Reasons

Reasons for Recommendation of the Transaction:

    • Significant Premium to Market Price. The consideration to be received by the Shareholders pursuant to the Arrangement Agreement represents a 35% premium to the closing price of the Common Shares on the TSX on November 10, 2020 and a 56% premium to the 20-day VWAP for the period ended on November 10, 2020.
    • Attractive Transaction Relative to Alternatives. The Arrangement resulted from an ongoing process by the Company of considering strategic alternatives over a prolonged period and engaging with potential acquirors, including a formal auction process in 2018 that resulted in no offers from potential buyers and its most recent assessment of strategic alternatives that commenced more than five months ago. During that time, the Company explored an alternative transaction with a different potential acquiror and considered many other strategic alternatives for the Company (including the execution of its current business plan, a leveraged recapitalization, the monetization of its real estate assets and growth by acquisition). The Arrangement is the most attractive of those alternatives.
    • Business and Industry Risks. The future business, operations, financial performance and condition, operating results and prospects of the Company, including the near-, mid- and long-term expectations of the performance of the gaming industry in light of the emergence of COVID-19, is subject to significant risks and uncertainties. Additionally, the Arrangement transfers the execution risk associated with the Company’s Ontario properties from the Company’s Securityholders to the Purchaser. The Special Committee concluded that the consideration under the Arrangement is more favourable to Shareholders than continuing with the Company’s current business plan, in light of these risks and uncertainties. See “Risk Factors”.
    • Fairness Opinions. CIBC (who were paid a fixed fee for their opinion) and Scotiabank opined that, as of the date of the opinion and subject to and based on the assumptions, limitations and qualifications contained in such Fairness Opinions, the Consideration to be received by Shareholders pursuant to the Arrangement Agreement is fair, from a financial point of view, to the Shareholders. The Special Committee and the Board considered the compensation arrangements of Scotiabank and CIBC when considering the advice provided in the Fairness Opinions rendered by Scotiabank and CIBC.
    • Acceptance by Director and Officers. Pursuant to the Voting Agreements entered into concurrently with the Arrangement Agreement, each of the directors and certain executive officers of the Company have agreed to vote all of their Common Shares and Options in favour of the Arrangement at the Meeting.
    • Form of Consideration. The form of cash consideration equal to CDN$39.00 per share payable to Shareholders provides certainty of value and immediate liquidity.
    • Transaction Financing. The Purchaser has secured an equity commitment letter and a debt commitment letter to finance the cash consideration payable to the Shareholders in respect of the Arrangement.
    • Ability to Respond to Unsolicited Superior Proposals. On and subject to the terms of the Arrangement Agreement, the Board will remain able to respond to any unsolicited bona fide written proposal that, having regard to all of the terms and conditions of such proposal, if consummated in accordance with its terms, constitutes or is reasonably expected to lead to a superior proposal in comparison to the Arrangement. Further, the Board is able to terminate the Arrangement Agreement to enter into a definitive agreement in respect of a superior proposal, subject to compliance with certain covenants in the Arrangement Agreement and payment of a CDN$75 million termination fee. In the view of the Special Committee and the Board, the amount of such termination fee is reasonable and in accordance with market practice for transactions of a similar size and nature as the Arrangement and would not, in the view of the Special Committee and the Board, preclude a third party from potentially making a superior proposal.
    • Reverse Break Fee. If the Arrangement Agreement is terminated in certain circumstances, including as a result of the Purchaser’s failure to receive regulatory approval to complete the Arrangement, a material breach of the Arrangement Agreement by the Purchaser or a failure of the Purchaser to fund the purchase price after the conditions to closing the Arrangement have been satisfied or where permitted waived, it must pay the Company a termination fee of CDN$75 million (or, in certain circumstances set out in the Arrangement Agreement, of CDN$77.5 million).
    • Negotiated Transaction. The Arrangement Agreement is the result of a robust and comprehensive arm’s length negotiation process, conducted under the supervision of the Special Committee, which includes terms and conditions that are reasonable in the judgment of the Special Committee and the Board.
    • Fairness of the Conditions. The Arrangement Agreement provides for certain conditions to complete the Arrangement, which conditions do not include a financing condition, are not unduly onerous or outside market practice and can reasonably be expected to be satisfied.
    • Securityholder Approval. The approval of the Arrangement Resolution will require the affirmative vote of: (a) at least two-thirds of the votes cast by Shareholders present in person or represented by proxy at the Meeting; (b) a simple majority of the votes cast by the Shareholders present in person or represented by proxy at the Meeting and entitled to vote thereat, excluding the votes cast by certain statutorily excluded shareholders; and (c) at least two-thirds of the votes cast by Securityholders (voting together as a single class) present in person or represented by proxy at the Meeting and entitled to vote thereat, with each Common Share entitling the holder thereof to one vote and each Option to purchase Common Shares entitling the holder thereof to one vote for each Common Share such holder is eligible to receive upon exercise of such Option (whether or not vested).
    • Court Approval. The Plan of Arrangement must be approved by the Supreme Court of British Columbia, which will consider, among other things, after hearing from all interested persons who choose to appear before it, the fairness and reasonableness of the Arrangement to the Shareholders.
    • Dissent Rights. The terms of the Plan of Arrangement provide that Registered Shareholders who oppose the Arrangement may, upon compliance with certain conditions, exercise dissent rights and, if ultimately successful, receive fair value for their Common Shares (as described in the Plan of Arrangement).
    • Purchaser Experience. Funds managed by affiliates of Apollo are experienced investors in the gaming industry and other regulated industries and the Purchaser is well placed to successfully support the management in operating the business of the Company in a manner beneficial to the stakeholders of the Company.
    • Risks Inherent in the Arrangement. The Special Committee and the Board also considered a number of potential risks and potential negative factors relating to the Arrangement, including the following:
      • the risks to the Company and its Securityholders if the Arrangement is not completed or is delayed, including the risks and uncertainties associated with the continued operation of the Company’s business in light of the emergence of COVID-19, the costs to the Company in pursuing the Arrangement, certain of which will be payable by the Company even if the Arrangement is not completed and the diversion of the Company’s management’s attention from the conduct of the Company’s business in the ordinary course;
      • the terms of the Arrangement Agreement that restrict the Company from soliciting third parties to make acquisition proposals and restrict the Company’s ability to respond to third party proposals;
      • the terms of the Arrangement Agreement that require the Company to conduct its business in the ordinary course and prevent the Company from taking certain specified actions without the Purchaser’s consent, which may delay or prevent the Company from taking certain actions to advance its business pending consummation of the Arrangement;
      • the fact that, following the Arrangement, the Company is expected to cease to be a public company, the Common Shares will be delisted from the TSX and the Shareholders will forego any future increases in value that might result from the achievement of the Company’s long-term plans;
      • the $75 million termination fee payable by the Company to the Purchaser in certain circumstances, including if the Company enters into an agreement in respect of a superior proposal to acquire the Company;
      • while the Arrangement does not have a financing condition, the conditions to the Purchaser’s obligations to complete the Arrangement including the risk that the conditions set forth in the debt commitment letter obtained by the Purchaser may not be satisfied, the regulatory approvals may not be obtained by the outside date set forth in the Arrangement Agreement, including the risk that governmental entities could condition their approvals or clearances on one or more of the Purchaser’s or the Company’s compliance with certain burdensome terms or conditions, or that other events may arise which could prevent the Purchaser from consummating the financing;
      • the right of the Purchaser to terminate the Arrangement Agreement under certain circumstances;
      • that the Arrangement will be taxable for Securityholders, and as a result the Securityholders will generally be required to pay taxes on any gains that result from the receipt of the consideration under the Arrangement;
      • if the Arrangement Agreement is terminated and the Board decides to seek another transaction or business combination, there is no assurance that the Company will be able to find a party willing to pay greater or equivalent value compared to the consideration available to Shareholders under the Arrangement Agreement, or that the continued operation of the Company under its current business model will yield equivalent or greater value to Shareholders compared to that available under the Arrangement Agreement;
      • recourse against the Purchaser and its related parties is limited as set forth in the Arrangement Agreement and the other transaction documents executed in connection therewith and judgments against the Purchaser in Canada for a breach of the Arrangement Agreement may be difficult to enforce against the Purchaser’s assets outside of Canada;
      • the risk that the Securityholders may not approve the Arrangement or that the Company and/or the Purchaser may not receive the necessary regulatory approvals to complete the Arrangement or other risks associated with the Parties’ ability to complete the Arrangement; and
      • the other risks set out in the Circular under the heading “Risk Factors”.