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Biochem & Clinichem. - MRRS Decision
Headnote
Mutual Reliance Review System for Exemptive Relief Applications - application for exemption from the takeover bidprovisions where the securities are purchased by a person other than the issuer of the securities in accordance withconditions in writing at the time of the issue - articles of incorporation of offeree provided holder of all of its Class Bshares with the right to acquire all issued and outstanding shares of the offeree and also set out mechanism fordetermining price at which such holder could exercise the purchase option - applicant was holder of all offeree's ClassB shares - purchase option was described in the prospectus accompanying the distribution of the offeree shares at thetime of issue and in offeree's continuous disclosure documents - notice to be sent to offeree shareholders by applicanton exercise of purchase option to set out all relevant information.
Applicable Ontario Statute
Securities Act, R.S.O. 1990 c. S.5, as am., s. 104(2)(c).
IN THE MATTER OF THE
SECURITIES LEGISLATION
OF BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN, MANITOBA,
ONTARIO, QUEBEC, NOVA SCOTIA, NEWFOUNDLAND,
PRINCE EDWARD ISLAND AND NEW BRUNSWICK
AND
IN THE MATTER OF THE
MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
BIOCHEM PHARMA INC.
AND
CLINICHEM DEVELOPMENT INC.
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatory authority or regulator (the "Decision Makers") in each of BritishColumbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, Nova Scotia, Newfoundland, Prince Edward Island andNew Brunswick (the "Jurisdictions") have received an application from BioChem Pharma Inc. ("BioChem") andCliniChem Development Inc. ("CliniChem") (BioChem and CliniChem hereinafter collectively referred to as the "Filers")for a decision pursuant to the securities legislation of the Jurisdictions (the "Legislation") that :
1. exempts BioChem and CliniChem from the provisions in the Legislation regulating the take-over bid provisionsin connection with the exercise by BioChem, as the holder of all the issued and outstanding Class B CommonShares in the share capital of CliniChem (the "Class B Shares"), of the right (the "Purchase Option") toacquire all but not less than all of the issued and outstanding Class A Common Shares in the share capital ofCliniChem (the "CliniChem Common Shares"); and
2. exempts BioChem and CliniChem from the general application of Policy Statement Q-27 Requirements forMinority Security Holders Protection in Certain Transactions of the Commission des valeurs mobilières duQuébec.
AND WHEREAS pursuant to the Mutual Reliance Review System for Exemptive Relief Applications (the"System"), the Commission des valeurs mobilières du Québec is the principal regulator for this application;
AND WHEREAS BioChem has represented to the Decision Makers that:
CliniChem
1. 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.
2. The articles of CliniChem were amended on May 11, 1998 to provide for the creation of the CliniChem CommonShares and of the Class B Shares (the "Articles of Incorporation").
3. CliniChem's registered office is in the province of Québec.
4. CliniChem is a reporting issuer, or the equivalent, in each province of Canada and is not in default of anyrequirements of the Legislation.
5. BioChem and CliniChem entered into a distribution agreement (the "Distribution Agreement") providing forthe terms and conditions of the distribution by BioChem of all the outstanding CliniChem Common Shares tothe holders of common shares of BioChem (the "BioChem Common Shares").
6. Pursuant to the Distribution Agreement, BioChem contributed, on June 8, 1998, $150 million in cash toCliniChem as a capital contribution.
7. Subsequently to this capital contribution, the then issued and outstanding 1,000 common shares in the sharecapital of CliniChem held by BioChem were exchanged for 2,713,260 CliniChem Common Shares and for 1,000Class B Shares.
8. On June 22, 1998 (the "Distribution Date"), BioChem distributed the CliniChem Common Shares to the thenholders of BioChem Common Shares (the "Distribution") by way of a dividend-in-kind, the whole pursuant toa prospectus dated June 10, 1998 and receipted by each Jurisdiction.
9. CliniChem's authorized capital consists of an unlimited number of CliniChem Common Shares and 1,000 ClassB Shares. As of September 11, 2000, there were 2,713,260 CliniChem Common Shares issued andoutstanding and 1,000 Class B Shares issued and outstanding.
10. As at September 11, 2000, BioChem held all the issued and outstanding Class B Shares and 559,674CliniChem Common Shares representing approximately 21% of the outstanding CliniChem Common Shares.
11. The CliniChem Common Shares have been authorized for quotation in the United States on the NasdaqNational Market and are traded in Canada on The Toronto Stock Exchange.
BioChem
12. BioChem was constituted by Certificate of Amalgamation issued pursuant to the provisions of the CBCA. Theentity resulting from this amalgamation effectively continued the operations of its predecessor which had beenincorporated under Part I of the Companies Act of the Province of Québec and continued under Part IA of theCompanies Act (Québec) by Certificate of Continuance dated January 27, 1982.
13. BioChem is a biopharmaceutical company.
14. BioChem is a Corporation governed by the CBCA and its registered office is in the Province of Québec. It isa reporting issuer, or the equivalent, in each province of Canada, and is not in default of any requirements ofLegislation.
15. BioChem's authorized capital consists of an unlimited number of common shares. As of September 11, 2000,there were 101,285,010 common shares of BioChem issued and outstanding.
16. The BioChem Common Shares have been authorized for quotation in the United States in the Nasdaq NationalMarket and are traded in Canada on The Toronto Stock Exchange.
Relationship Between CliniChem and BioChem
In connection with the Distribution Agreement, BioChem and CliniChem entered into a number of agreements, includinga research and development agreement (the "Research and Development Agreement"), a technology licenseagreement (the "Technology License Agreement"), a product option agreement (the "Product Option Agreement")and a services agreement (the "Services Agreement").
Purchase Option
17. The Purchase Option is provided in the Articles of Incorporation of CliniChem. In accordance with the PurchaseOption, 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 issued and outstanding CliniChem Common Shares.
18. The Purchase Option is exercisable by written notice given at any time from and after the Distribution Date andending on the earlier of (i) March 31, 2003 or (ii) the 90th day after the date CliniChem provides BioChem (asthe holder of the majority of the outstanding Class B Shares) with quarterly financial statements of CliniChemshowing cash or cash equivalents of less than $5.0 million, although BioChem may, at its election, extend suchperiod by providing additional funding, including through loans, for the continued conduct of any or all of theCliniChem programs conducted under the Research and Development Agreement (but in no event beyondMarch 31, 2003).
19. The amount payable upon the exercise of the Purchase Option (the "Purchase Option Exercise Price") is thegreatest of:
(a) 25 times the aggregate of:
(i) all worldwide payments made by and all worldwide payments due to be made by BioChemwith respect to all products acquired pursuant to the Product Option Agreement for the fourcalendar quarters immediately preceding the quarter in which the Purchase Option isexercised (the "Base Period"); and
(ii) all payments that would have been made and all payments due to be made by BioChem toCliniChem during the Base Period if the option to buy-out CliniChem's right to receivepayments with respect to acquired products had not previously been exercised pursuant tothe Product Option Agreement with respect to any product;
less 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 as of the date of the exercise of thePurchase Option;
(c) $175 million plus any additional funds contributed to CliniChem by BioChem less the aggregateamount of all payments provided for in the Technology License Agreement, research anddevelopment costs and Services Agreement payments paid or incurred by CliniChem as of thePurchase Option Exercise Date; and
(d) $50 million.
20. 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 theResearch and Development Agreement, the Services Agreement and the Technology License Agreement andany debt owed to BioChem) exceed CliniChem's cash and cash equivalents and short-term and long-terminvestments (excluding the amount of available funds remaining under the Research and DevelopmentAgreement at such time). For this purpose, liabilities will include, in addition to liabilities required to be reflectedon CliniChem's financial statements under generally accepted accounting principles, certain contingentliabilities relating to guarantees and similar arrangements.
21. BioChem may pay the Purchase Option Exercise Price in cash, in common shares of BioChem, or in anycombination of cash and common shares of BioChem (the "Payment Method").
22. The notice of exercise of the Purchase Option shall set forth the Purchase Option Exercise Price, the PaymentMethod and the date on which the CliniChem Common Shares will be purchased (the "Closing Date").
23. The closing of the acquisition of the CliniChem Common Shares pursuant to the exercise of the PurchaseOption will take place on a date selected by BioChem, but no later than 60 days after the exercise of thePurchase Option unless, in the judgment of BioChem, a later date is required to satisfy any applicable legalrequirements or to obtain required consents.
24. CliniChem shall mail or deliver to each registered shareholder notice of the intention of BioChem to acquire theCliniChem Common Shares on the Closing Date (the "Notice to Shareholders").
25. The Notice to Shareholders shall describe the Purchase Option and the tax consequences of its exercise andset out the Purchase Option Exercise Price, the Closing Date and the Payment Method.
26. Transfer of title of all the issued and outstanding CliniChem Common Shares shall be deemed to occurautomatically on the Closing Date and thereafter CliniChem shall treat BioChem as the sole holder ofCliniChem Common Shares.
27. BioChem exercised the Purchase Option on October 26, 2000. The Purchase Option Exercise Price will bepayable in cash.
28. The Legislation does not provide for an exemption from the provisions regulating take-over bids where thesecurities are purchased by a person other than the issuer of the securities in accordance with conditions inwriting at the time of issue.
WHEREAS pursuant to the System this MRRS Decision Document evidences the decision of each DecisionMaker (collectively the "Decision");
AND WHEREAS each of the Decision Makers is satisfied that the test contained in the Legislation that providesthe Decision Maker with the jurisdiction to make the Decision has been met;
THE DECISION of the Decision Makers pursuant to the Legislation is that BioChem and CliniChem areexempted from the provisions in the Legislation regulating take-over bids in connection with the exercise by BioChemof the Purchase Option.
DATED at Montréal, Québec, this 24th day of November, 2000.
"Guy Lemoine" "Viateur Gagnon"
AND THE DECISION of the Decision Maker pursuant to the Legislation applicable in Québec is that BioChemand CliniChem are exempted from the application of Policy Statement Q-27 Requirements for Minority Security HoldersProtection in Certain Transactions of the Commission des valeurs mobilières du Québec.
DATED at Montréal, Québec, this 24th day of November, 2000.
"Guy Lemoine" "Viateur Gagnon"