Summary of Values
and
Due Diligence Findings
December 4, 2003
Strictly Private and
Confidential
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PLEASE NOTE, FOR THE PURPOSES
OF READING THIS REPORT,
DALLAS WAS THE PROJECT NAME
FOR HEMOSOL, INC.
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Glossary of Terms & Abbreviations
{Table}
{Caption}
ABREVIATIONS DEFINITION
{S} {C}
MDS MDS Inc.
Dallas Dallas Inc.
CCRA Canada Customs & Revenue Agency
ITC Investment tax credit
SR&ED Scientific research and experimental development
BPP Blood Products Partnership
ProMetic MOU Memorandum of understanding between ProMetic, Hemosol,
and ARC
ARC American Red Cross
IND Investigational New Drug
DND Canadian Department of National Defence
OAML Ontario Association of Medical Laboratories
ProMetic ProMetic Biosciences Ltd.
PSC Patient Service Centre
DCF Discounted Cash Flow
EBITDA Earnings before interest, tax, depreciation and amortization
Ribavirin DRT Drug Release Technology using Ribavirin conjuate
BSOP Model Black Scholes option pricing model
Newco Warrant Warrant entitling MDS to subscribe to common shares of
Newco
{/Table}
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TABLE OF CONTENTS
{Table}
{Caption}
SLIDE REF:
{S} {C}
I. Assignment...................................................... 6
II. Restrictions and Qualifications................................. 10
III. Executive Summary:
Valuation Analyses - Summary of Values......................... 12
Value of Dallas, Post the Transfer............................. 13
Relative Value Analysis........................................ 14
Specific Procedures - Tax Model: Value of Tax Losses to MDS.... 15
Tax Due Diligence - Key Findings/Issues........................ 18
Transaction Due Diligence - Key Findings/Issues................ 21
{/Table}
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{Table}
{Caption}
TABLE OF CONTENTS - APPENDICES APPENDIX REF:
{S} {C}
Valuation Analyses Parameters............................ A
Estimate of Value - The Labs Partnership................. B
Estimate of Value - 10% Partnership Interest in BPP...... C
Estimate of Value - The Newco Warrant.................... D
Specific Procedures - Tax Model.......................... E
Tax Due Diligence Findings/Comments...................... F
Transaction Support Due Diligence Findings/Comments...... G
Scope of Review.......................................... H
{/Table}
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I. ASSIGNMENT
OUR MANDATE
[ ] With respect to MDS Inc.'s ("MDS") proposed transaction with Dallas Inc.
("Dallas") (herein after referred to as the "Proposed Transaction"),
provide financial advisory services, in particular, valuation, tax and
transaction support services, to MDS' management.
[ ] We understand that our report ("Report") is to be used for internal
purposes only to assist MDS' management in evaluating the Proposed
Transaction.
THE PROPOSED TRANSACTION
[ ] The Proposed Transaction is a highly structured complex reorganization of
Dallas and certain businesses of MDS that will allow MDS and Dallas to
benefit from Dallas' available tax losses and tax pools (the "Tax
Losses"). As a result of the Proposed Transaction, MDS' equity interest in
Dallas will increase from approximately 14% to 99.4%, with less than 50%
voting interest.
[ ] Currently, we understand the reorganization to essentially include the
following series of steps:
o Dallas shareholders will exchange their existing common shares for new
voting common shares and non-voting preferred shares ("the Preferred
Shares") of Dallas. The Preferred Shares will then be transferred by
Dallas shareholders to a new corporate entity ("Newco") in exchange
for voting common shares of Newco;
o A newly formed limited partnership, the Blood Products Partnership
("BPP"), is formed;
o Dallas will lend sufficient funds to Newco to enable it to contribute
cash for in a 0.01% general partnership interest in the BPP;
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I. ASSIGNMENT
THE PROPOSED TRANSACTION (cont'd)
[ ] Reorganization steps (cont'd):
o Dallas will transfer all its assets (including intellectual property,
cash and fixed assets) to the BPP and, as consideration therefore, the
BPP will:
o Assume all of Dallas' liabilities; and
o Issue to Dallas: i) a limited partnership interest entitling it to
10% of the income/loss of the BPP; and ii) a 89.99% general
partnership interest.
o Dallas will redeem a portion of the Preferred Shares held by Newco at
a redemption price equal to the fair market value of the Dallas'
recently received 89.99% general partnership interest in the BPP;
o MDS will contribute its Ontario laboratory business (the "Labs
Business") into a new limited partnership (the "Labs Partnership").
MDS will transfer to Dallas a 99.99% limited partner interest in the
Labs Partnership in exchange for non-voting and voting common shares
of Dallas;
o As a result, Dallas will be able to use the Tax Losses against the
Labs Business' taxable income effectively monetizing the Tax Losses
and making the cash available to the operations of Newco by redemption
of the Preferred Shares held by Newco; and
o MDS, through the post Proposed Transaction share structure will share
in the realization of the tax losses through special dividend
distributions from Dallas.
[ ] We further understand that:
o MDS has obtained an advanced tax ruling with respect to the Proposed
Transaction that expires March 1, 2004;
o The proposed closing date for the Transaction is December 15, 2003;
and
o Since the Proposed Transaction will result in MDS obtaining a 99.4%
equity interest in Dallas without triggering an acquisition of
control, in accordance with Canadian tax laws, MDS will be able to
take advantage of significant tax losses that are not immediately
usable by Dallas.
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I. ASSIGNMENT
IDENTIFIED FINANCIAL ADVISORY SERVICES
[ ] As at the date of this Report, based upon our current understanding of the
Proposed Transaction (as set out in Appendix A) and available information,
the scope of identified and agreed upon financial advisory services
summarized in this report are as follows (collectively, the "Proposed
Transaction Analyses"):
Valuation & Strategy Advisory ("VSA") Services (collectively, "Valuation
Analyses"):
o For the purposes of assessing the relative value of assets in which
Dallas will have a continuing interest as a result of the Proposed
Transaction, provide an estimate of fair value, at or about a current
date (the "Valuation Date"), of (collectively Valuation Analyses"):
o The Labs Partnership;
o All the issued and outstanding shares of Dallas, post the
Transfer;
o Dallas' 10% partnership interest in the Blood Products Partnership
("BPP") on an aggregate basis; and
o Warrant entitling MDS to subscribe to up to 5 million common
shares of Newco (the "Newco Warrant").
o Comment as to the value of the ownership component of the Ontario
Labs Business licence; and
o In conjunction with PwC's tax group, specific procedures regarding
MDS' tax model (the "Tax Model") supporting the value of the tax
benefit calculation. These procedures have been identified as follows,
subject to availability and quality of information ("Specific
Procedures"):
o Review the reasonability of the assumptions used in the model;
o Review the completeness of the assumptions used in the model; and
o Review the logic and mechanics of the model.
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I. ASSIGNMENT
IDENTIFIED FINANCIAL ADVISORY SERVICES (cont'd)
Tax Advisory Services (collectively, "Tax Due Diligence")
o A review and understanding of the advanced income tax ruling regarding
the current Proposed Transaction; and
o Due diligence procedures and report in respect of the income,
commodity and capital tax position of the target companies and the
available tax attributes.
Transaction Support Services (collectively, "Transaction Due Diligence")
o The nature of the identified assets and liabilities remaining in
Dallas;
o The nature of assets and liabilities transferred to Newco with a view
to identifying unrecorded or unidentified obligations that may remain
to be the responsibility of Dallas notwithstanding the completion of
the Proposed Transaction;
o Any contingencies, including, but not limited to, litigation in
process or anticipated as well as any severance pay obligations
arising on previous restructuring or corporate downsizing activities;
and
o Due diligence related to the process associated with the carve out of
the Ontario Labs Business from MDS.
In particular, our Valuation Analyses, Tax and Transaction Due Diligence
were to be used in assisting management with the negotiations of the deal
terms with Dallas
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II. RESTRICTIONS AND QUALIFICATIONS
Our Report is subject to the following restrictions and qualifications:
GENERAL
[ ] Our Report is not be used for any other purposes other than that stated
herein and is not intended for general circulation, nor should it be
published and/or referred to, in whole or in part, to any other party
without our prior written consent. We do not accept responsibility for any
losses arising from the unauthorized or improper use of this Report;
[ ] Our Proposed Transaction Analyses contained herein are subject to our
review of the final agreed upon structure/steps regarding the Proposed
Transaction, as well as the finalization, receipt and review of the
following documents/information:
MDS
o Service level agreement(s) between Subco and the Labs Partnership;
o Royalty agreement(s) re: MDS intellectual property (e.g. trade name,
information systems, etc.) required to operate the Labs Business that
is to be retained by MDS Inc.; and
o Sub-lease agreement(s) regarding current MDS leased premises.
DALLAS
o Terms of warrants entitling MDS shareholders to subscribe to the
common shares of Newco; and
o E&Y audit working papers for Transaction Due Diligence purposes
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II. RESTRICTIONS AND QUALIFICATIONS
Our Report is subject to the following restrictions and qualifications (cont'd):
[ ] Our Report, including the accompanying Appendices, must be considered in
its entirety by the reader, as selecting and relying on only a specific
portion of the analysis or factors considered by us, without considering
all factors and analyses together, could create a misleading view of the
processes underlying this Report;
[ ] Our analysis and conclusions are based on information made available to us
as outlined in the Scope of Review sections as set out in the various
Appendices, as well as, discussions with and representations by Dallas and
MDS management;
o We have not audited or verified this information for this purpose, nor
do we express any view on the compliance of the information with
generally accepted accounting standards and the standards related to
future oriented financial information.
o We accept no responsibility or liability for any losses occasioned by
any party as a result of our reliance on the financial and
non-financial information that was provided to us.
[ ] We reserve the right, without any obligation on our part, to make
revisions to our Report and value conclusions should we be made aware of
facts existing at the Valuation Date which were not known by us at the
date of this Report; and
[ ] Additional R&Qs specific to our Valuation Analyses, Tax Due Diligence and
Transaction Due Diligence as set out in Appendix A, F, and G respectively.
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III. EXECUTIVE SUMMARY - VALUATION ANALYSES
SUMMARY OF VALUES
[ ] Based upon the scope of our review, our major assumptions (as set out in
Appendices A, B, C and D), and subject to our restrictions and
qualifications, our estimates of value of various aspects of the Proposed
Transaction, as at a current date, are summarized as follows:
{Table}
{Caption}
SELECTED
APPENDIX VALUE/
IN 000'S REFERENCE LOW HIGH MID-POINT
-------- --------- --------- -------- ---------
{S} {C} {C} {C} {C}
The Labs Partnership A, B 472,500 517,500 495,000
10% Partnership Interest in BPP A, C 1,922 4,017 3,268
The Newco Warrant A, D 5,400 6,100 5,750
{/Table}
[ ] The fair market value of the ownership component of the License in Subco
is nil, on the basis that:
o All of the economic benefits of ownership of the License are
transferred to the Labs Partnership; and
o There will be no royalty paid from the Labs Partnership to Subco.
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III. EXECUTIVE SUMMARY - RELATIVE VALUE ANALYSIS
VALUE OF DALLAS, POST THE TRANSFER
KEY VALUE CONSIDERATIONS
[ ] We understand that all of the assets and liabilities of Dallas, before the
Proposed Transaction, have been transferred to the BPP except Dallas' Tax
losses.
[ ] The fair market value of the Tax Losses is completely offset by the
Preferred Shares.
[ ] In light of the above, the value of Dallas, post the Transfer, is the sum
of following investments:
o 99.99% partnership interest in the Labs Partnership; and
o 10% partnership interest in the Blood Products Partnership.
VALUE CONCLUSIONS
[ ] As set out in the next slide, based upon the scope of our review, our
major assumptions (as detailed in Appendices A, B and C), and subject to
our restrictions and qualifications, our estimate of value of Dallas, post
the Transfer, is approximately $498.2 million.
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III. EXECUTIVE SUMMARY - RELATIVE VALUE ANALYSIS
Set out below is our relative value calculation based upon our derived values
for the Labs Partnership and a 10% partnership interest in the Blood Products
Partnership (and consequently, Dallas, post the Transfer):
{Table}
{Caption}
MDS
IN CDN 000'S PWC ORIGINAL
ESTIMATE ESTIMATE
-------- --------
{S} {C} {C} {C} {C}
ASSUMPTIONS:
Current MDS Ownership in Dallas (Note 1) A 11.8% 14.20%
Value of Labs Partnership - En Bloc SCHEDULE B-1 495,000 500,000
Value of Blood Products Partnership Interest 10.00% B - SCHEDULE C-1 3,268 4,149
RESULTS:
Value of Blood Products Partnership Interest 10.00% B - SCHEDULE C-1 3,268 4,149
Value of 99.99% of Labs Partnership (Note 2) 99.99% C 494,951 499,950
------- -------
TOTAL VALUE OF DALLAS D = B + C 498,219 504,099
MDS Inc. - non-voting equity E = (B x A + C) / D - F 98.91% 98.61%
MDS Inc. - voting equity F = G / I x H 0.51% 0.68%
Non-MDS - voting equity G = (B x (1 - A)) / D 0.58% 0.71%
------- -------
Total equity in Dallas post reorganization 100% 100%
======= =======
MDS TOTAL EQUITY IN DALLAS E + F 99.42% 99.29%
VOTE SPLIT:
MDS Inc. - voting equity H 47.00% 49.00%
Non-MDS - voting equity I 53.00% 51.00%
{/Table}
NOTES
1 - PwC estimate reflects 2 million treasury shares issued to ProMetics on
December 4, 2003 and Recent equity private placement for 7,200,000 treasury
shares
2 - Calculated based on the Value of Labs Partnership - En Bloc multiplied by
99.99% ownership in Labs Partnership.
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III. EXECUTIVE SUMMARY - SPECIFIC PROCEDURES: TAX MODEL
RESULTS OF PROCEDURES AND TAX LOSS VALUE TO MDS
MODEL PROCEDURES
[ ] As discussed more in depth in Appendix E, in accordance with the Specific
Procedures we were instructed to perform by MDS, we made the following
types of adjustments to MDS' tax model provided to us:
o Mathematical accuracy adjustments;
o Model logic refinements; and
o Updated MDS assumptions with respect to:
o Assumptions that were more reasonable and complete given:
o Our Valuation Analyses, Tax Due Diligence and Transaction
Due Diligence; and
o Our experience in valuing tax losses and research of
assumptions that were more reflective of the current market.
o KEY MODEL ADJUSTMENTS WE MADE ARE SUMMARIZED IN SCHEDULE E-3.
TAX LOSS VALUE TO MDS
[ ] As discussed more in depth in Appendix E, in deriving a value of the tax
losses to MDS, we selected a "cents on the dollar" range of $0.055 to
$0.07 based upon:
o Our scope of our review, major assumptions and restrictions and
qualifications;
o The Tax Model, after application of our adjustments, as described
above;
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III. EXECUTIVE SUMMARY - SPECIFIC PROCEDURES: TAX MODEL
TAX LOSS VALUE TO MDS
TAX LOSS VALUE CONSIDERATIONS (CONT'D)
o Dallas management has stated that they had 2 other offers for the tax
losses of which MDS' offer was the highest;
o Based upon internal experience and historical market transactions,
market tends to price tax losses at $0.05 to $0.15 on the dollar;
o Advanced Tax Ruling obtained with respect to the losses;
o The high quality of the Tax Losses adjusted for certain aggressive
positions taken by Dallas management;
o Restrictions on the number of potential buyers:
o Tax Model assumes tax losses will be used up by 2011 and assumes
no acquisition of control ("AOC") occurs (normally tax losses are
purchased through AOCs).
o However, as the share price of Dallas increases, there are more
potential buyers for the Tax Losses without affecting an
acquisition of control.
o Dallas is in financial difficulty and hence, no ability to use income
tax losses and SR&ED pools.
o However, if the contract manufacturing opportunity occurs as
Dallas management believes, Dallas will be able to make use of
some of the Tax Losses;
o Based upon the client's Base Case contract manufacturing
forecast (Appendix C - Schedule C-2), approximately 10% of the
Tax Losses will expire as set out in Appendix E.
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III. EXECUTIVE SUMMARY - SPECIFIC PROCEDURES: TAX MODEL
TAX LOSS VALUE TO MDS
[ ] "A cents on the dollar" range $0.055 to $0.07 which implies the following:
{Table}
{Caption}
IN $000 LOW HIGH
------- -------- --------
{S} {C} {C}
Cents on the Dollar 5.50 7.00
Suggested Purchase Price Range $ 19,200 $ 24,500
Less:
Transaction Implementation & On-going Dallas Operational Costs 3,400 3,400
Minority Interest - Dividends and Buy-out Price 3,900 3,900
-------- --------
CASH CONSIDERATION PAID TO NEWCO $ 11,900 $ 17,200
Net Present Value of Tax Benefits to MDS
after payment of Suggested Purchase Price Range (Note 1) $ 67,300 $ 72,300
{/Table}
Note 1: $67.3 million and $72.3 million are based upon $0.07 and $0.055 cents on
the dollar, respectively.
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III. EXECUTIVE SUMMARY - TAX DUE DILIGENCE
Refer to Appendix F for the full report on the detailed findings based on the
Tax Due Diligence work. Set out below is a summary of the key issues we have
identified that are relevant to MDS in evaluating the proposed restructuring
described in the October 28, 2003 letter of intent and Canada Customs & Revenue
Agency's ("CCRA") September 23, 2003 income tax ruling:
[ ] We noted that Dallas has double counted certain tax deductible financing
costs in the preparation of its tax returns.
o Effect of this double counting was to overstate the Federal and
Ontario non-capital loss carry-forwards by $4.4 million. We have
adjusted for this double counting in our consideration of the tax
loss values.
[ ] Dallas has also included the value of certain share warrants issued to
obtain financing as eligible tax deductible financing costs.
o Risk that the value ascribed to these warrants could be challenged by
the tax authorities given the fact that the warrants have not been
exercised to date and the subsequent reduction in share price of the
Company.
o Total deductions claimed to date in respect of these warrants is $3.1
million. We have excluded these deductions in our consideration of the
tax loss values.
[ ] We also noted in our review that the scientific research and experimental
development ("SR&ED") investment tax credit ("ITC") amounts reported in
the draft tax returns provided to us were overstated by approximately $1.1
million. We have adjusted for this overstatement in our consideration of
the tax loss values.
[ ] Dallas has un-deducted financing expenditures of at least $6.8 million
that were not reflected in the tax attributes included in the original tax
model.
o MDS should consider these attributes in its analysis of the value of
Dallas.
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III. EXECUTIVE SUMMARY - TAX DUE DILIGENCE
[ ] Based upon estimates provided by management and adjustments arising from
our due diligence findings, it is anticipated that Dallas' tax attributes
as at December 31, 2003 will be as follows:
{Table}
{Caption}
$
{S} {C}
Federal Non-Capital Losses * 23,448,997
Undeducted SR&ED 208,586,579
Federal UCC / CEC 97,309,563
Undeducted Financing Costs 7,098,416
-------------
336,443,555
=============
SR&ED ITCs 34,690,332
=============
{/Table}
* Ontario Non-Capital Losses - $36,081,647
The use of these tax attributes is subject to various issues as noted
within this Report.
[ ] Dallas has significant tax basis in respect of depreciable property (i.e.
building, manufacturing equipment, etc. with a UCC of approximately $97.2
million). It is expected that there will be a significant income tax
deduction arising from the disposition of these assets when these
properties are disposed of to the BPP (i.e. a terminal loss).
o Magnitude of the loss will be a function of the fair market value of
these assets at the time of their disposition to the BPP.
o Tax attributes within Dallas will be reduced by the amount of proceeds
allocated to the depreciable assets on the transfer of the BPP.
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III. EXECUTIVE SUMMARY - TAX DUE DILIGENCE
[ ] The original model prepared by MDS assumes that there is a gain on the
disposition of the 90% interest in the BPP of approximately $37.7 million
that would reduce the available tax attributes in Dallas by approximately
$18.5 million.
o It is expected that there will be cost basis in the BPP after the
transfer of assets to the partnership equal to the fair market value
of the assets transferred to the partnership (i.e. there are losses on
depreciable property disposed of and there is no value ascribed to the
goodwill included in the assets transferred). This has been factored
into the gain calculation contained within the model.
[ ] The Tax Model does not currently consider the Ontario corporate minimum
tax ("CMT") consequences associated with Dallas earning income from the
Labs Partnership.
o Corporations may be subject to CMT to the extent that accounting
income, subject to certain permitted adjustments, exceeds taxable
income in a particular year.
o There is a provision for the reduction of CMT income with CMT losses
of the previous ten years. At the end of 2002, Dallas's draft income
tax returns indicate that the Ontario non-capital losses are $45
million higher than the related CMT losses.
o CMT rate is 4% of CMT income; however, it is creditable against
Ontario income tax paid where the Ontario income tax paid in
subsequent years exceeds the CMT otherwise payable.
[ ] One assumption adopted in the Tax Model is that implementation costs
associated with the reorganization (estimated to be $1.5 million) will be
tax deductible.
o The nature of some of these expenses may not allow for their deduction
from income on the basis that the expenses were incurred in order to
acquire capital property and not as an expense of a business.
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III. EXECUTIVE SUMMARY - TRANSACTION DUE DILIGENCE
Refer to Appendix G for the full report on the detailed findings based on the
Transaction Due Diligence work. Set out below is a summary of the key issues we
have identified that are relevant to MDS in evaluating the Proposed Transaction:
CONTRACT MANUFACTURING AGREEMENT
[ ] Management has indicated a planned strategy to leverage its new Meadowpine
Facility and take a new direction towards the contract manufacturing of
biological products.
o Dallas will use its technological and process resources to produce
other companies' products on a clinical and/or commercial scale.
o Anticipated to generate future revenues, which will have implications
in regards to the valuation of BPP and the use of tax losses, which is
discussed in further detail in the Valuations Analyses section of this
Report.
[ ] More specifically, management recently announced the signing of a
Memorandum of Understanding ("ProMetic MOU") with ProMetic Biosciences
Ltd. ("ProMetic") whereby Dallas will use technology developed by ProMetic
and the American Red Cross ("ARC") to manufacture certain plasma-based
proteins.
o Dallas agreed to issue 2 million common shares to ProMetic upon
signing the MOU. Dallas will also pay ProMetic licensing fees of
$16.5M with respect to the technology used in the production process.
o This will consist of $1.5M plus 1 million additional Dallas common
shares (note that Dallas Management is still trying to decide
whether to issue 1 million common shares or $1 million dollars
worth of shares) to be paid upon signing the definitive agreements
(expected to take place in the first quarter of 2004). The balance
of the cost to acquire the license rights (approximately $14M)
would be payable upon reaching certain milestones through to the
year 2007.
o In addition, management estimates that $20-25M in new capital
expenditures would be required over the next three years in order to
bring the technology to commercial levels.
o Future royalties will be payable to the third party based on 5-8% of
sales of the product using this technology.
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III. EXECUTIVE SUMMARY - TRANSACTION DUE DILIGENCE
CONTRACT MANUFACTURING AGREEMENT (CONT'D)
[ ] The issuance of shares would also have a dilutive effect on Dallas'
ownership structure, which is discussed in the Valuations Analyses section
of this report.
[ ] We understand that Dallas is contemplating several other contract
manufacturing arrangements, the signing of which are apparently not
imminent.
[ ] We recommend that MDS ensure that all of the parameters relating to this
arrangement are consistent with the mechanics of the proposed MDS
transaction. Primary concerns include:
o Ensuring that the shares issued to ProMetic are from Newco treasury
rather than Dallas; and
o Ensuring that all future obligations (i.e. license payments, capital
expenditures, royalties) are contractually undertaken by the BPP and
not Dallas.
ASSETS AND LIABILITIES REMAINING IN DALLAS
[ ] We understand that MDS intends to change the structure of the initially
proposed transaction, such that all assets and liabilities of the Company
are to be transferred to the BPP with nothing remaining in Dallas.
[ ] The Bank has taken a security interest over Dallas' plant, all tangible
machinery and equipment, intellectual property, furniture and fixtures,
inventory and other accounts/debts due to Dallas.
o Bank's consent will be required to complete the proposed transfer of
assets and liabilities.
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III. EXECUTIVE SUMMARY - TRANSACTION DUE DILIGENCE
FAILED HEMOLINK CLINICAL TRIALS
[ ] Dallas closed its clinical trial relating to the use of Hemolink with
cardiac surgery patients in March 2003.
o At the same time, the Company also voluntarily suspended enrolment in
all other Hemolink-related clinical trials until certain issues in
respect of the use of this product are resolved.
[ ] Management is of the view that, given the demographic and health
characteristics of the trial group as well as the significant length of
time which has passed since the trials took place, it would be difficult
to establish a causal relationship between the use of Hemolink and any
potential negative health events that may be experienced by clinical trial
participants
o Management has represented that no claims or actions have been
initiated in this regard by any of the clinical trial subjects
alleging illness, injury, death, etc. as a result of participating in
the trials.
[ ] That notwithstanding, Dallas may still be subject to future legal claims
from clinical trial patients.
o Dallas has indemnified the institutions administering the clinical
trials for any potential future loss, unless it is established that
the institutions were negligent or violated the agreed upon clinical
protocols.
o It is our understanding that Dallas currently has product liability
insurance coverage of $20M relating to the clinical trials. This
coverage may not be adequate to protect it against potential losses
arising from claims.
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III. EXECUTIVE SUMMARY - TRANSACTION DUE DILIGENCE
POTENTIAL SEVERANCE OBLIGATIONS
[ ] Dallas gave working notice of termination to approximately 100 employees
in April 2003. Dallas also terminated approximately 70 employees in June
2002.
o Per management, no legal claims have been initiated by any of the
employees in connection with these downsizing initiatives.
o All terminated staff signed release letters which stated