The document provides a summary of the top 10 tips for a successful mergers and acquisitions (M&A) deal. The tips include: 1) using confidentiality agreements to protect information; 2) establishing an effective special committee; 3) financing deal costs; 4) responding to unsolicited offers; 5) properly structuring the deal; 6) understanding the pros and cons of shares versus cash deals; 7) minimizing non-completion risks; 8) determining when to pay or not pay a break fee; 9) protecting directors and officers; and 10) maintaining proper disclosure practices to avoid regulatory issues.

1. Top 10 Tips for a Successful M&A
Presented by: Gary Sollis
September 28, 2011
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2. Top 10 Tips for a Successful M&A
• Protecting the Company Through Confidentiality Agreements
• Effective Use of a Special Committee
• Financing the Deal Costs
• Responding to an Unsolicited Offer
• Structuring the Deal
• Pros and Cons of Shares vs. Cash
• Minimizing Non‐Completion Risks
• When to Pay (or Not to Pay) a Break Fee
• Protecting Directors and Officers
• Keeping out of Trouble with the Regulators
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3. 1. Protecting the Company Through
Confidentiality Agreements
Use appropriate confidentiality agreements to protect the Company’s key
assets and maintain control over the sale process.
• When – before providing access to Company information or engaging in
discussion regarding a Transaction
• Key Terms
– Confidentiality / use restrictions
– Area of Interest
– Standstill
– Non‐Solicitation
• What to keep in mind:
– Standstills may be enforced even if limited or no information is provided
(Aurizon Mines vs. Northgate Minerals)
– Confidentiality provisions may prevent an offer even if the standstill has
expired
(Certicom vs. Research In Motion and Minera Aquiline vs. IMA Exploration)
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4. 2. Effective Use of a Special Committee
• Make effective use of a Special Committee
– To fulfill regulatory requirements.
– To protect directors from liability, through the application of the
business judgment rule.
– To establish an efficient process.
• When
– If the transaction is, or may be, with a related party
(MI 61‐101; TSX‐V Policy 5.9).
– If there are any real or perceived conflicts of interest on the part of
management or any of the directors.
– If it is difficult to convene Board meetings on short notice.
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5. 2. Effective Use of a Special Committee
• Things to remember
– Form the Special Committee early.
– Special Committee should select and instruct a financial advisor.
– Special Committee should establish the parameters and process for doing a
transaction, and monitor its implementation, but Management should
negotiate and implement the deal.
– Special Committee must assess and evaluate the proposed transaction and any
alternatives, and make recommendations to the Board.
– While independent counsel to the Special Committee is desirable, it is not
essential unless a conflict arises.
– While management can attend Special Committee meetings, they shouldn’t do
so if they have an interest in any of the matters under discussion.
– Absent special circumstances, members of the Special Committee should be
compensated for their efforts.
– Members of the Special Committee should be properly indemnified and
insured.
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6. 3. Financing the Deal Costs
Prepare a budget and funding plan for Transaction costs before initiating the
sale process.
• Anticipate all Transaction costs, including:
– Financial advisor (including fairness opinion/valuation)
– Legal (may include independent counsel to the Special Committee and U.S.
legal advice as well)
– Tax (will be greater if the Transaction includes a restructuring or spin‐off)
– Audit / Accounting (will be greater if the Transaction is structured as a share
for share exchange)
– Transfer Agent
– Proxy Solicitation (Buyer should pay)
– Printing (Directors Circular or Information Circular)
– French translation (depends on reporting status or shareholder numbers in
Quebec)
– Special Committee fees
– Extended D&O insurance coverage
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7. 3. Financing the Deal Costs
• Funding arrangements may include one or more of the
following:
– Undertaking a financing before starting the process.
– Requesting the Buyer to provide interim financing to the Company
– Undertaking a financing after announcement of a possible Transaction,
provided that the Company is not in possession of material undisclosed
information (New Island Resources)
– Funding expenses through the exercise of outstanding options or
warrants immediately prior to Closing
– Requiring the Buyer to pay the expenses after Closing
– Negotiating an expense reimbursement clause in the event that the
Buyer defaults
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8. 4. Responding to an Unsolicited Offer
Develop a plan for responding to an opportunistic, unsolicited offer.
This will usually include:
• Forming a Special Committee
• Engaging a financial advisor, legal counsel and if appropriate, a proxy
solicitation agent
• Reviewing/Adopting a Shareholder Rights Plan (Pulse Data Inc. (ASC), Neo
Materials Technologies Inc. (OSC), Baffinland Iron Mines Corporation (OSC)
and Lions Gate Entertainment Corp. (BCSC))
• Establishing a dedicated website and an active shareholder communication
strategy
• Identifying and contacting key shareholders
• Seeking alternative proposals
• Adopting a litigation strategy
• Maintaining open lines of communication with the Offeror
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9. 5. Structuring the Deal
Structure the Transaction to achieve your key objectives, keeping in mind the
following:
• Take‐Over Bid
– Advantages
• Speed and Cost
– Disadvantages
• Shareholder tender requirement – usually
66 ⅔% of all issued shares (fully‐diluted).
• If 90% of the shares are not tendered under the Bid, a second step transaction will
be required to acquire 100%.
• Lack of flexibility.
– No effective way to deal with options/warrants under the Bid, if they are to be cancelled or
exchanged.
– Prohibition against collateral benefits.
• Securities law restrictions on issuing shares to U.S. shareholders.
• Valuation requirement for insider bids.
• French translation requirement in Quebec.
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10. 5. Structuring the Deal
• Plan of Arrangement
– Advantages
• Flexibility
– Can provide for termination or exchange of options/warrants
– Can provide for different treatment of shareholders
– Can accommodate a spin‐off of non‐core assets
• Shareholder approval requirement ‐ 66⅔% of shares voted at the meeting;
no second‐step transaction required.
• Provides Target with greater control over the process.
• Court approval provides comfort to directors.
• Court approval provides an exemption from U.S. securities laws for shares issued to
U.S. Shareholders (section 3(a)(10) exemption).
– Disadvantages
• Cost and Timing
• Dissent rights
• Court hearing provides a forum for dissident shareholders to oppose the Transaction
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11. 6. Pros and Cons of Shares vs. Cash
Make sure that you fully understand the advantages and disadvantages of
shares vs. cash.
• Cash
– Advantages
• Valuation certainty
• Speed and cost
– Disadvantages
• Target shareholders are not able to continue to participate in upside
potential of the Company’s properties
• Transaction will be a taxable event; no roll‐over is available in Canada
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12. 6. Pros and Cons of Shares vs. Cash
• Shares
– Advantages
• Target shareholders continue to participate in the Company’s properties
• Target shareholders are usually able to defer tax until they sell the shares received in
the Transaction
– Disadvantages
• Valuation issues
• Prospectus level disclosure
• Financial statement review
• If the Transaction is a significant acquisition – pro forma financial statements
• If any material change – an updated 43‐101 report
• If the Company has U.S. shareholders – a U.S. securities exemption
• If the Buyer is listed on the TSX, and if the number of shares issued in the
Transaction exceed 25% of the number of shares of the Buyer outstanding
– approval of the Buyer’s shareholders
• Increased cost and time
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13. 7. Minimizing Non‐Completion Risks
Ensure that the Definitive Agreements are properly worded to minimize
completion risks. This will usually involve:
• Limiting the closing conditions and, in particular, the MAC
condition.
• Ensuring that there are no financial statement/technical report
issues that will delay the process.
• Ensuring the accuracy of the Company’s representations and
warranties through a fulsome Disclosure Letter.
• In appropriate circumstances, negotiating a reverse break fee
(e.g. If the Transaction is subject to a financing condition or is
for shares and requires approval of the Buyer’s shareholders.)
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14. 8. When to Pay (or Not to Pay) a Break Fee
Know when a break fee or termination fee is properly payable, and when
it isn’t.
• When To Pay
– If the Company accepts a Superior Proposal prior to the expiry of the
Bid or the Shareholders Meeting.
– If an Acquisition Proposal is terminated before the expiry of the Bid or
Shareholders Meeting and an Acquisition Proposal with the same
person is completed within 12 months.
– If the Company breaches the exclusivity or non‐solicit provisions of the
Agreement.
– If the Company withdraws or adversely modifies its recommendation
regarding the Transaction.
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15. 8. When to Pay (or Not to Pay) a Break Fee
• When Not to Pay
– If the Company’s shareholders fail to approve or tender the required
number of shares to the Transaction (except in the circumstances
referred to in the preceding slide)
– If the Transaction doesn’t complete by an outside date, or the meeting
is not held by a specified date.
– If the Company is in default under any of its other covenants, or the
Company makes any misrepresentation, in the Definitive Agreement.
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16. 9. Protecting Directors and Officers
Develop a plan to retain and protect the Company’s directors and officers
throughout the sale process. This should include:
• Ensuring adequate D&O insurance is in place at start of the
process.
• Providing a contractual indemnity to each director and officer.
• Implementing retention arrangements for key Management
– Employment agreements with change of control provisions
– Retention bonus agreements
– Stock options
• Once a definitive agreement is signed, obtaining a run‐off
insurance for 6 years after closing.
• Obtaining and relying on the advice of qualified experts.
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17. 10. Keeping out of Trouble with the Regulators
Adopt and implement proper disclosure and governance practices to minimize
the possibility of disclosure problems. These will usually include the following:
• Maintaining strict confidentiality of the Transaction and, unless previously
disclosed, the sale process
– Use codenames
– Advise employees only on a “need to know” basis
• Instituting a trading blackout.
• Monitoring trading volumes and prices.
• Ensuring that all insider report filings are accurate and up to date.
• Issuing a news release disclosing the Transaction as soon as the definitive
agreements have been signed.
• Deferring Board approval of the Transaction until definitive agreements are
finalized and ready to be signed.
• Ensuring that any shareholder approached to sign a lock‐up or voting support
agreement before public announcement is aware that it will be unable to trade in
the Company’s securities until after the announcement.
• Avoiding selective disclosure by preparing and following a Script for shareholder
communications.
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18. Gary Sollis
Gary.Sollis@fmc‐law.com
+1 604 443 7130
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19. The preceding presentation contains examples of the kinds of
issues companies dealing with mergers and acquisitions
could face. If you are faced with one of these issues,
please retain professional assistance as each situation is unique.