Securities Law & Instruments

Headnote

MutualReliance Review system for Exemptive Relief Applications -CombinationTransaction. Options of Subsidiaries exercisable for shares ofparent. Relief from Prospectus and Registration requirements forexercises of options.

ApplicableOntario Statutory Provisions

SecuritiesAct, R.S.O. 1990, c.S.5, as am., s. 25, s. 53, s. 74.

ApplicableMultilateral Instrument

MultilateralInstrument 45-102.

INTHE MATTER OF

THESECURITIES LEGISLATION OF

ALBERTA,BRITISH COLUMBIA, ONTARIO,

SASKATCHEWANAND QUÉBEC

AND

INTHE MATTER OF

THEMUTUAL RELIANCE REVIEW

SYSTEMFOR EXEMPTIVE RELIEF APPLICATIONS

AND

INTHE MATTER OF

TRANSITIONTHERAPEUTICS INC.

ANDWARATAH PHARMACEUTICALS INC.

MRRSDECISION DOCUMENT

WHEREASthe local securities regulatory authority or regulator (the "DecisionMaker") in each of Alberta, British Columbia, Saskatchewan, Ontarioand Québec (collectively, the "Jurisdictions") has receivedan application from Transition Therapeutics Inc. ("Transition"),for a decision pursuant to the securities legislation of the Jurisdictions(the "Legislation") that the requirements contained in the Legislationto be registered to trade in a security and to file and obtaina receipt for a preliminary prospectus and prospectus (the "Registrationand Prospectus Requirements") shall not apply to certain tradeswhich may be made following the proposed arrangement (the "Arrangement")pursuant to section 192 of the Canada Business Corporations Act(the "CBCA"), involving Transition, Waratah Pharmaceuticals Inc.("Waratah") and 3974863 Canada Inc. ("Newco");

ANDWHEREAS under the Mutual Reliance Review System for ExemptiveRelief Applications (the "System"), the Ontario Securities Commissionis the principal regulator for this application;

ANDWHEREAS Transition has represented to the Decision Makersthat:

(a)Transition is a corporation existing under the Business CorporationsAct (Ontario);

(b)Waratah is a corporation existing under the CBCA;

(c) Transition isa biopharmaceutical company engaged in developing novel approachesand therapeutics to treat multiple sclerosis, diabetes and restenosis.Transition's head office is located at Suite 1103, 415 YongeStreet, Toronto, Ontario, M5B 2E7;

(d)Waratah is a biopharmaceutical company focused on the clinicaldevelopment and commercialization of its novel, patented therapy- Islet Neogenesis Therapy for the treatment of insulin-dependentdiabetes. Waratah's head office is located at Suite 3700, 400- 3rd Avenue, Calgary, Alberta, T2P 4H2;

(e)Transition is and has been a reporting issuer in each of the Provincesof British Columbia, Alberta and Ontario since February 20, 2001and is not, to its knowledge in default of the securities legislationof such jurisdictions;

(f)Transition is an electronic filer under National Instrument 13-101System for Electronic Document Analysis and Retrieval (SEDAR);

(g)Transition is not a qualifying issuer under Multilateral Instrument45-102 Resale of Securities ("MI 45-102");

(h)Waratah is and has been a reporting issuer in each of the Provincesof British Columbia, Alberta, Saskatchewan and Ontario since September11, 2000, and in the Province of Québec since April 20,2001, and is not, to its knowledge in default of the securitieslegislation of such jurisdictions;

(i)the common shares of Transition ("Transition Common Shares") andthe common shares of Waratah ("Waratah Common Shares") are listedon the Canadian Venture Exchange Inc. (the "CDNX"). Applicationhas been made to the CDNX to approve the additional listing ofTransition Common Shares to be issued pursuant to the Arrangementwhich listing will be subject to the fulfilment of all requirementsof such exchange including the filing of the usual documentation;

(j)the authorized share capital of Transition consists of an unlimitednumber of Transition Common Shares and an unlimited number ofnon-voting Class B shares (the "Class B Shares") of which 20,168,750Transition Common Shares and 4,500,000 Class B Shares were outstandingas of the close of business on December 13, 2001. Each Class BShare is convertible into one Transition Common Share withoutpayment of additional consideration;

(k)the authorized share capital of Waratah consists of an unlimitednumber of Waratah Common Shares of which 25,521,384 Waratah CommonShares were outstanding as of the close of business on December13, 2001. As of the close of business on December 13, 2001, therewere also outstanding (i) 2,545,000 Waratah Options to acquire2,545,000 Waratah Common Shares ("Waratah Options") and (ii) 4,853,616Waratah Warrants to acquire 4,853,616 Waratah Common Shares ("WaratahWarrants");

(l)a meeting (the "Transition Meeting") of the holders of TransitionCommon Shares ("Transition Shareholders") and a special meeting(the "Waratah Meeting") of the holders of Waratah Common Shares("Waratah Shareholders"), Waratah Warrants and Waratah Options(collectively, the "Waratah Securityholders") have been calledfor January 14, 2002. At each of the Transition Meeting and theWaratah Meeting, the Transition Shareholders and the Waratah Securityholders,as applicable, will be asked to consider, and if deemed advisable,to approve the Arrangement;

(m)pursuant to the Arrangement, the Waratah Shareholders will receiveTransition Common Shares on the basis of 0.83333 of a TransitionCommon Share for each Waratah Common Share held (the "ExchangeRatio");

(n)Newco is a corporation incorporated under the CBCA and was incorporatedfor the purpose of facilitating the Arrangement;

(o)the following steps will occur in the following order as partof the Arrangement effective as of the date of the certificategiving effect to the Arrangement (the "Effective Date"):

(i)Newco and Waratah will be amalgamated in accordance with the provisionsof the CBCA to form a continuing corporation ("Amalco");

(ii)Pursuant to the amalgamation, all Waratah Shareholders (otherthan dissenting shareholders) will receive Transition Common Shareson the basis of the Exchange Ratio and all outstanding WaratahCommon Shares and authorized and unissued shares of Waratah shallbe cancelled;

(iii)each of the then outstanding Waratah Warrants will be cancelledand replaced with warrants of Amalco ("Amalco Warrants") on aone-for-one basis, provided, however, that on exercise of AmalcoWarrants, the warrantholder will be issued Transition Common Shares.The number of Transition Common Shares shall be determined bymultiplying the number of shares of Amalco subject to such AmalcoWarrant by the Exchange Ratio. The Amalco Warrants issued to Waratahwarrantholders will otherwise have the same terms as the WaratahWarrants cancelled pursuant to the Arrangement, including theexercise price, exercisability, expiry and all other terms andconditions of such Waratah Warrants; and

(iv)each of the then outstanding Waratah Options will be cancelledand replaced with options of Amalco ("Amalco Options") on a one-for-onebasis, provided, however, that on exercise of Amalco Options,the optionholder will be issued Transition Common Shares. Thenumber of Transition Common Shares shall be determined by multiplyingthe number of shares of Amalco subject to such Amalco Option bythe Exchange Ratio. The Amalco Options issued to Waratah optionholderswill otherwise have the same terms as the Waratah Options cancelledpursuant to the Arrangement, including the exercise price, exercisability,expiry and all other terms and conditions of such Waratah Options.

(p)following the Effective Date, Transition will issue such TransitionCommon Shares as are required to be issued pursuant to the exerciseof Amalco Options and will issue such Transition Common Sharesas are required to be issued pursuant to the exercise of AmalcoWarrants (such issuances are referred to as the "Trades"), forwhich Trades exemptions from the Registration and Prospectus Requirementsare not available in all of the Jurisdictions;

(q)the foregoing structure of the Arrangement was driven in partby certain United States income tax and securities law considerations;

(r)the Arrangement requires final approval by the Court of Queen'sBench of Alberta (the "Alberta Court");

(s)on December 13, 2001, the Alberta Court granted an interim orderproviding for, among other things, the calling and holding ofthe Waratah Meeting;

(t) the Arrangementis a related party transaction (as defined in Ontario SecuritiesCommission Rule 61-501 ("Rule 61-501") and Policy Q-27 of theCommission des valeurs mobilières du Québec ("PolicyQ-27")) with respect to Transition;

(u)the Arrangement must be approved by at least two-thirds of thevotes cast at the Waratah Meeting and by a majority of votes castby Transition Shareholders other than votes cast by any RelatedParty in accordance with the requirements of Rule 61-501 and PolicyQ-27, at the Transition Meeting;

(v)a joint management information circular (the "Joint Circular")has been delivered to the Transition Shareholders and the WaratahSecurityholders in connection with the Meeting, which containsamong other things, prospectus level disclosure of the businessand affairs of each of Waratah and Transition, the particularsof the Arrangement as well as formal valuations as defined inRule 61-501 and Policy Q-27, and opinions of independent financialadvisors for each of Transition and Waratah. The Joint Circularhas been filed on SEDAR in each of the Jurisdictions;

(w)each Waratah Shareholder will be entitled to dissent from theArrangement under section 190 of the CBCA and to be paid the fairvalue of such holder's Waratah Common Shares subject to certainconditions described in the Joint Circular;

(x)it is anticipated that the Arrangement will become effective onor about January 15, 2002, after the requisite court and shareholderapprovals have been obtained and all other conditions to the Arrangementhave been satisfied or waived;

ANDWHEREAS under the System, this MRRS Decision Documentevidences the decisions of each Decision Maker (collectively,the "Decision");

ANDWHEREAS each of the Decision Makers is satisfied thatthe test contained in the Legislation that provides the DecisionMaker with the jurisdiction to make the Decision has been met;

THEDECISION of the Decision Makers under the Legislationis that the Trades are not subject to the Registration and ProspectusRequirements of the Legislation: (i) if, in respect of each Trade,no commission or other remuneration is paid or given to othersfor the Trade except for administrative or professional servicesor for services performed by a registered dealer; (ii) providedthat the first trade in Transition Common Sharesacquired pursuant to this Decision will be a distribution or primarydistribution to the public unless the conditions in subsections(3), (4) or (5) of section 2.6 of MI 45-102 are satisfied and;(iii) for the purposes of determining the period of time thatTransition has been a reporting issuer under section 2.6 of MI45-105, the period of time that Waratah was a reporting issuerimmediately before the Arrangement may be included.

January15, 2002.

"R.Stephen Paddon"       "H. Lorne Morphy"