PLANNING FOR A M&A TRANSACTION OR AN IPO: GENERAL LEGAL CONSIDERATIONS

1. PLANNING FOR A M&A TRANSACTION OR AN IPO:GENERAL LEGAL CONSIDERATIONS BC BIOTECH FINANCE FORUMNOVEMBER 27, 2002 JOSEPH GARCIA CAMPNEY &MURPHY

2. INTRODUCTION • Before, during and after: the continuum of legal hurdles and issues • Market conditions may dictate your options • M&A – strategic or forced • IPO – market opportunity • Effective planning is critical to take advantage of opportunities and to expedite the process CAMPNEY &MURPHY

3. STRUCTURING M&A • Structuring a M&A transaction is largely driven by tax and securities considerations • For this reason, M&A deals can be extremely complicated CAMPNEY &MURPHY

4. M&A BASIC STRUCTURES • Share Purchase • Sale proceeds directly to owners of target • Responsible for target obligations and liabilities • Asset Purchase • Choice of assets and assumed liabilities • Sale proceeds go to the target company, not its owners • May need to develop a tax efficient structure to distribute the proceeds CAMPNEY &MURPHY

5. M&A BASIC STRUCTURES • Amalgamation • A statutory amalgamation can be used to effect an acquisition • Amalgamations are more commonly seen in a public company context • Amalgamations are often used to: • Achieve interest deductibility for acquisition financing • Facilitate a step-up in cost basis for non-depreciable capital property CAMPNEY &MURPHY

6. M&A BASIC STRUCTURES • Arrangement • Similar to an amalgamation – two or more companies combine to continue as a single entity • A court supervised reorganization: • Typically used to implement a transaction involving numerous predetermined steps • No single step gets completed without all steps being completed • Usually used for complicated transactions involving a public company CAMPNEY &MURPHY

7. M&A FORMS OF CONSIDERATION • Cash • Fully taxable except for capital gains exemption if a share purchase and the target is a qualified small business corporation • Shares of Buyer • Provides tax deferral if buyer is a Canadian company CAMPNEY &MURPHY

8. M&A FORMS OF CONSIDERATION • Exchangeable Shares • Shares of a Canadian corporation exchangeable for shares of a non-Canadian buyer • Designed to be the equivalent of the non-Canadian buyer’s shares • Provides tax deferral CAMPNEY &MURPHY

9. PRICE • M&A structure affects price • A tax efficient structure can increase value for both buyer and seller • A creative structure can sometimes help bridge a price gap • Understanding the structural issues from both sides of a transaction is essential when negotiating price CAMPNEY &MURPHY

10. IPO: WHY, WHERE, WHEN AND HOW • Advantages • Access to capital • Use of shares for acquisitions • Liquidity and value • Exposure • Stock Exchange • Canada vs. U.S. • Junior vs. senior market CAMPNEY &MURPHY

11. IPO: WHY, WHERE, WHEN AND HOW • Timing • Management • Technology • Window • Complicated Process • Due diligence • Underwriters, auditors and lawyers • Prospectus • Listing Requirements CAMPNEY &MURPHY

12. M&A PLANNING • Understand • Possible structures • Valuation methods • Tax consequences • Corporate and securities requirements • What, if any, consents are required • How to deal with minority shareholders • Shareholders approval requirements CAMPNEY &MURPHY

13. M&A PLANNING • Search for potential buyers • Management or agent or both • Internal Due Diligence - General • Extensive review of affairs • Corporate records and resolutions • Intellectual property • Prepare materials for legal counsel and auditors • Counsel to review all contracts CAMPNEY &MURPHY

14. IPO PLANNING • Start early • Develop business plan • Critical task – focuses attention • Narrative is useful to draft prospectus • Complete management team • Attract independent directors • Prepare audited FS • Shareholder approval • Start acting like a public company CAMPNEY &MURPHY

15. IPO PLANNING • Assemble Professional Team • Auditors, investment bankers and lawyers • Internal Due Diligence - General • Extensive review of affairs • Corporate records and resolutions • Intellectual property • Prepare materials for legal counsel and auditors • Counsel to review all contracts CAMPNEY &MURPHY

16. IPO PLANNING • Internal Due Diligence – Plus • Conversion rights • Options and warrants • Registration rights • Liability – prospectus must provide “full, true and plain disclosure” CAMPNEY &MURPHY

17. M&A vs. IPO • Planning Makes Perfect CAMPNEY &MURPHY