, CliniChem may not, without the consent of the holders of the majority of the outstanding Class B Shares, amalgamate or liquidate, or amend its Articles to alter the Purchase Option, CliniChem's authorized capitalization, or the provisions of the Articles governing the right of the holders of the majority of the outstanding Class B Shares to elect one director. Because BioChem will hold all of the outstanding Class B Shares following the Distribution, BioChem will be able to influence significantly or control the outcome of any of the foregoing actions requiring approval by the majority holders of the Class B Shares. The ability of BioChem to influence significantly or control such matters could affect the liquidity of the CliniChem Common Shares and have an adverse effect on the price of the CliniChem Common Shares, and may have the effect of delaying or preventing a change in control of CliniChem, including transactions in which shareholders might otherwise receive a premium for their shares over then current market prices. Neither the terms of the BioChem/CliniChem Agreements nor the Articles prohibit BioChem from transferring its Class B Shares. The special rights accorded to the holders of the majority of the outstanding Class B Shares will expire upon expiration of the Purchase Option. See "The Agreements and The Purchase Option--Purchase Option" and "Description of CliniChem's Share Capital." So long as the Purchase Option is exercisable, the market value of the CliniChem Common Shares will be limited by the Purchase Option Exercise Price. The Purchase Option Exercise Price was determined by BioChem, giving consideration to the structure of the Distribution, CliniChem's planned business, the BioChem/CliniChem Agreements, advice given by Merrill Lynch, and such other factors as BioChem deemed appropriate. The Purchase Option Exercise Price was not determined on an arm's-length basis. The existence of the Purchase Option and BioChem's rights as holder of the majority of the outstanding Class B Shares may inhibit CliniChem's ability to raise capital. Additional capital raised by CliniChem, if any, would most likely reduce the per share proceeds available to holders of the CliniChem Common Shares if the Purchase Option were exercised. The existence of the Purchase Option and BioChem's rights as the holder of the majority of the outstanding Class B Shares may inhibit a change of control and may make an investment 22 24 in the CliniChem Common Shares less attractive to certain potential shareholders, which could adversely affect the liquidity and market value of the CliniChem Common Shares. If BioChem exercises its Product Option for any CliniChem Products, BioChem will have the right to commercialize the product with third parties on such terms as BioChem deems appropriate. In such event, Product Payments from BioChem to CliniChem with respect to the CliniChem Product commercialized by such third parties will be based on Licensing Revenues received from such third parties. Directors Not Initially Elected by Shareholders. Dr. Francesco Bellini will remain a director of CliniChem following the Distribution in accordance with the rights of BioChem under the Articles as the sole holder of the majority of the outstanding Class B Shares. Subsequent to the Distribution, two of CliniChem's current directors will resign as directors and will be replaced by independent directors. The directors will not have been elected by the shareholders, and the holders of the CliniChem Common Shares will not have the opportunity to elect any members of the full Board of Directors until the first annual meeting of shareholders following the Distribution. See "Business of CliniChem--Executive Officers and Directors". Limitation on CliniChem's Ability to License Products to Third Parties. CliniChem has granted BioChem the Product Option, which is exercisable on a product-by-product and country-by-country basis. During the term of the Product Option for each CliniChem Product, CliniChem will not be able to sublicense such CliniChem Product to any party other than BioChem. See "The Agreements and the Purchaser Option--Product Option Agreement." Uncertainty Regarding Sufficient Availability of BioChem Research and Development Personnel and Facilities. Although BioChem believes that its personnel, facilities and third-party arrangements currently are or, in the future, will be adequate for the performance of its duties to CliniChem under the Research and Development Agreement, its research personnel will perform services in the same facilities for BioChem and client companies of BioChem. In addition, conduct of the CliniChem Programs pursuant to the Research and Development Agreement will require BioChem to attract and retain additional personnel with particular scientific and management skills. The availability of such personnel is limited and there can be no assurance that such personnel will be available or that BioChem will be successful in attracting the necessary personnel to successfully develop any of the CliniChem Products. BioChem is not required to allocate any specified amount of time or resources to its duties under the Research and Development Agreement. BioChem's obligations to other present and future clients may restrict the amount of resources that otherwise could be devoted to its duties under the Research and Development Agreement. Subject to its obligation to use diligent efforts under the Research and Development Agreement, BioChem may allocate both its research personnel and its facilities as it deems appropriate under the circumstances. See "The Agreements and the Purchase Option--Research and Development Agreement." BioChem's success to date has resulted, in large part, from the particular scientific and management skills of its personnel. There can be no assurance that such personnel will continue to be available to BioChem or, were they to be no longer available, that BioChem would be able to attract and retain employees with similar skills. The continued availability of this group is important to the business of CliniChem. Limitation or Termination of Rights and Obligations in Bankruptcy. In the event that BioChem voluntarily or involuntarily is party to a bankruptcy, winding up, receivership, appointment of examiner or trustee, insolvency, compromise with creditors or similar proceeding, the liquidator, receiver, examiner, trustee or administrator of BioChem's business and properties may have broad powers to deal with such business and properties, including the ability to terminate certain contracts, in which case CliniChem's rights as they relate to the license granted pursuant to the Technology License Agreement or its right to receive Product Payments from BioChem pursuant to the terms of the Product Option Agreement may be adversely affected and any claims of CliniChem in such case will rank with other claims on an unsecured basis. See "The Agreements and the Purchase Option--Technology License Agreement" and "--Research and Development Agreement." Dependence on BioChem. Substantially all of the management and operating activities of CliniChem will be carried out by BioChem under the Research and Development Agreement and the Services Agreement. CliniChem is not expected to have its own research, development, clinical, licensing, administration, manufacturing or marketing employees or facilities and thus will be entirely dependent on BioChem in 23 25 these areas. Subject to their respective obligations under the Research and Development Agreement and the Services Agreement, consistent with commercially reasonable practices, BioChem will have sole discretion to determine the allocation of its research, development, clinical, licensing, administration, manufacturing and marketing employees and facilities. Although BioChem believes that its personnel, facilities and third-party arrangements currently are or, in the future, will be adequate for the performance of its duties under the Research and Development Agreement, BioChem's proprietary and collaborative development, licensing, manufacturing and marketing projects may compete for time and resources with projects undertaken by CliniChem pursuant to the Research and Development Agreement, thereby delaying development, manufacture and marketing of the CliniChem Products. Any material adverse change in the business or financial condition of BioChem would have a material adverse effect upon CliniChem. See "The Agreements and the Purchase Option--Research and Development Agreement." Highly Competitive Industry; Rapid and Significant Technological Change. The pharmaceutical industry is highly competitive and subject to rapid and significant technological change. CliniChem anticipates that it will face increased competition in the future as new products enter the market and advanced technologies become available. The CliniChem Programs currently face intense competition from other pharmaceutical concerns. Competitors of BioChem and CliniChem in North America and abroad are numerous and include, among others, major pharmaceutical and chemical companies, including without limitation some of the licensees (or potential licensees) of the CliniChem Products, specialized contract research and research and development firms, universities and other research institutions. Many of these competitors, particularly large pharmaceutical, vaccine and diagnostic companies, have substantially greater financial, technical and human resources than those of BioChem and CliniChem. In addition, many of these competitors have significantly greater experience than BioChem and CliniChem in undertaking research, pre-clinical studies and human clinical trials of new pharmaceutical products, obtaining FDA and other regulatory approvals, and manufacturing and marketing such products. There can be no assurance that BioChem's and CliniChem's competitors will not succeed in developing technologies and products that are as, or more, clinically or cost-effective than the BioChem Technology or the CliniChem Products or that would render the BioChem Technology and CliniChem Products obsolete or uncompetitive prior to BioChem's and CliniChem's recovering research, development or commercialization expenses incurred with respect to any such BioChem Technology or CliniChem Products. Such success by BioChem's and CliniChem's competitors in commercializing products more rapidly or effectively than BioChem and CliniChem could have a material adverse effect on BioChem's and CliniChem's business, financial condition or results of operations. See "Business of CliniChem". Government Regulation. Regulation by governmental authorities in Canada, the United States and other countries is a significant factor in the production and marketing of the CliniChem Products and in the conduct of the CliniChem Programs. Pharmaceutical and biological products intended for diagnostic, therapeutic or prophylactic use for humans are governed by the FDA in the United States, by the Health Protection Branch (the "HPB") in Canada and by comparable agencies in other countries. For most of these products, the regulations require extensive clinical trials and other testing and government review and final approval prior to marketing the product. This procedure is likely to take a number of years and involves the expenditure of substantial resources. For example, as a general rule, before obtaining regulatory approval for the commercial sale of any CliniChem Product under development, CliniChem must demonstrate through pre-clinical studies and clinical trials that the CliniChem Product is safe and efficacious. The results from pre-clinical studies and early clinical trials may not be predictive of results obtained in large scale clinical trials, and there can be no assurance that BioChem's and CliniChem's or their collaborators' clinical trials will demonstrate safety and efficacy, achieve regulatory approvals or result in marketable CliniChem Products. A number of companies in the biotechnology industry have suffered significant setbacks in advanced clinical trials, even after achieving promising results in earlier trials. In addition, government regulations specify standards for manufacturing and marketing pharmaceutical products. The Center for Biologics Evaluation and Research (the "CBER") in the United States, the Bureau of Biologics and Radiopharmaceuticals (the "BBR") in Canada, and similar agencies in other countries, regulate the manufacturing, marketing and use of vaccines. CliniChem Product License Applications and Establish- 24 26 ment License Applications or equivalent documentation are required to be submitted to the governmental authorities for review prior to obtaining marketing approval. Government regulations specify standards for manufacturing and marketing vaccines and biological products. These regulations set standards for proof of safety and effectiveness, establish good manufacturing practices, require inspection of vaccine manufacturing facilities and require reporting of adverse events to regulatory authorities. These government authorities also conduct pre-release testing of vaccines and authorize the sale of each lot of vaccines. Sales of therapeutic and vaccine products outside Canada and the United States are subject to regulatory requirements that vary from country to country. Whether or not FDA, HPB, CBER or BBR approval has been obtained, final approval of a product by comparable regulatory authorities of other countries must be obtained prior to the commencement of marketing the product in those countries. The time required to obtain any such approval may be longer or shorter than that required for FDA, HPB, CBER or BBR approval. Any failure by BioChem and CliniChem or their collaborators or licensees to obtain, or any delay in obtaining, regulatory approvals could adversely affect the marketing of any CliniChem Products and CliniChem's ability to receive product or royalty revenue. There can be no assurance that any of CliniChem's planned products will be approved by the FDA, HPB, CBER or BBR or any other governmental agency on a timely basis, if at all. See "Business of CliniChem--Government Regulation." Uncertainty Regarding Patents and Proprietary Technology; Unpredictability of Patent Protection. CliniChem's success will depend, in part, on BioChem's ability to obtain and enforce patents, protect trade secrets and other proprietary information and operate without infringing on the proprietary rights of others. There can be no assurance that patent applications for a CliniChem Product will be approved, that CliniChem will develop any CliniChem Product or process to the point that it is patentable, that any issued patents for a CliniChem Product will provide CliniChem with adequate protection or will not be challenged by others, or that the patents of others will not impair the ability of CliniChem to do business. Furthermore, there can be no assurance that others have not or will not independently develop similar products, duplicate any unpatented CliniChem Products or design around any patented CliniChem Products in development or marketed by BioChem or CliniChem. BioChem currently holds a United States patent claiming BCH-4556 and related compounds, as well as issued patents and pending applications covering BCH-4556 and methods of using the same in numerous countries. Emory University of Atlanta, Georgia has filed an opposition to BioChem's granted European patent application covering BCH-4556. BioChem is vigorously defending its application. An examined patent application, claiming use of stress proteins for the preparation of vaccines, filed by the Whitehead Institute for Biomedical Research, has been published for opposition in Europe. Oppositions to this application have been filed by BioChem as well as another party and BioChem is vigorously opposing this application. There is no assurance, however, that BioChem will be successful in defeating these claims. The Whitehead Institute holds a corresponding patent in Canada and may have pending applications in other countries. In the event that BioChem were to be unsuccessful in challenging the broad claims in the Whitehead patents, there is no assurance that BioChem would be able to obtain a license to these patents, which may be required to commercialize a Streptococcus pneumoniae vaccine based on the HSP72 heat shock protein. CliniChem is aware of certain issued patents and patent applications of others, and there may be other patents and patent applications, containing subject matter which BioChem or CliniChem or their licensees or collaborators may require in order to research, develop or commercialize certain of the CliniChem Products. There can be no assurance that BioChem or CliniChem or their collaborators will be able to obtain a license to any third-party technology or patents that they may require to conduct the CliniChem Programs or that such technology or patents can be licensed at a reasonable cost. Failure by BioChem, CliniChem or their collaborators to obtain a license to any technology or patents that they may need to commercialize the BioChem Technology or the CliniChem Products may result in delays in marketing the CliniChem Products or the inability to proceed with the development, manufacture or sale of the CliniChem Products requiring such licenses and may have a material adverse effect on CliniChem. 25 27 Litigation, which could result in substantial cost to BioChem, may also be necessary to enforce any patents issued to BioChem or to determine the scope and validity of other parties' proprietary rights, which may affect the CliniChem Products and the likelihood that BioChem would exercise the Product Option with respect to such products. If the outcome of any such litigation is adverse to BioChem, CliniChem's business could be materially adversely affected. BioChem also relies upon trade secrets, know-how, and continuing technological advancement to develop and maintain its competitive position. Disclosure and use of BioChem's know-how is generally controlled in part under confidentiality agreements with the parties involved. In addition, BioChem has confidentiality agreements with its key employees, consultants, officers and directors. There can be no assurance, however, that all confidentiality agreements will be honored, that others will not independently develop equivalent technology, that disputes will not arise as to the ownership of intellectual property, or that disclosure of BioChem's trade secrets will not occur. Furthermore, there can be no assurance that others have not obtained or will not obtain patent protection that will exclude BioChem from using its trade secrets and confidential information. BioChem supports and collaborates in research conducted in universities and in government research organizations. There can be no assurance that BioChem will have or be able to acquire exclusive rights to inventions or technical information derived from such collaboration or that disputes would not arise as to rights in derivative or related research programs conducted by BioChem. In addition, in the event of BioChem's contractual breach or bankruptcy, certain of BioChem's collaborative research contracts provide for transfer of technology (including any patents or patent applications) to the collaborators. To the extent that consultants or research collaborators use intellectual property owned by others in their work with BioChem, disputes may also arise as to the rights to related or resulting know-how or inventions. See "Business of CliniChem--Patents." Uncertainty of Pharmaceutical Pricing and Third-Party Reimbursement. The business and financial condition of diagnostic, pharmaceutical, vaccine and biotechnology companies will continue to be affected by the efforts of governments and third-party payors to contain or reduce the costs of healthcare through various means. For example, in certain foreign markets pricing or profitability of prescription pharmaceuticals is subject to government control. In the United States there have been, and CliniChem expects that there will continue to be, a number of federal and state proposals to implement similar government control. In addition, an increasing emphasis on managed care in the United States has and will continue to increase the pressure on pharmaceutical pricing. While CliniChem cannot predict whether such legislative or regulatory proposals will be adopted or the effects such proposals or managed care efforts may have on its business, the announcement of such proposals and the adoption of such proposals or efforts could have a material adverse effect on CliniChem's business and financial condition. Further, to the extent such proposals or efforts have a material adverse effect on other pharmaceutical companies that are prospective corporate partners for CliniChem, CliniChem's ability to establish a strategic alliance may be adversely affected. In addition, in Canada, the United States and elsewhere, sales of prescription pharmaceuticals, vaccines and diagnostic products are dependent, in part, on the availability of reimbursement to the consumer from third-party payors, such as government and private insurance plans. Third-party payors are increasingly challenging the prices charged for medical products and services. To the extent CliniChem succeeds in bringing products to market, there can be no assurance that these products will be considered cost-effective and that reimbursement to consumers will be available or will be sufficient to allow CliniChem to sell its products on a competitive basis. CliniChem Product Liability Exposure and Insurance. The use of any CliniChem Products in clinical trials, and the sale of any CliniChem Products, may expose CliniChem to liability claims resulting from the use of the CliniChem Products. These claims might be made directly by consumers, healthcare providers or by pharmaceutical companies or others selling such products. CliniChem currently has no liability insurance with respect to sales of CliniChem Products. There can also be no assurance that CliniChem will be able to obtain or maintain commercially reasonable product liability insurance for any CliniChem Products approved for marketing. A successful product liability claim or a series of claims brought against CliniChem could have a material adverse effect on its business, financial condition or results of operations. Possible Dilution; Reduction of Per Share Purchase Option Exercise Price. All CliniChem Common Shares issued by CliniChem after the Distribution will be subject to the Purchase Option, and the Purchase Option Exercise Price will not increase as a result of any such issuance. Accordingly, if additional CliniChem 26 28 Common Shares were to be issued, the percentage of the Purchase Option Exercise Price payable with respect to each CliniChem Common Share in the event BioChem exercises the Purchase Option would be reduced. Liabilities, including any debt issued by CliniChem, but excluding any debt owed to BioChem, will reduce the Purchase Option Exercise Price to the extent that such liabilities exceed CliniChem's cash, cash equivalents, and short-term and long-term investments (excluding the Available Funds), unless repaid or discharged by CliniChem prior to exercise of the Purchase Option. No Assurance of Trading Value or Markets for CliniChem Common Shares; Sale of Withheld Shares. Although it is expected that the CliniChem Common Shares will be traded on the Nasdaq, there can be no assurance that there will be an active trading market for the CliniChem Common Shares. See "Description of CliniChem's Share Capital." The sale of a portion of the CliniChem Common Shares distributed to non-Canadian resident Holders on such Holders' behalf in order to pay any Canadian withholding tax for which these Holders are liable, could negatively affect the market price of the CliniChem Common Shares. See "The Distribution." THE DISTRIBUTION The Board of Directors of BioChem has declared a distribution, payable to Holders, of one CliniChem Common Share for every 40 BioChem Common Shares owned by such Holder on the Record Date. As a result of the Distribution, all of the then outstanding CliniChem Common Shares will be distributed to the Holders. Neither BioChem nor CliniChem will receive any proceeds in connection with the Distribution. After the Distribution, BioChem will hold all of the authorized and issued Class B Shares. See "Description of CliniChem's Share Capital." Subject to certain conditions set forth in the Distribution Agreement, BioChem will effect the Distribution (expected to be on or about , 1998) by delivering all of the CliniChem Common Shares to the Distribution Agent. Commencing on or about the Distribution Date, the Distribution Agent will begin distributing share certificates reflecting ownership of CliniChem Common Shares to Holders. No fractional shares will be issued as part of the Distribution. Fractional CliniChem Common Shares will be rounded up to a whole share by the Distribution Agent. A total of approximately 2,706,475 CliniChem Common Shares are expected to be distributed, assuming 108,258,990 BioChem Common Shares (the number of BioChem Common Shares outstanding on January 31, 1998) are outstanding on the Record Date. No Holder will be required to pay any cash or other consideration for the CliniChem Common Shares received in the Distribution (exclusive of applicable Canadian withholding taxes), nor will any action be required to be taken by any Holder in order to receive CliniChem Common Shares. However, Canadian withholding taxes will be payable. A portion of the CliniChem Common Shares otherwise deliverable to certain Holders who are not residents of Canada will be withheld and sold on such Holders' behalf in order to pay any Canadian withholding tax for which such Holder is liable. In the case of a U.S. Holder, pursuant to the Canada-United States Income Tax Convention, the rate of withholding is generally 15%. Revenue Canada will not accept CliniChem Common Shares in satisfaction of the withholding obligation and thus BioChem will remit the proceeds from market sales of withheld shares to satisfy such obligation. In the case of U.S. Holders who hold their BioChem Common Shares through DTC, DTC will debit the broker-dealer's account for the amount of cash equal to 15% of the fair market value of the dividended shares and remit such amount to Revenue Canada. The broker-dealer will then debit the account of such Holder for a like amount. However, in the case of Registered U.S. Holders, BioChem needs to withhold 15% of the fair market value of the shares distributed to such Holders and remit the proceeds from the sale of such shares to Revenue Canada. Less than 1% of BioChem's Common Shares held by non-resident Holders are held by Registered U.S. Holders. The distribution of the CliniChem Common Shares withheld may be effected from time to time in one or more transactions on behalf of the Holder (which may include block transactions) in the over-the-counter market, on the Nasdaq, or on any exchange on which they may then be listed, in negotiated transactions, through the writing of options on shares (whether such options are listed on an options exchange or otherwise), or a combination of such methods of sale, at fixed prices which may be changed, at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. Such transactions may be effected by selling CliniChem Common Shares to or through broker-dealers, and such broker-dealers may receive compensation in the form of discounts, concessions or commissions from the Distribution Agent, and/or the purchasers of CliniChem Common Shares for 27 29 whom such broker-dealers may act as agent or from both (which compensation as to a particular broker-dealer might be in excess of customary commissions). Participating brokers and dealers may be deemed to be "underwriters" as defined in the Securities Act. See "Income Tax Considerations." The general terms and conditions of the Distribution and the arrangements between BioChem and CliniChem are set forth in the BioChem/CliniChem Agreements. See "The Agreements and the Purchase Option." Shareholders of BioChem with inquiries regarding the Distribution should contact BioChem's principal executive office: BioChem Pharma Inc., 275 Armand-Frappier Blvd., Laval, Quebec, Canada H7V 4A7, Attn: Investor Relations; Telephone: (514) 978-7771. 28 30 CLINICHEM PRO FORMA CAPITALIZATION The following table sets forth the pro forma capitalization and certain other balance sheet data of CliniChem as of February 6, 1998, as adjusted to give effect to the contribution to capital by BioChem of $150 million by BioChem to the capital of CliniChem, the filing of an amendment to the Articles and the issuance to BioChem of CliniChem Common Shares and Class B Shares prior to the Distribution. The data set forth below should be read in conjunction with the Financial Statements and related Notes included elsewhere in this Prospectus.
AS AT PRO FORMA AUTHORIZED FEBRUARY 6, 1998 FEBRUARY 6, 1998(1) ---------- ---------------- ------------------- (audited) (unaudited) Cash................................................ $ 1,000 $150,001,000 ============ ============ Shareholder's equity: Common Shares..................................... 1,000 1,000 -- (1,000 shares) Class A Common Shares............................. Unlimited -- 167 (2,706,475 shares) Class B Common Shares(2).......................... 1,000 -- 833 (1,000 shares) Contributed Surplus............................... -- 150,000,000 ------------ ------------ Total shareholders' equity.......................... $ 1,000 $150,001,000 ============ ============
- --------------- (1) See footnotes (a) and (b) to the Pro Forma Balance Sheet on page F-7 for a description of the pro forma adjustments reflected in the adjusted balances. (2) All Class B Shares issued and outstanding, as adjusted, are held by BioChem. REASONS FOR THE DISTRIBUTION AND EFFECTS ON BIOCHEM BioChem is a leading biopharmaceutical company engaged in the research, development and marketing of therapeutic products and the research, development, manufacturing and marketing of vaccine and diagnostic products for a wide range of infectious and other diseases. For the fiscal year ended December 31, 1997, BioChem had operating revenue of $280.8 million and net income of $79.8 million. At December 31, 1997, BioChem shareholders' equity was $498.1 million. BioChem conducts its business through BioChem Therapeutic Inc., BioChem Vaccines Inc., BioChem ImmunoSystems Inc. and BioChem's foreign subsidiaries. BioChem's most significant therapeutic product is a novel nucleoside analog, marketed under the brand name of 3TC, developed with Glaxo Wellcome for the treatment of patients with HIV infection, including AIDS. The nucleoside analog is marketed under the brand names 3TC or Epivir. Lamivudine, a different dosage regimen of 3TC, is also being developed with Glaxo Wellcome as a treatment for chronic hepatitis B infection, including in the pre- and post-liver transplant setting to prevent graft re-infection by human hepatitis B virus. BioChem has also developed, and is manufacturing and marketing, a line of vaccines including whole virus and split virus influenza vaccines, a combined diphtheria tetanus vaccine and a vaccine to prevent tuberculosis. BioChem has also developed and is manufacturing an immunotherapeutic product used in the treatment of certain superficial bladder cancers. BioChem's diagnostics operations are engaged in the research, development, manufacturing and marketing of a wide range of diagnostic products and automated laboratory analyzers for the detection of a variety of infectious diseases, and for use in immunology, endocrinology and hematology. At the time of the capital contribution, BioChem will record an investment in CliniChem of $150 million. On the date of the declaration of the Distribution, BioChem will charge the fair market value of the dividend to retained earnings and will expense the excess of the book value of CliniChem over the fair market value of the CliniChem Common Shares distributed. The fair market value of the CliniChem Common Shares will be determined by BioChem based on their closing price on the Nasdaq on the Distribution Date. BioChem will 29 31 recognize as revenue the payments from CliniChem under the Research and Development Agreement. Research and Development Costs incurred by BioChem to perform its obligations under the Research and Development Agreement will be expensed as research and development expenses. If BioChem exercises the Purchase Option, the Purchase Option Exercise Price will be allocated between capitalized intangibles (for the value of completed CliniChem Products) and in-process research and development (for the value of research and development on-going under the CliniChem Programs). Under generally accepted accounting principles in the United States, the value attributed to in-process research and development will be immediately written off as an expense, while under generally accepted accounting principles in Canada it will be capitalized and recognized as expense over future periods. BioChem believes that the research and development work it has undertaken, directly and through collaborators, in the therapeutic and vaccine areas has yielded results which justify further research and development. However, a substantial amount of additional research and development effort is required to further develop the CliniChem Products to their potential commercialization. Such opportunities involve significantly different risk/reward profiles as compared to BioChem's established therapeutic, vaccine and diagnostic businesses. To continue the advancement of, and in certain cases accelerate, these projects and programs, BioChem seeks strategic collaborations and ventures, such as the Glaxo Wellcome collaboration, to provide complementary financing. BioChem's strategy also involves actively seeking outside product opportunities through joint ventures, licensing, acquisitions and strategic alliances with both technology, marketing and geographic partners. BioChem believes that the formation of CliniChem to conduct the CliniChem Programs by BioChem, and the arrangements between BioChem and CliniChem, will provide BioChem with the opportunity to continue to pursue and expand its product commercialization business. BioChem believes that the arrangements with CliniChem will significantly benefit BioChem shareholders: - separating the risks associated with conducting the CliniChem Programs from those associated with BioChem's established therapeutic, vaccine and diagnostic businesses; - allowing individual shareholders of BioChem to increase or decrease their level of participation in the business of conducting the CliniChem Programs by varying their level of investment in CliniChem; - obtaining for BioChem the exclusive right to commercialize worldwide (subject to pre-existing third-party rights) any developed CliniChem Product, assuming BioChem's exercise of the Product Option with respect to such product or exercise of the Purchase Option, thereby making it possible for BioChem to capture a potentially greater return on the products researched and developed with CliniChem than may otherwise be possible from products researched and developed for commercialization in conjunction with other third parties; and - allowing BioChem's near-term financial results to continue to reflect principally its established therapeutic, vaccine and diagnostic businesses, through CliniChem's payment to BioChem for the Research and Development Costs. The foregoing potential benefits to BioChem shareholders of the arrangements with CliniChem may, however, be offset by certain costs and detriments, including but not limited to the following: BioChem's loss of control over research and development activities to be conducted by or on behalf of CliniChem, which instead will be overseen by CliniChem's Board of Directors; the administrative costs to BioChem relating to the establishment of CliniChem, including accounting and legal fees and costs; the potential cost of the exercise of any of BioChem's options and potential royalties to CliniChem; and the potential loss of income tax benefits to BioChem which may have been derived from deduction by BioChem rather than CliniChem of research and development expenses attributable to the CliniChem Programs. After reviewing BioChem's goals and objectives and considering other possible methods of expanding its product line with proprietary therapeutic and vaccine products that provide distinctive pharmaceutical and economic benefit, BioChem's management and Board of Directors believe that continuing to pursue the research and development of such products through the formation of CliniChem and the Distribution will 30 32 significantly benefit the BioChem shareholders. The Board of Directors' final approval of this transaction was conditioned upon the advice and the delivery of a written opinion of Merrill Lynch. Merrill Lynch has delivered an opinion dated , 1998, substantially to the effect that, based upon the factors recited in such opinion and the actions described below, (i) from a financial point of view, the Distribution provides a reasonable structure to pursue the financial objectives of BioChem set forth above and (ii) from a financial point of view, the Distribution is fair to Holders. In delivering its opinion, Merrill Lynch has undertaken, among other things, the following actions: (a) a review of this Prospectus and certain other material documents; (b) discussions with members of senior management of BioChem with respect to the businesses and prospects of BioChem and CliniChem and the strategic objectives of each; (c) discussions concerning the Distribution with other representatives and advisors of BioChem; (d) a review of financial and other information concerning BioChem (with and without CliniChem) that was either publicly available or was furnished to it by BioChem; (e) a review of historical prices and trading volumes of the BioChem Common Shares; (f) a review of the terms and conditions of transactions that are similar to the transactions contemplated in connection with the Distribution; and (g) a review of such other financial studies and analyses as it deemed to be appropriate. The opinion states that Merrill Lynch has relied on the accuracy and completeness of all information supplied or otherwise made available to it, discussed with or reviewed by or for it, or publicly available (including the information contained in this Prospectus), and Merrill Lynch has not assumed any responsibility for independently verifying such information or undertaken an independent evaluation or appraisal of any of the assets or liabilities of BioChem (with or without CliniChem) or been furnished with any such evaluation or appraisal. In connection with this opinion, Merrill Lynch has not been asked to, nor has it provided any opinion as to, the valuation or future performance of CliniChem as an independent public company following the Distribution. In its opinion, Merrill Lynch does not opine on or give assurances of the price at which the BioChem Common Shares will actually trade after announcement of the Distribution or the price at which the CliniChem Common Shares will actually trade after the Distribution. The opinion notes that such trading following the Distribution may be characterized by a redistribution among existing shareholders and other investors and that, accordingly, the BioChem Common Shares and the CliniChem Common Shares may trade during such period at prices below those at which they would trade on a fully distributed basis. In addition, the opinion does not address whether the funds invested by BioChem or CliniChem will be adequate to accomplish the objective of successfully conducting the CliniChem Programs. BioChem will pay Merrill Lynch a fee of US$2.5 million for its services in connection with the Distribution. The receipt of this fee is contingent upon the consummation of the Distribution. Merrill Lynch will also be reimbursed for up to US$200,000 of expenses that it has incurred or will incur in rendering its services. BioChem has agreed to indemnify Merrill Lynch against certain liabilities and expenses in connection with its services as financial advisor. Merrill Lynch may actively trade BioChem Common Shares and may, in the future, trade CliniChem Common Shares for its own account and for accounts of customers and, accordingly, may at any time hold a long or short position in such securities. BioChem selected Merrill Lynch as its financial advisor because it is a nationally recognized investment banking firm that has substantial experience in transactions similar to the Distribution. Although Merrill Lynch participated in certain of the discussions regarding the Distribution, the terms of the Distribution were determined by BioChem's Board of Directors. Hambrecht & Quist LLC was also retained by Biochem in connection with this transaction. BUSINESS OF CLINICHEM GENERAL CliniChem was incorporated by articles of incorporation under the Canada Business Corporations Act (the "CBCA") by BioChem in January 1998 to conduct research and development of potential human therapeutic and vaccine products primarily for the treatment of cancer and HIV infection, including AIDS, and the prevention of certain infectious diseases. CliniChem has not conducted any business to date and has 31 33 no employees. Its three officers are full-time employees of BioChem. CliniChem does not intend to perform any research, development or other activities itself, but rather will contract with BioChem to perform all such activities pursuant to the terms of the Research and Development Agreement. The CliniChem Programs initially to be conducted under the Research and Development Agreement are the development of (i) BCH-4556, a novel nucleoside analog to treat various forms of cancer, (ii) BCH-10652, a novel nucleoside analog to treat HIV infection, including AIDS (iii) small molecules to treat solid cancer tumors by inhibiting angiogenesis through the antagonism of the a(n)b(3) receptor, (iv) recombinant protein vaccines to prevent infection by: (a) Neisseria meningitidis, (b) Streptococcus pneumoniae, (c) Neisseria gonorrhoeae, (d) Haemophilus influenzae non typeable, (e) Streptococcus Group B and (f) Chlamydia pneumoniae. BioChem has the right, with the consent of the Board of Directors of CliniChem, to expand the scope of the CliniChem Programs and to select additional development programs to be conducted as substitutes for, or in addition to, the Therapeutic Program and the Vaccine Program. In order to clinically test, manufacture and market drug products for therapeutic use, rigorous mandatory procedures and standards established by the regulatory agencies must be satisfied. See "--Government Regulation". CliniChem's belief in the potential efficacy of some of the CliniChem Products is based upon pre-clinical studies performed by BioChem or other third parties. Neither BioChem nor CliniChem has received FDA approval to begin clinical trials on any CliniChem Product other than BCH-4556, and neither CliniChem nor BioChem has received FDA approval for the manufacturing and/or marketing of any of the CliniChem Products. Consequently, there can be no assurance that the CliniChem Products or any other products selected for research and development will receive the necessary FDA approvals, that either CliniChem or BioChem will commence manufacturing or marketing of any of the CliniChem Products or as to when manufacturing and marketing of the CliniChem Products will commence. In order to conduct its business, CliniChem will depend substantially on BioChem and BioChem's licensors for rights to use BioChem Technology, for research and development activities, for administrative services and, if BioChem exercises the Product Option, for the commercialization of CliniChem Products. After the expiration of the Product Option for a CliniChem Product, CliniChem may also perform directly, or engage other third parties to perform on its behalf, the commercialization of such CliniChem Product. However, it is likely that BioChem will be responsible for executing substantially all of the operational activities necessary for CliniChem's business following the Distribution and continuing through completion of the development stage of the CliniChem Products, and that the Available Funds will be used primarily to fund these activities under the Research and Development Agreement and the Services Agreement and to pay the Technology Fee. CliniChem's Board of Directors will be responsible for determining which products will be pursued, and for approving the work plans and other cost estimates therefor. CliniChem's Board of Directors will supervise and review BioChem's ongoing activities on behalf of CliniChem. See "Risk Factors--Dependence on BioChem"; "--Uncertainty Regarding Sufficient Availability of BioChem Research and Development Personnel and Facilities." Prior to the Distribution, BioChem will contribute $150 million in cash to CliniChem as a capital contribution. As the holder of the majority of the outstanding Class B Shares following the Distribution, BioChem will have the option to acquire all (but not less than all) of the outstanding CliniChem Common Shares under specified conditions. BioChem has also granted certain technology licenses and agreed to make specified payments on sales of certain products in consideration, inter alia, for the payment by CliniChem of the Technology Fee. In the early years, CliniChem's revenues are expected to be primarily derived from investment income. In later years, if BioChem were to exercise its Product Option for any CliniChem Product, or if a CliniChem Product were commercialized by CliniChem itself or by a third party on behalf of CliniChem, CliniChem would derive revenues and/or royalties from sales of the CliniChem Products or from amounts paid to CliniChem by BioChem or third parties for the rights to commercialize such CliniChem Products. Until the exercise or the expiration of the Purchase Option, all such amounts paid to CliniChem by BioChem will constitute Available Funds. Unless otherwise indicated, information regarding the number of persons diagnosed with a particular disease, fatality rates associated with a particular disease or indication or potential size of a market for 32 34 treatment of a particular disease has been obtained from sources published by the World Health Organization (the "WHO") and the Centers for Disease Control in the United States (the "CDC"). THE CLINICHEM PROGRAMS BCH-4556 BCH-4556 is a nucleoside analog being developed to treat various forms of cancer. Nucleoside analogs, such as gemcitabine and Ara-C, are used in the treatment of cancer. Nucleoside analogs inhibit tumor growth by preventing cell replication. Currently marketed nucleoside analogs have two major disadvantages that impair their anti-cancer activity and have limited their use to date. First, they are rapidly deaminated, which leads to a loss of efficacy and to the resistance of the cancer to treatment. Second, existing nucleoside analogs are typically unable to completely stop cell division and therefore do not optimally treat cancer. BCH-4556 is a nucleoside analog which CliniChem believes will provide significant benefits in treating various forms of cancer due to its novel structure. Discovered and synthesized by BioChem scientists, BCH-4556 is structurally different from currently marketed nucleoside analogs. BCH-4556 is not vulnerable to deamination and may be able to completely stop cell division. CliniChem believes that both of these characteristics could lead to improved efficacy compared to other currently marketed nucleoside analogs. CliniChem plans to administer BCH-4556 initially by intravenous injection, but is also examining an oral formulation. BCH-4556 was selected for clinical development based on the activity it demonstrated against a variety of human tumors grown in immunocompromised mice and against human tumor cells taken directly from patients. Phase I safety and pharmacokinetic studies are currently in progress in advanced stage cancer patients with solid cancer tumors. A single dose regimen is being evaluated in collaboration with the National Cancer Institute of Canada. Two additional multiple dose regimens are being conducted in the United States. CliniChem plans to conduct Phase II clinical trials with BCH-4556 in 1998 targeting various types of cancer (e.g. renal, prostate, breast, ovarian, colorectal, non-small cell lung, pancreatic, head and neck, leukemia and melanoma). CliniChem expects the initial pilot Phase II studies to demonstrate the types of cancer in which BCH-4556 shows activity. If it obtains positive results, CliniChem will then focus on certain types of cancer in the Phase II/III trials. Approximately 8 million people worldwide are diagnosed each year with cancer. The worldwide market for anti-cancer treatments in 1996 was approximately US$10.2 billion, or 4.3% of the global pharmaceutical market. In 1996, the anti-cancer market grew by approximately 12% over the previous year. Factors influencing the strong growth in the cancer market include: (a) increased incidence of cancer; (b) improved diagnosis; and (c) development of effective adjunct therapies which enable more intense, more effective and more widespread use of chemotherapy. The increased incidence of cancer is due to many factors, including: (a) worldwide population growth; (b) longer life expectancies; and (c) increased exposure to carcinogenic environmental or dietary factors. BCH-10652 BCH-10652 is a compound being developed for the treatment of HIV infection and AIDS which has been shown to stop the replication of the HIV virus in vitro. BCH-10652 is a nucleoside analog with a novel structure which targets the HIV reverse transcriptase enzyme. By targeting the reverse transcriptase enzyme, BCH-10652 appears to interfere with the transcription of viral RNA to viral DNA, a process necessary for HIV replication. Other nucleoside analogs, such as AZT and 3TC, also inhibit the reverse transcriptase enzyme. However, BCH-10652 appears to be capable of inhibiting the replication of HIV viruses that have become resistant to other nucleoside analogs and protease inhibitors. CliniChem believes this property may give BCH-10652 a role in the treatment of both HIV-infected patients in whom standard triple combination regimens are no longer effective and patients who have never received anti-HIV therapy (first-line therapy). The current approach to HIV treatment usually relies on triple combination therapy, typically two nucleoside analogs and a protease inhibitor. Various pre-clinical tests performed to assess the safety of BCH-10652 have indicated a good safety profile for this compound. Because of the long-term use of HIV infection treatments, a safe compound has a significant competitive advantage. CliniChem expects to begin Phase I human trials in mid-1998. The 33 35 studies will assess the safety profile and pharmacokinetics of BCH-10652. The results of the trials should enable CliniChem to select two or three doses for the subsequent Phase I/II trials, which will be designed to assess the safety and efficacy of BCH-10652 in HIV-infected individuals. In 1997, the antiretroviral (anti-HIV) market was approximately US$2 billion in sales, divided between reverse transcriptase inhibitors (US$1.2 billion) and protease inhibitors (US$800 million). The vast majority of the sales were generated in North America, Western Europe and Japan. The WHO estimates that, as of the end of 1997, over 30 million people worldwide had been infected with HIV, the virus that causes AIDS. It is generally believed that the vast majority of individuals infected with HIV will ultimately develop AIDS, which currently has a very high fatality rate. Assuming that trends in many parts of the world will continue, the WHO estimates that, by the year 2000, more than 40 million people worldwide will have been infected with HIV. ANGIOGENESIS INHIBITORS Angiogenesis is the process whereby new blood vessels are formed. Over the last few years, it has been recognized that tumor growth is dependent upon the formation of new blood vessels to supply the cancer mass with oxygen and nutrients and to remove carbon dioxide and other metabolic products. Consequently, angiogenesis is required for the growth and proliferation of cancer tumors. The inhibition of angiogenesis, therefore, may prevent tumor growth. One of the required elements of the angiogenic process is the activation of the a(v)b3 receptor. BioChem is pursuing the discovery and development of small molecules that block the receptor and thus should inhibit solid cancer tumor growth and progression. Such molecules are expected to be utilized in combination with standard chemotherapeutic agents to treat a wide variety of solid cancer tumors. BioChem scientists are currently collaborating with Beth Israel Deaconess Hospital in Boston, Massachusetts to develop assays and with Amrad Natural Products Pty Ltd ("ANP") in Melbourne, Australia to identify and characterize novel, small molecules that inhibit tumor-associated angiogenesis. To date, BioChem has identified two classes of small molecules that have demonstrated activity in in vitro angiogenesis models through a(v)b3 antagonism. CliniChem will continue to pursue the angiogenesis inhibitor program with the objective of identifying drug candidates suitable for clinical development. There is no product currently marketed which has been approved for the treatment of cancer by inhibiting angiogenesis. However, there are a number of agents in pre-clinical and clinical development which are being studied alone or in conjunction with chemotherapeutic agents. Due to the nature of the angiogenic process, these agents are likely to be administered over a long period of time to prevent angiogenesis. If effective in preventing the recurrence of cancer tumors, CliniChem believes that the market for these angiogenesis inhibitors may be substantial. CliniChem also believes that such products, if successfully developed, could be used as: (a) an adjunct to chemotherapy or radiotherapy; (b) a follow-up to chemotherapy to prevent recurrence of the tumors and metastases; (c) therapy for large, slow-growing tumors that are less responsive to cytotoxic chemotherapy; and (d) first-line therapy to bypass drug resistance. VACCINES Vaccines are antigens, frequently formulated with an adjuvant (an agent added to antigens to enhance their immunogenicity), that stimulate the immune system to induce protective immunity. CliniChem intends to develop recombinant protein vaccines against numerous bacterial infections for which there are no vaccines currently available or for which existing vaccines have low efficacy. CliniChem will initially focus its efforts on the development of candidate vaccines against bacterial diseases related to infections of Neisseria meningitidis (bacterial meningitis) and Streptococcus pneumoniae (pneumonia, meningitis, otitis media (acute middle ear infections)) and is also developing vaccines against infections of Neisseria gonorrhoeae (gonorrhea), Haemophilus influenzae non typeable (otitis media), Streptococcus Group B and Chlamydia pneumoniae. Most vaccines available today are polysaccharide vaccines or conjugate polysaccharide vaccines. Polysaccharide vaccines suffer from a number of disadvantages. First, polysaccharide vaccines are T-cell independent antigens, which give rise to no immune memory effect. They therefore only produce short-term immunity. Second, the existing polysaccharide vaccines generally are poorly immunogenic in children. 34 36 Therefore, they do not produce strong or long lasting immunity in young children, and are non-immunogenic in children under two years of age. Third, they do not elicit good secondary responses and, therefore, they cannot be used to produce a booster effect. Furthermore, there is a strong antigenic variation between the polysaccharides of different bacterial strains of the same bacteria which necessitates the combination of multiple antigens to ensure a broader immunity. In other words, different bacterial strains have unique polysaccharides, making it difficult for a single polysaccharide vaccine to provide global protection against a broad range of strains of bacterium. Consequently, numerous polysaccharide antigens must be administered to protect against multiple strains of a bacterium. The production of such multi-valent vaccines is time consuming and expensive. Finally, there are certain infections for which no polysaccharide vaccines currently exist. In part to overcome certain limitations of polysaccharide-based vaccines, conjugate polysaccharide vaccines have been and are currently being developed. One such vaccine to protect against Haemophilus influenzae type B is currently marketed. These conjugate polysaccharide vaccines couple a polysaccharide-based vaccine with a protein carrier. Because of the protein carrier, conjugate polysaccharide vaccines induce a T-cell dependent response, which induces a memory effect and can be used to produce a booster effect. These conjugate polysaccharide vaccines, however, have their own limitations. Because of the limited number of conjugate polysaccharide vaccines that can be combined in a single dose, current conjugate polysaccharide vaccines provide protection against only a limited number of strains of a bacterium. In addition, because of the conjugation process, conjugate polysaccharide vaccines are expensive, time consuming and difficult to manufacture. BioChem is currently developing recombinant protein vaccines that attempt to overcome the problems and limitations of both polysaccharide vaccines and conjugate polysaccharide vaccines. BioChem's recombinant protein vaccines are T-cell dependent. CliniChem believes these vaccines will produce (a) immunogenicity in children under the age of two and (b) a better and long-lasting immunity in people of all ages. In addition, CliniChem believes that the development of a vaccine based on a common and conserved antigen in all the strains of a given bacteria should allow the design of a single protein vaccine that could provide global protection against multiple strains of a bacterium. Furthermore, such vaccines should be easier to manufacture and could be more easily combined with other existing or developed vaccines for other diseases. Although CliniChem's recombinant protein vaccines are currently being developed to be administered by injection, BioChem is working on a new formulation of its vaccines to be administered nasally. CliniChem believes nasal administration will have distinct advantages over delivery by injection used for most vaccines. Nasal delivery is more convenient, as it does not require injections and may not require the intervention of medical personnel. It can therefore be easily administered. Second, it is believed that the nasal mode of vaccine administration would induce a mucosal immune response in all the mucosal membranes of the body. This should give better protection for diseases propagated through the respiratory tract or transmitted sexually because nasal delivery should induce a local mucosal immune response in addition to the more conventional systemic immunity. It is expected that the nasal administration of antigens would induce the production of local IgA in the respiratory tract, thereby producing a local antibody barrier to infection. There is also evidence that it could induce a mucosal immune response at the surface of all the mucosal membranes, including the vagina, thereby protecting against sexually transmitted diseases. BioChem is working on the development of recombinant protein vaccines against the following bacterial infections: Neisseria meningitidis Neisseria meningitidis ("N. meningitidis") causes both endemic and epidemic disease, principally meningitis and meningococcal septicemia. The current polysaccharide vaccine has antigens associated with only four (A, C, W135 and Y) of the twelve serogroups (groups of bacterial strains that share a common capsular polysaccharide antigen) of N. meningitidis. BioChem has discovered a protein that appears to hold potential for the development of a new human vaccine against all strains of N. meningitidis, including serogroup B strains, which are prevalent and for which no vaccine currently exists. CliniChem believes that 35 37 this protein is present in all meningococcal isolates and that it is exposed at the surface of intact meningococcal cells, where it is accessible to antibodies. CliniChem believes that this vaccine will have all the benefits of recombinant protein vaccines described above. In pre-clinical work, BioChem used its candidate vaccine to immunize mice in order to evaluate the vaccine's ability to confer protection against an infection by injection of a lethal dose of N. meningitidis strain of serogroup B. This pre-clinical work showed that the purified protein was immunogenic and protective when administered with an adjuvant. The antibodies present in the serum fraction of the blood obtained from the immunized mice recognized BioChem's recombinant protein as well as the native N. meningitidis protein. The antibodies killed N. meningitidis bacteria. This type of bactericidal activity is commonly recognized as being indicative of protection. The recombinant vaccine was also injected into monkeys. The monkeys, like the mice, developed antibodies that were shown to kill N. meningitidis bacteria. BioChem has developed a manufacturing process in anticipation of clinical trials which CliniChem expects to begin in 1998. Acute meningitis and meningococcal septicemia have a high rate of mortality. The latest outbreak in Sub-Saharan Africa, in 1996, affected over 100,000 people and claimed at least 10,000 lives. The WHO estimates that approximately 35,000 of the 310,000 cases reported worldwide each year are fatal. The development of a highly effective vaccine against meningococcal infection is a research priority identified by the WHO and by the Committee of the Children's Vaccine Initiative of the United States. In the United States, infection by N. meningitidis is the second most common cause of bacterial meningitis (approximately 20% of all cases), affecting approximately 4,000 people each year. The fatality rate is approximately 10% for meningococcal meningitis and 20% for meningococcal septicemia, despite therapy with antimicrobial agents such as penicillin. The incidence of endemic meningococcal meningitis is highest among children aged 6-12 months and then steadily declines with age. By 5 years of age, the incidence approximates that for adults. Serogroup B, for which no vaccine exists, accounts for about 50%-55% of all cases of infection by N. meningitidis. While serogroup A causes only a small portion of endemic disease in the United States, it is the most common cause of epidemics in developing countries. Streptococcus pneumoniae Streptococcus pneumoniae ("S. pneumoniae") infections are among the leading causes worldwide of illness and death in young children, persons with underlying debilitating medical conditions, and the elderly. S. pneumoniae infection is a cause of meningitis, pneumonia and otitis media. S. pneumoniae has 90 different serotypes. A polysaccharide vaccine against the 23 most common serotypes has been available since the early 1980s. It is only 60% effective in preventing S. pneumoniae-caused meningitis and pneumonia and is not currently used to prevent otitis media. BioChem has discovered a conserved protein (HSP72) located at the surface of all 90 serotypes of S. pneumoniae. The HSP72 protein is highly conserved among streptococcal isolates and is exposed at the surface of intact S. pneumoniae cells, where it is accessible to the antibodies. CliniChem believes that this protein will allow it to develop a new human vaccine against all serotypes of S. pneumoniae-caused diseases. In pre-clinical work, BioChem used its candidate vaccine to immunize mice in order to evaluate the vaccine's ability to confer protection against an infection by injection of a lethal dose of S. pneumoniae. This pre-clinical work showed that the HSP72 protein can induce an immune response in mice which is protective against such a lethal challenge. The antibodies isolated from mice vaccinated with the recombinant vaccine effectively recognized and adhered to the native pneumococcal HSP72 protein. In separate experiments, the recombinant HSP72 protein was also injected into monkeys. The immunization of monkeys, like the immunization of mice, showed that a strong specific antibody response was induced. Each year, S. pneumoniae accounts for three to six thousand cases of meningitis, 500,000 cases of pneumonia and seven to ten million cases of otitis media in the United States alone. Case fatality rates vary by age and the underlying illness of the patient. According to the CDC the case fatality rates for some immunocompromised and other high-risk patients have been reported to be higher than 55% for meningitis and 40% for pneumonia, despite appropriate antibiotic therapy. In children, S. pneumoniae causes approximately 30% of otitis media. 36 38 CliniChem believes that S. pneumoniae-caused diseases will become more difficult to effectively manage as strains resistant to antibiotic therapies become more prevalent. In the past, S. pneumoniae was almost uniformly susceptible to penicillin, allowing most physicians to treat persons with severe infections with penicillin alone without testing for antibiotic resistance. However, since the late 1980s, resistance to penicillin and other antibiotic agents has spread rapidly. Investigations by CDC of S. pneumoniae-caused diseases have revealed that, in some areas of the United States, as many as 30% of disease causing S. pneumoniae strains are not susceptible to penicillin. A smaller percentage of disease causing S. pneumoniae strains are also resistant to multiple antibiotic therapies. Neisseria gonorrhoeae Infections due to Neisseria gonorrhoeae ("N. gonorrhoeae") are a major cause of pelvic inflammatory disease, tubal infertility, ectopic pregnancy and chronic pelvic pain in the United States. Based upon evaluations made by the CDC, approximately 326,000 cases of gonorrhea were reported in the United States in 1996, a rate of 124 cases per 100,000 persons. Because 29% of the N. gonorrhoeae isolates collected in 1996 were resistant to penicillin, tetracycline or both, antimicrobial resistance remains an important consideration in the treatment of gonorrhea. BioChem believes it has discovered a conserved surface protein that is a candidate for a recombinant vaccine against infection by N. gonorrhoeae. This protein is present at the surface of all gonococcal strains evaluated by BioChem to date. BioChem scientists have sequenced the gene coding for this conserved protein and have injected animals with the recombinant protein. In pre-clinical work, BioChem used its candidate recombinant vaccine to immunize mice in order to evaluate the protein's ability to confer protection against bacterial infection of N. gonorrhoeae in an animal model. This pre-clinical work showed that the recombinant gonococcal protein was immunogenic in mice. BioChem is evaluating this recombinant gonococcal protein in further experimental animal models of injection. Haemophilus influenzae Haemophilus influenzae ("H. influenzae") is a bacterium that is considered a major human pathogen. There are two types of H. influenzae: the encapsulated form that has six antigenetically distinct capsular types (types a to f) and the unencapsulated form (non typeable) that may cause diseases of less virulence than the encapsulated form. The unencapsulated form is recognized as responsible for acute respiratory infections, chronic bronchitis, otitis media (40% of all cases), bacteremia and meningitis (5% of all cases). H. influenzae non typeable is among the five most common causes of community-acquired pneumonia (between 5% to 15% of the 500,000 hospital admissions annually in the United States). Annually, there are typically approximately 4,000 cases of invasive disease in adults including bacteremic pneumonia (70%), obstetric infections, epiglottis, meningitis and tracheobronchitis listed to H. influenzae non-typeable. A conjugate polysaccharide vaccine effective against H. influenzae type B exists but there is no vaccine currently available against H. influenzae non typeable. BioChem has identified a membrane surface exposed protein of H. influenzae that is highly conserved at the surface of various H. influenzae strains. CliniChem believes that this protein is common and conserved in all the strains of H. influenzae. In pre-clinical work, BioChem used its candidate recombinant vaccine to immunize mice in order to evaluate the protein's ability to confer protection against H. influenzae bacteria. This pre-clinical work showed that the HI-15 protein used with QuilA as an adjuvant is immunogenic in mice. Vaccination of mice with the HI-15 recombinant protein enhanced respiratory clearance in an experimental animal model of pulmonary infection. In a similar experimental model, intravenous administration of specific antibodies to the HI-15 protein was also shown to increase respiratory clearance. In a systemic model of infection, vaccination with the recombinant HI-15 protein conferred protection against injection of a lethal dose of H. influenzae. 37 39 Streptococcus Group B Streptococcus Group B ("Strep B") is classified under seven serotypes based on their capsular polysaccharide antigenicity and two subtypes based on the antigenic characteristics of their surface proteins. Strep B causes invasive disease and is the most common cause of sepsis and meningitis in newborns in the United States. Two of every 1,000 infants in the United States develop Strep B infection within the first three months of life. Case fatality rates are estimated to be between 5% and 20% for newborns and between 15% and 32% for adults. In pre-clinical work, BioChem used its candidate recombinant vaccine to immunize mice in order to evaluate the protein's ability to confer protection against Strep B bacteria. This pre-clinical work showed that the recombinant GBS-1 protein is immunogenic and protective in mice. The protein has been sequenced by BioChem scientists. The presence of the protein has been observed so far in all serotypes evaluated. Chlamydia pneumoniae According to 1994 estimates of the American Heart Association, approximately 57.5 million Americans have one or more forms of cardiovascular disease, among whom approximately 13.7 million have coronary heart disease and approximately 3.9 million have strokes. Cardiovascular diseases claimed approximately 955,000 lives in 1994. Coronary heart disease is most commonly caused by atherosclerotic narrowing of the coronary arteries. It is likely to produce angina pectoris, heart attack or both. Chlamydia pneumoniae ("C. pneumoniae") infections may play a role in atherosclerosis in heart diseases. The organism is often presented in upper and lower respiratory tract infections and has been thought recently to contribute to the process of atherosclerosis. However, substantially more research will be needed in order to confirm this hypothesis. A vaccine against C. pneumoniae would offer a viable alternative or supplement to current management of heart diseases. BioChem's research program on Chlamydia pneumoniae is at an early stage. POTENTIAL RESEARCH AND DEVELOPMENT EXPENDITURES The following is a preliminary budget of anticipated expenditures by CliniChem with respect to the conduct of the initial CliniChem Programs. CliniChem expects that substantial additional funding will still be required to commercialize all of the CliniChem Products. Based on CliniChem's current development schedule, CliniChem does not expect that most of the CliniChem Products will reach commercial marketability prior to expenditure of all of the Available Funds. See "Risk Factors--No Assurance of Sufficient Funds." Due to the long-range nature of the development plans, CliniChem, in consultation with BioChem, reserves the right to reallocate funds as it deems appropriate, including investments in additional products.
CALENDAR YEAR ---------------------------------------------------------------------------- 1998 1999 2000 2001 2002 TOTAL --------- --------- --------- --------- --------- ----------- (in millions of dollars) CliniChem Programs: Therapeutic Program..................... $ 17.9 $ 19.6 $ 18.7 $ 20.7 $ 15.9 $ 92.8 Vaccine Program......................... 11.2 14.3 15.0 14.3 14.4 69.2 --------- --------- --------- --------- --------- ----------- Total Research and Development Costs.... $ 29.1 $ 33.9 $ 33.7 $ 35.0 $ 30.3 $ 162.0 ========= ========= ========= ========= ========= ===========
The estimated Research and Development Costs set forth above are based upon projected development of the CliniChem Products in accordance with the Research and Development Agreement and pursuant to the CliniChem Programs. Research and Development Costs include costs of pre-clinical studies; costs of Phase I, Phase II and Phase III human clinical trials; and costs of filing with the FDA and/or the HPB (or similar governmental bodies in other countries). The above estimates will change as CliniChem Products are researched and developed. Because of the long-range nature of any pharmaceutical product research and development plan, research and development of a particular product or products could accelerate, slow down or be discontinued; research and development with respect to additional CliniChem Products could be commenced; technology or products could be purchased or licensed; and other unforeseen events could occur, 38 40 all of which would significantly affect the timing and amount of expenditures. See "Risk Factors--No Assurance of Successful Final Development of the CliniChem Products." PATENTS BioChem has been granted certain patents worldwide and has pending patent applications worldwide relating to the CliniChem Programs. It is expected that BioChem will attempt to secure patent coverage to protect each of the CliniChem Products. Any such patents will be owned by BioChem, included among the Developed Technology and licensed to CliniChem pursuant to the Technology License Agreement. BioChem believes that these current patents, and patents relating to the CliniChem Programs that may be obtained in the future, are important to its future operations and to CliniChem. BioChem currently holds a United States patent claiming BCH-4556 and related compounds, as well as issued patents and pending applications in numerous countries covering BCH-4556 and methods of using the same. BioChem also holds a United States patent claiming processes for preparing BCH-4556 and related compounds, and numerous issued patents and pending applications worldwide claiming processes of preparing BCH-4556 and related compounds. BioChem holds an issued patent in the United States claiming BCH-10652 and related compounds, as well as issued patents and pending applications in numerous countries claiming BCH-10652, processes of preparation and methods of using the same to treat viral infections, including HIV. BioChem has numerous patent applications pending worldwide claiming proteins of N. meningitidis and N. gonorrhoeae and vaccines containing such proteins. BioChem also has numerous patent applications pending worldwide claiming the HSP72 heat shock protein of S. pneumoniae and its use in vaccines. Patent protection generally has been important in the pharmaceutical industry, and the commercial success of the CliniChem Products may depend, in part, upon BioChem's ability to obtain and enforce patent protection. Although BioChem's existing patents, pending patents, and any patents obtained in the future may be of importance to CliniChem, there can be no assurance that any additional patents will be issued or that any patents now or hereafter issued will be of commercial benefit. The grant of a patent is not conclusive as to such validity or enforceability of the claims therein. The validity and enforceability of a patent after its issuance by the United States Patent Office can be challenged in litigation and reexamination proceedings, and the validity of a patent granted by the European Patent Office can be challenged through opposition proceedings. If the outcome of such litigation or proceeding is adverse to the owner of the patent, third parties may then be able to use the invention pertaining to the patent, in some cases without payment. There can be no assurance that patents covering the CliniChem Products, if and when issued, will not be infringed or successfully avoided through design innovation. As of the date of this Prospectus, to the knowledge of CliniChem, the only significant proceeding against BioChem in relation to the CliniChem Programs is that Emory University of Atlanta, Georgia has filed an opposition to BioChem's granted European patent application covering BCH-4556. BioChem is vigorously defending its application. It is also possible that third parties will obtain patents or other proprietary rights that might be necessary or useful to BioChem or CliniChem in connection with the CliniChem Programs. An examined patent application, claiming use of stress proteins for the preparation of vaccines, filed by the Whitehead Institute for Biomedical Research, has been published for opposition in Europe. Oppositions to this application have been filed by BioChem as well as another party and BioChem is vigorously opposing this application. There is no assurance, however, that BioChem will be successful in defeating these claims. The Whitehead Institute holds a corresponding patent in Canada and may have pending applications in other countries. In the event that BioChem were to be unsuccessful in challenging the claims in the Whitehead patents, there is no assurance that BioChem would be able to obtain a license to these patents, which may be required to commercialize the S. pneumoniae vaccine based on the HSP72 heat shock protein. In cases where third parties are the first to invent a particular product or technology, it is possible that those parties will obtain patents that will be sufficiently broad so as to prevent BioChem or CliniChem from using certain BioChem Technology or from marketing certain CliniChem Products. If licenses from third parties are necessary and cannot be obtained, 39 41 commercialization of such CliniChem Products could be delayed or prevented. Third parties may claim that the CliniChem Products infringe their patents; in such event BioChem or CliniChem would need to defend against such claims. Defense of such claims could be costly and time consuming. If licenses to the third party's patents are available, the payments required by the third parties could be significant. In addition, CliniChem may use unpatented technology. There can be no assurance that others will not develop similar technology. Under the terms of certain of the license and collaboration agreements to which BioChem is a party and which relate to the CliniChem Programs, BioChem is obligated to exercise diligence and make certain royalty and milestone payments as well as incur costs related to filing and prosecuting the underlying patents. Certain agreements are terminable by either party upon notice if the other party defaults in its obligations. Should BioChem default under any of its agreements, BioChem and therefore CliniChem may lose its right to market and sell CliniChem Products based upon such licensed technology. In addition, there can be no assurance that BioChem's licensors will meet their obligations to BioChem pursuant to such licenses. In such event, CliniChem's results of operations and business prospects would be materially and adversely affected. See "The Business of CliniChem--The CliniChem Programs." See "Risk Factors--Uncertainty Regarding Patents and Proprietary Technology; Unpredictability of Patent Protection." CliniChem will substantially depend on BioChem Technology licensed to CliniChem pursuant to the Technology License Agreement. Some of the BioChem Technology is licensed to BioChem by third parties. BioChem does not expect the termination of such third party licenses to interfere with the CliniChem Programs. FACILITIES AND PERSONNEL CliniChem is not expected to hire any employees or to acquire any real property or tangible assets prior to completion of the development stage of the CliniChem Products. However, pursuant to the Research and Development Agreement, BioChem has been engaged by CliniChem to conduct the CliniChem Programs under work plans and cost estimates recommended by BioChem and accepted by CliniChem. Decisions as to whether and/or when to hire employees, purchase property or assets, perform administrative functions, engage BioChem to perform administrative services under the Services Agreement, engage others to do so or engage third parties other than or in addition to CliniChem to perform research and development activities will be made by CliniChem. BioChem believes that its facilities are sufficient for the current development of the CliniChem Programs but expects that additional facilities and personnel will be required for the long-term development of such programs. The timing and extent of such additional facilities will turn, in large part, on the success of CliniChem in pursuing the CliniChem Programs. GOVERNMENT REGULATION Regulation by governmental authorities in Canada, the United States and other countries will be a significant factor in the production and marketing of the CliniChem Products and in the conduct of the CliniChem Programs. The laws of most countries require the licensing of manufacturing facilities, carefully controlled research and extensive testing of products. Biopharmaceutical companies must establish production complying with good manufacturing practices, the safety and efficacy of their new products and control over marketing activities before being allowed to market their products. The safety and efficacy of a new drug must be shown through clinical trials of the drug carried out in accordance with the mandatory procedures and standards established by regulatory agencies. In Canada, the manufacture and sale of new drugs are controlled by the HPB. New drugs must pass through a number of testing stages including pre-clinical testing and clinical trials. Pre-clinical testing involves testing pharmacology and toxicology in vitro and in animals. Successful results (i.e., potentially valuable pharmacological activity combined with an acceptable level of toxicity) can lead to investigational new drug ("IND") status. This enables the manufacturer of the new drug to begin clinical trials. In order to achieve IND status in Canada, and IND submission must be filed with the HPB. The IND submission must contain specified information, including the results of the pre-clinical test completed prior to the IND submission, together with any available information regarding the use of the drug in humans. In 40 42 addition, since the method of manufacture may affect the efficacy and safety of a drug, information on manufacturing methods and standards and the stability of the drug substance and dosage form must be presented so that the HPB can ensure that the product that may eventually be sold to the public has the same composition as that determined to be effective and safe in the clinical trials. Production methods and quality control procedures must be in place to ensure a relatively pure compound, essentially free of contamination and uniform with respect to all quality aspects. Once the HPB accepts the IND submission, the clinical trials presented in the IND can begin. Clinical trials are carried out in three phases. Phase I involves pharmacological studies to evaluate toxicity in humans. The new drug is administered to human patients or healthy volunteers to determine rates of uptake and distribution, tolerance and prevalence of adverse side effects. Phases II and III involve therapeutic studies on the new drug. In Phase II, the drug's efficacy, dosage, side effects and safety are established in a small number of patients who have the disease or disorder that the drug is intended to treat. In Phase III, there are controlled clinical trials in which the drug is administered to a large number of patients who are likely to receive benefit from the drug. In Phase III, the effectiveness of the new drug is also compared to a control treatment, either placebo or standard therapy, in the anticipation that statistically significant clinical efficacy can be demonstrated. If the clinical studies prove that the new drug has therapeutic value, the manufacturer submits a new drug submission ("NDS") to the HPB for marketing approval. The NDS contains all information known about the drug including the results of pre-clinical testing and clinical trials. Information contained in the NDS about the drug includes its proper name, its chemical name, details on method of manufacturing and purification and its biological, pharmacological and toxicological properties. The NDS also provides information about the dosage form of the drug, including the quantitative listing of all ingredients used in the formulation, its methods of manufacture, packaging and labeling, the results of stability tests, and its diagnostic or therapeutic claims and side effects as well as details of the clinical studies to support the safety and efficacy of the drug. All aspect of the NDS are reviewed by the HPB. If the NDS is found to be satisfactory, a notice of compliance is issued permitting the manufacturer to sell the drug product for a specific indication. As a condition of issuing a notice of compliance, the HPB may also require the sponsor to conduct a Phase IV post-marketing surveillance study. This Phase IV study is usually required when the HPB is interested in additional evidence of the long term safety and efficacy of the drug when administered to large numbers of patients. In a Phase IV study, any new information concerning side effects and all adverse reactions must be reported to the HPB on a periodic basis while the drug is being marketed. The regulatory controls on a new drug do not cease once it is on the market. A new drug may remain in IND status for a number of years until the HPB is confident that sufficient information concerning the safety and efficacy of the drug has been accumulated from its general use to release it from the controls that are applied to all new drugs. Among other things, a manufacturer of a new drug must report any new information received concerning serious side effects, including the failure of the new drug to produce its desired effects. As well, if the HPB determines it to be in the interest of the public health, a notice of compliance for a new drug may be suspended and the new drug can be removed from the market. The regulations under the Food and Drugs Act (Canada) permit the sale to physicians of drugs which have not received regulatory approval for emergency treatment of seriously ill patients. This permission is frequently given for drugs used in the treatment of serious, life threatening conditions prior to the HPB's approval of the drug. In addition, if a product under clinical investigation is requested by a physician and specific patient requirements are met, Canadian Food and Drug regulations permit emergency drug release. In addition, regulatory control exists in Canada for the pricing of patented medicines. All patented medicines sold in Canada are subject to pricing review by the Patented Medicines Prices Review Board. The Canadian regulatory approval requirements for new drugs outlined above are similar to those of other major pharmaceutical markets, including the United States and Europe. Canada has a "fast track" program similar to the United States "fast track" program described below. 41 43 In the United States, the manufacture and sale of new drugs are controlled by the FDA. Prior to commercial sale, new drugs require FDA approval of a marketing application (i.e. a new drug application or product license application). Obtaining marketing approval requires data from adequate and well-controlled clinical investigations demonstrating to the FDA's satisfaction a new drug's safety and effectiveness for its intended use. Such data are generated in studies conducted pursuant to an IND submission, similar to that required in Canada. As in Canada, clinical studies are characterized as Phase I, Phase II and Phase III trials or a combination thereof. In a marketing application, the manufacturer must also demonstrate the identity, potency, quality and parity of the active ingredients of the new drug involved, and the stability of those ingredients. Furthermore, the manufacturing facilities, equipment, processes and quality controls for the new drug must comply with GMP regulations for drugs or biologic products both in a prelicensing inspection and in subsequent periodic inspections after licensure. In the case of a biologic product, an establishment license must be obtained prior to marketing and batch releasing. A five-year period of market exclusivity for a drug comprising a new chemical entity ("NCE") is available to an applicant that succeeds in obtaining FDA approval of an NCE, provided that the active ingredient of the NCE has never before been approved in a new drug application. During this exclusivity period, the FDA may not accept for review any abbreviated application filed by another sponsor for a generic version of the NCE. Further, a three-year period of market exclusivity for a new use or indication for a previously approved drug is available to an applicant that submits new clinical studies that are essential to support the new use or indication. During the latter period of exclusivity, the FDA may not approve an abbreviated application filed by another sponsor for a generic version of the product for that use or indication. The FDA has "fast track" regulations intended to accelerate the approval process for the development, evaluation and marketing of new drugs used to diagnose or treat life-threatening and severely debilitating illnesses for which no satisfactory alternative therapies exist. "Fast track" designation affords early interaction with the FDA in terms of protocol design and permits, although it does not require the FDA to issue marketing approval after completion of early stage clinical trials (although the FDA may require subsequent clinical trials or even post-approval efficacy studies). There are three procedures for obtaining a marketing authorization in Europe. First, an applicant may apply for a marketing authorization in each individual country. Such applications may need specific documentation tailored to each country's language and requirements. Alternatively, an applicant who has obtained approval in one country can expedite subsequent approvals through use of a multi-state procedure. Under this multi-state procedure, the member states to which a marketing authorization application has been made are required to grant authorization to market the product or otherwise formulate reasoned objections. In determining whether to raise any objections, the member states typically review the documentation presented to the country that granted the original marketing authorization and generally take into account the fact that such authorization was granted by the original country. Where an objection is raised, the matter is referred to the Committee for Proprietary Medicinal Products (the "CPMP") of the European Medicines Evaluation Agency which then considers the objection and issues a non-binding opinion. Each member state must determine whether it will adopt the CPMP's opinion. This procedure is typically used in respect of generic drugs produced by a manufacturing process similar to that of a previously-approved branded drug. The third possible procedure consists of a centralized process in which applicants apply directly to the CPMP, which then issues an opinion binding on all member states. This centralized procedure is mandatory in respect of biotechnology products and is available in respect of other NCEs or new formulations of existing approved products that offer a significant improvement in efficacy or safety over the existing product. The process of completing clinical trials and obtaining regulatory approval for a new drug will, in general, take a number of years and require the expenditure of substantial resources. Even after initial approval has been obtained, further studies, including post-marketing studies, may be required to provide additional data on safety necessary to gain approval for the use of the new drug as a treatment for clinical indications other than those for which the new drug was initially tested. Also, regulatory agencies may require post-marketing surveillance programs to monitor a new drug's side effects. Results of post-marketing programs may limit or expand the further marketing of new drugs. A serious safety or effectiveness problem involving an approved 42 44 new drug may result in a regulatory agency requiring withdrawal of the new drug from the market and possible civil action. In addition to the regulatory product approval framework, biotechnology companies are subject to regulation under provincial, state and federal law, including requirements regarding occupational safety, laboratory practices, environmental protection and hazardous substance control, and may be subject to other existing and future local, provincial, state, federal and foreign regulation, including possible future regulation of the biotechnology industry. A number of companies in the biotechnology industry have suffered significant setbacks in advanced clinical trials, even after achieving promising results in earlier trials. In addition, government regulations specify standards for manufacturing and marketing pharmaceutical products. The CBER, the BBR and similar agencies in other countries regulate the manufacturing, marketing and use of vaccines. CliniChem Product License Applications and Establishment License Applications or equivalent documentation are required to be submitted to the governmental authorities for review prior to obtaining marketing approval. Government regulations specify standards for manufacturing and marketing vaccines and biological products. These regulations set standards for proof of safety and effectiveness, establish good manufacturing practices, require inspection of vaccine manufacturing facilities and require reporting of adverse events to regulatory authorities. These government authorities also conduct pre-release testing of vaccines and authorize the sale of each lot of vaccines. Sales of therapeutic and vaccine products outside Canada and the United States are subject to regulatory requirements that vary from country to country. Whether or not FDA, HPB, CBER or BBR approval has been obtained, final approval of a product by comparable regulatory authorities of other countries must be obtained prior to the commencement of marketing the product in those countries. The time required to obtain any such approval may be longer or shorter than that required for FDA, HPB, CBER or BBR approval. CliniChem will also be subject to various Canadian federal, provincial, and local laws, regulations, and recommendations relative to safe working conditions, laboratory and manufacturing practices, and the use and disposal of hazardous or potentially hazardous substances, including radioactive compounds and infectious disease agents, used in connection with BioChem's and CliniChem's research. CliniChem may be subject to additional government regulations resulting from future legislation or administrative action. EXECUTIVE OFFICERS AND DIRECTORS The following table provides information concerning the current officers and directors of CliniChem. The current officers and the current directors of CliniChem are also officers and employees of BioChem. As the holder of all the issued and outstanding Class B Shares, BioChem has the right to elect one director. CliniChem has no employees. Its three officers are full-time employees of BioChem.
NAME AND MUNICIPALITY OF RESIDENCE POSITION WITH CLINICHEM - ---------------------------------- ----------------------- Francesco Bellini, Ph.D...................... Chairman and President Town of Mount Royal, Quebec Frederick J. Andrew.......................... Chief Financial Officer and Director Morin Heights, Quebec Francois Legault............................. Director Outremont, Quebec Charles-A. Tessier........................... General Counsel and Secretary Ile-Bizard, Quebec
Following the completion of the Distribution, Messrs. Andrew and Legault will resign as directors of CliniChem and Ms. Elizabeth Greetham, who has agreed to serve as a director, and a director to be named will be appointed to the Board of Directors of CliniChem. Their respective nominations will become effective immediately upon the completion of the Distribution. FRANCESCO BELLINI, PH.D., a co-founder of BioChem, joined BioChem as President and Chief Executive Officer in 1986. From 1984 to 1986, Dr. Bellini was the Director of the Biochemicals Division at the Institut 43 45 Armand-Frappier, and from 1968 to 1984, he was a research scientist with Ayerst Laboratories. Dr. Bellini is a director of North American Vaccines, Inc. Dr. Bellini received a B.Sc. in chemistry from Loyola College in Montreal in 1972 and a Ph.D. in chemistry from the University of New Brunswick in 1977. FREDERICK J. ANDREW, joined BioChem in 1997 as Chief Financial Officer. Prior to joining BioChem, he was Vice-President and Treasurer of BCE Inc. from 1991 to 1997, Corporate Treasurer of Bell Canada from 1984 to 1991 and occupied various positions within the BCE Inc. group of companies from 1964 to 1984. Mr. Andrew received a B.A. in economics from York University in 1964. FRANCOIS LEGAULT joined BioChem in 1987 and is currently Executive Vice-President, Investments and Subsidiaries. Prior to joining BioChem, he was Finance Director of Societe Quebecoise des Transports from 1984 to 1987, and was a chartered accountant with Coopers & Lybrand from 1978 to 1984. Mr. Legault received a BAA in business and accounting from Ecole des Hautes Etudes Commerciales in Montreal in 1978 and was admitted as a Chartered Accountant to the Ordre des Comptables Agrees du Quebec in 1980. CHARLES-A. TESSIER joined BioChem as Vice-President, Legal Affairs and Corporate Secretary in March 1996. From 1988 to 1996, prior to joining BioChem, he was Vice-President, Secretary and General Counsel of DMR Group Inc., a multinational company in information technology and, from 1979 to 1988, he practiced commercial law. Mr. Tessier received a B.A. in Administration in 1976 and a law degree in 1979 from the University of Ottawa. He is a member of the Barreau du Quebec and the Canadian Bar Association. ELIZABETH GREETHAM is a portfolio manager with the Weiss, Peck & Greer Investments' Life Sciences Fund, L.P. and its Institutional Life Sciences Fund, L.P. Ms. Greetham has over 25 years experience as a portfolio manager and health care analyst. Ms. Greetham earned a B.Sc. and an MA (Hons.) from the University of Edinburgh. For as long as the Board of Directors of CliniChem is composed of three directors, the Board of Directors shall assume and fulfill the duties of the audit committee of CliniChem. Currently, all the officers of CliniChem are also officers of BioChem and do not receive any compensation from CliniChem for their services to CliniChem. See "The Agreements and The Purchase Option--Services Agreement." Each director of CliniChem who is not an officer or a salaried employee of BioChem is expected to be paid an annual fee of $18,000 and a further attendance fee of $1,000 for each meeting of the Board of Directors of CliniChem. PRINCIPAL SHAREHOLDERS OF CLINICHEM Immediately prior to the Distribution, all of the outstanding CliniChem Common Shares will be held by BioChem. The following table sets forth the projected beneficial ownership of CliniChem Common Shares following the Distribution by all the directors and the officers of CliniChem as a group, as well as by any person who, on a pro forma basis, will beneficially own more than 10% of the outstanding CliniChem Common Shares.
CLINICHEM COMMON SHARES PROJECTED TO BE BENEFICIALLY OWNED ---------------------------- NAME NUMBER(1) PERCENT OF CLASS ---- --------- ---------------- Glaxo Wellcome Inc. ........................................ 396,272 14.6% 7333 Mississauga Road North Mississauga, Ontario L5N 6L4 All directors and officers of CliniChem as a group.......... 74,172 2.7 (4 persons) ------- ---- 470,444 17.3% ======= ====
- --------------- (1) Reflects, in each case, the number of BioChem Common Shares beneficially owned as of January 31, 1998, excluding shares issuable upon exercise of options, divided by 40. In addition to shares held in the individual's sole name, this column includes shares held by 44 46 the spouse and other members of the named persons' immediate household who share that household with the named person, and shares held in family trusts. SELECTED FINANCIAL DATA OF CLINICHEM
FEBRUARY 6, 1998 ---------------- BALANCE SHEET DATA: Cash........................................................ $ 1,000 Shareholders' Equity........................................ $ 1,000
- ------------------ (1) CliniChem was incorporated in January 1998. BioChem contributed $1,000 in February 1998 in exchange for 1,000 common shares. CliniChem will have no operations through the Distribution Date. 45 47 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES CliniChem was incorporated in January 1998. Prior to the Distribution, BioChem will contribute a total of $150 million in cash to CliniChem as a capital contribution. CliniChem's funds are expected to be used primarily to fund activities to be conducted under the Research and Development Agreement with BioChem, including Research and Development Costs relating to the CliniChem Programs from January 1, 1998 through the Distribution Date estimated to be approximately $6 million. Such Research and Development Costs will be the fully burdened cost of the research and development activities conducted pursuant to the CliniChem Programs plus 5% of such costs (to reflect an appropriate portion of BioChem's general corporate overhead allocated to projects undertaken by BioChem on behalf of CliniChem. Such corporate overhead includes, inter alia, human resources, payroll, legal, accounts payable, procurement and tax.) Research and Development Costs will include, among other costs, the costs of seeking regulatory approvals, payments to third party research collaborators, purchase of chemicals, biological materials and other supplies, purchases of equipment and patent and trademark filing costs. Indirect costs, estimated to be 20-35% of direct costs, include salaries and fringe benefits of person managing and supporting those working directly on CliniChem Programs, general supplies and chemicals, general information systems and communications support, general equipment depreciation, general facilities depreciation, utilities, rent, miscellaneous indirect expenses and miscellaneous general and administrative expenses. BioChem's capital contribution, together with any investment interest earned thereon, is expected to fund such activities for approximately four to five years. Based on CliniChem's current development schedule, CliniChem does not expect that most of the CliniChem Products will reach commercial marketability prior to expenditure of the Available Funds. Currently, other than the Available Funds, CliniChem has no other source for the funding that may be needed to complete the development and commercialization of the CliniChem Products. CliniChem is not expected to require facilities or capital equipment of its own during the term of the Research and Development Agreement. Pending the use of CliniChem's cash resources for the research and development activities described in this Prospectus, CliniChem will invest such resources in interest-bearing, investment-grade securities. There can be no assurance, particularly given the existence of the BioChem/CliniChem Agreements, that CliniChem will be able to raise any additional capital. Such additional capital, if raised, may reduce the per share proceeds available to holders of CliniChem Common Shares if the Purchase Option were to be exercised. See "The Agreements and the Purchase Option--Purchase Option." CliniChem will be dependent on BioChem's computer systems. BioChem, along with many other companies worldwide, is exposed to the risks and uncertainties associated with the Year 2000 problem, where a computer may erroneously interpret the years "2000" and "1900." BioChem is currently evaluating computer equipment and software to assure that the transition to the year 2000 will not disrupt operations. BioChem expects that any conversion required will be complete before the year 2000. Presently, BioChem does not believe that compliance with any conversion plan will result in material investments, nor does BioChem anticipate that this problem will have material adverse effects on the business operations or financial performance. However, there can be no assurance that this problem will not adversely affect BioChem, its business, or CliniChem. OPERATIONS Prior to the Distribution, CliniChem will not have conducted any operations. After the Distribution and continuing through completion of the development stage of the CliniChem Products, CliniChem's operations will be conducted largely pursuant to the BioChem/CliniChem Agreements. See "The Agreements and the Purchase Option." In its early years, CliniChem revenues are expected to be primarily derived from investment income (which will become part of the Available Funds). In later years, CliniChem could receive revenues through the commercialization of the CliniChem Products either from BioChem in the form of Product Payments if BioChem were to exercise its Product Option for any CliniChem Product, or otherwise if BioChem's Product Option for any CliniChem Product were to expire unexercised and CliniChem were to commercialize the 46 48 Product alone or with a third party. However, CliniChem is not expected to earn substantial revenues unless or until the CliniChem Products are successfully commercialized, which is not expected to occur prior to the expenditure of all the Available Funds. As a result of the foregoing factors, it is anticipated that CliniChem will incur substantial losses which will likely be recurring. CliniChem's expenses largely will be incurred under the BioChem/CliniChem Agreements. CliniChem will have research and development expenses as a result of (i) the payment of Research and Development Costs under the Research and Development Agreement and (ii) payment of the Technology Fee to BioChem under the Technology License Agreement and the Services Agreement. The Technology License Agreement provides that the Technology Fee will be payable monthly by CliniChem over a period of four years and will be $500,000 for each of the 12 months following the Distribution, $408,333 per month for the following 12 months, $300,000 per month for the following 12 months and $200,000 per month for the following 12 months; provided that the Technology Fee will no longer be payable at such time as the number of CliniChem Products being researched or developed by or on behalf of CliniChem plus the number of CliniChem Products having been acquired by BioChem pursuant to the exercise of the Product Option is less than two. Pursuant to the Services Agreement, CliniChem will pay $400,000 annually to BioChem for administrative services provided by BioChem. Pursuant to the Research and Development Agreement, BioChem will charge CliniChem for both "direct" and "indirect" Research and Development Costs on a fully-burdened basis. Direct costs will include fully absorbed cost of labor, third-party contract costs, such as those expenses paid to outside vendors and licensors, raw materials, drug substances, drug products, clinical supplies, compound library, assay acquisition and all other costs which can be directly identified to a CliniChem Program. Of the approximately $29.1 million fiscal 1998 budget, approximately $20 million is expected to be paid pursuant to third-party agreements. Indirect costs will include lease payments, building allocations, equipment allocations, administration services and all other indirect costs. The indirect costs are estimated to be approximately 20% to 35% of direct costs. The indirect cost allocations are based upon BioChem's historical overhead experience arising from its research and development activities. CliniChem's future cash flow obligations will derive largely from the BioChem/CliniChem Agreements. CliniChem is required to expend the Available Funds only in accordance with the Research and Development Agreement and to pay the Technology Fee and to pay for services provided under the Services Agreement. However, the rate at which Available Funds are expended will derive from work plans and cost estimates approved by CliniChem. THE AGREEMENTS AND THE PURCHASE OPTION TECHNOLOGY LICENSE AGREEMENT CliniChem and BioChem have entered into a Technology License Agreement pursuant to which BioChem has granted to CliniChem an exclusive perpetual license, to use BioChem Technology (including any trade secrets, technical information and data regarding product composition, manufacturing, dosage or efficacy, drug formulations, and other proprietary pre-clinical, clinical, pharmacological, toxicological, chemical, physical and analytical safety and quality control data and information, as well as rights under patents held by BioChem related to the CliniChem Programs) solely to conduct the CliniChem Programs and related activities, and to manufacture and to commercialize the CliniChem Products worldwide. The Technology License Agreement is subject to pre-existing third-party rights and the receipt of certain third-party consents; it is further subject to the Research and Development Agreement and the Product Option Agreements and limited for each CliniChem Product, to a particular Field of Use. See "--Third-Party Rights and Consents." 47 49 Pursuant to the Technology License Agreement, BioChem is obligated to use commercially reasonable efforts to obtain the consent of: - Pharmadigm, to grant a sublicense to CliniChem (on commercial terms reasonably acceptable to BioChem) to any adjuvant licensed by BioChem from Pharmadigm and incorporated in a CliniChem Product; - Biovector, to grant a sublicense to CliniChem (on commercial terms reasonably acceptable to BioChem) to any biovector licensed by BioChem from Biovector and incorporated in a CliniChem Product; and - UGARF and Yale University, to grant a sublicense to CliniChem (on commercial terms reasonably acceptable to BioChem) in connection with the BCH-4556 CliniChem Product; provided that, in each case, the relevant CliniChem Product incorporating such licensed technology has received regulatory approval for commercial marketing in at least one country, BioChem has not exercised the worldwide Product Option with respect to such CliniChem Product and BioChem has not exercised the Purchase Option. Any costs associated with a consent obtained or sublicense granted pursuant to this provision shall be paid by CliniChem and any such sublicense shall terminate on the exercise by BioChem of the worldwide Product Option for such product or the Purchase Option. The following table sets out the Field of Use for the CliniChem Programs.
PROGRAM FIELD OF USE - --------------------------------------------- --------------------------------------------- Development of BCH-4556...................... Treatment of cancer Development of BCH-10652..................... Treatment of HIV infection Development of a(n)b(3) antagonists to prevent angiogenesis....................... Treatment of cancer Development of recombinant protein To protect against infections by N. vaccines................................... meningitidis, S. pneumoniae, N. gonorrhoeae, H. influenzae, Strep B and C. pneumoniae
Pursuant to the terms of the Technology License Agreement, CliniChem's right to obtain manufacturing will be subject to a right of first offer and a right of first refusal on the part of BioChem to manufacture and, in the event BioChem does not exercise such right of first offer and right of first refusal, then BioChem will have the right to approve any proposed manufacturer, which approval may be withheld only if any such manufacturer has insufficient or inadequate manufacturing capability (including lack of compliance with GMP regulations) or if any such manufacturer's activities are likely to have a material adverse effect on BioChem's overall competitive position in the pharmaceutical industry. In the event that BioChem exercises its right to reject a manufacturer, BioChem will be obligated to manufacture or obtain manufacturing for any such CliniChem Product for CliniChem at prevailing market rates, but not less than BioChem's cost of manufacture plus 15% of such cost. Pursuant to the Technology License Agreement, CliniChem shall not have the right to grant a sublicense under the BioChem Technology to anyone other than BioChem until such time as the Product Option with respect to any CliniChem Product in one or more countries expires unexercised. From and after the expiration of such Product Option in any such country, CliniChem may sublicense BioChem Technology to one or more third parties solely to the extent necessary to complete the development of, or to make or have made and use such CliniChem Product, or to sell or have sold such CliniChem Product in such country. BioChem shall have the right to approve any proposed sublicensee or any manufacturer on behalf of a sublicensee but such approval may only be withheld if any such sublicensee or manufacturer has insufficient manufacturing capability (including lack of compliance with GMP regulations) or if any such sublicensee's or manufacturer's activities are likely to have a material adverse effect on BioChem's overall competitive position in the pharmaceutical industry. In consideration for the license to use the existing BioChem Technology relating to the CliniChem Programs, CliniChem will pay the Technology Fee to BioChem. The Technology Fee will be payable monthly over a period of four years and will be $500,000 per month for the first 12 months following the Distribution, $408,333 per month for the following 12 months, $300,000 per month for the following 12 months and 48 50 $200,000 per month for the following 12 months; provided that the Technology Fee will no longer be payable at such time as the number of CliniChem Products being developed by CliniChem plus the number of CliniChem Products having been acquired by BioChem pursuant to the exercise of the Product Option is less than two. Either BioChem or CliniChem may terminate the Technology License Agreement upon the occurrence of a material breach of the Technology License Agreement or the Product Option Agreement by the other party which continues for 60 days after written notice. The Technology License Agreement will automatically terminate upon termination by BioChem of the Research and Development Agreement due to a breach thereof by CliniChem or CliniChem's entering into any proceeding in bankruptcy, reorganization of creditors' rights or similar arrangement. The Technology License Agreement shall terminate on a product-by- product and country-by-country basis in connection with BioChem's corresponding exercise of the Product Option. RESEARCH AND DEVELOPMENT AGREEMENT Under the Research and Development Agreement, BioChem has agreed to perform diligently all work necessary to conduct the activities agreed upon by BioChem and CliniChem pursuant to the CliniChem Programs. BioChem is not required to devote any specific amount of time or resources to conduct the CliniChem Programs under the Research and Development Agreement, and BioChem expects to devote a substantial amount of its time and resources to activities for its own account. Activities under the Research and Development Agreement will be undertaken pursuant to work plans and cost estimates proposed by BioChem and accepted by CliniChem. CliniChem may approve all or any portion of a proposed work plan and cost estimate or may determine not to approve any proposed work plan and cost estimate. If CliniChem rejects three consecutive work plans in whole or in substantial part, BioChem and CliniChem shall resolve the dispute through arbitration and, pending resolution, BioChem may perform under the most recently proposed work plan and CliniChem will be obligated to pay Research and Development Costs incurred therewith. CliniChem is not obligated to fund development of the CliniChem Programs in excess of amounts reflected in approved work plans and cost estimates. BioChem is not required to undertake activities that would result in Research and Development Costs exceeding those in approved work plans and cost estimates. Under the Research and Development Agreement, CliniChem is expected to utilize substantially all of the Available Funds to make payments to BioChem for its Research and Development Costs. Payments to BioChem under the Research and Development Agreement will be the full amount of all Research and Development Costs incurred by BioChem in performing these activities, and BioChem will recognize the payment of such amounts as research and development revenue. Such costs will consist of direct costs, including collaborative research agreement payments, payments for compound supply, payments for biologicals, drug substances and drug products, payments for chemical precursors, payments for assay acquisitions, payments for clinical studies, payments for toxicological and pharmacokinetic studies, process development contracts, manufacturing of batches of vaccines for clinical trials, immunological studies and other outside services, payments for other BioChem functions (non-research and development) which provide services, payments for investigation or research grants, payments for consulting services, hiring expenses, salaries and fringe benefits for people who will work directly on CliniChem Programs, milestone payments to third parties, project travel, entertainment and related expenses, capital equipment and other materials purchased exclusively for CliniChem Programs, miscellaneous project expenses, regulatory and filing fees, telephone and communications, patent and trademark expenses including the cost of prosecution, defense and maintenance of intellectual property rights, software, payments for clinical research organizations, payments for monitoring, payments for data management and insurance, and indirect costs including salaries and fringe benefits of people managing and supporting those working directly on CliniChem Programs, general supplies and chemicals, general information systems and communications support, general equipment depreciation, general facilities depreciation, utilities, rent, miscellaneous indirect expenses and miscellaneous general and administrative expenses. The corresponding research and development expenses of BioChem will offset this revenue. Under the Research and Development Agreement, BioChem also may license technology or products used to conduct the CliniChem Programs from third parties and may conduct the CliniChem Programs in combination with third parties and the costs of such licensing or conduct will be paid by CliniChem. BioChem may enter into research contracts with third parties in its own name, but on behalf of CliniChem as agent. 49 51 The Research and Development Agreement provides that CliniChem will fund Research and Development Costs from January 1, 1998, including an estimated $6 million incurred from January 1, 1998 through the Distribution Date. CliniChem has agreed to use diligent efforts to conduct the CliniChem Programs in accordance with approved work plans and cost estimates under the Research and Development Agreement by contracting with BioChem to perform research and development services. CliniChem is required to utilize the Available Funds only in accordance with the Research and Development Agreement, the Technology License Agreement and the Services Agreement. It is anticipated that CliniChem will utilize the Available Funds over a period of approximately four to five years. Prior to expenditure, CliniChem will invest Available Funds in interest-bearing, investment-grade securities. CliniChem may not encumber, pledge or otherwise take any action with respect to Available Funds that could prevent the full expenditure of such funds under the Research and Development Agreement. Subject to the terms of the BioChem/CliniChem Agreements, there are no restrictions on CliniChem's use of its funds other than the Available Funds to conduct its business as it determines. Based on CliniChem's current development schedule, CliniChem does not expect that most of the CliniChem Products will reach commercial marketability prior to expenditure of the Available Funds. As between BioChem and CliniChem, BioChem will own all Developed Technology, including patents, and such Developed Technology, as is required for the Field of Use of the CliniChem Products, shall be licensed to CliniChem pursuant to the Technology License Agreement. BioChem will determine whether and to what extent to seek patent protection for Developed Technology. If BioChem declines to seek patent protection for any technology, CliniChem will not have the right to do so. No more than once in each calendar year upon reasonable notice and during regular business hours, (i) at CliniChem's expense, BioChem is required to make available for inspection by the auditors of CliniChem such records of BioChem as may be necessary to verify the accuracy of reports and payments made under the Research and Development Agreement, and (ii) at BioChem's expense, CliniChem is required to make available for inspection by the auditors of BioChem such records of CliniChem as may be necessary to verify the accuracy of the application of the Available Funds. The Research and Development Agreement will terminate upon the exercise or expiration of the Purchase Option. Either party may terminate the Research and Development Agreement if the other party (i) breaches the Research and Development Agreement, Product Option Agreement or any material obligations thereunder (if such breach continues for 60 days after written notice by the terminating party), or (ii) enters into any proceeding, whether voluntary or involuntary, in bankruptcy, reorganization of creditors' rights or similar arrangement for the benefit of creditors. In addition, CliniChem's product license in any country with respect to a particular CliniChem Product will terminate after BioChem's exercise of the Product Option for such product in such country. PRODUCT OPTION AGREEMENT Pursuant to the Product Option Agreement, CliniChem has granted the Product Option to BioChem pursuant to which BioChem may, on a product-by-product and country-by-country basis, terminate CliniChem's license to the Acquired Product, and sell and have sold the Acquired Product in the country or countries as to which the Product Option is exercised (the "Territory"). BioChem may exercise the Product Option with respect to any CliniChem Product on a country-by-country basis at any time until (i) with respect to the United States, 30 days after FDA clearance to market such CliniChem Product in the United States and (ii) with respect to any other countries, 30 days after the clearance by the appropriate regulatory agency to commercially market such CliniChem Product in such country. The Product Option will expire, to the extent not previously exercised, 30 days after the expiration of the Purchase Option. BioChem must exercise the Product Option for any country prior to the date of the first commercial sale of the CliniChem Product in such country. If BioChem exercises the Product Option for a CliniChem Product, BioChem will be required to use diligent efforts to complete the research and development of and to commercialize such Acquired Product in each Major Market Country in which the Product Option has been exercised. BioChem will devote to its commercialization efforts the same resources as other biopharmaceutical companies of similar size devote to 50 52 products with similar market potential and similar relative importance in their product portfolios and may use reasonable discretion in allocation of its resources in performing such obligations. BioChem will make Product Payments to CliniChem with respect to each Acquired Product. Such payments will be a percentage of Net Sales and Licenses Revenue. It is common for biopharmaceutical companies to enter into marketing agreements, which provide that the marketing partner pay a percentage of its sales and/or up front payments to the biopharmaceutical company. If BioChem exercises the Product Option, it may enter into such agreements and receive such payments. Such payments would be included in the definition of "Licensing Revenues." See "Glossary." Such payments will range from 1 to 6% of Net Sales and from 10 to 25% of Licensing Revenues, calculated as follows: (a) royalties of up to a maximum of 6% of Net Sales of the Acquired Product determined as follows: (i) 1% of such Net Sales, plus (ii) an additional 0.1% of such Net Sales for each full $1 million of Research and Development Costs of the Acquired Product paid by CliniChem at the time BioChem exercised the Product Option with respect to such Acquired Products; plus (b) licensing fees of up to a maximum of 25% of Licensing Revenues with respect to such Acquired Product determined as follows: (i) 10% of such Licensing Revenues, plus (ii) and additional 1% of Licensing Revenues for each full $1 million of Research and Development Cost of the Acquired Product paid by CliniChem at the time BioChem exercised the Product Option with respect to such Acquired Products. Because the marketing expenses associated with a newly introduced product during the first few years after launch are generally significantly higher than those for an established product, the Product Payments will not exceed 3% of Net Sales plus 12.5% of Licensing Revenues, on a quarterly basis, for the first twelve calendar quarters during which the Acquired Product is commercially sold in the first Major Market Country. As a result of this provision, if an Acquired Product were to be cleared for marketing in a country or countries that are not Major Market Countries prior to marketing clearance in the first Major Market Country and Product Payments in such countries would exceed 3% of Net Sales plus 12.5% of Licensing Revenues (as applicable), the Product Payment rates in such countries will be reduced to 3% of Net Sales plus 12.5% of Licensing Revenues for the first twelve calendar quarters during which the Acquired Product is commercially sold in the first Major Market Country. In determining the payments due to CliniChem with respect to any Acquired Product, Net Sales by and Licensing Revenues of BioChem will be reduced by the amount of any license or similar payments made by or due from BioChem to third parties with respect to sales of such Acquired Product in the Territory. It is possible that, to develop the CliniChem Products, additional licenses or other arrangements with third parties may be necessary or appropriate. Such arrangements could also require payments by BioChem that would reduce the Product Payments owed to CliniChem. Subject to BioChem's buy-out option described below, Product Payments will commence on the date of the first commercial sale of such Acquired Product in any country for which the Product Option has been exercised. BioChem will make such Product Payments, with respect to all countries for which the Product Option has been exercised, until 10 years after the first commercial sale of the Acquired Product in the first Major Market Country in which such product is commercially sold (the "Payment Period"). BioChem has the option to buy out CliniChem's right to receive Product Payments for any Acquired Product on either a country-by-country or global basis. A country-specific buy-out option may be exercised for any Acquired Product at any time after the end of the twelfth calendar quarter following the date on which the Acquired Product was first commercially sold in such country. The global buy-out option may be exercised for any Acquired Product, for all countries for which BioChem has exercised the Product Option, at any time after the end of the twelfth calendar quarter following the date on which the Acquired Product was first commercially sold in either the United States or two other Major Market Countries. The buy-out price for an Acquired Product in the case of a country-specific buy-out will be 15 times the total amount of Product Payments for such product made by or due from BioChem to CliniChem with respect to such Acquired Product in such country for the four calendar quarters immediately preceding the quarter in which the buy-out option is exercised. The buy-out price for a global buy-out shall be calculated as if any previous country-by-country buy-outs have not been made, by adding payments which would have been made had the country-by-country buy-out not occurred into the Product Payments used to calculate the buy-out price, and subtracting from the buy-out price the amounts paid by BioChem to exercise the country-by-country 51 53 buy-outs. The buy-out price in the case of a global buy-out will be (i) 20 times (a) the Product Payments made by or due from BioChem to CliniChem with respect to the Acquired Product, plus (b) such Product Payments as would have been made by or due from BioChem to CliniChem if BioChem had not exercised any country-specific buy-out option with respect to such Acquired Product, in each case for the four calendar quarters immediately preceding the quarter in which the global buy-out option is exercised, less (ii) any amount previously paid to exercise any country-specific buy-out option with respect to such Acquired Product. In either case, the buy-out price will be computed as if Product Payments were not limited to 3% of Net Sales, plus 12.5% of the Licensing Revenues (as applicable) during early marketing as described above. At the time BioChem exercises the global buy-out option for any Acquired Product, the Product Option for such product will expire for all countries for which it had not been previously exercised. If BioChem exercises the Product Option for any CliniChem Product, BioChem will continue to own and have the right to use any clinical supplies, materials and other tangible assets purchased, manufactured or developed for use exclusively in the development of such CliniChem Product under approved work plans and cost estimates (the "Development Assets"), without any additional payment to or reimbursement of CliniChem. To the extent BioChem does not exercise the Product Option for any CliniChem Product prior to its expiration, or to the extent BioChem notifies CliniChem that it will not exercise its Product Option for any CliniChem Product, BioChem must make Development Assets exclusively relating to such CliniChem Product available to CliniChem at no charge to the extent such assets are being used by CliniChem and will not be used under the Research and Development Agreement. During the Payment Period for an Acquired Product, BioChem will provide quarterly reports to CliniChem detailing payments due for such period with respect to the Acquired Product. Such reports will be due 90 days after the end of each calendar quarter and will indicate the quantity and dollar amount of Net Sales of or Licensing Revenue relating to the Acquired Product, or other consideration in respect of Net Sales, during the quarter covered by such report. No more than once in each calendar year upon reasonable notice and during regular business hours, at CliniChem's expense, BioChem is required to make available for inspection by the auditors of CliniChem such records of BioChem as may be necessary to verify the accuracy of reports and payments made under the Product Option Agreement. To the extent BioChem does not exercise the Product Option with respect to any CliniChem Product, CliniChem will retain exclusive rights (subject to pre-existing third-party rights and subject to receipt of certain third-party consents) to develop and commercialize such CliniChem Product. PURCHASE OPTION The Purchase Option is set forth in CliniChem's Articles. Pursuant to the Purchase Option, BioChem, as the holder of all the majority of the outstanding Class B Shares, has the right to acquire all, but not less than all, of the issued and outstanding CliniChem Common Shares. The Purchase Option will be exercisable by written notice given at any time from and after the Distribution Date and ending on the earlier of (i) March 31, 2003 or (ii) the 90(th) day after the date CliniChem provides BioChem (as the holder of the majority of the outstanding Class B Shares) with quarterly financial statements of CliniChem showing cash or cash equivalents of less than $5.0 million, although BioChem may, at its election, extend such period by providing additional funding, including through loans, for the continued conduct of any or all of the CliniChem Programs (but in no event beyond March 31, 2003). All certificates evidencing CliniChem Common Shares will bear a legend indicating that such CliniChem Common Shares are subject to the Purchase Option. If the Purchase Option is exercised, the Purchase Option Exercise Price will be the greatest of: (a) (i) 25 times the aggregate of (a) all worldwide payments made by and all worldwide payments due to be made by BioChem to CliniChem with respect to all Acquired Products for the four calendar quarters immediately preceding the quarter in which the Purchase Option is exercised (the "Base Period") and (b) all payments that would have been made and all payments due to be made by BioChem to CliniChem during the Base Period if BioChem had not previously exercised its Payment Buy-Out Option with respect to any product; less (ii) any amounts previously paid to exercise any payment buy-out option for any CliniChem Product; 52 54 (b) the fair market value of 420,000 BioChem Common Shares determined as of the date BioChem provides notice of its intention to exercise its Purchase Option; (c) $150 million plus any additional funds contributed to CliniChem by BioChem less the aggregate amount of all Technology Fee payments, Research and Development Costs and Services Agreements payments paid or incurred by CliniChem as of the date the Purchase Option is exercised; and (d) $50 million. In each case, the amount payable as the Purchase Option Exercise Price will be reduced (but not to less than $1.00) to the extent, if any, that CliniChem's liabilities at the time of exercise (other than liabilities under the Research and Development Agreement, the Services Agreement and the Technology License Agreement and any debt owed to BioChem) exceed CliniChem's cash and cash equivalents and short-term and long-term investments (excluding the amount of Available Funds remaining at such time). For this purpose, liabilities will include, in addition to liabilities required to be reflected on CliniChem's financial statements under generally accepted accounting principles, certain contingent liabilities relating to guarantees and similar arrangements. BioChem may pay the Purchase Option Exercise Price in cash, in BioChem Common Shares, or in any combination of cash and BioChem Common Shares. For the purpose of determining either the Purchase Option Exercise Price or the fair market value of the BioChem Common Shares to be issued in payment thereof, the fair market value of BioChem Common Shares shall be deemed to be the average of the closing sales price of BioChem Common Shares on the Nasdaq converted to Canadian dollars using the noon buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York for the day on which each such closing sales price occurred for the 20 trading days ending with the trading day that is two trading days prior to the date of exercise of the Purchase Option. The closing of the acquisition of the CliniChem Common Shares pursuant to exercise of the Purchase Option will take place on a date selected by BioChem, but no later than 60 days after the exercise of the Purchase Option unless, in the judgment of BioChem, a later date is required to satisfy any applicable legal requirements or to obtain required consents. Between the time of exercise of the Purchase Option and the time of closing of the acquisition of the CliniChem Common Shares, CliniChem may not, without BioChem's consent as the holder of the majority of the outstanding Class B Shares, incur additional debt, dispose of assets, pay or declare any dividends or operate its business other than in the ordinary course. In the event that prior to BioChem's exercise of the Purchase Option, the number of outstanding BioChem Common Shares is increased by virtue of a stock split or a dividend payable in BioChem Common Shares or the number of such shares is decreased by virtue of a combination or reclassification of such shares, then the number of BioChem Common Shares used to compute the Purchase Option Exercise Price (if the Purchase Option Exercise Price is the fair market value of 420,000 shares of BioChem Common Shares) shall be increased or decreased, as the case may be, in proportion to such increase or decrease in the number of outstanding BioChem Common Shares. DISTRIBUTION AGREEMENT Under the Distribution Agreement, BioChem will contribute $150 million in cash to CliniChem as a capital contribution and will subsequently distribute the CliniChem Common Shares to the Holders. Under the Distribution Agreement, BioChem has agreed to indemnify CliniChem's officers and directors to the same extent such persons are entitled to indemnification under CliniChem's By-laws if BioChem exercises the Purchase Option. SERVICES AGREEMENT CliniChem and BioChem have entered into a Services Agreement pursuant to which BioChem has agreed to provide CliniChem with administrative services, including accounting and legal services, and other services for an annual fee of $400,000. The Services Agreement expires six months after the expiration of the Purchase Option. CliniChem may terminate the Services Agreement at any time upon 60 days' written notice. 53 55 THIRD-PARTY CONSENTS AND RIGHTS Certain of the CliniChem Products are subject to existing third-party rights, or would require the consent of a third party in order for BioChem to sublicense certain rights to CliniChem. Under the Technology License Agreement, BioChem is obligated, in certain circumstances, to use commercially reasonable efforts to obtain such consents. See "The Agreements and the Purchase Option--Technology License Agreement." Under the UGARF Agreement, BioChem has obtained a license to certain patents and know-how related to the use of BCH-4556 for the treatment of cancer. The UGARF Agreement is silent as to whether BioChem may grant sublicenses to commercialize under these patents and know-how without the licensors' consent. It may be necessary for CliniChem to obtain a license to such patents and know-how to CliniChem, or for BioChem to obtain the consent of the licensors to grant a sublicense to CliniChem, prior to commercializing BCH-4556 for the treatment of cancer. See "Risk Factors." Under a collaboration agreement between BioChem and ANP, ANP has agreed to screen compounds in the a(n)b(3) assays for biological activity. Under this agreement, ANP will be granted an exclusive license in Australia and New Zealand to any product developed for human health care which results from such screening. CliniChem will not possess any rights to any product developed for human health care resulting from such screening in Australia and New Zealand. BioChem has entered into certain research agreements and licensing agreements which provide third parties non-exclusive rights to use certain existing or future technology for research purposes. CliniChem's license is subject to such rights. Prior to CliniChem's commercialization of any vaccine incorporating the adjuvants or biovectors licensed to BioChem pursuant to the Pharmadigm or Biovector Agreements, it may be necessary for BioChem to obtain the consent of Pharmadigm or Biovector to grant a sublicense to CliniChem or for CliniChem to obtain an independent license from Pharmadigm or Biovector for such adjuvants or biovectors. See "Risk Factors." Patheon Inc. holds a conditional right of first refusal to bid on the commercial manufacturing of BCH-10652 in dosage form under a pre-existing agreement. CliniChem's license to manufacture BCH-10652 will be subject to Patheon's right of first refusal. INCOME TAX CONSIDERATIONS CANADIAN FEDERAL INCOME TAX CONSIDERATIONS In the opinion of Stikeman, Elliott, Canadian counsel to CliniChem, the following are the principal Canadian federal income tax considerations generally applicable to Holders who receive a dividend in the form of the CliniChem Common Shares and who, at all relevant times, for purposes of the Income Tax Act (Canada) the ("Tax Act"), hold the BioChem Common Shares, and will hold the CliniChem Common Shares, as capital property and deal with each of BioChem and CliniChem at arm's length. BioChem Common Shares and CliniChem Common Shares will generally constitute capital property to a holder unless the holder holds such shares in the course of carrying on a business or the holder has acquired such shares in a transaction or transactions considered to be an adventure in the nature of trade. This discussion is based on the current provisions of the Tax Act, the regulations thereunder, counsel's understanding of current administrative and assessing policies of Revenue Canada and all specific proposals to amend the Tax Act publicly announced or released by or on behalf of the Minister of Finance (Canada) before the date of this prospectus ("Tax Proposals"). The Tax Act contains certain provisions relating to securities held by certain financial institutions (the "Mark-to-Market Rules"). This discussion does not take into account these Mark-to-Market Rules or any amendments thereto contained in the Tax Proposals and taxpayers that are "financial institutions" for purposes of those rules should consult their own tax advisors. This discussion is not exhaustive of all possible Canadian federal income tax considerations and, except for the Tax Proposals, does not take into account or anticipate any changes in law, whether by legislative, governmental or judicial action, nor does it take into account tax legislation of any province, territory or foreign 54 56 jurisdiction. This discussion is of a general nature only and is not intended to be, nor should it be construed as, legal or tax advice to any particular holder of BioChem Common Shares and CliniChem Common Shares. RESIDENTS The following discussion is relevant to a holder of BioChem Common Shares and CliniChem Common Shares who, for purposes of the Tax Act and any applicable tax treaty or convention, is resident in Canada at all relevant times. CliniChem Common Shares The distribution of the CliniChem Common Shares as a dividend-in-kind will be a taxable dividend to Holders. The amount of that dividend will be equal to the fair market value of the CliniChem Common Shares at the time of payment. Where the Holder is an individual, the amount of the dividend will be subject to the gross-up and dividend tax credit rules normally applicable to dividends received from taxable Canadian corporations. Subject to the potential application of subsection 55(2) discussed below, where the Holder is a corporation, the dividend will be included in computing its income and generally will be deductible in computing taxable income. Private corporations and certain other corporations controlled by or for the benefit of an individual or a related group of individuals generally will be liable for the refundable tax on dividends under Part IV of the Tax Act levied at a rate of 33 1/3%. In certain circumstances, subsection 55(2) treats a dividend (other than a dividend subject to Part IV tax that is not refunded as part of the same series of transactions) received by a corporation as proceeds of disposition or a capital gain. Although counsel does not believe subsection 55(2) should apply to the dividend of the CliniChem Common Shares, corporate shareholders should consult their own tax advisers with respect to the potential application of subsection 55(2) to that dividend. CliniChem Common Shares received by a Holder will have a cost to the holder for tax purposes equal to their fair market value at the time of payment. On a disposition or deemed disposition of a CliniChem Common Share, the Holder will realize a capital gain (or capital loss) equal to the amount by which the proceeds of disposition for the CliniChem Common Share exceed (or are less than) the aggregate of any costs of disposition and the adjusted cost base to the holder of the CliniChem Common Share immediately before the disposition. Tax Treatment of Capital Gains and Capital Losses A holder of CliniChem Common Shares will be required to include in income three-quarters of the amount of any capital gain (a "Taxable capital gain") and may deduct three-quarters of the amount of any capital loss (an "Allowable capital loss") against Taxable capital gains realized by the holder in the year of the disposition. Allowable capital losses in excess of Taxable capital gains may be carried back and deducted in any of the three preceding years or carried forward and deducted in any following year against taxable capital gains realized in such years to the extent and under the circumstances described in the Tax Act. A Canadian-controlled private corporation will also be subject to a refundable tax of 6 2/3% on taxable capital gains realized on the disposition of CliniChem Common Shares that will be refunded when the corporation pays taxable dividends (at a rate of $1.00 for every $3.00 of taxable dividend paid). In the case of a holder of CliniChem Common Shares that is a corporation, the amount of any capital loss otherwise determined resulting from the disposition of a CliniChem Common Share may be reduced by the amount of dividends previously received or deemed to have been received thereon. Any such restriction will not occur where the corporate holder owned the CliniChem Common Share for 365 days or longer and such holder (together with any persons with whom it did not deal at arm's length) did not own more than 5% of the shares of any class or series of CliniChem at the time the relevant dividends were received or deemed to have been received. Analogous rules apply where a corporation is a member of a partnership or a beneficiary of a trust which owns CliniChem Common Shares. NON-RESIDENTS The following discussion is relevant to a holder of BioChem Common Shares and CliniChem Common Shares, who, at all relevant times, for purposes of the Tax Act and any applicable tax treaty or convention, is a non-resident or is deemed to be a non-resident of Canada and does not use and is not deemed to use or hold 55 57 BioChem Common Shares and CliniChem Common Shares in the course of carrying on a business in Canada. Special rules, which are not discussed below, may apply to a non-resident that is an insurer which carries on business in Canada and elsewhere. CliniChem Common Shares A non-resident Holder who receives CliniChem Common Shares as a dividend-in-kind will be considered as having received a dividend equal to the fair market value of the CliniChem Common Shares on the date of payment. Under the Tax Act, dividends paid or credited to a non-resident are subject to withholding tax at the rate of 25% of the gross amount of the dividends. This withholding tax may be reduced or eliminated pursuant to the terms of an applicable tax treaty between Canada and the country of residence of the non-resident. For example, for persons who are resident in the United States for purposes of the Canada-United States Income Tax Convention, (the "Convention") the rate of withholding tax on dividends is reduced to 15% generally and 5% when the United States resident is a company that beneficially owns at least 10% of the voting stock of the company paying the dividends. See "The Distribution" as to how the withholding obligation will be satisfied. Under the Convention, dividends paid to certain religious, scientific, charitable and other similar tax-exempt organisations and certain organisations that are resident in, and exempt from tax in, the United States are exempt from Canadian non-resident withholding tax. Provided that certain administrative procedures designed to establish with the Canadian tax authorities the right of such entities to benefit from this withholding tax exemption are complied with by the tax-exempt entities prior to the Distribution, BioChem would not be required to withhold such tax on such payment. Alternatively, the above described tax-exempt entities may claim a refund of Canadian withholding tax otherwise withheld by Biochem on the Distribution. The CliniChem Common Shares received by a Holder including any CliniChem Common Shares sold on behalf of the Holder to pay the Canadian withholding tax for which the Holder is liable will have a cost to the Holder for Canadian tax purposes equal to the fair market value of such CliniChem Common Shares on the date of the dividend. A Holder will be treated as if it had acquired the CliniChem Common Shares sold on its behalf and had disposed of such shares for the amount received on their sale. Consequently, such a Holder may realize a capital gain or capital loss, as discussed below. On a disposition or deemed disposition of a CliniChem Common Share, a non-resident holder will realize a capital gain (or capital loss) equal to the amount by which the proceeds of disposition for the CliniChem Common Share exceed (or are less than) the aggregate of any costs of disposition and the adjusted cost base to the non-resident holder of the CliniChem Common Share immediately before the disposition. Tax Treatment of Capital Gains A non-resident of Canada is liable for Canadian income tax on a capital gain realized on the disposition of property only where that property constitutes "taxable Canadian property". Three-quarters of any capital gain from the disposition of taxable Canadian property is subject to Canadian tax. Under the Tax Act, shares of CliniChem will not constitute taxable Canadian property unless, at any time, in the five years immediately preceding the disposition, the non-resident holder, either alone or together with persons with whom the non-resident does not deal at arm's length, owned (or had a right to acquire) more than 25% of the shares of any class (or series) of CliniChem. Even in circumstances where shares of CliniChem are taxable Canadian property to a non-resident holder, the non-resident holder may be entitled to relief from Canadian tax on any capital gain realized on the disposition thereof pursuant to the terms of an applicable tax treaty between Canada and the country of residence of the non-resident. For example, the Convention provides that gains realized by a resident of the United States on the disposition or deemed disposition of shares of a company will generally not be subject to tax under the Tax Act, provided that the value of the shares is not derived principally from real property situated in Canada. CliniChem believes that the value of its shares is not currently derived principally from real property situated in Canada and it does not expect this to change in the foreseeable future. Provided that the CliniChem Common Shares remain listed on a prescribed stock exchange (including the Montreal Exchange, the Toronto Exchange and the Nasdaq National Market System), a non-resident 56 58 holder who disposes of CliniChem Common Shares will not be required to comply with the Canadian notification procedures generally applicable to dispositions of taxable Canadian property. Taxation of Dividends Dividends paid by CliniChem to a non-resident of Canada will be subject to Canadian withholding tax at the rate described above under "CliniChem Common Shares. UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS The following discussion describes certain material United States Federal income tax consequences to a U.S. Holder of the receipt, ownership and disposition of CliniChem Common Shares. The discussion is limited to certain material United States Federal income tax consequences to holders that are individuals, corporations, estates or trusts, and that hold the CliniChem Common Shares as capital assets. The discussion does not address the tax consequences to special categories of investors such as dealers, traders, holders of securities as part of a synthetic, integrated or derivative investment, tax-exempt holders, other types of entity or holders which are subject to special taxation regimes such as banks, real estate investment trusts, regulated investment companies or insurance companies. The discussion also does not address United States state and local taxes. This discussion is based on the Internal Revenue Code of 1986, as amended (the "Code"), judicial decisions, administrative pronouncements, and existing and proposed regulations issued by the United States Department of the Treasury (the "Treasury Department") now in effect, all of which are subject to change, possibly with retroactive effect. There can be no assurance that the Internal Revenue Service will take a similar view of the tax consequences of the receipt, ownership and disposition of the CliniChem Common Shares. U.S. Holders are urged to consult their own tax advisers concerning the United States Federal, state and local consequences of the receipt, ownership and disposition of the CliniChem Common Shares. The term "U.S. Holder" means a holder of either BioChem Common Shares or CliniChem Common Shares, as applicable, that is, for United States Federal income tax purposes, (a) a citizen or resident of the United States, (b) a corporation, limited liability company, partnership or other entity created or organized under the laws of the United States or of any political subdivision thereof, (c) an estate, the income of which is subject to United States Federal income taxation regardless of source, or (d) a trust, if a court within the United States is able to exercise primary jurisdiction over its administration and one or more United States persons have the authority to control all of its substantial decisions. CONSEQUENCES OF DISTRIBUTION The Distribution of CliniChem Common Shares will be taxable to a U.S. Holder as a dividend to the extent of BioChem's current and accumulated earnings and profits ("E&P"). A U.S. Holder will not be entitled to a dividends-received deduction in relation to any part of the Distribution which must be included as a dividend. Any excess of the value of the CliniChem Common Shares distributed over BioChem's E&P will be treated as a return of basis in a U.S. Holder's BioChem Common Shares, and the U.S. Holder's tax basis in the BioChem Common Shares will be reduced by the amount of such excess. Once a U.S. Holder's tax basis in the BioChem Common Shares has been reduced to zero, any additional excess will be taxable to the U.S. Holder as a capital gain, long- or short-term depending upon whether the U.S. Holder has held the BioChem Common Shares for more than one year. A U.S. Holder who is an individual will qualify for the lowest capital gain rate only if such U.S. Holder has held the BioChem Common Shares for more than eighteen months on the date of the Distribution. For purposes of the foregoing rules, a U.S. Holder will be considered to have received a distribution equal to the aggregate fair market value on the Distribution Date of the CliniChem Common Shares actually received plus those withheld to satisfy such U.S. Holder's Canadian withholding tax liability. BioChem does not believe it has any accumulated E&P through December 31, 1997. BioChem will not be able to calculate its current E&P until the end of the current tax year. BioChem will notify the relevant depository agents in early 1999 of the amount, if any, of the Distribution which must be included in the income of U.S. Holders as a dividend. 57 59 The Distribution will be treated as a dividend-in-kind under Canadian tax law, and consequently will be subject to Canadian withholding tax. See "Income Tax Considerations--Canadian Federal Tax Considerations." Although such withholding tax will be creditable under United States Federal tax law, a U.S. Holder's ability to claim a foreign tax credit against its United States taxes is subject to several limitations. In particular, a U.S. Holder may only claim a foreign tax credit against the portion of its United States Federal income tax liability allocable to foreign source income. Consequently, if some or all of the Distribution is not taxed as a dividend (because BioChem has insufficient E&P), a U.S. Holder may not be able to credit the full withholding tax against its United States tax liability unless it has other foreign source income to which the foreign withholding tax can be applied. In order to satisfy a Registered U.S. Holder's liability for the Canadian withholding tax, a portion of the CliniChem Common Shares otherwise deliverable to such U.S. Holder will be withheld by the Distribution Agent. Such shares so withheld will be sold on behalf of such U.S. Holder as is necessary, given the price actually received and any expenses of sale, to realize sufficient proceeds to satisfy the Canadian withholding tax liability. A U.S. Holder will recognize a short-term capital gain or loss on the sale of such withheld shares equal to the difference between the sale price realized and the sum of the fair value of the shares on the date of the distribution plus any expenses incurred in connection with such sale. Any withheld shares remaining unsold after sufficient proceeds are realized will be distributed to the U.S. Holder. A U.S. Holder will not recognize any gain or loss upon receipt of such remaining unsold shares. A U.S. Holder's tax basis in the CliniChem Common Shares (including the shares withheld to satisfy such U.S. Holder's Canadian withholding tax liability) will be equal to their value on the Distribution Date. The U.S. Holder's holding period of the CliniChem Common Shares including such withheld shares will begin on the Distribution Date. TAXATION OF CLINICHEM COMMON SHARES Sale, Exchange or Other Disposition. Subject to the discussion under "Passive Foreign Investment Company Considerations" below, a U.S. Holder will recognize capital gain or loss on the sale or other disposition of a CliniChem Common Share equal to the difference between the amount received and such U.S. Holder's tax basis in the CliniChem Common Share. Such gain or loss will be long-term if the U.S. Holder has held the CliniChem Common Share for more than one year. A U.S. Holder that is an individual will qualify for the lowest capital gain rate only if such U.S. Holder has held the CliniChem Common Share for more than 18 months. Taxation of Dividends. A U.S. Holder will not be entitled to claim a dividend received deduction with respect to dividends paid by CliniChem on CliniChem Common Shares. U.S. Gift and Estate Tax. An individual U.S. Holder of CliniChem Common Shares will be subject to U.S. gift and estate taxes with respect to the CliniChem Common Shares in the same manner and to the same extent as with respect to other types of personal property. PASSIVE FOREIGN INVESTMENT COMPANY CONSIDERATIONS. A PFIC is any foreign corporation if, after the application of certain "look-through" rules, (i) at least 75% of its gross income in any taxable year is "passive income" or (ii) at least 50% of the average value of its assets is attributable to assets that produce "passive income" or that are held for the production of "passive income." Whether BioChem or CliniChem is a PFIC in any year and the tax consequences relating to PFIC status will depend on the composition of the income of BioChem or CliniChem, as the case may be. This discussion assumes, and BioChem believes, that BioChem has not been a PFIC for any prior year and will not be a PFIC during the current year. Because CliniChem is expected initially to receive the majority of its income from passive sources, it is expected that CliniChem will initially be a PFIC. If so, a U.S. Holder receiving CliniChem Common Shares in the Distribution will be subject to the PFIC taxation rules regardless of whether CliniChem continues to be a PFIC in any subsequent year. Under the PFIC taxation rules, 58 60 a U.S. Holder owning shares of a PFIC is subject to a special United States federal income tax regime with respect to certain distributions received from the PFIC and with respect to gain from the sale or disposition of PFIC stock. If CliniChem is a PFIC for any taxable year during which a U.S. Holder holds CliniChem Common Shares, unless such U.S. Holder makes the qualified election described below, such U.S. Holder will generally be subject to various adverse United States tax consequences. Generally, a direct or indirect U.S. holder of a PFIC must either (i) elect to have the PFIC treated, with respect to the holder's shareholding, as a "Qualified Electing Fund" and to report currently such holder's pro rata share of the PFIC's ordinary earnings and net capital gain even if such holder does not receive distribution (the "qualified election"), or (ii) upon disposition of the shares of the PFIC, including a disposition pursuant to an otherwise tax-free reorganization, or receipt of an "excess distribution" (generally the amount of each distribution received by the holder in any year that is greater than its ratable share of 125% of the average annual distributions received by such holder in the three preceding years or its holding period, if shorter), be subject generally to tax at the highest applicable rate or rates of tax imposed on ordinary income as if the gain or distribution were earned ratably over the period in which the PFIC shares were held (including payment of an interest charge at the rate equal to the charge generally applicable to underpayment of tax, on the deferred tax). A shareholder that makes a qualified election may recognize ordinary income or loss as a result of currency fluctuations between the dates of deemed and actual distributions from the PFIC. The qualified election is made on a shareholder-by-shareholder basis and can be revoked only with the consent of the Internal Revenue Service. Each Holder of CliniChem Common Shares should consult with his own tax advisor to decide whether to make the "qualified election." This election is made by attaching the shareholder election statement, the PFIC annual information statement and Form 8621 to such shareholder's timely filed income tax return with a copy of the shareholder election statement and Form 8621 being sent to the Internal Revenue Service Center, P.O. Box 21086, Philadelphia, Pennsylvania 19114. CliniChem will supply the PFIC annual information statement to all shareholders of record for each year. Copies of the Form 8621 must also be filed every year during which the "qualified election" is outstanding, both with such shareholder's tax return and with the Internal Revenue Service Center in Philadelphia. THE FOREGOING SUMMARY OF CANADA AND UNITED STATES TAX CONSEQUENCES IS BASED ON THE APPLICABLE INCOME TAX CONVENTION, ESTATE TAX CONVENTION, UNITED STATES LAW, CANADIAN LAW, AND REGULATIONS, ADMINISTRATIVE RULINGS AND PRACTICES OF THE UNITED STATES, AND CANADA, ALL AS THEY EXIST AS OF THE DATE OF THIS PROSPECTUS. THIS SUMMARY DOES NOT DISCUSS ALL ASPECTS THAT MAY BE RELEVANT TO PROSPECTIVE INVESTORS IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES. PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISERS WITH RESPECT TO THEIR OWN PARTICULAR CIRCUMSTANCES, INCLUDING THE APPLICABILITY AND EFFECT OF PROVINCIAL, STATE, LOCAL AND FOREIGN TAX LAWS, ESTATE TAX LAWS AND PROPOSED CHANGES IN APPLICABLE LAWS. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS There are currently no limitations imposed by Canadian federal of provincial laws on the rights of non-resident or foreign owners of Canadian securities to hold or vote the securities held. There are also no such limitations imposed by the Articles and the By-laws with respect to the CliniChem Common Shares. DESCRIPTION OF CLINICHEM'S SHARE CAPITAL The authorized share capital of CliniChem consists of an unlimited number of CliniChem Common Shares and 1,000 Class B Shares. As of the date of this Prospectus, there were CliniChem Common Shares outstanding and 1,000 Class B Shares outstanding. CLINICHEM COMMON SHARES Holders of CliniChem Common Shares are entitled to one vote for each share held on all matters submitted to a vote of shareholders, except matters submitted to the consent or the vote of the holders of a majority of the outstanding Class B Shares. Holders of CliniChem Common Shares do not have cumulative 59 61 voting rights. Holders of CliniChem Common Shares are entitled to receive such dividends, if any, as may be declared by the Board of Directors of CliniChem out of funds legally available therefor. It is expected that CliniChem will not pay dividends on the CliniChem Common Shares. Upon the liquidation, dissolution or winding up of CliniChem, the holders of CliniChem Common Shares are entitled to receive the assets of CliniChem on a pro rata basis. In the event of the liquidation, dissolution or winding up of CliniChem, the Class B Shares shall have priority over the CliniChem Common Shares with respect to return of capital. Holders of CliniChem Common Shares have no preemptive, subscription, redemption or conversion rights. The rights of the holders of CliniChem Common Shares are subject to the rights of the holders of any Class B Shares which are currently, or may in the future, be issued. All of the Class A Common Shares of CliniChem will be subject to the Purchase Option whereby the holder of the majority of the outstanding Class B Shares can require holders of the CliniChem Common Shares to sell their CliniChem Common Shares to the holder of the majority of the outstanding Class B Shares at the Purchase Option Exercise Price. CLASS B SHARES All the currently issued and outstanding Class B Shares are held by BioChem. Holders of Class B Shares are entitled to one vote for each share held on all matters submitted to a vote of shareholders. Holders of the majority of the outstanding Class B Shares are entitled to elect one director. Holders of Class B Shares do not have cumulative voting rights. Holders of Class B Shares are entitled to receive such dividends, if any, as may be declared by the Board of Directors of CliniChem out of funds legally available therefor. In the event of the liquidation, dissolution of winding up of CliniChem, the Class B Shares shall be entitled to receive, in preference and priority over the CliniChem Common Shares, an amount equal to the consideration received by ClinChem upon the issuance of the Class B Shares. CliniChem does not presently intend to issue additional Class B Shares. The holders of a majority of the issued and outstanding Class B Shares have, upon certain conditions, an option to purchase all, but not less than all, of the CliniChem Common Shares issued and outstanding. See "The Agreements and the Purchase Options--Purchase Option." Until the exercise or the expiration of the Purchase Option, CliniChem may not authorize or permit, without the prior written approval of the holders of a majority of the outstanding Class B Shares, any amalgamation or liquidation of CliniChem, and any amendments to the CliniChem Articles that would alter the Purchase Option, CliniChem's authorized capitalization, or the provisions of the CliniChem Articles governing the right of the holders of the majority of the outstanding Class B Shares to elect one director. See "The Agreements and the Purchase Options--Purchase Option", "Risk Factors--Relationship Between CliniChem and BioChem May Limit CliniChem's Activities and Market Value." Thus BioChem, as the holder of a majority of the outstanding Class B Shares, could preclude the holders of a majority of the outstanding CliniChem Common Shares and the Board of Directors of CliniChem from taking any of the foregoing actions during such period. In addition, until the expiration of the Purchase Option, any resolution to liquidate, dissolve or wind up CliniChem will confer upon the holders of the Class B Shares a right to vote and such Class B Shares will carry a number of votes equal to the total number of votes carried by the CliniChem Common Shares at the time outstanding. SHAREHOLDER MEETINGS Under applicable Canadian securities legislation and the CBCA, a meeting of the shareholders of a company must be convened at least once every calendar year. Meetings of shareholders of CliniChem shall be held at the place within Canada provided in the By-laws of CliniChem or, in the absence of such provision, at the place within Canada that the directors determine. Notice of all general and special meetings of the shareholders of CliniChem must be furnished to shareholders entitled to vote thereat, specifying the place, the day and the hour of the meeting and the general nature of the business to be considered. NUMBER OF DIRECTORS; RESIDENCY REQUIREMENTS; VACANCIES; REMOVAL CliniChem's Articles provide that there shall be a minimum of three directors and a maximum of 15 directors. See "Business of CliniChem--Executive Officers and Directors." The exact number of directors 60 62 is fixed by the Board of Directors, subject to the requirement of the CBCA that CliniChem have a minimum of three directors, at least two of whom are not officers or employees of CliniChem or its affiliates. The CBCA provides that a majority of the directors of a corporation must be Canadian residents, defined to include Canadian citizens and permanent residents ordinarily resident in Canada. The CBCA provides that a vacancy on the Board of Directors may be filled by a quorum of directors, except for a vacancy resulting from an increase in the number or minimum number of directors or from a failure to elect the number or minimum number of directors required by the Articles. In the event of a vacancy of the director to be elected by the holders of the majority of the outstanding Class B Shares, the Articles provide that such a vacancy shall only be filled by a vote of the majority of the holders of the outstanding Class B Shares. The directors of a CBCA corporation may be removed from office by a resolution passed by a majority of the votes cast at a special meeting of shareholders, subject to applicable class voting rights. LIMITATIONS ON LIABILITY OF OFFICERS AND DIRECTORS The CBCA provides that a corporation may indemnify, and CliniChem's By-laws provide that CliniChem shall indemnify, in each case except in respect of an action by or on behalf of CliniChem or a body corporate of which CliniChem is or was a shareholder or creditor to procure a judgment in its favor, an officer or director of CliniChem, a former officer or director of CliniChem or a person who acts or acted at CliniChem's request as a director or officer of a body corporate of which CliniChem is or was a shareholder or creditor, and his heirs and legal representatives, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by him in respect of any civil, criminal or administrative action or proceeding to which he is made a party by reason of his being or having been a director or officer of CliniChem or such body corporate, if he acted honestly and in good faith with a view to the best interests of CliniChem, and, in the case of a criminal or administrative action or proceeding that is endorsed by a monetary penalty, he had reasonable grounds for believing that his conduct was lawful. AMENDMENT OF CERTAIN PROVISIONS OF THE ARTICLES; FUNDAMENTAL CHANGES In accordance with the provisions of the CBCA, an amendment to the Articles of CliniChem (except in limited circumstances) and the amalgamation or dissolution of CliniChem will require the approval of the holders of the majority of the outstanding Class B Shares and the approval of not less than two-thirds of the votes cast by the shareholders voting in person or by proxy at a special meeting of the shareholders of CliniChem. The By-laws of CliniChem provide that one person present and holding or representing by proxy at least one issued voting share of CliniChem shall be a quorum of any meeting of shareholders for the choice of a chairman of the meeting and for the adjournment of the meeting; for all other purposes a quorum for any meeting shall be persons present being not less that two in number and holding or representing by proxy at least one-third of the shares entitled to vote at such meeting. DIRECTORS' INTERESTS Subject to the provisions of the CBCA, a director or officer of CliniChem may, notwithstanding his office, be a party to or otherwise interested in any transaction or arrangement with CliniChem or in which CliniChem is otherwise interested; and be a director or officer of, or employed by, or a party to any transaction or arrangement with, or otherwise interested in, any body corporate promoted by CliniChem or in which CliniChem is interested. So long as a director or officer of CliniChem who is a party to a material contract or proposed material contract with CliniChem, or is a director or an officer or has a material interest in any person who is a party to a material contract or proposed material contract with CliniChem, such director shall disclose in writing to CliniChem or request to have entered in the minutes of meetings of directors the nature and extent of his interest. A general notice to the directors of CliniChem by a director or officer, declaring that he is a director or officer of or has a material interest in a person and is to be regarded as interested in any contract made with that person, is a sufficient declaration of interest in relation to any contract so made. Except in certain cases, a director shall not vote on any resolution to approve such contract. A material contract between CliniChem and one of or more of its directors and officers, or between CliniChem and another person of which a director or officer of CliniChem is a director or officer or in which 61 63 he has a material interest, is neither void or voidable by reason only of that relationship or by reason only that a director with an interest in the contract is present at or is counted to determine the presence of a quorum at a meeting of directors or committee of directors that authorized the contract, if the director or officer disclosed his interest in accordance with the provisions of the CBCA and the contract was approved by the directors or the shareholders and it was reasonable and fair to CliniChem at the time it was approved. Where a director or officer of CliniChem fails to disclose his interest in a material contract in accordance with the CBCA, a court may, on the application of CliniChem or a shareholder of CliniChem, set aside the contract on such terms as it thinks fit. SHAREHOLDERS' ACTIONS If on an application by a shareholder of CliniChem to a court, the court is satisfied that in respect of CliniChem or any of its affiliates, any act or omission of CliniChem or any of its affiliates effects a result, the business or affairs of CliniChem or any of its affiliates are or have been carried on or conducted in a manner, or the powers of the directors of CliniChem or any of its affiliates are or have been exercised in a manner that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer, the court may make an order to rectify the matters complained of. LEGAL MATTERS The statements included in this Prospectus under the caption "Income Tax Considerations-United States Federal Income Tax Considerations" have been reviewed by Kirkland & Ellis, New York, CliniChem's United States counsel. The statements included in this Prospectus under the caption "Income Tax Considerations--Canadian Federal Income Tax Considerations", and certain other legal matters relating to the Distribution have been passed upon by Stikeman, Elliott, Montreal, CliniChem's Canadian Counsel. The Honorable James A. Grant, P.C., Q.C., a partner of Stikeman, Elliott, is a director of BioChem. EXPERTS The balance sheet of CliniChem Development Inc. as of February 6, 1998 has been included herein and in the Registration Statement in reliance upon the report of Ernst & Young, independent chartered accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. MATERIAL CONTRACTS Other than the contracts described under "The Agreements and the Purchase Option", there is no material contract entered into by CliniChem prior to the date hereof, other than in the ordinary course of business. Copies of the foregoing agreements may be inspected at the registered office of CliniChem at normal business hours during the period of distribution of the CliniChem Common Shares offered by this Prospectus and for a period of 30 days thereafter. PROMOTER BioChem has taken the initiative in organizing the business of CliniChem and accordingly may be considered to be a promoter of CliniChem under applicable Canadian securities legislation. AUDITORS, TRANSFER AGENT AND REGISTRAR The auditors of CliniChem are Ernst & Young, Chartered Accountants, Montreal. The transfer agent and registrar for the CliniChem Common Shares is General Trust of Canada at its principal offices in Montreal and Toronto. 62 64 PURCHASERS' STATUTORY RIGHTS Securities legislation in several of the provinces of Canada provides purchasers with the right to withdraw from an agreement to purchase securities within two business days after receipt or deemed receipt of a prospectus and any amendment. In several of the provinces and territories, securities legislation further provide a purchaser with remedies for rescission or, in some jurisdictions, damages where the prospectus and any amendment contains a misrepresentation or is not delivered to the purchaser, provided that such remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser's province or territory. The purchaser should refer to any applicable provisions of the securities legislation of his province or territory for the particulars of these rights or consult with a legal adviser. 63 65 INDEX TO FINANCIAL STATEMENTS PAGE Report of Ernst & Young, Chartered Accountants.............. F-2 CliniChem Development Inc. Balance Sheet.................... F-3 Notes to CliniChem Development Inc. Balance Sheet........... F-4 Compilation Report and Comments for United States Readers on Canada and United States Reporting Difference.......... F-5 CliniChem Development Inc. Pro Forma Balance Sheet.......... F-6
F-1 66 REPORT OF ERNST & YOUNG, CHARTERED ACCOUNTANTS To the Directors of CliniChem Development Inc. We have audited the balance sheet of CliniChem Development Inc. as at February 6, 1998. This balance sheet is the responsibility of the Company's management. Our responsibility is to express an opinion on this balance sheet based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the balance sheet is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the balance sheet. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall balance sheet presentation. In our opinion, this balance sheet presents fairly, in all material respects, the financial position of the Company as at February 6, 1998, in accordance with accounting principles generally accepted in Canada. Montreal, Canada (signed) Ernst & Young February 6, 1998 Chartered Accountants F-2 67 CLINICHEM DEVELOPMENT INC. BALANCE SHEET AS AT FEBRUARY 6, 1998 (In Canadian dollars) ASSETS Cash........................................................ $1,000 ------ Total assets................................................ $1,000 ====== SHAREHOLDER'S EQUITY Total shareholder's equity [note 2]......................... $1,000 ======
Approved on behalf of the board of directors: (signed) Frederick J. Andrew (signed) Francois Legault See Accompanying Notes to the Balance Sheet. F-3 68 CLINICHEM DEVELOPMENT INC. NOTES TO BALANCE SHEET 1. INCORPORATION CliniChem Development Inc. ("CliniChem" or the "Company") was incorporated by articles of incorporation under the Canada Business Corporations Act by BioChem Pharma Inc. ("BioChem") on January 30, 1998, to conduct research and development of potential human therapeutic and vaccine products primarily for the treatment of cancer and HIV infection and the prevention of certain infectious diseases. CliniChem has not conducted any business to date and its only activity to date has been the initial funding provided by BioChem, which owns all of the Company's outstanding Common Shares. Accordingly, no statement of income is presented. CliniChem prepares its financial statements in accordance with accounting principles generally accepted in Canada which conform in all material respects with generally accepted accounting principles in the United States. 2. SHARE CAPITAL
NUMBER $ ------ ----- Unlimited number of shares authorized; issued and outstanding: Common Shares............................................. 1,000 1,000 As of January 1998, CliniChem is a wholly-owned subsidiary of BioChem.
Prior to the closing of the Distribution contemplated by the Prospectus, of which this Balance Sheet is a part, the Company intends to file articles of amendment to provide for Class A Common Shares and Class B Common Shares. The common shareholders of BioChem will receive one CliniChem Class A Common Share for each 40 BioChem Common Shares held on the Record Date. The Company's Common Shares owned by BioChem on the date on which the articles of amendment are filed will be converted into 2,706,475 Class A Common Shares and into 1,000 Class B Common Shares. In addition, BioChem will contribute $150 million in cash to CliniChem as a capital contribution. As the holder of the majority of outstanding Class B Common Shares of CliniChem following the Distribution, BioChem will have the option to acquire all (but not less than all) of the outstanding Class A Common Shares of CliniChem under specified conditions. 3. DESCRIPTION OF BUSINESS AND CERTAIN TRANSACTIONS WITH BIOCHEM CliniChem does not intend to perform any research or other activities, but rather will contract with BioChem to perform all such activities pursuant to the terms of the Research and Development Agreement to be entered into by and between CliniChem and BioChem. CliniChem intends to enter into certain agreements with BioChem, including the Research and Development Agreement, the Technology License Agreement and the Services Agreement, relating to the proposed research, development and licensing of the therapeutic and vaccine products developed pursuant to CliniChem's therapeutic development program and its vaccine program. In addition, CliniChem will grant to BioChem an option to acquire all rights to each CliniChem Product. Substantially all of the management and operating activities of CliniChem will be carried out by BioChem under the Research and Development Agreement and the Services Agreement. 4. ACCOUNTING FOR REVENUES AND EXPENSES The Company expects to incur most of its expenses under agreements with BioChem. Development costs paid to BioChem under the Research and Development Agreement, and the Technology Fee paid to BioChem under the Technology License Agreement, will be recorded as research and development expenses when incurred. Amounts paid to BioChem under the Services Agreement will be recorded as administrative expenses when incurred except for product development costs which meet all of the criteria for deferment and whose recovery can reasonably be regarded as assured. These costs will be capitalized and amortized from the date of commercial production on a straight-line basis over a period not exceeding five years. F-4 69 COMPILATION REPORT To the Directors of CLINICHEM DEVELOPMENT INC. We have reviewed, as to compilation only, the accompanying pro forma balance sheet of CliniChem Development Inc. ("CliniChem") as at February 6, 1998 prepared for inclusion in the Prospectus relating to the proposed distribution of Class A Common Shares of CliniChem. In our opinion, the pro forma balance sheet has been properly compiled to give effect to the transactions and assumptions described in the footnotes thereto. Montreal, Canada (signed) ERNST & YOUNG February 6, 1998 Chartered Accountants COMMENTS FOR UNITED STATES READERS ON CANADA AND UNITED STATES REPORTING DIFFERENCE The above report, provided solely pursuant to Canadian requirements, is expressed in accordance with standards of reporting generally accepted in Canada. Such standards contemplate the expression of an opinion with respect to the compilation of pro forma financial statements. United States standards do not provide for the expression of an opinion on the compilation of pro forma financial statements. To report in conformity with United States standards on the reasonableness of the pro forma adjustments and their application to the pro forma financial statements requires an examination or review substantially greater in scope than the review we have conducted. Consequently, we are unable to express any opinion in accordance with standards of reporting generally accepted in the United States with respect to the compilation of the accompanying unaudited pro forma balance sheet. Montreal, Canada (signed) ERNST & YOUNG February 6, 1998 Chartered Accountants F-5 70 CLINICHEM DEVELOPMENT INC. PRO FORMA BALANCE SHEET AS AT FEBRUARY 6, 1998 (UNAUDITED) The following pro forma balance sheet should be read in conjunction with the audited balance sheet and notes to the balance sheet of CliniChem as at February 6, 1998. The pro forma balance sheet is presented to show the financial position of CliniChem following the receipt of a contribution of $150 million in cash from BioChem, the conversion of 1,000 Common Shares owned by BioChem into 2,706,475 Class A Common Shares and into 1,000 Class B Common Shares prior to the Distribution.
PRO FORMA AS ADJUSTED AS OF UNADJUSTED ADJUSTMENTS FEBRUARY 6, 1998 ---------- ------------ ----------------- (In Canadian dollars) ASSETS Cash............................................. $ 1,000 $150,000,000(a) $150,001,000 =========== ============ ============ SHAREHOLDERS' EQUITY Common shares, unlimited number of shares authorized, 1,000 shares issued and outstanding.................................... 1,000 (1,000)(b) -- Class A Common Shares, unlimited number of shares authorized, 2,706,475 shares issued and outstanding.................................... -- 167(b) 167 Class B Common Shares, 1,000 shares authorized, 1,000 shares issued and outstanding............ -- 833(b) 833 Contributed surplus.............................. -- 150,000,000(a) 150,000,000 ----------- ------------ ------------ Total Shareholders' equity....................... $ 1,000 $150,000,000 $150,001,000 =========== ============ ============
- --------------- (a) To reflect the receipt of the $150 million contribution from BioChem. (b) To reflect the conversion of 1,000 Common Shares held by BioChem into 2,706,475 Class A Common Shares and into 1,000 Class B Common Shares. F-6 71 ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY BIOCHEM OR CLINICHEM. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THE CLASS A COMMON SHARES TO WHICH IT RELATES OR AN OFFER TO ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. - -------------------------------------------------------------- TABLE OF CONTENTS
PAGE ---- Available Information.................... 2 Incorporation of Certain Documents by Reference.............................. 2 Enforceability of Civil Liabilities Under United States Federal Securities Laws................................... 3 Trademarks............................... 3 Exchange Rate Data....................... 3 Prospectus Summary....................... 4 Glossary................................. 17 Risk Factors............................. 19 The Distribution......................... 27 CliniChem Pro Forma Capitalization....... 29 Reasons for the Distribution and Effects on BioChem............................. 29 Business of CliniChem.................... 31 Selected Financial Data of CliniChem..... 45 Management's Discussion and Analysis of Financial Condition and Results of Operations............................. 46 The Agreements and the Purchase Option... 47 Income Tax Considerations................ 54 Exchange Controls and Other Limitations Affecting Security Holders............. 59 Description of CliniChem's Share Capital................................ 59 Legal Matters............................ 62 Experts.................................. 62 Material Contracts....................... 62 Promoter................................. 62 Auditors, Transfer Agent and Registrar... 62 Purchasers' Statutory Rights............. 63 Index to Financial Statements............ F-1 Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated................... A-1
UNTIL , 1998 (THE 25TH DAY AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS A COMMON SHARES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. CLINICHEM DEVELOPMENT INC. CLASS A COMMON SHARES -------------------------------------------------------------------- PROSPECTUS -------------------------------------------------------------------- , 1998 72 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the costs and expenses payable by CliniChem in connection with the sale of the CliniChem Common Shares being registered (all amounts are estimated except the SEC Registration Fee and the Nasdaq National Market Listing Application Fee): SEC Registration Fee................................... $30,975.00 Nasdaq National Market Listing Application Fee......... 19,000.00 Financial Advisory Fee................................. * Blue Sky Qualification Fees and Expenses............... * Accounting Fees........................................ * Legal Fees and Expenses................................ * Transfer Agent and Registrar Fees...................... * Printing and Engraving................................. * Miscellaneous.......................................... * ---------- Total.................................................. $ * ==========
- --------------- *To be filed by Amendment ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Except as hereinafter set forth, there is no charter provision, by law, contract, arrangement or statute under which any director or officer of BioChem or CliniChem is insured or indemnified in any manner against any liability which he may incur in his capacity as such. The Canada Business Corporations Act provides that a corporation may indemnify, and BioChem's and CliniChem's By-laws each provide that BioChem and CliniChem shall indemnify, in each case except in respect of an action by or on behalf of BioChem or CliniChem or a body corporate of which BioChem or CliniChem is or was a shareholder or creditor to procure a judgment in its favor, an officer or director of BioChem or CliniChem, a former officer or director of BioChem or CliniChem or a person who acts or acted at BioChem's or CliniChem's request as a director or officer of a body corporate of which BioChem or CliniChem is or was a shareholder or creditor, and his heirs and legal representatives, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, reasonably incurred by him in respect of any civil, criminal or administrative action or proceeding to which he is made a party by reason of his being or having been a director or officer of BioChem or CliniChem or such body corporate, if he acted honestly and in good faith with a view to the best interests of BioChem or CliniChem, and, in the case of a criminal or administrative action or proceeding that is endorsed by a monetary penalty, he had reasonable grounds for believing that his conduct was lawful. II-1 73 ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES In February, 1998, CliniChem sold 1,000 common shares to BioChem Pharma Inc. for an aggregate cash purchase price of $1,000. The common shares were issued in a transaction consummated solely in Canada and, as such, without registration under the Securities Act of 1933, as amended. No underwriting commissions were paid in connection with such issuance. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES EXHIBIT NUMBER DESCRIPTION 3.1 Articles of Incorporation of CliniChem 3.2 By-Laws of CliniChem 3.3 Form of Restated Articles of Incorporation of CliniChem (to be effective prior to the Distribution) 4.1 Specimen Certificate of Class A Common Shares of CliniChem* 5.1 Opinion of Stikeman, Elliott as to legality of underlying Class A Common Shares, including consent* 8.1 Opinion of Stikeman, Elliott as to Canadian tax matters, including consent* 8.2 Opinion of Kirkland & Ellis as to U.S. tax matters, including consent* 10.1 Form of Technology License Agreement between CliniChem and BioChem 10.2 Form of Research and Development Agreement between CliniChem and BioChem 10.3 Form of Product Option Agreement between CliniChem and BioChem 10.4 Form of Distribution Agreement between CliniChem and BioChem 10.5 Form of Services Agreement between CliniChem and BioChem 23.1 Consent of Ernst & Young, re CliniChem 23.2 Consent of Stikeman, Elliott (included in Exhibit 5.1 and Exhibit 8.1)* 23.3 Consent of Kirkland & Ellis (included in Exhibit 8.2)* 23.4 Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated* 24.1 Powers of Attorney (included on signature pages)** 27.1 Financial Data Schedule 99.1 Form of Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated - ------------------ * To be filed by amendment. ** Previously filed with respect to CliniChem's Form F-1; filed herewith with respect to Biochem's Form F-3. ITEM 17. UNDERTAKINGS The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post effective amendment to this registration statement; (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933, as amended ("Securities Act"); (ii) To reflect in the prospectus included in this registration statement any facts or events arising after the effective date of this registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed II-2 74 with the Securities and Exchange Commission ("SEC") pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and (iii) To include any material information with respect to the plan of distribution nor previously disclosed in the registration statement or any material change to such information in this registration statement. (2) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (3) To file a post-effective amendment to this registration statement to include any financial statements required by Rule 3-19 of Regulation S-X under the Securities Exchange Act of 1934 throughout the offering. (4) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (5) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described under item 14 above, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. CliniChem hereby undertakes to provide to the General Trust of Canada, the distribution agent, at the Distribution Date certificates in such denominations and registered in such names as required by the Distribution Agent to permit prompt delivery to each purchaser. II-3 75 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-1 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Laval, Quebec, on March 23, 1998. CLINICHEM DEVELOPMENT INC. By: /s/ FREDERICK J. ANDREW Name: Frederick J. Andrew Title: Chief Financial Officer and Director Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to Registration Statement has been signed on behalf of CliniChem Development Inc. by the following persons in the capacities and on the dates indicated.
NAME CAPACITY DATE ---- -------- ---- * Chairman and President March 23, 1998 - --------------------------------------------- (Principal Executive Officer) Francesco Bellini, Ph.D. /s/ FREDERICK J. ANDREW Chief Financial Officer and Director March 23, 1998 - --------------------------------------------- (Principal Financial and Accounting Frederick J. Andrew Officer) /s/ CHARLES-A. TESSIER General Counsel and Secretary March 23, 1998 - --------------------------------------------- Charles-A Tessier * Director March 23, 1998 - --------------------------------------------- Francois Legault
* means signed by attorney-in-fact. III-1 76 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-1 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Laval, Quebec, on March 23, 1998. BIOCHEM PHARMA INC. By: /s/ FREDERICK J. ANDREW Name: Frederick J. Andrew Title: Chief Financial Officer and Director POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned officers and directors of CliniChem Development Inc., a Canadian corporation, does hereby constitute and appoint Charles-A Tessier and Frederick J. Andrew, and each of them the lawful attorney and agent or attorney or agent, with power and authority to do any and all acts and things and to execute any and all instruments which said attorney and agent determines may be necessary or advisable or required to enable said corporation to comply with the Securities Act of 1933, as amended, and any rules or regulations or requirements of the Securities and Exchange Commission in connection with this Registration Statement. Without limiting the generality of the foregoing power and authority, the powers granted include the power and authority to sign the names of the undersigned officers and directors in the capacities indicated below to this Registration Statement, to any and all amendments, all whether pre-effective or post-effective, and all supplements to this Registration Statement and to any and all instruments or documents filed as part of or in conjunction with this Registration Statement or amendments, whether pre-effective or post-effective, or supplements to this Registration Statement, and each of the undersigned hereby ratifies and confirms all that said attorney and agent shall do or cause to be done by virtue hereof. IN WITNESS WHEREOF, each of the undersigned has executed this Power of Attorney as of the date indicated. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed on behalf of BioChem Pharma Inc. by the following persons in the capacities and on the dates indicated III-2 77
NAME CAPACITY DATE ---- -------- ---- /s/ JEAN-LOUIS FONTAINE Chairman of the Board of Directors March 23, 1998 - --------------------------------------------- Jean-Louis Fontaine /s/ GUY LORD Director March 23, 1998 - --------------------------------------------- Guy Lord /s/ FRANCESCO BELLINI, Ph.D. President, Chief Executive Officer March 23, 1998 - --------------------------------------------- and Director (Principal Executive Francesco Bellini, Ph.D. Officer) /s/ FREDERICK J. ANDREW Chief Financial Officer (Principal March 23, 1998 - --------------------------------------------- Financial and Accounting Officer) Frederick J. Andrew /s/ CHARLES-A. TESSIER Vice-President, Legal Affairs and March 23, 1998 - --------------------------------------------- Corporate Secretary Charles-A Tessier /s/ GERVAIS DIONNE, Ph.D. Director March 23, 1998 - --------------------------------------------- Gervais Dionne, Ph.D. /s/ JAMES A. GRANT, Q.C. Director March 23, 1998 - --------------------------------------------- James A. Grant, Q.C. /s/ GUY SAVARD Director March 23, 1998 - --------------------------------------------- Guy Savard /s/ JEAN-FRANCOIS FORMELA, M.D. Director March 23, 1998 - --------------------------------------------- Jean-Francois Formela, M.D.
III-3 78 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 3.1 Articles of Incorporation of CliniChem 3.2 By-Laws of CliniChem 3.3 Form of Articles of Amendment of CliniChem (to be effective prior to the Distribution) 4.1 Specimen Certificate of Class A Common Shares of CliniChem* 5.1 Opinion of Stikeman, Elliott as to legality of underlying Class A Common Shares, including consent* 8.1 Opinion of Stikeman, Elliott as to tax matters, including consent* 8.2 Opinion of Kirkland & Ellis as to U.S. tax matters, including consent* 10.1 Form of Technology License Agreement between CliniChem and BioChem 10.2 Form of Research and Development Agreement between CliniChem and BioChem 10.3 Form of Product Option Agreement between CliniChem and BioChem 10.4 Form of Distribution Agreement between CliniChem and BioChem 10.5 Form of Services Agreement between CliniChem and BioChem 23.1 Consent of Ernst & Young, re CliniChem 23.2 Consent of Stikeman, Elliott (included in Exhibit 5.1 and Exhibit 8.1)* 23.3 Consent of Kirkland & Ellis (included in Exhibit 8.2)* 23.4 Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated* 24.1 Powers of Attorney (included on signature pages)** 27.1 Financial Data Schedule 99.1 Form of Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated
- --------------- * To be filed by amendment. ** Previously filed with respect to CliniChem's Form F-1; filed herewith with respect to BioChem's Form F-3. III-4 EX-3.1 2 ARTICLES OF INCORPORATION 1 Exhibit 3.1 CANADA BUSINESS CORPORATIONS ACT FORM 1 ARTICLES OF INCORPORATION (SECTION 6) 1 - NAME OF CORPORATION CliniChem Development Inc. 2 - THE PLACE IN CANADA WHERE THE REGISTERED OFFICE IS TO BE SITUATED Metropolitan Region of Montreal, Province of Quebec. 3 - THE CLASSES AND ANY MAXIMUM NUMBER OF SHARES THAT THE CORPORATION IS AUTHORIZED TO ISSUE An unlimited number of common shares. THE COMMON SHARES SHALL HAVE ATTACHED THERETO THE FOLLOWING RIGHTS, PRIVILEGES, RESTRICTIONS AND CONDITIONS: 1 - Each common share shall entitle the holder thereof to one (1) vote at all meetings of the shareholders of the Corporation. 2 - The holders of the common shares shall be entitled to receive during each year, as and when declared by the board of directors, dividends payable in money, property or by the issue of fully paid shares of the capital of the Corporation. 3 - In the event of the liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, or other distribution of assets of the Corporation among shareholders for the purpose of winding-up its affairs, the holders of the common shares shall be entitled to receive the remaining property of the Corporation. 4 - RESTRICTIONS, IF ANY, ON SHARE TRANSFERS No share in the share capital of the Corporation shall be transferred nor shall it be assigned without the approval of the directors certified by a resolution of the board of directors. 5 - NUMBER (OR MINIMUM AND MAXIMUM NUMBER) OF DIRECTORS A minimum of one (1) director and a maximum of fifteen (15) directors. 6 - RESTRICTIONS, IF ANY, ON BUSINESS THE CORPORATION MAY CARRY ON None. 7 - OTHER PROVISIONS, IF ANY (1) The number of the shareholders of the Corporation is limited to fifty (50), exclusive of present or former employees of the Corporation or of a subsidiary of the Corporation, two (2) or more persons holding one (1) or more shares jointly being counted as a single shareholder; (2) any distribution of securities to the public or invitation to the public to subscribe for the Corporation's securities is prohibited; and (3) the directors may appoint one or more directors, who shall hold office for a term expiring no later than the close of the next annual meeting of shareholders, but the total number of directors so appointed may not exceed one third ( ) of the number of directors elected at the previous annual meeting of shareholders. 8 - INCORPORATORS Name Address Jean Marc Huot 1155 Rene-Levesque Boulevard West 40th Floor Montreal, Quebec H3B 3V2 DATE SIGNATURE January 30, 1998 _____________________ Jean Marc Huot TITLE Incorporator ____________________________________________________________________________ FOR DEPARTMENTAL USE ONLY Corporation No. Filed 2 CANADA BUSINESS CORPORATIONS ACT FORM 3 NOTICE OF REGISTERED OFFICE OR NOTICE OF CHANGE OF REGISTERED OFFICE (SECTION 19) 1 - NAME OF CORPORATION CliniChem Development Inc. 2 - CORPORATION NO. 3 - PLACE IN CANADA WHERE THE REGISTERED OFFICE IS SITUATED Metropolitan Region of Montreal, Province of Quebec. 4 - ADDRESS OF THE REGISTERED OFFICE 275 Armand-Frappier Boulevard Laval, Quebec H7V 4A7 5 - EFFECTIVE DATE OF CHANGE Not applicable. 6 - PREVIOUS ADDRESS OF THE REGISTERED OFFICE Not applicable. DATE SIGNATURE ______________________________ January 30, 1998 Jean Marc Huot TITLE Incorporator ________________________________________________________________________________ Filed 3 CANADA BUSINESS CORPORATIONS ACT FORM 6 NOTICE OF DIRECTORS OR NOTICE OF CHANGE OF DIRECTORS (SECTIONS 106 AND 113) 1 - NAME OF CORPORATION CliniChem Development Inc. 2 - CORPORATION NO. 3 - THE FOLLOWING PERSONS BECAME DIRECTORS OF THIS CORPORATION Effective date: Not applicable. Name Residential address OCCUPATION Resident Canadian - Y/N 4 - THE FOLLOWING PERSONS CEASED TO BE DIRECTORS OF THIS CORPORATION Effective date: Not applicable. Name Residential address 5 - THE DIRECTORS OF THIS CORPORATION NOW ARE Name Jean Marc Huot Residential address 11 Douglas Avenue Westmount, Quebec H3Y 1V5 OCCUPATION Lawyer Resident Canadian - Y/N Y DATE SIGNATURE January 30, 1998 ___________________________________ Jean Marc Huot TITLE Incorporator _______________________________________________________________________________ Filed EX-3.2 3 BY-LAWS 1 Exhibit 3.2 RESOLUTIONS OF THE BOARD OF DIRECTORS of CliniChem Development Inc. - RESOLVED: THAT the following by-law be and the same is hereby adopted: BY-LAW NO. ONE DEFINITIONS 1. DEFINITIONS. In this by-law and all other by-laws of the Corporation, unless the context otherwise specifies or requires: (a) "ACT" means the CANADA BUSINESS CORPORATIONS ACT, R.S.C., 1985, chapter C-44, and any statute that may be substituted therefor, as from time to time amended; (b) "ARTICLES" means the articles of the Corporation, as from time to time amended or restated; (c) "BY-LAW" means this by-law and all other by-laws of the Corporation from time to time in force and effect; (d) words importing the singular number only shall include the plural and VICE VERSA; words importing the masculine gender shall include the feminine and neuter genders and VICE-VERSA; words importing persons shall include bodies corporate, corporations, companies, partnerships, syndicates, trusts and any number or aggregate of individuals; (e) the headings used in the by-laws are inserted for reference purposes only and are not to be considered or taken into account in construing the terms or provisions thereof or to be deemed in any way to clarify, modify or explain the effect of any such terms or provisions; and 2 (f) all terms contained in the by-laws and which are defined in the Act shall have the meanings given to such terms in the Act. REGISTERED OFFICE 2. REGISTERED OFFICE. The Corporation may from time to time (i) by resolution of the board of directors change the location of the address of the registered office of the Corporation within the place specified in the articles and (ii) by articles of amendment change the place in which its registered office is situated to another place within Canada. CORPORATE SEAL 3. CORPORATE SEAL. The Corporation may have one or more corporate seals which shall be such as the board of directors may by resolution from time to time adopt and change. DIRECTORS 4. NUMBER AND POWERS. There shall be a board of directors consisting of such fixed number, or minimum and maximum number of directors as may be set out in the articles, but a Corporation, any of the issued securities of which are or were part of a distribution to the public and remain outstanding and are held by more than one person, shall not have fewer than three (3) directors, at least two (2) of whom are not officers or employees of the Corporation or its affiliates. A majority of the board of directors must be resident Canadians unless the Corporation is a holding Corporation referred to in subsection 105(4) of the Act. 5. VACANCIES. If the number of directors is increased, the resulting vacancies shall be filled at a meeting of shareholders duly called for that purpose. Notwithstanding the provisions of this by-law and subject to the provisions of the Act, if a vacancy should otherwise occur in the board, the remaining directors, if constituting a quorum, may appoint a qualified person to fill the vacancy for the remainder of the term. In the event of a vacancy of the director to be elected by the holders of the majority of the outstanding Class B Common Shares of the Corporation, the articles provide that such a vacancy shall only be filed by a vote of the majority of the holders of the outstanding Class B Common Shares of the Corporation. In the absence of a quorum, the remaining directors shall forthwith call a meeting of shareholders to fill the vacancy pursuant to subsection 111(2) of the Act. Where a vacancy or vacancies exist in the board, the remaining directors may exercise all of the powers of the board so long as a quorum remains in office. 6. TERM OF OFFICE. A director's term of office shall be from the meeting at which he is elected or appointed until the annual meeting next following or until his -2- 3 successor is elected or appointed, or until, if earlier, he dies or resigns, or is removed or disqualified pursuant to the provisions of the Act. 7. VACATION OF OFFICE. The office of a director shall ipso facto be vacated if: (a) he dies; (b) by notice in writing to the Corporation, he resigns his office and such resignation, if not effective immediately, becomes effective in accordance with its terms; (c) he is removed from office in accordance with section 109 of the Act; or (d) he ceases to be qualified to be a director. 8. ELECTION. Directors shall be elected by the shareholders by ordinary resolution in a general meeting on show of hands unless a poll is demanded and if a poll is demanded such election shall be by ballot. A retiring director shall retain office until the adjournment or termination of the meeting at which his successor is elected unless such meeting was called for the purpose of removing him from office as a director in which case the director so removed shall vacate office forthwith upon the passing of the resolution for his removal. MEETINGS OF DIRECTORS 9. PLACE OF MEETING. Subject to the articles, meetings of directors may be held at any place within or outside Canada as the directors may from time to time determine or the person convening the meeting may give notice. A meeting of the board of directors may be convened by the chairman of the board, if any, the president if any, or any director at any time. The secretary, if any, shall upon direction of any of the foregoing convene a meeting of the board of directors. 10. NOTICE. Notice of the time and place for the holding of any such meeting shall be delivered, mailed, faxed, cabled or telexed to each director at his latest address as shown on the records of the Corporation not less than two (2) days (exclusive of the day on which the notice is delivered, mailed, faxed, cabled or telexed but inclusive of the day for which notice is given) before the date of the meeting; provided that meetings of the board of directors may be held at any time without notice if all the directors have waived notice. For the first meeting of the board of directors to be held immediately following the election of directors at an annual or special meeting of the shareholders, no notice of such meeting need be given to the newly elected or 3 4 appointed director or directors in order for the meeting to be duly constituted, provided a quorum of the directors is present. A notice of a meeting of directors shall specify any matter referred to in subsection 115(3) of the Act that is to be dealt with at the meeting. 11. WAIVER OF NOTICE. Notice of any meeting of the board of directors or any irregularity in any meeting or in the notice thereof may be waived by any director in writing or by telegram, fax, cable or telex addressed to the Corporation or in any other manner, and such waiver may be validly given either before or after the meeting to which such waiver relates. The attendance of a director at a meeting of directors is a waiver of notice of the meeting except where a director attends a meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully called. 12. TELEPHONE PARTICIPATION. A director may, if all the directors of the Corporation consent thereto (either before, during or after the meeting), participate in a meeting of directors by means of such telephone or other communications facilities as permit all persons participating in the meeting to hear each other, and a director participating in such a meeting by such means shall be deemed to be present at that meeting. 13. ADJOURNMENT. Any meeting of the board of directors may be adjourned from time to time by the chairman of the meeting, with the consent of the meeting, to a fixed time and place and no notice of the time and place for the continuance of the adjourned meeting need be given to any director. Any adjourned meeting shall be duly constituted if held in accordance with the terms of the adjournment and a quorum present thereat. The directors who formed a quorum at the original meeting are not required to form the quorum at the adjourned meeting. If there is no quorum present at the adjourned meeting, the original meeting shall be deemed to have terminated forthwith after its adjournment. 14. QUORUM AND VOTING. Subject to the articles, a majority of the number of directors in office at the time shall constitute a quorum for the transaction of business. Subject to subsection 117(1) of the Act, no business shall be transacted by the directors except at a meeting of directors at which a quorum of the board is present. Questions arising at any meeting of the board of directors shall be decided by a majority of votes cast. In case of an equality of votes, the chairman of the meeting, in addition to his original vote shall not have a second or casting vote. Where the Corporation has only one director, that director may constitute the meeting. 15. RESOLUTION IN LIEU OF MEETING. A resolution in writing, signed by all the directors entitled to vote on that resolution at a meeting of directors, is as valid as if it had been passed at a meeting of directors or committee of directors. A copy of every such resolution shall be kept with the minutes of the proceedings of the directors or committee of directors. -4- 5 16. PROHIBITED ACTIONS. The directors of the Corporation are prohibited from taking or permitting or causing to be taken any action inconsistent with, or which would in any way alter, the rights of the holders of the majority of the outstanding Class B Common Shares of the Corporation to acquire all (but not less than all) of the outstanding Class A Common Shares of the Corporation upon the terms and conditions set out in the articles. In addition, until the expiration of the right of the holders of the majority of the outstanding Class B Common Shares of the Corporation to acquire all (but not less than all) of the outstanding Class A Common Shares of the Corporation, the directors of the Corporation may not, without the consent of the holders of the majority of the outstanding Class B Common Shares of the Corporation, take or permit or cause to be taken any action with a view to amalgamate or liquidate the Corporation, amend the articles to alter the right to purchase all (but not less than all) of the outstanding Class A Common Shares of the Corporation, the authorized capitalization of the Corporation or certain provisions of the articles governing the right of the holders of the majority of the outstanding Class B Common Shares of the Corporation to elect one of the directors of the Corporation. REMUNERATION OF DIRECTORS 17. REMUNERATION OF DIRECTORS. Subject to the articles, the remuneration to be paid to the directors shall be such as the board of directors shall from time to time determine and such remuneration shall be in addition to the salary paid to any officer of the Corporation who is also a member of the board of directors. The directors may also by resolution award special remuneration to any director undertaking any special services on the Corporation's behalf other than the routine work ordinarily required of a director by the Corporation. The confirmation of any such resolution or resolutions by the shareholders shall not be required. The directors shall also be entitled to be paid their travelling and other expenses properly incurred by them in connection with the affairs of the Corporation. SUBMISSION OF CONTRACTS OR TRANSACTIONS TO SHAREHOLDERS FOR APPROVAL 18. SUBMISSION OF CONTRACTS OR TRANSACTIONS TO SHAREHOLDERS FOR APPROVAL. The board of directors in their discretion may submit any contract, act or transaction for approval, ratification or confirmation at any annual meeting of the shareholders or at any special meeting of the shareholders called for the purpose of considering the same and any contract, act or transaction that shall be approved, ratified or confirmed by resolution passed by a majority of the votes cast at any such meeting (unless any different or additional requirement is imposed by the Act or by the Corporation's articles or any other by-law) shall be as valid and as binding upon the Corporation and upon all the shareholders as though it had been approved, ratified or confirmed by every shareholder of the Corporation. -5- 6 INDEMNITIES TO DIRECTORS AND OTHERS 19. INDEMNITIES TO DIRECTORS AND OTHERS. Except in respect of an action by or on behalf of the Corporation or another body corporate (as hereinafter defined) to procure a judgment in its favour, the Corporation shall indemnify each director and officer of the Corporation and each former director and officer of the Corporation and each person who acts or acted at the Corporation's request as a director or officer of another body corporate, and his heirs and legal representatives, against all costs, charges and expenses, including any amount paid to settle an action or satisfy a judgment, reasonably incurred by him in respect of any civil, criminal or administrative action or proceeding to which he is made a party by reason of being or having been a director or officer of the Corporation or another body corporate, as the case may be, if (a) he acted honestly and in good faith with a view to the best interests of the Corporation; and (b) in the case of a criminal or administrative action or proceeding that is enforced by a monetary penalty, he had reasonable grounds for believing that his conduct was lawful. "another body corporate" as used herein means a body corporate of which the Corporation is or was a shareholder or creditor. OFFICERS 20. APPOINTMENT OF OFFICERS. Subject to the articles, the board of directors, annually or as often as may be required, may appoint from among themselves a chairman of the board and may appoint a president and a secretary and, if deemed advisable, may also appoint one or more vice-presidents, a treasurer and one or more assistant secretaries and/or one or more assistant treasurers. None of such officers, except the chairman of the board, need be a director of the Corporation. Any two (2) or more of such offices may be held by the same person. In case and whenever the same person holds the offices of secretary and treasurer he may, but need not, be known as the secretary- treasurer. The board of directors may from time to time designate such other offices and appoint such other officers, employees and agents as it shall deem necessary who shall have such authority and shall perform such functions and duties, as may from time to time be prescribed by resolution of the board of directors. The board of directors may by resolution remove any officer, employee or agent at any time, with or without cause. 21. REMOVAL OF OFFICERS. The board of directors may by resolution remove any officer, employee or agent at any time, with or without cause. 22. DUTIES OF OFFICERS MAY BE DELEGATED. In case of the absence or inability or refusal to act of any officer of the Corporation or for any other reason that the -6- 7 board of directors may deem sufficient, the board may delegate all or any of the powers of such officer to any other officer or to any director for the time being. 23. CHAIRMAN OF THE BOARD. The chairman of the board, if any, shall, if present, preside at all meetings of the board of directors and of shareholders. He shall sign such contracts, documents or instruments in writing as require his signature and shall have such other powers and duties as may from time to time be assigned to him by resolution of the board of directors. 24. PRESIDENT. The president, if any, shall be the chief executive officer of the Corporation and shall exercise general supervision over the business and affairs of the Corporation. In the absence of the chairman of the board, if any, the president shall, when present, preside at all meetings of the board of directors and shareholders; he shall sign such contracts, documents or instruments in writing as require his signature and shall have such other powers and shall perform such other duties as may from time to time be assigned to him by resolution of the board of directors or as are incident to his office. 25. VICE-PRESIDENT. The vice-president or, if more than one, the vice-presidents in order of seniority, shall be vested with all the powers and shall perform all the duties of the president in the absence or inability or refusal to act of the president, provided, however, that a vice-president who is not a director shall not preside as chairman at any meeting of shareholders. The vice-president or, if more than one, the vice-presidents in order of seniority, shall sign such contracts, documents or instruments in writing as require his or their signatures and shall also have such other powers and duties as may from time to time be assigned to him or them by resolution of the board of directors. 26. SECRETARY. The secretary, if any, shall give or cause to be given notices for all meetings of the board of directors, of committees thereof, if any, and of shareholders when directed to do so and shall have charge, subject to the provisions of this by-law, of the records referred to in section 20 of the Act (except the accounting records) and of the corporate seal or seals, if any. He shall sign such contracts, documents or instruments in writing as require his signature and shall have such other powers and duties as may from time to time be assigned to him by resolution of the board of directors or as are incident to his office. 27. TREASURER. Subject to the provisions of any resolution of the board of directors, the treasurer, if any, shall have the care and custody of all the funds and securities of the Corporation and shall deposit the same in the name of the Corporation in such bank or banks or with such other depositary or depositaries as the board of directors may by resolution direct. He shall prepare, maintain and keep or cause to be kept adequate books of accounts and accounting records. He shall sign such contracts, documents or instruments in writing as require his signature and shall have such other powers and duties as may from time to time be assigned to him by resolution of the board of directors or as are incident to his office. He may be required to give such bond for the faithful performance of his duties as the board of directors in their uncontrolled discretion may require and no director shall -7- 8 28. ASSISTANT SECRETARY AND ASSISTANT TREASURER. The assistant secretary or, if more than one, the assistant Secretaries in order of seniority, and the assistant treasurer or, if more than one, the assistant treasurers in order of seniority, shall respectively perform all the duties of the secretary and treasurer, respectively, in the absence or inability to act of the secretary or treasurer as the case may be. The assistant secretary or assistant secretaries, if more than one, and the assistant treasurer or assistant treasurers, if more than one, shall sign such contracts, documents or instruments in writing as require his or their signatures respectively and shall have such other powers and duties as may from time to time be assigned to them by resolution of the board of directors. MANAGING DIRECTOR 29. MANAGING DIRECTOR. The board of directors may from time to time appoint from their number a managing director who is a resident Canadian and may delegate to him any of the powers of the board of directors except as provided in subsection 115(3) of the Act. The managing director shall conform to all lawful orders given to him by the board of directors of the Corporation and shall at all reasonable times give to the directors or any of them all information they may require regarding the affairs of the Corporation. Any agent or employee appointed by the managing director shall be subject to discharge by the board of directors. COMMITTEES 30. COMMITTEES. The board of directors may from time to time appoint from their number one or more committees consisting of one or more individuals and delegate to such committee or committees any of the powers of the directors except as provided in subsection 115(3) of the Act. Except in the case of a holding Corporation referred to in subsection 105(4) of the Act, a majority of the members of any such committee must be resident Canadians. Unless otherwise ordered by the board, a committee of directors shall have power to fix its quorum, to elect its chairman and to regulate its proceedings. SHAREHOLDERS' MEETINGS 31. ANNUAL MEETING. Subject to compliance with section 133 of the Act, the annual meeting of the shareholders shall be convened on such day in each year and at such time as the board of directors may by resolution determine. 32. SPECIAL MEETINGS. Other meetings of the shareholders may be convened by order of the chairman of the board, the president or a vice-president who is a director or by the board of directors, to be held at such time and place as may be specified in such order. -8- 9 Special meetings of shareholders may also be called by written requisition to the board of directors signed by shareholders holding between them not less than five percent (5%) of the outstanding shares of the capital of the Corporation entitled to vote thereat. Such requisition shall state the business to be transacted at the meeting and shall be sent to the registered office of the Corporation. Except as otherwise provided in subsection 143(3) of the Act, it shall be the duty of the board of directors on receipt of such requisition, to cause the meeting to be called by the secretary of the Corporation. If the board of directors does not, within twenty-one (21) days after receiving such requisition call a meeting, any shareholder who signed the requisition may call the meeting. 33. PLACE OF MEETINGS. Meetings of shareholders of the Corporation shall be held at the registered office of the Corporation or at such other place in Canada as may be specified in the notice convening such meeting. Notwithstanding the foregoing, a meeting of shareholders may be held outside Canada if all the shareholders entitled to vote at that meeting so agree, and a shareholder who attends a meeting of shareholders held outside Canada is deemed to have so agreed except when he attends the meeting for the express purpose of objecting to the transaction of any business on the grounds that the meeting is not lawfully held. 34. NOTICE. A printed, written or typewritten notice stating the day, hour and place of meeting and, subject to subsection 135(6) of the Act, the general nature of the business to be transacted shall be served to each person who is entitled to vote at such meeting, each director of the Corporation and the auditor of the Corporation, either personally or by sending such notice by prepaid mail not less than twenty-one (21) days or more than fifty (50) days before the meeting. If such notice is served by mail it shall be directed to the latest address as shown in the records of the Corporation, of the intended recipient. Notice of any meeting of shareholders or any irregularity in any such meeting or in the notice thereof may be waived by any shareholder, the duly appointed proxy of any shareholder, any directors or the auditor of the Corporation in writing, by fax, cable or telex addressed to the Corporation or by any other manner, and any such waiver may be validly given either before or after the meeting to which such waiver relates. 35. OMISSION OF NOTICE. The accidental omission to give notice of any meeting to or the non-receipt of any notice by any person shall not invalidate any resolution passed or any proceeding taken at any meeting of shareholders. 36. RECORD DATE. The board of directors may by resolution fix in advance a date and time as the record date for the determination of the shareholders entitled to receive notice of a meeting of the shareholders, but such record date shall not precede by more than fifty (50) days or by less than twenty-one (21) days the date on which the meeting is to be held. -9- 10 If the directors fail to fix in advance a date and time as the record date in respect of all or any of the matters described above for any meeting of the shareholders of the Corporation, the following provisions shall apply, as the case may be: (a) the record date for the determination of the shareholders entitled to receive notice of a meeting of shareholders shall be at the close of business on the day immediately preceding the day on which notice is given or sent; (b) the record date for the determination of the shareholders entitled to vote at a meeting of shareholders shall be the day on which the meeting is held; and (c) the record date for the determination of the shareholders entitled to receive the financial statements of the Corporation shall be the close of business on the day on which the directors pass the resolution relating thereto. 37. VOTES. Voting at a meeting of shareholders shall be by show of hands except where a ballot is demanded by a shareholder entitled to vote at the meeting. A shareholder may demand a ballot either before or immediately after any vote by show of hands. Every question submitted to any meeting of shareholders shall be decided in the first instance, unless a ballot is demanded, on a show of hands and in case of an equality of votes the chairman of the meeting shall not, both on a show of hands and on a ballot, have a second or casting vote in addition to the vote or votes to which he may be entitled as a shareholder. At any meeting, unless a ballot is demanded, a declaration by the chairman of the meeting 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 without proof of the number or proportion of votes recorded in favour of or against the motion. In the absence of the chairman of the board, the president and every vice- president who is a director, the shareholders present entitled to vote shall choose another director as chairman of the meeting and if no director is present or if all the directors present decline to take the chair then the shareholders present shall choose one of their number to be chairman. If at any meeting a ballot is demanded on the election of a chairman or on the question of adjournment or termination it shall be taken forthwith without adjournment. If a ballot is demanded on any other question, it shall be taken in such manner as the chairman of the meeting shall direct. The result of a ballot shall be deemed to be the resolution of the meeting at which the ballot was demanded. A demand for a ballot may be withdrawn. -10- 11 Where a person holds shares as a personal representative, such person or his proxy is the person entitled to vote at all meetings of shareholders in respect of the shares so held by him. Where a person mortgages or hypothecates his shares, such person or his proxy is the person entitled to vote at all meetings of shareholders in respect of such shares unless, in the instrument creating the mortgage or hypothec, he has expressly empowered the person holding the mortgage or hypothec to vote in respect of such shares, in which case, subject to the Corporation's articles, such holder or his proxy is the person entitled to vote in respect of the shares. Where two (2) or more persons hold the same share or shares jointly, any one of such persons present at a meeting of shareholders has the right, in the absence of the other or others, to vote in respect of such share or shares, but if more than one of such persons are present or represented by proxy and vote, they shall vote together as one on the share or shares jointly held by them. 38. PROXIES. A shareholder, including a shareholder that is a body corporate, entitled to vote at a meeting of shareholders may by means of a proxy appoint a proxyholder or one or more alternate proxyholders, who are not required to be shareholders, to attend and act at the meeting in the manner and to the extent authorized by the proxy and with the authority conferred by the proxy. An instrument appointing a proxyholder shall be in writing and shall be executed by the shareholder or his attorney authorized in writing or, if the shareholder is a body corporate, either under its seal or by an officer or attorney thereof, duly authorized. A proxy is valid only at the meeting in respect of which it is given or any adjournment thereof. Unless the Act requires another form, an instrument appointing a proxyholder may be in the following form: -11- 12 "The undersigned shareholder of hereby appoints of or failing him, of as the nominee of the undersigned to attend and act for and on behalf of the undersigned at the meeting of the shareholders of the said Corporation to be held on the day of , 19 , and at any adjournment thereof to the same extent and with the same power as if the undersigned were personally present at the said meeting or such adjournment thereof. Dated the day of , 19 . _________________________ Signature of Shareholder NOTE: This form of proxy must be signed by a shareholder or his attorney authorized in writing or, if the shareholder is a body corporate, either under its seal or by an officer or attorney thereof duly authorized." The directors may from time to time pass regulations regarding the deposit of instruments appointing a proxyholder at some place or places other than the place at which a meeting or adjourned meeting of shareholders is to be held and for particulars of such instruments to be telegraphed, cabled, telexed or sent in writing before the meeting or adjourned meeting to the Corporation or any agent of the Corporation for the purpose of receiving such particulars and providing that instruments appointing a proxyholder so lodged may be voted upon as though the instruments themselves were produced at the meeting or adjourned meeting and votes given in accordance with such regulations shall be valid and shall be counted. The chairman of any meeting of shareholders may, subject to any regulations made as aforesaid, in his discretion accept fax, telex, cable or written communication as to the authority of anyone claiming to vote on behalf of and to represent a shareholder notwithstanding that no instrument of proxy conferring such authority has been lodged with the Corporation, and any votes given in accordance with such telegraphic, telex, cable or written communication accepted by the chairman of the meeting shall be valid and shall be counted. 39. ADJOURNMENT. The chairman of the meeting may with the consent of the meeting adjourn any meeting of shareholders from time to time to a fixed time and place. If a meeting of shareholders is adjourned less than thirty (30) days, it is not necessary to give notice of the adjourned meeting other than by announcement at the earliest meeting that is adjourned. If a meeting of shareholders is adjourned by one or more adjournments for an aggregate of thirty (30) days or more, notice of -12- 13 the adjourned meeting shall be given as for an original meeting but, unless the meeting is adjourned by one or more adjournments for an aggregate of more than ninety (90) days, the requirements of subsection 149(1) of the Act relating to mandatory solicitation of proxies do not apply. Any adjourned meeting shall be duly constituted if held in accordance with the terms of the adjournment and a quorum is present thereat. The persons who formed a quorum at the original meeting are not required to form a quorum at the adjourned meeting. If there is no quorum present at the adjourned meeting, the original meeting shall be deemed to have terminated forthwith after its adjournment. Any business may be brought before or dealt with at any adjourned meeting which might have been brought before or dealt with at the original meeting in accordance with the notice calling same. 40. QUORUM. One (1) person present and holding or representing by proxy at least one (1) issued voting share of the Corporation shall be a quorum of any meeting of shareholders for the choice of a chairman of the meeting and for the adjournment of the meeting; for all other purposes a quorum for any meeting (unless a different number of shareholders and/or a different number of shares are required to be represented by the Act or by the articles or by any other by-law) shall be persons present being not less than two (2) in number and holding or representing by proxy at least thirty-three and one-third percent (33 1/3%) of the shares entitled to vote at such meeting. If a quorum is present at the opening of a meeting of the shareholders, the shareholders present may proceed with the business of the meeting, notwithstanding that a quorum is not present throughout the meeting. Where the Corporation has only one shareholder or only one holder of any class or series of shares, the shareholder present in person or by proxy constitutes a meeting. 41. RESOLUTION IN LIEU OF MEETING. Except where a written statement is submitted by a director under subsection 110(2) of the Act or by an auditor under subsection 168(5) of the Act, a resolution in writing signed by all the shareholders entitled to vote on that resolution at a meeting of shareholders is as valid as if it had been passed at a meeting of the shareholders. A copy of every such resolution shall be kept with the minutes of the meetings of shareholders. 42. PROHIBITED ACTIONS. The shareholders of the Corporation are prohibited from taking or permitting or causing to be taken any action inconsistent with, or which would in any way alter, the rights of the holders of the majority of the outstanding Class B Common Shares of the Corporation to acquire all (but not less than all) of the outstanding Class A Common Shares of the Corporation upon the terms and conditions set out in the Articles. In addition, until the expiration of the right of the holders of the majority of the outstanding Class B Common Shares of the Corporation to acquire all (but not less than all) of the outstanding Class A Common Shares of the Corporation, the shareholders of the Corporation may not, without the consent of the holders of the majority of the outstanding Class B Common Shares -13- 14 of the Corporation, take or permit or cause to be taken any action with a view to amalgamate or liquidate the Corporation, amend the articles to alter the right of the holders of the majority of the outstanding Class B Common Shares of the Corporation to acquire all (but not less than all) of the outstanding Class A Common Shares of the Corporation, the authorized capitalization of the Corporation, or certain provisions of the articles governing the right of the holders of the majority of the outstanding Class B Common Shares of the Corporation to elect one of the directors of the Corporation. SECURITIES 43. CERTIFICATES. Share certificates (and the form of stock transfer power on the reverse side thereof) shall (subject to compliance with section 49 of the Act) be in such form and be signed by such director(s) or officer(s) as the board of directors may from time to time by resolution determine. 44. REGISTRAR AND TRANSFER AGENT. The board of directors may from time to time by resolution appoint or remove one or more registrars and/or branch registrars (which may but need not be the same person) to keep the register of security holders and/or one or more transfer agents and/or branch transfer agents (which may but need not be the same person) to keep the register of transfer, and (subject to section 50 of the Act) may provide for the registration of issues and the registration of transfers of the securities of the Corporation in one or more places and such registrars and/or branch registrars and/or transfer agents and/or branch transfer agents shall keep all necessary books and registers of the Corporation for the registration of the issuance and the registration of transfers of the securities of the Corporation for which they are so appointed. All certificates issued after any such appointment representing securities issued by the Corporation shall be countersigned by or on behalf of one of the said registrars and/or branch registrars and/or transfer agents and/or branch transfer agents, as the case may be. 45. SURRENDER OF SHARE CERTIFICATES. No transfer of a share issued by the Corporation shall be recorded or registered unless or until the certificate representing the share to be transferred has been surrendered and cancelled or, if no certificate has been issued by the Corporation in respect of such share, unless or until a duly executed share transfer power in respect thereof has been presented for registration. 46. DEFACED, DESTROYED, STOLEN OR LOST CERTIFICATES. If the defacement, destruction or apparent destruction, theft, or other wrongful taking or loss of a share certificate is reported by the owner to the Corporation or to a registrar, branch registrar, transfer agent or branch transfer agent of the Corporation (hereinafter, in this paragraph, called the "Corporation's transfer agent") and such owner gives to the Corporation or the Corporation's transfer agent a written statement verified by oath or statutory declaration as to the defacement, destruction or apparent destruction, theft, or other wrongful taking or loss and the circumstances concerning the same, a request for the issuance of a new certificate to replace the one so defaced, destroyed, wrongfully taken or lost and a bond of a -14- 15 surety company (or other security approved by the board of directors) in such form as is approved by the board of directors or by the chairman of the board, the president, a vice-president, the secretary or the treasurer of the Corporation, indemnifying the Corporation (and the Corporation's transfer agent, if any), against all loss, damage or expense, which the Corporation and/or the Corporation's transfer agent may suffer or be liable for by reason of the issuance of a new certificate to such shareholder, a new certificate may be issued in replacement of the one defaced, destroyed or apparently destroyed, stolen or otherwise wrongfully taken or lost, if such issuance is ordered and authorized by any one of the chairman of the board, the president, a vice-president, the secretary or the treasurer of the Corporation or by resolution of the board of directors. DIVIDENDS 47. DIVIDENDS. Subject to the relevant provisions of the Act, the board of directors may from time to time by resolution declare and the Corporation may pay dividends on its issued shares, subject to the relevant provisions, if any, of the articles. NOTICE 48. SHARES REGISTERED IN MORE THAN ONE NAME. All notices or other documents required to be sent to a shareholder by the Act, the regulations under the Act, the articles or the by-laws of the Corporation shall, with respect to any shares in the capital of the Corporation registered in more than one name, be given to whichever of such persons is named first in the records of the Corporation and any notice or other document so given shall be sufficient notice or delivery of such document to all the holders of such shares. 49. PERSONS BECOMING ENTITLED BY OPERATION OF LAW. Every person who by operation of law, transfer or by any other means whatsoever shall become entitled to any shares in the capital of the Corporation shall be bound by every notice or other document in respect of such shares which prior to his name and address being entered on the records of the Corporation shall have been duly given to the person or persons from who he derives his title to such shares. 50. DECEASED SHAREHOLDER. Any notice or other document delivered or sent by post or left at the address of any shareholder as the same appears in the records of the Corporation shall, notwithstanding that such shareholder be then deceased and whether or not the Corporation has notice of his decease, be deemed to have been duly served in respect of the shares held by such shareholder (whether held solely or with other persons) until some other person be entered in his stead in the records of the Corporation as the holder or one of the holders thereof and such service shall for all purposes be deemed a sufficient service of such notice or other document on his heirs, executors or administrators and all persons, if any, interested with him in such shares. -15- 16 51. SIGNATURES TO NOTICES. The signature of any director or officer of the Corporation to any notice may be written, stamped, typewritten or printed or partly written, stamped, typewritten or printed. 52. COMPUTATION OF TIME. Where a given number of days' notice or notice extending over any period is required to be given under any provisions of the articles or by-laws of the Corporation, the day of service or posting of the notice shall, unless it is otherwise provided, be counted in such number of days or other period and such notice shall be deemed to have been given or sent on the day of service or posting. 53. PROOF OF SERVICE. A certificate of any officer of the Corporation in office at the time of the making of the certificate or of a transfer officer of any transfer agent or branch transfer agent of shares of any class of the Corporation as to facts in relation to the mailing or delivery or service of any notice or other documents to any shareholder, director, officer or auditor or publication of any notice or other document shall be conclusive evidence thereof and shall be binding on every shareholder, director, officer or auditor of the Corporation, as the case may be. CHEQUES, DRAFTS, NOTES, ETC. 54. CHEQUES , DRAFTS, NOTES, ETC. All cheques, drafts or orders for the payment of money and all notes, acceptances and bills of exchange shall be signed by such officer or officers or other person or persons, whether or not officers of the Corporation, and in such manner as the board of directors may from time to time designate by resolution. CUSTODY OF SECURITIES 55. CUSTODY OF SECURITIES. All securities, including warrants, owned by the Corporation shall be lodged, in the name of the Corporation, with a chartered bank or a trust company or in a safety deposit box or, if so authorized by resolution of the board of directors, with such other depositaries or in such other manner as may be determined from time to time by the board of directors. All securities, including warrants, belonging to the Corporation may be issued and held in the name of a nominee or nominees of the Corporation, and if issued or held in the names of more than one nominee shall be held in the names of the nominees jointly with right of survivorship and shall be endorsed in blank with endorsement guaranteed in order to enable transfer thereof to be completed and registration thereof to be effected. EXECUTION OF CONTRACTS, ETC. 56. EXECUTION OF CONTRACTS, ETC. Contracts, documents or instruments in writing requiring the signature of the Corporation may be signed by two (2) persons, one of whom holds the office of chairman of the board, president, managing director, vice- president or director and the other of whom holds one of the said offices or -16- 17 the office of secretary, treasurer, assistant secretary or assistant treasurer or any other office created by by-law or by resolution of the board. All contracts, documents or instruments in writing so signed shall be binding upon the Corporation without any further authorization or formality. The board of directors is authorized from time to time by resolution to appoint any officer or officers or any other person or persons on behalf of the Corporation either to sign contracts, documents or instruments in writing generally or to sign specific contracts, documents or instruments in writing. Where the Corporation has only one director and officer being the same person, that person may sign all such contracts, documents or other written instruments. The corporate seal, if any, may, when required, be affixed to contracts, documents or instruments in writing signed as aforesaid or by an officer or officers, person or persons appointed as aforesaid by resolution of the board of directors. The term "contracts, documents or instruments in writing" as used in this by-law shall include deeds, mortgages, hypothecs, charges, conveyances, transfers and assignments of property, real or personal, immoveable or moveable, agreements, releases, receipts and discharges for the payment of money or other obligations, conveyances, transfers and assignments of shares, warrants, bonds, debentures or other securities and all paper writings. In particular, without limiting the generality of the foregoing, two (2) persons, one of whom holds the office of chairman of the board, president, managing director, vice- president or director and the other of whom holds one of the said offices or the office of secretary, treasurer, assistant secretary or assistant treasurer or any other office created by by-law or by resolution of the board are hereby authorized to sell, assign, transfer, exchange, convert or convey all shares, bonds, debentures, rights, warrants or other securities owned by or registered in the name of the Corporation and to sign and execute, under the seal of the Corporation or otherwise, all assignments, transfers, conveyances, powers of attorney and other instruments that may be necessary for the purpose of selling, assigning, transferring, exchanging, converting or conveying or enforcing or exercising any voting rights in respect of any such shares, bonds, debentures, rights, warrants or other securities. Where the Corporation has only one director and officer, being the same person, that person may perform the functions and exercise the powers herein contemplated. The signature or signatures of any officer or director of the Corporation and/or of any other officer or officers, person or persons appointed as aforesaid by resolution of the board of directors may, if specifically authorized by resolution of the directors, be printed, engraved, lithographed or otherwise mechanically reproduced upon all contracts, documents or instruments in writing or, subject to subsections 49(4) and 49(5) of the Act, bonds, debentures or other securities of the Corporation executed or issued by or on behalf of the Corporation and all contracts, documents or instruments in writing or bonds, debentures or other securities of the Corporation on which the signatures of any of the foregoing officers, directors or persons shall be so reproduced, by authorization by resolution of the board of directors, shall, subject to subsections 49(4) and 49(5) of the Act, be deemed to -17- 18 have been duly signed by such officers, shall be as valid to all intents and purposes as if they had been signed manually and notwithstanding that the officers, directors or persons whose signature or signatures is or are so reproduced may have ceased to hold office at the date of the delivery or issue of such contracts, documents or instruments in writing or bonds, debentures or other securities of the Corporation. DECLARATIONS 57. DECLARATIONS. The chairman of the board, if appointed, the president, the vice- presidents, secretary and/or treasurer, the assistant secretaries and/or assistant treasurers, comptroller, persons responsible for a service or a department, accountant, chief clerk, or any one of them, is authorized and empowered to appear and make answer for the Corporation to all writs, orders and interrogatories upon articulated facts issued out of any court and to declare for and on behalf of the Corporation any answer to writs of attachment by way of garnishment in which the Corporation is garnishee, and to make all affidavits and sworn declarations in connection therewith or in connection with any or all judicial proceedings to which the Corporation is a party and to make demands of abandonment or petitions for winding up or bankruptcy orders upon any debtor of the Corporation and to attend and vote at all meetings of creditors of any of the Corporation's debtors and grant proxies in connection therewith. FISCAL YEAR 58. FISCAL YEAR. The fiscal period of the Corporation shall terminate on such day in each year as the board of directors may from time to time by resolution determine. The foregoing resolution is hereby consented to by the signatures of all the directors of CLINICHEM DEVELOPMENT INC. - DEVELOPPEMENT CLINICHEM INC., pursuant to subsection 117(1) of the CANADA BUSINESS CORPORATIONS ACT, effective as of the ______________ th day of March, 1998. _______________________________________ Francesco Bellini _______________________________________ Frederick J. Andrew _______________________________________ Francois Legault -18- 19 CliniChem Development Inc. - BY-LAW NO. ONE Article Page DEFINITIONS Act.................................................... 1 1 articles............................................... 1 1 by-law................................................. 1 1 REGISTERED OFFICE.......................................... 2 2 CORPORATE SEAL............................................. 3 2 DIRECTORS Number and Powers...................................... 4 2 Vacancies.............................................. 5 2 Term of Office......................................... 6 2 Vacation of Office..................................... 7 3 Election............................................... 8 3 MEETINGS OF DIRECTORS Place of Meeting....................................... 9 3 Notice................................................. 10 3 Waiver of Notice....................................... 11 4 Telephone Participation................................ 12 4 Adjournment............................................ 13 4 Quorum and Voting...................................... 14 4 Resolution in lieu of meeting.......................... 15 4 Notice................................................. 16 5 REMUNERATION OF DIRECTORS.................................. 17 5 SUBMISSION OF CONTRACTS OR TRANSACTIONS TO SHAREHOLDERS FOR APPROVAL.................................. 18 5 INDEMNITIES TO DIRECTORS AND OTHERS........................ 19 5 OFFICERS Appointment of Officers................................ 20 6 Removal of Officers.................................... 21 6 Duties of Officers may be Delegated.................... 22 6 Chairman of the Board.................................. 23 7 President.............................................. 24 7 Vice-President......................................... 25 7 Secretary.............................................. 26 7
20 ARTICLE PAGE Treasurer. . . . . . . . . . . . . . . . . . . . 27 7 Assistant Secretary and Assistant Treasurer. . . 28 8 MANAGING DIRECTOR . . . . . . . . . . . . . . . . . . 29 8 COMMITTEES. . . . . . . . . . . . . . . . . . . . . . 30 8 SHAREHOLDERS' MEETINGS Annual Meeting . . . . . . . . . . . . . . . . . 31 8 Special Meetings . . . . . . . . . . . . . . . . 32 8 Place of Meetings. . . . . . . . . . . . . . . . 33 9 Notice . . . . . . . . . . . . . . . . . . . . . 34 9 Omission of Notice . . . . . . . . . . . . . . . 35 9 Record Date. . . . . . . . . . . . . . . . . . . 36 9 Votes. . . . . . . . . . . . . . . . . . . . . . 37 10 Proxies. . . . . . . . . . . . . . . . . . . . . 38 11 Adjournment. . . . . . . . . . . . . . . . . . . 39 12 Quorum . . . . . . . . . . . . . . . . . . . . . 40 12 Resolution in lieu of meeting. . . . . . . . . . 41 13 Prohibited Actions . . . . . . . . . . . . . . . 42 13 SECURITIES Certificates . . . . . . . . . . . . . . . . . . 43 14 Registrar and Transfer Agent . . . . . . . . . . 44 14 Surrender of Share Certificates. . . . . . . . . 45 14 Defaced, Destroyed, Stolen or Lost Certificates. 46 14 DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . 47 14 NOTICE Shares registered in more than one name. . . . . 48 14 Persons becoming entitled by operation of law. . 49 15 Deceased Shareholder . . . . . . . . . . . . . . 50 15 Signatures to Notices. . . . . . . . . . . . . . 51 15 Computation of Time. . . . . . . . . . . . . . . 52 15 Proof of Service . . . . . . . . . . . . . . . . 53 15 CHEQUES, DRAFTS, NOTES, ETC.. . . . . . . . . . . . . 54 15 CUSTODY OF SECURITIES . . . . . . . . . . . . . . . . 55 16 EXECUTION OF CONTRACTS, ETC.. . . . . . . . . . . . . 56 16 DECLARATIONS. . . . . . . . . . . . . . . . . . . . . 57 17 FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . 58 17 (ii) EX-3.3 4 ARTICLES OF AMENDMENT 1 Exhibit 3.3 CANADA BUSINESS CORPORATIONS ACT FORM 4 ARTICLES OF AMENDMENT (SECTION 27 OR 177) 1 - NAME OF CORPORATION CliniChem Development Inc. 2 - CORPORATION NO. 346070-3 A) Section 3 of the articles of incorporation be and the same is hereby deleted and replaced by the following: 3 - THE CLASSES AND ANY MAXIMUM NUMBER OF SHARES THAT THE CORPORATION IS AUTHORIZED TO ISSUE A limited number of 1,000 Common shares; An unlimited number of Class A Common shares; and A limited number of 1,000 Class B Common shares. 1. PROVISIONS ATTACHING TO THE COMMON SHARES The Common shares shall have attached thereto the following rights, privileges, restrictions and conditions: 1.1 Each Common share shall entitle the holder thereof to one (1) vote at all meetings of the shareholders of the Corporation (except meetings at which only holders of another specified class of shares are entitled to vote pursuant to the provisions hereof or pursuant to the provisions of the CANADA BUSINESS CORPORATIONS ACT (the "ACT")). 1.2 The holders of the Common shares shall be entitled to receive, if and when declared by the board of directors, concurrently with the holders of Class A Common shares and of Class B Common shares on a PRO RATA basis dividends payable in money, property or by the issue of fully paid shares of the capital of the Corporation. 1.3 In the event of the liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, or other distribution of assets of the Corporation among shareholders for the purpose of winding-up its affairs, the holders of the Common shares shall be entitled to receive the remaining property of the Corporation concurrently with the holders of Class A Common shares on a PRO RATA basis. 1.4 Common shares surrendered for cancellation, exchange, purchase or redemption shall be canceled and the number thereof shall not be restored to the status of authorized but unissued Common shares and as a result, may not be reissued by the Corporation. Once all the issued and outstanding Common shares have been canceled, the provisions of paragraph 1.1 to 1.3 shall be repealed and there shall be no Common shares authorized. 2. PROVISIONS ATTACHING TO THE CLASS A COMMON SHARES The Class A Common shares shall have attached thereto the following rights, privileges, restrictions and conditions: 2.1 Each Class A Common share shall entitle the holder thereof to one (1) vote at all meetings of the shareholders of the Corporation (except meetings at which only holders of another specified class of shares are entitled to vote pursuant to the provisions hereof or pursuant to the provisions of the Act and except for the right of the holders of the Class B Common shares to elect one director of the Corporation, the whole as set forth in paragraph 3.2). 2 2.2 The holders of the Class A Common shares shall be entitled to receive, if and when declared by the board of directors, pari passu with the holders of Class B Common shares, dividends payable in money, property or by the issue of fully paid shares of the capital of the Corporation. No dividend may be declared on the Class A Common shares unless the same per-share dividend is declared on the Class B Common shares. 2.3 In the event of the liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, or other distribution of assets of the Corporation among shareholders for the purpose of winding-up its affairs, the holders of the Class A Common shares shall be entitled to receive, after payment and distribution of the property and assets required to be distributed to the holders of Class B Common shares pursuant to paragraph 3.5, the remaining property of the Corporation. 2.4 The Class A Common shares are subject to an option in favour of the holder of the majority of the outstanding Class B Common shares of the Corporation as described in paragraph 3.7 and following hereof. Certificates evidencing Class A Common shares issued by or on behalf of the Corporation shall bear a legend in substantially the following form: "As described in the Articles of Incorporation, as amended or restated from time to time, of CliniChem Development Inc. - Developpement CliniChem Inc. the Class A Common Shares evidenced hereby are subject to an option in favour of the holder of the majority of the outstanding Class B Common Shares of the Corporation; such option is for a determined purchase price and expires at a precise date. A copy of the Articles of Incorporation, as amended or restated from time to time, may be requested by a shareholder without cost from the Corporate Secretary by mail at 275 Armand-Frappier Blvd., Laval, Quebec, Canada, H7V 4A7, by telephone at (514) 681-1744, or by fax at (514) 978-7994." 2.5 No change to any of the provisions of paragraphs 2.1 to 2.4 or of this paragraph 2.5 shall have any force or effect until it has been approved by a majority of not less than two-thirds (2/3) of the votes cast by the holders of the Class A Common shares, voting separately as a class at a meeting of such holders specially called for that purpose, or by a resolution in writing signed by all the holders of the Class A Common shares, in addition to any other approval required by the Act. 3. PROVISIONS ATTACHING TO THE CLASS B COMMON SHARES The Class B Common shares shall have attached thereto the following rights, privileges, restrictions and conditions: 3.1 In these Class B Common Share Provisions, unless something in the subject matter or context is inconsistent therewith: "ACQUIRED PRODUCT" (PRODUIT ACQUIS) means any product for which BioChem has exercised the Product Option granted pursuant to the Product Option Agreement. 3 "AVAILABLE FUNDS" (FONDS DISPONIBLES) means, as of any date of determination, all of the funds contributed or paid to the Corporation by BioChem as of such date, plus any investment income earned thereon, less (i) the aggregate amount of all Research and Development Costs paid or incurred by the Corporation as of such date; (ii) the aggregate reasonable ongoing administrative expenses and income taxes paid (less income taxes refunded) or incurred by the Corporation as of such date; (iii) the aggregate amount of all Technology Fee payments paid or incurred by the Corporation as of such date; and (iv) the aggregate amount of all payments paid or incurred by the Corporation under the Services Agreement as of such date. "BIOCHEM" (BIOCHEM) means BioChem Pharma Inc. and its successors or assigns, including any person resulting from the amalgamation of BioChem Pharma Inc. with any other person. "BIOCHEM AFFILIATES" (MEMBRES DU GROUPE DE BIOCHEM) means, collectively, BioChem Vaccines Inc., BioChem Therapeutic Inc., BioChem Pharma (Holdings) Inc., Tanaud Holdings (Barbados) Limited, Tanaud International B.V. and Tanaud Ireland Inc. "BIOCHEM COMMON SHARES" (ACTIONS ORDINAIRES DE BIOCHEM) means the Common Shares of BioChem. "BUSINESS DAY" (JOUR OUVRABLE) means any day other than a Saturday, a Sunday or a day when banks are not open for business in the city of Montreal, Quebec. "CLASS A COMMON SHARES" (ACTIONS ORDINAIRES DE CATEGORIE A) means the Class A Common Shares of the Corporation. "CLASS B COMMON SHARES" (ACTIONS ORDINAIRES DE CATEGORIE B) means the Class B Common Shares of the Corporation. "CLASS B COMMON SHARE PROVISIONS" (DISPOSITIONS RELATIVES AUX ACTIONS ORDINAIRES DE CATEGORIE B) means the rights, privileges, restrictions and conditions attaching to the Class B Common Shares as set out in this Part of these articles of amendment. "CLINICHEM PRODUCT" (PRODUIT DE CLINICHEM) means any human therapeutic or vaccine product developed under the Research and Development Agreement pursuant to the CliniChem Programs in the applicable Fields of Use. "CLINICHEM PROGRAMS" (PROGRAMMES DE CLINICHEM) means any of the therapeutic and vaccine development programs listed in Exhibit A to the Research and Development Agreement in the applicable Fields of Use indicated in such Exhibit A, and any additional or modified development programs recommended by BioChem and accepted by the Board of Directors of the Corporation for development under the Research and Development Agreement. "CLOSING DATE" (DATE DE CLOTURE) has the meaning ascribed to it in paragraph 3.7 hereof. "FAIR MARKET VALUE" (JUSTE VALEUR MARCHANDE) means, with reference to (a) BioChem Common Shares, the average of the closing sales price of BioChem Common Shares on the Nasdaq National Market converted to Canadian dollars using the noon-buying rate in New York City for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York for the day on which each such closing sales price occurred for the twenty (20) trading days ending with the trading day that is two (2) trading days prior to the date of determination; and (b) with reference to Majority Holder Common Shares, (i) if the Majority Holder Common Shares are listed on any securities exchange reporting closing sales prices, the average of the closing sales price of the Majority Holder Common Shares on the principal exchange on which the Majority Holder Common Shares are then traded, for the twenty (20) trading days ending with the trading day that is two (2) trading days prior to the date of determination; (ii) if the Majority Holder Common Shares are not listed on any securities exchange described in clause b(i) but are quoted on a quotation system providing bid prices, the average (over the (20) twenty-day period described in clause b(i)) of the bid prices at the close of each day in such period on the largest quotation system on which the Majority Holder Common Shares are then quoted. 4 "EXERCISE NOTICE" (AVIS DE LEVEE) has the meaning ascribed to it in paragraph 3.8 hereof. "FIELD OF USE" (DOMAINE D'UTILISATION) means the treatment of a particular disease or, in the case of a vaccine, vaccination against a particular bacterium, the whole as indicated in Exhibit A to the Research and Development Agreement. "FINAL PURCHASE OPTION EXERCISE PRICE" (PRIX DE LEVEE FINAL DE L'OPTION D'ACHAT) means the Purchase Option Exercise Price minus the amount by which the Corporation's Liabilities existing at the Purchase Option Exercise Date (other than Liabilities under the Research and Development Agreement, the Services Agreement and the Technology License Agreement and any debt owned to BioChem) exceed the aggregate of the Corporation's then existing cash, cash equivalents and short-term and long-term investments (but excluding the amount of Available Funds remaining at such time); provided, however, that the Final Purchase Option Exercise Price shall not be less than one dollar ($1.00). "LIABILITIES" (PASSIFS) means, with respect to the Corporation, (i) all liabilities required to be reflected or reserved against in the Corporation's financial statements under Canadian generally accepted accounting principles consistently applied and (ii) any reimbursement or similar obligation with respect to any letter of credit issued for the account of the Corporation or as to which the Corporation is otherwise liable. Liabilities of the type described in (ii) shall be valued at the full amount of the potential liability of the Corporation thereon. "MAJORITY HOLDER" (PORTEUR MAJORITAIRE) means the holder of the majority of the outstanding Class B Common Shares. "MAJORITY HOLDER COMMON SHARES" (ACTIONS ORDINAIRES DU PORTEUR MAJORITAIRE) means the common shares in the share capital of the Majority Holder. "PRODUCT OPTION" (OPTION SUR LES PRODUITS) means the option granted to BioChem and certain of the BioChem Affiliates pursuant to the Product Option Agreement. "PRODUCT OPTION AGREEMENT" (CONTRAT D'OPTION SUR LES PRODUITS) means the Product Option Agreement dated as of [____], 1998 by and between BioChem, certain of the BioChem Affiliates and the Corporation as such agreement may be amended or modified from time to time. 5 "PRODUCT PAYMENT BUY-OUT OPTION" (OPTION DE RACHAT DES PAIEMENTS RELATIFS AUX PRODUITS) means the option to buy out the Corporation's right to receive payments to be made by BioChem and certain of the BioChem Affiliates to the Corporation with respect to Acquired Products for any Acquired Product on a country-by-country or global basis, as granted to BioChem and certain of the BioChem Affiliates pursuant to the Product Option Agreement. "PURCHASE OPTION" (OPTION D'ACHAT) has the meaning ascribed to it in paragraph 3.7 hereof. "PURCHASE OPTION EXERCISE DATE" (DATE DE LEVEE DE L'OPTION D'ACHAT) means the date on which the Majority Holder notifies the Corporation in writing of the exercise of the Purchase Option. "PURCHASE OPTION EXERCISE PRICE" (PRIX DE LEVEE DE L'OPTION D'ACHAT) means the greatest of: (a) (i) 25 times the aggregate of (x) all worldwide payments made by and all worldwide payments due to be made by BioChem and certain BioChem Affiliates to the Corporation with respect to all Acquired Products for the four calendar quarters immediately preceding the quarter in which the Purchase Option is exercised (the "BASE PERIOD") and (y) all payments that would have been made and all payments due to be made by BioChem and certain BioChem Affiliates to the Corporation during the Base Period if BioChem or certain BioChem Affiliates had not previously exercised the Product Payment Buy-Out Option with respect to any product; less (ii) any amounts previously paid to exercise any payment buy-out option for any CliniChem Product; (b) the Fair Market Value of 420,000 BioChem Common Shares determined as of the date on which the Majority Holder provides notice of its intention to exercise the Purchase Option; (c) $150 million plus any additional funds contributed to the Corporation by BioChem less the aggregate amount of all Technology Fee payments, Research and Development Costs and Services Agreement payments paid or incurred by the Corporation as of the date the Purchase Option is exercised; and (d) $50 million. In the event that, prior to the exercise of the Purchase Option by the Majority Holder, the number of outstanding BioChem Common Shares is increased by virtue of a stock split or a dividend payable in BioChem Common Shares or the number of such shares is decreased by virtue of a combination or reclassification of such shares, then the number of BioChem Common Shares used to compute the Purchase Option Exercise Price (if the Purchase Option Exercise Price is the Fair Market Value of 420,000 BioChem Common Shares) shall be increased or decreased, as the case may be, in proportion to such increase or decrease in the number of outstanding BioChem Common Shares. In the event that, prior to the exercise of the Purchase Option there is a reclassification of the BioChem Common Shares, then the kind and number of shares or other securities of BioChem resulting from such reclassification that a holder of 420,000 BioChem Common Shares would have been entitled to receive upon such reclassification will be used to determine the Fair Market Value of the 420,000 BioChem Common Shares referred to in paragraph (b) above. 6 "PURCHASE OPTION EXPIRATION TIME" (EXPIRATION DE L'OPTION D'ACHAT) means the earlier of (i) 11:59 p.m. (Montreal time) on March 31, 2003 or (ii) the 90th day after the date on which the Corporation provides the Majority Holder with quarterly financial statements of the Corporation showing cash or cash equivalents of less than $5 million, although the Majority Holder may, at its election, extend such period by providing additional funding, including through loans, for the continued conduct of any or all of the CliniChem Programs (but in no event beyond March 31, 2003). "RESEARCH AND DEVELOPMENT AGREEMENT" (CONTRAT DE RECHERCHE ET DEVELOPPEMENT) means the Research and Development Agreement dated as of March [____], 1998 by and between BioChem and the Corporation as such agreement may be amended or modified from time to time. "RESEARCH AND DEVELOPMENT COSTS" (FRAIS DE RECHERCHE ET DEVELOPPEMENT) means the fully-burdened cost of activities undertaken pursuant to the Research and Development Agreement plus five percent (5%) of such costs with respect to the CliniChem Products, as detailed in the Research and Development Agreement. "SERVICES AGREEMENT" (CONTRAT DE SERVICES) shall mean the Services Agreement dated as of March [___], 1998 by and between BioChem and the Corporation, as such agreement may be amended or modified from time to time. "STATUS STATEMENT" (BILAN D'ETAPE) means, as of any date, a balance sheet prepared by the Corporation and delivered to the Majority Holder dated as of such date, together with (i) a statement and brief description of all the liabilities of the Corporation constituting Total Liabilities as of such date not reflected on such balance sheet; (ii) a statement of the amount of Available Funds remaining as of such date; and (iii) a statement of the total amounts paid by and due from the Corporation pursuant to the Research and Development Agreement through such date. "TECHNOLOGY FEE" (FRAIS RELATIFS A LA TECHNOLOGIE) means those payments to be made by the Corporation to BioChem and certain BioChem Affiliates pursuant to the Technology License Agreement. "TECHNOLOGY LICENSE AGREEMENT" (CONTRAT DE LICENCE TECHNOLOGIQUE) means the Technology License Agreement dated as of March [___], 1998 by and between BioChem, the BioChem Affiliates and the Corporation as such agreement may be amended or modified from time to time. "TOTAL LIABILITIES" (PASSIF TOTAL) means (i) all Liabilities, plus (ii) any other debts, liabilities or obligations of the Corporation, absolute or contingent, matured or unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever arising, including all costs and expenses relating thereto, and including those debts, liabilities and obligations arising under any law, rule or regulation, or under any pending or threatened action, suit or proceeding, or any order or consent decree of any governmental entity or any award of any arbitrator of any kind, and those arising under any contract, commitment or undertaking. "TRANSFER AGENT" (AGENT DES TRANSFERTS) means General Trust of Canada, or such other person as may from time to time be the registrar and transfer agent for the Class A Common Shares. 7 3.2 Each Class B Common Share shall entitle the holder thereof to one (1) vote at all meetings of the shareholders of the Corporation (except where paragraph 3.17 is applicable and except meetings at which only holders of another specified class of shares are entitled to vote pursuant to the provisions hereof or pursuant to the provisions of the Act). Holders of a majority of the outstanding Class B Common Shares voting as a separate class, are entitled to elect one (1) director. 3.3 Except as otherwise provided herein or as otherwise required by law, a vacancy in the directorship elected by the holders of Class B Common Shares pursuant to paragraph 3.2 shall be filled only by vote or written consent of the majority of the holders of Class B Common Shares. 3.4 The holders of the Class B Common shares shall be entitled to receive, if and when declared by the board of directors, pari passu with the holders of Class A Common Shares dividends payable in money, property or by the issue of fully paid shares of the capital of the Corporation. 3.5 In the event of the liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, or other distribution of assets of the Corporation among shareholders for the purpose of winding-up its affairs, the holders of the Class B Common Shares shall be entitled to receive, in preference and priority to any distribution of property or assets of the Corporation to the holders of the Class A Common Shares, an amount equal to the consideration received by the Corporation upon the issuance of the Class B Common Shares. 3.6 The Class B Common Shares shall automatically convert into fully-paid and non-assessable Class A Common Shares, at 12:01 a.m. (Montreal time), on the day immediately following the expiration without exercise of the Purchase Option. The Class B Common Shares shall convert into Class A Common Shares at the rate of one (1) Class A Common Share for each Class B Common Share. 3.7 The Majority Holder is hereby granted an exclusive irrevocable purchase option to purchase all issued and outstanding Class A Common Shares at the Final Purchase Option Exercise Price (the "PURCHASE OPTION"). The Purchase Option, if exercised, must be exercised as to all, but not less than all, issued and out- standing Class A Common Shares and may be exercised at any time at or prior to the Purchase Option Expiration Time. The Majority Holder shall elect, at the time of exercise of the Purchase Option, to pay all or any portion of the Final Purchase Option Exercise Price in cash, Majority Holder Common Shares (valued at the Fair Market Value determined as of the Purchase Option Exercise Date), or any combination thereof; provided, however, that the Majority Holder shall not be entitled to pay all or any portion of the Final Purchase Option Exercise Price in Majority Holder Common Shares if such shares are not listed on any securities exchanges or quoted on a quotation system. 3.8 The Purchase Option shall be exercised, if at all, at or before the Purchase Option Expiration Time by written notice (the "EXERCISE NOTICE") from the Majority Holder to the Corporation stating that the Purchase Option is being exercised and setting forth (1) the Purchase Option Exercise Price; (2) the portion, if any, of the Final Purchase Option Exercise Price to be paid in cash and the portion, if any, of the Final Pur- chase Option Exercise Price to be paid in Majority Holder Common Shares, and if any portion of the Final Purchase Option 8 Exercise Price is to be paid in Majority Holder Common Shares, stating the Fair Market Value of such Majority Common Shares determined as of the Purchase Option Exercise Date; and (3) the closing date (the "CLOSING DATE") on which all of the issued and outstanding Class A Common Shares will be purchased. The Purchase Option shall be deemed to be exercised as of the date of the delivery of the Exercise Notice to the Corporation at its principal offices. 3.9 Except as set forth below, the Closing Date shall be the date specified as such in the Exercise Notice, which date shall be no later than sixty (60) days after the Purchase Option Exercise Date. For greater certainty, the Closing Date may be a date that is after the Purchase Option Expiration Time. The Closing Date may be extended by the Majority Holder if, in the judgment of the Majority Holder, an extension of the Closing Date is necessary to obtain any governmental or third party consent to the purchase of the Class A Common Shares, to permit any necessary prospectus to be receipted or registration statement or similar filing to be declared effective, to permit the expiration prior to the Closing Date of any statutory or regulatory waiting period or to fulfill any other applicable legal requirements. The Majority Holder may extend the Closing Date for the reasons set forth in the preceding sentence by delivering a written notice of such extension to the Corporation on or prior to the previously specified Closing Date. The Corporation shall cooperate with the Majority Holder to effect the closing of the Purchase Option, including without limitation seeking any required third-party or governmental consents, and filing any applications, notifications, prospectus, registration statements or the like which may be necessary to effect the closing. 3.10 From the Purchase Option Exercise Date until the Closing Date, the Corporation will not take any of the following actions (or permit any such actions to be taken on its behalf) except with the prior written consent of the Majority Holder: (A) borrow money, or mortgage, remortgage, pledge, hypothecate or otherwise encumber any of its assets; (B) sell, lease, lend, exchange or otherwise dispose of any of its assets, other than sales of inventory in the ordinary course of business; (C) pay or declare any dividends or make any distributions on or in respect of any shares of its share capital; (D) default in its obligations under any material contract, agreement, commitment or undertaking of any kind or enter into any material contract, agreement, purchase order or other commitment; or (E) enter into any other transaction or liabilities, not in the ordinary course of the Corporation's business. 3.11 Not later than twenty (20) Business Days following the Purchase Option Exercise Date, the Corporation shall deliver a final Status Statement to the Majority Holder prepared as of the Purchase Option Exercise Date. Following receipt of such Status Statement and completion of any other investigation as the Majority Holder shall deem necessary or appropriate, and prior to the Closing Date, the Majority Holder shall determine the Final Purchase Option Exercise Price and shall notify the Corporation of such determination. 9 3.12 On the next Business Day immediately following receipt by the Corporation of the determination of the Final Purchase Option Exercise Price, the Corporation shall mail or deliver to each person who, at the date of such mailing or delivery shall be a registered holder of Class A Common Shares, notice of the intention of the Majority Holder to acquire all the issued and outstanding Class A Common Shares on the Closing Date. Such notice shall be delivered to, or mailed by ordinary prepaid post addressed to, the last address of such holder as it appears on the records of the Corporation, or in the event of the address of any such holder not appearing on the records of the Corporation, then to the last address of such holder known to the Corporation. Such notice shall set out the Final Purchase Option Exercise Price and the Closing Date and instructions as to the surrender of certificates representing the Class A Common Shares and with respect to the collection of the Final Purchase Option Exercise Price by the holders of Class A Common Shares. 3.13 On or before the Closing Date, the Majority Holder shall deposit the full amount of the Final Purchase Option Exercise Price with a bank or banks or similar entities designated by the Majority Holder (which may include the transfer agent of the Majority Holder if shares of Majority Holder Common Shares are being delivered) to pay, on behalf of the Majority Holder, the Final Purchase Option Exercise Price (the "PAYMENT AGENT"). Funds, if any, and certificates representing Majority Holder Common Shares, if any, deposited with the Payment Agent shall be delivered in trust for the benefit of the holders of Class A Common Shares, and the Majority Holder shall provide the Payment Agent with irrevocable instructions to pay, on or after the Closing Date, the Final Purchase Option Exercise Price to registered holders of the Class A Common Shares, the whole on presentation and surrender of the certificates for the Class A Common Shares at the registered office of the Corporation or at such other place or places as may be specified in the notice given by the Corporation pursuant to paragraph 3.12 hereof. 3.14 As soon as practicable upon the request of the Majority Holder, the Corporation shall provide, or shall cause its Transfer Agent to provide, to the Majority Holder or to the Payment Agent, free of charge, a complete list of the registered holders of Class A Common Shares, as of a specified date, including the number of Class A Common Shares held of record and the address of each registered holder as set forth in the records of the Corporation's Transfer Agent. 3.15 Transfer of title of all the issued and outstanding Class A Common Shares shall be deemed to occur automatically on the Closing Date and thereafter the Corporation shall treat the Majority Holder as the sole holder of all the issued and outstanding Class A Common Shares, notwithstanding the failure of any holder of Class A Common Shares to tender the certificates representing such Shares to the Payment Agent, whether or not such tender is required or requested by the Payment Agent. After the Closing Date, the holders of the Class A Common Shares shall no longer as such be shareholders of the Corporation, shall cease to be entitled to dividends in respect of such shares and shall not be entitled to exercise any of the rights of the holders thereof and shall be limited to receiving the Final Purchase Option Exercise Price, the whole against presentation and surrender of the certificates representing such Class A Common Shares. The Corporation shall instruct its Transfer Agent not to accept any Class A Common Shares for transfer on and after the Closing Date other than to the Majority 10 Holder. The Corporation shall take all actions reasonably requested by the Majority Holder to assist in effectuating the transfer to it of the Class A Common Shares in accordance with the provisions hereof. In the event that payment of the Final Purchase Option Exercise Price shall not be made in accordance with the provisions of paragraph 3.13 hereof, the rights of the holders of such shares shall remain unaffected. 3.16 Until the Purchase Option Expiration Time, the Corporation shall not take, nor permit any other person or entity within its control to take, any action inconsistent with the rights of the Majority Holder under the Purchase Option. The Corporation shall not enter into any arrangement agreement or understanding, whether oral or in writing, that is inconsistent with or limits or impairs the rights of the Majority Holder and the obligations of the Corporation hereunder, including, without limitation, any arrangement, agreement or understanding which imposes any obligation upon the Corporation or deprives the Corporation of any material rights, as a consequence of the exercise of the Purchase Option or the acquisition of the outstanding Class A Common Shares pursuant thereto. In addition, until the Purchase Option Expiration Time, any resolution to liquidate, dissolve or wind-up the Corporation will confer upon the holders of Class B Common Shares a right to vote and such Class B Common Shares will carry a number of votes equal to the total number of votes carried by the Class A Common Shares at the time outstanding. 3.17 Until the Purchase Option Expiration Time, no alteration, change or amendment to the Articles of Incorporation of the Corporation, as amended or restated from time to time, that would alter the rights of the Majority Holder under the Purchase Option, authorize the creation or issuance of any additional class or series of shares, result in the voluntary dissolution, liquidation or winding-up of the Corporation, effectuate an amalgamation or a consolidation of the Corporation with or into any other corporation or entity, alter the right of the Majority Holder to elect one director, or amend this paragraph 3.17 shall have any force or effect until it has been approved by a majority of not less than two-thirds (2/3) of the votes cast by the holders of the Class B Common Shares, voting separately as a class at a meeting of such holders specially called for that purpose, or by a resolution in writing signed by all the holders of the Class B Common Shares, in addition to any other approval required by the Act. 11 B) Section 4 of the articles of incorporation be and the same is hereby deleted and replaced by the following: 4 - RESTRICTIONS, IF ANY, ON SHARE TRANSFERS None. C) Section 5 of the articles of incorporation be and the same is hereby deleted and replaced by the following: 5 - NUMBER (OR MINIMUM AND MAXIMUM NUMBER) OF DIRECTORS A minimum of three (3) directors and a maximum of fifteen (15) directors. D) Section 7 of the articles of incorporation be and the same is hereby deleted and replaced by the following: 7 - OTHER PROVISIONS, IF ANY None. DATE SIGNATURE _________________________________ March [____], 1998 Charles-A. Tessier TITLE General Counsel and Secretary _____________________________________________________________________________ Filed
EX-10.1 5 TECHNOLOGY LICENSE AGREEMENT 1 Exhibit 10.1 TECHNOLOGY LICENSE AGREEMENT This Technology License Agreement (this "Agreement") is made as of the _____ day of March, 1998 among BioChem Pharma Inc., a Canadian corporation ("BioChem"), each BioChem Affiliate listed on the signature page hereto (each a "BioChem Affiliate") and CliniChem Development Inc., a Canadian corporation ("CliniChem"). RECITALS A. CliniChem has been formed for the purpose of (i) conducting research and development of potential human therapeutic products primarily for the treatment of cancer and HIV infection and vaccine products for the prevention of certain infectious diseases, including products using BioChem Technology (as defined below) and (ii) commercializing such products. B. BioChem is engaged in the research, development and marketing of therapeutic products and the research, development, manufacturing and marketing of vaccine and diagnostic products for a wide range of infectious and other diseases. C. BioChem and CliniChem have entered into the Research and Development Agreement (as defined below) for the conduct by BioChem, on behalf of CliniChem, of research, development and related activities in connection with the CliniChem Programs (as defined below). D. BioChem and the BioChem Affiliates are willing to grant to CliniChem a license to use BioChem Technology (as defined below) solely for the purposes set forth above on the terms set forth herein and in the Research and Development Agreement and the Product Option Agreement (each as defined below). NOW, THEREFORE, in consideration of the various premises and undertakings set forth herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. DEFINITIONS. For the purposes of this Agreement, the following terms shall have the meanings set forth below: 1.1 "Affiliate" shall mean a corporation or any other entity that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the designated party. "Control" shall mean ownership of shares to which are attached more than fifty percent (50%) of the votes that may be cast for the election of directors in the case of a corporation, and at least fifty percent (50%) of the interests in profits in the case of a business entity other than a corporation. BioChem and CliniChem shall not be considered Affiliates of each other. 2 1.2 "BioChem Technology" shall mean all Proprietary Rights (whether patented or unpatented), owned by, licensed to (including pursuant to those agreements listed on Exhibit B hereto) or controlled by BioChem or a BioChem Affiliate, as of the date of this Agreement or during the term of the Research and Development Agreement, relating to the CliniChem Programs, including any Developed Technology, and including those patents and patent applications indicated by reference to BioChem docket numbers on Exhibit A hereto. "BioChem Technology" shall also include any additional technology which BioChem or a BioChem Affiliate designates expressly in a writing delivered to CliniChem as BioChem Technology for purposes of this Agreement. Notwithstanding the foregoing, however, except as set forth in Section 2.2(a) hereof, in no event shall "BioChem Technology" include the Proprietary Rights licensed to BioChem or any BioChem Affiliate under the Excluded Agreements. 1.3 "Biovector Agreement" shall mean that certain Collaboration Agreement dated May 5, 1997 by and between IAF BioVac Inc. (now known as BioChem Vaccines Inc.) and Biovector Therapeutics, S.A. as amended from time to time. 1.4 "CliniChem Product" shall mean any human therapeutic or vaccine product developed according to the terms of the Research and Development Agreement and pursuant to the CliniChem Programs in the applicable Fields of Use. 1.5 "CliniChem Program" shall mean any of the therapeutic and vaccine product development programs listed on Exhibit C in the applicable Fields of Use indicated on such Exhibit C, and any additional or modified development programs recommended by BioChem or a BioChem Affiliate and accepted by CliniChem's Board of Directors for research and development pursuant to the Research and Development Agreement. 1.6 "Confidential Information" shall mean all information received by one party with respect to the research, intellectual property or business of the other and it shall include, without limiting the generality of the foregoing, the BioChem Technology, all documents, data and other technical information, such as know-how, formulae, processes, models, manufacturing techniques, research projects, information management systems and software, as well as information relating to the management and financial affairs of such party, such as figures relating to profits, markets, sales, business, marketing and development plans, client lists, supplier lists and information of a similar nature. 1.7 "Developed Technology" shall mean Proprietary Rights that (a) are first generated, conceived or reduced to practice, as the case may be, by BioChem, a BioChem Affiliate or by any third party in the course of performing activities undertaken pursuant to the Research and Development Agreement or (b) are acquired from a third party by BioChem or a BioChem Affiliate during the term of the Research and Development Agreement for use, in whole or in part, in the conduct of the CliniChem Programs or the commercialization of CliniChem Products. 1.8 "Distribution" shall mean the distribution by BioChem as a dividend-in-kind of all of the issued and outstanding Class A Common Shares in the share capital of CliniChem to the holders of record of Common Shares of BioChem at the close of business on ________, 1998. -2- 3 1.9 "Distribution Agreement" shall mean the Distribution Agreement dated as of the date hereof by and between BioChem and CliniChem, as amended from time to time. 1.10 "Distribution Date" shall mean the proposed date of effecting the Distribution, which is anticipated to occur on or about _______, 1998. 1.11 "Excluded Agreements" shall mean, collectively, the BioVector Agreement, the Pharmadigm Agreement and the UGARF/Yale Agreement. 1.12 "Field of Use" shall mean the treatment of a particular disease or, in the case of a vaccine, vaccination against a particular bacterium. The applicable Field of Use for each CliniChem Program is set forth in Exhibit C. 1.13 "Infringing Product" shall mean any product manufactured, used, offered for sale or sold by a third party, other than pursuant to an agreement with CliniChem, BioChem or a BioChem Affiliate, which infringes or is alleged to infringe any patent or patents licensed to CliniChem hereunder containing claims which cover a CliniChem Product. 1.14 "Pharmadigm Agreement" shall mean that certain License Agreement dated May 10, 1996 by and between IAF BioVac Inc. (now known as BioChem Vaccines Inc.) and Pharmadigm Biosciences, Inc. as amended from time to time. 1.15 "Product Option" shall mean the option granted to BioChem and certain of the BioChem Affiliates pursuant to the Product Option Agreement, as amended from time to time. 1.16 "Product Option Agreement" shall mean the Product Option Agreement dated as of the date hereof by and between BioChem, certain of the BioChem Affiliates and CliniChem, as amended from time to time. 1.17 "Pre-Existing Rights" shall mean the rights of each party other than BioChem or a BioChem Affiliate under the agreements listed in Exhibit B. 1.18 "Proprietary Rights" shall mean data, inventions, information, processes, know-how and trade secrets, and patents or patent applications claiming any of the foregoing, owned by, licensed to or controlled by a person and which such person has the right to license or sublicense without the consent of any third party and without incurring additional liability to any third party. Proprietary Rights shall not include trademarks or copyrights. 1.19 "Purchase Option" shall mean the option contained in the Articles of Incorporation of CliniChem, as amended or restated from time to time, pursuant to which BioChem (as the holder of the majority of the outstanding Class B Common Shares in the share capital of CliniChem) has the right to acquire all (but not less than all) of the outstanding Class A Common Shares in the share capital of CliniChem. -3- 4 1.20 "Research and Development Agreement" shall mean the Research and Development Agreement dated as of the date hereof by and between BioChem and CliniChem, as amended from time to time. 1.21 "Services Agreement" shall mean the Services Agreement dated as of the date hereof by and between BioChem and CliniChem, as amended from time to time. 1.22 "Technology Fee" shall mean those payments to be made by CliniChem to BioChem or a BioChem Affiliate pursuant to Section 3.2 hereof. 1.23 "UGARF/Yale Agreement" shall mean that certain License Agreement dated January 3, 1996 (as amended June 30, 1996) by and among University of Georgia Research Foundation, Inc., Yale University, BioChem Pharma Inc., Tanaud Holdings (Barbados) Limited and Tanaud L.L.C. as amended from time to time. 2. LICENSE. 2.1 GRANT OF LICENSE. Subject to the Pre-Existing Rights and except as set forth in Section 2.2 below, BioChem and the BioChem Affiliates hereby grant to CliniChem, on the terms and conditions of this Agreement, a worldwide, exclusive license, in perpetuity, with the right to sublicense (as set forth in Sections 2.3 and 2.4 hereof), to use the BioChem Technology to (a) conduct research and development and related activities including, without limitation, compassionate access programs, in connection with the CliniChem Programs (to the extent such license is necessary for such conduct under applicable law) and (b) to manufacture, have manufactured and commercialize CliniChem Products, but for no other purposes whatsoever; provided, however, that with respect to the CliniChem Product BCH-4556, such license shall be granted by (i) BioChem for the territory of Canada, (ii) Tanaud Ireland Inc. for the territory of the United States of America and (iii) Tanaud International B.V. for the remainder of the world. Such license is limited, for each CliniChem Program and each CliniChem Product, to the Field of Use designated on Exhibit C. 2.2 LIMITATIONS ON LICENSE. (a) EXCLUDED AGREEMENTS. Notwithstanding anything in this Agreement to the contrary, nothing herein shall constitute a grant of a sublicense to CliniChem of any Proprietary Rights licensed to BioChem or any BioChem Affiliate under the Excluded Agreements unless and until BioChem or the appropriate BioChem Affiliate obtains the consent of the applicable third party licensor. BioChem or the appropriate BioChem Affiliate shall use commercially reasonable efforts to obtain any consents necessary (1) to grant a sublicense to CliniChem (on commercial terms reasonably acceptable to BioChem) to any adjuvant licensed pursuant to the Pharmadigm Agreement and incorporated in a CliniChem Product, (2) to grant a sublicense to CliniChem (on commercial terms reasonably acceptable to BioChem) to any biovector licensed pursuant to the Biovector Agreement and incorporated in a CliniChem Product, and (3) to grant a sublicense to CliniChem (on commercial terms reasonably acceptable to BioChem) under the UGARF/Yale Agreement in connection with the BCH-4556 CliniChem Product, provided, in each case, that (i) the relevant CliniChem Product has received regulatory approval for commercial marketing in at least one -4- 5 country for which neither BioChem nor a BioChem Affiliate has exercised the applicable Product Option and (ii) BioChem has not exercised the Purchase Option. CliniChem shall pay any costs associated with obtaining such consents or required pursuant to the sublicenses, and any such sublicenses shall terminate upon the exercise by BioChem of the worldwide Product Option for such product or the Purchase Option. Once any such consent is obtained, the sublicensed patents and technology shall be deemed to be included in the definition of "BioChem Technology." (b) MANUFACTURING. CliniChem shall have the right to obtain its manufacturing requirements of any CliniChem Product from a third party subject, however, to the following terms and conditions: (i) In the event CliniChem determines not to conduct its own manufacturing of any CliniChem Product, CliniChem shall provide BioChem the opportunity to fulfill CliniChem's manufacturing requirements for such CliniChem Product. (ii) In the event BioChem and CliniChem are unable to reach agreement as to the commercial terms for BioChem's manufacture of such CliniChem Product after fifteen (15) days of good faith negotiation, CliniChem shall have the right to negotiate an arrangement for the manufacture of such CliniChem Product with a third party, subject to rights under the Excluded Agreements, if any. (iii) At least thirty (30) days prior to entering into any definitive agreement with a third party in respect of any such manufacturing arrangement, CliniChem shall first provide notice of such proposed arrangement to BioChem, which notice shall include an offer for BioChem to provide such manufacturing on terms and conditions generally not less advantageous to CliniChem than those offered by such third party, taking into account not only pricing, but all relevant factors. BioChem shall have the right to accept or reject such offer in its sole discretion. (iv) In the event that BioChem rejects or fails to accept such offer within such thirty (30) day period, CliniChem shall have the right (subject to subsection (v) below) to enter into manufacturing arrangements with such third party or any other third party on the terms and conditions contained in the offer described in subsection (iii) or manufacturing terms and conditions which are in the aggregate no more favorable to the proposed manufacturer than those contained in the offer described in subsection (iii); it being understood that CliniChem shall not have the right to enter into any manufacturing arrangement on terms more favorable to the proposed manufacturer without first offering such terms to BioChem, which offer shall again be subject to the provisions of this Section 2.2(b). (v) In the event BioChem does not exercise such right of first refusal, BioChem shall have the right to approve any proposed manufacturer, which approval may be withheld only if any such manufacturer has insufficient manufacturing capability (including lack of compliance with current good manufacturing practice regulations) or if any such manufacturer's activities are likely to have a material adverse effect on BioChem's overall competitive position in the pharmaceutical industry. -5- 6 (vi) In the event BioChem exercises its right to reject a manufacturer with respect to a CliniChem Product, BioChem shall be obligated to manufacture or obtain manufacturing for any such CliniChem Product for CliniChem at prevailing market rates but not less than BioChem's standard cost of manufacture plus fifteen percent (15%) of such cost. (vii) Notwithstanding anything in this Section 2.2(b) to the contrary, it is understood and agreed between the parties that, pursuant to the terms of an agreement between BioChem and Patheon Inc. dated October 29, 1997, Patheon Inc. holds a conditional right of first refusal to bid for the commercial manufacturing of the CliniChem Product BCH-10652 in dosage form and, as a result, CliniChem's license to manufacture and have manufactured such CliniChem Product is subject to Patheon's pre-existing conditional rights pursuant to that agreement. 2.3 PERMITTED SUBLICENSES. CliniChem shall not sublicense any BioChem Technology to, or enter into other arrangements with respect to any BioChem Technology with, any third party for any purpose except as set forth in this Section 2.3 and in Section 2.4 and subject to the limitations of Section 2.5. (a) Except as set forth in Section 2.3(b) hereof, during the term of the Research and Development Agreement CliniChem shall grant BioChem a sublicense to use the BioChem Technology for the purpose of performing activities in connection with the CliniChem Programs pursuant to the terms of the Research and Development Agreement (to the extent such license is necessary to conduct such activities under applicable law). Following termination or expiration of the Research and Development Agreement, CliniChem shall have the right, but shall not be obligated to, grant BioChem a sublicense to the BioChem Technology to perform activities in connection with the CliniChem Programs. (b) If the Product Option with respect to any CliniChem Product in one or more countries expires unexercised, from and after expiration of such Product Option in any such country, CliniChem may sublicense BioChem Technology to a third party or third parties solely to the extent necessary to complete the development of, or to make (or have made) and use such CliniChem Product, or to sell (or have sold) such CliniChem Product in such country; provided, however, that BioChem shall have the right to approve any proposed sublicensee or any manufacturer on behalf of a sublicensee; provided, further, that such approval may only be withheld if any such sublicensee or manufacturer has insufficient manufacturing capability (including lack of compliance with current good manufacturing practice regulations) or if any such sublicensee's or manufacturer's activities are likely to have a material adverse effect on BioChem's overall competitive position in the pharmaceutical industry. 2.4 SUBLICENSE TO WHOLLY OWNED SUBSIDIARY. CliniChem may grant a non-transferrable sublicense of the BioChem Technology to a direct or indirect wholly-owned subsidiary of CliniChem; provided that the terms of any such sublicense shall require that the sublicense automatically terminate should the relevant CliniChem subsidiary cease to be a direct or indirect wholly owned subsidiary of CliniChem. -6- 7 2.5 CONDITIONS OF SUBLICENSES. Each sublicensee (other than BioChem or a BioChem Affiliate) shall execute such agreements as BioChem reasonably deems appropriate to protect the BioChem Technology and to protect BioChem's rights under all agreements between BioChem and CliniChem and under the Purchase Option. Each sublicensee shall have all the duties of CliniChem hereunder with respect to such sublicense, and each sublicensee shall acknowledge these duties to BioChem in writing. No sublicense shall have the effect of relieving CliniChem of any of its obligations hereunder. 2.6 PRIOR AND FUTURE GRANTS. CliniChem understands and acknowledges that BioChem and certain of the BioChem Affiliates are in the business of researching and developing products incorporating the BioChem Technology for their own account and under arrangements with third parties, and as a result, the license granted hereunder is limited strictly to use the BioChem Technology in connection with the CliniChem Programs and commercializing the CliniChem Products. CliniChem acknowledges that BioChem, and the BioChem Affiliates may use and may grant third party licenses to use the BioChem Technology for any and all other purposes and in any Fields of Use other than those set out in Exhibit C for each CliniChem Program. 3. COVENANTS OF CLINICHEM. 3.1 DILIGENCE. CliniChem promptly shall commence and shall use diligent efforts to have developed CliniChem Products in accordance with approved work plans and cost estimates under the Research and Development Agreement, subject to BioChem complying with its obligations thereunder. 3.2 TECHNOLOGY FEE. In partial consideration for the license granted by BioChem and the BioChem Affiliates to CliniChem hereunder, CliniChem shall pay in arrears the following Technology Fee payments: (a) five hundred thousand dollars ($500,000) thirty (30) days after the Distribution Date and five hundred thousand dollars ($500,000) on the same day of each of the next eleven (11) months payable as follows: to BioChem three hundred fifty-eight thousand dollars ($358,000), to Tanaud Ireland Inc. forty-two thousand dollars ($42,000), and to Tanaud International B.V. one hundred thousand dollars ($100,000); (b) four hundred eight thousand three hundred thirty-three dollars ($408,333) per month on the same day of each of the next twelve (12) months payable as follows: to BioChem two hundred ninety-two thousand, three hundred thirty-three dollars ($292,333); to Tanaud Ireland Inc. thirty-four thousand dollars ($34,000), and to Tanaud International B.V. eighty-two thousand dollars ($82,000); (c) three hundred thousand dollars ($300,000) per month on the same day of each of the next twelve (12) months payable as follows: to BioChem two hundred fifteen thousand dollars ($215,000), to Tanaud Ireland Inc. twenty-five thousand dollars ($25,000), and to Tanaud International B.V. sixty thousand dollars ($60,000); and -7- 8 (d) two hundred thousand dollars ($200,000) per month on the same day of each of the next twelve (12) months payable as follows: to BioChem one hundred forty three thousand dollars ($143,000), to Tanaud Ireland Inc. seventeen thousand dollars ($17,000), and to Tanaud International B.V. forty thousand dollars ($40,000); provided, however, that CliniChem shall not be obligated to make such payments beginning with any month following the date on which the sum of the number of CliniChem Products under development by CliniChem pursuant to the Research and Development Agreement plus the number of CliniChem Products that have been acquired by BioChem or a BioChem Affiliate pursuant to BioChem's exercise of the Product Option is less than two (2). All payments to be made by CliniChem to Tanaud International B.V. and Tanaud Ireland Inc. shall be made net of any Canadian withholding tax applicable to such payments. 3.3 PRE-EXISTING OBLIGATIONS. CliniChem agrees to take no action inconsistent with any restrictions on or obligations of BioChem contained in the agreements listed in Exhibit B. 4. PATENT INFRINGEMENT. 4.1 NOTICE. Each party shall promptly notify the other in writing of any infringement or alleged infringement known to such party of any patent included within the BioChem Technology, by the manufacture, use, sale or offer for sale by a third party of any Infringing Product. 4.2 ACTION BY BIOCHEM. Subject to the provisions of the Research and Development Agreement and the Product Option Agreement, in the event of any such alleged infringement, BioChem or a BioChem Affiliate shall have the right, at its own expense and with the right to all recoveries (except as provided in Section 6.2 of the Product Option Agreement), to take appropriate action to restrain such alleged infringement and for damages. If BioChem or a BioChem Affiliate takes any such action, CliniChem shall cooperate fully with BioChem or such BioChem Affiliate in its pursuit thereof, at BioChem or such BioChem Affiliate's expense, to the extent reasonably required by BioChem or such BioChem Affiliate. 4.3 ACTION BY CLINICHEM. If (a) the Infringing Product is substantially similar to a CliniChem Product for which the Product Option has expired unexercised and (b) within ninety (90) days after the written notice from either party described above (or at any time thereafter), BioChem or a BioChem Affiliate has not begun to take appropriate action to attempt to restrain such alleged infringement, and (c) at such time, the annualized unit sales volume of such Infringing Product in a country over a period of at least two calendar quarters equals or exceeds twenty-five percent (25%) of the annualized unit sales volume of the related CliniChem Product in such country during the same period, then CliniChem shall have the right, at its own expense and with the right to all recoveries, to take such action as it deems appropriate to restrain such alleged infringement. If CliniChem takes any such action, BioChem and the BioChem Affiliates shall cooperate with CliniChem in its pursuit thereof, at CliniChem's expense, to the extent reasonably requested by CliniChem. If the third party in any such action brings a counteraction for invalidation or misuse of a patent covering the BioChem Technology or the CliniChem Product, CliniChem shall promptly -8- 9 notify BioChem, and BioChem or a BioChem Affiliate may, within six months after the notification, join and participate in such action at its own expense. CliniChem shall not settle any such action relating to any alleged infringement which in any manner would adversely affect BioChem Technology without the prior written consent of BioChem or a BioChem Affiliate, which consent shall not be unreasonably withheld or delayed. 5. CONFIDENTIALITY OF INFORMATION. 5.1 CONFIDENTIALITY. During the term of this Agreement and for a period of ten (10) years following its termination, CliniChem shall maintain in confidence all Confidential Information of BioChem; provided, however, that nothing contained herein shall prevent CliniChem from disclosing any Confidential Information to the extent such Confidential Information (a) is required to be disclosed in connection with researching or developing CliniChem Products, securing necessary governmental authorization for the marketing of CliniChem Products, or directly or indirectly making, using or selling CliniChem Products, as permitted or provided for in the agreements between the parties, (b) is required to be disclosed by law for the purpose of complying with governmental regulations, (c) is disclosed in connection with any sublicense permitted hereunder, (d) is lawfully disclosed to CliniChem by a third party having the right to disclose such information to CliniChem, or (e) either before or after the time of disclosure to CliniChem, becomes known to the public other than by an unauthorized act or omission of CliniChem or any of CliniChem's employees or agents. Any disclosure of Confidential Information to third parties shall be made subject to similar obligations of confidentiality on the part of such third parties. The obligations of CliniChem pursuant to this Section 5.1 shall survive the termination of this Agreement for any reason. Any breach of this Section 5.1 may result in irreparable harm to BioChem, and in the event of a breach, BioChem shall be entitled to seek injunctive relief (without the need to post a bond) in addition to any other remedies available at law or in equity. 6. DISCLAIMER. 6.1 DISCLAIMER CONCERNING BIOCHEM TECHNOLOGY. BIOCHEM AND EACH BIOCHEM AFFILIATE DISCLAIM ANY EXPRESS OR IMPLIED WARRANTY (A) THAT ANY BIOCHEM TECHNOLOGY, OR THE USE THEREOF, OR ANY PRODUCTS INCORPORATING OR MANUFACTURED BY THE USE THEREOF, WILL BE FREE FROM CLAIMS OF PATENT INFRINGEMENT, INTERFERENCE OR UNLAWFUL USE OF PROPRIETARY INFORMATION OF ANY THIRD PARTY AND (B) OF THE ACCURACY, RELIABILITY, TECHNOLOGICAL OR COMMERCIAL VALUE, COMPREHENSIVENESS OR MERCHANTABILITY OF THE BIOCHEM TECHNOLOGY OR ITS SUITABILITY OR FITNESS FOR ANY PURPOSE WHATSOEVER INCLUDING, WITHOUT LIMITATION, THE DESIGN, RESEARCH, DEVELOPMENT, MANUFACTURE, USE OR SALE OF CLINICHEM PRODUCTS. BIOCHEM AND EACH BIOCHEM AFFILIATE DISCLAIM ALL OTHER WARRANTIES OF WHATEVER NATURE, EXPRESS OR IMPLIED. -9- 10 7. REPORTS OF ADVERSE REACTIONS. 7.1 REPORTS OF ADVERSE REACTIONS. During the term of this Agreement, each party shall promptly inform the other party of any information that it obtains or develops regarding the efficacy or safety of a CliniChem Product and shall promptly report to the other party any information or notice of adverse or unexpected reactions or side effects related to the utilization or medical administration of a CliniChem Product. Further, during the term of this Agreement, each party shall promptly inform the other of any information that it obtains or develops regarding the safety of any BioChem Technology as related to the CliniChem Products. Each such party shall permit the other to comply with the adverse reaction reporting obligations under the United States Food, Drug and Cosmetic Act or similar applicable Canadian or foreign statutory provisions, and regulations thereunder and shall assist the other party in complying therewith, with respect to the CliniChem Products. When appropriate, the parties will execute a standard operating procedure to cover the foregoing. CliniChem agrees and acknowledges that BioChem and the BioChem Affiliates may provide information it obtains under this Section 7.1 to third parties developing and/or commercializing products incorporating the same BioChem Technology as is incorporated in the CliniChem Products. 8. TERM AND TERMINATION. 8.1 TERM. This Agreement shall become effective on the Distribution Date (the "Effective Date") and shall continue thereafter in perpetuity unless terminated in accordance with the provisions hereof. 8.2 TERMINATION FOR BREACH. BioChem and CliniChem may terminate this Agreement effective upon the giving of written notice of such termination to the other party in the event such other party breaches any of its material obligations hereunder or under the Product Option Agreement and such breach continues for a period of sixty (60) days after written notice thereof by the terminating party to the other party. 8.3 AUTOMATIC TERMINATION. This Agreement shall automatically terminate (a) upon termination of the Research and Development Agreement pursuant to Section 10.2 thereof and other than due to a breach by BioChem, or (b) upon termination by BioChem of the Research and Development Agreement due to a breach thereof by CliniChem. 8.4 TERMINATION UPON EXERCISE OF PRODUCT OPTION. This Agreement shall terminate on a product-by-product and country-by-country basis upon BioChem or a BioChem Affiliate's corresponding exercise of the Product Option with respect to any CliniChem Product and in any country. 8.5 TERMINATION OF SUBLICENSES. Termination by BioChem or a BioChem Affiliate of this Agreement shall automatically terminate any sublicenses granted by CliniChem hereunder. -10- 11 9. FORCE MAJEURE. 9.1 FORCE MAJEURE. No party to this Agreement shall be liable for failure or delay in the performance of any of its obligations hereunder if such failure or delay is due to causes beyond its reasonable control, including, without limitation, acts of God, earthquakes, fires, strikes, acts of war, or intervention of any governmental authority, but any such delay or failure shall be remedied by such party as soon as possible after the removal of the cause of such failure or delay. 10. INDEMNIFICATION. 10.1 INDEMNIFICATION BY CLINICHEM. CliniChem shall indemnify, defend and hold BioChem and its Affiliates, and each of their officers, directors, employees and agents, harmless from and against any and all losses, liabilities, claims, demands, damages, costs, expenses (including reasonable attorneys' fees) and money judgments incurred by or rendered against BioChem or its Affiliates, which arise out of the use, design, labeling, manufacture, processing, packaging, sale or commercialization of any CliniChem Product by CliniChem, its Affiliates and permitted subcontractors and sublicensees (other than BioChem and its Affiliates, subcontractors, sublicensees, distributors and others operating under arrangements with or through BioChem or its Affiliates). BioChem shall permit CliniChem's attorneys, at CliniChem's discretion and cost, to control the defense of any claims or suits as to which BioChem may be entitled to indemnity hereunder, and BioChem agrees not to settle any such claims or suits without the prior written consent of CliniChem, which consent shall not be unreasonably withheld. BioChem shall have the right to participate, at its own expense and through its own counsel (provided such counsel is reasonably acceptable to CliniChem), in the defense of any such claim or demand to the extent it so desires. 10.2 NOTICE. BioChem shall give CliniChem prompt notice in writing, in the manner set forth in Section 11.7 below, of any claim or demand made against BioChem or any of its Affiliates for which BioChem or its Affiliates may be entitled to indemnification under Section 10.1. 11. MISCELLANEOUS. 11.1 AMENDMENT AND WAIVER. This Agreement may be amended and any provision of this Agreement may be waived; provided that any such amendment or waiver shall be binding upon BioChem and the BioChem Affiliates only if set forth in a writing executed by authorized representatives of BioChem and the BioChem Affiliates and referring specifically to the provision alleged to have been amended or waived and any such amendment or waiver shall be binding upon CliniChem only if set forth in a writing executed by an authorized representative of CliniChem and referring specifically to the provision alleged to have been amended or waived. A waiver by any party hereto of any terms and conditions of this Agreement in any one instance shall not be deemed or construed to be a waiver of such terms and conditions for any similar instance in the future. No course of dealing between or among any persons having any interest in this Agreement shall be deemed effective to modify, amend or discharge any part of this Agreement or any rights or obligations of any person under or by reason of this Agreement. -11- 12 11.2 ASSIGNMENT. None of the parties may assign its rights and obligations hereunder without the prior written consent of the other parties, which consent may not be unreasonably withheld; provided, however, that BioChem or a BioChem Affiliate may assign such rights and obligations hereunder to an Affiliate of BioChem or such BioChem Affiliate or to any person or entity with which BioChem or the relevant BioChem Affiliate is merged or consolidated or which acquires all or substantially all of the assets of BioChem or the relevant BioChem Affiliate. 11.3 DISPUTE RESOLUTION. Any controversy, claim or dispute arising out of or relating to this Agreement, including the interpretation, breach, termination or invalidity thereof (a "Dispute") shall be definitively settled by arbitration, in accordance with the provisions on arbitration found in the Code of Civil Procedure of Quebec (the "CCP"). Prior to resorting to arbitration, the parties shall refer the Dispute to the Chairman of the Board of BioChem (as representative of BioChem and any Affiliate of BioChem) and a director of CliniChem who has not been appointed by BioChem for attempted resolution of such Dispute. The party wishing to initiate negotiations shall send to the other party a notice of negotiation, briefly identifying the object of the Dispute. If the parties fail to resolve a Dispute within thirty (30) days of receipt by the second party of such notice of negotiation, each party shall then have the right to refer such Dispute to arbitration, unless the parties agree in writing to extend such thirty (30) day negotiation period. The seat of arbitration shall be in Montreal and the proceedings shall be in English. There shall be three (3) arbitrators. Each party shall appoint one arbitrator, and the two (2) arbitrators thus appointed shall designate the third arbitrator within fifteen (15) days of the appointment of the second arbitrator. The third arbitrator shall serve as President of the arbitral tribunal. Should a party fail to designate an arbitrator within the delay specified in the applicable provisions of the CCP, such arbitrator shall be appointed by the highest ranking officer of the Quebec National and International Commercial Arbitration Centre ("Centre"). The two (2) arbitrators thus appointed shall designate the third arbitrator within fifteen (15) days of the appointment of the second arbitrator, failing which the third arbitrator shall be designated by the Centre. The arbitral tribunal shall render any final award or decision within thirty (30) days following the completion of evidence and argument on substantive issues in dispute between the parties. The parties recognize and agree that any award rendered by the arbitral tribunal shall be final and binding on the parties who hereby expressly waive, to the fullest extent permitted by law, all rights of appeal or recourse to any court. The apportionment of costs of any arbitration pursuant to this agreement shall be left to the discretion of the arbitral tribunal. Nothing in this article has the effect, or should be interpreted as having the effect of limiting the right of one of the parties to obtain, from a common law court, a seizure before judgment, an injunction or any other extraordinary recourse as defined by the CCP. 11.4 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute this Agreement. -12- 13 11.5 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the Province of Quebec and the federal laws of Canada applicable therein, and shall be treated in all respects as a Quebec contract. 11.6 HEADINGS. The section headings contained in this Agreement are included for convenience only and form no part of the Agreement between the parties. 11.7 NOTICES. Notices required under this Agreement shall be in writing and sent by registered or certified mail, postage prepaid, or by facsimile and confirmed by registered or certified mail and addressed as follows: IF TO BIOCHEM: BioChem Pharma Inc. 275 Armand-Frappier Blvd. Laval, Quebec, Canada H7V 4A7 Facsimile: (514) 978-7994 Attention: Vice-President Legal Affairs and Corporate Secretary IF TO CLINICHEM: CliniChem Development Inc. 275 Armand-Frappier Blvd. Laval, Quebec, Canada H7V 4A7 Facsimile: (514) 978-7994 Attention: General Counsel and Secretary All notices shall be deemed to be effective upon receipt unless such notice is delivered or transmitted by facsimile, in which case, if it is delivered or transmitted before 4:00 PM on a business day, it shall be deemed to have been given and received on such day; in any other case, it will be deemed to have been given and received on the first business day following the day on which it is delivered or transmitted by facsimile. Either party may change the address at which notice is to be received by written notice pursuant to this Section 11.7. Any notice sent to any BioChem Affiliate shall be sent care of BioChem to BioChem's address given above. 11.8 SEVERABILITY. If any provision of this Agreement is held by a court of competent jurisdiction to be invalid or unenforceable, it shall be modified, if possible, to the minimum extent necessary to make it valid and enforceable or, if such modification is not possible, it shall be stricken and the remaining provisions shall remain in full force and effect. 11.9 RELATIONSHIP OF THE PARTIES. For purposes of this Agreement, CliniChem (as one party) and BioChem and the BioChem Affiliates (as the other party) shall be deemed to be independent contractors, and anything in this Agreement to the contrary notwithstanding, nothing herein shall be deemed to constitute CliniChem, and BioChem and the BioChem Affiliates, as partners, joint venturers, co-owners, an association or any entity separate and apart from each party itself, nor shall this Agreement constitute any party hereto an employee or agent, legal or otherwise, of the other party for any purposes whatsoever. Neither party hereto is authorized to make any -13- 14 statements or representations on behalf of the other party or in any way obligate the other party, except as expressly authorized in writing by the other party. Anything in this Agreement to the contrary notwithstanding, no party hereto shall assume or be liable for any liabilities or obligations of the other party, whether past, present or future. 11.10 SURVIVAL. The provisions of Sections 5, 6, 10, 11.1, 11.3, 11.5, 11.7, 11.9 and this Section 11.10 shall survive the termination for any reason of this Agreement. Any payments due under this Agreement with respect to any period prior to its termination shall be made notwithstanding the termination of this Agreement. Neither party shall be liable to the other for consequential damages (including loss of good will and anticipated profits) due to the termination of this Agreement as provided herein. 11.11 ENTIRE AGREEMENT. This Agreement, the Research and Development Agreement, the Services Agreement and the Product Option Agreement contain the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings, whether written or oral, relating to such subject matter. * * * * * -14- 15 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first set forth above. BIOCHEM PHARMA INC. By: _____________________________ Title: __________________________ By: _____________________________ Title: __________________________ BIOCHEM AFFILIATES: BIOCHEM VACCINES INC. By: _____________________________ Title: __________________________ By: _____________________________ Title: __________________________ BIOCHEM THERAPEUTIC INC. By: _____________________________ Title: __________________________ By: _____________________________ Title: __________________________ -15- 16 TANAUD HOLDINGS (BARBADOS) LIMITED By: _____________________________ Title: __________________________ By: _____________________________ Title: __________________________ TANAUD INTERNATIONAL B.V. By: _____________________________ Title: __________________________ By: _____________________________ Title: __________________________ TANAUD IRELAND INC. By: _____________________________ Title: __________________________ By: _____________________________ Title: __________________________ CLINICHEM DEVELOPMENT INC. By: _____________________________ Title: __________________________ By: _____________________________ Title: __________________________ -16- 17 EXHIBIT A to the Technology License Agreement dated as of the ___ day of March, 1998 by and between BioChem Pharma Inc., the BioChem Affiliates and CliniChem Development Inc. PATENTS AND PATENT APPLICATIONS BIOCHEM DOCKET NUMBERS IAF-002-002 IAF-009-019 IAF-13A-018 IAF-002-003 IAF-009-020 IAF-13A-019 IAF-002-004 IAF-009-021 IAF-13A-020 IAF-002-005 IAF-009-022 IAF-13A-021 IAF-002-006 IAF-009-023 IAF-13A-022 IAF-002-007 IAF-009-025 IAF-13A-023 IAF-002-008 IAF-009-026 IAF-13A-024 IAF-002-009 IAF-009-027 IAF-13A-025 IAF-002-010 IAF-009-028 IAF-13A-026 IAF-002-011 IAF-009-029 IAF-13A-027 IAF-002-012 IAF-009-030 IAF-13A-028 IAF-002-013 IAF-009-031 IAF-13A-029 IAF-002-014 IAF-009-032 IAF-13A-030 IAF-002-020 IAF-009-033 IAF-13A-031 IAF-002-021 IAF-009-034 IAF-13A-032 IAF-002-025 IAF-009-035 IAF-13A-033 IAF-002-026 IAF-009-036 IAF-13A-034 IAF-002-027 IAF-009-037 IAF-13A-035 IAF-002-028 IAF-009-038 IAF-13A-036 IAF-009-001 IAF-009-039 IAF-13A-037 IAF-009-002 IAF-13A-001 IAF-13A-038 IAF-009-003 IAF-13A-002 IAF-13A-039 IAF-009-004 IAF-13A-003 IAF-13A-040 IAF-009-005 IAF-13A-004 IAF-13A-041 IAF-009-006 IAF-13A-005 IAF-13A-042 IAF-009-007 IAF-13A-006 IAF-13A-043 IAF-009-008 IAF-13A-007 IAF-13A-044 IAF-009-009 IAF-13A-008 IAF-13A-045 IAF-009-010 IAF-13A-009 IAF-13A-046 IAF-009-011 IAF-13A-010 IAF-13A-047 IAF-009-012 IAF-13A-011 IAF-13A-048 IAF-009-013 IAF-13A-012 IAF-13A-051 IAF-009-014 IAF-13A-013 IAF-13A-052 IAF-009-015 IAF-13A-014 IAF-13A-053 IAF-009-016 IAF-13A-015 IAF-13A-054 IAF-009-017 IAF-13A-016 IAF-13A-055 IAF-009-018 IAF-13A-017 IAF-13A-056 18 IAF-13A-057 BIOV-001-030 BIOV-002-037 IAF-13A-058 BIOV-001-031 BIOV-003-001 IAF-13A-059 BIOV-001-032 BIOV-003-002 IAF-13A-060 BIOV-001-033 BIOV-004-001 IAF-13A-061 BIOV-001-034 BIOV-004-002 IAF-13A-062 BIOV-001-035 PHAR-042-001 IAF-13A-063 BIOV-001-036 PHAR-042-002 IAF-13A-064 BIOV-001-037 PHAR-042-003 IAF-13A-065 BIOV-002-001 PHAR-042-004 IAF-13A-066 BIOV-002-002 PHAR-042-005 IAF-13A-067 BIOV-002-003 PHAR-042-006 IAF-13A-068 BIOV-002-004 PHAR-042-007 IAF-13A-069 BIOV-002-005 PHAR-042-008 IAF-13A-070 BIOV-002-006 PHAR-042-009 IAF-13A-071 BIOV-002-007 PHAR-042-010 BIOV-001-001 BIOV-002-008 PHAR-042-011 BIOV-001-002 BIOV-002-009 PHAR-042-013 BIOV-001-003 BIOV-002-010 PHAR-042-014 BIOV-001-004 BIOV-002-011 PHAR-042-016 BIOV-001-005 BIOV-002-012 PHAR-042-017 BIOV-001-006 BIOV-002-013 PHAR-042-018 BIOV-001-007 BIOV-002-014 PHAR-042-019 BIOV-001-008 BIOV-002-015 PHAR-042-020 BIOV-001-009 BIOV-002-016 PHAR-042-021 BIOV-001-010 BIOV-002-017 PHAR-042-022 BIOV-001-011 BIOV-002-018 PHAR-042-023 BIOV-001-012 BIOV-002-019 PHAR-042-024 BIOV-001-013 BIOV-002-020 PHAR-042-025 BIOV-001-014 BIOV-002-021 PHAR-042-026 BIOV-001-015 BIOV-002-022 PHAR-042-027 BIOV-001-016 BIOV-002-023 PHAR-042-028 BIOV-001-017 BIOV-002-024 PHAR-042-029 BIOV-001-018 BIOV-002-025 PHAR-042-030 BIOV-001-019 BIOV-002-026 PHAR-042-031 BIOV-001-020 BIOV-002-027 PHAR-042-032 BIOV-001-021 BIOV-002-028 PHAR-042-033 BIOV-001-022 BIOV-002-029 PHAR-042-034 BIOV-001-023 BIOV-002-030 PHAR-042-035 BIOV-001-024 BIOV-002-031 PHAR-042-036 BIOV-001-025 BIOV-002-032 PHAR-042-037 BIOV-001-026 BIOV-002-033 PHAR-042-038 BIOV-001-027 BIOV-002-034 PHAR-042-039 BIOV-001-028 BIOV-002-035 PHAR-042-040 BIOV-001-029 BIOV-002-036 PHAR-042-041 Exhibit A 19 PHAR-042-042 PHAR-042-043 PHAR-042-044 PHAR-042-045 PHAR-042-046 PHAR-042-047 PHAR-042-048 PHAR-042-049 PHAR-042-050 PHAR-042-051 PHAR-042-052 PHAR-059-001 PHAR-059-002 PHAR-059-003 PHAR-059-004 PHAR-059-005 PHAR-059-006 Exhibit A 20 EXHIBIT B to the Technology License Agreement dated as of the ___ day of March, 1998 by and between BioChem Pharma Inc., the BioChem Affiliates and CliniChem Development Inc. PRE-EXISTING AGREEMENTS BCH-4556: Preclinical Research Services Agreement between BioChem Therapeutic Inc. and CTRC Research Foundation, dated October 28, 1997. Scientific Research Services Contract between BioChem Therapeutic Inc. and Phoenix International Life Sciences, dated August 13, 1996. Scientific Research Services Contract between BioChem Therapeutic Inc. and Phoenix International Life Sciences, dated September 17, 1996. Services Agreement between BioChem Therapeutic Inc. and Phoenix International Life Sciences, dated January 30, 1997. Services Agreement between BioChem Therapeutic Inc. and Phoenix International Life Sciences, dated April 21, 1997. Services Agreement between BioChem Therapeutic Inc. and Phoenix International Life Sciences, dated October 1, 1997. Master Services Agreement between BioChem Therapeutic Inc. and Quintiles Canada, Inc., dated June 17, 1997. Services Agreement between BioChem Therapeutic Inc. and NCIC Clinical Trials Group, Queens University dated November 12, 1996. Services Agreement between BioChem Therapeutic Inc. and Raylo Chemicals Inc. dated August 1, 1997. Materials Transfer and Services Agreement between BioChem Therapeutic Inc. and ITR Laboratories Canada Inc., dated May 23, 1997. Memorandum of Agreement between BioChem Therapeutic Inc. and Doctor Edward Chu, dated October 27, 1997. BCH-10652: Materials Transfer and Services Agreement between BioChem Therapeutic and the Regents of the University of California, dated May 15, 1997. Development and Manufacturing Agreement between BioChem Therapeutic Inc. and Patheon Inc., dated October 29, 1997. Materials Transfer and Services Agreement between BioChem Therapeutic Inc. and BenVenue Laboratories Inc., dated October 30, 1997. Materials Transfer and Services Agreement between BioChem Therapeutic Inc. and Viromed Laboratories, Inc., dated June 19, 1997. Research Master Agreement between BioChem Therapeutic Inc. and Neuroscience Research Unit St. Luc Pavilion, dated July 3, 1997, as amended. 21 Research Agreement between BioChem Therapeutic Inc. and MRC Collaborative Center, dated November 9, 1997. Materials Transfer Agreement between BioChem Therapeutic Inc. and Chiral Technologies Inc., dated October 10, 1997. Contrat de Recherche sous le Sceau de la Confidentialite et du Secret between BioChem Therapeutic Inc. and Mark A. Wainberg, dated April 24, 1997. Consultant Agreement between BioChem Therapeutic Inc. and Dr. Arnold Fridland, dated November 4, 1997. Consultant Agreement between BioChem Therapeutic Inc. and Dr. Murray Ducharme dated August 31, 1997. Materials Transfer and Services Agreement between BioChem Therapeutic Inc. and ITR Laboratories Canada Inc., dated May 23, 1997. ANGIOGENESIS INHIBITORS. Collaborative Research Agreement between BioChem Pharma Inc. and Beth Israel Hospital dated February 1, 1996, as amended on March 1, 1997. Screening Collaboration between BioChem Therapeutic Inc. and Amrad Natural Products Pty Ltd, dated January 7, 1997. Convention de Services et de Transfert de Substances between BioChem Therapeutic Inc. and Produits Chimiques Omega dated November 17, 1997. VACCINES License Agreement between IAF BioVac and the Minister of National Health and Welfare Canada, dated December 13, 1995. Contrat de Recherche et D'Exploitation De Technologie between IAF BioVac Inc. and Le Centre de Recherche Du Centre Hospitalier De L'Universite Laval dated March 23, 1995. Contrat de Recherche et D'Exploitation De Technologie between IAF BioVac Inc. and Le Centre de Recherche Du Centre Hospitalier De L'Universite Laval dated January 1, 1999. Research and Option Agreement between BioChem Vaccines Inc. and The UAB Research Foundation, dated December 23, 1997 Entente de Recherche between BioChem Vaccines Inc., Le Centre Hospitalier Universitaire de Quebec and Dr. Bernard Brodeur, dated December 8, 1997. Materials Transfer and Services Agreement between BioChem Vaccines Inc. and Le Centre Hospitalier Universitaire de Quebec, dated January 14, 1998. Material Transfer Agreement and Option between IAF BioVac, Her Majesty the Queen in Right of Canada as Represented by the Minister of Health, dated November 1, 1996. 22 EXHIBIT C to the Technology License Agreement dated as of the ___ day of March, 1998 by and between BioChem Pharma Inc., the BioChem Affiliates and CliniChem Development Inc. CLINICHEM PROGRAMS PROGRAM FIELD OF USE - ---------------------------------------- ------------------------------- 1. Development of BCH-4556. Treatment of cancer. 2. Development of BCH-10652. Treatment of HIV infection. 3. Development of AvB3 antagonists to Treatment of cancer. prevent angiogenesis. 4. The development of a recombinant To protect against infections by protein vaccine to protect against NEISSERIA MENINGITIDIS. infections by NEISSERIA MENINGITIDIS. 5. The development of a recombinant To protect against infections by protein vaccine to protect against STREPTOCOCCUS PNEUMONIAE. infections by STREPTOCOCCUS PNEUMONIAE. 6. The development of a recombinant To protect against infections by protein vaccine to protect against NEISSERIA GONORRHOEAE. infections by NEISSERIA GONORRHOEAE. 7. The development of a recombinant To protect against infections by protein vaccine to protect against HAEMOPHILUS INFLUENZAE non typeable. infections by HAEMOPHILUS INFLUENZAE non typeable. 8. The development of a recombinant To protect against infections by protein vaccine to protect against STREPTOCOCCUS Group B. infections by STREPTOCOCCUS Group B. 9. The development of a recombinant To protect against infections by protein vaccine to protect against CHLAMYDIA PNEUMONIAE. infections by CHLAMYDIA PNEUMONIAE. EX-10.2 6 RESEARCH AND DEVELOPMENT AGREEMENT 1 Exhibit 10.2 RESEARCH AND DEVELOPMENT AGREEMENT This Research and Development Agreement (the "Agreement") is made as of the ____ day of March, 1998 by and between BioChem Pharma Inc., a Canadian corporation ("BioChem"), and CliniChem Development Inc., a Canadian corporation ("CliniChem"). RECITALS A. CliniChem has been formed for the purpose of (i) conducting research and development of potential human therapeutic products primarily for the treatment of cancer and HIV infection and vaccine products for the prevention of certain infectious diseases, including products using BioChem Technology (as defined below), and (ii) commercializing such products. B. BioChem is engaged in the research, development and marketing of therapeutic products and the research, development, manufacturing and marketing of vaccine and diagnostic products for a wide range of infectious and other diseases. C. BioChem and certain BioChem Affiliates have granted CliniChem a license to use BioChem Technology (as defined below) solely for the purposes set forth herein and in the Technology License Agreement and the Product Option Agreement (each as defined below). D. CliniChem desires to engage BioChem to perform, on behalf of CliniChem, research and development and related activities in connection with the CliniChem Programs (as defined below). NOW, THEREFORE, in consideration of the various premises and undertakings set forth herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. DEFINITIONS. For the purposes of this Agreement, the following terms shall have the meanings set forth below: 1.1 "Acquired Product" shall mean any product for which BioChem or a BioChem Affiliate has exercised the Product Option granted pursuant to the Product Option Agreement. 1.2 "Affiliate" shall mean a corporation or any other entity that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the designated party. "Control" shall mean ownership of shares to which are attached more than fifty percent (50%) of the votes that may be cast for the election of directors in the case of a corporation, 2 and at least fifty percent (50%) of the interests in profits in the case of a business entity other than a corporation. BioChem and CliniChem shall not be considered Affiliates of each other. 1.3 "Available Funds" shall mean, as of any date of determination, all of the funds contributed or paid to CliniChem by BioChem or a BioChem Affiliate, plus any investment income earned thereon, less (a) the aggregate amount of all Research and Development Costs paid or incurred by CliniChem as of such date, (b) CliniChem's aggregate reasonable ongoing administrative expenses and income taxes paid (less income taxes refunded) or incurred as of such date, (c) the aggregate amount of all Technology Fee payments paid or incurred by CliniChem as of such date and (d) the aggregate amount of all payments paid or incurred by CliniChem under the Services Agreement. 1.4 "BioChem Technology" shall mean those Proprietary Rights licensed and/or sublicensed by BioChem and/or a BioChem Affiliate to CliniChem pursuant to the Technology License Agreement. 1.5 "CliniChem Product" shall mean any human therapeutic or vaccine product developed according to the terms of this Agreement and pursuant to the CliniChem Programs in the applicable Fields of Use. 1.6 "CliniChem Programs" shall mean any of the therapeutic and vaccine product development programs listed in Exhibit A in the applicable Fields of Use indicated in such Exhibit A, and any additional or modified development programs recommended by BioChem and accepted by CliniChem's Board of Directors for development pursuant to this Agreement. 1.7 "Confidential Information" shall mean all information received by one party with respect to the research, intellectual property or business of the other and it shall include, without limiting the generality of the foregoing, the BioChem Technology, all documents, data and other technical information, such as know-how, formulae, processes, models, manufacturing techniques, research projects, information management systems and software as well as information relating to the management and financial affairs of such party, such as figures relating to profits, markets, sales, business, marketing and development plans, client lists, supplier lists and information of a similar nature. 1.8 "Developed Technology" shall mean Proprietary Rights that (a) are first generated, conceived or reduced to practice, as the case may be, by BioChem, a BioChem Affiliate or by any third party in the course of performing activities undertaken pursuant to this Agreement or (b) are acquired from a third party by BioChem or a BioChem Affiliate during the term of this Agreement for use, in whole or in part, in the conduct of the CliniChem Programs or the commercialization of the CliniChem Products. 1.9 "Development Assets" shall mean any clinical supplies, materials and other tangible assets purchased, manufactured or developed for use in any CliniChem Program pursuant to approved Work Plans. -2- 3 1.10 "Distribution" shall mean the distribution by BioChem as a dividend-in-kind of all of the issued and outstanding Class A Common Shares in the share capital of CliniChem to the holders of record of Common Shares of BioChem at the close of business on ________, 1998. 1.11 "Distribution Agreement" shall mean the Distribution Agreement dated as of the date hereof by and between BioChem and CliniChem, as amended from time to time. 1.12 "Distribution Date" shall mean the proposed date of effecting the Distribution, which is anticipated to occur on or about _______, 1998. 1.13 "FDA" shall mean the United States Food and Drug Administration or any successor agency whose clearance is necessary to market a CliniChem Product in the United States. 1.14 "Field of Use" shall mean the treatment of a particular disease or, in the case of a vaccine, vaccination against a particular bacterium. The applicable Field of Use for each CliniChem Program is set forth in Exhibit A. 1.15 "Major Market Country" shall mean any one of the following countries: Canada, France, Germany, Italy, Japan, the United Kingdom, or the United States. 1.16 "Product Option" shall mean the option granted to BioChem and certain BioChem Affiliates pursuant to the Product Option Agreement. 1.17 "Product Option Agreement" shall mean the Product Option Agreement dated as of the date hereof by and between BioChem, certain BioChem Affiliates and CliniChem, as amended from time to time. 1.18 "Proprietary Rights" shall mean data, inventions, information, processes, know-how and trade secrets, and patents or patent applications claiming any of the foregoing, owned by, licensed to or controlled by a person and which such person has the right to license or sublicense without the consent of any third party and without incurring additional liability to any third party. Proprietary Rights shall not include trademarks or copyrights. 1.19 "Purchase Option" shall mean that certain option contained in the Articles of Incorporation of CliniChem, as amended or restated from time to time, pursuant to which BioChem (as the holder of the majority of the outstanding Class B Common Shares in the share capital of CliniChem) has the right to acquire all (but not less than all) of the outstanding Class A Common Shares in the share capital of CliniChem. 1.20 "Research and Development Costs" shall mean the fully-burdened cost of activities undertaken pursuant to this Agreement plus five percent (5%) of such costs, including research expenses, general and administrative expenses, capital asset costs, costs for licenses or acquisition of technology, products or therapeutic agents from third parties for the CliniChem Programs and costs of third-party collaborations or contract research undertaken for the CliniChem Programs, determined in accordance with Exhibit B hereto. -3- 4 1.21 "Services Agreement" shall mean the Services Agreement dated as of the date hereof by and between BioChem and CliniChem, as amended from time to time. 1.22 "Technology Fee" shall mean those payments to be made by CliniChem to BioChem or a BioChem Affiliate pursuant to the Technology License Agreement. 1.23 "Technology License Agreement" shall mean the Technology License Agreement dated as of the date hereof by and between BioChem, certain BioChem Affiliates and CliniChem, as amended from time to time. 1.24 "Work Plan" shall mean a work plan for research and development under a CliniChem Program, including cost estimates. 2. DEVELOPMENT SERVICES. 2.1 ENGAGEMENT OF BIOCHEM. CliniChem hereby engages BioChem to perform or cause to be performed research, development and related activities in connection with the CliniChem Programs in accordance with the Work Plans accepted pursuant to Section 2.3, and to undertake such other activities as the parties may agree, and BioChem hereby accepts such engagement. 2.2 PRODUCT DEVELOPMENT -- BIOCHEM OBLIGATIONS. BioChem shall diligently perform or cause to be performed those activities necessary to execute the Work Plans accepted by CliniChem pursuant to Section 2.3, as amended from time to time. In connection therewith, BioChem shall make available such of its scientific and other personnel, and shall take such steps as it deems reasonably necessary in order to perform its obligations in accordance with the terms hereof, but BioChem is not obligated to devote any specific amount of time or resources to activities hereunder. BioChem shall have full discretion to determine from time to time the allocation of resources of BioChem (facilities, equipment and personnel) to be made available for activities hereunder, and to determine from time to time the allocation of resources of BioChem among such activities. CliniChem understands, acknowledges and agrees that BioChem may devote substantial time and resources to research and development activities for other persons and for its own account, and as a result, BioChem may develop and commercialize, or have commercialized, products competitive with CliniChem Products. 2.3 WORK PLANS; MEDIATION OF DISPUTES. (a) Throughout the term of this Agreement, BioChem shall propose Work Plans for the CliniChem Programs and CliniChem shall have the right to approve or reject all or any portion of a proposed Work Plan. In the event of rejection, in whole or in part, of a Work Plan, CliniChem shall cooperate with BioChem in order to establish Work Plans that are in conformity with BioChem's obligations pursuant to pre-existing agreements with third parties and reasonably acceptable to both parties as soon as practicable. On or before the date of this Agreement, BioChem shall provide CliniChem with a proposed Work Plan and a lifetime plan for continued development under each of the initial CliniChem Programs. Within thirty (30) days of the date of this Agreement, -4- 5 the Board of Directors of CliniChem shall notify BioChem in writing of its acceptance (in whole or in part) or rejection (in whole or in part) thereof. (b) The parties understand and acknowledge that it is difficult to predict accurately the activities that will be necessary to execute any Work Plan, including the Research and Development Costs thereof, and that significant uncertainties exist in any product development effort. CliniChem and BioChem shall cooperate in good faith to devise mutually acceptable Work Plans for the CliniChem Programs. BioChem and CliniChem shall review each such Work Plan from time to time, and in any event no less often than at the end of each stage of research and development, and shall revise each Work Plan as appropriate such that each Work Plan remains a best estimate of the work to be performed to complete the development objectives identified therein and of the Research and Development Costs thereunder. The parties may also mutually determine to discontinue any and all Work Plans with respect to a CliniChem Program. Except as set forth in Section 2.3(c), CliniChem shall not be obligated to pay Research and Development Costs in excess of those provided for in approved Work Plans, and BioChem shall not be obligated to perform work which would result in Research and Development Costs exceeding those in approved Work Plans. (c) The parties recognize that BONA FIDE disputes may arise from time to time in connection with devising mutually-acceptable Work Plans for the CliniChem Programs. If CliniChem's Board of Directors accepts or rejects a Work Plan in part, BioChem may either (i) perform the activities under the Work Plan as approved by CliniChem or (ii) propose a modified Work Plan to CliniChem for approval. Notwithstanding the foregoing, in the event CliniChem's Board of Directors rejects in whole or in substantial part three consecutive Work Plans proposed by BioChem with respect to a particular CliniChem Program, BioChem and CliniChem shall resolve the dispute in accordance with the provisions of Section 12.3 of this Agreement. Prior to the resolution of any such dispute, BioChem shall have the right to perform the work specified under its most recently proposed Work Plan and CliniChem shall be obligated to pay the Research and Development Costs incurred in connection therewith. 2.4 CONSULTATION. CliniChem's Board of Directors shall consult with BioChem and shall review with BioChem from time to time BioChem's ongoing activities on behalf of CliniChem and the progress toward completion of the activities under the Work Plans for each CliniChem Program, including without limitation, the status in each country for each CliniChem Product for which marketing clearance is being sought. 2.5 THIRD PARTY RIGHTS. Subject to the terms and conditions of this Agreement, BioChem shall have discretion to attempt to obtain any Proprietary Rights from any third party that BioChem reasonably determines to be necessary or useful to conduct any CliniChem Program or related activities pursuant to any approved Work Plan. In addition, BioChem shall have the right to conduct its research and development activities under this Agreement in connection with the CliniChem Programs with BioChem Affiliates and third parties, including entering into, on CliniChem's behalf, research and development agreements. Proprietary Rights acquired by or licensed to BioChem as a result of the foregoing shall be included in the Developed Technology. The costs of obtaining any -5- 6 such Proprietary Rights or conducting such research and development activities shall be included in the calculation of Research and Development Costs paid by CliniChem pursuant to this Agreement. 2.6 DEVELOPMENT ASSETS. BioChem shall own and have the right to use any Development Assets. 2.7 NO USE OF AVAILABLE FUNDS. After such time as the Product Option for a CliniChem Product in a country expires unexercised as to such country, no additional Available Funds shall be expended for the research or development of such CliniChem Product for sale in such country without the consent of the Board of Directors of CliniChem. 2.8 NOTICES. BioChem shall notify CliniChem within five (5) business days after BioChem receives notice of clearance to market any CliniChem Product in any country. BioChem shall promptly notify CliniChem of the first commercial sale of any CliniChem Product or Developed Technology Product in any country. 3. PAYMENT FOR SERVICES; TIMING OF PAYMENTS. 3.1 PAYMENT OF RESEARCH AND DEVELOPMENT COSTS. In consideration of the work to be carried out by BioChem hereunder, CliniChem shall make payments to BioChem or its Affiliates for all Research and Development Costs incurred by BioChem or its Affiliates in accordance with accepted Work Plans up to the maximum amount of Available Funds. CliniChem shall also make payments to BioChem for Research and Development Costs with respect to the initial CliniChem Programs which are incurred from January 1, 1998 through the date of the Distribution, in accordance with the CliniChem approved Work Plans therefor in effect as of the date hereof. 3.2 TIMING OF PAYMENTS. CliniChem shall pay to BioChem monthly, in arrears, all such Research and Development Costs incurred by BioChem and its Affiliates during the preceding calendar month, within ten (10) days after BioChem's invoice therefor. 3.3 SUFFICIENCY OF FUNDS. Neither CliniChem nor BioChem makes any warranty, express or implied, that the Available Funds will be sufficient to complete the development under any or all of the CliniChem Programs or the other activities contemplated hereunder. 3.4 LATE PAYMENTS. Any payments due hereunder that are not made when due shall accrue interest at the lesser of ten percent (10%) per annum or the maximum rate as may be allowed by law, beginning on the date when BioChem notifies CliniChem that such payments are overdue. 4. REPORTS AND RECORDS. 4.1 RESEARCH AND DEVELOPMENT PROGRAM REPORTS. Within forty-five (45) days after the end of each calendar quarter, BioChem shall provide to CliniChem a report setting forth (a) a summary of the work performed hereunder by BioChem and its employees and agents during such -6- 7 quarter; and (b) the total Research and Development Costs of such activities during such quarter and cumulatively to date, for each Work Plan. 4.2 AVAILABLE FUNDS STATEMENT. Within a reasonable time after the end of each calendar quarter, CliniChem shall provide to BioChem a statement setting forth, as of the end of such quarter, the Available Funds remaining. 4.3 RECORDS; REVIEW BY AUDITORS. Each of CliniChem and BioChem shall keep and maintain, in accordance with Canadian generally accepted accounting principles, proper and complete records and books of account documenting all Research and Development Costs, in the case of BioChem, and remaining Available Funds, in the case of CliniChem. Each of CliniChem and BioChem shall have the right, once in each calendar year during regular business hours and upon reasonable notice to the other party, and at its own expense, to examine or to have examined by its auditors, pertinent books and records of one another, for the sole purpose of determining the correctness of amounts invoiced, paid or due under this Agreement and the application of the Available Funds by CliniChem. Such examination shall take place not later than two (2) years following the year in question, and only one examination may take place with respect to any period as to which such books and records are examined. 5. TECHNOLOGY LICENSED FOR DEVELOPMENT. 5.1 LICENSE TO USE BIOCHEM TECHNOLOGY. CliniChem hereby grants to BioChem a sublicense (with the right to grant further sublicenses as necessary) to use the BioChem Technology solely for the purpose of conducting the activities contemplated hereunder (to the extent such license is necessary for the conduct of such activities under applicable law). 5.2 TERMINATION OF LICENSE. Termination of the license granted to CliniChem under the Technology License Agreement shall automatically terminate any sublicense of the BioChem Technology granted pursuant to Section 5.1. 6. OWNERSHIP OF TECHNOLOGY. 6.1 OWNERSHIP OF DEVELOPED TECHNOLOGY. Unless BioChem and CliniChem agree otherwise and except as set forth in Section 2.2 of the Technology License Agreement, all Developed Technology shall be owned by BioChem or a BioChem Affiliate (as determined by BioChem in its sole discretion) and exclusively licensed to CliniChem on a worldwide basis with the right to sublicense subject to the terms and conditions of the Technology License Agreement, subject to the Product Option and limited to the applicable Field of Use. 6.2 PATENTS COVERING DEVELOPED TECHNOLOGY. BioChem shall determine whether and to what extent to seek and maintain patents covering any Developed Technology. Any such patents and applications therefor shall be owned by BioChem or a BioChem Affiliate. In the event that BioChem declines to seek patent protection for any Developed Technology, CliniChem shall not have the right to do so. BioChem or a BioChem Affiliate shall pay all of the costs of obtaining and maintaining any such patents during the term of this Agreement. -7- 8 7. ACCESS TO INFORMATION; CONFIDENTIALITY. 7.1 ACCESS. Subject to the terms of this Agreement, each party shall be permitted access to the premises of the other during normal business hours, solely for the purpose of monitoring the progress of activities under this Agreement. Each party shall keep records and notebooks documenting the experiments performed during its work under this Agreement and the results thereof. Such documentation shall be available during normal business hours for inspection by the other party. In addition, each party shall provide to the other such other information relating to the activities carried out under this Agreement as reasonably may be requested. 7.2 THIRD PARTIES. BioChem shall use reasonable efforts to obtain from each third party engaged pursuant to Section 2.5 access similar to that to be provided pursuant to Section 7.1, for the benefit of both CliniChem and BioChem. 7.3 CONFIDENTIALITY. During the term of this Agreement and for a period of ten (10) years following its termination, each party shall maintain in confidence all Proprietary Rights and any Confidential Information of the other; provided, however, that nothing contained herein shall prevent either party from disclosing any Proprietary Rights or any Confidential Information to the extent that such Proprietary Rights or Confidential Information (a) are required to be disclosed in connection with conducting the CliniChem Programs, securing necessary governmental authorization for the marketing of CliniChem Products, or directly or indirectly making, using or selling CliniChem Products, as permitted or provided for in the agreements between the parties, (b) are required to be disclosed by law for the purpose of complying with governmental regulations, (c) are disclosed to sublicensees, distributors or marketing partners or potential sublicensees, distributors or marketing partners permitted under the agreements between the parties in connection with the proposed or actual research, development, manufacturing or marketing of CliniChem Products, subject to similar obligations of confidentiality on the part of such third parties as required by the agreements between the parties, (d) are lawfully disclosed to the recipient by a third party having the right to disclose such information to the recipient, or (e) either before or after the time of disclosure to the recipient, become known to the public other than by an unauthorized act or omission of the recipient or any of the recipient's employees or agents; provided further that, CliniChem may disclose BioChem Proprietary Rights or Confidential Information to third parties only in accordance with the provisions of this Section 7.3 and Section 8.1 hereof and in accordance with the provisions of the Technology License Agreement. The obligations of each of the parties pursuant to this Section 7.3 shall survive the termination of this Agreement for any reason. Any breach of this Section 7.3 may result in irreparable harm, and in the event of a breach, the aggrieved party shall be entitled to seek injunctive relief (without the need to post a bond) in addition to any other remedies available at law or in equity. 8. PUBLIC DISCLOSURE. 8.1 PUBLIC DISCLOSURE. The parties will work together with respect to public statements disclosing the status of and results under the CliniChem Programs and related matters. Except to the extent previously disclosed pursuant to the terms hereof, neither party shall disclose to third parties nor originate any publicity, news release or public announcement, written or oral, whether -8- 9 to the public, the press, stockholders or otherwise, referring to activities conducted, or the parties' performance under, this Agreement, except such announcements, as in the opinion of the counsel for the party making such announcement, are required by law, including Canadian and United States securities laws, rules or regulations, without the prior written consent of the other party. If a party decides to make an announcement it believes to be required by law with respect to this Agreement, it will give the other party such notice as is reasonably practicable and an opportunity to comment upon the announcement. 9. COVENANTS 9.1 USE OF AVAILABLE FUNDS. Unless BioChem agrees otherwise, CliniChem agrees to expend the Available Funds only for activities undertaken pursuant to this Agreement, and for payments due to BioChem or a BioChem Affiliate under this Agreement, the Technology License Agreement and the Services Agreement. Pending application of all Available Funds as set forth above, Available Funds shall be invested in interest-bearing, investment-grade securities. 9.2 NEGATIVE PLEDGE. CliniChem shall not create, incur, assume or suffer to exist any lien upon or with respect to, or otherwise take any action with respect to, the Available Funds so as to prevent or interfere with full expenditure of such funds for activities under this Agreement in accordance with Section 9.1. 9.3 NO INCONSISTENT AGREEMENTS. Without the written consent of BioChem, CliniChem shall not enter into any agreement or arrangement that is in any way inconsistent with or that could adversely affect BioChem Technology or BioChem's rights under any agreement between BioChem and CliniChem, or that is in any way inconsistent with or that could adversely affect BioChem's rights as holder of the Class B Common Shares of CliniChem. CliniChem must include in any agreement between CliniChem and a third party relating to CliniChem Products and/or activities hereunder such provisions as BioChem reasonably deems appropriate to protect BioChem Technology and to protect BioChem's rights under any agreement between BioChem and CliniChem and as a holder of the Class B Common Shares of CliniChem (including BioChem's and certain BioChem Affiliates' rights under the Purchase Option). 10. TERM AND TERMINATION. 10.1 TERM. This Agreement shall become effective on the Distribution Date (the "Effective Date") and shall continue thereafter until automatically terminated upon exercise or expiration of the Purchase Option or termination pursuant to Section 10.2. 10.2 OTHER TERMINATION. Either party may, in its discretion, terminate by written notice this Agreement in the event that the other party: (a) breaches any material obligation hereunder or under the Product Option Agreement, and such breach continues for a period of sixty (60) days after written notice thereof by the terminating party to the other party; or -9- 10 (b) enters into any proceeding, whether voluntary or involuntary, in bankruptcy, reorganization of creditor's rights or similar arrangement for the benefit of its creditors. 11. FORCE MAJEURE. 11.1 FORCE MAJEURE. Neither party to this Agreement shall be liable for failure or delay in the performance of any of its obligations hereunder, if such failure or delay is due to causes beyond its reasonable control including, without limitation, acts of God, earthquakes, fires, strikes, acts of war, or intervention of any governmental authority, but any such delay or failure shall be remedied by such party as soon as possible after the removal of the cause of such failure or delay. 12. MISCELLANEOUS. 12.1 AMENDMENT AND WAIVER. This Agreement may be amended and any provision of this Agreement may be waived; provided that any such amendment or waiver shall be binding upon a party only if set forth in a writing executed by authorized representatives of such party and referring specifically to the provision alleged to have been amended or waived. A waiver by any party hereto of any terms and conditions of this Agreement in any one instance shall not be deemed or construed to be a waiver of such terms and conditions for any similar instance in the future. No course of dealing between or among any persons having any interest in this Agreement shall be deemed effective to modify, amend or discharge any part of this Agreement or any rights or obligations of any person under or by reason of this Agreement. 12.2 ASSIGNMENT. Neither party may assign its rights and obligations hereunder without the prior written consent of the other party, which consent may not be unreasonably withheld; provided, however, that BioChem may assign such rights and obligations hereunder to an Affiliate of BioChem or to any person or entity with which BioChem is merged or consolidated or which acquires all or substantially all of the assets or issued and outstanding shares in the share capital of BioChem. 12.3 DISPUTE RESOLUTION. Any controversy, claim or dispute arising out of or relating to this Agreement, including the interpretation, breach, termination or invalidity thereof (a "Dispute") shall be definitively settled by arbitration, in accordance with the provisions on arbitration found in the Code of Civil Procedure of Quebec (the "CCP"). Prior to resorting to arbitration, the parties shall refer the Dispute to the Chairman of the Board of BioChem and a director of CliniChem who has not been appointed by BioChem for attempted resolution of such Dispute. The party wishing to initiate negotiations shall send to the other party a notice of negotiation, briefly identifying the object of the Dispute. If the parties fail to resolve a Dispute within thirty (30) days of receipt by the second party of such notice of negotiation, each party shall then have the right to refer such Dispute to arbitration, unless the parties agree in writing to extend such thirty (30) day negotiation period. The seat of arbitration shall be in Montreal and the proceedings shall be in English. -10- 11 There shall be three (3) arbitrators. Each party shall appoint one (1) arbitrator, and the two (2) arbitrators thus appointed shall designate the third arbitrator within fifteen (15) days of the appointment of the second arbitrator. The third arbitrator shall serve as President of the arbitral tribunal. Should a party fail to designate an arbitrator within the delay specified in the applicable provisions of the CCP, such arbitrator shall be appointed by the highest ranking officer of the Quebec National and International Commercial Arbitration Centre ("Centre"). The two (2) arbitrators thus appointed shall designate the third arbitrator within fifteen (15) days of the appointment of the second arbitrator, failing which the third arbitrator shall be designated by the Centre. The arbitral tribunal shall render any final award or decision within thirty (30) days following the completion of evidence and argument on substantive issues in dispute between the parties. The parties recognize and agree that any award rendered by the arbitral tribunal shall be final and binding on the parties who hereby expressly waive, to the fullest extent permitted by law, all rights of appeal or recourse to any court. The apportionment of costs of any arbitration pursuant to this agreement shall be left to the discretion of the arbitral tribunal. Nothing in this article has the effect, or should be interpreted as having the effect of limiting the right of one of the parties to obtain, from a common law court, a seizure before judgment, an injunction or any other extraordinary recourse as defined by the CCP. 12.4 APPLICATIONS FOR CREDITS. CliniChem authorizes BioChem or any BioChem Affiliate which performs all or part of the research and development activities contemplated by this Agreement to enter into research contracts with third parties in its own name, but on the behalf of CliniChem as agent, and apply in its own name, but on the behalf of CliniChem as agent, for any and all governmental subsidies, credits (including tax credits) or any other incentives related to such research and development activities. 12.5 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute this Agreement. 12.6 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the Province of Quebec and the federal laws of Canada applicable therein, and shall be treated in all respects as a Quebec contract. 12.7 HEADINGS. The section headings contained in sections of this Agreement are included for convenience only and form no part of the Agreement between the parties. 12.8 NOTICES. Notices required under this Agreement shall be in writing and sent by registered or certified mail, postage prepaid, or by facsimile and confirmed by registered or certified mail, postage prepaid, and addressed as follows: IF TO BIOCHEM: BioChem Pharma Inc. 275 Armand-Frappier Blvd. -11- 12 Laval, Quebec, Canada H7V 4A7 Facsimile: (514) 978-7994 Attention: Vice-President Legal Affairs and Corporate Secretary IF TO CLINICHEM: CliniChem Development Inc. 275 Armand-Frappier Blvd. Laval, Quebec, Canada H7V 4A7 Facsimile: (514) 978-7994 Attention: General Counsel and Secretary All notices shall be deemed to be effective upon receipt unless such notice is delivered or transmitted by facsimile, in which case, if it is delivered or transmitted before 4:00 PM on a business day, it shall be deemed to have been given and received on such day; in any other case, it will be deemed to have been given and received on the first business day following the day on which it is delivered or transmitted by facsimile. Either party may change the address at which notice is to be received by written notice pursuant to this Section 12.8. 12.9 SEVERABILITY. If any provision of this Agreement is held by a court of competent jurisdiction to be invalid or unenforceable, it shall be modified, if possible, to the minimum extent necessary to make it valid and enforceable or, if such modification is not possible, it shall be stricken and the remaining provisions shall remain in full force and effect. 12.10 RELATIONSHIP OF THE PARTIES. For purposes of this Agreement, CliniChem and BioChem shall be deemed to be independent contractors, and anything in this Agreement to the contrary notwithstanding, nothing herein shall be deemed to constitute CliniChem and BioChem as partners, joint venturers, co-owners, an association or any entity separate and apart from each party itself, nor shall this Agreement constitute any party hereto an employee or agent, legal or otherwise, of the other party for any purposes whatsoever. Neither party hereto is authorized to make any statements or representations on behalf of the other party or in any way obligate the other party, except as expressly authorized in writing by the other party. Anything in this Agreement to the contrary notwithstanding, no party hereto shall assume or be liable for any liabilities or obligations of the other party, whether past, present or future. 12.11 SURVIVAL. The provisions of Sections 3, 6, 7.3, 12.1, 12.3, 12.6, 12.8, 12.10, and this Section 12.11, and of Section 4 to the extent of obligations under such section relating to periods prior to termination of this Agreement, shall survive the termination for any reason of this Agreement. Any payments due under this Agreement with respect to any period prior to its termination shall be made notwithstanding the termination of this Agreement. Neither party shall be liable to the other for consequential damages (including loss of good will or anticipated profits) due to the termination of this Agreement as provided herein. 12.12 ENTIRE AGREEMENT. This Agreement, the Technology License Agreement, the Product Option Agreement and the Services Agreement contain the entire agreement and understanding * * * * * -12- 13 between the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings whether written or oral, relating to such subject matter. * * * * * -13- 14 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date set forth above. BIOCHEM PHARMA INC. By: _______________________________ Title: _____________________________ By: _______________________________ Title: _____________________________ CLINI CHEM DEVELOPMENT INC. By: _______________________________ Title: _____________________________ By: _______________________________ Title: _____________________________ -14- 15 EXHIBIT A to the Research and Development Agreement dated as of the ___ day of March, 1998 by and between BioChem Pharma Inc. and CliniChem Development Inc. CLINICHEM PROGRAMS PROGRAM FIELD OF USE - ----------------------------------------- --------------------------- 1. Development of BCH-4556. Treatment of cancer. 2. Development of BCH-10652. Treatment of HIV infection. 3. Development of AvB3 antagonists to Treatment of cancer. prevent angiogenesis. 4. The development of a recombinant To protect against infections by protein vaccine to protect against NEISSERIA MENINGITIDIS. infections by NEISSERIA MENINGITIDIS. 5. The development of a recombinant To protect against infections by protein vaccine to protect against STREPTOCOCCUS PNEUMONIAE. infections by STREPTOCOCCUS PNEUMONIAE. 6. The development of a recombinant To protect against infections by protein vaccine to protect against NEISSERIA GONORRHOEAE. infections by NEISSERIA GONORRHOEAE. 7. The development of a recombinant To protect against infections by protein vaccine to protect against HAEMOPHILUS INFLUENZAE non typeable. infections by HAEMOPHILUS INFLUENZAE non typeable. 8. The development of a recombinant To protect against infections by protein vaccine to protect against STREPTOCOCCUS Group B. infections by STREPTOCOCCUS Group B. 9. The development of a recombinant To protect against infections by protein vaccine to protect against CHLAMYDIA PNEUMONIAE. infections by CHLAMYDIA PNEUMONIAE. 16 EXHIBIT B to the Research and Development Agreement dated as of the ___ day of March, 1998 by and between BioChem Pharma Inc. and CliniChem Development Inc. CALCULATION OF RESEARCH AND DEVELOPMENT COSTS BioChem shall charge CliniChem for both "direct" and "indirect" Research and Development Costs based on BioChem's internal accounting system, plus five percent (5%). Direct costs shall include fully absorbed costs of labor, third-party contract costs, such as those expenses paid to outside vendors and licensors, raw materials, drug substances, drug products, clinical supplies, compound library, assay acquisition and all other costs which can be directly identified to a CliniChem Program (see Exhibit B1). Indirect costs shall include lease payments, building allocations, equipment allocations, administration services and all other indirect costs. The indirect costs are estimated to be twenty to thirty-five percent (20-35%) of direct costs. The indirect cost allocations are based upon BioChem's historical overhead experience arising from its research and development activities. 17 EXHIBIT B1 to the Research and Development Agreement dated as of the ___ day of March, 1998 by and between BioChem Pharma Inc. and CliniChem Development Inc. RESEARCH AND DEVELOPMENT DIRECT COSTS The following is a list of the types of expenses which are considered as "direct" in Exhibit B and would be billable to CliniChem: Collaborative research agreement payments Payments for compound supply Payments forbiologicals, drug substances and drug products Payments for chemical precursors Payments for assay acquisitions Payments for clinical studies Payments for toxicological, pharmacokinetic studies, process development contracts, manufacturing of batches of vaccines for clinical trials, immunological studies and other outside services Payments for other BioChem functions (non-R&D) which provide services Payments for investigation or research grants Payments for consulting services Hiring expenses, salaries and fringe benefits for people who will work directly on CliniChem projects Milestone payments to third parties Project travel, entertainment and related expenses Capital equipment and other materials purchased exclusively for CliniChem projects Miscellaneous project expenses Regulatory and filing fees Telephone and communications Patent and trademark expenses including the cost of prosecution, defense and maintenance of intellectual property rights Software Payments for clinical research organizations Payments for monitoring Payments for data management Insurance 18 EXHIBIT B2 to the Research and Development Agreement dated as of the ___ day of March, 1998 by and between BioChem Pharma Inc. and CliniChem Development Inc. RESEARCH AND DEVELOPMENT INDIRECT COSTS The following is a list of the types of expenses which are considered as "indirect" in Exhibit B and would be billable to CliniChem: [Salaries and fringe benefits of people managing and supporting those working directly on CliniChem projects General supplies and chemicals General information systems and communications support General equipment depreciation General facilities depreciation, utilities, rent Miscellaneous indirect expenses Miscellaneous general and administrative expenses EX-10.3 7 PRODUCT OPTION AGREEMENT 1 Exhibit 10.3 PRODUCT OPTION AGREEMENT This Product Option Agreement (the "Agreement") is made as of the ____ day of March, 1998 by and between BioChem Pharma Inc., a Canadian corporation ("BioChem"), Tanaud International B.V., a Dutch corporation ("BV"), Tanaud Ireland Inc., an Irish Company ("TII") and CliniChem Development Inc., a Canadian corporation ("CliniChem"). RECITALS A. CliniChem has been formed for the purpose of (i) conducting research and development of potential human therapeutic products primarily for the treatment of cancer and HIV infection and vaccine products for the prevention of certain infectious diseases, including products using BioChem Technology (as defined below), and (ii) commercializing such products, most likely through BioChem. B. BioChem is engaged in the research, development and marketing of therapeutic products and the research, development, manufacturing and marketing of vaccine and diagnostic products for a wide range of infectious and other diseases. C. As of the date hereof, BioChem, certain BioChem Affiliates and CliniChem have entered into a Technology License Agreement and a Research and Development Agreement (each as defined below). D. Subject to the terms of this Agreement, CliniChem desires to grant to BioChem, and BV and TII (with respect only to BCH-4556 in certain territories), an option to acquire for commercialization the products developed pursuant to the Research and Development Agreement as set forth herein. NOW, THEREFORE, in consideration of the various premises and undertakings set forth herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. DEFINITIONS. For purposes of this Agreement, the following terms shall have the meanings set forth below: 1.1 "Acquired Product" shall mean any product for which BioChem, BV or TII has exercised the Product Option granted hereunder. 1.2 "Affiliate" shall mean a corporation or any other entity that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the 2 designated party. "Control" shall mean ownership of shares to which are attached more than fifty percent (50%) of the votes that may be cast for the election of directors in the case of a corporation, and at least fifty percent (50%) of the interests in profits in the case of a business entity other than a corporation. CliniChem shall not be considered an Affiliate of BioChem, BV or TII. 1.3 "CliniChem Product" shall mean any human therapeutic or vaccine product developed according to the terms of the Research and Development Agreement and pursuant to the CliniChem Programs in the applicable Fields of Use. 1.4 "CliniChem Programs" shall mean any of the therapeutic and vaccine product development programs listed on Exhibit A in the applicable Fields of Use indicated in such Exhibit A, and any additional or modified development programs recommended by BioChem and accepted by CliniChem's Board of Directors for development as such pursuant to the Research and Development Agreement. 1.5 "Distribution" shall mean the distribution by BioChem as a dividend-in-kind of all of the issued and outstanding Class A Common Shares in the share capital of CliniChem to the holders of record of Common Shares of BioChem at the close of business on ________, 1998. 1.6 "Distribution Agreement" shall mean the Distribution Agreement dated as of the date hereof by and between BioChem and CliniChem, as amended from time to time. 1.7 "Distribution Date" shall mean the proposed date of effecting the Distribution, which is anticipated to occur on or about _______, 1998. 1.8 "FDA" shall mean the United States Food and Drug Administration or any successor agency whose clearance is necessary to market a CliniChem Product in the United States. 1.9 "Field of Use" shall mean the treatment of a particular disease or, in the case of a vaccine, vaccination against a particular bacterium. The applicable Field of Use for each CliniChem Program is set forth on Exhibit A. 1.10 "Infringing Product" shall mean any product manufactured, used, offered for sale or sold by a third party, other than pursuant to an agreement with BioChem, which infringes or is alleged to infringe any patent or patents owned by, licensed to or controlled by BioChem containing claims which cover a CliniChem Product. 1.11 "Licensing Revenues" shall mean percentage-of-sales payments and Specialty Royalty Payments received by BioChem, BV or TII with respect to an Acquired Product. 1.12 "Major Market Country" shall mean any one of the following countries: Canada, France, Germany, Italy, Japan, the United Kingdom, or the United States. 1.13 "Net Sales" shall mean the total amount to be invoiced, net of taxes, on sales of an Acquired Product by BioChem or its Affiliates to unrelated third parties such as wholesalers, -2- 3 hospitals, distributors, marketing partners and others, which are not Affiliates of the selling party (unless such Affiliate is the end user of such product, in which case the amount invoiced therefor shall be deemed to be the amount that would be invoiced to a third party in a BONA FIDE arm's length transaction) in BONA FIDE arm's length transactions, less discounts, allowances, credits and charges for freight or insurance as customarily determined under BioChem's accounting policies in effect at the time of such sale. 1.14 "Product Option" shall mean the options granted to BioChem, BV and TII pursuant to Section 2 of this Agreement. 1.15 "Product Payments" shall have the meaning set forth in Section 3.2 of this Agreement. 1.16 "Proprietary Rights" shall mean data, inventions, information, processes, know-how and trade secrets, and patents or patent applications claiming any of the foregoing, owned by, licensed to or controlled by a person and which such person has the right to license or sublicense without the consent of any third party and without incurring additional liability to any third party. Proprietary Rights shall not include trademarks or copyrights. 1.17 "Purchase Option" shall mean the option contained in the Articles of Incorporation of CliniChem, as amended or restated from time to time, pursuant to which BioChem (as the holder of the majority of the outstanding Class B Common Shares in the share capital of CliniChem) has the right to acquire all (but not less than all) of the outstanding Class A Common Shares in the share capital of CliniChem. 1.18 "Research and Development Agreement" shall mean the Research and Development Agreement dated as of the date hereof between BioChem and CliniChem, as amended from time to time. 1.19 "Research and Development Costs" shall mean the fully-burdened cost of activities undertaken pursuant to the Research and Development Agreement with respect to the Acquired Products plus five percent (5%), as detailed in the Research and Development Agreement. 1.20 "Services Agreement" shall mean the Services Agreement dated as of the date hereof by and between BioChem and CliniChem, as amended from time to time. 1.21 "Specialty Royalty Payments" shall mean front-end distribution fees, prepaid royalties, one-time, infrequent or special payments or non-monetary consideration (including licenses of technology) received by BioChem, BV or TII from a licensee, distributor or marketing partner with respect to an Acquired Product but excluding any payments for research and development related services or capital expenditures. The fair market value of any such non-monetary consideration shall be assessed by a third party expert mutually agreed to by BioChem and CliniChem. -3- 4 1.22 "Technology License Agreement" shall mean the Technology License Agreement dated as of the date hereof by and between BioChem, certain BioChem Affiliates and CliniChem, as amended from time to time. 1.23 "Territory" shall have the meaning set forth in Section 2.3 of this Agreement. 2. PRODUCT OPTION. 2.1 GRANT OF PRODUCT OPTION. On the terms and subject to the conditions of this Agreement, CliniChem hereby grants to BioChem an option to acquire all of CliniChem's rights with respect to each CliniChem Product (other than BCH-4556), and to terminate CliniChem's corresponding license with respect thereto, exercisable on a product-by-product and country-by-country basis as described in Section 2.2. With respect to the CliniChem Product BCH-4556, (i) CliniChem hereby grants to TII an option to acquire all of CliniChem's rights, and terminate CliniChem's corresponding license with respect to BCH-4556 in the United States; (ii) CliniChem hereby grants to BioChem an option to acquire all of CliniChem's rights and terminate CliniChem's corresponding license, with respect to BCH-4556 in Canada; and (iii) CliniChem hereby grants to BV an option to acquire all of CliniChem's rights and terminate CliniChem's corresponding license, with respect to BCH-4556 for the world other than the United States and Canada, exercisable on a country-by-country basis. 2.2 TIME FOR EXERCISE. (a) BioChem, and with respect to BCH-4556, BV and TII, may exercise the Product Option with respect to any CliniChem Product on a country-by-country basis at any time during the period beginning on the date hereof and ending (i) with respect to the United States, thirty (30) days after clearance by the FDA to market such CliniChem Product in the United States, and (ii) with respect to any other country, thirty (30) days after clearance by the appropriate regulatory agency to commercially market such CliniChem Product in such country. Notwithstanding the foregoing, the Product Option shall expire, to the extent not previously exercised, at the close of business on the thirtieth day after the expiration of the Purchase Option. In any case, BioChem, BV and TII must each exercise its applicable Product Option for a particular CliniChem Product in a particular country prior to the first commercial sale of such product in such country by BioChem, BV, TII or any of their Affiliates, licensees, distributors or marketing partners. The Product Option for any CliniChem Product in any country will expire if not exercised within the foregoing time periods. (b) CliniChem will notify BioChem, BV or TII, as applicable, in writing within ten (10) business days of receipt of each clearance to market any CliniChem Product in any country. 2.3 MANNER OF EXERCISE. BioChem, BV or TII shall exercise its Product Option by delivering to CliniChem, within the time period described in Section 2.2 above, a written notice of exercise specifying the CliniChem Product and the country or countries as to which the Product Option is exercised (the "Territory"). Upon delivery of such written notice of exercise, (i) BioChem, BV or TII, as applicable, shall be deemed to have acquired all rights from CliniChem with respect -4- 5 to such Acquired Product in the Territory, including but not limited to the right to research, develop, make, have made and use such Acquired Product and to sell, have sold and commercialize such Acquired Product in the Territory and (ii) CliniChem's license with respect thereto pursuant to the Technology License Agreement shall be terminated, without the necessity of any additional action by the parties. 2.4 DEVELOPMENT ASSETS. If BioChem, BV or TII does not exercise its Product Option for any CliniChem Product in any country prior to the expiration of such Product Option or, if BioChem, BV or TII notifies CliniChem expressly in writing that it will not exercise its Product Option for a CliniChem Product, BioChem shall make available to CliniChem for further development and commercialization activities, at no charge, all clinical supplies, materials and other tangible assets purchased, manufactured or developed for use exclusively in the development of such CliniChem Product (the "Development Assets") with respect to such country to the extent such assets are being used by CliniChem and will not be used under the Research and Development Agreement. 2.5 FAILURE TO EXERCISE PRODUCT OPTION. To the extent that BioChem, BV or TII does not exercise its Product Option with respect to any CliniChem Product, CliniChem will retain exclusive rights (subject to pre-existing third-party rights and subject to the receipt of certain third-party consents, as set forth in the Technology License Agreement) to develop and commercialize such CliniChem Product. 3. OBLIGATIONS WITH RESPECT TO ACQUIRED PRODUCTS. 3.1 DILIGENCE. Subject to Section 9.3 of this Agreement, if BioChem, BV or TII exercises its Product Option with respect to a CliniChem Product, such party shall use diligent efforts to conduct or have conducted any remaining activities necessary to complete the development of any Acquired Product through regulatory clearance to market the Acquired Product in each Major Market Country of the Territory; provided, however, that with respect to those Acquired Products for which BioChem, BV or TII has exercised its option to buy out royalty payments pursuant to Section 3.4 of this Agreement, such party shall have no such obligation. Such activities shall be undertaken at no cost to CliniChem, unless CliniChem agrees otherwise in writing. Promptly after regulatory clearance, BioChem or, to the extent applicable, BV or TII, shall commence and continue to use reasonable diligent efforts to commercialize the Acquired Product in each Major Market Country of the Territory through the manufacture and sale or the licensing of the Acquired Product, devoting to the Acquired Product the same resources as other pharmaceutical companies of similar size devote to products with similar market potential and with similar relative importance to their product portfolios. BioChem, BV and TII may use reasonable business discretion in the allocation of their technological and monetary resources in performing their obligations hereunder, taking into account not only the Acquired Product but also activities for their own account and their obligations under other agreements with third parties. CliniChem acknowledges that BioChem, BV and/or TII will continue to own and have the right to use any Development Assets relating to such Acquired Product without any additional payment to or reimbursement of CliniChem. -5- 6 3.2 PRODUCT PAYMENTS. BioChem, BV or TII, as applicable, shall make payments to CliniChem ("Product Payments") with respect to each Acquired Product as follows: (a) royalties of up to a maximum of six percent (6%) of Net Sales of the Acquired Product in the Territory determined as follows: (A) one percent (1%) of such Net Sales, plus (B) an additional one tenth of one percent (0.1%) of such Net Sales for each full one million dollars ($1,000,000) of Research and Development Costs of the Acquired Product that have been paid by CliniChem at the time BioChem, BV or TII exercised its Product Option with respect to such Acquired Product; plus (b) licensing fees of up to a maximum of twenty-five percent (25%) of Licensing Revenues received by the party exercising the Product Option with respect to such Acquired Product determined as follows: (A) ten percent (10%) of such Licensing Revenues, plus (B) an additional one percent (1%) of such Licensing Revenues for each full one million dollars ($1,000,000) of Research and Development Costs of the Acquired Product that have been paid by CliniChem at the time BioChem, BV or TII exercised its Product Option with respect to such Acquired Product. Notwithstanding the foregoing, Product Payments for any quarter will not exceed three percent (3%) of Net Sales plus twelve and one-half percent (12.5%) of Licensing Revenues in the Territory for the first twelve (12) calendar quarters during which the Acquired Product is commercially sold in the first Major Market Country. As a result of this provision, if an Acquired Product were to be cleared for marketing in countries that are not Major Market Countries prior to marketing clearance in the first Major Market Country and Product Payments in such countries would exceed three percent (3%) of Net Sales plus twelve and one-half percent (12.5%) of Licensing Revenues, the Product Payment rates in such countries will be reduced to three percent (3%) of Net Sales plus twelve and one-half percent (12.5%) of Licensing Revenues for the first twelve (12) calendar quarters during which the Acquired Product is commercially sold in the first Major Market Country. (c) In determining Product Payments, the amount of Net Sales by and Licensing Revenues of BioChem, BV and TII shall be reduced by the dollar amount of any license or similar payments made by or due from BioChem or its Affiliates to third parties with respect to sales or development of such Acquired Product in the Territory. BioChem, BV or TII, as applicable, shall allocate any such reduction between Net Sales and Licensing Revenues in a commercially reasonable manner. If license or similar payments are made to third parties with respect to sales of the Acquired Product in the Territory and to sales of other products, BioChem, BV or TII, as applicable, shall allocate such payments, if necessary, in a commercially reasonable manner. 3.3 TERM OF PAYMENT. The obligation to make Product Payments hereunder shall begin on the date of the first commercial sale of the Acquired Product in any country for which the Product Option has been exercised. Such obligation shall continue until ten (10) years after the date of the first commercial sale of the Acquired Product in any Major Market Country, and shall terminate as to all countries at the end of such ten (10) year period. -6- 7 3.4 BUY-OUT OF PAYMENTS. (a) BioChem, BV and TII shall have the option, in their discretion, at any time after the end of the twelfth calendar quarter during which the Acquired Product was commercially sold in any country, to buy out their respective remaining obligations to make Product Payments with respect to Net Sales and Licensing Revenues of such Acquired Product in such country. The buy-out price shall be an amount equal to fifteen (15) times the Product Payments made by or due from BioChem, BV or TII to CliniChem with respect to Net Sales and Licensing Revenues of such Acquired Product in such country for the four (4) calendar quarters immediately preceding the quarter in which the buy-out option is exercised, plus fifteen (15) times such additional Product Payments as would have been made but for the three percent (3%) of Net Sales plus twelve and one- half percent (12.5%) of Licensing Revenues limit set forth in Section 3.2 on Product Payments for such period. (b) BioChem shall have the option, in its discretion, at any time after the end of the twelfth calendar quarter during which the Acquired Product was commercially sold in either the United States or two other Major Market Countries, to buy out its remaining worldwide obligations to make Product Payments with respect to Net Sales and Licensing Revenues of such Acquired Product in the Territory. The buy-out price shall be an amount equal to (i) twenty (20) times (A) the Product Payments made by or due from BioChem, BV or TII to CliniChem for such Acquired Product in the Territory, plus (B) such payments as would have been made by or due from BioChem, BV or TII to CliniChem if BioChem had not exercised any country-specific buy-out option with respect to Net Sales and Licensing Revenues of such Acquired Product, plus (C) such additional Product Payments as would have been made but for the three percent (3%) of Net Sales plus twelve and one-half percent (12.5%) of Licensing Revenues limit set forth in Section 3.2 on Product Payments for such period, in each case, for the four (4) calendar quarters immediately preceding the quarter in which the buy-out option is exercised, less (ii) any amounts previously paid to exercise any country-specific buy-out option with respect to Net Sales and Licensing Revenues of such Acquired Product. 4. ACCOUNTING. 4.1 REPORTS. Within ninety (90) days after the end of each calendar quarter for which Product Payments are due, BioChem, BV and TII shall render an accounting to CliniChem, on a country-by-country basis, with respect to all Product Payments due for such quarter. Such report shall indicate, for such quarter, the quantity and dollar amount of Net Sales of and Licensing Revenues with respect to the Acquired Product by BioChem, BV, TII and their Affiliates or other consideration with respect to Net Sales and Licensing Revenues, with respect to which payments are due. In the event no Product Payments are due for any calendar quarter, BioChem, BV and TII shall so report. 4.2 RECORDS; REVIEW BY AUDITORS. BioChem, BV and TII shall keep and maintain, in accordance with Canadian generally accepted accounting principles, proper and complete records and books of account documenting all amounts paid or payable by BioChem, BV and TII to CliniChem. CliniChem shall have the right, once in each calendar year during regular business -7- 8 hours and upon reasonable notice to BioChem, BV or TII, at CliniChem's expense, to examine or have examined by its auditors, such of the records of BioChem, BV or TII as may be necessary to verify the accuracy of the reports and payments made under this Agreement. Such examination shall take place not later than two (2) years following the year in question, and only one examination may take place with respect to any period as to which such books and records are examined. BioChem, BV and TII shall each use reasonable efforts to seek, for itself and for CliniChem, similar reasonable rights to audit information pertaining to Net Sales from each party appointed to commercialize any product as to which payments are due to CliniChem hereunder. 5. TIMES AND CURRENCIES OF PAYMENTS. 5.1 PAYMENTS. Payments shown by each calendar quarter report to have accrued shall be due and payable on the date such report is due and shall be paid in Canadian dollars. Any and all taxes due or payable on such payments or with respect to the remittance thereof shall be deducted from such payments and shall be paid by BioChem, BV or TII to the proper taxing authorities, and proof of payment shall be secured and sent to CliniChem as evidence of such payment. The rate of exchange to be used in computing the amount of the Canadian dollars due to CliniChem in satisfaction of payment obligations with respect to sales in foreign countries shall be calculated by converting the amount due in such foreign currency into Canadian dollars at the rate for the purchase of Canadian dollars with such currency as published in The Globe and Mail on the last business day of the calendar quarter for which payment is being made or the customary exchange rate posted by BioChem's bankers on such date. 5.2 CERTAIN FOREIGN PAYMENTS. If governmental regulations prevent remittance from any foreign country of any amounts due under Section 3.2 in respect of that country, BioChem, BV or TII shall so notify CliniChem in writing, and the obligation under this Agreement to make payments with respect to sales in that country shall be suspended (but the amounts due but not paid shall continue to accrue) until such remittances are possible. CliniChem shall have the right, upon written notice to BioChem, BV or TII, to receive payment in any such country in the local currency. 5.3 LATE PAYMENTS. Any payments due hereunder that are not made when due shall bear interest at the lesser of ten percent (10%) per annum or the maximum rate as may be allowed by law, beginning on the date when CliniChem has notified BioChem, BV or TII, as applicable, that such payments are overdue. 6. PATENT INFRINGEMENT. 6.1 NOTICE. Each party shall promptly notify the other in writing of any infringement or alleged infringement known to such party of any patent included in the BioChem Technology, by the manufacture, use, sale or offer for sale by a third party of any Infringing Product. 6.2 LEGAL ACTION. In the event of any infringement or alleged infringement as specified in Section 6.1, BioChem, BV and TII shall have the right, at their own expense, to take appropriate action to restrain such infringement or alleged infringement and for damages. If BioChem, BV or TII takes any such action, CliniChem shall cooperate fully with BioChem, BV or TII in its pursuit -8- 9 thereof, at BioChem, BV or TII's expense, to the extent reasonably required by BioChem, BV or TII. Any recoveries resulting from any such action shall be first applied to reimburse BioChem, BV or TII for its expenses (including attorneys' fees) incurred in bringing the action. CliniChem will be entitled to a share of the remaining recoveries in the same percentage as the percentage of Net Sales as to which Product Payments are due to CliniChem during the period of the infringement or alleged infringement for the sale of any Acquired Product covered by the claims found or alleged to have been infringed. In the event that BioChem, BV and TII determine not to bring legal action to restrain such infringement, CliniChem will not have the right to do so. 6.3 SETTLEMENT. BioChem, BV and TII each agree not to settle any action it brings in a manner that would adversely affect CliniChem without CliniChem's prior written consent, which consent shall not be unreasonably withheld or delayed. 7. NO CONFLICT. 7.1 NO CONFLICT. CliniChem agrees that no license, sale or other commercialization of any CliniChem Product has been or shall be made or offered to any person or entity on any basis that is or will be in conflict with this Agreement. 8. ACCESS TO INFORMATION. 8.1 INFORMATION AVAILABLE TO BIOCHEM, BV AND TII. CliniChem shall make available to BioChem, and with respect to BCH-4556, BV and TII at all reasonable times, all available information relating to all CliniChem Products as to which the Product Option remains exercisable so as to enable BioChem, BV and TII to determine whether and when to exercise its Product Option. 8.2 CONSULTATION WITH BIOCHEM, BV AND TII. CliniChem shall consult with BioChem and, with respect to BCH-4556, BV and TII and inform them on a continuing basis of the current state of research and development of all CliniChem Products as to which the Product Option remains exercisable and will review from time to time with BioChem and, with respect to BCH-4556, BV and TII the progress towards completion of the CliniChem Products. 9. TERM AND TERMINATION. 9.1 TERM. This Agreement shall become effective on the Distribution Date and, unless earlier terminated in whole or in part in accordance with the provisions hereof, shall automatically terminate upon the earlier of (a) the date of expiration of the Product Option for all of the CliniChem Products or (b) thirty (30) days after expiration of the Purchase Option, except that BioChem, BV and TII's obligations to make Product Payments to CliniChem with respect to any Acquired Products shall continue after expiration of the Purchase Option as provided in Section 3 hereof. 9.2 TERMINATION BY CLINICHEM. CliniChem may, in its discretion, terminate this Agreement (but not BioChem, BV or TII's rights with respect to any Acquired Product) in the event that BioChem, BV or TII enters into any proceeding, whether voluntary or involuntary, in bankruptcy, reorganization or similar arrangement for the benefit of its creditors, provided however, -9- 10 that CliniChem shall only be permitted to terminate this agreement as to the party (BioChem, BV or TII) which has entered into such proceeding. 9.3 TERMINATION BY BIOCHEM. BioChem, BV and TII may terminate their rights and obligations with respect to any Acquired Product with respect to one or more countries included in the Territory upon thirty (30) days' prior written notice to CliniChem if BioChem, BV or TII elects for any reason to discontinue commercialization of the Acquired Product in such country. In such event, CliniChem's license pursuant to the Technology License Agreement with respect to such country or countries of the Territory shall be reinstated. 10. FORCE MAJEURE. 10.1 FORCE MAJEURE. No party to this Agreement shall be liable for failure or delay in the performance of any of its obligations hereunder if such failure or delay is due to causes beyond its reasonable control, including, without limitation, acts of God, earthquakes, fires, strikes, acts of war, or intervention of any governmental authority, but any such delay or failure shall be remedied by such party as soon as possible after the removal of the cause of such failure or delay. 11. INDEMNIFICATION. 11.1 INDEMNIFICATION BY BIOCHEM. BioChem shall indemnify, defend and hold CliniChem and its Affiliates and each of their officers, directors, employees and agents, harmless from and against any and all losses, liabilities, claims, demands, damages, costs, expenses (including reasonable attorneys' fees) or money judgments incurred by or rendered against CliniChem or its Affiliates, which arise out of the use, design, labeling, manufacture, processing, packaging, sale or commercialization of any Acquired Product by BioChem or its Affiliates, subcontractors, licensees, distributors and marketing partners (and their Affiliates). CliniChem shall permit BioChem's attorneys, at BioChem's discretion and cost, to control the defense of any claims or suits as to which CliniChem may be entitled to indemnification hereunder, and CliniChem agrees not to settle any such claims or suits without the prior written consent of BioChem, which consent shall not be unreasonably withheld. CliniChem shall have the right to participate, at its own expense and through its own counsel (provided such counsel is reasonably acceptable to BioChem), in the defense of any such claim or demand to the extent it so desires. 11.2 NOTICE. CliniChem shall give BioChem prompt notice in writing, in the manner set forth in Section 13.7 below, of any claim or demand made against CliniChem for which CliniChem may be entitled to indemnification under Section 11.1. 12. DISCLAIMER. 12.1 DISCLAIMER CONCERNING ACQUIRED PRODUCTS. CLINICHEM DISCLAIMS ANY EXPRESS OR IMPLIED WARRANTY (A) THAT ANY ACQUIRED PRODUCT OR ANY TECHNOLOGY INCORPORATED THEREIN, OR THE MANUFACTURE, USE OR SALE THEREOF, WILL BE FREE FROM CLAIMS OF PATENT INFRINGEMENT, INTERFERENCE OR UNLAWFUL USE OF PROPRIETARY INFORMATION OF ANY THIRD PARTY AND (B) -10- 11 OF THE ACCURACY, RELIABILITY, TECHNOLOGICAL OR COMMERCIAL VALUE, COMPREHENSIVENESS OR MERCHANTABILITY OF THE ACQUIRED PRODUCT OR ANY TECHNOLOGY INCORPORATED THEREIN OR THEIR SUITABILITY OR FITNESS FOR ANY PURPOSE WHATSOEVER INCLUDING, WITHOUT LIMITATION, THE RESEARCH, DESIGN, DEVELOPMENT, MANUFACTURE, USE OR SALE OF THE ACQUIRED PRODUCT. CLINICHEM DISCLAIMS ALL OTHER WARRANTIES OF WHATEVER NATURE, EXPRESS OR IMPLIED. 13. MISCELLANEOUS. 13.1 AMENDMENT AND WAIVER. This Agreement may be amended and any provision of this Agreement may be waived; provided that any such amendment or waiver shall be binding upon a party only if set forth in a writing executed by authorized representatives of such party and referring specifically to the provision alleged to have been amended or waived. A waiver by any party hereto of any terms and conditions of this Agreement in any one instance shall not be deemed or construed to be a waiver of such terms and conditions for any similar instance in the future. No course of dealing between or among any persons having any interest in this Agreement shall be deemed effective to modify, amend or discharge any part of this Agreement or any rights or obligations of any person under or by reason of this Agreement. 13.2 ASSIGNMENT. CliniChem may not assign its rights and obligations hereunder without the prior written consent of BioChem, which consent may not be unreasonably withheld. BioChem, BV and TII's rights and obligations under this Agreement shall be freely assignable, in whole or in part. 13.3 DISPUTE RESOLUTION. Any controversy, claim or dispute arising out of or relating to this Agreement, including the interpretation, breach, termination or invalidity thereof (a "Dispute") shall be definitively settled by arbitration, in accordance with the provisions on arbitration found in the Code of Civil Procedure of Quebec (the "CCP"). Prior to resorting to arbitration, the parties shall refer the Dispute to the Chairman of the Board of BioChem (as representative of BioChem and any Affiliate of BioChem) and a director of CliniChem who has not been appointed by BioChem for attempted resolution of such Dispute. The party wishing to initiate negotiations shall send to the other party a notice of negotiation, briefly identifying the object of the Dispute. If the parties fail to resolve a Dispute within thirty (30) days of receipt by the second party of such notice of negotiation, each party shall then have the right to refer such Dispute to arbitration, unless the parties agree in writing to extend such thirty (30) day negotiation period. The seat of arbitration shall be in Montreal and the proceedings shall be in English. There shall be three (3) arbitrators. Each party shall appoint one (1) arbitrator, and the two (2) arbitrators thus appointed shall designate the third arbitrator within fifteen (15) days of the appointment of the second arbitrator. The third arbitrator shall serve as President of the arbitral tribunal. Should a party fail to designate an arbitrator within the delay specified in the applicable provisions of the CCP, such arbitrator shall be appointed by the highest ranking officer of the -11- 12 Quebec National and International Commercial Arbitration Centre ("Centre"). The two (2) arbitrators thus appointed shall designate the third arbitrator within fifteen (15) days of the appointment of the second arbitrator, failing which the third arbitrator shall be designated by the Centre. The arbitral tribunal shall render any final award or decision within thirty (30) days following the completion of evidence and argument on substantive issues in dispute between the parties. The parties recognize and agree that any award rendered by the arbitral tribunal shall be final and binding on the parties who hereby expressly waive, to the fullest extent permitted by law, all rights of appeal or recourse to any court. The apportionment of costs of any arbitration pursuant to this agreement shall be left to the discretion of the arbitral tribunal. Nothing in this article has the effect, or should be interpreted as having the effect of limiting the right of one of the parties to obtain, from a common law court, a seizure before judgment, an injunction or any other extraordinary recourse as defined by the CCP. 13.4 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute this Agreement. 13.5 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the Province of Quebec and the federal laws of Canada applicable therein, and shall be treated in all respects as a Quebec contract. 13.6 HEADINGS. The section headings contained in this Agreement are included for convenience only and form no part of the Agreement between the parties. 13.7 NOTICES. Notices required under this Agreement shall be in writing and sent by registered or certified mail, postage prepaid, or by facsimile and confirmed by registered or certified mail and addressed as follows: IF TO BIOCHEM, BV OR TII: BioChem Pharma Inc. 275 Armand-Frappier Blvd. Laval, Quebec, Canada H7V 4A7 Facsimile: (514) 978-7994 Attention: Vice-President Legal Affairs and Corporate Secretary -12- 13 IF TO CLINICHEM: CliniChem Development Inc. 275 Armand-Frappier Blvd. Laval, Quebec, Canada H7V 4A7 Facsimile: (514) 978-7994 Attention: General Counsel and Secretary All notices shall be deemed to be effective upon receipt unless such notice is delivered or transmitted by facsimile, in which case, if it is delivered or transmitted before 4:00 PM on a business day, it shall be deemed to have been given and received on such day; in any other case, it will be deemed to have been given and received on the first business day following the day on which it is delivered or transmitted by facsimile. Any party may change the address at which notice is to be received by written notice pursuant to this Section 13.7. 13.8 SEVERABILITY. If any provision of this Agreement is held by a court of competent jurisdiction to be invalid or unenforceable, it shall be modified, if possible, to the minimum extent necessary to make it valid and enforceable or, if such modification is not possible, it shall be stricken and the remaining provisions shall remain in full force and effect. 13.9 RELATIONSHIP OF THE PARTIES. For purposes of this Agreement, CliniChem (as one party) and BioChem, BV and TII (as the other party) shall be deemed to be independent contractors, and anything in this Agreement to the contrary notwithstanding, nothing herein shall be deemed to constitute CliniChem and BioChem, BV or TII as partners, joint venturers, co-owners, an association or any entity separate and apart from each party itself, nor shall this Agreement constitute any party hereto an employee or agent, legal or otherwise, of the other party for any purposes whatsoever. Neither party hereto is authorized to make any statements or representations on behalf of the other party or in any way obligate the other party, except as expressly authorized in writing by the other party. Anything in this Agreement to the contrary notwithstanding, no party hereto shall assume nor shall be liable for any liabilities or obligations of the other party, whether past, present or future. 13.10 SURVIVAL. The provisions of Sections 2.3, 2.4, 2.5, 3.2, 3.3, 3.4, 4, 5, 9, 11, 12, 13.1, 13.3, 13.5, 13.7, 13.8, 13.9 and this Section 13.10 shall survive the termination for any reason of this Agreement. Any payments due under this Agreement with respect to any period prior to its termination shall be made notwithstanding the termination of this Agreement. No party shall be liable to any other party due to the termination of this Agreement as provided herein, whether in loss of good will, anticipated profits or otherwise. 13.11 ENTIRE AGREEMENT. This Agreement, the Technology License Agreement, the Services Agreement and the Research and Development Agreement contain the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings, whether written or oral, relating to such subject matter. * * * * * -13- 14 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above. BIOCHEM PHARMA INC. By: _______________________________ Title: _____________________________ By: _______________________________ Title: _____________________________ TANAUD INTERNATIONAL B.V. By: _______________________________ Title: _____________________________ By: _______________________________ Title: _____________________________ TANAUD IRELAND INC. By: _______________________________ Title: _____________________________ By: _______________________________ Title: _____________________________ CLINICHEM DEVELOPMENT INC. By: _______________________________ Title: _____________________________ By: _______________________________ Title: _____________________________ -14- 15 EXHIBIT A to the Product Option Agreement dated as of the ___ day of March, 1998 by and between BioChem Pharma Inc., Tanaud International B.V., Tanaud Ireland Inc. and CliniChem Development Inc. CLINICHEM PROGRAMS Program Field of Use - ----------------------------------------- ------------------------------ 1. Development of BCH-4556. Treatment of cancer. 2. Development of BCH-10652. Treatment of HIV infection. 3. Development of AvB3 antagonists to Treatment of cancer. prevent angiogenesis. 4. The development of a recombinant To protect against infections by protein vaccine to protect against NEISSERIA MENINGITIDIS. infections by NEISSERIA MENINGITIDIS. 5. The development of a recombinant To protect against infections by protein vaccine to protect against STREPTOCOCCUS PNEUMONIAE. infections by STREPTOCOCCUS PNEUMONIAE. 6. The development of a recombinant To protect against infections by protein vaccine to protect against NEISSERI GONORRHOEAE. infections by NEISSERIA GONORRHOEAE. 7. The development of a recombinant To protect against infections by protein vaccine to protect against HAEMOPHILUS INFLUENZAE non typeable. infections by HAEMOPHILUS INFLUENZAE non typeable. 8. The development of a recombinant To protect against infections by protein vaccine to protect against STREPTOCOCCUS Group B. infections by STREPTOCOCCUS Group B. 9. The development of a recombinant To protect against infections by protein vaccine to protect against CHLAMYDIA PNEUMONIAE. infections by CHLAMYDIA PNEUMONIAE. EX-10.4 8 FORM OF DISTRIBUTION AGREEMENT 1 Exhibit 10.4 DISTRIBUTION AGREEMENT This Distribution Agreement (the "Agreement") is made as of the __ day of _______, 1998 by and between BioChem Pharma Inc., a Canadian corporation ("BioChem"), and CliniChem Development Inc., a Canadian corporation ("CliniChem"). BACKGROUND A. BioChem is the holder of all of the issued and outstanding shares in the share capital of CliniChem. BioChem intends to make a Cdn$150 million capital contribution to CliniChem, to license certain technology to CliniChem, and to make other arrangements in order to establish CliniChem as a separate enterprise to conduct research and development of potential human therapeutic and vaccine products primarily for treatment of cancer and HIV infection and the prevention of certain infectious diseases. B. BioChem intends to distribute all of the CliniChem Common Shares (as defined below) to the holders of BioChem Common Shares (as defined below). Now, therefore, the parties agree as follows: 1. DEFINITIONS. For purposes of this Agreement, the following terms shall have the meanings set forth below: 1.1 "Action" shall mean any action, suit, arbitration, inquiry, proceeding or investigation by or before any court, any governmental or other regulatory or administrative agency or commission or any arbitration tribunal. 1.2 "Affiliate" shall mean a corporation or any other entity that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the designated party. "Control" shall mean ownership of shares to which are attached more than fifty percent (50%) of the votes that may be cast for the election of directors in the case of a corporation, and at least fifty percent (50%) of the interests in profits in the case of a business entity other than a corporation. BioChem and CliniChem shall not be considered Affiliates of each other. The BioChem Affiliates and CliniChem shall not be considered Affiliates of each other. 1.3 "Agent" shall mean General Trust of Canada, as distribution agent, appointed by BioChem to distribute share certificates representing the CliniChem Common Shares pursuant to the Distribution. 2 1.4 "BioChem/CliniChem Agreements" shall mean this Agreement, the Research and Development Agreement, the Technology License Agreement, the Product Option Agreement, the Services Agreement and the Purchase Option, collectively. 1.5 "BioChem Common Shares" shall mean the Common Shares in the share capital of BioChem. 1.6 "Canadian Jurisdictions" shall mean, collectively, all of the provinces of Canada. 1.7 "Canadian Preliminary Prospectus" shall mean the preliminary long-form prospectus of CliniChem dated February 9, 1998 in its English and French versions used in Canada and relating to the CliniChem Common Shares. 1.8 "Canadian Prospectus" shall mean the final long-form prospectus of CliniChem dated __________________, 1998 in its English and French versions used in Canada and relating to the CliniChem Common Shares. 1.9 "Canadian Securities Laws" shall mean the applicable securities legislation of the Canadian Jurisdictions and the regulations, policy statements and rules made thereunder. 1.10 "Canadian Securities Regulators" shall mean the securities commission or other securities regulatory authority in each of the Canadian Jurisdictions. 1.11 "Class B Shares" shall mean the Class B Common Shares in the share capital of CliniChem. 1.12 "CliniChem Common Shares" shall mean the Class A Common Shares in the share capital of CliniChem. 1.13 "Distribution" shall mean the distribution of CliniChem Common Shares to Holders immediately following completion of the transactions contemplated in Sections 2 and 3 hereof. 1.14 "Distribution Date" shall mean the proposed date of effecting the Distribution, which is anticipated to occur on or about _______, 1998. 1.15 "Effective Time" shall mean the time and date as of which the Registration Statement becomes effective. 1.16 "Exchange Act" shall mean the United States Securities Exchange Act of 1934, as amended. -2- 3 1.17 "Exchanges" shall mean, collectively, the Montreal Exchange and The Toronto Stock Exchange. 1.18 "Form 8-A" shall mean the registration statement on Form 8-A to be filed by CliniChem with the U.S. Commission to effect the registration of the CliniChem Common Shares pursuant to the Exchange Act. 1.19 "Holders" shall mean the holders of record of BioChem Common Shares on the Record Date. 1.20 "Jurisdictions" shall mean, collectively, the Canadian Jurisdictions and the United States. 1.21 "Nasdaq" shall mean The Nasdaq Stock Market, Inc. 1.22 "Preliminary Prospectuses" shall mean, collectively, the Canadian Preliminary Prospectus and the U.S. Preliminary Prospectus. 1.23 "Product Option Agreement" shall mean the Product Option Agreement dated as of the date hereof between BioChem and/ or BioChem Affiliates and CliniChem. 1.24 "Prospectuses" shall mean, collectively, the Canadian Prospectus and the U.S. Prospectus. 1.25 "Purchase Option" shall mean that certain option contained in CliniChem's Articles of Incorporation pursuant to which BioChem, as the holder of the majority of the outstanding Class B Shares, has the right to acquire all, but not less than all, of the outstanding CliniChem Common Shares. 1.26 "Record Date" shall mean the close of business on _______, 1998 or such other date as is determined by the BioChem Board of Directors or any committee thereof. 1.27 "Registration Statement" shall mean the registration statement on Form F-1 (No. 333-45871) registering the issuance of CliniChem Common Shares pursuant to the Distribution. 1.28 "Research and Development Agreement" shall mean the Research and Development Agreement dated as of the date hereof between BioChem and CliniChem. 1.29 "Securities Act" shall mean the United States Securities Act of 1933, as amended. 1.30 "Securities Laws" shall mean, collectively, the Canadian Securities Laws and the U.S. Securities Laws. -3- 4 1.31 "Services Agreement" shall mean the Services Agreement dated as of the date hereof between BioChem and CliniChem. 1.32 "Technology License Agreement" shall mean the Technology License Agreement dated as of the date hereof between BioChem and/ or BioChem Affiliates and CliniChem. 1.33 "U.S. Commission" shall mean the United States Securities and Exchange Commission. 1.34 "U.S. Preliminary Prospectus" shall mean the preliminary prospectus included in the Registration Statement and used in the United States before the Effective Time. 1.35 "U.S. Prospectus" shall mean the prospectus relating to the CliniChem Common Shares in the Registration Statement at the Effective Time and used in the United States. 1.36 "U.S. Securities Laws" shall mean, collectively, the applicable blue sky laws or laws of states or other political subdivisions of the United States, the Exchange Act, the Securities Act and the rules of the U.S. Commission thereunder. 2. PRELIMINARY ACTION. 2.1 REGISTRATION STATEMENT AND PRELIMINARY PROSPECTUS. CliniChem has prepared and filed the Registration Statement with the U.S. Commission. CliniChem has prepared and filed the Canadian Preliminary Prospectus with the Canadian Securities Regulatorzs. Subject to the conditions set forth herein, BioChem and CliniChem shall use reasonable efforts to cause the Registration Statement to become effective under the Securities Act and to qualify the CliniChem Common Shares for distribution in each of the Canadian Jurisdictions. CliniChem has prepared, and BioChem shall cause to be distributed, the Prospectuses to the Holders. 2.2 FORM 8-A. CliniChem has prepared and filed with the U.S. Commission a Form 8-A which includes or incorporates by reference relevant portions of the Registration Statement. Subject to the conditions set forth herein, CliniChem shall use reasonable efforts to cause the Form 8-A to become effective under the Exchange Act. 2.3 OTHER SECURITIES ACTION. CliniChem shall take all such action as may be necessary or appropriate under the Canadian Securities Laws or the U.S. Securities Laws in connection with the Distribution to permit the CliniChem Common Shares to be distributed as described in the Prospectuses. 2.4 LISTING. CliniChem has prepared and filed an application to effect the listing of the CliniChem Common Shares on each of the Exchanges and on the Nasdaq. CliniChem shall use reasonable efforts to cause the CliniChem Common Shares to be so listed. -4- 5 2.5 NO REPRESENTATIONS OR WARRANTIES; CONSENTS. Each party hereto understands and agrees that no party hereto is, in this Agreement or in any other agreement or document contemplated by this Agreement or otherwise, representing or warranting in any way that the obtaining of any consents or approvals, the execution and delivery of any agreements or the making of any filings or applications contemplated by this Agreement will satisfy the provisions of any or all applicable laws. Notwithstanding the foregoing, the parties shall use reasonable efforts to obtain all consents and approvals, to enter into all agreements and to make all filings and applications which may be required for the consummation of the transactions contemplated by this Agreement, including, without limitation, all applicable regulatory filings or consents under Canadian federal or provincial laws or U.S. federal or state laws and all necessary consents, approvals, agreements, filings and applications. 3. CONTRIBUTION; REORGANIZATION OF CLINICHEM'S SHARE CAPITAL. 3.1 CONTRIBUTION. Prior to the Distribution, BioChem will contribute Cdn$150 million in cash to CliniChem as a capital contribution. 3.2 REORGANIZATION OF CLINICHEM'S SHARE CAPITAL. After the capital contribution described in Section 3.1 but prior to the Distribution Date, and immediately upon the filing of Articles of Amendment creating the CliniChem Common Shares and the Class B Shares, the 1,000 issued and outstanding Common Shares of CliniChem will be exchanged, and thereafter canceled, for (i) 1,000 Class B Shares, and (ii) that number of CliniChem Common Shares such that BioChem may distribute to Holders of BioChem Common Shares one CliniChem Common Share for every 40 BioChem Common Shares held on the Record Date. BioChem and CliniChem acknowledge that all of the CliniChem Common Shares held by BioChem on the Record Date will be distributed by BioChem to the Holders. 4. THE DISTRIBUTION. 4.1 THE DISTRIBUTION. CliniChem shall take all steps required by BioChem or the Agent to effect the Distribution. Prior to the Distribution, and subsequent to the receipt of the capital contribution described in Section 3 hereof, CliniChem shall cause to be issued to BioChem a certificate or certificates representing a sufficient number of CliniChem Common Shares so that BioChem may distribute one CliniChem Common Share for every 40 BioChem Common Shares held on the Record Date (including one CliniChem Common Share for each fractional CliniChem Common Share rounded up to a whole share). 4.2 EXPENSES OF DISTRIBUTION. All expenses related in any way to the Distribution, including without limitation all legal, financial advisory and accounting fees of BioChem and CliniChem, shall be borne by CliniChem, unless otherwise agreed to by BioChem. -5- 6 5. ADDITIONAL ASSURANCES; INDEMNIFICATION. 5.1 MUTUAL ASSURANCES. BioChem and CliniChem agree to cooperate with respect to the implementation of the BioChem/CliniChem Agreements and to execute such further documents and instruments as may be necessary to confirm the transactions contemplated thereby. 5.2 INDEMNIFICATION. If BioChem exercises the Purchase Option, from and after such exercise, BioChem shall indemnify, defend and hold harmless CliniChem's officers and directors to the same extent as provided in the by-laws of CliniChem. 5.3 NOTICE. Any person entitled to indemnification pursuant to Section 5.2 shall give BioChem prompt notice in writing, in the manner set forth in Section 7.7 below, of any claim or demand made against such person for which such person may be entitled to indemnification under Section 5.2. 6. CONDITIONS TO EFFECTIVENESS OF DISTRIBUTION. The Distribution shall be subject to the satisfaction or waiver by BioChem of the following conditions and the satisfaction or waiver by CliniChem of the conditions in Sections 6.8 and 6.9: 6.1 BOARD APPROVAL. The BioChem/CliniChem Agreements (including exhibits and schedules) shall have been approved by the Board of Directors of BioChem and CliniChem and shall have been executed and delivered by appropriate officers of BioChem and CliniChem, and the BioChem Board of Directors shall have declared a dividend of the CliniChem Common Shares as of the Record Date to the holders of record of the BioChem Common Shares. 6.2 SECURITIES LAW COMPLIANCE. The transactions contemplated hereby shall be in compliance with applicable Canadian Securities Laws and U.S. Securities Laws, the Registration Statement shall have been declared effective and no stop orders shall have been instituted with respect thereto under the U.S. Securities Laws and receipts shall have been obtained from the Canadian Securities Regulators in respect of the Canadian Prospectus and no cease trade orders shall have been instituted with respect thereto under Canadian Securities Laws. 6.3 ARTICLES OF INCORPORATION. The Articles of Amendment of CliniChem shall have been adopted by the Board of Directors of CliniChem, approved by BioChem as sole shareholder of CliniChem, and filed with Industry Canada. 6.4 FORM 8-A EFFECTIVE. The Form 8-A shall have become effective under the Exchange Act. 6.5 LISTING APPLICATIONS APPROVED. The CliniChem Common Shares shall have been listed on the Exchanges and approved for quotation on the Nasdaq not later than on -6- 7 the close of business on the last business day preceding the Distribution Date and shall be posted for trading or quoted, as the case may be, as at the opening of business on the Distribution Date. 6.6 FAIRNESS OPINION. BioChem shall have received an opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated, investment advisor to BioChem, in form and substance satisfactory to BioChem, to the effect that (i) from a financial point of view, the Distribution provides a reasonable structure to pursue the financial objectives described in the Prospectuses and (ii) from a financial point of view, the Distribution is fair to the shareholders of BioChem. 6.7 PERMITS AND LICENSES. CliniChem shall have received such permits and licenses as may be necessary for the purpose of commencing operations contemplated by the BioChem/CliniChem Agreements. 6.8 CONSENTS. Each of BioChem and CliniChem shall have received such consents, and shall have received executed copies of such agreements or amendments of agreements, as it shall deem necessary in connection with the completion of the transaction contemplated by this Agreement. 6.9 OTHER INSTRUMENTS. All actions and other documents and instruments deemed necessary or advisable in connection with the transactions contemplated hereby shall have been taken or executed, as the case may be, in form and substance satisfactory to BioChem and CliniChem. 6.10 LEGAL PROCEEDINGS. No legal proceedings affecting or arising out of the transactions contemplated hereby or which could otherwise affect BioChem or CliniChem in a materially adverse manner shall have been commenced or threatened against BioChem, CliniChem or the directors or officers of either BioChem or CliniChem. 6.11 MATERIAL CHANGES. No material adverse change shall have occurred with respect to BioChem or CliniChem, the securities markets (either generally or with respect to BioChem or CliniChem) or general economic or financial conditions which shall, in the reasonable judgment of BioChem, make the transactions contemplated by this Agreement inadvisable. 6.12 OTHER CONDITIONS. Such other conditions as may be set by the Board of Directors of BioChem or any committee thereof in the resolutions authorizing the Distribution shall have been satisfied. 7. MISCELLANEOUS. 7.1 WAIVER, REMEDIES AND AMENDMENT. Any waiver by either party hereto of a breach of any provisions of this Agreement shall not be implied and shall not be valid unless such waiver is recited in writing and signed by such party. Failure of any party to require, in one or more instances, performance by the other party in strict accordance with the terms and conditions of this Agreement shall not be deemed a waiver or relinquishment of the future -7- 8 performance of any such terms or conditions or of any other terms and conditions of this Agreement. A waiver by either party of any term or condition of this Agreement shall not be deemed or construed to be a waiver of such term or condition for any other term. All rights, remedies, undertakings, obligations and agreements contained in this Agreement shall be cumulative and none of them shall be a limitation of any other remedy, right, undertaking, obligation or agreement of either party. This Agreement may not be amended except in a writing signed by both parties. 7.2 ASSIGNMENT. Neither party may assign its rights and obligations hereunder without the prior written consent of the other party, which consent may not be unreasonably withheld; provided, however, that BioChem may assign such rights and obligations hereunder to an Affiliate of BioChem or to any person or entity with which BioChem is merged or consolidated or which acquires all or substantially all of the assets of BioChem. 7.3 DISPUTE RESOLUTION. Any controversy, claim or dispute arising out of or relating to this Agreement, including the interpretation, breach, termination or invalidity thereof (a "Dispute") shall be definitively settled by arbitration, in accordance with the provisions on arbitration found in the Code of Civil Procedure of Qu#bec (the "CCP"). Prior to resorting to arbitration, the parties shall refer the Dispute to the Chairman of the Board of BioChem and a director of CliniChem who has not been appointed by BioChem for attempted resolution of such Dispute. The party wishing to initiate negotiations shall send to the other party a notice of negotiation, briefly identifying the object of the dispute. If the parties fail to resolve a dispute within thirty (30) days of receipt by the second party of such notice of negotiation, each party shall then have the right to refer such dispute to arbitration, unless the parties agree in writing to extend such thirty (30) day negotiation period. The seat of arbitration shall be in Montreal and the proceedings shall be in English. There shall be three (3) arbitrators. Each party shall appoint one arbitrator, and the two (2) arbitrators thus appointed shall designate the third arbitrator within fifteen (15) days of the appointment of the second arbitrator. The third arbitrator shall serve as President of the arbitral tribunal. Should a party fail to designate an arbitrator within the delay specified in the applicable provisions of the CCP, such arbitrator shall be appointed by the highest ranking officer of the Quebec National and International Commercial Arbitration Centre ("Centre"). The two (2) arbitrators thus appointed shall designate the third arbitrator within fifteen (15) days of the appointment of the second arbitrator, failing which the third arbitrator shall be designated by the Centre. The arbitral tribunal shall render any final award or decision within thirty (30) days following the completion of evidence and argument on substantive issues in dispute between the parties. The parties recognize and agree that any award rendered by the arbitral tribunal shall be final and binding on the parties who hereby expressly waive, to the fullest extent permitted by law, all rights of appeal or recourse to any court. The apportionment of costs of any arbitration pursuant to this agreement shall be left to the discretion of the arbitral tribunal. Nothing in this article has the effect, or should be interpreted as having the effect of limiting the right of one of the parties to -8- 9 obtain, from a common law court, a seizure before judgment, an injunction or any other extraordinary recourse as defined by the CCP. 7.4 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute this Agreement. 7.5 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the Province of Qu#bec and the federal laws of Canada applicable therein, and shall be treated in all respects as a Qu#bec contract. 7.6 HEADINGS. The headings set forth at the beginning of the various sections of this Agreement are for convenience and form no part of the Agreement between the parties. 7.7 NOTICES. Notices required under this Agreement shall be in writing and sent by registered or certified mail, postage prepaid, or by facsimile and confirmed by registered or certified mail, postage prepaid, and addressed as follows: If to BioChem: BioChem Pharma Inc. 275 Armand-Frappier Blvd. Laval, Qu#bec, Canada H7V 4A7 Facsimile: (514) 978-7994 Attention: Vice President, Legal Affairs and Corporate Secretary If to CliniChem: CliniChem Development Inc. 275 Armand-Frappier Blvd. Laval, Qu#bec, Canada H7V 4A7 Facsimile: (514) 978-7994 Attention: General Counsel and Secretary All notices shall be deemed to be effective five days after the date of mailing or upon receipt if sent by facsimile (but only if followed by certified or registered confirmation). Either party may change the address at which notice is to be received by written notice pursuant to this Section 7.7. 7.8 SEVERABILITY. If any provision of this Agreement is held by a court of competent jurisdiction to be invalid or unenforceable, it shall be modified, if possible, to the minimum extent necessary to make it valid and enforceable or, if such modification is not possible, it shall be stricken and the remaining provisions shall remain in full force and effect. -9- 10 7.9 RELATIONSHIP OF THE PARTIES. For all purposes of this Agreement, CliniChem and BioChem shall be deemed to be independent contractors and anything in this Agreement to the contrary notwithstanding, nothing herein shall be deemed to constitute CliniChem and BioChem as partners, joint venturers, co-owners, an association or any entity separate and apart from each party itself, nor shall this Agreement constitute any party hereto an employee or agent, legal or otherwise, of the other party for any purposes whatsoever. Neither party hereto is authorized to make any statements or representations on behalf of the other party or in any way to obligate the other party, except as expressly authorized in writing by the other party. Anything in this Agreement to the contrary notwithstanding, no party hereto shall assume nor shall be liable for any liabilities or obligations of the other party, whether past, present or future. 7.10 SURVIVAL. The provisions of Sections 1, 5, 7.1, 7.3, 7.5, 7.6, 7.7, 7.8 and this Section 7.10 shall survive the termination for any reason of this Agreement. Any payments due under this Agreement with respect to any period prior to its termination shall be made notwithstanding the termination of this Agreement. Neither party shall be liable to the other due to the termination of this Agreement as provided herein, whether in loss of good will, anticipated profits or otherwise. * * * * * -10- 11 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. BIOCHEM PHARMA INC. By:________________________________________ Title:_____________________________________ By:________________________________________ Title:_____________________________________ CLINICHEM DEVELOPMENT INC. By:________________________________________ Title:_____________________________________ By:________________________________________ Title:_____________________________________ -11- EX-10.5 9 FORM OF SERVICES AGREEMENT 1 Exhibit 10.5 SERVICES AGREEMENT This Services Agreement (the "Agreement") is made as of the __ day of March, 1998 by and between BioChem Pharma Inc., a Canadian corporation ("BioChem"), and CliniChem Development Inc., a Canadian corporation ("CliniChem"). RECITALS A. CliniChem has been formed for the purpose of (i) conducting research and development of potential human therapeutic products primarily for the treatment of cancer and HIV infection and vaccine products for the prevention of certain infectious diseases, including products using BioChem Technology (as defined below), and (ii) commercializing such products, most likely through BioChem. B. BioChem is engaged in the research, development and marketing of therapeutic products and the research, development, manufacturing and marketing of vaccine and diagnostic products for a wide range of infectious and other diseases. C. CliniChem desires that BioChem provide certain services to CliniChem, and BioChem desires to provide such services, on the terms and conditions set forth herein. NOW, THEREFORE, the parties agree as follows: 1. DEFINITIONS. For the purposes of this Agreement, the following terms shall have the meanings set forth below: 1.1 "Affiliate" shall mean a corporation or any other entity that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the designated party. "Control" shall mean ownership of shares to which are attached more than fifty percent (50%) of the votes that may be cast for the election of directors in the case of a corporation, and at least fifty percent (50%) of the interests in profits in the case of a business entity other than a corporation. BioChem and CliniChem shall not be considered Affiliates of each other. 1.2 "BioChem Technology" shall mean those Proprietary Rights licensed and/or sublicensed by BioChem and/or a BioChem Affiliate to CliniChem pursuant to the Technology License Agreement. 1.3 "Confidential Information" shall mean all information received by one party with respect to the research, intellectual property or business of the other and it shall include, without limiting the generality of the foregoing, the BioChem Technology, all documents, data and other 2 technical information, such as know-how, formulae, processes, models, manufacturing techniques, research projects, information management systems and software as well as information relating to the management and financial affairs of such party, such as figures relating to profits, markets, sales, business, marketing and development plans, client lists, supplier lists and information of a similar nature. 1.4 "Distribution Agreement" shall mean the Distribution Agreement dated as of the date hereof by and between BioChem and CliniChem. 1.5 "Product Option Agreement" shall mean the Product Option Agreement dated as of the date hereof by and between BioChem, Tanaud International B.V., Tanaud Ireland Inc. and CliniChem, as amended from time to time. 1.6 "Purchase Option" shall mean the option contained in the Articles of Incorporation of CliniChem, as from time to time amended or restated pursuant to which BioChem (as the holder of the majority of the outstanding Class B Common Shares in the share capital of CliniChem) has the right to acquire all (but not less than all) of the outstanding callable Class A Common Shares in the share capital of CliniChem. 1.7 "Research and Development Agreement" shall mean the Research and Development Agreement dated as of the date hereof by and between BioChem and CliniChem, as amended from time to time. 1.8 "Technology License Agreement" shall mean the Technology License Agreement dated as of the date hereof by and between BioChem, certain BioChem Affiliates and CliniChem, as amended from time to time. 2. SERVICES. Upon request by CliniChem, BioChem shall provide CliniChem any of the following administrative services: accounting, shareholder relations, cash management and similar management and administrative services, as mutually agreed. Such services will be provided at reasonable times and upon reasonable notice, as mutually agreed. 3. COMPENSATION. In consideration of the services provided by BioChem pursuant to the terms of this agreement, CliniChem shall pay BioChem four hundred thousand dollars ($400,000) per year, payable in equal quarterly installments, retroactively to January 1, 1998. The first such payment, covering the first and second quarters of 1998, shall be due thirty (30) days following execution of this Agreement and payments thereafter shall be due on the first day of each calendar quarter. -2- 3 4. CONFIDENTIALITY. 4.1 CONFIDENTIALITY. During the term of this Agreement and for a period of ten (10) years following its termination, each party shall maintain in confidence all Confidential Information of the other; provided, however, that nothing contained herein shall prevent either party from disclosing any Confidential Information to the extent that such Confidential Information (a) is required to be disclosed in connection with conducting the CliniChem Programs, securing necessary governmental authorization for the marketing of CliniChem Products, or directly or indirectly making, using or selling CliniChem Products, as permitted or provided for in the agreements between the parties, (b) is required to be disclosed by law for the purpose of complying with governmental regulations, (c) is disclosed to sublicensees, distributors or marketing partners or potential sublicensees, distributors or marketing partners permitted under the agreements between the parties in connection with the proposed or actual research, development, manufacturing or marketing of CliniChem Products, subject to similar obligations of confidentiality on the part of such third parties as required by the agreements between the parties, (d) is lawfully disclosed to the recipient by a third party having the right to disclose such information to the recipient, or (e) either before or after the time of disclosure to the recipient, becomes known to the public other than by an unauthorized act or omission of the recipient or any of the recipient's employees or agents; provided that, any permitted disclosure of BioChem Confidential Information to third parties shall be made subject to similar obligations of confidentiality on the part of such third parties. The obligations of each of the parties pursuant to this Section 4.1 shall survive the termination of this Agreement for any reason. Any breach of this Section 4.1 may result in irreparable harm, and in the event of a breach, the aggrieved party shall be entitled to seek injunctive relief (without the need to post a bond) in addition to any other remedies available at law or in equity. 5. TERM AND TERMINATION. 5.1 The term of this Agreement shall commence on the date hereof and shall continue thereafter until the later of (i) the exercise of the Purchase Option or (ii) six (6) months following expiration of the Purchase Option 5.2 CliniChem may, in its discretion, terminate this Agreement at any time upon sixty (60) days written notice to BioChem. 5.3 Either party may, in its discretion, terminate this Agreement by written notice to the other party in the event that the other party (a) breaches any material obligations hereunder or under the Technology License Agreement, the Research and Development Agreement or the Product Option Agreement which breach continues for a period of sixty (60) days after written notice thereof or (b) enters into any proceeding, whether voluntary or involuntary, in bankruptcy, reorganization or arrangement for the appointment of a receiver or trustee to take possession of such party's assets or any other proceeding under any law for the relief of creditors, or makes an assignment for the benefit of its creditors. -3- 4 6. INDEMNIFICATION BY CLINICHEM. 6.1 CliniChem shall indemnify, defend and hold BioChem and its Affiliates, and each of their officers, directors, employees and agents, harmless from and against any and all losses, liabilities, claims, demands, damages, costs, expenses (including reasonable attorneys' fees) and money judgments incurred by or rendered against BioChem or its Affiliates, or any of their officers, directors, employees and agents as a result of services rendered by BioChem under this Agreement. BioChem shall permit CliniChem's attorneys, at CliniChem's discretion and cost, to control the defense of any claims or suits as to which BioChem may be entitled to indemnity hereunder, and BioChem agrees not to settle any such claims or suits without the prior written consent of CliniChem, which consent shall not be unreasonably withheld. BioChem shall have the right to participate, at its own expense and through its own counsel (provided such counsel is reasonably acceptable to CliniChem), in the defense of any such claim or demand to the extent it so desires. 6.2 NOTICE. BioChem shall give CliniChem prompt notice, in writing, in the manner set forth in Section 8.7 below, of any claim or demand made against BioChem or any of its Affiliates, or any of their officers, directors, employees and agents for which BioChem or any of its Affiliates, or any of their officers, directors, employees and agents may be entitled to indemnification under this Section 6. 7. FORCE MAJEURE. BioChem shall not be liable for failure or delay in performance of any of its obligations hereunder if such failure or delay is due to causes beyond its reasonable control including, without limitation, acts of God, fires, earthquakes, strikes, acts of war, or intervention of any governmental authority, but any such delay or failure shall be remedied by BioChem as soon as possible after the removal of the cause of such failure or delay. 8. MISCELLANEOUS. 8.1 AMENDMENT AND WAIVER This Agreement may be amended and any provision of this Agreement may be waived; provided that any such amendment or waiver shall be binding upon a party only if set forth in a writing executed by authorized representatives of such party and referring specifically to the provision alleged to have been amended or waived. A waiver by a party hereto of any terms and conditions of this Agreement in any one instance shall not be deemed or construed to be a waiver of such terms and conditions for any similar instance in the future. No course of dealing between or among any persons having any interest in this Agreement shall be deemed effective to modify, amend or discharge any part of this Agreement or any rights or obligations of any person under or by reason of this Agreement. All rights, remedies, undertakings, obligations and agreements contained in this Agreement shall be cumulative and none of them shall be a limitation of any other remedy, right, undertaking, obligation or agreement of either party. 8.2 ASSIGNMENT. Neither party may assign its rights and obligations hereunder without the prior written consent of the other party, which consent may not be unreasonably withheld; provided, however, that BioChem may assign such rights and obligations hereunder to an Affiliate -4- 5 of BioChem or any person or entity with which BioChem is merged or consolidated or which acquires all or substantially all of the assets or shares in the share capital of BioChem. 8.3 DISPUTE RESOLUTION. Any controversy, claim or dispute arising out of or relating to this Agreement, including the interpretation, breach, termination or invalidity thereof (a "Dispute") shall be definitively settled by arbitration, in accordance with the provisions on arbitration found in the Code of Civil Procedure of Quebec (the "CCP"). Prior to resorting to arbitration, the parties shall refer the Dispute to the Chairman of the Board of BioChem and a director of CliniChem who has not been appointed by BioChem for attempted resolution of such Dispute. The party wishing to initiate negotiations shall send to the other party a notice of negotiation, briefly identifying the object of the Dispute. If the parties fail to resolve a Dispute within thirty (30) days of receipt by the second party of such notice of negotiation, each party shall then have the right to refer such Dispute to arbitration, unless the parties agree in writing to extend such thirty (30) day negotiation period. The seat of arbitration shall be in Montreal and the proceedings shall be in English. There shall be three (3) arbitrators. Each party shall appoint one (1) arbitrator, and the two (2) arbitrators thus appointed shall designate the third arbitrator within fifteen (15) days of the appointment of the second arbitrator. The third arbitrator shall serve as President of the arbitral tribunal. Should a party fail to designate an arbitrator within the delay specified in the applicable provisions of the CCP, such arbitrator shall be appointed by the highest ranking officer of the Quebec National and International Commercial Arbitration Centre ("Centre"). The two (2) arbitrators thus appointed shall designate the third arbitrator within fifteen (15) days of the appointment of the second arbitrator, failing which the third arbitrator shall be designated by the Centre. The arbitral tribunal shall render any final award or decision within thirty (30) days following the completion of evidence and argument on substantive issues in dispute between the parties. The parties recognize and agree that any award rendered by the arbitral tribunal shall be final and binding on the parties who hereby expressly waive, to the fullest extent permitted by law, all rights of appeal or recourse to any court. The apportionment of costs of any arbitration pursuant to this agreement shall be left to the discretion of the arbitral tribunal. Nothing in this article has the effect, or should be interpreted as having the effect of limiting the right of one of the parties to obtain, from a common law court, a seizure before judgment, an injunction or any other extraordinary recourse as defined by the CCP. 8.4 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute this Agreement. 8.5 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the Province of Quebec and the federal laws of Canada applicable therein, and shall be treated in all respects as a Quebec contract. -5- 6 8.6 HEADINGS. The section headings contained in this Agreement are included for convenience only and form no part of the Agreement between the parties. 8.7 NOTICES. Notices required under this Agreement shall be in writing and sent by registered or certified mail, postage prepaid, or by facsimile and confirmed by registered or certified mail and addressed as follows: IF TO BIOCHEM: BioChem Pharma Inc. 275 Armand-Frappier Blvd. Laval, Quebec, Canada H7V 4A7 Facsimile: (514) 978-7994 Attention: Vice-President Legal Affairs and Corporate Secretary IF TO CLINICHEM: CliniChem Development Inc. 275 Armand-Frappier Blvd. Laval, Quebec, Canada H7V 4A7 Facsimile: (514) 978-7994 Attention: General Counsel and Secretary All notices shall be deemed to be effective upon receipt unless such notice is delivered or transmitted by facsimile, in which case, if it is delivered or transmitted before 4:00 PM on a business day, it shall be deemed to have been given and received on such day; in any other case, it will be deemed to have been given and received on the first business day following the day on which it is delivered or transmitted by facsimile. Either party may change the address at which notice is to be received by written notice pursuant to this Section 8.7. 8.8 SEVERABILITY. If any provision of this Agreement is held by a court of competent jurisdiction to be invalid or unenforceable, it shall be modified, if possible, to the minimum extent necessary to make it valid and enforceable or, if such modification is not possible, it shall be stricken and the remaining provisions shall remain in full force and effect. 8.9 RELATIONSHIP OF THE PARTIES. For purposes of this Agreement, CliniChem and BioChem shall be deemed to be independent contractors, and anything in this Agreement to the contrary notwithstanding, nothing herein shall be deemed to constitute CliniChem and BioChem as partners, joint venturers, co-owners, an association or any entity separate and apart from each party itself, nor shall this Agreement constitute any party hereto an employee or agent, legal or otherwise, of the other party for any purposes whatsoever. Neither party hereto is authorized to make any statements or representations on behalf of the other party or in any way obligate the other party, except as expressly authorized in writing by the other party. Anything in this Agreement to the contrary notwithstanding, no party hereto shall assume nor shall be liable for any liabilities or obligations of the other party, whether past, present or future. -6- 7 8.10 SURVIVAL. The provisions of Sections 4, 6, 8.1, 8.3, 8.5, 8.7, 8.9, and this Section 8.10 shall survive the termination for any reason of this Agreement. Any payments due under this Agreement with respect to any period prior to its termination shall be made notwithstanding the termination of this Agreement. Neither party shall be liable to the other due to the termination of this Agreement as provided herein, whether in loss of good will, anticipated profits or otherwise. 8.11 ENTIRE AGREEMENT. This Agreement, the Technology License Agreement, the Product Option Agreement and the Research and Development Agreement contain the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings whether written or oral, relating to such subject matter. * * * * * -7- 8 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above. BIOCHEM PHARMA INC. By: _______________________________ Title: ____________________________ By: _______________________________ Title: ____________________________ CLINICHEM DEVELOPMENT INC. By: _______________________________ Title: ____________________________ By: _______________________________ Title: ____________________________ -8- EX-23.1 10 CONSENT OF ERNST & YOUNG, RE: CLINICHEM 1 EXHIBIT 23.1 CONSENT OF ERNST & YOUNG INDEPENDENT CHARTERED ACCOUNTANTS We consent to the reference to our firm under the caption "Experts" and to the use of our reports dated February 6, 1998, in the Registration Statement (Form F-1) and related Prospectus of CliniChem Development Inc. for the registration of Class A Common Shares. /s/ ERNST & YOUNG Ernst & Young Montreal, Canada March 23, 1998 EX-27.1 11 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the financial statements dated February 6, 1998 included in the Form F-1 Registration Statement and is qualified in its entirety by reference to such financial statements. CANADIAN DOLLARS OTHER DEC-31-1998 FEB-06-1998 FEB-06-1998 0.70 1,000 0 0 0 0 0 0 0 1,000 0 0 0 0 1,000 0 1,000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
EX-99.1 12 FORM OF OPINION OF MERRILL LYNCH, PIERCE, ET AL. 1 Exhibit 99.1 [Letterhead of Merrill Lynch & Co] Investment Banking Group World Financial Center North Tower New York, New York 10281-1328 212 449 8296 FAX 212 449 3145 FAX 212 449 3150 [Logo] , 1998 Board of Directors BioChem Pharma Inc. 275 Armand-Frappier Blvd. Laval, Quebec Canada H7V 4A7 Ladies and Gentlemen: You have advised us that BioChem Pharma Inc. ("BioChem") intends to distribute (the "Distribution") to its shareholders Class A Common Shares (the "CliniChem Shares") of CliniChem Development Inc. ("CliniChem"). The Distribution is described in detail in the prospectus (the "Prospectus"), filed as part of a registration statement file no. 333-45871, which is to be sent to BioChem shareholders in connection with the Distribution. You have asked us for our opinion as to whether or not (a) from a financial point of view, the Distribution provides a reasonable structure to pursue the financial objectives of BioChem as set forth in the Prospectus, and (b) from a financial point of view, the Distribution is fair to the shareholders of BioChem. In arriving at the opinion set forth below, we have, among other things: 1. reviewed the Prospectus including the following items as presented therein: (i) the terms and conditions of the Distribution, (ii) the Distribution Agreement, (iii) the Technology License Agreement, (iv) the Research and Development Agreement, (v) the Product Option Agreement and (vi) the Articles of Incorporation of CliniChem including the Purchase Option; 2. conducted discussions with members of the senior management of BioChem with respect to the businesses and prospects of BioChem and CliniChem and the strategic objectives of each; 3. conducted discussions concerning the Distribution with other representatives and advisors of BioChem, including its independent chartered accountants; 4. reviewed the financial and other information concerning BioChem (with and without CliniChem) that was publicly available or furnished to us by BioChem, including information provided during discussions with the senior management of BioChem; 5. reviewed historical trading prices and volume of the Common Shares of BioChem ("BioChem 2 Common Shares"); and 6. reviewed such other financial studies and analyses and took into account such other matters as we deemed necessary, including our assessment of general economic, market and monetary conditions. In preparing our opinion, we have assumed and relied on the accuracy and completeness of all information supplied or otherwise made available to us, discussed with or reviewed by or for us, or publicly available (including the information contained in the Prospectus), and we have not assumed any responsibility for independently verifying such information or undertaken an independent evaluation or appraisal of any of the assets or liabilities of BioChem (with or without CliniChem) or been furnished with any such evaluation or appraisal. In addition, we have not assumed any obligation to conduct, nor have we conducted, any physical inspection of the properties or facilities of BioChem. With respect to the financial forecast information furnished to or discussed with us by BioChem, we have assumed it has been reasonably prepared and reflects the best currently available estimates and judgment of BioChem's management as to the expected future financial performance of BioChem and CliniChem. We have also assumed that: (i) the Distribution will occur as described in the Prospectus, and (ii) after the Distribution, CliniChem will be accounted for as an entity independent of BioChem. Our opinion is necessarily based upon market, economic and other conditions as they exist and can be evaluated on, and on the information made available to us as of, the date hereof. We note that trading in the BioChem Common Shares and the CliniChem Shares for a period following completion of the Distribution may be characterized by a redistribution of the shares of the BioChem Common Shares and the CliniChem Shares among existing BioChem shareholders and other investors and, accordingly, during such period, the BioChem Common Shares and the CliniChem Shares may trade at prices below those at which they would trade on a fully distributed basis. We are not expressing any opinion herein as to the price at which the BioChem Common Shares will actually trade after the announcement date of the Distribution or the price at which the CliniChem Shares will actually trade after the Distribution. In addition, this opinion does not address the valuation or future performance of CliniChem as an independent public company following the Distribution. We express no opinion as to whether the funds contributed by BioChem to CliniChem will be adequate to accomplish the objective of successfully developing the intended pharmaceutical products. We are acting as financial advisor to BioChem in connection with the Distribution and will receive a fee for our services, which fee is contingent upon the consummation of the Distribution. In addition, BioChem has agreed to indemnify us for certain liabilities arising out of our engagement. We may continue to provide financial advisory or financing services to BioChem and may receive fees for the rendering of such services. In addition, in the ordinary course of our business, we may actively trade BioChem Common Shares, and we may, in the future, trade CliniChem Shares for our own account and for the accounts of customers and, accordingly, may at any time hold a long or short position in such securities. This opinion is for the use and benefit of the Board of Directors of BioChem. On the basis of and subject to the foregoing, as of the date hereof, it is our opinion that (a) from a financial point of view, the Distribution provides a reasonable structure to pursue the financial objectives of BioChem as set forth in the Prospectus, and (b) from a financial point of view, the Distribution is fair to the shareholders of BioChem. Our conclusions are based on information available to us as of the date of this letter. Very truly yours, -----END PRIVACY-ENHANCED MESSAGE-----