Top 5 Considerations for In-House Counsel When Doing Business in the Canadian Oil and Gas Sector including M&A Structuring, Oil and Gas Title Issues, Competition Act and the Investment Canada Act, Employment and Immigration Law, and the Litigation environment. Richard Aguirre – Counsel, Exxon Mobil Corporation Houston Ben Rogers – Partner, Blakes Calgary Max Brunette – Partner, Blakes Calgary Chad Schneider – Partner, Blakes Calgary

About Blakes

Overview 1. 2. 3. 4. 5.

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Mergers & Acquisitions Considerations Title Review & Due Diligence Competition Act Considerations and Foreign Investment Rules (Investment Canada Act) Employment Law Regime and Immigration/Work Permits for U.S. Employees Litigation Environment

Public Mergers & Acquisitions Considerations • Cash is straightforward • Share exchange raises certain considerations of acquiring Canadian public company – U.S. buyer issuing shares in public M&A deal will generally become a “reporting issuer” in Canada subject to Canadian securities laws – MJDS allows public U.S. company to use SEC-filed documents to satisfy Canadian disclosure requirements, except N1 51-101 oil and gas disclosure requirements – both cash and U.S.-issuer share deals are taxable events, but can provide tax rollover to Canadians with “exchangeable shares” of Canadian subsidiary of U.S. buyer

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Public Mergers & Acquisitions Considerations 2 Transaction Structures: Plan of Arrangement and Take-Over Bid • Plan of Arrangement – statutory process by Target under corporate law (ABCA, CBCA) – friendly transaction implemented by (i) Arrangement Agreement, (ii) Target proxy circular and shareholder (and potentially other security holders) vote, and (iii) Court approval (subject to “impracticability” test) – provides structuring flexibility, U.S. securities law exemption, one-step transaction

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Take-Over Bid – can be friendly or hostile, with offer to purchase made by Buyer to Target shareholders • friendly deals governed by “Support/Pre-Acquisition Agreement” – technical legal rules prescribe process (MI 62-104/NP 62-203) – minimum 35 day offer period after bid formally made; often extended to acquire 100% of Target

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Title Review & Due Diligence • Oil & Gas Tenure in Canada – Crown Title (Provincial) – Crown Title (Federal) – Freehold Title

• Crown Title – Provincial Registries • Limited permissible registrations

• Freehold Title – Provincial Land Titles Offices (Torrens System) – Encumbrances registered as Caveats

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Title Review & Due Diligence (cont’d) • Title Review and Due Diligence Programs – asset vs. private share vs. public share sale – characterization of assets • crown vs. freehold • age of leasehold interests • concentration of volume

– public searches • • • • •

corporate personal property registry litigation environmental bankruptcy

– formal opinions vs. reports

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Competition Act Considerations

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Defines a merger as the acquisition of control over, or of a significant interest in, the whole or part of a business.

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Canadian antitrust merger law consists of substantive provisions that empower the Commissioner to challenge mergers and procedural provisions relating to pre-merger notification.

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In an asset transaction, focus is on value of assets acquired and revenues generated from those assets.

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In an amalgamation transaction, focus is on at least two parties to the transaction, along with the continuing corporation.

Competition Act Considerations • Transactions are reviewable if transaction size and participant size thresholds are exceeded: – transaction requires review if transaction exceeds C$70MM and parties have combined assets in excess of C$400MM

• Applies to public and private transactions • Particular attention will be paid to infrastructure and transportation deals

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How does Canada regulate foreign investment? • Investment Canada Act governs acquisitions of control of privately and publicly owned Canadian businesses by non-Canadians • Transactions are reviewable if the transaction size threshold is exceeded – transaction is subject to pre-closing review if a direct acquisition of a Canadian business with assets of more than C$330 million, subject to limited exceptions – proposed amendments announced on May 25, 2012 would raise the threshold incrementally over a four year period to C$1 billion in enterprise value

• If not reviewable, a transaction is only “notifiable” – notice containing limited information must be filed either before or within 30 days after closing

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How does Canada regulate foreign investment? (cont’d) • Reviewable transactions are subject to a “net benefit to Canada” test – often requires detailed submissions to Industry Canada – investors are typically required to provide binding undertakings – transactions cannot close until Industry Canada approval is received

• April 2012: Amendments to ICA introduced – aimed at greater transparency and compliance with undertakings – Minister permitted to provide public notice of: • a decision to approve a reviewable transaction • a provisional decision that a transaction is not likely to be of net benefit to Canada and reasons for any such provisional decision

– Minister authorized to accept security from a foreign investor to ensure compliance with investor’s undertakings

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How does Canada regulate foreign investment? (cont’d) • Developing effective government, media, and key stakeholder relation strategies is becoming increasingly important – Foreign investment is entering a period of heightened scrutiny – Only two transactions have been blocked following an ICA review, but they have been recent: • 2008: Alliant Techsystems’ C$1.3-billion proposed acquisition of the information system business of MacDonald Dettwiler & Associates Ltd. • 2010: BHP Billiton’s C$38-billion proposed acquisition of Potash Corporation

– The government did not formally oppose any acquisitions in 2011 under the ICA

• Increased emphasis on ICA undertakings with “teeth” – U.S. Steel settlement shows that undertakings will be enforced even if circumstances change unexpectedly – Meaningful undertakings will continue to be required – Where future compliance is questioned performance bonds may be required

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Canadian Employment Regime • Employment Standards Legislation – sets out minimum terms and conditions of employment

• Workers’ Compensation – no-fault insurance plan for workplace injuries/illness

• Labor Codes – regulate union organization and collective bargaining

• Human Rights Laws • Common Law – particularly relevant to the regulation of employee terminations

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Is it difficult to terminate Canadian employees? • No employment at will • High standard of “just cause” • Without cause, terminations are governed by statute, common law and/or contract – statutory minimums must be met – reasonable notice of termination or severance payment assessed on a case by case basis

• Recent development: – Ontario Court of Appeal reviewed the importance of the “character of employment factor” and confirmed there is no upper limit on notice periods available to unskilled non-managerial employees. – A mechanic and press maintainer with 33 years of employment but no managerial responsibilities had an award of 22 months’ pay in lieu of notice upheld on appeal, despite recognition that award was at the very top end of the range.

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Restrictive Covenants in Employment Relationships •

Recent development:

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Alberta Court of Appeal decision affirmed and clarified certain aspects of the enforcement of restrictive covenants

• Will not be enforced unless supported by consideration • Wrongful dismissal of an employee is a repudiation of an employment contract that renders a restrictive covenant contained in the contract unenforceable

• A restrictive covenant that goes beyond what is reasonably required to protect a business will not be enforced.

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Other Employment Updates – Key Employees as Fiduciaries • Key Employees as Fiduciaries – Ontario Court of Appeal decision (GasTOPS Ltd. v Forsyth) awards over $12 million to previous employer of four key employees who left to start a competing business – Findings of breach of fiduciary duty, breach of confidence and breach of employment contracts – Confirms that in certain circumstances fiduciary duties of key employees can survive for as long as 10 years

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Immigration/Work Permits for U.S. Employees • A ‘business visitor’ does not need a work permit • Foreign nationals working in Canada need a work permit – U.S. executives working in Canada on a temporary or longer term basis may qualify as ‘intra-company transferees’ – Service Canada requirements must be met if they do not qualify as an intra-company transferee

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Overview of the Canadian litigation environment • Judges are appointed • Jury trials in civil matters are very rare resulting in: – lower damages generally – punitive damages rarely awarded

• Security for costs – non-Canadian plaintiff without business or assets in Canada likely to be required to post security for costs

• Civil Litigation Rules vary from Province to Province – for instance, limited discovery in Ontario of one representative, maximum 7 hours without leave. In Alberta, broader examination available of representatives, employees and former employees.

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Overview of the Canadian litigation environment (cont’d) • Contingency Fees – availability has been liberalized in Canada, but practice not widespread, with exception of class actions • Loser Pays – winning side generally awarded costs against the losing side; will cover 35-50% of costs that winning side incurs • Mandatory Mediation – Ontario requires mandatory pre-trial mediation to encourage pre-trial settlement • Class Actions – certification often occurs before discovery and before defenses are entered

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About Blakes •

Blakes is proud to hold the dominant Canadian position in every major M&A league for 2011: –

No. 1 in Canada Announced Deals by deal value and deal count (Bloomberg)

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No. 1 in Any Canadian Involvement Announced Deals by deal value and deal count (Thomson Reuters)

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No. 1 Canadian firm in Global Announced Deals by deal value and deal count (Bloomberg)

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No. 1 Canadian firm in Worldwide Announced Deals by deal value and deal count (Thomson Reuters)

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No. 1 Canadian firm in Worldwide Completed Deals by deal value and deal count (Thomson Reuters)

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No. 1 Canadian firm in Cross Border Announced Deals by deal value and deal count (Bloomberg)

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Blakes awarded Canadian Legal Advisor of the Year. - mergermarket and the Financial Times Americas' M&A Awards, January 2012

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Blakes Was Ranked First Tier for Second Year in a Row in World Tax 2011

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Blakes Named "Canada's Law Firm of the Year" for Third Consecutive Year in the Who's Who Legal Awards 2011

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Law Firm of the Year: Canada - Chambers Global Awards 2012 “Blakes dominates M&A league tables” - National Post – January, 2012

”Blakes leads legal firms for Canadian merger advice.” - Globe and Mail Blog, January 2012

“Blakes is the busiest and most experienced defenceside class action firm in Canada,” - National Post, December 7, 2011 Class Action Survey

“Blakes sees more of its lawyers selected than any other firm in Canada.” - The International Who’s Who of Business Lawyers 2011

“Blakes is a real market leader in the competition area.” - Chambers Global: The World's Leading Lawyers for Business 2011

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* Associated Office

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