Paladin to acquire Labopharm

Aug 18 2011

Paladin Labs Inc. ("Paladin")(TSX: PLB) and Labopharm Inc. ("Labopharm")(TSX: DDS) announced today that they have entered into a definitive agreement (the "Arrangement Agreement") pursuant to which Paladin will acquire all of the issued and outstanding common shares of Labopharm at a price of $0.2857 per share in cash, which represents a premium of 57.4% over the volume-weighted average price of Labopharm's shares of $0.1815 for the 30 trading days prior to this announcement.  The transaction will be carried out pursuant to the Arrangement Agreement under a court-approved statutory plan of arrangement governed by the Business Corporations Act (Québec) (the "Arrangement").  In addition, all outstanding stock options and warrants of Labopharm will be cancelled as part of the Arrangement.  Each holder of Labopharm stock options and warrants will be entitled to exercise their options or warrants, as the case may be, prior to the closing of the Arrangement.   All dollar amounts in this press release are in Canadian dollars.

The transaction has been approved by the board of directors of Labopharm (the "Board").  The Board undertook a comprehensive review of the transaction, including seeking advice from its financial advisors and legal counsel and receiving a fairness opinion from Canaccord Genuity Corp. to the effect that, as of the date hereof, the consideration payable under the transaction contemplated by the Arrangement is fair, from a financial point of view, to holders of Labopharm common shares.  The Board in turn determined that the Arrangement is in the best interests of Labopharm and its shareholders, has approved the entering into of the Arrangement Agreement and recommends that shareholders vote in favour of the Arrangement.

"The offer from Paladin provides compelling value, certainty and liquidity to our shareholders," said Santo J. Costa, Chairman of the Labopharm Board. "Following a comprehensive review of alternatives under the previously announced strategic review, the Board of Directors has concluded that this all-cash offer, which is at a significant premium to the trading price of Labopharm's shares, is the best way to maximize shareholder value."

"The acquisition of Labopharm represents a unique opportunity for us to further strengthen our pain franchise through the addition of an established revenue stream in international markets with the potential upside provided by several product candidates," said Jonathan Goodman, Paladin's CEO. "Moreover, Labopharm's emerging specialty pharmaceutical technology platforms offer longer-term potential in promising new drug fields.   Labopharm's expertise and experience around its products and technologies, both in Canada and internationally, will complement our existing capabilities as we execute our growth strategy."

The completion of the proposed Arrangement is subject to a number of customary conditions, including the approval of the Superior Court of Québec and the approval of 66 2/3% of the votes cast by Labopharm's shareholders present in person or represented by proxy at a special meeting (the "Meeting") to be convened for such purpose.  It is currently anticipated that the Meeting will be held in early October 2011 and that proxy materials providing details of the Arrangement, including Labopharm's management proxy circular, will be mailed to shareholders in early September, 2011 and in any event no later than 21 days preceding the Meeting.  Details concerning the record date for the Meeting, the mailing date and Meeting date will be announced in the coming days.

Pursuant to the Arrangement Agreement, Labopharm is subject to customary non-solicitation covenants. In addition, Paladin has the right to match any unsolicited superior acquisition proposal which Labopharm proposes to accept in the exercise of its fiduciary duties after consultation with its legal and financial advisors.  In certain circumstances where the Arrangement Agreement is terminated, including if the Board changes its recommendation or Labopharm terminates the Arrangement Agreement to enter into a superior proposal (in the event that Paladin declines to exercise its matching right), Labopharm has agreed to pay Paladin a termination fee of $750,000.