April 2015

by H.J. (JIM) Blake, Q.C.,,

Partner

Secured Lending

Securities and Corporate Finance

Termination Clauses and Equity Financing in the Mining Industry

H.J. (JIM) Blake Q.C.

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E-Commerce

Mining and NaturalResources

Trade-Mark Agent

Corporate and Commercial(Mergers and Acquisitions)

by Samuel H. Carsley,Partner

Samuel H. CarsleyJim is a senior partner of McLean & Kerr LLP and received his LL.M. in Business Law from York University and his LL.B. from Osgoode Hall and was appointed Queen’s Counsel in 1980. Jim’s principal focus of practice is securities and corpo-rate finance in the context of resource exploration and development, mining law, and corporate and commercial transac-tions (including mergers and acquisi-tions). Jim has also assisted new start-up companies with the “going public” process.

Jim has regularly delivered lectures for the Canadian and Ontario Bar Associa-tions on topics such as Interest Act compliance, “piercing the corporate veil”, business law check lists for non-resident acquisitions of Canadian businesses, secured lending transactions, directors and officers liabilities, limited liability companies, unanimous shareholder agreements and reviews of corporate law developments for OBA’s annual Opera-tion Update programs. Jim has also written articles on the legal and fiduciary duties of directors and corporate manag-ers. Jim is a past Chair of the Natural Resources & Energy Section of the Ontario Bar Association and is also a past Chair of the Business Law Section of the Ontario Bar Association.

Sam is a member of the Securities and Corporate Finance and the Corporate and Commercial practice groups at McLean & Kerr LLP. He received his LL.M. in Corporate and Securities Law on a Capital Markets Fellowship from the University of Toronto and his B.C.L./LL.B. with distinction from McGill University.

Sam has experience in numerous forms of financing, and acts for underwriters and issuers on a variety of debt and equity capital market offerings. He also assists clients with their continuous disclosure obligations and corporate governance issues.

He acts for junior mining and explora-tion companies in all aspects of financ-ing development. He has developed joint venture technology agreements and agreements governing the use of mining technology, and has negotiated and drafted mining option agreements. He also serves as an executive member of the Ontario Bar Association's Natural Resources and Energy Section. In addition, Sam acts for entrepreneurial clients, assisting them in areas of corporate governance, corporate organizations, financing, commercial agreements and other contractual matters.

Securities and Corporate FinanceMining and Natural ResourcesCorporate and Commercial

IntroductionA sound mining financing or M&A transaction should reflect optimism and pessimism in equal measure. While the potential benefits of success of a deal might impel it towards completion, parties should always be mindful that unforeseen factors may change motivations and expectations for the deal. This is especially true in mining where the vagaries of the industry’s multifarious inputs can shift the sands beneath the feet of the parties and make it difficult for junior and medium size mining companies to raise equity for working capital, exploration and capital development.As such, exit strategies and termination scenarios must be specifically dealt with at the outset of a transaction. Three common termination scenarios: (i) due diligence outs, (ii) material adverse change outs and (iii) fiduciary-outs, require an unequivocal contractual process by which the parties allocate the risks of such occurrences and mitigate potential losses through careful drafting and provision for break fees.This article provides practical drafting considerations for preparing clauses providing for due diligence outs, material adverse change outs and fiduciary-outs as well as guidance for the calculation, negotiation and drafting of break fees.

The Due Diligence Out“Due diligence out” refers to a condition precedent which allows a party to withdraw from a transaction if

it is not satisfied with the results of its due diligence review before the closing of the transaction. In a financing transaction, for example, this is included early in the evolution of the discussions between an issuer and an agent, typically in the commitment letter, and should be reiterated in the definitive agreement. Consider the following example of a due diligence out clause in the context of a commitment letter:

Without limiting any other provision of this agreement, the offer and the obligations of the agent hereunder shall be conditional on: (i) the issuer allowing the agent and its representatives to conduct all customary due diligence investigations with respect to the issuer and its operations and affairs which it may reasonably require, and (ii) prior to the closing date, such due diligence investigations not revealing any material adverse information or fact relating to the operations, property, liabilities, condition (financial or otherwise) or prospects of the issuer or its affiliates which may preclude the satisfaction of a condition precedent under this agreement [as determined by the agent in its sole discretion].

The costs for the agent which lie in due diligence searches which may potentially discover material adverse information which could preclude the completion of the transaction can be reimbursed by a provision in a commitment letter which would typically shift such costs to the issuer by including the following clause:

The issuer will pay:

a) all out-of-pocket expenses properly incurred by the agent in connection with the offer, the preparation and negotiation of the transaction documents and the performance by the agent of its obligations hereunder; and

b) any legal fees [to a maximum of $XX] that are incurred in connection with the transaction.

The fees and expenses referred to in paragraph (a) and (b) above will be payable regardless of whether any of the transactions contemplated hereby are consummated or the commitment or undertaking of the agent hereunder expires or is terminated.

Due diligence itself is a rigorous process, especially in the mining context, and can reveal a host of issues regarding the issuer, from environmental concerns to aboriginal issues to regulatory hurdles, any of which, taking the above example, could constitute “material adverse information” and preclude the completion of the transaction. The question of the materiality of the information will usually fall to the discretion of the agent – or the acquiror in an M&A transaction – who may consider emphasizing that point in the commitment letter by making the determination of materiality discretionary (see language in square brackets in sample provision above). Issuers cannot force an agent into a financing if the due diligence reveals material adverse information.

However, they can stipulate a time period during which due diligence may be conducted, after which the door for the due diligence out can effectively be closed.

Material Adverse ChangeUncertainty in lending markets and in M&A transactions has caused lenders and acquirors to review and enhance their standard material adverse change (“MAC”) clauses. The MAC clause is a self-help clause that provides a lender or acquiror with the right to terminate or renegotiate a proposed financial or M&A transaction because of changed circumstances of the borrower or target or changes in the fundamentals of a business. This is a situation in which assiduous drafting can provide significant value to both parties through effective risk allocation.

Central to the MAC clause is the definition of “material adverse change”. The definition can be drafted broadly to give purchasers an easy out or narrowly to move them towards a closing despite the occurrence of adverse events. The final form of the MAC definition will typically be dictated by the relative bargaining power of the parties and the degree to which on party can shift risk to another. Some of the key elements which can be negotiated in the MAC clause can include:

• the time period during which the MAC clause can be invoked;

• the significance of the adverse change required to trigger the MAC clause;

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• whether the definition of “materiality” applies to the effect on the issuer alone or the proportionate effect on the target relative to others in the market; and• whether a change in tax, regulatory or corporate laws is to be excluded from the MAC definition.

Consider the following MAC definition specific to a mining transaction (terms not otherwise defined have their conventional meanings):

“Material Adverse Change” means, in respect of any Person, any one or more changes, events or occurrences, and “Material Adverse Effect” means, in respect of any Person, an effect which, in either case, either individually or in the aggregate, is, or would reasonably be expected to be, material and adverse to the business, operations, results of operations, production, assets, capital, property, obligations (whether absolute, accrued, conditional or otherwise), liabilities or financial condition of that Person and its Subsidiaries, taken as a whole, other than any change, event, occurrence or effect: (i) affecting the worldwide gold mining industry in general; (ii) in or relating to general political, economic, financial or capital market conditions generally (including any reduction in market indices); (iii) in or relating to, IFRS or regulatory accounting requirements; (iv) in or relating to any change in Laws or any interpretation, application or non-application thereof by any Governmental Entity; (v) relating to change in the market trading price of shares of such Person arising from the

announcement of the execution of this Agreement or the transactions contemplated hereby or any change event or occurrence excluded from this definition under other prongs; or (vi) resulting from changes in the price of gold, provided, however, that such effect referred to in clause (i) to (iv) and (vi) above does not have a disproportionate effect on that Person and its Subsidiaries (taken as a whole) compared to other companies of similar size operating in the mining industry.

This example excludes broad market forces, changes in regulatory requirements and other elements of general applicability to the industry segment at large from the definition of MAC. However, the final few lines in the sample language above carve out those events which do not have a disproportionate effect on a given party. At base, this clause is designed to narrow those MAC situations to those which would adversely affect the subject parties, rather than simply the industry at large.

Drafting an appropriate MAC clause requires the parties to foresee future events and to consider their potential effect on the transaction. These two elements can make drafting a MAC clause a contentious exercise.

Fiduciary-OutIn an acquisition, the fiduciary duty of directors of a target to act honestly and in good faith with a view to the best interests of the corporation can be tested by the prohibitions on the solicitation of competing proposals imposed by acquirors.

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Therefore, such prohibitions are often qualified by provisions which allow boards to exercise those fiduciary duties, the most powerful of which are “fiduciary-out” provisions.

Fiduciary-out provisions give a target board the right to accept a superior proposal or otherwise change its recommendation to shareholders in order to get out of a less attractive deal with the acquiror. While an acquiror wants certainty that the deal will be done even if an alternative proposal for the target is made, the target board wants to ensure that it can appropriately carry out its fiduciary duties regarding the transaction, including getting the most favourable deal for the securityholders. A sample fiduciary-out clause is included at Section 1.3 of Schedule “A”.

A target board will attempt to negotiate a fiduciary-out clause which allows it to change its recommendation to comply with its fiduciary duties as a right which may be exercised before shareholder approval of the transaction. This form of fiduciary-out would allow the board to withdraw, qualify or change its recommendation if the Board determines that the failure to do so would be inconsistent with its fiduciary duties. In that case, the acquiror will typically have the option to terminate and receive a break fee. If drafted more narrowly, the fiduciary-out clause could allow the acquiror to force the target to hold the shareholder meeting despite such change in recommendation.

If a target receives a superior proposal, it

must notify the acquiror. The acquiror will then have a given amount of time (three to five days) to match the superior proposal. It will also have the right to match subsequent superior proposals. If the acquiror does not match a superior proposal, the target will have the right to terminate the agreement, subject to paying a break fee (see discussion below).

Break FeesBecause of the very significant time and costs for due diligence, regulatory compliance, regulatory fees, professional fees for NI 43-101 compliant technical reports, evaluation reports, tax structuring advice and legal advice, the acquiring or dominant party (the “Acquiror”) in a M&A transaction looks to deter competing bids which might interfere with the completion of the proposed transaction. Protection devices used by Acquirors include termination fees (break fees), “lock-up” agreements and “no shop provisions”. On the other side, the board of directors of the targeted counter-party (the “Target”) will seek to maximize value for its shareholders and will seek to preserve the right to accept a superior proposal for the Target by bargaining for a “fiduciary-out” clause.

A “break fee” is negotiated as an agreed upon amount for liquidated damages should the transaction not proceed due to circumstances such as

(i) breach by the Target of its contractual obligations to the Acquiror under the acquisition agreement (e.g. withdrawal of support for the transaction, breach of non-solicitation covenant);

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(ii) the Target exercising its “fiduciary-out” rights stipulated for in the acquisition agreement in the circumstances where a “superior offer” is found by the Target’s board of directors to be in the best interests of the shareholders of the Target;

(iii) Acquiror terminates where a condition precedent is not satisfied; and

(iv) Acquiror terminates where Target’s shareholders do not approve the M&A transaction.

As noted, the “break fee” is pre-estimate of damages and the size of such a break fee can range from 1 to 5% of the “equity value” of the acquisition transaction (for example, in the Burger King/Tim Hortons transaction, the break fee of 345 million Canadian dollars payable to Burger King was 3% of the transaction (equity) value). The acceptability of a break fee is a highly fact specific inquiry, not a function of consistency with statistical ranges.

Beyond the simple question of the percentage of the break fees, parties will need to consider the appropriate denominator for the break fee calculation – specifically whether it is measured as a percentage of “equity value” or of “enterprise value”.

For reference, “equity value” is the value of a company to owners or shareholders calculated as the market cap (or paid-up equity if a private company) plus all cash and cash equivalents, short and long-term investments and less all short-term debt, long-term debt and minority interests. “Enterprise value” is calculated as market

cap (or paid-up equity if a private company) plus debt, minority interests and preferred shares minus total cash and cash equivalents. “Equity value” will tell you what a company is worth and “enterprise value” tells you how much it would cost to acquire a company.

While most cases addressing break fees have focused on the percentage of transaction (equity) value, in certain circumstances courts have considered whether enterprise value is a more logical metric.

Whenever a break fee arrangement is being considered, local law and regulations in the Target’s jurisdiction should be analyzed carefully to identify whether there are limits or caps on break fees and how such clauses must be structured and drafted to ensure such fees are legally enforceable.

Where the parties are of similar size or have similar negotiating strength, reciprocal break fee arrangements, which provide for either the bidder or the Target company to receive the break fee depending upon which party is to blame for the failure of the bid to progress, are also becoming increasingly common. For example, Burger King could have owed Tim Hortons 500 million Canadian dollars (4.55% of the transaction (equity) value) if the deal had failed to win certain regulatory approvals.

Attached in Schedule “A” are examples of a various clauses which may be considered when drafting non-solicitation, fiduciary-out and break fee clauses.

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SCHEDULE “A”ARTICLE 1NON-SOLICITATION AND TERMINATION FEE

1.1 Covenant Regarding

Non-SolicitationTarget shall, and shall direct and cause its officers, directors, employees, representatives, advisors and agents and Target and the Target Subsidiaries and their representatives, advisors, agents, officers, directors and employees to immediately cease and cause to be terminated any solicitation, encouragement, activity, discussion or negotiation with any parties that may be ongoing with respect to an Acquisition Proposal.

1.2 Covenant Regarding Acquisition ProposalSubject to Section 1.3 or unless permitted pursuant to this Section 1.2, Target agrees that it shall not, and shall not authorize or permit any of its officers, directors, employees, representatives, advisors or agents or the Target Subsidiaries, directly or indirectly, to:

(a) make, solicit, assist, initiate, entertain, encourage, promote or facilitate, including by way of furnishing, or providing copies of, access to, or disclosure of any non-public information, permitting any visit to its properties or entering into any form of written or oral agreement, arrangement or understanding, any inquiries or the making of any proposals or offers regarding an Acquisition Proposal or that may be reasonably be expected to lead to a potential Acquisition Proposal;

(b) engage or participate, directly or indirectly, in any discussions or negotiations regarding, or furnish to any Person any information or otherwise co-operate with, respond to, assist or participate in any Acquisition Proposal or potential Acquisition Proposal;

(c) remain neutral with respect to, or agree to, endorse, approve or recommend any Acquisition Proposal that is publicly announced or potential Acquisition Proposal that is publicly announced (it being understood that publicly taking no position or a neutral position with respect to an Acquisition Proposal until five Business Days following formal announcement of such Acquisition Proposal shall not be considered to be a violation of this Section 1.2(c));

(d) withdraw, modify, qualify or change in a manner adverse to Acquiror, or publicly propose to or publicly state that it intends to withdraw, modify, qualify or change in a manner adverse to Acquiror the approval, recommendation or declaration of advisability of the Target Board or any committee thereof of this Agreement or the Transaction (a “Change in Recommendation”) (it being understood that failing to affirm the approval or recommendation of the Target Board of the Transaction within five Business Days after an Acquisition Proposal relating to such Party has been publicly announced and, in circumstances where no Acquisition Proposal has been made, within five Business Days of being requested to do so by Acquiror, shall be considered an

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an adverse modification) or in the event that the Meeting is scheduled to occur within such five Business Days, prior to the third Business Day prior to the Meeting;

(e) release any Person from or waive, or otherwise forbear the enforcement of the terms of any confidentiality or standstill agreement with any Person that would facilitate the making or implementation of any Acquisition Proposal;

(f) accept, enter into, or propose to accept or enter into, any agreement, arrangement or understanding related to any Acquisition Proposal or potential Acquisition Proposal or requiring it to abandon, terminate or fail to consummate the Transaction or providing for the payment of any break, termination or other fees or expenses to any Person in the event that the Transaction is completed or any other transaction agreed to prior to any termination of this Agreement; or

(g) make any public announcement or take any other action inconsistent with, or that would reasonably be likely to be regarded as detracting from the recommendation of the Target Board to approve the Transaction.

Notwithstanding the foregoing part of this Section 1.2 and any other provisions of this Agreement:

(i) The Target Board may consider, participate in any

discussions or negotiations with and provide information to, any Person who has delivered a written Acquisition Proposal which was not solicited or encouraged by Target or any of its representatives, advisors or agents after the date of this Agreement and did not otherwise result from a breach of this Section 1.2 by Target and the Target Board determines in good faith, after consultation with its financial advisors and outside legal counsel that such Acquisition Proposal may reasonably be expected to constitute a Superior Proposal provided, however, that if Target provides confidential non-public information to such Person, Target obtains a confidentiality agreement from the Person making such Acquisition Proposal that is substantively the same as the Confidentiality Agreement, and otherwise on terms no more favourable to such Person than such Confidentiality Agreement; provided, however, that it shall not preclude such Person from making a Superior Proposal. If Target receives a request for non-public information from a Person who proposes to make an Acquisition Proposal and the Target Board determines in good faith that such Acquisition Proposal, if made, would reasonably be expected to lead to a Superior Proposal and provided that Target obtains a confidentiality agreement from the Person making such Acquisition Proposal that is substantially the same as the Confidentiality Agreement, and otherwise on terms no more favourable to such Person than such Confidentiality Agreement provided, however, that it shall not preclude such Person from making a Superior Proposal, Target shall

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be permitted to provide such Person with access to information regarding Target; provided that Target sends a copy of any such confidentiality agreement to Acquiror promptly upon its execution and Acquiror is provided with a list of the information provided to such Person and is promptly provided with access to similar information to which such Person was provided.

(ii) Nothing contained in this Section 1.2 or elsewhere in the Agreement shall prohibit the Target Board from making a Change in Recommendation or from making any disclosure to the Target Shareholders if, in the good faith judgment of the Target Board, after consultation with its financial advisors and outside counsel, such action is necessary for the Target Board to act in a manner consistent with its fiduciary duties or is otherwise required under applicable Laws, provided that in the case of a proposal to make a Change in Recommendation that does not relate to a Superior Proposal and except as may otherwise be necessary for the Target Board to act in a manner consistent with its fiduciary duties, not less than 48 hours before the Target Board considers any such proposal Target shall give Acquiror written notice of such proposal and promptly advise Acquiror of the Target Board’s intention to consider such proposal and provided further that the Target Board shall not be entitled to make a Change in Recommendation that results from: (A) an increase in the facilitates or may facilitate a debt financing of Target. and/or

(B) a change in global credit markets that facilitates or may facilitate a debt financing of Target.

The foregoing provisions of this Section 1.2(ii) shall not relieve Target from its obligation to proceed to call and hold a valid special meeting of its shareholders and to hold the vote on the Target Resolution except in circumstances where this Agreement is terminated in accordance with the terms hereof or where it is necessary to adjourn or provide Target Shareholders with additional information to have a valid meeting.

(iii) Nothing contained in this Section 1.2 shall prohibit the Target Board from distributing a circular in compliance with Applicable Securities Laws, as applicable, in response to a take-over bid or a supplement to an information circular, provided however that the Target Board shall not, except as permitted by Sections 1.2 or Section 1.3 of this Agreement, withdraw or modify, or propose to withdraw or modify, its recommendation with respect to the Transaction or approve or recommend or propose to approve or recommend an Acquisition Proposal.

(h) From and after the date of this Agreement, Target shall promptly (and in any event within 24 hours) notify Acquiror, at first orally and then in writing, of any proposals, offers or written or oral inquiries relating to or constituting an Acquisition Proposal, any discussions or negotiations relating to, or which Target reasonably believes could lead to, an Acquisition Proposal, or any request for non-public information

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relating to Target or any of the Target Subsidiaries, except where such disclosure of the initial proposal, offer or written or oral inquiry will result in a breach by Target of its confidentiality obligations existing on the date of this Agreement. Such notice shall include a description of the terms and conditions of any proposal, inquiry or offer, the identity of the Person making such proposal, inquiry or offer, copies of all written documents, correspondence or other material received in respect thereof and to the extent available to Target, copies of all support agreements and similar agreements and provide such other details of the proposal, inquiry or offer as Acquiror may reasonably request. Target shall keep Acquiror fully informed on a prompt basis of the status, including any changes, modifications or other amendments to the terms of any such inquiry, proposal, offer or request and will respond promptly to all inquiries by Acquiror with respect thereto.

(i) Target shall ensure that its officers, directors, employees, representatives, advisors or agents and Target and the Target Subsidiaries and their respective officers, directors, employees, representatives, advisors or agents retained by any of them are aware of the provisions of this Section 1.2, and it shall be responsible for any breach of this Section 1.2 by such officers, directors, employees, representatives, advisors or agents.

1.3 Right to Accept a Superior Proposal

(a) If Target has complied with Section 1.2 of this Agreement with respect thereto, Target may accept, approve, recommend or enter into any agreement, understanding or arrangement in respect of a Superior Proposal (other than a confidentiality agreement, the execution of which shall not be subject to the conditions of this Section 1.3) received prior to the date of approval of the Transaction by Shareholders and may terminate this Agreement if, and only if: (i) Target has provided Acquiror with a copy of the Superior Proposal document; (ii) Target has provided Acquiror with the information regarding such Superior Proposal required under Section 1.2(h); (iii) Target has delivered to Acquiror a written notice that the Target Board has determined in good faith after consultation with outside legal counsel and its financial advisors that it is necessary in order for the Target Board to discharge properly its fiduciary duties to withdraw or modify its approval or recommendation of this Agreement and to approve or recommend such Superior Proposal; (iv) such Superior Proposal does not require Target or any other Person to seek to interfere with the attempted successful completion of the Transaction (including requiring Target to delay, adjourn, postpone or cancel the Target Meeting) or provide for the payment of any “hello”, break, termination or other fees or expenses or confer any rights or options to acquire assets or securities of Target or any of the Target Subsidiaries to any Person in the event that Target completes the Transaction or any other similar transaction with the Person agreed to

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prior to the termination of this Agreement; and (v) five Business Days shall have elapsed from the later of the date Acquiror received written notice (a “Superior Proposal Notice”) advising Acquiror that the Target Board has resolved to accept, approve, recommend or enter into an agreement in respect of such Superior Proposal subject only to this Section 1.3, and the date Acquiror received a copy of such Superior Proposal document. In the event that Target provides Acquiror with a Superior Proposal Notice on a date that is less than seven Business Days prior to the Target Meeting, Target may, and shall at the request of Acquiror, adjourn such meeting to a date that is not less than five Business Days and not more than 15 days after the date of the Superior Proposal Notice. If the Target Circular relating to the Target Meeting has been sent to the Target Shareholders prior to the expiry of the five Business Day period set forth in this Section 1.3(a) and, during such period, Acquiror requests in writing that the Target Meeting proceed, unless otherwise ordered by a court, Target shall continue to take all reasonable steps necessary to hold the Target Meeting and to cause the Transaction to be voted on at such meeting.

(b) During the five Business Day period referred to in Section 1.3(a)(v), Target agrees that Acquiror shall have the right, but not the obligation, to offer in writing to amend the terms of this Agreement, which offer must be received by Target prior to

5:00 p.m. (Toronto time) on the fifth Business Day of such period in order for such offer to comply with the requirements of this Section 1.3(b). Target shall cooperate with Acquiror with respect thereto, including negotiating in good faith with Acquiror to enable Acquiror to make such adjustments to the terms of this Agreement as Acquiror deems appropriate and as would enable the Transaction to proceed. The Target Board will review any written proposal by Acquiror to amend the terms of this Agreement in good faith in order to determine, in its discretion in the exercise of its fiduciary duties, whether the amended proposal would, upon acceptance by Target, be at least equivalent to the Superior Proposal. If the Target Board so determines, it will enter into an amended agreement with Acquiror reflecting the amended proposal and will promptly reaffirm its recommendation in favour of the Transaction by press release. Target shall provide Acquiror and its legal counsel with the opportunity to review and comment on such press release and shall make all reasonable amendments to such press release as requested by Acquiror and its counsel. If the Target Board does not so determine, Target may accept, approve, recommend or enter into an agreement, understanding or arrangement in respect of such Superior Proposal, subject to compliance with Section 1.4. Notwithstanding any other provision of this Agreement, Target shall be permitted to cancel, postpone or adjourn the Meeting immediately upon entering into an agreement in respect of a

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Superior Proposal.

(c) Each Party also acknowledges and agrees that each successive material modification of any Acquisition Proposal shall constitute a new Acquisition Proposal for the purposes of the requirement under Section 1.3(a)(v) of this Agreement and will initiate an additional five Business Day notice period.

1.4 Termination Payment Event(a) In the event that

(i) this Agreement is terminated by Acquiror pursuant to the provisions of Section 2.2(b) (Target Board withdraws or modifies its approval of the Transaction or Target enters into an agreement for a Superior Proposal); or

(ii) this Agreement is terminated by Target pursuant to Section 2.2(c) (Superior Proposal situation);

(iii) this Agreement is terminated by Acquiror in accordance with the provisions of Section 2.2(e) on the basis of a breach by Target of its obligations set forth in Section 1.1 (Non-Solicitation) or Section 1.2 (Support Covenants); or

(iv) this Agreement is terminated (A) pursuant to Section 2.2(d)(iv) (failure of Target’s Shareholders to approve Transaction), or (B) by by Acquiror pursuant to Section 2.2(d)(i) (condition precedent not satisfied),

except where such termination is made as a result of a condition precedent to Acquiror’s obligation not being satisfied; and (ii) within 12 months of the date of such termination (A) an Acquisition Proposal is consummated, or (B) Target or one or more of the Target Subsidiaries, directly or indirectly, in one or more transactions, enters into a contract in respect of an Acquisition Proposal and such Acquisition Proposal is later consummated or effected (whether or not such Acquisition Proposal is later consummated or effected within 12 months after such termination), then Target shall pay to Acquiror the Termination Payment set out above upon the consummation of such Acquisition Proposal;

then Target shall pay to Acquiror an amount in cash equal to [$3,500,000] (the “Termination Payment”).

(b) The Termination Payment shall be paid by Target in immediately available funds on the date of termination of this Agreement pursuant to Section 2.2(b) or Section 2.2(c) and in all other cases within five Business Days of such Termination Payment becoming payable pursuant to this Section 1.4.

(c) Target acknowledges that any Termination Payment payable pursuant to this Section 1.4 is a payment of liquidated damages which is a genuine pre-estimate of the damages that Acquiror and its shareholders will suffer or incur as a result of the event giving rise to such damages and the resultant non-completion of the Transaction and is not a penalty.

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(d) Upon receipt by Acquiror of any Termination Payment pursuant to this Section 1.4, Acquiror shall have no further claim against Target in respect of the failure to complete the Transaction, provided that nothing in this Section 1.4 shall preclude Acquiror from seeking injunctive relief to restrain any breach or threatened breach by Target of any of its obligations hereunder or otherwise to obtain specific performance without the necessity of posting bond or security in connection therewith provided that it is understood and agreed that in no instance shall Acquiror be entitled to both a Termination Payment and specific performance.

(e) Target hereby irrevocably waives any right it may have to raise as a defence that the provisions of this Section 1.4 or any such provisions or the amounts therein are excessive, punitive or unenforceable.

(f) For greater certainty, under no circumstances shall Acquiror be entitled to receive more than one Termination Payment.

(g) The Parties acknowledge that any payment required to be made under this Section 1.4 shall be made without deductions or withholding of any kind whatsoever, and in the event that any deduction or withholding is required under applicable Laws, the amount of such payment to the payee shall be increased so that the amount received, net of any such deduction or withholding, is the full amount called

for under this Agreement and the payee bears no economic cost of such withholding.

ARTICLE 2

AMENDMENT AND TERMINATION2.1 Termination Payment EventThis Agreement may, at any time and from time to time before or after the holding of the Target Meeting be amended by mutual written agreement of the Parties without, except as required by applicable Law, further notice to or authorization on the part of the Target Shareholders and any such amendment may, without limitation:

(a) change the time for the performance of any of the obligations or acts of either of the Parties;

(b) waive any inaccuracies in or modify any representation or warranty contained herein or in any document delivered pursuant hereto;

(c) waive compliance with or modify any of the covenants herein contained and waive or modify the performance of any of the obligations of either of the Parties; and

(d) waive compliance with or modify any condition herein contained.

This Agreement and the Plan of Arrangement may be amended in

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accordance with the Final Order, but in the event that the terms of the Final Order require any such amendment, the rights of the Parties under Section 5.1 (Mutual Conditions), Section 5.2 (Conditions Precedent to obligations of Target), Section 5.3 (Conditions Precedent to rights of Acquiror), Section 1.3 (Right to Accept a Superior Proposal) and this Article 2 shall remain unaffected.

2.2 Termination

Subject to Section 1.4, if applicable, this Agreement may be terminated at any time prior to the Effective Date:

(a) by mutual written agreement between Acquiror and Target;

(b) by Acquiror if: (i) the Target Board shall have withdrawn or modified in a manner adverse to Acquiror its approval or recommendation of the Transaction (in accordance with Sections 1.1, 1.2 or 1.3); (ii) Target shall have entered into a definitive agreement with respect to a Superior Proposal in each case subject to the payment of the Termination Payment required to be paid pursuant to Section 1.4; or (iii) the Target Board has resolved to do any of the things referred to in subclauses (b)(i) and (b)(ii) above;

(c) by Target in order to enter into a written agreement with respect to a Superior Proposal, subject to compliance with Section 1.3 and the payment of the Termination Payment shall terminate this Agreement for the Parties;

required to be paid pursuant to Section 1.4; provided for greater certainty, that any such termination Section 1.4; provided for greater certainty, that any such termination shall terminate this Agreement for

(d) by Acquiror or Target if:

(i) any condition precedent to its obligations has not been satisfied by the Completion Deadline, except that the right to terminate this Agreement under this Section 2.2(d) shall not be available to any Party whose failure to fulfill any of its obligations has been the cause of or resulted in, the failure of such condition to be satisfied by such date;

(ii) after the date hereon, there shall be enacted or made any applicable legislation that makes the consummation of the Transaction illegal or otherwise prohibited or enjoins Acquiror and Target from consummating the Transaction and such applicable legislation (if applicable) or enjoinment shall have become final and non-appealable;

(iii) any regulatory authority shall have issued an order, decree or ruling permanently restraining or enjoining or otherwise prohibiting any of the transactions contemplated herein (unless such order, decree or ruling has been withdrawn, reversed or otherwise made inapplicable) which order, decree or ruling is final and non-appealable; or

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(iv) the required approval of Target Shareholders shall not have been obtained at the Target Meeting, including any adjournment thereof;

(e) by Acquiror or Target if there is a material breach by the other Party of its covenants under this Agreement prior to the Completion Deadline; in the case of a termination by Acquiror in respect of a breach by Target of its obligations set forth in Section 1.1 and Section 1.2, subject to payment of the Termination Payment required to be paid pursuant to Section 1.4, provided, however, that this Agreement may only be terminated pursuant to this Section 2.2(e) if the breach forming the basis for termination is not curable, or, if curable and the breaching Party is proceeding diligently to cure such breach, is not cured by the earlier of the date which is five Business Days from the date of written notice of such breach; or

(f) by Acquiror, if at any time prior to the Completion Date Target declares, sets aside or pays any dividend or other distribution payable in cash, securities, property

or otherwise to the holders of Target Shares, or sets a record date therefor that is prior to the Completion Date;

provided that any termination by a Party in accordance with paragraphs (b) to (f) above shall be made by such Party delivering written notice thereof to the other Party prior to the Effective Date and specifying therein in reasonable detail the matter or matters giving rise to such termination right. In the event of any such termination and payment, if required, each Party will be released, remised and forever discharged in respect of any and all of its obligations, claims and Liabilities arising in respect of this Agreement, except for the obligations of each Party in Section X (confidentiality), Section Y (funding of pre-acquisition reorganization), Section Z (break fee obligation) and Section ZZ (waiver of personal liability of directors and officers), all of which will survive the termination of this Agreement.

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