canadian public m&a deal study 2014

Transaction Overview • Industry Classification • Trans-action Size • Buyer Type • Transaction Structure • Con-sideration Type • Preliminary Considerations • Consid-eration • Initiation of Transaction Process • Financial Advisors and Fairness Opinions • Ownership of Target Securities • Lock-up Agreements • Procedural Consid-erations • Transaction Timing • Special Meeting Process • Contractual Matters • Treatment of Target Securi-ties • Material Adverse Effect • Interim Period Coove\nants • Conditions • Deal Protections • Non-Solicitation • Right to Match • Termination Rights • Break Fee • Reciprocal Break Fee • Expense Reimbursement • Remedies • Transaction Overview • Industry Classifica-tion • Transaction Size • Buyer Type • Transaction Structure • Consideration Type • Preliminary Considerations • Consideration • Initiation of Transaction Process • Financial Advisors and Fairness Opinions • Ownership 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 StudySixth Annual Edition

2014

blakes.comBlake, Cassels & Graydon LLP |

2014 | Blakes Canadian Public M&A Deal Study

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


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.


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

Buyer TypeTransaction Structure

Consideration Type

TRANSACTIONS OVERVIEW 3

Transaction Size

US$1-billion toUS$5-billion

(6%)

OverUS$5-billion

(4%)

UnderUS$250-million

(42%)

US$250-millionto US$500-million

(36%)

US$500-millionto 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%)


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 ClassificationTransaction SizeBuyer Type

Transaction Structure

Consideration Type

TRANSACTIONS OVERVIEW4

Buyer Type

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


Industry ClassificationTransaction Size

Buyer TypeTransaction StructureConsideration Type

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).

Consideration Type

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%)


40

2008/9 2009/10 2010/11 2011/12

30

20

10

0

28%

22%

30%

34%

2012/13

42%

PRELIMINARYCONSIDERATIONS

Initiation of Transaction Process

Financial Advisors and Fairness OpinionsOwnership of Target SecuritesLock-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?

%


No (52%)

No (80%)

No (100%)

No (67%)

Yes (48%)

Yes (20%)

Yes (33%)

Yes (0%)



Financial Advisors and Fairness Opinions

Ownership of Target Securites

Lock-up Agreements

PRELIMINARYCONSIDERATIONS 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 of Transaction Process (cont’d)

2011/12 2012/13

(2%)

(0%)

(2%)

Minority independent


PRELIMINARYCONSIDERATIONS

Initiation of Transaction ProcessFinancial Advisors and Fairness Opinions

Ownership of Target SecuritesLock-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%)



15

2009/102008/9 20010/11 2011/12

12

9

6

3

0

4%

0%

4% 4%

2012/13

12%

PRELIMINARYCONSIDERATIONS 9



Ownership of Target Securites

Lock-up AgreementsIn 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%)

%


100

2008/9 2009/10 2010/11 2011/120

55% 61% 58%48%

2012/13

42%

100

2008/9 2009/10 2010/11 2011/120

95% 98% 98% 95%

2012/13

93%

Initiation of Transaction ProcessFinancial Advisors and Fairness OpinionsOwnership of Target SecuritesLock-up Agreements

PRELIMINARYCONSIDERATIONS10

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 2011/120

47%33% 28% 34%

2012/13

20%


Transaction Timing

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

Transaction Timing

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

7165

71

74

55

7172

68

63

6664

2012/13

84

70

69

58

86

55

66

53


80

2008/9 2009/10 2010/11 2011/12

60

40

20

0

61%57% 56% 57%

2012/13

80%

Transaction TimingSpecial Meeting Process

PROCEDURAL CONSIDERATIONS12

%

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%)


80

2008/9 2009/10 2010/11 2011/12

60

40

20

0

39%43%

62%56%

2012/13

51%

PROCEDURAL CONSIDERATIONS

Transaction TimingSpecial 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)


Treatment of Target Securities

Material Adverse EffectInterim Period CovenantsPost-Closing GovernanceConditions

CONTRACTUAL MATTERS14

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%)


No stock/property(2%)



Material Adverse 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%


Treatment of Target SecuritiesMaterial Adverse EffectInterim Period Covenants

Post-Closing GovernanceConditions


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%)


Treatment of Target SecuritiesMaterial Adverse

EffectInterim Period

Covenants


Conditions


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%)


Treatment of Target SecuritiesMaterial Adverse EffectInterim Period Covenants

Post-Closing GovernanceConditions



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




Covenants


Conditions


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 D&O insurance to be obtained. In such transactions, what was the limitation on premiums?

300% of current premium amount

(28%)


(38%)


(7%)


(24%)

Specified dollar amount

(3%)



Treatment of Target SecuritiesMaterial Adverse EffectInterim Period CovenantsPost-Closing Governance

Conditions


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%)


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




CovenantsPost-Closing GovernanceConditions


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%


Treatment of Target SecuritiesMaterial Adverse EffectInterim Period CovenantsPost-Closing GovernanceConditions


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%)






Was closing of the transaction conditional on Investment Canada Act (ICA) clearance?


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?


100

2008/9 2009/10 2010/11 2011/12

80

60

40

20

02012/13

62%

85%89%

83%

92%

81%

100%96% 96% 95%

92%92%88%

95%

94%

Treatment of Target SecuritiesMaterial Adverse EffectInterim Period CovenantsPost-Closing GovernanceConditions


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


100

2008/9 2009/10 2010/11 2011/12

80

60

40

20

010%

8%

0%

25%

9%16%

26%

53%

82%76%

2012/13

6%

3%3%

28%

63%68%

6%3%

3%

18%






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%)


(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%)


Non-Solicitation

Right to MatchTermination RightsBreak FeeReciprocal Break FeeExpense ReimbursementRemedies

DEAL PROTECTIONS26

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%)


Non-Solicitation

Right to MatchTermination Rights

Break FeeReciprocal Break Fee

Expense ReimbursementRemedies

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%)


Non-Solicitation

Right to MatchTermination RightsBreak FeeReciprocal Break FeeExpense ReimbursementRemedies

DEAL PROTECTIONS28

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?


48 hours 72 hours 3 businessdays 5 days 5 business

days Other

Non-SolicitationRight to Match

Termination RightsBreak Fee

Reciprocal Break FeeExpense 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


Non-SolicitationRight to MatchTermination Rights

Break FeeReciprocal Break FeeExpense ReimbursementRemedies

DEAL PROTECTIONS30

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%)





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


Non-SolicitationRight to MatchTermination RightsBreak Fee

Reciprocal Break FeeExpense ReimbursementRemedies

DEAL PROTECTIONS32

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%)




Reciprocal Break Fee


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%


DEAL PROTECTIONS34

Non-SolicitationRight to MatchTermination RightsBreak FeeReciprocal Break Fee


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.





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%)


Non-SolicitationRight to MatchTermination RightsBreak FeeReciprocal Break FeeExpense Reimbursement

Remedies

DEAL PROTECTIONS36

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 2012/130

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





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%)


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 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 METHOD38


TARGET ACQUIROR (PARENT) ANNOUNCEMENT DATE

Nexen Inc. CNOOC Ltd. 23/07/2012Progress Energy Resources Corp. PETRONAS 28/06/2012Primaris Retail REIT H&R REIT 16/01/2013Celtic Exploration Ltd. Exxon Mobil Corp. 17/10/2012Uranium One Inc. ARMZ Uranium Holding OAO, Effective Energy NV 14/01/2013CGA Mining Ltd. B2Gold Corp. 19/09/2012Garda World Security Corp. Apax Partners LLP, Private Investor 07/09/2012The Brick Ltd. Leon’s Furniture Ltd. 11/11/2012Talison Lithium Ltd. Rockwood Holdings Inc. 23/08/2012Aurizon Mines Ltd. Hecla Mining Co. 04/03/2013Peer 1 Network Enterprises Inc. Cogeco Cable Inc. 21/12/2012C&C Energia Ltd. Pacific Rubiales Energy Corp. 19/11/2012Queenston Mining Inc. Osisko Mining Corp. 12/11/2012Guide Exploration Ltd. WestFire Energy Ltd. 09/08/2012La Mancha Resources Inc. Weather Investments II SARL 13/07/2012Extorre Gold Mines Ltd. Yamana Gold Inc. 18/06/2012Spartan Oil Corp. Pinecrest Energy Inc. 21/11/2012Orko Silver Corp. First Majestic Silver Corp. 16/12/2012Avion Gold Corp. Endeavour Mining Corp. 07/08/2012YM Biosciences Inc. Gilead Sciences Inc. 12/12/2012Miranda Technologies Inc. Belden Inc. 05/06/2012PMI Gold Corp. Keegan Resources Inc. 05/12/2012KEYreit Plazacorp Retail Properties Ltd. 25/03/2013Softchoice Corp. Birch Hill Equity Partners Management Inc. 22/04/2013Pure Energy Services Ltd. FMC Technologies Inc. 20/08/2012Rainy River Resources Ltd. New Gold Inc. 31/05/2013Galway Resources Ltd. AUX Acquisition 2 SARL (EBX Group) 19/10/2012Prodigy Gold Inc. Argonaut Gold Inc. 15/10/2012PetroMagdalena Energy Corp. Pacific Rubiales Energy Corp. 05/06/2012Inter-Citic Minerals Inc. Western Mining Group Co Ltd. 27/08/2012Sprott Resource Lending Corp. Sprott Inc. 08/05/2013AvenEx Energy Corp. Pace Oil & Gas Ltd. 20/12/2012Eacom Timber Corp. Kelso & Co. 22/03/2013IROC Energy Services Corp. Western Energy Services Corp. 22/02/2013Compton Petroleum Corp. MFC Industrial Ltd. 09/07/2012Vero Energy Inc. TORC Oil & Gas Ltd. 13/09/2012Score Media Inc. Rogers Media Inc. 25/08/2012Shear Wind Inc. Sprott Power Corp. 08/08/2012Shona Energy Co Inc. Canacol Energy Ltd. 15/10/2012Second Wave Petroleum Inc. Brookfield Bridge Lending Fund Inc. 06/05/2013Cerro Resources NL Primero Mining Corp. 13/12/2012Afferro Mining Inc. International Mining & Infrastructure Corp. PLC 22/05/2013Winstar Resources Ltd. Kulczyk Oil Ventures Inc. 25/04/2013CIC Energy Corp. Jindal Steel & Power Ltd. 23/07/2012H Paulin & Co Ltd. The Hillman Cos Inc. 18/12/2012Andina Minerals Inc. Hochschild Mining PLC 08/11/2012C2C Industrial Properties Inc. Dundee Industrial REIT 19/03/2013Arbor Memorial Services Fairfax Financial Holdings Ltd., JC Clark Advisor Ltd., 11/09/2012 Scanfield Holdings Ltd. 20-20 Technologies Inc. Vector Capital Corp. 30/07/2012Wenzel Downhole Tools Ltd. Basin Holdings US LLC 13/05/2013

* By announced transaction value

39APPENDIX B: TRANSACTIONS

REVIEWED


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 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.

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•ChambersGlobal:The World’s Leading Lawyers for Business•The Canadian Legal Lexpert Directory•The Lexpert/American Lawyer Guide to the Leading 500 Lawyers in Canada•LawBusinessResearch’sThe 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:

CanadaNo. 1 in Canada Announced deals by deal count (Bloomberg)No. 1 in Canada Completed deals by deal value (Thomson Reuters)

GlobalNo. 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 StatesNo. 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.

MontréalBlake, 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: [email protected]

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Telephone: +44-20-7429-3550 Facsimile: +44-20-7429-3560 E-mail: [email protected]

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