1. PLANNING FOR A M&A TRANSACTION OR AN IPO: GENERAL LEGAL CONSIDERATIONS BC BIOTECH FINANCE FORUM NOVEMBER 27, 2002 JOSEPH GARCIA C AMPNEY & M URPHY

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

3. C AMPNEY & M URPHY 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

4. C AMPNEY & M URPHY 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

5. C AMPNEY & M URPHY 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

6. C AMPNEY & M URPHY 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

7. C AMPNEY & M URPHY 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

8. C AMPNEY & M URPHY 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

9. C AMPNEY & M URPHY 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

10. C AMPNEY & M URPHY 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

11. C AMPNEY & M URPHY IPO: WHY, WHERE, WHEN AND HOW Timing Management Technology Window Complicated Process Due diligence Underwriters, auditors and lawyers Prospectus Listing Requirements

12. C AMPNEY & M URPHY 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

13. C AMPNEY & M URPHY 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

14. C AMPNEY & M URPHY 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

15. C AMPNEY & M URPHY 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

16. C AMPNEY & M URPHY IPO PLANNING Internal Due Diligence – Plus Conversion rights Options and warrants Registration rights Liability – prospectus must provide “full, true and plain disclosure”

17. C AMPNEY & M URPHY M&A vs. IPO Planning Makes Perfect