In this presentation, FMC’s Bill Gilliland and Dan Shea discuss deal points relating to survey of deals and deal terms, including: • Survey • Material Adverse Change • Non-solicitation and Superior Proposals • Regulatory Approval Language • Break Fees • Expense Reimbursement • Go-Shop Provisions

1. Public M&A Transactions – Deal Points
Presented by: Bill Gilliland
Dan Shea
February 1, 2013
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2. Survey of Deals and Deal Terms ‐
Overview
• Material Adverse Change.
• Non‐solicitation and Superior Proposals.
• Regulatory Approval Language.
• Break Fees.
• Expense Reimbursement.
• Go‐Shop Provisions.
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3. Survey
• 20 deals involving public company targets in 2011 and 2012.
• Primarily western Canadian target companies.
• Almost all plans of arrangement, a few takeover bids.
• A mix of share and cash deals.
• Primarily deal sizes of $250 million and higher, most $500 million and up.
• Includes the major Asian acquisitions in western Canada.
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4. Material Adverse Change
• Use of Concept:
– Qualifies certain representations and warranties.
– Condition of closing that no material adverse change occurs during
interim period.
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5. Material Adverse Change
• Usually 3 Parts to Concept:
1. Defining Material Adverse Change.
2. Exceptions to Material Adverse Change.
3. Exceptions to the Exceptions.
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6. 1. Defining Material Adverse Change
Means any change, effect, event, circumstance, fact or
occurrence that individually or in the aggregate with other such
changes, effects, events, circumstances, facts or occurrences, is
or would reasonably be expected to be material and adverse to
the business, condition (including financial condition), assets,
liabilities (contingent or otherwise), results of operations,
prospects 7/20, or operations of the Company and its
subsidiaries, taken as a whole, or prevent, frustrate, materially
delay or impair the ability to consummate the Contemplated
Transactions. 6/20
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7. 2. Exceptions to Material Adverse Change
• Material adverse change provisions provide exceptions for matters that are not to be
considered when evaluating whether a material adverse change has occurred. The exceptions
represent a negotiated allocation of risk between the parties, as well as market practice.
• The usual exceptions:
– any adoption, proposal, implementation or change in applicable Law or accounting standards
(including GAAP and IFRS) or interpretations thereof by any Governmental Authority. 20/20
– any change in global, national or regional political conditions (including the outbreak of war or acts of
terrorism) or in general economic, business, regulatory, currency exchange or credit market
conditions or in national or global financial, commodity (including oil and natural gas or related
hydrocarbons) or capital markets. 20/20
– any change generally affecting the industries in which the Company operates, including the oilfield
services, facility infrastructure services, midstream production services or oil sands and refinery asset
management and maintenance services industries in North America, as a whole. 20/20
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8. 2. Exceptions to Material Adverse Change
• The usual exceptions: (con’t)
– the announcement or performance of this Agreement or consummation of the
transactions contemplated hereby. 18/20
– any change in the market price or trading volume of the securities of the Company (it
being understood that the causes underlying such change in market price or trading
volume may be taken into account in determining whether a Material Adverse Change
has occurred). 19/20
– any action taken (or omitted to be taken) at the written request of the Purchaser. 18/20
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9. 2. Exceptions to Material Adverse Change
• Sometime exceptions:
– the failure, in and of itself, of the Company to meet any internal or public projections,
forecasts or estimates of revenues or earnings (it being understood that the causes
underlying such failure may be taken into account in determining whether a Material
Adverse Change has occurred). 14/20
– any event, occurrence, circumstance or state of facts which has, prior to the date hereof,
been publicly disclosed in the Company Public Documents or which is set out in the
Disclosure Letter. 13/20
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10. 2. Deal Specific Exceptions to Material
Adverse Change
• In addition to customary exceptions, it is common to see exceptions tailored to
specific transactions or circumstance.
• Examples:
– Unfavourable results in respect of wells currently being drilled or in respect of which
drilling commences prior to closing.
– Any action taken in connection with obtaining regulatory approvals.
– Certain actions or proceedings relating to concurrent transactions.
– Proceedings brought by non‐governmental third parties arising out of or relating to the
transaction.
– Ability of Purchaser to consummate the transaction.
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11. 3. Exceptions to the Exceptions
• Items that are external to the Target are typically considered in the
material adverse change analysis to the extent their impact on the target is
disproportionate to similar companies in the same industry. 20/20
Except such change, effect, event, circumstance, fact or occurrence
referred to in clauses (i) [changes in laws/accounting standards], (ii)
[general political/economic conditions], and (iii) [impacts on target's
industry generally] to the extent that any change, effect, event,
circumstance, fact or occurrence has a disproportionate effect on the
business, condition (including financial condition), assets, liabilities
(contingent or otherwise), results of operations, prospects, or operations
of the Company and its subsidiaries, taken as a whole, compared to other
companies of similar size in the industry in which the Company carries on
business.
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12. Non‐Solicitation and Superior Proposals
• Every Agreement reviewed included a non‐solicitation
covenant. 20/20
• A Superior Proposal may be considered notwithstanding non‐
solicitation covenants.
• What constitutes a Superior Proposal.
• Process issues around considering a Superior Proposal.
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13. What is a “Superior Proposal”?
“Superior Proposal” means an unsolicited Acquisition Proposal made by a third party
to a Party or its shareholders in writing after the date hereof:
– to purchase or otherwise acquire, directly or indirectly, by means of a merger, take‐over
bid, amalgamation, plan of arrangement, business combination, consolidation,
recapitalization, liquidation, winding‐up or similar transaction, all of the Target Shares or
all or substantially all of the assets of Target on a consolidated basis;
• 15/20 require Acquisition Proposal to be for all of Target's shares or all/substantially
all of Target's assets. These thresholds are influenced by the structure of Purchaser's
offer, market practice, and availability of topping bids.
– that is reasonably capable of being completed without undue delay, taking into account
all legal, financial, regulatory and other aspects of such Acquisition Proposal and the
party making such Acquisition Proposal; 15/20
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14. What is a “Superior Proposal”?
– that is not subject to any financing condition and in respect of which any required
financing to complete such Acquisition Proposal has been obtained or demonstrated to
the satisfaction of the board of directors of that Party, acting in good faith (after receipt
of advice from its financial advisors and outside legal counsel) to be reasonably likely to
be obtained without undue delay; 19/20
– which is not subject to a due diligence and/or access condition; 10/20
– that is made available to all Target Shareholders on the same terms and conditions; and
4/20
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15. What is a “Superior Proposal”?
– in respect of which the board of directors of Target determines in good faith (after
receipt of advice from its outside legal counsel with respect to (x) below and financial
advisors with respect to (y) below), (x) that failure to recommend such Acquisition
Proposal to its securityholders would be inconsistent with its fiduciary duties and (y)
would, taking into account all of the terms and conditions of such Acquisition Proposal, if
consummated in accordance with its terms (but not assuming away any risk of non‐
completion), result in a transaction more favourable to its securityholders from a
financial point of view than the Arrangement (including any adjustment to the terms
and conditions of the Arrangement proposed by Purchaser).
• 20/20 require Superior Proposal determination to be based upon advice from outside financial
advisors and legal counsel.
• 19/20 require Superior Proposal to be financially superior or more favourable from a financial
point of view. One required Superior Proposal to be more favourable to shareholders.
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16. When Confidential Information Can be
Provided to Competing Bidders
• Acquisition Proposal is or could/would reasonably be expected
to lead to a Superior Proposal. 15/20
• Acquisition Proposal is a Superior Proposal. 5/20
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17. Matching Rights for Initial Acquiror
• Every Agreement reviewed provided for matching rights. 20/20
In the event that Target is in receipt of a Superior Proposal, it shall give Purchaser, orally and
in writing, at least five complete Business Days advance notice of any decision by the Target
Board to accept, recommend, approve or enter into an agreement to implement a Superior
Proposal, which notice shall (i) confirm that the Target Board has determined that such
Acquisition Proposal constitutes a Superior Proposal; (ii) identify the third party making the
Superior Proposal; and (iii) include a true and complete copy thereof and any amendments
thereto. During such five Business Day period, Target agrees not to accept, recommend,
approve or enter into any agreement to implement such Superior Proposal and not to release
the party making the Superior Proposal from any standstill provisions and shall not withdraw,
redefine, modify or change its recommendation in respect of the Arrangement. In addition,
during such five Business Day period, Target shall, and shall cause its financial and legal
advisors to, negotiate in good faith with Purchaser and its financial and legal advisors to make
such adjustments in the terms and conditions of this Agreement and the Arrangement as
would enable Target to proceed with the Arrangement as amended rather than the Superior
Proposal.
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18. Matching Rights for Initial Acquiror
• Five business day match period is most common (10/20), but match periods often
range from three business days to seven business days.
• 12/20 agreements require Target to negotiate in good faith with purchaser during
match period.
• Other approaches (i.e. "weaker" match rights) only require target to consider
amendments in good faith or to simply provide information to purchaser about
superior proposals.
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19. Regulatory Approvals
• Parties generally required to apply some degree of "effort" to
obtain regulatory approvals.
• Regulatory approvals generally required to be obtained on
terms either reasonably satisfactory to the parties or in
accordance with pre‐specified conditions.
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20. Regulatory Approvals
HARVEST ENERGY TRUST / KOREA NATIONAL OIL CORPORATION (OCT 2009)
Covenant
Purchaser shall use commercially reasonable efforts to obtain all Regulatory
Approvals (including all Required Approvals (Comp Act and ICA));
Condition
The Required Approvals (Comp Act and ICA) shall have been obtained on terms and
conditions satisfactory to the Purchaser, acting reasonably.
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21. Regulatory Approvals
DAYLIGHT ENERGY / SINOPEC INTERNATIONAL PETROLEUM (OCT 2011)
Covenant
The Purchaser Parties shall use all commercially reasonably efforts to obtain all
Regulatory Approvals and to effect all necessary registrations, filings and submissions
of information requested or required by Governmental Entities from the Purchaser
Parties, or any of its affiliates relating to the Arrangement;
Condition
All Regulatory Approvals in form and substance satisfactory to the Parties, acting
reasonably, shall have been obtained.
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22. Regulatory Approvals
• "Commercially reasonable efforts" most common standard for obtaining
regulatory approvals.
• "Best efforts" is less common.
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23. Regulatory Approvals
• Choice of effort standard is important.
• Canadian courts consistently hold that "best efforts" imposes more
onerous obligation than "commercially reasonable efforts" (Atmospheric
Diving Systems Inc. v. International Hard Suits Inc., 1994 CarswellBC 158;
Strategy Summit Ltd. v. Remington Development Corp., 2011 CarswellAlta
1616). Commercially reasonable efforts permits parties to consider their
economic position when determining where their performance obligation
ends. Best efforts involves taking, in good faith, all reasonable steps to
achieve the objective, carrying the process to its logical conclusion, leaving
no‐stone‐unturned, and doing everything known to be usual, necessary and
proper to ensure the success of the undertaking.
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24. Regulatory Approvals
• Trend moving away from pure efforts standards to more sophisticated
obligations in light of increased risk and sensitivity regarding divestitures
and undertakings under the Competition Act and Investment Canada Act.
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25. Regulatory Approvals
• Pure Energy Services / FMC Technologies (August 2012)
Notwithstanding anything to the contrary contained in this Agreement, in seeking to obtain
the Regulatory Approvals, the Purchaser shall not be required to agree, and the Company shall
not agree without the approval of the Purchaser, to any Order from a Governmental Authority
which: (a) prohibits or limits the ownership or operation by the Company or the Purchaser and
its affiliates of any material portion of the business or assets of the Company or the Purchaser
and their respective affiliates, or compels the Company or the Purchaser and their respective
affiliates to dispose, licence or divest of or hold separate any material portion of the business
or assets of the Company or the Purchaser and their respective affiliates; (b) imposes material
limitations on the ability of the Purchaser to acquire or exercise full rights of ownership of the
Shares; (c) prohibits the Purchaser from effectively controlling in any material respect the
business or operations of the Company or any of its Subsidiaries; or (d) requires the Purchaser,
the Company or any of their respective affiliates to agree to any other material restrictions.
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26. Regulatory Approvals
• CELTIC EXPLORATION / EXXONMOBIL (Oct 2012)
Notwithstanding any other provision of this Agreement, nothing in this Agreement shall require,
or be construed to require, ExxonMobil or the Purchaser to: (i) disclose to any Person (including
Celtic) ExxonMobil's or the Purchaser's plans and undertakings submitted for the purposes of the
review under the Investment Canada Act or any drafts thereof or correspondence or discussions
with respect thereto; (ii) provide the Commissioner, the Minister of Industry or the Governor in
Council any undertakings or meet any requirements in relation to the Competition Act Approval
and Investment Canada Approval that are not as to commercial matters and, in any case, are not
commercially reasonable to ExxonMobil and the Purchaser; (iii) sell, lease, license, transfer,
dispose of, divest or otherwise encumber, or to hold separate pending any such action or proffer,
propose, negotiate, offer to effect or consent, commit or agree to any sale, divestiture, lease,
licensing, transfer, disposal, divestment or other encumbrance of, or to hold separate any assets,
licenses, operations, rights, product lines, businesses or interest of ExxonMobil, the Purchaser,
Celtic or any of their respective Subsidiaries or Affiliates; or (iv) take or agree to take any other
action, or agree or consent to any limitations or restrictions on freedom of actions with respect
to, or its ability to own, retain or make changes in, any assets, licenses, operations, rights,
product lines, businesses or interests of ExxonMobil, the Purchaser or Celtic or any of their
respective Subsidiaries or Affiliates.
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27. Regulatory Approvals
• Scope and sophistication of regulatory approval provisions is
also related to many deal factors including transaction size,
industry (e.g. oil sands or telecommunications), size of parties,
whether a party is foreign, and whether a party is controlled
by a government.
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28. Break Fees/Expense Reimbursement
• Break fees payable by Target.
• Break fees payable by Purchaser ‐ "reverse break fees".
• Expense reimbursement.
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29. Break Fees Payable by Target
• General situations where break fees are payable by Target.
– Target board changes recommendation. 20/20
– Competing Acquisition Proposal is announced, shareholders do not approve transaction,
and such Acquisition Proposal is accepted within X months after termination. 20/20
– Acceptance of Superior Proposal. 20/20
– Breach of non‐solicitation covenant. 8/20
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30. Vote Down in Face of Competing
Acquisition Proposal
(i) After the date hereof and prior to the Target Shareholder Meeting, a bona fide
Acquisition Proposal shall have been made or proposed to Target or otherwise made
or publicly announce;
– 5/20 required Acquisition Proposal to be made public.
– 15/20 allowed Acquisition Proposal to be made public or to the company.
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31. Vote Down in Face of Competing
Acquisition Proposal
(ii) the requisite Target Shareholder approvals for the arrangement are not obtained
at the Target Shareholder Meeting;
(iii) within X months after the date of the termination of this Agreement, such
Acquisition Proposal is consummated.
– 2/20 had a nine month period and 18/20 had a twelve month period.
– 6/20 were triggered by such Acquisition Proposal and 14/20 were triggered by
any Acquisition Proposal.
– 10/20 required Acquisition Proposal be consummated within applicable period
and 10/20 required Acquisition Proposal to be either consummated or entered
into within the applicable period.
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32. Reverse Break Fees Payable by Purchaser
• Same circumstances as for Target.
• Financing conditionality.
• Specific regulatory conditionality.
• Purchaser Shareholder Approval.
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33. Financing Conditionality
This Agreement is terminated at Outside Date where all of the
conditions set forth in Section 5.1 and Section 5.4 have been
satisfied or waived by the Purchaser other than the condition
[obtaining financing].
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34. Specific Regulatory Conditionality
The Purchaser shall pay, or cause to be paid, to the Company by wire transfer of immediately
available funds an amount equal to $100,000,000 (the "Purchaser Termination Fee") if this
Agreement is terminated by the Company on the basis that the PRC Approvals are not obtained
by January 15, 2012, provided, however, if following the Company's termination of the
Agreement, the Parties ultimately consummate the transactions contemplated herein, such
Purchaser Termination Fee shall be refunded to the Purchaser Parties within two business days
of the closing date of the transaction.
"PRC Approvals" means the approvals required to be obtained from the National Development
and Reform Commission of China, the Ministry of Commerce of China and the State
Administration of Foreign Exchange of China, and any other required approvals to be obtained
from Governmental Entities of China, in order for the Purchaser to complete the transactions
contemplated by this Agreement.
Pursuant to Section 7.2(1)(b)(ii) (Illegality) if an Award with respect to either or both of the CRTC
Approval or Competition Act matters precludes the consummation of the Arrangement.
Pursuant to Section 7.2(1)(b)(iii) (Occurrence of Outside Date) if either or both of the conditions
set forth in Section 6.1(3) (CRTC Approval) and Section 6.2(4) (Competition Act Clearance) is not
satisfied by the Outside Date.
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35. Purchaser Shareholder Approval
If the Bidder Shareholder Approval has not been obtained by the date that is
80 days following the date of the commencement of the Offer.
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36. Expense Reimbursement
• Shareholders do not approve.
• Avoid double payment.
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37. Expense Reimbursement Clause
If this Agreement is terminated pursuant to [Target Shareholders do not approve],
[breach of Target representations, warranties and covenants], the Target shall pay,
or cause to be paid, to the Purchaser by wire transfer of immediate available funds, an
amount equal to the Purchaser's reasonably incurred out‐of‐pocket fees and expenses
in connection with the transactions contemplated by this Agreement, up to a
maximum of $<> million, within two Business Days of such termination. Any payment
due under [Termination Fee Provision] shall be reduced dollar for dollar by any
payment made as Expense Reimbursement.
If this Agreement is terminated pursuant to [Purchaser Shareholders do not
approve], [breach of Purchaser representations, warranties and covenants], the
Purchaser shall pay, or cause to be paid, to Target by wire transfer of immediate
available funds, an amount equal to Target's reasonably incurred out‐of‐pocket
expenses in connection with the transactions contemplated by this Agreement, up to
a maximum of $<> million, within two Business Days of such termination. Any
payment due under [Termination Fee Provision] shall be reduced dollar for dollar by
any payment made as Expense Reimbursement.
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38. Treatment of Breach of Representation
and Warranty
• Of 20 Agreements reviewed:
• 5/20 had expense reimbursement with a fixed cap for breach of representations and
warranties;
• 9/20 had break fee for breach of representations and warranties.
Examples:
• Breach of representations, warranties or covenants that results in non‐fulfillment of any
of Target's conditions.
• Breach of representations, warranties or covenants that individually or in the aggregate
causes or would reasonable be expected to cause a material adverse change with
respect to target or materially impede the transaction.
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39. Go‐Shop Provisions
• 'Go shops' ‐ Target to shop around and find higher bid after its
boards of directors has agreed to an acquisition.
• Fiduciary responsibility.
• U.S. vs. Canada.
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40. Go‐Shop Provision
• To get other bidders involved before a friendly transaction is
struck, the target would probably have to declare itself for
sale, and that may signal weakness when the company is
actually in good shape.
• First mover advantage.
• Likelihood of new bidders?
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41. Canadian Examples
• TimberWest Forest Corp.
• Afexa Life Sciences Inc.
• Prime Restaurants Inc.
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42. Prime Restaurants/Cara/Fairfax Holdings
• Cara's $59 million bid for Prime contains a "go shop" provision.
• The total consideration payable by Fairfax under the Fairfax Offer is
approximately $71 million.
• The Fairfax Offer was solicited by the Company during the "go‐shop"
period.
• Prime notified Cara of the Board's determination that the Fairfax Offer is a
superior proposal and that it is prepared to accept the Fairfax Offer.
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43. Prime Restaurants/Cara/Fairfax Holdings
• Cara had five business days matching right period.
• Alternatively, Cara can terminate its transaction and receive a termination
payment.
• The restaurant chain owner financed its acquisition with a high yield bond
issue that has already come to market, which makes expanding the size of
the takeover purchase much harder.
• Cara alleged that Fairfax offer not a "Superior Proposal".
• Cara and Prime settled.
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44. Afexa Life Sciences Inc.
• August 10 ‐ Paladin Labs made an unsolicited offer to acquire "any and all"
of the outstanding Afexa Shares.
• The consideration offered for each Afexa Share was $0.55 or 0.013
common shares of Paladin.
• The Afexa Board special committee launched a search for alternatives to
the Paladin offer.
• August 30 ‐ Afexa announced that it had entered into a support agreement
with Valeant Pharmaceuticals, pursuant to which Valeant agreed to make
an offer to acquire all of the Afexa Shares for $0.71 per share.
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45. Afexa Life Sciences Inc.
• Afexa had a 30 day "go‐shop" period during which it could solicit and
engage in discussions and negotiations regarding potential competing
acquisition proposals.
• September 28 – Paladin Labs increased its offer to either $0.81 per share in
cash or 0.0217 of a Paladin share for each common share of Afexa.
• September 30 – Valeant Pharmaceuticals increased its offer to $0.85 in
cash per share.
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46. Go Shop Provisions
Notwithstanding any other provision of this Agreement to the contrary,
during the period beginning on the date of this Agreement [April 10, 2011]
and continuing until 11:59 p.m. (Vancouver time) on June 9, 2011 (the
"Solicitation Period End Date") the Company and its subsidiaries and their
respective Representatives shall have the right (acting under the direction of
the Special Committee) to, directly or indirectly: (i) initiate, solicit, encourage
and take any other action designed to facilitate Acquisition Proposals that are
financially more favourable for Unitholders than the transactions
contemplated in this Agreement, and (ii) engage in or enter into and maintain
discussions or negotiations with respect to Acquisition Proposals or otherwise
cooperate with or assist or participate in, or in any matter facilitate any such
inquiries, proposals, discussions or negotiations.
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47. Go Shop Provisions
• Go shop periods.
• Specified end date.
• Happening of a condition ‐ Prime Restaurant.
Notwithstanding any other provision of this Agreement, from
the date of this Agreement until 11:59 p.m. (Toronto time) on
the date the Purchaser delivers an irrevocable written waiver of
the Financing Condition (the "Go‐Shop Expiry Time").
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48. What Happens if a New Bidder Found?
• Matching right? (5 days) ‐ not in Timberwest.
• Break fee.
• Amount of break fee ‐ same or lower.
The Company shall have terminated this Agreement in accordance with [accepting
Superior Proposal], then the Company or any of its Subsidiaries shall pay or cause to
be paid (A) $1,000,000 (the "Go‐Shop Termination Payment") in the event the
Agreement is terminated prior to the Go‐Shop Expiry Time or as a result of an
Acquisition Proposal from an Excluded Party at any time prior to 11:59 p.m. on the
fifth day following the Go‐Shop Expiry Time, or (B) $3,000,000 (the "Company
Termination Payment") in the event the Agreement is terminated in any other
circumstances.
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49. What Happens at End of Go Shop Period?
• "Usual non‐solicitation provisions" ‐ solicited parties not unsolicited
bidders.
• Carry over negotiation right? ‐ sometimes ‐ not in Afexa.
• "Excluded parties" concept to allow continuing negotiations.
"Excluded Party" means a Person who has submitted a bona fide Acquisition
Proposal to the Company prior to the Go‐Shop Expiry Time which, in the
opinion of the Company Board, after consultation with its financial advisors
and outside legal counsel, is reasonably likely to constitute a Superior
Proposal.
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50. Questions?
Bill Gilliland
403.268.6826
bill.gilliland@fmc‐law.com
www.fmc‐law.com
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51. The preceding presentation contains examples of the kinds
of issues companies dealing with Mergers and Acqusitions
could face. If you are faced with one of these issues, please
retain professional assistance as each situation is unique.
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