Canadian Public M&A Deal Study 2014

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The sixth annual Blakes Canadian Public M&A Deal Study focuses on some recurring and emerging issues in the structuring and negotiation of Target-supported public company acquisitions in Canada. The topics covered in the Study range from overall transaction structure and timing, such as the strategic review process and alternatives for dealing with management and significant shareholders, to specific contractual provisions, such as material adverse effect clauses, break and reciprocal break fees and non-solicitation provisions.

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Canadian Public M&A Deal Study 2014

  1. 1. Transaction Overview • Industry Classification • Trans action Size • Buyer Type • Transaction Structure • Co sideration Type • Preliminary Considerations • Consid eration • Initiation of Transaction Process • Financial Advisors and Fairness Opinions • Ownership of Targe Securities • Lock-up Agreements • Procedural Consid erations • Transaction Timing • Special Meeting Proc ess • Contractual Matters • Treatment of Target Secur ties • Material Adverse Effect • Interim Period Coove nants • Conditions • Deal Protections • Non-Solicitat ion • Right to Match • Termination Rights • Break Fee Reciprocal Break Fee • Expense Reimbursement • R emedies • Transaction Overview • Industry Classifica- tion • Transaction Size • Buyer Type • Transaction St ructure • Consideration Type • Preliminary Considera tions • Consideration • Initiation of Transaction Proces • Financial Advisors and Fairness Opinions • Ownersh ip of Target Securities • Lock-up Agreements • Proce- dural Considerations • Transaction Timing • Special Meeting Process • Contractual Matters • Treatment of Target Securities • Material Adverse Effect • Interim Period Covenants • Post-Closing Covenants • Condi- tions • Deal Protections • Non-Solicitation • Right to Match • Termination Rights • Break Fee • Reciprocal Break Fee • Expense Reimbursement • Remedies • Canadian Public M&A Deal Study Sixth Annual Edition 2014 blakes.comBlake,Cassels & Graydon LLP |
  2. 2. 2014 | Blakes Canadian Public M&A Deal Study
  3. 3. Blake, Cassels & Graydon LLP | blakes.com 2 Introduction 3 Transactions Overview 3 Industry Classification 3 Transaction Size 4 Buyer Type 4 Transaction Structure 5 Consideration Type 6 Preliminary Considerations 6 Initiation of Transaction Process 8 Financial Advisors and Fairness Opinions 9 Ownership of Target Securities 10 Lock-up Agreements 11 Procedural Considerations 11 Transaction Timing 12 Special Meeting Process 14 Contractual Matters 14 Treatment of Target Securities 15 Material Adverse Effect 16 Interim Period Covenants 20 Post-Closing Governance 21 Conditions 26 Deal Protections 26 Non-Solicitation 29 Right to Match 30 Termination Rights 31 Break Fee 33 Reciprocal Break Fee 35 Expense Reimbursement 37 Remedies 38 Appendices 38 Appendix A: Survey Method 39 Appendix B: Transactions Reviewed 40 Appendix C: Blakes Mergers & Acquisitions Practice 1CONTENTS Blakes Canadian Public M&A Deal Study
  4. 4. 2014 | Blakes Canadian Public M&A Deal Study 2 INTRODUCTION The sixth annual Blakes Canadian Public M&A Deal Study focuses on recurring and emerging issues in the structuring and negotiation of Target-supported public company acquisitions in Canada. The topics covered in the Study range from overall transaction structure and timing, such as the strategic review process and the formation of special committees, to specific contractual provisions, such as tax covenants, break and reciprocal break fees and non-solicitation provisions. Blakes prepared this Study based on a review of the 50 largest Canadian Target- supported transactions announced between June 1, 2012 and May 31, 2013, excluding transactions initiated without Target support. Where noted, we have included data from prior Blakes studies, resulting in deal information taken from up to 250 transactions. For additional information on the method used to prepare the Study and the transactions reviewed, see Appendices A and B. We invite you to review the results of the Study, which we hope will provide you with valuable insight for future transactions. About Blakes Mergers and Acquisitions Practice Blakes has one of the largest and most active mergers and acquisitions practices in Canada, having been involved in more than 1,100 public and private M&A transactions, with an aggregate dollar value in excess of US$1-trillion, in the past seven years. According to Bloomberg, Blakes has been Canada’s busiest M&A law firm each year since 2007. At the end of 2013, Blakes remained the leading Canadian firm in both domestic and global announced M&A deals based on deal count. Transactions on which we regularly advise range from negotiated acquisitions of private companies to the largest public company or trust mergers and acquisitions completed by way of take-over bids, amalgamations and plans of arrangement. We advise clients on structuring considerations, related-party rules, special committee obligations, take-over defences and contested shareholder meetings. For more information on our mergers and acquisitions practice, see Appendix C or visit www.blakes.com.
  5. 5. Blake, Cassels & Graydon LLP | blakes.com 60 2008/9 2009/10 2010/11 2011/12 40 20 50 30 10 0 40% 32% 56% 30% 32% 26%26% 30% 2012/13 42% 36% Industry Classification Transaction Size BuyerType Transaction Structure ConsiderationType TRANSACTIONS OVERVIEW 3 Transaction Size US$1-billion to US$5-billion (6%) Over US$5-billion (4%) Under US$250-million (42%) US$250-million to US$500-million (36%) US$500-million to US$1-billion (12%) Industry Classification Real Estate (6%) Commercial Services (4%) Mining/Basic Materials (38%) Oil & Gas/ Energy (30%) Technology & Communications (10%) Consumer (2%) Financial Services (2%) % % Mining/Basic Materials Oil & Gas/Energy Under US$250-million US$250-million to US$500-million Resource Sectors Canada’s Mid-Market Pharmaceuticals (2%) 50 2008/9 2009/10 2010/11 2011/12 40 20 30 10 0 32% 36% 44% 44% 32% 30% 40% 24% 2012/13 38% 30% Industrial/Utilities (6%)
  6. 6. 2014 | Blakes Canadian Public M&A Deal Study 100 2008/9 2009/10 2010/11 2011/12 80 60 40 20 0 80% 92% 94% 94% 20% 8% 6% 6% 82% 18% 2012/13 Industry Classification Transaction Size BuyerType Transaction Structure ConsiderationType TRANSACTIONS OVERVIEW 4 BuyerType Strategic Financial % Plan of arrangement Take-over bid Other shareholder- approved transactions % 80 2008/9 2009/10 2010/11 2011/12 60 40 20 0 60% 34% 6% 62% 26% 12% 78% 22% 0% 76% 18% 6% 18% 8% 74% 2012/13 Transaction Structure
  7. 7. Blake, Cassels & Graydon LLP | blakes.com Industry Classification Transaction Size BuyerType Transaction Structure ConsiderationType TRANSACTIONS OVERVIEW 5 If consideration consisted of a combination of cash and securities, was the cash component nominal (relative to the share consideration)? In 100% of transactions where Buyer securities were included as consideration, the exchange ratio was fixed (i.e., a specified number of Buyer securities were offered per Target secturity). ConsiderationType Cash only Securities only Shareholder election of cash and/or securities Combination of cash and securities % 60 2008/9 2009/10 2010/11 2011/12 50 40 30 20 10 0 14% 16% 18% 8% 18% 18% 10% 56% 40% 42% 44% 4% 14% 14% 52% 2012/13 30% 34% 26% 22% 20% No (70%) Yes (30%)
  8. 8. 2014 | Blakes Canadian Public M&A Deal Study 40 2008/9 2009/10 2010/11 2011/12 30 20 10 0 28% 22% 30% 34% 2012/13 42% PRELIMINARY CONSIDERATIONS Initiation of Transaction Process Financial Advisors and Fairness Opinions Ownership of Target Securites Lock-up Agreements 6 Based on disclosure in the Target circular, did Target undertake a review of strategic alternatives before contact with Buyer was established? In what percentage of transactions was there no review of strategic alternatives prior to contact with Buyer and no market check following contact with Buyer? Was the review of strategic alternatives publicly announced by Target? Was a market check conducted by Target following contact with Buyer? Did the acquisition agreement include a “go-shop” period? % Initiation ofTransaction Process No (52%) No (80%) No (100%) No (67%) Yes (48%) Yes (20%) Yes (33%) Yes (0%)
  9. 9. Blake, Cassels & Graydon LLP | blakes.com Initiation of Transaction Process Financial Advisors and Fairness Opinions Ownership of Target Securites Lock-up Agreements PRELIMINARY CONSIDERATIONS 7 In what percentage of transactions was Target permitted to solicit acquisition proposals following execution of the transaction agreement (e.g., including a “go-shop”)? Did Target establish a special committee of directors? What was the composition of the special committee? Number of Members 2008/9 2 2009/10 3 2010/11 4 5 or more (6%) (15%) (2%) (52%) (2%) (18%) (15%) Independence All independent Majority independent (90%) (8%) Number of Members as Percentage of Board Size Average Median (46%) (43%) No (20%) Yes (80%) Initiation ofTransaction Process (cont’d) 2011/12 2012/13 (2%) (0%) (2%) Minority independent
  10. 10. 2014 | Blakes Canadian Public M&A Deal Study PRELIMINARY CONSIDERATIONS Initiation of Transaction Process FinancialAdvisors and Fairness Opinions Ownership of Target Securites Lock-up Agreements 8 In what percentage of transactions did Target obtain a fairness opinion? In what percentage of transactions was the specified number of financial advisors engaged by Target and Buyer? In what percentage of transactions was the specified number of fairness opinions obtained by Target? Where related party and other provisions of Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions were inapplicable, who provided the fairness opinion(s) to Target? 100 2008/9 2009/10 2010/11 2011/12 90 80 70 60 50 94% 96% 100% 98% 2012/13 98% % 100 2008/9 2009/10 2010/11 2011/12 80 60 40 20 0 91% 85% 76% 73% 2012/13 80% 9% 15% 0% 22% 2% 27% 20% 0% 0% 0% % One opinion Two opinions Three or more opinions Target Buyer Financial Advisor(s) Independent Advisor BothTwo Three or More OneNone or Undisclosed (76%) (30%) (72%) (0%) (26%) (2%) (56%) (12%) (2%) (12%) (12%) Financial Advisors and Fairness Opinions
  11. 11. Blake, Cassels & Graydon LLP | blakes.com 15 2009/102008/9 20010/11 2011/12 12 9 6 3 0 4% 0% 4% 4% 2012/13 12% PRELIMINARY CONSIDERATIONS 9 Initiation of Transaction Process Financial Advisors and Fairness Opinions Ownership of Target Securites Lock-up Agreements In 18% of transactions, compared to 12% in the previous year, Buyer owned Target securities prior to execution of the transaction agreement. In these transactions, what was Buyer’s ownership level in Target prior to the acquisition transaction? In what percentage of transactions did Buyer agree to subscribe for Target shares in connection with execution of the transaction agreement? 30% to 40% (11%) 40% to 50% (11%) > 50% (22%) 0% to 10% (22%) 20% to 30% (0%) Ownership of Target Securities 10% to 20% (34%) %
  12. 12. 2014 | Blakes Canadian Public M&A Deal Study 100 2008/9 2009/10 2010/11 2011/12 0 55% 61% 58% 48% 2012/13 42% 100 2008/9 2009/10 2010/11 2011/12 0 95% 98% 98% 95% 2012/13 93% Initiation of Transaction Process Financial Advisors and Fairness Opinions Ownership of Target Securites Lock-upAgreements PRELIMINARY CONSIDERATIONS 10 In 90% of transactions, compared to 88% in the prior year, lock-up agreements were entered into with Target shareholder(s). In what percentage of these transactions was the specified percentage of Target securities locked up? If a lock-up agreement was entered into, what was the percentage of transactions where: Target management and/or directors were locked up? Parties other than Target management and/or directors were locked up? Breach of the lock-up agreement triggered a termination right for Buyer under the transaction agreement? % % % Lock-up Agreements Under 10% (42%) 10% to 20% (15%) 20% to 30% (11%) 30% to 40% (7%) 40% to 50% (7%) >50% (18%) 100 2008/9 2009/10 2010/11 2011/12 0 47% 33% 28% 34% 2012/13 20%
  13. 13. Blake, Cassels & Graydon LLP | blakes.com TransactionTiming Special Meeting Process 11PROCEDURAL CONSIDERATIONS For shareholder-approved transactions, where an outside meeting date was imposed, what was the number of days between the date of the transaction agreement and the outside meeting date? What was the number of days between the date of the transaction agreement and the actual closing date? Shareholder-approved transactions undertaken under foreign statutes, which were excluded above, closed in an average of 112 days, with a median of 132 days. 80 2008/9 2009/10 2010/11 2011/12 70 60 50 76 68 69 66 74 65 72 71 2012/13 64 62 No. of days No. of days 100 2008/9 2009/10 2010/11 2011/12 80 40 60 20 0 68% 32% 55% 66% 76% 45% 34% 24% 2012/13 47% 53% % > 60 days ≤ 60 days Average Median TransactionTiming Take-over bids (average) Shareholder-approved transactions (average) Take-over bids (median) Shareholder-approved transactions (median) 72 90 80 2008/9 2009/10 2010/11 2011/12 70 60 50 71 65 71 74 55 71 72 68 63 66 64 2012/13 84 70 69 58 86 55 66 53
  14. 14. 2014 | Blakes Canadian Public M&A Deal Study 80 2008/9 2009/10 2010/11 2011/12 60 40 20 0 61% 57% 56% 57% 2012/13 80% TransactionTiming Special Meeting Process PROCEDURAL CONSIDERATIONS 12 % For shareholder-approved transactions, in what percentage of transactions could Buyer require Target to adjourn the special meeting of Target’s shareholders? When Buyer could require Target to adjourn the special meeting of Target’s shareholders, the average maximum length of adjournment permitted was 11 business days. In 58% of transactions, the maximum adjournment was less than or equal to 10 business days (compared to 63% of transactions in the prior year). On what basis could Buyer require an adjournment? Special Meeting Process Alternative Proposal (73%) Unilateral (15%) Other (21%)
  15. 15. Blake, Cassels & Graydon LLP | blakes.com 80 2008/9 2009/10 2010/11 2011/12 60 40 20 0 39% 43% 62% 56% 2012/13 51% PROCEDURAL CONSIDERATIONS TransactionTiming Special Meeting Process 13 % For shareholder-approved transactions, in what percentage of transactions could Buyer force a vote of Target’s securityholders regardless of a Superior Proposal, assuming no termination of the transaction agreement by Target? Were optionholders of Target entitled to vote at the special meeting of securityholders? In 100% of transactions under Canadian law where optionholders of Target were entitled to vote, optionholders voted together with holders of common shares (the same percentage as in the three prior years). In transactions under foreign statutes, optionholders were entitled to a separate class vote in each case. Yes (27%) No (73%) Special Meeting Process (cont’d)
  16. 16. 2014 | Blakes Canadian Public M&A Deal Study Treatment of Target Securities Material Adverse Effect Interim Period Covenants Post-Closing Governance Conditions CONTRACTUAL MATTERS 14 How were Target options treated under the acquisition agreement? What prohibitions were imposed on extraordinary dividends and distributions by Target? If cashed out, did Buyer agree to elect not to take the section 110(1)(d) tax deduction in connection with the transaction? Did dividends or other distributions by Target, whether or not extraordinary, trigger a reduction in the purchase price under the transaction agreement? Exchanged for Buyer options (11%) No cash and no stock/property (82%) Yes, with exclusion for previously declared (14%) Terminated (2%) Yes (20%) No (66%) No (45%) Yes (55%) Cashed out (62%) Accelerated, with unexercised cancelled (21%) No prohibition (16%) Adjusted in accordance with terms (4%) Treatment of Target Securities No stock/property (2%)
  17. 17. Blake, Cassels & Graydon LLP | blakes.com Treatment of Target Securities MaterialAdverse Effect Interim Period Covenants Post-Closing Governance Conditions CONTRACTUAL MATTERS 15 % In what percentage of transactions did the Material Adverse Effect (MAE) definition include the effect on Target’s ability to perform its obligations under the transaction agreement, and was it subject to the exceptions in the MAE definition? How many specific exceptions were included in the MAE definition? On average, the MAE definition included 8 exceptions. 10 or more exceptions (25%) 7-9 exceptions (59%) 3-6 exceptions (16%) Included Where included, subject to exceptions Material Adverse Effect 100 2008/9 2009/10 2010/11 2011/12 80 60 40 20 0 88% 32% 50% 24% 67% 30% 65% 34% 2012/13 24% 50%
  18. 18. 2014 | Blakes Canadian Public M&A Deal Study Treatment of Target Securities Material Adverse Effect Interim Period Covenants Post-Closing Governance Conditions CONTRACTUAL MATTERS 16 In what percentage of transactions was Target required to undertake a pre-closing reorganization at the request of Buyer? If Target was required to undertake a pre-closing reorganization, what were the conditions imposed on Buyer? (93%) Advance notice to Target (68%) Reimbursement of Target for costs (71%) Indemnification of Target (82%) Reorganization cannot be prejudicial to Target or its shareholders (79%) Reorganization cannot impede or delay closing (32%) Buyer must waive all conditions to closing (64%) Reorganization cannot breach any applicable laws or constating documents (64%) Reorganization cannot give rise to adverse tax consequences (57%) Reorganization cannot interfere with Target operations (57%) Other conditions (46%) Reorganization cannot require Target shareholder approval Interim Period Covenants Not required (44%) Required (56%)
  19. 19. Blake, Cassels Graydon LLP | blakes.com Treatment of Target Securities Material Adverse Effect Interim Period Covenants Post-Closing Governance Conditions CONTRACTUAL MATTERS 17 What was the standard for the parties to obtain regulatory approvals? Reasonable Efforts (10%) Reasonable Best Efforts (6%) Best Efforts (4%) Commercially Reasonable Efforts (80%) Interim Period Covenants (cont’d) Where the closing of the transaction was subject to a condition related to the Competition Act (Canada), was Buyer explicitly not required to provide any remedies to satisfy the condition? Yes (44%) No (56%)
  20. 20. 2014 | Blakes Canadian Public MA Deal Study Treatment of Target Securities Material Adverse Effect Interim Period Covenants Post-Closing Governance Conditions CONTRACTUAL MATTERS 18 Interim Period Covenants (cont’d) Where the closing of the transaction was subject to a condition related to the Investment Canada Act (ICA), was Buyer required to offer all undertakings necessary to satisfy the condition? Was Buyer explicity not required to provide undertakings that Buyer did not consider reasonable in order to satisfy the ICA condition? No (89%) No (89%) Yes (11%) Yes (11%) Yes (0%) Yes (63%) No (100%) No (37%) 2011-12 2011-12 2012-13 2012-13
  21. 21. Blake, Cassels Graydon LLP | blakes.com Treatment of Target Securities Material Adverse Effect Interim Period Covenants Post-Closing Governance Conditions CONTRACTUAL MATTERS 19 In 100% of transactions there was an obligation on Buyer or Target to ensure continued directors’ and officers’ insurance or to purchase run-off insurance for the Target directors and officers. The average run-off period for such insurance policies was six years, the same average as transactions announced in all prior years of the Study. In 58% of transactions there was a maximum premium payable for the DO insurance to be obtained. In such transactions, what was the limitation on premiums? 300% of current premium amount (28%) 200% of current premium amount (38%) 150% of current premium amount (7%) 250% of current premium amount (24%) Specified dollar amount (3%) Interim Period Covenants (cont’d)
  22. 22. 2014 | Blakes Canadian Public MA Deal Study Treatment of Target Securities Material Adverse Effect Interim Period Covenants Post-Closing Governance Conditions CONTRACTUAL MATTERS 20 In what percentage of transactions did the transaction agreement include provisions setting forth the governance of Target following closing? Where governance provisions were included, what aspects of post-closing governance were addressed by the transaction agreement? Included (26%) Not included (74%) Post-Closing Governance 100 2010/112009/10 2011/12 80 60 40 20 0 83% 92% 100% 2012/13 33% 15% 15% 8% 92% 17% 4% 0% 0% 0% % Composition of board of directors Identity of chairman Entity name Location of headquarters
  23. 23. Blake, Cassels Graydon LLP | blakes.com Treatment of Target Securities Material Adverse Effect Interim Period Covenants Post-Closing Governance Conditions CONTRACTUAL MATTERS 21 How common were the following conditions to the closing of the transaction? For take-over bids, what was the minimum tender threshold at the commencement of the bid? (70%) Absence of threatened governmental litigation (50%) Absence of threatened non-governmental third-party litigation (24%) Approval of Buyer’s shareholders (8%) Divestiture of specified Target assets (32%) Solvency of Target (through accuracy of representation and warranties or as a specified condition) (10%) Maintenance of specified level of Target financial performance or condition (4%) Entry into, or continued effect of, Target management employment agreements Conditions % 662/3% 50% Other 100 2008/9 2009/10 2010/11 2011/12 80 60 40 20 0 88% 12% 100% 0% 0% 0%0% 90% 10% 89% 11% 2012/13 0% 11% 89%
  24. 24. 2014 | Blakes Canadian Public MA Deal Study Treatment of Target Securities Material Adverse Effect Interim Period Covenants Post-Closing Governance Conditions CONTRACTUAL MATTERS 22 Yes (54%) No (46%) Was closing of the transaction conditional on Competition Act (Canada) clearance? Conditions (cont’d) What was the nature of the Competition Act (Canada) condition? Reciept of Advance Ruling Certificate (ARC) or receipt of no-action letter and expiration/termination of waiting period (88%) Expiration of waiting period only (12%) Where receipt of an ARC or no-action letter was a condition to closing, was it required to be on terms satisfactory to Buyer? Yes (77%) No (23%)
  25. 25. Blake, Cassels Graydon LLP | blakes.com Treatment of Target Securities Material Adverse Effect Interim Period Covenants Post-Closing Governance Conditions CONTRACTUAL MATTERS 23 Was closing of the transaction conditional on Investment Canada Act (ICA) clearance? Conditions (cont’d) No (84%) No (37%) Yes (16%) Yes (63%) In 100% of transactions where closing was conditional on ICA matters, the condition required receipt of notice that the applicable federal government Minister was satisfied that the transaction is likely to be of net benefit to Canada. Where receipt of such Ministerial notice was a condition to closing, was it required to be on terms satisfactory to Buyer?
  26. 26. 2014 | Blakes Canadian Public MA Deal Study 100 2008/9 2009/10 2010/11 2011/12 80 60 40 20 0 2012/13 62% 85% 89% 83% 92% 81% 100% 96% 96% 95% 92% 92% 88% 95% 94% Treatment of Target Securities Material Adverse Effect Interim Period Covenants Post-Closing Governance Conditions CONTRACTUAL MATTERS 24 For shareholder-approved transactions, in what percentage of transactions was there a level of dissent condition? What was the threshold for the level of dissent condition? % % All shareholder- approved transactions Securities as all or part of consideration Cash only consideration 5% 10% 15% Other Conditions (cont’d) 100 2008/9 2009/10 2010/11 2011/12 80 60 40 20 0 10% 8% 0% 25% 9% 16% 26% 53% 82% 76% 2012/13 6% 3% 3% 28% 63% 68% 6% 3% 3% 18%
  27. 27. Blake, Cassels Graydon LLP | blakes.com Treatment of Target Securities Material Adverse Effect Interim Period Covenants Post-Closing Governance Conditions CONTRACTUAL MATTERS 25 How accurate did Target’s representations and warranties have to be as a closing condition in favour of Buyer? Were any specific representations and warranties subject to a stricter standard (e.g., required to be true in all respects) as a closing condition in favour of Buyer? Where specific representations and warranties were required to be true in all respects, which ones were subject to this higher standard? Yes (48%) No (52%) Conditions (cont’d) (96%) Capitalization (71%) Authorization (62%) Organization (25%) Ownership of subsidiaries (17%) Property/mineral rights (12%) Broker’s fees (12%) No material adverse change (12%) Execution/binding (12%) Non-contravention of law/constating documents (42%) Other True, except to the extent inaccuracies do not give rise to a MAE (14%) True, without giving effect to any materiality qualifiers, except to the extent inaccuracies do not give rise to a MAE (55%) True, but if not subject to any materiality qualifiers, then true except to the extent inaccuracies do not give rise to a MAE (6%) True in all material respects (23%) True in all respects (2%)
  28. 28. 2014 | Blakes Canadian Public MA Deal Study Non-Solicitation Right to Match Termination Rights Break Fee Reciprocal Break Fee Expense Reimbursement Remedies DEAL PROTECTIONS 26 What are the requirements for an acquisition proposal to qualify as a Superior Proposal? Same form of consideration as existing agreement? If specified, percentage of Target shares that must be subject to the proposal? May be subject to a due diligence condition? May be subject to a financing condition? May be subject to delays in closing? Yes (0%) 100% (74%) Yes (18%) Yes, but financing must be reasonably available (37%) No and financing must be reasonably available (35%) Yes (4%) Must be reasonably capable of completion without undue delay (71%) Must be reasonably capable of completion (25%) No (100%) 50% (22%) 90% (2%) No (72%) Yes (8%) Limited (10%) No (20%) Non-Solicitation 20% (2%)
  29. 29. Blake, Cassels Graydon LLP | blakes.com Non-Solicitation Right to Match Termination Rights Break Fee Reciprocal Break Fee Expense Reimbursement Remedies DEAL PROTECTIONS 27 What constituted a Superior Proposal? If the acquisition proposal was ____________ to the existing proposal. When could access to Target’s confidential information be provided to a third party? If the acquisition proposal ____________ a Superior proposal. When could Target terminate the transaction agreement with Buyer? If the acquisition proposal from the third party ____________ a Superior Proposal. “financially superior/more favourable” (98%) “could reasonably be expected to lead to” (78%) “other standard” (2%) “would be” (20%) “constitutes” (98%) Non-Solicitation (cont’d) “could reasonably be expected to constitute” (2%) “other standard” (2%)
  30. 30. 2014 | Blakes Canadian Public MA Deal Study Non-Solicitation Right to Match Termination Rights Break Fee Reciprocal Break Fee Expense Reimbursement Remedies DEAL PROTECTIONS 28 When was Target’s board of directors permitted to change its recommendation? Did Target’s board of directors have a general right to take any action and/or make any disclosure in order to comply with its fiduciary duties? In 72% of such transactions, Target’s board of directors had to obtain advice (written or otherwise) of outside legal counsel before taking any such action or making any such disclosure. In response to a Superior Proposal (18%) To comply with its fiduciary duties in response to a Superior Proposal (68%) Not permitted (2%) To comply with its fiduciary duties generally (8%) To comply with its fiduciary duties in response to a Superior Proposal or the occurence of an intervening event (4%) Yes (36%) No (64%) Non-Solicitation (cont’d) In what percentage of transactions was Target required to: Not waive existing standstill 94% provisions? Actively prosecute and 82% enforce existing standstill provisions? Include standstill in 78% confidentiality agreements with third parties? Not pay fees or expenses of 8% an alternate bidder? Prior to providing access to a third- party bidder, in what percentage of transactions was Target required to provide Buyer with: Identity of third-party bidder? 94% Copy of confidential 80% documents provided to third party? Summary of material terms 78% of alternative proposal? Copy of alternative proposal 76% and related documents?
  31. 31. Blake, Cassels Graydon LLP | blakes.com 48 hours 72 hours 3 business days 5 days 5 business days Other Non-Solicitation Right to Match Termination Rights Break Fee Reciprocal Break Fee Expense Reimbursement Remedies DEAL PROTECTIONS 29 In 100% of transactions where Target was subject to non-solicitation provisions, Buyer had a right to match a Superior Proposal. What was the matching period? What information was Target required to provide to Buyer as part of the matching process? 2012/13 2011/12 (0%) (2%) (6%) (6%) (14%) (10%) (70%) (74%) (4%) (4%) (6%) (4%) Copy of proposal (96%) Board confirmation of Superior Proposal (80%) Valuation of non-cash consideration (39%) Summary of material terms (29%) Copy of financing documents (20%) Right to Match
  32. 32. 2014 | Blakes Canadian Public MA Deal Study Non-Solicitation Right to Match Termination Rights Break Fee Reciprocal Break Fee Expense Reimbursement Remedies DEAL PROTECTIONS 30 What acts by Target in respect of a third-party acquisition proposal gave rise to a right of termination for Buyer? (100%) Withdrawal/modification of board recommendation (98%) Approval/recommendation of acquisition proposal (68%) Breach of non-solicitation (70%) Entry into agreement in respect of acquisition proposal (80%) Failure to reconfirm recommendation at request of Buyer (46%) Failure to reconfirm recommendation after announcement of acquisition proposal (44%) No position on acquisition proposal for specified period of time (60%) Announcement of intention to recommend or enter into acquisition proposal Termination Rights Where approval by Buyer’s shareholders was a condition to closing, could Buyer terminate the acquisition agreement if it accepted a “superior proposal” in respect of Buyer or if Buyer changed its recommendation to shareholders? Yes (50%) No (50%)
  33. 33. Blake, Cassels Graydon LLP | blakes.com Non-Solicitation Right to Match Termination Rights Break Fee Reciprocal Break Fee Expense Reimbursement Remedies DEAL PROTECTIONS 31 Since 2007, 98% of the transactions reviewed have been subject to a break fee payable by Target. In what percentage of transactions was the break fee two-tiered? What percentage of Target’s undiluted equity value was the break fee? Where the transaction was subject to a break fee, what were the average and median fees (as a percentage of Target’s undiluted equity value)? % % average median 0.9% and ≤ 2.0% 2.0% and ≤ 2.5% 2.5% and ≤ 3.0% 3.0% and ≤ 3.5% 3.5% and ≤ 4.0% 4.0% and ≤ 15.9% (10%) (2%) (23%) (29%) (25%) (14%) (27%) (33%) (18%) (29%) (2%) (4%) (6%) (6%) (14%) (22%) (11%) (25%) Break Fee 12 2008/9 2009/10 2010/11 2011/12 9 6 3 0 12% 10% 4% 8% 2012/13 0% 5 2008/9 2009/10 2010/11 2011/12 4 3 2 1 0 4.0% 3.8% 3.6% 3.6% 3.2% 3.6% 3.5% 3.6% 2012/13 3.8% 3.6% 2010/2011 2011/2012 2012/2013
  34. 34. 2014 | Blakes Canadian Public MA Deal Study Non-Solicitation Right to Match Termination Rights Break Fee Reciprocal Break Fee Expense Reimbursement Remedies DEAL PROTECTIONS 32 Break Fee (cont’d) In 94% of the transactions that included a break fee, the break fee was payable in connection with an alternative acquisition transaction occurring post-termination (i.e., a “tail” trigger), compared to 100% in the previous year. In connection with such a break fee trigger, a third party must have ___________ an alternative proposal prior to the special meeting of Target shareholders or the expiry of the take-over bid, as applicable. In 27% of transactions that included a tail trigger, the break fee was payable only in connection with “such” acquisition proposal, as opposed to 73% of such transactions where it was payable in connection with “any” post-termination acquisition transaction. In connection with the tail trigger, what was the period within which the alternative acquisition transaction had to be signed/consummated following a specified date (being one of the date of the agreement with the Buyer (11%), the termination of the agreement with the Buyer (62%), the originally scheduled Target shareholder meeting (5%) or the first acquisition proposal by a third party (22%))? 12 months (60%)9 months (18%) 6 months (22%) Announced (93%) Made (83%) Announced an intention to make (50%) Proposed (24%) Offered (22%)
  35. 35. Blake, Cassels Graydon LLP | blakes.com Non-Solicitation Right to Match Termination Rights Break Fee Reciprocal Break Fee Expense Reimbursement Remedies 33DEAL PROTECTIONS Reciprocal Break Fee Was the transaction subject to a reciprocal break fee payable by Buyer? What percentage of Target’s undiluted equity value was the reciprocal break fee? Where the transaction was subject to a reciprocal break fee, what were the average and median reciprocal break fees (as a percentage of Target’s undiluted equity value)? Yes (40%) No (60%) 0.2% and ≤ 2.0% 2.0% and ≤ 2.5% 2.5% and ≤ 3.0% 3.0% and ≤ 3.5% 3.5% and ≤ 4.0% 4.0% and ≤ 7.5% (28%) (16%)(15%) (22%) (24%) (22%) (17%) (32%) (25%) (16%) (10%)(11%) (30%) (8%) (20%) (4%) (0%) (0%) % average median 2010/11 2011/12 2012/13 5 2008/9 2009/10 2010/11 2011/12 4 3 2 1 0 3.3% 3.5% 3.1% 3.5% 2.9% 3.3% 2.7% 3.8% 2012/13 3.1% 3.3%
  36. 36. 2014 | Blakes Canadian Public MA Deal Study DEAL PROTECTIONS 34 Non-Solicitation Right to Match Termination Rights Break Fee Reciprocal Break Fee Expense Reimbursement Remedies Reciprocal Break Fee (cont’d) For Buyer’s breach of covenant (40%) For reciprocal triggering events as break fee (25%) For failure to pay purchase price (20%) For failure to close by outside date if Buyer and mutual conditions are satisfied (20%) Other (30%) The reciprocal break fee was ___________ the break fee. How common was it for the reciprocal break fee to be payable by Buyer for the following termination events? % “equal to” “less than” “greater than” 100 2008/9 2009/10 2010/11 2011/12 80 60 40 20 0 14% 5% 12% 72% 0% 28% 12% 28% 88% 67% 60% 2012/13 80% 20% 0% For failure to obtain specified regulatory approval (15%) For failure to recommend, or change of recommendation, to, or failure to receive approval from, Buyer’s shareholders (10%) Where the closing of the transaction was subject to a condition related to the Competition Act (Canada), none of the transactions required Buyer to pay Target a fee for failure to satisfy such condition.
  37. 37. Blake, Cassels Graydon LLP | blakes.com Non-Solicitation Right to Match Termination Rights Break Fee Reciprocal Break Fee Expense Reimbursement Remedies 35DEAL PROTECTIONS Expense Reimbursement Failure to obtain Target securityholder approval (48%) Failure to obtain Buyer securityholder approval (31%) Target’s breach of representation or covenant (72%) Buyer’s breach of representation or covenant (62%) Failure to close by outside date (16%) Failure to close by outside date (31%)Other (24%) Other (46%) Was the transaction subject to expense reimbursement? As a result of which termination events was expense reimbursement payable by Target? As a result of which termination events was expense reimbursement payable by Buyer? By Buyer only (2%) No (48%) By Target only (26%) By both (24%)
  38. 38. 2014 | Blakes Canadian Public MA Deal Study Non-Solicitation Right to Match Termination Rights Break Fee Reciprocal Break Fee Expense Reimbursement Remedies DEAL PROTECTIONS 36 Expense Reimbursement (cont’d) Where the transaction was subject to expense reimbursement, what was the amount of such reimbursement? Where the transaction was subject to expense reimbursement, what were the average and median caps or specified amounts payable (as a percentage of Target’s undiluted equity value)? % of Target’s undiluted equity value Average cap on actual expenses or specified amount payable Median cap on actual expenses or specified amount payable 1.5 2008/9 2009/10 2010/11 2011/12 1.0 0.5 0 0.6% 1.0% 0.4% 0.8% 0.9% 0.7% 0.6% 0.6% 2012/13 0.6% 1.4% 100 2009/10 2010/11 2011/12 2012/13 0 79% 21% 56% 60% 0%0%0% 75 50 25 44% 40% 46% 15% 39% % Specified amount Actual expenses subject to a cap Actual expenses
  39. 39. Blake, Cassels Graydon LLP | blakes.com Non-Solicitation Right to Match Termination Rights Break Fee Reciprocal Break Fee Expense Reimbursement Remedies 37DEAL PROTECTIONS Remedies In 98% of transactions, the transaction agreement did not explicitly preclude all parties from seeking specific performance. If not explicitly precluded, which parties were entitled to seek specific performance? Did the transaction agreement include an express right or prohibition for Target shareholders to sue for breach of the agreement? Both Buyer and Target (96%) Neither (56%) Buyer only (4%) Right (0%) Prohibition (44%)
  40. 40. 2014 | Blakes Canadian Public MA Deal Study The sixth annual Blakes Canadian Public MA Deal Study focuses on recurring and emerging issues in the structuring and negotiation of Target-supported public company acquisitions in Canada. The topics covered in the Study range from overall transaction structure and timing, such as the strategic review process and the formation of special committees, to specific contractual provisions, such as regulatory conditions, break and reciprocal break fees and non-solicitation provisions. Blakes prepared the Study based on a review of the 50 largest Canadian Target- supported transactions announced between June 1, 2012 and May 31, 2013, excluding transactions initiated without Target support. Where noted, we have included data from prior Blakes studies, resulting in deal information taken from up to 250 transactions. For a list of the transactions reviewed this year, see Appendix B. In compiling the Study, Blakes reviewed acquisition agreements, management proxy circulars, take-over bid circulars, press releases and related publicly available documents filed on the System for Electronic Document Analysis and Retrieval (SEDAR) maintained on behalf of the Canadian securities regulatory authorities for use by reporting issuers. The agreements and disclosure documents that form the basis of the Study each include specific drafting tailored to the particular transaction in question. The terms of many transactions are not directly comparable. Accordingly, Blakes has relied on its judgment and discretion in summarizing, categorizing and reflecting these provisions in the Study. In addition, the Study is based solely on publicly available information. Non-public information, such as information included in disclosure schedules or exhibits to an acquisition agreement not filed on SEDAR, may be relevant to the analysis but is not reflected in the Study. The results of this Study do not reflect the views of Blakes. Whether a specific term of an acquisition should apply or not is highly dependent on the facts and circumstances of each particular transaction. Accordingly, the applicability of any aspect of the Study to a specific transaction merits close consideration based upon the facts and circumstances of that transaction. APPENDIX A: SURVEY METHOD 38
  41. 41. Blake, Cassels Graydon LLP | blakes.com TARGET ACQUIROR (PARENT) ANNOUNCEMENT DATE Nexen Inc. CNOOC Ltd. 23/07/2012 Progress Energy Resources Corp. PETRONAS 28/06/2012 Primaris Retail REIT HR REIT 16/01/2013 Celtic Exploration Ltd. Exxon Mobil Corp. 17/10/2012 Uranium One Inc. ARMZ Uranium Holding OAO, Effective Energy NV 14/01/2013 CGA Mining Ltd. B2Gold Corp. 19/09/2012 Garda World Security Corp. Apax Partners LLP, Private Investor 07/09/2012 The Brick Ltd. Leon’s Furniture Ltd. 11/11/2012 Talison Lithium Ltd. Rockwood Holdings Inc. 23/08/2012 Aurizon Mines Ltd. Hecla Mining Co. 04/03/2013 Peer 1 Network Enterprises Inc. Cogeco Cable Inc. 21/12/2012 CC Energia Ltd. Pacific Rubiales Energy Corp. 19/11/2012 Queenston Mining Inc. Osisko Mining Corp. 12/11/2012 Guide Exploration Ltd. WestFire Energy Ltd. 09/08/2012 La Mancha Resources Inc. Weather Investments II SARL 13/07/2012 Extorre Gold Mines Ltd. Yamana Gold Inc. 18/06/2012 Spartan Oil Corp. Pinecrest Energy Inc. 21/11/2012 Orko Silver Corp. First Majestic Silver Corp. 16/12/2012 Avion Gold Corp. Endeavour Mining Corp. 07/08/2012 YM Biosciences Inc. Gilead Sciences Inc. 12/12/2012 Miranda Technologies Inc. Belden Inc. 05/06/2012 PMI Gold Corp. Keegan Resources Inc. 05/12/2012 KEYreit Plazacorp Retail Properties Ltd. 25/03/2013 Softchoice Corp. Birch Hill Equity Partners Management Inc. 22/04/2013 Pure Energy Services Ltd. FMC Technologies Inc. 20/08/2012 Rainy River Resources Ltd. New Gold Inc. 31/05/2013 Galway Resources Ltd. AUX Acquisition 2 SARL (EBX Group) 19/10/2012 Prodigy Gold Inc. Argonaut Gold Inc. 15/10/2012 PetroMagdalena Energy Corp. Pacific Rubiales Energy Corp. 05/06/2012 Inter-Citic Minerals Inc. Western Mining Group Co Ltd. 27/08/2012 Sprott Resource Lending Corp. Sprott Inc. 08/05/2013 AvenEx Energy Corp. Pace Oil Gas Ltd. 20/12/2012 Eacom Timber Corp. Kelso Co. 22/03/2013 IROC Energy Services Corp. Western Energy Services Corp. 22/02/2013 Compton Petroleum Corp. MFC Industrial Ltd. 09/07/2012 Vero Energy Inc. TORC Oil Gas Ltd. 13/09/2012 Score Media Inc. Rogers Media Inc. 25/08/2012 Shear Wind Inc. Sprott Power Corp. 08/08/2012 Shona Energy Co Inc. Canacol Energy Ltd. 15/10/2012 Second Wave Petroleum Inc. Brookfield Bridge Lending Fund Inc. 06/05/2013 Cerro Resources NL Primero Mining Corp. 13/12/2012 Afferro Mining Inc. International Mining Infrastructure Corp. PLC 22/05/2013 Winstar Resources Ltd. Kulczyk Oil Ventures Inc. 25/04/2013 CIC Energy Corp. Jindal Steel Power Ltd. 23/07/2012 H Paulin Co Ltd. The Hillman Cos Inc. 18/12/2012 Andina Minerals Inc. Hochschild Mining PLC 08/11/2012 C2C Industrial Properties Inc. Dundee Industrial REIT 19/03/2013 Arbor Memorial Services Fairfax Financial Holdings Ltd., JC Clark Advisor Ltd., 11/09/2012 Scanfield Holdings Ltd. 20-20 Technologies Inc. Vector Capital Corp. 30/07/2012 Wenzel Downhole Tools Ltd. Basin Holdings US LLC 13/05/2013 * By announced transaction value 39APPENDIX B: TRANSACTIONS REVIEWED
  42. 42. 2014 | Blakes Canadian Public MA Deal Study APPENDIX C: BLAKES MERGERS ACQUISITIONS PRACTICE 40 Blakes has one of the largest and most active mergers and acquisitions practices in Canada, having been involved in more than 1,100 public and private MA transactions, with an aggregate dollar value in excess of US$1-trillion, in the past seven years. According to Bloomberg, Blakes has been Canada’s busiest MA law firm each year since 2007. Transactions on which we regularly advise range from negotiated acquisitions of private companies to the largest public company mergers and acquisitions completed by way of take-over bids, amalgamations and plans of arrangement. We advise clients on structuring considerations, related-party rules, special committee obligations, take-over defences and contested shareholder meetings. As a known leader, our Mergers Acquisitions is regularly recognized by the following publications: • IFLR1000: The Guide to the World’s Leading Financial Law Firms • The Legal 500 Canada • The Best Lawyers in Canada • Chambers Global: The World’s Leading Lawyers for Business • The Canadian Legal Lexpert Directory • The Lexpert/American Lawyer Guide to the Leading 500 Lawyers in Canada • Law Business Research’s The International Who’s Who of Business Lawyers At the end of 2013, Blakes remained the top Canadian law firm in numerous categories. Our No. 1 league table rankings include: Canada No. 1 in Canada Announced deals by deal count (Bloomberg) No. 1 in Canada Completed deals by deal value (Thomson Reuters) Global No. 1 Canadian firm in Global Announced deals by deal count (Bloomberg) No. 1 Canadian firm in Global Announced deals by deal value (Thomson Reuters) No. 1 Canadian firm in Global Announced deals by deal value (mergermarket) No. 1 Canadian firm in Global Completed deals by deal value and deal count (Thomson Reuters) United States No. 1 Canadian Firm in United States Announced deals by deal value and deal count (Thomson Reuters) No. 1 Canadian firm in United States Announced deals by deal count (Bloomberg) No. 1 Canadian firm in United States Announced deals by deal value (mergermarket) No. 1 Canadian Firm in United States Completed by deal value and deal count (Thomson Reuters) No. 1 Canadian Firm in United States Public Completed deals by deal value and deal count (Thomson Reuters) For more information on our mergers and acquisitions practice, visit www.blakes.com.
  43. 43. Montréal Blake, Cassels Graydon S.E.N.C.R.L./s.r.l. 600 de Maisonneuve Boulevard West Suite 2200 Montréal QC H3A 3J2 Canada Telephone: 514-982-4000 Facsimile: 514-982-4099 E-mail: montreal@blakes.com Ottawa Blake, Cassels Graydon LLP 340 Albert Street Suite 1750, Constitution Square,Tower 3 Ottawa ON K1R 7Y6 Canada Telephone: 613-788-2200 Facsimile: 613-788-2247 E-mail: ottawa@blakes.com Toronto Blake, Cassels Graydon LLP 199 Bay Street Suite 4000, Commerce Court West Toronto ON M5L 1A9 Canada Telephone: 416-863-2400 Facsimile: 416-863-2653 E-mail: toronto@blakes.com Calgary Blake, Cassels Graydon LLP 855 – 2nd Street S.W. Suite 3500, Bankers Hall EastTower Calgary ABT2P 4J8 Canada Telephone: 403-260-9600 Facsimile: 403-260-9700 E-mail: calgary@blakes.com Vancouver Blake, Cassels Graydon LLP 595 Burrard Street P.O. Box 49314 Suite 2600,Three Bentall Centre Vancouver BC V7X 1L3 Canada Telephone: 604-631-3300 Facsimile: 604-631-3309 E-mail: vancouver@blakes.com NewYork Blake, Cassels Graydon (U.S.) LLP 126 East 56th Street Suite 1700,Tower 56 NewYork NY 10022-3613 U.S.A. Telephone: 212-893-8200 Facsimile: 212-829-9500 E-mail: newyork@blakes.com Chicago Blake, Cassels Graydon (U.S.) LLP 181 West Madison Street Suite 3925 Chicago IL 60602-4645 U.S.A. Telephone: 312-739-3610 Facsimile: 312-739-3611 E-mail: chicago@blakes.com London Blake, Cassels Graydon LLP 23 College Hill 5th Floor London EC4R 2RP England Telephone: +44-20-7429-3550 Facsimile: +44-20-7429-3560 E-mail: london@blakes.com Bahrain Blake, Cassels Graydon LLP in association with Dr. Saud Al-Ammari Law Firm 5th Floor, GB CorpTower Bahrain Financial Harbour P.O. Box 11005 Manama Kingdom of Bahrain Telephone: +973 17 15 15 00 Facsimile: +973 17 10 49 48 E-mail: bahrain@blakes.com Al-Khobar* Dr. Saud Al-Ammari Law Firm in association with Blake, Cassels Graydon LLP Apicorp Building P.O. Box 1404 Al-Khobar 31952 Kingdom of Saudi Arabia Telephone: +966 3 847 5050 Facsimile: +966 3 847 5353 E-mail: saud.ammari@blakes.com Beijing Blake, Cassels Graydon LLP 7 Dong Sanhuan Zhonglu Suite 901, OfficeTower A, Beijing Fortune Plaza Chaoyang District Beijing 100020 People’s Republic of China Telephone: +86-10-6530-9010 Facsimile: +86-10-6530-9008 E-mail: beijing@blakes.com Shanghai* Blake, Cassels Graydon LLP 1376 Nan Jing Xi Lu Suite 718, Shanghai Centre Shanghai 200040 People’s Republic of China Telephone: +86-10-6530-9010 Facsimile: +86-10-6530-9008 E-mail: beijing@blakes.com * Associated Office
  44. 44. MONTRÉAL OTTAWA TORONTO CALGARY VANCOUVER NEW YORK CHICAGO LONDON BAHRAIN AL-KHOBAR* BEIJING SHANGHAI* *Associated Offices Blake, Cassels Graydon LLP | blakes.com

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